10-Q
Cantor Fitzgerald Income Trust, Inc. (CFTR-PA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---|
For the quarterly period ended September 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
Cantor Fitzgerald Income Trust, Inc.
(Exact name of registrant as specified in its charter)
| Maryland | 81-1310268 |
|---|---|
| (State or other jurisdiction of <br>incorporation or organization) | (I.R.S. Employer <br>Identification No.) |
| 110 E. 59^th^ Street, New York, NY | 10022 |
| (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 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). Yes ☒ No ☐
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 | ☐ |
|---|---|---|---|
| Non-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 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 11, 2021, the registrant had 3,342,447 Class AX Shares, 1,211,154 Class IX Shares, 1,449,546 Class TX Shares, 2,355,399 Class I Shares, 493,882 Class T Shares, 270,120 Class D Shares and 4,362 Class S Shares of $0.01 par value common stock outstanding.
CANTOR FITZGERALD INCOME TRUST, INC.
TABLE OF CONTENTS
| Page | |
|---|---|
| PART I - FINANCIAL INFORMATION | 3 |
| Item 1. Financial Statements (Unaudited) | 3 |
| Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 | 3 |
| Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 | 4 |
| Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2021 and September 30, 2020 | 5 |
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and September 30, 2020 | 7 |
| Notes to Consolidated Financial Statements | 8 |
| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. | 39 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk. | 63 |
| Item 4. Controls and Procedures. | 65 |
| PART II - OTHER INFORMATION | 66 |
| Item 1. Legal Proceedings. | 66 |
| Item 1A. Risk Factors. | 66 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. | 69 |
| Item 3. Defaults Upon Senior Securities. | 69 |
| Item 4. Mine Safety Disclosures. | 69 |
| Item 5. Other Information. | 69 |
| Item 6. Exhibits. | 69 |
| Signatures | 72 |
Item 1. Financial Statements.
CANTOR FITZGERALD INCOME TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| December 31, 2020 | |||||
|---|---|---|---|---|---|
| Assets | |||||
| Investment in real estate, net of accumulated depreciation of 14,853,693 and 8,590,986, respectively | 481,718,306 | $ | 154,790,052 | ||
| Cash and cash equivalents | 15,924,300 | 33,524,830 | |||
| Investments in real estate-related assets | 31,580,885 | 31,966,940 | |||
| Intangible assets, net of accumulated amortization of 8,328,658 and 4,110,547, respectively | 46,514,826 | 18,576,118 | |||
| Operating lease right-of-use asset | 16,486,608 | — | |||
| Deferred rent receivable | 5,197,863 | 1,788,266 | |||
| Prepaid expenses and other assets | 5,185,356 | 431,768 | |||
| Due from related party | 415,835 | 275,464 | |||
| Accrued preferred return receivable | 78,405 | — | |||
| Accrued income from mezzanine loan investment | 69,902 | — | |||
| Total assets | 603,172,286 | $ | 241,353,438 | ||
| Liabilities and Equity | |||||
| Liabilities | |||||
| Loans payable, net of deferred financing costs of 3,118,277 and 764,753, respectively | 307,249,080 | $ | 83,380,431 | ||
| Intangible liabilities, net of accumulated amortization of 1,941,013 and 1,264,464, respectively | 9,545,987 | 7,800,852 | |||
| Operating lease liability | 16,486,608 | — | |||
| Distributions payable | 4,603,228 | 1,595,148 | |||
| Restricted reserves | 2,656,437 | 200,487 | |||
| Due to related parties | 1,816,091 | 1,438,450 | |||
| Deferred revenue | 1,270,014 | 570,362 | |||
| Derivative liabilities, at fair value | 490,615 | — | |||
| Accrued interest payable | 665,073 | 273,200 | |||
| Accounts payable and accrued expenses | 572,953 | 574,925 | |||
| Total liabilities | 345,356,086 | $ | 95,833,855 | ||
| Stockholders' equity | |||||
| Controlling interest | |||||
| Preferred stock, 0.01 par value per share, 50,000,000 shares authorized,<br> and 0 issued and outstanding at each September 30, 2021 and December 31, 2020 | — | — | |||
| Class AX common stock, 0.01 par value per share, 10,000,000 shares authorized,<br> and 3,348,499 and 3,458,541 issued and outstanding at September 30, 2021 and<br> December 31, 2020, respectively | 33,485 | 34,585 | |||
| Class TX common stock, 0.01 par value per share, 5,000,000 shares authorized,<br> and 1,449,782 and 1,472,875 issued and outstanding at September 30, 2021 and<br> December 31, 2020, respectively | 14,498 | 14,729 | |||
| Class IX common stock, 0.01 par value per share, 5,000,000 shares authorized,<br> and 1,206,643 and 1,218,108 issued and outstanding at September 30, 2021 and<br> December 31, 2020, respectively | 12,067 | 12,181 | |||
| Class T common stock, 0.01 par value per share, 100,000,000 shares authorized,<br> and 382,990 and 44,884 issued and outstanding at September 30, 2021 and<br> December 31, 2020, respectively | 3,830 | 449 | |||
| Class S common stock, 0.01 par value per share, 20,000,000 shares authorized,<br> and 4,361 issued and 1,567 outstanding at each September 30, 2021 and<br> December 31, 2020, respectively | 44 | 16 | |||
| Class D common stock, 0.01 par value per share, 60,000,000 shares authorized,<br> and 236,761 issued and 39,281 outstanding at each September 30, 2021 and<br> December 31, 2020, respectively | 2,368 | 393 | |||
| Class I common stock, 0.01 par value per share, 200,000,000 shares authorized,<br> and 1,824,875 and 160,013 issued and outstanding at September 30, 2021 and<br> December 31, 2020, respectively | 18,249 | 1,600 | |||
| Additional paid-in capital | 210,572,471 | 161,040,483 | |||
| Retained earnings/accumulated deficit and cumulative distributions | (25,220,280 | ) | (17,735,594 | ) | |
| Accumulated other comprehensive income/(loss) | (490,615 | ) | — | ||
| Total controlling interest | 184,946,117 | 143,368,842 | |||
| Non-controlling interests in subsidiaries | 72,870,083 | 2,150,741 | |||
| Total stockholders' equity | 257,816,200 | 145,519,583 | |||
| Total liabilities and stockholders' equity | 603,172,286 | $ | 241,353,438 |
All values are in US Dollars.
See accompanying notes to consolidated financial statement
CANTOR FITZGERALD INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months | For the Nine Months | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Ended September 30, | Ended September 30, | |||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||
| Revenues: | ||||||||||||
| Rental revenues | $ | 9,147,449 | $ | 3,069,547 | $ | 19,739,260 | $ | 9,208,642 | ||||
| Preferred return income | 240,441 | 237,123 | 713,484 | 706,214 | ||||||||
| Income from mezzanine loan investment | 256,532 | 252,992 | 761,039 | 753,475 | ||||||||
| Tenant reimbursement income | 1,137,744 | 300,156 | 2,613,987 | 1,177,981 | ||||||||
| Total revenues | 10,782,166 | 3,859,818 | 23,827,770 | 11,846,312 | ||||||||
| Operating expenses (income): | ||||||||||||
| General and administrative expenses | 173,978 | 29,464 | 333,486 | 117,668 | ||||||||
| Depreciation and amortization | 4,903,917 | 1,629,668 | 10,390,232 | 4,889,002 | ||||||||
| Management fees | 740,212 | 461,891 | 1,921,679 | 1,328,016 | ||||||||
| Property operating expenses | 2,870,389 | 286,322 | 5,688,124 | 1,264,516 | ||||||||
| Total operating expenses | 8,688,496 | 2,407,345 | 18,333,521 | 7,599,202 | ||||||||
| Other income (expense): | ||||||||||||
| Income/(loss) from investments in real estate-related assets | 9,842 | — | (76,208 | ) | — | |||||||
| Interest income | 1,665 | 3,042 | 8,548 | 55,394 | ||||||||
| Interest expense | (2,699,134 | ) | (990,020 | ) | (5,672,994 | ) | (2,948,724 | ) | ||||
| Total other income (expense) | (2,687,627 | ) | (986,978 | ) | (5,740,654 | ) | (2,893,330 | ) | ||||
| Net income (loss) | $ | (593,957 | ) | $ | 465,495 | $ | (246,405 | ) | $ | 1,353,780 | ||
| Net income (loss) attributable to non-controlling interest | (496,260 | ) | 7,626 | (992,001 | ) | (9,121 | ) | |||||
| Net income (loss) attributable to common stockholders | $ | (97,697 | ) | $ | 457,869 | $ | 745,596 | $ | 1,362,901 | |||
| Weighted average shares outstanding | 8,185,243 | 6,148,092 | 7,369,463 | 5,875,372 | ||||||||
| Net income (loss) per common share - basic and diluted | $ | (0.01 | ) | $ | 0.07 | $ | 0.10 | $ | 0.23 |
See accompanying notes to consolidated financial statements
CANTOR FITZGERALD INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| Controlling Interest | ||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Retained<br><br><br>Earnings/ | ||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | Accumulated<br><br><br>Deficit and | Accumulated<br><br><br>Other | Non- | Total | |||||||||||||||||||||||||||||||||||||||||||
| Class AX | Class TX | Class IX | Class I | Class T | Class D | Class S | Paid-In | Cumulative | Comprehensive | controlling | Stockholders' | |||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Distributions | Income/(loss) | interest | Equity | ||||||||||||||||||||||||||||||
| Balance as of<br><br><br>January 1, 2020 | 3,158,796 | $ | 31,580 | 1,327,819 | $ | 13,278 | 853,734 | $ | 8,537 | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 135,507,823 | $ | (10,543,287 | ) | $ | — | $ | 3,038,918 | $ | 128,056,849 | ||||||||||||||
| Common stock | 150,441 | 1,512 | 66,220 | 662 | 215,102 | 2,151 | — | — | — | — | — | — | — | — | 11,035,494 | — | — | — | 11,039,819 | |||||||||||||||||||||||||||||
| Common stock repurchased | (17,256 | ) | (173 | ) | (8,028 | ) | (80 | ) | — | — | — | — | — | — | — | — | — | — | (620,406 | ) | — | — | — | (620,659 | ) | |||||||||||||||||||||||
| Distribution reinvestment | 17,854 | 179 | 6,722 | 67 | 3,808 | 38 | — | — | — | — | — | — | — | — | 711,122 | — | — | — | 711,406 | |||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (381,233 | ) | — | — | — | (381,233 | ) | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 500,845 | — | 1,231 | 502,076 | |||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,058,381 | ) | — | — | (2,058,381 | ) | |||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (16,500 | ) | (16,500 | ) | |||||||||||||||||||||||||||
| Balance as of<br><br><br>March 31, 2020 | 3,309,835 | $ | 33,098 | 1,392,733 | $ | 13,927 | 1,072,644 | $ | 10,726 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | 146,252,800 | $ | (12,100,823 | ) | $ | — | $ | 3,023,649 | $ | 137,233,377 | ||||||||||||||||
| Common stock | 144,689 | 1,447 | 49,180 | 492 | 89,113 | 892 | — | — | — | — | — | — | — | — | 7,113,748 | — | — | — | 7,116,579 | |||||||||||||||||||||||||||||
| Common stock repurchased | (62,524 | ) | (625 | ) | (8,544 | ) | (85 | ) | (15,887 | ) | (159 | ) | — | — | — | — | — | — | — | — | (2,021,342 | ) | — | — | — | (2,022,211 | ) | |||||||||||||||||||||
| Distribution reinvestment | 18,823 | 188 | 7,391 | 74 | 5,723 | 57 | — | — | — | — | — | — | — | — | 785,939 | — | — | — | 786,258 | |||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (288,354 | ) | — | — | — | (288,354 | ) | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 404,187 | — | (17,978 | ) | 386,209 | ||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,209,823 | ) | — | — | (2,209,823 | ) | |||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (27,500 | ) | (27,500 | ) | |||||||||||||||||||||||||||
| Balance as of June 30, 2020 | 3,410,823 | $ | 34,108 | 1,440,760 | $ | 14,408 | 1,151,593 | $ | 11,516 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | 151,842,791 | $ | (13,906,459 | ) | $ | — | $ | 2,978,171 | $ | 140,974,535 | ||||||||||||||||
| Common stock | 79,333 | 793 | 35,693 | 356 | 58,024 | 581 | 13,736 | 137 | 4,083 | 41 | — | — | — | — | 4,619,970 | — | — | — | 4,621,878 | |||||||||||||||||||||||||||||
| Common stock repurchased | (32,490 | ) | (325 | ) | (1,941 | ) | (19 | ) | (2,969 | ) | (30 | ) | — | — | — | — | — | — | — | — | (884,560 | ) | — | — | — | (884,934 | ) | |||||||||||||||||||||
| Distribution reinvestment | 20,274 | 203 | 8,151 | 82 | 6,648 | 66 | — | — | — | — | — | — | — | — | 831,338 | — | — | — | 831,689 | |||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (172,830 | ) | — | — | — | (172,830 | ) | |||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 457,869 | — | 7,626 | 465,495 | |||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,324,137 | ) | — | — | (2,324,137 | ) | |||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Balance as of<br><br><br>September 30, 2020 | 3,477,940 | $ | 34,779 | 1,482,663 | $ | 14,827 | 1,213,296 | $ | 12,133 | 13,736 | $ | 137 | 4,083 | $ | 41 | — | $ | — | — | $ | — | $ | 156,236,709 | $ | (15,772,727 | ) | $ | — | $ | 2,985,797 | $ | 143,511,696 |
See accompanying notes to consolidated financial statements
CANTOR FITZGERALD INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
| Controlling Interest | |||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Retained<br><br><br>Earnings/ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional | Accumulated<br><br><br>Deficit and | Accumulated<br><br><br>Other | Non- | Total | ||||||||||||||||||||||||||||||||||||||||||||||
| Class AX | Class TX | Class IX | Class I | Class T | Class D | Class S | Paid-In | Cumulative | Comprehensive | controlling | Stockholders' | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Distributions | Income/(loss) | interest | Equity | |||||||||||||||||||||||||||||||||
| Balance as of<br><br><br>January 1, 2021 | 3,458,541 | $ | 34,585 | 1,472,875 | $ | 14,729 | 1,218,108 | $ | 12,181 | 160,013 | $ | 1,600 | 44,884 | $ | 449 | 39,281 | $ | 393 | 1,567 | $ | 16 | 161,040,483 | (17,735,594 | ) | — | 2,150,741 | 145,519,583 | ||||||||||||||||||||||||
| Common stock | — | — | — | — | — | — | 281,800 | 2,818 | 98,221 | 982 | 76,298 | 763 | — | — | 10,986,960 | — | — | — | 10,991,523 | ||||||||||||||||||||||||||||||||
| Common stock repurchased | (29,237 | ) | (292 | ) | (20,547 | ) | (206 | ) | (28,993 | ) | (290 | ) | — | — | — | — | — | — | — | — | (1,883,650 | ) | — | — | — | (1,884,438 | ) | ||||||||||||||||||||||||
| Distribution reinvestment | 19,855 | 199 | 7,967 | 80 | 6,856 | 69 | 1,193 | 12 | 188 | 2 | 219 | 2 | 1 | — | 867,260 | — | — | — | 867,624 | ||||||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (160,379 | ) | — | — | — | (160,379 | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 134,185 | — | 79,331 | 213,516 | ||||||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,480,810 | ) | — | — | (2,480,810 | ) | ||||||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 43,138,777 | 43,138,777 | ||||||||||||||||||||||||||||||||
| Balance as of<br><br><br>March 31, 2021 | 3,449,159 | $ | 34,492 | 1,460,295 | $ | 14,603 | 1,195,971 | $ | 11,960 | 443,006 | $ | 4,430 | 143,293 | $ | 1,433 | 115,798 | $ | 1,158 | 1,568 | $ | 16 | $ | 170,850,674 | $ | (20,082,219 | ) | $ | — | $ | 45,368,849 | $ | 196,205,396 | |||||||||||||||||||
| Common stock | — | — | — | — | — | — | 599,495 | 5,995 | 102,256 | 1,022 | 24,145 | 242 | 2,790 | 28 | 17,699,493 | — | — | — | 17,706,780 | ||||||||||||||||||||||||||||||||
| Common stock repurchased | (99,469 | ) | (995 | ) | (15,016 | ) | (150 | ) | (2,994 | ) | (30 | ) | — | — | — | — | (2,183 | ) | (22 | ) | — | — | (2,897,407 | ) | — | — | — | (2,898,604 | ) | ||||||||||||||||||||||
| Distribution reinvestment | 19,899 | 199 | 8,101 | 81 | 6,877 | 69 | 2,204 | 22 | 283 | 3 | 514 | 5 | 1 | — | 914,086 | — | — | — | 914,465 | ||||||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (242,943 | ) | — | — | — | (242,943 | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 709,108 | — | (575,072 | ) | 134,036 | |||||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (2,657,795 | ) | — | — | (2,657,795 | ) | ||||||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 19,727,384 | 19,727,384 | ||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | 3,369,589 | $ | 33,696 | 1,453,380 | $ | 14,534 | 1,199,854 | $ | 11,999 | 1,044,705 | $ | 10,447 | 245,832 | $ | 2,458 | 138,274 | $ | 1,383 | 4,359 | $ | 44 | $ | 186,323,903 | $ | (22,030,906 | ) | $ | — | $ | 64,521,161 | $ | 228,888,719 | |||||||||||||||||||
| Common stock | — | — | — | — | — | — | 775,827 | 7,759 | 136,657 | 1,367 | 98,012 | 980 | 1 | — | 24,702,149 | — | — | — | 24,712,255 | ||||||||||||||||||||||||||||||||
| Common stock repurchased | (40,694 | ) | (407 | ) | (11,642 | ) | (116 | ) | — | — | — | — | — | — | — | — | — | — | (1,283,142 | ) | — | — | — | (1,283,665 | ) | ||||||||||||||||||||||||||
| Distribution reinvestment | 19,604 | 196 | 8,044 | 80 | 6,789 | 68 | 4,343 | 43 | 501 | 5 | 475 | 5 | 1 | — | 968,294 | — | — | — | 968,691 | ||||||||||||||||||||||||||||||||
| Offering costs, commissions<br><br><br>and fees | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (357,761 | ) | — | — | — | (357,761 | ) | ||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (97,697 | ) | — | (496,260 | ) | (593,957 | ) | |||||||||||||||||||||||||||||
| Distributions declared on<br><br><br>common stock | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (3,091,677 | ) | — | — | (3,091,677 | ) | ||||||||||||||||||||||||||||||
| Designated derivatives, fair<br><br><br>value adjustments | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | (490,615 | ) | — | (490,615 | ) | ||||||||||||||||||||||||||||||
| Acquired non-controlling<br><br><br>interest | 219,028 | 219,028 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Non-controlling interests | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | — | 8,845,182 | 8,845,182 | ||||||||||||||||||||||||||||||||
| Balance as of<br><br><br>September 30, 2021 | 3,348,499 | $ | 33,485 | 1,449,782 | $ | 14,498 | 1,206,643 | $ | 12,067 | 1,824,875 | $ | 18,249 | 382,990 | $ | 3,830 | 236,761 | $ | 2,368 | 4,361 | $ | 44 | $ | 210,572,471 | $ | (25,220,280 | ) | $ | (490,615 | ) | $ | 72,870,083 | $ | 257,816,200 |
See accompanying notes to consolidated financial statements
CANTOR FITZGERALD INCOME TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| For the Nine Months | ||||||
|---|---|---|---|---|---|---|
| Ended September 30, | ||||||
| 2021 | 2020 | |||||
| Cash flows from operating activities: | ||||||
| Net income (loss) | $ | (246,405 | ) | $ | 1,353,780 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 10,572,936 | 4,946,590 | ||||
| Loss from investments in real estate-related assets | 76,208 | — | ||||
| Amortization of above-market lease intangibles | 85,003 | 22,721 | ||||
| Amortization of below-market lease intangibles | (676,550 | ) | (635,917 | ) | ||
| Changes in assets and liabilities: | ||||||
| Proceeds from investments in real estate-related assets | 309,847 | — | ||||
| (Increase) in deferred rent receivable | (3,409,597 | ) | (427,458 | ) | ||
| (Increase) in accrued preferred return receivable | (78,405 | ) | (77,323 | ) | ||
| (Increase) in accrued income from mezzanine loan investment | (69,902 | ) | (68,940 | ) | ||
| (Increase)/decrease in prepaid expenses and other assets | (4,033,588 | ) | 1,488 | |||
| (Increase) in due from related party | (140,371 | ) | (275,464 | ) | ||
| Increase in due to related parties | 165,217 | 34,158 | ||||
| Increase/(decrease) in deferred revenue | 699,652 | (84,833 | ) | |||
| Increase in distribution payable | 540,237 | — | ||||
| Increase in restricted reserves | 2,455,950 | 235,891 | ||||
| (Decrease)/increase in accounts payable and accrued expenses | (447,380 | ) | 25,161 | |||
| Increase/(decrease) in accrued interest payable | 391,873 | (10,551 | ) | |||
| Net cash provided by operating activities | 6,194,725 | 5,039,303 | ||||
| Cash flows from investing activities: | ||||||
| Acquisition of real estate | (124,746,506 | ) | — | |||
| Cash used in investing activities | (124,746,506 | ) | — | |||
| Cash flows from financing activities: | ||||||
| Borrowings under credit facility | 63,170,173 | — | ||||
| Proceeds from issuance of common stock, net | 52,141,899 | 21,293,396 | ||||
| Distributions | (5,251,160 | ) | (4,168,522 | ) | ||
| Payments from redemptions of common stock | (5,621,298 | ) | (2,642,871 | ) | ||
| Non-controlling interest distributions | (957,718 | ) | (44,000 | ) | ||
| Payment of deferred financing costs | (2,530,645 | ) | — | |||
| Net cash provided by financing activities | 100,951,251 | 14,438,003 | ||||
| Net (decrease)/increase in cash and cash equivalents | (17,600,530 | ) | 19,477,306 | |||
| Cash and cash equivalents, at beginning of period | 33,524,830 | 17,305,001 | ||||
| Cash and cash equivalents, at end of period | $ | 15,924,300 | $ | 36,782,307 | ||
| Supplemental disclosure of cash flow information: | ||||||
| Cash paid for interest | $ | 5,136,958 | $ | 2,901,688 | ||
| Non-cash investing and financing activities: | ||||||
| Distribution reinvestment | $ | 2,750,780 | $ | 2,329,353 | ||
| Distributions payable | $ | 2,467,843 | $ | 94,466 | ||
| Assumption of loans payable in conjunction with acquisitions of real estate | $ | 163,052,000 | $ | — | ||
| Acquired non-controlling interests | $ | 75,127,589 | $ | — |
See accompanying notes to consolidated financial statements
Note 1 – Organization and Business Purpose
Cantor Fitzgerald Income Trust, Inc., formerly known as Rodin Global Property Trust, Inc. (the “Company”), was formed on February 2, 2016 as a Maryland corporation that has elected and qualified to be taxed as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes beginning with the taxable year ending December 31, 2017. The Company’s unaudited consolidated financial statements include Cantor Fitzgerald Income Trust Operating Partnership, L.P., formerly known as Rodin Global Property Trust Operating Partnership, L.P. (the “Operating Partnership”) and its operating subsidiaries. Substantially all of the Company’s business is conducted through the Operating Partnership, a Delaware partnership formed on February 11, 2016. The Company is the sole general and a limited partner of the Operating Partnership. Unless the context otherwise requires, the “Company” refers to the Company and the Operating Partnership. The Company currently operates its business in one reportable segment, which focuses on investing in and managing income-producing commercial properties and other real estate-related assets.
On February 2, 2016, the Company was capitalized with a $200,001 investment by the Company’s sponsor, Cantor Fitzgerald Investors, LLC (“CFI”) through the purchase of 8,180 Class A shares. In addition, a wholly owned subsidiary of CFI, Cantor Fitzgerald Income Trust OP Holdings, LLC, formerly known as Rodin Global Property Trust OP Holdings, LLC, (the “Special Unit Holder”), has invested $1,000 in the Operating Partnership and has been issued a special class of limited partnership units (“Special Units”), which is recorded as a non-controlling interest on the consolidated balance sheet as of September 30, 2021. The Company registered with the Securities and Exchange Commission (“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 (the “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”). On May 18, 2017, the Company satisfied the minimum offering requirement as a result of CFI’s purchase of $2.0 million in Class I shares (the “Minimum Offering Requirement”). 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”). Subsequently, on July 31, 2020, the Company terminated the Primary Offering but is continuing to offer up to $50.0 million of common stock pursuant to the DRP. On August 10, 2020, the SEC declared the Follow-On Offering effective. 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 the DRP. 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 (Refer to Note 8 – Stockholders’ Equity).
Upon commencement of the Follow-On Offering, on August 10, 2020, the Company began operating as a non-exchange traded perpetual-life REIT instead of operating as a REIT of finite duration. In connection with the determination to operate as a perpetual-life REIT, the Company’s board of directors has determined to update the Company’s investment strategy. 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. Currently, 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 its assets in properties and real estate-related debt; and (b) up to 20% of its assets in real estate-related securities.
As of September 30, 2021, the Company owned 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 (80.26%) in an affiliated joint venture 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. |
| --- | --- |
| • | 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”). |
| --- | --- |
| • | An industrial property located in Cleveland, OH (the “Madison Ave Property”). |
| --- | --- |
| • | A controlling interest (9.91%) in a Delaware Statutory Trust, (the “Valencia DST”), which owns a life sciences laboratory and research office property located in Valencia, California (the “Valencia Property”). |
| --- | --- |
| • | An office property located in Cupertino, CA (the “De Anza Property”). |
| --- | --- |
The Company is externally managed by Cantor Fitzgerald Income Advisors, LLC, formerly known as Rodin Global Property Advisors, LLC (the “Advisor”), a Delaware limited liability company and wholly owned subsidiary of CFI. CFI is a wholly owned subsidiary of CFIM Holdings, LLC, which is a wholly owned subsidiary of Cantor Fitzgerald, L.P. (“CFLP”).
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. In the opinion of management, the accompanying consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with U.S. GAAP. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet. Management believes that the estimates utilized in preparing the consolidated financial statements are reasonable. As such, actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and any single member limited liability companies or other entities which are consolidated in accordance with U.S. GAAP. The Company consolidates variable interest entities (“VIEs”) where it is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All intercompany balances are eliminated in consolidation.
Variable Interest Entities
The Company determines if an entity is a VIE in accordance with guidance in Accounting Standards Codification (“ASC”) Topic 810, Consolidation. For an entity in which the Company has acquired an interest, the entity will be considered a VIE if both of the following characteristics are not met: 1) the equity investors in the entity have the characteristics of a controlling financial interest and 2) the equity investors’ total investment at risk is sufficient to finance the entity’s activities without additional subordinated financial support. The Company makes judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. A qualitative analysis is generally based on a review of the design of the entity, including its control structure and decision-making abilities, and also its financial structure. In a quantitative analysis, the Company would incorporate various estimates, including estimated future cash flows, assumed hold periods and capitalization or discount rates.
If an entity is determined to be a VIE, the Company then determines whether to consolidate the entity as the primary beneficiary. The primary beneficiary has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the entity.
The Company evaluates all of its investments in real estate-related assets to determine if they are VIEs utilizing judgments and estimates that are inherently subjective. If different judgments or estimates were used for these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. As of September 30, 2021 and December 31, 2020, the Company concluded that it had investments in VIEs. Refer to Note 10 — Variable Interest Entities for additional information.
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 ongoing 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.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.
Deferred Rent Receivable
Deferred rent receivable represents rent earned in excess of rent received as a result of straight-lining rents over the terms of the leases on the FM Property, the CO Property, the Lewisville Property, the SF Property, the Buchanan Property, the DST, the Madison Ave Property, the Valencia Property, and the De Anza Property in accordance with ASC Topic 842, Leases. As of September 30, 2021 and December 31, 2020, Deferred rent receivable was $5,197,863 and $1,788,266, respectively.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist primarily of prepaid operating expenses and reimbursements due from tenants.
Investment in Real Estate, net
Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the costs of acquisition, including certain acquisition-related expenses, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance costs are expensed as incurred. The Company accounts for its acquisitions (or disposals) of assets or businesses in accordance with ASC Topic 805, Business Combinations.
Upon the acquisition of real estate properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above-market leases, below-market leases, and in-place leases, based in each case on their respective fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and buildings). The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.
The Company considers the period of future benefit of each respective asset to determine its appropriate useful life. The estimated useful lives of the Company’s real estate assets by class are generally as follows:
| Description | Depreciable Life |
|---|---|
| Buildings | 39 years |
| Site improvements | Over lease term |
| Intangible lease assets and liabilities | Over lease term |
The determination of the fair values of the real estate assets and liabilities acquired requires the use of assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment losses were recorded during the nine months ended September 30, 2021 or September 30, 2020 after the Company assessed the recoverability of its assets. As of September 30, 2021 and December 31, 2020, no impairment losses have been identified.
Investments in Real Estate-Related Assets
Mezzanine Loan Investment
The Company has made a mezzanine loan investment through the Illinois SPE. Mezzanine loan investments are generally intended to be held for investment and, accordingly, are carried at cost, net of unamortized fees, premiums, discounts and unfunded commitments. Mezzanine loan investments that are deemed to be impaired are carried at amortized cost less a loss reserve, if deemed appropriate. Mezzanine loan investments for which the Company does not have the intent to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
Mezzanine loan investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and income from mezzanine loan amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loss reserves on a periodic basis. Significant judgment of management is required in this analysis. The Company considers the estimated net recoverable value of the mezzanine loan investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the mezzanine loan investment, a loss reserve is recorded with a corresponding charge to provision for losses. The loss reserve for each mezzanine loan investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a mezzanine loan investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired mezzanine loan investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired mezzanine loan investment is not in doubt, contractual income from mezzanine loan is recorded as income from mezzanine loan when received, under the cash basis method until an accrual is resumed when the mezzanine loan investment becomes contractually current and performance is demonstrated to be resumed. A mezzanine loan investment is written off when it is no longer realizable and/or legally discharged. No impairment losses were recorded during the nine months ended September 30, 2021 or September 30, 2020 after the Company assessed the recoverability of its assets. As of September 30, 2021 and December 31, 2020, no impairment losses have been identified.
Preferred Equity Investment
The Company has made a preferred equity investment in the Pennsylvania SPE, an entity that holds commercial real estate. Preferred equity investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized fees, premium, discount and unfunded commitments. Preferred Equity investments that are deemed to be impaired are carried at amortized cost less a loss reserve, if deemed appropriate. Preferred equity investments where the Company does not have the intent to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
Preferred equity investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and preferred return income amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loss reserves on a periodic basis. Significant judgment of management is required in this analysis. The Company considers the estimated net recoverable value of the preferred equity investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the preferred equity investment, a loss reserve is recorded with a corresponding charge to provision for losses. The loss reserve for each preferred equity investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a preferred equity investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired preferred equity investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired preferred equity investment is not in doubt, contractual preferred return income is recorded as preferred return income when received, under the cash basis method until an accrual is resumed when the preferred return investment becomes contractually current and performance is demonstrated to be resumed. A preferred return investment is written off when it is no longer realizable and/or legally discharged. No impairment losses were recorded during the nine months ended September 30, 2021 or September 30, 2020 after the Company assessed the recoverability of its assets. As of September 30, 2021 and December 31, 2020, no impairment losses have been identified.
Unconsolidated Equity Method Investments
The Company performs consolidation analysis in accordance with ASC Topic 810, Consolidation, as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies. The Company has determined, as a result of its analysis, that it is not the primary beneficiary of its investment in the Station DST, and therefore has not consolidated the entity. The Company has accounted for its investment in the Station DST, which is controlled and managed by CFI, under the equity method of accounting, and included within Investments in real estate-related assets on the Company’s consolidated balance sheet. In accordance with ASC Topic 323, Investments-Equity Method and Joint Ventures, the Company is able to exercise significant influence over this investee. Under the equity method, the investment is adjusted each period for capital contributions and distributions and its share of the entity’s net income (loss). Capital contributions, distributions and net income (loss) of such entity is recorded in accordance with the terms of the governing documents. An allocation of net income (loss) may differ from the stated ownership percentage interest in such entity as a result of preferred returns and allocation formulas, if any, as described in such governing documents. Investments in real estate-related assets are periodically reviewed for impairment based on projected cash flows from the underlying investment. If an impairment is identified, the carrying value of the investment will be reduced to the anticipated recoverable amount. As of September 30, 2021 and December 31, 2020, no impairment has been identified.
Deferred Financing Costs
Costs incurred in connection with obtaining financing are capitalized and amortized over the term of the related loan on a straight-line basis, which approximates the effective interest method. The carrying value of the deferred financing costs at September 30, 2021 and December 31, 2020 was $3,118,277 and $764,753, respectively, which is net of accumulated amortization of $335,163 and $158,042, respectively, and recorded as an offset to the related debt. For the nine months ended September 30, 2021 and September 30, 2020, amortization of deferred financing costs was $177,121 and $57,587, respectively, and for the three months ended September 30, 2021 and September 30, 2020, amortization of deferred financing costs was $121,855 and $19,274, respectively and is included in Interest expense on the accompanying consolidated statements of operations.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the life of the respective leases.
Preferred return income from the Company’s preferred equity investment is recognized when earned and accrued based on the outstanding investment balance.
Income from mezzanine loan investment is recognized when earned and accrued based on the outstanding loan balance.
Derivative Instruments
The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in foreign operations. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If the Company elects not to apply hedge accounting treatment (or for derivatives that do not qualify as hedges), any changes in the fair value of these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statements of operations. If a derivative is designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income (loss) to the extent that it is effective. Any ineffective portion of a change in derivative fair value is immediately recorded in earnings.
Due from Related Party
Due from related party includes amounts owed to the Company by CFI pursuant to the terms of the sponsor support agreement for the reimbursement of selling commissions and dealer manager fees, as well as other amounts from the Advisor, which at September 30, 2021 and December 31, 2020 was $415,835 and $275,464, respectively. Due to the termination of the Primary Offering, there was no Sponsor Support (as defined below in Note 9 – Related Party Transactions) outstanding at September 30, 2021.
Deferred Revenue
Deferred revenue represents unearned rent received in advance from tenants at certain of the Company’s properties, which at September 30, 2021 and December 31, 2020 was $1,270,014 and $570,362, respectively.
Distribution Payable
Distribution payable is comprised of amounts of distributions declared by the Company but not yet paid and accrued distributions relating to the Performance Participation Allocation (as defined below in Note 8 – Stockholder’s Equity).
Also included within distribution payable is $540,237 due to certain specific affiliates, including the Sponsor, who are entitled to distributions based on their indirect equity interest in the Summerfield DST (as further described in Note 9 – Related Party Transactions). As of September 30, 2021, return of capital distributions were and are derived from net escrow break proceeds from the syndication of the Summerfield DST beneficial interest offering, with the related proceeds held and reported in cash and cash equivalents on the accompanying consolidated balance sheet. The distribution payable amount was relieved and paid during October 2021.
As of September 30, 2021 and December 31, 2020 the aggregate total amount of distribution payable reported by the Company was $4,603,228 and $1,595,148, respectively.
Restricted Reserves
Restricted reserves is comprised of amounts received from tenants at certain of the Company’s properties for recoverable property operating expenses to be paid by the Company on behalf of the tenants, pursuant to the terms of the respective lease arrangements, which at September 30, 2021 and December 31, 2020 was $2,656,437 and $200,487, respectively.
Tenant Reimbursement Income
Certain property operating expenses, including real estate taxes and insurance, among others, are paid by the Company and are reimbursed by the tenants of the Company’s properties pursuant to the terms of the respective leases. These reimbursements are reflected as Tenant reimbursement income in the accompanying consolidated statements of operations, which, for the nine months ended September 30, 2021 and September 30, 2020 was $2,613,987 and $1,177,981, respectively, and for the three months ended September 30, 2021 and September 30, 2020 was $1,137,744 and $300,156, respectively.
Property Operating Expenses
Certain property operating expenses, including real estate taxes and insurance, among others, are paid by the Company and may be reimbursed by the tenants of the Company’s properties pursuant to the terms of the respective leases. These expenses incurred are reflected as Property operating expenses in the accompanying consolidated statements of operations, which for the nine months ended September 30, 2021 and September 30, 2020 was $5,688,124 and $1,264,516, respectively, and for the three months ended September 30, 2021 and September 30, 2020 was $2,870,389 and $286,322, respectively.
Due to Related Parties
Due to related parties is comprised of amounts contractually owed by the Company for various services provided to the Company from related parties, which at September 30, 2021 and December 31, 2020 was $1,816,091 and $1,438,450, respectively (See Note 9 – Related Party Transactions).
Organization and Offering Costs
The Advisor has agreed to pay, on behalf of the Company, all organizational and offering costs (including legal, accounting, and other costs attributable to the Company’s organization and offering, but excluding upfront selling commissions, dealer manager fees and distribution fees) (“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”). 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 (as defined below). Following the Escrow Break Anniversary, the Company began reimbursing the Advisor for payment of O&O Costs on a monthly basis, which continued through the period ended May 18, 2021; provided, however, that the Company was not 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 from all the Company’s public offerings (the “1% Cap”), as of such payment date. Any amounts not reimbursed in any period shall be included in determining any reimbursement liability for a subsequent period. As of September 30, 2021, the Advisor has continued to pay all O&O Costs on behalf of the Company.
As of September 30, 2021 and December 31, 2020, the Advisor has incurred O&O Costs on the Company’s behalf of $11,030,568 and $9,946,509, respectively. As of September 30, 2021 and December 31, 2020, the Company is obligated to reimburse the Advisor for O&O Costs in the amount of $68,260 and $312,284, respectively, which is included within Due to related parties in the accompanying consolidated balance sheets. As of September 30, 2021 and December 31, 2020, organizational costs of $90,675 and $90,675, respectively, were expensed and offering costs of $2,052,233 and $1,551,287, respectively, were charged to stockholders’ equity. As of September 30, 2021 and December 31, 2020, the Company has made reimbursement payments of $2,074,648 and $1,329,678, respectively, to the Advisor for O&O Costs incurred.
Income Taxes
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income, share ownership, minimum distribution and other requirements are met. To qualify as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. The Company may also be subject to certain state and local taxes. If the Company fails to meet these requirements, it will be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders.
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.
Earnings Per Share
Basic net income (loss) per share of common stock is determined by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is determined by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, including common stock equivalents. As of September 30, 2021 and December 31, 2020, there were no material common stock equivalents that would have a dilutive effect on net income (loss) per share for common stockholders. All classes of common stock are allocated net income (loss) at the same rate per share.
For the three and nine months ended September 30, 2021, basic and diluted net income per share was $(0.01) and $0.10, respectively. For the three and nine months ended September 30, 2020, basic and diluted net income per share was $0.07 and $0.23, respectively.
Recently Adopted Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The guidance is part of the FASB’s disclosure framework project, whose objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements. The ASU eliminates, amends and adds certain disclosure requirements for fair value measurements. The FASB concluded that these changes improve the overall usefulness of the footnote disclosures for financial statement users and reduce costs for preparers. The new standard will become effective for the Company beginning January 1, 2020 and early adoption is permitted for eliminated and modified fair value measurement disclosures. Certain disclosures are required to be applied prospectively and other disclosures need to be adopted retrospectively in the period of adoption. As permitted by the transition guidance in the ASU, the Company early adopted, eliminated and modified disclosure requirements as of September 30, 2018. The early adoption of this guidance did not have an impact on the Company’s unaudited consolidated financial statements. The additional disclosure requirements were adopted by the Company beginning January 1, 2020, and the adoption of these fair value measurement disclosures did not have an impact on the Company’s unaudited consolidated financial statements. See Note 13 — Fair Value Measurements for additional information.
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance was issued in response to stakeholders’ observations that Topic 810, Consolidation, could be improved in the areas of applying the VIE guidance to private companies under common control and in considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted the standard on its effective date beginning January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s unaudited consolidated financial statements.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires financial assets that are measured at amortized cost to be presented, net of an allowance for credit losses, at the amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses during the period, are recognized in earnings. For certain purchased financial assets with deterioration in credit quality since origination (“PCD assets”), the initial allowance for expected credit losses will be recorded as an increase to the purchase price. Expected credit losses, including losses on off-balance-sheet exposures such as lending commitments, will be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, to clarify that operating lease receivables accounted for under ASC 842, Leases, are not in the scope of the new credit losses guidance, and, instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The ASU makes changes to the guidance introduced or amended by ASU No. 2016-13 to clarify the scope of the credit losses standard and address guidance related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other issues. In addition, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU allow entities, upon adoption of ASU No. 2016-13, to irrevocably elect the fair value option for financial instruments that were previously carried at amortized cost and are eligible for the fair value option under ASC 825-10, Financial Instruments: Overall. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates. Pursuant to this ASU, the effective date of the new credit losses standard was deferred, and the new credit impairment guidance will become effective for the Company on January 1, 2023, under a modified retrospective approach, and early adoption is permitted. In addition, in November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this ASU require entities to include certain expected recoveries of the amortized cost basis previously written off, or expected to be written off, in the allowance for credit losses for PCD assets; provide transition relief related to troubled debt restructurings; allow entities to exclude accrued interest amounts from certain required disclosures; and clarify the requirements for applying the collateral maintenance practical expedient. The amendments in ASUs No. 2018-19, 2019-04, 2019-05, 2019-10 and 2019-11 are required to be adopted concurrently with the guidance in ASU No. 2016-13. The Company plans to adopt the standards on January 1, 2023. Management is continuing to implement the new credit losses guidance, including the assessment of the impact of the new guidance on the Company’s unaudited consolidated financial statements. Given the objective of the new standard, it is generally expected allowances for credit losses for the financial instruments within its scope would increase, however, the amount of any change will be dependent on the composition and quality of the Company’s portfolios at the adoption date as well as economic conditions and forecasts at that time.
