Highlands REIT Swings to Deeper Loss Amid Rising Costs, No Property Sales

TL;DR

**Highlands REIT is bleeding cash and can't sell properties fast enough to cover it; steer clear unless you like red ink.**

AI Summary

Highlands REIT, Inc. reported a net loss of $2.418 million for the three months ended September 30, 2025, an increase from the $2.092 million net loss in the same period of 2024. For the nine months ended September 30, 2025, the company's net loss attributable to common stockholders was $7.689 million, a significant decline from the net income of $0.598 million reported in the prior year, primarily due to the absence of a $6.869 million gain on sale of investment properties recognized in 2024. Total revenues increased to $9.266 million for the three months ended September 30, 2025, up from $9.021 million in 2024, and to $28.042 million for the nine months, up from $27.081 million. However, total expenses also rose, reaching $10.114 million for the quarter and $30.959 million for the nine months, driven by increases in property operating expenses and general and administrative expenses. Cash and cash equivalents decreased from $29.864 million at December 31, 2024, to $23.824 million at September 30, 2025, with net cash used in investing activities totaling $8.640 million for the nine months ended September 30, 2025, compared to net cash provided of $15.644 million in the prior year due to property sales. The company repurchased $1.903 million in shares during the nine months ended September 30, 2025.

Why It Matters

Highlands REIT's deepening net loss and negative cash flow from investing activities signal a challenging period for investors, particularly given the absence of significant property sales that bolstered 2024's results. The increase in operating and administrative expenses, coupled with a decline in cash reserves, could pressure future distributions and overall shareholder value. In a competitive real estate market, the company's inability to generate positive net income or substantial gains from asset dispositions puts it at a disadvantage compared to peers actively managing their portfolios for growth. Employees might face pressure if cost-cutting measures become necessary, while customers could see impacts on property maintenance or services if financial strain continues.

Risk Assessment

Risk Level: high — The company reported a net loss of $7.689 million for the nine months ended September 30, 2025, a significant deterioration from a $0.598 million net income in the prior year. This is exacerbated by a $8.640 million net cash outflow from investing activities, compared to a $15.644 million inflow in 2024, primarily due to no investment property dispositions in 2025 versus $20.071 million in proceeds in 2024.

Analyst Insight

Investors should consider reducing exposure to Highlands REIT given the deepening losses, negative cash flow from investing activities, and lack of asset disposition gains. Monitor future filings for any signs of improved operational efficiency or strategic asset sales that could reverse the current negative trends.

Financial Highlights

debt To Equity

N/A

revenue

$28,042,000

operating Margin

N/A

total Assets

N/A

total Debt

$120,261,000

net Income

-$7,689,000

eps

N/A

gross Margin

N/A

cash Position

$23,824,000

revenue Growth

+3.6%

Revenue Breakdown

Key Numbers

• $7.689M — Net loss attributable to Highlands REIT, Inc. common stockholders (For the nine months ended September 30, 2025, compared to $0.598M net income in 2024.)
• $2.418M — Net loss attributable to Highlands REIT, Inc. common stockholders (For the three months ended September 30, 2025, compared to $2.092M net loss in 2024.)
• $6.869M — Gain on sale of investment properties, net (Recognized in the nine months ended September 30, 2024, with no comparable gain in 2025.)
• $8.640M — Net cash flows used in investing activities (For the nine months ended September 30, 2025, a significant change from $15.644M provided in 2024.)
• $23.824M — Cash and cash equivalents (As of September 30, 2025, down from $29.864M at December 31, 2024.)
• $1.903M — Repurchase of shares (For the nine months ended September 30, 2025, compared to $0.224M in 2024.)
• $30.959M — Total expenses (For the nine months ended September 30, 2025, up from $28.534M in 2024.)
• 718,870,105 — Shares of common stock outstanding (As of November 11, 2025.)

Key Players & Entities

• Highlands REIT, Inc. (company) — Registrant
• InvenTrust Properties Corp. (company) — Former parent company of Highlands REIT
• SEC (regulator) — Securities and Exchange Commission
• Corvue Venture (company) — Variable interest entity in which Highlands REIT holds a 95% interest
• The Locale (company) — Multi-family investment property owned by Corvue Venture
• FASB (regulator) — Financial Accounting Standards Board
• Bloomberg (company) — Financial news organization
• Maryland (person) — State of incorporation for Highlands REIT
• Chicago (person) — Location of Principal Executive Offices
• Allendale, Michigan (person) — Location of The Locale property

