Attached files
file | filename |
---|---|
EX-32 - EX-32 - Cantor Fitzgerald Income Trust, Inc. | rgpt-ex32_7.htm |
EX-31.2 - EX-31.2 - Cantor Fitzgerald Income Trust, Inc. | rgpt-ex312_6.htm |
EX-31.1 - EX-31.1 - Cantor Fitzgerald Income Trust, Inc. | rgpt-ex311_8.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2020
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 000-56043
Rodin Global Property Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
|
81-1310268 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
|
|
|
110 E. 59th Street, New York, NY |
|
10022 |
(Address of principal executive offices) |
|
(Zip Code) |
(Registrant’s telephone number, including area code) (212) 938-5000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
None |
N/A |
N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
|
|
|
|||
Non-accelerated filer |
|
☒ |
|
|
☒ |
|
|
|
|
|
|
|
|
Emerging growth company |
|
☒ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The aggregate market value of the common stock held by non-affiliates of the Registrant: No established market exists for the Registrant’s common stock. As of May 11, 2020, the registrant had 3,397,458 Class A shares, 1,127,957 Class I shares and 1,412,819 Class T shares of $0.01 par value common stock outstanding.
RODIN GLOBAL PROPERTY TRUST, INC.
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
RODIN GLOBAL PROPERTY TRUST, INC.
(Unaudited)
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
Assets |
|
|
|
|
|
|
|
Investment in real estate, net of accumulated depreciation of $5,354,476 and $4,275,639, respectively |
$ |
158,026,562 |
|
|
$ |
159,105,399 |
|
Cash and cash equivalents |
|
27,976,366 |
|
|
|
17,305,001 |
|
Investments in real estate-related assets |
|
24,400,000 |
|
|
|
24,400,000 |
|
Intangible assets, net of accumulated amortization of $2,435,335 and $1,876,930, respectively |
|
20,251,330 |
|
|
|
20,809,735 |
|
Deferred rent receivable |
|
1,369,292 |
|
|
|
1,225,863 |
|
Prepaid expenses and other assets |
|
474,034 |
|
|
|
461,251 |
|
Due from related party |
|
314,231 |
|
|
|
49,910 |
|
Accrued preferred return receivable |
|
79,900 |
|
|
|
— |
|
Accrued income from mezzanine loan investment |
|
71,690 |
|
|
|
— |
|
Stock subscriptions receivable |
|
— |
|
|
|
261,038 |
|
Total assets |
$ |
232,963,405 |
|
|
$ |
223,618,197 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
Loans payable, net of deferred financing costs of $822,460 and $841,615, respectively |
$ |
83,322,724 |
|
|
$ |
83,303,569 |
|
Intangible liabilities, net of accumulated amortization of $628,546 and $416,574, respectively |
|
8,436,770 |
|
|
|
8,648,742 |
|
Due to related parties |
|
2,008,823 |
|
|
|
2,057,181 |
|
Distributions payable |
|
721,496 |
|
|
|
668,092 |
|
Deferred revenue |
|
547,499 |
|
|
|
561,056 |
|
Accrued interest payable |
|
273,200 |
|
|
|
273,200 |
|
Restricted reserves |
|
252,058 |
|
|
|
33,124 |
|
Accounts payable and accrued expenses |
|
167,458 |
|
|
|
16,384 |
|
Total liabilities |
|
95,730,028 |
|
|
|
95,561,348 |
|
Stockholders' equity |
|
|
|
|
|
|
|
Controlling interest |
|
|
|
|
|
|
|
Preferred stock, $0.01 par value per share, 50,000,000 shares authorized, and 0 issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
|
— |
|
|
|
— |
|
Class A common stock, $0.01 par value per share, 160,000,000 shares authorized, and 3,309,835 and 3,158,796 issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
|
33,098 |
|
|
|
31,580 |
|
Class T common stock, $0.01 par value per share, 200,000,000 shares authorized, and 1,392,733 and 1,327,819 issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
|
13,927 |
|
|
|
13,278 |
|
Class I common stock, $0.01 par value per share, 40,000,000 shares authorized, and 1,072,644 and 853,734 issued and outstanding at March 31, 2020 and December 31, 2019, respectively |
|
10,726 |
|
|
|
8,537 |
|
Additional paid-in capital |
|
146,252,800 |
|
|
|
135,507,823 |
|
Accumulated deficit and cumulative distributions |
|
(12,100,823 |
) |
|
|
(10,543,287 |
) |
Total controlling interest |
|
134,209,728 |
|
|
|
125,017,931 |
|
Non-controlling interests in subsidiaries |
|
3,023,649 |
|
|
|
3,038,918 |
|
Total stockholders' equity |
|
137,233,377 |
|
|
|
128,056,849 |
|
Total liabilities and stockholders' equity |
$ |
232,963,405 |
|
|
$ |
223,618,197 |
|
See accompanying notes to consolidated financial statements
3
RODIN GLOBAL PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
For the Three Months |
|
|||||
|
Ended March 31, |
|
|||||
|
2020 |
|
|
2019 |
|
||
Revenues: |
|
|
|
|
|
|
|
Rental revenues |
$ |
3,069,547 |
|
|
$ |
1,923,220 |
|
Preferred return income |
|
234,546 |
|
|
|
— |
|
Income from mezzanine loan investment |
|
250,242 |
|
|
|
— |
|
Tenant reimbursement income |
|
421,159 |
|
|
|
375,913 |
|
Total revenues |
|
3,975,494 |
|
|
|
2,299,133 |
|
Operating expenses (income): |
|
|
|
|
|
|
|
General and administrative expenses |
|
54,765 |
|
|
|
143,228 |
|
Depreciation and amortization |
|
1,629,668 |
|
|
|
986,152 |
|
Management fees |
|
422,755 |
|
|
|
527,774 |
|
Property operating expenses |
|
432,964 |
|
|
|
375,913 |
|
Total operating expenses |
|
2,540,152 |
|
|
|
2,033,067 |
|
Other income (expense): |
|
|
|
|
|
|
|
Income from investments in real estate-related assets |
|
— |
|
|
|
378,318 |
|
Interest income |
|
46,084 |
|
|
|
20,507 |
|
Interest expense |
|
(979,350 |
) |
|
|
(614,234 |
) |
Total other income (expense) |
|
(933,266 |
) |
|
|
(215,409 |
) |
Net income (loss) |
$ |
502,076 |
|
|
$ |
50,657 |
|
Net income (loss) attributable to non-controlling interest |
|
1,231 |
|
|
|
— |
|
Net income (loss) attributable to common stockholders |
$ |
500,845 |
|
|
$ |
50,657 |
|
Weighted average shares outstanding |
|
5,536,492 |
|
|
|
3,738,367 |
|
Net income (loss) per common share - basic and diluted |
$ |
0.09 |
|
|
$ |
0.01 |
|
See accompanying notes to consolidated financial statements
4
RODIN GLOBAL PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Deficit and |
|
|
Non- |
|
|
|
|
|
||||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
Class I |
|
|
Paid-In |
|
|
Cumulative |
|
|
controlling |
|
|
Total |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Distributions |
|
|
interest |
|
|
Equity |
|
||||||||||
Balance as of January 1, 2019 |
|
|
2,116,562 |
|
|
$ |
21,166 |
|
|
|
939,185 |
|
|
$ |
9,392 |
|
|
|
401,639 |
|
|
$ |
4,016 |
|
|
$ |
84,467,731 |
|
|
$ |
(4,737,537 |
) |
|
$ |
179,950 |
|
|
$ |
79,944,718 |
|
Common stock |
|
|
263,629 |
|
|
|
2,636 |
|
|
|
113,727 |
|
|
|
1,137 |
|
|
|
148,278 |
|
|
|
1,483 |
|
|
|
13,599,025 |
|
|
|
— |
|
|
|
— |
|
|
|
13,604,281 |
|
Common stock repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distribution reinvestment |
|
|
12,509 |
|
|
|
125 |
|
|
|
4,570 |
|
|
|
46 |
|
|
|
1,573 |
|
|
|
16 |
|
|
|
468,239 |
|
|
|
— |
|
|
|
— |
|
|
|
468,426 |
|
Offering costs, commissions and fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(643,788 |
) |
|
|
— |
|
|
|
— |
|
|
|
(643,788 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
50,657 |
|
|
|
(70 |
) |
|
|
50,587 |
|
Distributions declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,368,762 |
) |
|
|
— |
|
|
|
(1,368,762 |
) |
Acquired non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance as of March 31, 2019 |
|
|
2,392,700 |
|
|
$ |
23,927 |
|
|
|
1,057,482 |
|
|
$ |
10,575 |
|
|
|
551,490 |
|
|
$ |
5,515 |
|
|
$ |
97,891,207 |
|
|
$ |
(6,055,642 |
) |
|
$ |
179,880 |
|
|
$ |
92,055,462 |
|
See accompanying notes to consolidated financial statements
5
RODIN GLOBAL PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
|
|
Stockholders' Equity |
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
Additional |
|
|
Deficit and |
|
|
Non- |
|
|
|
|
|
||||||||||||||||||||||||
|
|
Class A |
|
|
Class T |
|
|
Class I |
|
|
Paid-In |
|
|
Cumulative |
|
|
controlling |
|
|
Total |
|
|||||||||||||||||||
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Distributions |
|
|
interest |
|
|
Equity |
|
||||||||||
Balance as of January 1, 2020 |
|
|
3,158,796 |
|
|
$ |
31,580 |
|
|
|
1,327,819 |
|
|
$ |
13,278 |
|
|
|
853,734 |
|
|
$ |
8,537 |
|
|
$ |
135,507,823 |
|
|
$ |
(10,543,287 |
) |
|
$ |
3,038,918 |
|
|
$ |
128,056,849 |
|
Common stock |
|
|
150,441 |
|
|
|
1,512 |
|
|
|
66,220 |
|
|
|
662 |
|
|
|
215,102 |
|
|
|
2,151 |
|
|
|
11,035,494 |
|
|
|
— |
|
|
|
— |
|
|
|
11,039,819 |
|
Common stock repurchased |
|
|
(17,256 |
) |
|
|
(173 |
) |
|
|
(8,028 |
) |
|
|
(80 |
) |
|
|
— |
|
|
|
— |
|
|
|
(620,406 |
) |
|
|
— |
|
|
|
— |
|
|
|
(620,659 |
) |
Distribution reinvestment |
|
|
17,854 |
|
|
|
179 |
|
|
|
6,722 |
|
|
|
67 |
|
|
|
3,808 |
|
|
|
38 |
|
|
|
711,122 |
|
|
|
— |
|
|
|
— |
|
|
|
711,406 |
|
Offering costs, commissions and fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(381,233 |
) |
|
|
— |
|
|
|
— |
|
|
|
(381,233 |
) |
Net income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
500,845 |
|
|
|
1,231 |
|
|
|
502,076 |
|
Distributions declared on common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,058,381 |
) |
|
|
— |
|
|
|
(2,058,381 |
) |
Acquired non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,500 |
) |
|
|
(16,500 |
) |
Balance as of March 31, 2020 |
|
|
3,309,835 |
|
|
$ |
33,098 |
|
|
|
1,392,733 |
|
|
$ |
13,927 |
|
|
|
1,072,644 |
|
|
$ |
10,726 |
|
|
$ |
146,252,800 |
|
|
$ |
(12,100,823 |
) |
|
$ |
3,023,649 |
|
|
$ |
137,233,377 |
|
See accompanying notes to consolidated financial statements
6
RODIN GLOBAL PROPERTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months |
|
|||||
|
|
Ended March 31, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
502,076 |
|
|
$ |
50,657 |
|
Adjustments to reconcile net income (loss) to net cash provided by/(used in) operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,648,823 |
|
|
|
1,000,580 |
|
Gains from investments in real estate-related assets |
|
|
— |
|
|
|
(378,318 |
) |
Amortization of above-market lease intangibles |
|
|
7,574 |
|
|
|
8,664 |
|
Amortization of below-market lease intangibles |
|
|
(211,972 |
) |
|
|
(73,075 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Proceeds from investments in real estate-related assets |
|
|
— |
|
|
|
285,349 |
|
(Increase) in deferred rent receivable |
|
|
(143,429 |
) |
|
|
(120,545 |
) |
(Increase) in accrued preferred return receivable |
|
|
(79,900 |
) |
|
|
— |
|
(Increase) in accrued income from mezzanine loan investment |
|
|
(71,690 |
) |
|
|
— |
|
(Increase) in prepaid expenses and other assets |
|
|
(12,783 |
) |
|
|
(94,360 |
) |
(Increase) in due from related party |
|
|
(275,464 |
) |
|
|
— |
|
(Decrease) in due to related parties |
|
|
(143,389 |
) |
|
|
(1,011,599 |
) |
(Decrease)/increase in deferred revenue |
|
|
(13,557 |
) |
|
|
43,240 |
|
Increase/(decrease) in restricted reserves |
|
|
218,934 |
|
|
|
(39,062 |
) |
Increase/(decrease) in accounts payable and accrued expenses |
|
|
5,821 |
|
|
|
(3,357 |
) |
Net cash provided by/(used in) operating activities |
|
|
1,431,044 |
|
|
|
(331,826 |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Purchase of interest in real estate-related assets |
|
|
— |
|
|
|
(17,080,113 |
) |
Cash used in investing activities |
|
|
— |
|
|
|
(17,080,113 |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net |
|
|
11,171,051 |
|
|
|
13,468,795 |
|
Distributions |
|
|
(1,293,571 |
) |
|
|
(828,207 |
) |
Payments from redemptions of common stock |
|
|
(620,659 |
) |
|
|
— |
|
Non-controlling interest distributions |
|
|
(16,500 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
9,240,321 |
|
|
|
12,640,588 |
|
Net increase/(decrease) in cash and cash equivalents |
|
|
10,671,365 |
|
|
|
(4,771,351 |
) |
Cash and cash equivalents, at beginning of period |
|
|
17,305,001 |
|
|
|
14,046,766 |
|
Cash and cash equivalents, at end of period |
|
$ |
27,976,366 |
|
|
$ |
9,275,415 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
960,195 |
|
|
$ |
603,374 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Distribution reinvestment |
|
$ |
711,406 |
|
|
$ |
468,426 |
|
Distributions payable |
|
$ |
53,404 |
|
|
$ |
72,129 |
|
See accompanying notes to consolidated financial statements
7
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Organization and Business Purpose
Rodin Global Property Trust, Inc. (the “Company”) was formed on February 2, 2016 as a Maryland corporation that has elected and qualified to be taxed as a real estate investment trust (“REIT”) for United States (“U.S.”) federal income tax purposes beginning with the taxable year ending December 31, 2017. The Company’s unaudited consolidated financial statements include Rodin Global Property Trust Operating Partnership, L.P. (the “Operating Partnership”) and its operating subsidiaries. Substantially all of the Company’s business is conducted through the Operating Partnership, a Delaware partnership formed on February 11, 2016. The Company is the sole general and a limited partner of the Operating Partnership. Unless the context otherwise requires, the “Company” refers to the Company and the Operating Partnership. The Company currently operates its business in one reportable segment, which focuses on investing in and managing income-producing commercial properties and other real estate-related assets.
On February 2, 2016, the Company was capitalized with a $200,001 investment by the Company’s sponsor, Cantor Fitzgerald Investors, LLC (“CFI”) through the purchase of 8,180 Class A shares. In addition, a wholly owned subsidiary of CFI, Rodin Global Property Trust OP Holdings, LLC (the “Special Unit Holder”), has invested $1,000 in the Operating Partnership and has been issued a special class of limited partnership units (“Special Units”), which is recorded as a non-controlling interest on the consolidated balance sheet as of March 31, 2020. The Company has registered with the Securities and Exchange Commission (“SEC”) an offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in the Company’s primary offering (the “Primary Offering”) and up to $250 million in shares pursuant to its distribution reinvestment plan (the “DRP”, and together with the Primary Offering, the “Offering”). On May 18, 2017, the Company satisfied the minimum offering requirement as a result of CFI’s purchase of $2.0 million in Class I shares (the “Minimum Offering Requirement”).
The Company is a commercial real estate company formed to invest in and manage a diversified portfolio of income-producing commercial properties and other real estate-related assets. The Company intends to invest primarily in the acquisition of single-tenant net leased commercial properties located in the U.S., United Kingdom and other European countries. The Company may also originate and invest in loans related to net leased commercial properties and invest in commercial real estate-related securities.
As of March 31, 2020, the Company owned the following investments:
|
• |
A retail property located in Grand Rapids, Michigan (the “GR Property”). |
|
• |
An office property located in Fort Mill, South Carolina (the “FM Property”). |
|
• |
A flex industrial property located in Lewisville, TX (the “Lewisville Property”). |
|
• |
A Delaware Statutory Trust, CF Net Lease Portfolio IV DST (the “DST”), which owns seven properties (individually, a “DST Property”, and collectively, the “DST Properties”). |
|
• |
CF Albertsons Lancaster, LLC (the “Pennsylvania SPE”), which made a preferred equity investment (the “Lancaster PE”) through a joint venture agreement to purchase a cold storage and warehouse distribution facility located in Denver, Pennsylvania (the “PA Property”). |
|
• |
CF Albertsons Chicago, LLC (the “Illinois SPE”), which originated a fixed rate, subordinate mezzanine loan (the “Chicago Jr Mezz”) for the acquisition of a cold storage and warehouse distribution facility located in Melrose Park, Illinois (the “IL Property”). |
|
• |
A majority interest in a joint venture with an unrelated third party (the “Battery Street SF JV”) that owns an office property located in San Francisco, California (the “SF Property”). |
|
• |
An industrial property located in Phoenix, Arizona (the “Buchanan Property”). |
The Company is externally managed by Rodin Global Property Advisors, LLC (the “Advisor”), a Delaware limited liability company and wholly owned subsidiary of CFI. CFI is a wholly owned subsidiary of CFIM Holdings, LLC, which is a wholly owned subsidiary of Cantor Fitzgerald, L.P. (“CFLP”).
8
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements are presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC. In the opinion of management, the accompanying consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with U.S. GAAP. Certain reclassifications have been made to previously reported amounts to conform to the current presentation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheet. Management believes that the estimates utilized in preparing the consolidated financial statements are reasonable. As such, actual results could differ from those estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, the Operating Partnership and any single member limited liability companies or other entities which are consolidated in accordance with U.S. GAAP. The Company consolidates variable interest entities (“VIEs”) where it is the primary beneficiary and voting interest entities which are generally majority owned or otherwise controlled by the Company. All intercompany balances are eliminated in consolidation.
Variable Interest Entities
The Company determines if an entity is a VIE in accordance with guidance in Accounting Standards Codification (“ASC”) Topic 810, Consolidation. For an entity in which the Company has acquired an interest, the entity will be considered a VIE if both of the following characteristics are not met: 1) the equity investors in the entity have the characteristics of a controlling financial interest and 2) the equity investors’ total investment at risk is sufficient to finance the entity’s activities without additional subordinated financial support. The Company makes judgments regarding the sufficiency of the equity at risk based first on a qualitative analysis, then a quantitative analysis, if necessary. A qualitative analysis is generally based on a review of the design of the entity, including its control structure and decision-making abilities, and also its financial structure. In a quantitative analysis, the Company would incorporate various estimates, including estimated future cash flows, assumed hold periods and capitalization or discount rates.
If an entity is determined to be a VIE, the Company then determines whether to consolidate the entity as the primary beneficiary. The primary beneficiary has both (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the entity.
The Company evaluates all of its investments in real estate-related assets to determine if they are VIEs utilizing judgments and estimates that are inherently subjective. If different judgments or estimates were used for these evaluations, it could result in differing conclusions as to whether or not an entity is a VIE and whether or not to consolidate such entity. As of March 31, 2020 and December 31, 2019, the Company concluded that it had investments in VIEs, and because the Company was the primary beneficiary, it consolidated the entities. Refer to Note 10 — Variable Interest Entities for additional information.
9
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company will not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party. The Company performs ongoing reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and vice versa.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and highly liquid investments with original maturities of three months or less.
Deferred Rent Receivable
Deferred rent receivable represents rent earned in excess of rent received as a result of straight-lining rents over the terms of the leases on the FM Property, the CO Property, the Lewisville Property, the SF Property, the Buchanan Property and the DST in accordance with ASC Topic 842, Leases. As of March 31, 2020 and December 31, 2019, Deferred rent receivable was $1,369,292 and $1,225,863, respectively.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist primarily of prepaid operating expenses and reimbursements due from tenants.
Investment in Real Estate, net
Real estate assets are stated at cost, less accumulated depreciation and amortization. Amounts capitalized to real estate assets consist of the costs of acquisition, including certain acquisition-related expenses, major improvements and betterments that extend the useful life of the real estate assets and leasing costs. All repairs and maintenance costs are expensed as incurred. The Company accounts for its acquisitions (or disposals) of assets or businesses in accordance with ASC Topic 805, Business Combinations.
Upon the acquisition of real estate properties, the Company allocates the purchase price to acquired tangible assets, consisting of land, buildings and improvements, and to identified intangible assets and liabilities, consisting of the value of above-market leases, below-market leases, and in-place leases, based in each case on their respective fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and buildings). The information in the appraisal, along with any additional information available to the Company’s management, is used in estimating the amount of the purchase price that is allocated to land. Other information in the appraisal, such as building value and market rents, may be used by the Company’s management in estimating the allocation of purchase price to the building and to intangible lease assets and liabilities. The appraisal firm has no involvement in management’s allocation decisions other than providing this market information.
The Company considers the period of future benefit of each respective asset to determine its appropriate useful life. The estimated useful lives of the Company’s real estate assets by class are generally as follows:
Description |
|
Depreciable Life |
|
39 years |
|
Site improvements |
|
Over lease term |
Intangible lease assets and liabilities |
|
Over lease term |
The determination of the fair values of the real estate assets and liabilities acquired requires the use of assumptions with regard to the current market rental rates, rental growth rates, capitalization and discount rates, interest rates and other variables. The use of alternative estimates may result in a different allocation of the Company’s purchase price, which could materially impact the Company’s results of operations.
10
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate assets may not be recoverable. Impairment indicators that the Company considers include, but are not limited to, bankruptcy or other credit concerns of a property’s major tenant, such as a history of late payments, rental concessions and other factors, a significant decrease in a property’s revenues due to lease terminations, vacancies, co-tenancy clauses, reduced lease rates or other circumstances. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying amount of the assets will be recovered through the undiscounted future cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying amount, the Company will adjust the real estate assets to their respective fair values and recognize an impairment loss. Generally, fair value is determined using a discounted cash flow analysis and recent comparable sales transactions. No impairment losses were recorded during the three months ended March 31, 2020 or March 31, 2019 after the Company assessed the recoverability of its assets. As of March 31, 2020 and December 31, 2019, no impairment losses have been identified.
