Highlands REIT Narrows Losses Amidst Liquidation Strategy

TL;DR

Highlands REIT is slowly but surely liquidating, so expect continued asset sales and shrinking financials as they wind down.

AI Summary

Highlands REIT, Inc. reported a net loss of $1.1 million for the three months ended June 30, 2025, a significant improvement from the net loss of $2.5 million for the same period in 2024. For the six months ended June 30, 2025, the net loss was $2.3 million, compared to a net loss of $5.0 million in the prior year. The company's total assets decreased to $10.5 million as of June 30, 2025, from $11.6 million as of December 31, 2024. This reduction is primarily due to the ongoing disposition of real estate assets, aligning with its strategic plan to liquidate its portfolio. Revenue from real estate operations for the three months ended June 30, 2025, was $0.5 million, down from $0.9 million in the comparable 2024 period, reflecting fewer income-generating properties. The company continues to face risks associated with its liquidation strategy, including market conditions for asset sales and potential litigation. The strategic outlook remains focused on maximizing shareholder value through the orderly sale of remaining properties and the eventual dissolution of the REIT.

Why It Matters

Highlands REIT's continued progress in narrowing its net losses, from $2.5 million to $1.1 million year-over-year for Q2, signals a more efficient winding down process, which is crucial for investors seeking clarity on their returns. The shrinking asset base, down to $10.5 million, reflects the company's commitment to its liquidation strategy, but also highlights the diminishing scale of operations and potential for further asset value fluctuations. For employees, the ongoing liquidation means continued uncertainty regarding job security as the company moves towards dissolution. In a competitive real estate market, Highlands REIT's focused exit strategy contrasts with growth-oriented REITs, offering a unique, albeit finite, investment proposition.

Risk Assessment

Risk Level: high — The risk level is high due to the company's stated liquidation strategy, which inherently carries uncertainties regarding asset sale prices and timing. The decrease in total assets from $11.6 million to $10.5 million between December 31, 2024, and June 30, 2025, indicates a shrinking operational base, increasing the impact of any adverse market conditions on remaining assets. Furthermore, the company's ongoing net losses, despite narrowing, underscore the challenges in generating positive returns during this transitional phase.

Analyst Insight

Investors should monitor the pace and pricing of Highlands REIT's asset dispositions closely, as these will directly impact the final liquidation value. Consider this a short-term play for those looking to capitalize on potential final distributions, but be aware of the inherent risks in a company actively winding down operations.

Financial Highlights

debt To Equity

N/A

revenue

$0.5M

operating Margin

N/A

total Assets

$10.5M

total Debt

N/A

net Income

-$1.1M

eps

N/A

gross Margin

N/A

cash Position

N/A

revenue Growth

-44.4%

Revenue Breakdown

Key Numbers

• $1.1M — Net Loss (Q2 2025) (Improved from $2.5M net loss in Q2 2024, indicating progress in reducing losses.)
• $10.5M — Total Assets (June 30, 2025) (Decreased from $11.6M at December 31, 2024, reflecting ongoing asset dispositions.)
• $0.5M — Real Estate Revenue (Q2 2025) (Down from $0.9M in Q2 2024, consistent with fewer income-generating properties due to liquidation.)
• $2.3M — Net Loss (YTD June 30, 2025) (Reduced from $5.0M in the prior year period, showing a trend of narrowing losses.)

Key Players & Entities

• Highlands REIT, Inc. (company) — filer of the 10-Q
• $1.1 million (dollar_amount) — net loss for Q2 2025
• $2.5 million (dollar_amount) — net loss for Q2 2024
• $2.3 million (dollar_amount) — net loss for six months ended June 30, 2025
• $5.0 million (dollar_amount) — net loss for six months ended June 30, 2024
• $10.5 million (dollar_amount) — total assets as of June 30, 2025
• $11.6 million (dollar_amount) — total assets as of December 31, 2024
• $0.5 million (dollar_amount) — revenue from real estate operations for Q2 2025
• $0.9 million (dollar_amount) — revenue from real estate operations for Q2 2024
• SEC (regulator) — filing oversight

FAQ

Risk Factors

• Asset Disposition Market Conditions [medium — market]: The company's strategy to liquidate its real estate portfolio is subject to market conditions for asset sales. Unfavorable market conditions could lead to lower-than-expected sale prices, impacting the ability to maximize shareholder value.
• Potential Litigation [low — legal]: The liquidation process and asset sales may expose the company to potential litigation. Such legal actions could result in significant financial costs and divert management attention from the liquidation efforts.
• Portfolio Liquidation Execution [medium — operational]: The orderly sale of remaining properties is critical to the REIT's strategic plan. Any delays or inefficiencies in executing this liquidation could negatively impact the timing and outcome of the dissolution.

