You should read the following discussion and analysis of our financial condition
and results of operations together with our consolidated financial statements
and the related notes and other financial information included elsewhere in this
Annual Report on Form 10-K. Some of the information contained in this discussion
and analysis or set forth elsewhere in this report, including information with
respect to our plans and strategy for our business, includes forward-looking
statements that involve risks and uncertainties. You should review the "
Forward-Looking Statements" and "Risk Factors" sections of this report for a
discussion of important factors that could cause actual results to differ
materially from the results described in or implied by the forward-looking
statements contained in the following discussion and analysis.
Overview
principally engaged in developing, acquiring, managing and leasing high-quality
industrial and logistics properties in select supply-constrained markets in
United States
its operating partnership,
"Operating Partnership"). The Company is the sole general partner of the
Trust, Inc.
On
as a real estate investment trust ("REIT") under sections 856 through 860 of the
Internal Revenue Code of 1986, as amended (the "Code") commencing with its
taxable year ended
The Company seeks to add to its property portfolio through the development of
land or the acquisition of modern, market-appropriate logistics buildings which
can serve multiple drivers of demand in the modern supply chain in the markets
it targets. Although the Company's real estate holdings primarily consist of
industrial/logistics properties, INDUS also owns undeveloped land parcels. The
Company may sell certain portions of its undeveloped land that it has owned for
an extended time and the use of which is not consistent with the Company's core
industrial and logistics strategy, development and asset management strategy.
These sale transactions may take place either before or after obtaining
development approvals and building basic infrastructure.
In
office/flex buildings (the "Office/Flex Portfolio") and fully exited its legacy
investment in office properties. The Office/Flex Portfolio was comprised of
seven buildings totaling approximately 175,000 square feet located in
that was located adjacent to the Office/Flex Portfolio and was principally used
for storage by INDUS' property management group.
The notes to the Company's consolidated financial statements included in Part
II, Item 8 "Financial Statements and Supplementary Data" of this Annual Report
contain a summary of the significant accounting policies and methods used in the
preparation of the Company's consolidated financial statements. In the opinion
of management, because of the relative magnitude of the Company's real estate
assets, accounting methods and estimates related to those assets are critical to
the preparation of the Company's consolidated financial statements. The Company
uses accounting policies and methods under accounting principles generally
accepted in
47 Table of Contents Proposed Merger
On
company ("Parent"), and
wholly-owned subsidiary of Parent ("Merger Sub" and, together with Parent, the
"Parent Parties"), entered into an Agreement and Plan of Merger (the "Merger
Agreement"). The Merger Agreement provides that, upon the terms and subject to
the conditions set forth therein, Merger Sub will be merged with and into the
Company (the "Merger"). Upon completion of the Merger, the Company will survive
as a wholly-owned subsidiary of Parent and the separate corporate existence of
Merger Sub will cease. The Merger and the other transactions contemplated by the
Merger Agreement were approved and declared advisable by the board of directors
of the Company (the "Company Board"). The Parent Parties are affiliates of
Estate, Inc.
Pursuant to the terms and subject to the conditions set forth in the Merger
Agreement, at the effective time of the Merger (the "Merger Effective Time"),
each share of common stock,
issued and outstanding immediately prior to the Merger Effective Time will be
automatically cancelled and converted into the right to receive an amount in
cash equal to
The Merger Consideration will also be increased by an amount per share of INDUS
common stock, in cash (rounded to the nearest whole cent), if any, equal to the
sum of (1) the cash amount per share of INDUS common stock equal to the most
recently declared regular quarterly cash dividend of the Company permitted by
the terms of the Merger Agreement as of the date prior to the closing date of
the Merger (the "Closing Date" and such dividend, the "Final Dividend"), if the
record date for the Final Dividend is after the closing of the Merger, plus
(2)(A) the cash amount per share of INDUS common stock equal to the Final
Dividend, multiplied by (B)(I) the number of days between the first day
following the end of the quarterly period for which the Final Dividend was
declared, if any, and the day prior to the Closing Date, divided by (C) 90,
rounded to the nearest whole cent, without duplication for any period.
The Merger Agreement contains customary termination rights, including the right
of either party to terminate the Merger Agreement if the Merger has not been
completed by
Date"), if any governmental authority of competent jurisdiction has issued a
final, non-appealable order permanently restraining or otherwise prohibiting the
transactions contemplated by the Merger Agreement, or stockholder approval of
the Merger has not been obtained upon a vote taken at the stockholders' meeting
or any adjournment or postponement thereof.
In certain specified circumstances further described in the Merger Agreement, in
connection with the termination of the Merger Agreement, the Company will be
required to pay Parent a termination fee of
certain specified circumstances further described in the Merger Agreement, in
connection with the termination of the Merger Agreement, Parent will be required
to pay the Company a termination fee of
Fee"), including if the Company terminates the Merger Agreement as a result of
an uncured material breach of the Merger Agreement by the Parent Parties, or as
a result of the Parent Parties' failure to close when otherwise obligated
pursuant to the Merger Agreement.
