Prospect Capital Corp 10-K/A, filed Dec 13, 2024
Prospect Capital Corp (PSEC)
10-K/A
2024-12-13
For: 2024-06-30
View Original
Added on
April 10, 2026
About this 10-K/A
Prospect Capital Corp filed this 10-K/A on December 13, 2024, covering the fiscal year ended June 30, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
Amendment No. 1
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the fiscal year ended OR | |||||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
Commission File Number: 814-00659
(Exact name of Registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (212 ) 448-0702
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbols | Name of each exchange on which registered | ||||||
Securities registered pursuant to Section 12(g) of the Act:
| 5.50% Series A1 Preferred Stock, par value $0.001 | ||
| 5.50% Series AA1 Preferred Stock, par value $0.001 | ||
| 5.50% Series MM1 Preferred Stock, par value $0.001 | ||
| 5.50% Series M1 Preferred Stock, par value $0.001 | ||
| 5.50% Series M2 Preferred Stock, par value $0.001 | ||
| 5.50% Series A2 Preferred Stock, par value $0.001 | ||
| 6.50% Series A3 Preferred Stock, par value $0.001 | ||
| 6.50% Series M3 Preferred Stock, par value $0.001 | ||
| 6.50% Series AA2 Preferred Stock, par value $0.001 | ||
| 6.50% Series MM2 Preferred Stock, par value $0.001 | ||
| Floating Rate Series A4 Preferred Stock, par value $0.001 | ||
| Floating Rate Series M4 Preferred Stock, par value $0.001 | ||
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý
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 ý No o
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 ý No o
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.
| ý | Accelerated filer | o | Non-accelerated filer | o | 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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o
Indicate by check mark whether any of those error corrections are restatements that required recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ☒
The aggregate market value of the common equity held by non-affiliates of the Registrant as of December 29, 2023 was $1.809 billion (based on the closing price on that date of $5.99 on the NASDAQ Global Select Market). For the purposes of calculating this amount only, all executive officers and Directors are “affiliates” of the Registrant.
As of August 27, 2024, there were 428,988,217 shares of the Registrant’s common stock outstanding.
Documents Incorporated by Reference
Portions of the Registrant’s definitive Proxy Statement relating to the 2024 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are incorporated by reference in Part III of this Annual Report on Form 10-K to the extent described therein.
EXPLANATORY NOTE
The Registrant is filing this Amendment No. 1 (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended June 30, 2024, which was filed on August 28, 2024 (the “Form 10-K”), solely to amend the format of the audited financial statements of National Property REIT Corp. (“NPRC”), being filed as Exhibits 99.1 and 99.2 herewith, in accordance with Rule 304(e) of Regulation S-T. The Registrant previously determined that NPRC met the conditions of a significant subsidiary under Rule 1-02(w) of Regulation S-X for which the Registrant is required, pursuant to Rule 3-09 of Regulation S-X, to attach separate audited financial statements as an exhibit to its Form 10-K as of and for the years ended December 31, 2023, 2022 and 2021.
Except as otherwise expressly noted, this Amendment does not modify or update in any way (i) the consolidated financial position, the results of operations or cash flows of the Company, or (ii) the disclosures in or exhibits to the Form 10-K; nor does it reflect events occurring after the filing of the Form 10-K. Among other things, forward-looking statements made in the Form 10-K have not been revised to reflect events that occurred or facts that became known to us after the filing of the Form 10-K, and such forward-looking statements should be read in their historical context. Furthermore, this Amendment should be read in conjunction with the Form 10-K and any subsequent filings with the U.S. Securities and Exchange Commission.
PART IV
Item 15. Exhibits, Financial Statement Schedules
The following documents are filed as part of this Annual Report:
1.Financial Statements – See the Index to Consolidated Financial Statements in Item 8 of the Annual Report on Form 10-K filed with the SEC on August 28, 2024.
2.Financial Statement Schedules – The financial statements of National Property REIT Corp. required by Rule 3-09 of Regulation S-X will be provided as Exhibit 99.1 and Exhibit 99.2 to this report.
3.Exhibits – The following exhibits are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit No. | |||||
| 23.3 | |||||
| 23.4 | |||||
| 31.3 | |||||
| 31.4 | |||||
| 32.3 | |||||
| 32.4 | |||||
| 99.1 | |||||
| 99.2 | |||||
* | Filed herewith. | |||||||
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on December 13, 2024.
| PROSPECT CAPITAL CORPORATION | |||||
| By: | /s/ JOHN F. BARRY III | ||||
| John F. Barry III | |||||
| Chairman of the Board and Chief Executive Officer | |||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| /s/ JOHN F. BARRY III | /s/ ANDREW C. COOPER | |||||||
| John F. Barry III | Andrew C. Cooper | |||||||
| Chairman of the Board, Chief Executive Officer and Director | Director | |||||||
| December 13, 2024 | December 13, 2024 | |||||||
| /s/ KRISTIN L. VAN DASK | /s/ WILLIAM J. GREMP | |||||||
| Kristin L. Van Dask | William J. Gremp | |||||||
| Chief Financial Officer | Director | |||||||
| December 13, 2024 | December 13, 2024 | |||||||
| /s/ M. GRIER ELIASEK | /s/ EUGENE S. STARK | |||||||
| M. Grier Eliasek | Eugene S. Stark | |||||||
| President, Chief Operating Officer and Director | Director | |||||||
| December 13, 2024 | December 13, 2024 | |||||||
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in the Registration Statement on Form N-2 (File No. 333-269714) of Prospect Capital Corporation of our report dated August 9, 2024, relating to the combined consolidated financial statements of National Property REIT Corp. as of December 31, 2023 and for the year then ended, appearing in this Amendment No. 1 to the Annual Report on Form 10-K of Prospect Capital Corporation for the year ended June 30, 2024.
/s/ DELOITTE & TOUCHE LLP
Stamford, Connecticut
December 13, 2024
EXHIBIT 23.4
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in the registration statement on Form N-2 (File No. 333-269714) of Prospect Capital Corporation of our report dated August 10, 2023, on our audits of the combined consolidated financial statements of National Property REIT Corp. as of December 31, 2022 and 2021 and for the years then ended, which report is included in this Amendment No. 1 to the Annual Report on Form 10-K of Prospect Capital Corporation for the year ended June 30, 2024.
/s/ CohnReznick LLP
New York, New York
December 13, 2024
EXHIBIT 31.3
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, John F. Barry III, Chairman of the Board and Chief Executive Officer of Prospect Capital Corporation, certify that:
1.I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Prospect Capital Corporation;
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 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 consolidated 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 the 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.
| Date: | December 13, 2024 | ||||
| /s/ JOHN F. BARRY III | |||||
| John F. Barry III | |||||
| Chairman of the Board and Chief Executive Officer | |||||
EXHIBIT 31.4
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a)/15d-14(a)
I, Kristin L. Van Dask, Chief Financial Officer and Treasurer of Prospect Capital Corporation, certify that:
1.I have reviewed this Amendment No. 1 to the Annual Report on Form 10-K of Prospect Capital Corporation;
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 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 consolidated 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 the 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.
| Date: | December 13, 2024 | ||||
| /s/ KRISTIN L. VAN DASK | |||||
| Kristin L. Van Dask | |||||
| Chief Financial Officer | |||||
EXHIBIT 32.3
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with this Amendment No. 1 to the Annual Report on Form 10-K for the year ended June 30, 2024 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, John F. Barry III, Chairman of the Board and Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: | December 13, 2024 | ||||
| /s/ JOHN F. BARRY III | |||||
| John F. Barry III | |||||
| Chairman of the Board and Chief Executive Officer | |||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
EXHIBIT 32.4
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. 1350)
In connection with this Amendment No. 1 to the Annual Report on Form 10-K for the year ended June 30, 2024 (the “Report”) of Prospect Capital Corporation (the “Registrant”), as filed with the Securities and Commission on the date hereof, I, Kristin L. Van Dask, Chief Financial Officer of the Registrant, hereby certify, to the best of my knowledge, that:
1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.
| Date: | December 13, 2024 | ||||
| /s/ KRISTIN L. VAN DASK | |||||
| Kristin L. Van Dask | |||||
| Chief Financial Officer | |||||
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Prospect Capital Corporation and will be retained by Prospect Capital Corporation and furnished to the Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. ss. 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
EXHIBIT 99.1
National Property REIT Corp.
Combined Consolidated Financial Statements
For the years ended December 31, 2023 and 2022
(With Independent Auditor's Report Thereon)
National Property REIT Corp.
Combined Consolidated Financial Statements
Table of Contents
Page | |||||
Independent Auditor's Report | |||||
Combined Consolidated Balance Sheets as of December 31, 2023 and 2022 | 3 | ||||
Combined Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 | 4 | ||||
Combined Consolidated Statements of Changes in (Deficit) Equity for the years ended December 31, 2023 and 2022 | 5 | ||||
Combined Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | 6 | ||||
Notes to Combined Consolidated Financial Statements | 8 | ||||
Independent Auditor's Report
To the Board of Directors
National Property REIT Corp.
Opinion
We have audited the combined consolidated financial statements of National Property REIT Corp. (the "Company"), which comprise the combined consolidated balance sheet as of December 31, 2023, and the related combined consolidated statements of operations, changes in (deficit) equity and cash flows for the year then ended, and the related notes to the combined consolidated financial statements (collectively referred to as the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Predecessor Auditor’s Opinion on 2022 Financial Statements
The financial statements of the Company as of and for the year ended December 31, 2022 were audited by other auditors whose report, dated August 10, 2023, expressed an unmodified opinion on those statements.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
1
In performing an audit in accordance with GAAS, we:
•Exercise professional judgment and maintain professional skepticism throughout the audit.
•Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, no such opinion is expressed.
•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
| /s/ Deloitte & Touche, LLP | ||
| Stamford, Connecticut | ||
| August 9, 2024 | ||
2
National Property REIT Corp.
Combined Consolidated Balance Sheets
| December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| ASSETS | |||||||||||
| Real estate assets | |||||||||||
| Land | $ | 239,500,846 | $ | 252,884,617 | |||||||
Building and improvements | 2,270,308,784 | 2,314,165,808 | |||||||||
Furniture, fixtures, and equipment | 189,100,296 | 154,762,761 | |||||||||
Total real estate assets held for investment | 2,698,909,926 | 2,721,813,186 | |||||||||
Less: accumulated depreciation | (459,534,036) | (380,314,083) | |||||||||
Net real estate assets held for investment | 2,239,375,890 | 2,341,499,103 | |||||||||
Real estate assets held for sale, net | 30,985,546 | — | |||||||||
Total real estate assets, net | 2,270,361,436 | 2,341,499,103 | |||||||||
Cash and cash equivalents | 66,567,915 | 35,212,438 | |||||||||
| Restricted cash | 36,248,212 | 37,869,284 | |||||||||
Accounts receivable, net | 19,211,544 | 22,573,685 | |||||||||
| Interest receivable | 909 | 8,075 | |||||||||
| Due from LendingClub Corporation | 1,202 | 20,756 | |||||||||
Due from affiliates | 124,676 | 1,053,834 | |||||||||
| Preferred equity investments | 14,018,973 | 13,073,865 | |||||||||
| Prepaid expenses and other assets | 17,599,068 | 11,467,721 | |||||||||
| Collateralized loan obligations at fair value | 418,761,852 | 424,746,173 | |||||||||
| Unsecured consumer loans at fair value | 79,499 | 520,946 | |||||||||
| Residual interests in securitizations at fair value | 2,725,658 | 8,540,118 | |||||||||
| Corporate bonds at fair value | 16,484,131 | 11,616,950 | |||||||||
| Interest rate caps at fair value | 20,203,768 | 25,724,128 | |||||||||
| Deferred leasing costs, net | 44,263 | 111,596 | |||||||||
| Lease intangibles, net | 15,426,122 | 15,790,350 | |||||||||
| Right-of-use assets | 22,373,922 | 24,886,491 | |||||||||
| TOTAL ASSETS | $ | 2,920,233,150 | $ | 2,974,715,513 | |||||||
| LIABILITIES AND DEFICIT | |||||||||||
| Liabilities | |||||||||||
| Mortgages payable, net of unamortized discount and debt issuance costs | $ | 2,121,615,056 | $ | 2,182,132,581 | |||||||
Mortgages payable related to real estate assets held for sale, net of unamortized discount and debt issuance costs | 24,616,427 | — | |||||||||
| Reverse repurchase facilities, at fair value, net of unamortized debt issuance costs | 196,336,000 | 196,118,000 | |||||||||
| Senior secured term loans, net of debt issuance costs | 1,002,848,924 | 874,897,855 | |||||||||
| Accounts payable and accrued expenses | 48,259,315 | 42,763,943 | |||||||||
| Security deposits | 7,599,324 | 6,594,854 | |||||||||
| Due to affiliates | 13,856,523 | 11,175,146 | |||||||||
| Prepaid rent and other liabilities | 7,629,080 | 8,332,467 | |||||||||
| Lease liabilities | 27,556,286 | 27,500,110 | |||||||||
| Total liabilities | 3,450,316,935 | 3,349,514,956 | |||||||||
| Commitments and contingencies (Note 20) | |||||||||||
| Deficit | |||||||||||
Preferred stock, $0.001 par value, Series A Cumulative Non-Voting, 12.5%; $125,000 liquidation preference, 125 shares authorized, issued and outstanding | 109,950 | 109,950 | |||||||||
| Common stock, $0.001 par value; 100,000,000 common shares authorized, 3,350,519 and 3,275,011 issued and outstanding, respectively | 3,375 | 3,351 | |||||||||
| Additional paid-in-capital | 19,819,881 | 15,219,904 | |||||||||
| Accumulated deficit | (545,958,649) | (392,654,099) | |||||||||
| Non-controlling interest | (4,058,342) | 2,521,451 | |||||||||
| Total deficit | (530,083,785) | (374,799,443) | |||||||||
| TOTAL LIABILITIES AND DEFICIT | $ | 2,920,233,150 | $ | 2,974,715,513 | |||||||
See Notes to Combined Consolidated Financial Statements.
3
National Property REIT Corp.
Combined Consolidated Statements of Operations
| Years Ended December 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| Income | |||||||||||
| Rental income | $ | 305,463,927 | $ | 280,675,103 | |||||||
| Interest income | 62,971,464 | 39,717,233 | |||||||||
| Other tenant income | 56,366,764 | 49,581,397 | |||||||||
| Total income | 424,802,155 | 369,973,733 | |||||||||
| Costs and expenses | |||||||||||
| Property operating expenses | 172,561,141 | 153,617,314 | |||||||||
| Management fees | 15,192,515 | 13,710,008 | |||||||||
| Depreciation and amortization | 105,903,894 | 120,495,413 | |||||||||
| General and administrative expenses | 30,666,091 | 28,743,890 | |||||||||
Total costs and expenses | 324,323,641 | 316,566,625 | |||||||||
| Other income (expense) | |||||||||||
| Interest and debt expense | (275,297,786) | (259,241,778) | |||||||||
| Fair value adjustments | (11,724,724) | 3,935,656 | |||||||||
| Gain on sale of real estate assets | 43,417,987 | 20,956,684 | |||||||||
| Gain on involuntary conversions | — | 1,531,629 | |||||||||
| Total other income (expense), net | (243,604,523) | (232,817,809) | |||||||||
| Loss before income tax | (143,126,009) | (179,410,701) | |||||||||
| Income tax expense | (3,573) | (11,380) | |||||||||
| Net loss | (143,129,582) | (179,422,081) | |||||||||
| Income attributable to non-controlling interest | (10,159,343) | (3,095,627) | |||||||||
| Dividends attributable to preferred shares | (15,625) | (15,625) | |||||||||
| Net loss attributable to common shares | $ | (153,304,550) | $ | (182,533,333) | |||||||
See Notes to Combined Consolidated Financial Statements.
4
National Property REIT Corp.
Combined Consolidated Statements of Changes in (Deficit) Equity
| Preferred Shares | Common Shares | Additional Paid-in-Capital | Accumulated Deficit | Total Stockholders' (Deficit) | Non-Controlling Interest | Total (Deficit) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 109,950 | $ | 3,275 | $ | 3,199,980 | $ | (210,120,766) | $ | (206,807,561) | $ | 8,711,960 | $ | (198,095,601) | |||||||||||||||||||||||||||
| Issuance of common shares | — | 76 | 16,019,924 | — | 16,020,000 | — | 16,020,000 | ||||||||||||||||||||||||||||||||||
| Contribution from non-controlling interest | — | — | — | — | — | 9,567,328 | 9,567,328 | ||||||||||||||||||||||||||||||||||
| Dividends on common shares | — | — | (4,000,000) | — | (4,000,000) | — | (4,000,000) | ||||||||||||||||||||||||||||||||||
| Dividends on preferred shares | — | — | — | (15,625) | (15,625) | — | (15,625) | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (18,853,464) | (18,853,464) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (182,517,708) | (182,517,708) | 3,095,627 | (179,422,081) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | 109,950 | 3,351 | 15,219,904 | (392,654,099) | (377,320,894) | 2,521,451 | (374,799,443) | ||||||||||||||||||||||||||||||||||
| Issuance of common shares | — | 24 | 4,599,977 | — | 4,600,001 | — | 4,600,001 | ||||||||||||||||||||||||||||||||||
| Contribution from non-controlling interest | — | — | — | — | — | 7,052,476 | 7,052,476 | ||||||||||||||||||||||||||||||||||
| Dividends on common shares | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||
| Dividends on preferred shares | — | — | — | (15,625) | (15,625) | — | (15,625) | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (23,791,612) | (23,791,612) | ||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (153,288,925) | (153,288,925) | 10,159,343 | (143,129,582) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | 109,950 | $ | 3,375 | $ | 19,819,881 | $ | (545,958,649) | $ | (526,025,443) | $ | (4,058,342) | $ | (530,083,785) | |||||||||||||||||||||||||||
See Notes to Combined Consolidated Financial Statements.
5
National Property REIT Corp.
Combined Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||
| Net loss | $ | (143,129,582) | $ | (179,422,081) | ||||||||||
| Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||||
| Depreciation | 105,409,244 | 96,897,855 | ||||||||||||
| Amortization of in-place leases | 95,686 | 23,160,600 | ||||||||||||
| Amortization of leasing commissions | 129,176 | 153,421 | ||||||||||||
| Amortization of other deferred leasing costs | 1,246 | 1,246 | ||||||||||||
| Amortization of above market leases | 268,542 | 282,291 | ||||||||||||
| Amortization of right-of-use assets | 2,512,569 | 8,045,707 | ||||||||||||
| Amortization of debt issuance costs and debt discounts and premiums | 8,240,872 | 7,440,085 | ||||||||||||
| Amortization of corporate bonds | (81,326) | — | ||||||||||||
| Amortization of discount on collateralized loan obligations | (3,590,031) | (2,374,186) | ||||||||||||
| Accretion of PIK on collateralized loan obligations | (1,155,562) | — | ||||||||||||
| Fair value adjustments of collateralized loan obligations | 9,032,496 | 1,322,497 | ||||||||||||
| Fair value adjustments of unsecured consumer loans | (533,648) | (807,032) | ||||||||||||
| Fair value adjustments of residual interests in securitizations | 1,520,787 | 2,995,389 | ||||||||||||
| Fair value adjustments of corporate bonds | (4,785,855) | 6,621,180 | ||||||||||||
| Fair value adjustments of interest rate caps | 7,684,262 | (14,067,690) | ||||||||||||
| Purchases of interest rate caps | (2,163,902) | — | ||||||||||||
| Realized gain/loss on collateralized loan obligations | (1,193,318) | — | ||||||||||||
| Gain on sale of real estate assets | (43,417,987) | (20,956,684) | ||||||||||||
| Gain on involuntary conversions | — | (1,531,629) | ||||||||||||
| Gain/loss on early extinguishment of debt | (245,147) | 503,896 | ||||||||||||
| Income from accretion on residual interests in securitizations | 608,759 | (1,109,048) | ||||||||||||
| Income from accretion on preferred equity investments | (945,108) | (42,486) | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accounts receivable | 3,362,141 | (7,039,912) | ||||||||||||
| Interest receivable | 7,166 | 10,874 | ||||||||||||
| Due to affiliates | 929,158 | 2,230,170 | ||||||||||||
| Due from affiliates | 2,681,377 | (883,953) | ||||||||||||
| Prepaid expenses and other assets | (6,131,347) | (1,204,074) | ||||||||||||
| Accounts payable and accrued expenses | 4,974,282 | 9,263,946 | ||||||||||||
| Security deposits | 1,004,470 | 1,214,225 | ||||||||||||
| Prepaid rent and other liabilities | (703,387) | 997,125 | ||||||||||||
| Deferred leasing costs | (63,089) | (193,335) | ||||||||||||
| Lease liabilities | 56,176 | 435,911 | ||||||||||||
| Net cash used by operating activities | (59,620,880) | (68,055,692) | ||||||||||||
| Cash flows from investing activities: | ||||||||||||||
| Acquisition of real estate assets | — | (333,890,228) | ||||||||||||
| Additions to real estate assets | (78,753,021) | (55,039,076) | ||||||||||||
| Additions to lease intangibles | — | (19,876,824) | ||||||||||||
| Proceeds from disposition of real estate assets | 88,420,521 | 33,693,591 | ||||||||||||
| Proceeds from involuntary conversion | — | 3,117,599 | ||||||||||||
| Purchases of collateralized loan obligations | (14,876,274) | (186,569,431) | ||||||||||||
| Principal payments received on collateralized loan obligations | 5,187,500 | — | ||||||||||||
| Proceeds from disposition of collateralized loan obligations | 12,579,510 | — | ||||||||||||
| Principal payments received on unsecured consumer loans | 975,095 | 3,043,954 | ||||||||||||
| Proceeds from recoveries and sales of charged-off loans | — | 463,251 | ||||||||||||
| Purchase of preferred equity investments | — | (13,031,379) | ||||||||||||
| Purchase of corporate bonds | — | (10,206,130) | ||||||||||||
| Purchases of equity securitizations | — | (20,668,884) | ||||||||||||
| Principal payments received on securitized residual interests | 3,684,914 | 11,591,269 | ||||||||||||
6
National Property REIT Corp.
Combined Consolidated Statements of Cash Flows
| Years Ended December 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Decrease in due from LendingClub Corporation | 19,554 | 5,659 | ||||||||||||
| Net cash provided by (used in) investing activities | 17,237,799 | (587,366,629) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||
| Proceeds from mortgages payable | 18,278,148 | 296,524,430 | ||||||||||||
| Repayments of mortgages payable | (57,831,277) | (22,401,909) | ||||||||||||
| Proceeds from reverse repurchase facilities | 828,000 | 87,315,000 | ||||||||||||
| Repayments of reverse repurchase facilities | (610,000) | (1,247,000) | ||||||||||||
| Proceeds from senior secured term loan | 225,646,619 | 387,580,238 | ||||||||||||
| Repayments of senior secured term loan | (86,950,000) | (94,351,510) | ||||||||||||
| Purchases of interest rate caps | — | (8,345,348) | ||||||||||||
| Payment of debt issuance costs | (15,475,530) | (3,909,916) | ||||||||||||
| Payment of debt extinguishment costs | 386,286 | (184,100) | ||||||||||||
| Proceeds from issuance of common stock | 4,600,001 | 16,020,000 | ||||||||||||
| Dividends on common shares | — | (4,000,000) | ||||||||||||
| Dividends on preferred shares | (15,625) | (15,625) | ||||||||||||
| Contributions from non-controlling interest | 7,052,476 | 9,567,328 | ||||||||||||
| Distributions to non-controlling interests | (23,791,612) | (18,853,464) | ||||||||||||
| Net cash provided by financing activities | 72,117,486 | 643,698,124 | ||||||||||||
| Net increase in cash, cash equivalents, and restricted cash | 29,734,405 | (11,724,197) | ||||||||||||
| Cash, cash equivalents, and restricted cash, beginning of year | 73,081,722 | 84,805,919 | ||||||||||||
| Cash, cash equivalents, and restriced cash, end of year | $ | 102,816,127 | $ | 73,081,722 | ||||||||||
| Supplemental disclosure of cash flow information | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest expense | $ | 267,042,352 | $ | 249,486,382 | ||||||||||
| Income taxes | $ | 3,573 | $ | 11,380 | ||||||||||
| Non-cash investing and financing activities: | ||||||||||||||
| Accrued additions to real estate assets | $ | 4,378,292 | $ | 3,857,202 | ||||||||||
See Notes to Combined Consolidated Financial Statements.
7
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
1.Organization
References herein to the "Company," "we," "us," or "our" refer to National Property REIT Corp. ("NPRC"), formerly known as National Property Holdings Corp., unless the context specifically requires otherwise.
The Company is a Maryland corporation and is a real estate investment trust ("REIT") for U.S. federal income tax purposes. The Company was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. The Company intends to acquire real estate assets, including, but not limited to, industrial, commercial, student housing, self-storage, and multi-family properties. The Company commenced operations on December 31, 2013.
NPH Property Holdings, LLC ("NPH"), a Delaware limited liability company, owns all of the outstanding common stock of the Company. NPH is a wholly-owned subsidiary of Prospect Capital Corporation ("PSEC"). On December 31, 2013, PSEC contributed to the Company, through NPH, ownership interests in entities that own real estate properties. In exchange for the contribution of assets, NPH received shares of the Company’s common stock. These entities were NPH McDowell, LLC ("Oxford"), APH Carroll 41, LLC ("Bexley"), and 146 Forest Parkway, LLC ("146 FP"). On October 23, 2014, United Property REIT Corp. ("UPRC"), an affiliated entity indirectly owned by PSEC, contributed to the Company ownership interest in Michigan Storage, LLC ("Michigan"), an entity that owned a portfolio of self-storage real estate properties. UPH Property Holdings, LLC ("UPH"), a Delaware limited liability company, owned all of the outstanding common stock of UPRC. UPH was a wholly-owned subsidiary of PSEC. On November 26, 2014, American Property REIT Corp. ("APRC"), an affiliated entity indirectly owned by PSEC, contributed to the Company, ownership interest in APH Carroll Resort, LLC (the "Resort"), an entity that owned a multi-family real estate property. On May 1, 2015, APRC contributed to the Company ownership interest in 5100 Live Oaks Blvd, LLC ("Amberly"), an entity that owned a multi-family real estate property. APH Property Holdings, LLC ("APH"), a Delaware limited liability company, owned all of the outstanding common stock of APRC. APH was a wholly-owned subsidiary of PSEC. These entity contribution transactions are collectively referred to as the "Common Control Transfer."
On May 23, 2016, APRC and UPRC (collectively referred to as the "Affiliated REITs") were merged ("Merger") with and into the Company, with the Company continuing as the surviving corporation. The Affiliated REITs were formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets. At the date of Merger, the Affiliated REITs held an investment portfolio of real estate assets owned directly or through joint ventures by making a majority equity investment in property-owning entities. The real estate investments acquired during the Merger are collectively known as the "Merger Investments."
In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations, the Merger and Common Control Transfer transactions noted above were executed between entities under common control. The assets and liabilities of each of the entities acquired through these transactions were recorded at their historical carrying amounts, and the results of operations of these entities have been recognized in the accompanying combined consolidated statements of operations for all periods presented. Subsequent to the Merger during 2016, NPRC's combined consolidated balance sheets reflect the historical carryover basis in the assets and liabilities acquired. The Company has also retrospectively adjusted its financial statements to combine the operating results of the Company and the entities acquired from the date common control began.
National Marketplace Finance, LLC (formerly known as Prospect Finance Company, LLC) ("NMF") is a subsidiary of the Company, and currently owns the online originated unsecured consumer loan portfolio and residual interests in securitizations. NMF holds the interests in ACL Loan Holdings, Inc. ("ACLLH") and American Consumer Lending Limited ("ACLL").
ACLLH was formed to hold the indirect interest in ACL Consumer Loan Trust ("ACL Trust"), which was contributed to ACLLH on June 30, 2014 by the Company, its initial sole member. ACL Trust and American Consumer Lending (Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust, referred to as the "ACL Subsidiaries"), hold unsecured consumer loans purchased from Prosper Funding LLC ("Prosper").
ACL Consumer Loan Trust III ("ACL Trust III"), a subsidiary of ACLLH, formed on June 10, 2014, and American Consumer Lending III (Near-Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust III, referred to as the "ACL III Subsidiaries"), formed on June 13, 2014, hold unsecured consumer loans purchased from LendingClub Corporation. ACL Consumer Loan Trust IV ("ACL Trust IV"), a subsidiary of ACLLH, formed on March 23, 2015, and American Consumer Lending IV (Near-Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust IV, referred to as the "ACL IV Subsidiaries"), formed on January 15, 2015, hold unsecured consumer loans originated by and purchased from LendingClub Corporation. ACL Patient Solutions Trust ("ACL PS"), a subsidiary of ACLLH, formed on October 14, 2015, and ACL Patient Solutions Holdings, LLC, a subsidiary of ACLL, formed on October
8
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
5, 2015, hold unsecured consumer loans from NBT Bank, National Association ("NBT"). From October 20, 2015 to December 31, 2018 ACL PS acquired and held unsecured consumer loans as part of a loan purchase and sale agreement between ACL PS, NBT and Springstone Financial, LLC ("Springstone"), a wholly-owned subsidiary of LendingClub Corporation. ACL Consumer Loan Trust V ("ACL Trust V"), a subsidiary of ACLL, formed on October 16, 2015, holds unsecured consumer loans purchased from Avant II, LLC ("Avant") for the period November 17, 2015 to December 31, 2018. ACL Consumer Loan Trust VI ("ACL Trust VI"), a subsidiary of ACLLH, formed on April 27, 2016, and American Consumer Lending VI, LLC, a subsidiary of ACLL, (collectively with ACL Trust VI, referred to as the "ACL VI Subsidiaries"), formed on November 30, 2015, hold unsecured consumer loans purchased from LendingClub Corporation for the period May 1, 2016 to December 31, 2018. Murray Hill Securitization Holdings Limited ("Murray Hill"), a subsidiary of ACLL, formed on July 24, 2015, holds interest in Murray Hill Marketplace Trust 2016-LC1, a securitization of unsecured consumer loans purchased from LendingClub Corporation for the period October 13, 2016 to December 31, 2018. Murray Hill also holds residual interests in securitizations. LendingClub Corporation and Springstone are hereafter collectively referred to as "LendingClub". American Consumer Lending VII, LLC, a subsidiary of ACLL, formed on October 5, 2017, holds unsecured consumer loans purchased from Prosper and NBT during the period July 28, 2015 to December 31, 2018.
NPH Guarantor, LLC was contributed to NMF on January 13, 2015 by the Company, its initial sole member. NPH Guarantor, LLC is the indemnitor of the ACL III Subsidiaries and ACL PS revolving credit facilities. There was no activity in NPH Guarantor, LLC from inception through December 31, 2018.
National General Lending Limited ("NGL"), a wholly-owned entity of the Company, was formed on May 23, 2019 to own various debt tranches in collateralized loan obligations (“CLOs”). NGL holds the CLOs in NGL Subsidiary Ltd. ("NGL Limited"), a wholly-owned Cayman Islands limited liability company that was formed August 26, 2019. Operations to buy and sell CLOs commenced on October 30, 2019. In connection with NGL's commencement of operations during 2019, PSEC contributed approximately $12,000,000 in cash and transferred approximately $52,139,000 of CLOs.
2.Significant Accounting Policies
a.Principles of Reporting and Use of Estimates
The accompanying combined consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the combined consolidated financial statements and the reported amounts of revenues and expenses during the reported periods.
