UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,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 ENDEDFor the quarterly period ended June 30,March 31, 20222024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 333-264456000-56656
Apollo Realty Income Solutions, Inc.
(Exact name of Registrant as specified in its charter)Charter)
Maryland | 87-2557571 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
9 West 57th Street, 42nd Floor, New York, NY | 10019 | |
(Address of principal executive offices) | (Zip Code) |
9 West 57th Street, 42nd Floor
New York, NY10019
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 515-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:None
Indicate by check mark whether the RegistrantRegistrant: (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 ☐ NoYes ☒ No ☐
Indicate by check mark whether the registrantRegistrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 registrantRegistrant was required to submit and post such files). Yes ☒No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number
As of May 10, 2024, the Registrant’sRegistrant had 30,324,913 outstanding shares of common stock, par value $0.01 per share, asconsisting of August 9, 2022 was 10,00015,560,691, all of which were Class A-II shares, 12,622,236 Class A-I shares, 1,641,359 Class F-I shares, 288,717 Class I shares, 207,115 Class E shares and 4,795 Class S shares.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Apollo Realty Income Solutions, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands - except share data)
|
| June 30, 2022 |
|
| February 18, 2022 |
| ||
Assets |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 200,000 |
|
| $ | 200,000 |
|
Total assets |
| $ | 200,000 |
|
| $ | 200,000 |
|
Liabilities and Equity |
|
|
|
|
|
| ||
Total liabilities |
| $ | — |
|
| $ | — |
|
Commitments and contingencies (See Note 6) |
|
| — |
|
|
| — |
|
Equity |
|
|
|
|
|
| ||
Preferred stock, $0.01 par value per share, 100,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class S Shares, $0.01 par value per share, 200,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class D Shares, $0.01 par value per share, 200,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class I Shares, $0.01 par value per share, 200,000,000 and 10,000 shares authorized at June 30, 2022 and February 18, 2022, respectively, and 10,000 issued and outstanding |
|
| 100 |
|
|
| 100 |
|
Common Stock - Class F-S Shares, $0.01 par value per share, 100,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class F-D Shares, $0.01 par value per share, 100,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class F-I Shares, $0.01 par value per share, 100,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Common Stock - Class E Shares, $0.01 par value per share, 100,000,000 and 0 shares authorized at June 30, 2022 and February 18, 2022, respectively, and NaN issued and outstanding |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 199,900 |
|
|
| 199,900 |
|
Total equity |
|
| 200,000 |
|
|
| 200,000 |
|
Total liabilities and equity |
| $ | 200,000 |
|
| $ | 200,000 |
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Assets |
|
|
|
|
|
| ||
Investments in real estate, net |
| $ | 153,614 |
|
| $ | 154,513 |
|
Investments in real estate debt, at fair value |
|
| 474,240 |
|
|
| 328,189 |
|
Cash and cash equivalents |
|
| 46,466 |
|
|
| 95,205 |
|
Restricted cash |
|
| 11 |
|
|
| — |
|
Other assets |
|
| 31,563 |
|
|
| 31,764 |
|
Total assets(1) |
| $ | 705,894 |
|
| $ | 609,671 |
|
Liabilities and Equity |
|
|
|
|
|
| ||
Mortgage notes, net |
| $ | 35,612 |
|
| $ | 35,591 |
|
Due to affiliates |
|
| 15,713 |
|
|
| 15,831 |
|
Other liabilities |
|
| 16,498 |
|
|
| 14,406 |
|
Total liabilities(1) |
|
| 67,823 |
|
|
| 65,828 |
|
Commitments and contingencies (See Note 16) |
|
|
|
|
|
| ||
Redeemable non-controlling interest |
|
| 1,824 |
|
|
| 967 |
|
Equity |
|
|
|
|
|
| ||
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized at March 31, 2024 and December 31, 2023, and none issued and outstanding |
|
| — |
|
|
| — |
|
Common stock, $0.01 par value per share (See Note 14 - Equity) |
|
| 264 |
|
|
| 220 |
|
Additional paid-in capital |
|
| 528,416 |
|
|
| 438,432 |
|
Retained earnings (accumulated deficit) |
|
| 4,337 |
|
|
| 2,681 |
|
Total stockholders' equity |
|
| 533,017 |
|
|
| 441,333 |
|
Non-controlling interest attributable to the Operating Partnership |
|
| 103,105 |
|
|
| 101,543 |
|
Non-controlling interest attributable to preferred stockholders |
|
| 125 |
|
|
| — |
|
Total equity |
|
| 636,247 |
|
|
| 542,876 |
|
Total liabilities and equity |
| $ | 705,894 |
|
| $ | 609,671 |
|
_________________
See accompanying notes to unaudited condensed consolidated financial statements.
1
Apollo Realty Income Solutions, Inc.
Condensed Consolidated Statement of Operations (Unaudited)
(in thousands - except share and per share data)
Three Months Ended March 31, |
| ||||||
| 2024 |
|
| 2023 |
| ||
Revenues |
|
|
|
|
| ||
Rental revenue | $ | 3,663 |
|
| $ | 993 |
|
Total revenues |
| 3,663 |
|
|
| 993 |
|
Expenses |
|
|
|
|
| ||
Rental property operating | $ | 573 |
|
| $ | 92 |
|
General and administrative |
| 1,537 |
|
|
| 1,105 |
|
Management fee |
| 1,511 |
|
|
| 399 |
|
Performance participation allocation |
| 203 |
|
|
| — |
|
Depreciation and amortization |
| 1,455 |
|
|
| 283 |
|
Total expenses | $ | 5,279 |
|
| $ | 1,879 |
|
Other income |
|
|
|
|
| ||
Income from investments in real estate debt |
| 11,114 |
|
|
| 735 |
|
Other income |
| 908 |
|
|
| 834 |
|
Interest expense |
| (770 | ) |
|
| — |
|
Total other income |
| 11,252 |
|
|
| 1,569 |
|
Net income (loss) | $ | 9,636 |
|
| $ | 683 |
|
Net income (loss) attributable to non-controlling interests in the ARIS Operating Partnership | $ | 1,697 |
|
| $ | 348 |
|
Net income (loss) attributable to ARIS stockholders | $ | 7,939 |
|
| $ | 335 |
|
Net income (loss) per share of common stock, basic and diluted | $ | 0.32 |
|
| $ | 0.10 |
|
Weighted-average shares of common stock outstanding, basic and diluted |
| 24,902,305 |
|
|
| 3,248,791 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
2
Apollo Realty Income Solutions, Inc.
Condensed Consolidated Statement of Changes in Equity (Unaudited)
(in thousands)
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Retained Earnings (Accumulated Deficit) |
|
| Total Stockholders' Equity |
|
| Non-Controlling Interest |
|
| Total Equity |
|
| Redeemable non-controlling interest |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance at December 31, 2023 |
|
| 21,943 |
|
| $ | 220 |
|
| $ | 438,432 |
|
| $ | 2,681 |
|
| $ | 441,333 |
|
| $ | 101,543 |
|
| $ | 542,876 |
|
| $ | 967 |
|
Common stock issued |
|
| 4,328 |
|
|
| 43 |
|
|
| 89,523 |
|
|
| — |
|
|
| 89,566 |
|
|
| — |
|
|
| 89,566 |
|
|
| 831 |
|
Preferred equity issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 125 |
|
|
| 125 |
|
|
| — |
|
Amortization of restricted stock grants |
|
| — |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
|
| 25 |
|
|
| — |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| (355 | ) |
|
| — |
|
|
| (355 | ) |
|
| — |
|
|
| (355 | ) |
|
| — |
|
Distribution reinvestments |
|
| 45 |
|
|
| — |
|
|
| 944 |
|
|
| — |
|
|
| 944 |
|
|
| 1,180 |
|
|
| 2,124 |
|
|
| 20 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 7,939 |
|
|
| 7,939 |
|
|
| 1,666 |
|
|
| 9,605 |
|
|
| 31 |
|
Share class transfer |
|
| 25 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchase of common stock |
|
| (7 | ) |
|
| — |
|
|
| (154 | ) |
|
| — |
|
|
| (154 | ) |
|
| — |
|
|
| (154 | ) |
|
| — |
|
Distributions to non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,284 | ) |
|
| (1,284 | ) |
|
| (25 | ) |
Distributions declared on common stock |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (6,281 | ) |
|
| (6,281 | ) |
|
| — |
|
|
| (6,281 | ) |
|
| — |
|
Balance at March 31, 2024 |
|
| 26,334 |
|
| $ | 263 |
|
| $ | 528,415 |
|
| $ | 4,339 |
|
| $ | 533,017 |
|
| $ | 103,230 |
|
| $ | 636,247 |
|
| $ | 1,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
|
| Shares |
|
| Amount |
|
| Additional Paid-In Capital |
|
| Retained Earnings (Accumulated Deficit) |
|
| Total Stockholders' Equity |
|
| Non-Controlling Interest |
|
| Total Equity |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at December 31, 2022 |
|
| 1,824 |
|
| $ | 18 |
|
| $ | 31,367 |
|
| $ | (815 | ) |
| $ | 30,570 |
|
| $ | 97,721 |
|
| $ | 128,291 |
|
Common stock issued |
|
| 3,006 |
|
|
| 30 |
|
|
| 60,197 |
|
|
| — |
|
|
| 60,227 |
|
|
| — |
|
|
| 60,227 |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| (83 | ) |
|
| — |
|
|
| (83 | ) |
|
| — |
|
|
| (83 | ) |
Contributions from non-controlling interest |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 156 |
|
|
| 156 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 335 |
|
|
| 335 |
|
|
| 348 |
|
|
| 683 |
|
Balance at March 31, 2023 |
|
| 4,830 |
|
| $ | 48 |
|
| $ | 91,481 |
|
| $ | (480 | ) |
| $ | 91,049 |
|
| $ | 98,225 |
|
| $ | 189,274 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
3
Apollo Realty Income Solutions, Inc.