FAQ

Risk Factors

• Declining Net Income and Cash Position [high — financial]: The company reported a net loss of $7.689 million for the nine months ended September 30, 2025, a significant shift from a $0.598 million net income in the prior year. This is exacerbated by a decrease in cash and cash equivalents from $29.864 million at December 31, 2024, to $23.824 million at September 30, 2025.
• Increased Operating Expenses [medium — financial]: Total expenses rose to $30.959 million for the nine months ended September 30, 2025, up from $28.534 million in the prior year. This increase was driven by higher property operating expenses and general and administrative expenses, further pressuring profitability.
• Reduced Investing Cash Flows [medium — financial]: Net cash used in investing activities was $8.640 million for the nine months ended September 30, 2025, a substantial change from $15.644 million provided in the prior year. This reduction is primarily due to the absence of property sales that generated significant cash in 2024.
• Share Repurchases [low — financial]: The company repurchased $1.903 million in shares during the nine months ended September 30, 2025, an increase from $0.224 million in the prior year. While this can return value to shareholders, it also reduces cash available for other strategic initiatives or debt reduction.
• Tenant Concentration Risk [medium — market]: For the nine months ended September 30, 2025, The Locale, Trimble, and Sherman Plaza each accounted for over 10% of total revenues. Specifically, XP Power, LLC lease was 11.1% and Veeco Instruments was 9.3%, indicating a reliance on a few key tenants.
• Debt Maturities [medium — financial]: The company has significant debt maturing in the coming years, with $22.790 million due in 2026 and $20.000 million due in 2029. Managing these maturities, especially with a fluctuating cash position, presents a financial risk.
• Variable Lease Income Dependence [low — operational]: While fixed lease payments form the bulk of rental income, variable lease payments (tenant recovery income) increased by 11.2% to $4.256 million for the nine months ended September 30, 2025. Fluctuations in occupancy or operating costs could impact this revenue stream.
• Concentration of Credit Risk [low — financial]: Cash and cash equivalents are held at financial institutions where combined balances may exceed FDIC insurance coverage, creating a concentration of credit risk for amounts on deposit above insured limits.

Industry Context

The REIT sector is sensitive to interest rate movements and economic conditions affecting real estate demand. Highlands operates in a competitive landscape with multi-family, retail, and office properties. Trends include a focus on essential retail, resilient multi-family demand, and evolving office space utilization.

Regulatory Implications

As a publicly traded REIT, Highlands is subject to SEC regulations and reporting requirements. Compliance with tax laws specific to REITs is crucial for maintaining its tax-advantaged status. Changes in accounting standards or real estate regulations could impact financial reporting and operations.

What Investors Should Do

1. Monitor expense management closely.
2. Assess the impact of tenant concentration.
3. Evaluate debt maturity strategy.
4. Analyze the sustainability of revenue growth.
5. Observe cash flow generation and usage.

Key Dates

• 2024-02-05: Sale of Versacold USA properties — Generated $6.869 million in net gain on sale of investment properties, contributing to prior year's net income.
• 2025-04-06: Trimble mortgage loan extension — Extended a $20 million loan maturity to April 6, 2026, with a guaranteed portion removed in September 2025, extending maturity to April 6, 2029.
• 2025-09-30: End of third quarter — Reporting period for the 10-Q, showing a net loss of $2.418 million for the quarter and $7.689 million for the nine months.
• 2025-11-11: Shares of common stock outstanding reported — Indicates the total number of shares outstanding as of this date, relevant for per-share calculations and market capitalization.

Glossary

REIT

Real Estate Investment Trust. A company that owns, operates, or finances income-generating real estate. (Highlands REIT, Inc. has elected to be taxed as a REIT, which has specific tax implications and operational requirements.)

VIE

Variable Interest Entity. An entity for which the equity is not sufficient to permit the entity to finance its activities without additional financial support from other parties, or in which the equity investors do not have the characteristics of a controlling financial interest. (Highlands consolidates the Corvue Venture, a VIE, because it is the primary beneficiary, impacting its reported assets and liabilities.)

Gain on Sale of Investment Properties

The profit realized from selling real estate assets. This is a significant factor in the year-over-year net income comparison. (The absence of a $6.869 million gain in 2025, compared to 2024, is the primary reason for the shift from net income to net loss.)

Cash Equivalents

Short-term, highly liquid investments with original maturities of three months or less. (The company's cash and cash equivalents decreased by $6.04 million, impacting its liquidity and financial flexibility.)

Operating Leases

A lease agreement where the lessor (landlord) retains ownership of the asset and the lessee (tenant) pays to use it for a specified period. (Rental income from operating leases is the primary source of revenue for Highlands REIT.)

Tenant Recovery Income

Income received from tenants to cover certain operating expenses, such as property taxes and insurance, often referred to as 'pass-through' expenses. (This is a component of variable lease payments and contributes to total revenue.)

Mortgage Discount

A reduction in the carrying amount of a mortgage loan, typically related to interest rate differentials or other financing adjustments. (This reduces the reported net debt on the balance sheet.)

Deferred Financing Costs, Net

Costs incurred in obtaining financing that are amortized over the life of the debt. (These costs reduce the reported net debt on the balance sheet.)

Year-Over-Year Comparison

Highlands REIT, Inc. reported a significant shift from net income to net loss for the nine months ended September 30, 2025, primarily due to the absence of a $6.869 million gain on sale of investment properties recognized in the prior year. While total revenues saw a modest increase of 3.6% to $28.042 million, total expenses also rose, leading to a net loss of $7.689 million compared to a $0.598 million net income. Cash reserves have decreased by $6.04 million, and net cash from investing activities has turned negative, reflecting a less favorable financial position compared to the prior year's period.