Management makes significant estimates regarding the allocation of a property’s purchase price to the tangible and intangible assets and liabilities acquired, revenue recognition, and determining whether an asset is impaired. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment.
As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates.
b.Basis of Consolidation and Transfers of Financial Assets
The accompanying combined consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. All intercompany balances and transactions have been eliminated. A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity in a subsidiary not attributable, directly or indirectly, to the Company. Non-controlling interests are required to be presented as a separate component of equity in the combined consolidated balance sheets and the presentation of net income (loss) is modified to present the net income (loss) attributed to controlling and non-controlling interests.
9
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
For a variable interest entity ("VIE"), an entity is subject to consolidation if the equity investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs that meet certain scope characteristics are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This determination can sometimes involve complex and subjective analysis. We are required on an ongoing basis to assess whether we are the primary beneficiary of a VIE.
We may periodically enter into transactions in which we sell financial assets. Upon a transfer of financial assets, we may retain or acquire senior or subordinated interests in the related assets. In connection with such transactions, a determination must be made as to whether we, as the transferor, have surrendered control over transferred financial assets. That determination must consider our continuing involvement in the transferred financial assets, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The financial components approach under applicable GAAP limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. It defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.
From time to time, we may securitize unsecured consumer loans we hold if such securitization allows us access to better financing terms. Depending upon the structure of the securitization transaction, these transactions will be accounted for as either a "sale" and the loans will be removed from the combined consolidated balance sheets or as a "financing" with the loans and financing reported on our combined consolidated balance sheets. Significant judgment may be exercised by us in determining whether a transaction should be recorded as a "sale" or a "financing."
In determining the accounting treatment to be applied to securitization transactions, we evaluate whether the entity used to facilitate the transactions was a VIE and, if so, whether the VIE should be consolidated. Based on our evaluations, we have concluded that one of our securitizations is a VIE that should be consolidated. The Company has determined that the other securitizations that we participated in should not be consolidated since, among other things, we concluded that the transfer of the underlying assets qualified as a sale.
c.Purchase Accounting and Acquisitions of Real Estate
Prior to the Company's adoption of Accounting Standards Update ("ASU") 2017-01 in January 2018, the Company recorded the acquisition of real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination were measured at their acquisition date fair values. Acquisition costs were expensed as incurred. Upon adoption of ASU 2017-01, the Company records the acquisition of real estate that will be used for the production of income as an asset acquisition, with all assets acquired and liabilities assumed recorded at their acquisition date fair values. Acquisition costs are capitalized and allocated to the acquired tangible assets, consisting of land, building and improvements, furniture, fixtures and equipment. The Company assesses the acquisition date fair values of all tangible assets, and identified lease intangibles, consisting of in-place leases, tenant relationships, deferred leasing costs, and above-market and below-market leases.
Real estate assets, including land, building and improvements, and furniture, fixtures and equipment are stated at historical cost less accumulated depreciation. Costs associated with the development, construction and improvement of the Company’s real estate assets are capitalized as incurred. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred, while major replacements and betterments, which improve or extend the useful life of the asset, are capitalized and depreciated over the estimated useful lives.
10
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The Company records depreciation expense using the straight-line method over the useful lives of the respective assets. The estimated useful lives are as follows:
| Category | Term | |||||||
| Building | 15 to 54 years | |||||||
| Improvements | 2 to 14 years | |||||||
| Furniture, fixtures, and equipment | 2 to 14 years | |||||||
Depreciation expense for the years ended December 31, 2023 and 2022 was $105,409,244 and $96,897,855, respectively, and is included in depreciation and amortization expense in the accompanying combined consolidated statements of operations.
The value of acquired land, buildings and improvements is estimated by formal appraisals, observed comparable sales transactions and information gathered during pre-acquisition due diligence activities. The valuation approach considers the value of the property as if it were vacant. The values of furniture, fixtures and equipment are estimated by calculating their replacement cost and reducing that value by factors based upon estimates of their remaining useful lives.
The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease. Characteristics considered by management in allocating these values include the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality, among other factors.
The value of in-place leases and deferred leasing costs are amortized to expense over the remaining term of the respective leases, which range from less than a year to seventeen years. The amount allocated to acquire in-place leases is determined by calculating the estimated time to fill a hypothetically empty property to its stabilization level based on historical observed move-in rates for each property. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The amount allocated to deferred leasing costs is determined by what the Company would have paid to a third-party to secure a new tenant reduced by the expired term of the respective lease. The value of tenant relationships is amortized over the remaining initial lease term and expected renewals, which is thirty seven years. The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease. Acquired intangible assets generally have no residual value. Amortization expense related to these assets was $494,650 and $23,597,558 for the years ended December 31, 2023 and 2022, respectively.
d.Impairment of Real Estate
The Company reviews the carrying value of its real estate assets and intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such reviews indicate that the asset may be impaired, given that the carrying amount of an asset exceeds the sum of its expected future cash flows, on an undiscounted basis, the asset’s carrying amount is written down to its fair value. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results. For the years ended December 31, 2023 and 2022, the Company did not record any impairment charges related to real estate assets.
e.Assets Held for Sale and Discontinued Operations
The Company classifies certain real estate assets as held for sale on the combined consolidated balance sheets once the criteria, as defined by GAAP, have been met. Real estate assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell and are no longer depreciated. The Company reports discontinued operations when the disposal of real estate assets represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. No disposal met the definition of discontinued operations as of December 31, 2023 and 2022.
f.Environmental Matters
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was
11
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
responsible for, the presence or disposal of such substances. The Company recognizes a liability for environmental matters if it is probable a liability has been incurred and the amount of loss can be reasonably estimated. As of December 31, 2023 and 2022, the Company is not aware of any environmental matters that would have an impact on the combined consolidated financial statements.
g.Fair Value Measurements
In accordance with ASC Topic 820, Fair Value Measurement ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, in the principal or most advantageous market considering the highest and best use of an asset or nonperformance risk related to a liability, at the measurement date. The Company uses the most observable inputs that are available to measure fair value. Observable inputs are inputs that the market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s views about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
•Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;
•Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and
•Level 3 - unobservable inputs that are used when little or no market data is available.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk, where applicable, in the Company’s assessment of fair value.
The Company carries its mortgages payable, debt related to consolidated VIE, preferred equity investment, and senior secured term loan at cost, net of unamortized discount, debt issuance costs, and associated amortization, on the accompanying combined consolidated balance sheets.
h.Fair Value of Financial Instruments
Pursuant to ASC Topic 825, Financial Instruments ("ASC 825"), which provides entities with an option to report selected financial assets and liabilities at fair value, the Company has made an election to measure its unsecured consumer loans, residual interest in securitizations, CLOs, corporate bonds, interest rate caps, and reverse repurchase facilities at fair value on the combined consolidated balance sheets. We elected to use the fair value option to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Under this election, (a) unsecured consumer loans charged off, recoveries, and realized gains (losses), and (b) net increase or decrease in unrealized appreciation (depreciation) of the unsecured consumer loans, residual interest in securitizations, CLOs, corporate bonds, interest rate caps, and reverse repurchase facilities are recorded as fair value adjustments on the combined consolidated statements of operations.
i.Revenue Recognition
Rental revenues from residential, student housing, and self-storage tenants are recognized on a contractual basis, as lease periods for these investments are short‑term in nature. Tenant receivables that are deemed uncollectible are recognized as a reduction to rental revenue. The Company recognizes reimbursement for utilities and other expenses recoveries as other revenue when earned. Rental revenues from industrial and commercial tenants are recognized on a straight-line basis over the term of the lease. The industrial and commercial leases contain rental increases at specified intervals. The Company records as an asset, and includes in rental revenues, deferred rent receivable that will be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Deferred rent receivable in the accompanying combined consolidated balance sheets includes the cumulative difference between rental revenue recorded on a straight-line basis and rents received from the tenants in accordance with the respective lease terms.
12
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
Rental income can be comprised of fixed and variable lease payments. The following table shows the details of rental income for the year ended December 31, 2023:
| Fixed rent | $ | 318,320,196 | ||||||
| Less: write-off of tenant receivables | (12,856,269) | |||||||
| Total rental income | $ | 305,463,927 | ||||||
Minimum future rental receipts under the noncancelable portion of commercial and industrial tenant leases, assuming no new or renegotiated leases, for the next five years and thereafter are as follows:
| Year | Rental Receipts | ||||
| 2024 | $ | 556,468 | |||
| 2025 | 209,968 | ||||
| 2026 | 209,968 | ||||
| 2027 | 209,968 | ||||
| 2028 | 209,968 | ||||
| Thereafter | $ | 86,911 | |||
Interest income is recognized on an accrual basis, in accordance with the terms of the loan agreement, to the extent that such amounts are expected to be collected. Generally, our unsecured consumer loans are placed on non-accrual status when the loan is greater than 60 days contractually delinquent or charged off, which may occur if a borrower were to declare bankruptcy prior to a loan being 60 days delinquent, at which point the associated interest receivable balance is reversed against the interest income on the combined consolidated statements of operations. For residual interests in securitizations, interest income is recognized using the effective interest method. Under this method, we recognize as interest income, over the life of the securities, the excess of the cash flows expected to be collected over the securities' carrying value. We update our estimates of expected cash flows quarterly and recognize changes in the calculated effective interest rate on a prospective basis. For certain investments held by the Company, cash not received for interest may be recorded through a payment-in-kind ("PIK"). Interest income recorded as PIK is recognized as income in the period earned.
Gains and losses on the sale of real estate are recognized pursuant to ASC 610, Gains and Losses from the Derecognition of Nonfinancial Assets. Any gain or loss on sale is measured based on the difference between the amount of consideration received and the carrying amount of the sold real estate asset, less costs to sell. For a partial sale of real estate resulting in a transfer of control, the Company measures any non-controlling interest retained at fair value, and recognizes a gain or loss on the difference between the fair value and the carrying amount of the real estate assets retained.
j.Cash and Cash Equivalents
The Company considers all highly-liquid instruments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents includes funds deposited with financial institutions and short-term, highly-liquid overnight investment in money market funds. As of December 31, 2023 and 2022, the Company had cash and cash equivalents of $66,567,915 and $35,212,438, respectively. As of December 31, 2023 and 2022, $19,072,596 and $69,524 of the cash and cash equivalents, respectively, disclosed on the combined consolidated balance sheets represent investments in money market funds, with the remainder held in deposit accounts, substantially all of which exceeded applicable insurance limits.
k.Restricted Cash
Restricted cash consists of cash escrowed under the operating agreements and mortgage agreements for debt service, real estate taxes, property insurance, and capital improvements and other restricted deposits. The Company had restricted cash of $36,248,212 and $37,869,284 as of December 31, 2023 and 2022, respectively. Total cash and cash equivalents, and restricted cash was $102,816,127 and $73,081,722 as of December 31, 2023 and 2022, respectively.
l.Unsecured Consumer Loans
Unsecured consumer loans consist of individual loans purchased from various originators of unsecured consumer loans ("Lending Platforms") under terms of the Company’s agreement with the respective platforms, who are sellers of the unsecured consumer loans that continue to service such loans. Unsecured consumer
13
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
loans made through the Lending Platforms are issued by WebBank, an FDIC-insured, Utah chartered industrial bank, except for loans issued by NBT. After funding a loan, WebBank sells the loan to the Lending Platform, without recourse, in exchange for the principal amount of the loan. Loans issued by NBT are purchased by the Company as part of a loan purchase and sale agreement between ACL PS, NBT and Springstone. All loans purchased are unsecured obligations of individual borrowers with a fixed interest rate and loan terms set between 12 and 84 months. Unsecured consumer loans are recorded on the date purchased by the Company, which is generally at least fifteen days after origination. Unsecured consumer loans are charged off in the month that the loan becomes greater than 120 days contractually delinquent or in the month that the borrower has entered bankruptcy, at which point the outstanding principal amount is written off against the total balance of the unsecured consumer loans on the combined consolidated balance sheets. This results in a fair value adjustment on the combined consolidated statements of operations. Recoveries on charged off loans and sales of charged off loans to third-parties are recorded as received, net of fees.
m.Due from Lending Platforms
LendingClub is an online marketplace lending platform from which we purchase unsecured consumer loans. The Due from LendingClub Corporation amounts presented on the combined consolidated balance sheets represent cash deposited at LendingClub.
n.Accounts Receivable Deemed Uncollectible
The Company monitors its accounts receivable on a tenant-by-tenant basis and if cash collection is deemed not probable, the Company establishes a full reserve for the individual tenant's outstanding balance. For the remaining receivable balance, the Company establishes and maintains a general reserve reflecting the Company's expectation that a portion of the operating receivables will not be collected. As of December 31, 2023 and 2022, $5,172,932 and $3,129,901, respectively, was deemed uncollectible and is included as accounts receivable within the combined consolidated balance sheets.
o.Asset Management and Management Services
Management fee expenses are recognized when incurred in accordance with the terms of each respective management agreement.
p.Debt Issuance Costs and Unamortized Debt Discounts
The Company defers costs incurred in connection with obtaining financing and amortizes the costs using the straight‑line method, which approximates the effective interest rate method, over the terms of the related debt as a component of interest expense. The Company also recognizes a debt discount or premium in connection with mortgages assumed at fair value in accordance with ASC 805. Debt issuance costs and unamortized debt discounts have been presented as a direct deduction to our mortgages payable, mortgages payable related to real estate assets held for sale, debt related to consolidated VIE, and senior secured term loans in the accompanying combined consolidated balance sheets.
At December 31, 2023 and 2022, the Company had net debt issuance costs and debt discounts of $26,351,634 and $19,258,121, respectively. Amortization of debt issuance costs and debt discounts of $8,240,872 and $7,440,085 is included in interest expense in the combined consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively.
q.Non-controlling Interests
Non-controlling interests are comprised of the Company’s joint venture partners’ interests in the joint ventures in real estate properties that the Company consolidates. The Company reports its joint venture partners’ interests in its consolidated real estate joint ventures and other subsidiary interests held by third-parties as non-controlling interests. The Company records these non-controlling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investments’ net income or loss and equity contributions and distributions. These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are generally allocated pro rata based on the respective ownership percentages until the venture reaches certain performance measures, at which time the other venture party will be entitled to preferred distributions (profit interests).
r.Income Taxes
The Company elected to be taxed as a REIT for U.S. federal income tax purposes, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The Company believes it operates in such a manner as to qualify for treatment as a REIT for federal income tax purposes. Accordingly, the Company
14
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its taxable income. A REIT is subject to a number of organizational and operational requirements, including, among others, a requirement that it currently distributes at least 90% of its taxable income to stockholders, subject to certain adjustments. If the Company fails to qualify as a REIT in any taxable year without the benefit of certain relief provisions, it will be subject to federal and state income taxes on its taxable income at regular corporate income tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state or local taxes on its income, property or net worth and federal taxes and excise taxes on its undistributed income. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries ("TRS") will be fully subject to federal, state and local income taxes.
The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740, Income Taxes. Under the liability method, deferred income taxes are recognized for the temporary differences between the GAAP basis and tax basis of the TRS income, assets and liabilities. For the years ended December 31, 2023 and 2022, several of the Company's subsidiaries were considered taxable corporations for U.S. federal and state income tax purposes. The taxable U.S. corporate subsidiaries are subject to corporate level U.S. federal, state and local income tax on their net taxable income.
ASC 740, Income Taxes ("ASC 740") provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the combined consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2023 and 2022, we did not have a liability for any unrecognized tax benefits. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. We file tax returns for U.S. federal, various states and foreign jurisdictions. The statute of limitation is open for all jurisdictions for tax years beginning in 2018.
The Company’s policy is to classify interest and penalties on tax positions, if any, as expenses. For the years ended December 31, 2023 and 2022, no interest and penalties have been accrued.
s.Concentration of Counterparty Risk and Credit Risk
In the normal course of its business, the Company encounters counterparty risk and credit risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, principal and interest outstanding on unsecured consumer loans, and amounts deposited with each of the Company's Lending Platforms. Counterparty risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
t.Servicing, Collection and Upfront Fees
The Company incurs a monthly servicing fee for each outstanding unsecured consumer loan, which is payable to the Lending Platforms for managing payments from borrowers and maintaining loan account portfolios. The Company incurs collection fees on amounts recovered from delinquent loans, which is payable to the Lending Platforms. The Company incurs an upfront fee on unsecured consumer loans purchased from Avant. All servicing, collection and upfront fees are expensed as incurred.
u.Collateralized Loan Obligations ("CLOs")
The Company holds investments in CLOs which are subordinated debt interests in syndicated loans managed by third-party collateral managers with industry experience. The outstanding investments range in expected maturity from October 2026 to April 2032 and pays interest based on the three-month SOFR (“3MS”) plus 5.20% to 9.23%.
CLOs purchased are recorded on the trade date. Primary CLOs purchased either from the collateral manager or the broker are recorded on the settled date, to reflect the potential changes, updates or resizing of the position, due to the long-term nature of settlement. The typical settlement time for Depository Trust Company bonds is three days. Amortization of an original issue discount is calculated to expected maturity date, based on projected cash flows at the time of purchase, and recorded over the expected life of the bond.
Gains or losses from the sale of CLOs are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale. Restructured or permanently impaired CLOs are recorded in the period of measurement and recorded on the combined consolidated statements of operations as
15
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
a realized gain or loss and amortized to expected maturity based on the available cash flows at the time of measurement. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
v.Corporate bonds
The Company holds corporate bonds comprised of investment grade and high yield corporate bonds including performing credit strategies focused on income-oriented, senior loan and bond investment strategies targeting U.S. issuers.
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. Gains or losses from the sale of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
w.Interest rate caps
In order to manage the risks associated with the variable rate financing of the mortgage, the Company may enter into various interest rate cap agreements. The cap agreements have initial notional values equal to the original loan amount of the related mortgages.
Derivative instruments not meeting the criteria for hedge accounting are recorded at fair value on the combined consolidated balance sheets with any change in fair value reflected in the combined consolidated statement of operations in the period of change. The fair value of the interest rate caps as of December 31, 2023 and 2022 was $20,203,768 and $25,724,128, respectively. For the year ended December 31, 2023 and 2022, there was loss of $7,684,262 and gain of $14,067,690, respectively, recorded for the fair value of the interest rate caps.
x.Recent accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, an update to ASC Topic 326, Financial Instruments – Credit Losses. ASU 2016-13 requires measurement and recognition of expected credit losses on financial instruments measured at amortized cost at the end of each reporting period rather than recognizing the credit losses when it is probable that the loss has been incurred in accordance with current GAAP. In November 2018, the FASB issued ASU 2018-19, which clarified that receivables arising from operating leases are not within the scope of ASC Topic 326, and instead, impairment of receivables arising from operating leases should be accounted for under the scope of ASC Topic 842, Leases. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13 by allowing entities to elect the fair value option on certain financial instruments. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2019, with early adoption permitted. The Company adopted the provisions of ASU 2016-13 on January 1, 2022. This adoption did not have a material impact on the combined consolidated financial statements.
In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-04 establishing Accounting Standards Codification ("ASC") Topic 848, Reference Rate Reform, and in January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope (collectively, "ASC 848"). ASC 848 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASC 848 is optional and may be elected over time as reference rate reform activities occur. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 (“ASU 2022-06”) which was issued to defer the sunset date of ASC 848 to December 31, 2024. As of December 31, 2023, the Company has transitioned LIBOR- indexed debt and derivatives to SOFR.
3.Recent Real Estate Transactions
Acquisition of Real Estate Assets Held for Investment
During 2023, the Company did not acquire any properties.
During 2022, the Company acquired the following properties
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Kokomo, a multi-family property located in Kokomo, IN for an aggregate purchase price of $20,500,000 exclusive of acquisition and closing costs.
16
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
For the purchase of this property, the Company obtained bank financing of $12,753,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $911,917.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Stillwater, a multi-family property located in Stillwater, OK for an aggregate purchase price of $26,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $15,328,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,244,358.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Pueblo, a multi-family property located in Pueblo, CO for an aggregate purchase price of $31,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $20,166,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,307,918.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Cheyenne, a multi-family property located in Cheyenne, WY for an aggregate purchase price of $27,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $17,656,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,158,374.
▪On March 29, 2022, the Company, together with a joint venture partner, acquired Southport Crossing, a multi-family property located in Indianapolis, IN for an aggregate purchase price of $48,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $35,600,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,141,881.
▪On March 18, 2022, the Company acquired Rutland Place, a multi-family property located in Macon, GA for an aggregate purchase price of $29,750,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $22,500,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Lancaster Place, a multi-family property located in Calera, AL for an aggregate purchase price of $37,550,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $28,350,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Twin Oaks, a multi-family property located in Hattiesburg, MS for an aggregate purchase price of $44,850,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $33,830,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Enclave at Wolfchase, a multi-family property located in Cordova, TN for an aggregate purchase price of $82,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $60,000,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
The below listed 2022 acquisitions have been accounted for as asset acquisitions. The purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at the date of acquisition. The Company allocated the purchase price, plus capitalized acquisition costs, of the properties acquired during 2022 as follows:
| Property | Land | Building | Improvements | FF&E | Lease Intangibles | Total Purchase Price | ||||||||||||||
| 2022 Acquisitions: | ||||||||||||||||||||
| Enclave at Wolfchase | $ | 4,284,151 | $ | 73,000,327 | $ | 1,627,778 | $ | 520,290 | $ | 3,496,227 | $ | 82,928,773 | ||||||||
| Twin Oaks | 1,631,277 | 40,379,141 | 1,235,591 | 309,137 | 1,875,969 | 45,431,115 | ||||||||||||||
| Lancaster Place | 2,106,551 | 33,038,965 | 951,016 | 249,514 | 1,625,929 | 37,971,975 | ||||||||||||||
| Rutland Place | 1,852,142 | 26,142,545 | 607,972 | 234,807 | 1,343,056 | 30,180,522 | ||||||||||||||
| Southport Crossing | 2,660,957 | 42,356,055 | 617,900 | 1,008,572 | 2,070,961 | 48,714,445 | ||||||||||||||
| Cheyenne | 1,371,052 | 25,432,206 | 203,431 | 316,397 | 949,190 | 28,272,276 | ||||||||||||||
| Pueblo | 1,532,088 | 29,211,806 | — | 408,557 | 1,021,392 | 32,173,843 | ||||||||||||||
| Stillwater | 3,720,206 | 21,896,069 | — | 318,876 | 850,332 | 26,785,483 | ||||||||||||||
| Kokomo | 389,928 | 19,671,250 | 58,809 | 292,446 | 779,856 | 21,192,289 | ||||||||||||||
| Total 2022: | $ | 19,548,352 | $ | 311,128,364 | $ | 5,302,497 | $ | 3,658,596 | $ | 14,012,912 | $ | 353,650,721 | ||||||||
17
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The weighted average amortization period of acquired in-place leases was approximately six months for the year ended December 31, 2022.
Summarized information regarding properties sold during the years ended December 31, 2023 and 2022 is set forth in the table below:
| Property | Disposition Date | Asset Type | Gross Sale Price | Gain on Sale | ||||||||||||||||||||||
| 2022 Dispositions: | ||||||||||||||||||||||||||
| Verandas at Rocky Ridge | 2/1/2022 | Multi-Family | $ | 34,670,000 | $ | 20,956,684 | ||||||||||||||||||||
| Total 2022: | $ | 34,670,000 | $ | 20,956,684 | ||||||||||||||||||||||
| 2023 Dispositions: | ||||||||||||||||||||||||||
| West 22 | 10/27/2023 | Student Housing | $ | 89,000,000 | $ | 43,417,987 | ||||||||||||||||||||
| Total 2023: | $ | 89,000,000 | $ | 43,417,987 | ||||||||||||||||||||||
4.Real Estate Assets
The Company’s ownership interests in real estate properties range from 67% to 100% via either direct ownership or ownership of a property owning entity. Through its ownership interests, the Company controls and therefore consolidates the properties and property owning entities. The interest owned by the other joint venture partner is reflected as non-controlling interest in these combined consolidated financial statements.
The Company’s real estate assets consisted of the following as of December 31, 2023 and 2022:
| Property | Acquisition Date | Ownership Percentage | Asset Type | Location | Real Estate Assets, Net of Accumulated Depreciation | |||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Filet of Chicken* | 10/24/2012 | 100.0% | Industrial | Forest Park, GA | $ | 3,904,473 | $ | 4,064,982 | ||||||||||||||||||||||||||||||
| Arlington Park | 5/8/2013 | 93.3% | Multi-Family | Marietta, GA | 9,139,353 | 8,616,016 | ||||||||||||||||||||||||||||||||
| Taco Bell, OK | 6/4/2014 | 100.0% | Commercial | Yukon, OK | 1,027,561 | 1,080,637 | ||||||||||||||||||||||||||||||||
| Taco Bell, MO | 6/4/2014 | 100.0% | Commercial | Marshall, MO | 828,274 | 872,568 | ||||||||||||||||||||||||||||||||
| Abbie Lakes | 9/30/2014 | 79.1% | Multi-Family | Canal Winchester, OH | 9,896,318 | 10,070,645 | ||||||||||||||||||||||||||||||||
| Brooksedge | 9/30/2014 | 79.1% | Multi-Family | Reynoldsburg, OH | 9,319,103 | 9,574,690 | ||||||||||||||||||||||||||||||||
| Reserve at Abbie Lakes | 9/30/2014 | 79.1% | Multi-Family | Canal Winchester, OH | 21,904,002 | 22,577,192 | ||||||||||||||||||||||||||||||||
| Lake's Edge | 9/30/2014 | 79.1% | Multi-Family | Pickerington, OH | 9,408,695 | 9,709,282 | ||||||||||||||||||||||||||||||||
| Sunbury Ridge | 9/30/2014 | 79.1% | Multi-Family | Columbus OH | 11,031,109 | 11,375,360 | ||||||||||||||||||||||||||||||||
| Stonebridge | 9/30/2014 | 79.1% | Multi-Family | Blacklick, OH | 15,647,208 | 16,284,411 | ||||||||||||||||||||||||||||||||
| Jefferson Chase | 9/30/2014 | 79.1% | Multi-Family | Blacklick, OH | 10,080,770 | 10,286,606 | ||||||||||||||||||||||||||||||||
| Lake Ridge | 10/29/2014 | 79.1% | Multi-Family | Hilliard, OH | 5,394,500 | 5,647,294 | ||||||||||||||||||||||||||||||||
| Orchard Village* | 11/5/2015 | 80.0% | Multi-Family | Aurora, IL | 27,081,074 | 28,425,777 | ||||||||||||||||||||||||||||||||
| Sterling Crimson | 9/28/2016 | 67.0% | Student Housing | Tuscaloosa, AL | 41,332,877 | 42,362,222 | ||||||||||||||||||||||||||||||||
| Hawks Ridge | 9/28/2016 | 67.0% | Student Housing | Iowa City, IA | 26,089,935 | 26,762,353 | ||||||||||||||||||||||||||||||||
| Islander Village | 9/28/2016 | 67.0% | Student Housing | Corpus Christi, TX | 10,436,617 | 10,875,899 | ||||||||||||||||||||||||||||||||
| Campus Quarters | 9/28/2016 | 67.0% | Student Housing | Corpus Christi, TX | 13,943,798 | 14,277,046 | ||||||||||||||||||||||||||||||||
| District on Luther | 9/28/2016 | 67.0% | Student Housing | College Station, TX | 30,373,105 | 30,507,794 | ||||||||||||||||||||||||||||||||
| West 22 | 9/28/2016 | 67.0% | Student Housing | Kennesaw, GA | — | 45,474,999 | ||||||||||||||||||||||||||||||||
| Legacy | 9/28/2016 | 67.0% | Student Housing | Statesboro, GA | 5,659,634 | 5,929,116 | ||||||||||||||||||||||||||||||||
| University Crossing | 9/28/2016 | 67.0% | Student Housing | Manhattan, KS | 16,306,972 | 16,858,191 | ||||||||||||||||||||||||||||||||
| Seasons | 1/30/2017 | 92.5% | Multi-Family | Laurel, MD | 161,985,415 | 164,652,567 | ||||||||||||||||||||||||||||||||
| Villages of Baymeadows | 10/31/2017 | 92.5% | Multi-Family | Jacksonville, FL | 82,257,521 | 82,038,859 | ||||||||||||||||||||||||||||||||
| Casa del Mar | 10/31/2017 | 92.5% | Multi-Family | Jacksonville, FL | 13,616,312 | 13,388,394 | ||||||||||||||||||||||||||||||||
| Silver Oaks | 11/8/2017 | 92.5% | Multi-Family | Southfield, MI | 14,350,028 | 14,088,499 | ||||||||||||||||||||||||||||||||
| Sutton Place | 11/8/2017 | 92.5% | Multi-Family | Southfield, MI | 45,837,049 | 43,808,107 | ||||||||||||||||||||||||||||||||
| Steeplechase | 1/9/2018 | 92.5% | Multi-Family | Largo, MD | 39,329,697 | 40,135,930 | ||||||||||||||||||||||||||||||||
| Olentangy Commons | 6/1/2018 | 92.5% | Multi-Family | Columbus, OH | 102,151,039 | 103,376,766 | ||||||||||||||||||||||||||||||||
| Villages of Wildwood | 7/20/2018 | 92.5% | Multi-Family | Fairfield, OH | 43,375,585 | 43,465,102 | ||||||||||||||||||||||||||||||||
| Falling Creek | 8/8/2018 | 90.0% | Multi-Family | Richmond, VA | 21,167,327 | 21,812,770 | ||||||||||||||||||||||||||||||||
| Crown Pointe | 8/30/2018 | 80.0% | Multi-Family | Danbury, CT | 94,814,557 | 96,754,311 | ||||||||||||||||||||||||||||||||
| Lorring Park | 10/30/2018 | 80.0% | Multi-Family | Forestville, MD | 55,243,926 | 56,642,818 | ||||||||||||||||||||||||||||||||
| Hamptons | 1/9/2019 | 92.5% | Multi-Family | Beachwood, OH | 74,459,472 | 76,343,120 | ||||||||||||||||||||||||||||||||
| The Isle | 6/28/2019 | 92.5% | Multi-Family | Orlando, FL | 24,016,497 | 24,524,503 | ||||||||||||||||||||||||||||||||
| Druid Hills | 7/30/2019 | 96.3% | Multi-Family | Atlanta, GA | 75,288,872 | 76,552,758 | ||||||||||||||||||||||||||||||||
18
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Property | Acquisition Date | Ownership Percentage | Asset Type | Location | Real Estate Assets, Net of Accumulated Depreciation | |||||||||||||||||||||||||||||||||
| 2023 | 2022 | |||||||||||||||||||||||||||||||||||||
| Parcstone | 10/15/2019 | 88.0% | Multi-Family | Fayetteville, NC | 38,871,852 | 40,094,024 | ||||||||||||||||||||||||||||||||
| Stone Ridge | 10/15/2019 | 88.0% | Multi-Family | Fayetteville, NC | 19,336,157 | 19,972,653 | ||||||||||||||||||||||||||||||||
| Sterling Place | 10/28/2019 | 92.5% | Multi-Family | Columbus, OH | 40,453,291 | 40,196,735 | ||||||||||||||||||||||||||||||||
| Hampton on Jupiter | 11/2/2020 | 80.0% | Multi-Family | Dallas, TX | 34,175,498 | 35,123,195 | ||||||||||||||||||||||||||||||||
| Palmetto Creek | 11/10/2020 | 90.0% | Multi-Family | North Charleston, SC | 31,094,893 | 31,299,438 | ||||||||||||||||||||||||||||||||
| Valora at Homewood | 11/19/2020 | 90.0% | Multi-Family | Homewood, AL | 78,484,621 | 73,413,788 | ||||||||||||||||||||||||||||||||
| The Dylan at Fairburn | 12/14/2020 | 100.0% | Multi-Family | Fairburn, GA | 47,783,160 | 48,589,466 | ||||||||||||||||||||||||||||||||
| The Dylan at Grayson | 12/14/2020 | 100.0% | Multi-Family | Grayson, GA | 43,674,038 | 44,488,009 | ||||||||||||||||||||||||||||||||
| Chimneys of Greenville | 1/27/2021 | 100.0% | Multi-Family | Taylors, SC | 17,361,445 | 18,255,507 | ||||||||||||||||||||||||||||||||
| The Laurel Apartments | 2/26/2021 | 96.3% | Multi-Family | Spartanburg, SC | 54,727,859 | 54,304,114 | ||||||||||||||||||||||||||||||||
| The Willows Apartments | 2/26/2021 | 96.3% | Multi-Family | Spartanburg, SC | 20,092,408 | 20,894,148 | ||||||||||||||||||||||||||||||||
| The Edge at Clear Lake | 3/12/2021 | 80.0% | Multi-Family | Webster, TX | 31,762,298 | 32,889,330 | ||||||||||||||||||||||||||||||||
| Pear Orchard | 6/28/2021 | 80.0% | Multi-Family | Ridgeland, MS | 46,840,841 | 47,662,565 | ||||||||||||||||||||||||||||||||
| Lakeshore Landing | 6/28/2021 | 80.0% | Multi-Family | Ridgeland, MS | 20,882,326 | 20,879,577 | ||||||||||||||||||||||||||||||||
| Reflection Pointe | 6/28/2021 | 80.0% | Multi-Family | Flowood, MS | 38,311,181 | 38,603,634 | ||||||||||||||||||||||||||||||||
| Crosswinds | 6/28/2021 | 80.0% | Multi-Family | Pearl, MS | 40,131,416 | 41,368,894 | ||||||||||||||||||||||||||||||||
| Elliot Norcross | 11/30/2021 | 90.0% | Multi-Family | Norcross, GA | 127,042,727 | 125,570,287 | ||||||||||||||||||||||||||||||||
| West Vue | 12/30/2021 | 90.0% | Multi-Family | Orlando, FL | 81,413,379 | 83,173,770 | ||||||||||||||||||||||||||||||||
| Enclave at Wolfchase | 3/18/2022 | 100.0% | Multi-Family | Cordova, TN | 76,391,342 | 77,513,083 | ||||||||||||||||||||||||||||||||
| Twin Oaks | 3/18/2022 | 100.0% | Multi-Family | Hattiesburg, MS | 42,968,788 | 42,954,111 | ||||||||||||||||||||||||||||||||
| Lancaster Place | 3/18/2022 | 100.0% | Multi-Family | Calera, AL | 35,116,710 | 35,827,253 | ||||||||||||||||||||||||||||||||
| Rutland Place | 3/18/2022 | 100.0% | Multi-Family | Macon, GA | 27,745,458 | 28,208,461 | ||||||||||||||||||||||||||||||||
| Southport Crossing | 3/29/2022 | 92.5% | Multi-Family | Indianapolis, IN | 47,177,090 | 47,412,735 | ||||||||||||||||||||||||||||||||
| Cheyenne | 5/26/2022 | 90.0% | Senior Living | Cheyenne, WY | 26,504,526 | 26,964,513 | ||||||||||||||||||||||||||||||||
| Pueblo | 5/26/2022 | 90.0% | Senior Living | Pueblo, CO | 30,145,406 | 30,780,715 | ||||||||||||||||||||||||||||||||
| Stillwater | 5/26/2022 | 90.0% | Senior Living | Stillwater, OK | 25,406,324 | 25,693,236 | ||||||||||||||||||||||||||||||||
| Kokomo | 5/26/2022 | 90.0% | Senior Living | Kokomo, IN | 19,767,727 | 20,148,278 | ||||||||||||||||||||||||||||||||
| Total net real estate assets | $ | 2,270,361,436 | $ | 2,341,499,103 | ||||||||||||||||||||||||||||||||||
| *Properties are held for sale and disclosed on the consolidated balance sheets. | ||||||||||||||||||||||||||||||||||||||
5.Lease Intangibles
Lease intangibles consist of the following:
| As of December 31, 2023 | As of December 31, 2022 | ||||||||||||||||||||||
| Lease Intangibles | Accumulated Amortization | Lease Intangibles, net | Lease Intangibles | Accumulated Amortization | Lease Intangibles, net | ||||||||||||||||||
| In-place leases | $ | 106,347,193 | $ | (106,046,555) | $ | 300,638 | $ | 109,870,457 | $ | (104,818,996) | $ | 5,051,461 | |||||||||||
| Above-market leases | 15,689,752 | (955,734) | 14,734,018 | 10,989,653 | (687,180) | 10,302,473 | |||||||||||||||||
| Below-market leases | — | — | — | — | — | — | |||||||||||||||||
| Tenant relationships | 239,208 | (71,870) | 167,338 | 239,208 | (65,433) | 173,775 | |||||||||||||||||
| Deferred leasing costs | 635,325 | (411,197) | 224,128 | 635,325 | (372,685) | 262,640 | |||||||||||||||||
| Total | $ | 122,911,478 | $ | (107,485,356) | $ | 15,426,122 | $ | 121,734,643 | $ | (105,944,294) | $ | 15,790,349 | |||||||||||
Future amortization expense for the Company’s lease intangibles is as follows:
| Year | Amortization Expense | ||||
| 2024 | $ | 95,687 | |||
| 2025 | 95,686 | ||||
| 2026 | 95,686 | ||||
| 2027 | 95,686 | ||||
| 2028 | 95,686 | ||||
| Thereafter | $ | 14,947,691 | |||
19
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
6.Real Estate Assets Held for Sale
As of December 31, 2023, the real estate assets held by Filet of Chicken and Orchard Village met the criteria to be classified as held for sale. The Company entered into a purchase and sale agreement with an unrelated third-party on January 26, 2024 and May 13, 2024, respectively. Filet of Chicken sale closed on May 9, 2024, resulting in the recognition of a gain in the amount of $7,370,352. Orchard Village sale closed on May 30, 2024, resulting in the recognition of a gain in the amount of 20,683,786.