Investments in Real Estate-Related Assets
Mezzanine Loan Investment
The Company has made a mezzanine loan investment through the Illinois SPE. Mezzanine loan investments are generally intended to be held for investment and, accordingly, are carried at cost, net of unamortized fees, premiums, discounts and unfunded commitments. Mezzanine loan investments that are deemed to be impaired are carried at amortized cost less a loss reserve, if deemed appropriate. Mezzanine loan investment where the Company does not have the intent to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
Mezzanine loan investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and income from mezzanine loan amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loss reserves on a periodic basis. Significant judgment of management is required in this analysis. The Company considers the estimated net recoverable value of the mezzanine loan investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the mezzanine loan investment, a loss reserve is recorded with a corresponding charge to provision for losses. The loss reserve for each mezzanine loan investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a mezzanine loan investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired mezzanine loan investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired mezzanine loan investment is not in doubt, contractual income from mezzanine loan is recorded as income from mezzanine loan when received, under the cash basis method until an accrual is resumed when the mezzanine loan investment becomes contractually current and performance is demonstrated to be resumed. A mezzanine loan investment is written off when it is no longer realizable and/or legally discharged. No impairment losses were recorded during the three months ended March 31, 2020 or March 31, 2019 after the Company assessed the recoverability of its assets. As of March 31, 2020 and December 31, 2019, no impairment losses have been identified.
Preferred Equity Investment
The Company has made a preferred equity investment in the Pennsylvania SPE, an entity that holds commercial real estate. Preferred equity investments are generally intended to be held to maturity and, accordingly, are carried at cost, net of unamortized fees, premium, discount and unfunded commitments. Preferred Equity investments that are deemed to be impaired are carried at amortized cost less a loss reserve, if deemed appropriate. Preferred equity investments where we do not have the intent to hold the investment for the foreseeable future or until its expected payoff are classified as held for sale and recorded at the lower of cost or estimated value.
11
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Preferred equity investments are considered impaired when, based on current information and events, it is probable that the Company will not be able to collect principal and preferred return income amounts due according to the contractual terms. The Company assesses the credit quality of the portfolio and adequacy of loss reserves on a periodic basis. Significant judgment of management is required in this analysis. The Company considers the estimated net recoverable value of the preferred equity investment as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the quality and financial condition of the borrower and the competitive situation of the area where the underlying collateral is located. Because this determination is based on projections of future economic events, which are inherently subjective, the amount ultimately realized may differ materially from the carrying value as of the balance sheet date. If upon completion of the assessment, the estimated fair value of the underlying collateral is less than the net carrying value of the preferred equity investment, a loss reserve is recorded with a corresponding charge to provision for losses. The loss reserve for each preferred equity investment is maintained at a level that is determined to be adequate by management to absorb probable losses.
Income recognition is suspended for a preferred equity investment at the earlier of the date at which payments become 90-days past due or when, in the opinion of management, a full recovery of income and principal becomes doubtful. When the ultimate collectability of the principal of an impaired preferred equity investment is in doubt, all payments are applied to principal under the cost recovery method. When the ultimate collectability of the principal of an impaired preferred equity investment is not in doubt, contractual preferred return income is recorded as preferred return income when received, under the cash basis method until an accrual is resumed when the preferred return investment becomes contractually current and performance is demonstrated to be resumed. A preferred return investment is written off when it is no longer realizable and/or legally discharged. No impairment losses were recorded during the three months ended March 31, 2020 or March 31, 2019 after the Company assessed the recoverability of its assets. As of March 31, 2020 and December 31, 2019, no impairment losses have been identified.
Deferred Financing Costs
Costs incurred in connection with obtaining financing are capitalized and amortized over the term of the related loan on a straight-line basis, which approximates the effective interest method. The carrying value of the deferred financing costs at March 31, 2020 and December 31, 2019 was $822,460 and $841,615, respectively, which is net of accumulated amortization of $100,336 and $81,181, respectively, and recorded as an offset to the related debt. For the three months ended March 31, 2020 and March 31, 2019, amortization of deferred financing costs was $19,155 and $10,860, respectively, and is included in Interest expense on the accompanying consolidated statements of operations.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the life of the respective leases.
Preferred return income from the Company’s preferred equity investment is recognized when earned and accrued based on the outstanding investment balance.
Income from mezzanine loan investment is recognized when earned and accrued based on the outstanding loan balance.
Stock Subscriptions Receivable
As prescribed by ASC Topic 505, Equity, Stock subscriptions receivable represent the purchase of common stock for which the Company has not yet received payment from the purchaser. As of March 31, 2020 and December 31, 2019, Stock subscriptions receivable were $0 and $261,038, respectively. The amounts of outstanding Stock subscriptions receivable as of December 31, 2019 were received by the Company during January 2020.
Due from Related Party
Due from related party includes amounts owed to the Company by CFI pursuant to the terms of the sponsor support agreement for the reimbursement of selling commissions and dealer manager fees, as well as other amounts due from the Advisor, which at March 31, 2020 and December 31, 2019 was $314,231 and $49,910, respectively. The amount of Sponsor Support (as defined below in Note 9 – Related Party Transactions) outstanding at March 31, 2020 was received by the Company during April 2020.
12
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Deferred revenue represents unearned rent received in advance from tenants at certain of the Company’s properties, which at March 31, 2020 and December 31, 2019 was $547,499 and $561,056, respectively.
Restricted Reserves
Restricted reserves is comprised of amounts received from tenants at certain of the Company’s properties for recoverable property operating expenses to be paid by the Company on behalf of the tenants, pursuant to the terms of the respective net lease arrangements, which at March 31, 2020 and December 31, 2019 was $252,058 and $33,124, respectively.
Tenant Reimbursement Income
Certain property operating expenses, including real estate taxes and insurance, among others, are paid by the Company and are reimbursed by the tenants of the Company’s properties pursuant to the terms of the respective net leases. These reimbursements are reflected as Tenant reimbursement income in the accompanying consolidated statements of operations, which, for the three months ended March 31, 2020 and March 31, 2019 was $421,159 and $375,913, respectively.
Property Operating Expenses
Certain property operating expenses, including real estate taxes and insurance, among others, are paid by the Company and may be reimbursed by the tenants of the Company’s properties pursuant to the terms of the respective net leases. These expenses incurred are reflected as Property operating expenses in the accompanying consolidated statements of operations, which for the three months ended March 31, 2020 and March 31, 2019 was $432,964 and $375,913, respectively.
Due to Related Parties
Due to related parties is comprised of amounts contractually owed by the Company for various services provided to the Company from related parties, which at March 31, 2020 and December 31, 2019 was $2,008,823 and $2,057,181, respectively (See Note 9 – Related Party Transactions).
Organization and Offering Costs
The Advisor has agreed to pay, on behalf of the Company, all organizational and offering costs (including legal, accounting, and other costs attributable to the Company’s organization and offering, but excluding upfront selling commissions, dealer manager fees and distribution fees) (“O&O Costs”) through the first anniversary of the date on which the Company satisfied the Minimum Offering Requirement, which was May 18, 2018 (the “Escrow Break Anniversary”). After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred, but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor subject to the 1% Cap (as defined below). Following the Escrow Break Anniversary, the Company began reimbursing the Advisor for payment of O&O Costs on a monthly basis, which will continue through the period ended May 18, 2021; provided, however, that the Company will not be obligated to pay any amounts that as a result of such payment would cause the aggregate payments for O&O Costs (less selling commissions, dealer manager fees and distribution fees) paid to the Advisor to exceed 1% of gross proceeds of the Offering (the “1% Cap”), as of such payment date. Any amounts not reimbursed in any period shall be included in determining any reimbursement liability for a subsequent period. As of March 31, 2020, the Advisor has continued to pay all O&O Costs on behalf of the Company.
As of March 31, 2020 and December 31, 2019, the Advisor has incurred O&O Costs on the Company’s behalf of $9,659,293 and $8,613,586, respectively. As of March 31, 2020 and December 31, 2019, the Company is obligated to reimburse the Advisor for O&O Costs in the amount of $747,070 and $789,661, respectively, which is included within Due to related parties in the accompanying consolidated balance sheets. As of March 31, 2020 and December 31, 2019, organizational costs of $90,676 and $90,232, respectively, were expensed and offering costs of $1,398,065 and $1,287,203, respectively, were charged to stockholders’ equity. As of March 31, 2020 and December 31, 2019, the Company has made reimbursement payments of $741,671 and $587,774, respectively, to the Advisor for O&O Costs incurred.
13
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. Accordingly, the Company generally will not be subject to U.S. federal income tax to the extent of its distributions to stockholders and as long as certain asset, income, share ownership, minimum distribution and other requirements are met. To qualify as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its stockholders and meet certain other requirements. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. The Company may also be subject to certain state and local taxes. If the Company fails to meet these requirements, it will be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations and amounts available for distributions to its stockholders.
The Company provides for uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Because assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from the Company’s estimates under different assumptions or conditions. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in “Provision for income taxes” in the consolidated statement of operations.
Earnings Per Share
Basic net income (loss) per share of common stock is determined by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is determined by dividing net income (loss) attributable to common stockholders by the weighted average number of common shares outstanding during the period, including common stock equivalents. As of March 31, 2020 and December 31, 2019, there were no material common stock equivalents that would have a dilutive effect on net income (loss) per share for common stockholders. All classes of common stock are allocated net income (loss) at the same rate per share.
For the three months ended March 31, 2020 and March 31, 2019, basic and diluted net income per share was $0.09 and $0.01, respectively.
14
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This standard requires lessees to recognize a right-of-use (“ROU”) asset and lease liability for all leases with terms of more than 12 months. Recognition, measurement and presentation of expenses will depend on the classification of a lease as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures. Accounting guidance for lessors is mostly unchanged. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842: Leases, to clarify how to apply certain aspects of the new leases standard. The amendments address the rate implicit in the lease, impairment of the net investment in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase options, variable payments that depend on an index or rate and certain transition adjustments, among other issues. In addition, in July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842): Targeted Improvements, which provides an additional (and optional) transition method to adopt the new leases standard. Under this transition method, a reporting entity would initially apply the lease requirements at the effective date and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption; continue to report comparative periods presented in the financial statements in the period of adoption in accordance with previous U.S. GAAP (i.e., ASC 840, Leases); and provide the required disclosures required by ASC 840 for all periods presented under that standard. Further, ASU No. 2018-11 contains an additional practical expedient that allows lessors to avoid separating lease and associated non-lease components within a contract if certain criteria are met. In December 2018, the FASB issued ASU No. 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, to clarify guidance for lessors on sales taxes and other similar taxes collected from lessees, certain lessor costs and recognition of variable payments for contracts with lease and non-lease components. In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, to clarify certain application and transitional disclosure aspects of the leases standard. The amendments address determination of the fair value of the underlying asset by lessors that are not manufacturers or dealers and clarify interim period transition disclosure requirements, among other issues. The guidance in ASUs 2016-02, 2018-10, 2018-11 and 2018-20 was effective beginning January 1, 2019, with early adoption permitted; whereas the guidance in ASU 2019-01 is effective beginning January 1, 2020, with early adoption permitted. The Company adopted the above mentioned standards on January 1, 2019 using the effective date as the date of initial application. As a result, pursuant to this transition method financial information was not updated and the disclosures required under the leases standards were not provided for dates and periods before January 1, 2019. The guidance provides a number of optional practical expedients to be utilized upon transition. Accordingly, the Company has elected the ‘package of practical expedients,’ which permitted the Company not to reassess under the leases standard its prior conclusions about lease identification, lease classification and initial direct costs. The Company did not elect the use-of-hindsight or the practical expedient pertaining to land easements, with the latter not being applicable to the Company. While the guidance identifies common area (building) maintenance as a non-lease component of the Company’s real estate lease contracts, the Company has applied the practical expedient to account for its real estate leases and associated common area maintenance (“CAM”) service components as a single, combined operating lease component, however, the CAM service component is not material to the Company’s unaudited consolidated financial statements. Consequently, the application of the guidance on contract components did not have a material effect on the Company’s unaudited consolidated financial statements. In addition, due to the standard’s narrowed definition of initial direct costs, the Company will expense as incurred significant lease origination costs that were previously capitalized as initial direct costs and amortized to expense over the lease term. As these types of costs have not historically been incurred by the Company, the change in accounting did not have a material impact on the Company’s unaudited consolidated financial statements. See Note 3 — Investment in Real Estate for additional information on the Company’s leasing arrangements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The guidance is part of the FASB’s disclosure framework project, whose objective and primary focus are to improve the effectiveness of disclosures in the notes to financial statements. The ASU eliminates, amends and adds certain disclosure requirements for fair value measurements. The FASB concluded that these changes improve the overall usefulness of the footnote disclosures for financial statement users and reduce costs for preparers. The new standard will become effective for the Company beginning January 1, 2020 and early adoption is permitted for eliminated and modified fair value measurement disclosures. Certain disclosures are required to be applied prospectively and other disclosures need to be adopted retrospectively in the period of adoption. As permitted by the transition guidance in the ASU, the Company early adopted, eliminated and modified disclosure requirements as of September 30, 2018. The early adoption of this guidance did not have an impact on the Company’s unaudited consolidated financial statements. The additional disclosure requirements were adopted by the Company beginning January 1, 2020, and the adoption of these fair value measurement disclosures did not have an impact on the Company’s unaudited consolidated financial statements. See Note 13 — Fair Value Measurements for additional information.
15
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance was issued in response to stakeholders’ observations that Topic 810, Consolidation, could be improved in the areas of applying the VIE guidance to private companies under common control and in considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. The Company adopted the standard on its effective date beginning January 1, 2020. The adoption of this guidance did not have a material impact on the Company’s unaudited consolidated financial statements.
In July 2019, the FASB issued ASU No. 2019-07, Codification Updates to SEC Sections—Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. The guidance clarifies or improves the disclosure and presentation requirements of a variety of codification topics by aligning them with already effective SEC rules, thereby eliminating redundancies and making the codification easier to apply. This ASU was effective upon issuance, and it did not have a material impact on the Company’s unaudited consolidated financial statements and related disclosures.
New Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires financial assets that are measured at amortized cost to be presented, net of an allowance for credit losses, at the amount expected to be collected over their estimated life. Expected credit losses for newly recognized financial assets, as well as changes to credit losses during the period, are recognized in earnings. For certain purchased financial assets with deterioration in credit quality since origination (“PCD assets”), the initial allowance for expected credit losses will be recorded as an increase to the purchase price. Expected credit losses, including losses on off-balance-sheet exposures such as lending commitments, will be measured based on historical experience, current conditions and reasonable and supportable forecasts that affect the collectability of the reported amount. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, to clarify that operating lease receivables accounted for under ASC 842, Leases, are not in the scope of the new credit losses guidance, and, instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842, Leases. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. The ASU makes changes to the guidance introduced or amended by ASU No. 2016-13 to clarify the scope of the credit losses standard and address guidance related to accrued interest receivable balances, recoveries, variable interest rates and prepayments, among other issues. In addition, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief. The amendments in this ASU allow entities, upon adoption of ASU No. 2016-13, to irrevocably elect the fair value option for financial instruments that were previously carried at amortized cost and are eligible for the fair value option under ASC 825-10, Financial Instruments: Overall. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842) Effective Dates. Pursuant to this ASU, the effective date of the new credit losses standard was deferred, and the new credit impairment guidance will become effective for the Company on January 1, 2023, under a modified retrospective approach, and early adoption is permitted. In addition, in November 2019, the FASB issued ASU No. 2019-11, Codification Improvements to Topic 326, Financial Instruments—Credit Losses. The amendments in this ASU require entities to include certain expected recoveries of the amortized cost basis previously written off, or expected to be written off, in the allowance for credit losses for PCD assets; provide transition relief related to troubled debt restructurings; allow entities to exclude accrued interest amounts from certain required disclosures; and clarify the requirements for applying the collateral maintenance practical expedient. The amendments in ASUs No. 2018-19, 2019-04, 2019-05, 2019-10 and 2019-11 are required to be adopted concurrently with the guidance in ASU No. 2016-13. The Company plans to adopt the standards on their required effective date. Management is continuing to implement the new credit losses guidance, including the assessment of the impact of the new guidance on the Company’s consolidated financial statements. Given the objective of the new standard, it is generally expected allowances for credit losses for the financial instruments within its scope would increase, however, the amount of any change will be dependent on the composition and quality of the Company’s portfolios at the adoption date as well as economic conditions and forecasts at that time.
16
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In January 2020, the FASB issued ASU No. 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815 (a consensus of the FASB Emerging Issues Task Force). These amendments improve current guidance by reducing diversity in practice and increasing comparability of the accounting for the interactions between these codification topics as they pertain to certain equity securities, investments under the equity method of accounting and forward contracts or purchased options to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option. The new standard will become effective for the Company beginning January 1, 2022 and will be applied prospectively. Early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments. This ASU which makes narrow-scope amendments related to various aspects pertaining to financial instruments and related disclosures by clarifying or improving the Codification. Certain guidance will become effective for the Company for annual periods beginning January 1, 2020, while the guidance related to credit losses will be effective for the Company on January 1, 2023. Early adoption is permitted. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The guidance is designed to provide relief from the accounting analysis and impacts that may otherwise be required for modifications to agreements (e.g., loans, debt securities, derivatives, and borrowings) necessitated by reference rate reform as entities transition away from LIBOR and other interbank offered rates to alternative reference rates. This ASU also provides optional expedients to enable companies to continue to apply hedge accounting to certain hedging relationships impacted by reference rate reform. Application of the guidance is optional and only available in certain situations. The ASU is effective upon issuance and generally can be applied through December 31, 2022. Management is currently evaluating the impact of the new guidance on the Company’s unaudited consolidated financial statements.
Note 3 – Investment in Real Estate
Investment in real estate, net consisted of the following at March 31, 2020 and December 31, 2019:
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
Building and building improvements |
|
$ |
140,185,153 |
|
|
$ |
140,185,153 |
|
Land |
|
|
23,195,885 |
|
|
|
23,195,885 |
|
Total |
|
|
163,381,038 |
|
|
|
163,381,038 |
|
Accumulated depreciation |
|
|
(5,354,476 |
) |
|
|
(4,275,639 |
) |
Investment in real estate, net |
|
$ |
158,026,562 |
|
|
$ |
159,105,399 |
|
17
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2020, the Company owned interests in 13 real properties as described below:
Portfolio |
|
Ownership Percentage |
|
Location |
|
Number of Properties |
|
Square Feet |
|
|
Remaining Lease Term(1) |
|
Annualized Rental Income(2) |
|
|
Acquisition Date |
|
Purchase Price(3) |
|
|
||||||
Walgreens Grand Rapids ("GR Property") |
|
100 |
% |
|
Grand Rapids, MI |
|
1 |
|
|
14,552 |
|
|
12.3 years |
|
$ |
|
500,000 |
|
|
July 2017 |
|
$ |
|
7,936,508 |
|
|
CF Net Lease Portfolio IV DST ("DST Properties") |
|
100 |
% |
|
Various |
|
7 |
|
|
103,537 |
|
|
11.6 years |
|
$ |
|
2,323,749 |
|
|
September 2017 |
|
$ |
|
35,706,642 |
|
|
Daimler Trucks North America Office Building ("FM Property") |
|
100 |
% |
|
Fort Mill, SC |
|
1 |
|
|
150,164 |
|
|
8.7 years |
|
$ |
|
2,670,638 |
|
|
February 2018 |
|
$ |
|
40,000,000 |
|
|
Alliance Data Systems Office Building ("CO Property") |
|
100 |
% |
|
Columbus, OH |
|
1 |
|
|
241,493 |
|
|
12.4 years |
|
$ |
|
3,362,844 |
|
|
July 2018 |
|
$ |
|
46,950,000 |
|
|
Hoya Optical Labs of America ("Lewisville Property") |
|
100 |
% |
|
Lewisville, TX |
|
1 |
|
|
89,473 |
|
|
8.2 years |
|
$ |
|
937,060 |
|
|
November 2018 |
|
$ |
|
14,120,000 |
|
|
Williams Sonoma Office Building ("SF Property") |
|
75 |
% |
|
San Francisco, CA |
|
1 |
|
|
13,907 |
|
|
1.7 years |
|
$ |
|
582,860 |
|
|
September 2019 |
|
$ |
|
11,600,000 |
|
|
Martin Brower Industrial Buildings ("Buchanan Property") |
|
100 |
% |
|
Phoenix, AZ |
|
1 |
|
|
93,302 |
|
|
11.9 years |
|
$ |
|
1,083,444 |
|
|
November 2019 |
|
$ |
|
17,300,000 |
|
|
|
(1) |
Reflects number of years remaining until the tenant’s first termination option. |
|
|
(2) |
Reflects the average annualized rental income for the lease. |
|
|
(3) |
Reflects the contract purchase price at 100% ownership as opposed to adjusted for current ownership percentage as applicable. |
|
As of March 31, 2020, all of the Company’s properties were 100% leased and occupied.
Note 4 - Intangibles
The amortization of acquired above-market and/or below-market leases is recorded as an adjustment to Rental revenue on the consolidated statements of operations. For the three months ended March 31, 2020 and March 31, 2019, the net amount of such amortization was included as an increase to rental income of $204,398 and $64,411, respectively.
The amortization of in-place leases is recorded as an adjustment to Depreciation and amortization expense on the consolidated statements of operations. For the three months ended March 31, 2020 and March 31, 2019, the net amount of such amortization was $550,831 and $262,380, respectively.
