Cantor Fitzgerald Income Trust, Inc 10-Q/A, filed Oct 22, 2021
Cantor Fitzgerald Income Trust, Inc. (CFTR-PA)
10-Q/A
2021-10-22
For: 2021-06-30
View Original
Added on
April 14, 2026
About this 10-Q/A
Cantor Fitzgerald Income Trust, Inc filed this 10-Q/A on October 22, 2021, covering the quarter ended June 30, 2021.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Amendment No. 1)
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-56043
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
th Street |
||
(Address of principal executive offices) |
(Zip Code) | |
(Registrant’s telephone number, including area code) (212 ) 938-5000
Securities registered pursuant
to
Section 12(b)
of the Act: Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
None |
N/A |
N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. Large accelerated filer |
☐ |
Accelerated filer |
☐ | |||
☒ |
Smaller reporting company |
|||||
Emerging growth company |
||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule No ☒
12b-2
of the Exchange Act). Yes ☐ Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of October 20, 2021, the registrant had 3,354,773 Class AX Shares, 1,208,863 Class IX Shares, 1,452,391 Class TX Shares, 2,023,637 Class I Shares, 441,635 Class T Shares, 2,444,035 Class D Shares and 4,362 Class S Shares of $0.01 par value common stock outstanding
.
EXPLANATORY NOTE
We are filing this Amendment No. 1 to our Quarterly Report on Form
10-Q/A
(this “Amendment”) to amend Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 2021, as filed with the Securities and Exchange Commission on August 13, 2021 (the “Original Filing”). The Amendment is being filed solely for the purpose of correcting the calculation of Funds from Operations and Modified Funds From Operations included in Item 2. Additionally, in connection with the filing of this Amendment and pursuant to Rules 12b-15
and 13a-14
under the Securities Exchange Act of 1934, as amended, we are including currently dated certifications with this Amendment. Other than as set forth above, this Amendment does not, and does not purport to, update or change the information in the Original Filing or reflect any events that have occurred after the Original Filing was filed. The Amendment continues to speak as of the date of the Original Filing. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on
Form 10-Q.
In addition to historical data, this discussion contains forward-looking statements about Cantor Fitzgerald Income Trust, Inc.’s, formerly known as Rodin Global Property Trust, Inc., (the “Company”) business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. The Company’s actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed under “Risk Factors” in the Company’s Registration Statement on Form S-11
(File No. 333-237327)
(the “Registration Statement”), under Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K
for the year ended December 31, 2020, and elsewhere in this Quarterly Report on Form 10-Q.
The Company does not undertake to revise or update any forward-looking statements. Forward-Looking Statements
This Form
10-Q
contains forward-looking statements about the Company’s business, including, in particular, statements about the Company’s plans, strategies and objectives. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include the Company’s plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond the Company’s control. Although the Company believes the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and the Company’s actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by the Company or any other person that the Company’s objectives and plans, which the Company considers to be reasonable, will be achieved. Factors that could cause the Company’s results to be materially different include, but are not limited to the following:
| • | the Company’s ability to successfully raise capital in its public offerings; |
| • | the Company’s dependence on the resources and personnel of Cantor Fitzgerald Income Advisors, LLC, formerly known as Rodin Global Property Advisors, LLC (the “Advisor”), Cantor Fitzgerald Investors, LLC (“CFI”), and their affiliates, including the Advisor’s ability to source and close on attractive investment opportunities on the Company’s behalf; |
| • | the full extent of the impact and effects of the outbreak of coronavirus (COVID-19) on the future financial performance of the Company and its tenants; |
| • | the performance of the Advisor and CFI; |
| • | the Company’s ability to deploy capital quickly and successfully and achieve a diversified portfolio consistent with target asset classes; |
| • | the Company’s ability to access financing for its investments; |
| • | the Company’s liquidity; |
| • | the Company’s ability to make distributions to its stockholders, including from sources other than cash flow from operations; |
| • | the effect of paying distributions to stockholders from sources other than cash flow provided by operations; |
| • | the lack of a public trading market for the Company’s shares; |
| • | the impact of economic conditions on the tenants, borrowers and others who the Company depends on to make payments to it; |
| • | the Advisor’s ability to attract and retain sufficient personnel to support growth and operations; |
| • | the Company’s limited operating history; |
| • | difficulties in economic conditions generally and the real estate, debt, and securities markets specifically; |
| • | changes in the Company’s business or investment strategy; |
| • | environmental compliance costs and liabilities; |
| • | any failure in the Advisor’s due diligence to identify all relevant facts in the Company’s underwriting process or otherwise; |
| • | the impact of market and other conditions influencing the availability of equity versus debt investments and performance of the Company’s investments relative to its expectations and the impact on the actual return on invested equity, as well as the cash provided by these investments; |
| • | defaults on or non-renewal of leases by tenants, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms; |
| • | the degree and nature of the Company’s competition; |
| • | risks associated with using debt to fund the Company’s business activities, including re-financing and interest rate risks; |
| • | illiquidity of investments in the Company’s portfolio; |
| • | the Company’s ability to finance its transactions; |
| • | the effectiveness of the Company’s risk management systems; |
| • | information technology risks, including capacity constraints, failures, or disruptions in the Company’s systems or those of parties with which the Company interacts, including cybersecurity risks and incidents, privacy risk and exposure to potential liability and regulatory focus; |
| • | the Company’s ability to realize current and expected returns over the life of its investments; |
| • | the Company’s ability to maintain effective internal controls; |
| • | regulatory requirements with respect to the Company’s business, as well as the related cost of compliance; |
| • | risks associated with guarantees and indemnities related to the Company’s loans; |
| • | the Company’s ability to qualify and maintain its qualification as a REIT (as defined below) for U.S. federal income tax purposes and limitations imposed on the Company’s business by its status as a REIT; |
| • | changes in laws or regulations governing various aspects of the Company’s business and non-traded REITs generally, including, but not limited to, changes implemented by the Department of Labor, the Securities & Exchange Commission (the “SEC”), or FINRA and changes to laws governing the taxation of REITs; |
| • | the Company’s ability to maintain its exemption from registration under the Investment Company Act; |
| • | general volatility in domestic and international capital markets and economies; |
| • | effect of regulatory actions, litigation and contractual claims against the Company and its affiliates, including the potential settlement and litigation of such claims; |
| • | the impact of any conflicts arising among the Company and CFI and its affiliates; |
| • | the adequacy of the Company’s cash reserves and working capital; |
| • | increases in interest rates, operating costs and expenses, or greater than expected capital expenditures; |
| • | the timing of cash flows, if any, from the Company’s investments; and |
| • | other risks associated with investing in the Company’s targeted investments. |
The foregoing list of factors is not exhaustive. Factors that could have a material adverse effect on the Company’s operations and future prospects are set forth under Item 1A. Risk Factors in the Company’s Annual Report on Form
10-K
for the year ended December 31, 2020. The factors set forth in the Risk Factors section could cause the Company’s actual results to differ significantly from those contained in any forward-looking statement contained in this quarterly report. Overview
The Company is a Maryland corporation that has elected and qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2017. The Company is externally managed by the Advisor, a Delaware limited liability company and wholly owned subsidiary of the Company’s sponsor, CFI. The Company is a commercial real estate company formed to invest in and manage a diversified portfolio of income-producing commercial properties and other real estate-related assets.
The Company was incorporated in the State of Maryland on February 2, 2016 under the name Rodin Global Access Property Trust, Inc. On September 12, 2016, the Company changed its name to Rodin Global Property Trust, Inc. and on July 30, 2020, the Company changed its name to Cantor Fitzgerald Income Trust, Inc.
The Company plans to own substantially all of its assets and conduct its operations through the Operating Partnership. The Company is the sole general partner and limited partner of the Operating Partnership and CFI’s wholly owned subsidiary, Cantor Fitzgerald Income Trust OP Holdings, LLC, formerly known as Rodin Global Property Trust OP Holdings, LLC, (the “Special Unit Holder”), is the sole special unit holder of the Operating Partnership.
On February 2, 2016, the Company was capitalized with a $200,001 investment by CFI through the purchase of 8,180 Class A shares. The Company has registered with the SEC an offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in the Company’s primary offering (“Primary Offering”) and up to $250 million in shares pursuant to its distribution reinvestment plan (the “DRP”, and together with the Primary Offering, the “Initial Offering”). The Company’s Registration Statement was declared effective by the SEC on March 23, 2017. On May 18, 2017, the Company satisfied the minimum offering requirement as a result of the purchase of $2.0 million in Class I shares by CFI (the “Minimum Offering Requirement”). The Company terminated the Primary Offering effective July 31, 2020, but is continuing to offer up to $50.0 million of common stock pursuant to the DRP.