As of December 31, 2022, no real estate assets met the criteria to be classified as held for sale.
Below is a summary of the major classes of real estate assets classified as held for sale:
| Real Estate Assets Held for Sale | December 31, 2023 | December 31, 2022 | ||||||||||||
| Land | $ | 5,229,284 | $ | — | ||||||||||
| Building and improvements | 39,088,662 | — | ||||||||||||
| Furniture, fixtures, and equipment | 1,604,198 | — | ||||||||||||
| Less: accumulated depreciation | (14,936,599) | — | ||||||||||||
| Total net real estate assets held for sale | $ | 30,985,545 | $ | — | ||||||||||
7.Preferred Equity Investments
On November 14, 2022, the Company, together with a joint venture partner, acquired Terraces at Perkins Rowe, a multi-family property located in Baton Rouge, LA for an aggregate purchase price of $41,400,000. The investment is structured as an investment that incorporates debt-like return metrics. The Company receives SOFR + 2% cash return each month with additional 7% paid-in-kind (PIK) accrued to the Company’s outstanding capital balance. While there is no stated maturity date for this investment, the Company has a put option at the end of 5-year hold period that it intends to exercise. The de facto maturity date is November 14, 2027. During the year ended 2023 and 2022, the Company recognized total interest income of $1,921,054 and $240,425 from preferred equity investment. The Company's preferred equity investment meets the definition of held-to-maturity debt security, which are reported at amortized cost. The Company determined that as of December 31, 2023 and 2022, fair value of the preferred equity investment approximated its cost of $14,018,973 and $13,073,865, respectively.
8.Involuntary Conversions
During 2023, the Company did not record any gain or loss from involuntary conversion of real estate assets.
During 2022, the Company wrote off real estate assets from fire damages. As of December 31, 2022, proceeds of $3,117,599 were received. For the year ended December 31, 2022, a gain from involuntary conversion of $1,531,629 was recorded in relation to the assessed outcome of the damages and is included as gain/loss on involuntary conversions on the combined consolidated statements of operations.
9.Unsecured Consumer Loans
The Company’s portfolio of unsecured consumer loans consists of a large number of small balance homogeneous loans. As of December 31, 2023, the portfolio consisted of 27 loans having an average outstanding principal balance of $3,037 and a maximum balance of $50,000 at the time of origination. As of December 31, 2023, the unsecured consumer loans were issued with stated interest rates ranging from 9.0% to 25.0% with a weighted average interest rate of 15.4% based on outstanding principal of the unsecured consumer loans. As of December 31, 2022, the portfolio consisted of 216 loans having an average outstanding principal balance of $2,430 and maximum balance of $50,000 at the time of origination. As of December 31, 2022, the unsecured consumer loans were issued with stated interest rates ranging from 8.0% to 36.0% with a weighted average interest rate of 18.6% based on outstanding principal of the unsecured consumer loans.
The ability of the borrowers of the unsecured consumer loans to repay the Company are affected by their continuing financial stability. The credit risk of the unsecured consumer loans and the residual interest in securitizations is considered to be higher than for secured loans.
The Lending Platforms classify the unsecured consumer loans into separately identified pools by rating ("Rating"), which indicates the expected level of risk associated with the loan. Each Rating corresponds to an estimated average annualized loss rate range as of the time the Rating is given. The estimated annual loss rate for each loan is based primarily on a proprietary custom risk model developed by each of the Lending Platforms using their respective historical data, borrower specific factors and Fair Isaac Corporation score (“FICO score”) obtained from a credit
20
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
reporting agency. As part of the Rating determination, the Lending Platforms also consider borrower specific factors such as, but not limited to, credit related inquiries in the last six months and debt-to-income ratio.
Ratings are not consistent between Lending Platforms; as such the Company stratifies its unsecured consumer loans into separately identified pools based on the FICO score obtained from a credit reporting agency and as provided by each Lending Platform at origination. The stratified pools are designated "Super Prime," "Prime" or "Near Prime," and defined as follows: Super Prime loans as loans to borrowers with a FICO score of 720 or greater, Prime Loans as loans to borrowers with a FICO score of between 660 and 719 and Near Prime loans as loans to borrowers with a FICO score of between 600 and 659.
The following table summarizes the Company's unsecured consumer loans held as of December 31, 2023:
| Category | Outstanding Principal | Fair Value | Interest Rate Range | Weighted Average Interest Rate* | ||||||||||
| Super Prime | $ | 45,080 | $ | 45,098 | 9.0% - 20.5% | 13.4% | ||||||||
| Prime | 36,932 | 34,401 | 13.5% - 25.0% | 17.9% | ||||||||||
| Near Prime | — | — | 0.0% - 0.0% | —% | ||||||||||
| Total Loans | $ | 82,012 | $ | 79,499 | 15.4% | |||||||||
* Based on outstanding principal of the unsecured consumer loans.
The following table summarizes the Company's unsecured consumer loans held as of December 31, 2022:
| Category | Outstanding Principal | Fair Value | Interest Rate Range | Weighted Average Interest Rate* | ||||||||||
| Super Prime | $ | 182,638 | $ | 182,194 | 8.0% - 20.5% | 12.2% | ||||||||
| Prime | 211,193 | 204,355 | 12.0% - 25.0% | 19.1% | ||||||||||
| Near Prime | 131,088 | 134,397 | 19.5% - 36.0% | 26.8% | ||||||||||
| Total Loans | $ | 524,919 | $ | 520,946 | 18.6% | |||||||||
* Based on outstanding principal of the unsecured consumer loans.
The following table summarizes the delinquency status of the unsecured consumer loans:
| December 31, 2023 | December 31, 2022 | |||||||||||||||||||
| Delinquency Status | Outstanding Principal | Fair Value | % of Total | Outstanding Principal | Fair Value | % of Total | ||||||||||||||
| Current | $ | 75,846 | $ | 75,693 | 92.50 | % | $ | 488,255 | $ | 491,804 | 93.00 | % | ||||||||
| 1 - 30 days | 3,832 | 2,541 | 4.70 | % | 23,907 | 21,852 | 4.60 | % | ||||||||||||
| 31 - 60 days | 1,385 | 1,265 | 1.70 | % | 5,877 | 4,623 | 1.10 | % | ||||||||||||
| 61 - 90 days | 949 | — | 1.10 | % | 6,879 | 2,667 | 1.30 | % | ||||||||||||
| 91 - 120 days | — | — | — | % | — | — | — | % | ||||||||||||
| Total Loans | $ | 82,012 | $ | 79,499 | 100.00 | % | $ | 524,918 | $ | 520,946 | 100.00 | % | ||||||||
10.Collateralized Loan Obligations
NGL invests in the junior debt tranches of collateralized loan obligation (“CLO”) vehicles that in turn own pools of Senior Secured Loans. The credit risk of a CLO is dependent on the underlying assets within the portfolio. For “traditional” CLOs, the collateral pool primarily consists of first lien, senior secured broadly syndicated bank loans (usually at least 90% of the total portfolio), and it may include a predetermined allowable portion of other asset types such as second lien bank loans (which are highly leveraged) and unsecured debt, as well as middle market loans.
Some CLOs consist predominantly of middle market loans as the underlying collateral. The average rating of the underlying collateral is typically single-B, and the leveraged bank loans are typically floating rate, based on SOFR.
The securities held at NGL are B or BB rated mezzanine debt that pay a quarterly interest coupon, based on the notional balance held and a fixed spread plus SOFR, which resets after each payment. The principal is returned through the CLO waterfall at the earlier of the call date or maturity. As of December 31, 2023, based on outstanding notional balance, 12.3% of the portfolio was invested in single-B rated tranches and 87.7% of the portfolio in BB rated tranches with a fixed spread plus LIBOR and/or SOFR at the most recent reset date.
21
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
As of December 31, 2023, the outstanding investment of CLOs comprised of 97 investments with a fair value of $418,761,852 and a face value of $447,833,784. The average outstanding note is approximately $4,617,000 with an expected maturity date ranging from October 2026 to April 2032 and a weighted average expected maturity of 6.0 years as of December 31, 2023. Coupons range from three-month SOFR (“3MS”) plus 5.20% to 9.23% with a weighted average coupon of 3MS + 6.63%.
As of December 31, 2022, the outstanding investment of CLOs comprised of 94 investments with a fair value of $424,746,173 and a face value of approximately $448,235,434. The average outstanding note is approximately $4,768,000 with a stated maturity date ranging from April 2026 to October 2033 and a weighted average stated maturity of 6.0 years as of December 31, 2022. Coupons range from three-month LIBOR (“3ML”) plus 5.20% to 9.23% with a weighted average coupon of 3ML + 6.93%.
The Company purchased $14,876,274 and $186,569,431, respectively, of CLOs from various third-party brokers during the year ended December 31, 2023 and 2022, respectively, which are held by the Bank of New York Mellon as custodian.
11.Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the price that we would receive upon selling an asset or pay to transfer a liability in an orderly transaction to an independent buyer in the principal or most advantageous market in which that financial instrument is transacted.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Most of our financial instruments measured at fair value on a recurring basis were classified as Level 3 as of December 31, 2023 and 2022. During the year ended December 31, 2022, NGL’s CLO portfolio was transferred from Level 2 to Level 3 at January 1, 2022 due to the volatility of the observable inputs, which were caused primarily by rising interest rates. The net change in unrealized (losses) gains on the investments that use Level 3 inputs was $1,276,630 as of December 31, 2022.
During the year ended December 31, 2023, NGL’s repurchase agreements were transferred from Level 3 to Level 2 at January 1, 2023 and are held at cost.
Unsecured Consumer Loans, Residual Interests in Securitizations and Collateralized Loan Obligations
The unsecured consumer loans, residual interests in securitizations, and collateralized loan obligations do not trade in an active market with readily observable prices. For the unsecured consumer loans and residual interests in securitizations, fair value is estimated by using a discounted cash flow methodology based upon significant unobservable inputs, such as loss adjusted discount rates and projected loss rates. The loss adjusted discount rates are used to discount the estimated future cash flows expected to be received from the underlying unsecured consumer loans, which includes both future principal and interest payments. The projected loss rates are based on the perceived credit risk inherent in each Rating of the unsecured loan portfolio. See Note 9 for details of the unsecured consumer loans.
NGL qualifies as an investment company pursuant to ASC Topic 946, Financial Services-Investment Companies. Accordingly, the underlying CLO investments and repurchase agreements are carried at fair value and were retained in consolidation by the Company.
In determining the range of values for our investments in CLOs, management utilizes an independent valuation firm that uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment.
22
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The significant unobservable input used to value the CLOs is the discount rate applied to the estimated future cash flows expected to be received from the underlying investment, which includes both future principal and interest payments. Included in the consideration and selection of the discount rate are the following factors: risk of default, comparable investments, and call provisions. An increase or decrease in the discount rate applied to projected cash flows, where all other inputs remain constant, would result in a decrease or increase, respectively, in the fair value measurement.
The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO debt is less than the cost of those investments. Our CLO investments and/or the CLOs’ underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. These investments are classified as Level 3 in the fair value hierarchy.
Corporate Bonds, Interest Rate Caps and Repurchase Agreements
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. The typical settlement time for Depository Trust Company bonds is three days. Gains or losses from the sale or call of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale or call. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
On a recurring basis, the Company measures its interest rate cap at its estimated fair value. In determining the fair value of the Company's derivatives, the Company uses the present value of expected cash flows based on market observable interest rate yield curve commensurate with the term of the instrument. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and that of the respective counterparty in the fair value measurement. The credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by either the respective counterparty or the Company. However, the Company determined that as of December 31, 2023, the impact of the credit valuation adjustments were not significant to the overall valuation of the derivatives. As a result, the fair value of the derivative is considered to be based primarily on Level 2 inputs.
Repurchase agreements are collateralized with a portion of the CLO investments and the carrying value of the repurchase agreement approximates fair value as of December 31, 2023.
The following table shows the fair value of our unsecured consumer loans, residual interest in securitizations, CLOs, interest rate caps, corporate bonds, and repurchase agreements, disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2023.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets | ||||||||||||||
| Unsecured consumer loans | $ | — | $ | — | $ | 79,499 | $ | 79,499 | ||||||
| Residual interests in securitizations | — | — | 2,725,658 | 2,725,658 | ||||||||||
| Collateralized loan obligations | — | — | 418,761,852 | 418,761,852 | ||||||||||
| Corporate bonds | — | 16,484,131 | — | 16,484,131 | ||||||||||
| Interest rate cap | — | 20,203,768 | — | 20,203,768 | ||||||||||
| Total investments at fair value | $ | — | $ | 36,687,899 | $ | 421,567,009 | $ | 458,254,908 | ||||||
| Liabilities | ||||||||||||||
| Reverse repurchase facilities | $ | — | $ | 196,336,000 | $ | — | $ | 196,336,000 | ||||||
| Total liabilities at fair value | $ | — | $ | 196,336,000 | $ | — | $ | 196,336,000 | ||||||
23
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
For the year ended December 31, 2023, the Company had charge-offs of $0 and recoveries of $0 to Level 3 unsecured consumer loans. Also, the Company borrowed $828,000 and repaid $(610,000) relating to repurchase agreements during 2023.
The following table shows the fair value of our unsecured consumer loans, residual interest in securitizations, CLOs, interest rate caps, corporate bonds, and repurchase agreements, disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2022.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets | ||||||||||||||
| Unsecured consumer loans | $ | — | $ | — | 520,946 | $ | 520,946 | |||||||
| Residual interests in securitizations | — | — | 8,540,118 | 8,540,118 | ||||||||||
| Collateralized loan obligations | — | — | 424,746,173 | 424,746,173 | ||||||||||
| Corporate bonds | — | 11,616,950 | — | 11,616,950 | ||||||||||
| Interest rate cap | — | 25,724,128 | — | 25,724,128 | ||||||||||
| Total investments at fair value | $ | — | $ | 37,341,078 | $ | 433,807,237 | $ | 471,148,315 | ||||||
| Liabilities | ||||||||||||||
| Reverse repurchase facilities | $ | — | $ | — | $ | 196,118,000 | $ | 196,118,000 | ||||||
| Total liabilities at fair value | $ | — | $ | — | $ | 196,118,000 | $ | 196,118,000 | ||||||
For the year ended December 31, 2022, the Company had charge-offs of $(285,500) and recoveries of $463,304 to Level 3 unsecured consumer loans. In addition, the Company borrowed $87,315,000 and repaid $(1,247,000) relating to repurchase agreements during 2022.
Refer to Note 9 for details of the unsecured consumer loans.
The ranges of unobservable inputs used in the fair value measurement of our Level 3 financial instruments as of December 31, 2023 and 2022 were as follows:
| December 31, 2023 | |||||||||||||||||
| Assets/Liabilities | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||
| Unsecured consumer loans | $ | 79,499 | Discounted cash flow | Loss-adjusted discounted rate | 7.70% - 9.87% | 8.05% | |||||||||||
| Projected prepay rate | 0.0% - 7.46% | 5.56% | |||||||||||||||
| Projected loss rate | 0.0% - 3.18% | 2.84% | |||||||||||||||
| Recovery rate | 7.50% - 7.50% | 7.50% | |||||||||||||||
| Residual interests in securitizations | $ | 2,725,658 | Discounted cash flow | Forecasted prepay % of current balance | 32.28% - 33.32% | 32.87% | |||||||||||
| Forecasted default % of current balance | 14.03% - 15.68% | 14.75% | |||||||||||||||
| Severity | 92.50% - 92.50% | 92.50% | |||||||||||||||
| Discount rate | 20.00% - 20.00% | 20.00% | |||||||||||||||
| Collateralized loan obligations | $ | 418,761,852 | Discounted cash flow | Discount rate | 11.05% - 24.02% | 12.93% | |||||||||||
| Weighted average life | 2.1 - 4.6 | 4.0 | |||||||||||||||
24
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| December 31, 2022 | |||||||||||||||||
| Assets/Liabilities | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||
| Unsecured consumer loans | $ | 520,946 | Discounted cash flow | Loss-adjusted discounted rate | 7.60% - 13.83% | 8.40% | |||||||||||
| Projected prepay rate | 1.24% - 12.09% | 7.63% | |||||||||||||||
| Projected loss rate | 0.11% - 8.25% | 5.13% | |||||||||||||||
| Recovery rate | 7.50% - 11.00% | 8.26% | |||||||||||||||
| Residual interests in securitizations | $ | 8,540,118 | Discounted cash flow | Forecasted prepay % of current balance | 5.67% - 30.56% | 30.14% | |||||||||||
| Forecasted default % of current balance | 6.08% - 14.54% | 14.01% | |||||||||||||||
| Severity | 89.00% - 92.50% | 92.48% | |||||||||||||||
| Discount rate | 10.00% - 15.00% | 14.97% | |||||||||||||||
| Collateralized loan obligations | $ | 424,746,173 | Discounted cash flow | Discount rate | 10.60% - 17.00% | 12.70% | |||||||||||
| Weighted average life | 2.5 - 5.0 | 4.3 | |||||||||||||||
| Reverse repurchase facilities | $ | 196,118,000 | Cost, which approximates fair value | — | — | — | |||||||||||
12.Corporate Bonds
The Company holds corporate bonds comprised of investment grade and high yield corporate bonds including performing credit strategies focused on income-oriented, senior loan and bond investment strategies targeting U.S. issuers.
The outstanding maturity is November 2026 including a bi-annual fixed interest coupon of 7.00%. Relevant details for the corporate bonds as of December 31, 2023 and 2022 are as follows:
| December 31, 2023 | ||||||||||||||||||||
| Purchase Date | Security | Face Value (Par) | Price | Net Purchase Price | Maturity | Coupon | ||||||||||||||
| 12/7/2021 | WRLD | $ | 3,000,000 | 99.75 | $ | 2,992,500 | 11/1/2026 | 7.00% | ||||||||||||
| 12/16/2021 | WRLD | 5,000,000 | 100.00 | 5,000,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 2/15/2022 | WRLD | 7,000,000 | 94.00 | 6,580,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/23/2022 | WRLD | 2,572,000 | 87.75 | 2,256,930 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/30/2022 | WRLD | 1,250,000 | 88.25 | 1,103,125 | 11/1/2026 | 7.00% | ||||||||||||||
| 4/4/2022 | WRLD | 310,000 | 88.25 | 273,575 | 11/1/2026 | 7.00% | ||||||||||||||
| $ | 19,132,000 | $ | 18,206,130 | |||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Purchase Date | Security | Face Value (Par) | Price | Net Purchase Price | Maturity | Coupon | ||||||||||||||
| 12/7/2021 | WRLD | $ | 3,000,000 | 99.75 | $ | 2,992,500 | 11/1/2026 | 7.00% | ||||||||||||
| 12/16/2021 | WRLD | 5,000,000 | 100.00 | 5,000,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 2/15/2022 | WRLD | 7,000,000 | 94.00 | 6,580,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/23/2022 | WRLD | 2,572,000 | 87.75 | 2,256,930 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/30/2022 | WRLD | 1,250,000 | 88.25 | 1,103,125 | 11/1/2026 | 7.00% | ||||||||||||||
| 4/4/2022 | WRLD | 310,000 | 88.25 | 273,575 | 11/1/2026 | 7.00% | ||||||||||||||
| $ | 19,132,000 | $ | 18,206,130 | |||||||||||||||||
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. The typical settlement time for Depository Trust Company bonds is three days. Gains or losses from the sale or call of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
of sale or call. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
13.Reverse Repurchase Facilities
On October 30, 2019, NGL entered into a Master Repurchase Agreement (the “Repo Agreement”) with Nomura Securities International, Inc. (“Nomura”) to provide a borrowing facility ("Repo") from which NGL could pledge securities as collateral and borrow up to $105,000,000 under agreed upon terms. Under the terms of the Repo Agreement, NGL received cash up to 75% of the market value of securities with an interest charge of a minimum of 1.80% plus SOFR, calculated as T-2 days for the reference rate. The term of the Repo is two years from commencement date subject to eight rolling three-month periods where upon each reset date, the entire Repo is closed and reopened, and borrowed interest is due to Nomura. Securities in the Repo can be purchased back at any time, subject to maintaining the agreed upon minimum draw on the Repo: 60% drawn during the ramp up period, as defined in the Repo Agreement, ending January 31, 2020, (subsequently extended to March 15, 2020 in the January 15, 2020 amended and restated Repo Agreement), and 90% drawn subsequent to the end of the ramp up period. Should the value of the securities drop to a loan to value ("LTV") greater than 77.5%, NGL Limited must contribute cash or securities to Nomura’s collateral account until the combined value is below 70%.
On August 5, 2020, NGL agreed to the amended and restated Repo Agreement lowering the maximum borrowing under the agreement to $80,000,000, lowering the minimum LTV from 60% to 50% and reducing the deleveraging requirement from 77.5% to 60% including a drop in combined LTV from 70% to 50%. On April 27, 2022, NGL amended and restated repurchase agreement to increase the facility maximum to $200,000,000. On October 31, 2023, NGL amended and restated repurchase agreement to extend the scheduled maturity of the facility to November 2, 2026 as well as adjusted the interest rate to 3.30% plus Term SOFR.
Under the terms of the amended and restated Repo Agreement, NGL continues to receive cash up to 60% of the market value of securities. The interest rate at December 31, 2023 was 3MS + 3.30%. For the year ended December 31, 2023 and 2022, the Company paid $15,689,399 and $6,002,989 of interest to Nomura, respectively. Should the value of the securities drop to an LTV greater than 50%, NGL Limited must contribute cash or securities to Nomura’s collateral account until the combined value is below 60%.