The Parent Parties have obtained equity commitments for the transactions
contemplated by the Merger Agreement, the aggregate proceeds of which will be
sufficient for Parent and/or Merger Sub to pay all amounts the Parent Parties
may be obligated to pay pursuant to the Merger Agreement or the Merger,
including the aggregate Merger Consideration and all related fees and expenses.
Certain entities affiliated with Parent and the Sponsors have committed to fund
Parent and/or Merger Sub, prior to or substantially concurrently with the Merger
Effective Time, with aggregate equity contributions in an amount equal to
million
letters, each dated as of
Parent and the Sponsors have entered into guarantees for certain other payment
obligations of the Parent Parties under the Merger Agreement in favor of the
Company (the "Limited Guarantees"), up to an aggregate amount equal to the
Parent Termination Fee, plus certain other payment amounts, subject to the terms
and conditions of the Limited Guarantees.
Summary
In the year ended
approximately
attributable to the prior year net gains on the sale of non-core properties
totaling
48
Table of Contents
of real estate assets in continuing operations in 2022. Rental revenue grew
approximately 22.3% to
In 2022, highlights of INDUS' operating, investing and financing activities are
as follows:
? Acquired four properties totaling 421,464 square feet for an aggregate purchase
price of
? Placed in service a 234,000 square foot building in the
market on a 17 acre site that was 100% leased at
Placed in service a 196,000 square foot two-building development in the
?
2022.
Placed in service a 102,000 square foot building in the
?
2022.
Purchased 7.6 acres of land for an aggregate purchase price of
? entitled for a potential future development of an approximately 91,000 square
foot building.
Completed the previously announced sale of the Office/Flex Portfolio for
? million, before transaction costs. The Office/Flex Portfolio was comprised of
eight buildings totaling approximately 193,000 square feet located in
Amended and restated the existing
? Agreement") to increase the size to
of five years.
? Repaid four mortgages covering ten buildings for
? Repaid the construction loan for
constructed in
Paid quarterly dividends of
? year and increased the Company's dividend by 12.5% to
fourth quarter of 2022.
The Company's net income decreased to
31, 2022
The decrease in net income was primarily attributable to the prior year net
gains on the sale of non-core properties totaling
no sales of real estate assets in continuing operations in 2022.
Rental revenue grew to
compared to
increase was primarily due to the Company's acquisition of four properties
during the year ended
in service of another four buildings. The Company's net operating income ("NOI")
from continuing operations, which is defined as rental revenue less operating
expenses of rental properties and real estate taxes, increased to
for the year ended
year ended
primarily attributable to the Company's acquisition and development activity as
noted above. See below under "Non-GAAP Reconciliations" for information
regarding why the Company believes NOI from continuing operations and other
non-GAAP measures are meaningful supplemental measures of its performance and
reconciliations of these measures from net income, presented in accordance with
49
Table of Contents
Results of Operations
The following data represents the amounts shown in our audited consolidated
statements of operations for the years ended
2021
Comparison of the year ended
2021
Net income for the year ended
net income of approximately
Rental Revenues
Rental revenue was
31, 2022
increase in rental revenue were rental revenue of
properties acquired in 2022,
in service in 2022,
commenced in 2021 and
in addition to
termination of a tenant lease. This increase was partially offset by revenue of
discontinued operations and
farm land that was sold in
Summaries of the total square footage and leased square footage of the Company's
industrial/logistics properties are as follows:
Total Leased
Square Square Percentage
Footage Footage Leased
As of December 31, 2021 5,167,000 5,082,000 98.4%
Buildings acquired 422,000 422,000
Buildings constructed 532,000 433,000
Leasing of first generation space (1) - 84,000
Leasing of second generation space (2) - 279,000
Leases expired - (352,000)
Reclassified to discontinued operations (18,000) (18,000)
Remeasurements
(1,000) (1,000) As of December 31, 2022 6,102,000 5,929,000 97.2%
INDUS defines first generation space as newly constructed space that has not
(1) previously been leased and unleased space in acquired buildings that is
subsequently refurbished prior to leasing.
(2) INDUS defines second generation space as previously leased space.
Expenses
(dollars in thousands) Year ended December 31,
2022 2021 Change
Operating expenses of rental properties $ 3,942 $ 4,267 $ (325)
Real estate taxes 7,137 5,969 1,168
Depreciation and amortization expense 18,370 14,455 3,915
General and administrative expenses 12,387 11,816 571
The decrease in operating expenses of rental properties is attributable to the
properties that were sold in 2021 and were not part of discontinued operations
as well as the closure of INDUS' landscaping division and lower snow removal
expenses. The increase in real estate taxes and depreciation and amortization
expense is primarily due to the increase in INDUS' total square footage to
approximately 6,102,000 square feet as of
approximately 5,167,000 as of
due to a one-time tax payment expense of approximately
an acquisition in 2022. The growth in the Company's portfolio is attributable to
the purchase of four properties during 2022 and the completion of four
additional properties developed and placed in service in 2022. These were
partially offset by the decrease from properties that were sold in 2021 and were
not part of discontinued operations.