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force). These amendments improve current guidance by reducing diversity in practice and increasing comparability of the accounting for the interactions between these codification topics as they pertain to certain equity securities, investments under the equity method of accounting and forward contracts or purchased options to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option. The new standard will become effective for the Company beginning January 1, 2022 and will be applied prospectively. Early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This ASU makes narrow-scope amendments related to various aspects pertaining to financial instruments and related disclosures by clarifying or improving the Codification. Certain guidance became effective for the Company for annual periods beginning January 1, 2020, and the adoption of this guidance did not have a material impact on the Company’s unaudited consolidated financial statements. The guidance related to credit losses will be effective for the Company on January 1, 2023. Early adoption is permitted. Management is currently evaluating the impact of the new credit losses guidance on the Company’s unaudited consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, and borrowings) necessitated by reference rate reform as entities transition away from LIBOR and other interbank offered rates to alternative reference rates. This ASU also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional and only available in certain situations. The ASU is effective upon issuance and generally can be applied through December 31, 2022. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope. The amendments in this standard are elective and principally apply to entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform (referred to as the “discounting transition”). The standard expands the scope of ASC 848, Reference Rate Reform and allows entities to elect optional expedients to derivative contracts impacted by the discounting transition. Similar to ASU No. 2020-04, provisions of this ASU are effective upon issuance and generally can be applied through December 31, 2022. Management is evaluating and planning for adoption of the new guidance, including forming a cross-functional LIBOR transition team to determine the Company’s transition plan and facilitate an orderly transition to alternative reference rates, and continuing its assessment on the Company’s unaudited consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The standard is expected to reduce complexity and improve comparability of financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU also enhances information transparency by making targeted improvements to the related disclosures guidance. Additionally, the amendments affect the diluted EPS calculation for instruments that may be settled in cash or shares and for convertible instruments. The new standard will become effective for the Company beginning January 1, 2024, can be applied using either a modified retrospective or a fully retrospective method of transition and early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
In October 2020, the FASB issued ASU No. 2020-10, Codification Improvements. The standard amends the Codification by moving existing disclosure requirements to (or adding appropriate references in) the relevant disclosure sections. The ASU also clarifies various provisions of the Codification by amending and adding new headings, cross-referencing, and refining or correcting terminology. The new standard will become effective for the Company beginning January 1, 2022 and can be applied using either a modified retrospective or a fully retrospective method of transition. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
Note 3 – Investment in Real Estate
Investment in real estate, net consisted of the following at September 30, 2021 and December 31, 2020:
| September 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Building and building improvements | $ | 427,751,806 | $ | 140,185,153 | ||
| Land | 68,820,193 | 23,195,885 | ||||
| Total | 496,571,999 | 163,381,038 | ||||
| Accumulated depreciation | (14,853,693 | ) | (8,590,986 | ) | ||
| Investment in real estate, net | $ | 481,718,306 | $ | 154,790,052 |
As of September 30, 2021, the Company owned interests in 18 real properties as described below:
| Portfolio | Ownership<br><br><br>Percentage | Location | Number of<br><br><br>Properties | Square<br><br><br>Feet | Remaining<br><br><br>Lease<br><br><br>Term^(^^1)^ | Annualized<br><br><br>Rental<br><br><br>Income^(^^2)^ | Acquisition<br><br><br>Date | Purchase<br><br><br>Price^(^^3)^ | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Walgreens Grand Rapids ("GR Property") | 100 | % | Grand Rapids, MI | 1 | 14,552 | 10.8 years | $ | 500,000 | July 2017 | $ | 7,936,508 | |
| CF Net Lease Portfolio IV DST ("DST Properties") | 100 | % | Various | 7 | 103,537 | 15.2 years | $ | 2,323,749 | September 2017 | $ | 35,706,642 | |
| Daimler Trucks North America Office Building ("FM Property") | 100 | % | Fort Mill, SC | 1 | 150,164 | 7.3 years | $ | 2,670,638 | February 2018 | $ | 40,000,000 | |
| Alliance Data Systems Office Building ("CO Property") | 100 | % | Columbus, OH | 1 | 241,493 | 11.0 years | $ | 3,362,844 | July 2018 | $ | 46,950,000 | |
| Hoya Optical Labs of America ("Lewisville Property") | 100 | % | Lewisville, TX | 1 | 89,473 | 6.8 years | $ | 937,060 | November 2018 | $ | 14,120,000 | |
| Williams Sonoma Office Building ("SF Property") | 75 | % | San Francisco, CA | 1 | 13,907 | 0.3 years | $ | 582,860 | September 2019 | $ | 11,600,000 | |
| Martin Brower Industrial Buildings ("Buchanan Property") | 100 | % | Phoenix, AZ | 1 | 93,302 | 10.5 years | $ | 1,083,444 | November 2019 | $ | 17,300,000 | |
| Multifamily Residential Property ("Keller Property") | 77.85 | % | Carrolton, TX | 1 | 255,627 | multiple^(^^4)^ | $ | 4,647,552 | February 2021 | $ | 56,500,000 | |
| Multifamily Residential Property ("Summerfield Property") | 25 | % | Landover, MD | 1 | 452,876 | multiple^(^^4)^ | $ | 9,590,592 | March 2021 | $ | 115,500,000 | |
| Amazon Last Mile Cleveland ("Madison Ave Property") | 100 | % | Cleveland, OH | 1 | 168,750 | 9.5 years | $ | 1,555,254 | May 2021 | $ | 30,800,000 | |
| Valencia California ("Valencia Property") | 9.91 | % | Santa Clarita, CA | 1 | 180,415 | 14.3 years | $ | 5,323,193 | July 2021 | $ | 92,000,000 | |
| De Anza Plaza Office Buildings ("De Anza Property") | 100 | % | Cupertino, CA | 1 | 83,959 | 9.8 years | $ | 3,713,171 | July 2021 | $ | 63,750,000 | |
| (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 a 1-year average lease term) for the multifamily residential properties. |
| --- | --- |
Note 4 - Intangibles
The amortization of acquired above-market and/or below-market leases is recorded as an adjustment to Rental revenue on the consolidated statements of operations. For the nine months ended September 30, 2021 and September 30, 2020, the net amount of such amortization was included as an increase to rental income of $585,964 and $613,196, respectively. For the three months ended September 30, 2021 and September 30, 2020, the net amount of such amortization was included as an increase to rental income of $197,927 and $204,398, respectively.
The amortization of in-place leases is recorded as an adjustment to Depreciation and amortization expense on the consolidated statements of operations. For the nine months ended September 30, 2021 and September 30, 2020, the net amount of such amortization was $4,133,108 and $1,652,492, respectively, and for the three months ended September 30, 2021 and September 30, 2020, the amount of such amortization was $2,027,021 and $550,831, respectively.
As of September 30, 2021 and December 31, 2020, the gross carrying amount and accumulated amortization of the Company’s intangible assets consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Intangible assets: | ||||||
| In-place lease intangibles | $ | 52,730,750 | $ | 22,234,766 | ||
| Above-market lease intangibles | 2,112,734 | 451,899 | ||||
| Total intangible assets | 54,843,484 | 22,686,665 | ||||
| Accumulated amortization: | ||||||
| In-place lease amortization | (8,138,885 | ) | (4,005,777 | ) | ||
| Above-market lease amortization | (189,773 | ) | (104,770 | ) | ||
| Total accumulated amortization | (8,328,658 | ) | (4,110,547 | ) | ||
| Intangible assets, net | $ | 46,514,826 | $ | 18,576,118 |
The estimated future amortization on the Company’s intangible assets for each of the next five years and thereafter as of September 30, 2021 is as follows:
| Year | In-place Lease<br><br><br>Intangibles | Above-market<br><br><br>Lease Intangibles | Total | |||
|---|---|---|---|---|---|---|
| 2021 (remaining) | 2,131,175 | 49,094 | 2,180,269 | |||
| 2022 | 5,726,243 | 196,378 | 5,922,621 | |||
| 2023 | 4,583,118 | 196,378 | 4,779,496 | |||
| 2024 | 4,583,118 | 196,378 | 4,779,496 | |||
| 2025 | 4,583,118 | 196,378 | 4,779,496 | |||
| Thereafter | 22,985,093 | 1,088,355 | 24,073,448 | |||
| $ | 44,591,865 | $ | 1,922,961 | $ | 46,514,826 |
As of September 30, 2021 and December 31, 2020, the gross carrying amount and accumulated amortization of the Company’s Intangible liabilities consisted of the following:
| September 30, 2021 | December 31, 2020 | |||||
|---|---|---|---|---|---|---|
| Intangible liabilities: | ||||||
| Below-market lease intangibles | $ | 11,487,000 | $ | 9,065,316 | ||
| Accumulated amortization: | ||||||
| Below-market lease amortization | (1,941,013 | ) | (1,264,464 | ) | ||
| Intangible liabilities, net | $ | 9,545,987 | $ | 7,800,852 |
The estimated future amortization on the Company’s intangible liabilities for each of the next five years and thereafter as of September 30, 2021 is as follows:
| Year | Below-market<br><br><br>Lease Intangibles | |
|---|---|---|
| 2021 (remaining) | 260,727 | |
| 2022 | 882,036 | |
| 2023 | 882,036 | |
| 2024 | 882,036 | |
| 2025 | 882,036 | |
| Thereafter | 5,757,116 | |
| $ | 9,545,987 |
Note 5 - Five Year Minimum Rental Payments
The estimated future minimum rents the Company expects to receive for the GR Property, FM Property, CO Property, Lewisville Property, the DST Properties, SF Property, Buchanan Property, Madison Ave Property, Valencia Property, and De Anza Property for each of the next five years and thereafter through the end of the primary term as of September 30, 2021 is as follows:
| Year | GR<br><br><br>Property | FM<br><br><br>Property | CO<br><br><br>Property | Lewisville<br><br><br>Property | DST<br><br><br>Properties | SF<br><br><br>Property | Buchanan<br><br><br>Property | Madison<br><br><br>Ave<br><br><br>Property | Valencia<br><br><br>Property | DeAnza<br><br><br>Property | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2021 (remaining) | $ | 125,000 | $ | 640,074 | $ | 809,932 | $ | 228,983 | $ | 562,714 | $ | 146,518 | $ | 258,714 | $ | 347,260 | $ | 1,066,058 | $ | 926,348 | $ | 5,111,601 |
| 2022 | 500,000 | 2,611,352 | 3,251,284 | 915,933 | 2,305,756 | — | 1,034,857 | 1,305,120 | 4,392,159 | 3,752,089 | 20,068,550 | |||||||||||
| 2023 | 500,000 | 2,663,909 | 3,286,073 | 943,411 | 2,305,756 | — | 1,075,458 | 1,459,361 | 4,523,923 | 3,864,652 | 20,622,543 | |||||||||||
| 2024 | 500,000 | 2,716,467 | 3,321,234 | 943,411 | 2,305,756 | — | 1,079,150 | 1,495,845 | 4,659,641 | 3,980,591 | 21,002,095 | |||||||||||
| 2025 | 500,000 | 2,770,526 | 3,356,771 | 971,713 | 2,320,167 | — | 1,079,150 | 1,533,241 | 4,799,430 | 4,067,880 | 21,398,878 | |||||||||||
| Thereafter | 3,250,000 | 8,649,446 | 23,572,354 | 2,443,858 | 27,753,863 | — | 6,938,466 | 8,705,222 | 56,670,698 | 24,979,243 | 162,963,150 | |||||||||||
| Total | $ | 5,375,000 | $ | 20,051,774 | $ | 37,597,648 | $ | 6,447,309 | $ | 37,554,012 | $ | 146,518 | $ | 11,465,795 | $ | 14,846,049 | $ | 76,111,909 | $ | 41,570,803 | $ | 251,166,817 |
Note 6 - Investments in Real Estate-Related Assets
Preferred Equity Investment – Denver, PA
On January 2, 2019, the Company, through the Operating Partnership, made a preferred equity investment, together with a subsidiary of CFI. The Company’s initial investment of $4,779,353 was made through the Pennsylvania SPE, in which, as of January 2, 2019, the Company owned 40.5% of the membership interests and CFI owned 59.5% of the membership interests.
The Pennsylvania SPE entered into a joint venture agreement (the “Pennsylvania JV”) with a subsidiary of USRA Net Lease III Capital Corp (“USRA”). The Company and CFI, by and through the Pennsylvania SPE, invested $11,805,000 of capital in the Pennsylvania JV. The Pennsylvania JV is the sole member of an entity that purchased the PA Property for a purchase price of $117,050,000. The acquisition of the PA Property was also financed by a mortgage loan in the amount of $76,732,500 (the “PA Mortgage Loan”) provided by Goldman Sachs Mortgage Company (the “PA Mortgage Lender”). In connection with entering into the Pennsylvania JV, CF Real Estate Holdings, LLC, an affiliate of CFI (“CFREH”), entered into a Back-Up Indemnification Agreement (the “CFREH Indemnification Agreement”) with USRA, whereby CFREH agreed to indemnify USRA and certain of its affiliates from certain claims that may be asserted by the PA Mortgage Lender to the extent that such claims are caused by CFREH, the Pennsylvania SPE, or any of their affiliates.
The PA Property is 100% leased to New Albertsons L.P., which is a subsidiary of Albertsons Companies Inc. (“Albertsons”), which serves as the guarantor of the lease (the “PA Property Lease”). The PA Property Lease is a net lease whereby the tenant is responsible for operating expenses, real estate taxes, utilities, repairs, maintenance and capital expenditures, in addition to its obligation to pay base rent.
Subsequent to January 2, 2019, the Company purchased additional membership interests in the Pennsylvania SPE from CFI totaling $7,025,647, bringing the Company’s total investment in the Pennsylvania SPE to $11,805,000 and the Company’s interest in the Pennsylvania SPE to 100%. Accordingly, on December 24, 2019, the Company entered into a Back-Up Indemnification Agreement, whereby the Company assumed all of the past, present and future obligations and liabilities of CFREH under the CFREH Indemnification Agreement, and CFREH was released of such obligations. As of the date hereof, there are no outstanding claims or obligations under the CFREH Indemnification Agreement.
Based on the Company’s consolidation analysis, which was performed in accordance with ASC Topic 810, Consolidation as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Pennsylvania SPE. Accordingly, on June 5, 2019, the Company has consolidated the Pennsylvania SPE, and has no longer accounted for its investment in the Pennsylvania SPE under the equity method of accounting.
Mezzanine Loan – Melrose Park, IL
On January 2, 2019, the Company, through the Operating Partnership, made a mezzanine loan investment, together with CFI. The Company’s initial investment of $5,099,190 was made through the Illinois SPE, in which, as of January 2, 2019, the Company owned 40.5% of the membership interests and CFI owned 59.5% of the membership interests.
The Illinois SPE, originated a fixed rate, subordinate mezzanine loan in the amount of $12,595,000 to Chicago Grocery Mezz B, LLC, which is owned and controlled by USRA, for the acquisition of the IL Property for a contract purchase price of $124,950,000.
The IL Property is 100% leased to New Albertsons L.P., which is a subsidiary of Albertsons, which serves as the guarantor of the lease (the “IL Property Lease”). The IL Property Lease is a net lease whereby the tenant is responsible for operating expenses, real estate taxes, utilities, repairs, maintenance and capital expenditures, in addition to its obligation to pay base rent.
Subsequent to January 2, 2019, the Company purchased additional membership interests in the Illinois SPE from CFI totaling $7,495,810, bringing the Company’s total investment in the Illinois SPE to $12,595,000 and the Company’s interest in the Illinois SPE to 100%. Subject to the limitations in the Company’s charter, the purchase price for any membership interests purchased from CFI was equal to CFI’s purchase price in exchange for such membership interests.
Based on the Company’s consolidation analysis, which was performed in accordance with ASC Topic 810, Consolidation as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Illinois SPE. Accordingly, on October 29, 2019, the Company has consolidated the Illinois SPE, and has no longer accounted for its investment in the Illinois SPE under the equity method of accounting.
Station DST Interests
On November 25, 2020, the Company acquired, through the Operating Partnership, beneficial interests (the “Station Interests”) in the Station DST, for a purchase price of $7.6 million. The Station Interests were acquired in a private placement offering managed by an affiliate of CFI. The Station Interests held represent 15% of the Station DST.
On October 29, 2020, the Station DST acquired the fee simple interest in a 444-unit apartment community located in Irving, Texas (the “Station DST Property”), for a total purchase price of $106 million. The purchase price was comprised of $47.1 million in equity and $58.9 million in proceeds from a mortgage loan. At September 30, 2021, the Station DST Property is 97.30% occupied. As part of the acquisition, the Station DST received an appraisal of the Station DST Property as of September 15, 2020 with an appraised value of $107.4 million. This appraisal was conducted by a third-party licensed appraiser and was based upon the income approach (a direct capitalization analysis) and sales comparison approach.
The value of the Station Interests was based upon the Station DST Property appraisal, the fair market value of the mortgage loan encumbering the Station DST Property as of November 30, 2020, 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%).
Based on the Company’s consolidation analysis, the Company determined itself not to be the primary beneficiary of the Station DST and has therefore accounted for as investment in the Station DST under the equity method of accounting in accordance with ASC 323. The Company’s consolidation analysis was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies.
The results of operations for the Company’s investments in real estate-related assets for the nine months ended September 30, 2021 and September 30, 2020 are summarized below:
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Station DST | 2021 | 2020 | 2021 | 2020 | ||||||
| Revenues | $ | 1,663,653 | $ | — | $ | 5,163,181 | $ | — | ||
| Operating expenses | (440,935 | ) | — | (1,377,336 | ) | — | ||||
| Other expenses, net | (1,157,106 | ) | — | (3,470,166 | ) | — | ||||
| Net income (loss) | $ | 65,612 | $ | — | $ | 315,679 | $ | — | ||
| Net income (loss) attributable to the Company^(^^1)^ | $ | 9,842 | $ | — | $ | (76,208 | ) | $ | — | |
| Note: | (1) Represents the Company’s allocable share of net income based on the Company’s ownership interest in the underlying investment in real estate-related assets and is included within Income from investments in real-estate related assets on the Company’s unaudited consolidated statements of operations. | |||||||||
| --- | --- |
Note 7 – Loans Payable
On July 11, 2017, in connection with the purchase of the GR Property (refer to Note 3 — Investment in Real Estate), a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “GR Loan”) with UBS AG with an outstanding principal amount of $4,500,000. The GR Loan provides for monthly interest payments which accrue through the 10^th^ of each month. The GR Loan bears interest at an initial fixed rate of 4.11% per annum through the anticipated repayment date, July 6, 2027, and thereafter at a revised interest rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield through the maturity date June 30, 2032.
On February 1, 2018, in connection with the purchase of the FM Property (refer to Note 3 — Investment in Real Estate), the FM Property SPE entered into a loan agreement (the “FM Loan”) with UBS AG with an outstanding principal amount of $21,000,000. The FM Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.43% per annum through the anticipated repayment date, February 6, 2028 (the “FM Anticipated Repayment Date”), and thereafter at revised rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the FM Anticipated Repayment Date.
On July 31, 2018, in connection with the purchase of the CO Property (refer to Note 3 — Investment in Real Estate), the CO Property SPE entered into a loan agreement (the “CO Loan”) with a related party, CCRE, with an outstanding principal amount of $26,550,000. The CO Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.94% per annum through the anticipated repayment date, August 6, 2028 (the “CO Anticipated Repayment Date”), and thereafter at an increased rate of 2.50% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the CO Anticipated Repayment Date.
On November 15, 2016, in connection with the purchase of the DST Properties, (refer to Note 3 — Investment in Real Estate), the DST entered into a loan agreement (the “DST Loan”) with Citigroup Global Markets Realty Corp. with an outstanding principal amount of $22,495,184. The DST Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.59% per annum through anticipated repayment date, December 1, 2026 (the “DST Anticipated Repayment Date”), and thereafter at an increased rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the DST Anticipated Repayment Date.
On November 26, 2019, in connection with the purchase of the Buchanan Property (refer to Note 3 – Investment in Real Estate), the Buchanan Property SPE entered into a loan agreement (the “Buchanan Loan”) with Goldman Sachs Bank USA with an outstanding principal amount of $9,600,000. The Buchanan Loan provides for monthly interest payments and bears interest at an initial fixed rate of 3.52% per annum through the anticipated repayment date, December 1, 2029 (the “Buchanan Anticipated Repayment Date”), and thereafter at revised rate of 2.50% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the Buchanan Anticipated Repayment Date.
On February 25, 2021, in connection with the purchase of the Keller Property, an indirect subsidiary of the Operating Partnership, 3221 Keller Springs Road Owner, LLC (the “Keller SPE”), entered into a loan agreement (the “Keller Loan”) with CBRE Multifamily Capital, Inc. (the “Keller Lender”) with an outstanding principal amount of $31,277,000. The Loan provides for monthly interest payments and bears interest at an initial floating rate of 2.203% per annum (which will fluctuate monthly), through the maturity date of March 1, 2031. One year after the effective date of the Keller Loan, the Keller SPE has the option to convert the Keller Loan to a 7-year or 10-year fixed rate loan, subject to the conditions set forth in the loan agreement (the “Keller Loan Agreement”). Prior to the funding of the Keller Loan, the Company entered into a rate capitalization agreement with SMBC Capital Markets, Inc., (the “Cap Seller”), in which the Cap Seller agrees to make payments to the Company commencing on February 25, 2021 until March 1, 2024. Under the terms of the rate capitalization agreement, the Cap Seller is obligated to make payments to the Company in the event that 30-Day Average SOFR exceeds the capitalization rate (the “Cap Rate”), of 1.24%. After one year, the Keller SPE may voluntarily prepay all or a portion of the unpaid principal balance of the Keller Loan and all accrued interest thereon and other sums due under the Keller Loan, provided that the Company provides the Keller Lender with prior notice of such prepayment and a prepayment premium of 1% of the principal being prepaid.
On March 26, 2021, in connection with the purchase of the Summerfield Property, the Summerfield DST entered into a loan agreement (the “Summerfield Loan”) with Arbor Private Label, LLC for an outstanding amount of $76,575,000. The Summerfield Loan provides for monthly interest payments and bears a fixed interest rate of 3.650% per annum, through the maturity date of April 1, 2031.
On July 7, 2021, in connection with the purchase of the Valencia Property, the Valencia DST entered into a loan agreement (the “Valencia Loan”) with The Northern Trust Company (the “Valencia Lender”) for an outstanding amount of $55,200,000. The Valencia Loan provides for monthly interest payments and bears interest on (i) one hundred ninety-five basis points (1.95%) or (ii) the sum of Auto LIBOR plus the Rate Margin of (1.95%), through the maturity date of July 8, 2031. Prior to the funding of the Valencia Loan, the Company entered into an interest rate swap agreement with The Northern Trust Company (the “Valencia Swap Counterparty”) which calls for the Company to pay a fixed rate of 3.39% per annum on the swap (the “Valencia Swap”) with a notional of $55,200,000 in exchange for a variable rate of LIBOR plus 195 basis points to be paid by the Valencia Swap Counterparty.
Credit Facility – Citizens Bank
On July 23, 2021, the Company, the Operating Partnership (the “Credit Facility Borrower”), the Lewisville Property SPE, the Madison Ave Property SPE and the De Anza Property SPE, pursuant to a credit facility agreement (the “Credit Facility Agreement”) with Citizens Bank, N.A., (the, “Facility Lender”), entered into a senior secured revolving credit facility (the “Citizens Facility”) for an aggregate principal amount of $100 million. The Credit Facility Agreement provides the Credit Facility Borrower with the ability from time to time to increase the size of the aggregate commitment made under the agreement by an additional $100.0 million up to a total of $200 million, subject to receipt of lender commitments and other conditions. The Citizens Facility matures on July 23, 2024, and may be extended pursuant to two one-year extension options, subject to continuing compliance with the financial covenants and other customary conditions and the payment of an extension fee. At the Credit Facility Borrower’s election, borrowings under the Credit Facility Agreement will be charged interest based on (i) LIBOR multiplied by a statutory reserve rate plus a margin ranging from 1.75% to 2.25%, or (ii) an alternative base rate plus a margin ranging from 0.75% to 1.25%, depending on the Company’s loan to value ratio. Borrowings under the Credit Facility Agreement are available for general corporate purposes, including but not limited to the acquisition and operation of permitted investments. As of September 30, 2021, the amounts advanced under the Citizen Facility were approximately $63.2 million with an interest rate of 2.34%, secured by the Lewisville Property, the Madison Ave Property and the De Anza Property.
Borrowings under the Credit Facility Agreement are guaranteed by the Company and certain of its subsidiaries. The Credit Facility Agreement requires the maintenance of certain corporate financial covenants, including covenants concerning: (i) consolidated net worth; (ii) consolidated fixed charge coverage ratio; (iii) consolidated total leverage ratio; (iv) minimum liquidity; and (v) permitted indebtedness, as well as certain collateral pool financial covenants.
As of September 30, 2021 and December 31, 2020, the Company’s Loans payable balance was $307,249,080 and $83,380,431, net of deferred financing costs, respectively. As of September 30, 2021 and December 31, 2020, deferred financing costs were $3,118,277 and $764,753, net of accumulated amortization of $335,163 and $158,042, respectively, which has been accounted for within Interest expense on the consolidated statements of operations.
Information on the Company’s Loans payable as of September 30, 2021 and December 31, 2020 is as follows:
| Description | |||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| FM<br><br><br>Property | CO<br><br><br>Property | DST<br><br><br>Properties | Buchanan<br><br><br>Property | Keller<br><br><br>Springs<br><br><br>Property | Summerfield<br><br><br>Property | Valencia<br><br><br>Property | Credit<br><br><br>Facility | Total | |||||||||||||||||||||
| Principal amount of loans | 4,500,000 | $ | 21,000,000 | $ | 26,550,000 | $ | 22,495,184 | $ | 9,600,000 | $ | 31,277,000 | $ | 76,575,000 | $ | 55,200,000 | $ | 63,170,173 | $ | 310,367,357 | ||||||||||
| Less: Deferred financing costs, net of<br> accumulated amortization of 335,163 | (47,339 | ) | (134,442 | ) | (190,725 | ) | (258,472 | ) | (76,307 | ) | (314,158 | ) | (208,620 | ) | (872,246 | ) | (1,015,968 | ) | (3,118,277 | ) | |||||||||
| Loans payable, net of deferred financing<br> costs and amortization | 4,452,661 | $ | 20,865,558 | $ | 26,359,275 | $ | 22,236,712 | $ | 9,523,693 | $ | 30,962,842 | $ | 76,366,380 | $ | 54,327,754 | $ | 62,154,205 | $ | 307,249,080 | ||||||||||
| Description | |||||||||||||||||||||||||||||
| FM<br><br><br>Property | CO<br><br><br>Property | DST<br><br><br>Properties | Buchanan<br><br><br>Property | Keller<br><br><br>Springs<br><br><br>Property | Summerfield<br><br><br>Property | Valencia<br><br><br>Property | Credit<br><br><br>Facility | Total | |||||||||||||||||||||
| Principal amount of loans | 4,500,000 | $ | 21,000,000 | $ | 26,550,000 | $ | 22,495,184 | $ | 9,600,000 | $ | — | $ | — | $ | — | $ | — | $ | 84,145,184 | ||||||||||
| Less: Deferred financing costs, net of<br> accumulated amortization of 158,042 | (53,485 | ) | (148,297 | ) | (203,743 | ) | (277,618 | ) | (81,610 | ) | — | — | — | — | (764,753 | ) | |||||||||||||
| Loans payable, net of deferred financing<br> costs and amortization | 4,446,515 | $ | 20,851,703 | $ | 26,346,257 | $ | 22,217,566 | $ | 9,518,390 | $ | — | $ | — | $ | — | $ | — | $ | 83,380,431 |
All values are in US Dollars.
For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred $5,495,873 and $2,891,137, respectively, of interest expense, and for the three months ended September 30, 2021 and September 30, 2020, the Company incurred $2,577,279 and $970,747, respectively, of interest expense, which is included within Interest expense on the consolidated statements of operations. As of September 30, 2021 and December 31, 2020, $665,073 and $273,200 respectively, was unpaid and is recorded as accrued interest payable on the Company’s consolidated balance sheets. All of
the unpaid interest expense accrued as of September 30, 2021 and December 31, 2020 was paid during October 2021 and January 2021, respectively.
Also included within Interest expense on the consolidated statements of operations is amortization of deferred financing costs, which, for the nine months ended September 30, 2021 and September 30, 2020, was $177,121 and $57,587, respectively, and for the three months ended September 30, 2021 and September 30, 2020 was $121,855 and $19,274, respectively.
The following table presents the future principal payments due under the Company’s loan agreements as of September 30, 2021:
| Year | Amount | |
|---|---|---|
| 2021 (remaining) | $ | — |
| 2022 | — | |
| 2023 | — | |
| 2024 | 63,170,173 | |
| 2025 | — | |
| Thereafter | 247,197,184 | |
| Total | $ | 310,367,357 |
Note 8 – Stockholders’ Equity
Initial Public Offering
On October 17, 2016, the Company filed a registration statement with the SEC on Form S-11 in connection with the Initial Offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in its Primary Offering and up to $250 million in shares pursuant to its DRP. The registration statement was subsequently declared effective on March 23, 2017. On May 18, 2017, the Company satisfied the Minimum Offering Requirement for the Initial Offering as a result of CFI’s purchase of $2.0 million in Class I shares. On March 20, 2020, the Company filed a second registration statement on Form S-11 with the SEC for the Follow-On Offering. Subsequently, on July 31, 2020, the Company terminated the Primary Offering but is continuing to offer up to $50.0 million of common stock pursuant to the DRP pursuant to a Registration Statement on Form S-3. On August 10, 2020, the SEC declared the Follow-On Offering effective. 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 pursued to the DRP. Additionally, on July 30, 2020, the Company amended its charter (as amended, the “Charter”) to redesignate its issued and outstanding classes of common stock. As described in the Company’s Second Articles of Amendment to Second Articles of Amendment and Restatement, the Company has redesignated 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. This change has not impacted the rights associated with the Class A shares. Class T shares and Class I Shares. 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.
As of September 30, 2021, the Company’s total number of authorized shares was 400,000,000, consisting of 10,000,000 of Class AX authorized common shares, 5,000,000 of Class TX authorized common shares, 5,000,000 of Class IX authorized common shares, 100,000,000 of Class T authorized common shares, 20,000,000 of Class S authorized common shares, 60,000,000 of Class D authorized common shares, and 200,000,000 of Class I authorized common shares. The Class AX Shares, Class D Shares, Class I Shares, Class IX Shares, Class S Shares, Class T Shares and Class TX Shares have the same voting rights and rights upon liquidation, although distributions are expected to differ due to the distribution fees payable with respect to Class D Shares, Class S Shares, Class T Shares and Class TX Shares, which will reduce distributions to the holders of such classes of shares.
CFI has paid a portion of selling commissions and all of the dealer manager fees (“Sponsor Support”), up to a total of 4.0% of gross offering proceeds from the sale of Class AX Shares and Class TX Shares, and up to a total of 1.5% of gross offering proceeds from the sale of Class IX Shares, incurred in connection with the Initial Offering. Selling commissions and dealer manager fees are presented net of Sponsor Support on the Company’s unaudited consolidated statements of stockholders’ equity. The Company will reimburse Sponsor Support (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Advisory Agreement (as defined below) by the Company or by the Advisor. In each such case, the Company will only reimburse CFI after the Company has fully invested the proceeds from the Initial Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such invested capital.
The Company also has 50 million shares of preferred stock, $0.01 par value, authorized. No shares of preferred stock are issued or outstanding.
Cantor Fitzgerald & Co. (the “Dealer Manager”), a related party, provided dealer manager services in connection with the Initial Offering and, subsequently, the Follow-On Offering, together (the “Offerings”). The Offerings are best efforts offerings, which means that the Dealer Manager is not required to sell any specific number or dollar amount of shares of common stock in each of the Offerings, but will use its best efforts to sell the shares of common stock. The Company has entered into the dealer manager agreement with the Dealer Manager in connection with the Initial Offering (the “IPO Dealer Manager Agreement”) and, on August 10, 2020, upon commencement of the Follow-On Offering, has entered into the dealer manager agreement with the Dealer Manager (the “Follow-On Dealer Manager Agreement,” and, collectively with the IPO Dealer Manager Agreement, the “Dealer Manager Agreements”) pursuant to which the Dealer Manager was designated as the dealer-manager for the Follow-On Offering.
As of September 30, 2021, the Company had sold 8,445,731 shares of its common stock (consisting of 3,340,319 Class AX Shares, 1,449,782 Class TX Shares, 1,206,643 Class IX Shares, 1,824,875 Class I Shares, 382,990 Class T Shares, 236,761 Class D shares, and 4,361 Class S shares) in the Offerings for aggregate net proceeds of $205,819,966. As of December 31, 2020, the Company had sold 6,387,089 shares of its common stock (consisting of 3,450,361 Class AX Shares, 1,472,875 Class TX Shares and 1,218,108 Class IX Shares, 160,013 Class I Shares, 44,884 Class T Shares, 39,281 Class D Shares and 1,567 Class S Shares) in the Offerings for aggregate net proceeds of $156,649,126.
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 September 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 classes of shares as further described in the applicable prospectus. The distributions are payable by the 5^th^ business day following each month end to stockholders of record at the close of business each day during the prior month.
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 a distribution support agreement, as amended (the “Distribution Support Agreement”). The terms of the agreement provide that in the event that cash distributions exceed modified funds from operations (“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 Primary 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). As of September 30, 2021, CFI’s remaining obligation pursuant to the Amended Distribution Support Agreement is limited to $1,867,720.
As of September 30, 2021 and December 31, 2020, the Company has declared distributions of $27,332,363 and $19,102,079, respectively, of which $1,037,708 and $809,365, respectively, was unpaid as of the respective reporting dates and has been recorded as distributions payable on the accompanying consolidated balance sheets. All of the unpaid distributions as of September 30, 2021 and December 31, 2020 were paid during October 2021 and January 2021, respectively. As of September 30, 2021 and December 31, 2020, distributions reinvested pursuant to the Company’s DRP were $9,214,849 and $6,464,069, respectively.
Redemptions
Stockholders are eligible to have their shares repurchased by the Company pursuant to the Amended SRP (as defined below).
In connection with the Follow-On Offering, the Company’s board of directors approved the second amendment and restatement of the Company’s share repurchase program (the “Amended SRP”) on July 27, 2020 and effective August 31, 2020. Repurchases of shares under the Amended SRP are made on a monthly basis. Subject to the limitations of and restrictions provided for in the Amended SRP, and subject to funds being available, shares repurchased under the Amended SRP are repurchased at the transaction price in effect on the date of repurchase, which, generally will be a price equal to the NAV per share applicable to the class of shares being repurchased and most recently disclosed by the Company in a public filing with the SEC. Under the Amended SRP, the Company may repurchase during any calendar month shares of its common stock whose aggregate value (based on the repurchase price per share in effect when the repurchase is effected) is 2% of the aggregate NAV as of the last calendar day of the previous month and during any calendar quarter whose aggregate value (based on the repurchase price per share in effect when the repurchase is effected) is up to 5% of the Company’s aggregate NAV as of the last calendar day of the prior calendar quarter.
There is no minimum holding period for shares under the Amended SRP and stockholders may request that the Company redeem their shares at any time. However, shares that have not been outstanding for at least one year will be redeemed at 95% of the redemption price that would otherwise apply to the class of shares being redeemed; provided, that, the period that shares were held prior to being converted into shares of different class will count toward the total hold period for such shares. The Company intends to waive the 5% holding discount with respect to the repurchase of shares acquired pursuant to its distribution reinvestment plan and shares issued as stock dividends. In addition, upon request, the Company intends to waive the 5% holding discount in the case of the death or disability of a stockholder.
During the three and nine months ended September 30, 2021, the Company repurchased 52,336 and 250,775 shares, respectively, in the amount of $1,283,665 and $6,066,706, respectively. During the three and nine months ended September 30, 2020, the Company repurchased 37,400 and 149,639 shares, respectively, in the amount of $884,934 and $3,527,804, respectively.
Non-controlling Interest
Special Unit Holder
The Special Unit Holder has invested $1,000 in the Operating Partnership and has been issued a special class of limited partnership units as part of the overall consideration for the services to be provided by the Advisor. In addition, the Special Unit Holder is entitled to receive a performance participation distribution from the Operating Partnership, subject to certain terms and calculations as defined within the amended Operating Partnership agreement. Such allocation (the “Performance Participation Allocation”) is paid in cash annually and accrued monthly. As of September 30, 2021, the Special Unit Holder is entitled to $3,025,282 pursuant to the Performance Participation Allocation. The Performance Participation Allocation has been included as a component of Distributions payable on the accompanying consolidated balance sheet. The Special Unit Holder investment in the Operating Partnership, including the Performance Participation Allocation, have been recorded as components of Non-controlling interests in subsidiaries on the consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively.
GSR Interest in the SF Property SPE
Based on the Company’s consolidation analysis, which was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the SF Property SPE. Accordingly, the Company has consolidated the SF Property SPE. As of September 30, 2021, the Company’s ownership interest in the SF Property SPE was 75%, and GSR’s interest was 25%. GSR’s total ownership interest of $2,871,610 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of September 30, 2021.
Non-controlling interest in Keller Property SPE
Based on the Company’s consolidation analysis, which was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Keller Property SPE. Accordingly, the Company has consolidated the Keller Property SPE. As of September 30, 2021, the Company’s ownership interest in the Keller Property SPE was 77.85%, and other parties’ interest was 22.15%. The other parties’ total ownership interest of $5,711,066 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of September 30, 2021.
Non-controlling interest in Summerfield DST
Based on the Company’s consolidation analysis, which was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Summerfield DST. Accordingly, the Company has consolidated the Summerfield DST. As of September 30, 2021, the Company’s ownership interest in the Summerfield DST was 25%, and other parties’ interest was 75%. The other parties’ total ownership interest of $31,810,408 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of September 30, 2021.
In connection with the acquisition of the Summerfield Property, a wholly owned subsidiary of the Operating Partnership entered a joint venture (the “Summerfield MT JV”) between the wholly owned subsidiary of the Operating Partnership and affiliates of Hamilton Zanze (“HZ”). As of September 30, 2021, the Company’s ownership interest in the Summerfield MT JV was 90%, and HZ’s interest was 10%. HZ’s total ownership interest of $163,669 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of September 30, 2021.
Non-controlling interest in Valencia DST
Based on the Company’s consolidation analysis, which was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Valencia DST. Accordingly, the Company has consolidated the Valencia DST. As of September 30, 2021, the Company’s ownership interest in the Valencia DST was 9.91% and other parties’ interest was 90.09%. The other parties’ total ownership interest of $35,337,612 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of September 30, 2021.
Note 9 – Related Party Transactions
Keller Property SPE
During the nine months ended September 30, 2021, the Company, through the Operating Partnership entered the Keller Member JV, with an affiliate of CFI, CF Keller Holdings LLC (the “Keller Holdings”), to indirectly acquire 97% interests in the Keller Property for a purchase price of $56,500,000. The Company owns 80.26% interests and Keller Holdings owns 19.74% interests in the Keller Member JV. The remaining 3% interests in the Keller Property is owned by CAF, an unrelated third party. As of September 30, 2021, the Company’s interest in the Keller Property SPE was 77.85%. As of September 30, 2021 the Company has consolidated the Keller Property SPE in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies.
Summerfield DST Interests
During the nine months ended September 30, 2021, the Company, through the Operating Partnership, entered into an agreement with Cantor Realty Fund III, LLC (“Cantor Realty Fund III”), an affiliate of CFI, to acquire 25% of the Summerfield DST interests in the Summerfield Property through CF Summerfield DST Holder, LLC (the “Summerfield DST Holder”). Subsequently and as of September 30, 2021, the Company purchased additional interests of $2,611,899 in the Summerfield DST Holder increasing the Company’s ownership interests to 100%. As of September 30, 2021, the remaining 75% of the Summerfield DST interests were held by third party investors through a syndicated offering. As of September 30, 2021, the Company has a controlling interest in the Summerfield DST and the Company has consolidated the Summerfield DST in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies.
In May 2021, the sponsor of the Summerfield DST initiated an offering to syndicate its interest to third party investors. As of September 30, 20201, the Summerfield DST has received proceeds of $34,956,369 from the syndication, $34,416,132 of which have been distributed in accordance with the preference defined in the operating agreement. The remaining syndication proceeds of $540,237 to be distributed has been recorded within distribution payable in the accompanying consolidated balance sheet.
Madison Ave Property SPE
During the nine months ended September 30, 2021, the Company, through the Operating Partnership, acquired, together with a subsidiary of CFI, the Madison Ave Property for a purchase price of $30,800,000, exclusive of closing costs. As of September 30, 2021, the Company’s interest in the Madison Ave Property SPE is 100%. As of September 30, 2021, the Company has consolidated the Madison Ave Property SPE in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies.
Valencia DST Interest
During the nine months ended September 30, 2021, the Company, through the Operating Partnership, entered into an agreement with an affiliate of CFI, CF Valencia Life Sciences Depositor, LLC (the “Valencia Depositor”), to acquire the Valencia DST. As of September 30, 2021, the Operating Partnership owns 9.91% of the interests in the Valencia DST and Valencia Depositor owns the remaining 90.09% of interests in the Valencia DST. As of September 30, 2021, the Valencia Depositor interests in the Valencia DST, were held by third party investors and also by affiliates of the Company. As of September 30, 2021, the Company has a controlling interest in the Valencia DST and the Company has consolidated the Valencia DST in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies.
Station DST Interests
During the year ended December 31, 2020, the Company, through the Operating Partnership, acquired the Station Interests in the Station DST, a Delaware statutory trust, which is controlled and managed by CFI, for a purchase price of $7,573,700. As of September 30, 2021, the Company’s interest in the Station DST was 15%. The Company accounts for its investment in the Station DST under the equity method of accounting, as described in “Note 6—Investment in Real Estate-Related Assets”.
Amended Operating Partnership Agreement
On August 10, 2020, the Company entered into the Amended and Restated Limited Partnership Agreement of the Operating Partnership (the “Amended Operating Partnership Agreement”), between the Company, as general partner, and the Special Unit Holder, in order to reflect: (i) that the operating partnership units have been redesignated and reclassified to correspond to the classes of the Company’s common stock, consisting of Class AX, Class D, Class I, Class IX, Class S, Class T and Class TX operating partnership units; (ii) the elimination of the incentive fee payable to the Special Unit Holder in connection with a liquidity event or certain other events; and (iii) that, so long as the Amended Advisory Agreement (as defined below) has not been terminated, the Special Unit Holder is entitled to the Performance Participation Allocation as defined and described above.