Industry Context

The real estate investment trust (REIT) sector is sensitive to interest rate movements and economic cycles. Companies focused on portfolio liquidation, like Highlands REIT, face unique challenges in realizing asset values amidst broader market conditions. The trend towards strategic portfolio adjustments and, in some cases, dissolution, reflects a dynamic industry landscape.

Regulatory Implications

As a publicly traded entity, Highlands REIT is subject to SEC regulations, including timely and accurate financial reporting via 10-Q filings. Compliance with these regulations is crucial for maintaining investor confidence during its liquidation phase.

What Investors Should Do

1. Monitor asset sale progress and pricing.
2. Evaluate the impact of ongoing expenses on net loss.
3. Assess the timeline for final dissolution and distribution.

Key Dates

• 2025-06-30: End of Second Quarter 2025 — Reporting period for the 10-Q, showing a reduced net loss and continued asset dispositions.
• 2025-08-11: Filing Date of 10-Q — Public disclosure of the company's financial performance and strategic updates for the period ending June 30, 2025.

Glossary

REIT

Real Estate Investment Trust. A company that owns, operates, or finances income-generating real estate. (Highlands REIT, Inc. is structured as a REIT, and its current strategy involves liquidating its real estate assets.)

10-Q

A quarterly report required by the U.S. Securities and Exchange Commission (SEC) that provides a comprehensive update on a company's financial performance. (This document provides the detailed financial information and operational updates for Highlands REIT, Inc. for the specified quarter.)

Asset Disposition

The process of selling or otherwise disposing of assets, typically to streamline operations, raise capital, or exit a business line. (Highlands REIT is actively engaged in asset dispositions as part of its liquidation strategy.)

Year-Over-Year Comparison

Compared to the prior year's comparable period, Highlands REIT has significantly reduced its net loss, from $2.5 million in Q2 2024 to $1.1 million in Q2 2025, and year-to-date from $5.0 million to $2.3 million. This improvement is largely driven by the ongoing disposition of real estate assets, which also led to a decrease in revenue from $0.9 million in Q2 2024 to $0.5 million in Q2 2025. The total asset base has also shrunk from $11.6 million at the end of 2024 to $10.5 million as of June 30, 2025, reflecting the strategic liquidation.

Filing Documents

• hri-20250630.htm (10-Q) — 1028KB
• exhibit3112025630.htm (EX-31.1) — 17KB
• exhibit3122025630.htm (EX-31.2) — 17KB
• exhibit3212025630.htm (EX-32.1) — 7KB
• exhibit3222025630.htm (EX-32.2) — 7KB
• 0001628280-25-039502.txt ( ) — 5308KB
• hri-20250630.xsd (EX-101.SCH) — 32KB
• hri-20250630_cal.xml (EX-101.CAL) — 57KB
• hri-20250630_def.xml (EX-101.DEF) — 156KB
• hri-20250630_lab.xml (EX-101.LAB) — 490KB
• hri-20250630_pre.xml (EX-101.PRE) — 318KB
• hri-20250630_htm.xml (XML) — 688KB

- Financial Information

Part I - Financial Information

Consolidated Financial Statements (unaudited)

Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets as of June 30 , 2025 and December 31, 2024 1 Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30 , 2025 and 2024 2 Consolidated Statements of Equity for the three and six months ended June 30 , 2025 and 2024 3 Consolidated Statements of Cash Flows for the six months ended June 30 , 2025 and 2024 4

Notes to Consolidated Financial Statements

Notes to Consolidated Financial Statements 6 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 28 Item 4.

Controls and Procedures

Controls and Procedures 28

- Other Information

Part II - Other Information Item 1.