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Table of Contents
General and administrative expenses increased to approximately
the year ended
ended
and administrative expenses in 2022, as compared to 2021 was primarily
attributable to additional costs for professional fees related to the evaluation
of strategic alternatives of approximately
to support the Company's growth of approximately
employee headcount in the accounting and legal departments and higher incentive
compensation expense. These increases were partially offset by a reduction of
approximately
deferred compensation plan due to the effect of the lower stock market
performance in 2022 as compared to 2021, a reduction of
estate taxes and maintenance costs on undeveloped land and a reduction of
million
NOI from Continuing Operations and NOI from Continuing Operations on a Cash
Basis
The Company's NOI from continuing operations and NOI from continuing operations
on a cash basis ("Cash NOI")1 for 2022 and 2021 were as follows:
(dollars in thousands) Year ended December 31,
2022 2021 (a)
Rental revenue $ 49,195 $ 40,227
Operating expenses of rental properties (3,942) (4,267)
Real estate taxes (7,137) (5,969)
NOI from continuing operations 38,116 29,991
Noncash rental revenue including straight-line rents (3,832) (2,311)
Cash NOI from continuing operations $ 34,284 $ 27,680
The year ended
(a) properties that were sold in 2021 and were not part of discontinued
operations.
The increases in NOI from continuing operations and Cash NOI from continuing
operations principally reflected the increase in rental revenue primarily
derived from the acquisition and development of additional properties in 2022
and the second half of 2021. Additionally, in 2022 the Company recorded a
termination fee in the amount of
of a tenant lease. The decrease in operating expenses of rental properties is
attributable to the properties that were sold in 2021 and were not part of
discontinued operations as well as the closure of INDUS' landscaping division
and lower snow removal expenses. Real estate taxes increased due to the
buildings acquired and developed in 2022 as well as a one-time tax payment
expense of approximately
increases in revenue, operating expenses and real estate taxes were partially
offset by the decrease from properties that were sold in 2021 and were not part
of discontinued operations and other property sales in the second half of 2021.
Other income (expense)
(dollars in thousands) Year ended December 31,
2022 2021 Change
Interest expense $ (4,734) $ (6,877) $ 2,143
Loss on early extinguishment of debt (653) (2,114) 1,461
Investment and other income 213 274 (61)
Gain on sales of real estate assets - 24,758 (24,758)
Impairment of real estate assets - (3,000) 3,000
Change in fair value of financial instruments - (2,746) 2,746
Total other (expense) income $ (5,174) $ 10,295 $ (15,469)
Income tax benefit (provision) $ 585 $ (26) $ 611
1 INDUS defines "Cash NOI from continuing operations" as rental revenue less
operating expenses of rental properties, real estate taxes and non-cash rental
revenue, including straight-line rents. Cash NOI from continuing operations is
not a financial measure in conformity with
Reconciliations" for information regarding why the Company believes this is a
meaningful supplemental measure of its performance and a reconciliation of this
measure from net income, presented in accordance with
51
Table of Contents
Interest expense decreased to approximately
approximately
of approximately
and construction loan balances, net of issuance costs; (b) a gain of
approximately
agreements in connection with the repayment of mortgage debt; and (c) an
increase of approximately
increase in construction and development activities during 2022. These decreases
were offset by an increase in interest expense of approximately
related to the Company's Credit Facility (as defined herein).
The Company recorded a loss of
of debt for the year ended
payoff of four nonrecourse mortgage loans and the construction loan of
million
INDUS recorded a loss of
debt related to the payoff of three mortgage loans associated with properties
sold in 2021.
INDUS recorded investment and other income in 2022 of
to investment and other income of
primarily related to a lower overall cash balance maintained by the Company in
2022 as compared to 2021.
There were no sales of real estate in continuing operations for the year ended
ended
sale was from the sale of
parcels and
farm previously used by
sale of real estate in 2021 was from several smaller sales of non-core
properties and undeveloped land. Sales of real estate assets occur periodically
and year to year changes in such transactions may not be indicative of any
trends in the Company's real estate business.
The Company recorded an impairment loss of
two multi-story office buildings located in
sold in
Change in fair value of financial instruments for the year ended
2021
Warrant (as defined below) and CVR liability (as defined below) issued pursuant
to a Securities Purchase Agreement by and between the Company and
Industrial LP
Management LLC
24, 2021
stock, par value
Conversant to acquire 504,590 additional shares of common stock (subject to
adjustment as set forth therein) at an exercise price of
"Exercise Price"). Conversant paid
per Warrant Share for the Warrant for total proceeds of approximately
million
cash settlement provision and, accordingly, was reflected as a liability at its
fair value on the Company's consolidated balance sheet. On
Warrant's cash settlement provision expired and the fair value of the Warrant as
of that date was reclassified into stockholders' equity. On
INDUS and Conversant also entered into a Contingent Value Rights Agreement,
pursuant to which Conversant was entitled to a one-time cash payment ("CVR") in
the event that INDUS' volume weighted average share price per share of common
stock for the thirty trading day period ending on the date of the one-year
anniversary of the date of the Securities Purchase Agreement was less than the
purchase price paid by Conversant in respect of each common share, subject to
adjustment as described therein. The CVR liability was also reflected at its
fair value on the Company's consolidated balance sheet through the time the CVR
liability expired on
liability through its expiration.