Condensed Consolidated Statement of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended March 31, 2024 |
|
| Three Months Ended March 31, 2023 |
| |||
Cash flows from operating activities |
|
|
|
|
|
| ||
Net income |
| $ | 9,636 |
|
| $ | 683 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
| ||
Management fee |
|
| 1,511 |
|
|
| 234 |
|
Performance participation allocation |
|
| 203 |
|
|
| — |
|
Depreciation and amortization |
|
| 1,455 |
|
|
| 283 |
|
Straight line rent amortization |
|
| (388 | ) |
|
| (651 | ) |
Above- and below- market lease amortization, net |
|
| (190 | ) |
|
| — |
|
Amortization of discount/premium |
|
| (67 | ) |
|
| — |
|
Amortization of deferred financing costs |
|
| 21 |
|
|
| — |
|
Amortization of restricted stock awards |
|
| 25 |
|
|
| — |
|
Unrealized gain on fair value of investments in real estate debt and real estate related securities |
|
| (152 | ) |
|
| — |
|
Realized gain on repayments of real-estate related securities |
|
| (20 | ) |
|
| — |
|
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Other assets |
|
| 25 |
|
|
| (266 | ) |
Due to affiliates |
|
| 169 |
|
|
| 1,270 |
|
Other liabilities |
|
| 1,095 |
|
|
| 102 |
|
Net cash provided by operating activities |
|
| 13,323 |
|
|
| 1,655 |
|
Cash flows from investing activities: |
|
|
|
|
|
| ||
Acquisitions of real estate |
|
| — |
|
|
| (44,214 | ) |
Origination and acquisition of real estate debt |
|
| (65,397 | ) |
|
| (58,675 | ) |
Add-on fundings of commercial mortgage loans |
|
| (81,646 | ) |
|
| — |
|
Repayments from real-estate related securities |
|
| 1,230 |
|
|
| — |
|
Net cash used in investing activities |
|
| (145,813 | ) |
|
| (102,889 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Proceeds from issuance of common stock |
|
| 88,385 |
|
|
| 60,150 |
|
Contributions from non-controlling preferred shareholders |
|
| 125 |
|
|
| — |
|
Distributions paid |
|
| (4,500 | ) |
|
| — |
|
Repurchase of common stock |
|
| (154 | ) |
|
| — |
|
Offering costs paid |
|
| (94 | ) |
|
| (18 | ) |
Net cash provided by financing activities |
|
| 83,762 |
|
|
| 60,132 |
|
Net change in cash, cash equivalents and restricted cash |
|
| (48,728 | ) |
|
| (41,102 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 95,205 |
|
|
| 131,589 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 46,477 |
|
| $ | 90,487 |
|
|
|
|
|
|
|
|
4
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
|
| 46,466 |
|
|
| 90,487 |
|
Restricted cash |
|
| 11 |
|
|
| — |
|
Total cash, cash equivalents and restricted cash |
| $ | 46,477 |
|
| $ | 90,487 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 363 |
|
| $ | — |
|
Non-cash investing and financing activities: |
|
|
|
|
|
| ||
Accrued offering costs due to affiliate |
| $ | 261 |
|
| $ | (65 | ) |
Distribution reinvestments |
| $ | 2,144 |
|
| $ | — |
|
Distributions accrued and not paid |
| $ | 2,846 |
|
| $ | — |
|
Issuance of Class E shares for payment of management fee |
| $ | 1,181 |
|
| $ | — |
|
Redeemable non-controlling interest issuance as Class E units of the Operating Partnership for payment of management fee |
| $ | 269 |
|
| $ | — |
|
Redeemable non-controlling interest issuance as Class E units of the Operating Partnership for payment of performance participation allocation |
| $ | 562 |
|
| $ | — |
|
Allocation to redeemable non-controlling interests |
| $ | 31 |
|
| $ | — |
|
See accompanying notes to unaudited condensed consolidated financial statements.
5
Apollo Realty Income Solutions, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Organization and Business Purpose
Apollo Realty Income Solutions, Inc. (the "Company") was formed on September 8, 2021 as a Maryland corporation and intends to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes andcorporation. The Company is the sole general partner of ARIS Operating Partnership L.P., a Delaware limited partnership (the “Operating Partnership”"Operating Partnership"). ARIS Special Limited Partner, LLC (the “Special"Special Limited Partner”Partner"), an indirect wholly-owneda subsidiary of Apollo Global Management, Inc. (“Apollo”(together with its subsidiaries, "Apollo"), owns a special limited partner interest in the Operating Partnership. The Company was organized to invest primarily in a portfolio of diversified income-oriented commercial real estate in the United States. Substantially all of the Company’sCompany's business will beis conducted through the Operating Partnership, which as of June 30, 2022 had notPartnership. The Company commenced its principal operations. Theoperations on December 22, 2022 and the Company and the Operating Partnership are both externally managed by ARIS Management, LLC (the “Adviser”"Adviser"), an affiliateindirect subsidiary of Apollo.
As of June 30, 2022, the Company had neither acquired nor entered into any arrangements to acquire any properties or real estate-related securities with the net proceeds from the Offering (as hereinafter defined). The Adviser had not identified any real estate or real estate-related investments in which it is probable that the Company will invest.
Note 2 - Capitalization
As of June 30, 2022, the Company was authorized to issue up to 1,100,000,000 shares, consisting of the following:
Classification |
| Number of Shares |
|
| Par Value |
| ||
Preferred Stock |
|
| 100,000,000 |
|
| $ | 0.01 |
|
Class S Shares |
|
| 200,000,000 |
|
| $ | 0.01 |
|
Class D Shares |
|
| 200,000,000 |
|
| $ | 0.01 |
|
Class I Shares |
|
| 200,000,000 |
|
| $ | 0.01 |
|
Class F-S Shares |
|
| 100,000,000 |
|
| $ | 0.01 |
|
Class F-D Shares |
|
| 100,000,000 |
|
| $ | 0.01 |
|
Class F-I Shares |
|
| 100,000,000 |
|
| $ | 0.01 |
|
Class E Shares |
|
| 100,000,000 |
|
| $ | 0.01 |
|
Total |
|
| 1,100,000,000 |
|
|
|
|
The Company has registered with the Securities and Exchange Commission (the “SEC”"SEC") an offering of up to $5,000,000,0005.0 billion in shares of common stock, consisting of up to $4,000,000,0004.0 billion in shares in its primary offering and up to $1,000,000,0001.0 billion in shares pursuant to its distribution reinvestment plan (the “Offering”"Offering"). In the Offering, the Company intends to sell any combination of sixnine classes of shares of its common stock, Class S shares, Class D shares, Class I shares, Class F-S shares, Class F-D shares, Class F-I shares, Class A-I shares, Class A-II shares, and Class F-IA-III shares with a dollar value up to the maximum offering amount. The share classes have different upfront selling commissions, ongoing stockholder servicing fees, management fees, and performance participation allocations. Until the release of proceeds from escrow, the per share purchase price for shares of the Company’s common stock in its primary offering will be $20.00 per share plus applicable upfront selling commissions and dealer manager fees. Thereafter, theThe purchase price per share for each class of common stock will vary and will generally equal the Company’sCompany's prior month’smonth's net asset value (“NAV”("NAV") per share, as calculated monthly, plus applicable upfront selling commissions and dealer manager fees. The Company also may issue Class E shares to certain of Apollo's affiliates and employees in one or more private placements; however, Class E shares are not being offered to the public pursuant to the Offering.
On February 18, 2022,The Company intends to elect to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with the taxable year ended December 31, 2023. To maintain its tax qualification as a REIT, the Company was capitalized with a $will be required to distribute at least 200,00090% of its taxable income, excluding net capital gains, to stockholders and meet certain other asset, income, and ownership tests.
As of March 31, 2024, the Company owned three properties, had fourteen investments in commercial real estate debt, and held fourteen real estate-related securities. The Company currently operates in two investment by Apollo ARIS Holdings LLC, an indirect wholly-owned subsidiary of Apollo, in exchangereportable segments: Real Estate and Real Estate Debt. See "Note 17 - Segment Reporting" for 10,000 shares of Class I shares.additional information.
Note 32 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and the Operating Partnership. All intercompany balances and transactions are eliminated in consolidation. Separate statements of income, changes in equity, and cash flows have not been presented in the financial statements because principal operations have not commenced.