The following table presents a summary of our repurchase agreement borrowings and interest as of December 31, 2023 and 2022:
| Master Repurchase Agreement | December 31, 2023 | December 31, 2022 | |||||||||
| Beginning Balance | $ | 196,118,000 | $ | 110,050,000 | |||||||
| Principal Borrowed | 828,000 | 87,315,000 | |||||||||
| Principal Paid | (610,000) | (1,247,000) | |||||||||
| Amortization of debt issuance cost | — | — | |||||||||
| Total Outstanding Principal | 196,336,000 | 196,118,000 | |||||||||
| Less: unamortized debt issuance cost | — | — | |||||||||
| Total Outstanding Principal, net of unamortized debt issuance cost | $ | 196,336,000 | $ | 196,118,000 | |||||||
14.Mortgages Payable
The Company has outstanding mortgages payable that bear interest at either a fixed or variable rate. Each mortgage payable is secured by a respective real estate property and certain cash reserve accounts required by the borrowing agreements, which are included as restricted cash on the accompanying combined consolidated balance sheets. The following table presents a summary of our mortgages payable as of December 31, 2023 and 2022:
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2023 | Outstanding Principal 12/31/2022 | |||||||||||||||||||||||||||
Abbie Lakes (5) | 4.20% | 10/1/2024 | Amortizing | $ | 9,676,814 | $ | 9,872,848 | |||||||||||||||||||||||||
Brooksedge (5) | 4.20% | 10/1/2024 | Amortizing | 10,195,876 | 10,402,426 | |||||||||||||||||||||||||||
Reserve at Abbie Lakes (5) | 4.20% | 10/1/2024 | Amortizing | 18,669,576 | 19,047,787 | |||||||||||||||||||||||||||
Lakes Edge (5) | 4.20% | 10/1/2024 | Amortizing | 9,343,130 | 9,532,405 | |||||||||||||||||||||||||||
Sunbury Ridge (5) | 4.20% | 10/1/2024 | Amortizing | 9,713,889 | 9,910,675 | |||||||||||||||||||||||||||
Stonebridge (5) | 4.20% | 10/1/2024 | Amortizing | 14,348,379 | 14,639,050 | |||||||||||||||||||||||||||
Jefferson Chase (5) | 4.20% | 10/1/2024 | Amortizing | 11,345,230 | 11,575,063 | |||||||||||||||||||||||||||
Lake Ridge (5) | 4.11% | 10/1/2024 | Amortizing | 7,455,363 | 7,607,986 | |||||||||||||||||||||||||||
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2023 | Outstanding Principal 12/31/2022 | |||||||||||||||||||||||||||
Orchard Village (4) | 4.43% | 12/1/2025 | Amortizing | 24,673,727 | 25,148,946 | |||||||||||||||||||||||||||
| Sterling Crimson - Loan 1 | 4.20% | 10/1/2026 | Amortizing | 39,746,264 | 40,457,910 | |||||||||||||||||||||||||||
| Hawk's Ridge | 4.20% | 10/1/2026 | Amortizing | 23,920,024 | 24,348,306 | |||||||||||||||||||||||||||
| Islander Village | 4.20% | 10/1/2026 | Amortizing | 10,406,295 | 10,592,616 | |||||||||||||||||||||||||||
| Campus Quarters | 4.20% | 10/1/2026 | Amortizing | 13,658,262 | 13,902,809 | |||||||||||||||||||||||||||
| District on Luther | 4.20% | 10/1/2026 | Amortizing | 30,889,351 | 31,442,416 | |||||||||||||||||||||||||||
West 22 - Loan 1 (1) | 4.20% | 10/1/2026 | Amortizing | — | 43,868,144 | |||||||||||||||||||||||||||
| Legacy | 4.77% | 1/1/2029 | Interest Only | 7,480,000 | 7,480,000 | |||||||||||||||||||||||||||
| Seasons | 4.59% | 2/1/2029 | Interest Only | 153,580,000 | 153,580,000 | |||||||||||||||||||||||||||
Abbie Lakes - Loan 2 (5) | 5.82% | 10/1/2024 | Amortizing | 2,473,253 | 2,510,634 | |||||||||||||||||||||||||||
Brooksedge - Loan 2 (5) | 5.82% | 10/1/2024 | Amortizing | 2,366,378 | 2,402,144 | |||||||||||||||||||||||||||
Reserve at Abbie Lakes - Loan 2 (5) | 5.82% | 10/1/2024 | Amortizing | 2,945,204 | 2,989,719 | |||||||||||||||||||||||||||
Lakes Edge - Loan 2 (5) | 5.84% | 10/1/2024 | Amortizing | 4,162,429 | 4,225,101 | |||||||||||||||||||||||||||
Sunbury Ridge - Loan 2 (5) | 5.83% | 10/1/2024 | Amortizing | 3,438,348 | 3,490,218 | |||||||||||||||||||||||||||
Stonebridge - Loan 2 (5) | 5.84% | 10/1/2024 | Amortizing | 2,694,227 | 2,734,793 | |||||||||||||||||||||||||||
Jefferson Chase - Loan 2 (5) | 5.82% | 10/1/2024 | Amortizing | 4,691,141 | 4,762,044 | |||||||||||||||||||||||||||
Lake Ridge - Loan 2 (5) | 5.82% | 10/1/2024 | Amortizing | 1,477,163 | 1,499,364 | |||||||||||||||||||||||||||
| Villages of Baymeadows | 4.14% | 11/1/2027 | Amortizing | 75,176,450 | 76,452,417 | |||||||||||||||||||||||||||
| Casa del Mar | 4.14% | 11/1/2027 | Amortizing | 12,018,805 | 12,222,800 | |||||||||||||||||||||||||||
| Sutton Place | 4.03% | 12/1/2029 | Interest Only | 44,044,000 | 44,044,000 | |||||||||||||||||||||||||||
| Silver Oaks | 4.03% | 12/1/2029 | Interest Only | 14,185,000 | 14,185,000 | |||||||||||||||||||||||||||
| Steeplechase | 4.07% | 2/1/2028 | Amortizing | 36,150,558 | 36,668,000 | |||||||||||||||||||||||||||
West 22 - Loan 2 (1) | 6.00% | 10/1/2026 | Amortizing | — | 3,714,149 | |||||||||||||||||||||||||||
| Sterling Crimson - Loan 2 | 6.04% | 10/1/2026 | Amortizing | 1,734,294 | 1,762,483 | |||||||||||||||||||||||||||
| Olentangy Commons | 4.43% | 6/1/2030 | Interest Only | 92,876,000 | 92,876,000 | |||||||||||||||||||||||||||
| Villages of Wildwood | 4.46% | 8/1/2030 | Interest Only | 39,525,000 | 39,525,000 | |||||||||||||||||||||||||||
| Falling Creek | 4.52% | 9/1/2030 | Interest Only | 19,335,000 | 19,335,000 | |||||||||||||||||||||||||||
Reserve at Abbie Lakes - Loan 3 (5) | 5.88% | 10/1/2024 | Amortizing | 5,329,017 | 5,415,477 | |||||||||||||||||||||||||||
Sunbury Ridge - Loan 3 (5) | 5.94% | 10/1/2024 | Amortizing | 1,161,656 | 1,180,296 | |||||||||||||||||||||||||||
Abbie Lakes - Loan 3 (5) | 5.94% | 10/1/2024 | Amortizing | 1,099,291 | 1,116,931 | |||||||||||||||||||||||||||
Brooksedge - Loan 3 (5) | 5.90% | 10/1/2024 | Amortizing | 2,269,897 | 2,306,590 | |||||||||||||||||||||||||||
Jefferson Chase - Loan 3 (5) | 5.90% | 10/1/2024 | Amortizing | 2,139,657 | 2,174,244 | |||||||||||||||||||||||||||
Lake Ridge - Loan 3 (5) | 5.91% | 10/1/2024 | Amortizing | 2,139,961 | 2,174,490 | |||||||||||||||||||||||||||
| Crown Pointe | 4.44% | 9/1/2030 | Interest Only | 89,400,000 | 89,400,000 | |||||||||||||||||||||||||||
| Lorring Park | 4.83% | 11/1/2030 | Interest Only | 47,680,000 | 47,680,000 | |||||||||||||||||||||||||||
| Hamptons Apartments | 4.61% | 2/1/2031 | Interest Only | 79,520,000 | 79,520,000 | |||||||||||||||||||||||||||
| The Isle | 3.79% | 7/1/2031 | Interest Only | 21,200,000 | 21,200,000 | |||||||||||||||||||||||||||
| Druid Hills | 4.26% | 8/1/2046 | Interest Only | 79,104,000 | 79,104,000 | |||||||||||||||||||||||||||
Abbie Lakes - Loan 4 (5) | 4.71% | 10/1/2024 | Amortizing | 1,420,366 | 1,446,688 | |||||||||||||||||||||||||||
Reserve at Abbie Lakes - Loan 4 (5) | 4.65% | 10/1/2024 | Amortizing | 1,348,392 | 1,373,647 | |||||||||||||||||||||||||||
| Lakes Edge - Loan 3 | 4.45% | 10/1/2024 | Amortizing | 2,596,679 | 2,647,053 | |||||||||||||||||||||||||||
Sunbury Ridge - Loan 4 (5) | 4.67% | 10/1/2024 | Amortizing | 2,016,584 | 2,054,221 | |||||||||||||||||||||||||||
Stonebridge - Loan 3 (5) | 4.48% | 10/1/2024 | Amortizing | 6,275,646 | 6,396,752 | |||||||||||||||||||||||||||
| Parcstone | 3.14% | 11/1/2029 | Interest Only | 30,127,000 | 30,127,000 | |||||||||||||||||||||||||||
| Stone Ridge | 3.14% | 11/1/2029 | Interest Only | 14,662,000 | 14,662,000 | |||||||||||||||||||||||||||
| Sterling Place | 3.95% | 11/1/2031 | Interest Only | 34,196,000 | 34,196,000 | |||||||||||||||||||||||||||
West 22 - Loan 3 (1) | 4.06% | 10/1/2026 | Amortizing | — | 2,493,507 | |||||||||||||||||||||||||||
| University Crossing - Loan 2 | 5.04% | 7/1/2030 | Interest Only | 14,679,000 | 14,679,000 | |||||||||||||||||||||||||||
| Arlington Park | 5.11% | 11/1/2030 | Amortizing | 13,485,208 | 13,494,000 | |||||||||||||||||||||||||||
| Hampton on Jupiter | 2.90% | 11/1/2032 | Interest Only | 27,590,000 | 27,590,000 | |||||||||||||||||||||||||||
| Palmetto Creek | 4.57% | 9/1/2030 | Interest Only | 25,865,000 | 25,865,000 | |||||||||||||||||||||||||||
| Valora at Homewood | 2.80% | 8/1/2030 | Interest Only | 63,844,000 | 63,844,000 | |||||||||||||||||||||||||||
| The Dylan at Fairburn | 3.10% | 10/1/2026 | Interest Only | 43,900,000 | 43,900,000 | |||||||||||||||||||||||||||
| The Dylan at Grayson | 3.10% | 10/1/2026 | Interest Only | 40,500,000 | 40,500,000 | |||||||||||||||||||||||||||
| Sutton Place - Loan 2 | 4.36% | 12/1/2029 | Amortizing | 10,227,961 | 10,414,291 | |||||||||||||||||||||||||||
| Silver Oaks - Loan 2 | 4.36% | 12/1/2029 | Amortizing | 4,604,961 | 4,688,853 | |||||||||||||||||||||||||||
27
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2023 | Outstanding Principal 12/31/2022 | |||||||||||||||||||||||||||
| Chimneys of Greenville | 3.10% | 2/1/2031 | Interest Only | 14,075,000 | 14,075,000 | |||||||||||||||||||||||||||
| The Laurel Apartments | 3.06% | 3/1/2031 | Interest Only | 42,025,000 | 42,025,000 | |||||||||||||||||||||||||||
| The Willows Apartments | 3.06% | 3/1/2031 | Interest Only | 19,000,000 | 19,000,000 | |||||||||||||||||||||||||||
| The Edge at Clear Lake | 3.87% | 4/1/2033 | Interest Only | 25,496,000 | 25,496,000 | |||||||||||||||||||||||||||
| Pear Orchard | 3.20% | 7/1/2033 | Interest Only | 38,175,000 | 38,175,000 | |||||||||||||||||||||||||||
| Lakeshore Landing | 3.20% | 7/1/2033 | Interest Only | 16,950,000 | 16,950,000 | |||||||||||||||||||||||||||
| Reflection Pointe | 3.20% | 7/1/2033 | Interest Only | 31,050,000 | 31,050,000 | |||||||||||||||||||||||||||
| Crosswinds | 3.20% | 7/1/2033 | Interest Only | 33,825,000 | 33,825,000 | |||||||||||||||||||||||||||
| Parcstone | 4.60% | 11/1/2029 | Interest Only | 12,666,000 | 12,666,000 | |||||||||||||||||||||||||||
| Stone Ridge | 4.60% | 11/1/2029 | Interest Only | 6,883,000 | 6,883,000 | |||||||||||||||||||||||||||
| Falling Creek | 4.18% | 9/1/2030 | Interest Only | 6,039,000 | 6,039,000 | |||||||||||||||||||||||||||
Elliot Norcross (3) | 5.60% | 12/1/2024 | Interest Only | 105,494,199 | 101,123,607 | |||||||||||||||||||||||||||
West Vue (3) | 3.50% | 1/1/2025 | Interest Only | 73,000,000 | 73,000,000 | |||||||||||||||||||||||||||
| Enclave at Wolfchase | 3.67% | 4/1/2027 | Interest Only | 60,000,000 | 60,000,000 | |||||||||||||||||||||||||||
Twin Oaks (3) | 4.15% | 4/1/2025 | Interest Only | 35,273,726 | 33,960,361 | |||||||||||||||||||||||||||
Lancaster Place (3) | 4.15% | 4/1/2025 | Interest Only | 29,154,930 | 28,535,911 | |||||||||||||||||||||||||||
Rutland Place (3) | 4.15% | 4/1/2025 | Interest Only | 23,432,343 | 22,710,174 | |||||||||||||||||||||||||||
| Southport Crossing | 3.46% | 4/1/2032 | Interest Only | 36,075,000 | 36,075,000 | |||||||||||||||||||||||||||
| Cheyenne | 4.71% | 6/1/2032 | Interest Only | 17,656,000 | 17,656,000 | |||||||||||||||||||||||||||
| Pueblo | 4.71% | 6/1/2032 | Interest Only | 20,166,000 | 20,166,000 | |||||||||||||||||||||||||||
| Stillwater | 4.71% | 6/1/2032 | Interest Only | 15,328,000 | 15,328,000 | |||||||||||||||||||||||||||
| Kokomo | 4.71% | 6/1/2032 | Interest Only | 12,753,000 | 12,753,000 | |||||||||||||||||||||||||||
| Villages of Wildwood - Loan 2 | 6.80% | 8/1/2030 | Interest Only | 18,868,000 | 18,868,000 | |||||||||||||||||||||||||||
| Villages of Baymeadows - Loan 2 | 7.19% | 11/1/2027 | Amortizing | 14,071,371 | 14,196,784 | |||||||||||||||||||||||||||
| Casa del Mar - Loan 2 | 7.19% | 11/1/2027 | Amortizing | 3,509,920 | 3,541,202 | |||||||||||||||||||||||||||
| Pear Orchard - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 4,800,000 | 4,800,000 | |||||||||||||||||||||||||||
| Lakeshore Landing - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 1,005,000 | 1,005,000 | |||||||||||||||||||||||||||
| Reflection Pointe - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 2,153,000 | 2,153,000 | |||||||||||||||||||||||||||
| Crosswinds - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 4,776,000 | 4,776,000 | |||||||||||||||||||||||||||
| Hampton on Jupiter - Loan 2 | 6.84% | 12/1/2032 | Interest Only | 11,253,000 | — | |||||||||||||||||||||||||||
| Total outstanding principal | 2,157,731,195 | 2,197,284,332 | ||||||||||||||||||||||||||||||
| Less: unamortized discount and debt issuance costs | (11,499,712) | (15,151,751) | ||||||||||||||||||||||||||||||
| Total mortgages payable, net of unamortized discount and debt issuance costs | $ | 2,146,231,483 | $ | 2,182,132,581 | ||||||||||||||||||||||||||||
| (1) West 22 was disposed of on October 27, 2023 (Note 3). The mortgage payable was extinguished at date of sale. (2) Floating interest rates are indexed to the one month USD LIBOR or SOFR. Rates noted are as of December 31, 2023. (3) The loan includes two one-year extension options beyond the disclosed initial maturity date. (4)Properties are held for sale and disclosed on the consolidated balance sheets. (5) The loans were refinanced on June 28, 2024. | ||||||||||||||||||||||||||||||||
On October 27, 2023, in connection with the sale of West 22, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $49,343,602. As a result, the Company recognized a gain on early extinguishment of debt of $245,147, which is included within interest expense on the combined consolidated statements of operations.
On February 1, 2022, in connection with the sale of Verandas at Rocky Ridge, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $18,410,000. As a result, the Company recognized a loss on early extinguishment of debt of $503,896, which is included within interest expense on the combined consolidated statements of operations.
Future scheduled principal payments of mortgage payable are as follows: $105,115,507 (2024), $111,749,382 (2025), $119,988,865 (2026), $124,580,862 (2027), $126,305,510 (2028), and $1,569,991,071 (thereafter).
15.Ground Leases
The Company entered into ground lease agreements through acquisition of Druid Hills and West Vue. If the Company has right to extend the term of a ground lease, such option period has been included within the calculation of the right of use assets and lease liabilities. The Company incurred initial costs of $15,689,752 to acquire the leases, which is included in the intangibles and amortized over the life of the lease. As of December 31, 2023 and 2022, the right-of-use asset were $22,232,919 and $24,311,989, respectively. As of December 31, 2023 and 2022, the lease liability was $27,415,908 and $26,926,303, respectively. During the years ended December 31, 2023 and 2022, the
28
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
lease expense recognized on a straight-line basis was $4,263,995 and $4,263,995, respectively, and is included in property operating expenses on the accompanying combined consolidated statements of operations.
The Company utilized the risk-free rate over the term of each lease as the discount rate to be applied to its future lease payments when accounting for its right of use assets and lease liabilities, which ranged between 4.26% and 7.11%.
The table below presents the summarized quantitative information with regard to lease contracts the Company has entered into as of December 31, 2023:
| Category | Term | |||||||
| Weighted avg. of remaining term - operating leases (months) | 947 | |||||||
| Weighted avg. of remaining term - operating leases (years) | 79 | |||||||
| Weighted avg. of annual discount rate - operating leases | 6.04% | |||||||
The table below presents the summarized quantitative information with regard to lease contracts the Company has entered into as of December 31, 2022:
| Category | Term | |||||||
| Weighted avg. of remaining term - operating leases (months) | 956 | |||||||
| Weighted avg. of remaining term - operating leases (years) | 80 | |||||||
| Weighted avg. of annual discount rate - operating leases | 6.04% | |||||||
The future minimum lease payments to be paid under noncancelable leases in effect as of December 31, 2023 are as follows:
| Year | Payment | |||||||
| 2024 | $ | 1,432,408 | ||||||
| 2025 | 1,459,777 | |||||||
| 2026 | 1,487,692 | |||||||
| 2027 | 1,516,166 | |||||||
| 2028 | 1,545,209 | |||||||
| Thereafter | 373,800,917 | |||||||
| Total balance due | 381,242,169 | |||||||
| Less: lease discount | (353,826,260) | |||||||
| Lease liabilities | $ | 27,415,909 | ||||||
Total cash paid for amounts included in lease liabilities for the years ended December 31, 2023 and 2022 are $1,407,794 and $1,381,446, respectively.
In addition, as of December 31, 2023 and 2022, the Company also has an equipment lease liability of $140,377 and $573,807, respectively.
16.Income Taxes
Income taxes consisted of the following for the years ended:
| December 31, 2023 | December 31, 2022 | |||||||
| Current federal tax expense | (3,573) | (11,380) | ||||||
| Income tax expense | $ | (3,573) | $ | (11,380) | ||||
17.Equity
As of December 31, 2023 and 2022, the Company authorized 100,000,000 common shares, par value $0.001. NPH is the Company’s sole common stockholder. As of December 31, 2023 and 2022, the Company paid an aggregate of $876,160,619 and $876,160,619 of dividends on common shares, respectively.
As of December 31, 2023 and 2022, the Company had 125 shares outstanding in connection with a private placement of 12.5% Series A Cumulative Non-Voting Preferred Stock, par value $0.001 per share (Series A Preferred Stock), respectively. In general, holders of Series A Preferred Stock are entitled to receive cumulative dividends semiannually at a per annum rate equal to 12.5% of the total purchase price of $1,000 per share plus accumulated and unpaid dividends. The Series A Preferred Stock is redeemable by the Company for $1,000 per share plus accumulated and unpaid dividends. Upon liquidation and dissolution of the Company, the holders of the Series A Preferred Stock
29
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
are entitled to a liquidation preference in the amount of the share’s purchase price, plus all accumulated and unpaid dividends. Series A Preferred Stock are not convertible or exchangeable for any other property or securities of the Company. As of December 31, 2023 and 2022, the Company paid an aggregate of $282,374 and $266,749 of dividends on Series A preferred shares, respectively.
18.Related Party Transactions
On December 31, 2013, the Company entered into a management assistance agreement with Prospect Administration LLC ("Prospect") to provide significant managerial assistance to the Company on behalf of PSEC.
In accordance with the Investment Company Act of 1940, PSEC must make available "significant managerial assistance" to the Company. Prospect provides assistance with significant guidance and counsel concerning the management, operations, and business objectives and policies to the Company. Services may include arranging financing, managing relationships with financing sources, restructuring existing debt and evaluating acquisition and divestiture opportunities. Prospect also exercises a controlling influence over the policies of the Company. On a quarterly basis, the Company pays a managerial assistance fee to Prospect for time and effort in assisting and providing commercial and mezzanine lending, investment banking, and private equity investing services. The Company incurred managerial assistance fees of $2,575,000 and $2,100,000 for each of the years ended December 31, 2023 and 2022, which are included in management fees in the accompanying combined consolidated statements of operations.
On a quarterly basis, the Company pays Prospect for professional services provided related to legal counsel, taxation, and general accounting. For the years ended December 31, 2023 and 2022, the Company incurred professional service fees of $2,088,611 and $1,773,219, respectively, which are included in general and administrative expenses in the accompanying combined consolidated statements of operations. As of December 31, 2023 and 2022, $595,697 and $651,770, respectively, is due to Prospect and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
As of December 31, 2023, $4,617, $1,221 and $3,307,281 is due to Prospect, Prospect Capital Management ("PCM") and PSEC, respectively, for reimbursement of expenses paid on behalf of the Company and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
As of December 31, 2022, $78,112, $8,738 and $3,323 is due to Prospect, PCM and PSEC, respectively, for reimbursement of expenses paid on behalf of the Company and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
The Company generally incurs a 2.0% to 3.0% structuring fee for the PSEC equity portion of each acquired property. The structuring fee is paid to PSEC for structuring and providing guidance for each purchase transaction. For the years ended December 31, 2023 and 2022, the Company incurred structuring fees of $0 and $2,685,990, respectively.
The Company also entered into property management agreements with the non-controlling interest joint venture partners to manage the operations of the properties. The Company pays a monthly management fee of 2.0% - 5.0% of the gross monthly rents to the property managers. For the years ended December 31, 2023 and 2022, property management fees were $9,685,549 and $8,604,274, respectively, and are included in management fees in the combined consolidated statements of operations.
The Company also pays a monthly asset management fee up to 2.00% of the gross monthly rents to the property managers. For the years ended December 31, 2023 and 2022, asset management fees were $2,858,917 and $2,676,322, respectively. These amounts are included in the management fee line item in the accompanying combined consolidated statements of operations.
As of December 31, 2023 and 2022, $6,127,755 and $5,510,912 of management fees and asset management fees, respectively, were payable to property managers, and is included in due to affiliates in the accompanying combined consolidated balance sheets.
The property management agreements also stipulate that a construction management fee up to 5.0% of project cost is to be paid to the property managers. For the years ended December 31, 2023 and 2022, capitalized construction management fees were $6,919,885 and $4,951,656, respectively, and are included within building and improvements in the accompanying combined consolidated balance sheets.
The Company generally incurs an acquisition fee from 0.5% to 1.0% of the purchase price of each acquired property. The acquisition fee is paid to the Property Managers for services rendered in connection with the investigation, selection, sourcing, due diligence and acquisition of a property or investment. For the years ended December 31, 2023 and 2022, the Company incurred acquisition fees of $0 and $2,013,700, respectively. The amounts related to the
30
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
years ended December 31, 2023 and 2022 have been capitalized and included in real estate assets in the accompanying combined consolidated balance sheets.
In connection with the acquisitions of properties together with non-controlling joint venture partners, the Company will sometimes retain a portion of the partners’ acquisition fees as deferred acquisition fees. These deferred acquisition fees are earned by and payable to the non-controlling joint venture partner upon reaching certain performance measures. During the years ended 2023 and 2022, $528,000 and $0, respectively, were paid to the non-controlling joint venture partners, respectively. As of December 31, 2023 and 2022, $1,877,499 and $2,068,799, respectively, of deferred acquisition fees were retained by the Company and included within due to affiliates on the combined consolidated balance sheets. As of December 31, 2023, $0 and $540,365, respectively, of deferred acquisition fees retained by the Company are included within restricted cash on the combined consolidated balance sheets.
The Company noted that certain expenses are paid for by the property managers and have yet to be reimbursed. As of December 31, 2023 and 2022, unreimbursed advances and other amounts due to related parties were $1,197,781 and $2,848,376, respectively, and are recorded by the Company as due to affiliates on the combined consolidated balance sheets.
19.Senior Secured Term Loans - Related Party
NPRC Credit Agreement
On April 1, 2014, the Company entered into a credit agreement (the "Credit Agreement") with PSEC in the form of a senior secured term loan. As of December 31, 2023 and 2022, the total commitment was $2,700,000,000 and $2,700,000,000, respectively.
On November 9, 2022, the Company amended the Credit Agreement. The amendment resulted in a new tranche of senior secured Term Loan E ("TLE"). Under the amended and restated Credit Agreement, the new TLE incurs cash interest equivalent to three-month USD LIBOR rate with a floor of 5.00%, plus 2.00%, and PIK interest of 7.00%.
On June 30, 2023, the Company amended the Credit Agreement to replace 3M USD LIBOR rate with 3M SOFR.
On September 30, 2023, the Company amended the Credit Agreement to update term loan cash and PIK interest rates, which are summarized in the next page. The maturity date of the senior secured term loans under the amended Credit Agreement is March 31, 2026.
The Credit Agreement does not require payments on the outstanding principal until maturity, with prepayments allowed but may be subject to a prepayment penalty. During the year ended December 31, 2023, the Company has voluntarily pre-paid in aggregate $86,950,000 of the Term Loan A and B and incurred a prepayment penalty of $245,000. During the year ended December 31, 2022, the Company had voluntarily pre-paid in aggregate $94,351,510 of the Term Loan A and B and incurred a prepayment penalty of $98,515.
The Company is required to make payments for Residual Profit Interest equivalent to 8.33% of the residual profit earned during the applicable period. The Company determines the residual profit as all gross receipts from operations received by the Company less the sum of operating expenses, interest expense, structuring fees, M&A fees, and cost basis in connection to the sale of any real estate property during the applicable period.
Cash interest and Residual Profit Interest are payable in cash quarterly. PIK interest due quarterly is added to the outstanding principal balance of the loan or paid in cash, in whole or in part, at the option of the Company.
The Company generally incurs structuring fees from restructuring or refinancing the Credit Agreement, which are deferred and amortized over the life of the senior secured term loan. The structuring fees are capitalized as a direct offset to the term loan balance on the combined consolidated balance sheets. For the years ended December 31, 2023 and 2022, the Company incurred $15,475,530 and $0 of structuring fees for borrowings under the senior secured term loans, respectively. For the years ended December 31, 2023 and 2022, $4,729,980 and $4,106,358 were amortized and recorded within interest expense on the combined consolidated statements of operations, respectively.
31
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The following tables present a summary of our senior secured term loan terms and payable as of December 31, 2023 and 2022:
| As of December 31, 2023 | ||||||||||||||||||||
| Senior Secured Term Loan | Cash Rate | PIK Rate | Outstanding Principal | |||||||||||||||||
| Term Loan A | 3M SOFR(1) + 0.25% | 2.00% | $ | 589,538,045 | ||||||||||||||||
| Term Loan B | 3M SOFR(2) + 0.26161% + 2.00% | —% | 20,630,000 | |||||||||||||||||
| Term Loan C | 3M SOFR(3) + 0.26161% + 10.00% | 2.25% | 210,000,000 | |||||||||||||||||
| Term Loan D | 3M SOFR(1) + 0.25% | 2.00% | 183,425,355 | |||||||||||||||||
| Term Loan E | 3M SOFR(4) + 1.50% | 7.00% | 14,107,431 | |||||||||||||||||
| Total outstanding principal | 1,017,700,831 | |||||||||||||||||||
| Less: unamortized debt issuance costs | (14,851,908) | |||||||||||||||||||
| Total senior secured term loans, net of debt issuance costs | $ | 1,002,848,923 | ||||||||||||||||||
| (1) Rates are accrued at minimum SOFR floor of 400 basis points | ||||||||||||||||||||
| (2) Rates are accrued at minimum SOFR floor of 300 basis points | ||||||||||||||||||||
| (3) Rates are accrued at minimum SOFR floor of 100 basis points | ||||||||||||||||||||
| (4) Rates are accrued at minimum SOFR floor of 550 basis points | ||||||||||||||||||||
| As of December 31, 2022 | ||||||||||||||||||||
| Senior Secured Term Loan | Cash Rate | PIK Rate | Outstanding Principal | |||||||||||||||||
| Term Loan A | 3M LIBOR(1) + 1.44% | 3.53% | $ | 458,747,266 | ||||||||||||||||
| Term Loan B | 3M LIBOR(1) + 2.00% | 5.50% | 23,080,000 | |||||||||||||||||
| Term Loan C | 3M LIBOR(2) + 10.00% | 2.25% | 200,600,000 | |||||||||||||||||
| Term Loan D | 3M LIBOR(1) + 0.50% | 2.50% | 183,425,355 | |||||||||||||||||
| Term Loan E | 3M LIBOR(3) + 2.00% | 7.00% | 13,151,592 | |||||||||||||||||
| Total outstanding principal | 879,004,213 | |||||||||||||||||||
| Less: unamortized debt issuance costs | (4,106,358) | |||||||||||||||||||
| Total senior secured term loans, net of debt issuance costs | $ | 874,897,855 | ||||||||||||||||||
| (1) Rates are accrued at minimum LIBOR floor of 300 basis points | ||||||||||||||||||||
| (2) Rates are accrued at minimum LIBOR floor of 100 basis points | ||||||||||||||||||||
| (3) Rates are accrued at minimum LIBOR floor of 500 basis points | ||||||||||||||||||||
For the year ended December 31, 2023, the Company incurred $76,247,081, $27,856,774, and $54,042,137 of cash interest, PIK interest, and Residual Profit Interest, respectively. For the year ended December 31, 2023, a total of $27,680,343 of PIK interest was paid in cash on the senior secured term loans. As of December 31, 2023, $568,240 of cash interest and $176,432 of PIK interest is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
For the year ended December 31, 2022, the Company incurred $49,159,031, $25,055,620, and $81,118,070 of cash interest, PIK interest, and Residual Profit Interest, respectively. For the year ended December 31, 2022, a total of $25,050,506 of PIK interest was paid in cash on the senior secured term loans. As of December 31, 2022, $0 of cash interest and $5,115 of PIK interest is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
32
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
20.Commitments and Contingencies
The Company believes that it has complied with the requirements of the mortgage payable by obtaining the requisite third-party insurance coverage for losses that may be incurred at the properties. Losses for amounts below the threshold of the deductible amounts specified in certain of the Company’s insurance policies are self‑insured; however, management does not believe that this exposure will have a material adverse effect on the Company’s combined consolidated financial position or results of operations.
Periodically, the Company may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of business. The Company does not believe that there are any proceedings threatened or pending, if determined adversely, that would have a material adverse effect on the financial position, results of operations, or liquidity of the Company.
The Company may at times issue certain loan guarantees to obtain financing related to the Company’s investments. These guarantees may include but are not limited to repayment guarantees, completion guarantees, and debt ratio guarantees to certain lenders of the Company’s investments in real estate assets. Under certain guarantees, the Company may be liable in the event of fraud, misappropriation, environmental liabilities and other recourse obligations. As of December 31, 2023, the Company has not violated any of these guaranty provisions.
21.Subsequent Events
On January 19, 2024, the Company acquired The Apex Apartments, a multi-family property located in Cincinnati, OH, for an aggregate purchase price of $34,225,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $27,712,000.
On January 19, 2024, the Company acquired The Parkton Apartments, a multi-family property located in Cincinnati, OH, for an aggregate purchase price of $45,775,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $37,090,000.
On May 9, 2024, the Company sold Filet of Chicken to an unaffiliated third party for a gross sales price of $12,000,000. The Company recognized a gain of $7,370,352 in connection with the sale.
On May 30, 2024, the Company sold Orchard Village to an unaffiliated third party for a gross sales price of $48,500,000. The Company recognized a gain of $20,683,786 in connection with the sale.
On June 20, 2024, the Company sold University Crossing to an unaffiliated third party for a gross sales price of $16,000,000. The Company recognized a gain of $57,087 in connection with the sale.
On June 28, 2024, the Company made $35,300,000 preferred equity investment to recapitalize an existing portfolio of multi-family properties located in Columbus, OH. The investment will earn current pay of 8% and paid-in-kind interest of 7%. As a result of this recapitalization, the Company executed a refinance in the amount of $212,107,000. The new debt has a maturity date of July 1, 2029.
The Company has evaluated subsequent events through August 9, 2024, the date of which these combined consolidated financial statements were available to be issued, and has determined that, except for the above, there have not been any additional events that have occurred that would require adjustments to, or disclosures in, the combined consolidated financial statements.
33
EXHIBIT 99.2
National Property REIT Corp.
Combined Consolidated Financial Statements
For the years ended December 31, 2022 and 2021
(With Independent Auditor's Report Thereon)
National Property REIT Corp.
Combined Consolidated Financial Statements
Table of Contents
Page | |||||
Independent Auditor's Report | |||||
Combined Consolidated Balance Sheets as of December 31, 2022 and 2021 | 3 | ||||
Combined Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 | 4 | ||||
Combined Consolidated Statements of Changes in (Deficit) Equity for the years ended December 31, 2022 and 2021 | 5 | ||||
Combined Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 | 6 | ||||
Notes to Combined Consolidated Financial Statements | 8 | ||||
Independent Auditor's Report
To the Board of Directors
National Property REIT Corp.
Opinion
We have audited the combined consolidated financial statements of National Property REIT Corp., which comprise the combined consolidated balance sheets as of December 31, 2022 and 2021, and the related combined consolidated statements of operations, changes in (deficit) equity and cash flows for the years then ended, and the related notes to the combined consolidated financial statements.