Fees and Expenses
The Company and the Advisor entered into an amended and restated advisory agreement, dated as of June 29, 2018, as amended by amendment no. 1 (“Amendment No. 1”) to amended and restated advisory agreement, dated and effective as of September 28, 2019 (the “Advisory Agreement”). On June 26, 2019, the Company’s board of directors approved the renewal of the Advisory Agreement upon terms identical to those in effect for an additional one-year term commencing on June 29, 2019 through June 29, 2020. The purpose of Amendment No. 1 was to amend the monthly asset management fee from one-twelfth of 1.25% of the cost of the Company’s investments at the end of the month to one-twelfth of 1.20% of the Company’s most recently disclosed NAV. On August 10, 2020, the Company entered into the Second Amended and Restated Advisory Agreement (the “Amended Advisory Agreement”) with the Advisor and the Operating Partnership. Under the Amended Advisory Agreement, acquisition and disposition fees, including specified property management and oversight fees and refinancing coordination fees, previously payable to the Advisor under the prior advisory agreement were eliminated, although the Advisor continues to be entitled to reimbursement for acquisition and disposition expenses. Under the Amended Advisory Agreement, the Advisor will continue to be paid a fixed asset management fee equal to 1.20% of NAV per annum payable monthly. Further, under the Amended Advisory Agreement, the 1% Cap for reimbursement will be calculated based on 1% of gross offering proceeds from all of the Company’s public offerings (including the Initial Offering) as of such payment date. On August 10, 2021, the Amended Advisory Agreement was renewed for an additional one-year term commencing on August 10, 2021, upon terms identical to those in effect, through August 10, 2022. Pursuant to the Amended Advisory Agreement, and subject to certain restrictions and limitations, the Advisor is responsible for managing the Company's affairs on a day-to-day basis and for identifying, originating, acquiring and managing investments on behalf of the Company. For providing such services, the Advisor receives the following fees and reimbursements from the Company.
Organization and Offering Expenses. The Company will reimburse the Advisor and its affiliates for O&O Costs it incurs on the Company’s behalf but only to the extent that the reimbursement does not cause the selling commissions, the dealer manager fee and the other O&O Costs borne by the Company to exceed 15% of gross offering proceeds of each Offering as of the date of the reimbursement. If the Company raises the maximum offering amount in the Offerings and under the DRP, the Company estimates O&O Costs (other than upfront selling commissions, dealer manager fees and distribution fees), in the aggregate, to be 1% of gross offering proceeds of the Offerings. These O&O Costs include all costs (other than upfront selling commissions, dealer manager fees and distribution fees) to be paid by the Company in connection with the initial set up of the organization of the Company as well as the Offerings, including legal, accounting, printing, mailing and filing fees, charges of the transfer agent, charges of the Advisor for administrative services related to the issuance of shares in the Offerings, reimbursement of bona fide due diligence expenses of broker-dealers, and reimbursement of the Advisor for costs in connection with preparing supplemental sales materials.
The Advisor has agreed to pay for all of the O&O Costs on the Company’s behalf (other than selling commissions, dealer manager fees and distribution fees) through 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 such costs on a monthly basis, which continued through May 18, 2021; provided that the Company was not obligated to reimburse any amounts that as a result of such payment would cause the aggregate payments for O&O Costs paid to the Advisor to exceed the 1% Cap as of such reimbursement date.
As of September 30, 2021 and December 31, 2020, the Advisor had incurred $11,030,568 and $9,946,509, respectively, of O&O Costs (other than upfront selling commissions, dealer manager fees and distribution fees) on behalf of the Company. The amount of the Company’s obligation is limited to the 1% Cap less any reimbursement payments made by the Company to the Advisor for O&O Costs incurred, which, at September 30, 2021 and December 31, 2020, is $68,260 and $312,284, respectively, and is included within Due to related parties in the accompanying consolidated balance sheets. As of September 30, 2021 and December 31, 2020, organizational costs of $90,675 and $90,675, respectively, were expensed and offering costs of $2,052,233 and $1,551,287 were charged to stockholders’ equity. As of September 30, 2021 and December 31, 2020, the Company has made reimbursement payments of $2,074,648 and $1,329,678, respectively, to the Advisor for O&O Costs incurred. As of September 30, 2021, the Advisor has continued to pay all O&O Costs on behalf of the Company.
Asset Management Fees. Asset management fees are due to the Advisor. 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.
For the nine months ended September 30, 2021, and September 30, 2020, the Company incurred asset management fees of $1,524,315 and $1,218,941, respectively, and for the three months ended September 30, 2021 and September 30, 2020, the Company incurred asset management fees of $558,483 and $425,505, respectively. The asset management fee related to the month of September 2021 of $197,776 was unpaid as of September 30, 2021 and has been included within Due to related parties on the consolidated balance sheet. The amount of asset management fees incurred by the Company during the applicable period is included in the calculation of the limitation of operating expenses pursuant to the 2%/25% Guidelines (as defined and described below).
Other Operating Expenses. Effective April 1, 2018, the Advisory Agreement (i) includes limitations with regards to the incurrence of and additional limitations on reimbursements of operating expenses and (ii) clarifies the reimbursement and expense timing and procedures, including potential reimbursement of unreimbursed operating expenses.
Pursuant to the terms of the Advisory Agreement (which subsequently were incorporated into the Amended Advisory Agreement as defined above), 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 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”). If the Company’s independent directors determine that all or a portion of such amounts in excess of the limitation are justified based on certain factors, the Company may reimburse amounts in excess of the limitation to the Advisor. In addition, beginning on October 1, 2018, the Company may request any operating expenses that were previously reimbursed to the Advisor in prior or future periods in excess of the limitation to be remitted back to the Company. The Company reimbursed $1,004,539 of the operating expense reimbursement obligation to the Advisor in January 2019. As of September 30, 2021, the Company has accrued but not reimbursed $204,253 in operating expenses
pursuant to the Advisory Agreement, which represents the current operating expense reimbursement obligation to the Advisor.
The Advisory Agreement provides that, subject to other limitations on the incurrence and reimbursement of operating expenses contained in the Advisory Agreement, operating expenses which have been incurred and paid by the Advisor will not become an obligation of the Company unless the Advisor has invoiced the Company for reimbursement, which will occur in a quarterly statement and accrued for in the respective period. The Advisor will not invoice the Company for any reimbursement if the impact of such would result in the Company’s incurrence of an obligation in an amount that would result in the Company’s net asset value per share for any class of shares to be less than $25.00. The Company may, however, incur and record an obligation to reimburse the Advisor, even if it would result in the Company’s net asset value per share for any class of shares for such quarter to be less than $25.00, if the Company’s board of directors determines that the reasons for the decrease of the Company’s net asset value per share below $25.00 were unrelated to the Company’s obligation to reimburse the Advisor for operating expenses.
In addition, the Advisory Agreement provides that all or a portion of the operating expenses, which have not been previously paid by the Company or invoiced by the Advisor may be in the sole discretion of the Advisor: (i) waived by the Advisor, (ii) reimbursed to the Advisor in any subsequent quarter or (iii) reimbursed to the Advisor in connection with a liquidity event or termination of the Advisory Agreement, provided that the Company has fully invested the proceeds from its initial public offering and the stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on their invested capital. Any reimbursement of operating expenses remains subject to the limitations described above and the limitations and the approval requirements relating to the 2%/25% Guidelines.
Reimbursable operating expenses include personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in the Advisory Agreement, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services. The Company is not obligated to reimburse the Advisor for costs of such employees of the Advisor or its affiliates to the extent that such employees (A) perform services for which the Advisor receives acquisition fees or disposition fees or (B) serve as executive officers of the Company.
As of September 30, 2021, the total amount of unreimbursed operating expenses was $12,066,637. This includes operating expenses incurred by the Advisor on the Company’s behalf which have not been invoiced to the Company and also amounts invoiced to the Company by the Advisor but not yet reimbursed (“Unreimbursed Operating Expenses”). The amount of operating expenses incurred by the Advisor during the nine months ended September 30, 2021 and September 30, 2020 which were not invoiced to the Company amounted to $2,027,671 and $3,237,224, respectively.
Property Management Fees. If the Company will engage the Advisor or an affiliate to serve as a property manager with respect to a particular property, the Company will generally pay market rate property management fees. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred property management fees of $397,364 and $109,074, respectively, and for the three months September 30, 2021 and September 30, 2020, the Company incurred property management fees of $181,729 and $36,386, respectively. The property management fees incurred during the month of September 30, 2021 of $57,924 was unpaid as of September 30, 2021 and have been included within Due to related parties on the consolidated balance sheet.
Leasing Commissions. If the Advisor or an affiliate is the Company’s primary leasing agent, then the Company will pay customary leasing fees in amount that is usual and customary in that geographic area for that type of property. As of September 30, 2021 and December 31, 2020, no such amounts have been incurred by the Company.
Selling Commissions, Dealer Manager Fees and Distribution Fees
The Dealer Manager is a registered broker-dealer affiliated with CFI. The Company entered into the Dealer Manager Agreements with the Dealer Manager and is obligated to pay various commissions and fees with respect to the Class AX, Class TX, Class IX, Class T, Class S, Class D and Class I Shares distributed in the Offerings. CFI has paid a portion of the selling commissions and all of the dealer manager fees as Sponsor Support, up to a total of 4% of gross offering proceeds from the sale of Class AX Shares and Class TX Shares, as well as 1.5% of Class IX Shares, incurred in connection with the Initial Offering. The Company will reimburse Sponsor Support (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Amended Advisory Agreement by the Company or by the Advisor. In each such case, the Company only will reimburse CFI after the Company has fully invested the proceeds from the Initial Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on such invested capital.
As of September 30, 2021, the likelihood, probability and timing of each of the possible occurrences or events listed in the preceding sentences (i) and (ii) in the above paragraph are individually and collectively uncertain. Additionally, whether or not the Company will have fully invested the proceeds from Initial Offering and also whether the Company’s stockholders will have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compound annual pre-tax return on such invested capital at the time of any such occurrence or event is also uncertain. As of September 30, 2021 and December 31, 2020, CFI has paid Sponsor Support totaling $5,374,526 and $5,374,526, respectively, which will be subject to reimbursement by the Company to CFI in the event of these highly conditional circumstances.
The following summarizes the fees payable to the Dealer Manager:
Distribution Fees. Under the Dealer Manager Agreements, distribution fees are payable to the Dealer Manager with respect to the Company’s Class TX Shares, Class T Shares, Class S Shares and Class D Shares, all or a portion of which may be re-allowed by the Dealer Manager to participating broker-dealers. Under the IPO Dealer Manager Agreement, the distribution fees for Class TX Shares accrue daily and are calculated on outstanding Class TX Shares issued in the Primary Offering in an amount equal to 1.0% per annum of (i) the gross offering price per Class TX Share in the Primary Offering, or (ii) if the Company is no longer offering Class TX Shares in a public offering, the most recently published per share NAV of Class TX Shares. Under the Follow-On Dealer Manager Agreement, the Company has agreed to pay the Dealer Manager (a) with respect to the Class T Shares and Class S Shares, a distribution fee in an annual amount equal to 0.85% of the aggregate NAV of the outstanding Class T Shares and Class S Shares, as applicable, and (b) with respect to the Class D Shares, a distribution fee in an annual amount equal to 0.25% of the aggregate NAV of the outstanding Class D Shares. The distribution fees are payable monthly in arrears and are paid on a continuous basis from year to year. During the nine months ended September 30, 2021 and September 30, 2020, the Company paid distribution fees of $258,191 and $226,380, respectively. As of September 30, 2021 and December 31, 2020, the Company has incurred a liability of $471,278 and $734,830, respectively, which is included within Due to related parties on the consolidated balance sheets, $31,562 and $30,200, respectively, of which was due as of September 30, 2021 and December 31, 2020 and paid during October 2021 and January 2021, respectively.
Selling Commissions. Selling commissions payable to the Dealer Manager in the Initial Offering consisted of (i) up to 1% of gross offering proceeds paid by CFI for Class AX Shares and Class TX Shares and, (ii) up to 5% and 2% of gross offering proceeds from the sale of Class AX Shares and Class TX Shares, respectively. No selling commissions were payable with respect to Class IX Shares. Selling commissions in the Follow-On Offering consist of 3% and 3.5% of gross offering proceeds from the sale of Class T Shares and Class S Shares, respectively. All or a portion of such selling commissions may be re-allowed to participating broker-dealers. No selling commissions will be payable with respect to Class D Shares and Class I Shares. For the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company incurred $224,779 and $646,770 of selling commissions, respectively, which is included within Additional paid-in capital on the consolidated balance sheets. At September 30, 2021 and December 31, 2020, $1,182,925 and $1,182,925 of Sponsor Support, respectively, has been recorded and $1,182,925 and $1,182,925, respectively, has been reimbursed by CFI. No Sponsor Support payment was due at September 30, 2021, as Sponsor Support ended with the termination of the Primary Offering.
Dealer Manager Fees. Dealer manager fees payable to the Dealer Manager in the Initial Offering consisted of up to 3.0% of gross offering proceeds from the sale of Class AX Shares and Class TX Shares sold in the Primary Offering and up to 1.5% of gross offering proceeds from the sale of Class IX Shares sold in the Primary Offering, all of which were paid by CFI. A portion of such dealer manager fees may be re-allowed to participating broker-dealers as a marketing fee. Dealer Manager fees payable to the Dealer Manager in the Follow-On Offering consist of up to 0.5% of gross offering proceeds from the sale of Class T Shares sold in the primary portion of the Follow-On Offering. No dealer manager fees will be payable with respect to Class S Shares, Class D Shares and Class I Shares. For the nine months ended September 30, 2021 and the year ended December 31, 2020, the Company recorded $40,720 and $530,894 of dealer manager fees, respectively, which is included within Additional paid-in capital on the consolidated balance sheets. As of September 30, 2021 and December 31, 2020, all of the Sponsor Support related to dealer manager fees has been recorded and $4,191,601 and $4,191,601, respectively, has been reimbursed by CFI. No Sponsor Support payment was due at September 30, 2021, as Sponsor Support ended with the termination of the Primary Offering.
The following table summarizes the above mentioned fees and expenses incurred by the Company and amounts of investment funding due for the nine months ended September 30, 2021:
| Due to<br><br><br>related<br><br><br>parties as of | Nine months ended<br><br><br>September 30, 2021 | Due to<br><br><br>related<br><br><br>parties as of | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Type of Fee or Reimbursement | Financial Statement<br><br><br>Location | December 31,<br><br><br>2020 | Incurred | Paid | September 30, 2021 | |||||
| Management Fees | ||||||||||
| Asset management fees | Management fees | $ | 150,028 | $ | 1,524,315 | $ | 1,476,567 | $ | 197,776 | |
| Property management and oversight fees | Management fees | 37,055 | 397,364 | 376,495 | 57,924 | |||||
| Organization, Offering and Operating Expense<br><br><br>Reimbursements | ||||||||||
| Operating expenses^(^^1)^ | General and administrative expenses | 204,253 | — | — | 204,253 | |||||
| Organization expenses^(^^2)^ | General and administrative expenses | 17,879 | — | 17,879 | — | |||||
| Admin Fees^(^^2)^ | General and administrative expenses | — | 12,600 | — | 12,600 | |||||
| Offering costs^(^^2)^ | Additional paid-in capital | 294,405 | 500,896 | 727,041 | 68,260 | |||||
| Commissions and Fees | ||||||||||
| Selling commissions and dealer manager fees, net | Additional paid-in capital | — | 265,498 | 265,498 | — | |||||
| Distribution fees | Additional paid-in capital | 734,830 | (5,361 | ) | 258,191 | 471,278 | ||||
| Investment Funding | ||||||||||
| Distribution due ^(3)^ | Additional paid-in capital | — | — | — | 84,000 | |||||
| Demand Note^(^^4)^ | Prepaid expenses and other assets | — | — | — | 720,000 | |||||
| Total | $ | 1,438,450 | $ | 2,695,312 | $ | 3,121,671 | $ | 1,816,091 | ||
| Note: | (1) As of September 30, 2021, the Advisor has incurred, on behalf of the Company, a total of $12,066,637 in Unreimbursed Operating Expenses, including a total of $2,027,671 for the nine months ended September 30, 2021 for which the Advisor has not invoiced the Company for reimbursement. The total amount of Unreimbursed Operating Expenses may, in future periods, be subject to reimbursement by the Company pursuant to the terms of the Advisory Agreement. | |||||||||
| --- | --- |
(2) As of September 30, 2021, the Advisor has incurred, on behalf of the Company, a total of $11,030,568 of O&O Costs, of which the Company’s obligation is limited to $68,260, pursuant to the 1% Cap.
(3) Reflects distribution amount owed by the Company to the CF Keller Holdings LLC.
(4) On March 26, 2021, the Company entered into an agreement with the Summerfield MT JV to pay a non-negotiable promissory demand note (the “Demand Note”) for a principal amount of $720,000 to the Summerfield MT JV. The Demand Note bears no interest and it is due 5 business days from when the request for payment is made.
The following table summarizes the above mentioned fees and expenses incurred by the Company for the year ended December 31, 2020:
| Due to<br><br><br>related<br><br><br>parties as of | Year ended December 31, 2020 | Due to<br><br><br>related<br><br><br>parties as of | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Type of Fee or Reimbursement | Financial Statement Location | December 31, 2019 | Incurred | Paid | December 31, 2020 | ||||
| Management Fees | |||||||||
| Asset management fees | Management fees | $ | 123,179 | $ | 1,663,624 | $ | 1,636,775 | $ | 150,028 |
| Property management and oversight fees | Management fees | 20,269 | 145,547 | 128,761 | 37,055 | ||||
| Organization, Offering and Operating Expense Reimbursements | |||||||||
| Operating expenses^(^^1)^ | General and administrative expenses | 204,253 | — | — | 204,253 | ||||
| Organization expenses^(^^2)^ | General and administrative expenses | 71,162 | 444 | 53,727 | 17,879 | ||||
| Offering costs^(^^2)^ | Additional paid-in capital | 718,499 | 264,083 | 688,177 | 294,405 | ||||
| Commissions and Fees | |||||||||
| Selling commissions and dealer manager fees, net | Additional paid-in capital | — | 528,442 | 528,442 | — | ||||
| Distribution fees | Additional paid-in capital | 919,819 | 117,042 | 302,031 | 734,830 | ||||
| Total | $ | 2,057,181 | $ | 2,719,182 | $ | 3,337,913 | $ | 1,438,450 | |
| Note: | (1) As of December 31, 2020, the Advisor has incurred, on behalf of the Company, a total of $10,038,966 in Unreimbursed Operating Expenses, including a total of $2,594,741 for the year ended December 31, 2020 for which the Advisor has not invoiced the Company for reimbursement. The total amount of Unreimbursed Operating Expenses may, in future periods, be subject to reimbursement by the Company pursuant to the terms of the Advisory Agreement. | ||||||||
| --- | --- |
(2) As of December 31, 2020, the Advisor has incurred, on behalf of the Company, a total of $9,946,509 of O&O Costs, of which the Company’s obligation is limited to $312,284, pursuant to the 1% Cap.
Investment by CFI
CFI initially invested $200,001 in the Company through the purchase of 8,180 Class AX Shares at $24.45 per share. CFI may not sell any of these shares during the period it serves as the Company’s sponsor. Neither the Advisor nor CFI currently has any options or warrants to acquire any of the Company’s shares.
As of September 30, 2021, CFI has invested $4,782,281 in the Company through the purchase of 191,337 shares (8,180 Class AX Shares for an aggregate purchase price of $200,001 and 183,157 Class IX Shares for an aggregate purchase price of $4,582,280). CFI purchased 125,157 of the Class IX Shares in the amount of $3,132,280 pursuant to the Distribution Support Agreement, which provides that in certain circumstances where the Company’s cash distributions exceed the Company’s modified funds from operations, CFI will purchase up to $5.0 million of Class IX Shares (including the $2.0 million of shares purchased in order to satisfy the Minimum Offering Requirement) at the then current offering price per Class IX Share net of dealer manager fees to provide additional cash to support distributions to the Company’s stockholders. On August 10, 2020, the Company and CFI entered into 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).
Sponsor Support
The Company’s sponsor, CFI, is a Delaware limited liability company and an affiliate of CFLP. CFI has paid a portion of selling commissions and all of the dealer manager fees, up to a total of 4% of gross offering proceeds from the sale of Class AX Shares and Class TX Shares, as well as 1.5% of gross offering proceeds from the sale of Class IX Shares, incurred in connection with the Initial Offering. The Company will reimburse such expenses (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Amended Advisory Agreement by the Company or by the Advisor. In each such case, the Company only will reimburse CFI after the Company has fully invested the proceeds from the Initial Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on such invested capital. As of September 30, 2021, CFI has paid Sponsor Support totaling $5,374,526.
Note 10 - Variable Interest Entities
As of September 30, 2021 and December 31, 2020, certain VIEs have been identified. In regard to the Company’s investment in the SF Property, the Keller Property, the Summerfield Property, and the Valencia Property, the Company has determined itself to be the primary beneficiary because the Company has a significant variable interest in and control over the SF Property, Keller Property, and a controlling interest in the Summerfield Property, and the Valencia Property. Therefore, the Company has consolidated the SF Property, the Keller Property, the Summerfield Property, and the Valencia Property. In regard to the Company’s investment in the Station DST, the Company has determined itself not to be the primary beneficiary, because the Company does not have a significant variable interest in and control over the Station DST. Therefore, the Company has not consolidated the Station DST. The Company’s maximum exposure to loss from its interest in an unconsolidated VIE as of September 30, 2021 is $7,180,885 related to its investment in a real estate-related asset, the Station DST. Refer to Note 6 - Investments in Real Estate-Related Assets for additional information.
Note 11 – Economic Dependency
The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the sale of the Company’s shares of capital stock, acquisition and disposition decisions and certain other responsibilities. In the event that the Advisor is unable or unwilling to provide such services, the Company would be required to find alternative service providers.
Note 12 – Commitments and Contingencies
Ground Leases
In association with the De Anza Property, the Company, indirectly through the De Anza Property SPE entered two ground lease agreements with unrelated third parties to lease the land where the De Anza property is located. The ground leases have an average term of 60 years and require incremental increases, as defined in ground lease agreements, in lease payments, based on consumer price index (“CPI”).
For lessees, the lease accounting standard ASC 842, Leases requires the lessee to recognize the assets and liabilities that arise from the leases. A lessee can classify a lease as either a finance lease or operating lease based on meeting certain criteria under ASC 842. In connection with the accounting standard, the Company is required to determine the incremental borrowing rate that is used as the discount rate in calculating the present value of lease payments for the duration of the lease term to measure the lease asset, Right-of-Use Asset (“ROU”) and lease liability. Given the extended lease term, estimating the incremental borrowing rate requires significant judgment from the Company. The Company has determined that the two ground leases qualify as operating leases. As of September 30, 2021 and December 31, 2020, the Company has $16,486,608 of ROU and $0, respectively and $16,486,608 and $0 lease liability, respectively. Under the new guidance, for the three and nine months ended September 30, 2021, the Company has recognized lease expense of $108,866 and $108,866, respectively, and is included within the accompanying consolidated statements of operations.
The following table reflects the base cash rental payments due from the Company as of September 30, 2021:
| Year | Future Base Rent Payments | |
|---|---|---|
| 2021 (remaining) | $ | 163,300 |
| 2022 | 653,198 | |
| 2023 | 653,198 | |
| 2024 | 653,198 | |
| 2025 | 653,198 | |
| Thereafter | 36,553,551 | |
| Total | $ | 39,329,643 |
Litigation and Regulatory Matters
As of September 30, 2021 and December 31, 2020, the Company was not subject to litigation nor was the Company aware of any material litigation pending against it. The Company has entered into customary guaranty agreements (the “Guaranty Agreements”) in connection with the financing of certain specific investments, including the acquisition of the GR Property, the FM Property, the Buchanan Property, the CO Property, and the Summerfield Property as further described in Note 7 — Loans Payable. Pursuant to the Guaranty Agreements, the Company has guaranteed any losses or liabilities that the lenders may incur as a result of the occurrence of certain enumerated bad acts as defined in the Guaranty Agreements. The Company has also guaranteed the repayment of obligations and indebtedness due to the lenders upon the occurrence of certain enumerated events as defined in the Guaranty Agreements. Additionally, in regards to the GR Property, the FM Property, the Buchanan Property, the CO Property, and the Summerfield Property, the Company has also agreed to indemnify the lenders against certain environmental liabilities.
As of September 30, 2021, the Company’s liability under these arrangements is not quantifiable and the potential for the Company to be required to make payments under the Guaranty Agreements is remote. Accordingly, no contingent liability is recorded in the Company’s unaudited consolidated balance sheet for these arrangements.
Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk include Cash and cash equivalents. At times, balances with any one financial institution may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company believes it mitigates this risk by investing its cash with high-credit quality financial institutions.
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, states or industries could result in a material reduction the Company’s cash flows or material losses to the Company. The Company believes it mitigates this risk by employing a comprehensive set of controls around acquisitions which include detailed due diligence of all lessees. In addition, the Company monitors published credit ratings of its tenants, when available.
Additionally, the full extent of the impact and effects of the recent outbreak of the coronavirus (COVID-19) on the future financial performance of the Company, as a whole, and, specifically, on its investments, lessees of real estate properties owned and borrowers on its loan and preferred equity interests, are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, and production delays, and the uncertainty with respect to the accessibility of additional liquidity or to the capital markets. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas, present uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows.
Note 13 – Fair Value Measurements
Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchal framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the market place, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:
Level 1 measurement — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.
Level 2 measurement — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
Level 3 measurement — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:
Investment in real estate, net —The fair value is estimated by utilizing the income approach to value, using a direct capitalization analysis and discounted cash flow analysis, as well as a sales comparison approach where deemed applicable. As of September 30, 2021 and December 31, 2020, the estimated fair value of the Company’s Investment in real estate, net was $552,070,000 and $179,370,000, respectively. The Company has not elected the fair value option to account for its Investment in real estate, net.
Investments in real estate-related assets —The fair value of the Pennsylvania SPE and the Illinois SPE is estimated by discounting the expected cash flows based on the market interest and preferred return rates for similar loans and preferred equity investments to the Company’s investments. The fair value of the Company’s interest 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 September 30, 2021, and 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%). As of September 30, 2021 and December 31, 2020, the estimated fair value of the Company’s Investments in real estate-related assets was $35,015,574 and $32,738,630, respectively. The Company has not elected the fair value option to account for its Investments in real estate-related assets.
Loans payable —The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. The current period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of September 30, 2021 and December 31, 2020, the estimated fair value of the Company’s loans payable was $308,800,942 and $86,521,068, respectively (excluding deferred financing costs). The Company has not elected the fair value option, and as such has accounted for its debt using the amortized cost method.
Other financial instruments — The Company considers the carrying value of its Cash and cash equivalents to approximate its fair value because of the short period of time between its origination and its expected realization as well as its highly-liquid nature. Due to the short-term maturity of this instrument, Level 1 inputs are utilized to estimate the fair value of this financial instrument.
Note 14 – Derivative Instruments
Risk Management Objective of Using Derivatives
The Company may use derivative financial instruments, including interest rate swaps, interest rate caps, and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal
objective of such arrangements is to minimize the risks and costs associated with the Company’s operating and financial structure. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management.
The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its related parties may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
On July 6, 2021, in connection with the Valencia Loan, the Company entered the Valencia Swap which calls for the Company to pay a fixed rate of 3.39% per annum on a notional amount of $55,200,000 in exchange for a variable rate of LIBOR plus 195 basis points to be paid by the Valencia Swap Counterparty. The Valencia Swap became effective on July 7, 2021 and is set to expire on July 7, 2031. See Note 7 – Loans Payable for further details.
Additionally, in conjunction with the Keller Loan, the Company entered into an interest rate cap agreement for a notional amount of $31,277,000. See Note 7 – Loans Payable for further details. The fair value of this interest rate cap is insignificant and is included with other assets on the consolidated balance sheet as of September 30, 2021.
The table below presents the fair value of the Company’s derivative financial instrument as well as its classification on the consolidated balance sheet as of September 30, 2021 and December 31, 2020.
| Balance Sheet Location | September 30, 2021 | December 31, 2020 | |||
|---|---|---|---|---|---|
| Derivatives designated as hedging instruments: | |||||
| Interest rate “pay-fixed” swap | Derivative liabilities, at fair value | $ | 490,615 | $ | — |
Cash Flow Hedges
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The changes in the fair value of derivatives designated and that qualify as cash flow hedges are recorded in accumulated other comprehensive loss (“AOCI”) and are subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
As of September 30, 2021 the Company had the following derivatives that were designated as cash flow hedges of interest rate risk:
| September 30, 2021 | ||||
|---|---|---|---|---|
| Interest Rate Derivative | Number of Instruments | Notional Amount | ||
| Interest Rate Swaps | 1 | $ | 55,200,000 |
Non-designated Hedge
These derivatives are used to manage the Company’s exposure to interest rate movements, but do not meet the strict hedge accounting requirements to be classified as hedging instruments or derivatives that the Company has not elected to treat as hedges for purposes of administrative ease. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. The Company recorded an immaterial loss on non-designated hedging relationships during the three and nine months ended September 30, 2021. The Company did not have any such derivatives during the three and nine months ended September 30, 2020.
The following table details the Company’s interest rate derivative not designated as a hedge.
| September 30, 2021 | ||||
|---|---|---|---|---|
| Interest Rate Derivative | Number of Instruments | Notional Amount | ||
| Interest Rate Cap | 1 | $ | 31,277,000 |
Note 15 – Subsequent Events
Common Stock Repurchases
Subsequent to September 30, 2021, the Company received and completed 15 eligible repurchase requests for a total of 25,797 shares in the amount of $638,482.
Kacey Property Acquisition (Royalton at Kingwood)
On November 4, 2021, the Company, thru its Operating Partnership, acquired an indirect, controlling equity interest of 9.97%, with an investment of $2.820 million, in a Delaware Statutory Trust, (the “Kacey DST”), which purchased a 331-unit, Class-A multifamily, apartment community located in Kingwood, Texas. The property was acquired for a purchase price of $67.0 million, exclusive of closing costs, and was further financed by additional equity invested by the Company’s sponsor, CFI, Cantor Realty Fund III, a fund managed by an affiliate of CFI, and a newly formed subsidiary of CAF Management (“CAF”) as well as by a $40.640 million, fixed rate (coupon of 3.536%) mortgage loan made to Kacey DST in the amount of $40.640 million by Arbor Private Label. This transaction is the seventh DST transaction that CFI has completed with CAF and its affiliates, who also will, as they have in the prior six transactions, provide property and asset management services with regards to the property owned by Kacey DST.
CO Property Sublease
The tenant of the CO Property (“Alliance Data Systems”) has subleased all 233,573 rentable square feet of the building located at the CO Property to Upstart Network, Inc. (“Upstart”), an affiliate of Upstart Holdings Inc (NASDAQ: UPST). The terms of the sublease, which commences on or about January 1, 2022, and includes a term of 92 months with renewal rights extending up to the lease maturity of the existing lease. As part of the sublease transaction, Alliance Data Systems will invest approximately $5.8 million into building improvements including a new café, gym, conference areas and employee amenities. Alliance Data Systems will remain as guarantor under the master lease.
Status of the Offerings
As of November 11, 2021, the Company had sold an aggregate of 9,118,730 shares of its common stock (consisting of 3,334,267, Class AX Shares, 1,449,546 Class TX Shares, 1,211,154 Class IX Shares, 493,882 Class T Shares, 4,362 Class S Shares, 270,120 Class D Shares, and 2,355,399 Class I Shares) in the Offerings resulting in net proceeds of $222,268,440 to the Company as payment for such shares.
Distributions
As authorized by the board of directors of the Company, on November 1, 2021 the Company declared the following distributions for each class of the Company’s common stock as rounded to the nearest three decimal places ($1.55 on an annual basis):
| Gross Distribution | ||
|---|---|---|
| Class T Shares | $ | 0.1316 |
| Class S Shares | $ | 0.1316 |
| Class D Shares | $ | 0.1316 |
| Class I Shares | $ | 0.1316 |
| Class AX Shares | $ | 0.1316 |
| Class TX Shares | $ | 0.1316 |
| Class IX Shares | $ | 0.1316 |
The net distributions for each class of common stock (which represents the gross distributions described above less the distribution fee for the applicable class of common stock as described in the Company’s applicable prospectus) are payable to stockholders of record immediately following the close of business on October 31, 2021 and will be paid on or about November 7, 2021. These distributions will be paid in cash or reinvested in shares of the Company’s common stock for stockholders participating in the Company’s distribution reinvestment plan. Some or all of the cash distributions may be paid from sources other than cash flow from operations.
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 DRP. 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 November 11, 2021, the Company had sold 3,334,267 Class AX shares, 1,449,546 Class TX shares, 1,211,154 Class IX shares, 493,882 Class T shares, 270,120 Class D shares, 4,362 Class S shares, and 2,355,399 Class I shares of common stock in the Primary Offering and the primary portion of the Follow-on Offering, as well as 235,483 Class AX shares, 93,055 Class TX shares, 59,366 Class IX shares, 1,662 Class T shares, 1,952 Class D shares, 6 Class S shares, and 12,243 Class I shares in the DRP for aggregate net proceeds of $222,268,440 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 September 30, 2021, the Company’s NAV was $24.83 per Class AX Share, Class IX Share, and Class I Share, $24.82 per Class D Share, $24.81 per Class TX Share, Class T Share, and Class S Share. 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 September 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 (80.26%) 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. |
| --- | --- |
| • | 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”). |
| --- | --- |
| • | An industrial property located in Cleveland, OH (the “Madison Property”). |
| --- | --- |
| • | A controlling interest (9.91%) in a Delaware Statutory Trust, (the “Valencia DST”), which owns a life sciences laboratory and research office property located in Valencia, California (the “Valencia Property”). |
| --- | --- |
| • | An office property located in Cupertino, CA (the “De Anza Property”). |
| --- | --- |
The Company has no employees and has retained the Advisor to manage its affairs on a day-to-day 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.
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
Third Quarter of 2021 Activity
| • | Issued approximately 997,918 shares of common stock in the Offerings for gross proceeds of approximately $24.4 million. |
|---|---|
| • | Acquired 9.91% interest in the amount of $3.9 million in Valencia DST. |
| --- | --- |
| • | Acquired the De Anza Property for a contract purchase price of $63.8 million exclusive of closing costs. |
| --- | --- |
| • | Entered into a secured revolving credit facility with an aggregate principal amount of $100.0 million with the option to increase the commitment for another $100.0 million, subject to certain conditions under the lending agreement. |
| --- | --- |
Portfolio Information
As of September 30, 2021, the Company owned interests in 18 real properties as described below:
| Portfolio | Ownership<br><br><br>Percentage | Location | Number of<br><br><br>Properties | Square<br><br><br>Feet | Remaining<br><br><br>Lease<br><br><br>Term^(^^1)^ | Annualized<br><br><br>Rental<br><br><br>Income^(^^2)^ | Acquisition<br><br><br>Date | Purchase<br><br><br>Price^(^^3)^ | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Walgreens Grand Rapids ("GR Property") | 100 | % | Grand Rapids, MI | 1 | 14,552 | 10.8 years | $ | 500,000 | July 2017 | $ | 7,936,508 | |
| CF Net Lease Portfolio IV DST ("DST Properties") | 100 | % | Various | 7 | 103,537 | 15.2 years | $ | 2,323,749 | September 2017 | $ | 35,706,642 | |
| Daimler Trucks North America Office Building ("FM Property") | 100 | % | Fort Mill, SC | 1 | 150,164 | 7.3 years | $ | 2,670,638 | February 2018 | $ | 40,000,000 | |
| Alliance Data Systems Office Building ("CO Property") | 100 | % | Columbus, OH | 1 | 241,493 | 11.0 years | $ | 3,362,844 | July 2018 | $ | 46,950,000 | |
| Hoya Optical Labs of America ("Lewisville Property") | 100 | % | Lewisville, TX | 1 | 89,473 | 6.8 years | $ | 937,060 | November 2018 | $ | 14,120,000 | |
| Williams Sonoma Office Building ("SF Property") | 75 | % | San Francisco, CA | 1 | 13,907 | 0.3 years | $ | 582,860 | September 2019 | $ | 11,600,000 | |
| Martin Brower Industrial Buildings ("Buchanan Property") | 100 | % | Phoenix, AZ | 1 | 93,302 | 10.4 years | $ | 1,083,444 | November 2019 | $ | 17,300,000 | |
| Multifamily Residential Property ("Keller Property") | 77.85 | % | Carrolton, TX | 1 | 255,627 | multiple^(^^4)^ | $ | 4,647,552 | February 2021 | $ | 56,500,000 | |
| Multifamily Residential Property ("Summerfield Property") | 25 | % | Landover, MD | 1 | 452,876 | multiple^(^^4)^ | $ | 9,590,592 | March 2021 | $ | 115,500,000 | |
| Amazon Last Mile Cleveland ("Madison Ave Property") | 100 | % | Cleveland, OH | 1 | 168,750 | 9.5 years | $ | 1,555,254 | May 2021 | $ | 30,800,000 | |
| Valencia California ("Valencia Property") | 9.91 | % | Santa Clarita, CA | 1 | 180,415 | 14.3 years | $ | 5,323,193 | July 2021 | $ | 92,000,000 | |
| De Anza Plaza Office Buildings ("De Anza Property") | 100 | % | Cupertino, CA | 1 | 83,959 | 9.8 years | $ | 3,713,171 | July 2021 | $ | 63,750,000 | |
| (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 September 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 – 3% |
|---|---|
| • | 2024 – 2026 – 0% |
| --- | --- |
| • | 2027 – 2029 – 19% |
| --- | --- |
| • | After 2030 – 78% |
| --- | --- |
As of September 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 – 42% |
|---|---|
| • | Single Tenant Industrial – 23% |
| --- | --- |
| • | Multifamily – 21% |
| --- | --- |
| • | Single Tenant Necessity Retail – 12% |
| --- | --- |
| • | Single Tenant Life Sciences – 2% |
| --- | --- |
As of September 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:
| • | Ohio – 22% |
|---|---|
| • | California – 21% |
| --- | --- |
| • | Texas – 17% |
| --- | --- |
| • | South Carolina – 10% |
| --- | --- |
| • | Maryland – 7% |
| --- | --- |
| • | Michigan – 5% |
| --- | --- |
| • | Arizona – 5% |
| --- | --- |
| • | Oklahoma – 4% |
| --- | --- |
| • | Illinois – 3% |
| --- | --- |
| • | Pennsylvania – 3% |
| --- | --- |
| • | Arkansas – 1% |
| --- | --- |
As of September 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 – 94% |
|---|---|
| • | Mezzanine Loan – 3% |
| --- | --- |
| • | Preferred Equity – 3% |
| --- | --- |
As of September 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)^ – 67% |
|---|---|
| • | Unrated – 25% |
| --- | --- |
| • | Non-Investment Grade – 8% |
| --- | --- |
As of September 30, 2021, the maturity concentration of debt secured by our portfolio of real estate assets, based on principal balances and adjusted for ownership percentage, was as follows:
| • | 2021 – 2023 – 0% |
|---|---|
| • | 2024 – 2026 – 31% |
| --- | --- |
| • | 2027 – 2029 – 10% |
| --- | --- |
| • | After 2030 – 59% |
| --- | --- |
^(^^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 September 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 September 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 99.4%. 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 September 30, 2021, the Company owned the preferred equity investment described below:
| Portfolio | Original<br><br><br>Investment<br><br><br>Amount | Preferred<br><br><br>Return | Number of<br><br><br>Properties | Square<br><br><br>Feet | Lease<br><br><br>Expiration<br><br><br>Date | Acquisition<br><br><br>Date | Tenant<br><br><br>Renewal Options | |||
|---|---|---|---|---|---|---|---|---|---|---|
| Denver, PA— Pref Equity Investment | $ | 11,805,000 | Ranging from<br><br><br>7.75% in<br><br><br>2019 to<br><br><br>8.74% in<br><br><br>2028 | 1 | 1,539,407 | January 31, 2039 | January 2019 | 9 extension<br><br><br>options for<br><br><br>5 years each |
As of September 30, 2021, the Company owned the mezzanine loan investment described below:
| Portfolio | Original Loan<br><br><br>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<br><br><br>7.75% in<br><br><br>2019 to<br><br><br>8.74% in<br><br><br>2028 | 1 | 1,561,613 | January 2019 | January 6, 2034^(1)^ | Interest<br><br><br>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 September 30, 2021 and September 30, 2020, the Company earned rental revenues of $9,147,449 and $3,069,547, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company earned rental revenues of $19,739,260 and $9,208,642, 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 $6,077,902 and $10,530,618 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, were primarily due to the acquisition of rental income-producing properties, namely the Keller Property, the Summerfield Property, the Madison Ave Property, the Valencia Property, and the De Anza Property.
Preferred Return Income
For the three months ended September 30, 2021 and September 30, 2020, the Company earned preferred return income of $240,441 and $237,123, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company earned preferred return income of $713,484 and $706,214, 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 $3,318 and $7,270 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 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 September 30, 2021 and September 30, 2020, the Company earned income from mezzanine loan investment of $256,532 and $252,992, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company earned income from mezzanine loan investment of $761,039 and $753,475, 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 $3,540 and $7,564, for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, and was due to the increase of the interest rate of the Illinois SPE.
Tenant Reimbursement Income
For the three months ended September 30, 2021 and September 30, 2020, the Company earned tenant reimbursement income of $1,137,744 and $300,156, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company earned tenant reimbursement income of $2,613,987 and $1,177,981, 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 $837,588 and $1,436,006 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, was primarily due to the acquisitions of the Keller Property, the Summerfield Property, the Madison Ave Property, the Valencia Property, and the De Anza Property.