2
Apollo Realty Income Solutions, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The accompanyingThese unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The consolidated financial statements, including the notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. Management believes it has made all necessary adjustments, consisting of only normal recurring items, so that the consolidated financial statements are presented fairly and that estimates made in preparing its consolidated financial statements are reasonable and prudent. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statement as of February 18, 2022statements and notes thereto included in the Company’s prospectusCompany's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the SEC on July 1, 2022.SEC. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position, results of operations and cash flows have been included. The Company's results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or any other future period.
Principles of Consolidation
The preparationCompany consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all variable interest entities ("VIEs") of which it is considered the primary beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as the primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE's economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
The Operating Partnership is considered to be a VIE. The Company consolidates this entity as it has the ability to direct the most significant activities of the entities such as purchases, dispositions, financings, budgets, and overall operating plans.
The accompanying condensed consolidated financial statements in conformity with GAAP requires management to make estimatesinclude the accounts of the Company and assumptions that affect the reported amountsCompany's subsidiary partnerships. Third party unitholders of Operating Partnership's share of the assets, and liabilities and disclosuresoperations of contingent assets the Operating Partnership is included in non-controlling interest as equity of the Company. The noncontrolling interest is generally computed based on third party unit-holders ownership percentage.
6
Non-controlling interests in the Operating Partnership represent Operating Partnership units that are held by third parties, including the Adviser,and liabilitiesOperating Partnership units issued to the Adviser under an advisory agreement by and among the Company, the Operating Partnership and the Adviser (as amended, restated or otherwise modified from time to time, the "Advisory Agreement"). Operating Partnership units may be redeemed for cash, or at the dateCompany's option, for shares of common stock of the balance sheets. Actual results could differ fromCompany on a one-for-one basis, unless those estimates.
Risks and Uncertainties
Duringunits are held by the first quarterAdviser or Special Limited Partner, in which case such Operating Partnership units shall be redeemed for shares of 2020, there was a global outbreakcommon stock of the novel coronavirus (“COVID-19”), which was declaredCompany or cash, at the holder's election. Since the number of shares of common stock outstanding is equal to the number of Operating Partnership units owned by the World Health Organization as a pandemic. The ongoing COVID-19 pandemic in many countries continuesCompany, the redemption value of each common unit of the Operating Partnership is equal to adversely impact global economic activitythe market value of each share of common stock and has contributeddistributions paid to significant volatility in financial markets. In responseeach unitholder is equivalent to COVID-19, the United States and numerous other countries and organizations have implemented a variety of actionsdividends paid to mobilize efforts to mitigate the ongoing and expected impact. Although more normalized activities have resumed and there has been improvement due to global and domestic vaccination efforts, the Company is not in a position to estimate the ultimate impact COVID-19 and its variants will have on our business and the economy as a whole.common stockholders, per respective share class.
Cash and Cash Equivalents
Cash and cash equivalents represent cash held in banks, cash on hand, and liquid investments with original maturities of three months or less. The Company may have bank balances in excess of federally insured amounts; however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure. As of March 31, 2024 and December 31, 2023, the Company held $46.5 million and $95.2 million of cash and cash equivalents, respectively.
Restricted Cash
Restricted cash represents cash held in a deposit account controlled by a third party. As of March 31, 2024, the Company held $11 thousand in restricted cash. The Company did 0not holdhave any restricted cash equivalents as of June 30, 2022December 31, 2023.
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). The Company uses a hierarchical framework that prioritizes and February 18, 2022.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 marketplace, including the existence and transparency of transactions between market participants. Investments with readily available actively 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 — 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 — 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 — 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.
As of March 31, 2024, the Company's investments in real estate debt consisted of commercial mortgage loans secured by real estate assets and real estate-related securities. The Company has elected the fair value option ("FVO") for investments in commercial mortgage loans secured by real estate assets as the Company believes fair value provides a more accurate depiction of the value of these assets. During the three months ended March 31, 2024, real-estate related securities met the criteria to be classified as trading securities under ASC 320, "Investments". The Company generally determines the fair value of its investments in real estate debt by utilizing third-party pricing service providers whenever available.
The Company's investments in commercial mortgage loans are unlikely to have readily available market quotations. In such cases, the Company will generally determine the initial value based on the acquisition price of such investment if acquired by the Company or the par value of such investment if originated by the Company. Following the initial measurement, the Company will determine fair value by utilizing or reviewing certain of the following (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield or loan-to-value ratios, and (vii) borrower financial condition and performance. The inputs used in determining the fair value of the Company's investments in commercial mortgage loans are considered Level 3.
The fair value of real estate-related securities may be determined by using third-party pricing service providers or broker-dealer quotes, reported trades or valuation estimates from their internal pricing models to determine the reported price. The inputs used in determining the fair value of the Company's investments in real estate-related securities are considered Level 2.
The following table details the Company's assets measured at fair value on a recurring basis ($ in thousands):
7
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||||||||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Investments in real estate debt |
| $ | — |
|
| $ | 24,329 |
|
| $ | 449,911 |
|
| $ | 474,240 |
|
| $ | — |
|
| $ | 25,321 |
|
| $ | 302,868 |
|
| $ | 328,189 |
|
Total |
| $ | — |
|
| $ | 24,329 |
|
| $ | 449,911 |
|
| $ | 474,240 |
|
| $ | — |
|
| $ | 25,321 |
|
| $ | 302,868 |
|
| $ | 328,189 |
|
The following table details the Company's assets measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):
| Investments in Real Estate Debt |
| ||
Balance as of December 31, 2023 |
| $ | 302,868 |
|
Originations, acquisitions, and add on fundings |
|
| 147,043 |
|
Amortization of discount/premium |
|
| 67 |
|
Included in net income: |
|
|
| |
Unrealized gain/(loss) from investments in real estate debt |
|
| (67 | ) |
Balance as of March 31, 2024 |
| $ | 449,911 |
|
The following table contains the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy ($ in thousands):
|
| March 31, 2024 | ||||||||||
|
| Fair Value |
|
| Valuation Technique |
| Unobservable Inputs |
| Rate Range |
| Impact to Valuation from an Increase in Input | |
Assets: |
|
|
|
|
|
|
|
|
|
|
| |
Investments in real estate debt |
| $ | 449,911 |
|
| Discounted cash flow |
| Discount rate |
| 8.00%-12.75% |
| Decrease |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| December 31, 2023 | ||||||||||
|
| Fair Value |
|
| Valuation Technique |
| Unobservable Inputs |
| Rate Range |
| Impact to Valuation from an Increase in Input | |
Assets: |
|
|
|
|
|
|
|
|
|
|
| |
Investments in real estate debt |
| $ | 302,868 |
|
| Discounted cash flow |
| Discount rate |
| 8.41%-10.00% |
| Decrease |
Investment Property and Lease Intangibles
Acquisitions of properties are accounted for utilizing the acquisition method and, accordingly, the operations of acquired properties will be included in the Company's results of operations from their respective dates of acquisition. The Company will utilize a report from an independent appraiser to record the purchase of identifiable assets acquired and liabilities assumed such as land, buildings and improvements, equipment and identifiable intangible assets and liabilities such as amounts related to in-place leases, acquired above- and below-market leases, tenant relationships, asset retirement obligations and mortgage loans payable.
The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals.
The estimated fair value of acquired in-place leases is the costs the Company would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include the fair value of leasing commissions, legal costs, and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, the Company evaluates the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease terms. The amortization of in-place lease intangibles is recorded in depreciation and amortization expense on the Company’s condensed consolidated statements of operations.
Acquired above- and below-market lease values are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the in-place leases and the Company's estimate of fair market value lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values are amortized as adjustments to rental revenue over the remaining terms of the respective leases, which include periods covered by bargain renewal options, if applicable. Should a tenant terminate its lease, the unamortized portion of the in-place lease value will be charged to amortization expense and the unamortized portion of out-of-market lease value will be charged to rental revenue.
The Company's investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
8
Description | Depreciable Life | |
Buildings | 39 - 50 years | |
Buildings and land improvements | 10 - 15 years | |
Lease intangibles and leasehold improvements | Lease term |
Significant improvements to properties are capitalized, whereas, repairs and maintenance expenses at the Company's properties are expensed as incurred and included in real estate operating expense on the Company’s condensed consolidated statements of operations. When an asset is sold, the cost and related accumulated depreciation are removed from the accounts with the resulting gain or loss reflected in the Company's results of operations for the period.
Real estate assets will be evaluated for impairment on a quarterly basis. The Company will consider the following factors when performing its impairment analysis: (1) management, having the authority to approve the action, commits to a plan to sell the asset; (2) significant negative industry and economic outlook or trends; (3) expected material costs necessary to extend the life or operate the real estate asset; and (4) its ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows to be generated by the real estate asset over the estimated remaining holding period is less than the carrying value of such real estate asset. An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset, the Company makes certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon its estimate of a capitalization rate and discount rate. As of March 31, 2024, the Company had not recorded any impairments on its investments in real estate.