Pursuant to the terms and subject to the conditions set forth in the Merger
Agreement, the parties to the Merger Agreement have agreed that, immediately
prior to the Merger Effective Time, the Warrant will be automatically cancelled
and terminated and converted into the right to receive from the entity surviving
the Merger ("Surviving Entity") an amount in cash equal to the product obtained
by multiplying (x) the aggregate number of shares of the Company's common stock
underlying the Warrant immediately prior to the Merger Effective Time by (y) an
amount equal to the Merger Consideration less the per share exercise price of
such Company Warrant, less applicable withholding taxes (if any); provided,
however, that in the event the applicable per share exercise price of the
Warrant is greater than the Merger Consideration, the Warrant will be cancelled
without consideration.
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For the year ended
of
income related to the termination of several interest rate swap agreements that
were associated with the nonrecourse mortgages that were prepaid.
The Company has elected to be treated as a REIT for federal tax purposes,
however, the Company does conduct business in its taxable REIT subsidiary (the
"TRS") which is subject to federal, state and local income tax for income
received in the TRS. For the year ended
a provision for taxes of
Non-GAAP Reconciliations
The Company uses NOI from continuing operations, Cash NOI from continuing
operations, Funds from continuing operations ("FFO"), Core funds from continuing
operations ("Core FFO"), Adjusted funds from continuing operations ("Adjusted
FFO"), Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")
and Adjusted EBITDA as supplemental non-GAAP performance measures. Management
believes that the use of these measures combined with net income (loss), which
remains the Company's primary measure of performance, improves the understanding
of the Company's operating results among the investing public and makes
comparisons of operating results to other REITs more meaningful. The most
comparable
continuing operations, FFO, Core FFO, Adjusted FFO, EBITDA and Adjusted EBITDA
is net income (loss).
These measures exclude expenses that materially impact the Company's overall
results of operations and, therefore, should not be considered as substitute
measures derived in accordance with
not be comparable to other similarly titled measures of other companies.
Certain of these measures may be calculated based on or substantially in
accordance with definitions set forth by
Investment Trusts
organization for REITs and real estate companies with an interest in
estate. Nareit's members are REITs and other real estate companies throughout
the world that own, operate, and finance income-producing real estate, as well
as those firms and individuals who advise, study, and service those businesses.
NOI from Continuing Operations and Cash NOI from Continuing Operations
NOI from continuing operations is a non-GAAP measure that includes the rental
revenue, operating expenses and real estate taxes directly attributable to the
Company's real estate properties from continuing operations. The Company uses
NOI from continuing operations as a supplemental performance measure because, in
excluding real estate depreciation and amortization expense, general and
administrative expenses, interest expense, losses on early extinguishment of
debt, investment and other income, impairment losses, change in fair value of
financial instruments, gains (or losses) on the sale of real estate assets and
other expense and other non-operating items, it provides a performance measure
that, when compared year over year, captures trends in occupancy rates, rental
rates and operating costs. The Company also believes that NOI from continuing
operations will be useful to investors as a basis to compare its operating
performance with that of other REITs. However, because NOI from continuing
operations excludes depreciation and amortization expense and captures neither
the changes in the value of the Company's properties that result from use or
market conditions, nor the level of capital expenditures and leasing commissions
necessary to maintain the operating performance of its properties (all of which
have real economic effect and could materially impact the Company's results from
operations), the utility of NOI from continuing operations as a measure of the
Company's performance is limited. Other equity REITs may not calculate NOI from
continuing operations in a similar manner and, as such, the Company's NOI from
continuing operations may not be comparable to such other REITs' NOI from
continuing operations. Accordingly, NOI from continuing operations should be
considered only as a supplement to net income (loss) as a measure of the
Company's performance. NOI from continuing operations should not be used as a
measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs. NOI from continuing operations should not be used
as a substitute for cash flow from operating activities in accordance with
GAAP.
Cash NOI from continuing operations is a non-GAAP measure that the Company
calculates by adding or subtracting non-cash rental revenue, including
straight-line rental revenue, from NOI from continuing operations. The Company
uses Cash NOI from continuing operations, together with NOI from continuing
operations, as supplemental
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performance measures. Cash NOI from continuing operations should not be used as
a measure of the Company's liquidity, nor is it indicative of funds available to
fund the Company's cash needs. Cash NOI from continuing operations should not be
used as a substitute for cash flow from operating activities computed in
accordance with
Below is a reconciliation of NOI from continuing operations and Cash NOI from
continuing operations to net income as reported in the Company's consolidated
financial statements included in Part II, Item 8. "Financial Statements and
Supplemental Data" of this Annual Report:
(dollars in thousands) Year ended December 31,
2022 2021 (a)
Net income $ 6,110 $ 14,144
Income from discontinued operations (3,340) (155)
Income tax (benefit) provision (585) 26
Pretax income from continuing operations 2,185 14,015
Exclude:
Depreciation and amortization expense 18,370 14,455 General and administrative expenses 12,387 11,816 Interest expense 4,734 6,877 Losses on early extinguishment of debt 653 2,114 Investment and other income (245) (260) Impairment loss - 3,000 Change in fair value of financial instruments - 2,746 Gain on sales of real estate assets - (24,758) Other expense 32 (14) NOI from continuing operations 38,116 29,991 Noncash rental revenue including straight-line rents (3,832) (2,311) Cash NOI from continuing operations$ 34,284 $ 27,680
The year ended
(a) properties that were sold in 2021 and were not part of discontinued
operations. Funds from Operations
In an effort to improve the understanding of the Company's operating results as
compared to its operating results in a prior period and that of other REITs, the
Company presents a funds from operations metric substantially similar to funds
from operations, as calculated in accordance with standards established by
Nareit ("Nareit FFO").