18
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2020 and December 31, 2019, the gross carrying amount and accumulated amortization of the Company’s intangible assets consisted of the following:
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
Intangible assets: |
|
|
|
|
|
|
|
|
In-place lease intangibles |
|
$ |
22,234,766 |
|
|
$ |
22,234,766 |
|
Above-market lease intangibles |
|
|
451,899 |
|
|
|
451,899 |
|
Total intangible assets |
|
|
22,686,665 |
|
|
|
22,686,665 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
In-place lease amortization |
|
|
(2,353,286 |
) |
|
|
(1,802,455 |
) |
Above-market lease amortization |
|
|
(82,049 |
) |
|
|
(74,475 |
) |
Total accumulated amortization |
|
|
(2,435,335 |
) |
|
|
(1,876,930 |
) |
Intangible assets, net |
|
$ |
20,251,330 |
|
|
$ |
20,809,735 |
|
|
|
|
|
|
|
|
|
|
The estimated future amortization on the Company’s intangible assets for each of the next five years and thereafter as of March 31, 2020 is as follows:
Year |
|
In-place Lease Intangibles |
|
|
Above-market Lease Intangibles |
|
|
Total |
|
|||
2020 (remaining) |
|
$ |
1,652,491 |
|
|
$ |
22,721 |
|
|
$ |
1,675,212 |
|
2021 |
|
|
2,203,322 |
|
|
|
30,295 |
|
|
|
2,233,617 |
|
2022 |
|
|
1,757,989 |
|
|
|
30,295 |
|
|
|
1,788,284 |
|
2023 |
|
|
1,757,989 |
|
|
|
30,295 |
|
|
|
1,788,284 |
|
2024 |
|
|
1,757,989 |
|
|
|
30,295 |
|
|
|
1,788,284 |
|
Thereafter |
|
|
10,751,700 |
|
|
|
225,949 |
|
|
|
10,977,649 |
|
|
|
$ |
19,881,480 |
|
|
$ |
369,850 |
|
|
$ |
20,251,330 |
|
As of March 31, 2020 and December 31, 2019, the gross carrying amount and accumulated amortization of the Company’s Intangible liabilities consisted of the following:
|
|
March 31, 2020 |
|
|
December 31, 2019 |
|
||
Intangible liabilities: |
|
|
|
|
|
|
|
|
Below-market lease intangibles |
|
$ |
9,065,316 |
|
|
$ |
9,065,316 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
Below-market lease amortization |
|
|
(628,546 |
) |
|
|
(416,574 |
) |
Intangible liabilities, net |
|
$ |
8,436,770 |
|
|
$ |
8,648,742 |
|
The estimated future amortization on the Company’s intangible liabilities for each of the next five years and thereafter as of March 31, 2020 is as follows:
Year |
Below-market Lease Intangibles |
|
|
2020 (remaining) |
$ |
635,915 |
|
2021 |
|
847,890 |
|
2022 |
|
687,001 |
|
2023 |
|
687,001 |
|
2024 |
|
687,001 |
|
Thereafter |
|
4,891,962 |
|
|
$ |
8,436,770 |
|
19
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 - Five Year Minimum Rental Payments
The estimated future minimum rents the Company expects to receive for the GR Property, FM Property, CO Property, Lewisville Property, the DST Properties, SF Property, and the Buchanan Property for each of the next five years and thereafter through the end of the primary term as of March 31, 2020 is as follows:
Year |
|
GR Property |
|
|
FM Property |
|
|
CO Property |
|
|
Lewisville Property |
|
|
DST Properties |
|
|
SF Property |
|
|
Buchanan Property |
|
|
Total |
|
||||||||
2020 (remaining) |
|
|
375,000 |
|
|
|
1,881,930 |
|
|
|
2,389,934 |
|
|
|
666,941 |
|
|
|
1,646,968 |
|
|
|
439,555 |
|
|
|
776,143 |
|
|
|
8,176,471 |
|
2021 |
|
|
500,000 |
|
|
|
2,560,296 |
|
|
|
3,216,864 |
|
|
|
915,933 |
|
|
|
2,209,683 |
|
|
|
586,073 |
|
|
|
1,034,857 |
|
|
|
11,023,706 |
|
2022 |
|
|
500,000 |
|
|
|
2,611,352 |
|
|
|
3,251,284 |
|
|
|
915,933 |
|
|
|
2,305,756 |
|
|
|
— |
|
|
|
1,034,857 |
|
|
|
10,619,182 |
|
2023 |
|
|
500,000 |
|
|
|
2,663,909 |
|
|
|
3,286,073 |
|
|
|
943,411 |
|
|
|
2,305,756 |
|
|
|
— |
|
|
|
1,075,458 |
|
|
|
10,774,607 |
|
2024 |
|
|
500,000 |
|
|
|
2,716,467 |
|
|
|
3,321,234 |
|
|
|
943,411 |
|
|
|
2,305,756 |
|
|
|
— |
|
|
|
1,079,150 |
|
|
|
10,866,018 |
|
Thereafter |
|
|
4,250,000 |
|
|
|
11,419,972 |
|
|
|
26,929,125 |
|
|
|
3,415,571 |
|
|
|
16,664,853 |
|
|
|
— |
|
|
|
8,017,615 |
|
|
|
70,697,136 |
|
Total |
|
$ |
6,625,000 |
|
|
$ |
23,853,926 |
|
|
$ |
42,394,514 |
|
|
$ |
7,801,200 |
|
|
$ |
27,438,772 |
|
|
$ |
1,025,628 |
|
|
$ |
13,018,080 |
|
|
$ |
122,157,120 |
|
Note 6 - Investments in Real Estate-Related Assets
Preferred Equity Investment – Denver, PA
On January 2, 2019, the Company, through the Operating Partnership, made a preferred equity investment, together with a subsidiary of CFI. The Company’s initial investment of $4,779,353 was made through the Pennsylvania SPE, in which, as of January 2, 2019, the Company owned 40.5% of the membership interests and CFI owned 59.5% of the membership interests.
The Pennsylvania SPE entered into a joint venture agreement (the “Pennsylvania JV”) with a subsidiary of USRA Net Lease III Capital Corp (“USRA”). The Company and CFI, by and through the Pennsylvania SPE, invested $11,805,000 of capital in the Pennsylvania JV. The Pennsylvania JV is the sole member of an entity that purchased the PA Property for a purchase price of $117,050,000. The acquisition of the PA Property was also financed by a mortgage loan in the amount of $76,732,500 (the “PA Mortgage Loan”) provided by Goldman Sachs Mortgage Company (the “PA Mortgage Lender”). In connection with entering into the Pennsylvania JV, CF Real Estate Holdings, LLC, an affiliate of CFI (“CFREH”), entered into a Back-Up Indemnification Agreement (the “CFREH Indemnification Agreement”) with USRA, whereby CFREH agreed to indemnify USRA and certain of its affiliates from certain claims that may be asserted by the PA Mortgage Lender to the extent that such claims are caused by CFREH, the Pennsylvania SPE, or any of their affiliates.
The PA Property is 100% leased to New Albertsons L.P., which is a subsidiary of Albertsons Companies Inc. (“Albertsons”), which serves as the guarantor of the lease (the “PA Property Lease”). The PA Property Lease is a net lease whereby the tenant is responsible for operating expenses, real estate taxes, utilities, repairs, maintenance and capital expenditures, in addition to its obligation to pay base rent.
Subsequent to January 2, 2019, the Company purchased additional membership interests in the Pennsylvania SPE from CFI totaling $7,025,647, bringing the Company’s total investment in the Pennsylvania SPE to $11,805,000. As of March 31, 2020, the Company’s interest in the Pennsylvania SPE was 100%. Accordingly, on December 24, 2019, the Company entered into a Back-Up Indemnification Agreement, whereby the Company assumed all of the past, present and future obligations and liabilities of CFREH under the CFREH Indemnification Agreement, and CFREH was released of such obligations. As of the date hereof, there are no outstanding claims or obligations under the CFREH Indemnification Agreement.
Based on the Company’s consolidation analysis, which was performed in accordance with ASC Topic 810, Consolidation as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Pennsylvania SPE. Accordingly, on June 5, 2019, the Company has consolidated the Pennsylvania SPE, and has no longer accounted for its investment in the Pennsylvania SPE under the equity method of accounting.
20
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Mezzanine Loan – Melrose Park, IL
On January 2, 2019, the Company, through the Operating Partnership, made a mezzanine loan investment, together with CFI. The Company’s initial investment of $5,099,190 was made through the Illinois SPE, in which, as of January 2, 2019, the Company owned 40.5% of the membership interests and CFI owned 59.5% of the membership interests.
The Illinois SPE, originated a fixed rate, subordinate mezzanine loan in the amount of $12,595,000 to Chicago Grocery Mezz B, LLC, which is owned and controlled by USRA, for the acquisition of the IL Property for a contract purchase price of $124,950,000.
The IL Property is 100% leased to New Albertsons L.P., which is a subsidiary of Albertsons, which serves as the guarantor of the lease (the “IL Property Lease”). The IL Property Lease is a net lease whereby the tenant is responsible for operating expenses, real estate taxes, utilities, repairs, maintenance and capital expenditures, in addition to its obligation to pay base rent.
Subsequent to January 2, 2019, the Company purchased additional membership interests in the Illinois SPE from CFI totaling $7,495,810, bringing the Company’s total investment in the Illinois SPE to $12,595,000. As of March 31, 2020, the Company’s interest in the Illinois SPE was 100%. Subject to the limitations in the Company’s charter, the purchase price for any membership interests purchased from CFI was equal to CFI’s purchase price in exchange for such membership interests.
Based on the Company’s consolidation analysis, which was performed in accordance with ASC Topic 810, Consolidation as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the Illinois SPE. Accordingly, on October 29, 2019, the Company has consolidated the Illinois SPE, and has no longer accounted for its investment in the Illinois SPE under the equity method of accounting.
The results of operations for the Company’s investments in real estate-related assets for the three months ended March 31, 2020 and March 31, 2019 are summarized below:
|
For the Three Months Ended March 31, |
|
|||||
DST Properties(2) |
2020 |
|
|
2019 |
|
||
Revenues |
$ |
580,937 |
|
|
$ |
580,937 |
|
Operating expenses |
|
(318,357 |
) |
|
|
(210,410 |
) |
Other expenses, net |
|
(261,171 |
) |
|
|
(258,301 |
) |
Net income (loss) |
$ |
1,409 |
|
|
$ |
112,226 |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company(1) |
$ |
— |
|
|
$ |
96,176 |
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|||||
Pennsylvania SPE(3) |
2020 |
|
|
2019 |
|
||
Revenues |
$ |
234,546 |
|
|
$ |
226,180 |
|
Operating expenses |
|
(120 |
) |
|
|
— |
|
Other expenses, net |
|
1,029 |
|
|
|
— |
|
Net income (loss) |
$ |
235,455 |
|
|
$ |
226,180 |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company(1) |
$ |
— |
|
|
$ |
136,438 |
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, |
|
|||||
Illinois SPE(4) |
2020 |
|
|
2019 |
|
||
Revenues |
$ |
250,242 |
|
|
$ |
241,317 |
|
Operating expenses |
|
(120 |
) |
|
|
— |
|
Other expenses, net |
|
1,093 |
|
|
|
— |
|
Net income (loss) |
$ |
251,215 |
|
|
$ |
241,317 |
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to the Company(1) |
$ |
— |
|
|
$ |
145,704 |
|
21
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Effective May 9, 2019, the Company has consolidated the DST, and has no longer accounted for its investment in the DST under the equity method of accounting. See Note 3 – Investment in Real Estate for additional information.
(3) Effective June 5, 2019, the Company has consolidated the Pennsylvania SPE, and has no longer accounted for its investment in the Pennsylvania SPE under the equity method of accounting.
(4) Effective October 29, 2019, the Company has consolidated the Illinois SPE, and has no longer accounted for its investment in the Pennsylvania SPE under the equity method of accounting.
Note 7 – Loans Payable
On July 11, 2017, in connection with the purchase of the GR Property (refer to Note 3 — Investment in Real Estate), a wholly owned subsidiary of the Operating Partnership entered into a loan agreement (the “GR Loan”) with UBS AG with an outstanding principal amount of $4,500,000. The GR Loan provides for monthly interest payments which accrue through the 10th of each month. The GR Loan bears interest at an initial fixed rate of 4.11% per annum through the anticipated repayment date, July 6, 2027, and thereafter at a revised interest rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield through the maturity date June 30, 2032.
On February 1, 2018, in connection with the purchase of the FM Property (refer to Note 3 — Investment in Real Estate), the FM Property SPE entered into a loan agreement (the “FM Loan”) with UBS AG with an outstanding principal amount of $21,000,000. The FM Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.43% per annum through the anticipated repayment date, February 6, 2028 (the “FM Anticipated Repayment Date”), and thereafter at revised rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the FM Anticipated Repayment Date.
On July 31, 2018, in connection with the purchase of the CO Property (refer to Note 3 — Investment in Real Estate), the CO Property SPE entered into a loan agreement (the “CO Loan”) with a related party, CCRE, with an outstanding principal amount of $26,550,000. The CO Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.94% per annum through the anticipated repayment date, August 6, 2028 (the “CO Anticipated Repayment Date”), and thereafter at an increased rate of 2.50% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the CO Anticipated Repayment Date.
On November 15, 2016, in connection with the purchase of the DST Properties, (refer to Note 3 — Investment in Real Estate), the DST entered into a loan agreement (the “DST Loan”) with Citigroup Global Markets Realty Corp. with an outstanding principal amount of $22,495,184. The DST Loan provides for monthly interest payments and bears interest at an initial fixed rate of 4.59% per annum through anticipated repayment date, December 1, 2026 (the “DST Anticipated Repayment Date”), and thereafter at an increased rate of 3.00% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the DST Anticipated Repayment Date.
On November 26, 2019, in connection with the purchase of the Buchanan Property (refer to Note 3 – Investment in Real Estate), the Buchanan Property SPE entered into a loan agreement (the “Buchanan Loan”) with Goldman Sachs Bank USA with an outstanding principal amount of $9,600,000. The Buchanan Loan provides for monthly interest payments and bears interest at an initial fixed rate of 3.52% per annum through the anticipated repayment date, December 1, 2029 (the “Buchanan Anticipated Repayment Date”), and thereafter at revised rate of 2.50% per annum plus the greater of the initial interest rate or the 10 year swap yield as of the first business day after the Buchanan Anticipated Repayment Date.
As of March 31, 2020 and December 31, 2019, the Company’s Loans payable balance was $83,322,724 and $83,303,569, net of deferred financing costs, respectively. As of March 31, 2020 and December 31, 2019, deferred financing costs were $822,460 and $841,615, net of accumulated amortization of $100,336 and $81,181, respectively, which has been accounted for within Interest expense on the consolidated statements of operations.
22
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Information on the Company’s Loans payable as of March 31, 2020 and December 31, 2019 is as follows:
Description |
|
March 31, 2020 |
|
|||||||||||||||||||||
|
|
GR Property |
|
|
FM Property |
|
|
CO Property |
|
|
DST Properties |
|
|
Buchanan Property |
|
|
Total |
|
||||||
Principal amount of loans |
|
$ |
4,500,000 |
|
|
$ |
21,000,000 |
|
|
$ |
26,550,000 |
|
|
$ |
22,495,184 |
|
|
$ |
9,600,000 |
|
|
$ |
84,145,184 |
|
Less: Deferred financing costs, net of accumulated amortization of $100,336 |
|
|
(59,633 |
) |
|
|
(162,254 |
) |
|
|
(216,857 |
) |
|
|
(296,764 |
) |
|
|
(86,952 |
) |
|
|
(822,460 |
) |
Loans payable, net of deferred financing costs and amortization |
|
$ |
4,440,367 |
|
|
$ |
20,837,746 |
|
|
$ |
26,333,143 |
|
|
$ |
22,198,420 |
|
|
$ |
9,513,048 |
|
|
$ |
83,322,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
December 31, 2019 |
|
|||||||||||||||||||||
|
|
GR Property |
|
|
FM Property |
|
|
CO Property |
|
|
DST Properties |
|
|
Buchanan Property |
|
|
Total |
|
||||||
Principal amount of loans |
|
$ |
4,500,000 |
|
|
$ |
21,000,000 |
|
|
$ |
26,550,000 |
|
|
$ |
22,495,184 |
|
|
$ |
9,600,000 |
|
|
$ |
84,145,184 |
|
Less: Deferred financing costs, net of accumulated amortization of $81,181 |
|
|
(61,682 |
) |
|
|
(166,872 |
) |
|
|
(221,196 |
) |
|
|
(303,146 |
) |
|
|
(88,719 |
) |
|
|
(841,615 |
) |
Loans payable, net of deferred financing costs and amortization |
|
$ |
4,438,318 |
|
|
$ |
20,833,128 |
|
|
$ |
26,328,804 |
|
|
$ |
22,192,038 |
|
|
$ |
9,511,281 |
|
|
$ |
83,303,569 |
|
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred $960,195 and $603,374, respectively, of interest expense, which is included within Interest expense on the consolidated statements of operations. As of March 31, 2020 and December 31, 2019, $273,200 and $273,200 respectively, was unpaid and is recorded as accrued interest payable on the Company’s consolidated balance sheets. All of the unpaid interest expense accrued as of March 31, 2020 and December 31, 2019 was paid during April 2020 and January 2020, respectively.
Also included within Interest expense on the consolidated statements of operations is amortization of deferred financing costs, which, for the three months ended March 31, 2020 and March 31, 2019, was $19,155 and $10,860, respectively.
The following table presents the future principal payments due under the Company’s loan agreements as of March 31, 2020:
Year |
|
Amount |
|
|
2020 (remaining) |
|
$ |
— |
|
2021 |
|
|
— |
|
2022 |
|
|
— |
|
2023 |
|
|
— |
|
2024 |
|
|
— |
|
Thereafter |
|
|
84,145,184 |
|
Total |
|
$ |
84,145,184 |
|
Note 8 – Stockholders’ Equity
Initial Public Offering
On October 17, 2016, the Company filed a registration statement with the SEC on Form S-11 in connection with the Offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in its Primary Offering and up to $250 million in shares pursuant to its DRP. The registration statement was subsequently declared effective on March 23, 2017. On May 18, 2017, the Company satisfied the Minimum Offering Requirement for the Offering as a result of CFI’s purchase of $2.0 million in Class I shares.
23
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2020, the Company’s total number of authorized common shares was 400,000,000, consisting of 160,000,000 of Class A authorized common shares, 200,000,000 of Class T authorized common shares and 40,000,000 of Class I authorized common shares. The Class A shares, Class T shares and Class I shares have identical rights and privileges, including identical voting rights, but have different upfront selling commissions and dealer manager fees and the Class T shares have an ongoing distribution fee. The per share amount of distributions on Class T shares is lower than the per share amount of distributions on Class A shares and Class I shares because of the on-going distribution fee that is payable with respect to Class T shares sold in the Primary Offering.
CFI pays a portion of selling commissions and all of the dealer manager fees (“Sponsor Support”), up to a total of 4.0% of gross offering proceeds from the sale of Class A shares and Class T shares, and up to a total of 1.5% of gross offering proceeds from the sale of Class I shares, incurred in connection with the Offering. Selling commissions and dealer manager fees are presented net of Sponsor Support on the Company’s unaudited consolidated statements of stockholders’ equity. The Company will reimburse Sponsor Support (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Advisory Agreement (as defined below) by the Company or by the Advisor. In each such case, the Company will only reimburse CFI after the Company has fully invested the proceeds from the Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such invested capital.
The Company also has 50 million shares of preferred stock, $0.01 par value, authorized. No shares of preferred stock are issued or outstanding.
Cantor Fitzgerald & Co. (the “Dealer Manager”), a related party, provides dealer manager services in connection with the Offering. The Offering is a best efforts offering, which means that the Dealer Manager is not required to sell any specific number or dollar amount of shares of common stock in the Offering, but will use its best efforts to sell the shares of common stock.
As of March 31, 2020, the Company had sold 5,767,032 shares of its common stock (consisting of 3,301,655 Class A shares, 1,392,733 Class T shares and 1,072,644 Class I shares) in the Offering for aggregate net proceeds of $142,289,961. As of December 31, 2019, the Company had sold 5,332,169 shares of its common stock (consisting of 3,150,616 Class A shares, 1,327,819 Class T shares and 853,734 Class I shares) in the Offering for aggregate net proceeds of $131,583,672.
On March 20, 2020, the Company filed a registration statement on Form S-11 with the SEC for a proposed second public offering (the “Follow-On Offering”). In the Follow-On Offering, the Company intends to offer up to $1 billion in shares of common stock in a primary offering on a best efforts basis and $250 million in shares of common stock to be issued pursued to a distribution reinvestment plan. Additionally, upon commencement of the Follow-On Offering, the Company intends to begin operating as a non-exchange traded perpetual-life REIT. On March 20, 2020, the Company’s board of directors extended the Offering until the effective date of the registration statement for the Follow-On Offering.
Distributions
The Company’s board of directors has authorized, and the Company has declared, distributions through August 14, 2020, in an amount equal to $0.004253787 per day per Class A share, Class I share and Class T share, less, for holders of Class T shares, the distribution fees that are payable with respect to Class T shares. The distributions are payable by the 5th business day following each month end to stockholders of record at the close of business each day during the prior month.
To ensure that the Company has sufficient funds to cover cash distributions authorized and declared during the Offering, the Company and CFI entered into a distribution support agreement, as amended (the “Distribution Support Agreement”). The terms of the agreement provide that in the event that cash distributions exceed modified funds from operations (“MFFO”), defined as a supplemental measure to reflect the operating performance of a non-traded REIT, for any calendar quarter through the termination of the Primary Offering, CFI shall purchase Class I shares from the Company in an amount equal to the distribution shortfall, up to $5 million (less the $2.0 million of shares purchased by CFI in order to satisfy the Minimum Offering Requirement). In addition to the shares purchased to satisfy the Minimum Offering Requirement, as of March 31, 2020, CFI has purchased $1,107,656 in Class I shares pursuant to the Distribution Support Agreement.
24
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As of March 31, 2020 and December 31, 2019, the Company has declared distributions of $12,203,015 and $10,144,642, respectively, of which $721,496 and $668,092, respectively, was unpaid as of the respective reporting dates and has been recorded as distributions payable on the accompanying consolidated balance sheets. All of the unpaid distributions as of March 31, 2020 and December 31, 2019 were paid during April 2020 and January 2020, respectively. As of March 31, 2020 and December 31, 2019, distributions reinvested pursuant to the Company’s DRP were $3,997,340 and $3,285,934, respectively.
Redemptions
Stockholders are eligible to have their shares repurchased by the Company pursuant to the Amended and Restated Share Repurchase Program. The Company will repurchase shares at a price equal to, or at a discount from, NAV per share of the share class being repurchased subject to certain holding period requirements which effect the repurchase price as a percentage of NAV.
The Amended and Restated Share Repurchase Program includes numerous restrictions that limit stockholders’ ability to have their shares repurchased. The Company limits the number of shares repurchased pursuant to the Amended and Restated Share Repurchase Program as follows: (i) during any calendar month, the Company may repurchase no more than 2% of the combined NAV of all classes of shares as of the last calendar day of the previous month (based on the most recently determined NAV per share) and (ii) during any calendar year, the Company may repurchase no more than 10% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar year.
As of March 31, 2020, the Company has received eligible repurchase requests for a total of 74,875 shares in the amount of $1,845,988. For the three months ended March 31, 2020, the Company repurchased 25,284 shares in the amount of $620,659.
Non-controlling Interest
Special Unit Holder
The Special Unit Holder has invested $1,000 in the Operating Partnership and has been issued a special class of limited partnership units as part of the overall consideration for the services to be provided by the Advisor. This investment has been recorded as a component of Non-controlling interests in subsidiaries on the consolidated balance sheets as of March 31, 2020 and December 31, 2019, respectively.