On March 20, 2020, the Company filed a registration statement on Form
S-11
with the SEC for a proposed second public offering (the “Follow-On
Offering”). The Company’s Registration Statement for the Follow-On
Offering was declared effective by the SEC in August 2020. In the Follow-On
Offering, the Company is offering up to $1 billion in shares of common stock in a primary offering on a best efforts basis and $250 million in shares of common stock to be issued pursuant to a distribution reinvestment plan. On July 30, 2020, the Company, amended its charter (as amended, the “Charter”) to redesignate its currently issued and outstanding Class A shares of common stock, Class T shares of common stock and Class I shares of common stock as “Class AX Shares,” “Class TX Shares” and “Class IX Shares,” respectively. In addition, on July 30, 2020, as set forth in the Charter, the Company has reclassified the authorized but unissued portion of its common stock into four additional classes of common stock: Class T Shares, Class S Shares, Class D Shares, and Class I Shares. The Class AX Shares, Class TX Shares and Class IX Shares generally have the same rights, including voting rights, as the Class T Shares, Class S Shares, Class D Shares and Class I Shares that the Company is offering pursuant to the Follow-On
Offering. Additionally, upon commencement of the Follow-On
Offering, the Company began operating as a non-exchange
traded perpetual-life REIT. As of August 11, 2021, the Company had sold 3,362,234 Class AX shares, 1,457,082 Class TX shares, 1,204,361 Class IX shares, 340,801 Class T shares, 196,926 Class D shares, 4,360 Class S shares, and 1,623,619 Class I shares of common stock in the Primary Offering and the primary portion of the
Follow-on
Offering, as well as 216,306 Class AX shares, 85,078 Class TX shares, 52,574 Class IX shares, 701 Class T shares, 1,072 Class D shares, 4 Class S shares, and 6,345 Class I shares in the DRP for aggregate net proceeds of $199,695,179 in the Initial Offering and the Follow-On
Offering (collectively, the “Offerings”). Prior to the commencement of the
Follow-On
Offering, the Company determined its net asset value as of the end of each quarter. Net Asset Value (“NAV”), as defined, is calculated consistent with the procedures set forth in the Company’s prospectus and excludes any organization and offering expenses paid by the Advisor on the Company’s behalf (other than selling commissions, dealer manager fees and distribution fees) (“O&O Costs”), with such costs to be reflected in the Company’s NAV to the extent the Company reimburses the Advisor for these costs. Upon commencement of the Follow-On
Offering, the Company started determining its NAV on a monthly basis, beginning with the determination of NAV as of July 31, 2020. As of June 30, 2021, the Company’s NAV was $24.26 per Class AX share, Class IX share, and Class I share, $24.25 per Class D share and $24.24 per Class TX share, Class T share and Class S shares. For further discussion of the Company’s NAV calculation, please see “—Net Asset Value”. Prior to the commencement of the
Follow-On
Offering, the Company’s investment strategy was focused primarily on the acquisition of single-tenant net leased commercial properties located in the United States, United Kingdom and other European countries, as well as origination and investment in loans related to net leased commercial properties. Upon commencement of the Follow-On
Offering, the Company intends to invest in a diversified portfolio of income-producing commercial real-estate and debt secured by commercial real estate located primarily in the United States. The Company will seek to invest: (a) at least 80% of the Company’s assets in properties and real estate-related debt; and (b) up to 20% of the Company’s assets in real estate-related securities. The number and type of properties or real estate-related securities that the Company acquires will depend upon real estate market conditions, the amount of proceeds the Company raises in its offerings and other circumstances existing at the time the Company is acquiring such assets. As of June 30, 2021, the Company had made the following investments:
| • | A retail property located in Grand Rapids, Michigan (the “GR Property”). |
| • | An office property located in Fort Mill, South Carolina (the “FM Property”). |
| • | An office property located in Columbus, Ohio (the “CO Property”). |
| • | A flex industrial property located in Lewisville, TX (the “Lewisville Property”). |
| • | A Delaware Statutory Trust, CF Net Lease Portfolio IV DST (the “DST”), which owns seven properties (individually, a “DST Property”, and collectively, the “DST Properties”). |
| • | CF Albertsons Lancaster, LLC (the “Pennsylvania SPE”), which made a preferred equity investment (the “Lancaster PE”) through a joint venture agreement to purchase a cold storage and warehouse distribution facility located in Denver, Pennsylvania (the “PA Property”). |
| • | CF Albertsons Chicago, LLC (the “Illinois SPE”), which originated a fixed rate, subordinate mezzanine loan (the “Chicago Jr Mezz”) for the acquisition of a cold storage and warehouse distribution facility located in Melrose Park, Illinois (the “IL Property”). |
| • | A majority interest in a joint venture with an unrelated third party (the “Battery Street SF JV”) that owns an office property located in San Francisco, California (the “SF Property”). |
| • | An industrial property located in Phoenix, Arizona (the “Buchanan Property”). |
| • | Interests (15%) in a Delaware Statutory Trust, CF Station Multifamily DST (the “Station DST”), which owns a multifamily residential property located in Irving, Texas (the “Station Property”). |
| • | An interest (76%) in an affiliated joint venture (the “Keller Member JV”) that owns a majority interest (97%) in a multifamily property located in Carrolton, Texas (the “Keller Property”) through a joint venture (the “Keller JV”) with an unrelated third party. |
| • | An interest (76.9%) in an affiliated joint venture (the “Summerfield DST Holder”) that owns a controlling interest (25%) in a Delaware Statutory Trust, CF Summerfield Multifamily DST (the “Summerfield DST”), which owns a multifamily residential property located in Landover, MD (the “Summerfield Property”). |
| • | A controlling interest (33.3%) in an industrial property located in Cleveland, OH (the “Madison Ave Property”). |
The Company has no employees and has retained the Advisor to manage its affairs on a basis. The Advisor’s responsibilities include, but are not limited to, providing real estate-related services, including services related to originating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. The Advisor is a wholly owned subsidiary of CFI and therefore, the Advisor and CFI are related parties. The Advisor and its affiliates receive, as applicable, compensation, fees and expense reimbursements for services related to the investment and management of the Company’s assets. Such affiliated entities receive fees, expense reimbursements, and distributions (related to ownership of the Company’s common stock) as well as other compensation during the offering, acquisition, operational and liquidation stages.
day-to-day
The Company is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those referred to in this Quarterly Report on Form
10-Q.
Operating Highlights
Second Quarter of 2021 Activity
| • | Issued approximately 646,903 shares of common stock in the Offerings for gross proceeds of approximately $15.7 million. |
| • | Acquired 33.3% interest in the amount of $10.1 million in the Madison Ave Property. |
Portfolio Information
As of June 30, 2021, the Company owned interests in 16 real properties as described below:
| Portfolio |
Ownership Percentage |
Location |
Number of Properties |
Square Feet |
Remaining Lease Term (1) |
Annualized Rental Income (2) |
Acquisition Date |
Purchase Price (3) |
||||||||||||||||||||||||||||||
| Walgreens Grand Rapids (“GR Property”) |
100 | % | |
Grand Rapids, MI |
|
1 | 14,552 | |
11.1 years |
|
$ | 500,000 | July 2017 | $ | 7,936,508 | |||||||||||||||||||||||
| CF Net Lease Portfolio IV DST (“DST Properties”) |
100 | % | Various | 7 | 103,537 | |
15.4 years |
|
$ | 2,323,749 | September 2017 |
$ | 35,706,642 | |||||||||||||||||||||||||
| Daimler Trucks North America Office Building (“FM Property”) |
100 | % | |
Fort Mill, SC |
|
1 | 150,164 | |
7.5 years |
|
$ | 2,670,638 | February 2018 |
$ | 40,000,000 | |||||||||||||||||||||||
| Alliance Data Systems Office Building (“CO Property”) |
100 | % | |
Columbus, OH |
|
1 | 241,493 | |
11.2 years |
|
$ | 3,362,844 | July 2018 | $ | 46,950,000 | |||||||||||||||||||||||
| Hoya Optical Labs of America (“Lewisville Property”) |
100 | % | |
Lewisville, TX |
|
1 | 89,473 | |
7.0 years |
|
$ | 937,060 | November 2018 |
$ | 14,120,000 | |||||||||||||||||||||||
| Williams Sonoma Office Building (“SF Property”) |
75 | % | |
San Francisco, CA |
|
1 | 13,907 | |
0.5 years |
|
$ | 582,860 | September 2019 |
$ | 11,600,000 | |||||||||||||||||||||||
| Martin Brower Industrial Buildings (“Buchanan Property”) |
100 | % | |
Phoenix, AZ |
|
1 | 93,302 | |
10.7 years |
|
$ | 1,083,444 | November 2019 |
$ | 17,300,000 | |||||||||||||||||||||||
| Multifamily Residential Property (“Keller Property”) |
74 | % | |
Carrolton, TX |
|
1 | 255,627 | multiple | (4) |
$ | 4,647,552 | February 2021 |
$ | 56,500,000 | ||||||||||||||||||||||||
| Multifamily Residential Property (“Summerfield Property”) |
19 | % | |
Landover, MD |
|
1 | 452,876 | multiple | (4) |
$ | 9,590,592 | March 2021 |
$ | 115,500,000 | ||||||||||||||||||||||||
| Amazon Last Mile Cleveland (“Madison Ave Property”) |
33 | % | |
Cleveland, OH |
|
1 | 168,750 | |
9.8 years |
|
$ | 1,555,254 | May 2021 | $ | 30,800,000 | |||||||||||||||||||||||
| (1) | Reflects number of years remaining until the tenant’s first termination option. |
On March 9, 2021, the tenant (Walgreens) of the DST waived the lease termination option and extended the first-term lease maturity by five years to November 30, 2036.
| (2) | Reflects the average annualized rental income for the lease(s). Annualized rental income for Keller Property and Summerfield Property is based on full occupancy. |
| (3) | Reflects the contract purchase price at 100% ownership as opposed to adjusted for current ownership percentage as applicable. |
| (4) | Indicates individual tenant leases (with 1-year average lease term) for the multifamily residential properties. |
As of June 30, 2021, lease expirations related to the Company’s portfolio of real estate assets based on each asset’s fair value used in determining our NAV, were as follows:
| • | 2021 – 2023 – 5% |
| • | 2024 – 2026 – 0% |
| • | 2027 – 2029 – 30% |
| • | After 2030 – 65% |
As of June 30, 2021, the industry concentration of the Company’s portfolio of real estate assets, based on each asset’s fair value used in determining our NAV, were as follows:
| • | Single Tenant Office – 35% |
| • | Multifamily – 26% |
| • | Single Tenant Industrial – 21% |
| • | Single Tenant Necessity Retail – 18% |
As of June 30, 2021, the geographic concentration of the Company’s portfolio of real estate assets, based on each asset’s fair value used in determining our NAV, was as follows:
| • | Texas – 23% |
| • | Ohio – 20% |
| • | South Carolina – 14% |
| • | Maryland – 8% |
| • | Michigan – 7% |
| • | Arizona – 7% |
| • | Oklahoma – 6% |
| • | Illinois – 5% |
| • | Pennsylvania – 4% |
| • | California – 3% |
| • | Arkansas – 2% |
As of June 30, 2021, the investment type concentration of the Company’s portfolio of real estate assets, based on each asset’s fair value used in determining our NAV, was as follows:
| • | Common Equity – 91% |
| • | Mezzanine Loan – 5% |
| • | Preferred Equity – 4% |
As of June 30, 2021, the tenant credit profile concentration of the Company’s net lease portfolio of real estate assets, based on each asset’s fair value used in determining our NAV, was as follows:
| • | Investment Grade (1) – 51% |
| • | Unrated – 37% |
| • | Non-Investment Grade – 12% |
(1) |
Includes Daimler Trucks North America, LLC. Daimler AG, the parent company of Daimler Trucks North America, LLC, is rated A3 by Moody’s. Daimler AG does not guarantee the lease. |
As of June 30, 2021, the weighted average lease term remaining of the Company’s portfolio of real estate assets (excluding multifamily, mezzanine and preferred equity investments), based on each asset’s fair value used in determining our NAV, was 10 years.