Nareit FFO is calculated as net income (calculated in accordance with
(b) gains and losses from the sale of certain real estate assets, (c) gains and
losses from change in control and (d) 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.
The Company defines FFO as Nareit FFO adjusted for discontinued operations.
Core Funds from Continuing Operations
The Company defines Core FFO from continuing operations as FFO excluding (a)
discontinued operations, (b) strategic transaction costs, (c) expense related to
the performance of the non-qualified deferred compensation plan, (d) gains or
losses on insurance recoveries and/or extinguishment of debt or derivative
instruments, (e) change in fair value of financial instruments, and (f) costs
related to the conversion to a REIT.
Adjusted Funds from Continuing Operations
The Company defines Adjusted FFO from continuing operations as Core FFO from
continuing operations less (a) noncash rental revenue including straight-line
rents, (b) amortization of debt issuance costs, (c) noncash compensation
expenses, (d) non-real estate depreciation and amortization expense, (e) tenant
improvements and leasing commissions of second generation space, and (f)
maintenance capital expenditures needed to maintain the Company's existing
buildings.
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Below is a reconciliation of FFO, Core FFO from continuing operations and
Adjusted FFO from continuing operations to net income as reported in the
Company's consolidated financial statements included in Part II, Item 8.
"Financial Statements and Supplemental Data" of this Annual Report:
(dollars in thousands) Year ended December 31,
2022 2021 (a)
Net income $ 6,110 $ 14,144
Exclude:
Depreciation and amortization expense 18,370 14,455 FFO adjustments related to discontinued operations 236 897 Non-real estate depreciation and amortization expense (112) (88) Gain on sales of real estate assets - (24,758) Impairment loss - 3,000 FFO 24,604 7,650
Exclude:
Core FFO adjustments related to discontinued operations (b) (3,576) (1,052) Amortization of terminated swap agreement (1,812) 66 Strategic transaction costs 774 - General and administrative expenses related to non-qualified deferred compensation plan performance (616) 686 Losses on early extinguishment of debt 653 2,114 Change in fair value of financial instruments - 2,746
General and administrative expenses related to REIT
conversion
- 470 Core FFO from continuing operations 20,027 12,680
Exclude:
Noncash rental revenue including straight-line rents (3,832) (2,311) Amortization of debt issuance costs 898 1,047 Noncash compensation expenses 1,492 1,110 Non-real estate depreciation and amortization expense 112 88
Tenant improvements and leasing commissions (2nd generation
space)
(1,347) (2,330) Maintenance capital expenditures (1,403) (1,158) Adjusted FFO from continuing operations$ 15,947 $ 9,126
The year ended
(a) properties that were sold in 2021 and were not part of discontinued
operations.
(b) Includes the gain on sale of discontinued operations of
Earnings Before Interest, Taxes, Depreciation and Amortization
The Company defines EBITDA as income (loss) from continuing operations (computed
in accordance with
provision (benefit), (c) depreciation and amortization expense, (d) gains and
losses on the disposition of real estate assets (including gains or losses on
change of control), (e) impairment write-downs of depreciated property and of
investments in unconsolidated affiliates caused by a decrease in value of
depreciated property in the affiliate, and (f) adjustments to reflect the
entity's share of EBITDA of unconsolidated affiliates. INDUS does not currently
have any unconsolidated properties or joint ventures.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
The Company defines Adjusted EBITDA as EBITDA adjusted for (a) general and
administrative expenses related to the REIT Conversion, (b) non-cash stock-based
compensation expense and expenses or credits related to the Company's
non-qualified deferred compensation plan that are included in general and
administrative expenses, (c) change in fair value of financial instruments, (d)
gains or losses on the extinguishment of debt or derivative instruments, and (e)
amortization of terminated swap agreements.
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A reconciliation of income from continuing operations to EBITDA and Adjusted
EBITDA is as follows:
(dollars in thousands) Year ended December 31,
2022 2021 (a)
Income from continuing operations $ 2,770 $ 13,989
Interest expense 4,734 6,877
Depreciation and amortization expense 18,370 14,455
Income tax (benefit) provision (585) 26
Gain on sales of real estate assets - (24,758)
Impairment loss - 3,000
EBITDA 25,289 13,589
Amortization of terminated swap agreement (1,227) 66
Noncash compensation expenses 876 1,796
Losses on early extinguishment of debt 653 2,114
Change in fair value of financial
instruments - 2,746
Strategic transaction costs 774 -
General and administrative expenses related
to REIT conversion - 470
Adjusted EBITDA $ 26,365 $ 20,781
The year ended
(a) properties that were sold in 2021 and were not part of discontinued
operations.
Liquidity and Capital Resources
At
cash of approximately
cash is comprised of reserves for real estate taxes as required by certain
mortgage note obligations.