GSR Interest in the SF Property SPE
Based on the Company’s consolidation analysis, which was performed in accordance with ASC 810 as described in the “Variable Interest Entities” section of Note 2 — Summary of Significant Accounting Policies, management has determined that the Company is the primary beneficiary of the SF Property SPE. Accordingly, the Company has consolidated the SF Property SPE. As of March 31, 2020, the Company’s ownership interest in the SF Property SPE was 75%, and GSR’s interest was 25%. GSR’s total ownership interest of $3,022,649 has been recorded as a component of Non-controlling interests in subsidiaries on the Company’s unaudited consolidated balance sheet as of March 31, 2020.
Note 9 – Related Party Transactions
The Company and the Advisor entered into an amended and restated advisory agreement, dated as of June 29, 2018, as amended by amendment no. 1 (“Amendment No. 1”) to amended and restated advisory agreement, dated and effective as of September 28, 2019 (the “Advisory Agreement”). On June 26, 2019, the Company’s board of directors approved the renewal of the Advisory Agreement upon terms identical to those in effect for an additional one-year term commencing on June 29, 2019 through June 29, 2020. The purpose of Amendment No. 1 was to amend the monthly asset management fee from one-twelfth of 1.25% of the cost of the Company’s investments at the end of the month to one-twelfth of 1.20% of the Company’s most recently disclosed NAV. Pursuant to the Advisory Agreement, and subject to certain restrictions and limitations, the Advisor is responsible for managing the Company's affairs on a day-to-day basis and for identifying, originating, acquiring and managing investments on behalf of the Company. For providing such services, the Advisor receives the following fees and reimbursements from the Company.
25
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Organization and Offering Expenses. The Company will reimburse the Advisor and its affiliates for O&O Costs it incurs on the Company’s behalf but only to the extent that the reimbursement does not cause the selling commissions, the dealer manager fee and the other O&O Costs borne by the Company to exceed 15% of gross offering proceeds of the Offering as of the date of the reimbursement. If the Company raises the maximum offering amount in the Primary Offering and under the DRP, the Company estimates O&O Costs (other than upfront selling commissions, dealer manager fees and distribution fees), in the aggregate, to be 1% of gross offering proceeds of the Offering. These O&O Costs include all costs (other than upfront selling commissions, dealer manager fees and distribution fees) to be paid by the Company in connection with the initial set up of the organization of the Company as well as the Offering, including legal, accounting, printing, mailing and filing fees, charges of the transfer agent, charges of the Advisor for administrative services related to the issuance of shares in the Offering, reimbursement of bona fide due diligence expenses of broker-dealers, and reimbursement of the Advisor for costs in connection with preparing supplemental sales materials.
The Advisor has agreed to pay for all of the O&O Costs on the Company’s behalf (other than selling commissions, dealer manager fees and distribution fees) through the Escrow Break Anniversary. After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred, but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor subject to the 1% Cap. Following the Escrow Break Anniversary, the Company began reimbursing the Advisor for such costs on a monthly basis, which will continue through May 18, 2021; provided that the Company will not be obligated to reimburse any amounts that as a result of such payment would cause the aggregate payments for O&O Costs paid to the Advisor to exceed the 1% Cap as of such reimbursement date.
As of March 31, 2020 and December 31, 2019, the Advisor had incurred $9,659,293 and $8,613,586, respectively, of O&O Costs (other than upfront selling commissions, dealer manager fees and distribution fees) on behalf of the Company. The amount of the Company’s obligation is limited to the 1% Cap less any reimbursement payments made by the Company to the Advisor for O&O Costs incurred, which, at March 31, 2020 and December 31, 2019, is $747,070 and $789,661, respectively, and is included within Due to related parties in the accompanying consolidated balance sheets. As of March 31, 2020 and December 31, 2019, organizational costs of $90,676 and $90,232 were expensed and offering costs of $1,398,065 and $1,287,203 were charged to stockholders’ equity. As of March 31, 2020 and December 31, 2019, the Company has made reimbursement payments of $741,671 and $587,774, respectively, to the Advisor for O&O Costs incurred. As of March 31, 2020, the Advisor has continued to pay all O&O Costs on behalf of the Company.
Acquisition Expenses. The Company currently does not intend to pay the Advisor any acquisition fees in connection with making investments. The Company will, however, provide reimbursement of customary acquisition expenses (including expenses relating to potential investments that the Company does not close), such as legal fees and expenses (including fees of in-house counsel of affiliates and other affiliated service providers that provide resources to the Company), costs of due diligence (including, as necessary, updated appraisals, surveys and environmental site assessments), travel and communication expenses, accounting fees and expenses and other closing costs and miscellaneous expenses relating to the acquisition or origination of the Company’s investments. While most of the acquisition expenses are expected to be paid to third parties, a portion of the out-of-pocket acquisition expenses may be paid or reimbursed to the Advisor or its affiliates. The Advisor has not incurred any reimbursable acquisition expenses on behalf of the Company as of March 31, 2020.
Distribution Fees. Distribution fees are payable to the Dealer Manager with respect to the Company’s Class T shares only, all or a portion of which may be re-allowed by the Dealer Manager to participating broker-dealers. The distribution fees accrue daily and are calculated on outstanding Class T shares issued in the Primary Offering in an amount equal to 1.0% per annum of (i) the gross offering price per Class T share in the Primary Offering, or (ii) if the Company is no longer offering shares in a public offering, the most recently published per share NAV of Class T shares. The distribution fee is payable monthly in arrears and is paid on a continuous basis from year to year. During the three months ended March 31, 2020 and March 31, 2019, the Company paid distribution fees of $75,303 and $58,817, respectively. As of March 31, 2020 and December 31, 2019, the Company has incurred a liability of $903,545 and $919,819, respectively, which is included within Due to related parties on the consolidated balance sheets, $26,007 and $25,751, respectively, of which was due as of March 31, 2020 and December 31, 2019 and paid during April 2020 and January 2020, respectively.
26
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company will cease paying distribution fees with respect to each Class T share on the earliest to occur of the following: (i) a listing of shares of common stock on a national securities exchange; (ii) such Class T share is no longer outstanding; (iii) the Dealer Manager’s determination that total underwriting compensation from all sources, including dealer manager fees, sales commissions, distribution fees and any other underwriting compensation paid with respect to all Class A shares, Class T shares and Class I shares would be in excess of 10% of the gross proceeds of the Primary Offering; or (iv) the end of the month in which the transfer agent, on the Company’s behalf, determines that total underwriting compensation with respect to the Class T shares held by a stockholder within his or her particular account, including dealer manager fees, sales commissions and distribution fees, would be in excess of 10% of the total gross offering price at the time of the investment in the Class T shares held in such account.
Asset Management Fees. Asset management fees are due to the Advisor. Asset management fees payable to the Advisor prior to September 2019 consisted of monthly fees equal to one-twelfth of 1.25% of the cost of the Company’s investments at the end of each month. Asset management fees payable to the Advisor as of September 2019 consist of monthly fees equal to one-twelfth of 1.20% of the Company’s most recently disclosed NAV.
For the three months ended March 31, 2020, and March 31, 2019, the Company incurred asset management fees of $386,411 and $501,698 respectively. The asset management fee related to the month of March 2020 of $134,054 is unpaid as of March 31, 2020 and has been included within Due to related parties on the consolidated balance sheet. The amount of asset management fees incurred by the Company during the applicable period is included in the calculation of the limitation of operating expenses pursuant to the 2%/25% Guidelines (as defined and described below).
Other Operating Expenses. Effective April 1, 2018, the Advisory Agreement (i) includes limitations with regards to the incurrence of and additional limitations on reimbursements of operating expenses and (ii) clarifies the reimbursement and expense timing and procedures, including potential reimbursement of unreimbursed operating expenses.
Pursuant to the terms of the Advisory Agreement, the Company is obligated to reimburse the Advisor for certain operating expenses. Beginning October 1, 2018, the Company was subject to the limitation that it generally may not reimburse the Advisor for any amounts by which the total operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets (as defined in the Advisory Agreement) and (ii) 25% of net income other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of investments for that period (the “2%/25% Guidelines”). If the Company’s independent directors determine that all or a portion of such amounts in excess of the limitation are justified based on certain factors, the Company may reimburse amounts in excess of the limitation to the Advisor. In addition, beginning on October 1, 2018, the Company may request any operating expenses that were previously reimbursed to the Advisor in prior or future periods in excess of the limitation to be remitted back to the Company. The Company reimbursed $1,004,539 of the operating expense reimbursement obligation to the Advisor in January 2019. As of March 31, 2020, the Company has accrued but not reimbursed $204,253 in operating expenses pursuant to the Advisory Agreement, which represents the current operating expense reimbursement obligation to the Advisor.
The Advisory Agreement provides that, subject to other limitations on the incurrence and reimbursement of operating expenses contained in the Advisory Agreement, operating expenses which have been incurred and paid by the Advisor will not become an obligation of the Company unless the Advisor has invoiced the Company for reimbursement, which will occur in a quarterly statement and accrued for in the respective period. The Advisor will not invoice the Company for any reimbursement if the impact of such would result in the Company’s incurrence of an obligation in an amount that would result in the Company’s net asset value per share for any class of shares to be less than $25.00. The Company may, however, incur and record an obligation to reimburse the Advisor, even if it would result in the Company’s net asset value per share for any class of shares for such quarter to be less than $25.00, if the Company’s board of directors determines that the reasons for the decrease of the Company’s net asset value per share below $25.00 were unrelated to the Company’s obligation to reimburse the Advisor for operating expenses.
In addition, the Advisory Agreement provides that all or a portion of the operating expenses, which have not been previously paid by the Company or invoiced by the Advisor may be in the sole discretion of the Advisor: (i) waived by the Advisor, (ii) reimbursed to the Advisor in any subsequent quarter or (iii) reimbursed to the Advisor in connection with a liquidity event or termination of the Advisory Agreement, provided that the Company has fully invested the proceeds from its initial public offering and the stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on their invested capital. Any reimbursement of operating expenses remains subject to the limitations described above and the limitations and the approval requirements relating to the 2%/25% Guidelines.
27
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Reimbursable operating expenses include personnel and related employment costs incurred by the Advisor or its Affiliates in performing the services described in the Advisory Agreement, including but not limited to reasonable salaries and wages, benefits and overhead of all employees directly involved in the performance of such services. The Company is not obligated to reimburse the Advisor for costs of such employees of the Advisor or its affiliates to the extent that such employees (A) perform services for which the Advisor receives acquisition fees or disposition fees or (B) serve as executive officers of the Company.
As of March 31, 2020, the total amount of unreimbursed operating expenses was $8,138,640. This includes operating expenses incurred by the Advisor on the Company’s behalf which have not been invoiced to the Company and also amounts invoiced to the Company by the Advisor but not yet reimbursed (“Unreimbursed Operating Expenses”). The amount of operating expenses incurred by the Advisor during the three months ended March 31, 2020 and March 31, 2019 which were not invoiced to the Company amounted to $694,417 and $601,082, respectively.
Property Management and Oversight Fees. If the Advisor or an affiliate is a property manager with respect to a particular property, the Company will pay property management fees of 1.5% of gross revenues received for management of the Company’s properties located in the U.S. and 2% of gross revenues received for management of the Company’s properties located outside of the U.S. For services in overseeing property management services provided by any person or entity that is not an affiliate of the Advisor, the Company will pay the Advisor or an affiliate an oversight fee equal to 1% of the gross revenues of the property managed. Neither the Advisor nor its affiliates will be paid an oversight fee if the Company contracts with a third party to provide property management services for fees greater than (i) 1.5% of gross revenues received for management of the Company’s properties located in the U.S. or (ii) 2% of gross revenues received for management of the Company’s properties located outside of the U.S. For the three months ended March 31, 2020 and March 31, 2019, the Company incurred property management fees of $36,344 and $26,076, respectively. The property management fees incurred during the month of March 2020 of $19,901 were unpaid as of March 31, 2020 and have been included within Due to related parties on the consolidated balance sheet.
Leasing Commissions. If the Advisor or an affiliate is the Company’s primary leasing agent, then the Company will pay customary leasing fees in amount that is usual and customary in that geographic area for that type of property. As of March 31, 2020 and December 31, 2019, no such amounts have been incurred by the Company.
Refinancing Coordination Fee. If the Advisor provides services in connection with the refinancing of any debt that the Company obtains and uses to finance properties or other permitted investments, or refinancing of any debt that is assumed, directly or indirectly, in connection with the acquisition of properties or other permitted investments, the Company will pay the Advisor a refinancing coordination fee equal to 0.75% of the amount available or outstanding under such refinancing or assumed debt. Refinancing will also include restructuring, workouts or other recapitalization of any debt. As of March 31, 2020 and December 31, 2019, no such amounts have been incurred by the Company.
Disposition Fees. For substantial assistance in connection with the sale of investments and based on the services provided, as determined by the independent directors, the Company will pay a disposition fee in an amount equal to 2% of the contract sales price of each real property or other investment sold; provided, however, in no event may the disposition fee paid to the Advisor or its affiliates, when added to the real estate commissions paid to unaffiliated third parties, exceed the lesser of a competitive real estate commission or an amount equal to 6% of the contract sales price. If the Company takes ownership of a property as a result of a workout or foreclosure of a debt investment, the Company will pay a disposition fee upon the sale of such property.
The Company will not pay a disposition fee upon the maturity, prepayment, workout, modification or extension of a debt investment unless there is a corresponding fee paid by the borrower, in which case the disposition fee will be the lesser of: (i) 1% of the principal amount of the debt prior to such transaction; or (ii) the amount of the fee paid by the borrower in connection with such transaction. As of March 31, 2020 and December 31, 2019, no such amounts have been incurred by the Company.
28
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Selling Commissions and Dealer Manager Fees
The Dealer Manager is a registered broker-dealer affiliated with CFI. The Company entered into an agreement with the Dealer Manager and is obligated to pay various commissions and fees with respect to the Class A, Class T and Class I shares distributed in the Offering. For providing such services, the Dealer Manager will receive fees. CFI will pay a portion of selling commissions and all of the dealer manager fees, up to a total of 4% of gross offering proceeds from the sale of Class A shares and Class T shares, as well as 1.5% of Class I shares, incurred in connection with the Offering. The Company will reimburse such expenses (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Advisory Agreement by the Company or by the Advisor. In each such case, the Company only will reimburse CFI after the Company has fully invested the proceeds from the Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on such invested capital.
As of March 31, 2020, the likelihood, probability and timing of each of the possible occurrences or events listed in the preceding sentences (i) and (ii) in the above paragraph are individually and collectively uncertain. Additionally, whether or not the Company will have fully invested the proceeds from the Offering and also whether the Company’s stockholders will have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compound annual pre-tax return on such invested capital at the time of any such occurrence or event is also uncertain. As of March 31, 2020 and December 31, 2019, CFI has paid Sponsor Support totaling $4,982,866 and $4,675,394, respectively, which will be subject to reimbursement by the Company to CFI in the event of these highly conditional circumstances. The following summarizes these fees:
Selling Commissions. Selling commissions payable to the Dealer Manager consist of (i) up to 1% of gross offering proceeds paid by CFI for Class A shares and Class T shares and (ii) up to 5% and 2% of gross offering proceeds from the sale of Class A shares and Class T shares, respectively, in the Primary Offering. All or a portion of such selling commissions may be re-allowed to participating broker-dealers. No selling commissions will be payable with respect to Class I shares. For the three months ended March 31, 2020 and the year ended December 31, 2019, the Company incurred $211,349 and $1,671,545 of selling commissions, respectively, which is included within Additional paid-in capital on the consolidated balance sheets. At March 31, 2020 and December 31, 2019, $1,111,691 and $1,059,256 of Sponsor Support, respectively, has been recorded and $1,093,752 and $1,015,121, respectively, has been reimbursed by CFI. During the second quarter of 2020, the Company received the remaining Sponsor Support payment due of $17,940 related to the three months ended March 31, 2020. During the first quarter of 2020, the Company received the remaining Sponsor Support payment due of $44,135 related to the year ended December 31, 2019.
Dealer Manager Fees. Dealer manager fees payable to the Dealer Manager consist of up to 3.0% of gross offering proceeds from the sale of Class A shares and Class T shares sold in the Primary Offering and up to 1.5% of gross offering proceeds from the sale of Class I shares sold in the Primary Offering, all of which will be paid by CFI. A portion of such dealer manager fees may be re-allowed to participating broker-dealers as a marketing fee. For the three months ended March 31, 2020 and the year ended December 31, 2019, the Company recorded $243,894 and $1,249,678 of dealer manager fees, respectively, which is included within Additional paid-in capital on the consolidated balance sheets. As of March 31, 2020 and December 31, 2019, all of the Sponsor Support related to dealer manager fees has been recorded and $3,889,115 and $3,660,273, respectively, has been reimbursed by CFI. During the second quarter of 2020 and the first quarter of 2020, the Company received the remaining Sponsor Support payments due of $20,827 and $5,775 related to the three months ended March 31, 2020 and the year ended December 31, 2019, respectively.
29
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the above mentioned fees and expenses incurred by the Company for the three months ended March 31, 2020:
|
|
|
|
Due to related parties as of |
|
|
Three months ended March 31, 2020 |
|
|
Due to related parties as of |
|
|||||||
Type of Fee or Reimbursement |
|
Financial Statement Location |
|
December 31, 2019 |
|
|
Incurred |
|
|
Paid |
|
|
March 31, 2020 |
|
||||
Management Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees |
|
Management fees |
|
$ |
123,179 |
|
|
$ |
386,411 |
|
|
$ |
375,536 |
|
|
$ |
134,054 |
|
Property management and oversight fees |
|
Management fees |
|
|
20,269 |
|
|
|
36,344 |
|
|
|
36,712 |
|
|
|
19,901 |
|
Organization, Offering and Operating Expense Reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(1) |
|
General and administrative expenses |
|
|
204,253 |
|
|
|
— |
|
|
|
— |
|
|
|
204,253 |
|
Organization expenses(2) |
|
General and administrative expenses |
|
|
71,162 |
|
|
|
444 |
|
|
|
13,384 |
|
|
|
58,222 |
|
Offering costs(2) |
|
Additional paid-in capital |
|
|
718,499 |
|
|
|
110,861 |
|
|
|
140,512 |
|
|
|
688,848 |
|
Commissions and Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling commissions and dealer manager fees, net |
|
Additional paid-in capital |
|
|
— |
|
|
|
211,349 |
|
|
|
211,349 |
|
|
|
— |
|
Distribution fees |
|
Additional paid-in capital |
|
|
919,819 |
|
|
|
59,029 |
|
|
|
75,303 |
|
|
|
903,545 |
|
Total |
|
|
|
$ |
2,057,181 |
|
|
$ |
804,438 |
|
|
$ |
852,796 |
|
|
$ |
2,008,823 |
|
Note: |
(1) As of March 31, 2020, the Advisor has incurred, on behalf of the Company, a total of $8,138,640 in Unreimbursed Operating Expenses, including a total of $694,417 for the three months ended March 31, 2020, for which the Advisor has not invoiced the Company for reimbursement. The total amount of Unreimbursed Operating Expenses may, in future periods, be subject to reimbursement by the Company pursuant to the terms of the Advisory Agreement. |
(2) As of March 31, 2020, the Advisor has incurred, on behalf of the Company, a total of $9,659,293 of O&O Costs, of which the Company’s obligation is limited to $747,070, pursuant to the 1% Cap.
30
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the above mentioned fees and expenses incurred by the Company for the year ended December 31, 2019:
|
|
|
|
Due to related parties as of |
|
|
Year ended December 31, 2019 |
|
|
Due to related parties as of |
|
|||||||
Type of Fee or Reimbursement |
|
Financial Statement Location |
|
December 31, 2018 |
|
|
Incurred |
|
|
Paid |
|
|
December 31, 2019 |
|
||||
Management Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management fees |
|
Management fees |
|
$ |
152,072 |
|
|
$ |
1,840,152 |
|
|
$ |
1,869,045 |
|
|
$ |
123,179 |
|
Property management and oversight fees |
|
Management fees |
|
|
8,647 |
|
|
|
110,415 |
|
|
|
98,793 |
|
|
|
20,269 |
|
Organization, Offering and Operating Expense Reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses(1) |
|
General and administrative expenses |
|
|
1,004,539 |
|
|
|
204,253 |
|
|
|
1,004,539 |
|
|
|
204,253 |
|
Organization expenses(2) |
|
General and administrative expenses |
|
|
10,860 |
|
|
|
77,193 |
|
|
|
16,891 |
|
|
|
71,162 |
|
Offering costs(2) |
|
Additional paid-in capital |
|
|
732,579 |
|
|
|
287,289 |
|
|
|
301,369 |
|
|
|
718,499 |
|
Commissions and Fees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling commissions and dealer manager fees, net |
|
Additional paid-in capital |
|
|
27,846 |
|
|
|
1,345,353 |
|
|
|
1,373,199 |
|
|
|
— |
|
Distribution fees |
|
Additional paid-in capital |
|
|
806,038 |
|
|
|
377,426 |
|
|
|
263,645 |
|
|
|
919,819 |
|
Total |
|
|
|
$ |
2,742,581 |
|
|
$ |
4,242,081 |
|
|
$ |
4,927,481 |
|
|
$ |
2,057,181 |
|
Note: |
(1) As of December 31, 2019, the Advisor has incurred, on behalf of the Company, a total of $7,444,222 in Unreimbursed Operating Expenses, including a total of $3,087,063 for the year ended December 31, 2019 for which the Advisor has not invoiced the Company for reimbursement. The total amount of Unreimbursed Operating Expenses may, in future periods, be subject to reimbursement by the Company pursuant to the terms of the Advisory Agreement. |
(2) As of December 31, 2019, the Advisor has incurred, on behalf of the Company, a total of $8,613,586 of O&O Costs, of which the Company’s obligation is limited to $789,661, pursuant to the 1% Cap.
Investment by CFI
CFI initially invested $200,001 in the Company through the purchase of 8,180 Class A shares at $24.45 per share. CFI may not sell any of these shares during the period it serves as the Company’s sponsor. Neither the Advisor nor CFI currently has any options or warrants to acquire any of the Company’s shares.
As of March 31, 2020, CFI has invested $4,757,657 in the Company through the purchase of 190,357 shares (8,180 Class A shares for an aggregate purchase price of $200,001 and 182,177 Class I shares for an aggregate purchase price of $4,557,656). 124,177 of the Class I shares in the amount of $3,107,656 were purchased by CFI pursuant to the Distribution Support Agreement, which provides that in certain circumstances where the Company’s cash distributions exceed the Company’s modified funds from operations, CFI will purchase up to $5 million of Class I shares (including the $2 million of shares purchased in order to satisfy the Minimum Offering Requirement) at the then current offering price per Class I share net of dealer manager fees to provide additional cash to support distributions to the Company’s stockholders.