Investments in Real Estate Debt
The Company's investments in real estate debt consist of commercial mortgage loans secured by real estate and real estate-related securities. The Company has elected the FVO for its commercial mortgage loans secured by real estate. During the three months ended March 31, 2024, real-estate related securities met the criteria to be classified as trading securities under ASC 320, "Investments". The unrealized gain or loss associated with holding real estate debt investments at fair value are recorded as a component of income from investments in real estate debt on the Company's condensed consolidated statement of operations. For the three months ended March 31, 2024 the Company recorded $0.2 million of unrealized gain on its investments in real estate debt.
Interest income from the Company’s investments in real estate debt is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of premiums and discounts associated with these investments is deferred and recorded over the term of the investment as an adjustment to yield. Upfront costs and fees related to items for which the FVO is elected are recognized in earnings as incurred and are not deferred. Interest income, upfront costs and fees are recorded as components of income from investments in real estate debt on the Company’s condensed consolidated statements of operations.
Deferred Financing Costs
Costs incurred in connection with financings are capitalized and amortized over the respective financing terms and are reflected on the accompanying condensed consolidated statement of operations as a component of interest expense.
Revenue Recognition
The Company's rental revenue consists of base rent and tenant reimbursement income arising from tenant leases at the Company's properties under operating leases. Base rent is recognized on a straight-line basis over the life of the lease, including any rent step ups or abatements. The Company accounts for base rental revenue (lease component) and common area expense reimbursement (non-lease component) as one lease component under Accounting Standards Codification ("ASC") 842, "Leases". Additionally, the Company also includes the non-components of its leases, such as the reimbursement of utilities, insurance and real estate taxes, within this lease component.
The Company evaluates the collectability of receivables related to rental revenue on an individual lease basis. Management exercises judgment in assessing collectability and considers the length of time a receivable has been outstanding, tenant creditworthiness, payment history, available information about the financial condition of the tenant, and current economic trends, among other factors. Tenant receivables that are deemed uncollectible are recognized as a reduction to rental revenue. However any future cash receipt on leases that are deemed uncollectible will be recorded as income on a cash basis.
Commercial mortgage loans that are significantly past due may be placed on non-accrual status if we determine it is probable that we will not collect all payments which are contractually due. When a loan is placed on non-accrual status, interest is only recorded as interest income when it is received. A loan may be placed back on accrual status if we determine it is probable that we will collect all payments which are contractually due.
Income Taxes
The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with its taxable year endingended December 31, 2022.2023. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes its taxable income to its stockholders. REITs are subject to a number of other organizational and
9
operational 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, and U.S. federal income and excise taxes on its undistributed income.
Earnings per Share of Common Stock
Basic earnings per share of common stock is computed by dividing net income or loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income or loss for the period by the weighted average number of shares of common stock and common stock equivalents outstanding (unless their effect is anti-dilutive) for the period. As there were no common stock equivalents outstanding during the three months ended March 31, 2024 and 2023, the calculation of basic and diluted earnings per share are equal.
Organization and Offering Expenses
The Adviser has agreed that it and/or its affiliates will advance organization and offering expenses on behalf of the Company (including legal, accounting, and other expenses attributable to the Company’sCompany's organization, but excluding upfront selling commissions, dealer manager fees and stockholder servicing fees) through December 22, 2023, the first anniversary of the date on whichescrow break for the Company breaks escrow.Offering. The Company will reimburse the Adviser and its affiliates for all such advanced expenses ratably over a 60-month period following the first anniversary of the date the Company breaks escrow.beginning on December 22, 2024.
Organization costs are expensed as incurred and recorded as expenses on the Company's condensed consolidated statement of operations and offering costs are charged to equity as such amounts are incurred. As of June 30, 2022March 31, 2024 and February 18, 2022,December 31, 2023, the Adviser and its affiliates had incurred organization and offering expensescosts on the Company’sCompany's behalf of approximately $4.37.9 million, consisting of offering costs of $6.4 million and organization costs of $2.41.5 million, respectively.million. Such costs became the Company's liability on December 22, 2022, the date on which the proceeds from the Offering were released from escrow. These organization and offering expensescosts are not recorded inas a component of due to affiliates on the accompanyingCompany's condensed consolidated balance sheets because such costs are notsheet.
Apollo Global Securities, LLC (the "Dealer Manager"), a registered broker-dealer affiliated with the Company’s liability untilAdviser, serves as the date the escrowdealer manager for the OfferingOffering. The Dealer Manager is released. When recorded by the Company, organization expenses will be expensed as incurred, and offering expenses will be chargedentitled to stockholders’ equity as such amounts will be reimbursed to the Adviser or its affiliates from the gross proceeds of the Offering. Any amount due to the Adviser and its affiliates but not paid will be recognized as a liability on the consolidated balance sheets.
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan whereby stockholders (other than residents of Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington) will have their cash distributions automatically reinvested in additional shares of common stock unless they elect to
3
Apollo Realty Income Solutions, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
receive their distributions in cash. Residents of Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Nebraska, New Hampshire, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington will automatically receive their distributions in cash unless they elect to have their cash distributions reinvested in additional shares of our common stock. The per share purchase price for shares purchased pursuant to the distribution reinvestment plan will be equal to the offering price before upfront selling commissions and dealer manager fees (the “transaction price”) atbased on the timetransaction price of each applicable class of shares sold in the distributionprimary offering. The Dealer Manager is payable, which will generally be equalalso entitled to receive a stockholder servicing fee based on the aggregate NAV of the Company’s prior month’s NAV per share for that share class. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares pursuant to the distribution reinvestment plan. The stockholder servicing fees with respect to shares of the Company’soutstanding Class S shares, Class D shares, Class F-S shares and Class F-D shares.
The following table details the selling commissions, dealer manager fees, and stockholder servicing fees for each applicable share class as of March 31, 2024:
|
| Class S Shares |
| Class D Shares |
| Class I Shares |
|
| Class F-S Shares |
| Class F-D Shares |
| Class F-I Shares |
|
| Class A-I Shares |
|
| Class A-II Shares |
|
| Class A-III Shares |
| |||||
Selling commissions and dealer manager fees (% of transaction price) |
| up to 3.5% |
| up to 1.5% |
|
| — |
|
| up to 3.5% |
| up to 1.5% |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stockholder servicing fee (% of NAV) |
| 0.85% |
| 0.25% |
|
| — |
|
| 0.85% |
| 0.25% |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
For Class S shares are calculated based onand Class F-S shares sold in the primary offering, investors will pay upfront selling commissions of up to 3% and dealer manager fees of up to 0.5% of the transaction price; however, such amounts may vary at certain participating broker-dealers, provided that the sum will not exceed 3.5% of the transaction price. For Class D shares and Class F-D shares sold in the primary offering, investors will pay upfront selling commissions of up to 1.5% of the transaction price.
The Dealer Manager, as the dealer manager for the Offering, is entitled to receive stockholder servicing fees of 0.85% per annum of the aggregate NAV for thoseClass S shares and may reduceClass F-S shares. For Class D shares and Class F-D shares, a charge of 0.25% per annum of the aggregate NAV or, alternatively,will be charged for stockholder servicing fees.
The Dealer Manager has entered into agreements with selected dealers that agree to distribute the distributions payableCompany's shares in the Offering, which will provide, among other things, for the reallowance of the full amount of the selling commissions and stockholder servicing fees to such selected dealers. The Company will cease paying the stockholder servicing fee with respect to any Class S share, Class D share, Class F-S share, or Class F-D share held in a stockholder's account at the end of the month in which the total selling commissions, dealer manager fees and stockholder servicing fees paid with respect to such shares would exceed, in the aggregate, 8.75% of the gross proceeds from the sale of such share. There will not be a stockholder servicing fee, upfront selling commission or dealer manager fee with respect to Class I shares, Class F-I shares, Class A-I shares, Class A-II shares, and Class A-III shares. The Company will accrue the cost of the stockholder servicing fee as an offering cost at the time of each Class S share, Class D share, Class F-S share, and Class F-D share is sold during the primary offering. As of March 31, 2024, the Company had not sold any of those share classes and as such class, including shares issued in respect of distributions on such shares under the distribution reinvestment plan.has not accrued for any stockholder servicing fees.
Share RepurchasesBased Payments
The Company has adopted a share repurchase plan, wherebyaccounts for share-based compensation to its independent directors, to the Adviser and to employees of the Adviser and its affiliates using the fair value-based methodology prescribed by GAAP. Compensation cost related to restricted common stock issued is measured at its fair value at the grant date and amortized into expense over the vesting period on a monthlystraight-line basis.
10
Recent Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" ("ASU 2023-07"). ASU 2023-07 intends to improve reportable segment disclosure requirements, enhance interim disclosure requirements and provide new segment disclosure requirements for entities with a single reportable segment. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods with fiscal years beginning after December 15, 2024. ASU 2023-07 is to be adopted retrospectively to all prior periods presented. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures" ("ASU 2023-09"). ASU 2023-09 intends to improve the transparency of income tax disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024 and is to be adopted on a prospective basis stockholders may request thatwith the option to apply retrospectively. The Company is currently assessing the impact of this guidance, however, it does not expect a material impact to its consolidated financial statements.