As of June 30, 2021, the weighted average lease term remaining of the Company’s portfolio of real estate assets, based on each asset’s fair value used in determining our NAV, was 99.5%. For our industrial, retail and office investments, occupancy includes all leased square footage as of the date indicated. For our multifamily investments, occupancy is defined as the percentage of units leased on the date indicated.
As of June 30, 2021, the Company owned the preferred equity investment described below:
| Portfolio |
Original Investment Amount |
Preferred Return |
Number of Properties |
Square Feet |
Lease Expiration Date |
Acquisition Date |
Tenant Renewal Options |
|||||||||||||||||||
| Denver, PA— Pref Equity Investment |
$ |
11,805,000 |
Ranging from 7.75% in 2019 to 8.74% in 2028 |
1 |
1,539,407 |
January 31, 2039 |
January 2019 |
9 extension options for 5 years each |
||||||||||||||||||
As of June 30, 2021, the Company owned the mezzanine loan investment described below:
| Portfolio |
Original Loan Amount |
Annual Interest Rate Prior to Anticipated Repayment |
Number of Properties |
Square Feet |
Acquisition Date |
Initial Maturity Date |
Amortization |
|||||||||||||||||||
| Melrose Park, IL—Mezz B Loan |
$ |
12,595,000 |
Ranging from 7.75% in 2019 to 8.74% in 2028 |
1 |
1,561,613 |
January 2019 |
January 6, 2034 |
(1) |
Interest only |
|||||||||||||||||
| (1) | Anticipated repayment date is January 6, 2029. |
Related Party Transactions
The Company has entered into agreements with the Advisor, the Dealer Manager and CFI and its affiliates, whereby the Company pays certain fees and reimbursements to these entities during the various phases of the Company’s organization and operation. During the organization and offering stage, these include payments to the Dealer Manager for selling commissions, the dealer manager fee, distribution fees, and payments to the Advisor for reimbursement of organization and offering costs. During the acquisition and operational stages, these include payments for certain services related to the management and performance of the Company’s investments and operations provided to the Company by the Advisor and its affiliates pursuant to various agreements the Company has entered into with these entities. In addition, CFI has provided Sponsor Support in connection with the Initial Offering, which is subject to reimbursement under certain circumstances. See Note 9 — Related Party Transactions in the Notes to the consolidated financial statements contained elsewhere in this Quarterly Report on Form
10-Q
for additional information concerning the Company’s related party transactions and agreements. Results of Operations
Rental Revenues
For the three months ended June 30, 2021 and June 30, 2020, the Company earned rental revenues of $7,308,211 and $3,069,548, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company earned rental revenues of $10,591,811 and $6,139,095, respectively.
The Company’s rental revenues consist primarily of rental income from triple net leased commercial properties and multifamily properties. The increases in rental revenues of $4,238,663 and $4,452,716 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, were primarily due to the acquisition of rental income-producing properties, namely the Keller Property, the Summerfield Property, and the Madison Ave Property.
Preferred Return Income
For the three months ended June 30, 2021 and June 30, 2020, the Company earned preferred return income of $237,828 and $234,545, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company earned preferred return income of $473,043 and $469,091, respectively.
The Company’s preferred return income consists of preferred return accrued on the Company’s investment in the Pennsylvania SPE. The increases in preferred return income of $3,283 and $3,952 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, and were due to the increase of rate of return of the Pennsylvania SPE.
Income from mezzanine loan investment
For the three months ended June 30, 2021 and June 30, 2020, the Company earned income from mezzanine loan investment of $253,744 and $250,241, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company earned income from mezzanine loan investment of $504,507 and $500,483, respectively.
The Company’s income from mezzanine loan investment consists of interest income accrued on the Company’s investment in the Illinois SPE. The increases in income from mezzanine loan investment of $3,503 and $4,024, for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, and was due to the increase of the interest rate of the Illinois SPE.
Tenant Reimbursement Income
For the three months ended June 30, 2021 and June 30, 2020, the Company earned tenant reimbursement income of $957,311 and $456,666, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company earned tenant reimbursement income of $1,476,243 and $877,825, respectively.
The tenant reimbursement income consists of amounts received by the Company from the tenants of its properties for reimbursable expenses paid by the Company on behalf of the tenants in accordance with the provisions of the respective property leases. The increases in tenant reimbursement income of $500,645 and $598,418 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was primarily due to the acquisitions of the Keller Property, the Summerfield Property, and the Madison Ave Property.
General and Administrative Expenses
For the three months ended June 30, 2021 and June 30, 2020, the Company incurred general and administrative expenses of $119,052 and $33,439, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company incurred general and administrative expenses of $159,508 and $88,204, respectively.
The general and administrative expenses consist primarily of operating expense reimbursements to the Advisor, accounting fees and other professional fees. Pursuant to the terms of the Amended Advisory Agreement, the Company is obligated to reimburse the Advisor for certain operating expenses. Beginning October 1, 2018, the Company was subject to the limitation that it generally may not reimburse the Advisor for any amounts by which the total operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets (as defined in the Amended Advisory Agreement) and (ii) 25% of net income other than any additions to reserves for depreciation, bad debts or other similar
non-cash
reserves and excluding any gain from the sale of investments for that period (the “2%/25% Guidelines”). The increases in general and administrative expenses of $85,613 and $71,304 during the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, were mainly due to an increase in the amount of operating expenses incurred by the Company during such periods. As of June 30, 2021, the Advisor has incurred, on behalf of the Company, a total of $11,305,750 in Unreimbursed Operating Expenses, including a total of $1,266,784 for the six months ended June 30, 2021, compared to $1,377,647 for the six months ended June 30, 2020, for which the Advisor has not invoiced the Company for reimbursement.
Management Fees
For the three months ended June 30, 2021 and June 30, 2020, the Company incurred management fees of $677,883 and $443,370, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company incurred management fees $1,181,467 and $866,125, respectively.
Pursuant to the terms of the Amended Advisory Agreement, the Company is required to pay the Advisor a monthly asset management fee, and may pay a monthly property management fee to the Advisor or an affiliate of the Advisor, if the Advisor or such affiliate serves as a property manager with respect to a particular property. Additionally, the Company may be required to reimburse certain expenses incurred by the Advisor in providing such asset management services, subject to limitations set forth in the Amended Advisory Agreement.
Asset management fees payable to the Advisor prior to September 2019 consisted of monthly fees equal to
one-twelfth
of 1.25% of the cost of the Company’s investments at the end of each month. Asset management fees payable to the Advisor as of September 2019 consist of monthly fees equal to one twelfth of 1.20% of the Company’s most recently disclosed NAV. The increases in management fees of $234,513 and $315,342 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was due to the increase in NAV during such periods.
Property Operating Expenses
For the three months ended June 30, 2021 and June 30, 2020, the Company incurred property operating expenses of $2,464,933 and $545,230, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company incurred property operating expenses of $2,817,735 and $978,194, respectively.
The property operating expenses consist of reimbursable expenses paid by the Company on behalf of its tenants in accordance with the provisions of the respective property leases. The increases in property operating expenses of $1,919,703 and $1,839,541 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was primarily due to the acquisition of the Keller Property, the Summerfield Property, and the Madison Ave Property and the increase of property operating expenses during such periods.
Depreciation and Amortization
For the three months ended June 30, 2021 and June 30, 2020, the Company incurred depreciation and amortization of $3,650,721 and $1,629,666, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company incurred depreciation and amortization of $5,486,315 and $3,259,334, respectively.
The increases in depreciation and amortization expenses of $2,021,055 and $2,226,981 for the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was primarily due to the acquisition of the Keller Property, the Summerfield Property and the Madison Ave Property.
Interest Expense
For the three months ended June 30, 2021 and June 30, 2020, the Company incurred interest expense of $1,891,245 and $979,354, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company incurred interest expense of $2,973,860 and $1,958,704, respectively.
Interest expense is composed of interest paid and accrued on the Company’s outstanding loans payable, and also includes amortization of deferred financing costs.
The increases in interest expense of $911,891 and $1,015,156 during the three and six months ended June 30, 2021, respectively, as compared to three and six months ended June 30, 2020, was primarily due to the acquisition of the Keller Property and the Summerfield Property.
Interest Income
For the three months ended June 30, 2021 and June 30, 2020, the Company earned interest income of $5,019 and $6,268, respectively. For the six months ended June 30, 2021 and June 30, 2020, the Company earned interest income of $6,883 and $52,352, respectively.