On
years (as amended the "Credit Facility"), pursuant to which up to three separate
draws may be made prior to
had drawn
Facility continues to include a
"Revolving Credit Facility"), however, the maturity of the Revolving Credit
Facility has been extended to
Company's option under the Credit Facility remain in place. The amendment to the
Credit Facility also increases the uncommitted incremental facility, which, as
amended, would enable the Company to increase the Credit Facility by up to an
additional
satisfaction of certain financial covenants including limitations on a minimum
tangible net worth, fixed charge coverage ratios, total leverage and secured
indebtedness. The Company's available borrowing base was
been no borrowings under the Revolving Credit Facility, however, it secures
certain unused standby letters of credit aggregating approximately
that are related to INDUS' development activities.
Net cash provided by operating activities increased by approximately
million
continuing operations of approximately
approximately
offset by an approximately
liabilities.
Net cash used in investing activities was approximately
year ended
cash used in investing activities for the year ended
decrease of
reflected a decrease of
of real estate and deposits of
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future building and land acquisitions. These decreases were offset by lower cash
proceeds from sales of real estate of
Net cash used in financing activities for the year ended
financing activities of
decrease in cash provided by financing activities was primarily due to
million
common stock in 2021 as compared to no sales of common stock in 2022. A decrease
of
which included the repayment of four mortgage loans and the construction loan,
including associated debt issuance costs and termination of the related interest
rate swap agreements, as well as principal payments on outstanding mortgage
loans. These decreases were partially offset by net proceeds of
reflecting borrowings against the DDTL Facility of
decrease of
repayment.
Acquisitions and Dispositions
For a description of our acquisitions and dispositions of real estate assets
during the periods covered by this Annual Report on Form 10-K, see Note 4, "Real
Estate Assets" to our consolidated financial statements included elsewhere in
this Annual Report on Form 10-K.
Equity
On
registration statement on Form S-3 (the "Updated Universal Shelf") with the
Under the Updated Universal Shelf, the Company may offer and sell up to
million
securities, warrants, depositary shares, rights or units,
securities or guarantees thereof by the Company, or any combination of such
securities during the three year period that commenced on
the Updated Universal Shelf, the Company may periodically offer one or more
types of securities in amounts, at prices and on terms announced. When INDUS
obtains additional capital by issuing equity, the interests of its existing
stockholders will be diluted. If the Company incurs additional indebtedness,
that indebtedness may impose financial and other covenants that may
significantly restrict INDUS' operations.
Effective
establishment of an "at the market" equity issuance program ("ATM Program"),
pursuant to which the Company may offer and sell common stock with an aggregate
gross sales price of up to
common stock under the ATM Program.
As of
for issuance under its Updated Universal Shelf.
It is possible that the Company will not obtain additional capital under the
Updated Universal Shelf on favorable terms, or at all. See "Risk Factors-General
Risk Factors-Volatility in the capital and credit markets could materially
adversely impact INDUS" and "Risk Factors-Risks Related to INDUS' common
stock-Issuances or sales of INDUS' common stock or the perception that such
issuances or sales might occur could adversely affect the per share trading
price of INDUS' common stock" included in Part I, Item 1A. "Risk Factors" of
this Annual Report.
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Debt
On
secured Credit Facility, amending and restating the
executed on
provides for, among other things: (1) the addition of the DDTL Facility of
million
21, 2023
Rate ("SOFR") for floating rate borrowings for all purposes under the Credit
Agreement. The DDTL Facility will mature on
continues to include a
maturity of the Revolving Credit Facility has been extended to
The two one-year extensions at the Company's option under the Original Credit
Facility remain in place under the Credit Facility. The Credit Facility also
increases the uncommitted incremental facility, which, as amended, would enable
the Company to increase the Credit Facility by up to
aggregate, for a total of
Borrowings under the Credit Facility bear interest based on a pricing grid for
changes in the Company's total leverage. Based on the Company's current
leverage, the annual interest rates under the Credit Facility would be, as of
applicable margin as under the Original Credit Facility), and (ii) SOFR
plus 1.15% for term borrowings (compared with LIBOR plus 1.20% under the
Original Credit Facility). The annual interest rate under the Original Credit
Facility was one-month LIBOR plus 1.20% at the time the Original Credit Facility
was replaced with the Credit Facility. As of
drawn
Under the terms of the Credit Facility, INDUS must maintain: (i) a consolidated
tangible net worth of
stockholders' equity of the Company by reason of issuance or sale of equity of
the Company after
to 1.0 through
(iii) a maximum leverage ratio of total indebtedness to total assets of less
than 60% on the last day of any fiscal quarter; (iv) a maximum secured leverage
ratio of total secured indebtedness to total asset value of (a) 50% through
borrowing base of (a)
million
2022
Credit Facility), and (c) $250 million on and after
with
five industrial unencumbered properties through
industrial unencumbered properties on and after
As of
Credit Facility and based on the unencumbered properties pledged, the maximum
amount available could be borrowed. In addition to the
the DDTL Facility, the Credit Facility also secures certain unused standby
letters of credit aggregating
development activities.