31
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Company’s sponsor, CFI, is a Delaware limited liability company and an affiliate of CFLP. CFI will pay a portion of selling commissions and all of the dealer manager fees, up to a total of 4% of gross offering proceeds from the sale of Class A shares and Class T shares, as well as 1.5% of gross offering proceeds from the sale of Class I shares, incurred in connection with the Offering. The Company will reimburse such expenses (i) immediately prior to or upon the occurrence of a liquidity event, including (A) the listing of the Company’s common stock on a national securities exchange or (B) a merger, consolidation or a sale of substantially all of the Company’s assets or any similar transaction or any transaction pursuant to which a majority of the Company’s board of directors then in office are replaced or removed, or (ii) upon the termination of the Advisory Agreement by the Company or by the Advisor. In each such case, the Company only will reimburse CFI after the Company has fully invested the proceeds from the Offering and the Company’s stockholders have received, or are deemed to have received, in the aggregate, cumulative distributions equal to their invested capital plus a 6% cumulative, non-compounded annual pre-tax return on such invested capital. As of March 31, 2020, CFI has paid Sponsor Support totaling $4,982,866.
Note 10 - Variable Interest Entities
As of March 31, 2020 and December 31, 2019, certain VIEs have been identified in which the Company has determined itself to be the primary beneficiary, because the Company did have a significant variable interest in and control over the VIEs. Therefore, the Company has consolidated the VIEs.
Note 11 – Economic Dependency
The Company is dependent on the Advisor and its affiliates for certain services that are essential to the Company, including the sale of the Company’s shares of capital stock, acquisition and disposition decisions and certain other responsibilities. In the event that the Advisor is unable or unwilling to provide such services, the Company would be required to find alternative service providers.
Note 12 – Commitments and Contingencies
As of March 31, 2020 and December 31, 2019, the Company was not subject to litigation nor was the Company aware of any material litigation pending against it. The Company has entered into customary guaranty agreements (the “Guaranty Agreements”) in connection with the financing of certain specific investments, including the acquisition of the GR Property, the FM Property, the Buchanan Property and the CO Property, as further described in Note 7 — Loans Payable. Pursuant to the Guaranty Agreements, the Company has guaranteed any losses or liabilities that the lenders may incur as a result of the occurrence of certain enumerated bad acts as defined in the Guaranty Agreements. The Company has also guaranteed the repayment of obligations and indebtedness due to the lenders upon the occurrence of certain enumerated events as defined in the Guaranty Agreements. Additionally, in regards to the GR Property, the FM Property, the Buchanan Property and the CO Property, the Company has also agreed to indemnify the lenders against certain environmental liabilities.
As of March 31, 2020, the Company’s liability under these arrangements is not quantifiable and the potential for the Company to be required to make payments under the Guaranty Agreements is remote. Accordingly, no contingent liability is recorded in the Company’s unaudited consolidated balance sheet for these arrangements.
Risks and Uncertainties
Financial instruments that potentially subject the Company to concentrations of credit risk include Cash and cash equivalents. At times, balances with any one financial institution may exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company believes it mitigates this risk by investing its cash with high-credit quality financial institutions.
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, states or industries could result in a material reduction the Company’s cash flows or material losses to the Company. The Company believes it mitigates this risk by employing a comprehensive set of controls around acquisitions which include detailed due diligence of all lessees. In addition, the Company monitors published credit ratings of its tenants, when available.
32
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Additionally, the full extent of the impact and effects of the recent outbreak of the coronavirus (COVID-19) on the future financial performance of the Company, as a whole, and, specifically, on its investments, lessees of real estate properties owned and borrowers on its loan and preferred equity interests, are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, and production delays, and the uncertainty with respect to the accessibility of additional liquidity or to the capital markets. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas, present uncertainty and risk with respect to the Company’s performance, financial condition, results of operations and cash flows.
Note 13 – Fair Value Measurements
Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchal framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the market place, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:
Level 1 measurement — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.
Level 2 measurement — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
Level 3 measurement — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
The following describes the methods the Company uses to estimate the fair value of the Company’s financial assets and liabilities:
Investment in real estate, net — The fair value is estimated by utilizing the income approach to value, using a direct capitalization analysis and discounted cash flow analysis, as well as a sales comparison approach. As of March 31, 2020 and December 31, 2019, the estimated fair value of the Company’s Investment in real estate, net was $172,595,000 and $179,405,000, respectively. The Company has not elected the fair value option to account for its Investment in real estate, net.
Investments in real estate-related assets — The fair value is estimated by discounting the expected cash inflows and outflows based on the market interest and preferred return rates for similar loans and preferred equity investments to the Company’s investments in the Pennsylvania SPE and Illinois SPE, which the Company believes to be equal to the contractual rates as of the measurement date. The Company determined that the market interest rate for the Illinois SPE and the market preferred return rate for the Pennsylvania SPE as of March 31, 2020 were equal to their contractual rates. As of March 31, 2020 and December 31, 2019, the estimated fair value of the Company’s Investments in real estate-related assets was $23,475,373 and $25,615,522, respectively. The Company has not elected the fair value option to account for its Investments in real estate-related assets.
Loans payable — The fair value is estimated by discounting the expected cash flows based on estimated borrowing rates available to the Company as of the measurement date. The current period liabilities’ carrying and fair values exclude net deferred financing costs. These financial instruments are valued using Level 2 inputs. As of March 31, 2020 and December 31, 2019, the estimated fair value of the Company’s loans payable was $85,214,088 and $86,783,363, respectively (excluding deferred financing costs). The Company has not elected the fair value option, and as such has accounted for its debt using the amortized cost method.
33
RODIN GLOBAL PROPERTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Other financial instruments — The Company considers the carrying value of its Cash and cash equivalents to approximate its fair value because of the short period of time between its origination and its expected realization as well as its highly-liquid nature. Due to the short-term maturity of this instrument, Level 1 inputs are utilized to estimate the fair value of this financial instrument.
Note 14 – Subsequent Events
Common Stock Repurchases
Subsequent to March 31, 2020, the Company received and completed three (3) eligible repurchase requests for a total of 8,181 shares in the amount of $197,510.
Investment by CFI pursuant to Distribution Support Agreement
On April 30, 2020, the Company’s sponsor, CFI, pursuant to the terms of the Distribution Support Agreement purchased 980.6 class I shares at a price of $25.11 per share for total amount of $24,623. This purchase was a true-up of a prior purchase amount based on a recalculation of such amount.
SF Property Rent Payment Abatement
Effective as of May 1, 2020, for a period of two (2) months, tenant's monthly rent payment of $48,839.44 will be abated with regards to the Company’s SF Property investment as a result of COVID-19. Absent tenant's further default under the lease, the landlord will not charge any late fees or interest related to the deferred rent. Rent payments shall re-commence on July 1, 2020 pursuant to the existing lease terms and the two months of deferred rent will be repaid in equal parts over the period beginning July 1, 2020 and ending on December 1, 2020.
Status of the Offering
As of May 11, 2020, the Company had sold an aggregate of 5,930,054 shares of its common stock (consisting of 3,389,278 Class A shares, 1,412,819 Class T shares, and 1,127,957 Class I shares) in the Offering resulting in net proceeds of $146,317,849 to the Company as payment for such shares.
Distributions
On May 12, 2020, the Company’s board of directors authorized, and the Company declared, distributions for the period from May 15, 2020 to August 14, 2020, in an amount equal to $0.004253787 per day (or approximately $1.55 on an annual basis) per Class A share, Class I share and Class T share, less, for holders of Class T shares, the distribution fees that are payable with respect to Class T shares. The distributions are payable by the 5th business day following each month end to stockholders of record at the close of business each day during the prior month.
34
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about Rodin Global Property Trust, Inc.’s (the “Company”) business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. The Company’s actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed under “Risk Factors” in the Company’s Registration Statement on Form S-11 (File No. 333-214130) (the “Registration Statement”), under Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, and elsewhere in this Quarterly Report on Form 10-Q. The Company does not undertake to revise or update any forward-looking statements.
Forward-Looking Statements
This Form 10-Q contains forward-looking statements about the Company’s business, including, in particular, statements about the Company’s plans, strategies and objectives. You can generally identify forward-looking statements by the Company’s use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue” or other similar words. These statements include the Company’s plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond the Company’s control. Although the Company believes the assumptions underlying the forward-looking statements, and the forward-looking statements themselves, are reasonable, any of the assumptions could be inaccurate and, therefore, there can be no assurance that these forward-looking statements will prove to be accurate and the Company’s actual results, performance and achievements may be materially different from that expressed or implied by these forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by the Company or any other person that the Company’s objectives and plans, which the Company considers to be reasonable, will be achieved.
Factors that could cause the Company’s results to be materially different include, but are not limited to the following:
|
• |
the Company’s ability to successfully raise capital in the Offering (as defined below); |
|
• |
the Company’s dependence on the resources and personnel of Rodin Global Property Advisors, LLC (the “Advisor”), Cantor Fitzgerald Investors, LLC (“CFI”), and their affiliates, including the Advisor’s ability to source and close on attractive investment opportunities on the Company’s behalf; |
|
• |
the performance of the Advisor and CFI; |
|
• |
the Company’s ability to deploy capital quickly and successfully and achieve a diversified portfolio consistent with target asset classes; |
|
• |
the Company’s ability to access financing for its investments; |
|
• |
the Company’s liquidity; |
|
• |
the Company’s ability to make distributions to its stockholders, including from sources other than cash flow from operations; |
|
• |
the effect of paying distributions to stockholders from sources other than cash flow provided by operations; |
|
• |
the lack of a public trading market for the Company’s shares; |
|
• |
the impact of economic conditions on the tenants, borrowers and others who the Company depends on to make payments to it; |
|
• |
the Advisor’s ability to attract and retain sufficient personnel to support growth and operations; |
|
• |
the Company’s limited operating history; |
|
• |
difficulties in economic conditions generally and the real estate, debt, and securities markets specifically; |
|
• |
changes in the Company’s business or investment strategy; |
|
• |
environmental compliance costs and liabilities; |
35
|
• |
any failure in the Advisor’s due diligence to identify all relevant facts in the Company’s underwriting process or otherwise; |
|
• |
the impact of market and other conditions influencing the availability of equity versus debt investments and performance of the Company’s investments relative to its expectations and the impact on the actual return on invested equity, as well as the cash provided by these investments; |
|
• |
defaults on or non-renewal of leases by tenants, lease renewals at lower than expected rent, or failure to lease properties at all or on favorable rents and terms; |
|
• |
the degree and nature of the Company’s competition; |
|
• |
risks associated with using debt to fund the Company’s business activities, including re-financing and interest rate risks; |
|
• |
illiquidity of investments in the Company’s portfolio; |
|
• |
the Company’s ability to finance its transactions; |
|
• |
the effectiveness of the Company’s risk management systems; |
|
• |
information technology risks, including capacity constraints, failures, or disruptions in the Company’s systems or those of parties with which the Company interacts, including cybersecurity risks and incidents, privacy risk and exposure to potential liability and regulatory focus; |
|
• |
the Company’s ability to realize current and expected returns over the life of its investments; |
|
• |
the Company’s ability to maintain effective internal controls; |
|
• |
regulatory requirements with respect to the Company’s business, as well as the related cost of compliance; |
|
• |
risks associated with guarantees and indemnities related to the Company’s loans; |
|
• |
the Company’s ability to qualify and maintain its qualification as a REIT (as defined below) for U.S. federal income tax purposes and limitations imposed on the Company’s business by its status as a REIT; |
|
• |
changes in laws or regulations governing various aspects of the Company’s business and non-traded REITs generally, including, but not limited to, changes implemented by the Department of Labor, the Securities & Exchange Commission (the “SEC”), or FINRA and changes to laws governing the taxation of REITs; |
|
• |
the Company’s ability to maintain its exemption from registration under the Investment Company Act; |
|
• |
general volatility in domestic and international capital markets and economies; |
|
• |
effect of regulatory actions, litigation and contractual claims against the Company and its affiliates, including the potential settlement and litigation of such claims; |
|
• |
the impact of any conflicts arising among the Company and CFI and its affiliates; |
|
• |
the adequacy of the Company’s cash reserves and working capital; |
|
• |
increases in interest rates, operating costs and expenses, or greater than expected capital expenditures; |
|
• |
the full extent of the impact and effects of the recent outbreak of coronavirus (COVID-19) on the future financial performance of the Company and its tenants; |
|
• |
the timing of cash flows, if any, from the Company’s investments; and |
|
• |
other risks associated with investing in the Company’s targeted investments. |
The foregoing list of factors is not exhaustive. Factors that could have a material adverse effect on the Company’s operations and future prospects are set forth under Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. The factors set forth in the Risk Factors section could cause the Company’s actual results to differ significantly from those contained in any forward-looking statement contained in this quarterly report.
36
The Company is a Maryland corporation that has elected and qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with the taxable year ending December 31, 2017. The Company is externally managed by the Advisor, a Delaware limited liability company and wholly owned subsidiary of the Company’s sponsor, CFI. The Company is a commercial real estate company formed to invest in and manage a diversified portfolio of income-producing commercial properties and other real estate-related assets. The Company intends to invest primarily in the acquisition of single-tenant net leased commercial properties located in the U.S., United Kingdom and other European countries.
The Company was incorporated in the State of Maryland on February 2, 2016 under the name Rodin Global Access Property Trust, Inc. On September 12, 2016, the Company changed its name to Rodin Global Property Trust, Inc.
The Company plans to own substantially all of its assets and conduct its operations through the Operating Partnership. The Company is the sole general partner and limited partner of the Operating Partnership and CFI’s wholly owned subsidiary, Rodin Global Property Trust OP Holdings, LLC (the “Special Unit Holder”), is the sole special unit holder of the Operating Partnership.
On February 2, 2016, the Company was capitalized with a $200,001 investment by CFI through the purchase of 8,180 Class A shares. The Company has registered with the SEC an offering of up to $1.25 billion in shares of common stock, consisting of up to $1.0 billion in shares in the Company’s primary offering (“Primary Offering”) and up to $250 million in shares pursuant to its distribution reinvestment plan (the “DRP”, and together with the Primary Offering, the “Offering”). The Company’s Registration Statement was declared effective by the SEC on March 23, 2017. On May 18, 2017, the Company satisfied the minimum offering requirement as a result of the purchase of $2.0 million in Class I shares by CFI (the “Minimum Offering Requirement”). As of May 11, 2020, the Company had sold 3,272,921 Class A shares, 1,368,042 Class T shares, and 1,109,396 Class I shares of common stock in the Primary Offering, as well as 116,357 Class A shares, 44,777 Class T shares, and 18,561 Class I shares in the DRP for aggregate net proceeds of $146,317,849.
On March 20, 2020, the Company filed a registration statement on Form S-11 with the SEC for a proposed second public offering (the “Follow-On Offering”). In the Follow-On Offering, the Company intends to offer up to $1 billion in shares of common stock in a primary offering on a best efforts basis and $250 million in shares of common stock to be issued pursuant to a distribution reinvestment plan. Additionally, upon commencement of the Follow-On Offering, the Company intends to begin operating as a non-exchange traded perpetual-life REIT. On March 20, 2020, the Company’s board of directors extended the Offering until the effective date of the registration statement for the Follow-On Offering.
The Company determines its net asset value as of the end of each quarter. Net Asset Value (“NAV”), as defined, is calculated consistent with the procedures set forth in the Company’s prospectus and excludes any organization and offering expenses paid by the Advisor on the Company’s behalf (other than selling commissions, dealer manager fees and distribution fees) (“O&O Costs”), with such costs to be reflected in the Company’s NAV to the extent the Company reimburses the Advisor for these costs. The board of directors adjusts the offering prices of each class of shares such that the purchase price per share for each class equals the NAV per share as of the most recent valuation date, as determined on a quarterly basis, plus applicable upfront selling commissions and dealer manager fees, less the portion of selling commissions and all of the dealer manager fees paid by CFI (“Sponsor Support”), up to a total of 4.0% of gross offering proceeds from the sale of Class A shares and Class T shares, and up to a total of 1.5% of gross offering proceeds from the sale of Class I shares, incurred in connection with the Offering. The Company intends to publish any adjustment to the NAV and the corresponding adjustments to the offering prices of its shares ordinarily within 45 days after the end of the applicable fiscal quarter. As of March 31, 2020, the Company’s NAV was $23.74 per Class A share, $23.72 per Class T share and $23.74 per Class I share. Accordingly, effective May 20, 2020, the new offering price will be $24.99 per Class A share, $24.20 per Class T share and $23.74 per Class I share. For further discussion of the Company’s NAV calculation, please see “—Net Asset Value”.
The Company intends to invest primarily in the acquisition of single-tenant net leased commercial properties. The Company may also originate and invest in loans related to net leased commercial properties and invest in commercial real estate-related securities. All properties will be acquired by the Company and managed by the Advisor or its affiliates. The number and type of properties or real estate-related securities that the Company acquires will depend upon real estate market conditions, the amount of proceeds the Company raises in its offerings and other circumstances existing at the time the Company is acquiring such assets.
As of March 31, 2020, the Company had made the following investments:
|
• |
A retail property located in Grand Rapids, Michigan (the “GR Property”). |
|
• |
An office property located in Fort Mill, South Carolina (the “FM Property”). |
37
|
• |
A flex industrial property located in Lewisville, TX (the “Lewisville Property”). |
|
• |
A Delaware Statutory Trust, CF Net Lease Portfolio IV DST (the “DST”), which owns seven properties (individually, a “DST Property”, and collectively, the “DST Properties”). |
|
• |
CF Albertsons Lancaster, LLC (the “Pennsylvania SPE”), which made a preferred equity investment (the “Lancaster PE”) through a joint venture agreement to purchase a cold storage and warehouse distribution facility located in Denver, Pennsylvania (the “PA Property”). |
|
• |
CF Albertsons Chicago, LLC (the “Illinois SPE”), which originated a fixed rate, subordinate mezzanine loan (the “Chicago Jr Mezz”) for the acquisition of a cold storage and warehouse distribution facility located in Melrose Park, Illinois (the “IL Property”). |
|
• |
A majority interest in a joint venture with an unrelated third party (the “Battery Street SF JV”) that owns an office property located in San Francisco, California (the “SF Property”). |
|
• |
An industrial property located in Phoenix, Arizona (the “Buchanan Property”). |
The Company has no employees and has retained the Advisor to manage its affairs on a day-to-day basis. The Advisor’s responsibilities include, but are not limited to, providing real estate-related services, including services related to originating investments, negotiating financing, and providing property-level asset management services, property management services, leasing and construction oversight services and disposition services, as needed. The Advisor is a wholly owned subsidiary of CFI and therefore, the Advisor and CFI are related parties. The Advisor and its affiliates receive, as applicable, compensation, fees and expense reimbursements for services related to the investment and management of the Company’s assets. Such affiliated entities receive fees, expense reimbursements, and distributions (related to ownership of the Company’s common stock) as well as other compensation during the offering, acquisition, operational and liquidation stages.
The Company is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those referred to in this Quarterly Report on Form 10-Q.
Operating Highlights
First Quarter of 2020 Activity
|
• |
Issued approximately 460,147 shares of common stock in the Offering for gross proceeds of approximately $11.8 million. |
38
As of March 31, 2020, the Company owned interests in 13 real properties as described below:
Portfolio |
|
Ownership Percentage |
|
Location |
|
Number of Properties |
|
Square Feet |
|
|
Remaining Lease Term(1) |
|
Annualized Rental Income(2) |
|
|
Acquisition Date |
|
Purchase Price(3) |
|
|
||||||
Walgreens Grand Rapids ("GR Property") |
|
100 |
% |
|
Grand Rapids, MI |
|
1 |
|
|
14,552 |
|
|
12.3 years |
|
$ |
|
500,000 |
|
|
July 2017 |
|
$ |
|
7,936,508 |
|
|
CF Net Lease Portfolio IV DST ("DST Properties") |
|
100 |
% |
|
Various |
|
7 |
|
|
103,537 |
|
|
11.6 years |
|
$ |
|
2,323,749 |
|
|
September 2017 |
|
$ |
|
35,706,642 |
|
|
Daimler Trucks North America Office Building ("FM Property") |
|
100 |
% |
|
Fort Mill, SC |
|
1 |
|
|
150,164 |
|
|
8.7 years |
|
$ |
|
2,670,638 |
|
|
February 2018 |
|
$ |
|
40,000,000 |
|
|
Alliance Data Systems Office Building ("CO Property") |
|
100 |
% |
|
Columbus, OH |
|
1 |
|
|
241,493 |
|
|
12.4 years |
|
$ |
|
3,362,844 |
|
|
July 2018 |
|
$ |
|
46,950,000 |
|
|
Hoya Optical Labs of America ("Lewisville Property") |
|
100 |
% |
|
Lewisville, TX |
|
1 |
|
|
89,473 |
|
|
8.2 years |
|
$ |
|
937,060 |
|
|
November 2018 |
|
$ |
|
14,120,000 |
|
|
Williams Sonoma Office Building ("SF Property") |
|
75 |
% |
|
San Francisco, CA |
|
1 |
|
|
13,907 |
|
|
1.7 years |
|
$ |
|
582,860 |
|
|
September 2019 |
|
$ |
|
11,600,000 |
|
|
Martin Brower Industrial Buildings ("Buchanan Property") |
|
100 |
% |
|
Phoenix, AZ |
|
1 |
|
|
93,302 |
|
|
11.9 years |
|
$ |
|
1,083,444 |
|
|
November 2019 |
|
$ |
|
17,300,000 |
|
|
(1) Reflects number of years remaining until the tenant’s first termination option.
(2) Reflects the average annualized rental income for the lease.
(3) Reflects the contract purchase price at 100% ownership as opposed to adjusted for current ownership percentage as applicable.
As of March 31, 2020, all of the Company’s properties were 100% leased and occupied.