Interest income is composed of interest earned on interest bearing cash deposit accounts with banking institutions.
The decreases in interest income of $1,249 and $45,469 during the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was primarily due to a decrease in interest rates associated with the cash held by the Company in interest bearing deposit accounts with banking institutions.
Income/(loss) from Investments in Real Estate-Related Assets
Loss from investments in real estate-related assets is incurred on the company’s investment in the Station DST. For the three months ended June 30, 2021 and June 30, 2020, the Company’s income from investments in real estate-related assets of $175,757 and $0, respectively. For the six months June 30, 2021 and June 30, 2020, the Company’s loss from investments in real estate-related assets of $86,050 and $0, respectively.
The increase in income from investments in real estate-related assets of $175,757 and increase in loss from investments in real estate-related assets of $86,050 during the three and six months ended June 30, 2021, respectively, as compared to the three and six months ended June 30, 2020, was due to the ownership interest in the Stations DST.
Funds from Operations and Modified Funds from Operations
The Company defines modified funds from operations (“MFFO”) in accordance with the definition established by the Institute for Portfolio Alternatives, or IPA. The Company’s computation of MFFO may not be comparable to other REITs that do not calculate MFFO using the current IPA definition. MFFO is calculated using funds from operations (“FFO”). The Company computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with accounting principles generally accepted in the United States, or U.S. GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, impairment charges on depreciable property owned directly or indirectly and after adjustments for unconsolidated/uncombined partnerships and joint ventures. FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company’s cash flow generated by operations. The Company’s computation of FFO may not be comparable to other REITs that do not calculate FFO in accordance with the current NAREIT definition. MFFO excludes from FFO the following items, as applicable:
| • | acquisition fees and expenses; |
| • | straight-line rent and amortization of above or below intangible lease assets and liabilities; |
| • | amortization of discounts, premiums and fees on debt investments; |
| • | non-recurring impairment of real estate-related investments; |
| • | realized gains (losses) from the early extinguishment of debt; |
| • | realized gains (losses) on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of the Company’s business; |
| • | unrealized gains (losses) from fair value adjustments on real estate securities, including CMBS and other securities, interest rate swaps and other derivatives not deemed hedges and foreign exchange holdings; |
| • | unrealized gains (losses) from the consolidation from, or deconsolidation to, equity accounting; |
| • | adjustments related to contingent purchase price obligations; and |
| • | adjustments for consolidated and unconsolidated partnerships and joint ventures calculated to reflect MFFO on the same basis as above. |
FFO and MFFO should not be considered as an alternative to net income (determined in accordance with U.S. GAAP) as an indication of performance. In addition, FFO and MFFO do not represent cash generated from operating activities determined in accordance with U.S. GAAP and are not a measure of liquidity. FFO and MFFO should be considered in conjunction with reported net income and cash flows from operations computed in accordance with U.S. GAAP, as presented in the financial statements.
The following table presents a reconciliation of FFO to net income:
Six Months Ended June 30, 2021 |
||||
| Net Income |
$ | 347,552 | ||
| Net income attributable to non-controlling interest |
495,741 | |||
| |
|
|||
| Net income attributable to common stockholders |
$ | 843,293 | ||
| Adjustments: |
||||
| Real estate depreciation and amortization |
5,486,315 | |||
| Proportionate share of adjustments from non-controlling interests |
(1,421,674 | ) | ||
| |
|
|||
| Funds from Operations |
$ | 4,907,934 | ||
| |
|
|||
The following table presents a reconciliation of FFO to MFFO:
Six Months Ended June 30, 2021 |
||||
| Funds from Operations |
$ | 4,907,934 | ||
| Adjustments: |
||||
| Amortization of above-market lease intangibles |
35,910 | |||
| Amortization of below-market lease intangibles |
(423,948 | ) | ||
| Straight-line rent |
(243,774 | ) | ||
| Proportionate share of adjustments from non-controlling interests |
5,512 | |||
| |
|
|||
| Modified Funds from Operations |
$ | 4,281,634 | ||
| |
|
|||
Net Asset Value
On July 16, 2021, the Company’s board of directors approved an estimated NAV as of June 30, 2021 of $24.26 for Class AX, Class IX, and Class I shares, $24.25 for Class D shares and $24.24 for Class TX, Class T and Class S shares. The calculation of the Company’s estimated NAV was performed by Robert A. Stanger & Co., Inc. (“Stanger”), its independent valuation firm, in accordance with the procedures described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus and under the oversight of the Company’s board of directors. Although the independent valuation firm performs the calculation of the Company’s estimated NAV, the Company’s board of directors is solely responsible for the determination of the Company’s estimated NAV.
Summary of Methodology
In accordance with the Company’s current valuation procedures, the Company’s NAV was based in part upon: (i) the most recent appraised value of the GR Property, the FM Property, the CO Property, the Walgreens DST Properties, the SF Property, the Buchanan Property all appraised by Stanger and the Keller Property, the Summerfield Property, the Lewisville Property and the Madison Ave Property prepared by a third-party; (ii) the fair market value of the Company’s Debt Investments (as defined below); (iii) the fair market value of the Company’s loans payable; (iv) the estimated
non-controlling
interest held in the Company’s Consolidated JVs (as defined below); (v) the value of the Company’s interest in the Station DST based upon a third-party appraisal of the Station DST Property (as defined below), the fair market value of the Station DST Property mortgage and other assets and liabilities of the Station DST, all reflecting the Company’s ownership percentage interest in the Station DST; and (vi) the net tangible assets and liabilities of the Company (including the Advisor’s estimate of the Performance Participation Allocation as defined and discussed below) as of June 30, 2021, as outlined in more detail below. Appraisal of Consolidated Real Estate
Pursuant to the Company’s valuation guidelines the Company engaged Stanger to provide its appraised market value of the SF Property as of September 30, 2020, the Buchanan Property as of August 31, 2020, the FM Property as of January 31, 2021, the CO Property as of June 30, 2020, and the GR Property and the Walgreens DST Properties as of March 31, 2021 (collectively, the “Stanger Appraised Properties”). In addition, Stanger reviewed and relied upon the appraised value of the Keller Springs Property prepared by a third-party with an effective date of January 6, 2021, the Summerfield Property prepared by a third-party with an effective date of January 5, 2021, the Lewisville Property prepared by third-party with an effective date of June 15, 2021 and the Madison Ave Property prepared by a third-party with an effective date of June 18, 2021 (together the “Third-Party Appraisals”) (collectively the Stanger Appraised Properties and the Third-Party Appraisals are the “Appraised Properties”). Pursuant to the Company’s engagement agreement with Stanger, the appraisals of the Stanger Appraised Properties were prepared utilizing the income approach to value, specifically using a direct capitalization analysis for the GR Property and the Walgreens DST Properties and both a direct capitalization analysis and discounted cash flow analysis (“DCF”) for the FM Property, the CO Property, the SF Property and the Buchanan Property. In addition, a sales comparison approach was conducted for the SF Property, given the size of the SF Property. The direct capitalization analysis is based upon the estimated net operating income of the Stanger Appraised Properties capitalized at an appropriate capitalization rate considering property characteristics and competitive position, the credit profile of the tenant/guarantor under the leases encumbering the Stanger Appraised Properties, the terms of the leases encumbering the Stanger Appraised Properties, and market conditions as of the date of value. The DCF analysis is based upon multi-year cash flow projections for each applicable property prepared in accordance with the lease which currently encumbers each property. Each property was assumed to be sold after the expiration of the initial lease term and any renewal terms deemed materially favorable to the tenant, or for which exercise was deemed likely based on other factors. The reversion value of the property which can be realized upon sale is calculated based on the current economic rental rate deemed reasonable for the property, escalated at a rate indicative of current expectations in the marketplace for the property. The projected market rate net operating income of the property for the year following the year of sale is then capitalized at an appropriate capitalization rate reflecting the age and anticipated functional and economic obsolescence and competitive position of the property to determine its reversion value. Net proceeds of sale are determined by deducting estimated costs incurred at the time of sale, estimated at 2% of the gross reversion value. Finally, the discounted
present value of the cash flow stream from operations (including any estimated releasing costs at the end of the assumed current lease term) and the discounted present value of the net proceeds from sale are summed to arrive at a total estimated value for the property. The capitalization rates applied to the Stanger Appraised Properties ranged from 5.00% to 6.50%, with a weighted average of approximately 5.97%. The discount rates applied to the estimated net cash flow from operations of the Stanger Appraised Properties for which a DCF analysis was conducted ranged from 5.75% to 7.50%, with a weighted average of approximately 7.07%. The discount rates applied to the estimated residual value of the Stanger Appraised Properties for which a DCF analysis was conducted ranged from 6.25% to 7.75%, with a weighted average of approximately 7.37%. The residual capitalization rates applied to the Stanger Appraised Properties for which a DCF analysis was conducted ranged from 5.50% to 6.75%, with a weighted average of approximately 6.41%. Where both a direct capitalization analysis and DCF was utilized, the indicated value from each approach was reviewed and a final appraised value was concluded. While a sales comparison approach was not conducted, other than for the SF Property, Stanger reviewed regional property sale data for each Stanger Appraised Property in order to assist in the selection of capitalization rates applied in the appraisals and to observe transaction prices per square foot in the Stanger Appraised Properties’ regional markets. For the SF Property, the sales comparison approach conducted utilized the price per square foot from recent market sales and adjusted such indicated price per square foot to a price per square foot deemed reasonable for the SF Property, taking into account factors such as property size, location, tenancy/occupancy and condition/quality and the date of sale. The aggregate appraised value of the Stanger Appraised Properties was $169,270,000. The appraised values of the Stanger Appraised Properties are subject to the general assumptions and limiting conditions set forth in the appraisal reports rendered to the Company by Stanger.