In our opinion, the accompanying combined consolidated financial statements present fairly, in all material respects, the financial position of National Property REIT Corp. as of December 31, 2022 and 2021, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America ("GAAS"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of National Property REIT Corp. and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the combined consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the combined consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about National Property REIT Corp.'s ability to continue as a going concern for one year after the date that the combined consolidated financial statements are available to be issued.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the combined consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined consolidated financial statements.
1
In performing an audit in accordance with GAAS, we:
•Exercise professional judgment and maintain professional skepticism throughout the audit.
•Identify and assess the risks of material misstatement of the combined consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined consolidated financial statements.
•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of National Property REIT Corp.'s internal control. Accordingly, no such opinion is expressed.
•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined consolidated financial statements.
•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about National Property REIT Corp's ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
| /s/ Cohn Reznick, LLP | ||
| New York, New York | ||
| August 10, 2023 | ||
2
National Property REIT Corp.
Combined Consolidated Balance Sheets
| December 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| ASSETS | ||||||||||||||
| Real estate assets | ||||||||||||||
| Land | $ | 252,884,617 | $ | 228,759,487 | ||||||||||
Building and improvements | 2,314,165,808 | 1,979,291,168 | ||||||||||||
Furniture, fixtures, and equipment | 154,762,761 | 125,461,545 | ||||||||||||
Total real estate assets held for investment | 2,721,813,186 | 2,333,512,200 | ||||||||||||
Less: accumulated depreciation | (380,314,083) | (284,947,428) | ||||||||||||
Net real estate assets held for investment | 2,341,499,103 | 2,048,564,772 | ||||||||||||
Real estate assets held for sale, net | — | 12,790,589 | ||||||||||||
Total real estate assets, net | 2,341,499,103 | 2,061,355,361 | ||||||||||||
Cash and cash equivalents | 35,212,438 | 45,488,636 | ||||||||||||
| Restricted cash | 37,869,284 | 39,317,283 | ||||||||||||
Accounts receivable, net | 22,573,685 | 15,533,773 | ||||||||||||
| Interest receivable | 8,075 | 18,949 | ||||||||||||
| Due from LendingClub Corporation | 20,756 | 26,415 | ||||||||||||
Due from affiliates | 1,053,834 | 169,881 | ||||||||||||
| Preferred equity investments | 13,073,865 | — | ||||||||||||
| Prepaid expenses and other assets | 11,467,721 | 10,263,647 | ||||||||||||
| Collateralized loan obligations at fair value | 424,746,173 | 237,125,053 | ||||||||||||
| Unsecured consumer loans at fair value | 520,946 | 3,221,119 | ||||||||||||
| Residual interests in securitizations at fair value | 8,540,118 | 1,348,844 | ||||||||||||
| Corporate bonds at fair value | 11,616,950 | 8,032,000 | ||||||||||||
| Interest rate caps at fair value | 25,724,128 | 3,311,090 | ||||||||||||
| Deferred leasing costs, net | 111,596 | 72,928 | ||||||||||||
| Lease intangibles, net | 15,790,350 | 19,761,306 | ||||||||||||
| Right-of-use assets | 24,886,491 | 32,527,309 | ||||||||||||
| TOTAL ASSETS | $ | 2,974,715,513 | $ | 2,477,573,594 | ||||||||||
| LIABILITIES AND DEFICIT | ||||||||||||||
| Liabilities | ||||||||||||||
| Mortgages payable, net of unamortized discount and debt issuance costs | $ | 2,182,132,581 | $ | 1,890,194,593 | ||||||||||
Mortgages payable related to real estate assets held for sale, net of unamortized discount and debt issuance costs | — | 18,071,860 | ||||||||||||
| Reverse repurchase facilities, at fair value, net of unamortized debt issuance costs | 196,118,000 | 110,050,000 | ||||||||||||
| Senior secured term loans, net of debt issuance costs | 874,897,855 | 577,562,769 | ||||||||||||
| Accounts payable and accrued expenses | 42,763,943 | 31,064,827 | ||||||||||||
| Security deposits | 6,594,854 | 5,380,629 | ||||||||||||
| Due to affiliates | 11,175,146 | 8,944,976 | ||||||||||||
| Prepaid rent and other liabilities | 8,332,467 | 7,335,342 | ||||||||||||
| Lease liabilities | 27,500,110 | 27,064,199 | ||||||||||||
| Total liabilities | 3,349,514,956 | 2,675,669,195 | ||||||||||||
| Commitments and contingencies (Note 20) | ||||||||||||||
| Deficit | ||||||||||||||
Preferred stock, $0.001 par value, Series A Cumulative Non-Voting, 12.5%; $125,000 liquidation preference, 125 shares authorized, issued and outstanding | 109,950 | 109,950 | ||||||||||||
| Common stock, $0.001 par value; 100,000,000 common shares authorized, 3,350,519 and 3,275,011 issued and outstanding, respectively | 3,351 | 3,275 | ||||||||||||
| Additional paid-in-capital | 15,219,904 | 3,199,980 | ||||||||||||
| Accumulated deficit | (392,654,099) | (210,120,766) | ||||||||||||
| Non-controlling interest | 2,521,451 | 8,711,960 | ||||||||||||
| Total deficit | (374,799,443) | (198,095,601) | ||||||||||||
| TOTAL LIABILITIES AND DEFICIT | $ | 2,974,715,513 | $ | 2,477,573,594 | ||||||||||
See Notes to Combined Consolidated Financial Statements.
3
National Property REIT Corp.
Combined Consolidated Statements of Operations
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Income | |||||||||||
| Rental income | $ | 280,675,103 | $ | 258,601,791 | |||||||
| Interest income | 39,717,233 | 20,323,440 | |||||||||
| Other income | 49,581,397 | 39,943,881 | |||||||||
| Total income | 369,973,733 | 318,869,112 | |||||||||
| Costs and expenses | |||||||||||
| Property operating expenses | 153,617,314 | 131,839,479 | |||||||||
| Management fees | 13,710,008 | 12,480,080 | |||||||||
| Depreciation and amortization | 120,495,413 | 116,017,305 | |||||||||
| General and administrative expenses | 28,743,890 | 23,297,791 | |||||||||
Total costs and expenses | 316,566,625 | 283,634,655 | |||||||||
| Other income (expense) | |||||||||||
| Interest expense | (259,241,778) | (205,125,612) | |||||||||
| Fair value adjustments | 3,935,656 | 8,171,152 | |||||||||
| Gain on sale of real estate assets | 20,956,684 | 360,338,800 | |||||||||
| Gain on involuntary conversions | 1,531,629 | 655,239 | |||||||||
| Gain on litigation settlements | — | 15,151,362 | |||||||||
| Total other income (expense), net | (232,817,809) | 179,190,941 | |||||||||
| Income (Loss) before income tax | (179,410,701) | 214,425,398 | |||||||||
| Income tax expense | (11,380) | (7,219) | |||||||||
| Net income (loss) | (179,422,081) | 214,418,179 | |||||||||
| Income attributable to non-controlling interest | (3,095,627) | (65,378,285) | |||||||||
| Dividends attributable to preferred shares | (15,625) | (15,625) | |||||||||
| Net income (loss) attributable to common shares | $ | (182,533,333) | $ | 149,024,269 | |||||||
See Notes to Combined Consolidated Financial Statements.
4
National Property REIT Corp.
Combined Consolidated Statements of Changes in (Deficit) Equity
| Preferred Shares | Common Shares | Additional Paid-in-Capital | Accumulated Deficit | Total Stockholders' (Deficit) | Non-Controlling Interest | Total (Deficit) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 109,950 | $ | 3,255 | $ | — | $ | (359,145,035) | $ | (359,031,830) | $ | 2,625,607 | $ | (356,406,223) | |||||||||||||||||||||||||||
| Issuance of common shares | — | 20 | 3,199,980 | — | 3,200,000 | — | 3,200,000 | ||||||||||||||||||||||||||||||||||
| Contribution from non-controlling interest | — | — | — | — | — | 25,447,674 | 25,447,674 | ||||||||||||||||||||||||||||||||||
| Dividends on preferred shares | — | — | — | (15,625) | (15,625) | — | (15,625) | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (84,739,606) | (84,739,606) | ||||||||||||||||||||||||||||||||||
| Net income | — | — | — | 149,039,894 | 149,039,894 | 65,378,285 | 214,418,179 | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 109,950 | 3,275 | 3,199,980 | (210,120,766) | (206,807,561) | 8,711,960 | (198,095,601) | ||||||||||||||||||||||||||||||||||
| Issuance of common shares | — | 76 | 16,019,924 | — | 16,020,000 | — | 16,020,000 | ||||||||||||||||||||||||||||||||||
| Contribution from non-controlling interest | — | — | — | — | — | 9,567,328 | 9,567,328 | ||||||||||||||||||||||||||||||||||
| Dividends on common shares | — | — | (4,000,000) | — | (4,000,000) | — | (4,000,000) | ||||||||||||||||||||||||||||||||||
| Dividends on preferred shares | — | — | — | (15,625) | (15,625) | — | (15,625) | ||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interest | — | — | — | — | — | (18,853,464) | (18,853,464) | ||||||||||||||||||||||||||||||||||
| Net (loss) income | — | — | — | (182,517,708) | (182,517,708) | 3,095,627 | (179,422,081) | ||||||||||||||||||||||||||||||||||
| Balance at December 31, 2022 | $ | 109,950 | $ | 3,351 | $ | 15,219,904 | $ | (392,654,099) | $ | (377,320,894) | $ | 2,521,451 | $ | (374,799,443) | |||||||||||||||||||||||||||
See Notes to Combined Consolidated Financial Statements.
5
National Property REIT Corp.
Combined Consolidated Statements of Cash Flows
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Net income (loss) | $ | (179,422,081) | $ | 214,418,179 | |||||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | |||||||||||
| Depreciation | 96,897,855 | 91,089,441 | |||||||||
| Amortization of in-place leases | 23,160,600 | 24,695,720 | |||||||||
| Amortization of leasing commissions | 153,421 | 148,683 | |||||||||
| Amortization of other deferred leasing cost | 1,246 | 6,519 | |||||||||
| Amortization of above market leases | 282,291 | 167,540 | |||||||||
| Amortization of right-of-use assets | 8,045,707 | 58,085 | |||||||||
| Amortization of debt issuance costs and debt discounts and premiums | 7,440,085 | 6,440,459 | |||||||||
| Amortization of discount on collateralized loan obligations | (2,374,186) | (1,327,196) | |||||||||
| Gain on sale of real estate assets | (20,956,684) | (360,338,800) | |||||||||
| Gain on involuntary conversions | (1,531,629) | (655,239) | |||||||||
| Loss on early extinguishment of debt | 503,896 | 16,969,517 | |||||||||
| Fair value adjustments of collateralized loan obligations | 1,322,497 | (5,856,470) | |||||||||
| Fair value adjustments of unsecured consumer loans | (807,032) | (1,287,136) | |||||||||
| Fair value adjustments of residual interests in securitizations | 2,995,389 | (188,325) | |||||||||
| Fair value adjustments of corporate bonds | 6,621,180 | — | |||||||||
| Fair value adjustments of interest rate caps | (14,067,690) | — | |||||||||
| Income from accretion on residual interests in securitizations | (1,109,048) | (1,075,545) | |||||||||
| Income from accretion on preferred equity investments | (42,486) | — | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (7,039,912) | (2,749,428) | |||||||||
| Interest receivable | 10,874 | 59,260 | |||||||||
| Due to affiliates, net | 1,346,217 | (1,158,147) | |||||||||
| Prepaid expenses and other assets | (1,204,074) | 1,606,803 | |||||||||
| Accounts payable and accrued expenses | 9,263,946 | 2,745,951 | |||||||||
| Security deposits and other liabilities | 2,211,350 | 214,429 | |||||||||
| Deferred leasing costs | (193,335) | (124,390) | |||||||||
| Right-of-use assets | — | (639,885) | |||||||||
| Lease liabilities | 435,911 | 593,131 | |||||||||
| Net cash used in operating activities | (68,055,692) | (16,186,844) | |||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Acquisition of real estate assets | (333,890,228) | (491,780,510) | |||||||||
| Additions to real estate assets | (55,039,076) | (49,465,033) | |||||||||
| Additions to lease intangibles | (19,876,824) | (34,394,310) | |||||||||
| Proceeds from disposition of real estate assets | 33,693,591 | 617,744,613 | |||||||||
| Proceeds from involuntary conversion | 3,117,599 | 4,019,752 | |||||||||
| Purchases of collateralized loan obligations | (186,569,431) | (44,332,546) | |||||||||
| Principal payments received on collateralized loan obligations | — | 7,391,139 | |||||||||
| Decrease in amortized cost of collateralized loan obligations | — | 165,448 | |||||||||
| Principal payments received on unsecured consumer loans | 3,043,954 | 10,392,221 | |||||||||
| Proceeds from recoveries and sales of charged-off loans | 463,251 | 1,324,039 | |||||||||
| Purchase of preferred equity investments | (13,031,379) | — | |||||||||
| Purchase of corporate bonds | (10,206,130) | (8,032,000) | |||||||||
| Purchases of equity securitizations | (20,668,884) | — | |||||||||
| Principal payments received on securitized residual interests | 11,591,269 | 6,464,576 | |||||||||
| Decrease in due from LendingClub Corporation | 5,659 | 153,177 | |||||||||
| Decrease in due from Prosper Funding LLC | — | 37,587 | |||||||||
| Net cash provided by (used in) investing activities | (587,366,629) | 19,688,153 | |||||||||
6
National Property REIT Corp.
Combined Consolidated Statements of Cash Flows
| Years Ended December 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Proceeds from mortgages payable | 296,524,430 | 491,035,505 | |||||||||
| Repayments of mortgages payable | (22,401,909) | (331,049,878) | |||||||||
| Proceeds from reverse repurchase facilities | 87,315,000 | 48,969,000 | |||||||||
| Repayments of reverse repurchase facilities | (1,247,000) | (18,919,000) | |||||||||
| Proceeds from senior secured term loan | 387,580,238 | 207,028,800 | |||||||||
| Repayments of senior secured term loan | (94,351,510) | (315,481,965) | |||||||||
| Purchases of interest rate caps | (8,345,348) | — | |||||||||
| Payment of debt issuance costs | (3,909,916) | (8,236,102) | |||||||||
| Payment of debt extinguishment costs | (184,100) | (14,364,152) | |||||||||
| Proceeds from issuance of common stock | 16,020,000 | 3,200,000 | |||||||||
| Dividends on common shares | (4,000,000) | — | |||||||||
| Dividends on preferred shares | (15,625) | (15,625) | |||||||||
| Contributions from non-controlling interest | 9,567,328 | 25,447,674 | |||||||||
| Distributions to non-controlling interests | (18,853,464) | (84,739,606) | |||||||||
| Net cash provided by financing activities | 643,698,124 | 2,874,651 | |||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (11,724,197) | 6,375,960 | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of year | 84,805,919 | 78,429,959 | |||||||||
| Cash, cash equivalents, and restricted cash, end of year | $ | 73,081,722 | $ | 84,805,919 | |||||||
| Supplemental Disclosures | |||||||||||
| Cash paid during the year for: | |||||||||||
| Interest expense | $ | 249,486,382 | $ | 198,762,427 | |||||||
| Income taxes | $ | 11,380 | $ | 7,219 | |||||||
| Non-cash investing and financing activities: | |||||||||||
| Right-of-use assets acquired from assumption of ground lease | $ | — | $ | 25,275,984 | |||||||
| Mortgage loan assumed by purchaser upon sale of real estate assets | $ | — | $ | 95,317,256 | |||||||
| Accrued additions to real estate assets | $ | 3,857,202 | $ | 1,422,032 | |||||||
See Notes to Combined Consolidated Financial Statements.
7
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
1.Organization
References herein to the "Company," "we," "us," or "our" refer to National Property REIT Corp. ("NPRC"), formerly known as National Property Holdings Corp., unless the context specifically requires otherwise.
The Company is a Maryland corporation and is a real estate investment trust ("REIT") for U.S. federal income tax purposes. The Company was formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets and engage in any and all other activities as may be necessary, incidental or convenient to carry out the foregoing. The Company intends to acquire real estate assets, including, but not limited to, industrial, commercial, student housing, self-storage, and multi-family properties. The Company commenced operations on December 31, 2013.
NPH Property Holdings, LLC ("NPH"), a Delaware limited liability company, owns all of the outstanding common stock of the Company. NPH is a wholly-owned subsidiary of Prospect Capital Corporation ("PSEC"). On December 31, 2013, PSEC contributed to the Company, through NPH, ownership interests in entities that own real estate properties. In exchange for the contribution of assets, NPH received shares of the Company’s common stock. These entities were NPH McDowell, LLC ("Oxford"), APH Carroll 41, LLC ("Bexley"), and 146 Forest Parkway, LLC ("146 FP"). On October 23, 2014, United Property REIT Corp. ("UPRC"), an affiliated entity indirectly owned by PSEC, contributed to the Company ownership interest in Michigan Storage, LLC ("Michigan"), an entity that owned a portfolio of self-storage real estate properties. UPH Property Holdings, LLC ("UPH"), a Delaware limited liability company, owned all of the outstanding common stock of UPRC. UPH was a wholly-owned subsidiary of PSEC. On November 26, 2014, American Property REIT Corp. ("APRC"), an affiliated entity indirectly owned by PSEC, contributed to the Company, ownership interest in APH Carroll Resort, LLC (the "Resort"), an entity that owned a multi-family real estate property. On May 1, 2015, APRC contributed to the Company ownership interest in 5100 Live Oaks Blvd, LLC ("Amberly"), an entity that owned a multi-family real estate property. APH Property Holdings, LLC ("APH"), a Delaware limited liability company, owned all of the outstanding common stock of APRC. APH was a wholly-owned subsidiary of PSEC. These entity contribution transactions are collectively referred to as the "Common Control Transfer."
On May 23, 2016, APRC and UPRC (collectively referred to as the "Affiliated REITs") were merged ("Merger") with and into the Company, with the Company continuing as the surviving corporation. The Affiliated REITs were formed to hold for investment, operate, finance, lease, manage, and sell a portfolio of real estate assets. At the date of Merger, the Affiliated REITs held an investment portfolio of real estate assets owned directly or through joint ventures by making a majority equity investment in property-owning entities. The real estate investments acquired during the Merger are collectively known as the "Merger Investments."
In accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805, Business Combinations, the Merger and Common Control Transfer transactions noted above were executed between entities under common control. The assets and liabilities of each of the entities acquired through these transactions were recorded at their historical carrying amounts, and the results of operations of these entities have been recognized in the accompanying combined consolidated statements of operations for all periods presented. Subsequent to the Merger during 2016, NPRC's combined consolidated balance sheets reflect the historical carryover basis in the assets and liabilities acquired. The Company has also retrospectively adjusted its financial statements to combine the operating results of the Company and the entities acquired from the date common control began.
National Marketplace Finance, LLC (formerly known as Prospect Finance Company, LLC) ("NMF") is a subsidiary of the Company, and currently owns the online originated unsecured consumer loan portfolio and residual interests in securitizations. NMF holds the interests in ACL Loan Holdings, Inc. ("ACLLH") and American Consumer Lending Limited ("ACLL").
ACLLH was formed to hold the indirect interest in ACL Consumer Loan Trust ("ACL Trust"), which was contributed to ACLLH on June 30, 2014 by the Company, its initial sole member. ACL Trust and American Consumer Lending (Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust, referred to as the "ACL Subsidiaries"), hold unsecured consumer loans purchased from Prosper Funding LLC ("Prosper").
ACL Consumer Loan Trust III ("ACL Trust III"), a subsidiary of ACLLH, formed on June 10, 2014, and American Consumer Lending III (Near-Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust III, referred to as the "ACL III Subsidiaries"), formed on June 13, 2014, hold unsecured consumer loans purchased from LendingClub Corporation. ACL Consumer Loan Trust IV ("ACL Trust IV"), a subsidiary of ACLLH, formed on March 23, 2015, and American Consumer Lending IV (Near-Prime), LLC, a subsidiary of ACLL, (collectively with ACL Trust IV, referred to as the "ACL IV Subsidiaries"), formed on January 15, 2015, hold unsecured consumer loans originated by and purchased from LendingClub Corporation. ACL Patient Solutions Trust ("ACL PS"), a subsidiary of ACLLH, formed on October 14, 2015, and ACL Patient Solutions Holdings, LLC, a subsidiary of ACLL, formed on October
8
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
5, 2015, hold unsecured consumer loans from NBT Bank, National Association ("NBT"). From October 20, 2015 to December 31, 2018 ACL PS acquired and held unsecured consumer loans as part of a loan purchase and sale agreement between ACL PS, NBT and Springstone Financial, LLC ("Springstone"), a wholly-owned subsidiary of LendingClub Corporation. ACL Consumer Loan Trust V ("ACL Trust V"), a subsidiary of ACLL, formed on October 16, 2015, holds unsecured consumer loans purchased from Avant II, LLC ("Avant") for the period November 17, 2015 to December 31, 2018. ACL Consumer Loan Trust VI ("ACL Trust VI"), a subsidiary of ACLLH, formed on April 27, 2016, and American Consumer Lending VI, LLC, a subsidiary of ACLL, (collectively with ACL Trust VI, referred to as the "ACL VI Subsidiaries"), formed on November 30, 2015, hold unsecured consumer loans purchased from LendingClub Corporation for the period May 1, 2016 to December 31, 2018. Murray Hill Securitization Holdings Limited ("Murray Hill"), a subsidiary of ACLL, formed on July 24, 2015, holds interest in Murray Hill Marketplace Trust 2016-LC1, a securitization of unsecured consumer loans purchased from LendingClub Corporation for the period October 13, 2016 to December 31, 2018. Murray Hill also holds residual interests in securitizations. LendingClub Corporation and Springstone are hereafter collectively referred to as "LendingClub". American Consumer Lending VII, LLC, a subsidiary of ACLL, formed on October 5, 2017, holds unsecured consumer loans purchased from Prosper and NBT during the period July 28, 2015 to December 31, 2018.
NPH Guarantor, LLC was contributed to NMF on January 13, 2015 by the Company, its initial sole member. NPH Guarantor, LLC is the indemnitor of the ACL III Subsidiaries and ACL PS revolving credit facilities. There was no activity in NPH Guarantor, LLC from inception through December 31, 2018.
National General Lending Limited ("NGL"), a wholly-owned entity of the Company, was formed on May 23, 2019 to own various debt tranches in collateralized loan obligations (“CLOs”). NGL holds the CLOs in NGL Subsidiary Ltd. ("NGL Limited"), a wholly-owned Cayman Islands limited liability company that was formed August 26, 2019. Operations to buy and sell CLOs commenced on October 30, 2019. In connection with NGL's commencement of operations during 2019, PSEC contributed approximately $12,000,000 in cash and transferred approximately $52,139,000 of CLOs.
2.Significant Accounting Policies
a.Principles of Reporting and Use of Estimates
The accompanying combined consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles ("GAAP"), which requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the combined consolidated financial statements and the reported amounts of revenues and expenses during the reported periods.
Management makes significant estimates regarding the allocation of a property’s purchase price to the tangible and intangible assets and liabilities acquired, revenue recognition, and determining whether an asset is impaired. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment.
As future events and their effects cannot be determined with precision, actual results could materially differ from those estimates.
b.Basis of Consolidation and Transfers of Financial Assets
The accompanying combined consolidated financial statements include our accounts and those of our subsidiaries, which are wholly-owned or controlled by us. All intercompany balances and transactions have been eliminated. A non-controlling interest in a consolidated subsidiary is defined as the portion of the equity in a subsidiary not attributable, directly or indirectly, to the Company. Non-controlling interests are required to be presented as a separate component of equity in the combined consolidated balance sheets and the presentation of net income (loss) is modified to present the net income (loss) attributed to controlling and non-controlling interests.
9
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
For a variable interest entity ("VIE"), an entity is subject to consolidation if the equity investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity’s activities or are not exposed to the entity’s losses or entitled to its residual returns. VIEs that meet certain scope characteristics are required to be consolidated by their primary beneficiary. The primary beneficiary of a VIE is determined to be the party that has both the power to direct the activities of a VIE that most significantly impact the VIEs economic performance and the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. This determination can sometimes involve complex and subjective analysis. We are required on an ongoing basis to assess whether we are the primary beneficiary of a VIE.
We may periodically enter into transactions in which we sell financial assets. Upon a transfer of financial assets, we may retain or acquire senior or subordinated interests in the related assets. In connection with such transactions, a determination must be made as to whether we, as the transferor, have surrendered control over transferred financial assets. That determination must consider our continuing involvement in the transferred financial assets, including all arrangements or agreements made contemporaneously with, or in contemplation of, the transfer, even if they were not entered into at the time of the transfer. The financial components approach under applicable GAAP limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements being presented and/or when the transferor has continuing involvement with the transferred financial asset. It defines the term “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale.
From time to time, we may securitize unsecured consumer loans we hold if such securitization allows us access to better financing terms. Depending upon the structure of the securitization transaction, these transactions will be accounted for as either a "sale" and the loans will be removed from the combined consolidated balance sheets or as a "financing" with the loans and financing reported on our combined consolidated balance sheets. Significant judgment may be exercised by us in determining whether a transaction should be recorded as a "sale" or a "financing."
In determining the accounting treatment to be applied to securitization transactions, we evaluate whether the entity used to facilitate the transactions was a VIE and, if so, whether the VIE should be consolidated. Based on our evaluations, we have concluded that one of our securitizations is a VIE that should be consolidated. The Company has determined that the other securitizations that we participated in should not be consolidated since, among other things, we concluded that the transfer of the underlying assets qualified as a sale.
c.Purchase Accounting and Acquisitions of Real Estate
Prior to the Company's adoption of Accounting Standards Update ("ASU") 2017-01 in January 2018, the Company recorded the acquisition of real estate that will be used for the production of income as a business combination. All assets acquired and liabilities assumed in a business combination were measured at their acquisition date fair values. Acquisition costs were expensed as incurred. Upon adoption of ASU 2017-01, the Company records the acquisition of real estate that will be used for the production of income as an asset acquisition, with all assets acquired and liabilities assumed recorded at their acquisition date fair values. Acquisition costs are capitalized and allocated to the acquired tangible assets, consisting of land, building and improvements, furniture, fixtures and equipment. The Company assesses the acquisition date fair values of all tangible assets, and identified lease intangibles, consisting of in-place leases, tenant relationships, deferred leasing costs, and above-market and below-market leases.
Real estate assets, including land, building and improvements, and furniture, fixtures and equipment are stated at historical cost less accumulated depreciation. Costs associated with the development, construction and improvement of the Company’s real estate assets are capitalized as incurred. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred, while major replacements and betterments, which improve or extend the useful life of the asset, are capitalized and depreciated over the estimated useful lives.
10
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The Company records depreciation expense using the straight-line method over the useful lives of the respective assets. The estimated useful lives are as follows:
| Category | Term | |||||||
| Building | 15 to 54 years | |||||||
| Improvements | 2 to 14 years | |||||||
| Furniture, fixtures, and equipment | 2 to 14 years | |||||||
Depreciation expense for the years ended December 31, 2022 and 2021 was $96,897,855 and $91,089,441, respectively, and is included in depreciation and amortization expense in the accompanying combined consolidated statements of operations.
The value of acquired land, buildings and improvements is estimated by formal appraisals, observed comparable sales transactions and information gathered during pre-acquisition due diligence activities. The valuation approach considers the value of the property as if it were vacant. The values of furniture, fixtures and equipment are estimated by calculating their replacement cost and reducing that value by factors based upon estimates of their remaining useful lives.
The value allocated to acquired lease intangibles is based on management’s evaluation of the specific characteristics of each tenant’s lease. Characteristics considered by management in allocating these values include the nature and extent of the existing business relationships with the tenant, growth prospects for developing new business with the tenant, the remaining term of the lease and the tenant’s credit quality, among other factors.
The value of in-place leases and deferred leasing costs are amortized to expense over the remaining term of the respective leases, which range from less than a year to seventeen years. The amount allocated to acquire in-place leases is determined by calculating the estimated time to fill a hypothetically empty property to its stabilization level based on historical observed move-in rates for each property. The intangible assets are calculated by estimating the net cash flows of the in-place leases to be realized, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The amount allocated to deferred leasing costs is determined by what the Company would have paid to a third-party to secure a new tenant reduced by the expired term of the respective lease. The value of tenant relationships is amortized over the remaining initial lease term and expected renewals, which is thirty seven years. The amount allocated to tenant relationships is the benefit resulting from the likelihood of a tenant renewing its lease. Acquired intangible assets generally have no residual value. Amortization expense related to these assets was $23,597,558 and $24,927,864 for the years ended December 31, 2022 and 2021, respectively.
d.Impairment of Real Estate
The Company reviews the carrying value of its real estate assets and intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such reviews indicate that the asset may be impaired, given that the carrying amount of an asset exceeds the sum of its expected future cash flows, on an undiscounted basis, the asset’s carrying amount is written down to its fair value. Estimating future cash flows and fair values is highly subjective and such estimates could differ materially from actual results. For the years ended December 31, 2022 and 2021, the Company did not record any impairment charges related to real estate assets.
e.Assets Held for Sale and Discontinued Operations
The Company classifies certain real estate assets as held for sale on the combined consolidated balance sheets once the criteria, as defined by GAAP, have been met. Real estate assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell and are no longer depreciated. The Company reports discontinued operations when the disposal of real estate assets represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. No disposal met the definition of discontinued operations as of December 31, 2022 and 2021.
f.Environmental Matters
Under various federal, state and local environmental laws, statutes, ordinances, rules and regulations, an owner of real property may be liable for the costs of removal or remediation of certain hazardous or toxic substances at, on, in or under such property as well as certain other potential costs relating to hazardous or toxic substances. These liabilities may include government fines and penalties and damages for injuries to persons
11
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
and adjacent property. Such laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence or disposal of such substances. The Company recognizes a liability for environmental matters if it is probable a liability has been incurred and the amount of loss can be reasonably estimated. As of December 31, 2022 and 2021, the Company is not aware of any environmental matters that would have an impact on the combined consolidated financial statements.
g.Fair Value Measurements
In accordance with ASC Topic 820, Fair Value Measurement ("ASC 820"), fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, in the principal or most advantageous market considering the highest and best use of an asset or nonperformance risk related to a liability, at the measurement date. The Company uses the most observable inputs that are available to measure fair value. Observable inputs are inputs that the market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s views about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).
•Level 1 - quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities;
•Level 2 - observable prices that are based on inputs not quoted in active markets, but corroborated by market data; and
•Level 3 - unobservable inputs that are used when little or no market data is available.
The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible, as well as considering counterparty credit risk, where applicable, in the Company’s assessment of fair value.
The Company carries its mortgages payable, debt related to consolidated VIE, preferred equity investment, and senior secured term loan at cost, net of unamortized discount, debt issuance costs, and associated amortization, on the accompanying combined consolidated balance sheets.
h.Fair Value of Financial Instruments
Pursuant to ASC Topic 825, Financial Instruments ("ASC 825"), which provides entities with an option to report selected financial assets and liabilities at fair value, the Company has made an election to measure its unsecured consumer loans, residual interest in securitizations, CLOs, corporate bonds, interest rate caps, and reverse repurchase facilities at fair value on the combined consolidated balance sheets. We elected to use the fair value option to align the measurement attributes of both our assets and liabilities while mitigating volatility in earnings from using different measurement attributes. Under this election, (a) unsecured consumer loans charged off, recoveries, and realized gains (losses), and (b) net increase or decrease in unrealized appreciation (depreciation) of the unsecured consumer loans, residual interest in securitizations, CLOs, corporate bonds, interest rate caps, and reverse repurchase facilities are recorded as fair value adjustments on the combined consolidated statements of operations.