Note 3 - Investments in Real Estate
Investments in real estate, net consisted of the following ($ in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Building and building improvements |
| $ | 132,792 |
|
| $ | 132,792 |
|
Land and land improvements |
|
| 22,707 |
|
|
| 22,707 |
|
Tenant improvements |
|
| 621 |
|
|
| 621 |
|
Total |
|
| 156,120 |
|
|
| 156,120 |
|
Accumulated depreciation |
|
| (2,506 | ) |
|
| (1,607 | ) |
Investment in real estate, net |
| $ | 153,614 |
|
| $ | 154,513 |
|
During the three months ended March 31, 2024, the Company repurchase all ordid not acquire any portion of their shares.properties.
Intangible assets are recorded in other assets on the accompanying condensed consolidated balance sheet. The Company may choose to repurchase all, some or noneintangibles of the sharesproperties are amortized over the remaining lease terms that they were derived from. As a result, the Company's intangibles have been requested to be repurchased ata weighted average amortization period of approximately 13 years. As of March 31, 2024 and December 31, 2023, the endCompany did not recognize any impairment on its real estate investments.
11
Note 4 - Investments in its discretion, subject to any limitations inReal Estate Debt
The following table details the share repurchase plan. The total amount of aggregate repurchases of Class S shares, Class D shares, Class I shares, Class F-S shares, Class F-D shares, Class F-I shares and Class E shares will be limited to 2% of the aggregate NAV per month and 5% of the aggregate NAV per calendar quarter. Shares would be repurchased at a price equal to the transaction price on the applicable repurchase date. Due to the illiquid nature ofCompany's investments in real estate debt as of March 31, 2024 ($ in thousands):
| March 31, 2024 |
| ||||||||||||||||||
Type of Investment in Real Estate Debt |
| Number of Positions |
| Weighted Average Coupon(1) |
|
| Weighted Average Maturity Date (2) |
| Face Amount |
|
| Cost Basis |
|
| Fair Value |
| ||||
Commercial real estate loan |
| 13 |
|
| 9.0 | % |
| March 2028 |
| $ | 399,911 |
|
| $ | 399,777 |
|
| $ | 399,911 |
|
Mezzanine loan |
| 1 |
|
| 10.0 | % |
| September 2026 |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
Real estate-related securities |
| 14 |
|
| 7.0 | % |
| May 2037 |
|
| 24,457 |
|
|
| 24,104 |
|
|
| 24,329 |
|
Total investments in real estate debt |
| 28 |
|
| 9.0 | % |
| July 2028 |
| $ | 474,368 |
|
| $ | 473,881 |
|
| $ | 474,240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
| December 31, 2023 |
| ||||||||||||||||||
Type of Investment in Real Estate Debt |
| Number of Positions |
| Weighted Average Coupon(1) |
|
| Weighted Average Maturity Date (2) |
| Face Amount |
|
| Cost Basis |
|
| Fair Value |
| ||||
Commercial real estate loan |
| 11 |
|
| 9.1 | % |
| September 2027 |
| $ | 252,868 |
|
| $ | 252,668 |
|
| $ | 252,868 |
|
Mezzanine loan |
| 1 |
|
| 10.0 | % |
| September 2026 |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
Real estate-related securities |
| 14 |
|
| 7.0 | % |
| May 2037 |
|
| 25,811 |
|
|
| 25,314 |
|
|
| 25,321 |
|
Total investments in real estate debt |
| 26 |
|
| 9.3 | % |
| April 2028 |
| $ | 328,679 |
|
| $ | 327,983 |
|
| $ | 328,189 |
|
____________
All of the Company's real estate-related securities have maturity dates greater than ten years from March 31, 2024.
The table below details the type of properties securing the loans in the Company's portfolio at the dates indicated ($ in thousands):
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||||||
Property Type |
|
| Fair Value |
| % of Portfolio |
|
| Fair Value |
| % of Portfolio |
| ||||
Multifamily |
|
| $ | 176,624 |
|
| 39.3 | % |
| $ | 110,670 |
|
| 36.6 | % |
Industrial |
|
|
| 96,056 |
|
| 21.3 | % |
|
| 91,292 |
|
| 30.1 | % |
Hotel |
|
|
| 93,865 |
|
| 20.9 | % |
|
| 48,795 |
|
| 16.1 | % |
Data Center |
|
|
| 63,131 |
|
| 14.0 | % |
|
| 40,651 |
|
| 13.4 | % |
Self-Storage |
|
|
| 17,659 |
|
| 3.9 | % |
|
| 8,884 |
|
| 2.9 | % |
Other(1) |
|
|
| 2,576 |
|
| 0.6 | % |
|
| 2,576 |
|
| 0.9 | % |
Total |
|
| $ | 449,911 |
|
| 100.0 | % |
| $ | 302,868 |
|
| 100.0 | % |
The table below details the geographic distribution of the properties securing the loans in the Company's portfolio at the dates indicated ($ in thousands):
|
| March 31, 2024 |
|
| December 31, 2023 |
| |||||||||
Geographic Location |
|
| Fair Value |
| % of Portfolio |
|
| Fair Value |
| % of Portfolio |
| ||||
Northeast |
|
| $ | 190,998 |
|
| 42.5 | % |
| $ | 169,829 |
|
| 56.1 | % |
Mid-Atlantic |
|
|
| 66,647 |
|
| 14.8 | % |
|
| 44,166 |
|
| 14.6 | % |
West |
|
|
| 132,680 |
|
| 29.5 | % |
|
| 32,841 |
|
| 10.8 | % |
Southeast |
|
|
| 27,582 |
|
| 6.1 | % |
|
| 27,582 |
|
| 9.1 | % |
Southwest |
|
|
| 18,400 |
|
| 4.1 | % |
|
| 18,400 |
|
| 6.1 | % |
Midwest |
|
|
| 13,604 |
|
| 3.0 | % |
|
| 10,050 |
|
| 3.3 | % |
Total |
|
| $ | 449,911 |
|
| 100.0 | % |
| $ | 302,868 |
|
| 100.0 | % |
The total income from investments in real estate debt disclosed on the Company's condensed consolidated statement of operations relates to interest income, upfront fees recognized, and unrealized gain on these investments in real estate debt. For the three months ended March 31, 2024, the Company may notrecorded $0.2 million unrealized gains on its investments in real estate debt. The Company did not have sufficient liquid resourcesany unrealized gains or losses on its investments in real estate debt for the three months ended March 31, 2023.
12
Note 5 - Other Assets
The following table details the components of the Company's other assets at the dates indicated ($ in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Real estate intangibles, net |
| $ | 25,172 |
|
| $ | 25,734 |
|
Straight-line rent receivable |
|
| 1,812 |
|
|
| 1,425 |
|
Interest receivable |
|
| 2,794 |
|
|
| 1,727 |
|
Deferred financing costs, net |
|
| 853 |
|
|
| 1,057 |
|
Other |
|
| 932 |
|
|
| 1,821 |
|
Total |
| $ | 31,563 |
|
| $ | 31,764 |
|
Note 6 - Intangibles
The gross carrying amount and accumulated amortization of the Company's intangible assets consisted of the following as of the dates indicated ($ in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Intangible assets: |
|
|
|
|
|
| ||
In-place lease intangibles |
| $ | 26,363 |
|
| $ | 26,363 |
|
Above-market lease intangibles |
|
| 325 |
|
|
| 325 |
|
Total intangible assets |
|
| 26,688 |
|
|
| 26,688 |
|
Accumulated amortization: |
|
|
|
|
|
| ||
In-place lease amortization |
|
| (1,492 | ) |
|
| (937 | ) |
Above-market lease amortization |
|
| (24 | ) |
|
| (17 | ) |
Total real estate intangible assets, net |
| $ | 25,172 |
|
| $ | 25,734 |
|
Intangible liabilities |
|
|
|
|
|
| ||
Below-market lease intangibles |
| $ | (10,855 | ) |
| $ | (10,855 | ) |
Total intangible liabilities |
|
| (10,855 | ) |
|
| (10,855 | ) |
Accumulated amortization: |
|
|
|
|
|
| ||
Below-market lease amortization |
|
| 423 |
|
|
| 226 |
|
Total real estate intangible liabilities, net |
| $ | (10,432 | ) |
| $ | (10,629 | ) |
The estimated future amortization on the Company's intangibles for each of the next five years and thereafter as of March 31, 2024, is as follows ($ in thousands):
|
| In-Place Lease Intangibles |
|
| Above-Market Intangibles |
|
| Below-Market Intangibles |
|
| |||
2024 (remaining) |
|
| 1,599 |
|
|
| 22 |
|
|
| (578 | ) |
|
2025 |
|
| 2,126 |
|
|
| 29 |
|
|
| (775 | ) |
|
2026 |
|
| 2,126 |
|
|
| 29 |
|
|
| (775 | ) |
|
2027 |
|
| 2,126 |
|
|
| 29 |
|
|
| (775 | ) |
|
2028 |
|
| 2,093 |
|
|
| 29 |
|
|
| (756 | ) |
|
Thereafter |
|
| 14,801 |
|
|
| 163 |
|
|
| (6,773 | ) |
|
| $ | 24,871 |
|
| $ | 301 |
|
| $ | (10,432 | ) |
|
Note 7 - Leases
Lessor
The Company’s rental revenue consists of rent earned from the operating leases at the Company’s industrial and retail properties. The leases at the Company’s industrial and retail properties generally includes a fixed base rent, subject to fund repurchase requestsannual step-ups, and a variable component. The variable component of the Company’s operating leases primarily consists of the reimbursement of operating expenses such as real estate taxes, insurance, and common area maintenance costs.