The Company used a portion of the proceeds drawn under the DDTL Facility to
repay four of its nonrecourse mortgage loans that had encumbered ten buildings,
in the amount of
debt of
terminated associated interest rate hedges resulting in a gain of
recorded against interest expense and recognized an income tax benefit of
million
income for the year ended
On
Loan") with JPMorgan, which had provided the funds for the site work and
development of
commenced on
Initial interest under the JPM Construction Loan, adjusted monthly, was
one-month LIBOR plus 1.65%, reduced upon completion of the building. Rental
payments by the tenant commenced in
occupancy was received in the first quarter of 2022 and the interest rate on the
JPM Construction Loan was reduced to one-month LIBOR plus 1.40% at that time. On
million
loss on early extinguishment of debt for the year ended
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For additional information regarding the Company's mortgage loans, see Note 5,
"Mortgage Loans, Construction Loan, Delayed Draw Term Loan and Interest Rate
Swaps" to the notes to our consolidated financial statements included elsewhere
in this Annual Report on Form 10-K.
Cash Requirements
The Company plans to continue to expand its real estate business, including the
acquisition and development of additional properties and/or undeveloped land
parcels in select supply-constrained and high-growth markets in
States
through other ownership structures such as joint ventures. The Company will also
incur expenditures for tenant improvements as new leases and lease renewals are
signed.
As of
purchase comprising approximately 1.0 million square feet at an estimated
purchase price of approximately
as of
additional building comprising 0.2 million square feet for an estimated
investment of
The Company also had approximately 317 acres of land owned or under contract
with an estimated purchase price of
additional information regarding INDUS' planned development and acquisition
activities, see Part I, Item 2. "Properties" included elsewhere in this Annual
Report on Form 10-K.
Real estate acquisitions may or may not occur based on many contingencies and
other factors, including real estate pricing and there can be no guarantee that
acquisitions in the Company's pipeline will be completed under their current
terms, anticipated timelines, or at all. The Company may commence speculative
construction projects on its undeveloped land that is either currently owned or
acquired in the future if it believes market conditions are favorable for such
development. The Company may also construct build-to-suit facilities on its
undeveloped land if lease terms are favorable. Real estate acquisitions and
planned construction projects may or may not occur or reach completion based on
many factors, including, without limitation, real estate pricing and the
availability and cost of construction inputs.
For a description of our contractual obligations, including our agreement to
purchase under-construction properties, lease payments and other purchase
obligations, see Note 8, "Leases" and Note 10, "Commitments and Contingencies"
to the notes to our consolidated financial statements included elsewhere in this
Annual Report on Form 10-K.
INDUS also owns undeveloped land parcels, much of which is not consistent with
the Company's core strategy, and, therefore, the Company sells certain
properties periodically over time. As of
entered into several agreements to sell an aggregate of approximately 427 acres
of undeveloped land for an aggregate sales price of approximately
The Company believes its short-term liquidity needs, including its current and
planned development and acquisition activities and payment of regular dividends
on its common stock, when and if declared by the Board of Directors, will be met
with cash on hand, cash flows generated from operations, sales of non-core
undeveloped land parcels and financing activities including available borrowing
of
Facility.
The Company expects to meet long-term liquidity requirements such as additional
property acquisitions and developments, non-recurring capital expenditures, and
scheduled debt maturities through the potential issuance of long-term unsecured
and secured indebtedness, additional sale of non-core real estate assets and
issuance of additional equity or debt securities, subject to market conditions.
We believe our current balance sheet position is financially sound; however, due
to the economic uncertainty caused by the current macroeconomic environment,
including rising interest rates and inflation, the COVID-19 pandemic and the
inherent uncertainty and unpredictability of the capital and credit markets, we
can give no assurance that affordable access to capital will exist between now
and when our next significant debt matures.
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Critical Accounting Estimates
The following are the critical accounting estimates and methods used by the
Company:
Acquisitions of Real Estate Assets: The Company allocates the purchase price of
acquired real estate based upon the relative fair value of the assets acquired
and liabilities assumed, which generally consists of land and improvements,
buildings and improvements, and related lease intangibles. The purchase price
is allocated to the fair value of the tangible assets of an acquired property by
valuing the property as if it were vacant. Lease intangibles which include
acquired above and below market lease intangibles are valued based on the
present value of the difference between prevailing market rental rates and the
in-place rental rates measured over a period equal to the remaining term of the
lease for above market leases or the remaining term of the lease plus the term
of any below market fixed rate renewal options for below market leases.
Impairment of long-lived assets: The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If indicators of impairment
are present, the Company evaluates the carrying value of the assets in relation
to the operating performance and expected future undiscounted cash flows or the
estimated fair value based on expected future cash flows of the underlying
assets. Development costs that have been capitalized are reviewed periodically
for future recoverability.
Supplemental Guarantor Information
In
created Rule 13-01 to simplify disclosure requirements related to certain
registered securities. The rule became effective
the Company and
registering, among other securities, debt securities of
be fully and unconditionally guaranteed by the Company.