General and Administrative Expenses
For the three months ended September 30, 2021 and September 30, 2020, the Company incurred general and administrative expenses of $173,978 and $29,464, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred general and administrative expenses of $333,486 and $117,668, 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 $144,514 and $215,818 during the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, were mainly due to an increase in the amount of operating expenses incurred by the Company during such periods. As of September 30, 2021, the Advisor has incurred, on behalf of the Company, a total of $12,066,637 in Unreimbursed Operating Expenses, including a total of $2,027,671 for the nine months ended September 30, 2021, compared to $3,237,224 for the nine months ended September 30, 2020, for which the Advisor has not invoiced the Company for reimbursement.
Management Fees
For the three months ended September 30, 2021 and September 30, 2020, the Company incurred management fees of $740,212 and $461,891, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred management fees $1,921,679 and $1,328,016, 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 $278,321 and $593,663 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, was due to the increase in NAV during such periods.
Property Operating Expenses
For the three months ended September 30, 2021 and September 30, 2020, the Company incurred property operating expenses of $2,870,389 and $286,322, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred property operating expenses of $5,688,124 and $1,264,516, 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 $2,584,067 and $4,423,608 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, was primarily due to the acquisition of the Keller Property, the Summerfield Property, the Madison Ave Property, the Valencia Property, and the De Anza Property and the increase of property operating expenses during such periods.
Depreciation and Amortization
For the three months ended September 30, 2021 and September 30, 2020, the Company incurred depreciation and amortization of $4,903,917 and $1,629,668, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred depreciation and amortization of $10,390,232 and $4,889,002, respectively.
The increases in depreciation and amortization expenses of $3,274,249 and $5,501,230 for the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 30, 2020, was primarily due to the acquisition of the Keller Property, the Summerfield Property, the Madison Ave Property, the Valencia Property, and the De Anza Property.
Interest Expense
For the three months ended September 30, 2021 and September 30, 2020, the Company incurred interest expense of $2,699,134 and $990,020, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company incurred interest expense of $5,672,994 and $2,948,724, 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 $1,709,114 and $2,724,270 during the three and nine months ended September 30, 2021, respectively, as compared to three and nine months ended September 30, 2020, was primarily due to the acquisition of the Keller Property, the Summerfield Property, and the Valencia Property, as well the advances on the Credit Facility.
Interest Income
For the three months ended September 30, 2021 and September 30, 2020, the Company earned interest income of $1,665 and $3,042, respectively. For the nine months ended September 30, 2021 and September 30, 2020, the Company earned interest income of $8,548 and $55,394, respectively.
Interest income is composed of interest earned on interest bearing cash deposit accounts with banking institutions.
The decreases in interest income of $1,377 and $46,846 during the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 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 September 30, 2021 and September 30, 2020, the Company’s income from investments in real estate-related assets of $9,842 and $0, respectively. For the nine months September 30, 2021 and September 30, 2020, the Company’s loss from investments in real estate-related assets of $76,208 and $0, respectively.
The increase in income from investments in real estate-related assets of $9,842 and increase in loss from investments in real estate-related assets of $76,208 during the three and nine months ended September 30, 2021, respectively, as compared to the three and nine months ended September 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:
| Nine months ended<br><br><br>September 30, 2021 | |||
|---|---|---|---|
| Net income (loss) | $ | (246,405 | ) |
| Net income (loss) attributable to non-controlling interest | 992,001 | ||
| Net income (loss) attributable to common stockholders | $ | 745,596 | |
| Adjustments: | |||
| Real estate depreciation and amortization | 10,390,232 | ||
| Proportionate share of adjustments from non-controlling interests | (3,140,492 | ) | |
| Funds from Operations | $ | 7,995,336 |
The following table presents a reconciliation of FFO to MFFO:
| Nine months ended<br><br><br>September 30, 2021 | |||
|---|---|---|---|
| Funds from Operations | $ | 7,995,336 | |
| Adjustments: | |||
| Amortization of above-market lease intangibles | 36,564 | ||
| Amortization of below-market lease intangibles | (663,962 | ) | |
| Straight-line rent | (709,598 | ) | |
| Fair value adjustments on derivatives not deemed hedges | 39,552 | ||
| Proportionate share of adjustments from non-controlling interests | (979 | ) | |
| Modified Funds from Operations | $ | 6,696,913 |
Net Asset Value
On October 18, 2021, the Company’s board of directors approved an estimated NAV as of September 30, 2021 of $24.83 for Class AX, Class IX, and Class I shares, $24.82 for Class D shares and $24.81 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 and the De Anza Property all appraised by Stanger and the Keller Property, the Summerfield Property, the Lewisville Property, the Madison Ave Property and the Valencia Property all prepared by third-party appraisal firms; (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 (as defined below); 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 September 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, 2021, the Buchanan Property as of August 31, 2021, the FM Property as of January 31, 2021, the GR Property and the Walgreens DST Properties as of March 31, 2021, and the De Anza Property and the CO Property as of July 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 a third-party with an effective date of June 15, 2021, the Madison Ave Property prepared by a third-party with an effective date of June 18, 2021 and the Valencia Property prepared by a third-party with an effective date of May 28, 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, the Buchanan Property, and the De Anza 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 4.25% to 6.25%, with a weighted average of approximately 5.09%. 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 4.75% to 7.25%, with a weighted average of approximately 6.02%. The discount rates applied to the estimated residual value of the Stanger Appraised Properties for which a DCF analysis was conducted ranged from 5.75% to 7.75%, with a weighted average of approximately 6.42%. The residual capitalization rates applied to the Stanger Appraised Properties for which a DCF analysis was conducted ranged from 4.75% to 6.50%, with a weighted average of approximately 5.60%. 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, the fact that the existing tenant has provided notice that it will not be exercising its extension option and condition/quality and the date of sale. The aggregate appraised value of the Stanger Appraised Properties was $356,470,000. 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 September 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 September 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 September 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, loan-to-value (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 7.60% for both facilities. The aggregate fair value of the Debt Investments was approximately $25,550,000.
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 Valencia DST (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, 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 September 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 loan-to-value 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 2.25% to 4.25%, with a weighted average of approximately 3.30%. 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.
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% 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 $2,239,501 for year-to-date 2021.
The Value of Station DST Interests
The value of the beneficial interests in the Station DST was based upon the Station DST Property appraisal prepared by Stanger with an effective date of September 30, 2021 in accordance with the methodology outlined in the Appraisal of Consolidated Real Estate above, the fair market value of the mortgage loan encumbering the Station DST Property as of September 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 September 30, 2021, consistent with the procedures described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus of $24.83 per share for Class AX, Class IX, and Class I shares, $24.82 for Class D shares and $24.81 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 September 30, 2021 NAV is based on appraisals of the fair market value of certain of the Company’s real estate property investments which precede September 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 September 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 September 30, 2021. Furthermore, the Company’s September 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 | September 30, 2021 | ||
|---|---|---|---|
| Investment in real estate | $ | 552,070,000 | |
| Investments in real estate-related assets | 35,015,574 | ||
| Cash and cash equivalents^(^^1)^ | 15,924,300 | ||
| Other assets | 5,749,498 | ||
| Debt obligations | (308,800,942 | ) | |
| Due to related parties^(^^2)^ | (1,344,813 | ) | |
| Accounts payable and other liabilities | (6,742,421 | ) | |
| Accrued performance participation allocation | (3,025,284 | ) | |
| Distribution fee payable the following month^(^^3)^ | (41,592 | ) | |
| Non-controlling interests in subsidiaries | (78,940,800 | ) | |
| Sponsor Support repayment / special unit holder interest in<br><br><br>liquidation | - | ||
| Net Asset Value | $ | 209,863,520 | |
| Number of outstanding shares | 8,453,911 | ||
| Note: | (1) Excluding the full distribution fee liability of $471,278. Distribution fee only relates to Class TX, Class T, Class D and Class S shares of common stock. | ||
| --- | --- |
(2) The distribution fee that is payable as of September 30, 2021 related to Class TX, Class T, Class D and Class S shares (see table below). The non-current distribution fee payable of $429,686 is not due as of September 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 | $ | 459,419,920 | $ | 104,397,643 | $ | 27,578,805 | $ | 17,048,971 | $ | 314,033 | $ | 608,759,372 | ||||||
| Distribution fees due and payable | — | (33,706 | ) | (6,609 | ) | (1,202 | ) | (75 | ) | (41,592 | ) | |||||||
| Debt obligations | (233,046,606 | ) | (52,957,033 | ) | (13,989,699 | ) | (8,648,307 | ) | (159,297 | ) | (308,800,942 | ) | ||||||
| Due to related parties | (1,014,908 | ) | (230,625 | ) | (60,924 | ) | (37,662 | ) | (694 | ) | (1,344,813 | ) | ||||||
| Accounts payable and other liabilities | (5,088,387 | ) | (1,156,274 | ) | (305,454 | ) | (188,828 | ) | (3,478 | ) | (6,742,421 | ) | ||||||
| Accrued performance participation allocation | (2,283,129 | ) | (518,813 | ) | (137,055 | ) | (84,726 | ) | (1,561 | ) | (3,025,284 | ) | ||||||
| Non-controlling interests in subsidiaries | (59,575,225 | ) | (13,537,752 | ) | (3,576,278 | ) | (2,210,823 | ) | (40,722 | ) | (78,940,800 | ) | ||||||
| Quarterly NAV | $ | 158,411,665 | $ | 35,963,440 | $ | 9,502,786 | $ | 5,877,423 | $ | 108,206 | $ | 209,863,520 | ||||||
| Number of outstanding shares | 6,380,017 | 1,449,782 | 382,990 | 236,761 | 4,361 | 8,453,911 | ||||||||||||
| NAV per share | $ | 24.83 | $ | 24.81 | $ | 24.81 | $ | 24.82 | $ | 24.81 |
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 | September 30, 2021 | ||
|---|---|---|---|
| Stockholders’ equity under U.S. GAAP | $ | 257,816,200 | |
| Adjustments: | |||
| Unrealized appreciation of real estate | 17,516,767 | ||
| Unrealized appreciation of real estate-related assets | 3,434,689 | ||
| Acquisition costs | (5,375,249 | ) | |
| Deferred financing costs, net | (3,118,277 | ) | |
| Accrued distribution fee^(^^1)^ | 429,686 | ||
| Accumulated depreciation and amortization | 21,241,337 | ||
| Fair value adjustment of debt obligations | 1,566,415 | ||
| Deferred rent receivable | (5,197,863 | ) | |
| Derivative liabilities, at fair value | 490,615 | ||
| Non-controlling interests in subsidiaries | (78,940,800 | ) | |
| NAV | $ | 209,863,520 | |
| 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 September 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 September 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 | $ | 21.82 | $ | 24.83 | $ | 26.57 | $ | 21.79 | $ | 24.81 | $ | 26.55 | $ | 21.80 | $ | 24.81 | $ | 26.56 | |||||||||
| Capitalization Rate - Appraised Properties | 5.46 | % | 5.20 | % | 4.94 | % | 5.46 | % | 5.20 | % | 4.94 | % | 5.46 | % | 5.20 | % | 4.94 | % | |||||||||
| Cash Flow Discount Rate - Appraised Properties | 6.37 | % | 6.06 | % | 5.76 | % | 6.37 | % | 6.06 | % | 5.76 | % | 6.37 | % | 6.06 | % | 5.76 | % | |||||||||
| Residual Discount Rate - Appraised Properties | 6.87 | % | 6.54 | % | 6.21 | % | 6.87 | % | 6.54 | % | 6.21 | % | 6.87 | % | 6.54 | % | 6.21 | % | |||||||||
| Terminal Capitalization Rate - Appraised Properties | 6.21 | % | 5.92 | % | 5.62 | % | 6.21 | % | 5.92 | % | 5.62 | % | 6.21 | % | 5.92 | % | 5.62 | % | |||||||||
| Discount Rate - Debt Investments | 7.98 | % | 7.60 | % | 7.22 | % | 7.98 | % | 7.60 | % | 7.22 | % | 7.98 | % | 7.60 | % | 7.22 | % | |||||||||
| Discount Rate - Long-Term Debt Consolidated | 3.12 | % | 3.28 | % | 3.45 | % | 3.12 | % | 3.28 | % | 3.45 | % | 3.12 | % | 3.28 | % | 3.45 | % | |||||||||
| Sensitivity Analysis | Range of NAV (Class D) | Range of NAV (Class S) | |||||||||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |||||||||
| Low | Concluded | High | Low | Concluded | High | ||||||||||||||||||||||
| Estimated Per Share NAV | $ | 21.81 | $ | 24.82 | $ | 26.57 | $ | 21.80 | $ | 24.81 | $ | 26.56 | |||||||||||||||
| Capitalization Rate - Appraised Properties | 5.46 | % | 5.20 | % | 4.94 | % | 5.46 | % | 5.20 | % | 4.94 | % | |||||||||||||||
| Cash Flow Discount Rate - Appraised Properties | 6.37 | % | 6.06 | % | 5.76 | % | 6.37 | % | 6.06 | % | 5.76 | % | |||||||||||||||
| Residual Discount Rate - Appraised Properties | 6.87 | % | 6.54 | % | 6.21 | % | 6.87 | % | 6.54 | % | 6.21 | % | |||||||||||||||
| Terminal Capitalization Rate - Appraised Properties | 6.21 | % | 5.92 | % | 5.62 | % | 6.21 | % | 5.92 | % | 5.62 | % | |||||||||||||||
| Discount Rate - Debt Investments | 7.98 | % | 7.60 | % | 7.22 | % | 7.98 | % | 7.60 | % | 7.22 | % | |||||||||||||||
| Discount Rate - Long-Term Debt Consolidated | 3.12 | % | 3.28 | % | 3.45 | % | 3.12 | % | 3.28 | % | 3.45 | % |
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 September 30, 2021, the Company has raised gross proceeds of $214,290,866 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 September 30, 2021, the Company’s debt to tangible assets ratio was 59.3%. See Note 7 – Loans Payable of the Company’s outstanding debt arrangement as of September 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:
| Nine months ended<br><br><br>September 30, 2021 | |||
|---|---|---|---|
| Cash flows from operating activities | $ | 6,194,725 | |
| Cash flows from investing activities | (124,746,506 | ) | |
| Cash flows from financing activities | 100,951,251 | ||
| Decrease in cash and cash equivalents | $ | (17,600,530 | ) |
Operating Activities
During the nine months ended September 30, 2021, net cash provided by operating activities was $6,194,725, compared to $5,039,303 of net cash provided by operating activities for the nine months ended September 30, 2020. The change was primarily due to a decrease in net income of $1,600,185, an increase in depreciation and amortization expenses related to real estate assets and liabilities and deferred financing costs totaling $5,647,995, a net decrease in working capital accounts of $3,278,443, and a loss from investments in real-estate related assets of $76,208, offset by an increase in proceeds from investments in real estate-related assets of $309,847 (see “—Results of Operations”).
Investing Activities
Cash used in investing activities was $124,746,506 for the nine months ended September 30, 2021, compared to $0 for the nine months ended September 30, 2020. The change was due to an increase of $124,746,506 in acquisition of real estate.
Financing Activities
During the nine months ended September 30, 2021, net cash provided by financing activities was $100,951,251, compared to $14,438,003 for the nine months ended September 30, 2020. The change was primarily due to an increase in proceeds from borrowings under credit facility of $63,170,173, an increase in proceeds from common stock issued of $30,848,503, an increase in distributions of $1,082,638, an increase in payments from redemptions of common stock of $2,978,427, an increase in non-controlling interest distributions of $913,718, and a payment of deferred financing cost of $2,530,645.
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 September 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 September 30, 2021, CFI has purchased $1,132,280 in Class IX shares pursuant to the Distribution Support Agreement. As of September 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 nine months ended September 30, 2021 and September 30, 2020:
| Three Months Ended September 30, 2021 | Nine months ended<br><br><br>September 30, 2021 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Amount | Percent | Amount | Percent | |||||||
| Distributions | ||||||||||
| Paid in cash | $ | 1,997,601 | 65 | % | $ | 4,735,696 | 57 | % | ||
| Payable | 125,384 | 4 | % | 1,037,708 | 13 | % | ||||
| Reinvested in shares | 968,692 | 31 | % | 2,456,878 | 30 | % | ||||
| Total distributions | $ | 3,091,677 | 100 | % | $ | 8,230,282 | 100 | % | ||
| Sources of Distributions: | ||||||||||
| Operating cash flows | $ | 3,091,677 | 100 | % | $ | 5,749,472 | 70 | % | ||
| Offering proceeds pursuant to Distribution Support Agreement^(^^1)^ | — | 0 | % | — | 0 | % | ||||
| Offering proceeds | — | 0 | % | 2,480,810 | 30 | % | ||||
| Total sources of distributions | $ | 3,091,677 | 100 | % | $ | 8,230,282 | 100 | % | ||
| Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | |||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Amount | Percent | Amount | Percent | |||||||
| Distributions | ||||||||||
| Paid in cash | $ | 996,056 | 43 | % | $ | 3,736,019 | 56 | % | ||
| Payable | 762,558 | 33 | % | 762,558 | 12 | % | ||||
| Reinvested in shares | 565,523 | 24 | % | 2,093,764 | 32 | % | ||||
| Total distributions | $ | 2,324,137 | 100 | % | $ | 6,592,341 | 100 | % | ||
| Sources of Distributions: | ||||||||||
| Operating cash flows | $ | 1,761,381 | 76 | % | $ | 5,039,303 | 76 | % | ||
| Offering proceeds pursuant to Distribution Support Agreement^(^^1)^ | — | 0 | % | 24,623 | 1 | % | ||||
| Offering proceeds | 562,756 | 24 | % | 1,528,415 | 23 | % | ||||
| Total sources of distributions | $ | 2,324,137 | 100 | % | $ | 6,592,341 | 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 nine months ended September 30, 2021 the Company declared $3,091,677 and $8,230,282, respectively, of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $2,415,279 and $6,696,913, respectively, for the three and nine months ended September 30, 2021, and the Company’s total aggregate net loss of $593,957 and $246,405 for such periods, respectively.
During the three and nine months ended September 30, 2020 the Company declared $2,324,137 and $6,592,341, respectively, of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $1,711,789 and $5,119,003, respectively, for the three and nine months ended September 30, 2020, and the Company’s total aggregate net income of $465,495 and $1,353,780 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 September 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 September 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 September 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, Summerfield Loan, Valencia Loan, and Credit Facility agreements as of September 30, 2021, which represents the Company’s aggregate contractual obligations and commitments with payments due subsequent to September 30, 2021.
| Year | Amount | |
|---|---|---|
| 2021 (remaining) | $ | — |
| 2022 | — | |
| 2023 | — | |
| 2024 | 63,170,173 | |
| 2025 | — | |
| Thereafter | 247,197,184 | |
| Total | $ | 310,367,357 |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. The Company’s interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to manage overall borrowing costs. To achieve these objectives, from time to time, the Company may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate interest rate risk with respect to various debt instruments. The Company would not hold or issue these derivative contracts for trading or speculative purposes. As of September 30, 2021, there are no such hedging contracts outstanding. The Company does not have any foreign operations and thus is not exposed to foreign currency fluctuations.
Interest Rate Risk
As of September 30, 2021, the Company had $161 million fixed rate debt and $150 million of floating rate debt. The Company uses derivative financial instruments to limit the exposure to interest rate changes associated with its borrowings. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its related parties may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations. (For further detail refer to Note 7 – Loans Payable).
Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, states or industries could result in a material reduction the Company’s cash flows or material losses to the Company.
As of September 30, 2021, lease expirations related to the Company’s portfolio of real estate assets, based in each asset’s fair value used in determining our NAV, were as follows:
| • | 2021 – 2023 – 3% |
|---|---|
| • | 2024 – 2026 – 0% |
| --- | --- |
| • | 2027 – 2029 – 19% |
| --- | --- |
| • | After 2030 – 78% |
| --- | --- |
As of September 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, was as follows:
| • | Single Tenant Office – 42% |
|---|---|
| • | Single Tenant Industrial – 23% |
| --- | --- |
| • | Multifamily – 21% |
| --- | --- |
| • | Single Tenant Necessity Retail – 12% |
| --- | --- |
| • | Single Tenant Life Sciences – 2% |
| --- | --- |
As of September 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:
| • | Ohio – 22% |
|---|---|
| • | California – 21% |
| --- | --- |
| • | Texas – 17% |
| --- | --- |
| • | South Carolina – 10% |
| --- | --- |
| • | Maryland – 7% |
| --- | --- |
| • | Michigan – 5% |
| --- | --- |
| • | Arizona – 5% |
| --- | --- |
| • | Oklahoma – 4% |
| --- | --- |
| • | Illinois – 3% |
| --- | --- |
| • | Pennsylvania – 3% |
| --- | --- |
| • | Arkansas – 1% |
| --- | --- |
As of September 30, 2021, the investment type concentration of the Company’s portfolio of real estate assets, based on each asset’s fair value in determining our NAV, was as follows:
| • | Common Equity – 94% |
|---|---|
| • | Mezzanine Loan – 3% |
| --- | --- |
| • | Preferred Equity – 3% |
| --- | --- |
As of September 30, 2021, the tenant credit profile 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:
| • | Investment Grade^(^^1)^ – 67% |
|---|---|
| • | Unrated – 25% |
| --- | --- |
| • | Non-investment Grade – 8% |
| --- | --- |
As of September 30, 2021, the maturity concentration of debt secured by our portfolio of real estate assets, based on principal balances and adjusted for ownership percentage, was as follows:
| • | 2021 – 2023 – 0% |
|---|---|
| • | 2024- 2026 – 31% |
| --- | --- |
| • | 2027 – 2029 – 10% |
| --- | --- |
| • | After 2030 – 59% |
| --- | --- |
^(^^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 September 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 September 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 99.4%. 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.
The factors considered in determining the credit risk of the Company’s tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. The credit risk of the Company’s portfolio is reduced by the high quality of the Company’s existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of the Company’s portfolio to identify potential problem tenants.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, the CEO and CFO have concluded that the disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s disclosure controls and procedures or the Company’s internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
Item 1. Legal Proceedings.
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2021, the Company was not involved in any material legal proceedings.
Item 1A. Risk Factors.
The Company has disclosed in Part 1. Item 1A. – “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2020 (File No. 333-214130), filed with the SEC, risk factors which materially affect its business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed, except as noted below. You should carefully consider the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2020 and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing the Company. Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
The ongoing global health crisis caused by the coronavirus (COVID-19) infectious disease, or the COVID-19 pandemic, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to the Company’s financial condition and results of operations as well as the financial condition and results of operations of the Company’s tenants.
Since initially being reported in December 2019 the outbreak of the coronavirus (COVID-19) infectious disease has spread around the world, including in every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to the COVID-19 pandemic.
The global impact of the COVID-19 pandemic continues to evolve and many countries, states and localities, including states and localities in the United States, have reacted by imposing measures to help control the spread of the virus, including instituting quarantines, “shelter-in-place” and “stay-at-home” orders, travel restrictions, restrictions on businesses and school closures. As a result, the COVID-19 pandemic is negatively impacting almost every industry, including the U.S. commercial real estate industry and the industries of the Company’s tenants, directly or indirectly. The COVID-19 pandemic has triggered a period of global economic slowdown. The fluidity of the COVID-19 pandemic continues to preclude any prediction as to the ultimate adverse impact the pandemic may have on the Company’s business, financial condition, results of operations, cash flows and liquidation.
The COVID-19 pandemic or a future pandemic, epidemic or outbreak of infectious disease affecting states or regions in which the Company or the Company’s tenants operate could have material and adverse effects on the Company’s business, financial condition, results of operations, cash flows and our liquidation due to, among other factors:
| • | health or other government authorities requiring the closure of offices or other businesses or instituting quarantines of personnel as the result of, or in order to avoid, exposure to a contagious disease; |
|---|---|
| • | the continued service and availability of personnel, including executive officers and other leaders that are part of the management team and the ability to recruit, attract and retain skilled personnel—to the extent management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, business and operating results may be negatively impacted; |
| --- | --- |
| • | difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect us and the Company’s and the Company’s tenants’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could affect the Company’s ability to meet liquidity and capital expenditure requirements or have a material adverse effect on the Company’s business, financial condition, results of operations and cash flows; |
| --- | --- |
| • | ability to operate or operate in affected areas, or delays in the supply of products or services from the vendors that are needed to operate effectively; |
| --- | --- |
| • | reduced economic activity, general economic decline or recession; |
| --- | --- |
| • | tenants’ ability to pay rent on their leases or the Company’s ability to lease space in the Company’s properties on favorable terms if the Company’s properties become vacant; |
| --- | --- |
| • | the Company’s ability to ensure business continuity in the event the Company’s continuity of operations plan is not effective or improperly implemented or deployed during a disruption; and |
| --- | --- |
| • | the Company’s or the Company’s tenant’s ability to operate, which may cause business and operating results to decline or impact the ability to comply with regulatory obligations leading to reputational harm and regulatory issues or fines. |
| --- | --- |
The ultimate impact of the COVID-19 pandemic or a similar health epidemic is highly uncertain and subject to change. The full extent of the impact and effects of the COVID-19 pandemic on the future financial performance of the Company, as a whole, and, specifically, on the Company’s properties and other investments are uncertain at this time.
The ultimate impact of the COVID-19 pandemic will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, and production delays, and the uncertainty with respect to the accessibility of additional liquidity or to the capital markets. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows.
The Company may not be able to invest all of the Company’s offering proceeds promptly, which may cause the Company’s distributions and the Company’s stockholders’ investment returns to be lower than they otherwise would be.
The more shares the Company sells in the Company’s offerings, the greater the Company’s challenge will be to invest all of the Company’s net offering proceeds. The Company may have delays in investing the Company’s net proceeds promptly and on attractive terms. Pending investment, the net proceeds of the Company’s offerings may be invested in permitted temporary investments, which include short-term United States government securities, bank certificates of deposit and other short-term liquid investments. The rate of return on these investments, which affects the amount of cash available to make distributions to stockholders, has fluctuated in recent years and most likely will be less than the return obtainable from the type of investments in the real estate industry the Company seeks to acquire or originate. Therefore, delays the Company encounters in the selection, due diligence and acquisition or origination of investments would likely limit the Company’s ability to pay distributions to the Company’s stockholders and lower their overall returns. In addition, cash and cash equivalents may potentially subject the Company to concentration of risk and at times, balances with any one financial institution may exceed the Federal Deposit Insurance Corporation insurance limits. As of September 30, 2021, the Company had approximately $15.9 million in cash.
If the Company pays cash distributions from sources other than the Company’s cash flow from operations, the Company will have less funds available for investments and the Company’s stockholders’ overall return may be reduced.
The Company’s organizational documents do not restrict the Company from paying distributions from any source and do not restrict the amount of distributions the Company may pay from any source, including proceeds from the Company’s public offerings or the proceeds from the issuance of securities in the future, other third party borrowings, advances from the Advisor or sponsor or from the Advisor’s deferral or waiver of its fees under the Amended Advisory Agreement. Distributions paid from sources other than current or accumulated earnings and profits, particularly during the period before the Company has substantially invested the net proceeds from the Company’s public offerings, may constitute a return of capital for tax purposes. From time to time, particularly during the period before the Company has substantially invested the net proceeds from the Company’s public offerings, the Company may generate taxable income greater than the Company’s taxable income for financial reporting purposes, or the Company’s taxable income may be greater than the Company’s cash flow available for distribution to stockholders. In these situations, the Company may make distributions in excess of the Company’s cash flow from operations, investment activities and strategic financings to satisfy the REIT distribution requirement. In such an event, the Company would look first to other third party borrowings to fund these distributions. If the Company funds distributions from financings, the net proceeds from the Company’s offerings or sources other than the Company’s cash flow from operations, the Company will have less funds available for investment in income-producing commercial properties and other real estate-related assets and stockholders overall return may be reduced. In addition, if the aggregate amount of cash the Company distributes to stockholders in any given year exceeds the amount of the Company’s taxable income generated during the year, the excess amount will either be (1) a return of capital or (2) a gain from the sale or exchange of property to the extent that a stockholder’s basis in the Company’s common stock equals or is reduced to zero as the result of the Company’s current or prior year distributions. Such distributions may effectively dilute or reduce the value of the stockholders remaining interest in the Company’s net asset value.
Pursuant to the Amended Distribution Support Agreement, in certain circumstances where the Company’s cash distributions exceed MFFO, the Company’s sponsor will purchase up to $5.0 million of Class I shares (which includes the shares the Company’s sponsor has purchased in order to satisfy the Minimum Offering Requirement) at the then current offering price per Class I share net of dealer manager fees to provide additional cash to support distributions to the Company’s stockholders. The sale of these shares will result in the dilution of the ownership interests of the Company’s public stockholders. Upon termination or expiration of the Amended Distribution Support Agreement, the Company may not have sufficient cash available to pay distributions at the rate the Company had paid during preceding periods or at all. As of September 30, 2021, CFI’s remaining obligation pursuant to the Amended Distribution Support Agreement is limited to $1,867,720. If the Company pays distributions from sources other than the Company’s cash flow from operations, the Company will have less cash available for investments, the Company may have to reduce the Company’s distribution rate, the Company’s net asset value may be negatively impacted and the Company’s stockholders overall return may be reduced. For the nine months ended September 30, 2021, 30% of the Company’s cash distributions were paid using proceeds from the Offerings.
The Company’s NAV per share may materially change from quarter to quarter if the valuations of the Company’s properties materially change from prior valuation or the actual operating results materially differ from what the Company originally budgeted, including as a result of the Advisor invoicing the Company for previously unbilled operating expenses.
It is possible that the annual appraisals of the Company’s properties may not be spread evenly throughout the year and may differ from the most recent valuation. As such, when these appraisals are reflected in the Company’s Independent Valuation Firm’s valuation of the Company’s real estate portfolio, there may be a material change in the Company’s NAV per share for each class of the Company’s common stock. Property valuation changes can occur for a variety reasons, such as local real estate market conditions, the financial condition of the Company’s tenants, or lease expirations. For example, the Company will regularly face lease expirations across the Company’s portfolio, and as the Company moves further away from lease commencement toward the end of a lease term, the valuation of the underlying property will be expected to drop depending on the likelihood of a renewal or a new lease on similar terms. Such a valuation drop can be particularly significant when closer to a lease expiration, especially for single tenant buildings or where an individual tenant occupies a large portion of a building. The Company is at the greatest risk of these valuation changes during periods in which the Company has a large number of lease expirations as well as when the lease of a significant tenant is closer to expiration. Similarly, if a tenant will have an option in the future to purchase one of the Company’s properties from the Company at a price that is less than the current valuation of the property, then if the value of the property exceeds the option price, the valuation will be expected to decline and begin to approach the purchase price as the date of the option approaches.
In addition, actual operating results may differ from what the Company originally budgeted, which may cause a material increase or decrease in the NAV per share amounts. The Company accrues estimated income and expenses on a quarterly basis based on annual budgets as adjusted from time to time to reflect changes in the business throughout the year. On a periodic basis, the Company adjusts the income and expense accruals the Company estimated to reflect the income and expenses actually earned and incurred. The Company will not retroactively adjust the NAV per share of each class for any adjustments. Therefore, because actual results from operations may be better or worse than what the Company previously budgeted, the adjustment to reflect actual operating results may cause the NAV per share for each class of the Company’s common stock to increase or decrease.
The Company’s Amended Advisory Agreement provides that any operating expenses which have not been invoiced by the Advisor will not become the Company’s obligations. Without these provisions in the Company’s Amended Advisory Agreement, such operating expenses, if invoiced, would likely be recorded as liabilities of the Company, which, in turn, would likely have a negative effect on the Company’s NAV per share. The Company’s Amended Advisory Agreement provides that the Advisor will not invoice the Company for any reimbursement if the impact of such would result in the incurrence of an obligation in an amount that would result in the Company’s NAV per share for any class of shares to be less than $25.00. the Company may, however, incur and record an obligation to reimburse the Advisor, even if it would result in the Company’s NAV per share for any class of shares for such quarter to be less than $25.00, if the Company’s board of directors determines that the reasons for the decrease of the Company’s NAV per share below $25.00 were unrelated to the Company’s obligation to reimburse the Advisor for operating expenses. The Company’s Amended Advisory Agreement also provides that the Advisor may be reimbursed for previously unbilled operating expenses for prior periods in any subsequent quarter, subject to certain limitations, including the limitation related to the NAV per share of $25.00 referenced above and the 2%/25% Guidelines. The incurrence of previously unbilled operating expenses likely will have a negative effect on the Company’s NAV per share. As of September 30, 2021, the Advisor has incurred $12,066,637 of Unreimbursed Operating Expenses, including $2,027,671 of Unreimbursed Operating Expenses incurred during the three months ended September 30, 2021 that have not been invoiced to the Company.
Item 2. Unregistered Sales of Equity Securities.
Unregistered Sales of Equity Securities
During the nine months ended September 30, 2021, the Company did not complete any sales of unregistered securities.
Amended and Restated Share Repurchase Program
Stockholders are eligible to have their shares repurchased by the Company pursuant to the Third Amendment and Restated Share Repurchase Program (“Amended SRP”).
The Amended SRP included numerous restrictions that limit stockholders’ ability to have their shares repurchased. If repurchase requests, in the business judgment of the Company’s board of directors, place an undue burden on the Company’s liquidity, adversely affect its operations or risk having an adverse impact on stockholders whose shares are not repurchased, then the Company’s board of directors may terminate, suspend or amend the share repurchase program at any time without stockholder approval, if it deems such action to be in the best interest of the stockholders. In addition, the Company’s board of directors may determine to suspend the share repurchase program due to regulatory changes, changes in law or if our board of directors becomes aware of undisclosed material information that it believes should be publicly disclosed before shares are repurchased. Material modifications, including any reduction to the monthly or quarterly limitations on repurchases, and suspensions of the program will be promptly disclosed to stockholders in a prospectus supplement (or post-effective amendment if required by the Securities Act) or current report on Form 8-K filed with the SEC. Any material modifications will also be disclosed on our website. Further, the Amended SRP will be terminated in the event that the Company’s shares ever become listed on a national securities exchange or in the event a secondary market for the Company’s common stock develops.
Repurchases of shares under the Amended SRP are made on a monthly basis. Subject to the limitations of and restrictions provided for in the Amended SRP, and subject to funds being available, shares repurchased under the Amended SRP are repurchased at the transaction price in effect on the date of repurchase, which, generally will be a price equal to the NAV per share applicable to the class of shares being repurchased and most recently disclosed by the Company in a public filing with the SEC. Under the Amended SRP, the Company may repurchase during any calendar month shares of its common stock whose aggregate value (based on the repurchase price per share in effect when the repurchase is effected) is 2% of the aggregate NAV as of the last calendar day of the previous month and during any calendar quarter whose aggregate value (based on the repurchase price per share in effect when the repurchase is effected) is up to 5% of the Company’s aggregate NAV as of the last calendar day of the prior calendar quarter.
The table below summarizes the repurchase activity for the three months ended September 30, 2021:
| For the Month Ended | Total Number of Shares Redeemed | Average Price Paid per Share | Total Number of Shares Redeemed as Part of Publicly Announced Plans or Programs | Maximum Number of Shares That May Yet Be Redeemed Under the Plans or Programs^(^^1)^ | ||||
|---|---|---|---|---|---|---|---|---|
| July 31, 2021 | 13,915 | 24.26 | 13,915 | 144,310 | ||||
| August 31, 2021 | 20,392 | 24.55 | 20,392 | 143,282 | ||||
| September 30, 2021 | 18,028 | 24.71 | 18,028 | 151,136 | ||||
| Total | 52,335 | $ | 24.53 | 52,335 | 438,728 |
Note: (1) The Company limits the number of shares that may be redeemed per calendar month and per calendar year under the program as described above.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits.
The exhibits listed below are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.
EXHIBITS INDEX
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 (and are numbered in accordance with Item 601 of Regulation S-K).
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: November 15, 2021 |
72
cfit-ex1010_138.htm
Exhibit 10.10
PURCHASE AND SALE AGREEMENT
ARTICLE 1: PROPERTY/PURCHASE PRICE
| 1.1Certain Basic Terms. | |
|---|---|
| (a)Purchaser and Notice Address: | North De Anza Boulevard, LLC<br><br><br>c/o Cantor Fitzgerald<br>110 East 59th Street<br>New York, New York 10022<br>Attention: Roger Shreero<br>Phone: (212) 915-1712<br>E-mail: roger.shreero@cantor.com |
| With a copy to:<br><br><br><br><br><br><br><br><br>With a copy to: | North De Anza Boulevard, LLC<br><br><br>c/o Cantor Fitzgerald<br>110 East 59th Street<br>New York, New York 10022<br>Attention: Legal Department: John Jones<br>E-mail: jjones@cantor.com<br><br><br>Seyfarth Shaw LLP<br>Two Seaport Lane<br>Boston, Massachusetts 02210<br>Attention: Andrew Pearlstein<br>Phone: (617) 946-4965<br>E-mail: apearlstein@seyfarth.com |
| (b)Seller and Notice Address: | De Anza DH Properties LLC<br><br><br>1000 Maine Ave, SW, Suite 300<br><br><br>Washington, DC 20024<br><br><br>Attention: Peter T. Jun<br><br><br>Telephone: (212) 561-2822<br><br><br>Telephone: (202) 741-3800<br><br><br>Alt. Telephone (c/o Max Frankel): (415) 277-6822<br><br><br>E-mail: peter.jun@madisonmarquette.com |
| With a copy to: | De Anza DH Properties LLC<br><br><br>1000 Maine Ave, SW, Suite 300<br><br><br>Washington, DC 20024<br><br><br>Attention: Nichole Flippen, Legal Department<br><br><br>Telephone: (202) 741-3818<br><br><br>Email: Nichole.Flippen@MadisonMarquette.com |
| and: | Mayer Brown<br><br><br>1221 Avenue of the Americas<br><br><br>New York, New York 10020<br><br><br>Attention: Kwon Lee, Esq. and Boise Ding, Esq.<br><br><br>Telephone: (212) 506-2894 and (213) 229-5180<br><br><br>E-mail: kwon.lee@mayerbrown.com and bding@mayerbrown.com |
| (c)Date of this Agreement: | The date of the Opening of Escrow |
| --- | --- |
| (d)Purchase Price: | $63,750,000. The parties agree however that (i) no portion of the Purchase Price is allocated to the Personal Property and (ii) each of their respective transfer or tax declarations or filings shall be made consistent with this allocation. |
| (e)Earnest Money: | $2,000,000 (comprised of an initial earnest money deposit of $1,000,000 (the “Initial Deposit”) and a second earnest money deposit of $1,000,000 (the “Additional Deposit”)) together with any other deposits of earnest money made pursuant to the terms of this Agreement. The definition of “Earnest Money” includes any interest earned thereon. |
| (f)Due Diligence Period: | The period commencing on the Date of this Agreement and expiring on June 4, 2021 |
| (g)Closing Date: | June 29, 2021; provided, however, with at least seven (7) business days prior written notice to Seller Purchaser may extend the Closing Date up to July 8, 2021. |
| (h)Title Company | First American Title Insurance Company<br><br><br>777 South Figueroa St., 4^th^ Floor<br><br><br>Los Angeles, CA 90017<br><br><br>Attn: Liz Thymius, Sr.<br><br><br>Telephone: (213) 271-1744<br><br><br>Email: faca-ra-teamthymius@firstam.com |
| (i)Escrow Agent: | First American Title Insurance Company<br><br><br>777 South Figueroa St., 4^th^ Floor<br><br><br>Los Angeles, CA 90017<br><br><br>Attn: Ginger Grantham<br><br><br>Telephone: (213) 271-1703<br><br><br>Email: ggrantham@firstam.com |
| (j)Broker: | Colliers |
| (k)Opening of Escrow: | The date Escrow Agent has received executed counterpart copies of this Agreement from both parties and has been instructed by both parties to open escrow by assembling such counterparts and releasing to each party a fully executed copy of this Agreement. The date of the Opening of Escrow shall be evidenced by the date of execution by Escrow Agent as shown on the signature page of Escrow Agent attached hereto |
1.2Property. Subject to the terms of this Purchase and Sale Agreement (this “Agreement”), Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, all of Seller’s right, title and interest in and to the following property (the “Property”):
(a)The real property described in Exhibit A attached hereto, together with the buildings, (“Buildings”) and improvements thereon (the “Improvements”), and all appurtenances of the above-described real property, including easements or rights-of-way relating thereto, and, without warranty, all right, title, and interest, if any, of Seller in and
to the land lying within any street or roadway adjoining the real property described above or any vacated or hereafter vacated street or alley adjoining said real property (the “Real Property”).
(b)Any and all fixtures, furniture, equipment, and other tangible personal property, if any, owned by Seller presently located on the Real Property, including that listed on Exhibit B attached hereto (the “Personal Property”), but excluding: (i) any items of personal property owned by tenants, (ii) any items of personal property owned by Seller or any affiliate of Seller located in the office maintained by Seller or such affiliate at the Property, (iii) any photography or marketing materials which Seller does not have a right to transfer, (iv) if the Personal Property includes any computer hardware, any computer software installed therein, and (v) records or files (whether in a printed or electronic format) that consist of or contain any of the following: appraisals or other valuation information prepared by Seller or a respective affiliate and any documents or information subject to attorney-client privilege or that constitute attorney work product (including, without limitation, audits, financial statements, budgets (other than the operating budget for the calendar year in which the Closing is scheduled to occur), financial analyses and projections); any financing documents; any internal correspondence of Seller, any direct or indirect owner of any beneficial interest in Seller, or any of their respective affiliates, and any correspondence between or among such Seller parties; any report or study that has been superseded in its entirety by a subsequent report or study; and any other information in the possession or control of Seller, Seller’s property manager, or any direct or indirect owner of any beneficial interest in Seller which Seller reasonably deems proprietary or confidential. (collectively, the “Excluded Materials”).
(c)All of Seller’s interest, as landlord, in the “Leases”, being all leases of the Improvements in effect as of Closing (subject to Section 8.1(c) of this Agreement), including any and all leases, which may be entered into after the date hereof and before Closing as permitted by this Agreement, and including all amendments thereto.