The following table summarizes the fixed and variable components of the Company's operating leases ($ in thousands):
13
| Three Months Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| ||
Fixed lease payments | $ | 3,070 |
|
| $ | 904 |
|
Variable lease payments |
| 403 |
|
|
| 91 |
|
Lease Revenue | $ | 3,473 |
|
| $ | 995 |
|
Above- and below-market lease amortization |
| 190 |
|
|
| (2 | ) |
Rental Revenue | $ | 3,663 |
|
| $ | 993 |
|
The following table presents the undiscounted future minimum rents the Company expects to receive for its industrial and retail properties as of March 31, 2024 ($ in thousands):
Year |
| Future Minimum Rents |
| |
2024 |
| $ | 8,117 |
|
2025 |
|
| 10,951 |
|
2026 |
|
| 11,214 |
|
2027 |
|
| 11,531 |
|
2028 |
|
| 11,802 |
|
Thereafter |
|
| 84,314 |
|
Total |
| $ | 137,929 |
|
Note 8 - Mortgage Notes
As of March 31, 2024 and December 31, 2023 the Company held a $36.0 million, non-amortizing, mortgage loan secured by one of its real estate equity properties, net of unamortized deferred financing costs of $0.4 million and $0.5 million, respectively. The loan has a fixed interest rate of 6.05% and a five year term with a maturity date in November 2028. There have been no repayments on this mortgage loan during the three months ended March 31, 2024. During the three months ended March 31, 2024, the Company recorded $21 thousand of deferred financing cost amortization, which is included within interest expense in the condensed consolidated statement of operations. The Company did not have any deferred financing cost amortization for the three months ended March 31, 2023. The Company is in compliance with all covenants as of March 31, 2024.
Note 9 - Secured Financings on Investments in Real Estate Debt
During October 2023, certain indirect subsidiaries (the "Sellers") of the Company entered into a Master Repurchase Agreement (the "JPM Repurchase Agreement") with JPMorgan Chase Bank, National Association (the "Buyer"). The JPM Repurchase Agreement provides for a maximum aggregate purchase price of $250.0 million and has established limitations ona three-year term plus two one-year extension options (the "JPM Repurchase Facility"). Subject to the amountterms and conditions thereof, the JPM Repurchase Agreement provides for the purchase, sale and repurchase of fundssenior mortgage loans and participation interests in performing senior mortgage loans satisfying certain conditions set forth in the JPM Repurchase Agreement. The Operating Partnership has agreed to provide a limited guarantee of the obligations of the Sellers under the JPM Repurchase Agreement. As of March 31, 2024, there are no outstanding borrowings under the JPM Repurchase Agreement and the Company may use for repurchases during any calendar month and quarter. Further,is in compliance with all associated covenants.
The Company incurred $1.2 million in costs associated with the Company’s boardJPM Repurchase Facility that are recorded in other assets in the consolidated balance sheet net of directors may modify or suspend$0.3 million of amortization.
Note 10 - Other Liabilities
The following table details the share repurchase plan.components of the Company's other liabilities at the date indicated ($ in thousands):
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Below market lease intangibles, net |
| $ | 10,432 |
|
| $ | 10,629 |
|
Distribution payable |
|
| 2,846 |
|
|
| 1,900 |
|
Accounts payable and accrued expenses |
|
| 2,935 |
|
|
| 1,816 |
|
Real estate taxes payable |
|
| 285 |
|
|
| 61 |
|
Total |
| $ | 16,498 |
|
| $ | 14,406 |
|
Note 411 - Related Party Transactions
14
Pursuant to the advisory agreement between the Company and the Operating Partnership, on the one hand, and the Adviser, on the other hand,Advisory Agreement the Adviser is responsible for sourcing, evaluating and monitoring the Company’sCompany's investment opportunities and making decisions related to the acquisition, management, financing and disposition of the Company’sCompany's assets, in accordance with the Company’sCompany's investment objectives, guidelines, policies and limitations, subject to oversight by the Company’sCompany's board of directors.
Certain affiliates of the Company, including the Adviser, will receive fees and compensation in connection with the Offering and ongoing management of the assets of the Company. The Adviser will be paid a management fee equal to 1.25% of NAV per annum, payable monthly on Class S shares, Class D shares, and Class I shares. The Adviser will be paid a management fee equal to 1.0% of NAV per annum, payable monthly on Class F-S shares, Class F-D shares, and Class F-I shares. The management fee will be paid, at the Adviser’s election, in cash, Class E shares, or Class E units of the Operating Partnership.
The Special Limited Partner holds a performance participation interest in the Operating Partnership that entitles it to receive an allocation from the Operating Partnership on Class S shares, Class D shares, and Class I shares equal to 12.5% of the annual Total Return, subject to a 5% annual Hurdle Amount and a High Water Mark, with a Catch-Up (each term as defined in the limited partnership agreement of the Operating Partnership, by and among the Company, as general partner, the Special Limited Partner and the limited partnership agreement)partners party thereto from time to time (as amended, restated or otherwise modified from time to time, the "Limited Partnership Agreement")). On Class F-S shares, Class F-D shares, and Class F-I shares, the Special Limited Partner is entitled to receive an allocation equal to 9.0% of the annual Total Return, subject to a 5% annual Hurdle Amount and a High Water Mark, with a Catch-Up (each term as defined in the OperatingLimited Partnership limited partnership agreement)Agreement). Such allocation will accrue monthly and be madepaid annually. There will not be a performance participation interest with respect to Class A-I shares, Class A-II shares, Class A-III shares, and Class E shares. The performance participation interest will be paid, at the Adviser's election, in cash, Class E shares, Class E units of the Operating Partnership or any combination thereof. During the three months ended March 31, 2024, the Company accrued $0.2 million of performance participation allocation. There was no performance participation allocation during the three months ended March 31, 2023.
The Company may retain certain of the Adviser’sAdviser's affiliates for necessary services relating to the Company’sCompany's investments or its operations, including but not limited to any accounting and audit services (including valuation support services), account management services, administrative services, data management services, information technology services, finance/budget services, legal services, operational services, risk management services, tax services, treasury services, construction, special servicing, leasing, development, coordinating closing and post-closing procedures, property oversight, statutory services, and other property management services, as well as services related to mortgage servicing, group purchasing, healthcare, consulting/brokerage, capital markets/credit origination, broker-dealer services, underwriting, placing, syndicating, structuring, arranging, debt advisory services and other similar services, loan servicing, property, title and/or other types of insurance, title agency services, management consulting and other similar operational matters. Any fees paid to the Adviser's affiliates for any such services will not reduce the management fee or performance participation allocation. Any such arrangements will be at market terms and rates. As of June 30, 2022
The Company has engaged Nations Land Services, L.P. ("Nations"), a title agent company in which Apollo has a majority ownership. Nations acts as a title agent in facilitating and February 18, 2022,issuing title insurance in connection with investments by the Company, hasaffiliates, and related parties, and third parties. Apollo receives distributions from Nations in connection with investments by the Company based on its equity interest in Nations. In each case, there will be no related offset to the Company. During the three months ended March 31, 2024, the Company did not retained an affiliate of the Adviser forincur any such services.expenses related to Nations.
In addition, Apollo Global Securities, LLC (the “Dealer Manager”) will serveThe Dealer Manager serves as the dealer manager for the Offering. The Dealer Manager is a registered broker-dealer affiliated with the Adviser. The Company entered into an agreement (the “Dealer"Dealer Manager Agreement”Agreement") with the Dealer Manager in connection with the Offering. Subject to the terms of the Dealer Manager Agreement, the Company’sCompany's obligations to pay stockholder servicing fees with respect to the Class S shares, Class D shares, Class F-S shares, and Class F-D shares sold in the Offering shall survive until such shares are no longer outstanding (including because such shares have converted into Class I shares or Class F-I shares).
4
Apollo Realty Income Solutions, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
The Dealer Manager is entitled to receive selling commissions of up to 3.0%, and dealer manager fees of up to 0.5%, of the transaction price of each Class S share and Class F-S share sold in the primary offering; however, such amounts may vary at certain participating broker-dealers, provided that the sum will not exceed 3.5% of the transaction price. Participating broker-dealers are third-party broker-dealers engaged by the Dealer Manager to participate in the distribution of shares of the Company's common stock. The Dealer Manager is also entitled to receive selling commissions of up to 1.5% of the transaction price of each Class D share and Class F-D share sold in the primary offering. The Dealer Manager also receives a stockholder servicing fee of 0.85% and 0.25% per annum of the aggregate NAV of the Company’sCompany's outstanding Class S and F-S shares and Class D and F-D shares, respectively. The Dealer Manager intends to enterhas entered into agreements with selected dealers that agree to distribute the Company’sCompany's shares in the Offering, which will provide, among other things, for the reallowance of the full amount of the selling commissions and stockholder servicing fees to such selected dealers. The Company will cease paying the stockholder servicing fee with respect to any Class S share, Class D share, Class F-S share, or Class F-D share soldheld in the primary offeringa stockholder's account at the end of the month in which the total selling commissions, dealer manager fees and stockholder servicing fees paid with respect to such shareshares would exceed, in the aggregate, 8.75% of the gross proceeds from the sale of such share. The Company will accrue the cost of the stockholder servicing fee as an offering cost at the time each Class S share, Class F-S share, Class D share, and Class F-D share is sold during the primary offering. There will 0not be a stockholder servicing fee, upfront selling commission or dealer manager fee with respect to Class I shares, Class F-I shares, Class A-I shares, Class A-II shares, and Class F-IA-III shares.