Filing Documents

• hri-20250930.htm (10-Q) — 1076KB
• exhibit3112025930.htm (EX-31.1) — 17KB
• exhibit3122025930.htm (EX-31.2) — 17KB
• exhibit3212025930.htm (EX-32.1) — 7KB
• exhibit3222025930.htm (EX-32.2) — 7KB
• 0001661458-25-000030.txt ( ) — 5424KB
• hri-20250930.xsd (EX-101.SCH) — 32KB
• hri-20250930_cal.xml (EX-101.CAL) — 57KB
• hri-20250930_def.xml (EX-101.DEF) — 159KB
• hri-20250930_lab.xml (EX-101.LAB) — 495KB
• hri-20250930_pre.xml (EX-101.PRE) — 321KB
• hri-20250930_htm.xml (XML) — 710KB

- Financial Information

Part I - Financial Information

Consolidated Financial Statements (unaudited)

Item 1. Consolidated Financial Statements (unaudited) Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 1 Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2025 and 2024 2 Consolidated Statements of Equity for the three and nine months ended September 30, 2025 and 2024 3 Consolidated Statements of Cash Flows for the nine months ended S eptember 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) September 30, 2025 December 31, 2024 Assets (unaudited) Investment properties Land $ 83,792 $ 83,792 Building and other improvements 298,267 289,126 Construction in progress 334 3,663 Total 382,393 376,581 Less accumulated depreciation ( 95,562 ) ( 87,211 ) Net investment properties 286,831 289,370 Cash and cash equivalents 23,824 29,864 Restricted cash and escrows 2,683 4,364 Accounts receivable (net of allowance of $ 200 and $ 139 as of September 30, 2025 and December 31, 2024, respectively) 7,764 6,909 Intangible assets, net 174 205 Deferred costs and other assets, net 6,665 6,028 Total assets $ 327,941 $ 336,740 Liabilities Debt, net $ 120,261 $ 120,713 Accounts payable and accrued expenses 10,812 9,867 Other liabilities 2,437 2,315 Total liabilities 133,510 132,895 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 September 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 ( 1,200,562 ) ( 1,192,873 ) Accumulated other comprehensive income (loss) ( 126 ) 47 Total Highlands REIT, Inc. stockholders' equity 195,542 204,953 Noncontrolling interests ( 1,111 ) ( 1,108 ) Total equity 194,431 203,845 Total liabilities and equity $ 327,941 $ 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 September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Revenues Rental income $ 9,016 $ 8,713 $ 27,340 $ 26,294 Other propert

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) September 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"

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) September 30, 2025 appropriate GAAP. Highlands' subsidiaries generally consist of limited liability companies ("LLCs"). The effects of all significant intercompany transactions have been eliminated. 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 September 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 September 30, 2025 is $ 22,139 of assets and $ 18,029 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 lia

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) September 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 nine months ended September 30, 2025. The following table reflects the investment property dispositions during the nine months ended September 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: September 30, 2025 December 31, 2024 Accrued real estate taxes $ 5,310 $ 4,816 Accrued compensation 2,271 213 Accrued interest payable 508 554 Other accrued expenses 2,723 4,284 Total accounts payable and accrued expenses $ 10,812 $ 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 September 30, 2025 and from less than one year to fourteen years as of September 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 relat

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) September 30, 2025 Future Minimum Rental Income As of September 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) $ 3,332 2026 13,218 2027 12,980 2028 12,693 2029 12,026 Thereafter 91,134 Total $ 145,383 Tenant Concentration For the nine months ended September 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 nine months ended September 30, 2025. 6. Debt Total debt outstanding as of September 30, 2025 and December 31, 2024 was as follows: September 30, 2025 December 31, 2024 Debt, gross $ 123,154 $ 123,884 Mortgage discount ( 1,691 ) ( 1,855 ) Deferred financing costs, net ( 1,202 ) ( 1,316 ) Total Debt, Net $ 120,261 $ 120,713 As of September 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 September 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 September 30, 2025 Weighted average interest rate 2025 (remaining) $ — — % 2026 22,790 4.56 % 2027 10,839 3.99 % 2028 — — % 2029 20,000 5.71 % Thereafter 69,525 5.64 % Total $ 123,154 5.31 % The mortgage loan encumbering the Trimble office investment property currently leased by Veeco Instruments, Inc. matured on April 6, 2025. This loa

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) (Amounts in thousands, except square footage and per share amounts) September 30, 2025 completed an extension on the required fixed rate swap agreement. The swap agreement fixes the interest rate at 5.71 % for the term of the loan. In conjunction with this extension, the Company paid a fee of $ 120 to the lender. The Company's ability to pay off the mortgages when they become due is dependent upon the Company's ability either to refinance the related mortgage debt or to sell the related investment property. With respect to each mortgage loan, if the applicable wholly-owned property-owning subsidiary is unable to refinance or sell the related investment property, or in the 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 December 31, 2024, Highlands guaranteed one mortgage loan up to $ 4,000 and all other mortgage debt was non-recourse to the Company. There are no payment guarantees in place on mortgage loans as of September 30, 2025. 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 September 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 measurem

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