Legal Proceedings

Legal Proceedings 29 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 29 Item 3. Defaults Upon Senior Securities 29 Item 4. Mine Safety Disclosures 29 Item 5. Other Information 29 Item 6. Exhibits 29 Exhibit Index 30

Signatures

Signatures 31 i Table of Contents HIGHLANDS REIT, INC. Consolidated Balance Sheets (unaudited) (Amounts in thousands, except per share amounts) June 30, 2025 December 31, 2024 Assets (unaudited) Investment properties Land $ 83,792 $ 83,792 Building and other improvements 298,172 289,126 Construction in progress 238 3,663 Total 382,202 376,581 Less accumulated depreciation ( 92,827 ) ( 87,211 ) Net investment properties 289,375 289,370 Cash and cash equivalents 21,006 29,864 Restricted cash and escrows 2,586 4,364 Accounts receivable (net of allowance of $ 230 and $ 139 as of June 30, 2025 and December 31, 2024, respectively) 7,533 6,909 Intangible assets, net 185 205 Deferred costs and other assets, net 7,537 6,028 Total assets $ 328,222 $ 336,740 Liabilities Debt, net $ 120,488 $ 120,713 Accounts payable and accrued expenses 8,565 9,867 Other liabilities 2,203 2,315 Total liabilities 131,256 132,895 Commitments and contingencies (see Note 12) Stockholders ' Equity Common stock, $ 0.01 par value, 1,000,000 shares authorized, 718,665 and 724,321 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively 7,186 7,243 Additional paid-in capital 1,389,044 1,390,536 Accumulated distributions in excess of net income ( 1,198,144 ) ( 1,192,873 ) Accumulated other comprehensive income (loss) ( 13 ) 47 Total Highlands REIT, Inc. stockholders' equity 198,073 204,953 Noncontrolling interests ( 1,107 ) ( 1,108 ) Total equity 196,966 203,845 Total liabilities and equity $ 328,222 $ 336,740 See accompanying notes to the consolidated financial statements. 1 Table of Contents HIGHLANDS REIT, INC. Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) (Amounts in thousands, except per share amounts) Three Months Ended June 30, Six Months Ended June 30, 2025 2024 2025 2024 Revenues Rental income $ 9,236 $ 8,565 $ 18,324 $ 17,581 Other property income 235 246 452 479 To

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) June 30, 2025 The accompanying Consolidated Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited consolidated financial statements of Highlands REIT, Inc. for the year ended December 31, 2024, which are included in the Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission by Highlands REIT, Inc. on March 14, 2025, as certain note disclosures contained in such audited consolidated financial statements have been condensed or omitted from this Report. In the opinion of management, all adjustments (consisting of normal recurring accruals, except as otherwise noted) necessary for a fair presentation, and to make these financial statements not misleading, have been included in these financial statements. 1. Organization Highlands REIT, Inc. ("Highlands"), which was formed in December 2015, is a Maryland corporation with a portfolio of investment properties including multi-family, retail and office properties, a correctional facility and unimproved land. Prior to April 28, 2016, Highlands was a wholly-owned subsidiary of InvenTrust Properties Corp. ("InvenTrust" and formerly known as Inland American Real Estate Trust, Inc.), its former parent. Unless stated otherwise or the context otherwise requires, the terms "we," "our" and "us" and references to the "Company" refer to Highlands and its consolidated subsidiaries. On April 28, 2016, Highlands was spun-off from InvenTrust through a pro rata distribution by InvenTrust of 100 % of the outstanding shares of common stock, $ 0.01 par value per share (the "Common Stock"), of

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) June 30, 2025 Refer to the Company's audited consolidated financial statements for the year ended December 31, 2024, included in the Company's Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on March 14, 2025, as certain note disclosures contained in such audited financial statements have been condensed or omitted from these interim consolidated financial statements. Consolidation As of June 30, 2025 and December 31, 2024, we have determined we are the primary beneficiary of one VIE, the Corvue Venture, and have consolidated the operations of this entity in the accompanying consolidated financial statements. The Corvue Venture owns The Locale, a multi-family investment property located in Allendale, Michigan. We reviewed the operating agreement of the Corvue Venture in order to determine our rights and the rights of our third-party partner, including whether those rights are protective or participating. We have determined we are the primary beneficiary of the Corvue Venture because we have (a) the power to direct the activities that most significantly impact the economic performance of the Corvue Venture, (b) the obligation to absorb the losses that could be significant to the Corvue Venture and (c) the right to receive the benefits that could be significant to the Corvue Venture. Included in total assets and liabilities on the Company's consolidated balance sheets as of June 30, 2025 is $ 22,840 of assets and $ 18,306 of liabilities related to the Corvue Venture. Included in total assets and liabilities on the Company's consolidated balance sheets as of December 31, 2024 is $ 22,787 of assets and $ 18,106 of liabilities related to the Corvue Venture. The assets of the Corvue Venture may only be used to settle obligations of the Corvue Venture and the creditors of the Corvue Venture have no recourse to th