The Third-Party Appraisals utilized the income approach to value (the direct capitalization analysis, discounted cash flow analysis or both) and the sales comparison approach. As with the Stanger Appraised Properties, the direct capitalization analysis utilized was based upon the estimated net operating income of the property capitalized at an appropriate capitalization rate considering property characteristics and competitive position and market conditions as of the appraisal’s date of value. The DCF analysis was based upon multi-year cash flow projections for each property employing a DCF analysis, prepared in accordance with the lease or leases which currently encumber the property. The reversion value of the property, which can be realized upon sale, is calculated based on the current economic rental rate deemed reasonable for the property, escalated at a rate indicative of current expectations in the marketplace for the property. Finally, the discounted present value of the cash flow stream from operations and the discounted present value of the net proceeds from sale are summed to arrive at a total estimated value for the property. The sales comparison approach utilized the price per square foot from recent market sales of similar properties and adjusted such indicated price per square foot to a price per square foot deemed reasonable for the property, considering such factors as property size, location, condition/quality and conditions of sale, property rights sold and date of sale.
Debt Investments
In accordance with the Company’s valuation procedures, the Lancaster PE and the Chicago Jr Mezz (individually a “Debt Investment” and collectively the “Debt Investments”) were included in the determination of NAV at their estimated fair market value as of June 30, 2021, as determined by Stanger. The Debt Investments estimated value was based upon taking, for each Debt Investment, the loan payments over the remaining anticipated term and discounting such payments to present value at a discount rate range equal to the current estimated market interest rate on financing similar to the applicable Debt Investments. To provide their opinion of value of the Debt Investments, Stanger first reviewed the terms of each of the Debt Investments as contained in the loan documents. Stanger then reviewed mezzanine loan market terms at or around June 30, 2021 to ascertain current market interest rate levels for loans similar to the Debt Investments. This review was conducted by (i) recent interviews of participants in the mezzanine / preferred equity market, (ii) reviewing recent mezzanine loan transactions, as available, and (iii) reviewing published surveys available at or around June 30, 2021. Stanger also observed changes in yields and pricing of Albertsons publicly traded debt securities from the prior valuation date and the current valuation date. Based on Stanger’s reviews above and taking into consideration the Debt Investments’ unique factors, including, but not limited to, (based on the appraised value of the collateral), debt service coverage/debt yield, collateral property type, age and location, financial information pertaining to the lessee of the collateral properties, prepayment terms, and loan origination date, maturity date and extension terms, a market interest rate range was determined for each Debt Investment to utilize in the determination of the fair market value of the Debt Investments. The discount rate applied to the future payments of the Company’s Debt Investments was 7.55% for both facilities. The aggregate fair value of the Debt Investments was approximately $25,632,000.
loan-to-value
Estimated Market Value of the Consolidated JVs
In order to determine the net asset value attributable to the
non-controlling
interest and any promoted interest in the Battery Street SF JV, the Keller JV, the Summerfield DST and the Madison Ave Property (collectively the “Consolidated JVs”), Stanger utilized the most recent property appraisal, the most recent balance sheet provided for the Consolidated JVs to determine the tangible assets and tangible liabilities of the Consolidated JVs, including an adjustment for anticipated near term capital repairs at the SF Property not considered in the property appraisal, and determined any promote due to the Company’s Battery Street SF JV partner. This net asset value was then multiplied by the ownership interest held by parties other than us to determine the non-controlling
interest adjustment related to the Consolidated JVs utilized in the Company’s June 30, 2021 NAV. Fair Value of Long Term Debt
Stanger performed a valuation of the property-level debt by reviewing available market data for comparable liabilities and applying a selected discount rate to the stream of future debt payments. The discount rate was selected based on several factors including U.S. Treasury yields as of the valuation date, as well as loan-specific items such as ratio, debt service coverage ratio, collateral property location, age, type, lease term and lessee credit quality, prepayment terms, and maturity and loan origination date. The discount rates applied to the future debt payments of the Company’s long-term debt ranged from 2.20% to 4.45%, with a weighted average of approximately 3.70%. Stanger’s valuation of the long-term debt is based in part on the appraised values of the encumbered Appraised Properties, which represent the collateral associated with the long-term debt as well as certain other assumptions and limiting conditions, including: (i) Stanger was provided with loan documents and other factual loan information by the Advisor and has relied upon and assumed that such information is correct in all material respects and no warranty is given by Stanger as to the accuracy of such information; (ii) each collateral property is assumed to be free and clear of liens (other than the mortgage being valued); (iii) information furnished by others, upon which all or portions of Stanger’s value opinion is based, is believed to be reliable but has not been verified, and no warranty is given as to the accuracy of such information; (iv) no material change has occurred in the value of the collateral properties from the date of last appraisal through the loan valuation date and (v) each mortgage is assumed to be salable, transferable or assumable between parties and is further assumed not to be in default. Stanger’s opinion of the long-term debt value was predicated on the above assumptions.
loan-to-value
Performance Participation Allocation – Special Unit Holder
The special unit holder in Operating Partnership is entitled to receive an allocation equal to 12.5% of the Total Return to the Company’s shareholders, subject to a 5% Hurdle Amount and a High Water Mark, with 100% 2021.
catch-up
(the “Performance Participation Allocation”) based upon a full calendar year. For calculation of the Performance Participation Allocation for 2020 only, the Performance Participation Allocation was based upon the time period from July 31, 2020 (the date such Performance Participation Allocation became effective) through the December 31, 2020. The Total Return, Hurdle Amount, High Water Mark and Catch-Up
are defined in the Company’s prospectus. While the Performance Participation Allocation is due annually, commencing with 2021, the Company accrues such fee monthly. Stanger reviewed and discussed with the Advisor its calculation of the Performance Participation Allocation. The Advisor’s Performance Participation Allocation estimate as of the Valuation Date was $785,783 for 2020 and $1,020,335 for year-to-date
The Value of Station DST Interests
The value of the beneficial interests in the Station DST was based upon the Station DST Property appraisal, the fair market value of the mortgage loan encumbering the Station DST Property as of June 30, 2021 conducted in accordance with the methodology outlined in Fair Value of Long Term Debt above, the other tangible assets and liabilities of the Station DST such as cash and reserves, each reflecting the Company’s ownership interest in the Station DST (15%).
Estimated NAV
In performing the calculation of the estimated NAV, Stanger added the appraised values of the Appraised Properties, the appraised value of the Station DST interests, the fair value of the Debt Investments and other tangible assets of the Company, consisting of cash and equivalents, receivables and other assets, and subtracted the estimated fair market value of the Company’s long-term debt, the value of the
non-controlling
interest in the Consolidated JV (including any promote due to the Company’s joint venture partners), the anticipated near-term capital needs of the SF Property, the estimate of the Performance Participation Allocation and other tangible liabilities of the Company, consisting of accounts payable and accrued expenses, but excluding amounts owed to the Advisor for reimbursement of O&O Costs less the current accrued O&O Costs liability (consistent with the Company’s valuation procedures), and considered any other amounts due to the Advisor or affiliates for repayment of the Sponsor Support or amounts due to the Special Unit Holder upon certain events, including liquidation of the Company to produce an estimated NAV as of June 30, 2021, consistent with the procedures described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus of $24.26 per share for Class AX, Class IX, and Class I shares, $24.25 for Class D shares and $24.24 per share for Class TX, Class T and Class S shares. The determination of NAV involves a number of assumptions and judgments, including estimates of the Advisor’s interest in disposition proceeds (if any). These assumptions and judgments may prove to be inaccurate. There can be no assurance that a stockholder would realize the mostly recently determined NAV per share if the Company were to liquidate or engage in another type of liquidity event today. In particular, the Company’s June 30, 2021 NAV is based on appraisals of the fair market value of certain of the Company’s real estate property investments which precede June 30, 2021 and, while the Company believes no material change has occurred in the value of these real estate property investments between the appraised value dates and June 30, 2021, Stanger has assumed no material change in property value has occurred since the appraisal date for those Appraised Properties with an appraised value date that preceded June 30, 2021. Furthermore, the Company’s June 30, 2021 NAV does not consider fees or expenses that may be incurred in providing a liquidity event, including reimbursement of amounts to the Advisor for O&O Costs and any operating expenses that have not been invoiced by the Advisor in accordance with the terms of the Amended Advisory Agreement. Lastly, as discussed in “PART II — OTHER INFORMATION; Item 1A. – Risk Factors”, the full extent of the impact and effects of
COVID-19
on the Company, as a whole, and on its tenants and its consolidated real estate, loan investments and long-term debt are uncertain at this time. Due to COVID-19,
observable market transactions for both real estate assets and debt are generally more limited than before the pandemic. The Company believes the methodology of determining the Company’s NAV conforms to the Institute for Portfolio Alternative’s Practice Guideline for Valuations of Publicly Registered Non-Listed
REITs (April 2013) and is prepared in accordance with the procedure described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus. In addition, the Company’s board of directors periodically reviews the Company’s NAV policies and procedures. The NAV for each class of shares is based on the value of the Company’s assets and the deduction of any liabilities, and any distribution fees applicable to such class of shares.