(d)Any and all of the following items, to the extent assignable and without warranty (the “Intangible Personal Property”): (i) licenses, and permits relating to the operation of the Real Property, (ii) the right to use the name of the Improvements in connection with the Real Property, but specifically excluding any trademarks, service marks and trade names of Seller, (iii) if still in effect, guaranties and warranties received by Seller from any person in connection with the operation of the Property, (iv) any service contracts listed on Schedule 1.2(d) attached hereto, subject to any changes thereto in accordance with Section 4.2 (collectively, the “Service Contracts”) affecting the Property in effect as of Closing, all of which shall be assumed by Purchaser at Closing pursuant to the Assignment. At Closing, Seller shall terminate any agreements with respect to the management or leasing of the Property to which Seller is a party.
(e)All of Seller’s rights, title and interest as lessee (the “Leasehold”) in, to and under (i) that certain Ground Lease dated July 22, 1983, as amended, by and between Tambellini DeAnza Properties, LLC, a California limited liability company, as lessor (“Tambellini”), and Seller, as tenant, as more particularly described on Exhibit D-1 attached hereto, and (ii) that certain Ground Lease dated February 25, 1982, as amended, by and between Waterdragon 289, LLC, a California limited liability company, as landlord (“Waterdragon”, and individually and collectively with Tambellini as the context may require, “Ground Lessor”), and Seller, as tenant, as more particularly described on Exhibit D-2 (collectively, and as the same may be modified or amended in accordance with this Agreement, the “Ground Leases”).
1.3Earnest Money. The Initial Deposit, in immediately available federal funds, evidencing Purchaser’s good faith to perform Purchaser’s obligations under this Agreement, shall be deposited by Purchaser with Escrow Agent not later than two (2) business days after the Opening of Escrow. Without limiting Purchaser’s right to terminate the Agreement pursuant to Section 2.4, Purchaser’s failure to timely make the Initial Deposit hereunder shall entitle Seller to terminate this Agreement until Purchaser has remitted the Initial Deposit. In addition, if Purchaser has not terminated this Agreement pursuant to Section 2.4, Purchaser shall remit the Additional Deposit, in immediately available federal funds to Escrow Agent, further evidencing Purchaser’s good faith to perform Purchaser’s obligations under this Agreement, not later than two (2) business days after the expiration of the Due Diligence Period. In the event that Purchaser has not terminated this Agreement pursuant to Section 2.4, but Purchaser fails to timely deposit the Additional Deposit with the Escrow Agent when required in this Section 1.3, then notwithstanding any provision to the contrary in this Agreement such failure shall automatically terminate this Agreement and Seller shall have the right to retain the Initial Deposit as liquidated damages (and the parties agree to cooperate to provide confirmations of any such termination upon request), whereupon neither party shall have any further obligations under this Agreement other than those obligations which are expressly made herein to survive such termination; provided,
however, if any termination of the this Agreement occurs prior to the expiration of the Due Diligence Period then the Earnest Money shall be returned to Purchaser notwithstanding any provision to the contrary. At Closing, the Earnest Money shall be applied to the Purchase Price. Subject to Section 1.4, otherwise, the Earnest Money shall be delivered to the party entitled to receive the Earnest Money in accordance with Article 9 of this Agreement.
1.4Independent Consideration. Notwithstanding any provision to the contrary in this Agreement, the parties agree that a portion of the Earnest Money in the amount of One Hundred and No/100 Dollars ($100.00) (the “Independent Contract Consideration”), is an amount which the parties have bargained for and agreed to as consideration for Seller’s execution and delivery of this Agreement. Notwithstanding anything to the contrary contained herein, the Independent Contract Consideration is in addition to and independent of any other consideration or payment provided in this Agreement, is nonrefundable in all events, and shall be retained by Seller notwithstanding any other provisions of this Agreement.
ARTICLE 2: INSPECTIONS
2.1Property Information.
(a)To the extent not done prior to the Date of this Agreement, and to the extent in Seller’s possession, Seller shall deliver or otherwise make available to Purchaser certain Property-related documents (the “Property Information”), including books and records (the “Books and Records”). Seller may establish an electronic data site (the “Property Data Site”) for the purpose of providing the Property Information to Purchaser. Except for and expressly excluding all Excluded Materials and the like, Seller shall cooperate in good faith with Purchaser to provide Purchaser with all material documents and reports relating to the Property reasonably requested by Purchaser to the extent they are in Seller’s or its agent’s or property manager’s possession, and including without limitation reconciliation backup for additional rent under the Apple Leases.
(b) Seller makes no representations or warranties as to the sufficiency, truthfulness, accuracy or completeness of the Property Information. The Property Information and all other information, other than matters of public record, furnished to, or obtained through inspection of the Property by, Purchaser, the Purchaser Related Parties (as defined herein) or Purchaser’s lender, will be treated by Purchaser, the Purchaser Related Parties and Purchaser’s lender as confidential, and will not be disclosed to anyone other than on a need-to-know basis to Purchaser’s consultants who agree to maintain the confidentiality of such information, and will be returned to Seller by Purchaser if the Closing does not occur. Seller assumes no duty to furnish Purchaser with any other existing information, reports or updates of such materials. Purchaser hereby waives any and all claims against Seller arising out of the sufficiency, truthfulness, accuracy, completeness, conclusions or statements expressed in materials so furnished, and any and all claims arising out of any duty of Seller to acquire, seek or obtain such materials.
(c)This provision shall survive the Closing or any termination of this Agreement.
2.2Inspections. Subject to the rights of the Ground Lessors and existing tenants of the Property (the “Tenants”), whom the Purchaser hereby agrees not to interview or question (except to the extent expressly permitted under this Agreement) or otherwise disturb, and subject to the provisions of Section 2.3 below, during the Due Diligence Period, Purchaser, at Purchaser’s sole cost and expense, shall be permitted to make a complete review and inspection of the physical, legal, economic and environmental condition of the Property, including, without limitation, any Leases and Service Contracts affecting the Property, Books and Records maintained by Seller or its agents relating to the Property, pest control matters, soil condition, asbestos, PCB, hazardous waste, toxic substance or other environmental matters, compliance with building, health, safety, land use and zoning laws, regulations and orders, plans and specifications, structural, life safety, HVAC and other building system and engineering characteristics, traffic patterns, and all other information pertaining to the Property. Without any other representation or warranty, Seller shall cooperate in Purchaser’s review and provide Purchaser with the opportunity to review leases, financial reports, Books and Records and other third‑party inspection reports and similar materials in Seller’s possession relating to the Property (but expressly excluding the Excluded Materials and any attorney client privileged materials and appraisals, internal valuations or similar proprietary materials that may be in Seller’s possession (collectively, the “Proprietary Materials”).
2.3Conduct of Inspections.
(a)Inspections in General. During the Due Diligence Period, Purchaser and its representatives (which shall be deemed to include without limitation all agents and employees of Purchaser) shall have the right to enter upon the Property for the purpose of making non-invasive inspections at Purchaser’s sole risk, cost and expense. Notwithstanding any provision to the contrary in this Agreement, Purchaser shall not access or inspect the interior of the buildings on the Property without Seller having procured Apple’s consent, which may be withheld in its sole and absolute discretion, and without Seller (or a representative of Seller) being present. Before any such entry, Purchaser and its representatives shall provide Seller a certificate of insurance showing that Purchaser and its representatives (each through their own insurance policy or by being named an additional insured on a policy of another party also entering the Property to perform inspections) maintain, in full force and effect, a policy of commercial general liability insurance: (A) covering Purchaser’s and its representatives’ activities in connection with the due diligence investigation; (B) in an amount of not less than Two Million Dollars ($2,000,000) general liability and Five Million Dollars ($5,000,000) excess liability, from a company of recognized responsibility, authorized to do business in the state in which the Property is located, with a minimum Best’s rating of A-: VIII; and (C) naming Seller, Madison Marquette, and such other parties as Seller reasonably may request, as additional insureds; and (D) while this Agreement is in effect, requiring at least thirty (30) days written notice to Seller prior to cancellation or reduction in coverage. Such insurance shall insure against any and all claims for bodily injury, including death resulting therefrom, and damage to or destruction of property of any kind whatsoever and to whomever belonging and arising from the due diligence investigations and whether any portion of such investigation is performed by Purchaser or any of Purchaser representatives, or by any other person. Purchaser shall promptly notify Seller if it obtains written notice of any pending or actual cancellation or reduction in any insurance coverage required by this Section. All of such entries upon the Property shall be at reasonable times during normal business hours and after at least 48 hours prior notice to Seller or Seller’s agent, and Seller or Seller’s agent shall have the right to accompany Purchaser and its representatives during any inspection activities performed by Purchaser and its representatives on the Property. Purchaser and its representatives shall not disturb the tenants on the Property, and Purchaser’s and its representatives’ inspection shall be subject to the rights of tenants under the Leases. If any inspection or test damages the Property, Purchaser will repair such damage and restore the Property to the same condition as existed before the inspection or test Purchaser shall indemnify, defend and hold harmless Seller and Seller’s partners and their respective shareholders, members, managers, directors, officers, affiliates, tenants, agents, contractors, employees, successors and assigns (“Seller Related Parties”) and the Property from and against any and all losses, costs, damages, claims, or liabilities incurred by Seller or any of Seller Related Parties arising out of any entry or inspections performed by Purchaser or its representatives, provided, that, Purchaser’s indemnity hereunder shall not include any losses, cost, damage or expenses to the extent resulting from the gross negligence or willful misconduct of Seller, or the mere discovery of any pre-existing condition of the Property which is not exacerbated as a result of such inspection. This indemnity shall survive for a period of two (2) years after the Closing or any earlier termination of this Agreement. Purchaser shall not cause or permit any mechanic’s or other liens or claims to be filed against Seller and/or the Property as a result of Purchaser’s exercising its rights under Section 2.2 or 2.3 and Purchaser shall, at Purchaser’s sole cost and expense, cause any liens so filed to be removed within thirty (30) days after filing.
(b)Environmental Inspections. The inspections permitted under, but expressly subject to the terms and conditions of, Section 2.2 may include a non-invasive Phase I environmental inspection of the Property, but no Phase II environmental inspection or other invasive inspection or sampling of soil or materials, including without limitation construction materials, either as part of the Phase I inspection or any other inspection, shall be performed without the prior written consent of Seller, which may be withheld in Seller’s sole and absolute discretion, and if consented to by Seller, the proposed scope of work and the party who will perform the work shall be subject to Seller’s review and approval. Purchaser shall deliver to Seller copies of any Phase I, Phase II or other environmental report to which Seller consents as provided above.
(c)Contact with Tenants and Governmental Authorities. Except as provided below, Purchaser shall not contact any governmental authority having jurisdiction over the Property without Seller’s prior written consent. At Purchaser’s request, Seller and Purchaser shall schedule tenant interviews at which a representative of Seller may be present; provided, however, Purchaser may contact any tenant without Seller’s prior written consent and without Seller’s representative being present (the “Additional Interviews”) as set forth below. Purchaser acknowledges that the relationship between Seller and such tenants is important to Seller. Accordingly, Purchaser shall conduct the Additional Interviews in a respectful and professional manner and shall limit the frequency of any Additional
Interviews so as not to unduly burden such tenants. Seller’s consent shall not be required with respect to a customary and reasonable Phase I environmental audit and code compliance review of the Property except for any face‑to‑face meetings, for which Seller shall be given at least 2 business days prior notice and an opportunity to be present at any such meeting.
2.4Termination During Due Diligence Period. If Purchaser determines, in its sole discretion, before the expiration of the Due Diligence Period that the Property is unacceptable for Purchaser’s purposes, Purchaser shall have the right to terminate this Agreement by giving to Seller written notice of termination before the expiration of the Due Diligence Period. If Purchaser gives such notice of termination within the Due Diligence Period, the Escrow Agent shall refund the Earnest Money to Purchaser, and neither party shall have any further rights or liabilities hereunder except for those provisions which expressly survive the termination of this Agreement.
2.5Purchaser’s Reliance on its Investigations. Purchaser acknowledges and agrees that (a) the Property is being sold, and Purchaser accepts possession of the Property on the date of Closing, “AS IS, WHERE IS, WITH ALL FAULTS,” with no right of setoff or reduction in the Purchase Price; (b) except for Seller’s express representations and warranties in Section 8.1 or in any of the documents executed by Seller in connection with the Closing and except for the covenants and agreement of Seller expressly set forth in this Agreement (collectively, “Seller’s Warranties”), neither Seller nor any Seller Related Parties has or shall be deemed to have made any verbal or written representations, warranties, promises or guarantees (whether express, implied, statutory or otherwise) to Purchaser with respect to the Property, any matter set forth, contained or addressed in the documents delivered to Purchaser in connection with the Property (including, but not limited to, the sufficiency, truthfulness, accuracy and completeness thereof) or the results of Purchaser’s due diligence; and (c) Purchaser has confirmed independently all information that it considers material to its purchase of the Property or the transaction contemplated hereby. Purchaser specifically acknowledges that, except for Seller’s Warranties, Purchaser is not relying on (and Seller, for itself and on behalf of the Seller Related Parties, does hereby disclaim and renounce) any representations or warranties of any kind or nature whatsoever, whether oral or written, express, implied, statutory or otherwise, as to: (1) the operation of the Property or the income potential, uses, or the merchantability, habitability or fitness of any portion of the Property for a particular purpose; (2) the physical condition of the Property or the condition or safety of the Property or any component thereof, including, but not limited to, plumbing, sewer, heating, ventilating and electrical systems, roofing, air conditioning, foundations, soils and geology, including hazardous materials, lot size, or suitability of the Property or any component thereof for a particular purpose; (3) the presence or absence, location or scope of any hazardous materials in, at, about or under the Property; (4) whether the appliances, if any, plumbing or utilities are in working order; (5) the habitability or suitability for occupancy of any structure or the quality of its construction; (6) whether the Improvements are structurally sound, in good condition, or in compliance with applicable laws; (7) the accuracy of any statements, calculations or conditions stated or set forth in Seller’s or the Seller Related Parties’ books and records concerning the Property or set forth in any offering materials with respect to the Property; (8) the dimensions of the Property or the accuracy of any floor plans, square footage, lease abstracts, sketches, or revenue or expense projections related to the Property; (9) the operating performance, the income and expenses of the Property or the economic status of the Property; (10) the ability of Purchaser to obtain any and all necessary governmental approvals or permits for Purchaser’s intended use and development of the Property; (11) the leasing status of the Property or the intentions of any parties with respect to the negotiation and/or execution of any lease for any portion of the Property; and (12) Seller’s ownership of any portion of the Property. Purchaser further acknowledges and agrees that, except for Seller’s Warranties, Seller is under no duty to make any affirmative disclosures or inquiry regarding any matter which may or may not be known to Seller or the Seller Related Parties, and upon the Closing, Purchaser, for itself and for its successors and assigns, shall be deemed to specifically waive and release Seller and each Seller Related Party from any such duty that otherwise might exist.
Except for the Seller’s Warranties, and except with respect to any claim based upon any Seller’s fraud, upon the Closing, Purchaser, for itself and its partners, members, shareholders, directors, officers, affiliates, agents, contractors, employees, and their respective successors and assigns (“Purchaser Related Parties”), shall be deemed to release Seller and each Seller Related Party from, and waive all claims and liability against Seller and each Seller Related Party for or attributable to, the following: (a) any and all statements or opinions heretofore or hereafter made, or information furnished, by the Seller or Seller Related Parties to Purchaser or any of the Purchaser Related Parties; and (b) any and all losses, costs, claims, liabilities, expenses, demands or obligations of any kind or nature whatsoever attributable to the Property, whether arising or accruing before, on or after the date hereof and whether attributable to events or circumstances which have heretofore or may hereafter occur, including, without limitation, (i) all losses,
costs, claims, liabilities, expenses, demands and obligations with respect to the structural, physical, or environmental condition of the Property; (ii) all losses, costs, claims, liabilities, expenses, demands and obligations relating to the release of or the presence, discovery or removal of any hazardous materials in, at, about or under the Property, or for, connected with or arising out of any and all claims or causes of action based upon CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§9601 et seq., as amended by SARA (Superfund Amendment and Reauthorization Act of 1986) and as may be further amended from time to time), the Resource Conservation and Recovery Act of 1976, 42 U.S.C. §§6901 et seq., or any related claims or causes of action or any other federal, state or municipal based statutory or regulatory causes of action for environmental contamination at, in, about or under the Property; (iii) any implied or statutory warranties of any kind or nature regarding or relating to any portion of the Property; and (iv) any tort claims made or brought with respect to the Property or the use or operation thereof.
In addition, Purchaser expressly understands and acknowledges that it is possible that unknown liabilities may exist with respect to the Property and that Purchaser explicitly took that possibility into account in determining and agreeing to the Purchase Price, and that a portion of such consideration, having been bargained for between parties with the knowledge of the possibility of such unknown liabilities shall be given in exchange for a full accord and satisfaction and discharge of all such liabilities.
WITH RESPECT TO THE RELEASES AND WAIVERS SET FORTH IN THIS SECTION 2.5, PURCHASER EXPRESSLY WAIVES THE BENEFITS OF SECTION 1542 OF THE CALIFORNIA CIVIL CODE, WHICH PROVIDES AS FOLLOWS:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS THAT THE CREDITOR OR RELEASING PARTY DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
PURCHASER HAS BEEN ADVISED BY ITS LEGAL COUNSEL AND UNDERSTANDS THE SIGNIFICANCE OF THIS WAIVER OF SECTION 1542 RELATING TO UNKNOWN, UNSUSPECTED AND CONCEALED CLAIMS. BY ITS INITIALS BELOW, PURCHASER ACKNOWLEDGES THAT IT FULLY UNDERSTANDS, APPRECIATES AND ACCEPTS ALL OF THE TERMS OF THIS SECTION 2.5.
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The provisions of this Section 2.5 shall survive indefinitely the Closing or termination of this Agreement and shall not be merged into the closing documents.
2.6Disclosure Regarding Special Taxing Districts. Seller hereby makes the following specific disclosure to Purchaser: Special taxing districts may be subject to general obligation indebtedness that is paid by revenues produced from annual tax levies on the taxable property within such districts. Property owners in such districts may be placed at risk for increased mill levies and excessive tax burdens to support the servicing of such debt where circumstances arise resulting in the inability of such a district to discharge such indebtedness without such an increase in mill levies. Purchaser should investigate the debt financing requirements of the authorized general obligation indebtedness of such districts, existing mill levies of such district servicing such indebtedness, and the potential for an increase in such mill levies, as may be applicable to the Property.
2.7Natural Hazard Disclosures. As used herein, the term “Natural Hazard Area” shall mean those areas identified as natural hazard areas or natural hazards in the Natural Hazard Disclosure Act, California Government Code Sections 8589.3, 8589.4 and 51183.5, and California Public Resources Code Sections 2621.9, 2694 and 4136, and any successor statutes or laws (the “Act”). Purchaser hereby acknowledges that, prior to the Date of this Agreement, Seller has provided Purchaser with a Natural Hazard Disclosure Statement (the “Disclosure Statement”) in a form required by the Act. Purchaser acknowledges that Seller retained the services of First American Professional Real Estate Services, Inc. to examine the maps and other information made available to the public by government agencies for the purpose of enabling Seller to fulfill its disclosure obligations with respect to the Act and to prepare
the written report of the result of its examination (the “Report”). Purchaser acknowledges that the Report fully and completely discharges Seller from its disclosure obligations under the Act and under California Civil Code Sections 1102 through 1102.17. Purchaser acknowledges and agrees that nothing contained in the Disclosure Statement releases Purchaser from its obligation to fully investigate and satisfy itself with the condition of the Property during the Due Diligence Period, including, without limitation, whether the Property is located in any Natural Hazard Area. Purchaser further acknowledges and agrees that the matters set forth in the Disclosure Statement or Report may change on or prior to the Closing Date and that Seller has no obligation to update, modify or supplement the Disclosure Statement or Report. Purchaser is solely responsible for preparing and delivering its own Disclosure Statement to subsequent prospective purchasers of the Property.
ARTICLE 3: TITLE AND SURVEY REVIEW
3.1Title Review. During the Due Diligence Period, Purchaser shall review: the title commitment(s) or preliminary report(s) (“Title Report”) issued by the Title Company with respect to the Property; documents and information pertaining to the exceptions to title listed in the Title Report; and Seller’s existing surveys with respect to the Property. Purchaser may, at its sole cost and expense, obtain during the Due Diligence Period any additional title commitment(s) or report(s) or survey updates desired by Purchaser. Purchaser shall have the right to request that the Title Company provide at Purchaser’s sole cost and expense any reinsurance or endorsements Purchaser shall request, provided that the issuance of such reinsurance or endorsements shall not be a condition to or delay the Closing.
3.2Removal of Liens; Affidavits. Seller shall have no obligation to remove any exceptions to title, except Seller shall be obligated to remove from title prior to the Closing: (i) delinquent real estate taxes lawfully assessed and owed by Seller, (ii) mortgages of record made or assumed by Seller, (iii) to the extent arising from contracts entered into or assumed by Seller, mechanics’ liens created by, through, or under Seller and not by, through or under any Tenant, (iv) to the extent arising from contracts entered into or assumed by Seller, both judgment liens against Seller and any other monetary liens of an ascertainable amount created by Seller from such contracts, and (v) any exceptions to title arising after the Date of this Agreement to the extent caused by any Seller’s voluntary acts made in violation of the terms of this Agreement (the foregoing clauses (i) through (v) collectively called “Monetary Liens”). If Seller fails to discharge any Monetary Liens at Closing, at the Closing Purchaser shall have the right, in addition to all other rights and remedies available to Purchaser pursuant to this Agreement, to have the Title Company pay such amounts from amounts due to be paid to Seller at Closing, and Seller shall cooperate with Purchaser in doing so. Seller shall have no obligation to execute any affidavits or indemnifications in connection with the issuance of Purchaser’s title insurance policy, excepting only any affidavits as to Seller’s authority to the extent required by Title Company to issue the Title Policy and an owner’s affidavit and gap indemnity in the form attached hereto as Schedule 3.2 (collectively, the “Owner’s Affidavit and Gap Indemnity”).
ARTICLE 4: OPERATIONS AND RISK OF LOSS
4.1Ongoing Operations. During the pendency of this Agreement, Seller shall carry on its business and activities relating to the Property substantially in the same manner as Seller did before the Date of this Agreement; provided, however, in no event shall Seller be obligated to make any capital repairs or replacements.
4.2New Contracts. During the pendency of this Agreement, Seller will not enter into any contract that will be an obligation affecting the Property subsequent to the Closing, except contracts entered into in the ordinary course of business that are terminable without cause on not more than 30-days’ notice and without payment of a termination fee (other than in a nominal amount) which could be binding on Purchaser or the Property after Closing, without the prior consent of the Purchaser, which shall not be unreasonably withheld, conditioned or delayed, except that from and after the expiration of the Due Diligence Period, Purchaser may withhold its consent thereto in its sole and absolute discretion. In connection with any request for such consent, if Purchaser fails to object in writing to any such agreement within three (3) business days after receipt thereof, Purchaser will be deemed to have approved Seller’s entering into such new contract or agreement. Any notice from Purchaser rejecting the new contract or agreement shall include a description of the reasons for Purchaser’s rejection.
4.3Leasing Arrangements. Prior to the expiration of the Due Diligence Period, Seller may with Purchaser’s consent not to be unreasonably withheld, conditioned or delayed enter into leases of the Improvements, and amendments, expansions and renewals of Leases and Ground Leases. Seller will provide Purchaser with copies of
any Ground Leases, Leases, and any amendments, expansions and renewals thereof which are signed prior to the expiration of the Due Diligence Period. After the expiration of the Due Diligence Period, if this Agreement has not been terminated pursuant to Section 2.4 above, Seller shall obtain Purchaser’s consent, as may be elected in Purchaser’s sole discretion, before entering into any other Lease, or any amendment, expansion, or renewal thereof or of any Ground Lease or terminating any Ground Lease and/or any of the Apple Leases. Purchaser shall be deemed to have consented to any such Ground Lease, Lease, amendment, expansion, or renewal (as applicable) if Purchaser has not notified Seller specifying with particularity the matters to which Purchaser reasonably objects, within three (3) business days after its receipt of Seller’s written request for consent, together with a description of the pertinent business terms of the Ground Lease, Lease, amendment, expansion, or renewal (as applicable). At Closing, Purchaser shall reimburse Seller to the extent provided in Sections 7.2 and 7.6 for commissions and the cost of tenant and related landlord improvements paid by Seller with respect to leases, amendments, expansions or renewals that were entered into pursuant to this Section 4.3 and shall assume in writing Seller’s obligation under such commission agreements and contracts for tenant and related landlord improvements.
4.4Damage or Condemnation. If before the Closing the Property shall be materially damaged, or if the Property or any material portion thereof shall be subjected to a bona fide threat of condemnation or shall become the subject of any proceedings, judicial, administrative or otherwise, with respect to the taking by eminent domain or condemnation, then Purchaser may terminate this Agreement by written notice to Seller given within five (5) business days after Purchaser learns of the damage or taking, in which event the Earnest Money shall be returned to Purchaser. If the Closing Date is within the aforesaid 5-day period, then Closing shall be extended to the next business day following the end of said 5-day period. If no such election is made, and in any event if the damage (or, in the case of a taking, the affected portion of the Property) is not material, this Agreement shall remain in full force and effect and the purchase contemplated herein, less any interest taken by eminent domain or condemnation, shall be effected with no further adjustment, and upon the Closing of this purchase, Seller shall assign, transfer and set over to Purchaser all of the right, title and interest of Seller in and to any awards that have been or that may thereafter be made for such taking, and Seller shall assign, transfer and set over to Purchaser any insurance proceeds not applied to the repair of the Property prior to Closing that may thereafter be made for such damage or destruction, and, if an insured casualty, Seller shall pay or credit to Purchaser the amount of any deductible (but not to exceed the amount of the loss). For the purposes of this paragraph, damage to the Property or a taking of a portion of the Real Property shall be deemed to be “material” if: (a) the estimated cost of restoration or repair of the Real Property to a condition substantially identical to that of the Real Property prior to the event of damage, or the amount of the condemnation award with respect to such taking shall exceed, in the opinion of an architect selected by Seller and approved by Purchaser in its reasonable discretion, five percent (5%) of the Purchase Price, (b) Apple is entitled to terminate the any of the Leases pursuant to the terms and conditions of the Leases, unless Apple waives such termination right, (c) any Ground Lessor is entitled to terminate its respective Ground Lease, unless such Ground Lessor waives such termination right, (d) as a result of such casualty or condemnation, the Property is no longer in compliance with applicable zoning requirements, or (e) there is any uninsured or underinsured casualty at the Property with an estimated cost of restoration in excess of $50,000, unless Seller credits the cost of such uninsured or underinsured casualty against the Purchase Price (without any obligation of Seller to do so). The provisions of this Section 4.4 supersede the provisions of any applicable laws with respect to the subject matter of this Section 4.4.
ARTICLE 5: CONDITIONS PRECEDENT
5.1Purchaser’s Conditions. Notwithstanding anything in this Agreement to the contrary, Purchaser’s obligation to purchase the Property shall be subject to and contingent upon the satisfaction or waiver (or deemed waiver in the event Purchaser consummates the Closing with Purchaser having knowledge of the failed condition) of the following conditions precedent:
(a)Performance. Seller’s performance or tender of performance of all its material obligations under this Agreement and the material truth and accuracy of Seller’s express representations and warranties in this Agreement as of the Closing Date, unless such representations and warranties have changed by reason of facts or circumstances which pursuant to the terms of this Agreement are permitted to have occurred, and subject to Section 9.3(b) below.
(b)Tenant Estoppel Certificate. Seller shall use commercially reasonable efforts to obtain a Tenant Estoppel Certificate (as defined below) from Apple, Inc. (“Apple”) for each of its two (2) Leases for the Property, and it shall be a condition precedent to Purchaser’s obligation to consummate the Closing that Purchaser shall have
received by not later than three (3) business days prior to the Closing (the “Tenant Estoppel Delivery Deadline”), a tenant estoppel certificate (“Tenant Estoppel Certificate”) executed by Apple for each of its two (2) Leases only (and for no other tenants) (such condition precedent, the “Tenant Estoppel Condition”), (i) confirming no material defaults by such tenant or landlord, under the applicable Lease, and (ii) not disclosing any material inconsistency with the terms of the applicable Lease based on the information previously provided to Purchaser by Seller (an “Estoppel Defect”), and substantially in the form attached hereto as Exhibit C-1 or such form Apple is permitted to provide under the applicable Lease. Prior to delivering each Tenant Estoppel Certificate to Apple for execution, Seller will prepare and deliver a draft of the same to Purchaser for Purchaser’s reasonable approval as to factual matters contained therein. Purchaser’s failure to affirmatively approve or disapprove any form or executed Tenant Estoppel Certificate within three (3) business days after Purchaser’s receipt of the same shall constitute Purchaser’s unconditional approval of the form of Tenant Estoppel Certificates in question. Additionally, if Purchaser assigns its rights under this Agreement pursuant to Section 11.1 below after delivery of any Tenant Estoppel Certificates, the failure of such estoppel certificates to identify Purchaser’s assignee or acknowledge Purchaser’s assignee as a party entitled to rely on such Tenant Estoppel Certificates shall not be deemed an Estoppel Defect, and Seller shall have no obligation to request an updated Tenant Estoppel Certificate identifying or acknowledging Purchaser’s assignee; provided however, Seller may, at its election (but in no event shall Seller be obligated to), cure such Estoppel Defect if such Estoppel Defect can be remedied by performance of work or the payment of money, by performing such work (or causing such work to be performed) or making such payment on or prior to the Closing Date, or by granting Purchaser a credit against the Purchase Price in an amount reasonably necessary, as may be agreed by the parties, to cure such Estoppel Defect. If the Tenant Estoppel Condition is not satisfied by the Tenant Estoppel Delivery Deadline, (x) Purchaser may extend the Closing Date for up to ten (10) days to allow time for Seller to obtain the Tenant Estoppel Certificates by delivering to Seller written notice thereof on or before the Closing Date, and (y) subject to Seller’s Closing Date extension rights set forth herein, if the Tenant Estoppel Condition is not satisfied by the Closing Date, Purchaser shall have the right to terminate this Agreement and receive a refund of the Earnest Money; provided, however, notwithstanding any provision to the contrary in this Agreement, and for the avoidance of doubt, Purchaser may not disapprove the required Tenant Estoppel Certificate under this Section 5.1(b) as a condition to Purchaser’s obligation to consummate the Closing if the relevant Tenant qualifies any statement(s) in its Tenant Estoppel Certificate to Tenant’s knowledge; and further provided that Purchaser may only disapprove such required Tenant Estoppel Certificate otherwise substantially in the form required under this Section if such Tenant Estoppel Certificate discloses an Estoppel Defect based on the information previously provided to Purchaser by Seller not known to Purchaser prior to the expiration of the Due Diligence Period. If Seller believes it will be unable to satisfy the Tenant Estoppel Condition, Seller shall have the right to extend the Closing Date on one or more occasions but not more than forty-five (45) days in the aggregate to provide Seller additional time to satisfy the Tenant Estoppel Condition. If notwithstanding any exercised extension of the Closing Date pursuant to the foregoing provisions of this Section 5.1(b) Seller is unable to satisfy the Tenant Estoppel Condition, Seller shall deliver to Purchaser written notice thereof, and Purchaser shall have the right to either (i) waive the Tenant Estoppel Condition and proceed to close this transaction upon the terms and conditions of this Agreement, or (ii) terminate this Agreement in which event the Earnest Money (less the Independent Contract Consideration) shall be immediately returned to Purchaser and the parties shall have no further obligations under this Agreement except for those which expressly survive termination of this Agreement. For the avoidance of doubt, Seller’s failure to deliver, and Purchaser’s failure to receive, any Tenant Estoppel Certificates (or to satisfy the Tenant Estoppel Condition hereunder) shall not be deemed a default by Seller under this Agreement and Seller has not covenanted that it will be able to deliver such Tenant Estoppel Certificates.
(c)Ground Lessor Estoppel Certificates. Seller shall use commercially reasonable efforts to obtain Ground Lessor Estoppel Certificates (as defined below) from Tambellini and Waterdragon, and it shall be a condition precedent to Purchaser’s obligation to consummate the Closing that Purchaser shall have received by not later than three (3) business days prior to the Closing (the “Ground Lessor Estoppel Delivery Deadline”), a ground lessor estoppel certificate from each of Tambellini and Waterdragon for their respective Ground Lease in the form attached hereto as Exhibit C-2 and Exhibit C-3, respectively (the “Ground Lessor Estoppel Certificates”) (such condition precedent, the “Ground Lessor Estoppel Condition”). Prior to delivering the relevant Ground Lessor Estoppel Certificates to Tambellini and Waterdragon for execution, Seller will prepare and deliver drafts of the same to Purchaser for Purchaser’s reasonable approval as to factual matters contained therein. Purchaser’s failure to affirmatively approve or disapprove any form or executed Ground Lessor Estoppel Certificates within three (3) business days after Purchaser’s receipt of the same shall constitute Purchaser’s unconditionally approval of the form of Ground Lessor Estoppel Certificate(s) in question. Additionally, if Purchaser assigns its rights under this Agreement pursuant to Section 11.1 below after delivery of any Ground Lessor Estoppel Certificates to the applicable ground
lessor, the failure of such estoppel certificates to identify Purchaser’s assignee or acknowledge Purchaser’s assignee as a party entitled to rely on such Ground Lessor Estoppel Certificate shall not be deemed an Estoppel Defect, and Seller shall have no obligation to request an updated Ground Lessor Estoppel Certificate identifying or acknowledging Purchaser’s assignee; provided however, Seller may, at its election (but in no event shall Seller be obligated to), cure such Estoppel Defect if such Estoppel Defect can be remedied by performance of work or the payment of money, by performing such work (or causing such work to be performed) or making such payment on or prior to the Closing Date, or by granting Purchaser a credit against the Purchase Price in an amount reasonably necessary, as my be agreed by the parties, to cure such Estoppel Defect. If the Ground Lessor Estoppel Condition is not satisfied by the Ground Lessor Estoppel Delivery Deadline, (x) Purchaser may extend the Closing Date for up to ten (10) days to allow time for Seller to obtain the Ground Lessor Estoppel Certificates from Ground Lessors by delivering to Seller written notice thereof on or before the Closing Date, and (y) subject to Seller’s Closing Date extension rights set forth herein, if the Ground Lessor Estoppel Condition is not satisfied by the Closing Date, Purchaser shall have the right to terminate this Agreement and receive a refund of the Earnest Money; provided, however, notwithstanding any provision to the contrary in this Agreement, and for the avoidance of doubt, Purchaser may not disapprove the required Ground Lessor Estoppel Certificates under this Section 5.1(c) as a condition to Purchaser’s obligation to consummate the Closing if the relevant Ground Lessor qualifies any statement(s) in its Ground Lessor Estoppel Certificates to Ground Lessor’s knowledge; and further provided that Purchaser may only disapprove such required Ground Lessor Certificates otherwise substantially in the form required under this Section if such Ground Lessor Estoppel Certificates discloses an Estoppel Defect based on the information previously provided to Purchaser by Seller not known to Purchaser prior to the expiration of the Due Diligence Period. If Seller believes it will be unable to satisfy the Ground Lessor Estoppel Condition with respect to such required Ground Lessor Estoppel Certificates from Tambellini and/or Waterdragon, Seller shall have the right to extend the Closing Date on one or more occasions but not more than forty-five (45) days in the aggregate to provide Seller additional time to satisfy the Ground Lessor Estoppel Condition. If notwithstanding any exercised extension of the Closing Date pursuant to the preceding sentence Seller is unable to satisfy the Ground Lessor Estoppel Condition, Seller shall deliver to Purchaser written notice thereof, and Purchaser shall have the right to either (i) waive the Ground Lessor Estoppel Condition and proceed to close this transaction upon the terms and conditions of this Agreement, or (ii) terminate this Agreement in which event the Earnest Money (less the Independent Contract Consideration) shall be immediately returned to Purchaser and the parties shall have no further obligations under this Agreement except for those which expressly survive termination of this Agreement. For the avoidance of doubt, Seller’s failure to deliver, and Purchaser’s failure to receive, any Ground Lessor Estoppel Certificates (or to satisfy the Ground Lessor Estoppel Condition hereunder) shall not be deemed a default by Seller under this Agreement and Seller has not covenanted that it will be able to deliver such Ground Lessor Estoppel Certificates.
(d)Title Policy. As of the Closing Date, and as a condition precedent to Purchaser’s obligation to consummate the Closing hereunder, the Title Company shall be unconditionally and irrevocably committed to issue to Purchaser a 2006 ALTA extended coverage owner’s title insurance policy, with coverage in the amount of the Purchase Price, insuring title to the leasehold interest in and to the Real Property pursuant to the Ground Leases as vested of record in Purchaser (the “Title Policy”). Provided, however, in the event that prior to the expiration of the Due Diligence Period Purchaser obtains and delivers to Seller a proforma policy which Purchaser approves (an “Approved Proforma”), then the Title Policy to which Purchaser shall be entitled to as a Closing condition shall be in the form of such Approved Proforma (including endorsements included therein) and subject only to the title exceptions specifically set forth in such Approved Proforma (the “Permitted Exceptions”) but only to the extent issuance of a policy in the form of the Approved Proforma is not subject to any requirements of the Title Company beyond those which the parties are already required to satisfy under this Agreement or would have been satisfied but for any action or inaction of Purchaser.
(e)Right of First Refusal Declined and Consent to Transfer. As a condition precedent to Purchaser’s obligation to proceed to Closing hereunder, Tambellini shall have (i) consented to the transfer of the Tambellini Ground Lease to Purchaser and (ii) declined its right of first refusal with respect to the sale of the improvements constructed on the Premises to Purchaser under Section 32 of the Tambellini Ground Lease as part of the Ground Lessor Estoppel Certificate delivered by Tambellini pursuant to Section 5.1(c) above or such other written confirmation acceptable to Purchaser and the Title Company. As a condition precedent to Purchaser’s obligation to proceed to Closing hereunder, Waterdragon shall have consented to the transfer of the Waterdragon Ground Lease to Purchaser as part of the Ground Lessor Estoppel Certificate delivered by Waterdragon pursuant to Section 5.1(c) above or such other written confirmation acceptable to Purchaser and the Title Company.
(f)Ground Leases and Apple Leases. The Ground Leases are in full force and effect and the Apple Leases are in full force and effect.
5.2Seller’s Conditions. Notwithstanding anything in this Agreement to the contrary, Seller’s obligation to sell the Property shall be subject to and contingent upon the satisfaction or waiver of the following conditions precedent:
(a)Performance. Purchaser’s performance or tender of performance of all its material obligations under this Agreement, including timely delivery of the funds required hereunder and all of the documents to be executed by Purchaser set forth in Section 6.3, and the material truth and accuracy of Purchaser’s express representations and warranties in this Agreement as of the Closing Date.
(b)Right of First Refusal Declined and Consent to Transfer. As a condition precedent to Seller’s obligation to proceed to Closing hereunder, Tambellini shall have (i) consented to the transfer of the Tambellini Ground Lease to Purchaser and (ii) declined its right of first refusal with respect to the sale of the improvements constructed on the Premises to Purchaser under Section 32 of the Tambellini Ground Lease as part of the Ground Lessor Estoppel Certificate delivered by Tambellini pursuant to Section 5.1(c) above or such other written confirmation acceptable to Seller and the Title Company. As a condition precedent to Seller’s obligation to proceed to Closing hereunder, Waterdragon shall have consented to the transfer of the Waterdragon Ground Lease to Purchaser as part of the Ground Lessor Estoppel Certificate delivered by Waterdragon pursuant to Section 5.1(c) above or such other written confirmation acceptable to Seller and the Title Company.
5.3Failure or Waiver of Conditions Precedent. In the event any of the conditions set forth in Sections 5.1 or 5.2 are not fulfilled or waived when required, the party benefited by such conditions may, by written notice to the other party, terminate this Agreement, whereupon all rights and obligations hereunder of each party shall be at an end except those that expressly survive any termination. Either party may, at its election, at any time on or before the date specified for the satisfaction of the condition, waive in writing the benefit of any of the conditions set forth in Sections 5.1 and 5.2 above. In the event this Agreement is terminated as a result of any condition set forth in Section 5.1 or Section 5.2, Purchaser shall be entitled to a refund of the Earnest Money, unless Purchaser is in default, in which case Section 9.1 shall apply. In any event, Purchaser’s consent to the close of escrow pursuant to this Agreement shall waive any remaining unfulfilled conditions, and any liability on the part of Seller for breaches of representations, warranties and covenants, to the extent the same survive the Closing, of which Purchaser had knowledge as of the Closing.
ARTICLE 6: CLOSING
6.1Closing. The consummation of the transaction contemplated herein (“Closing”) shall occur on the Closing Date through the Escrow Agent. Upon completion of the deliveries pursuant to Sections 6.2 and 6.3, satisfaction of the other conditions to Closing herein set forth and performance by each party of its obligations required to be performed prior to or at the Closing, the parties shall direct the Escrow Agent to make such deliveries and disbursements according to the terms of this Agreement.
6.2Seller’s Deliveries in Escrow. On or before 12:00 p.m. Pacific Time on the Closing Date (as the same may be extended as provided in this Agreement), Seller shall deliver in escrow to the Escrow Agent the following:
(a)Ground Lease Assignments. Assignments of Ground Lease (the “Ground Lease Assignments”) in recordable form and in the forms attached hereto as Exhibit D-1 and Exhibit D-2, conveying to Purchaser Seller’s title to the Leasehold.
(b)Assignment of Leases and Contracts and Bill of Sale. Assignment of Leases and Service Contracts and Bill of Sale with respect to the Property (the “Assignment”) in the form of Exhibit E attached hereto, executed by Seller;
(c)State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property;
(d)FIRPTA and 593. Foreign Investment in Real Property Tax Act affidavit in the form attached as Schedule 6.2(d) and a California form 593 each executed by Seller (or the relevant tax payer affiliate of Seller if Seller is a disregarded entity;
(e)Bring-Down Certificate. A certificate dated as of the Closing Date executed by Seller in the form attached as Schedule 6.2(e);
(f)Owner’s Affidavit and Gap Indemnity. The Owner’s Affidavit and Gap Indemnity described in Section 3.2, as duly executed and acknowledged by Seller, and such authority documents relating to Seller that Title Company may reasonably require for the issuance of the Title Policy to Purchaser;
(g)Tenant Estoppel Certificate. To the extent actually received and not previously provided to Purchaser, a Tenant Estoppel Certificate with respect to Apple’s two (2) Leases, as duly executed by Apple, subject to the provisions of Section 5.1(b);
(h)Ground Lessor Estoppel Certificate. To the extent actually received and not previously provided to Purchaser, the Ground Lessor Estoppel Certificates from Ground Lessors, as duly executed by Ground Lessors, subject to the provisions of Section 5.1(c); and
(i)Additional Documents. Any additional documents that Escrow Agent or the Title Company may reasonably require for the proper consummation of the transaction contemplated by this Agreement.