From time to time, the Company makes co-investments in commercial mortgage loans alongside Apollo affiliates. As of March 31, 2024, all of the Company's investments in commercial mortgage loans were pari-passu co-investments with Apollo affiliates.
The Company may also offer Class E shares, which will only be available to certain of Apollo's affiliates and employees, in one or more private placements. These shares are not being offered to the public pursuant to the Offering and will 0not incur any upfront selling costs, ongoing servicing costs, management fee or performance participation allocation.
15
On February 18, 2022, the Company was capitalized with a $0.2 million investment by Apollo ARIS Holdings LLC, an indirect wholly-owned subsidiary of Apollo, in exchange for 10,000 shares of Class I common stock. On November 11, 2022, 10,000 shares of Class I common stock held by Apollo ARIS Holdings LLC were exchanged for 10,000 shares of Class F-I common stock. Apollo ARIS Holdings LLC has elected to reinvest the dividends declared on its shares, which has corresponded to the issuance of 115 additional Class F-I shares in lieu of cash for the dividends paid during the three months ended March 31, 2024.
On November 29, 2022, the Company and the Operating Partnership entered into a subscription agreement with an affiliate of Apollo to issue 5,000,000 Class A-I units of the Operating Partnership for the aggregate consideration of $100.0 million. In May 2023 such affiliate of Apollo elected to reinvest its dividends. In connection with such dividend reinvestment, the Company issued 56,702 Class A-I units of the Operating Partnership in lieu of cash for the dividends paid during the three months ended March 31, 2024.
Due to Affiliates
The following table details the Company's expenses that are due to its Adviser:
| March 31, 2024 |
|
| December 31, 2023 |
| |||
Organization and offering |
| $ | 7,917 |
|
| $ | 7,906 |
|
General and administrative |
|
| 7,064 |
|
|
| 6,895 |
|
Management fee payable |
|
| 529 |
|
|
| 468 |
|
Accrued performance participation allocation |
|
| 203 |
|
|
| 562 |
|
Total |
| $ | 15,713 |
|
| $ | 15,831 |
|
Organization and Offering Expenses
The Adviser has advanced $7.9 million of organization and offering expenses (including legal, accounting, and other expenses attributable to the Company's organization, but excluding upfront selling commissions, dealer manager fees and stockholder servicing fees) on behalf of the Company through March 31, 2024. The Adviser advanced the Company's organization and offering expenses on behalf of the Company through December 22, 2023, the first anniversary of the escrow break for the Offering. The Company will reimburse the Adviser for all such advanced costs ratably over a 60 month period beginning on December 22, 2024.
General and Administrative Expenses
The Adviser has agreed that it and/or its affiliates will advance certain general and administrative expenses on behalf of the Company through December 22, 2023, the first anniversary of the escrow break for the Offering. The Adviser has advanced $7.1 million of general and administrative expenses on the Company's behalf as of March 31, 2024. The Company will reimburse the Adviser for all such advanced costs ratably over a 60 month period beginning on December 22, 2024.
Management Fee Payable
The Adviser is entitled to a management fee equal to 1.25% of NAV per annum, payable monthly on Class S shares, Class D shares, and Class I shares. The Adviser will be paid a management fee equal to 1.0% of NAV per annum, payable monthly on Class F-S shares, Class F-D shares, Class F-I shares, and Class A-I shares. The Adviser will be paid a management fee equal to 1.0% of NAV for Class A-II shares per annum payable monthly; and provided that, for the period of April 1, 2023 through September 1, 2026, this management fee will be reduced to 0.92% of NAV for Class A-II shares per annum payable monthly. The Adviser will be paid a management fee equal to 1.0% of NAV for Class A-III shares per annum payable monthly; and provided that, for the period of April 1, 2023 through January 2, 2027, this management fee will be reduced to 0.85% of NAV for Class A-III shares per annum payable monthly. The management fee will be paid, at the Adviser's election, in cash, Class E shares, Class E units of the Operating Partnership or any combination thereof. During the three months ended March 31, 2024, the Company incurred $1.5 million of management fees.
During the three months ended March 31, 2024, the Company issued 56,577 Class E shares and 12,885 Class E units to the Adviser as payment for its management fee. The shares and units issued to the Adviser for payment of the management fee were issued at the applicable NAV per share/unit at the end of each month for which the fee was earned, in reliance upon the exemption from registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). The Adviser did not submit any repurchase requests for any shares or units of the Operating Partnership previously issued as payment for the management fee during the three months ended March 31, 2024.
The Adviser has elected to reinvest the dividends declared on the shares and units of the Operating Partnership issued for its management fee. In connection with such dividend reinvestment, the Company issued (i) 1,621 Class E shares and (ii) 690 Class E units to the Adviser in lieu of cash for the dividends paid during the three months ended March 31, 2024. There were no dividends declared during the three months ended March 31, 2023.
Note 512 - Economic Dependency
The Company will be dependent on the Adviser and its affiliates for certain services that are essential to it, including the sale of the Company’sCompany's shares of common stock, acquisition and disposition decisions, and certain other responsibilities. In the event that the Adviser and its affiliates
16
are unable or unwilling to provide such services, the Company would be required to find alternative service providers. The Company may retain third parties, including certain of the Adviser's affiliates, for necessary services relating to its investments or operations.
Note 13 - Share Based Payments
The Company's board of directors approved the Apollo Realty Income Solutions, Inc. Amended and Restated 2022 Equity Incentive Plan (the "2022 Equity Incentive Plan"), pursuant to which, shares of the Company's common stock may be granted from time to time to directors and officers of the Company and employees of the Adviser. The 2022 Equity Incentive Plan allows for up to 10,000,000 shares of the Company's common stock to be issued.
The following table summarizes the grants, vesting and forfeitures of restricted common stock during the three months ended March 31, 2024:
Type |
| Restricted Stock |
|
| Grant Date Fair Value ($ in thousands) |
| ||
Outstanding as of December 31, 2023 |
|
| 4,948 |
|
| $ | 100 |
|
Granted |
|
| — |
|
|
| — |
|
Vested |
|
| — |
|
|
| — |
|
Forfeiture |
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2024 |
|
| 4,948 |
|
|
| 100 |
|
Restricted Stock Grants
No shares were issued pursuant to the 2022 Equity Incentive Plan during the three months ended March 31, 2024.
During the three months ended March 31, 2024, the Company recorded $25 thousand of restricted stock amortization as general and administrative expenses in the condensed consolidated statement of operations. There is no unrecognized compensation cost as of March 31, 2024.
Note 14 - Equity
Authorized Capital
The Company is authorized to issue preferred stock and ten classes of common stock consisting of Class S shares, Class D shares, Class I shares, Class F-S shares, Class F-D shares, Class F-I shares, Class A-I shares, Class A-II shares, Class A-III shares, and Class E shares. The differences among the classes of common stock relate to upfront selling commissions, dealer manager fees, and ongoing stockholder servicing fees, as well as varying management and performance participation allocations. See "Note 11 - Related Party Transactions" for additional information.
As of March 31, 2024 and December 31, 2023, the Company had the following classes of common stock authorized, issued and outstanding:
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||||||||||
Classification |
| Shares Authorized |
|
| Shares Issued and Outstanding |
|
| Shares Authorized |
|
| Shares Issued and Outstanding |
| ||||
Preferred Stock, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class S Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class D Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class I Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| 201,777 |
|
|
| 100,000,000 |
|
|
| — |
|
Class F-S Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class F-D Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class F-I Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| 5,415,954 |
|
|
| 100,000,000 |
|
|
| 4,820,377 |
|
Class A-I Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| 6,363,747 |
|
|
| 100,000,000 |
|
|
| 17,016,652 |
|
Class A-II Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| 14,171,864 |
|
|
| 100,000,000 |
|
|
| — |
|
Class A-III Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| — |
|
|
| 100,000,000 |
|
|
| — |
|
Class E Shares, $0.01 par value per share |
|
| 100,000,000 |
|
|
| 180,693 |
|
|
| 100,000,000 |
|
|
| 105,707 |
|
Total |
|
| 1,100,000,000 |
|
|
| 26,334,035 |
|
|
| 1,100,000,000 |
|
|
| 21,942,736 |
|
Common Stock
The following table details the movement in the Company's outstanding shares of common stock:
17
|
| Class I |
|
| Class F-I |
|
| Class A-I |
|
| Class A-II |
|
| Class E |
| |||||
Beginning balance, December 31, 2023 |
|
| — |
|
|
| 4,820,377 |
|
|
| 17,016,652 |
|
|
| — |
|
|
| 105,707 |
|
Common stock issued |
|
| 201,505 |
|
|
| 594,229 |
|
|
| 1,787,026 |
|
|
| 1,671,686 |
|
|
| 73,366 |
|
Repurchase of common stock |
|
| — |
|
|
| (2,476 | ) |
|
| — |
|
|
| (5,000 | ) |
|
| — |
|
Dividend reinvestment |
|
| 272 |
|
|
| 3,824 |
|
|
| 37,473 |
|
|
| 2,189 |
|
|
| 1,620 |
|
Share class transfer |
|
| — |
|
|
| — |
|
|
| (12,477,404 | ) |
|
| 12,502,989 |
|
|
| — |
|
Ending balance, March 31, 2024 |
|
| 201,777 |
|
|
| 5,415,954 |
|
|
| 6,363,747 |
|
|
| 14,171,864 |
|
|
| 180,693 |
|
On January 3, 2024 (the "Exchange Date"), approximately 12,477,404 Class A-I shares were exchanged for 12,502,989 Class A-II shares at an exchange rate based on the NAV per share for the Company's Class A-I shares and the Company's total NAV per share as of the Exchange Date.