As of March 31, 2020, lease expirations related to the Company’s portfolio of real estate assets based on rental income were as follows:
|
• |
2016 – 2020 – 0% |
|
• |
2021 – 2025 – 1% |
|
• |
2026 – 2030 – 20% |
|
• |
After 2030 – 79% |
As of March 31, 2020, the industry concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Office – 50% |
|
• |
Industrial – 28% |
|
• |
Retail – 22% |
As of March 31, 2020, the geographic concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Ohio – 26% |
|
• |
South Carolina – 20% |
|
• |
Michigan – 10% |
|
• |
Arizona – 9% |
|
• |
Texas – 7% |
39
|
• |
Pennsylvania – 6% |
|
• |
California – 6% |
|
• |
Illinois – 6% |
|
• |
Arkansas – 3% |
As of March 31, 2020, the Company’s portfolio of real estate assets was leased to the following tenants based on square footage:
|
• |
Comenity Servicing LLC (a subsidiary of Alliance Data Systems Corporation) – 34% |
|
• |
Daimler – 21% |
|
• |
Walgreens – 17% |
|
• |
HOYA – 13% |
|
• |
Martin Brower – 13% |
|
• |
Williams Sonoma – 2% |
Note: |
Albertsons is the tenant of properties in which the Company has made an investment in real estate-related assets. The Company is invested in such properties indirectly through preferred equity and a mezzanine loan. Accordingly, Albertsons has been omitted from the above calculation detailing the Company’s tenant concentration. If Albertsons was included in the calculation as of March 31, 2020, Albertsons’ percentage of rentable square footage would be 82%. |
As of March 31, 2020, the market concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Data services – 24% |
|
• |
Pharmacy store – 22% |
|
• |
Truck manufacturing and distribution – 20% |
|
• |
Grocery – 12% |
|
• |
Food distribution – 9% |
|
• |
Optical laboratory – 7% |
|
• |
Fine home goods – 6% |
As of March 31, 2020, the Company owned the preferred equity investment described below:
Portfolio |
|
Original Investment Amount |
|
|
Preferred Return |
|
Number of Properties |
|
|
Square Feet |
|
|
Lease Expiration Date |
|
Acquisition Date |
|
Tenant Renewal Options |
|
||||
Denver, PA— Pref Equity Investment |
|
$ |
|
11,805,000 |
|
|
Ranging from 7.75% in 2019 to 8.74% in 2028 |
|
|
1 |
|
|
|
1,539,407 |
|
|
January 31, 2039 |
|
January 2019 |
|
9 extension options for 5 years each |
|
40
As of March 31, 2020, the Company owned the mezzanine loan investment described below:
Portfolio |
|
Original Loan Amount |
|
|
Annual Interest Rate Prior to Anticipated Repayment |
|
Number of Properties |
|
Square Feet |
|
|
Acquisition Date |
|
Initial Maturity Date |
|
Amortization |
|||
Melrose Park, IL—Mezz B Loan |
|
$ |
|
12,595,000 |
|
|
Ranging from 7.75% in 2019 to 8.74% in 2028 |
|
1 |
|
|
1,561,613 |
|
|
January 2019 |
|
January 6, 2034(1) |
|
Interest only |
(1) |
Anticipated repayment date is January 6, 2029. |
|
Related Party Transactions
We have entered into agreements with the Advisor, the Dealer Manager and CFI and its affiliates, whereby we pay certain fees and reimbursements to these entities during the various phases of our organization and operation. During the organization and offering stage, these include payments to the Dealer Manager for selling commissions, the dealer manager fee, distribution fees, and payments to the Advisor for reimbursement of organization and offering costs. During the acquisition and operational stages, these include payments for certain services related to the management and performance of our investments and operations provided to us by the Advisor and its affiliates pursuant to various agreements we have entered into with these entities. In addition, CFI has provided Sponsor Support in connection with the Offering, which is subject to reimbursement under certain circumstances. See Note 9 — Related Party Transactions in the Notes to the consolidated financial statements contained elsewhere in this Quarterly Report on Form 10-Q for additional information concerning our related party transactions and agreements.
Results of Operations
Rental Revenues
For the three months ended March 31, 2020 and March 31, 2019, the Company earned rental revenues of $3,069,547 and $1,923,220, respectively.
The Company’s rental revenues consist primarily of rental income from triple net leased commercial properties. The increase in rental revenues of $1,146,327 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to the acquisition of rental income-producing properties, namely the SF Property and the Buchanan Property.
Preferred Return Income
For the three months ended March 31, 2020 and March 31, 2019, the Company earned preferred return income of $234,546 and $0, respectively.
The Company’s preferred return income consists of preferred return accrued on the Company’s investment in the Pennsylvania SPE. The increase in preferred return income of $234,546 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was due to the consolidation of the Pennsylvania SPE.
Income from mezzanine loan investment
For the three months ended March 31, 2020 and March 31, 2019, the Company earned income from mezzanine loan investment of $250,242 and $0, respectively.
The Company’s income from mezzanine loan investment consists of interest income accrued on the Company’s investment in the Illinois SPE. The increase in mezzanine loan investment of $250,242, for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was due to the consolidation of the Illinois SPE.
Tenant Reimbursement Income
For the three months ended March 31, 2020 and March 31, 2019, the Company earned tenant reimbursement income of $421,159 and $375,913, respectively.
41
The tenant reimbursement income consists of amounts received by the Company from the tenants of its properties for reimbursable expenses paid by the Company on behalf of the tenants in accordance with the provisions of the respective property leases. The increase in tenant reimbursement income of $45,246 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to the acquisition of the SF Property and the Buchanan Property.
General and Administrative Expenses
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred general and administrative expenses of $54,765 and $143,228, respectively.
The general and administrative expenses consist primarily of operating expense reimbursements to the Advisor, accounting fees and other professional fees. Pursuant to the terms of the Advisory Agreement, the Company is obligated to reimburse the Advisor for certain operating expenses. Beginning October 1, 2018, the Company was subject to the limitation that it generally may not reimburse the Advisor for any amounts by which the total operating expenses at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of average invested assets (as defined in the Advisory Agreement) and (ii) 25% of net income other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of investments for that period (the “2%/25% Guidelines”).
The decrease in general and administrative expenses of $88,463 during the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was mainly due to a decrease in the amount of operating expenses incurred by the Company during such periods. As of March 31, 2020, the Advisor has incurred, on behalf of the Company, a total of $8,138,640 in Unreimbursed Operating Expenses, including a total of $694,417 for the three months ended March 31, 2020, for which the Advisor has not invoiced the Company for reimbursement.
Management Fees
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred management fees of $422,755 and $527,774, respectively.
Pursuant to the terms of the Advisory Agreement, the Company is required to pay to the Advisor a monthly asset management fee, and may pay a monthly property management fee to the Advisor or affiliate of the Advisor, if the Advisor or such affiliate serves as a property manager with respect to a particular property. Additionally, the Company may be required to reimburse certain expenses incurred by the Advisor in providing such asset management services, subject to limitations as set forth in the Advisory Agreement.
Asset management fees payable to the Advisor prior to September 2019 consisted of monthly fees equal to one-twelfth of 1.25% of the cost of the Company’s investments at the end of each month. Asset management fees payable to the Advisor as of September 2019 consist of monthly fees equal to one twelfth of 1.20% of the Company’s most recently disclosed NAV.
The decrease in management fees of $105,019 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was due to the above mentioned change in the calculation of the asset management fee effective September 2019, basing the calculation on NAV as opposed to the cost of the Company’s investments.
Property Operating Expenses
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred property operating expenses of $432,964 and $375,913, respectively.
The property operating expenses consist of reimbursable expenses paid by the Company on behalf of its tenants in accordance with the provisions of the respective property leases. The increase in property operating expenses of $57,051 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to the acquisition of the SF Property and the Buchanan Property.
Depreciation and Amortization
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred depreciation and amortization of $1,629,668 and $986,152, respectively.
42
The increase in depreciation and amortization expenses of $643,516 for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to the acquisition of the SF Property and the Buchanan Property.
Interest Expense
For the three months ended March 31, 2020 and March 31, 2019, the Company incurred interest expense of $979,350 and $614,234, respectively.
Interest expense is composed of interest paid and accrued on the Company’s outstanding loans payable, and also includes amortization of deferred financing costs.
The increase in interest expense of $365,116 during the three months ended March 31, 2020 as compared to the three months ended March 31, 2019, was primarily due to an increase of $31,755,692 in the aggregate amount of debt outstanding as of March 31, 2020, as compared to the amount outstanding as of March 31, 2019.
Interest Income
For the three months ended March 31, 2020 and March 31, 2019, the Company earned interest income of $46,084 and $20,507, respectively.
Interest income is composed of interest earned on interest bearing cash deposit accounts with banking institutions.
The increase in interest income of $25,577 during the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to an increase in the amount of cash and cash equivalents held in interest bearing deposit accounts with banking institutions.
Income from Investments in Real Estate-Related Assets
For the three months ended March 31, 2020 and March 31, 2019, the Company earned income from investments in real estate-related assets of $0 and $378,318, respectively.
The decrease in income from investments in real estate-related assets of $378,318 during the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was due to the consolidation of the DST, the Pennsylvania SPE and the Illinois SPE.
Funds from Operations and Modified Funds from Operations
The Company defines modified funds from operations (“MFFO”) in accordance with the definition established by the Institute for Portfolio Alternatives, or IPA. The Company’s computation of MFFO may not be comparable to other REITs that do not calculate MFFO using the current IPA definition. MFFO is calculated using funds from operations (“FFO”). The Company computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with accounting principles generally accepted in the United States, or U.S. GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, impairment charges on depreciable property owned directly or indirectly and after adjustments for unconsolidated/uncombined partnerships and joint ventures. FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company’s cash flow generated by operations. The Company’s computation of FFO may not be comparable to other REITs that do not calculate FFO in accordance with the current NAREIT definition. MFFO excludes from FFO the following items, as applicable:
|
• |
acquisition fees and expenses; |
|
• |
straight-line rent and amortization of above or below intangible lease assets and liabilities; |
|
• |
amortization of discounts, premiums and fees on debt investments; |
|
• |
non-recurring impairment of real estate-related investments; |
|
• |
realized gains (losses) from the early extinguishment of debt; |
|
• |
realized gains (losses) on the extinguishment or sales of hedges, foreign exchange, securities and other derivative holdings except where the trading of such instruments is a fundamental attribute of our business; |
43
|
• |
unrealized gains (losses) from the consolidation from, or deconsolidation to, equity accounting; |
|
• |
adjustments related to contingent purchase price obligations; and |
|
• |
adjustments for consolidated and unconsolidated partnerships and joint ventures calculated to reflect MFFO on the same basis as above. |
FFO and MFFO should not be considered as an alternative to net income (determined in accordance with U.S. GAAP) as an indication of performance. In addition, FFO and MFFO do not represent cash generated from operating activities determined in accordance with U.S. GAAP and are not a measure of liquidity. FFO and MFFO should be considered in conjunction with reported net income and cash flows from operations computed in accordance with U.S. GAAP, as presented in the financial statements.
The following table presents a reconciliation of FFO to net income:
|
|
Three Months Ended March 31, 2020 |
|
|
Net Income |
|
$ |
502,076 |
|
Adjustments: |
|
|
|
|
Real estate depreciation and amortization |
|
|
1,629,668 |
|
Funds from Operations |
|
$ |
2,131,744 |
|
The following table presents a reconciliation of FFO to MFFO:
|
Three Months Ended March 31, 2020 |
|
|
Funds from Operations |
$ |
2,131,744 |
|
Adjustments: |
|
|
|
Amortization of above-market lease intangibles |
|
7,574 |
|
Amortization of below-market lease intangibles |
|
(211,972 |
) |
Straight-line rent |
|
(143,429 |
) |
Modified Funds from Operations |
$ |
1,783,917 |
|
|
|
|
|
Net Asset Value
On May 12, 2020, the Company’s board of directors approved an estimated NAV as of March 31, 2020 of $23.74 for Class A and Class I shares, and $23.72 for Class T shares. The calculation of the Company’s estimated NAV was performed by Robert A. Stanger & Co., Inc. (“Stanger”), its independent valuation firm, in accordance with the procedures described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus and under the oversight of the Company’s board of directors. Although the independent valuation firm performs the calculation of the Company’s estimated NAV, the Company’s board of directors is solely responsible for the determination of the Company’s estimated NAV.
Summary of Methodology
In accordance with our current valuation procedures, our NAV was based in part upon: (i) the most recent appraised value of the GR Property, the FM Property, the CO Property, the Lewisville Property, the DST Properties, the SF Property and the Buchanan Property; (ii) the fair market value of our Debt Investments (as defined below); (iii) the fair market value of our loans payable; (iv) the estimated non-controlling interest held in our consolidated Battery Street SF JV; and (v) the net tangible assets and liabilities of the Company as of March 31, 2020, as outlined in more detail below.
44
Appraisal of Consolidated Real Estate
Pursuant to its valuation guidelines and reflecting the Company’s desire to produce a NAV that reflected the estimated impact of COVID-19 as of March 31, 2020 on its consolidated real estate, the Company engaged Stanger to provide its appraised market value of all of our consolidated real estate (the “Appraised Properties”) as of March 31, 2020. Pursuant to our engagement agreement with Stanger, the appraisals of the Appraised Properties were prepared utilizing the income approach to value, specifically using a direct capitalization analysis for the GR Property and the DST Properties and both a direct capitalization analysis and discounted cash flow analysis (“DCF”) for the FM Property, CO Property, Lewisville Property, SF Property and the Buchanan Property. In addition, a sales comparison approach was conducted for the SF Property, given the size of the SF Property. The direct capitalization analysis is based upon the estimated net operating income of the Appraised Properties capitalized at an appropriate capitalization rate considering property characteristics and competitive position, the credit profile of the tenant/guarantor under the leases encumbering the Appraised Properties, the terms of the leases encumbering the Appraised Properties, and market conditions as of the date of value. The DCF analysis is based upon multi-year cash flow projections for each applicable property prepared in accordance with the lease which currently encumbers each property. Each property was assumed to be sold after the expiration of the initial lease term and any renewal terms deemed materially favorable to the tenant, or for which exercise was deemed likely based on other factors. The reversion value of the property which can be realized upon sale is calculated based on the current economic rental rate deemed reasonable for the property, escalated at a rate indicative of current expectations in the marketplace for the property. The projected market rate net operating income of the property for the year following the year of sale is then capitalized at an appropriate capitalization rate reflecting the age and anticipated functional and economic obsolescence and competitive position of the property to determine its reversion value. Net proceeds of sale are determined by deducting estimated costs incurred at the time of sale, estimated at 2% of the gross reversion value. Finally, the discounted present value of the cash flow stream from operations (including any estimated releasing costs at the end of the assumed current lease term) and the discounted present value of the net proceeds from sale are summed to arrive at a total estimated value for the property. The capitalization rates applied to the Appraised Properties ranged from 5.00% to 6.50%, with a weighted average of approximately 6.10%. The discount rates applied to the estimated net cash flow from operations of the Appraised Properties for which a DCF analysis was conducted ranged from 5.75% to 7.50%, with a weighted average of approximately 6.90%. The discount rates applied to the estimated residual value of the Appraised Properties for which a DCF analysis was conducted ranged from 6.50% to 7.50%, with a weighted average of approximately 7.28%. The residual capitalization rates applied to the Appraised Properties for which a DCF analysis was conducted ranged from 5.75% to 7.00%, with a weighted average of approximately 6.72%. Where both a direct capitalization analysis and DCF was utilized, the indicated value from each approach was reviewed and a final appraised value was concluded. While a sales comparison approach was not conducted, other than for the SF Property, Stanger reviewed regional property sale data for each Appraised Property in order to assist in the selection of capitalization rates applied in the appraisals and to observe transaction prices per square foot in the Appraised Properties’ regional markets. For the SF Property, the sales comparison approach conducted utilized the price per square foot from recent market sales and adjusted such indicated price per square foot to a price per square foot deemed reasonable for the SF Property, taking into account factors such as property size, location, tenancy/occupancy and condition/quality and the date of sale. The aggregate appraised value of the Appraised Properties was $175,720,000. The appraised values of the Appraised Properties are subject to the general assumptions and limiting conditions set forth in the appraisal reports rendered to the Company by Stanger.
In accordance with the Company’s valuation procedures, the Lancaster PE and the Chicago Jr Mezz (individually a “Debt Investment” and collectively the “Debt Investments”) were included in the determination of NAV at their estimated fair market value as of March 31, 2020, as determined by Stanger, adjusted to reflect the Company’s interest in the Debt Investments. The Debt Investments estimated value was based upon taking, for each Debt Investment, the loan payments over the remaining anticipated term and discounting such payments to present value at a discount rate range equal to the current estimated market interest rate on financing similar to the applicable Debt Investments. To provide their opinion of value of the Debt Investments, Stanger first reviewed the terms of each of the Debt Investments as contained in the loan documents. Stanger then reviewed mezzanine loan market terms at or around March 31, 2020 to ascertain current market interest rate levels for loans similar to the Debt Investments. This review was conducted by (i) recent interviews of participants in the mezzanine / preferred equity market, (ii) reviewing recent mezzanine loan transactions, as available, and (iii) reviewing published surveys available at or around March 31, 2020. Based on Stanger’s reviews above and taking into consideration the Debt Investments’ unique factors, including, but not limited to, loan-to-value (based on the appraised value of the collateral), debt service coverage/debt yield, collateral property type, age and location, financial information pertaining to the lessee of the collateral properties, prepayment terms, and loan origination date, maturity date and extension terms, a market interest rate range was determined for each Debt Investment to utilize in the determination of the fair market value of the Debt Investments. The discount rate applied to the future payments of our Debt Investments was 9.00% for both facilities. The aggregate fair value of the Debt Investments was approximately $23,475,000.
45
Estimated Market Value of the Non-Controlling Interest in the Battery Street SF JV
In order to determine the net asset value attributable to the non-controlling interest and promote interest in the Battery Street SF JV, Stanger utilized the appraisal of the SF Property, and then, based on the March 31, 2020 Battery Street SF JV balance sheet provided, added tangible assets and deducted tangible liabilities of the Battery Street SF JV, including an adjustment for anticipated near term capital repairs at the SF Property not considered in the property appraisal, and determined any promote due to the Company’s Battery Street SF JV partner. This net asset value was then multiplied by the ownership interest held by parties other than the Company (25%) to determine the non-controlling interest adjustment related to the Battery Street SF JV utilized in the Company’s March 31, 2020 NAV.
Fair Value of Long Term Debt
Stanger performed a valuation of the property-level debt by reviewing available market data for comparable liabilities and applying a selected discount rate to the stream of future debt payments. The discount rate was selected based on several factors including U.S. Treasury yields as of the valuation date, as well as loan-specific items such as loan-to-value ratio, debt service coverage ratio, collateral property location, age, type, lease term and lessee credit quality, prepayment terms, and maturity and loan origination date. The discount rates applied to the future debt payments of our long-term debt ranged from 3.90% to 4.45%, with a weighted average of approximately 4.37%. Stanger’s valuation of the long-term debt is based in part on the appraised values of the encumbered Appraised Properties, which represent the collateral associated with the long-term debt as well as certain other assumptions and limiting conditions, including: (i) Stanger was provided with loan documents and other factual loan information by the Advisor and has relied upon and assumed that such information is correct in all material respects and no warranty is given by Stanger as to the accuracy of such information; (ii) each collateral property is assumed to be free and clear of liens (other than the mortgage being valued); (iii) information furnished by others, upon which all or portions of Stanger’s value opinion is based, is believed to be reliable but has not been verified, and no warranty is given as to the accuracy of such information; and (iv) each mortgage is assumed to be salable, transferable or assumable between parties and is further assumed not to be in default. Stanger’s opinion of the long-term debt value was predicated on the above assumptions.
Estimated NAV
In performing the calculation of the estimated NAV, Stanger added the appraised values of the Appraised Properties, the fair value of the Debt Investments and other tangible assets of the Company, consisting of cash and equivalents, receivables and other assets, and subtracted the estimated fair market value of the Company’s long-term debt, the value of the non-controlling interest in the Battery Street SF JV (including any promote due to the Company’s joint venture partner), the anticipated near-term capital needs of the SF Property, and other tangible liabilities of the Company, consisting of accounts payable and accrued expenses, but excluding amounts owed to the Advisor for reimbursement of O&O Costs less the current accrued O&O Costs liability (consistent with our valuation procedures), and considered any other amounts due to the Advisor or affiliates for repayment of the Sponsor Support or amounts due to the Special Unit Holder upon certain events, including liquidation of the Company to produce an estimated NAV as of March 31, 2020, consistent with the procedures described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus, of $23.74 per share for Class A and Class I shares, and $23.72 for Class T shares.
The determination of NAV involves a number of assumptions and judgments, including estimates of the Advisor’s interest in disposition proceeds (if any). These assumptions and judgments may prove to be inaccurate. There can be no assurance that a stockholder would realize $23.74 per Class A and Class I share or $23.72 per Class T share if the Company were to liquidate or engage in another type of liquidity event today. In particular, the Company’s March 31, 2020 NAV does not consider fees or expenses that may be incurred in providing a liquidity event, including reimbursement of amounts to the Advisor for O&O Costs and any operating expenses that have not been invoiced by the Advisor in accordance with the terms of the Advisory Agreement. Furthermore, as discussed in “PART II — OTHER INFORMATION; Item 1A. – Risk Factors”, the full extent of the impact and effects of COVID-19 on the Company, as a whole, and on its tenants and its consolidated real estate and loan investments are uncertain at this time. Due to COVID-19, as of March 31, 2020, there was not a current active non-distressed market for loan investments like the Debt Investments held by the Company, and the market for real estate assets and senior mortgage debt was limited. Therefore, there can be no assurance that the estimated market value of the Appraised Properties and Debt Investments would materially equal the gross amount realized if such investments were sold by the Company at March 31, 2020, or that the market interest rates used to value the Company’s long-term debt would materially equal the interest rates available in the debt markets for similar long-term debt. We believe the methodology of determining the Company’s NAV conforms to the Institute for Portfolio Alternative’s Practice Guideline for Valuations of Publicly Registered Non-Listed REITs (April 2013) and is prepared in accordance with the procedure described in the “Net Asset Value Calculation and Valuation Procedures” section of the Company’s prospectus. In addition, the Company’s board of directors periodically reviews the Company’s NAV policies and procedures.
46
The purchase price per share for each class of the Company’s common stock will generally equal the prior quarter’s NAV per share, as determined quarterly, plus applicable selling commissions and dealer manager fees. The NAV for each class of shares is based on the value of the Company’s assets and the deduction of any liabilities, and any distribution fees applicable to such class of shares.
The following table provides a breakdown of the major components of the Company’s NAV:
Components of NAV |
|
March 31, 2020 |
|
|
Investment in real estate |
|
$ |
175,720,000 |
|
Investments in real estate-related assets |
|
|
23,475,373 |
|
Cash and cash equivalents(1) |
|
|
27,766,366 |
|
Other assets |
|
|
939,855 |
|
Debt obligations |
|
|
(85,214,088 |
) |
Due to related parties(2) |
|
|
(415,675 |
) |
Accounts payable and other liabilities |
|
|
(1,961,711 |
) |
Distribution fee payable the following month(3) |
|
|
(26,007 |
) |
Non-controlling interests in subsidiaries |
|
|
(3,214,108 |
) |
Sponsor Support repayment / special unit holder interest in liquidation |
|
|
— |
|
Net Asset Value |
|
$ |
137,070,005 |
|
Number of outstanding shares |
|
|
5,775,212 |
|
Note: |
(1) Net of a reserve of $210,000 for anticipated near-term capital needs (“Deferred Maintenance”) at the SF Property that was not deducted in its appraised value. |
(2) Excluding $689,603 due to the Advisor for reimbursement of O&O Costs ($747,070 less the current liability due of $57,467).