12
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
i.Revenue Recognition
Rental revenues from residential, student housing, and self-storage tenants are recognized on a contractual basis, as lease periods for these investments are short‑term in nature. Rental revenues are recorded net of bad debts, which include the change in the reserve for uncollectible receivables. The Company recognizes reimbursement for utilities and other expenses recoveries as other revenue when earned. Rental revenues from industrial and commercial tenants are recognized on a straight-line basis over the term of the lease. The industrial and commercial leases contain rental increases at specified intervals. The Company records as an asset, and includes in rental revenues, deferred rent receivable that will be received if the tenant makes all rent payments required through the expiration of the initial term of the lease. Deferred rent receivable in the accompanying combined consolidated balance sheets includes the cumulative difference between rental revenue recorded on a straight-line basis and rents received from the tenants in accordance with the respective lease terms.
Minimum future rental receipts under the noncancelable portion of commercial and industrial tenant leases, assuming no new or renegotiated leases, for the next five years and thereafter are as follows: $1,249,664 (2023), $1,318,339 (2024), $1,318,339 (2025), $1,318,339 (2026), $1,318,339 (2027), and $6,300,557 (thereafter).
Interest income is recognized on an accrual basis, in accordance with the terms of the loan agreement, to the extent that such amounts are expected to be collected. Generally, our unsecured consumer loans are placed on non-accrual status when the loan is greater than 60 days contractually delinquent or charged off, which may occur if a borrower were to declare bankruptcy prior to a loan being 60 days delinquent, at which point the associated interest receivable balance is reversed against the interest income on the combined consolidated statements of operations. For residual interests in securitizations, interest income is recognized using the effective interest method. Under this method, we recognize as interest income, over the life of the securities, the excess of the cash flows expected to be collected over the securities' carrying value. We update our estimates of expected cash flows quarterly and recognize changes in the calculated effective interest rate on a prospective basis. For certain investments held by the Company, cash not received for interest may be recorded through a payment-in-kind ("PIK"). Interest income recorded as PIK is recognized as income in the period earned.
Gains and losses on the sale of real estate are recognized pursuant to ASC 610, Gains and Losses from the Derecognition of Nonfinancial Assets. Any gain or loss on sale is measured based on the difference between the amount of consideration received and the carrying amount of the sold real estate asset, less costs to sell. For a partial sale of real estate resulting in a transfer of control, the Company measures any non-controlling interest retained at fair value, and recognizes a gain or loss on the difference between the fair value and the carrying amount of the real estate assets retained.
j.Cash and Cash Equivalents
The Company considers all highly-liquid instruments with original maturities of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents includes funds deposited with financial institutions and short-term, highly-liquid overnight investment in money market funds. As of December 31, 2022 and 2021, $69,524 and $5,057,364 of the cash and cash equivalents, respectively, disclosed on the combined consolidated balance sheets represent investments in money market funds, with the remainder held in deposit accounts, substantially all of which exceeded applicable insurance limits.
k.Restricted Cash
Restricted cash consists of cash escrowed under the operating agreements and mortgage agreements for debt service, real estate taxes, property insurance, and capital improvements and other restricted deposits.
As of December 31, 2022 and 2021, the Company had cash and cash equivalents of $35,212,438 and $45,488,636, respectively; in addition, the Company had restricted cash of $37,869,284 and $39,317,283 as of December 31, 2022 and 2021, respectively. Total cash and cash equivalents, and restricted cash was $73,081,722 and $84,805,919 as of December 31, 2022 and 2021, respectively.
l.Unsecured Consumer Loans
Unsecured consumer loans consist of individual loans purchased from various originators of unsecured consumer loans ("Lending Platforms") under terms of the Company’s agreement with the respective platforms, who are sellers of the unsecured consumer loans that continue to service such loans. Unsecured consumer loans made through the Lending Platforms are issued by WebBank, an FDIC-insured, Utah chartered industrial
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
bank, except for loans issued by NBT. After funding a loan, WebBank sells the loan to the Lending Platform, without recourse, in exchange for the principal amount of the loan. Loans issued by NBT are purchased by the Company as part of a loan purchase and sale agreement between ACL PS, NBT and Springstone. All loans purchased are unsecured obligations of individual borrowers with a fixed interest rate and loan terms set between 12 and 84 months. Unsecured consumer loans are recorded on the date purchased by the Company, which is generally at least fifteen days after origination. Unsecured consumer loans are charged off in the month that the loan becomes greater than 120 days contractually delinquent or in the month that the borrower has entered bankruptcy, at which point the outstanding principal amount is written off against the total balance of the unsecured consumer loans on the combined consolidated balance sheets. This results in a fair value adjustment on the combined consolidated statements of operations. Recoveries on charged off loans and sales of charged off loans to third-parties are recorded as received, net of fees.
m.Due from Lending Platforms
LendingClub and Prosper are online marketplace Lending Platforms from which we purchase unsecured consumer loans. The Due from LendingClub Corporation and Due from Prosper Funding LLC amounts presented on the combined consolidated balance sheets represent cash deposited at LendingClub and Prosper, respectively.
n.Allowance for Doubtful Accounts
The Company monitors its accounts receivable on a tenant-by-tenant basis and if cash collection is deemed not probable, the Company establishes a full reserve for the individual tenant's outstanding balance. For the remaining receivable balance, the Company establishes and maintains a general reserve reflecting the Company's expectation that a portion of the operating receivables will not be collected. As of December 31, 2022 and 2021, allowance for bad debt was $3,129,901 and $4,944,777, respectively, and is included as accounts receivable within the combined consolidated balance sheets.
o.Asset Management and Management Services
Management fee expenses are recognized when incurred in accordance with the terms of each respective management agreement.
p.Debt Issuance Costs and Unamortized Debt Discounts
The Company defers costs incurred in connection with obtaining financing and amortizes the costs using the straight‑line method, which approximates the effective interest rate method, over the terms of the related debt as a component of interest expense. The Company also recognizes a debt discount or premium in connection with mortgages assumed at fair value in accordance with ASC 805. Debt issuance costs and unamortized debt discounts have been presented as a direct deduction to our mortgages payable, mortgages payable related to real estate assets held for sale, debt related to consolidated VIE, and senior secured term loans in the accompanying combined consolidated balance sheets.
At December 31, 2022 and 2021, the Company had net debt issuance costs and debt discounts of $19,258,121 and $23,108,088, respectively. Amortization of debt issuance costs and debt discounts of $7,440,085 and $6,440,459 is included in interest expense in the combined consolidated statements of operations for the years ended December 31, 2022 and 2021, respectively.
q.Non-controlling Interests
Non-controlling interests are comprised of the Company’s joint venture partners’ interests in the joint ventures in real estate properties that the Company consolidates. The Company reports its joint venture partners’ interests in its consolidated real estate joint ventures and other subsidiary interests held by third-parties as non-controlling interests. The Company records these non-controlling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investments’ net income or loss and equity contributions and distributions. These non-controlling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are generally allocated pro rata based on the respective ownership percentages until the venture reaches certain performance measures, at which time the other venture party will be entitled to preferred distributions (profit interests).
r.Income Taxes
The Company elected to be taxed as a REIT for U.S. federal income tax purposes, under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). The Company believes it operates in such a manner as to qualify for treatment as a REIT for federal income tax purposes. Accordingly, the Company
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
generally will not be subject to federal income tax, provided that distributions to its stockholders equal at least the amount of its taxable income. A REIT is subject to a number of organizational and operational requirements, including, among others, a requirement that it currently distributes at least 90% of its taxable income to stockholders, subject to certain adjustments. If the Company fails to qualify as a REIT in any taxable year without the benefit of certain relief provisions, it will be subject to federal and state income taxes on its taxable income at regular corporate income tax rates. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state or local taxes on its income, property or net worth and federal taxes and excise taxes on its undistributed income. In addition, taxable income from non-REIT activities managed through the Company’s taxable REIT subsidiaries ("TRS") will be fully subject to federal, state and local income taxes.
The Company accounts for TRS income taxes under the liability method as required by ASC Topic 740, Income Taxes. Under the liability method, deferred income taxes are recognized for the temporary differences between the GAAP basis and tax basis of the TRS income, assets and liabilities. For the years ended December 31, 2022 and 2021, several of the Company's subsidiaries were considered taxable corporations for U.S. federal and state income tax purposes. The taxable U.S. corporate subsidiaries are subject to corporate level U.S. federal, state and local income tax on their net taxable income.
ASC 740, Income Taxes ("ASC 740") provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the combined consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. As of December 31, 2022 and 2021, we did not have a liability for any unrecognized tax benefits. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof. We file tax returns for U.S. federal, various states and foreign jurisdictions. The statute of limitation is open for all jurisdictions for tax years beginning in 2018.
The Company’s policy is to classify interest and penalties on tax positions, if any, as expenses. For the years ended December 31, 2022 and 2021, no interest and penalties have been accrued.
s.Concentration of Counterparty Risk and Credit Risk
In the normal course of its business, the Company encounters counterparty risk and credit risk. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, principal and interest outstanding on unsecured consumer loans, and amounts deposited with each of the Company's Lending Platforms. Counterparty risk represents the risk that we would incur if the counterparties failed to perform pursuant to the terms of their agreements with us.
t.Servicing, Collection and Upfront Fees
The Company incurs a monthly servicing fee for each outstanding unsecured consumer loan, which is payable to the Lending Platforms for managing payments from borrowers and maintaining loan account portfolios. The Company incurs collection fees on amounts recovered from delinquent loans, which is payable to the Lending Platforms. The Company incurs an upfront fee on unsecured consumer loans purchased from Avant. All servicing, collection and upfront fees are expensed as incurred.
u.Collateralized Loan Obligations ("CLOs")
The Company holds investments in CLOs which are subordinated debt interests in syndicated loans managed by third-party collateral managers with industry experience. The outstanding investments range in expected maturity from April 2026 to October 2033 and pays interest based on the three-month LIBOR (“3ML”) plus 5.20% to 9.23%.
Secondary CLOs purchased from a broker are recorded on the trade date and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt within the first two quarterly payment cycles. The discount to par is amortized over the expected maturity of the CLO debt, which is calculated using estimated cash flows on the date of purchase.
Primary CLOs purchased either from the collateral manager or the broker are recorded on the settled date, to reflect the potential changes, updates or resizing of the position, due to the long-term nature of settlement. The typical settlement time for Depository Trust Company bonds is three days. Amortization of an original issue
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
discount is calculated to expected maturity date, based on projected cash flows at the time of purchase, and recorded over the expected life of the bond.
Gains or losses from the sale or call of CLOs are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale or call. Restructured or permanently impaired CLOs are recorded in the period of measurement and recorded on the combined consolidated statements of operations as a realized gain or loss and amortized to expected maturity based on the available cash flows at the time of measurement. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
v.Corporate bonds
The Company holds corporate bonds comprised of investment grade and high yield corporate bonds including performing credit strategies focused on income-oriented, senior loan and bond investment strategies targeting U.S. issuers.
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. The typical settlement time for Depository Trust Company bonds is three days. Gains or losses from the sale or call of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale or call. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
w.Interest rate caps
In order to manage the risks associated with the variable rate financing of the mortgage, the Company may enter into various interest rate cap agreements. The cap agreements have initial notional values equal to the original loan amount of the related mortgages.
Derivative instruments not meeting the criteria for hedge accounting are recorded at fair value on the balance sheets with any change in fair value reflected in the combined consolidated statement of operations in the period of change. The fair value of the interest rate caps as of December 31, 2022 and 2021 was $25,724,128 and $3,311,090, respectively. For the year ended December 31, 2022 and 2021, there was $14,067,690 and $0, respectively, of gain recorded for the fair value of the interest rate caps.
x.Reclassifications
Certain amounts in the 2021 combined consolidated financial statements have been reclassified to conform to the 2022 presentation.
y.Recent accounting pronouncements
In June 2016, the FASB issued ASU 2016-13, an update to ASC Topic 326, Financial Instruments – Credit Losses. ASU 2016-13 requires measurement and recognition of expected credit losses on financial instruments measured at amortized cost at the end of each reporting period rather than recognizing the credit losses when it is probable that the loss has been incurred in accordance with current GAAP. In November 2018, the FASB issued ASU 2018-19, which clarified that receivables arising from operating leases are not within the scope of ASC Topic 326, and instead, impairment of receivables arising from operating leases should be accounted for under the scope of ASC Topic 842, Leases. In May 2019, the FASB issued ASU 2019-05, which provides transition relief for entities adopting ASU 2016-13 by allowing entities to elect the fair value option on certain financial instruments. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2019, with early adoption permitted. The Company adopted the provisions of ASU 2016-13 on January 1, 2022. This adoption did not have a material impact on the combined consolidated financial statements.
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
3.Recent Real Estate Transactions
Acquisition of Real Estate Assets Held for Investment
During 2022 and 2021, the Company acquired the following properties:
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Kokomo, a multi-family property located in Kokomo, IN for an aggregate purchase price of $20,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $12,753,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $911,917.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Stillwater, a multi-family property located in Stillwater, OK for an aggregate purchase price of $26,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $15,328,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,244,358.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Pueblo, a multi-family property located in Pueblo, CO for an aggregate purchase price of $31,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $20,166,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,307,918.
▪On May 26, 2022, the Company, together with a joint venture partner, acquired Cheyenne, a multi-family property located in Cheyenne, WY for an aggregate purchase price of $27,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $17,656,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,158,374.
▪On March 29, 2022, the Company, together with a joint venture partner, acquired Southport Crossing, a multi-family property located in Indianapolis, IN for an aggregate purchase price of $48,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $35,600,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,141,881.
▪On March 18, 2022, the Company acquired Rutland Place, a multi-family property located in Macon, GA for an aggregate purchase price of $29,750,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $22,500,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Lancaster Place, a multi-family property located in Calera, AL for an aggregate purchase price of $37,550,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $28,350,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Twin Oaks, a multi-family property located in Hattiesburg, MS for an aggregate purchase price of $44,850,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $33,830,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On March 18, 2022, the Company acquired Enclave at Wolfchase, a multi-family property located in Cordova, TN for an aggregate purchase price of $82,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $60,000,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
▪On December 30, 2021, the Company, together with a joint venture partner, acquired West Vue, a multi-family property located in Orlando, FL for an aggregate purchase price of $97,500,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $73,000,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $3,255,556.
▪On November 30, 2021, the Company, together with a joint venture partner, acquired Elliot Norcross, a multi-family property located in Norcross, GA for an aggregate purchase price of $128,000,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $98,800,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $3,530,000.
▪On June 28, 2021, the Company, together with a joint venture partner, acquired Crosswinds, a multi-family property located in Pearl, MS for an aggregate purchase price of $41,400,000 exclusive of acquisition and
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
closing costs. For the purchase of this property, the Company obtained bank financing of $33,825,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $2,676,334.
▪On June 28, 2021, the Company, together with a joint venture partner, acquired Reflection Pointe, a multi-family property located in Flowood, MS for an aggregate purchase price of $45,100,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $31,050,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $2,906,888.
▪On June 28, 2021, the Company, together with a joint venture partner, acquired Lakeshore Landing, a multi-family property located in Ridgeland, MS for an aggregate purchase price of $22,600,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $16,950,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $1,618,561.
▪On June 28, 2021, the Company, together with a joint venture partner, acquired Pear Orchard, a multi-family property located in Ridgeland, MS for an aggregate purchase price of $50,900,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $38,175,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $3,298,216.
▪On March 12, 2021, the Company, together with a joint venture partner, acquired The Edge at Clear Lake, a multi-family property located in Webster, TX for an aggregate purchase price of $34,000,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $25,496,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $2,879,205.
▪On February 26, 2021, the Company, together with a joint venture partner, acquired The Willows Apartments, a multi-family property located in Spartanburg, SC for an aggregate purchase price of $23,255,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $19,000,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $255,396.
▪On February 26, 2021, the Company, together with a joint venture partner, acquired The Laurel Apartments, a multi-family property located in Spartanburg, SC for an aggregate purchase price of $57,005,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $42,025,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $784,850.
▪On January 27, 2021, the Company acquired Chimneys of Greenville, a multi-family property located in Taylors, SC for an aggregate purchase price of $18,762,000 exclusive of acquisition and closing costs. For the purchase of this property, the Company obtained bank financing of $14,075,000. On the date of acquisition, the fair value of the non-controlling interest in the joint venture was $0.
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The below listed 2022 and 2021 acquisitions have been accounted for as asset acquisitions. The purchase price was allocated to the acquired assets and liabilities based on their estimated fair values at the date of acquisition. The Company allocated the purchase price, plus capitalized acquisition costs, of the properties acquired during 2022 and 2021 as follows:
| Property | Land | Building | Improvements | FF&E | Lease Intangibles | Total Purchase Price | ||||||||||||||
| 2022 Acquisitions: | ||||||||||||||||||||
| Enclave at Wolfchase | $ | 4,284,151 | $ | 73,000,327 | $ | 1,627,778 | $ | 520,290 | $ | 3,496,227 | $ | 82,928,773 | ||||||||
| Twin Oaks | 1,631,277 | 40,379,141 | 1,235,591 | 309,137 | 1,875,969 | 45,431,115 | ||||||||||||||
| Lancaster Place | 2,106,551 | 33,038,965 | 951,016 | 249,514 | 1,625,929 | 37,971,975 | ||||||||||||||
| Rutland Place | 1,852,142 | 26,142,545 | 607,972 | 234,807 | 1,343,056 | 30,180,522 | ||||||||||||||
| Southport Crossing | 2,660,957 | 42,356,055 | 617,900 | 1,008,572 | 2,070,961 | 48,714,445 | ||||||||||||||
| Cheyenne | 1,371,052 | 25,432,206 | 203,431 | 316,397 | 949,190 | 28,272,276 | ||||||||||||||
| Pueblo | 1,532,088 | 29,211,806 | — | 408,557 | 1,021,392 | 32,173,843 | ||||||||||||||
| Stillwater | 3,720,206 | 21,896,069 | — | 318,876 | 850,332 | 26,785,483 | ||||||||||||||
| Kokomo | 389,928 | 19,671,250 | 58,809 | 292,446 | 779,856 | 21,192,289 | ||||||||||||||
| Total 2022: | $ | 19,548,352 | $ | 311,128,364 | $ | 5,302,497 | $ | 3,658,596 | $ | 14,012,912 | $ | 353,650,721 | ||||||||
| 2021 Acquisitions: | ||||||||||||||||||||
| Chimneys of Greenville | $ | 1,936,290 | $ | 15,592,225 | $ | 340,242 | $ | 174,266 | $ | 1,036,424 | $ | 19,079,447 | ||||||||
| The Laurel Apartments | 2,354,507 | 49,394,544 | 1,943,720 | 909,741 | 2,726,218 | 57,328,730 | ||||||||||||||
| The Willows Apartments | 1,032,581 | 19,942,980 | 931,347 | 314,836 | 1,255,294 | 23,477,038 | ||||||||||||||
| The Edge at Clear Lake | 2,226,104 | 29,274,788 | 691,210 | 704,424 | 1,702,613 | 34,599,139 | ||||||||||||||
| Pear Orchard | 4,640,967 | 42,831,836 | 1,584,471 | 242,271 | 2,465,642 | 51,765,187 | ||||||||||||||
| Lakeshore Landing | 2,129,945 | 18,899,508 | 699,982 | 119,997 | 1,145,969 | 22,995,401 | ||||||||||||||
| Reflection Pointe | 4,275,522 | 34,346,013 | 1,347,499 | 183,382 | 1,953,365 | 42,105,781 | ||||||||||||||
| Crosswinds | 3,767,644 | 38,279,260 | 1,255,882 | 221,035 | 2,344,981 | 45,868,802 | ||||||||||||||
| Elliot Norcross | 14,597,360 | 105,690,697 | 2,709,752 | 1,450,392 | 5,373,821 | 129,822,022 | ||||||||||||||
| West Vue | — | 81,507,503 | 1,950,869 | 1,284,918 | 14,399,659 | 99,142,949 | ||||||||||||||
| Total 2021: | $ | 36,960,920 | $ | 435,759,354 | $ | 13,454,974 | $ | 5,605,262 | $ | 34,403,986 | $ | 526,184,496 | ||||||||
The weighted average amortization period of acquired in-place leases was approximately six months for each of the years ended December 31, 2022 and 2021, respectively.
Summarized information regarding properties sold during the years ended December 31, 2022 and 2021 is set forth in the table below:
| Property | Disposition Date | Asset Type | Gross Sale Price | Gain on Sale | ||||||||||||||||||||||
| 2022 Dispositions: | ||||||||||||||||||||||||||
| Verandas at Rocky Ridge | 2/1/2022 | Multi-family | $ | 34,670,000 | $ | 20,956,684 | ||||||||||||||||||||
| Total 2022: | $ | 34,670,000 | $ | 20,956,684 | ||||||||||||||||||||||
| 2021 Dispositions: | ||||||||||||||||||||||||||
| Union Place | 1/29/2021 | Multi-family | $ | 77,300,000 | $ | 18,966,200 | ||||||||||||||||||||
| Canterbury | 10/13/2021 | Multi-family | 171,800,000 | 113,313,696 | ||||||||||||||||||||||
| Forest Park | 10/19/2021 | Multi-family | 107,300,000 | 53,499,660 | ||||||||||||||||||||||
| Gulf Coast | 12/1/2021 | Multi-family | 265,330,000 | 174,559,244 | ||||||||||||||||||||||
| Total 2021: | $ | 621,730,000 | $ | 360,338,800 | ||||||||||||||||||||||
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National Property REIT Corp
Notes to Combined Consolidated Financial Statements
4.Real Estate Assets
The Company’s ownership interests in real estate properties range from 67% to 100% via either direct ownership or ownership of a property owning entity. Through its ownership interests, the Company controls and therefore consolidates the properties and property owning entities. The interest owned by the other joint venture partner is reflected as non-controlling interest in these combined consolidated financial statements.
The Company’s real estate assets consisted of the following as of December 31, 2022 and 2021:
| Property | Acquisition Date | Ownership Percentage | Asset Type | Location | Real Estate Assets, Net of Accumulated Depreciation | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
| Filet of Chicken | 10/24/2012 | 100.0% | Industrial | Forest Park, GA | $ | 4,064,982 | $ | 4,225,493 | ||||||||||||||||||||||||||||||
| Arlington Park | 5/8/2013 | 93.3% | Multi-Family | Marietta, GA | 8,616,016 | 8,387,519 | ||||||||||||||||||||||||||||||||
| Verandas at Rocky Ridge | 11/15/2013 | 99.3% | Multi-Family | Vestavia Hills, AL | — | 12,790,100 | ||||||||||||||||||||||||||||||||
| Taco Bell, OK | 6/4/2014 | 100.0% | Commercial | Yukon, OK | 1,080,637 | 1,133,714 | ||||||||||||||||||||||||||||||||
| Taco Bell, MO | 6/4/2014 | 100.0% | Commercial | Marshall, MO | 872,568 | 916,862 | ||||||||||||||||||||||||||||||||
| Abbie Lakes | 9/30/2014 | 79.1% | Multi-Family | Canal Winchester, OH | 10,070,645 | 10,318,581 | ||||||||||||||||||||||||||||||||
| Brooksedge | 9/30/2014 | 79.1% | Multi-Family | Reynoldsburg, OH | 9,574,690 | 9,873,596 | ||||||||||||||||||||||||||||||||
| Reserve at Abbie Lakes | 9/30/2014 | 79.1% | Multi-Family | Canal Winchester, OH | 22,577,192 | 23,366,142 | ||||||||||||||||||||||||||||||||
| Lake's Edge | 9/30/2014 | 79.1% | Multi-Family | Pickerington, OH | 9,709,282 | 10,132,352 | ||||||||||||||||||||||||||||||||
| Sunbury Ridge | 9/30/2014 | 79.1% | Multi-Family | Columbus OH | 11,375,360 | 11,872,598 | ||||||||||||||||||||||||||||||||
| Stonebridge | 9/30/2014 | 79.1% | Multi-Family | Blacklick, OH | 16,284,411 | 17,017,050 | ||||||||||||||||||||||||||||||||
| Jefferson Chase | 9/30/2014 | 79.1% | Multi-Family | Blacklick, OH | 10,286,606 | 10,673,209 | ||||||||||||||||||||||||||||||||
| Lake Ridge | 10/29/2014 | 79.1% | Multi-Family | Hilliard, OH | 5,647,294 | 5,882,478 | ||||||||||||||||||||||||||||||||
| Orchard Village | 11/5/2015 | 80.0% | Multi-Family | Aurora, IL | 28,425,777 | 29,524,559 | ||||||||||||||||||||||||||||||||
| Sterling Crimson | 9/28/2016 | 67.0% | Student Housing | Tuscaloosa, AL | 42,362,222 | 43,325,815 | ||||||||||||||||||||||||||||||||
| Hawks Ridge | 9/28/2016 | 67.0% | Student Housing | Iowa City, IA | 26,762,353 | 26,760,642 | ||||||||||||||||||||||||||||||||
| Islander Village | 9/28/2016 | 67.0% | Student Housing | Corpus Christi, TX | 10,875,899 | 11,114,729 | ||||||||||||||||||||||||||||||||
| Campus Quarters | 9/28/2016 | 67.0% | Student Housing | Corpus Christi, TX | 14,277,046 | 14,544,927 | ||||||||||||||||||||||||||||||||
| District on Luther | 9/28/2016 | 67.0% | Student Housing | College Station, TX | 30,507,794 | 30,722,119 | ||||||||||||||||||||||||||||||||
| West 22 | 9/28/2016 | 67.0% | Student Housing | Kennesaw, GA | 45,474,999 | 46,630,704 | ||||||||||||||||||||||||||||||||
| Legacy | 9/28/2016 | 67.0% | Student Housing | Statesboro, GA | 5,929,116 | 6,172,263 | ||||||||||||||||||||||||||||||||
| University Crossing | 9/28/2016 | 67.0% | Student Housing | Manhattan, KS | 16,858,191 | 17,338,300 | ||||||||||||||||||||||||||||||||
| Seasons | 1/30/2017 | 92.5% | Multi-Family | Laurel, MD | 164,652,567 | 167,281,000 | ||||||||||||||||||||||||||||||||
| Villages of Baymeadows | 10/31/2017 | 92.5% | Multi-Family | Jacksonville, FL | 82,038,859 | 84,280,919 | ||||||||||||||||||||||||||||||||
| Casa del Mar | 10/31/2017 | 92.5% | Multi-Family | Jacksonville, FL | 13,388,394 | 13,772,317 | ||||||||||||||||||||||||||||||||
| Silver Oaks | 11/8/2017 | 92.5% | Multi-Family | Southfield, MI | 14,088,499 | 14,069,596 | ||||||||||||||||||||||||||||||||
| Sutton Place | 11/8/2017 | 92.5% | Multi-Family | Southfield, MI | 43,808,107 | 45,993,359 | ||||||||||||||||||||||||||||||||
| Steeplechase | 1/9/2018 | 92.5% | Multi-Family | Largo, MD | 40,135,930 | 41,345,174 | ||||||||||||||||||||||||||||||||
| Olentangy Commons | 6/1/2018 | 92.5% | Multi-Family | Columbus, OH | 103,376,766 | 105,579,130 | ||||||||||||||||||||||||||||||||
| Villages of Wildwood | 7/20/2018 | 92.5% | Multi-Family | Fairfield, OH | 43,465,102 | 45,338,690 | ||||||||||||||||||||||||||||||||
| Falling Creek | 8/8/2018 | 90.0% | Multi-Family | Richmond, VA | 21,812,770 | 22,508,966 | ||||||||||||||||||||||||||||||||
| Crown Pointe | 8/30/2018 | 80.0% | Multi-Family | Danbury, CT | 96,754,311 | 98,544,334 | ||||||||||||||||||||||||||||||||
| Lorring Park | 10/30/2018 | 80.0% | Multi-Family | Forestville, MD | 56,642,818 | 57,891,108 | ||||||||||||||||||||||||||||||||
| Hamptons | 1/9/2019 | 92.5% | Multi-Family | Beachwood, OH | 76,343,120 | 80,273,436 | ||||||||||||||||||||||||||||||||
| The Isle | 6/28/2019 | 92.5% | Multi-Family | Orlando, FL | 24,524,503 | 24,850,216 | ||||||||||||||||||||||||||||||||
| Druid Hills | 7/30/2019 | 96.3% | Multi-Family | Atlanta, GA | 76,552,758 | 77,842,281 | ||||||||||||||||||||||||||||||||
| Parcstone | 10/15/2019 | 88.0% | Multi-Family | Fayetteville, NC | 40,094,024 | 41,169,242 | ||||||||||||||||||||||||||||||||
| Stone Ridge | 10/15/2019 | 88.0% | Multi-Family | Fayetteville, NC | 19,972,653 | 20,524,688 | ||||||||||||||||||||||||||||||||
| Sterling Place | 10/28/2019 | 92.5% | Multi-Family | Columbus, OH | 40,196,735 | 39,683,098 | ||||||||||||||||||||||||||||||||
| Hampton on Jupiter | 11/2/2020 | 80.0% | Multi-Family | Dallas, TX | 35,123,195 | 35,507,104 | ||||||||||||||||||||||||||||||||
| Palmetto Creek | 11/10/2020 | 90.0% | Multi-Family | North Charleston, SC | 31,299,438 | 31,452,060 | ||||||||||||||||||||||||||||||||
| Valora at Homewood | 11/19/2020 | 90.0% | Multi-Family | Homewood, AL | 73,413,788 | 75,645,779 | ||||||||||||||||||||||||||||||||
| The Dylan at Fairburn | 12/14/2020 | 100.0% | Multi-Family | Fairburn, GA | 48,589,466 | 49,618,896 | ||||||||||||||||||||||||||||||||
| The Dylan at Grayson | 12/14/2020 | 100.0% | Multi-Family | Grayson, GA | 44,488,009 | 45,437,812 | ||||||||||||||||||||||||||||||||
| Chimneys of Greenville | 1/27/2021 | 100.0% | Multi-Family | Taylors, SC | 18,255,507 | 17,900,909 | ||||||||||||||||||||||||||||||||
| The Laurel Apartments | 2/26/2021 | 96.3% | Multi-Family | Spartanburg, SC | 54,304,114 | 54,612,779 | ||||||||||||||||||||||||||||||||
| The Willows Apartments | 2/26/2021 | 96.3% | Multi-Family | Spartanburg, SC | 20,894,148 | 21,629,286 | ||||||||||||||||||||||||||||||||
| The Edge at Clear Lake | 3/12/2021 | 80.0% | Multi-Family | Webster, TX | 32,889,330 | 33,721,152 | ||||||||||||||||||||||||||||||||
| Pear Orchard | 6/28/2021 | 80.0% | Multi-Family | Ridgeland, MS | 47,662,565 | 48,779,012 | ||||||||||||||||||||||||||||||||
20
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Property | Acquisition Date | Ownership Percentage | Asset Type | Location | Real Estate Assets, Net of Accumulated Depreciation | |||||||||||||||||||||||||||||||||
| 2022 | 2021 | |||||||||||||||||||||||||||||||||||||
| Lakeshore Landing | 6/28/2021 | 80.0% | Multi-Family | Ridgeland, MS | 20,879,577 | 21,616,956 | ||||||||||||||||||||||||||||||||
| Reflection Pointe | 6/28/2021 | 80.0% | Multi-Family | Flowood, MS | 38,603,634 | 39,777,295 | ||||||||||||||||||||||||||||||||
| Crosswinds | 6/28/2021 | 80.0% | Multi-Family | Pearl, MS | 41,368,894 | 42,985,832 | ||||||||||||||||||||||||||||||||
| Elliot Norcross | 11/30/2021 | 90.0% | Multi-Family | Norcross, GA | 125,570,287 | 124,255,893 | ||||||||||||||||||||||||||||||||
| West Vue | 12/30/2021 | 90.0% | Multi-Family | Orlando, FL | 83,173,770 | 84,743,290 | ||||||||||||||||||||||||||||||||
| Enclave at Wolfchase | 3/18/2022 | 100.0% | Multi-Family | Cordova, TN | 77,513,083 | — | ||||||||||||||||||||||||||||||||
| Twin Oaks | 3/18/2022 | 100.0% | Multi-Family | Hattiesburg, MS | 42,954,111 | — | ||||||||||||||||||||||||||||||||
| Lancaster Place | 3/18/2022 | 100.0% | Multi-Family | Calera, AL | 35,827,253 | — | ||||||||||||||||||||||||||||||||
| Rutland Place | 3/18/2022 | 100.0% | Multi-Family | Macon, GA | 28,208,461 | — | ||||||||||||||||||||||||||||||||
| Southport Crossing | 3/29/2022 | 92.5% | Multi-Family | Indianapolis, IN | 47,412,735 | — | ||||||||||||||||||||||||||||||||
| Cheyenne | 5/26/2022 | 90.0% | Senior Living | Cheyenne, WY | 26,964,513 | — | ||||||||||||||||||||||||||||||||
| Pueblo | 5/26/2022 | 90.0% | Senior Living | Pueblo, CO | 30,780,715 | — | ||||||||||||||||||||||||||||||||
| Stillwater | 5/26/2022 | 90.0% | Senior Living | Stillwater, OK | 25,693,236 | — | ||||||||||||||||||||||||||||||||
| Kokomo | 5/26/2022 | 90.0% | Senior Living | Kokomo, IN | 20,148,278 | — | ||||||||||||||||||||||||||||||||
| Total net real estate assets | $ | 2,341,499,103 | $ | 2,061,355,361 | ||||||||||||||||||||||||||||||||||
5.Lease Intangibles
Lease intangibles consist of the following:
| As of December 31, 2022 | As of December 31, 2021 | ||||||||||||||||||||||
| Lease Intangibles | Accumulated Amortization | Lease Intangibles, net | Lease Intangibles | Accumulated Amortization | Lease Intangibles, net | ||||||||||||||||||
| In-place leases | $ | 109,870,457 | $ | (104,818,996) | $ | 5,051,461 | $ | 95,857,545 | $ | (86,403,445) | $ | 9,454,100 | |||||||||||
| Above-market leases | 10,989,653 | (687,180) | 10,302,473 | 9,825,842 | — | 9,825,842 | |||||||||||||||||
| Below-market leases | — | — | — | — | — | — | |||||||||||||||||
| Tenant relationships | 239,208 | (65,433) | 173,775 | 239,208 | (58,997) | 180,211 | |||||||||||||||||
| Deferred leasing costs | 635,325 | (372,685) | 262,640 | 635,325 | (334,172) | 301,153 | |||||||||||||||||
| Total | $ | 121,734,643 | $ | (105,944,294) | $ | 15,790,349 | $ | 106,557,920 | $ | (86,796,614) | $ | 19,761,306 | |||||||||||
Future amortization expense for the Company’s lease intangibles is as follows: $95,686 (2023), $95,686 (2024), $95,686 (2025), $95,686 (2026), $95,686 (2027), and $15,311,919 (thereafter).