The following table provides a breakdown of the major components of the Company’s NAV pursuant to the Company’s valuation guidelines:
| Components of NAV |
June 30, 2021 |
|||
| Investment in real estate |
$ | 391,370,000 | ||
| Investments in real estate-related assets |
33,223,037 | |||
| Cash and cash equivalents (1) |
29,586,597 | |||
| Other assets |
4,744,240 | |||
| Debt obligations |
(194,226,955 | ) | ||
| Due to related parties (2) |
(1,266,170 | ) | ||
| Accounts payable and other liabilities |
(14,464,892 | ) | ||
| Accrued performance participation allocation |
(1,806,119 | ) | ||
| Distribution fee payable the following month (3) |
(38,732 | ) | ||
| Non-controlling interests in subsidiaries |
(66,286,280 | ) | ||
| Sponsor Support repayment / special unit holder interest in liquidation |
— | |||
| |
|
|||
| Net Asset Value |
$ | 180,834,726 | ||
| |
|
|||
| Number of outstanding shares |
7,455,993 | |||
| |
|
|||
| Note: | (1) Net of a reserve of $150,000 for anticipated near-term capital needs (‘Deferred Maintenance”) at the SF Property that was not deducted in its appraised value. |
(2) Excluding the full distribution fee liability of $557,728. Distribution fee only relates to Class TX, Class T, Class D and Class S shares of common stock.
(3) The distribution fee that is payable as of June 30, 2021 related to Class TX, Class T, Class D and Class S shares (see table below). The
non-current
distribution fee payable of $518,996 is not due as of June 30, 2021. | NAV Per Share |
Class AX, IX & I Shares |
Class TX Shares |
Class T Shares |
Class D Shares |
Class S Shares |
Total |
||||||||||||||||||
| Total Gross Assets at Fair Value |
$ | 345,556,460 | $ | 89,457,002 | $ | 15,131,207 | $ | 8,510,904 | $ | 268,301 | $ | 458,923,874 | ||||||||||||
| Distribution fees due and payable |
— | (33,801 | ) | (4,167 | ) | (690 | ) | (74 | ) | (38,732 | ) | |||||||||||||
| Debt obligations |
(146,247,303 | ) | (37,860,225 | ) | (6,403,869 | ) | (3,602,007 | ) | (113,551 | ) | (194,226,955 | ) | ||||||||||||
| Due to related parties |
(953,391 | ) | (246,812 | ) | (41,747 | ) | (23,480 | ) | (740 | ) | (1,266,170 | ) | ||||||||||||
| Accounts payable and other liabilities |
(10,891,648 | ) | (2,819,609 | ) | (476,922 | ) | (268,256 | ) | (8,457 | ) | (14,464,892 | ) | ||||||||||||
| Accrued performance participation allocation |
(1,359,955 | ) | (352,063 | ) | (59,550 | ) | (33,495 | ) | (1,056 | ) | (1,806,119 | ) | ||||||||||||
| Non-controlling interests in subsidiaries |
(49,911,660 | ) | (12,921,036 | ) | (2,185,529 | ) | (1,229,302 | ) | (38,753 | ) | (66,286,280 | ) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Quarterly NAV |
$ | 136,192,503 | $ | 35,223,456 | $ | 5,959,423 | $ | 3,353,674 | $ | 105,670 | $ | 180,834,726 | ||||||||||||
| Number of outstanding shares |
5,614,148 | 1,453,380 | 245,832 | 138,274 | 4,359 | 7,455,993 | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||||||
| NAV per share |
$ | 24.26 | $ | 24.24 | $ | 24.24 | $ | 24.25 | $ | 24.24 | ||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||||||
The following table reconciles stockholders’ equity per the Company’s unaudited consolidated balance sheet to the Company’s NAV:
| Reconciliation of Stockholders’ Equity to NAV |
June 30, 2021 |
|||
| Stockholders’ equity under U.S. GAAP |
$ | 228,888,719 | ||
| Adjustments: |
||||
| Unrealized appreciation of real estate |
12,746,767 | |||
| Unrealized appreciation of real estate-related assets |
1,547,909 | |||
| Acquisition costs |
(4,741,646 | ) | ||
| Deferred financing costs, net |
(1,263,276 | ) | ||
| Accrued distribution fee (1) |
518,996 | |||
| Accumulated depreciation and amortization |
16,535,348 | |||
| Fair value adjustment of debt obligations |
(2,229,771 | ) | ||
| Deferred rent receivable |
(4,732,040 | ) | ||
| Deferred maintenance |
(150,000 | ) | ||
| Non-controlling interests in subsidiaries |
(66,286,280 | ) | ||
| |
|
|||
| NAV |
$ | 180,834,726 | ||
| |
|
|||
| Note: | (1) Accrued distribution fee only relates to Class TX, Class T, Class D and Class S shares of common stock. |
The following details the adjustments to reconcile U.S. GAAP stockholders’ equity to the Company’s NAV:
Unrealized appreciation of real estate
The Company’s investments in real estate are presented at historical cost, including acquisition costs, in the Company’s U.S. GAAP consolidated financial statements. As such, any increases or decreases in the fair market value of the Company’s investments in real estate are not included in the Company’s U.S. GAAP results. For purposes of determining the Company’s NAV, the Company’s investments in real estate are presented at fair value.
Unrealized appreciation of real estate-related assets
The Company’s investments in real estate-related assets are presented at historical cost, including acquisition costs, in the Company’s U.S. GAAP consolidated financial statements. As such, any increases or decreases in the fair market value of the Company’s investments in real estate-related assets are not included in the Company’s U.S. GAAP results. For purposes of determining the Company’s NAV, the Company’s investments in real estate-related assets are presented at fair value.
Organization and offering costs
The Advisor has agreed to pay, on behalf of the Company, all O&O Costs through the Escrow Break Anniversary. Such costs are being reimbursed to the Advisor, ratably, by the Company, over 36 months beginning on May 19, 2018, subject to the 1% Cap (as defined below). After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred (as defined below), but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor, provided, however, that the Company will not be obligated to pay any amounts that as a result of such payment would cause the aggregate payments for O&O Costs (less selling commissions, dealer manager fees and distribution fees) paid to the Advisor to exceed 1% of gross proceeds of the Offering (the “1% Cap”), as of such payment date. As of June 30, 2021, the Advisor has continued to pay all O&O Costs on behalf of the Company. Under U.S. GAAP, the Company’s reimbursement liability pertaining to the O&O Costs is recorded as a component of due to related parties in the Company’s consolidated balance sheet. For NAV, such costs are recognized as a reduction in NAV as they are reimbursed.
Acquisition costs
The Company capitalizes acquisition costs incurred with the acquisition of its investments in real estate in accordance with U.S. GAAP. Such acquisition costs are not included in the value of real estate investments for purposes of determining NAV.
Deferred financing costs, net
Costs incurred in connection with obtaining financing are capitalized and amortized over the term of the related loan in accordance with U.S. GAAP. Such deferred financing costs are not included in the value of debt for purposes of determining NAV.
Accrued distribution fee
Accrued distribution fee represents the accrual for the full cost of the distribution fee for Class TX, Class T, Class D and Class S shares. Under U.S. GAAP, the Company accrues the full cost of the distribution fee as an offering cost at the time it sells the Class TX, Class T, Class D and Class S shares. For purposes of NAV, the Company recognizes the distribution fees as a reduction of NAV on a monthly basis as such fees are due.
Accumulated depreciation and amortization
The Company depreciates its investments in real estate and amortizes certain other assets and liabilities in accordance with U.S. GAAP. Such depreciation and amortization is not considered for purposes of determining NAV.
Fair value adjustment of debt obligations
The Company’s debt obligations are presented at historical cost in the Company’s U.S. GAAP consolidated financial statements. As such, any increases in the fair value of the Company’s debt obligations are not included in the Company’s U.S. GAAP results. For purposes of determining the Company’s NAV, the Company’s debt obligations are presented at fair value.
Deferred rent receivable
Deferred rent receivable represents rent earned in excess of rent received as a result of straight-lining rents over the term of the lease on certain of the Company’s properties. Such deferred rent receivable is not considered for purposes of determining NAV.
Deferred maintenance
Deferred Maintenance represents identified near-term capital needs at the SF Property that were not included in the SF Property appraisal due to the anticipated timing of addressing these capital needs. Such Deferred Maintenance was shown as a charge against cash reserves held by the consolidated Battery Street SF JV in the determination of NAV.