6.3Purchaser’s Deliveries in Escrow. On or before 12:00 p.m. Pacific time on the Closing Date (as the same may be extended as provided in this Agreement), Purchaser shall deliver in escrow to the Escrow Agent the following:
(a)Purchase Price. The Purchase Price, less the Earnest Money that is applied to the Purchase Price, plus or minus applicable prorations, deposited by Purchaser with the Escrow Agent in immediate, same‑day federal funds wired for credit into the Escrow Agent’s escrow account;
(b)Ground Lease Assignments. The Ground Lease Assignments executed and acknowledged by Purchaser, in recordable form; provided, however, Purchaser shall execute and acknowledge the Ground Lease Assignments as soon as possible prior to Closing as requested in writing by Seller, but with an effective date as of Closing, such that the Ground Lease Assignment can be delivered to the Ground Lessors in advance of signing of the Ground Lessor Estoppel Certificates if requested by the Ground Lessors;
(c)Assignment of Leases and Contracts and Bill of Sale. The Assignment, executed by Purchaser;
(d)State Law Disclosures. Such disclosures and reports as are required by applicable state and local law in connection with the conveyance of real property; and
(e)Additional Documents. Any additional documents that Escrow Agent or the Title Company may reasonably require for the proper consummation of the transaction contemplated by this Agreement.
6.4Closing Statement/Escrow Fees. At the Closing, Seller and Purchaser shall deposit with the Escrow Agent an executed closing statement consistent with this Agreement in the form required by the Escrow Agent and approved by Seller and Purchaser. Seller shall use commercially reasonable efforts to cooperate with Escrow Agent to provide to Purchaser at least two (2) business days prior to the Closing (i) a draft closing statement on Escrow Agent’s standard form and (ii) draft prorations for all of the prorations to be made pursuant to Article 7 below. Notwithstanding the foregoing, Seller shall have the right to extend the then existing Closing Date to a date up to five (5) business days later pursuant to this Section 6.4 (the “Maximum Extended Date”) in order for the draft closing statement and draft prorations to be received by Purchaser at least two (2) business days before Closing. Notwithstanding any provision to the contrary, Seller agrees that it will provide to Purchaser the draft closing statement and draft prorations to Purchaser no later than such Maximum Extended Date.
6.5Possession. Seller shall deliver possession of the Property to Purchaser at the Closing, subject to the Leases.
6.6Post-Closing Deliveries. Immediately after the Closing, Seller shall deliver the following, to the extent in Seller’s possession or control, to the offices of Purchaser’s property manager: all keys, if any, used in the operation of the Property; and any “as-built” plans and specifications of the Improvements.
6.7Notice to Tenants. Seller and Purchaser shall execute at Closing, and deliver to each tenant immediately after the Closing, notices regarding the sale in substantially the form of Exhibit F attached hereto, or such other form as may be required by applicable state law, and sufficient to relieve Seller from liability for any security deposits to the extent Purchaser receives a credit therefor at the Closing.
6.8Notice under Service Contracts. To the extent applicable, applicable, a notification letter to each of the counterparties under the Service Contracts to be assigned to Purchaser at Closing (if any), and prepared and executed by Purchaser and countersigned by Seller, in form and substance reasonably acceptable to Purchaser and Seller, informing such counterparties of the consummation of the sale of the Property, which shall be delivered to the counterparties to each Service Contract by Purchaser immediately after Closing outside of escrow.
6.9Closing Costs. At Closing, Seller and Purchaser shall pay the costs of closing the transaction contemplated hereby as provided on Schedule 1 attached hereto. At Closing, Seller and Purchaser shall each pay one-half of any escrow fees. Each party shall pay its own attorneys’ fees.
6.10Close of Escrow. Upon satisfaction or completion of the foregoing conditions and deliveries, the parties shall direct the Escrow Agent to immediately record and deliver the documents described above to the appropriate parties and make disbursements according to the closing statements executed by Seller and Purchaser.
ARTICLE 7: PRORATIONS
Prorations and adjustments with respect to the Property shall be made as of the Closing Date as set forth in this Article 7.
7.1Prorations. The following prorations between Seller and Purchaser shall each be made as of 11:59 p.m. (local time) on the day preceding the Closing Date, as indicated below, in each instance, based on either the actual number of days in the year or, if applicable, the actual number of days in the calendar month, in which the Closing occurs. All income and expense attributable to the day of Closing shall belong to Purchaser.
(a)Collected Rent. All collected rent (including collected additional rent (“Additional Rent”) representing estimated tenant reimbursements for Operating Costs, as defined below) and other collected income (and any applicable state or local tax on rent) under Leases in effect on the Closing Date shall be prorated as of the Closing. Seller shall be charged with any rent and other income collected by Seller before Closing but applicable to any period of time after Closing. Uncollected rent and other income shall not be prorated. Purchaser shall apply rent and other income from tenants that are collected after the Closing first to any unpaid rent for the month of Closing, second to any unpaid rent for the obligations then owing to Purchaser for its period of ownership and third to any balance owing to Seller for its period of ownership. Any prepaid rents for the period following the Closing Date shall be paid over by Seller to Purchaser (or credited against the Purchase Price). For the first six (6) months after the Closing Date (or such longer period as applicable pursuant to Section 7.1(b)), Purchaser will make reasonable efforts, without suit, to collect any unpaid rents (including tenant reimbursements and uncollected Additional Rents) applicable to the period before Closing. Seller will retain all ownership rights relating to any such delinquent rents. Seller may pursue collection as to any rent (including tenant reimbursements and Additional Rent) not collected by the Closing Date or when later owed to Seller pursuant to Section 7.1(b) below, provided that Seller shall have no right to terminate any Lease or any tenant’s occupancy or bring or threaten legal action against tenants of the Property or otherwise exercise any “landlord” remedy against any tenant under any Lease in connection therewith. The provisions of this Section 7.1(a) will survive Closing.
(b)Operating Costs and Reconciliation. Seller, as landlord under the Leases, is currently collecting from tenants under the Leases additional rent to cover taxes, insurance, utilities (to the extent not paid directly by tenants), common area maintenance and other operating costs and expenses (collectively, “Operating Costs”) in connection with the ownership, operation, maintenance and management of the Property. Additional Rents attributable to the period commencing on January 1, 2021 and ending at 11:59 p.m. on the day immediately preceding the Closing Date (the “Reconciliation Period”) have been or will be paid by tenants on an estimated basis, and will not have been reconciled with actual Additional Rents prior to the Closing Date. Within a reasonable period after Closing, Seller shall prepare and deliver to Purchaser a reconciliation (the “Additional Rents Reconciliation”) of (i) actual Operating Costs and other expenses (other than base rents) paid by Seller for the Reconciliation Period (the “Actual Additional Rents”), against (ii) the Additional Rents charged to the Tenants during the Reconciliation Period (the “Charged Additional Rents”), together with reasonable back-up information. The parties shall cooperate so that the Additional Rents Reconciliation is finalized for the Reconciliation Period and trued up between the parties as soon as possible after Purchaser has completed the Additional Rents Reconciliation with Apple for the entire 2021 calendar year under the Apple Leases (with Purchaser agreeing to use commercially reasonable efforts to complete that process as soon as reasonably possible in accordance with the terms of the Apple Lease, but no later than July 1, 2022). Without limiting Seller’s rights under Section 7.1(a) with respect to any under payment from Apple, at such time the Additional Rents Reconciliation is finalized (1) If the Actual Additional Rents exceeded the Charged Additional Rents for the Reconciliation Period, Purchaser shall, for the first six (6) months after the Additional Rents Reconciliation is finalized, make reasonable efforts, without suit, to collect any under payment from Apple, or (2) if the Charged Additional Rents exceeded the Actual Additional Rents for the Reconciliation Period, Seller shall promptly pay to Purchaser the amount of such excess.
(c)Taxes and Special Assessments. Real estate taxes and special assessments imposed by governmental authority that are not yet due and payable and that are not reimbursable by tenants under the Leases as Operating Costs shall be prorated as of the Closing based upon the most recent ascertainable assessed values and tax rates. Seller shall receive a credit for any taxes and special assessments paid by Seller and applicable to any period after the Closing. Purchaser shall pay all installments of special assessments due and payable on or attributable to the period from and after the Closing Date; provided, however, that (a) if the owner of the Property may elect to pay any special assessment over time, Seller may elect to do so, which election shall be binding on Purchaser, provided in no event shall Purchaser be responsible for special assessments relating to the period prior to Closing and (b) Seller shall not be required by the foregoing to pay any installments of special assessments which have not been confirmed as of the Date of this Agreement except to the extent any governmental authority finally imposes them with respect to the period prior to the Closing Date. Real property tax refunds and credits received after the Closing which are attributable to a fiscal tax year prior to the Closing shall belong to Seller, and those which are attributable to the fiscal tax year in which the Closing occurs shall be prorated based upon the date of Closing, provided, however to the extent any such tax refunds and credits are required to be refunded to Apple pursuant to the Leases, each party after receipt thereof shall promptly remit any tax refunds and credits to Apple and keep the other party reasonably apprised of such transmittal. Assessments or fees imposed, if any, by the applicable association or other party pursuant to any covenants, conditions and restrictions which the Property is subject (“CC&Rs”) that are not yet due and payable and that are not reimbursable by the tenants under the Leases as Operating Costs shall be prorated as of the Closing based upon the most recent statements from such association or party. Seller shall receive a credit for any such assessments and fees paid by Seller and applicable to any period after the Closing.
(d)Utilities. To the extent that the amount of actual consumption of any utility services is not paid directly by tenants, utilities, including water, sewer, electric, and gas, shall be prorated based upon the last reading of meters prior to the Closing. Seller shall endeavor to obtain meter readings on the day before the Closing Date, and if such readings are obtained, there shall be no proration of such items. Seller shall pay at Closing the bills therefor for the period to the day preceding the Closing, and Purchaser shall pay the bills therefor for the period subsequent thereto. If the utility company will not issue separate bills, Purchaser will receive a credit against the Purchase Price for Seller’s portion and will pay the entire bill prior to delinquency after Closing. If Seller has paid any utilities in advance, then Purchaser shall be charged its portion of such payment at Closing. Purchaser shall arrange with such services and companies to have accounts opened in Purchaser’s name beginning on the Closing Date.
(e)Ground Lease Rentals and Ground Lease Security Deposits. All rentals and other charges due from the lessee under the Ground Leases (collectively, “Ground Lease Rentals”), shall be prorated such that Seller shall be responsible for all Ground Lease Rentals attributable to the period prior to the Closing Date and Purchaser shall be
responsible for all Ground Lease Rentals attributable to the period from and thereafter such date. Seller shall assign to Purchaser all unapplied deposits held by the Ground Lessor pursuant to the Ground Lease as of the date of Closing, and such amounts shall be credited to Seller’s account and increase the amount of funds payable by Purchaser at Closing. The amount of any Ground Lease Rentals paid by Seller on the Closing Date and applicable to the period from and after Closing shall be credited to Seller and increase the amount of funds payable by Purchaser at Closing.
(f)Final Adjustment After Closing. If final prorations cannot be made at Closing for any item being prorated under this Section 7.1, then Purchaser and Seller agree to allocate such items on a fair and equitable basis as soon as invoices or bills are available and applicable reconciliations with tenants or lessees have been completed, with final adjustment to be made as soon as reasonably possible after the Closing, but in no event later than one hundred eighty (180) days after Closing (except for the Additional Rents Reconcilation for which final adjustment shall be made no later than July 31, 2022), to the effect that income and expenses are received and paid by the parties on an accrual basis with respect to their period of ownership. Payments in connection with the final adjustment shall be due within ten (10) days of written notice. Seller and Purchaser shall have reasonable access to, and the right to inspect and audit, the other’s books to confirm the final prorations.
7.2Leasing Costs. Any and all leasing commissions (including, without limitation, any leasing commissions payable to a Seller Related Party) and tenant allowances which are the obligation of landlord under the Leases or any new leases or amendments pursuant to Section 4.3 of this Agreement (the “Leasing Costs”) shall be allocated between the parties as provided herein below according to whether such obligations arise in connection with (i) Leases executed prior to the Date of this Agreement, other than additional Leasing Costs with respect to renewals or expansions of or under such Leases occurring after the Date of this Agreement (collectively “Existing Leasing Costs”), which such Existing Leasing Costs, if any, are listed on Schedule 7.2(a), or (ii) Leases, new leases or amendments (pursuant to Section 4.3 of this Agreement) entered into after the Date of this Agreement, subject to the terms and conditions of this Agreement, and renewals or expansions of or under such Leases or new leases occurring after the Date of this Agreement (“New Leasing Costs”).
(a)Existing Leasing Costs. If, by Closing, Seller has not paid in full any Existing Leasing Costs listed on Schedule 7.2(a), then Purchaser shall receive a credit against the Purchase Price for such remaining costs, and Purchaser shall be responsible for paying such Existing Leasing Costs.
(b)New Leasing Costs. At Closing, Purchaser shall reimburse Seller for the cost of New Leasing Costs paid by Seller, and Purchaser shall assume such New Leasing Costs.
Purchaser will assume at Closing any and all commission agreements providing for the payment of leasing commissions relating to the Property (including, without limitation, any leasing commissions payable in connection with prospects following the termination of any such commission agreement).
7.3Tenant Deposits. All tenant security deposits held by Seller and not theretofore applied to tenant obligations under the Leases shall be transferred or credited to Purchaser at Closing or placed in escrow if required by law. As of the Closing, Purchaser shall assume Seller’s obligations related to tenant security deposits. Purchaser will indemnify, defend, and hold Seller and any Seller Related Parties harmless from and against all demands and claims made by tenants arising out of the transfer or disposition of any security deposits and will reimburse any such indemnitee for all attorneys’ fees incurred or that may be incurred as a result of any such claims or demands as well as for all loss, expenses, verdicts, judgments, settlements, interest, costs and other expenses incurred or that may be incurred by any such indemnitee as a result of any such claims or demands by tenants.
7.4Utility Deposits. Purchaser shall be responsible for making any deposits required with utility companies.
7.5Sale Commissions. Seller and Purchaser represent and warrant each to the other that they have not dealt with any real estate broker, sales person or finder in connection with this transaction other than Broker. If this transaction is closed, Seller shall pay Broker in accordance with their separate agreement. Broker is an independent contractor and is not authorized to make any agreement or representation on behalf of either party. Except as expressly set forth above, if any claim is made for broker’s or finder’s fees or commissions in connection with the negotiation, execution or consummation of this Agreement or the transactions contemplated hereby, each party shall defend,
indemnify and hold harmless the other party from and against any such claim based upon any purported or actual statement, representation or agreement of such party. The foregoing indemnity shall survive the Closing or any earlier termination of this Agreement.
7.6Service Contracts. All payments under any Service Contracts shall be prorated as of the Closing Date. Purchaser will assume at Closing any and all of the Service Contracts affecting the Property.
7.7Miscellaneous; Survival. The provisions of this Article 7 shall survive the Closing and shall apply notwithstanding any provision to the contrary in this Agreement.
ARTICLE 8: REPRESENTATIONS AND WARRANTIES
8.1Seller’s Representations and Warranties. As a material inducement to Purchaser to execute this Agreement and consummate this transaction, Seller represents and warrants to Purchaser as follows. Provided, however, if any representation of Seller in this Section 8.1 other than Sections 8.1(a) and 8.1(b) is true as of the date hereof but no longer true as of the Closing then such failure while constituting a failure of Purchaser’s condition in Section 5.1(a) shall not in itself constitute a default by Seller under this Agreement.
(a)Organization and Authority. Seller has been duly organized and is validly existing as a Delaware limited liability company, in good standing in the State of Delaware and is qualified to do business in the state in which the Property is located. Seller has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby . This Agreement has been, and all of the documents to be delivered by Seller at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligation of Seller, enforceable in accordance with their terms.
(b)Conflicts and Pending Action. There is no agreement to which Seller is a party or, to Seller’s knowledge binding on Seller which is in conflict with this Agreement. To Seller’s knowledge, there is no material action or proceeding pending or threatened in writing against Seller or the Property, including condemnation proceedings.
(c)Leases. The list of Leases affecting the Property attached hereto as Schedule 8.1(c) is, subject to changes occurring in accordance with Section 4.3, to Seller’s knowledge, a true, correct and complete list of all of leases or other occupancy agreements encumbering the Property. The copies of such Leases provided or made available to Purchaser pursuant to Section 2.1 are, to Seller’s knowledge, true, correct and complete in all respects. The Leases are each in full force and effect and have not been modified, amended, assigned, or extended. As of the Date of this Agreement, to Seller’s knowledge (i) there is no default by Seller as landlord under the Apple Leases and (ii) there is no default by Apple under the Apple Leases. Notwithstanding anything to the contrary contained herein, Seller does not represent or warrant that any particular Lease will be in full force and effect as of the Closing or that any particular Lease will be free from default as of Closing.
(d)Ground Leases. Seller is not a party to any ground lease with respect to the Property other than the Ground Leases, and subject to changes occurring in accordance with Section 4.3. The copies of such Ground Leases provided or made available to Purchaser pursuant to Section 2.1 are, to Seller’s knowledge, true, correct and complete in all material respects. As of the Date of this Agreement, Seller has not received or given any written notice of Seller’s or Ground Lessor’s default thereunder that has not been cured. No commissions are, or will be, payable to any brokers in respect of any of the Ground Leases from and after Closing pursuant to any agreement to which Seller is a party or, to Seller’s knowledge, any other agreement in respect of the Ground Leases.
(e)Service Contracts. The list of service contracts affecting the Property attached as Schedule 1.2(d) is, to Seller’s knowledge, true, correct, and complete as of the Date of this Agreement in all material respects.
(f)Blocked Persons. Seller is not (i) a person appearing on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control in the United States Department of the Treasury, or (ii) a person with whom a transaction is otherwise prohibited by applicable provisions of Executive Order 13224, the USA PATRIOT Act, the Trading with the Enemy Act, the International Emergency Economic Powers Act, or the Executive
Orders or regulations promulgated pursuant to any of the above (including but not limited to the foreign assets control regulations of the United States Treasury Department), in each case as amended from time to time.
(g)No Violation of Zoning and Other Laws. As of the Date of this Agreement, Seller has not received any written notice from any governmental agency alleging violations of any statutes, codes, ordinances, rules or regulations, including, but not limited to, building codes, building, use restrictions and zoning ordinances, or environmental law, which have not been cured.
(h)Service Contracts. There are no service, equipment, supply, maintenance, service contracts or agreements relating to the maintenance and operation of the Property to which Seller is a party that are currently in effect and will be in effect after Closing, in each case, except for the Service Contracts listed on Schedule 1.2(d) attached hereto, subject to any changes thereto in accordance with Section 4.2. The copies of the Service Contracts delivered to Purchaser by Seller are true, correct and complete copies of all such documents in Seller’s possession.
(i)Options. Except as set forth in the Leases and Ground Leases, Seller has not granted to any person any option or other right to purchase the Real Property that will, in each case, remain in effect after the Closing.
(j)Tax Appeals. There are no pending tax appeals for the Property to which Seller is a party.
“Seller’s knowledge” as used in this Agreement means the current actual knowledge of Peter Jun of Madison Marquette, without any duty of inquiry or investigation. Peter Jun shall have no personal liability under this Agreement and Purchaser hereby waives any rights against him.
8.2Purchaser’s Representations and Warranties. As a material inducement to Seller to execute this Agreement and consummate this transaction, Purchaser represents and warrants to Seller that:
(a)Organization and Authority. Purchaser has been duly organized and is validly existing as a limited liability company and is in good standing in the State of Delaware and, as of the Closing Date, will be qualified to do business in the state in which the Property is located. Purchaser has the full right and authority and has obtained any and all consents required to enter into this Agreement and to consummate or cause to be consummated the transactions contemplated hereby. This Agreement has been, and all of the documents to be delivered by Purchaser at the Closing will be, authorized and properly executed and constitutes, or will constitute, as appropriate, the valid and binding obligation of Purchaser, enforceable in accordance with their terms.
(b)Conflicts and Pending Action. There is no agreement to which Purchaser is a party or to Purchaser’s knowledge binding on Purchaser which is in conflict with this Agreement. There is no action or proceeding pending or, to Purchaser’s knowledge, threatened against Purchaser which challenges or impairs Purchaser’s ability to execute or perform its obligations under this Agreement.
(c)Purchaser’s Financial Condition. No petition has been filed by or against Purchaser under the Federal Bankruptcy Code or any similar Laws. Purchaser has or will have on or prior to the Closing Date adequate capital or sources of capital to perform all of its obligations under this Agreement.
(d)No Financing Contingency. The transaction in this Agreement is not subject to any financing contingency and no financing for the transaction shall be provided by Seller. Purchaser has or will have at the Closing sufficient cash or other sources (which may include its lenders, investors, and/or affiliates) of immediately good funds to enable it to make payment of the Purchase Price and any other amounts to be paid by it hereunder.
(e)ERISA. Purchaser is not and is not acting on behalf of an “employee benefit plan” within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) which is subject to Title I of ERISA, a “plan” within the meaning of Section 4975 of the Internal Revenue Code of 1986, as amended (the “Code”) which is subject to Section 4975 of the Code, or an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. Section 2501.3-101, as modified by Section 3(42) of ERISA. Purchaser is not subject to State statutes regulating investments and fiduciary obligations with respect to governmental plans that would be violated by the transactions contemplated by this Agreement.
(f)Blocked Persons. Purchaser is not (i) a person appearing on the Specially Designated Nationals and Blocked Persons List of the Office of Foreign Assets Control in the United States Department of the Treasury, or (ii) a person with whom a transaction is otherwise prohibited by applicable provisions of Executive Order 13224, the USA PATRIOT Act, the Trading with the Enemy Act, the International Emergency Economic Powers Act, or the Executive Orders or regulations promulgated pursuant to any of the above (including but not limited to the foreign assets control regulations of the United States Treasury Department), in each case as amended from time to time.
Purchaser’s representations and warranties in this Section 8.2 shall survive Closing (and shall not merged therein).
ARTICLE 9: DEFAULT AND DAMAGES
9.1Default by Purchaser. If Purchaser shall materially default in its obligation to purchase the Property pursuant to this Agreement, Purchaser acknowledges and agrees that Seller shall have the right, as Seller’s sole and exclusive remedy, to terminate this Agreement and have the Escrow Agent deliver the Earnest Money to Seller as liquidated damages (and not as a penalty) to recompense Seller for time spent, labor and services performed, and the loss of its bargain. Seller agrees to accept the Earnest Money as Seller’s total damages and relief hereunder if Purchaser defaults in its obligation to close hereunder. If Purchaser does so default, this Agreement shall be terminated and Purchaser shall have no further right, title or interest in or to the Property. In no event shall Purchaser be liable to Seller for any punitive, speculative or consequential damages.
THE AMOUNT PAID TO AND RETAINED BY SELLER AS LIQUIDATED DAMAGES PURSUANT TO THE FOREGOING PROVISIONS SHALL BE SELLER’S SOLE AND EXCLUSIVE REMEDY IF PURCHASER FAILS TO CLOSE THE PURCHASE OF THE PROPERTY. THE PARTIES HERETO EXPRESSLY AGREE AND ACKNOWLEDGE THAT SELLER’S ACTUAL DAMAGES IN THE EVENT OF A DEFAULT BY PURCHASER WOULD BE EXTREMELY DIFFICULT OR IMPRACTICABLE TO ASCERTAIN AND THAT THE AMOUNT OF THE DEPOSIT PLUS ANY INTEREST ACCRUED THEREON REPRESENTS THE PARTIES’ REASONABLE ESTIMATE OF SUCH DAMAGES. THE PAYMENT OF SUCH AMOUNT AS LIQUIDATED DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA CIVIL CODE SECTIONS 1671, 1676 AND 1677. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION 9.1, SELLER AND PURCHASER AGREE THAT THIS LIQUIDATED DAMAGES PROVISION IS NOT INTENDED AND SHOULD NOT BE DEEMED OR CONSTRUED TO LIMIT IN ANY WAY PURCHASER’S INDEMNITY OBLIGATIONS UNDER THIS AGREEMENT.
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9.2Default by Seller. If prior to Closing Seller defaults under this Agreement, Purchaser shall promptly provide written notice to Seller of the same and shall allow Seller ten (10) business days within which to cure such breach, and the Closing Date shall be correspondingly extended to allow such notice and cure period. If Seller fails to cure such breach after written notice and within such cure period, then notwithstanding any provision to the contrary in this Agreement, Purchaser’s sole and exclusive remedy shall be to elect one of the following: (a) to terminate this Agreement, in which event Purchaser shall be entitled to the return by the Escrow Agent to Purchaser of the Earnest Money and, in the event of Seller’s intentional breach, reimbursement from Seller of Purchaser’s actual, documented out-of-pocket costs incurred in connection with this Agreement and its due diligence inspection of the Property (including, without limitation, reasonable attorneys’ fees and any lenders’ fees, deposits or costs) up to an aggregate total of $150,000, (b) proceed to Closing in which event Seller shall have no liability for any such default upon consummation of the Closing, or (c) to bring a suit for specific performance provided that any suit for specific performance must be brought within thirty (30) days of Seller’s default and the expiration of any applicable notice and cure period, to the extent permitted by law, Purchaser waiving the right to bring suit at any later date; provided, however, if the remedy of specific performance is not available to Purchaser due to a willful breach of this Agreement by Seller in conveying the property to a third party in violation of the terms of this Agreement, in addition to the remedy set forth in clause (a) above, Purchaser shall have the right to pursue Seller for all other actual damages. As a condition precedent to any suit for specific performance, Purchaser must have tendered all of its deliveries on or before the Closing Date, including the Purchase Price. Purchaser hereby waives any other rights or remedies,
including, without limitation, the right to seek money damages, except as provided in Section 9.3(a) below. In no event shall Seller be liable to Purchaser for any punitive, speculative or consequential damages. This Agreement confers no present right, title or interest in the Property to Purchaser and Purchaser agrees not to file a lis pendens or other similar notice against the Property except in connection with, and after, the filing of a suit for specific performance.
9.3Limitations.
(a)Limitation Period. The representations and warranties of Seller, and any covenants and indemnities of Seller which expressly survive the Closing, contained in this Agreement and in any document executed by Seller pursuant to this Agreement shall survive Purchaser’s purchase of the Property only for a period commencing on the Closing Date and ending one hundred eighty (180) calendar days after the Closing Date (the “Limitation Period”). Without limiting Section 9.2, Seller’s liability for breach of any such covenant, indemnity, representation or warranty under this Agreement and/or any Closing document shall be limited to claims in excess of an aggregate $50,000 and Seller shall be liable from the first dollar (the “Basket Amount”). Seller’s aggregate liability for claims arising out of such covenants, indemnities, representations and warranties under this Agreement and/or any Closing document shall not exceed one percent (1%) of the Purchase Price (the “Cap Amount”), excluding any attorney fees or costs of suit awarded as part of any such action and excluding Seller’s obligations under Article 7. To the extent not known to Purchaser prior to Closing, Purchaser shall provide written notice to Seller within ten (10) business days after the expiration of the Limitation Period of any alleged breach of such covenants, indemnities, warranties or representations and shall allow Seller thirty (30) days within which to cure such breach. If Seller fails to cure such breach after written notice and within such cure period, Purchaser’s sole and exclusive remedy shall be an action at law for actual damages (subject to the second and third sentences of this Section 9.3(a)) as a consequence thereof, which must be commenced, if at all, within thirty (30) days after expiration of the Limitation Period. The Limitation Period referred to herein shall apply to known as well as unknown breaches of such covenants, indemnities, warranties or representations. Purchaser’s waiver and release set forth in Section 2.5 (subject to the limitations set forth therein) shall apply fully to liabilities under such covenants, indemnitees, representations and warranties and is hereby incorporated by this reference. Purchaser specifically acknowledges that such termination of liability subject to the limitations set forth herein represents a material element of the consideration to Seller. The limitation as to Seller’s liability in this Section 9.3(a) does not apply to Seller’s liability with respect to prorations and adjustments under Article 7 or any attorney fees or costs of suit awarded as part of any such action.
(b)Disclosure. Notwithstanding any contrary provision of this Agreement, if during the pendency of this Agreement prior to Closing, Seller discloses any matters which make any of Seller’s representations and warranties untrue in any material respect or in the event that Purchaser otherwise becomes aware during the pendency of this Agreement prior to Closing of any matters which make any of Seller’s representations or warranties untrue in any material respect, Purchaser shall notify Seller within five (5) business days of becoming aware of the same and if Seller does not cure such misrepresentation within ten (10) business days after receiving Purchaser’s notice, with the Closing Date being automatically extended to accommodate such notice and cure period, such representations and warranties shall be deemed modified to reflect such uncured matters and Seller shall bear no liability for such uncured matters, but Purchaser shall have the right to elect in writing within five (5) business days after the expiration of such notice and cure period, but in no event later than the Closing Date, (i) as to any uncured matter disclosed following the expiration of the Due Diligence Period, to terminate this Agreement, in which event the Earnest Money (less the Independent Consideration) shall be promptly paid by Escrow Agent to Purchaser, or (ii) to waive such matter and complete the purchase of the Property without reduction of the Purchase Price in accordance with the terms of this Agreement (and any failure to give notice and terminate the Agreement under clause (i) shall be deemed to constitute such a waiver).
ARTICLE 10: EARNEST MONEY PROVISIONS
10.1Investment and Use of Funds. The Escrow Agent shall invest the Earnest Money in government insured interest‑bearing accounts satisfactory to Purchaser and Seller, shall not commingle the Earnest Money with any funds of the Escrow Agent or others, and shall promptly provide Purchaser and Seller with confirmation of the investments made. If the Closing under this Agreement occurs, the Escrow Agent shall apply the Earnest Money to the Purchase Price on the Closing Date.
10.2Termination. Except as otherwise expressly provided herein, upon not less than five (5) business days’ prior written notice to the Escrow Agent and the other party, Escrow Agent shall deliver the Earnest Money to the party requesting the same; provided, however, that if the other party shall, within said five (5) business day period, deliver to the requesting party and the Escrow Agent a written notice that the other party disputes the claim to the Earnest Money, Escrow Agent shall retain the Earnest Money until Escrow Agent receives written instructions executed by both Seller and Purchaser as to the disposition and disbursement of the Earnest Money, or until ordered by final court order, decree or judgment, which is not subject to appeal, to deliver the Earnest Money to a particular party, in which event the Earnest Money shall be delivered in accordance with such notice, instruction, order, decree or judgment. Notwithstanding anything to the contrary set forth herein, if Purchaser terminates this Agreement pursuant to Section 2.4, Escrow Agent shall deliver the Earnest Money to Purchaser without the need to provide notice to, or obtain consent of, Seller as a condition to such disbursement to Purchaser.
10.3Interpleader. Seller and Purchaser mutually agree that in the event of any controversy regarding the Earnest Money, unless mutual written instructions are received by the Escrow Agent directing the Earnest Money’s disposition, the Escrow Agent shall not take any action, but instead shall await the disposition of any proceeding relating to the Earnest Money or, at the Escrow Agent’s option, the Escrow Agent may interplead all parties and deposit the Earnest Money with a court of competent jurisdiction in which event the Escrow Agent may recover all of its court costs and reasonable attorneys’ fees. Seller or Purchaser, whichever loses in any such interpleader action, shall be solely obligated to pay such costs and fees of the Escrow Agent, as well as the reasonable attorneys’ fees of the prevailing party in accordance with the other provisions of this Agreement.
10.4Liability of Escrow Agent. The parties acknowledge that the Escrow Agent is acting solely as a stakeholder at their request and for their convenience, that the Escrow Agent shall not be deemed to be the agent of either of the parties, and that the Escrow Agent shall not be liable to either of the parties for any action or omission on its part taken or made in good faith, and not in disregard of this Agreement, but shall be liable for Escrow Agent’s negligent acts and for any loss, cost or expense incurred by Seller or Purchaser resulting from the Escrow Agent’s mistake of law respecting the Escrow Agent’s scope or nature of its duties.
ARTICLE 11: MISCELLANEOUS
11.1Purchaser’s Assignment. Purchaser may not assign this Agreement without the prior written consent of Seller, which consent Seller may grant or withhold in its sole and absolute discretion and any such prohibited assignment shall be null and void ab initio. Any change in control of Purchaser or of any of the direct or indirect ownership interests in Purchaser, at any level or tier of ownership, whether in one transaction or a series of transactions, shall constitute an assignment of this Agreement. For purposes of this Section 11.1, the term “control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management and policies, whether through the ownership of voting securities, by contract, or otherwise. In the event Purchaser desires to assign its rights hereunder, Purchaser shall deliver to Seller written notice of its request no later than five (5) business days prior to the Closing Date, which notice shall include the legal name and signature block of the proposed assignee, together with the form of assignment, and whether such assignee is affiliated with Purchaser. Notwithstanding any provision in this Agreement to the contrary, any permitted assignment by Purchaser shall not relieve Purchaser of any of its obligations and liabilities hereunder, nor shall any such assignment, alter, impair or relieve such assignee from the waivers, acknowledgements, obligations and agreements of Purchaser set forth herein. Subject to the foregoing, this Agreement shall be binding upon and inure to the benefit of the respective legal representatives, successors, assigns, heirs, and devisees of the parties. Subject to Purchaser’s compliance with the requisite time frame and notice requirements of this Section and provided and conditioned upon the assignee having been approved by each Ground Lessor as a transferee of its respective Ground Lease (with Seller making no representation or warranty whether such approval will be granted), Seller hereby consents to the assignment of this Agreement by Purchaser to a so designated Affiliate of Purchaser. “Affiliate” for the purposes of this Section 11.1 means a party that is controlled by or under common control with Purchaser or Cantor Fitzgerald, LP.
11.2Confidentiality; Press Release. Except as specifically permitted by this Section 11.2, neither Seller nor Purchaser will release or cause or permit to be released any press notices, or publicity (oral or written) or advertising promotion relating to, or otherwise announce or disclose or cause or permit to be announced or disclosed, in any manner whatsoever, the terms, conditions or substance of this Agreement and/or the name(s) of the other party and its affiliates without first obtaining the written consent of the other party. The foregoing shall not preclude either party
from discussing the substance or any relevant details of such transactions with any of its attorneys, accountants, professional consultants, lenders, partners, investors, or any prospective lender, partner or investor, as the case may be, or prevent either party hereto, from complying with laws, rules, regulations and court orders, including without limitation, governmental regulatory, disclosure, tax and reporting requirements. Any party to this transaction (and each employee, agent or representative of the foregoing) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to them relating to such tax treatment and tax structure except to the extent maintaining such confidentiality is necessary to comply with any applicable federal or state securities laws. The authorization in the preceding sentence is not intended to permit disclosure of any other information unrelated to the tax treatment and tax structure of the transaction including (without limitation) (i) any portion of the transaction documents or related materials to the extent not related to the tax treatment or tax structure of the transaction, (ii) the existence or status of any negotiations unrelated to the tax issues, or (iii) any other term or detail not relevant to the tax treatment or the tax structure of the transaction. Notwithstanding the foregoing, following the Closing each party shall have the right to announce the acquisition of the Property in newspapers and real estate trade publications (including “tombstones”) publicizing the purchase, provided that any public announcement of the transaction shall be made using only such information as is customarily found in public announcements of such transactions but in no event may either party include the name of the other party in any such announcements without first obtaining such other party’s prior written consent which may be granted or withheld in the sole, subjective and absolute discretion of such other party. In addition to any other remedies available to a party, each party shall have the right to seek equitable relief, including without limitation injunctive relief or specific performance, against the other party in order to enforce the provisions of this Section 11.2. The provisions of this Section 11.2 shall survive Closing and/or any termination of this Agreement. Notwithstanding anything to the contrary set forth herein, in the event there is any discrepancy in what Purchaser may disclose or what is considered confidential information, the terms and conditions of the Access Agreement will govern and control. As used herein, “Access Agreement” shall mean that certain Access and Indemnity Agreement dated April 29, 2021 between Seller and CFIM Acquisitions, LLC (an affiliate of Purchaser).
11.3Headings. The article and paragraph headings of this Agreement are for convenience only and in no way limit or enlarge the scope or meaning of the language hereof.
11.4Invalidity and Waiver. If any portion of this Agreement is held invalid or inoperative, then so far as is reasonable and possible the remainder of this Agreement shall be deemed valid and operative, and effect shall be given to the intent manifested by the portion held invalid or inoperative. The failure by either party to enforce against the other any term or provision of this Agreement shall not be deemed to be a waiver of such party’s right to enforce against the other party the same or any other such term or provision in the future.
11.5Governing Law. This Agreement shall, in all respects, be governed, construed, applied, and enforced in accordance with the law of the state in which the Property is located.
11.6No Third Party Beneficiary. This Agreement is not intended to give or confer any benefits, rights, privileges, claims, actions, or remedies to any person or entity as a third party beneficiary, decree, or otherwise, including, without limitation, Broker.
11.7Entirety and Amendments. This Agreement embodies the entire agreement between the parties and supersedes all prior agreements and understandings relating to the Property except for any confidentiality agreement binding on Purchaser, which shall not be superseded by this Agreement. This Agreement may be amended or supplemented only by an instrument in writing executed by the party against whom enforcement is sought.
11.8Time of the Essence. Time is of the essence in the performance of this Agreement.
11.9Attorneys’ Fees. Should either party employ attorneys to enforce any of the provisions hereof, the party against whom any final judgment is entered agrees to pay the prevailing party all reasonable costs, charges, and expenses, including attorneys’ fees, expended or incurred in connection therewith.
11.10Notices. All notices required or permitted hereunder shall be in writing and shall be served on the parties at the addresses set forth in Section 1.1. Any such notices shall be either (a) sent by overnight delivery using a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after
deposit with such courier, (b) sent by email, with written confirmation by overnight or first class mail, in which case notice shall be deemed delivered upon receipt of confirmation of transmission of such email notice, or (c) sent by personal delivery, in which case notice shall be deemed delivered upon receipt. Any notice sent by email or personal delivery and delivered after 5:00 p.m., Pacific Time, shall be deemed received on the next business day. A party’s address may be changed by written notice to the other party; provided, however, that no notice of a change of address shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice.
11.11Construction. The parties acknowledge that the parties and their counsel have reviewed and revised this Agreement and that the normal rule of construction — to the effect that any ambiguities are to be resolved against the drafting party — shall not be employed in the interpretation of this Agreement or any exhibits or amendments hereto.
11.12Calculation of Time Periods. Unless otherwise specified, in computing any period of time described herein, the day of the act or event after which the designated period of time begins to run is not to be included and the last day of the period so computed is to be included, unless such last day is a Saturday, Sunday or legal holiday for national banks in the location where the Property is located, in which event the period shall run until the end of the next day which is neither a Saturday, Sunday, or legal holiday. The last day of any period of time described herein shall be deemed to end at 5:00 p.m., Pacific Time. As used herein, “business days” shall refer to days which are not Saturday, Sunday, or a legal holiday federally or in the State of California or New York.
11.13Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of such counterparts shall constitute one Agreement. To facilitate execution of this Agreement, the parties may execute and exchange by electronic mail counterparts of the signature pages
11.14Section 1031 Exchange. Seller or Purchaser may consummate the sale of the Property as part of a so-called like-kind exchange (the “Exchange”) pursuant to Section 1031 of the Internal Revenue Code of 1986, as amended. Should either party elect to consummate an Exchange it shall be conditioned upon: (a) all costs, fees, and expenses attendant to the Exchange being the sole responsibility of the party electing the Exchange; (b) the Closing not being delayed or affected by reason of the Exchange; (c) the consummation or accomplishment of the Exchange not being a condition precedent or condition subsequent to either party’s obligations and covenants under this Agreement; (d) Purchaser not being required to acquire or hold title to any real property other than the Property for purposes of consummating the Exchange; and (e) the party not electing the Exchange shall have the right to review and approve (with such approval not to be unreasonably withheld) all documents it is requested to execute in connection with the Exchange.
11.15Merger. Except as otherwise expressly provided in this Agreement, any and all rights of action of Purchaser for any breach by Seller of any representation, warranty or covenant contained in this Agreement shall merge with the Deed and other instruments executed at Closing, shall terminate at Closing and shall not survive the Closing.
11.16Seller’s Access to Assets Following the Closing. Following the Closing, Seller shall retain access to cash or other marketable securities in an account owned or controlled by Seller sufficient to satisfy its obligations under this Agreement to the extent surviving the Closing.
11.17Dispute Resolution Procedure. All claims, disputes and other matters in question between the parties arising out of or relating to this Agreement or the breach or interpretation thereof (collectively, “Disputes”) shall be resolved pursuant to the terms of this Section.
(a)Notice. Any person with a Dispute will give the other party written notice of the claim describing the nature of the claim and any proposed remedy (“Notice of Dispute”).
(b)Judicial Reference. If the parties cannot resolve the Dispute, the Dispute shall be resolved by general judicial reference pursuant to Code of Civil Procedure Sections 638 and 641 through 645.1, or any successor statutes
thereto, and as modified or as otherwise provided in this Section. Subject to the limitations set forth in this Section, the general referee shall have the authority to try all issues, whether of fact or law, and to report a statement of decision to the court. The referee shall be the only trier of fact or law in the reference proceeding, and shall have no authority to further refer any issues of fact or law to any other party, without the mutual consent of all parties to the judicial reference proceeding.
(1)Place. The proceedings shall be heard in Santa Clara County.