6.Real Estate Assets Held for Sale
As of December 31, 2022, no real estate assets met the criteria to be classified as held for sale.
As of December 31, 2021, the real estate assets held by Veranda at Rocky Ridge met the criteria to be classified as held for sale. The Company entered into a purchase and sale agreement with an unrelated third-party on October 1, 2021. The sale closed on February 1, 2022, resulting in the recognition of a gain in the amount of $20,956,684.
Below is a summary of the major classes of real estate assets classified as held for sale:
| Real Estate Assets Held for Sale | December 31, 2022 | December 31, 2021 | ||||||||||||
| Land | $ | — | $ | 1,485,596 | ||||||||||
| Building and improvements | — | 15,438,471 | ||||||||||||
| Furniture, fixtures, and equipment | — | 2,105,271 | ||||||||||||
| Less: accumulated depreciation | — | (6,238,749) | ||||||||||||
| Total net real estate assets held for sale | $ | — | $ | 12,790,589 | ||||||||||
21
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
7.Preferred Equity Investments
On November 14, 2022, the Company, together with a joint venture partner, acquired Terraces at Perkins Rowe, a multi-family property located in Baton Rouge, LA for an aggregate purchase price of $41,400,000. The investment is structured as an investment that incorporates debt-like return metrics. The Company receives 7% cash return each month with additional 7% paid-in-kind (PIK) accrued to the Company’s outstanding capital balance. During the year ended 2022, the Company recognized total interest income of $240,425 from preferred equity investment. The Company's preferred equity investment meets the definition of held-to-maturity debt security, which are reported at amortized cost. The Company determined that as of December 31, 2022, fair value of the preferred equity investment approximated its cost of $13,073,865.
8.Involuntary Conversions
During 2022, the Company wrote off real estate assets from fire damages. As of December 31, 2022, proceeds of $3,117,599 were received. For the year ended December 31, 2022, a gain from involuntary conversion of $1,531,629 was recorded in relation to the assessed outcome of the damages and is included as gain on involuntary conversions on the combined consolidated statements of operations.
During 2021, the Company wrote off real estate assets from fire and storm damages. As of December 31, 2021, proceeds of $4,019,752 were received. For the year ended December 31, 2021, a gain from involuntary conversion of $655,239 was recorded in relation to the assessed outcome of the damages and is included as gain on involuntary conversions on the combined consolidated statements of operations.
9.Unsecured Consumer Loans
The Company purchased $0 and $0 of aggregate principal in unsecured consumer loans from LendingClub and NBT during the years ended December 31, 2022 and 2021, respectively.
During the year ended December 31, 2018, the Company purchased a trust certificate in LendingClub Issuance Trust, Series 2016-NP1 ("LCIT 2016-NP1") with a fair value of $5,665,256 representing a 59.32% interest in LCIT 2016-NP1. We were not involved in the design or creation of the trust and our continuing involvement is typically passive in nature and does not provide us with the power to direct the activities that most significantly impact the economic performance of the securitization trust. As a result, the Company does not consolidate the Club 2017 Securitization trust associated with this securitization.
During the year ended December 31, 2018, the Company purchased a trust certificate in LendingClub Issuance Trust, Series 2016-NP2 ("LCIT 2016-NP2") with a fair value of $10,458,276 representing a 72.60% interest in LCIT 2016-NP2. We were not involved in the design or creation of the trust and our continuing involvement is typically passive in nature and does not provide us with the power to direct the activities that most significantly impact the economic performance of the securitization trust. As a result, the Company does not consolidate the Club 2017 Securitization trust associated with this securitization.
On March 21, 2018, the Company sold 28,474 of unsecured consumer loans (with a cost of $200,001,980 and accrued interest of $2,261,777) previously purchased from LendingClub to Consumer Loan Underlying Bond (CLUB) Depositor, LLC ("Club 2018-NP-1") for proceeds of $166,701,211 net of related transaction expenses, and a trust certificate with a fair value of $32,965,958 representing a 56.36% interest in the Club 2018-NP1. On the date of sale, the Company reversed the unrealized loss of $(334,812) and the accrued interest of $(2,261,777), recording realized losses of $(334,812). The Company acquired an additional residual interest in the securitization for $928,822, increasing the total interest in the Club 2018-NP1 to 57.95%.
The Company’s portfolio of unsecured consumer loans consists of a large number of small balance homogeneous loans. As of December 31, 2022, the portfolio consisted of 216 loans having an average outstanding principal balance of $2,430 and a maximum balance of $50,000 at the time of origination. As of December 31, 2022, the unsecured consumer loans were issued with stated interest rates ranging from 8.0% to 36.0% with a weighted average interest rate of 18.6% based on outstanding principal of the unsecured consumer loans. As of December 31, 2021, the portfolio consisted of 841 loans having an average outstanding principal balance of $3,905 and maximum balance of $50,000 at the time of origination. As of December 31, 2021, the unsecured consumer loans were issued with stated interest rates ranging from 6.0% to 36.0% with a weighted average interest rate of 20.0% based on outstanding principal of the unsecured consumer loans.
The ability of the borrowers of the unsecured consumer loans to repay the Company are affected by their continuing financial stability. The credit risk of the unsecured consumer loans and the residual interest in securitizations is considered to be higher than for secured loans.
22
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The Lending Platforms classify the unsecured consumer loans into separately identified pools by rating ("Rating"), which indicates the expected level of risk associated with the loan. Each Rating corresponds to an estimated average annualized loss rate range as of the time the Rating is given. The estimated annual loss rate for each loan is based primarily on a proprietary custom risk model developed by each of the Lending Platforms using their respective historical data, borrower specific factors and Fair Isaac Corporation score (“FICO score”) obtained from a credit reporting agency. As part of the Rating determination, the Lending Platforms also consider borrower specific factors such as, but not limited to, credit related inquiries in the last six months and debt-to-income ratio.
Ratings are not consistent between Lending Platforms; as such the Company stratifies its unsecured consumer loans into separately identified pools based on the FICO score obtained from a credit reporting agency and as provided by each Lending Platform at origination. The stratified pools are designated "Super Prime," "Prime" or "Near Prime," and defined as follows: Super Prime loans as loans to borrowers with a FICO score of 720 or greater, Prime Loans as loans to borrowers with a FICO score of between 660 and 719 and Near Prime loans as loans to borrowers with a FICO score of between 600 and 659.
The following table summarizes the Company's unsecured consumer loans held as of December 31, 2022:
| Category | Outstanding Principal | Fair Value | Interest Rate Range | Weighted Average Interest Rate* | ||||||||||
| Super Prime | $ | 182,638 | $ | 182,194 | 8.0% - 20.5% | 12.2% | ||||||||
| Prime | 211,193 | 204,355 | 12.0% - 25.0% | 19.1% | ||||||||||
| Near Prime | 131,088 | 134,397 | 19.5% - 36.0% | 26.8% | ||||||||||
| Total Loans | $ | 524,919 | $ | 520,946 | 18.6% | |||||||||
* Based on outstanding principal of the unsecured consumer loans.
The following table summarizes the Company's unsecured consumer loans held as of December 31, 2021:
| Category | Outstanding Principal | Fair Value | Interest Rate Range | Weighted Average Interest Rate* | ||||||||||
| Super Prime | $ | 738,479 | $ | 722,898 | 7.0% - 20.5% | 12.3% | ||||||||
| Prime | 1,317,461 | 1,242,844 | 6.0% - 25.0% | 18.0% | ||||||||||
| Near Prime | 1,228,172 | 1,255,377 | 6.0% - 36.0% | 26.7% | ||||||||||
| Total Loans | $ | 3,284,112 | $ | 3,221,119 | 20.0% | |||||||||
* Based on outstanding principal of the unsecured consumer loans.
The following table summarizes the delinquency status of the unsecured consumer loans:
| December 31, 2022 | December 31, 2021 | |||||||||||||||||||
| Delinquency Status | Outstanding Principal | Fair Value | % of Total | Outstanding Principal | Fair Value | % of Total | ||||||||||||||
| Current | $ | 488,255 | $ | 491,804 | 93.00 | % | $ | 3,062,038 | $ | 3,107,025 | 93.24 | % | ||||||||
| 1 - 30 days | 23,907 | 21,852 | 4.60 | % | 95,595 | 75,454 | 2.91 | % | ||||||||||||
| 31 - 60 days | 5,877 | 4,623 | 1.10 | % | 51,460 | 28,052 | 1.57 | % | ||||||||||||
| 61 - 90 days | 6,879 | 2,667 | 1.30 | % | 19,046 | 4,099 | 0.58 | % | ||||||||||||
| 91 - 120 days | — | — | — | % | 55,973 | 6,489 | 1.70 | % | ||||||||||||
| Total Loans | $ | 524,918 | $ | 520,946 | 100.00 | % | $ | 3,284,112 | $ | 3,221,119 | 100.00 | % | ||||||||
10.Collateralized Loan Obligations
The CLO investments held by NGL are subordinated debt interests in broadly syndicated loans managed by established collateral management teams with many years of experience in the industry.
The credit risk of a CLO is dependent on the underlying assets within the portfolio. For “traditional” CLOs, the collateral pool primarily consists of first lien, senior secured broadly syndicated bank loans (usually at least 90% of the total portfolio), and it may include a predetermined allowable portion of other asset types such as second lien bank loans (which are highly leveraged) and unsecured debt, as well as middle market loans.
Some CLOs consist predominantly of middle market loans as the underlying collateral. The average rating of the underlying collateral is typically single-B, and the leveraged bank loans are typically floating rate, based on LIBOR.
23
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The securities held at NGL are B or BB rated mezzanine debt that pay a quarterly interest coupon, based on the notional balance held and a fixed spread plus LIBOR, which resets after each payment. The principal is returned through the CLO waterfall at the earlier of the call date or expected maturity. As of December 31, 2022, based on outstanding notional balance, 12.6% of the portfolio was invested in single-B rated tranches and 87.4% of the portfolio in BB rated tranches with a fixed spread plus LIBOR at the most recent reset date.
As of December 31, 2022, the outstanding investment of CLOs comprised of 94 investments with a fair value of $424,746,173 and a face value of $448,235,434. The average outstanding note is approximately $4,768,000 with a stated maturity date ranging from April 2026 to October 2033 and a weighted average stated maturity of 6.0 years as of December 31, 2022. Coupons range from three-month LIBOR (“3ML”) plus 5.20% to 9.23% with a weighted average coupon of 3ML + 6.93%.
As of December 31, 2021, the outstanding investment of CLOs comprised of 43 investments with a fair value of $237,125,053 and a face value of approximately $246,306,660. The average outstanding note is approximately $5,728,000 with a stated maturity date ranging from April 2026 to January 2032 and a weighted average stated maturity of 5.0 years as of December 31, 2021. Coupons range from three-month LIBOR (“3ML”) plus 5.45% to 9.45% with a weighted average coupon of 3ML + 7.16%.
The Company purchased $186,569,431 and $44,332,546, respectively, of aggregate principal of CLOs from various third-party brokers during the year ended December 31, 2022 and 2021, respectively, which are held by the Bank of New York Mellon as custodian.
11.Fair Value of Financial Instruments
The fair value of a financial instrument is defined as the price that we would receive upon selling an asset or pay to transfer a liability in an orderly transaction to an independent buyer in the principal or most advantageous market in which that financial instrument is transacted.
In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment.
Most of our financial instruments measured at fair value on a recurring basis were classified as Level 3 as of December 31, 2022 and 2021. During the year ended December 31, 2022, NGL’s CLO portfolio totaling $237,125,053 was transferred from Level 2 to Level 3 at January 1, 2022 due to the volatility of the observable inputs, which were caused primarily by rising interest rates. The net change in unrealized (losses) gains on the investments that use Level 3 inputs was $1,276,630 as of December 31, 2022.
Other than as previously discussed, we did not transfer any assets or liabilities in or out of Level 3 during the year ended December 31, 2021. Transfers between levels, should they occur, will be recognized at the beginning of the quarter during which the asset or liability was transferred.
Unsecured Consumer Loans, Residual Interests in Securitizations, and Repurchase Agreements
The unsecured consumer loans, residual interests in securitizations, repurchase agreements, and collateralized loan obligations do not trade in an active market with readily observable prices. For the unsecured consumer loans and residual interests in securitizations, fair value is estimated by using a discounted cash flow methodology based upon significant unobservable inputs, such as loss adjusted discount rates and projected loss rates. The loss adjusted discount rates are used to discount the estimated future cash flows expected to be received from the underlying unsecured consumer loans, which includes both future principal and interest payments. The projected loss rates are based on the perceived credit risk inherent in each Rating of the unsecured loan portfolio. See Note 9 for details of the unsecured consumer loans.
Repurchase agreements are collateralized with the security portfolio. As the carrying value of the repurchase agreement approximates fair value, there were no unobservable inputs that have been internally developed by the Company as of December 31, 2022.
NGL qualifies as an investment company pursuant to ASC Topic 946, Financial Services-Investment Companies. Accordingly, the underlying CLO investments and repurchase agreements are carried at fair value and were retained in consolidation by the Company.
24
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
In determining the range of values for our investments in CLOs, management utilizes an independent valuation firm that uses a discounted multi-path cash flow model. The valuations were accomplished through the analysis of the CLO deal structures to identify the risk exposures from the modeling point of view as well as to determine an appropriate call date (i.e., expected maturity). These risk factors are sensitized in the multi-path cash flow model using Monte Carlo simulations to generate probability-weighted (i.e., multi-path) cash flows for the underlying assets and liabilities. These cash flows are discounted using appropriate market discount rates, and relevant data in the CLO market and certain benchmark credit indices are considered, to determine the value of each CLO investment. In addition, we generate a single-path cash flow utilizing our best estimate of expected cash receipts, and assess the reasonableness of the implied discount rate that would be effective for the value derived from the corresponding multi-path cash flow model.
The interests we have acquired in CLOs are generally thinly traded or have only a limited trading market. CLOs are typically privately offered and sold, even in the secondary market. As a result, investments in CLOs may be characterized as illiquid securities. In addition to the general risks associated with investing in debt securities, CLO residual interests carry additional risks, including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may decline in value or default; (iii) our investments in CLO tranches will likely be subordinate to other senior classes of note tranches thereof; and (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the CLO investment or unexpected investment results. Our net asset value may also decline over time if our principal recovery with respect to CLO residual interests is less than the cost of those investments. Our CLO investments and/or the CLOs’ underlying senior secured loans may prepay more quickly than expected, which could have an adverse impact on our value. These investments are classified as Level 3 in the fair value hierarchy.
Corporate Bonds and Interest Rate Caps
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. The typical settlement time for Depository Trust Company bonds is three days. Gains or losses from the sale or call of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale or call. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
On a recurring basis, the Company measures its interest rate cap at its estimated fair value. In determining the fair value of the Company's derivative, the Company uses the present value of expected cash flows based on market observable interest rate yield curve commensurate with the term of the instrument. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and that of the respective counterparty in the fair value measurement. The credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by either the respective counterparty or the Company. However, the Company determined that as of December 31, 2022, the impact of the credit valuation adjustments were not significant to the overall valuation of the derivatives. As a result, the fair value of the derivative is considered to be based primarily on Level 2 inputs.
25
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The following table shows the fair value of our unsecured consumer loans, residual interest in securitizations, CLOs, interest rate caps, corporate bonds, and repurchase agreements, disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2022.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets | ||||||||||||||
| Unsecured consumer loans | $ | — | $ | — | $ | 520,946 | $ | 520,946 | ||||||
| Residual interests in securitizations | — | — | 8,540,118 | 8,540,118 | ||||||||||
| Collateralized loan obligations | — | — | 424,746,173 | 424,746,173 | ||||||||||
| Corporate bonds | — | 11,616,950 | — | 11,616,950 | ||||||||||
| Interest rate cap | — | 25,724,128 | — | 25,724,128 | ||||||||||
| Total investments at fair value | $ | — | $ | 37,341,078 | $ | 433,807,237 | $ | 471,148,315 | ||||||
| Liabilities | ||||||||||||||
| Reverse repurchase facilities | $ | — | $ | — | $ | 196,118,000 | $ | 196,118,000 | ||||||
| Total liabilities at fair value | $ | — | $ | — | $ | 196,118,000 | $ | 196,118,000 | ||||||
For the year ended December 31, 2022, the Company had charge-offs of $(285,500) and recoveries of $463,304 to Level 3 unsecured consumer loans. Also, the Company borrowed $87,315,000 and repaid $1,247,000 relating to repurchase agreements during 2022.
The following table shows the fair value of our unsecured consumer loans, residual interest in securitizations, CLOs, interest rate caps, corporate bonds, and repurchase agreements, disaggregated into the three levels of the ASC 820 valuation hierarchy as of December 31, 2021.
| Level 1 | Level 2 | Level 3 | Total | |||||||||||
| Assets | ||||||||||||||
| Unsecured consumer loans | $ | — | $ | — | 3,221,119 | $ | 3,221,119 | |||||||
| Residual interests in securitizations | — | — | 1,348,844 | 1,348,844 | ||||||||||
| Collateralized loan obligations | — | 237,125,053 | — | 237,125,053 | ||||||||||
| Corporate bonds | — | 8,032,000 | — | 8,032,000 | ||||||||||
| Interest rate cap | — | 3,311,090 | — | 3,311,090 | ||||||||||
| Total investments at fair value | $ | — | $ | 248,468,143 | $ | 4,569,963 | $ | 253,038,106 | ||||||
| Liabilities | ||||||||||||||
| Reverse repurchase facilities | $ | — | $ | — | $ | 110,050,000 | $ | 110,050,000 | ||||||
| Total liabilities at fair value | $ | — | $ | — | $ | 110,050,000 | $ | 110,050,000 | ||||||
For the year ended December 31, 2021, the Company had charge-offs of $471,989 and recoveries of $1,275,919 to Level 3 unsecured consumer loans. In addition, the Company borrowed $48,969,000 and repaid $18,919,000 relating to repurchase agreements during 2021.
Refer to Note 9 for details of the unsecured consumer loans.
26
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The ranges of unobservable inputs used in the fair value measurement of our Level 3 financial instruments as of December 31, 2022 and 2021 were as follows:
| December 31, 2022 | |||||||||||||||||
| Assets/Liabilities | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||
| Unsecured consumer loans | $ | 520,946 | Discounted cash flow | Loss-adjusted discounted rate | 7.60% - 13.83% | 8.40% | |||||||||||
| Projected prepay rate | 1.24% - 12.09% | 7.63% | |||||||||||||||
| Projected loss rate | 0.11% - 8.25% | 5.13% | |||||||||||||||
| Recovery rate | 7.50% - 11.00% | 8.26% | |||||||||||||||
| Residual interests in securitizations | $ | 8,540,118 | Discounted cash flow | Forecasted prepay % of current balance | 5.67% - 30.56% | 30.14% | |||||||||||
| Forecasted default % of current balance | 6.08% - 14.54% | 14.01% | |||||||||||||||
| Severity | 89.00% - 92.50% | 92.48% | |||||||||||||||
| Discount rate | 10.00% - 15.00% | 14.97% | |||||||||||||||
| Collateralized loan obligations | $ | 424,746,173 | Discounted Cash Flow | Discount Rate | 10.60% - 17.00% | 12.70% | |||||||||||
| Weighted Average Life | 2.5 - 5.0 | 4.3 | |||||||||||||||
| Reverse repurchase facilities | $ | 196,118,000 | Cost, which approximates fair value | — | — | — | |||||||||||
| December 31, 2021 | |||||||||||||||||
| Assets/Liabilities | Fair Value | Valuation Technique | Unobservable Input | Range | Weighted Average | ||||||||||||
| Unsecured consumer loans | $ | 3,221,119 | Discounted cash flow | Loss-adjusted discounted rate | 4.85% - 8.25% | 7.49% | |||||||||||
| Projected prepay rate | 0.00% - 4.28% | 0.05% | |||||||||||||||
| Projected loss rate | 0.00% - 1.95% | 0.03% | |||||||||||||||
| Recovery rate | 7.50% - 11.00% | 9.15% | |||||||||||||||
| Residual interests in securitizations | $ | 1,348,844 | Discounted cash flow | Forecasted prepay % of current balance | 6.28% - 13.07% | 12.56% | |||||||||||
| Forecasted default % of current balance | 5.52% - 11.41% | 10.97% | |||||||||||||||
| Severity | 89.00% - 89.00% | 89.00% | |||||||||||||||
| Discount rate | 7.00% - 7.00% | 7.00% | |||||||||||||||
| Reverse repurchase facilities | $ | 110,050,000 | Cost, which approximates fair value | — | — | — | |||||||||||
27
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
12.Corporate Bonds
The Company holds corporate bonds comprised of investment grade and high yield corporate bonds including performing credit strategies focused on income-oriented, senior loan and bond investment strategies targeting U.S. issuers.
The outstanding maturity is November 2026 including a bi-annual fixed interest coupon of 7.00%. Relevant details for the corporate bonds as of December 31, 2022 and 2021 are as follows:
| December 31, 2022 | ||||||||||||||||||||
| Purchase Date | Security | Face Value (Par) | Price | Net Purchase Price | Maturity | Coupon | ||||||||||||||
| 12/7/2021 | WRLD | $ | 3,000,000 | 99.75 | $ | 2,992,500 | 11/1/2026 | 7.00% | ||||||||||||
| 12/16/2021 | WRLD | 5,000,000 | 100.00 | 5,000,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 2/15/2022 | WRLD | 7,000,000 | 94.00 | 6,580,000 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/23/2022 | WRLD | 2,572,000 | 87.75 | 2,256,930 | 11/1/2026 | 7.00% | ||||||||||||||
| 3/30/2022 | WRLD | 1,250,000 | 88.25 | 1,103,125 | 11/1/2026 | 7.00% | ||||||||||||||
| 4/4/2022 | WRLD | 310,000 | 88.25 | 273,575 | 11/1/2026 | 7.00% | ||||||||||||||
| $ | 19,132,000 | $ | 18,206,130 | |||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||
| Purchase Date | Security | Face Value (Par) | Price | Net Purchase Price | Maturity | Coupon | ||||||||||||||
| 12/7/2021 | WRLD | $ | 3,000,000 | 99.75 | $ | 2,992,500 | 11/1/2026 | 7.00% | ||||||||||||
| 12/16/2021 | WRLD | 5,000,000 | 100.00 | 5,000,000 | 11/1/2026 | 7.00% | ||||||||||||||
| $ | 8,000,000 | $ | 7,992,500 | |||||||||||||||||
Secondary corporate bonds purchased from a broker are recorded on a trade date basis and are recorded as the settlement value of cash, plus purchased accrued interest. Purchased accrued interest is treated as a return of capital upon receipt of coupon. The discount to par is amortized over the stated maturity of the corporate bond and recognized as part of interest income on the combined consolidated statements of operations. The typical settlement time for Depository Trust Company bonds is three days. Gains or losses from the sale or call of Corporate Bonds are recorded as a realized gain or loss on the combined consolidated statements of operations and recognized on the date of sale or call. Unrealized gains or losses are recorded on the combined consolidated statements of operations and recognized on each valuation date.
13.Reverse Repurchase Facilities
On October 30, 2019, NGL entered into a Master Repurchase Agreement (the “Repo Agreement”) with Nomura Securities International, Inc. (“Nomura”) to provide a borrowing facility ("Repo") from which NGL could pledge securities as collateral and borrow up to $105,000,000 under agreed upon terms. Under the terms of the Repo Agreement, NGL received cash up to 75% of the market value of securities with an interest charge of a minimum of 1.80% plus LIBOR, calculated as T-2 days for the reference rate. For the year ending December 31, 2021, the Company paid $3,335,130 of interest to Nomura. The term of the Repo is two years from commencement date subject to eight rolling three-month periods where upon each reset date, the entire Repo is closed and reopened, and borrowed interest is due to Nomura. Securities in the Repo can be purchased back at any time, subject to maintaining the agreed upon minimum draw on the Repo: 60% drawn during the ramp up period, as defined in the Repo Agreement, ending January 31, 2020, (subsequently extended to March 15, 2020 in the January 15, 2020 amended and restated Repo Agreement), and 90% drawn subsequent to the end of the ramp up period. Should the value of the securities drop to an LTV greater than 77.5%, NGL Limited must contribute cash or securities to Nomura’s collateral account until the combined value is below 70%. There was $0 of additional cash and securities pledged as collateral as of December 31, 2021.
On August 5, 2020, NGL agreed to the amended and restated Repo Agreement lowering the maximum borrowing under the agreement to $80,000,000, lowering the minimum LTV from 60% to 50% and reducing the deleveraging requirement from 77.5% to 60% including a drop in combined LTV from 70% to 50%. On April 27, 2022, NGL agreed to the fourth amended and restated repurchase agreement to increase the facility maximum to $200,000,000. Scheduled maturity of the facility is April 27, 2025, beginning with an accelerated paydown over the final twelve months of the facility starting on April 27, 2024.
Under the terms of the amended and restated Repo Agreement, NGL continues to receive cash up to 60% of the market value of securities with an interest charge of a minimum of 3.00%. The interest rate at December 31, 2022 was 3.00%. For the year ended December 31, 2022, the Company paid $6,002,989 of interest to Nomura. Should the value of the securities drop to an LTV greater than 50%, NGL Limited must contribute cash or securities to Nomura’s
28
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
collateral account until the combined value is below 60%. There was $0 of additional cash and securities pledged as collateral as of December 31, 2022.