Non-controlling
interests in subsidiaries Non-controlling
interests in subsidiaries represents the equity ownership in a consolidated subsidiary which is not attributable to the Company. The interests are presented at fair value for purposes of determining the Company’s NAV. Sensitivity Analysis
Assuming all other factors remain unchanged, the table below presents the estimated increase or decrease to the Company’s June 30, 2021 NAV for a change in the
going-in
capitalization rate and, where a DCF analysis was utilized, discount rates and terminal capitalization rates used in the Appraised Properties’ appraisals and the Station DST Property appraisal, a 5% change in the discount rates used to value the Company’s Debt Investments and a 5% change in the discount rates used to value the Company’s long-term debt and the mortgage debt encumbering the Station DST Property: | Sensitivity Analysis |
Range of NAV (Class AX, IX & I) |
Range of NAV (Class TX) |
Range of NAV (Class T) |
|||||||||||||||||||||||||||||||||
Low |
Concluded |
High |
Low |
Concluded |
High |
Low |
Concluded |
High |
||||||||||||||||||||||||||||
| Estimated Per Share NAV |
$ | 21.85 | $ | 24.26 | $ | 25.86 | $ | 21.83 | $ | 24.24 | $ | 25.84 | $ | 21.84 | $ | 24.24 | $ | 25.84 | ||||||||||||||||||
| Capitalization Rate - Appraised Properties |
5.79 | % | 5.52 | % | 5.24 | % | 5.79 | % | 5.52 | % | 5.24 | % | 5.79 | % | 5.52 | % | 5.24 | % | ||||||||||||||||||
| Cash Flow Discount Rate - Appraised Properties |
7.29 | % | 6.94 | % | 6.60 | % | 7.29 | % | 6.94 | % | 6.60 | % | 7.29 | % | 6.94 | % | 6.60 | % | ||||||||||||||||||
| Residual Discount Rate - Appraised Properties |
7.55 | % | 7.19 | % | 6.83 | % | 7.55 | % | 7.19 | % | 6.83 | % | 7.55 | % | 7.19 | % | 6.83 | % | ||||||||||||||||||
| Terminal Capitalization Rate - Appraised Properties |
6.65 | % | 6.33 | % | 6.01 | % | 6.65 | % | 6.33 | % | 6.01 | % | 6.65 | % | 6.33 | % | 6.01 | % | ||||||||||||||||||
| Discount Rate - Debt Investments |
7.93 | % | 7.55 | % | 7.17 | % | 7.93 | % | 7.55 | % | 7.17 | % | 7.93 | % | 7.55 | % | 7.17 | % | ||||||||||||||||||
| Discount Rate - Long-Term Debt Consolidated |
3.46 | % | 3.64 | % | 3.82 | % | 3.46 | % | 3.64 | % | 3.82 | % | 3.46 | % | 3.64 | % | 3.82 | % | ||||||||||||||||||
| Sensitivity Analysis |
Range of NAV (Class D) |
Range of NAV (Class S) |
||||||||||||||||||||||
Low |
Concluded |
High |
Low |
Concluded |
High |
|||||||||||||||||||
| Estimated Per Share NAV |
$ | 21.85 | $ | 24.25 | $ | 25.85 | $ | 21.84 | $ | 24.24 | $ | 25.84 | ||||||||||||
| Capitalization Rate - Appraised Properties |
5.79 | % | 5.52 | % | 5.24 | % | 5.79 | % | 5.52 | % | 5.24 | % | ||||||||||||
| Cash Flow Discount Rate - Appraised Properties |
7.29 | % | 6.94 | % | 6.60 | % | 7.29 | % | 6.94 | % | 6.60 | % | ||||||||||||
| Residual Discount Rate - Appraised Properties |
7.55 | % | 7.19 | % | 6.83 | % | 7.55 | % | 7.19 | % | 6.83 | % | ||||||||||||
| Terminal Capitalization Rate - Appraised Properties |
6.65 | % | 6.33 | % | 6.01 | % | 6.65 | % | 6.33 | % | 6.01 | % | ||||||||||||
| Discount Rate - Debt Investments |
7.93 | % | 7.55 | % | 7.17 | % | 7.93 | % | 7.55 | % | 7.17 | % | ||||||||||||
| Discount Rate - Long-Term Debt Consolidated |
3.46 | % | 3.64 | % | 3.82 | % | 3.46 | % | 3.64 | % | 3.82 | % | ||||||||||||
Liquidity and Capital Resources
The Company is dependent upon the net proceeds from its public offerings to conduct its principal operations. The Company will obtain the capital required to purchase real estate and real estate-related investments and conduct its operations from the proceeds of the Offerings, any future offerings, from secured or unsecured financings from banks and other lenders and from any undistributed funds from its operations.
If the Company is unable to raise substantial funds in its public offerings, it will make fewer investments resulting in less diversification in terms of the type, number and size of investments it makes and the value of an investment in the Company will fluctuate with the performance of the limited assets it acquires. Further, the Company will have certain fixed operating expenses, including certain expenses as a public company and a REIT, regardless of whether it is able to raise substantial funds in the offerings. The Company’s inability to raise substantial funds would increase its fixed operating expenses as a percentage of gross income, reducing its net income and limiting its ability to make distributions. As of June 30, 2021, the Company has raised gross proceeds of $189,893,585 in the Offerings.
The Company uses debt financing as a source of capital. The Company’s charter limits the Company from incurring debt if the Company’s borrowings exceed 300% of the cost of the Company’s net assets, which is estimated to approximate 75% of the cost of its tangible assets (before deducting depreciation or other
non-cash
reserves), though the Company may exceed this limit under certain circumstances. Once the Company has fully deployed the proceeds of the Follow-On
Offering, the Company expects its debt financing and other liabilities may likely be approximately 60% of the cost of its tangible assets (before adjusting for depreciation or other non-cash
reserves), although it may exceed this level during the offering stage. As of June 30, 2021, the Company’s debt to tangible assets ratio was 48.6%. See Note 7 – Loans Payable of the Company’s outstanding debt arrangement as of June 30, 2021.
In addition to making investments in accordance with its investment objectives, the Company uses its capital resources to make certain payments to the Advisor and Dealer Manager. In conjunction with the Offerings, payments are made to the Dealer Manager for selling commissions, dealer manager fees, and distribution fee payments. With regards to the total organization and offering costs, including selling commissions, dealer manager fees, distribution fees and reimbursement of other organization and offering costs, will not exceed 15% of the gross proceeds of each Offering, including proceeds from sales of shares under the Company’s distribution reinvestment plan. Additionally, the Company expects to make payments to the Advisor in connection with the management of its assets and costs incurred by the Advisor in providing services to the Company.
The Company anticipates that over time adequate cash will be generated from operations to fund its operating and administrative expenses, continuing debt service obligations and the payment of distributions. However, the Company’s ability to finance its operations is subject to some uncertainties. The Company’s ability to generate working capital is dependent on its ability to attract and retain tenants, investments that generate cash flow, and the economic and business environments of the various markets in which the Company’s properties will be located. The Company’s ability to sell its assets is partially dependent upon the state of real estate markets and the ability of purchasers to obtain financing at reasonable commercial rates.
Cash Flows
The following table provides a breakdown of the net change in the Company’s cash and cash equivalents:
Six Months Ended June 30, 2021 |
||||
| Cash flows from operating activities |
$ | 11,224,470 | ||
| Cash flows from investing activities |
(34,556,018 | ) | ||
| Cash flows from financing activities |
19,543,315 | |||
| |
|
|||
| Decrease in cash and cash equivalents |
$ | (3,788,233 | ) | |
| |
|
|||
Operating Activities
During the six months ended June 30, 2021, net cash provided by operating activities was $11,224,470, compared to $3,277,922 of net cash provided by operating activities for the six months ended June 30, 2020. The change was primarily due to a decrease in net income of $540,733, an increase in depreciation and amortization expenses related to real estate assets and liabilities and deferred financing costs totaling $2,264,695, a net increase in working capital accounts of $5,930,774, and a loss from investments in real-estate related assets of $86,050, offset by an increase in proceeds from investments in real estate-related assets of $205,762 (see “—Results of Operations”).
Investing Activities
Cash used in investing activities was $34,556,018 for the six months ended June 30, 2021, compared to $0 for the six months ended June 30, 2020. The change was due to an increase of $34,556,018 in acquisition of real estate.
Financing Activities
During the six months ended June 30, 2021, net cash provided by financing activities was $19,543,315, compared to $12,820,485 for the six months ended June 30, 2020. The change was primarily due to an increase in proceeds from common stock issued of $10,780,268, an increase in distributions of $548,233, an increase in payments from redemptions of common stock of $2,931,438, an increase in
non-controlling
interest distributions of $23,977, and a payment of deferred financing cost of $553,790. Distributions
The Company’s board of directors has authorized, and the Company has declared, distributions through August 31, 2020 in an amount equal to $0.004253787, and for the period September 1, 2020 through June 30, 2021 in an amount equal to $0.004234973 per day (or approximately $1.55 on an annual basis) per each share of common stock, less, for holders of certain classes of shares, the distribution fees that are payable with respect to such shares as further described in the applicable prospectus. The distributions are payable by the 5th business day following each month end to stockholders of record at the close of business each day during the prior month.
The amount of distributions payable to the Company’s stockholders is determined by the board of directors and is dependent on a number of factors, including funds available for distribution, the Company’s financial condition, capital expenditure requirements, requirements of Maryland law and annual distribution requirements needed to qualify and maintain its status as a REIT. The Company’s board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore distribution payments are not assured.
To ensure that the Company has sufficient funds to cover cash distributions authorized and declared during the Initial Offering, the Company and CFI entered into the Distribution Support Agreement. The terms of the agreement provide that in the event that cash distributions exceed MFFO, defined as a supplemental measure to reflect the operating performance of a
non-traded
REIT, for any calendar quarter through the termination of the Initial Offering, CFI shall purchase Class IX Shares from the Company in an amount equal to the distribution shortfall, up to $5 million (less the $2.0 million of shares purchased by CFI in order to satisfy the Minimum Offering Requirement). On August 10, 2020, the Company and CFI entered into Second Amended and Restated Distribution Support Agreement (the “Amended Distribution Support Agreement”) to ensure that the Company has a sufficient amount of funds to pay cash distributions to stockholders during the Follow-On
Offering. Pursuant to the Amended Distribution Support Agreement, in the event that cash distributions exceed MFFO, CFI will purchase Class I Shares from the Company in the Follow-On
Offering in an amount equal to the distribution shortfall, up to $5 million (less the $2.0 million of shares purchased by CFI in order to satisfy the Minimum Offering Requirement and any shares purchased by CFI pursuant to the distribution support agreement in the Initial Offering). In addition to the shares purchased to satisfy the Minimum Offering Requirement, as of June 30, 2021, CFI has purchased $1,132,280 in Class IX shares pursuant to the Distribution Support Agreement. As of June 30, 2021, CFI’s remaining obligation pursuant to the Amended Distribution Support Agreement is limited to $1,867,720. Under the terms of the Amended Distribution Support Agreement, if the cash distributions the Company pays for any calendar quarter exceed the Company’s MFFO for such quarter, CFI will purchase Class I Shares following the end of such calendar quarter for a purchase price equal to the distribution shortfall. The distribution shortfall is defined in the Amended Distribution Support Agreement as the amount by which the distributions paid on such shares exceed the MFFO for such quarter. In such instance, the Company may be paying distributions from proceeds of the shares purchased by CFI or its affiliates, not from cash flow from operations. Class I Shares purchased by CFI pursuant to the Amended Distribution Support Agreement will be eligible to receive all distributions payable by the Company with respect to Class I Shares.