(2)Referee. The referee shall be an active or retired judge with experience in relevant real estate matters. The referee shall not have any relationship to the parties to the Dispute or interest in the Property. The parties to the Dispute participating in the judicial reference shall meet to select the referee within ten (10) days after service of the Notice of Dispute or initial complaint on all defendants named therein. Any dispute regarding the selection of the referee shall be promptly resolved by the judge to whom the matter is assigned, or if there is none, to the presiding judge of the Superior Court of Santa Clara County who shall select the referee.
(3)Commencement and Timing of Proceeding. The referee shall promptly commence the proceeding at the earliest convenient date in light of all of the facts and circumstances and shall conduct the proceeding without undue delay.
(4)Pre-hearing Conferences. The referee may require one or more pre-hearing conferences.
(5)Discovery. The parties to the judicial reference proceeding shall be entitled only to limited discovery, consisting of the exchange between such parties of only the following matters: (i) witness lists; (ii) expert witness designations; (iii) expert witness reports; (iv) exhibits; (v) reports of testing or inspections of the property subject to the Dispute, including but not limited to, destructive or invasive testing; (vi) trial briefs; (vii) non-privileged correspondence (including email correspondence); and (viii) this Agreement and drafts of this Agreement and any amendments thereto. Any other discovery provided for in the California Code of Civil Procedure shall be permitted by the referee upon a showing of good cause or based on the mutual agreement of the parties to the judicial reference proceeding. The referee shall oversee discovery and may enforce all discovery orders in the same manner as any trial court judge.
(6)Motions. The referee shall have the power to hear and dispose of motions, including motions relating to provisional remedies, demurrers, motions to dismiss, motions for judgment on the pleadings and summary adjudication motions, in the same manner as a trial court judge, except the referee shall also have the power to adjudicate summarily issues of fact or law including the availability of remedies, whether or not the issue adjudicated could dispose of an entire cause of action or defense. Notwithstanding the foregoing, if prior to the selection of the referee as provided herein, any provisional remedies are sought by the parties to the Dispute, such relief may be sought in the Superior Court of San Francisco County.
(7)Rules of Law. The referee shall apply the laws of the State of California except as expressly provided herein including the rules of evidence, unless expressly waived by all parties to the judicial reference proceeding.
(8)Record. A stenographic record of the hearing shall be made, provided that the record shall remain confidential except as may be necessary for post-hearing motions and any appeals.
(9)Statement of Decision. The referee’s statement of decision shall contain findings of fact and conclusions of law to the extent required by law if the case were tried to a judge. The decision of the referee shall stand as the decision of the court, and upon filing of the statement of decision with the clerk of the court, judgment may be entered thereon in the same manner as if the Dispute had been tried by the court.
(10)Post-hearing Motions. The referee shall have the authority to rule on all post-hearing motions in the same manner as a trial judge.
(11)Appeals. The decision of the referee shall be subject to appeal in the same manner as if the Dispute had been tried by the court.
(12)Expenses. The fees and costs of the referee in any judicial reference proceeding hereunder shall be shared equally by the parties to the judicial reference proceeding, subject to Section 11.9.
(c)WAIVER OF LEGAL RIGHTS. BY INITIALING IN THE SPACE BELOW, THE PARTIES ACKNOWLEDGE AND AGREE TO HAVE ANY DISPUTE DECIDED BY JUDICIAL REFERENCE AS PROVIDED UNDER CALIFORNIA LAW AND THAT THEY ARE WAIVING ANY RIGHTS THEY MAY POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR BY JURY TRIAL. THE PARTIES FURTHER ACKNOWLEDGE AND AGREE THAT THEY ARE WAIVING THEIR JUDICIAL RIGHTS TO DISCOVERY EXCEPT TO THE EXTENT SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THIS SECTION. IF EITHER PARTY REFUSES TO SUBMIT TO JUDICIAL REFERENCE AFTER EXECUTION OF THIS AGREEMENT AND INITIALING BELOW, SUCH PARTY MAY BE COMPELLED TO PROCEED WITH JUDICIAL REFERENCE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. EACH PARTY’S AGREEMENT TO THIS SECTION IS VOLUNTARY. THE PARTIES HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED OR DESCRIBED IN THIS SECTION TO JUDICIAL REFERENCE.
| SELLER’S INITIALS | PURCHASER’S INITIALS |
|---|
[Signature Page Follows]
SIGNATURE PAGE TO PURCHASE AND SALE AGREEMENT
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year written below.
| SELLER: | |
|---|---|
| DE ANZA DH PROPERTIES LLC, | |
| a Delaware limited liability company | |
| By: | |
| Name: | |
| Title: | |
| Date: | , 2021 |
| --- | --- |
| PURCHASER: | |
| --- | |
| NORTH DE ANZA BOULEVARD, LLC, | |
| a Delaware limited liability company | |
| a | |
| By: | |
| Name: | |
| Title: | |
| Date: | , 2021 |
| --- | --- |
JOINDER OF ESCROW AGENT
Escrow Agent has executed this Agreement in order to confirm that the Opening of Escrow has occurred as of the date next to Escrow Agent’s signature below and that Escrow Agent shall hold the Earnest Money when received in escrow, and shall disburse the Earnest Money pursuant to the provisions of Article 10 hereof.
| FIRST AMERICAN TITLE INSURANCE COMPANY | |||
|---|---|---|---|
| By: | |||
| Name: | |||
| Date: | , 2021 | Title: | |
| “Escrow Agent” |
740834278.13
SCHEDULES
| 1 | - | Closing Costs |
|---|---|---|
| 1.2(d) | List of Service Contracts | |
| 3.2 | Form of Owner’s Affidavit and Gap Indemnity | |
| 6.2(d) | FIRPTA Affidavit | |
| 6.2(e) | Bring-Down Certificate | |
| 7.2(a) | Existing Leasing Costs | |
| 8.1(c) | List of Leases |
EXHIBITS
| A | - | Legal Description |
|---|---|---|
| B) | - | Personal Property |
| C-1 | - | Form of Apple Tenant Estoppel Certificate |
| C-2 | - | Form of Tambellini Ground Lessor Estoppel Certificate |
| C-3 | - | Form of Waterdragon Ground Lessor Estoppel Certificate |
| D-1 | - | Form of Ground Lease Assignment (Tambellini) |
| D-2 | - | Form of Ground Lease Assignment (Waterdragon) |
| E | - | Form of Assignment of Leases and Contracts and Bill of Sale |
| F | - | Notice to Tenants |
740834278.13
SCHEDULE 1
CLOSING COSTS
| Item | Responsible Party |
|---|---|
| All Premiums for Owner’s Title Insurance Policy and all Endorsements to Same | Purchaser |
| State Transfer Tax | Seller |
| City (if any) and County Transfer Tax<br><br><br>Excise, transfer and use taxes imposed on conveyance of tangible personal property (if any) or intangible personal property (if any) | Seller and Purchaser to split 50-50 but Purchaser’s share not to exceed $40,000<br><br><br>Seller |
| New and Updated Survey<br><br><br>Existing Survey | Purchaser<br><br><br>Seller |
| Recording and Filing Fees | Purchaser |
| Escrow Fees<br><br><br>Broker’s Commission to Broker<br><br><br>Purchaser Attorney Fees and All Costs of Purchaser’s Due Diligence, Including Fees Due its Consultants | Purchaser<br><br><br>Seller<br><br><br>Purchaser |
SCHEDULE 1.2(d)
LIST OF SERVICE CONTRACTS
None.
SCHEDULE 3.2
FORM OF OWNER’S AFFIDAVIT AND GAP INDEMNITY
OWNER’S TITLE AFFIDAVIT (10001 North De Anza Boulevard and 10101 North De Anza Boulevard, Cupertino, California)
Title Company: First American Title Insurance Company
File No. NCS-1060259-LA2
De Anza DH Properties LLC, a Delaware limited liability company, as Seller (“Seller”) and [________], a [________] (“Purchaser”) are parties to that certain Purchase and Sale Agreement dated as of May __, 2021 (the “Purchase Agreement”), pursuant to which Seller is selling to Purchaser the ground leasehold estate in the improved real property (the “Real Property”) referred to in Exhibit A attached hereto and made a part hereof. All initially-capitalized terms not defined herein shall have their meaning as set forth in the Purchase Agreement.
In connection with the consummation of the transactions contemplated by the Purchase Agreement, Seller hereby represents and warrants to First American Title Insurance Company (the “Company”) the following:
1.Seller is a limited liability company organized and existing under the laws of the State of Delaware.
2.To Seller’s actual knowledge, (i) Seller’s operating agreement is in full force and effect, and (ii) no proceedings are pending for the dissolution of the Seller.
3.To Seller’s actual knowledge, the ground leases described on Exhibit “B-1” and the improvement leases described on Exhibit “B-2” attached hereto constitute all of the written leases affecting the Real Property (collectively, the “Leases”), and there are no outstanding options to purchase or rights of first refusal affecting the Real Property except as set forth in such Leases.
4.To Seller’s actual knowledge, except as disclosed in Exhibit “C” attached hereto and made a part hereof, (a) there is no new construction or capital improvement work currently being constructed (or that was constructed during the last 6 months) on the Real Property that is the subject of a written or an oral construction contract with Seller or with a tenant which could give rise to a mechanic’s or materialman’s lien on the Real Property, and (b) Seller or any tenant has not entered into any contracts for the furnishing of labor, materials, or services for construction purposes with respect to the Real Property to be furnished subsequent to the date of this affidavit.
5.It is agreed that in consideration of the Company issuing its policy or policies without making exception therein of matters which may arise between the most recent effective date of the title commitment (the last date upon which the search of title is effective) and the date the documents creating the interest being insured have been filed for record and which matters may constitute an encumbrance on or affect said title, Seller shall not cause any encumbrances or other instruments to be recorded against the Real Property (other than the recording of a deed (the “Deed”) transferring fee title to the Real Property to Purchaser through the date the Deed is recorded in Santa Clara County, California, except as may have been consented to by Purchaser under the Purchase Agreement or for which Purchaser received a credit at Closing. Seller agrees to promptly defend, remove, bond or otherwise dispose of any such encumbrance, or lien arising out of the matters disclosed in Exhibit C or arising from a breach of Seller’s representations to Company in this Seller’s Affidavit (collectively, “objection(s) to title”) and to hold harmless and indemnify the Company against all expenses, costs and reasonable attorneys’ fees which may arise out of its failure to so remove, bond or otherwise dispose of any said objection(s) to title.
6.That to Seller’s actual knowledge, the covenants and restrictions contained in First American Title Insurance Company’s Commitment Number NCS-1060259-LA2 (the “Title Report”) are not subject to any uncured violation and to Seller’s actual knowledge there are no facts which with the passage of time or notice constitute an
uncured violation of such covenants and restrictions, nor has Seller received any written notices of any violations thereof which have not been cured.
7.That no proceedings in bankruptcy or receivership have been instituted by or against the Seller within the last ten (10) years, and that the Seller has never made an assignment for the benefit of creditors.
8.For purposes hereof, the “actual knowledge” of Seller shall be limited to the actual knowledge (and not implied, imputed, or constructive) of Peter Jun, with no duty of inquiry except of Seller’s property manager for the Property. Notwithstanding anything contained herein to the contrary, the representations and warranties set forth in this Seller’s Affidavit shall only survive the closing of the transactions contemplated by the Purchase Agreement until the earlier of (x) the expiration of all applicable statutes of limitations and (y) five years after the date of this Affidavit. This Seller’s Affidavit is being executed for the sole and exclusive benefit of First American Title Insurance Company and no other party or person shall have any rights hereunder.
[Signature page follows.]
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
[Signature page to Owner’s Title Affidavit]
EXHIBIT A
Legal Description
All that certain Real Property in the City of Santa Clara, County of Santa Clara, State of California, described as follows:
10001 North De Anza Boulevard
PARCEL ONE:
PARCEL A, AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 48, 49 AND 50.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL ONE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK I216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-074
10101 North De Anza Boulevard
PARCEL ONE:
PARCEL A AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 51, 52 AND 53.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL THREE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK 1216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-071
EXHIBIT B-1
Ground Leases
10001 De Anza - Tambellini
| 1. | Ground Lease dated July 22, 1983 between U.A. Tambellini (predecessor to Landlord) and William Kelley, Rayne Kelley, Ryland Kelley and Shirley Kelley (“The Kelleys”), as amended, modified, and assigned by that certain Memorandum of Ground Lease recorded August 3, 1983 as Instrument No. 7769118 in Book H 777, Page 649 of Official Records of Santa Clara, California (“Official Records”); First Amendment to Ground Lease dated March 18, 1986 between U.A. Tambellini and De Anza Plaza Associates, a California limited partnership (“DAPA”) (successor in interest to The Kelleys); Memorandum of Agreement of Ground Lease recorded April 1, 1986 as Instrument No. 8734984 in Book J 645, Page 1016 of Official Records; Affirmation of Ground Lease and Attornment Agreement dated February 22, 1994 between U.A. Tambellini and Fidelity Federal Bank (“FFB”) (successor in interest to DAPA), recorded April 28, 1994 as Instrument No. 12472906 in Book N 419, Page 615 of Official Records; Second Amendment to Ground Lease dated August 20, 2007 between U.A. Tambellini, as Trustee of the U.A. Tambellini Family Trust under Declaration of Trust dated May 21, 1992, as Lessor, and 500 Forbes, LLC, a California limited liability company, and Moulds 500 Forbes Associates, LLC, a Delaware limited liability company, as tenants in common, collectively, as Lessee; Assignment and Assumption of Ground Leases and Deed of Improvements effective as of December 14, 2016 and recorded December 14, 2016 as Instrument No. 23533064, and intervening assignments recorded February 27, 1984 in Book 1333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104; August 16, 1996 as Instrument No. 13411135; April 21, 1998 as Instrument No. 14150514 and Instrument No. 14150519; June 27, 2000 as Instrument No. 15292439; and August 23, 2007 as Instrument No. 19560623 all of Official Records |
|---|
10101 De Anza - Waterdragon
| 1. | Ground Lease dated February 25, 1982 (the “Original Ground Lease”), by and between Russell M. Bate and Mary Lou Bate, together, as Lessor (“The Bates”), and William K. Kelley, Rayna S. Kelley, Ryland Kelley, and Shirley Sneath Kelley, collectively, as Lessee, as amended, modified, and assigned by that certain Memorandum of Ground Lease recorded March 4, 1982 as Instrument No. 7294129 in Book G 635, Page 279 of Official Records of Santa Clara, California (“Official Records”); First Amendment to Ground Lease dated March 28, 1986 (the “First Amendment”), by and between The Bates and De Anza Plaza Associates, a California limited partnership (“DAPA”) (as successor in interest from The Kelleys); Affirmation of Ground Lease and Attornment Agreement recorded November 22, 1993 as Instrument No. 12225420 in Book N 149, Page 1881 of Official Records; Lessor’s Estoppel and Agreement Re Ground Lease recorded August 23, 2007 as Instrument No. 19560625 in Official Records; Assignment and Assumption of Ground Leases and Deed of Improvements dated December 14, 2016 and recorded December 14, 2016 as Instrument No. 23533063 between VII-FCP DeAnza Owner LLC and Tenant, and intervening assignments recorded February 27, 1984 in Book 1333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104; August 16, 1996 as Instrument No. 13411136; April 21, 1998 as Instrument No. 14150513 and Instrument No. 14150518; June 27, 2000 as Instrument No. 15292438; and August 23, 2007 as Instrument No. 19560623, all of Official Records (collectively, the “Lease Documents”). Waterdragon 289, LLC, a California limited liability company, as successor-in-interest to Russell M. Bate and Mary Lou Bate (“Landlord”) also previously delivered that certain Lessor’s Estoppel and Agreement re Ground Lease dated as of August 15, 2013, that certain Lessor’s Estoppel and Agreement re Ground Lease dated March 7, 2016, and that certain Lessor’s Estoppel and Agreement re Ground Lease dated December 9, 2016 |
|---|
EXHIBIT B-2
Tenant Leases
Apple 10001 De Anza
| 1. | Lease dated as of March 11, 2016, by and between VII-FCP DeAnza Owner, LLC a Delaware limited liability company, as Landlord, and Apple Inc., a California corporation, as Tenant, for Premises in the office building located at 10001 North De Anza Boulevard, Cupertino, California, as amended by that First Amendment to Lease dated December 12, 2016. |
|---|---|
| 2. | Revised Commencement Date Memorandum dated as of May 17, 2016, by and between VII-FCP DeAnza Owner, LLC, a Delaware limited liability company and Apple Inc., a California corporation. |
| --- | --- |
Apple 10101 De Anza
| 1. | Lease dated March 11, 2016, by and between VII-FCP DeAnza Owner, LLC a Delaware limited liability company, as Landlord, and Apple Inc., a California corporation, as Tenant, for Premises in the office building located at 10101 North De Anza Boulevard, Cupertino, California, as amended by that First Amendment to Lease dated December 12, 2016. |
|---|---|
| 2. | Commencement Date Memorandum dated as of April 18, 2016, by and between VII-FCP DeAnza Owner, LLC, a Delaware limited liability company and Apple Inc., a California corporation. |
| --- | --- |
AT&T
| 1. | Wireless Telecommunications Site Agreement dated October 29, 1999, by and between De Anza II, LLC (as predecessor-in-interest to VII-FCP DeAnza Owner, LLC), as Landlord, and Bay Area Cellular Telephone Company, as Tenant, as amended by that Letter dated November 18, 2009 from Tenant to Landlord extending Lease term, as further amended by that Letter dated October 21, 2014 from Tenant to Landlord extending Lease term, as further amended by that First Amendment to Wireless Telecommunications Site Agreement dated September 28, 2018, as further amended by that Second Amendment to Wireless Telecommunications Site Agreement dated September 19, 2019, as further amended by that Third Amendment to Wireless Telecommunications Site Agreement dated April 1, 2021. |
|---|
EXHIBIT C
Capital Improvement Work
[None. ]^1^
| ^1^ | Subject to change prior to the Closing in accordance with the Agreement |
|---|
SCHEDULE 6.2(d)
FIRPTA Affidavit
NON-FOREIGN ENTITY CERTIFICATION
Section 1445 of the Internal Revenue Code (as amended, the “Code”) provides that a transferee of a U.S. real property interest must withhold tax if the transferor is a foreign person. For U.S. tax purposes (including Section 1445 of the Code), the owner of a disregarded entity (which has legal title to a U.S. real property interest under local law) will be the transferor of the property and not the disregarded entity. To inform ________, a _________, (“Buyer”), that withholding of tax is not required upon the disposition of a U.S. real property interest by DE ANZA DH PROPERTIES LLC, a Delaware limited liability company (“De Anza”), the undersigned hereby certifies the following:
1.De Anza, as a single member limited liability company, is a disregarded entity, and Transferor is not a disregarded entity (as those terms are defined in Section 1.1445-2(b)(2)(iii) of the Income Tax Regulations) for all relevant U.S. tax purposes. Accordingly, De Anza’s ultimate parent, DE ANZA DH REIT LLC, a Delaware limited liability company (“Transferor”), is the relevant entity for U.S. tax purposes and is treated as the transferor of any U.S. real property interest transferred by De Anza
2.Transferor is not a foreign corporation, foreign partnership, foreign trust, foreign estate, or foreign person (as those terms are defined in the Code and the Income Tax Regulations promulgated thereunder).
3.Transferor’s federal taxpayer identification number is 81-3742519.
4.Transferor’s office address is 670 Water St. SW, Washington, D.C. 20024.
Transferor understands that this Certification may be disclosed to the Internal Revenue Service by Buyer and that any false statement contained herein could be punished by fine, imprisonment, or both.
Under penalties of perjury, the undersigned declares that he/she has examined this Certification and to the best of his/her knowledge and belief it is true, correct, and complete, and he/she further declares that he/she has authority to sign this certification on behalf of Transferor.
| Dated: | , 2021 | DE ANZA DH REIT LLC |
|---|---|---|
| By: | ||
| --- | --- | |
| Print Name: | ||
| Print Title: |
SCHEDULE 6.2(e)
Bring-Down Certificate
This Bring-Down Certificate dated as of _____ ___, 2021 is being given pursuant to Section 6.2(e) of that certain Purchase and Sale Agreement (the “Agreement”) dated May ___, 2021, between [________], a [________] (“Buyer”) and De Anza DH Properties LLC, a Delaware limited liability company (“Seller”).
Subject to Section 9.3(b) of the Agreement, Seller hereby certifies to Buyer that Seller’s representations and warranties set forth in Section 8.1 of the Agreement remain true, correct and complete as of the date hereof in all material respects except as follows: None.
IN WITNESS WHEREOF, this Bring-Down Certificate was executed by the Seller as of the date stated above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
SCHEDULE 7.2(a)
EXISTING LEASING COSTS (AMOUNTS ARE SUBJECT TO REDUCTION BY SATISFACTION OR PAYMENT BY SELLER PRIOR TO CLOSING)
None.
SCHEDULE 8.1(c)
LIST OF LEASES
Apple 10001 De Anza
| 1. | Lease dated as of March 11, 2016, by and between VII-FCP DeAnza Owner, LLC a Delaware limited liability company, as Landlord, and Apple Inc., a California corporation, as Tenant, for Premises in the office building located at 10001 North De Anza Boulevard, Cupertino, California, as amended by that First Amendment to Lease dated December 12, 2016. |
|---|---|
| 2. | Revised Commencement Date Memorandum dated as of May 17, 2016, by and between VII-FCP DeAnza Owner, LLC, a Delaware limited liability company and Apple Inc., a California corporation. |
| --- | --- |
Apple 10101 De Anza
| 1. | Lease dated March 11, 2016, by and between VII-FCP DeAnza Owner, LLC a Delaware limited liability company, as Landlord, and Apple Inc., a California corporation, as Tenant, for Premises in the office building located at 10101 North De Anza Boulevard, Cupertino, California, as amended by that First Amendment to Lease dated December 12, 2016. |
|---|---|
| 2. | Commencement Date Memorandum dated as of April 18, 2016, by and between VII-FCP DeAnza Owner, LLC, a Delaware limited liability company and Apple Inc., a California corporation. |
| --- | --- |
AT&T
| 1. | Wireless Telecommunications Site Agreement dated October 29, 1999, by and between De Anza II, LLC (as predecessor-in-interest to VII-FCP DeAnza Owner, LLC), as Landlord, and Bay Area Cellular Telephone Company, as Tenant, as amended by that Letter dated November 18, 2009 from Tenant to Landlord extending Lease term, as further amended by that Letter dated October 21, 2014 from Tenant to Landlord extending Lease term, as further amended by that First Amendment to Wireless Telecommunications Site Agreement dated September 28, 2018, as further amended by that Second Amendment to Wireless Telecommunications Site Agreement dated September 19, 2019, as further amended by that Third Amendment to Wireless Telecommunications Site Agreement dated April 1, 2021. |
|---|
EXHIBIT A
LEGAL DESCRIPTION
All that certain Real Property in the City of Santa Clara, County of Santa Clara, State of California, described as follows:
10001 North De Anza Boulevard
PARCEL ONE:
PARCEL A, AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 48, 49 AND 50.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL ONE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK I216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-074
10101 North De Anza Boulevard
PARCEL ONE:
PARCEL A AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 51, 52 AND 53.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL THREE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK 1216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-071
EXHIBIT A-1
EXHIBIT B
PERSONAL PROPERTY
None.
EXHIBIT B-1
EXHIBIT C-1
APPLE TENANT ESTOPPEL FORM
[NOTE TO DRAFT: BUYER’S REVISIONS TO FORM ARE SUBJECT TO APPROVAL BY APPLE PRIOR TO DATE OF THIS AGREEMENT]
TENANT ESTOPPEL CERTIFICATE
10001 N. De Anza Blvd.
The undersigned as Tenant under that certain Lease (as amended or supplemented to the extent described below in Paragraph 1, the “Lease”) made and entered into as of March 11, 2016 by and between De Anza DH Properties LLC, a Delaware limited liability company (as successor-by-assignment to VII-FCP DeAnza Owner, LLC), as Landlord, and the undersigned as Tenant, for premises in the office building located at 10001 North De Anza Boulevard, Cupertino, California (the “Premises”), certifies to [____________] (“Purchaser”) and its successors and assigns as follows:
1.The Lease is in full force and effect and has not been modified, supplemented or amended, except for that certain: (i) Subordination Agreement, Acknowledgment of Lease Assignment, Estoppel, Attornment and Non-Disturbance Agreement dated March 11, 2016 among VII-FCP DeAnza Owner, LLC, Tenant and Wells Fargo Bank, National Association, (ii) Revised Commencement Date Memorandum dated May 17, 2016, and (iii) First Amendment to Lease dated December 12, 2016 (the “First Amendment”). Tenant is in possession of the Premises and has not assigned the Lease or subleased any part of the Premises.
2.The Lease Term commenced on March 17, 2016, and the Lease Term expires on April 30, 2026, unless the Lease is earlier terminated or extended to the extent permitted in the Lease. Except as provided in the Lease, there are no options to extend the Lease Term.
3.Base Monthly Rent became payable on April 16, 2016. The current monthly installment of Base Rent is $[________]. Tenant’s Proportionate Share is 100%, as set forth in Paragraph 5 of the Lease.
4.To Tenant’s actual knowledge, all monthly installments of Base Monthly Rent, all Operating Expenses payments and all monthly installments of estimated Operating Expenses have been paid when due through [________], 2021. No rental has been paid more than thirty (30) days in advance. To Tenant’s actual knowledge, there are no existing defenses, credits, offsets, free or abated rents which Tenant has against the enforcement of the Lease.
5.Tenant has not delivered any written notice to Landlord regarding a default by Landlord under the Lease, and to Tenant’s actual knowledge, no circumstance currently exists that, but for the giving of notice or the passage of time or both, would constitute a default by Landlord under the Lease.
6.Tenant has received in full from Landlord the “TI Allowance” (as described in Section 2 of the “Workletter” attached as Exhibit C to the Lease), the “Test Fit Allowance” (as that term is defined in Section 2.4 of the Workletter), the “Landlord’s Share of ADA Compliance Work Costs” (as that term is defined in Section 2.5 of the Workletter), the “Lump Sum Payment” (as that term is defined in Section 1 of the First Amendment), and the “Landlord’s Contribution” (as that term is defined in Section 5 of the First Amendment). None of the TI Allowance, the Test Fit Allowance, the Landlord’s Share of ADA Compliance Work Costs, the Lump Sum Payment, or the Landlord’s Contribution remain outstanding.
7.Tenant has no option or right to purchase the Premises or any portion thereof, except for the Right of First Offer to Purchase which applies only to the sale of the Premises to a Competitor Group as expressly set forth in Section 43 of the Lease. The Right of First Offer to Purchase does not apply with respect to the sale of the Premises to an entity controlled by Cantor Fitzgerald, L.P.
EXHIBIT C-1-1
8.To Tenant’s actual knowledge, Tenant is not obligated to, and has not, provided a security deposit to Landlord under the Lease.
9.Tenant’s interest under the Lease has not been assigned by Tenant, and no sublease, concession agreement or license covering the Premises or any portion thereof has been entered into by Tenant.
10.As of the date of this Tenant Estoppel Certificate, Tenant’s notice address for purposes of the Lease remains as set forth in the Lease.
11.The undersigned acknowledges that this Tenant Estoppel Certificate may be delivered to Landlord, to Purchaser, or to a prospective lender or mortgagee, or to their respective successors and/or assigns (each a “Reliance Party”) and acknowledges that each Reliance Party will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises is a part.
12.This Tenant Estoppel Certificate is being executed and delivered by Tenant subject to the terms and conditions contained in Addendum 1 attached hereto.
13.Capitalized terms not otherwise defined herein shall have the same meaning ascribed to them in the Lease.
| Executed at | on the | day of | , 2021. |
|---|---|---|---|
| Tenant: | |||
| --- | |||
| APPLE INC., | |||
| a California corporation | |||
| By: | |||
| Name: | |||
| Its: |
EXHIBIT C-1-2
Addendum 1 to Tenant Estoppel Certificate dated [________], 2021
10001 North De Anza Boulevard - Cupertino, California
This Tenant Estoppel Certificate is being executed and delivered by Tenant subject to the terms and conditions contained in this Addendum 1.
This Addendum 1 amends the attached Tenant Estoppel Certificate (the “Estoppel Certificate”) dated [________], 2021.
The statements in the Estoppel Certificate when specified to Tenant’s actual knowledge as of the date thereof are made without any duty of independent inquiry. Without limiting the effect of the estoppel described in the next paragraph, the Estoppel Certificate does not amend the Lease, impose new obligations or duties on the Tenant, increase any obligations or duties of the Tenant, or decrease any of its rights, under the Lease.
In no event shall the issuance of the Estoppel Certificate subject Tenant to any liability whatsoever (other than to create an estoppel, subject to the conditions herein benefiting the Reliance Parties), despite the negligent or otherwise inadvertent failure of Tenant to disclose correct or relevant information. The Estoppel Certificate will not constitute a waiver with respect to any act of Landlord for which approval by Tenant was required, but which was not obtained. The Estoppel Certificate shall not serve as an estoppel as against the Reliance Party for whose benefit the Estoppel Certificate was issued if (a) the matters certified to are contained in the Lease, or (b) such Reliance Party has actual knowledge of the matters in the Estoppel Certificate.
In the event of a conflict between this Addendum 1 and other provisions of the Estoppel Certificate, this Addendum 1 shall control.
EXHIBIT C-1-3
TENANT ESTOPPEL CERTIFICATE
10101 N. De Anza Blvd.
[NOTE TO DRAFT: BUYER’S REVISIONS TO FORM ARE SUBJECT TO APPROVAL BY APPLE PRIOR TO DATE OF THIS AGREEMENT]
The undersigned as Tenant under that certain Lease (as amended or supplemented to the extent described below in Paragraph 1, the “Lease”) made and entered into as of March 11, 2016 by and between De Anza DH Properties LLC, a Delaware limited liability company (as successor-by-assignment to VII-FCP DeAnza Owner, LLC), as Landlord, and the undersigned as Tenant, for premises in the office building located at 10101 North De Anza Boulevard, Cupertino, California (the “Premises”), certifies to certifies to [____________] (“Purchaser”) and its successors and assigns as follows:
1.The Lease is in full force and effect and has not been modified, supplemented or amended, except for that certain: (i) Subordination Agreement, Acknowledgment of Lease Assignment, Estoppel, Attornment and Non-Disturbance Agreement dated March 11, 2016 among VII-FCP DeAnza Owner, LLC, Tenant and Wells Fargo Bank, National Association, (ii) Commencement Date Memorandum dated April 18, 2016, and (iii) First Amendment to Lease dated December 12, 2016 (the “First Amendment”). Tenant is in possession of the Premises and has not assigned the Lease or subleased any part of the Premises.
2.The Lease Term commenced on April 1, 2016, and the Lease Term expires on April 30, 2026, unless the Lease is earlier terminated or extended to the extent permitted in the Lease. Except as provided in the Lease, there are no options to extend the Lease Term.
3.Base Monthly Rent became payable on May 1, 2016. The current monthly installment of Base Rent is $[________]. Tenant’s Proportionate Share is 100%, as set forth in Paragraph 5 of the Lease.
4.To Tenant’s actual knowledge, all monthly installments of Base Monthly Rent, all Operating Expenses payments and all monthly installments of estimated Operating Expenses have been paid when due through [________], 2021. No rental has been paid more than thirty (30) days in advance. To Tenant’s actual knowledge, there are no existing defenses, credits, offsets, free or abated rents which Tenant has against the enforcement of the Lease.
5.Tenant has not delivered any written notice to Landlord regarding a default by Landlord under the Lease, and to Tenant’s actual knowledge, no circumstance currently exists that, but for the giving of notice or the passage of time or both, would constitute a default by Landlord under the Lease.
6.Tenant has received in full from Landlord the “TI Allowance” (as described in Section 2 of the “Workletter” attached as Exhibit C to the Lease), the “Test Fit Allowance” (as that term is defined in Section 2.4 of the Workletter), “Landlord’s Share of ADA Compliance Work Costs” (as that term is defined in Section 2.5 of the Workletter), and the “Lump Sum Payment” (as that term is defined in Section 1 of the First Amendment). None of the TI Allowance, the Test Fit Allowance, Landlord’s Share of ADA Compliance Work Costs, and Lump Sum Payment remain outstanding.
7.Tenant has no option or right to purchase the Premises or any portion thereof, except for the Right of First Offer to Purchase which applies only to the sale of the Premises to a Competitor Group as expressly set forth in Section 43 of the Lease. The Right of First Offer to Purchase does not apply with respect to the sale of the Premises to an entity controlled by Cantor Fitzgerald, L.P.
8.Tenant’s interest under the Lease has not been assigned by Tenant, and no sublease, concession agreement or license covering the Premises or any portion thereof has been entered into by Tenant.
EXHIBIT C-1-4
9.To Tenant’s actual knowledge, Tenant is not obligated to, and has not, provided a security deposit to Landlord under the Lease.
10.As of the date of this Tenant Estoppel Certificate, Tenant’s notice address for purposes of the Lease remains as set forth in the Lease.
11.The undersigned acknowledges that this Tenant Estoppel Certificate may be delivered to Landlord, to Purchaser, or to a prospective lender or mortgagee, or to their respective successors and/or assigns (each a “Reliance Party”) and acknowledges that each Reliance Party will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises is a part.
12.This Tenant Estoppel Certificate is being executed and delivered by Tenant subject to the terms and conditions contained in Addendum 1 attached hereto.
13.Capitalized terms not otherwise defined herein shall have the same meaning ascribed to them in the Lease.
| Executed at | on the | day of | , 2021. |
|---|---|---|---|
| Tenant: | |||
| --- | |||
| APPLE INC., | |||
| a California corporation | |||
| By: | |||
| Name: | |||
| Its: |
EXHIBIT C-1-5
Addendum 1 to Tenant Estoppel Certificate dated [_______], 2021
10101 North De Anza Boulevard - Cupertino, California
This Tenant Estoppel Certificate is being executed and delivered by Tenant subject to the terms and conditions contained in this Addendum 1.
This Addendum 1 amends the attached Tenant Estoppel Certificate (the “Estoppel Certificate”) dated [________], 2021.
The statements in the Estoppel Certificate when specified to Tenant’s actual knowledge as of the date thereof are made without any duty of independent inquiry. Without limiting the effect of the estoppel described in the next paragraph, the Estoppel Certificate does not amend the Lease, impose new obligations or duties on the Tenant, increase any obligations or duties of the Tenant, or decrease any of its rights, under the Lease.
In no event shall the issuance of the Estoppel Certificate subject Tenant to any liability whatsoever (other than to create an estoppel, subject to the conditions herein benefiting the Reliance Parties), despite the negligent or otherwise inadvertent failure of Tenant to disclose correct or relevant information. The Estoppel Certificate will not constitute a waiver with respect to any act of Landlord for which approval by Tenant was required, but which was not obtained. The Estoppel Certificate shall not serve as an estoppel as against the Reliance Party for whose benefit the Estoppel Certificate was issued if (a) the matters certified to are contained in the Lease, or (b) such Reliance Party has actual knowledge of the matters in the Estoppel Certificate.
In the event of a conflict between this Addendum 1 and other provisions of the Estoppel Certificate, this Addendum 1 shall control.
EXHIBIT C-1-6
EXHIBIT C-2
FORM OF TAMBELLINI GROUND LESSOR ESTOPPEL CERTIFICATE
GROUND LEASE ESTOPPEL CERTIFICATE
[NOTE TO DRAFT: BUYER’S REVISIONS TO FORM ARE SUBJECT TO APPROVAL BY GROUND LESSOR PRIOR TO DATE OF THIS AGREEMENT]
THIS GROUND LEASE ESTOPPEL CERTIFICATE (“Estoppel Certificate”) is made and executed as of this ____ day of ____________, 2021 (the “Estoppel Date”) by TAMBELLINI DEANZA PROPERTIES, LLC, a California limited liability company (“Landlord”) to and for the benefit of DE ANZA DH PROPERTIES LLC, a Delaware limited liability company (“Tenant”), and ___________________, a __________________ (“Buyer”).
RECITALS
A.Landlord holds fee title to certain real property located in Cupertino, California which is legally described as set forth on Exhibit A attached hereto (the “Premises”).
B.Tenant is the holder of the leasehold estate in the Premises pursuant to the Ground Lease (hereafter defined).
C.Buyer has agreed to purchase the leasehold estate in the Premises from Tenant.
D.It is a condition of Buyer agreeing to purchase the leasehold estate in the Premises \that Landlord shall have executed and delivered this document.
NOW, THEREFORE, pursuant to Section 30 of the Ground Lease Landlord hereby certifies to Tenant, Buyer, and Lender (and their successors and assigns) as follows:
1.Lease. The following documents constitute the entire agreement between Landlord and Tenant with respect to such lease: Ground Lease dated July 22, 1983 between U.A. Tambellini (predecessor to Landlord) and William Kelley, Rayne Kelley, Ryland Kelley and Shirley Kelley (“The Kelleys”), as amended, modified, and assigned by that certain Memorandum of Ground Lease recorded August 3, 1983 as Instrument No. 7769118 in Book H 777, Page 649 of Official Records of Santa Clara, California (“Official Records”); First Amendment to Ground Lease dated March 18, 1986 between U.A. Tambellini and De Anza Plaza Associates, a California limited partnership (“DAPA”) (successor in interest to The Kelleys); Memorandum of Agreement of Ground Lease recorded April 1, 1986 as Instrument No. 8734984 in Book J 645, Page 1016 of Official Records; Affirmation of Ground Lease and Attornment Agreement dated February 22, 1994 between U.A. Tambellini and Fidelity Federal Bank (“FFB”) (successor in interest to DAPA), recorded April 28, 1994 as Instrument No. 12472906 in Book N 419, Page 615 of Official Records; Second Amendment to Ground Lease dated August 20, 2007 between U.A. Tambellini, as Trustee of the U.A. Tambellini Family Trust under Declaration of Trust dated May 21, 1992, as Lessor, and 500 Forbes, LLC, a California limited liability company, and Moulds 500 Forbes Associates, LLC, a Delaware limited liability company, as tenants in common, collectively, as Lessee; Assignment and Assumption of Ground Leases and Deed of Improvements effective as of December 14, 2016 and recorded December 14, 2016 as Instrument No. 23533064, and intervening assignments recorded February 27, 1984 in Book 1333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104; August 16, 1996 as Instrument No. 13411135; April 21, 1998 as Instrument No. 14150514 and Instrument No. 14150519; June 27, 2000 as Instrument No. 15292439; and August 23, 2007 as Instrument No. 19560623 all of Official Records (collectively, the “Ground Lease”). The Ground Lease has not been modified, changed, altered or amended in any respect except as set forth above. A correct and complete copy of the Ground Lease is attached as Exhibit B. Except as set forth above, there have been no amendments to or modifications of the Ground Lease. The Ground Lease is in full force and effect.
EXHIBIT C-2-1
2.Lessee. Landlord hereby acknowledges that, to Landlord’s knowledge, the current holder of the leasehold estate created by the Lease is Tenant.
3.Monthly Rent. The monthly rent due under the Ground Lease for the calendar month of [________] 2021 is $[________] per month. The monthly rent has been paid through ____________, 2021.
4.Security Deposit. The amount of Security Deposit held by Landlord is $[________].
5.Right of First Refusal Declined. Landlord has declined its right of first refusal with respect to the sale of the improvements constructed on the Premises to Buyer under Section 32 of the Ground Lease in accordance with the letter attached hereto as Exhibit B.
6.Mortgage of Buyer’s Interest in Ground Lease. Buyer may encumber its leasehold interest and estate in the Premises, together with all buildings and improvements placed thereon as security for any indebtedness provided that the deed of trust or mortgage documents shall meet the requirements of Section 11(a) of the Ground Lease.
7.Term. The stated term under the Ground Lease is [______] years, terminating on [_____].
8.Consent. Landlord hereby grants its consent to Tenant’s assignment and transfer of Tenant’s right, title and interest in the Ground Lease to Buyer. Effective upon the effective date (the “Effective Date”) of such assignment by Tenant to Buyer, Landlord hereby fully and forever relieves and releases Tenant from any and all duties and obligations under the Ground Lease which arise or accrue on or after the Effective Date.
9.Reliance. The undersigned hereby acknowledges that Tenant, Buyer, and Lender (if any) (and their successors and assigns) are relying on this Estoppel Certificate and its provisions in entering into the sale agreement and financing for Buyer’s purchase of Tenant’s leasehold interest in the Premises.
10.Governing Law. This Estoppel Certificate and all rights, obligations and liabilities arising hereunder shall be governed by the internal laws and decisions of the State of California.
11.Captions. The captions and headings contained in this Estoppel Certificate are for convenience only and shall not be used to construe or interpret the terms or provisions of this Estoppel Certificate.
12.Limitations. The foregoing certifications shall not be deemed to be an affirmative representation, warranty or covenant and shall in no event subject Landlord and its successors or transferees to any liability whatsoever, the sole effect of the same being to estop Landlord and its successors or transferees from making any assertions contrary to said certifications. Other than such estoppel, nothing in this certification shall limit or alter the rights and remedies of Landlord and its successors or transferees under the Lease.
EXHIBIT C-2-2
IN WITNESS WHEREOF, this Estoppel Certificate has been executed as of the Estoppel Date.
| LANDLORD: | |
|---|---|
| TAMBELLINI DEANZA PROPERTIES, LLC, | |
| a California limited liability company | |
| By: | |
| Name: | U.A. Tambellini |
EXHIBIT C-2-3
EXHIBIT A
LEGAL DESCRIPTION
10001 North De Anza Boulevard
All that certain Real Property in the City of Santa Clara, County of Santa Clara, State of California, described as follows:
PARCEL ONE:
PARCEL A, AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 48, 49 AND 50.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL ONE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK I216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITI-I A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20,14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-074
EXHIBIT C-2-1
EXHIBIT B
LETTER DOCUMENTING LESSOR’S DECLINING RIGHT OF FIRST REFUSAL
[SEE ATTACHED]
EXHIBIT C-2-1
VIA OVERNIGHT COURIER AND E-MAIL
_____________, 2021
Tambellini DeAnza Properties, LLC
U.A. Tambellini
3875 Dry Creek Road
Healdsburg, CA 95448
| Re: | Ground lease dated as of July 22, 1983 (the “Original Ground Lease,” and as amended, the “Ground Lease”), between TAMBELLINI DEANZA PROPERTIES, LLC, a California limited liability company (the “Lessor”), and DE ANZA DH PROPERTIES LLC, a Delaware limited liability company (as successor-by-assignment to VII-FCP DEANZA, LLC, a Delaware limited liability company) (the “Lessee”), for certain premises located at 10001 N. DeAnza Boulevard, Cupertino, CA (the “Premises”); Lessee's Offer |
|---|
Dear Mr. Tambellini:
Section 32 of the Original Ground Lease provides Lessor a one-time Right of First Refusal to purchase all the improvements constructed on the Premises (the “Sale Improvements”). However, as an accommodation to Lessor, and to remove any doubt as to Lessor’s obligation to estop to the extinguishment of such Right of First Refusal, this letter shall serve as Lessee’s Offer to sell all the improvements to Lessor. All capitalized terms used in this letter but not defined shall have the meaning set forth in the Ground Lease.