(3) Distribution fee only relates to Class T shares of common stock.
NAV Per Share |
|
Class A Shares |
|
|
Class T Shares |
|
|
Class I Shares |
|
|
Total |
|
||||
|
$ |
130,612,812 |
|
|
$ |
54,960,072 |
|
|
$ |
42,328,710 |
|
|
$ |
227,901,594 |
|
|
Distribution fees due and payable |
|
|
— |
|
|
|
(26,007 |
) |
|
|
— |
|
|
|
(26,007 |
) |
Debt obligations |
|
|
(48,837,094 |
) |
|
|
(20,549,977 |
) |
|
|
(15,827,017 |
) |
|
|
(85,214,088 |
) |
Due to related parties |
|
|
(238,229 |
) |
|
|
(100,242 |
) |
|
|
(77,204 |
) |
|
|
(415,675 |
) |
Accounts payable and other liabilities |
|
|
(1,124,278 |
) |
|
|
(473,081 |
) |
|
|
(364,352 |
) |
|
|
(1,961,711 |
) |
Non-controlling interests in subsidiaries |
|
|
(1,842,039 |
) |
|
|
(775,105 |
) |
|
|
(596,964 |
) |
|
|
(3,214,108 |
) |
Quarterly NAV |
|
$ |
78,571,172 |
|
|
$ |
33,035,660 |
|
|
$ |
25,463,173 |
|
|
$ |
137,070,005 |
|
Number of outstanding shares |
|
|
3,309,835 |
|
|
|
1,392,733 |
|
|
|
1,072,644 |
|
|
|
5,775,212 |
|
NAV per share |
|
$ |
23.74 |
|
|
$ |
23.72 |
|
|
$ |
23.74 |
|
|
|
|
|
The following table reconciles stockholders’ equity per the Company’s unaudited consolidated balance sheet to the Company’s NAV:
Reconciliation of Stockholders’ Equity to NAV |
|
March 31, 2020 |
|
|
Stockholders’ equity under U.S. GAAP |
|
$ |
137,233,377 |
|
Adjustments: |
|
|
|
|
Unrealized depreciation of real estate |
|
|
(3,126,881 |
) |
Unrealized depreciation of real estate-related assets |
|
|
(924,627 |
) |
Organization and offering costs |
|
|
689,603 |
|
Acquisition costs |
|
|
(1,179,154 |
) |
Deferred financing costs, net |
|
|
(822,460 |
) |
Accrued distribution fee(1) |
|
|
877,538 |
|
Accumulated depreciation and amortization |
|
|
7,161,264 |
|
Fair value adjustment of debt obligations |
|
|
(1,068,904 |
) |
Deferred rent receivable |
|
|
(1,369,292 |
) |
Deferred maintenance |
|
|
(210,000 |
) |
Non-controlling interests in subsidiaries |
|
|
(190,459 |
) |
NAV |
|
$ |
137,070,005 |
|
Note: |
(1) Accrued distribution fee only relates to Class T shares of common stock. |
47
The following details the adjustments to reconcile U.S. GAAP stockholders’ equity to the Company’s NAV:
Unrealized depreciation of real estate
Our investments in real estate are presented at historical cost, including acquisition costs, in our U.S. GAAP consolidated financial statements. As such, any increases or decreases in the fair market value of our investments in real estate are not included in our U.S. GAAP results. For purposes of determining our NAV, our investments in real estate are presented at fair value.
Unrealized depreciation of real estate-related assets
Our investments in real estate-related assets are presented at historical cost, including acquisition costs, in our U.S. GAAP consolidated financial statements. As such, any increases or decreases in the fair market value of our investments in real estate-related assets are not included in our U.S. GAAP results. For purposes of determining our NAV, our investments in real estate-related assets are presented at fair value.
Organization and offering costs
The Advisor has agreed to pay, on behalf of the Company, all O&O Costs through the Escrow Break Anniversary. Such costs are being reimbursed to the Advisor, ratably, by the Company, over 36 months beginning on May 19, 2018, subject to the 1% Cap. After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred, but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor subject to the 1% Cap. As of March 31, 2020, the Advisor has continued to pay all O&O Costs on behalf of the Company. Under U.S. GAAP, the Company's reimbursement liability pertaining to the O&O Costs is recorded as a component of due to related parties in the Company’s unaudited consolidated balance sheet. For NAV, such costs are recognized as a reduction in NAV as they are reimbursed.
Acquisition costs
The Company capitalizes acquisition costs incurred with the acquisition of its investments in real estate in accordance with U.S. GAAP. Such acquisition costs are not included in the value of real estate investments for purposes of determining NAV.
Costs incurred in connection with obtaining financing are capitalized and amortized over the term of the related loan in accordance with U.S. GAAP. Such deferred financing costs are not included in the value of debt for purposes of determining NAV.
Accrued distribution fee
Accrued distribution fee represents the accrual for the full cost of the distribution fee for Class T shares. Under U.S. GAAP the Company accrued the full cost of the distribution fee as an offering cost at the time it sells the Class T shares. For purposes of NAV the Company recognizes the distribution fee as a reduction of NAV on a quarterly basis as such fee is due.
Accumulated depreciation and amortization
The Company depreciates its investments in real estate and amortizes certain other assets and liabilities in accordance with U.S. GAAP. Such depreciation and amortization is not considered for purposes of determining NAV.
Fair value adjustment of debt obligations
Our debt obligations are presented at historical cost in our U.S. GAAP consolidated financial statements. As such, any increases in the fair value of our debt obligations are not included in our U.S. GAAP results. For purposes of determining our NAV, our debt obligations are presented at fair value.
Deferred rent receivable
Deferred rent receivable represents rent earned in excess of rent received as a result of straight-lining rents over the term of the lease on certain of the Company’s properties. Such deferred rent receivable is not considered for purposes of determining NAV.
48
Deferred Maintenance represents identified near-term capital needs at the SF Property that were not included in the SF Property appraisal due to the anticipated timing of addressing these capital needs. Such Deferred Maintenance was shown as a charge against cash reserves held by the consolidated Battery Street SF JV in the determination of NAV.
Non-controlling interests in subsidiaries
Non-controlling interests in subsidiaries represents the equity ownership in a consolidated subsidiary which is not attributable to the Company. The interests are presented at fair value for purposes of determining our NAV.
Sensitivity Analysis
Assuming all other factors remain unchanged, the table below presents the estimated increase or decrease to our March 31, 2020 NAV for a change in the going-in capitalization rate and, where a DCF analysis was utilized, discount rates and terminal capitalization rates used in the Appraised Properties’ appraisals, a 5% change in the discount rates used to value our Debt Investments and a 5% change in the discount rates used to value our long-term debt:
Sensitivity Analysis |
|
Range of NAV (Class A & I) |
|
|
Range of NAV (Class T) |
|
||||||||||||||||||
|
|
Low |
|
|
Concluded |
|
|
High |
|
|
Low |
|
|
Concluded |
|
|
High |
|
||||||
Estimated Per Share NAV |
|
$ |
21.89 |
|
|
$ |
23.74 |
|
|
$ |
25.73 |
|
|
$ |
21.88 |
|
|
$ |
23.72 |
|
|
$ |
25.71 |
|
Capitalization Rate - Appraised Properties |
|
|
6.40 |
% |
|
|
6.10 |
% |
|
|
5.79 |
% |
|
|
6.40 |
% |
|
|
6.10 |
% |
|
|
5.79 |
% |
Cash Flow Discount Rate - Appraised Properties |
|
|
7.25 |
% |
|
|
6.90 |
% |
|
|
6.56 |
% |
|
|
7.25 |
% |
|
|
6.90 |
% |
|
|
6.56 |
% |
Residual Discount Rate - Appraised Properties |
|
|
7.64 |
% |
|
|
7.28 |
% |
|
|
6.92 |
% |
|
|
7.64 |
% |
|
|
7.28 |
% |
|
|
6.92 |
% |
Terminal Capitalization Rate - Appraised Properties |
|
|
7.06 |
% |
|
|
6.72 |
% |
|
|
6.38 |
% |
|
|
7.06 |
% |
|
|
6.72 |
% |
|
|
6.38 |
% |
Discount Rate - Debt Investments |
|
|
9.45 |
% |
|
|
9.00 |
% |
|
|
8.55 |
% |
|
|
9.45 |
% |
|
|
9.00 |
% |
|
|
8.55 |
% |
Discount Rate - Long-Term Debt Consolidated |
|
|
4.15 |
% |
|
|
4.37 |
% |
|
|
4.59 |
% |
|
|
4.15 |
% |
|
|
4.37 |
% |
|
|
4.59 |
% |
Liquidity and Capital Resources
The Company is dependent upon the net proceeds from the Offering to conduct its principal operations. The Company will obtain the capital required to purchase real estate and real estate-related investments and conduct its operations from the proceeds of the Offering, any future offerings, from secured or unsecured financings from banks and other lenders and from any undistributed funds from its operations.
If the Company is unable to raise substantial funds in the Offering, it will make fewer investments resulting in less diversification in terms of the type, number and size of investments it makes and the value of an investment in the Company will fluctuate with the performance of the limited assets it acquires. Further, the Company will have certain fixed operating expenses, including certain expenses as a REIT, regardless of whether it is able to raise substantial funds in the Offering. The Company’s inability to raise substantial funds would increase its fixed operating expenses as a percentage of gross income, reducing its net income and limiting its ability to make distributions. As of March 31, 2020, the Company has raised gross proceeds of $148,874,025 in the Offering.
The Company uses debt financing as a source of capital. The Company’s charter limits the Company from incurring debt if the Company’s borrowings exceed 300% of the cost of the Company’s net assets, which is estimated to approximate 75% of the cost of its tangible assets (before deducting depreciation or other non-cash reserves), though the Company may exceed this limit under certain circumstances. Once the Company has fully deployed the proceeds of the Offering, the Company expects its debt financing and other liabilities may likely be approximately 50% of the cost of its tangible assets (before adjusting for depreciation or other non-cash reserves), although it may exceed this level during the offering stage.
As of March 31, 2020, the Company’s debt to tangible assets ratio was 40.4%. See Note 7 – Loans Payable of our outstanding debt arrangement as of March 31, 2020.
49
In addition to making investments in accordance with its investment objectives, the Company uses its capital resources to make certain payments to the Advisor and Dealer Manager. In conjunction with the Primary Offering, payments are made to the Dealer Manager for selling commissions, dealer manager fees, and distribution fee payments. With regards to the total organization and offering costs, including selling commissions, dealer manager fees, distribution fees and reimbursement of other organization and offering costs, will not exceed 15% of the gross proceeds of the Offering, including proceeds from sales of shares under the Company’s DRP. Additionally, the Company expects to make payments to the Advisor in connection with the management of its assets and costs incurred by the Advisor in providing services to the Company.
The Company anticipates that over time adequate cash will be generated from operations to fund its operating and administrative expenses, continuing debt service obligations and the payment of distributions. However, the Company’s ability to finance its operations is subject to some uncertainties. The Company’s ability to generate working capital is dependent on its ability to attract and retain tenants, investments that generate cash flow, and the economic and business environments of the various markets in which the Company’s properties will be located. The Company’s ability to sell its assets is partially dependent upon the state of real estate markets and the ability of purchasers to obtain financing at reasonable commercial rates.
Cash Flows
The following table provides a breakdown of the net change in the Company’s cash and cash equivalents:
|
|
Three Months Ended March 31, 2020 |
|
|
Cash flows from operating activities |
|
$ |
1,431,044 |
|
Cash flows from investing activities |
|
|
— |
|
Cash flows from financing activities |
|
|
9,240,321 |
|
Increase in cash and cash equivalents |
|
$ |
10,671,365 |
|
Operating Activities
During the three months ended March 31, 2020, net cash provided by operating activities was $1,431,044, compared to $331,826 of net cash used in operating activities for the three months ended March 31, 2019. The change was primarily due to an increase in net income of $451,419, an increase in depreciation and amortization expenses related to real estate assets and liabilities and deferred financing costs totaling $508,256, a net increase in working capital accounts of $710,226, and a decrease in gains from investments in real-estate related assets of $378,318, offset by a decrease in proceeds from investments in real estate-related assets of $285,349 (see “—Results of Operations”).
Investing Activities
Net cash used in investing activities was $0 for the three months ended March 31, 2020, compared to $17,080,113 for the three months ended March 31, 2019. The change was due to a decrease in purchases of interest in real estate-related assets of $17,080,113.
Financing Activities
During the three months ended March 31, 2020, net cash provided by financing activities was $9,240,321, compared to $12,640,588 for the three months ended March 31, 2019. The change was primarily due to a decrease in proceeds from common stock issued of $2,297,744, an increase in distributions of $465,364, an increase in payments for redemptions of common stock of $620,659, and an increase in non-controlling interest distributions of $16,500.
Distributions
The Company’s board of directors has authorized, and the Company has declared, distributions through August 14, 2020, in an amount equal to $0.004253787 per day (or approximately $1.55 on an annual basis) per Class A share, Class I share and Class T share, less, for holders of Class T shares, the distribution fees that are payable with respect to Class T shares. The distributions are payable by the 5th business day following each month end to stockholders of record at the close of business each day during the prior month.
50
The amount of distributions payable to the Company’s stockholders is determined by the board of directors and is dependent on a number of factors, including funds available for distribution, the Company’s financial condition, capital expenditure requirements, requirements of Maryland law and annual distribution requirements needed to qualify and maintain its status as a REIT. The Company’s board of directors may reduce the amount of distributions paid or suspend distribution payments at any time, and therefore distribution payments are not assured.
To ensure that the Company has sufficient funds to cover cash distributions authorized and declared during the Offering, the Company and CFI entered into the Distribution Support Agreement. The terms of the agreement provide that in the event that cash distributions exceed MFFO, defined as a supplemental measure to reflect the operating performance of a non-traded REIT, for any calendar quarter through March 23, 2019, CFI shall purchase Class I shares from the Company in an amount equal to the distribution shortfall, up to $5 million (less the $2.0 million of shares purchased by CFI in order to satisfy the Minimum Offering Requirement). In addition to the shares purchased to satisfy the Minimum Offering Requirement, as of March 31, 2020, CFI has purchased $1,107,656 in Class I shares pursuant to the Distribution Support Agreement. As of March 31, 2020, CFI’s remaining obligation pursuant to the Distribution Support Agreement is limited to $1,892,344.
Under the terms of the Distribution Support Agreement, if the cash distributions the Company pays for any calendar quarter exceed the Company’s MFFO for such quarter, CFI will purchase Class I shares following the end of such calendar quarter for a purchase price equal to the distribution shortfall. The distribution shortfall is defined in the Distribution Support Agreement as the amount by which the distributions paid on such shares exceed the MFFO for such quarter. In such instance, the Company may be paying distributions from proceeds of the shares purchased by CFI or its affiliates, not from cash flow from operations. Class I shares purchased by CFI pursuant to the Distribution Support Agreement will be eligible to receive all distributions payable by the Company with respect to Class I shares.
The following table summarizes the Company’s distributions declared during the three months ended March 31, 2020 and March 31, 2019.
|
|
Three Months Ended March 31, 2019 |
|
|
Three Months Ended March 31, 2020 |
|
|||||||||||
|
|
Amount |
|
|
Percent |
|
|
Amount |
|
|
Percent |
|
|||||
Distributions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in cash |
|
$ |
403,240 |
|
|
|
30 |
% |
|
$ |
861,068 |
|
|
|
42 |
% |
|
Payable |
|
|
497,096 |
|
|
|
36 |
% |
|
|
721,496 |
|
|
|
35 |
% |
|
Reinvested in shares |
|
|
468,426 |
|
|
|
34 |
% |
|
|
475,817 |
|
|
|
23 |
% |
|
Total distributions |
|
$ |
1,368,762 |
|
|
|
100 |
% |
|
$ |
2,058,381 |
|
|
|
100 |
% |
|
Sources of Distributions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows |
|
$ |
— |
|
|
|
0 |
% |
|
$ |
1,431,044 |
|
|
|
70 |
% |
|
Offering proceeds pursuant to Distribution Support Agreement(1) |
|
|
— |
|
|
|
0 |
% |
|
|
— |
|
|
|
0 |
% |
|
Offering proceeds |
|
|
1,368,762 |
|
|
|
100 |
% |
|
|
627,337 |
|
|
|
30 |
% |
|
Total sources of distributions |
|
$ |
1,368,762 |
|
|
|
100 |
% |
|
$ |
2,058,381 |
|
|
|
100 |
% |
|
|
Note: |
(1) Pursuant to the Distribution Support Agreement, CFI will purchase Class I shares to the extent cash distributions exceed MFFO within 15 business days following the Company’s filing with the SEC of its periodic report for such calendar quarter or year. |
During the three months ended March 31, 2020 the Company declared $2,058,381 of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $1,783,917 for the three months ended March 31, 2020, and the Company’s total aggregate net income of $502,076 for that period.
During the three months ended March 31, 2019 the Company declared $1,368,762 of distributions to its shareholders (including those reinvested in shares pursuant to the DRP), compared to the Company’s total aggregate MFFO of $867,901, and the Company’s total aggregate net income of $50,657 for that period.
51
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. The Company intends to operate in such a manner to qualify for taxation as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify or remain qualified as a REIT. In order to qualify and continue to qualify for taxation as a REIT, the Company generally must distribute annually at least 90% of the Company’s REIT taxable income. REITs are subject to a number of other organizational and operational requirements, including asset, income, share ownership, minimum distribution and other requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, as well as federal income and excise taxes on its undistributed income.
Critical Accounting Policies
Below is a discussion of the accounting policies that management believes are critical to the Company’s principal operations. The Company considers these policies critical because they involve significant judgments and assumptions, and they require estimates about matters that are inherently uncertain and they are important for understanding and evaluating the Company’s reported financial results. The accounting policies have been established to conform with U.S. GAAP. The preparation of the financial statements in accordance with U.S. GAAP requires management to use judgments in the application of such policies. These judgments affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in the Company’s financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of the Company’s results of operations to those of companies in similar businesses.
Reimbursement of Organization and Offering Costs
The Advisor has agreed to pay, on behalf of the Company, all O&O Costs through the Escrow Break Anniversary. The Company was not required to reimburse the Advisor for payment of the O&O Costs prior to the Escrow Break Anniversary. After the Escrow Break Anniversary, the Advisor, in its sole discretion, may pay some or all of the additional O&O Costs incurred, but is not required to do so. To the extent the Advisor pays such additional O&O Costs, the Company is obligated to reimburse the Advisor subject to the 1% Cap. Following the Escrow Break Anniversary, the Company began reimbursing the Advisor for payment of the O&O Costs on a monthly basis, which will continue through the period ended May 18, 2021; provided, however, that the Company will not be obligated to pay any amounts that as a result of such payment would cause the aggregate payments for O&O Costs (less selling commissions, dealer manager fees and distribution fees) paid to the Advisor to exceed the 1% Cap as of such payment date. Any amounts not reimbursed in any period are included in determining any reimbursement for a subsequent period. As of March 31, 2020, the Advisor has continued to pay all O&O Costs on behalf of the Company.
Variable Interest Entities
A Variable Interest Entity (“VIE”) is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes both a qualitative and quantitative analysis. The Company bases the qualitative analysis on the Company’s review of the design of the entity, its organizational structure including decision-making ability and relevant financial agreements and the quantitative analysis on the forecasted cash flow of the entity. The Company reassesses the initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events. A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s economic performance and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. The Company determines whether it is the primary beneficiary of a VIE by considering qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for the Company or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the Company’s business activities and other interests. The Company reassesses the determination of whether it is the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the current and future fair value and performance of investments held by these VIEs and general market conditions. As of March 31, 2020, the Company concluded that it had investments in VIEs, and because the Company was deemed the primary beneficiary it consolidated such entities, as described in “Note 10 — Variable Interest Entities” in its accompanying unaudited consolidated financial statements included in Item 1. “Financial Statements (Unaudited) and Supplementary Data.”
52
A voting interest entity is an entity in which the total equity investment at risk is sufficient to enable it to finance its activities independently and the equity holders have the power to direct the activities of the entity that most significantly impact its economic performance, the obligation to absorb the losses of the entity and the right to receive the residual returns of the entity. The usual condition for a controlling financial interest in a voting interest entity is ownership of a majority voting interest. If the Company has a majority voting interest in a voting interest entity, the entity will generally be consolidated. The Company will not consolidate a voting interest entity if there are substantive participating rights by other parties and/or kick-out rights by a single party. The Company performs on-going reassessments of whether entities previously evaluated under the voting interest framework have become VIEs, based on certain events, and therefore subject to the VIE consolidation framework, and vice versa.
Accounting for Investments
Operating Real Estate
Operating real estate will be carried at historical cost less accumulated depreciation. The Company follows the purchase method for an acquisition of operating real estate, where the purchase price is allocated to tangible assets such as land, building, tenant and land improvements and other identified intangibles. Major replacements and betterments which improve or extend the life of the asset are capitalized and depreciated over their useful life. Ordinary repairs and maintenance will be expensed as incurred. Operating real estate is depreciated using the straight-line method over the estimated useful lives of the assets.
Real Estate Debt Investments
Real estate debt investments will be generally intended to be held to maturity and, accordingly, will be carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments. Real estate debt investments that are deemed to be impaired will be carried at amortized cost less a loan loss reserve, if deemed appropriate. Real estate debt investments where the Company does not have the intent to hold the loan for the foreseeable future or until its expected payoff will be classified as held for sale and recorded at the lower of cost or estimated value.
Revenue Recognition
Operating Real Estate
Rental and other income from operating real estate is derived from leasing of space to various types of tenants. The leases are for fixed terms of varying length and generally provide for annual rentals and expense reimbursements to be paid in monthly installments. Rental income from leases is recognized on a straight-line basis over the term of the respective leases.
Real Estate Debt Investments
Interest income is recognized on an accrual basis and any related premium, discount, origination costs and fees will be amortized over the life of the investment using the effective interest method. The amortization will be reflected as an adjustment to interest income in earnings. The amortization of a premium or accretion of a discount will be discontinued if such loan is reclassified to held for sale.
Income Taxes
The Company has elected and qualified to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the Company will not be subject to U.S. federal income tax with respect to the portion of the Company’s income that meets certain criteria and is distributed annually to stockholders. The Company intends to operate in a manner that allows it to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. The Company will monitor the business and transactions that may potentially impact the Company’s REIT status. If the Company were to fail to meet these requirements, it could be subject to U.S. federal income tax on the Company’s taxable income at regular corporate rates. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. The Company would also be disqualified for the four taxable years following the year during which qualification was lost unless the Company was entitled to relief under specific statutory provisions.