The following table presents a summary of our repurchase agreement borrowings and interest as of December 31, 2022 and 2021:
| Master Repurchase Agreement | December 31, 2022 | December 31, 2021 | |||||||||
| Beginning Balance | $ | 110,050,000 | $ | 79,803,125 | |||||||
| Principal Borrowed | 87,315,000 | 48,969,000 | |||||||||
| Principal Paid | (1,247,000) | (18,919,000) | |||||||||
| Amortization of debt issuance cost | — | 196,875 | |||||||||
| Total Outstanding Principal | 196,118,000 | 110,050,000 | |||||||||
| Less: unamortized debt issuance cost | — | — | |||||||||
| Total Outstanding Principal, net of unamortized debt issuance cost | $ | 196,118,000 | $ | 110,050,000 | |||||||
14.Mortgages Payable
The Company has outstanding mortgages payable that bear interest at either a fixed or variable rate. Each mortgage payable is secured by a respective real estate property and certain cash reserve accounts required by the borrowing agreements, which are included as restricted cash on the accompanying combined consolidated balance sheets. The following table presents a summary of our mortgages payable as of December 31, 2022 and 2021:
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2022 | Outstanding Principal 12/31/2021 | |||||||||||||||||||||||||||
| Verandas at Rocky Ridge (1) | 2.71% | 2/1/2031 | Amortizing | $ | — | $ | 18,410,000 | |||||||||||||||||||||||||
| Abbie Lakes | 4.20% | 10/1/2024 | Amortizing | 9,872,848 | 10,060,723 | |||||||||||||||||||||||||||
| Brooksedge | 4.20% | 10/1/2024 | Amortizing | 10,402,426 | 10,600,379 | |||||||||||||||||||||||||||
| Reserve at Abbie Lakes | 4.20% | 10/1/2024 | Amortizing | 19,047,787 | 19,410,258 | |||||||||||||||||||||||||||
| Lakes Edge | 4.20% | 10/1/2024 | Amortizing | 9,532,405 | 9,713,802 | |||||||||||||||||||||||||||
| Sunbury Ridge | 4.20% | 10/1/2024 | Amortizing | 9,910,675 | 10,099,270 | |||||||||||||||||||||||||||
| Stonebridge | 4.20% | 10/1/2024 | Amortizing | 14,639,050 | 14,917,624 | |||||||||||||||||||||||||||
| Jefferson Chase | 4.20% | 10/1/2024 | Amortizing | 11,575,063 | 11,795,331 | |||||||||||||||||||||||||||
| Lake Ridge | 4.11% | 10/1/2024 | Amortizing | 7,607,986 | 7,754,390 | |||||||||||||||||||||||||||
| Orchard Village | 4.43% | 12/1/2025 | Amortizing | 25,148,946 | 25,603,331 | |||||||||||||||||||||||||||
| Sterling Crimson - Loan 1 | 4.20% | 10/1/2026 | Amortizing | 40,457,910 | 41,139,939 | |||||||||||||||||||||||||||
| Hawk's Ridge | 4.20% | 10/1/2026 | Amortizing | 24,348,306 | 24,758,764 | |||||||||||||||||||||||||||
| Islander Village | 4.20% | 10/1/2026 | Amortizing | 10,592,616 | 10,771,184 | |||||||||||||||||||||||||||
| Campus Quarters | 4.20% | 10/1/2026 | Amortizing | 13,902,809 | 14,137,179 | |||||||||||||||||||||||||||
| District on Luther | 4.20% | 10/1/2026 | Amortizing | 31,442,416 | 31,972,465 | |||||||||||||||||||||||||||
| West 22 - Loan 1 | 4.20% | 10/1/2026 | Amortizing | 43,868,144 | 44,607,662 | |||||||||||||||||||||||||||
| Legacy | 4.77% | 1/1/2029 | Interest Only | 7,480,000 | 7,480,000 | |||||||||||||||||||||||||||
| Seasons | 4.59% | 2/1/2029 | Interest Only | 153,580,000 | 153,580,000 | |||||||||||||||||||||||||||
| Abbie Lakes - Loan 2 | 5.82% | 10/1/2024 | Amortizing | 2,510,634 | 2,545,879 | |||||||||||||||||||||||||||
| Brooksedge - Loan 2 | 5.82% | 10/1/2024 | Amortizing | 2,402,144 | 2,435,866 | |||||||||||||||||||||||||||
| Reserve at Abbie Lakes - Loan 2 | 5.82% | 10/1/2024 | Amortizing | 2,989,719 | 3,031,689 | |||||||||||||||||||||||||||
| Lakes Edge - Loan 2 | 5.84% | 10/1/2024 | Amortizing | 4,225,101 | 4,284,179 | |||||||||||||||||||||||||||
| Sunbury Ridge - Loan 2 | 5.83% | 10/1/2024 | Amortizing | 3,490,218 | 3,539,117 | |||||||||||||||||||||||||||
| Stonebridge - Loan 2 | 5.84% | 10/1/2024 | Amortizing | 2,734,793 | 2,773,032 | |||||||||||||||||||||||||||
| Jefferson Chase - Loan 2 | 5.82% | 10/1/2024 | Amortizing | 4,762,044 | 4,828,894 | |||||||||||||||||||||||||||
| Lake Ridge - Loan 2 | 5.82% | 10/1/2024 | Amortizing | 1,499,364 | 1,520,297 | |||||||||||||||||||||||||||
| Villages of Baymeadows | 4.14% | 11/1/2027 | Interest Only | 76,452,417 | 76,560,000 | |||||||||||||||||||||||||||
| Casa del Mar | 4.14% | 11/1/2027 | Interest Only | 12,222,800 | 12,240,000 | |||||||||||||||||||||||||||
| Sutton Place | 4.03% | 12/1/2029 | Interest Only | 44,044,000 | 44,044,000 | |||||||||||||||||||||||||||
| Silver Oaks | 4.03% | 12/1/2029 | Interest Only | 14,185,000 | 14,185,000 | |||||||||||||||||||||||||||
| Steeplechase | 4.07% | 2/1/2028 | Interest Only | 36,668,000 | 36,668,000 | |||||||||||||||||||||||||||
| West 22 - Loan 2 | 6.00% | 10/1/2026 | Amortizing | 3,714,149 | 3,770,458 | |||||||||||||||||||||||||||
| Sterling Crimson - Loan 2 | 6.04% | 10/1/2026 | Amortizing | 1,762,483 | 1,789,001 | |||||||||||||||||||||||||||
| Olentangy Commons | 4.43% | 6/1/2030 | Interest Only | 92,876,000 | 92,876,000 | |||||||||||||||||||||||||||
29
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2022 | Outstanding Principal 12/31/2021 | |||||||||||||||||||||||||||
| Villages of Wildwood | 4.46% | 8/1/2030 | Interest Only | 39,525,000 | 39,525,000 | |||||||||||||||||||||||||||
| Falling Creek | 4.52% | 9/1/2030 | Interest Only | 19,335,000 | 19,335,000 | |||||||||||||||||||||||||||
| Reserve at Abbie Lakes - Loan 3 | 5.88% | 10/1/2024 | Amortizing | 5,415,477 | 5,496,945 | |||||||||||||||||||||||||||
| Sunbury Ridge - Loan 3 | 5.94% | 10/1/2024 | Amortizing | 1,180,296 | 1,197,850 | |||||||||||||||||||||||||||
| Abbie Lakes - Loan 3 | 5.94% | 10/1/2024 | Amortizing | 1,116,931 | 1,133,543 | |||||||||||||||||||||||||||
| Brooksedge - Loan 3 | 5.90% | 10/1/2024 | Amortizing | 2,306,590 | 2,341,157 | |||||||||||||||||||||||||||
| Jefferson Chase - Loan 3 | 5.90% | 10/1/2024 | Amortizing | 2,174,244 | 2,206,828 | |||||||||||||||||||||||||||
| Lake Ridge - Loan 3 | 5.91% | 10/1/2024 | Amortizing | 2,174,490 | 2,207,016 | |||||||||||||||||||||||||||
| Crown Pointe | 4.44% | 9/1/2030 | Interest Only | 89,400,000 | 89,400,000 | |||||||||||||||||||||||||||
| Lorring Park | 4.83% | 11/1/2030 | Interest Only | 47,680,000 | 47,680,000 | |||||||||||||||||||||||||||
| Hamptons Apartments | 4.61% | 2/1/2031 | Interest Only | 79,520,000 | 79,520,000 | |||||||||||||||||||||||||||
| The Isle | 3.79% | 7/1/2031 | Interest Only | 21,200,000 | 21,200,000 | |||||||||||||||||||||||||||
| Druid Hills | 4.26% | 8/1/2046 | Interest Only | 79,104,000 | 79,104,000 | |||||||||||||||||||||||||||
| Abbie Lakes - Loan 4 | 4.71% | 10/1/2024 | Amortizing | 1,446,688 | 1,471,786 | |||||||||||||||||||||||||||
| Reserve at Abbie Lakes - Loan 4 | 4.65% | 10/1/2024 | Amortizing | 1,373,647 | 1,397,741 | |||||||||||||||||||||||||||
| Lakes Edge - Loan 3 | 4.45% | 10/1/2024 | Amortizing | 2,647,053 | 2,695,209 | |||||||||||||||||||||||||||
| Sunbury Ridge - Loan 4 | 4.67% | 10/1/2024 | Amortizing | 2,054,221 | 2,090,121 | |||||||||||||||||||||||||||
| Stonebridge - Loan 3 | 4.48% | 10/1/2024 | Amortizing | 6,396,752 | 6,512,491 | |||||||||||||||||||||||||||
| Parcstone | 3.14% | 11/1/2029 | Interest Only | 30,127,000 | 30,127,000 | |||||||||||||||||||||||||||
| Stone Ridge | 3.14% | 11/1/2029 | Interest Only | 14,662,000 | 14,662,000 | |||||||||||||||||||||||||||
| Sterling Place | 3.95% | 11/1/2031 | Interest Only | 34,196,000 | 34,196,000 | |||||||||||||||||||||||||||
| West 22 | 4.06% | 10/1/2026 | Amortizing | 2,493,507 | 2,540,709 | |||||||||||||||||||||||||||
| University Crossing - Loan 2 | 5.04% | 7/1/2030 | Interest Only | 14,679,000 | 14,679,000 | |||||||||||||||||||||||||||
| Arlington Park | 5.00% | 11/1/2030 | Interest Only | 13,494,000 | 13,494,000 | |||||||||||||||||||||||||||
| Hampton on Jupiter | 2.90% | 11/1/2032 | Interest Only | 27,590,000 | 27,590,000 | |||||||||||||||||||||||||||
| Palmetto Creek | 3.32% | 9/1/2030 | Interest Only | 25,865,000 | 25,865,000 | |||||||||||||||||||||||||||
| Valora at Homewood | 2.80% | 8/1/2030 | Interest Only | 63,844,000 | 63,844,000 | |||||||||||||||||||||||||||
| The Dylan at Fairburn | 3.10% | 10/1/2026 | Interest Only | 43,900,000 | 43,900,000 | |||||||||||||||||||||||||||
| The Dylan at Grayson | 3.10% | 10/1/2026 | Interest Only | 40,500,000 | 40,500,000 | |||||||||||||||||||||||||||
| Sutton Place - Loan 2 | 4.36% | 12/1/2029 | Amortizing | 10,414,291 | 10,592,577 | |||||||||||||||||||||||||||
| Silver Oaks - Loan 2 | 4.36% | 12/1/2029 | Amortizing | 4,688,853 | 4,769,123 | |||||||||||||||||||||||||||
| Chimneys of Greenville | 3.10% | 2/1/2031 | Interest Only | 14,075,000 | 14,075,000 | |||||||||||||||||||||||||||
| The Laurel Apartments | 3.06% | 3/1/2031 | Interest Only | 42,025,000 | 42,025,000 | |||||||||||||||||||||||||||
| The Willows Apartments | 3.06% | 3/1/2031 | Interest Only | 19,000,000 | 19,000,000 | |||||||||||||||||||||||||||
| The Edge at Clear Lake | 3.87% | 4/1/2033 | Interest Only | 25,496,000 | 25,496,000 | |||||||||||||||||||||||||||
| Pear Orchard | 3.20% | 7/1/2033 | Interest Only | 38,175,000 | 38,175,000 | |||||||||||||||||||||||||||
| Lakeshore Landing | 3.20% | 7/1/2033 | Interest Only | 16,950,000 | 16,950,000 | |||||||||||||||||||||||||||
| Reflection Pointe | 3.20% | 7/1/2033 | Interest Only | 31,050,000 | 31,050,000 | |||||||||||||||||||||||||||
| Crosswinds | 3.20% | 7/1/2033 | Interest Only | 33,825,000 | 33,825,000 | |||||||||||||||||||||||||||
| Parcstone | 4.60% | 11/1/2029 | Interest Only | 12,666,000 | 12,666,000 | |||||||||||||||||||||||||||
| Stone Ridge | 4.60% | 11/1/2029 | Interest Only | 6,883,000 | 6,883,000 | |||||||||||||||||||||||||||
| Falling Creek | 4.18% | 9/1/2030 | Interest Only | 6,039,000 | 6,039,000 | |||||||||||||||||||||||||||
| Elliot Norcross | 5.60% | 12/1/2024 | Interest Only | 101,123,607 | 98,800,000 | |||||||||||||||||||||||||||
| West Vue | 3.40% | 1/1/2025 | Interest Only | 73,000,000 | 73,000,000 | |||||||||||||||||||||||||||
| Enclave at Wolfchase | 3.67% | 4/1/2027 | Interest Only | 60,000,000 | — | |||||||||||||||||||||||||||
| Twin Oaks | 4.15% | 4/1/2027 | Interest Only | 33,960,361 | — | |||||||||||||||||||||||||||
| Lancaster Place | 4.15% | 4/1/2027 | Interest Only | 28,535,911 | — | |||||||||||||||||||||||||||
| Rutland Place | 4.15% | 4/1/2027 | Interest Only | 22,710,174 | — | |||||||||||||||||||||||||||
| Southport Crossing | 3.46% | 4/1/2032 | Interest Only | 36,075,000 | — | |||||||||||||||||||||||||||
| Cheyenne | 4.71% | 6/1/2032 | Interest Only | 17,656,000 | — | |||||||||||||||||||||||||||
| Pueblo | 4.71% | 6/1/2032 | Interest Only | 20,166,000 | — | |||||||||||||||||||||||||||
| Stillwater | 4.71% | 6/1/2032 | Interest Only | 15,328,000 | — | |||||||||||||||||||||||||||
| Kokomo | 4.71% | 6/1/2032 | Interest Only | 12,753,000 | — | |||||||||||||||||||||||||||
| Villages of Wildwood - Loan 2 | 6.80% | 8/1/2030 | Interest Only | 18,868,000 | — | |||||||||||||||||||||||||||
| Villages of Baymeadows - Loan 2 | 7.19% | 11/1/2027 | Interest Only | 14,196,784 | — | |||||||||||||||||||||||||||
| Casa del Mar - Loan 2 | 7.19% | 11/1/2027 | Interest Only | 3,541,202 | — | |||||||||||||||||||||||||||
30
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
| Mortgage Note | Interest Rate (2) | Maturity Date | Amortizing or Interest Only | Outstanding Principal 12/31/2022 | Outstanding Principal 12/31/2021 | |||||||||||||||||||||||||||
| Pear Orchard - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 4,800,000 | — | |||||||||||||||||||||||||||
| Lakeshore Landing - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 1,005,000 | — | |||||||||||||||||||||||||||
| Reflection Pointe - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 2,153,000 | — | |||||||||||||||||||||||||||
| Crosswinds - Loan 2 | 4.50% | 7/1/2033 | Interest Only | 4,776,000 | — | |||||||||||||||||||||||||||
| Total outstanding principal | 2,197,284,332 | 1,923,161,809 | ||||||||||||||||||||||||||||||
| Less: unamortized discount and debt issuance costs | (15,151,751) | (14,895,356) | ||||||||||||||||||||||||||||||
| Total mortgages payable, net of unamortized discount and debt issuance costs | $ | 2,182,132,581 | $ | 1,908,266,453 | ||||||||||||||||||||||||||||
| (1) Verandas at Rocky Ridge was disposed of on February 1, 2022 (Note 3). The mortgage payable was extinguished at date of sale. (2) Floating interest rates are indexed to the one month USD LIBOR or SOFR. Rates noted are as of December 31, 2022. | ||||||||||||||||||||||||||||||||
On February 1, 2022, in connection with the sale of Verandas at Rocky Ridge, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $18,410,000. As a result, the Company recognized a loss on early extinguishment of debt of $503,896, which is included within interest expense on the combined consolidated statements of operations.
On December 1, 2021, in connection with the sale of Gulf Coast Portfolio, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $90,718,320. As a result, the Company recognized a loss on early extinguishment of debt of $5,583,748, which is included within interest expense on the combined consolidated statements of operations.
On October 19, 2021, in connection with the sale of Forest Park Portfolio, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $43,517,256. As a result, the Company recognized a loss on early extinguishment of debt of $368,465, which is included within interest expense on the combined consolidated statements of operations.
On October 13, 2021, in connection with the sale of Canterbury Green, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $83,568,133. As a result, the Company recognized a loss on early extinguishment of debt of $9,560,112, which is included within interest expense on the combined consolidated statements of operations.
On January 29, 2021, in connection with the sale of Union Place, as described in Note 3, Recent Real Estate Transactions, the Company utilized sale proceeds to repay the associated outstanding mortgage balance in the amount of $51,800,000. As a result, the Company recognized a loss on early extinguishment of debt of $185,139, which is included within interest expense on the combined consolidated statements of operations.
Future scheduled principal payments of mortgage payable are as follows: $102,602,746 (2023), $209,243,169 (2024), $169,687,696 (2025), $99,500,222 (2026), $168,815,348 (2027), and $1,447,435,151 (thereafter).
15.Ground Leases
The Company entered into ground lease agreements through acquisition of Druid Hills and West Vue. If the Company has right to extend the term of a ground lease, such option period has been included within the calculation of the right of use assets and lease liabilities. The Company incurred initial costs of $15,689,752 to acquire the leases, which is included in the intangibles and amortized over the life of the lease. As of December 31, 2022 and 2021, the right-of-use asset were $24,311,989 and $31,917,176, respectively. As of December 31, 2022 and 2021, the lease liability was $26,926,303 and $26,445,556, respectively. During the years ended December 31, 2022 and 2021, the lease expense recognized on a straight-line basis was $4,263,995 and $234,999, respectively, and is included in property operating expenses on the accompanying combined consolidated statements of operations.
The Company utilized the risk-free rate over the term of each lease as the discount rate to be applied to its future lease payments when accounting for its right of use assets and lease liabilities, which ranged between 4.26% and 7.11%.
The table below presents the summarized quantitative information with regard to lease contracts the Company has entered into as of December 31, 2022:
| Category | Term | |||||||
| Weighted avg. of remaining term - operating leases (months) | 956 | |||||||
| Weighted avg. of remaining term - operating leases (years) | 80 | |||||||
| Weighted avg. of annual discount rate - operating leases | 6.04% | |||||||
31
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The future minimum lease payments to be paid under noncancelable leases in effect as of December 31, 2022 are as follows:
| Year | Payment | |||||||
| 2023 | $ | 1,405,577 | ||||||
| 2024 | 1,432,408 | |||||||
| 2025 | 1,459,777 | |||||||
| 2026 | 1,487,692 | |||||||
| 2027 | 1,516,166 | |||||||
| Thereafter | 374,228,549 | |||||||
| Total balance due | 381,530,169 | |||||||
| Less: lease discount | (354,603,866) | |||||||
| Lease liabilities | $ | 26,926,303 | ||||||
Total cash paid for amounts included in lease liabilities for the years ended December 31, 2022 and 2021 are $1,381,446 and $64,000, respectively.
In addition, as of December 31, 2022 and 2021, the Company also has an equipment lease liability of $573,807 and $610,133, respectively.
16.Income Taxes
Income taxes consisted of the following for the years ended:
| December 31, 2022 | December 31, 2021 | |||||||
| Current federal tax expense | $ | — | $ | — | ||||
| Current state tax expense | (11,380) | (7,219) | ||||||
| Net deferred federal tax expense | — | — | ||||||
| Net deferred state tax expense | — | — | ||||||
| Income tax expense | $ | (11,380) | $ | (7,219) | ||||
17.Equity
As of December 31, 2022 and 2021, the Company authorized 100,000,000 common shares, par value $0.001. NPH is the Company’s sole common stockholder. As of December 31, 2022 and 2021, the Company paid an aggregate of $876,160,619 and $872,160,619 of dividends on common shares, respectively.
As of December 31, 2022 and 2021, the Company had 125 shares outstanding in connection with a private placement of 12.5% Series A Cumulative Non-Voting Preferred Stock, par value $0.001 per share (Series A Preferred Stock), respectively. In general, holders of Series A Preferred Stock are entitled to receive cumulative dividends semiannually at a per annum rate equal to 12.5% of the total purchase price of $1,000 per share plus accumulated and unpaid dividends. The Series A Preferred Stock is redeemable by the Company for $1,000 per share plus accumulated and unpaid dividends. Upon liquidation and dissolution of the Company, the holders of the Series A Preferred Stock are entitled to a liquidation preference in the amount of the share’s purchase price, plus all accumulated and unpaid dividends. Series A Preferred Stock are not convertible or exchangeable for any other property or securities of the Company. As of December 31, 2022 and 2021, the Company paid an aggregate of $266,749 and $251,124 of dividends on Series A preferred shares, respectively.
18.Related Party Transactions
On December 31, 2013, the Company entered into a management assistance agreement with Prospect Administration LLC ("Prospect") to provide significant managerial assistance to the Company on behalf of PSEC.
32
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
In accordance with the Investment Company Act of 1940, PSEC must make available "significant managerial assistance" to the Company. Prospect provides assistance with significant guidance and counsel concerning the management, operations, and business objectives and policies to the Company. Services may include arranging financing, managing relationships with financing sources, restructuring existing debt and evaluating acquisition and divestiture opportunities. Prospect also exercises a controlling influence over the policies of the Company. On a quarterly basis, the Company pays a managerial assistance fee to Prospect for time and effort in assisting and providing commercial and mezzanine lending, investment banking, and private equity investing services. The Company incurred managerial assistance fees of $2,100,000 for each of the years ended December 31, 2022 and 2021, which are included in management fees in the accompanying combined consolidated statements of operations.
On a quarterly basis, the Company pays Prospect for professional services provided related to legal counsel, taxation, and general accounting. For the years ended December 31, 2022 and 2021, the Company incurred professional service fees of $1,773,219 and $1,988,417, respectively, which are included in general and administrative expenses in the accompanying combined consolidated statements of operations. As of December 31, 2022 and 2021, $651,770 and $1,056,934, respectively, is due to Prospect and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
As of December 31, 2022, $78,112, $8,738 and $3,323 is due to Prospect, Prospect Capital Management ("PCM") and PSEC, respectively, for reimbursement of expenses paid on behalf of the Company and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
As of December 31, 2021, $0, $17,446 and $748 is due to Prospect, PCM and PSEC, respectively, for reimbursement of expenses paid on behalf of the Company and is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
The Company generally incurs a 2% to 3% structuring fee for the PSEC equity portion of each acquired property. The structuring fee is paid to PSEC for structuring and providing guidance for each purchase transaction. For the years ended December 31, 2022 and 2021, the Company incurred structuring fees of $2,685,990 and $3,005,230, respectively.
The Company also entered into property management agreements with the non-controlling interest joint venture partners to manage the operations of the properties. The Company pays a monthly management fee of 2% - 5% of the gross monthly rents to the property managers. For the years ended December 31, 2022 and 2021, property management fees were $8,604,274 and $7,818,818, respectively, and are included in management fees in the combined consolidated statements of operations.
The Company also pays a monthly asset management fee up to 2.00% of the gross monthly rents to the property managers. For the years ended December 31, 2022 and 2021, asset management fees were $2,676,322 and $2,255,770, respectively. These amounts are included in the management fee line item in the accompanying combined consolidated statements of operations.
As of December 31, 2022 and 2021, $5,510,912 and $3,931,933 of management fees and asset management fees, respectively, were payable to property managers, and is included in due to affiliates in the accompanying combined consolidated balance sheets.
The property management agreements also stipulate that a construction management fee up to 5% of project cost is to be paid to the property managers. For the years ended December 31, 2022 and 2021, capitalized construction management fees were $4,951,656 and $3,475,815, respectively, and are included within building and improvements in the accompanying combined consolidated balance sheets.
The Company generally incurs an acquisition fee from 0.5% to 1% of the purchase price of each acquired property. The acquisition fee is paid to the Property Managers for services rendered in connection with the investigation, selection, sourcing, due diligence and acquisition of a property or investment. For the years ended December 31, 2022 and 2021, the Company incurred acquisition fees of $2,013,700 and $255,000, respectively. The amounts related to the years ended December 31, 2022 and 2021 have been capitalized and included in real estate assets in the accompanying combined consolidated balance sheets.
In connection with the acquisitions of several properties during the year ended December 31, 2022, the Company has retained a portion of the non-controlling joint venture partners’ acquisition fees as deferred acquisition fees. These deferred acquisition fees are earned by and payable to the non-controlling joint venture partner upon reaching certain performance measures. During the years ended 2022 and 2021, $0 and $631,360, respectively, were paid to the non-controlling joint venture partners, respectively. As of December 31, 2022 and 2021, $2,068,799 and $1,540,799, respectively, of deferred acquisition fees were retained by the Company and included within due to affiliates on the combined consolidated balance sheets. As of December 31, 2022, $540,365 and $0, respectively, of deferred
33
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
acquisition fees retained by the Company are included within restricted cash on the combined consolidated balance sheets.
The Company noted that certain expenses are paid for by the property managers and have yet to be reimbursed. As of December 31, 2022 and 2021, unreimbursed advances and other amounts due to related parties were $2,848,376 and $2,355,220, respectively, and are recorded by the Company as due to affiliates on the combined consolidated balance sheets.
19.Senior Secured Term Loans - Related Party
NPRC Credit Agreement
On April 1, 2014, the Company entered into a credit agreement (the "Credit Agreement") with PSEC in the form of a senior secured term loan. As of December 31, 2022 and 2021, the total commitment was $2,700,000,000 and $2,500,000,000, respectively. The maturity date of the senior secured term loans under the amended Credit Agreement is December 31, 2023.
On November 9, 2022, the Company amended the Credit Agreement. The amendment resulted in a new tranche of senior secured term loan E ("TLE"). Under the amended and restated Credit Agreement, the new TLE incurs cash interest equivalent to three-month USD LIBOR rate with a floor of 5.00%, plus 2.00%, and PIK interest of 7.00%.
The Credit Agreement does not require payments on the outstanding principal until maturity, with prepayments allowed but may be subject to a prepayment penalty. During the year ended December 31, 2022, the Company has voluntarily pre-paid in aggregate $94,351,510 of the Term Loan A and B and incurred a prepayment penalty of $98,515. During the year ended December 31, 2021, the Company had voluntarily pre-paid in aggregate $315,481,965 of the Term Loan A and B and incurred a prepayment penalty of $2,945,820.
The Company is required to make payments for Residual Profit Interest equivalent to 8.33% of the residual profit earned during the applicable period. The Company determines the residual profit as all gross receipts from operations received by the Company less the sum of operating expenses, interest expense, structuring fees, M&A fees, and cost basis in connection to the sale of any real estate property during the applicable period.
Cash interest and Residual Profit Interest are payable in cash quarterly. PIK interest due quarterly is added to the outstanding principal balance of the loan or paid in cash, in whole or in part, at the option of the Company.
The Company generally incurs structuring fees from restructuring or refinancing the Credit Agreement, which are deferred and amortized over the life of the senior secured term loan. The structuring fees are capitalized as a direct offset to the Term Loan balance on the combined consolidated balance sheets. For the years ended December 31, 2022 and 2021, the Company incurred $0 and $0 of structuring fees for borrowings under the senior secured term loans, respectively. For the years ended December 31, 2022 and 2021, $4,106,358 and $4,106,358 were amortized and recorded within interest expense on the combined consolidated statements of operations, respectively.
34
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
The following tables present a summary of our senior secured term loan terms and payable as of December 31, 2022 and 2021:
| As of December 31, 2022 | ||||||||||||||||||||
| Senior Secured Term Loan | Cash Rate | PIK Rate | Outstanding Principal | |||||||||||||||||
| Term Loan A | 3-Mo LIBOR(1) + 1.44% | 3.53% | $ | 458,747,266 | ||||||||||||||||
| Term Loan B | 3-Mo LIBOR(1) + 2.00% | 5.50% | 23,080,000 | |||||||||||||||||
| Term Loan C | 3-Mo LIBOR(2) + 10.00% | 2.25% | 200,600,000 | |||||||||||||||||
| Term Loan D | 3-Mo LIBOR(1) + 0.50% | 2.50% | 183,425,355 | |||||||||||||||||
| Term Loan E | 3-Mo LIBOR(3) + 2.0% | 7.00% | 13,151,592 | |||||||||||||||||
| Total outstanding principal | 879,004,213 | |||||||||||||||||||
| Less: unamortized debt issuance costs | (4,106,358) | |||||||||||||||||||
| Total senior secured term loans, net of debt issuance costs | $ | 874,897,855 | ||||||||||||||||||
| (1) Rates are accrued at minimum LIBOR floor of 300 basis points | ||||||||||||||||||||
| (2) Rates are accrued at minimum LIBOR floor of 100 basis points | ||||||||||||||||||||
| (3) Rates are accrued at minimum LIBOR floor of 500 basis points | ||||||||||||||||||||
| As of December 31, 2021 | ||||||||||||||||||||
| Senior Secured Term Loan | Cash Rate | PIK Rate | Outstanding Principal | |||||||||||||||||
| Term Loan A | 3-Mo LIBOR(1) + 1.44% | 3.53% | $ | 287,150,130 | ||||||||||||||||
| Term Loan B | 3-Mo LIBOR(1) + 2.00% | 5.50% | 6,600,000 | |||||||||||||||||
| Term Loan C | 3-Mo LIBOR(2) + 10.00% | 2.25% | 108,600,000 | |||||||||||||||||
| Term Loan D | 3-Mo LIBOR(1) + 0.50% | 2.50% | 183,425,355 | |||||||||||||||||
| Total outstanding principal | 585,775,485 | |||||||||||||||||||
| Less: unamortized debt issuance costs | (8,212,716) | |||||||||||||||||||
| Total senior secured term loans, net of debt issuance costs | $ | 577,562,769 | ||||||||||||||||||
| (1) Rates are accrued at minimum LIBOR floor of 300 basis points | ||||||||||||||||||||
| (2) Rates are accrued at minimum LIBOR floor of 100 basis points | ||||||||||||||||||||
For the year ended December 31, 2022, the Company incurred $49,159,031, $25,055,620, and $81,118,070 of cash interest, PIK interest, and Residual Profit Interest, respectively. For the year ended December 31, 2022, a total of $25,050,506 of PIK interest was paid in cash on the senior secured term loans. As of December 31, 2022, $0 of cash interest and $5,115 of PIK interest is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
For the year ended December 31, 2021, the Company incurred $36,687,547, $22,573,362, and $38,849,306 of cash interest, PIK interest, and Residual Profit Interest, respectively. For the year ended December 31, 2021, a total of $22,565,566 of PIK interest was paid in cash on the senior secured term loans. As of December 31, 2021, $34,100 of cash interest and $7,796 of PIK interest is recorded by the Company as due to affiliates on the combined consolidated balance sheets.
35
National Property REIT Corp
Notes to Combined Consolidated Financial Statements
20.Commitments and Contingencies
The Company believes that it has complied with the requirements of the mortgage payable by obtaining the requisite third-party insurance coverage for losses that may be incurred at the properties. Losses for amounts below the threshold of the deductible amounts specified in certain of the Company’s insurance policies are self‑insured; however, management does not believe that this exposure will have a material adverse effect on the Company’s combined consolidated financial position or results of operations.
Periodically, the Company may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of business. The Company does not believe that there are any proceedings threatened or pending, if determined adversely, that would have a material adverse effect on the financial position, results of operations, or liquidity of the Company.
During the year ended December 31, 2021, the Company entered into confidential agreements related to certain investments. The Company recognized a gain of $15,151,362 in connection with those agreements. No lawsuit was filed in connection with those agreements, and all parties thereto denied wrongdoing.
The Company may at times issue certain loan guarantees to obtain financing related to the Company’s investments. These guarantees may include but are not limited to repayment guarantees, completion guarantees, and debt ratio guarantees to certain lenders of the Company’s investments in real estate assets. Under certain guarantees, the Company may be liable in the event of fraud, misappropriation, environmental liabilities and other recourse obligations. As of December 31, 2022, the Company has not violated any of these guaranty provisions.
21.Subsequent Events
On March 14, 2023, Hampton on Jupiter entered into a supplemental mortgage agreement for $11,253,000. The supplemental mortgage is secured by the real estate property and certain cash reserve accounts required by the borrowing agreements. The supplemental mortgage accrues interest at 6.84% and matures on December 1, 2032.
On June 27, 2023, the Gramercy purchased a rate cap agreement for $822,000. The agreement covers the notional amount of $14,679,000. The strike rate of the cap agreement is 2.00% and matures on July 1, 2025.
On July 21, 2023, Palmetto Creek purchased a rate cap agreement for $1,330,000. The agreement covers the notional amount of $25,856,000. The strike rate of the cap agreement is 2.00% and matures on August 1, 2025.
The Company has evaluated subsequent events through August 10, 2023, the date of which these combined consolidated financial statements were available to be issued, and has determined that, except for the above, there have not been any additional events that have occurred that would require adjustments to, or disclosures in, the combined consolidated financial statements.
36