Lessee desires to sell the Sale Improvements to an Other Buyer pursuant to the terms of a bona fide Offer from such Other Buyer. The terms and conditions of this Lessee’s Offer to Lessor reflect the terms and conditions contained in the Other Buyer’s Offer with respect to the Premises, except where such terms and conditions are determined in accordance with Section 32 of the Original Ground Lease.
- $63,750,000 (the “Purchase Price”).
2.DEPOSIT: A deposit in the amount of $1,000,000, shall be placed into escrow within one (1) business days of acceptance of this Offer, and an additional $1,000,000 shall be placed into escrow within one (1) business day after the expiration of the Due Diligence Period. Such deposits shall remain applicable to the Purchase Price. Upon expiration of the Due Diligence Period the deposits shall be non-refundable.
- DUE DILIGENCE PERIOD: Buyer shall have thirty (30) days following acceptance of this Offer to perform due diligence.
4.NO FINANCING CONTINGENCY: The transaction is not subject to any financing contingency. Buyer has, or will have at the close of escrow, sufficient cash or other sources of immediately good funds to enable it to make payment of the Purchase Price and any other amounts to be paid.
5.CLOSING DATE: Buyer shall have 20 days following the expiration of the Due Diligence Period to close escrow for the purchase as required under the terms of the Ground Lease.
Pursuant to Section 32(a) of the Lease, Lessor shall have until ________________ [15 days after delivery of this notice], to provide notice to Lessee of its election to exercise its Right of First Refusal to purchase the Sale Improvements at the Purchase Price. If we do not receive a written response from Lessor within the foregoing time period, Lessor shall be deemed to have elected not to exercise its Right of First Refusal, and Lessee shall have the right to complete the proposed sale of the Sale Improvements for a purchase price no more favorable to the Other Buyer than the Purchase Price specified in this Offer.
If you are able to immediately determine that Lessor has no intention of exercising its Right of First Refusal, we would appreciate your quick response to that effect by dating and executing this Offer notice in accordance with
EXHIBIT C-2-1
the signature instructions provided below, emailing a pdf of your response to peter.jun@madisonmarquette.com as soon as possible, and mailing the signed original response as set forth below:
De Anza DH Properties LLC
1000 Maine Ave, SW, Suite 300
Washington, DC 20024
Attention: Peter T. Jun
Please feel free to call Peter Jun at (212) 561-2822 or Max Frankel at (415) 277-6822 with any questions regarding the Offer notice. We look forward to receiving your response soon.
| Sincerely, | |
|---|---|
| Cc: | Boise Ding, Mayer Brown |
| Kwon Lee, Mayer Brown |
Lessor’s Right of First Refusal is hereby: Exercised X Declined
| "Lessor": |
|---|
| Tambellini DeAnza Properties, LLC, a California limited liability company |
| By: |
| Its: |
EXHIBIT C-2-2
EXHIBIT C-3
FORM OF WATERDRAGON GROUND LESSOR ESTOPPEL CERTIFIFCATE
LESSOR’S ESTOPPEL RE GROUND LEASE
[NOTE TO DRAFT: BUYER’S REVISIONS TO FORM ARE SUBJECT TO APPROVAL BY GROUND LESSOR PRIOR TO DATE OF THIS AGREEMENT]
Waterdragon 289, LLC, a California limited liability company, as successor-in-interest to Russell M. Bate and Mary Lou Bate (“Landlord”), holds fee title to certain real property located in Cupertino, California described in Exhibit A attached hereto (the “Premises”). De Anza DH Properties LLC, a Delaware limited liability company (“Tenant”) is the holder of the leasehold estate in the Premises under the Ground Lease (hereafter defined) pursuant to the Assignment and Assumption of Ground Lease and Deed of Improvements between VII-FCP DeAnza Owner LLC (“Original Tenant”) and Tenant (hereafter defined). [________], a [________] (“Buyer”) has agreed to purchase Tenant’s leasehold interest in the Premises. It is a condition of Buyer agreeing to purchase Tenant’s leasehold interest in the Premises that Landlord shall have executed and delivered this document. Landlord hereby represents, warrants and certifies to Tenant, Buyer, any Buyer’s lender, and to their successors and assigns as follows:
1.Landlord is leasing the Premises to Tenant, as ground lessee under the Ground Lease (as defined below).
2.The following documents constitute the entire agreement between Landlord and Tenant with respect to such lease: Ground Lease dated February 25, 1982 (the “Original Ground Lease”), by and between Russell M. Bate and Mary Lou Bate, together, as Lessor (“The Bates”), and William K. Kelley, Rayna S. Kelley, Ryland Kelley, and Shirley Sneath Kelley, collectively, as Lessee, as amended, modified, and assigned by that certain Memorandum of Ground Lease recorded March 4, 1982 as Instrument No. 7294129 in Book G 635, Page 279 of Official Records of Santa Clara, California (“Official Records”); First Amendment to Ground Lease dated March 28, 1986 (the “First Amendment”), by and between The Bates and De Anza Plaza Associates, a California limited partnership (“DAPA”) (as successor in interest from The Kelleys); Affirmation of Ground Lease and Attornment Agreement recorded November 22, 1993 as Instrument No. 12225420 in Book N 149, Page 1881 of Official Records; Lessor’s Estoppel and Agreement Re Ground Lease recorded August 23, 2007 as Instrument No. 19560625 in Official Records; Assignment and Assumption of Ground Leases and Deed of Improvements dated December 14, 2016 and recorded December 14, 2016 as Instrument No. 23533063 between VII-FCP DeAnza Owner LLC and Tenant, and intervening assignments recorded February 27, 1984 in Book 1333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104; August 16, 1996 as Instrument No. 13411136; April 21, 1998 as Instrument No. 14150513 and Instrument No. 14150518; June 27, 2000 as Instrument No. 15292438; and August 23, 2007 as Instrument No. 19560623, all of Official Records (collectively, the “Lease Documents”). Landlord also previously delivered that certain Lessor’s Estoppel and Agreement re Ground Lease dated as of August 15, 2013, that certain Lessor’s Estoppel and Agreement re Ground Lease dated March 7, 2016, and that certain Lessor’s Estoppel and Agreement re Ground Lease dated December 9, 2016 (together, the “Previous Estoppels”). The Lease Documents and Previous Estoppels are collectively referred to herein as the “Ground Lease.” The Ground Lease has not been modified, changed, altered or amended in any respect, except as set forth above. A correct and complete copy of the Ground Lease is attached hereto as Exhibit B. The Ground Lease is valid and in full force and effect on the date hereof in accordance with its terms.
3.Tenant is currently obligated to pay Base Monthly Rent of $[________] per month and such Base Monthly Rent has been paid through [________], 2021. As of the date hereof, all Base Monthly Rent and other sums or charges required to be paid by Tenant to Landlord under the Ground Lease have been paid and no rent or other sums or charges are due from Tenant, except as regularly occurring under the terms of the Ground Lease, to Landlord.
4.Landlord currently holds a security deposit of $[_________].
5.Neither Landlord nor, to Landlord’s actual knowledge, Tenant is in default under the Ground Lease, nor are there any state of facts which, with notice, the passage of time, or both, would result in a breach or default on
EXHIBIT C-3-1
the part of either Tenant or Landlord. No claim, controversy, dispute, quarrel or disagreement exists between Tenant and Landlord.
6.Landlord has no right of refusal or option to purchase the leasehold interest created by the Ground Lease. Neither the fee interest in the Premises, nor Landlord’s interest in the Ground Lease, is subject to any mortgage, pledge or other encumbrance that remains outstanding.
7.Landlord has not sold all or any portion of the Premises as described in Section 32 of the Original Ground Lease, and therefore, Tenant’s Right of First Refusal (as defined in Section 32 of the Original Ground Lease) remains in full force and effect.
- Section 1(A) of the First Amendment provides that Landlord will enter into a new lease with Lender after (i) a non-curable default that is not cured by Tenant, (ii) a termination by Landlord due to any default or (iii) upon acquisition of the leasehold by foreclosure. Landlord acknowledges that, notwithstanding the foregoing, Landlord shall enter into a new lease with any Buyer’s lender, its successors or assigns, upon termination of the Ground Lease for any reason, including rejection of the Ground Lease in a bankruptcy proceeding, provided that such Buyer’s lender shall have first cured all monetary defaults under the Ground Lease.
9.The stated term under the Ground Lease is ninety-nine (99) years, terminating on March 31, 2081.
10.Landlord hereby grants its consent to Tenant’s assignment and transfer of Tenant’s right, title and interest in the Ground Lease to Buyer.
This Estoppel and Agreement and all rights, obligations and liabilities arising hereunder shall be governed by the internal laws and decisions of the State of California. This Estoppel and Agreement is made by Landlord to Tenant, Buyer, and Buyer’s lender in connection with Buyer’s purchase of Tenant’s leasehold interest created by the Ground Lease. This Estoppel and Agreement may be relied on by Tenant, Buyer, and Buyer’s lender and any other successors and assigns.
| Dated: | , 2021 (the “Effective Date”) |
|---|---|
| WATERDRAGON 289, LLC, | |
| --- | --- |
| a California limited liability company | |
| By: | |
| Name: | Carolyn Johnson |
| Title: | Managing Member |
EXHIBIT C-3-2
EXHIBIT A
Premises
10101 North De Anza Boulevard
All that certain Real Property in the City of Cupertino, County of Santa Clara, State of California, described as follows:
PARCEL ONE:
PARCEL A AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 51, 52 AND 53.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL THREE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK 1216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-071
EXHIBIT C-3-3
EXHIBIT B
Ground Lease
[attached.]
EXHIBIT C-3-4
EXHIBIT D-1
FORM OF GROUND LEASE ASSIGNMENT (Tambellini)
| RECORDING REQUESTED BY AND WHEN RECORDED RETURN IT AND MAIL ALL TAX STATEMENTS TO:<br><br><br>[________]<br>[________]<br>[_________]<br>[________] |
|---|
(Above Space For Recorder’s Use Only)
APNs: 326-34-074
The undersigned Assignor declares:
Documentary Transfer Tax is $___________
computed on full value of the property conveyed.
City of Cupertino, County of Santa Clara, State of California.
ASSIGNMENT AND ASSUMPTION OF GROUND LEASE AND DEED OF IMPROVEMENTS
I.Assignment. For valuable consideration, receipt of which is hereby acknowledged, DE ANZA DH PROPERTIES LLC, a Delaware limited liability company (“Assignor”), hereby grants, assigns, delivers and transfers to [________], a __________________ (“Assignee”), the following:
A.All of Assignor’s rights, title and interest, in, to and under the “Ground Lease” described on Exhibit A-1, which Ground Lease pertain to that certain land described on Exhibit A-2 attached hereto and incorporated herein by this reference (the “Land”), together with any and all rights and appurtenances in any way belonging to Assignor; and
B.All of Assignor’s right, title and interest in and to the real property improvements located in or on the Land (the “Improvements,” and collectively with the Land, “Real Property”).
The foregoing grant, assignment, delivery and transfer shall be effective as of the date of recordation of this Assignment and Assumption of Ground Lease in the Official Records of Santa Clara, California (“Effective Date”), and is expressly made subject to:
1.Real estate taxes and assessments.
2.All other covenants, conditions, restrictions, reservations, rights, rights-of-way, easements, encumbrances, liens and title matters, whether or not of record or visible from an inspection of the Real Property, and all matters which an accurate survey of the Real Property would disclose.
II.Acceptance and Assumption. For valuable consideration, receipt of which is hereby acknowledged, Assignee hereby (a) accepts the foregoing grant, assignment, delivery and transfer; (b) assumes, for the benefit of Assignor and the Ground Lessor under the Ground Lease, all of the obligations and covenants of the lessee under the Ground Lease first arising or accruing on or after the Effective Date; and (c) agrees, for the benefit of both the Assignor and Ground Lessor, to keep, perform and be bound by all such obligations and covenants and all of the terms and conditions contained in the Ground Lease on the part of the lessee therein to be kept and performed, for all intent and purposes as though the undersigned Assignee was the original tenant thereunder, to the extent such obligations first arise or accrue on or after the Effective Date.
EXHIBIT D-1-1
III.Dispute Costs. In the event of any dispute between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the non-prevailing party shall pay the prevailing party’s reasonable and actual costs and expenses of such dispute, including without limitation, reasonable attorneys’ fees and costs. Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.
IV.Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall be deemed one document.
V.Limited Liability. This Assignment is made without recourse and without any express or implied representation or warranty of any kind or nature. Assignee on Assignee’s own behalf and on behalf of Assignee’s agents, members, partners, employees, representatives, successors and assigns hereby agrees that in no event or circumstance shall any of the members, partners, employees, representatives, officers, shareholders, directors or agents of Assignor have any personal liability under this Assignment, or to any of Assignee’s creditors, or to any other party in connection with the Ground Lease or the Real Property.
VI.Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of Assignor and Assignee and their respective successors and assigns.
[END OF TEXT; SIGNATURES FOLLOW IMMEDIATELY ON NEXT PAGES]
EXHIBIT D-1-2
IN WITNESS WHEREOF, the undersigned have executed this Assignment and Assumption of Ground Lease to be effective as of the date first set forth hereinabove.
| ASSIGNOR: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| ASSIGNEE: |
| --- |
| [________], |
| a [________] |
| By: |
| --- |
| Name: |
| Title: |
EXHIBIT D-1-3
ACKNOWLEDGMENT
| A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. | ||
|---|---|---|
| State of | ||
| --- | ||
| County of | ||
| On | , before me, | |
| --- | --- | --- |
| (Insert name of notary) |
Notary Public, personally appeared ___________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
| Signature | (Seal) |
|---|
EXHIBIT D-1-4
Exhibit A-1
Ground Lease
Ground Lease dated July 22, 1983 between U.A. Tambellini and William Kelley, Rayne Kelley, Ryland Kelley and Shirley Kelley (“The Kelleys”), as amended, modified, and assigned by that certain:
•Memorandum of Ground Lease recorded August 3, 1983 as Instrument No. 7769118 in Book H 777, Page 649 of Official Records of Santa Clara, California (“Official Records”);
•First Amendment to Ground Lease dated March 18, 1986 between U.A. Tambellini and De Anza Plaza Associates, a California limited partnership (“DAPA”);
•Memorandum of Agreement of Ground Lease recorded April 1, 1986 as Instrument No. 8734984 in Book J 645, Page 1016 of Official Records;
•Affirmation of Ground Lease and Attornment Agreement dated February 22, 1994 between U.A. Tambellini and Fidelity Federal Bank (“FFB”), recorded April 28, 1994 as Instrument No. 12472906 in Book N 419, Page 615 of Official Records;
•Second Amendment to Ground Lease dated August 20, 2007 between U.A. Tambellini, as Trustee of the U.A. Tambellini Family Trust under Declaration of Trust dated May 21, 1992, as Lessor, and 500 Forbes, LLC, a California limited liability company, and Moulds 500 Forbes Associates, LLC, a Delaware limited liability company, as tenants in common, collectively, as Lessee; and
•Assignment and Assumption of Ground Leases and Deed of Improvements dated December 14, 2016 and recorded December 14, 2016 in Instrument No. 23533064 between VII-FCP DEANZA OWNER, LLC, as assignor, and DE ANZA DH PROPERTIES LLC, as assignee; and intervening assignments recorded February 27, 1984 in Book I 333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104; August 16, 1996 as Instrument No. 13411135;April 21, 1998 as Instrument No. 14150514 and Instrument No. 14150519; June 27, 2000 as Instrument No. 15292439; and August 23, 2007 as Instrument No. 19560623, all of Official Records.
EXHIBIT D-1-5
Exhibit A-2
Real Property Legal Description
10001 North De Anza Boulevard
All that certain Real Property in the City of Cupertino, County of Santa Clara, State of California, described as follows:
PARCEL ONE:
PARCEL A, AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 48, 49 AND 50.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL ONE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK 1216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-074
EXHIBIT D-1-6
Exhibit D-2
FORM OF GROUND LEASE ASSIGNMENT (Waterdragon)
| RECORDING REQUESTED BY AND WHEN RECORDED RETURN IT AND MAIL ALL TAX STATEMENTS TO:<br><br><br>[________]<br>[________]<br>[________] |
|---|
(Above Space For Recorder’s Use Only)
APNs: 326-34-071
The undersigned Assignor declares: Documentary Transfer Tax is $___________ computed on full value of the property conveyed. City of Cupertino, County of Santa Clara, State of California.
ASSIGNMENT AND ASSUMPTION OF GROUND LEASE AND DEED OF IMPROVEMENTS
I.Assignment. For valuable consideration, receipt of which is hereby acknowledged, DE ANZA DH PROPERTIES LLC , a Delaware limited liability company (“Assignor”), hereby grants, assigns, delivers and transfers to [________], a ____________________ (“Assignee”), the following:
A.All of Assignor’s rights, title and interest, in, to and under the “Ground Lease” described on Exhibit A-1, which Ground Lease pertain to that certain land described on Exhibit A-2 attached hereto and incorporated herein by this reference (the “Land”), together with any and all rights and appurtenances in any way belonging to Assignor; and
B.All of Assignor’s right, title and interest in and to the real property improvements located in or on the Land (the “Improvements,” and collectively with the Land, “Real Property”).
The foregoing grant, assignment, delivery and transfer shall be effective as of the date of recordation of this Assignment and Assumption of Ground Lease in the Official Records of Santa Clara, California (“Effective Date”), and is expressly made subject to:
1.Real estate taxes and assessments.
2.All other covenants, conditions, restrictions, reservations, rights, rights-of-way, easements, encumbrances, liens and title matters, whether or not of record or visible from an inspection of the Real Property, and all matters which an accurate survey of the Real Property would disclose.
II.Acceptance and Assumption. For valuable consideration, receipt of which is hereby acknowledged, Assignee hereby (a) accepts the foregoing grant, assignment, delivery and transfer; (b) assumes, for the benefit of Assignor and the Ground Lessor under the Ground Lease, all of the obligations and covenants of the lessee under the Ground Lease first arising or accruing on or after the Effective Date; and (c) agrees, for the benefit of both the Assignor and Ground Lessor, to keep, perform and be bound by all such obligations and covenants and all of the terms and conditions contained in the Ground Lease on the part of the lessee therein to be kept and performed, for all intent and purposes as though the undersigned Assignee was the original tenant thereunder, to the extent such obligations first arise or accrue on or after the Effective Date.
EXHIBIT D-2-1
III.Dispute Costs. In the event of any dispute between Assignor and Assignee arising out of the obligations of the parties under this Assignment or concerning the meaning or interpretation of any provision contained herein, the non-prevailing party shall pay the prevailing party’s reasonable and actual costs and expenses of such dispute, including without limitation, reasonable attorneys’ fees and costs. Any such attorneys’ fees and other expenses incurred by either party in enforcing a judgment in its favor under this Assignment shall be recoverable separately from and in addition to any other amount included in such judgment, and such attorneys’ fees obligation is intended to be severable from the other provisions of this Assignment and to survive and not be merged into any such judgment.
IV.Counterparts. This Assignment may be executed in counterparts, each of which shall be deemed an original, and all of which taken together shall be deemed one document.
V.Limited Liability. This Assignment is made without recourse and without any express or implied representation or warranty of any kind or nature. Assignee on Assignee’s own behalf and on behalf of Assignee’s agents, members, partners, employees, representatives, successors and assigns hereby agrees that in no event or circumstance shall any of the members, partners, employees, representatives, officers, shareholders, directors or agents of Assignor have any personal liability under this Assignment, or to any of Assignee’s creditors, or to any other party in connection with the Ground Lease or the Real Property.
VI. Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of Assignor and Assignee and their respective successors and assigns.
[END OF TEXT; SIGNATURES FOLLOW IMMEDIATELY ON NEXT PAGES]
EXHIBIT D-2-2
IN WITNESS WHEREOF, the undersigned have executed this Assignment and Assumption of Ground Lease to be effective as of the date first set forth hereinabove.
| ASSIGNOR: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| ASSIGNEE: |
| --- |
| [________], |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
EXHIBIT D-2-3
ACKNOWLEDGMENT
| A notary public or other officer completing this certificate verifies only the identity of the individual who signed the document to which this certificate is attached, and not the truthfulness, accuracy, or validity of that document. | ||
|---|---|---|
| State of | ||
| --- | ||
| County of | ||
| On | , before me, | |
| --- | --- | --- |
| (Insert name of notary) |
Notary Public, personally appeared ___________________________, who proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.
I certify under PENALTY OF PERJURY under the laws of the State of California that the foregoing paragraph is true and correct.
WITNESS my hand and official seal.
| Signature | (Seal) |
|---|
EXHIBIT D-2-4
Exhibit A-1
Ground Lease
Ground Lease dated February 25, 1982, by and between Russell M. Bate and Mary Lou Bate, together, as Lessor (“The Bates”), and William K. Kelley, Rayna S. Kelley, Ryland Kelley, and Shirley Sneath Kelley, collectively, as Lessee, as amended, modified, and assigned by that certain:
•Memorandum of Ground Lease recorded March 4, 1982 as Instrument No. 7294129 in Book G 635, Page 279 of Official Records of Santa Clara, California (“Official Records”);
•First Amendment to Ground Lease dated March 28, 1986, by and between The Bates and De Anza Plaza Associates, a California limited partnership (“DAPA”);
•Affirmation of Ground Lease and Attornment Agreement recorded November 22, 1993 as Instrument No. 12225420 in Book N 149, Page 1881 of Official Records;
•Lessor’s Estoppel and Agreement Re Ground Lease recorded August 23, 2007 as Instrument No. 19560625 in Official Records; and
•Assignment and Assumption of Ground Leases and Deed of Improvements dated December 14, 2016 and recorded December 14, 2016 as Instrument No. 23533063 between Assignor and Assignee; , and intervening assignments recorded February 27, 1984 in Book I 333, Page 161 as Instrument No. 7988094; May 17, 1993 in Book M 778, Page 467 as Instrument No. 11907104;August 16, 1996 as Instrument No. 13411136; April 21, 1998 as Instrument No. 14150513 and Instrument No. 14150518; June 27, 2000 as Instrument No. 15292438; and August 23, 2007 in Instrument No. 19560623,all of Official Records.
EXHIBIT D-2-5
Exhibit A-2
Real Property Legal Description
10101 North De Anza Boulevard
All that certain Real Property in the City of Cupertino, County of Santa Clara, State of California, described as follows:
PARCEL ONE:
PARCEL A AS SHOWN UPON THAT MAP RECORDED IN THE OFFICE OF THE RECORDER, COUNTY OF SANTA CLARA, ON FEBRUARY 23, 1984 IN BOOK 524 OF MAPS, PAGES 51, 52 AND 53.
PARCEL TWO:
A NON-EXCLUSIVE EASEMENT FOR PEDESTRIAN AND VEHICULAR ACCESS APPURTENANT TO PARCEL THREE HEREIN AS GRANTED JANUARY 09, 1984 IN BOOK 1216, PAGE 696 OF OFFICIAL RECORDS, DESCRIBED AS FOLLOWS:
A STRIP OF LAND WITH A SOUTHERN BOUNDARY 45.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF PARCEL 1 OF THE MAP RECORDED IN BOOK 307 OF MAPS, PAGE 29, AND WITH A NORTHERN BOUNDARY 20.14 FEET SOUTH OF THE NORTHERN BOUNDARY OF SAID PARCEL 1. THIS STRIP RUNS A DISTANCE OF 85.98 FEET FROM THE EAST BOUNDARY OF SAID PARCEL 1 TO THE WEST BOUNDARY OF PARCEL 1.
APN: 326-34-071
EXHIBIT D-2-6
EXHIBIT E
ASSIGNMENT OF LEASES AND CONTRACTS AND BILL OF SALE
This instrument is executed and delivered as of the ____ day of _________, 2021 pursuant to that certain Purchase and Sale Agreement (“Agreement”) dated ____________, 2021, by and between DE ANZA DH PROPERTIES LLC, a Delaware limited liability company (“Seller”), and __________________, a _____________________ (“Purchaser”), covering the real property described in Exhibit A attached hereto (“Real Property”). All initially-capitalized terms not defined herein shall have their meaning as set forth in the Agreement.
1.Sale of Personalty. For good and valuable consideration, Seller hereby sells, transfers, sets over and conveys to Purchaser all of Seller’s right, title and interest in the Personal Property and the Intangible Personal Property, excluding the Excluded Materials.
- Assignment of Leases and Contracts. For good and valuable consideration, Seller hereby assigns, transfers, sets over and conveys to Purchaser, and Purchaser hereby accepts and assumes the obligations of Seller under the following to the extent arising or accruing on and after the date hereof:
(a)Leases. All of the landlord’s right, title and interest in and to the tenant leases listed in Exhibit B attached hereto (“Leases”) and all guarantees thereof;
(b)Service Contracts Seller’s right, title and interest in and to the contracts described in Exhibit C attached hereto (the “Contracts”).
3.Agreement Applies. The covenants, agreements, disclaimers, representations, warranties, indemnities and limitations provided in the Agreement with respect to the Property (including, without limitation, the limitations of liability provided in the Agreement), are hereby incorporated herein by this reference as if herein set out in full and shall inure to the benefit of and shall be binding upon Purchaser and Seller and their respective successors and assigns.
4.Counterparts. This Agreement may be executed in counterparts, each of which shall be an original and all of which taken together shall constitute one and the same Agreement.
EXHIBIT E-1
IN WITNESS WHEREOF, the undersigned have caused this instrument to be executed as of the date written above.
| DE ANZA DH PROPERTIES LLC, | |
|---|---|
| a Delaware limited liability company | |
| By: | |
| Name: | |
| Title: | |
| PURCHASER: | |
| --- | --- |
| , | |
| By: | |
| Name: | |
| Title: |
EXHIBIT E-2
EXHIBIT F
NOTICE TO TENANTS
____________, 2021
To: all tenants of 10001 and 10101 N. DeAnza Boulevard, Cupertino, California Re:10001 and 10101 N. DeAnza Boulevard, Cupertino, California
Dear Tenant:
Please be advised that the premises of which you are a tenant at the above-referenced property, and the landlord’s interest in your lease, were purchased on this date from De Anza DH Properties LLC (“Seller”) by ___________________ (“Purchaser”). Your security deposit under your lease was transferred to Purchaser. All payments, rent and otherwise, should be made payable to: ___________________ and directed to:
| Very truly yours, | |
|---|---|
| DE ANZA DH PROPERTIES LLC, | |
| a Delaware limited liability company | |
| By: | |
| Name: | |
| Title: | |
| PURCHASER: | |
| --- | --- |
| , | |
| By: | |
| Name: | |
| Title: |
EXHIBIT F
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this “Amendment”) dated effective as of June 4, 2021, is made by and between De Anza DH Properties LLC, a Delaware limited liability company (“Seller”), and North De Anza Boulevard, LLC, a Delaware limited liability company (“Purchaser”).
WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of June 2, 2021 (the “Purchase Agreement”) relating to certain property located in the City of Cupertino, State of California, as more particularly described in the Purchase Agreement (all defined terms not otherwise defined in this Amendment have the same meaning as in the Purchase Agreement); and
WHEREAS, the parties desire to extend the last day of the Due Diligence Period as set forth below;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Amendment to Due Diligence Period; Waiver of Due Diligence Termination Right . Seller and Purchaser hereby agree that the date set forth in Section 1.1(f) of the Purchase Agreement for the Due Diligence Period to end is hereby extended to June 8, 2021.
2.Effect of this Amendment. Except as amended and/or modified by this Amendment, the Purchase Agreement is hereby ratified and confirmed and all other terms of the Purchase Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions of the Purchase Agreement, the provisions of this Amendment shall prevail.
3.Counterparts; Signatures. This Amendment may be executed by facsimile or electronic signature and/or in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.
4.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
[Signature Page Follows]
EXHIBIT F
IN WITNESS WHEREOF, Seller and Purchaser have executed this Amendment to be effective on the date set forth above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| PURCHASER: |
| --- |
| NORTH DE ANZA BOULEVARD, LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
EXHIBIT F
SECOND AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") dated effective as of June 8, 2021, is made by and between De Anza DH Properties LLC, a Delaware limited liability company ("Seller"), and North De Anza Boulevard, LLC, a Delaware limited liability company ("Purchaser").
WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of June 2, 2021, as amended by that certain First Amendment to Purchase and Sale Agreement dated June 4, 2021 (as amended, the "Purchase Agreement") relating to certain property located in the City of Cupertino, State of California, as more particularly described in the Purchase Agreement (all defined terms not otherwise defined in this Amendment have the same meaning as in the Purchase Agreement); and
WHEREAS, the parties desire to extend the last day of the Due Diligence Period as set forth below;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Amendment to Due Diligence Period; Waiver of Due Diligence Termination Right. Seller and Purchaser hereby agree that the date set forth in Section 1.1(f) of the Purchase Agreement for the Due Diligence Period to end is hereby extended to June 10, 2021.
2.Effect of this Amendment. Except as amended and/or modified by this Amendment, the Purchase Agreement is hereby ratified and confirmed and all other terms of the Purchase Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions of the Purchase Agreement, the provisions of this Amendment shall prevail.
3.Counterparts; Signatures. This Amendment may be executed by facsimile or electronic signature and/or in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.
4.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
[Signature Page Follows]
1
741867802
EXHIBIT F
IN WITNESS WHEREOF, Seller and Purchaser have executed this Amendment to be effective on the date set forth above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| PURCHASER: |
| --- |
| NORTH DE ANZA BOULEVARD, LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
THIRD AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") dated effective as of June 10, 2021, is made by and between De Anza DH Properties LLC, a Delaware limited liability company ("Seller"), and North De Anza Boulevard, LLC, a Delaware limited liability company ("Purchaser").
WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of June 2, 2021, that First Amendment to Purchase and Sale Agreement dated as of June 4, 2021, and that Second Amendment to Purchase and Sale Agreement dated as of June 8, 2021 (as so amended, the "Purchase Agreement") relating to certain property located in the City of Cupertino, State of California, as more particularly described in the Purchase Agreement (all defined terms not otherwise defined in this Amendment have the same meaning as in the Purchase Agreement); and
WHEREAS, the parties desire to amend the Purchase Agreement as set forth below;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Existing Lawsuit. From and after the Closing, Seller shall indemnify, defend and hold harmless Purchaser and Purchaser’s members and managers and their respective shareholders, members, managers, directors, officers, affiliates, tenants, agents, employees, successors and assigns (“Purchaser Related Parties”) and the Property from and against any and all losses, costs, damages, claims, liabilities, costs and expenses (including reasonably attorneys’ fees and court costs) incurred by Purchaser or any of Purchaser Related Parties to the extent arising out of or related to that certain matter described as Plotzker, Peter v. City of Cupertino, et al.,
Santa Clara County Superior Court Case Number 19 CV 354371 and any mediation and other proceedings to the extent relating thereto, provided, that, Seller’s indemnity hereunder shall not include any losses, costs, damages or expenses to the extent resulting from the gross negligence or willful misconduct of any of the Purchaser Related Parties or Purchaser. This indemnity shall survive the Closing, but shall expressly be subject to the limitations on Seller’s liability under Section 9.3 of the Purchase Agreement, provided, however, that solely for purposes of the indemnity set forth in this Section 1, the term “Limitation Period” as used and defined in Section 9.3 of the Purchase Agreement shall mean the period commencing on the Closing Date and continuing through July 31, 2022.
2.Waiver of Due Diligence Termination Right. Purchaser hereby waives its right to terminate the Purchase Agreement and receive a return of its Earnest Money pursuant to Section 2.4 of the Purchase Agreement.
3.Effect of this Amendment. Except as amended and/or modified by this Amendment, the Purchase Agreement is hereby ratified and confirmed and all other terms of the Purchase Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions of the Purchase Agreement, the provisions of this Amendment shall prevail.
4.Counterparts; Signatures. This Amendment may be executed by facsimile or electronic signature and/or in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.
5.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Seller and Purchaser have executed this Amendment to be effective on the date set forth above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| PURCHASER: |
| --- |
| NORTH DE ANZA BOULEVARD, LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
FOURTH AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") dated effective as of July 7, 2021, is made by and between De Anza DH Properties LLC, a Delaware limited liability company ("Seller"), and North De Anza Boulevard, LLC, a Delaware limited liability company ("Purchaser").
WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of June 2, 2021, that First Amendment to Purchase and Sale Agreement dated as of June 4, 2021, that Second Amendment to Purchase and Sale Agreement dated as of June 8, 2021, and that Third Amendment to Purchase and Sale Agreement dated as of June 10, 2021 (as so amended, the "Purchase Agreement") relating to certain property located in the City of Cupertino, State of California, as more particularly described in the Purchase Agreement (all defined terms not otherwise defined in this Amendment have the same meaning as in the Purchase Agreement); and
WHEREAS, the parties desire to amend the Purchase Agreement as set forth below;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Closing Date. The Closing Date is hereby extended from July 8, 2021, to July 15, 2021. By not later than 12:00 Pacific time on July 8, 2021, Purchaser shall deliver to Escrow Agent a third earnest money deposit in the amount of $3,000,000 (for purposes of this Amendment and the Purchase Agreement, referred to as the “Third Deposit”). If Purchaser fails to timely deposit the Third Deposit with the Escrow Agent when required in this paragraph, then such failure shall automatically terminate the Purchase Agreement, but without limiting the foregoing Purchaser shall upon request promptly confirm any such termination in writing, and Seller shall have the right to retain the Initial Deposit and the Additional Deposit as liquidated damages, whereupon neither party shall have any further obligations under the Purchase Agreement, as amended hereby, other than those obligations which are expressly made in the Purchase Agreement to survive such termination.
2.Earnest Money. The definition of “Earnest Money” set forth in Section 1.1(e) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
| (e) | Earnest Money: $5,000,000 (comprised of an initial earnest money deposit of $1,000,000 (the "Initial Deposit"), a second earnest money deposit of $1,000,000 (the "Additional Deposit") and the Third Deposit) together with any other deposits of earnest money made pursuant to the terms of this Agreement. The definition of "Earnest Money" includes any interest earned thereon. |
|---|
3.Tenant Estoppel Condition; Ground Lessor Estoppel Condition; Right of First Refusal Declined and Consent to Transfer. Purchaser hereby acknowledges receipt of the Tenant Estoppel Certificate (with modifications made by Apple approved by Purchaser) executed by Apple for each of its two (2) Leases, which Purchaser agrees were timely delivered by Seller
under Section 5.1(b) of the Purchase Agreement, and Purchaser further acknowledges that the Tenant Estoppel Condition is unconditionally satisfied. Purchaser also acknowledges the Ground Lessor Estoppel Condition and its condition under Section 5.1(e) of the Purchase Agreement have each been unconditionally satisfied. Seller acknowledges its condition under Section 5.2(b) of the Purchase Agreement has been unconditionally satisfied.
4.Effect of this Amendment. Except as amended and/or modified by this Amendment, the Purchase Agreement is hereby ratified and confirmed and all other terms of the Purchase Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions of the Purchase Agreement, the provisions of this Amendment shall prevail.
5.Counterparts; Signatures. This Amendment may be executed by facsimile or electronic signature and/or in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.
6.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Seller and Purchaser have executed this Amendment to be effective on the date set forth above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| PURCHASER: |
| --- |
| NORTH DE ANZA BOULEVARD, LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
FIFTH AMENDMENT TO
PURCHASE AND SALE AGREEMENT
THIS FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Amendment") dated effective as of July 14, 2021, is made by and between De Anza DH Properties LLC, a Delaware limited liability company ("Seller"), and North De Anza Boulevard, LLC, a Delaware limited liability company ("Purchaser").
WHEREAS, Seller and Purchaser entered into that certain Purchase and Sale Agreement dated as of June 2, 2021, that First Amendment to Purchase and Sale Agreement dated as of June 4, 2021, that Second Amendment to Purchase and Sale Agreement dated as of June 8, 2021, that Third Amendment to Purchase and Sale Agreement dated as of June 10, 2021, and that Fourth Amendment to Purchase and Sale Agreement dated as of July 7, 2021 (the “Fourth Amendment”) (as so amended, the "Purchase Agreement") relating to certain property located in the City of Cupertino, State of California, as more particularly described in the Purchase Agreement (all defined terms not otherwise defined in this Amendment have the same meaning as in the Purchase Agreement); and
WHEREAS, the parties desire to amend the Purchase Agreement as set forth below;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1.Closing Date. The Closing Date is hereby extended from July 15, 2021, to July 23, 2021. By not later than 12:00 Pacific time on July 15, 2021, Purchaser shall deliver to Escrow Agent a fourth earnest money deposit in the amount of $1,500,000 (for purposes of this Amendment and the Purchase Agreement, referred to as the “Fourth Deposit”). If Purchaser fails to timely deposit the Fourth Deposit with the Escrow Agent when required in this paragraph, then such failure shall automatically terminate the Purchase Agreement, but without limiting the foregoing Purchaser shall upon request promptly confirm any such termination in writing, and Seller shall have the right to retain the Initial Deposit, the Additional Deposit, and the Third Deposit (as defined in the Fourth Amendment) as liquidated damages, whereupon neither party shall have any further obligations under the Purchase Agreement, as amended hereby, other than those obligations which are expressly made in the Purchase Agreement to survive such termination.
2.Earnest Money. The definition of “Earnest Money” set forth in Section 1.1(e) of the Purchase Agreement is hereby deleted in its entirety and replaced with the following:
| (e) | Earnest Money: $6,500,000 (comprised of an initial earnest money deposit of $1,000,000 (the "Initial Deposit"), a second earnest money deposit of $1,000,000 (the "Additional Deposit"), the Third Deposit, and the Fourth Deposit, together with any other deposits of earnest money made pursuant to the terms of this Agreement. The definition of "Earnest Money" includes any interest earned thereon. |
|---|
3.Seller Closing Credit. In addition to the other prorations and adjustments to be made as of the Closing Date as set forth in Article 7 of the Purchase Agreement, at the Closing, Seller shall be entitled to a credit in the amount of $350,000, and Escrow Agent shall include such credit on Escrow Agent’s closing statement.
4.Effect of this Amendment. Except as amended and/or modified by this Amendment, the Purchase Agreement is hereby ratified and confirmed and all other terms of the Purchase Agreement shall remain in full force and effect, unaltered and unchanged by this Amendment. In the event of any conflict between the provisions of this Amendment and the provisions of the Purchase Agreement, the provisions of this Amendment shall prevail.
5.Counterparts; Signatures. This Amendment may be executed by facsimile or electronic signature and/or in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same instrument.
6.Governing Law. This Amendment shall be governed by, and construed and enforced in accordance with, the laws of the State of California.
IN WITNESS WHEREOF, Seller and Purchaser have executed this Amendment to be effective on the date set forth above.
| SELLER: |
|---|
| DE ANZA DH PROPERTIES LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
| PURCHASER: |
| --- |
| NORTH DE ANZA BOULEVARD, LLC, |
| a Delaware limited liability company |
| By: |
| Name: |
| Title: |
cfit-ex311_7.htm
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Howard W. Lutnick, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Cantor Fitzgerald Income Trust, Inc. (the “registrant”); |
|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| --- | --- |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| --- | --- |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| --- | --- |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| --- | --- |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| --- | --- |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| --- | --- |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| --- | --- |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| --- | --- |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| --- | --- |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| --- | --- |
| November 15, 2021 | /s/ Howard W. Lutnick |
| --- | --- |
| Howard W. Lutnick<br><br><br>Chief Executive Officer<br><br><br>(Principal Executive Officer) |
[Exhibit 31.1 to Cantor Fitzgerald Income Trust, Inc.’s 10-Q for the Quarter Ended September 30, 2021]
cfit-ex312_6.htm
Exhibit 31.2
CERTIFICATION
PURSUANT TO SECTION 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, John C. Griffin, certify that:
| 1. | I have reviewed this Quarterly Report on Form 10-Q of Cantor Fitzgerald Income Trust, Inc. (the “registrant”); |
|---|---|
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| --- | --- |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| --- | --- |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| --- | --- |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| --- | --- |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| --- | --- |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| --- | --- |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| --- | --- |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| --- | --- |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| --- | --- |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| --- | --- |
| November 15, 2021 | /s/ John C. Griffin |
| --- | --- |
| John C. Griffin<br><br><br>Chief Financial Officer<br><br><br>(Principal Financial Officer and Treasurer) |
[Exhibit 31.2 to Cantor Fitzgerald Income Trust, Inc’s 10-Q for the Quarter Ended September 30, 2021]
cfit-ex32_8.htm
Exhibit 32
CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Certification of Principal Executive Officer
In connection with the Quarterly Report on Form 10-Q of Cantor Fitzgerald Income Trust, Inc. (the “Company”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Howard W. Lutnick, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
| November 15, 2021 | /s/ Howard W. Lutnick |
| --- | --- |
| Howard W. Lutnick<br><br><br>Chief Executive Officer<br><br><br>(Principal Executive Officer) |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Certification of Principal Financial Officer
In connection with the Quarterly Report on Form 10-Q of Cantor Fitzgerald Income Trust, Inc. (the “Company”) for the period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John C. Griffin, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|---|---|
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| --- | --- |
| November 15, 2021 | /s/ John C. Griffin |
| --- | --- |
| John C. Griffin<br><br><br>Chief Financial Officer<br><br><br>(Principal Financial Officer and Treasurer) |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
[Exhibit 32 to Cantor Fitzgerald Income Trust, Inc.’s 10-Q for the Quarter Ended September 30, 2021]