As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers
of obligations guaranteed by the parent are not required to provide separate
financial statements, provided that the subsidiary obligor is consolidated into
the parent company's consolidated financial statements, the parent guarantee is
"full and unconditional" and, subject to certain exceptions as set forth below,
the alternative disclosure required by Rule 13-01 is provided, which includes
narrative disclosure and summarized financial information. Accordingly, separate
consolidated financial statements of
Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded
the summarized financial information for
and results of operations of the Company and
different than the corresponding amounts presented in the consolidated financial
statements of the Company, and management believes such summarized financial
information would be repetitive and not provide incremental value to investors.
Environmental, Social and Governance Matters
INDUS aspires to contribute to a more sustainable future through a variety of
environmental, social, and corporate governance ("ESG") initiatives. INDUS
expects to grow its business, operate its buildings, and develop properties in a
way that benefits the communities in which the Company operates while also
benefiting tenants, investors, and employees. The Company's efforts in the
environmental, social and governance categories are guided by specific
committees of the Board of Directors, including a Sustainability Committee
(focused on environmental initiatives), a
Committee
Governance Committee
Company's efforts are further supported by an internal ESG Committee comprised
of representatives from across the business. Most recently, in 2022, the Company
also added an internal
improving the employee and tenant experience, while also endeavoring to find
more opportunities for INDUS to engage with and support the communities in which
it operates.
Environmental. The Company has formalized policies and initiatives related to
environmental sustainability. In 2021, INDUS onboarded an environmental data
management system to track historical and ongoing energy and utility metrics
across its portfolio. Although its portfolio is comprised of triple net leases,
INDUS also aims to enhance its visibility of electricity and utility consumption
across the portfolio by the adoption of green leasing language in new leases and
amendments. As a result of its efforts to incorporate best practices on green
leasing, in 2022 INDUS was recognized as a 2022 Green Lease Leader by the
Buildings Alliance
31, 2022
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and green leasing efforts, INDUS maintained electricity data collection on
approximately 20% of its total portfolio square footage. INDUS intends to
utilize this data collection for external reporting, and to encourage
conversations around building efficiency both internally as the Company expands
its portfolio and develops new properties, as well as externally with its
tenants. In 2022, INDUS participated in its first assessment with the Global
Real Estate Sustainability Benchmark ("GRESB"). GRESB provides a rigorous
methodology and framework to collect, validate, score and independently
benchmark ESG data for the real estate industry. In the Performance category of
the 2022 Real Estate Standing Investments Assessment with GRESB, INDUS
outperformed the GRESB benchmark in the categories of Energy, GHG and Water.
Internally, INDUS has adopted a Sustainable Construction & Development Policy to
set new targets for best practices in sustainable design for future
developments, such as 100% LED lighting, structural capacity for solar panels,
and installations of electric vehicle charging stations. Externally, INDUS will
seek to work with tenants to enhance data collection of tenant-occupied spaces,
encourage tenants to upgrade to LED lighting and ensure that its properties are
efficiently managed. In 2022, INDUS launched LEEP, its LED Lighting Efficiency
Program, to systematically offer tenants an opportunity to upgrade their
lighting, in addition to receiving approval from the local utility provider in
Connecticut
Social. In addition to the Company's environmental initiatives, the Company aims
to be a positive force in the communities in which it operates. This includes
encouraging employees to participate in volunteer and community activities of
their choosing, which INDUS facilitates by providing each employee annual paid
time off to do so. Additionally, INDUS offers a charitable contribution matching
program to support charities that are of importance to its employees. The
Company has also promoted diversity in hiring and, as of
received 100% employee participation in its training programs focused on
diversity, equity and inclusion. As a testament to the Company's commitment to
diversity, as of
women and approximately 33% of the Company's corporate office employees were
women.
Governance. Thoughtful corporate governance and stakeholder engagement is
paramount to INDUS and serves as the foundation for positive and long-term
relationships with the Company's constituents, including investors, partners,
tenants, employees, and our local communities. As such, the Company and its
employees, officers, directors, vendors and suppliers are all expected to abide
by formal governance documents and ethical policies that the Company has made
available on the Investors section of its website at ir.indusrt.com. These
include a Code of Business Conduct and Ethics, a Sustainable Construction &
Development Policy, a Supplier & Vendor Code of Conduct and a Human Rights
Policy. The Company's policies encourage honesty, accountability, integrity and
mutual respect, and also offer safe communication channels for handling ethical
issues and concerns, including an anonymous whistleblower hotline and website,
as well as physical and online employee suggestion boxes.
ESG Disclosure Statements. Some of the statements contained in this section, and
some of our ESG commitments and efforts, rely on third-party actions,
information and projections, and INDUS does not, and does not undertake to,
perform independent verification or audits of these parties actions, information
and projections. Although we have referenced certain of our ESG-related policies
and disclosures contained in our website in this section, none of those policies
or disclosures are incorporated by reference into this Form 10-K or any other
Company filing under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended. While certain matters discussed in this
section and in the ESG section of our website may be significant, such
information is not necessarily "material" under the federal securities laws for
things, various ESG standards and frameworks (including standards for the
measurement of underlying data) and the interests of various stakeholders. Much
of this information is subject to assumptions, estimates or third-party
information that is still evolving and subject to change. For example, our
disclosures based on any standards may change due to revisions in framework
requirements, availability of information, changes in our business or applicable
government policies, or other factors, some of which may be beyond our control.
For more information, see Item 1A. Risk Factors.
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