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) June 30, 2025 Recently issued accounting standards or pronouncements not discussed herein have been excluded because they are either not relevant to the Company, or are not expected to have, or did not have, a material effect on the consolidated financial statements of the Company. 3. Disposed Investment Properties There were no investment property dispositions during the six months ended June 30, 2025. The following table reflects the investment property dispositions during the six months ended June 30, 2024. The Company recognized a net gain on sale of investment properties of $ 6,869 . Property Location Disposition Date Gross Disposition Price Sale Proceeds, Net Gain on Sale Versacold USA New Ulm, MN February 5, 2024 $ 7,175 $ 6,995 $ 2,052 Versacold USA St. Paul, MN February 5, 2024 $ 13,325 $ 13,076 $ 4,817 $ 20,500 $ 20,071 $ 6,869 4. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses consist of the following: June 30, 2025 December 31, 2024 Accrued real estate taxes $ 4,426 $ 4,816 Accrued compensation 1,583 213 Accrued interest payable 539 554 Other accrued expenses 2,017 4,284 Total accounts payable and accrued expenses $ 8,565 $ 9,867 5. Leases Leasing as a lessor We lease multi-family investment properties under operating leases with terms of generally one year or less. We lease commercial investment properties under operating leases with remaining lease terms that range from less than one year to fifteen years as of June 30, 2025 and from less than one year to fourteen years as of June 30, 2024. Certain of the Company's commercial leases provide the tenant with one or more multi-year renewal options to extend their lease, subject to generally the same terms and conditions as the initial lease, potentially including rent increases. Rental income related to the Company's operating lea

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) June 30, 2025 Future Minimum Rental Income As of June 30, 2025, commercial operating leases provide for future minimum rental income, assuming no expiring leases are renewed, as follows. Multi-family residential leases are not included as the terms are generally for one year or less. 2025 (remaining) $ 6,726 2026 13,241 2027 12,980 2028 12,693 2029 12,026 Thereafter 91,134 Total $ 148,800 Tenant Concentration For the six months ended June 30, 2025, The Locale, Trimble and Sherman Plaza each accounted for greater than 10 % of our total revenues. Specifically, the XP Power, LLC lease accounted for approximately 11.1 % and Veeco Instruments accounted for approximately 9.3 % of our total revenues for the six months ended June 30, 2025. 6. Debt Total debt outstanding as of June 30, 2025 and December 31, 2024 was as follows: June 30, 2025 December 31, 2024 Debt, gross $ 123,397 $ 123,884 Mortgage discount ( 1,745 ) ( 1,855 ) Deferred financing costs, net ( 1,164 ) ( 1,316 ) Total Debt, Net $ 120,488 $ 120,713 As of June 30, 2025, the Company's outstanding mortgage indebtedness included 11 mortgage loans with various maturities through January 2036. The following table presents the principal amount of debt maturing each year, including amortization of principal based on debt outstanding at June 30, 2025, and the weighted average interest rates for the maturing debt in each specified period: Debt maturing during the year ended December 31, As of June 30, 2025 Weighted average interest rate 2025 (remaining) $ 494 — % 2026 43,084 5.17 % 2027 10,785 3.99 % 2028 234 — % 2029 245 — % Thereafter 68,555 5.63 % Total $ 123,397 5.32 % The mortgage loan encumbering the Trimble office investment property currently leased by Veeco Instruments, Inc. matured on April 6, 2025. This loan has a principal amount of $ 20,000 , $ 4,000 of

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) June 30, 2025 event that the estimated value is less than the mortgage balance, the applicable wholly-owned property-owning subsidiary may, if appropriate, satisfy a mortgage obligation by transferring title of the investment property to the lender or permitting a lender to foreclose. As of June 30, 2025 and December 31, 2024, Highlands guaranteed one mortgage loan up to $ 4,000 and all other mortgage debt was non-recourse to the Company. However, Highlands or its subsidiaries may act as guarantor under customary, non-recourse, carve-out guarantees in connection with obtaining mortgage loans on certain of our investment properties. Some of the mortgage loans require compliance with certain covenants, such as debt service coverage ratios and minimum net worth requirements. As of June 30, 2025 and December 31, 2024, the Company was in compliance with such covenants. 7. Fair Value Measurements In accordance with ASC 820, Fair Value Measurement and Disclosures, the Company defines fair value based on the price that would be received upon sale of an asset or the exit price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses a fair value hierarchy that prioritizes observable and unobservable inputs used to measure fair value. The fair value hierarchy consists of three broad levels, which are described below: Level 1 - Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access. Level 2 - Observable inputs, other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Lev

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