53
The Company provides for uncertain tax positions based upon management’s assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Because assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from the Company’s estimates under different assumptions or conditions. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in “Provision for income taxes” in the consolidated statement of operations.
See Note 2 – Summary of Significant Accounting Policies in the accompanying unaudited consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on other accounting policies.
Recent Accounting Pronouncements
See Note 2 – Summary of Significant Accounting Policies in the accompanying unaudited consolidated financial statements included in Part I, Item 1.
Emerging Growth Company
The Company is and will remain an “Emerging Growth Company,” as defined in the JOBS Act, until the earliest to occur of (i) the last day of the fiscal year during which the Company’s total annual gross revenues equal or exceed $1 billion (subject to adjustment for inflation); (ii) the last day of the fiscal year following the fifth anniversary of the Primary Offering; (iii) the date on which the Company has, during the previous three-year period, issued more than $1 billion in non-convertible debt; or (iv) the date on which the Company is deemed a large accelerated filer under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Additionally, the Company is eligible to take advantage of certain other exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in the Company’s periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company has chosen to “opt out” of that extended transition period and as a result the Company will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that the Company’s decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable. Otherwise, the Company has not yet made a decision whether to take advantage of any or all of the exemptions available to it under the JOBS Act.
Inflation
Some of the Company’s leases with tenants may contain provisions designed to mitigate the adverse impact of inflation. These provisions generally increase rental rates during the term of the leases either at fixed rates or indexed escalations (based on the Consumer Price Index or other measures). The Company may be adversely impacted by inflation on the leases that do not contain indexed escalation provisions. However, the Company’s net leases will generally require the tenant to pay its allocable share of operating expenses, which may include common area maintenance costs, real estate taxes and insurance. This may reduce the Company’s exposure to increases in costs and operating expenses resulting from inflation.
Off-Balance Sheet Arrangements
As of March 31, 2020, the Company had no off-balance sheet arrangements that have, or are reasonably likely to have, a material effect on the Company’s financial condition, revenue and expenses, results of operations, liquidity, capital expenditures, or capital resources.
54
The following table presents the future principal payment due under the Company’s GR Loan, FM Loan, CO Loan, DST Loan and Buchanan Loan agreements as of March 31, 2020, which represents the Company’s aggregate contractual obligations and commitments with payments due subsequent to March 31, 2020.
Year |
|
Amount |
|
|
2020 (remaining) |
|
$ |
— |
|
2021 |
|
|
— |
|
2022 |
|
|
— |
|
2023 |
|
|
— |
|
2024 |
|
|
— |
|
Thereafter |
|
|
84,145,184 |
|
Total |
|
$ |
84,145,184 |
|
Subsequent Events
Common Stock Repurchases
Subsequent to March 31, 2020, the Company received and completed three (3) eligible repurchase requests for a total of 8,181 shares in the amount of $197,510.
Investment by CFI pursuant to Distribution Support Agreement
On April 30, 2020, the Company’s sponsor, CFI, pursuant to the terms of the Distribution Support Agreement purchased 980.6 class I shares at a price of $25.11 per share for total amount of $24,623. This purchase was a true-up of a prior purchase amount based on a recalculation of such amount.
SF Property Rent Payment Abatement
Effective as of May 1, 2020, for a period of two (2) months, tenant's monthly rent payment of $48,839.44 will be abated with regards to the Company’s SF Property investment as a result of COVID-19. Absent tenant's further default under the lease, the landlord will not charge any late fees or interest related to the deferred rent. Rent payments shall re-commence on July 1, 2020 pursuant to the existing lease terms and the two months of deferred rent will be repaid in equal parts over the period beginning July 1, 2020 and ending on December 1, 2020.
Status of the Offering
As of May 11, 2020, the Company had sold an aggregate of 5,930,054 shares of its common stock (consisting of 3,389,278 Class A shares, 1,412,819 Class T shares, and 1,127,957 Class I shares) in the Offering resulting in net proceeds of $146,317,849 to the Company as payment for such shares.
Distributions
On May 12, 2020, the Company’s board of directors authorized, and the Company declared, distributions for the period from May 15, 2020 to August 14, 2020, in an amount equal to $0.004253787 per day (or approximately $1.55 on an annual basis) per Class A share, Class I share and Class T share, less, for holders of Class T shares, the distribution fees that are payable with respect to Class T shares. The distributions are payable by the 5th business day following each month end to stockholders of record at the close of business each day during the prior month.
55
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risk
The market risk associated with financial instruments and derivative financial instruments is the risk of loss from adverse changes in market prices or interest rates. The Company’s interest rate risk management objectives are to limit the impact of interest rate changes in earnings and cash flows and to manage overall borrowing costs. To achieve these objectives, from time to time, the Company may enter into interest rate hedge contracts such as swaps, collars and treasury lock agreements in order to mitigate interest rate risk with respect to various debt instruments. The Company would not hold or issue these derivative contracts for trading or speculative purposes. As of March 31, 2020, there are no such hedging contracts outstanding. The Company does not have any foreign operations and thus is not exposed to foreign currency fluctuations.
Interest Rate Risk
As of March 31, 2020, the Company had fixed rate debt of $84.1 million, and therefore, is not exposed to interest rate changes in LIBOR.
Credit Risk
Concentrations of credit risk arise when a number of tenants are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company is subject to tenant, geographic and industry concentrations. Any downturn of the economic conditions in one or more of these tenants, states or industries could result in a material reduction the Company’s cash flows or material losses to the Company.
As of March 31, 2020, lease expirations related to the Company’s portfolio of real estate assets based on rental income were as follows:
|
• |
2016 – 2020 – 0% |
|
• |
2021 – 2025 – 1% |
|
• |
2026 – 2030 – 20% |
|
• |
After 2030 – 79% |
As of March 31, 2020, the industry concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Office – 50% |
|
• |
Industrial – 28% |
|
• |
Retail – 22% |
As of March 31, 2020, the geographic concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Ohio – 26% |
|
• |
South Carolina – 20% |
|
• |
Michigan – 10% |
|
• |
Arizona – 9% |
|
• |
Texas – 7% |
|
• |
Oklahoma – 7% |
|
• |
Pennsylvania – 6% |
|
• |
California – 6% |
|
• |
Illinois – 6% |
|
• |
Arkansas – 3% |
56
As of March 31, 2020, the Company’s portfolio of real estate assets was leased to the following tenants based on square footage:
|
• |
Comenity Servicing LLC (a subsidiary of Alliance Data Systems Corporation) – 34% |
|
• |
Daimler – 21% |
|
• |
Walgreens – 17% |
|
• |
HOYA – 13% |
|
• |
Martin Brower – 13% |
|
• |
Williams Sonoma – 2% |
Note: |
Albertsons is the tenant of properties in which the Company has made an investment in real estate-related assets. The Company is invested in such properties indirectly through preferred equity and a mezzanine loan. Accordingly, Albertsons has been omitted from the above calculation detailing the Company’s tenant concentration. If Albertsons was included in the calculation as of March 31, 2020, Albertsons’ percentage of rentable square footage would be 82%. |
As of March 31, 2020, the market concentration of the Company’s portfolio of real estate assets based on purchase price was as follows:
|
• |
Data services – 24% |
|
• |
Pharmacy store – 22% |
|
• |
Truck manufacturing and distribution – 20% |
|
• |
Grocery – 12% |
|
• |
Food distribution – 9% |
|
• |
Optical laboratory – 7% |
|
• |
Fine home goods – 6% |
The factors considered in determining the credit risk of the Company’s tenants include, but are not limited to: payment history; credit status and change in status (credit ratings for public companies are used as a primary metric); change in tenant space needs (i.e., expansion/downsize); tenant financial performance; economic conditions in a specific geographic region; and industry specific credit considerations. The credit risk of the Company’s portfolio is reduced by the high quality of the Company’s existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of the Company’s portfolio to identify potential problem tenants.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of the Company’s management, including its Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, the CEO and CFO have concluded that the disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to the Company’s management, including its CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting.
There have not been any changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
57
Inherent Limitations on Effectiveness of Controls
Our management, including our CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
58
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2020, we were not involved in any material legal proceedings.
The Company has disclosed in Part 1. Item 1A. – “Risk Factors” in its Annual Report on Form 10-K for the year ended December 31, 2019, (File No. 333-214130), filed with the SEC, risk factors which materially affect its business, financial condition or results of operations. There have been no material changes from the risk factors previously disclosed, except as noted below. You should carefully consider the risk factors set forth in the Annual Report on Form 10-K for the year ended December 31, 2019 and the other information set forth elsewhere in this Quarterly Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing the Company. Additional risks and uncertainties not currently known to the Company or that management currently deems to be immaterial also may materially adversely affect the Company’s business, financial condition and/or operating results.
The current outbreak of the novel coronavirus, or COVID-19, or the future outbreak of any other highly infectious or contagious diseases, could adversely impact or cause disruption to our financial condition and results of operations. Further, the spread of the COVID-19 outbreak could cause severe disruptions in the U.S. and global economy, may further disrupt financial markets and could potentially create widespread business continuity issues.
In December 2019, a novel strain of coronavirus (COVID-19) was reported to have surfaced in Wuhan, China. COVID-19 has since spread to over 180 countries, including the United States. COVID-19 has also spread to every state in the United States. On March 11, 2020 the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020 the United States declared a national emergency with respect to COVID-19.
The potential impact and duration of COVID-19 or another pandemic could have short and long-term repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, continues to adversely impact global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of the virus have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines and restrictions on travel.
A large majority of the states (including the states where our investments are located) and many cities and counties have instituted ongoing quarantines, restrictions on travel, “shelter in place” rules, restrictions on types of business that may continue to operate, and/or restrictions on types of construction projects that may continue. The COVID-19 outbreak, and future pandemics, could have a significant adverse impact on economic and market conditions of economies around the world, including the United States, and trigger a period of global economic slowdown or global recession.
The effects of COVID-19 or another pandemic on our and our tenants’ ability to successfully operate could be adversely impacted due to, among other factors:
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the continued service and availability of personnel, including executive officers and other leaders that are part of the management team and the ability to recruit, attract and retain skilled personnel—to the extent management or personnel are impacted in significant numbers by the outbreak of pandemic or epidemic disease and are not available or allowed to conduct work, business and operating results may be negatively impacted; |
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difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect us and our and our tenants’ ability to access capital necessary to fund business operations or replace or renew maturing liabilities on a timely basis, and may adversely affect the valuation of financial assets and liabilities, any of which could affect our ability to meet liquidity and capital expenditure requirements or have a material adverse effect on our business, financial condition, results of operations and cash flows; |
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ability to operate or operate in affected areas, or delays in the supply of products or services from the vendors that are needed to operate effectively; |
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tenants’ ability to pay rent on their leases or our ability to lease space in our properties on favorable terms if our properties become vacant; |
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our ability to ensure business continuity in the event our continuity of operations plan is not effective or improperly implemented or deployed during a disruption; and |
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our or our tenant’s ability to operate, which may cause business and operating results to decline or impact the ability to comply with regulatory obligations leading to reputational harm and regulatory issues or fines. |
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The rapid development and fluidity of this situation precludes any prediction as to the ultimate impact of COVID-19. The full extent of the impact and effects of COVID-19 on the future financial performance of our company, as a whole, and, specifically, on our properties and other investments are uncertain at this time. The impact will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories and restrictions, the recovery time of the disrupted supply chains, the consequential staff shortages, and production delays, and the uncertainty with respect to the accessibility of additional liquidity or to the capital markets. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, results of operations and cash flows.
We may not be able to invest all of our offering proceeds promptly, which may cause our distributions and our stockholders’ investment returns to be lower than they otherwise would be.
The more shares we sell in the Offering, the greater our challenge will be to invest all of our net offering proceeds. We may have delays in investing our net proceeds promptly and on attractive terms. Pending investment, the net proceeds of the Offering may be invested in permitted temporary investments, which include short-term United States government securities, bank certificates of deposit and other short-term liquid investments. The rate of return on these investments, which affects the amount of cash available to make distributions to stockholders, has fluctuated in recent years and most likely will be less than the return obtainable from the type of investments in the real estate industry we seek to acquire or originate. Therefore, delays we encounter in the selection, due diligence and acquisition or origination of investments would likely limit our ability to pay distributions to our stockholders and lower their overall returns. In addition, cash and cash equivalents may potentially subject us to concentration of risk and at times, balances with any one financial institution may exceed the Federal Deposit Insurance Corporation insurance limits. As of March 31, 2020, the Company had approximately $28 million in cash.
If we pay cash distributions from sources other than our cash flow from operations, we will have less funds available for investments and our stockholders’ overall return may be reduced.
Our organizational documents do not restrict us from paying distributions from any source and do not restrict the amount of distributions we may pay from any source, including proceeds from the Offering or the proceeds from the issuance of securities in the future, other third party borrowings, advances from the Advisor or sponsor or from the Advisor’s deferral or waiver of its fees under the Advisory Agreement. Distributions paid from sources other than current or accumulated earnings and profits, particularly during the period before we have substantially invested the net proceeds from the Offering, may constitute a return of capital for tax purposes. From time to time, particularly during the period before we have substantially invested the net proceeds from the Offering, we may generate taxable income greater than our taxable income for financial reporting purposes, or our taxable income may be greater than our cash flow available for distribution to stockholders. In these situations, we may make distributions in excess of our cash flow from operations, investment activities and strategic financings to satisfy the REIT distribution requirement. In such an event, we would look first to other third party borrowings to fund these distributions. If we fund distributions from financings, the net proceeds from the Offering or sources other than our cash flow from operations, we will have less funds available for investment in income-producing commercial properties and other real estate-related assets and stockholders overall return may be reduced. In addition, if the aggregate amount of cash we distribute to stockholders in any given year exceeds the amount of our taxable income generated during the year, the excess amount will either be (1) a return of capital or (2) a gain from the sale or exchange of property to the extent that a stockholder’s basis in our common stock equals or is reduced to zero as the result of our current or prior year distributions. Such distributions may effectively dilute or reduce the value of the stockholders remaining interest in our company’s net asset value.
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Pursuant to the Distribution Support Agreement, in certain circumstances where our cash distributions exceed MFFO, our sponsor will purchase up to $5.0 million of Class I shares (which includes the shares our sponsor has purchased in order to satisfy the Minimum Offering Requirement) at the then current offering price per Class I share net of dealer manager fees to provide additional cash to support distributions to our stockholders. The sale of these shares will result in the dilution of the ownership interests of our public stockholders. Upon termination or expiration of the Distribution Support Agreement, we may not have sufficient cash available to pay distributions at the rate we had paid during preceding periods or at all. If we pay distributions from sources other than our cash flow from operations, we will have less cash available for investments, we may have to reduce our distribution rate, our net asset value may be negatively impacted and our stockholders overall return may be reduced. As of March 31, 2020, the Company has declared distributions of $12,203,015, of which 33% were paid using proceeds from the Offering.
Our NAV per share may materially change from quarter to quarter if the valuations of our properties materially change from prior valuation or the actual operating results materially differ from what we originally budgeted, including as a result of the Advisor invoicing us for previously unbilled operating expenses.
It is possible that the annual appraisals of our properties may not be spread evenly throughout the year and may differ from the most recent quarterly valuation. As such, when these appraisals are reflected in our Independent Valuation Firm’s valuation of our real estate portfolio, there may be a material change in our NAV per share for each class of our common stock. Property valuation changes can occur for a variety reasons, such as local real estate market conditions, the financial condition of our tenants, or lease expirations. For example, we will regularly face lease expirations across our portfolio, and as we move further away from lease commencement toward the end of a lease term, the valuation of the underlying property will be expected to drop depending on the likelihood of a renewal or a new lease on similar terms. Such a valuation drop can be particularly significant when closer to a lease expiration, especially for single tenant buildings or where an individual tenant occupies a large portion of a building. We are at the greatest risk of these valuation changes during periods in which we have a large number of lease expirations as well as when the lease of a significant tenant is closer to expiration. Similarly, if a tenant will have an option in the future to purchase one of our properties from us at a price that is less than the current valuation of the property, then if the value of the property exceeds the option price, the valuation will be expected to decline and begin to approach the purchase price as the date of the option approaches.
In addition, actual operating results may differ from what we originally budgeted, which may cause a material increase or decrease in the NAV per share amounts. We accrue estimated income and expenses on a quarterly basis based on annual budgets as adjusted from time to time to reflect changes in the business throughout the year. On a periodic basis, we adjust the income and expense accruals we estimated to reflect the income and expenses actually earned and incurred. We will not retroactively adjust the NAV per share of each class for any adjustments. Therefore, because actual results from operations may be better or worse than what we previously budgeted, the adjustment to reflect actual operating results may cause the NAV per share for each class of our common stock to increase or decrease.
Our Advisory Agreement provides that any operating expenses which have not been invoiced by the Advisor will not become our obligations. Without these provisions in our Advisory Agreement, such operating expenses, if invoiced, would likely be recorded as liabilities of ours, which, in turn, would likely have a negative effect on our NAV per share. Our Advisory Agreement provides that the Advisor will not invoice us for any reimbursement if the impact of such would result in the incurrence of an obligation in an amount that would result in our NAV per share for any class of shares to be less than $25.00. We may, however, incur and record an obligation to reimburse the Advisor, even if it would result in our NAV per share for any class of shares for such quarter to be less than $25.00, if our board of directors determines that the reasons for the decrease of our NAV per share below $25.00 were unrelated to our obligation to reimburse the Advisor for operating expenses. Our Advisory Agreement also provides that the Advisor may be reimbursed for previously unbilled operating expenses for prior periods in any subsequent quarter, subject to certain limitations, including the limitation related to the NAV per share of $25.00 referenced above and the 2%/25% Guidelines. The incurrence of previously unbilled operating expenses likely will have a negative effect on our NAV per share. As of March 31, 2020, the Advisor has incurred $8,138,640 of Unreimbursed Operating Expenses, including $694,417 of Unreimbursed Operating Expenses incurred during the three months ended March 31, 2020 that have not been invoiced to us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Registered Securities.
Unregistered Sales of Equity Securities
During the three months ended March 31, 2020, the Company did not complete any sales of unregistered securities.
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On March 23, 2017, the Company’s Registration Statement on Form S-11 (File No. 333-214310), was declared effective by the SEC. On May 18, 2017, the Company satisfied the Minimum Offering Requirement as a result of CFI purchasing $2.0 million in Class I shares at $25.00 per share. As of March 31, 2020, the Company’s NAV was $23.74 per Class A share, $23.72 per Class T share and $23.74 per Class I share, plus applicable selling commissions and dealer manager fees. Effective May 20, 2020, the new offering price will be $24.99 per Class A share, $24.20 per Class T share and $23.74 per Class I share.
During the three months ended March 31, 2020, the Company issued the following shares of common stock and raised the following gross proceeds in connection with the Offering:
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Gross offering proceeds |
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Offering |
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460,147 |
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11,751,225 |
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For the period from the commencement of the Offering through March 31, 2020, the Company issued 5,767,032 shares of common stock generating total gross proceeds of $148,874,025 in the Offering.
During this time, the Company also incurred $4,462,854 in selling commissions net of Sponsor Support, and incurred $1,379,539 of distribution fees, in connection with the issuance and distribution of our registered securities. The Company made reimbursement payments of $741,671 for organization and offering expenses to the Advisor.
The net proceeds received from the Offering, after deducting the total expenses incurred as described above, were $142,289,961.
During the three months ended March 31, 2020, the ending cash and cash equivalents balance increased by $10,671,365 from December 31, 2019. For the period from the commencement of the Offering through March 31, 2020, the Company used proceeds of $111,399,829 to acquire real estate and to purchase interests in real estate-related assets.
Amended and Restated Share Repurchase Program
Stockholders are eligible to have their shares repurchased by the Company pursuant to the Amended and Restated Share Repurchase Program. The Company will repurchase shares at a price equal to, or at a discount from, NAV per share of the share class being repurchased subject to certain holding period requirements which effect the repurchase price as a percentage of NAV.
The Amended and Restated Share Repurchase Program includes numerous restrictions that limit stockholders’ ability to have their shares repurchased. The Company limits the number of shares repurchased pursuant to the Amended and Restated Share Repurchase Program as follows: (i) during any calendar month, the Company may repurchase no more than 2% of the combined NAV of all classes of shares as of the last calendar day of the previous month (based on the most recently determined NAV per share) and (ii) during any calendar year, the Company may repurchase no more than 10% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar year. Further, the Company also has no obligation to repurchase shares if the redemption would violate the restrictions on distributions under Maryland law, which prohibits distributions that would cause a corporation to fail to meet statutory tests of solvency. The Company may amend, suspend or terminate the program for any reason upon 10 business days’ notice.
The table below summarizes the repurchase activity for the three months ended March 31, 2020:
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Average Price Paid per Share |
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Total Number of Shares Redeemed as Part of Publicly Announced Plans or Programs |
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Maximum Number of Shares That May Yet Be Redeemed Under the Plans or Programs(1) |
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January 31, 2020 |
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17,555 |
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24.51 |
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17,555 |
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89,665 |
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February 29, 2020 |
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1,852 |
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24.36 |
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1,852 |
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105,010 |
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March 31, 2020 |
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5,877 |
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24.72 |
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5,877 |
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101,021 |
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Total |
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25,284 |
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24.55 |
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25,284 |
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509,310 |
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Note: (1) The Company limits the number of shares that may be redeemed per calendar month and per calendar year under the program as described above.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
The exhibits listed below are included, or incorporated by reference, in this Quarterly Report on Form 10-Q.
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The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (and are numbered in accordance with Item 601 of Regulation S-K).
3.1 |
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4.1 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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10.5 |
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10.10 |
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10.11 |
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Loan Agreement between 3075 Loyalty Circle Owner, LLC and Cantor Commercial Real Estate Lending, L.P. dated July 31, 2018 (incorporated by reference to Exhibit 10.12 to the Company’s Post-Effective Amendment No. 7 to Form S-11 (File No. 333-214130), filed on January 28, 2019 |
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10.13 |
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10.15 |
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10.16 |
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10.17 |
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31.1* |
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31.2* |
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32* |
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101* |
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The following materials from Rodin Global Property Trust, Inc.’s Quarterly Report on Form 10-Q for the three months ended March 31, 2020 are formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Changes in Equity; (iv) Consolidated Statements of Cash Flows, and (v) Notes to Consolidated Financial Statements. |
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Filed herewith |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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RODIN GLOBAL PROPERTY TRUST, INC. |
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By: |
/s/ Howard W. Lutnick |
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Howard W. Lutnick |
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Chief Executive Officer and Chairman of the Board of Directors |
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(Principal Executive Officer) |
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By: |
/s/ Paul M. Pion |
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Paul M. Pion |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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Dated: May 13, 2020 |
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