The following table summarizes the Company’s distributions declared during the three and six months ended June 30, 2021 and June 30, 2020:
Three Months Ended June 30, 2021 |
Six Months Ended June 30, 2021 |
|||||||||||||||
Amount |
Percent |
Amount |
Percent |
|||||||||||||
| Distributions |
||||||||||||||||
| Paid in cash |
$ | 1,697,903 | 48 | % | $ | 2,738,095 | 53 | % | ||||||||
| Payable |
912,324 | 26 | % | 912,324 | 18 | % | ||||||||||
| Reinvested in shares |
914,465 | 26 | % | 1,488,186 | 29 | % | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total distributions |
$ |
3,524,692 |
100 |
% |
$ |
5,138,605 |
100 |
% | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Sources of Distributions: |
||||||||||||||||
| Operating cash flows |
$ | 3,524,692 | 100 | % | $ | 2,657,795 | 52 | % | ||||||||
| Offering proceeds pursuant to Distribution Support Agreement (1) |
— | 0 | % | — | 0 | % | ||||||||||
| Offering proceeds |
— | 0 | % | 2,480,810 | 48 | % | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total sources of distributions |
$ |
3,524,692 |
100 |
% |
$ |
5,138,605 |
100 |
% | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
Three Months Ended June 30, 2020 |
Six Months Ended June 30, 2020 |
|||||||||||||||
Amount |
Percent |
Amount |
Percent |
|||||||||||||
| Distributions |
||||||||||||||||
| Paid in cash |
$ | 945,636 | 43 | % | $ | 2,272,821 | 53 | % | ||||||||
| Payable |
733,307 | 33 | % | 733,307 | 17 | % | ||||||||||
| Reinvested in shares |
530,880 | 24 | % | 1,262,076 | 30 | % | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total distributions |
$ |
2,209,823 |
100 |
% |
$ |
4,268,204 |
100 |
% | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Sources of Distributions: |
||||||||||||||||
| Operating cash flows |
$ | 1,846,878 | 84 | % | $ | 3,277,922 | 76 | % | ||||||||
| Offering proceeds pursuant to Distribution Support Agreement (1) |
24,623 | 1 | % | 24,623 | 1 | % | ||||||||||
| Offering proceeds |
338,322 | 15 | % | 965,659 | 23 | % | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total sources of distributions |
$ |
2,209,823 |
100 |
% |
$ |
4,268,204 |
100 |
% | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Note: | (1) Pursuant to the Amended Distribution Support Agreement, CFI will purchase Class I Shares to the extent cash distributions exceed MFFO within 15 business days following the Company’s filing with the SEC of its periodic report for such calendar quarter or year. |
During the three and six months ended June 30, 2021 the Company declared $3,524,692 and $5,138,605, respectively, of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $2,717,431 and $4,281,634, respectively, for the three and six months ended June 30, 2021, and the Company’s total aggregate net income of $134,036 and $347,552 for such periods, respectively.
During the three and six months ended June 30, 2020 the Company declared $2,209,823 and $4,268,204, respectively, of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $1,655,276 and $3,407,214, respectively, for the three and six months ended June 30, 2020, and the Company’s total aggregate net income of $386,209 and $888,285 for such periods, respectively.
Election as a REIT
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. The Company intends to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify or remain qualified as a REIT. In order to qualify and continue to qualify for taxation as a REIT, the Company generally must distribute annually at least 90% of the Company’s REIT taxable income. REITs are subject to a number of other organizational and operational requirements, including asset, income, share ownership, minimum distribution and other requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, as well as federal income and excise taxes on its undistributed income.
Critical Accounting Policies
Below is a discussion of the accounting policies that management believes are critical to the Company’s principal operations. The Company considers these policies critical because they involve significant judgments and assumptions, and they require estimates about matters that are inherently uncertain and they are important for understanding and evaluating the Company’s reported financial results. The accounting policies have been established to conform with U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP requires management to use judgments in the application of such policies. These judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in the Company’s financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of the Company’s results of operations to those of companies in similar businesses.
Reimbursement of Organization and Offering Costs
The Advisor has agreed to pay, on behalf of the Company, all O&O Costs through the first anniversary of the date on which the Company satisfied the Minimum Offering Requirement, which was May 18 2018 the (“Escrow Break Anniversary”). The Company was not required to reimburse the Advisor for payment of the O&O Costs prior to the Escrow Break Anniversary. After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred, but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor subject to the 1% Cap. Following the Escrow Break Anniversary, the Company began reimbursing the Advisor for payment of the O&O Costs on a monthly basis, which will continue through the period ended May 18, 2021; provided, however, that the Company will not be obligated to pay any amounts that as a result of such payment would cause the aggregate payments for O&O Costs (less selling commissions, dealer manager fees and distribution fees) paid to the Advisor to exceed the 1% Cap as of such payment date. Any amounts not reimbursed in any period are included in determining any reimbursement for a subsequent period. As of June 30, 2021, the Advisor has continued to pay all O&O Costs on behalf of the Company.
Variable Interest Entities
A Variable Interest Entity (“VIE”) is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases the qualitative analysis on the Company’s review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events. A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the Company’s business activities and other interests. The Company reassesses the determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions. As of June 30, 2021, the Company concluded that it had investments in VIEs, and because the Company was deemed the primary beneficiary it consolidated such entities, as described in “Note 10 — Variable Interest Entities” in its accompanying unaudited consolidated financial statements included in Item 1. “Financial Statements (Unaudited) and Supplementary Data.”
Voting Interest Entities
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company will not consolidate a voting interest entity if there are substantive participating rights by other parties and/or
kick-out
rights by a single party. The Company performs on-going
reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and vice versa. Accounting for Investments
Operating Real Estate
Operating real estate will be carried at historical cost less accumulated depreciation. The Company follows the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their useful life. Ordinary repairs and maintenance will be expensed as incurred. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets.
Real Estate Debt Investments
Real estate debt investments will be generally intended to be held to maturity and, accordingly, will be carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments. Real estate debt investments that are deemed to be impaired will be carried at amortized cost less a loan loss reserve, if deemed appropriate. Real estate debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff will be classified as held for sale and recorded at the lower of cost or estimated value.
Revenue Recognition
Operating Real Estate
Rental and other income from operating real estate is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees will be amortized over the life of the investment using the effective interest method. The amortization will be reflected as an adjustment to interest income in earnings. The amortization of a premium or accretion of a discount will be discontinued if such loan is reclassified to held for sale.
Income Taxes
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company will not be subject to U.S. federal income tax with respect to the portion of the Company’s income that meets certain criteria and is distributed annually to stockholders. The Company intends to operate in a manner that allows it to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. The Company will monitor the business and transactions that may potentially impact the Company’s REIT status. If the Company were to fail to meet these requirements, it could be subject to U.S. federal income tax on the Company’s taxable income at regular corporate rates. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. The Company would also be disqualified for the four taxable years following the year during which qualification was lost unless the Company was entitled to relief under specific statutory provisions.
The Company provides for uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Because assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from the Company’s estimates under different assumptions or conditions. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in “Provision for income taxes” in the consolidated statement of operations.
See Note 2 – Summary of Significant Accounting Policies in the accompanying unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q
for information on other accounting policies. Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies in the accompanying unaudited consolidated financial statements included in Part I, Item 1.
Emerging Growth Company
The Company is and will remain an “Emerging Growth Company,” as defined in the JOBS Act, until the earliest to occur of (i) the last day of the fiscal year during which the Company’s total annual gross revenues equal or exceed $1 billion (subject to adjustment for inflation); (ii) the last day of the fiscal year following the fifth anniversary of the Initial Offering; (iii) the date on which the Company has, during the previous three-year period, issued more than $1 billion in
non-convertible
debt; or (iv) the date on which the Company is deemed a large accelerated filer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Additionally, the Company is eligible to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company has chosen to “opt out” of that extended transition period and as a result the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging
growth companies. Section 107 of the JOBS Act provides that the Company’s decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. Otherwise, the Company has not yet made a decision whether to take advantage of any or all of the exemptions available to it under the JOBS Act. Inflation
Some of the Company’s leases with tenants may contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the term of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). The Company may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. However, the Company’s net leases will generally require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce the Company’s exposure to increases in costs and operating expenses resulting from inflation.
Off-Balance
Sheet Arrangements As of June 30, 2021, the Company had no
off-balance
sheet arrangements that have, or are reasonably likely to have, a material effect on the Company’s financial condition, revenue and expenses, results of operations, liquidity, capital expenditures, or capital resources. Contractual Obligations
The following table presents the future principal payment due under the Company’s GR Loan, FM Loan, CO Loan, DST Loan, Buchanan Loan, Keller Loan and Summerfield Loan agreements as of June 30, 2021, which represents the Company’s aggregate contractual obligations and commitments with payments due subsequent to June 30, 2021.
| Year |
Amount |
|||
| 2021 (remaining) |
$ | — | ||
| 2022 |
— | |||
| 2023 |
— | |||
| 2024 |
— | |||
| 2025 |
— | |||
| Thereafter |
191,997,184 | |||
| |
|
|||
| Total |
$ |
191,997,184 |
||
| |
|
|||
EXHIBITS INDEX
The following exhibits are filed herewith:
| * | Filed herewith |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| CANTOR FITZGERALD INCOME TRUST, INC. | ||
| By: |
/s/ Howard W. Lutnick | |
| Howard W. Lutnick | ||
| Chief Executive Officer and Chairman of the Board of Directors | ||
| (Principal Executive Officer) | ||
| By: |
/s/ John C. Griffin | |
| John C. Griffin | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Principal Accounting Officer) | ||
Dated: October 22, 2021