Distributions
The Company generally intends to distribute substantially all of its taxable income to its stockholders each year to comply with the REIT provisions of the Code, as amended. Taxable income does not necessarily equal net income calculated in accordance with GAAP.
Each class of common stock receives the same gross distribution per share. The net distribution per share varies for each share class based on differing fee structures. Additionally net distributions will vary based on the applicable stockholder servicing fee, which is deducted from the monthly distribution per share and paid directly to the applicable distributor.
The following table details the aggregate distributions declared for each applicable class of common stock:
| Three Months Ended March 31, 2024 |
| ||||||||||||||||||
|
| Class I |
|
| Class F-I |
|
| Class A-I |
|
| Class A-II |
|
| Class E |
| |||||
Aggregate gross distribution declared per share of common stock |
| $ | 0.2041 |
|
| $ | 0.3013 |
|
| $ | 0.3013 |
|
| $ | 0.3013 |
|
| $ | 0.3013 |
|
Management fee per share of common stock |
|
| (0.0436 | ) |
|
| (0.0518 | ) |
|
| (0.0524 | ) |
|
| (0.0482 | ) |
|
| — |
|
Net distribution declared per share of common stock |
| $ | 0.1605 |
|
| $ | 0.2495 |
|
| $ | 0.2489 |
| $ | 0.2531 |
|
| $ | 0.3013 |
|
There were no distributions for the three months ended March 31, 2023.
Repurchases
During the three months ended March 31, 2024 the Company repurchased 5,000 Class A-II shares and 2,476 Class F-I shares pursuant to the Company's share repurchase plan for an aggregate amount of $0.2 million. The Company had no unfulfilled repurchase requests as of March 31, 2024.
Redeemable Non-Controlling Interest
In connection with its management fee, the Adviser has elected to receive Class E units. See Note 11 - Related Party Transactions for additional information on the Advisers interest. In November 2023, the Limited Partnership Agreement was updated to enable the Adviser to redeem their Class E units for Class E shares or cash at its election. As of that date the Company has classified these Class E units as redeemable non-controlling interest in mezzanine equity on the Company's consolidated balance sheet. The redeemable non-controlling interest is recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such Operating Partnership units at the end of each measurement period.
The following table details the redeemable non-controlling interest activity related to the Adviser for the three months ended March 31, 2024 ($ in thousands):
| Adviser |
| ||
Balance at December 31, 2023 |
| $ | 967 |
|
Settlement of management fees |
|
| 269 |
|
Settlement of performance participation allocation |
|
| 562 |
|
GAAP income allocation |
|
| 31 |
|
Distributions |
|
| (25 | ) |
Reinvestment of distributions |
|
| 20 |
|
Fair value allocation |
|
| - |
|
Balance at March 31, 2024 |
| $ | 1,824 |
|
As of March 31, 2024 the carrying value of the redeemable non-controlling interest approximated the fair value.
Non-Controlling Interests - Operating Partnership Unitholders
Operating Partnership units are subject to the same fees as the corresponding classes of common stock and do not have any preferential rights relative to the Company's interest in the Operating Partnership.
18
On December 22, 2022, the Company issued 5,000,000 Class A-I units of the Operating Partnership to an affiliate of Apollo for the aggregate consideration of $100.0 million in a private placement.
During the three months ended March 31, 2024, the Company issued 12,885 Class E units to the Adviser for the management fee earned on the Operating Partnership units issued to an affiliate of Apollo, mentioned above.
During the three months ended March 31, 2024, the Company issued 26,977 Class E units to the Special Limited Partner for performance participation allocation earned in 2023.
Currently all Operating Partnership unitholders have elected to reinvest their dividends. In connection with such dividend reinvestment, the Company issued 56,702 Class A-I and 942 Class E units of the Operating Partnership in lieu of cash for the dividends paid during the three months ended March 31, 2024.
Non-Controlling Interests Attributable to Preferred Shareholders
A subsidiary of the Company intends to elect to be taxed as a REIT for U.S. federal income tax purposes. This subsidiary has issued preferred non-voting shares to be held by investors to ensure compliance with the Code requirement that REITs have at least 100 shareholders. The preferred shares have a face amount of $1,000 and carry a 12.0% annual dividend payable annually. As of March 31, 2024, this subsidiary had $125,000 of preferred non-voting shares outstanding.
Note 15 - Earnings per Share
The Company's net income (loss) and weighted average number of shares outstanding for the three months ended March 31, 2024, and the three months ended March 31, 2023, consists of the following (in thousands except per share information):
Basic and Diluted Net Loss per Share Attributable to ARIS Stockholders | Three Months Ended March 31, |
| |||||
| 2024 |
|
| 2023 |
| ||
Numerator: |
|
|
|
|
| ||
Net income (loss) attributable to ARIS stockholders | $ | 7,939 |
|
| $ | 335 |
|
Denominator: |
|
|
|
|
| ||
Basic and diluted weighted average shares of common stock outstanding |
| 24,902 |
|
|
| 3,249 |
|
Basic and diluted net income (loss) per share of common stock | $ | 0.32 |
|
| $ | 0.10 |
|
Note 616 - Commitments and Contingencies
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2022March 31, 2024 and February 18, 2022,December 31, 2023, the Company was not subject to any material litigation nor is the Company aware of any material litigation threatened against it.
As of March 31, 2024, the Company had $246.1 million of unfunded commitments related to its investments in real estate debt. The timing and amounts of fundings are uncertain as these commitments relate to loans for construction costs, capital expenditures, leasing costs, interest and carry costs, among others. As such, the timing and amounts of future fundings depend on the progress and performance of the underlying assets of the Company's investments in real estate debt.
Note 7 – Subsequent Events17 - Segment Reporting
Events subsequent to June 30, 2020 were evaluated throughThe Company operates in two reportable segments: Real Estate and Real Estate Debt. The Company allocates resources and evaluates results based off of the date these condensed consolidatedperformance of each segment individually. The Company believes that Segment Net Operating Income is the key performance metric that captures the unique operating characteristics of each segment.
The following table sets forth the total assets by segment as of March 31, 2024 and December 31, 2023 ($ in thousands):
|
| March 31, 2024 |
|
| December 31, 2023 |
| ||
Real Estate |
| $ | 182,382 |
|
| $ | 183,492 |
|
Real Estate Debt |
|
| 477,035 |
|
|
| 330,974 |
|
Other Corporate |
|
| 46,477 |
|
|
| 95,205 |
|
Total Assets |
| $ | 705,894 |
|
| $ | 609,671 |
|
The following table sets forth the financial statements were issued and no other additional events were identified requiring further disclosureresults by segment for the three months ended March 31, 2024 ($ in these condensed consolidated statements.thousands):
19
5
|
| Real Estate |
|
| Real Estate Debt |
|
| Other Corporate |
|
| Total |
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Rental revenue |
| $ | 3,663 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,663 |
|
Total revenues |
|
| 3,663 |
|
|
| — |
|
|
| — |
|
|
| 3,663 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental property operating |
|
| (573 | ) |
|
| — |
|
|
| — |
|
|
| (573 | ) |
Interest expense, net |
|
| (567 | ) |
|
| (203 | ) |
|
| — |
|
|
| (770 | ) |
Total segment expenses |
|
| (1,140 | ) |
|
| (203 | ) |
|
| — |
|
|
| (1,343 | ) |
Income from investments in real estate debt |
|
| — |
|
|
| 11,114 |
|
|
| — |
|
|
| 11,114 |
|
Segment net operating income |
| $ | 2,523 |
|
| $ | 10,911 |
|
| $ | — |
|
| $ | 13,434 |
|
Depreciation and amortization |
| $ | (1,455 | ) |
| $ | — |
|
| $ | — |
|
| $ | (1,455 | ) |
General and administrative |
|
|
|
|
|
|
|
|
|
|
| (1,537 | ) | |||
Management fee |
|
|
|
|
|
|
|
|
|
|
| (1,511 | ) | |||
Performance participation allocation |
|
|
|
|
|
|
|
|
|
|
| (203 | ) | |||
Other income |
|
|
|
|
|
|
|
|
|
|
| 908 |
| |||
Net income |
|
|
|
|
|
|
|
|
|
| $ | 9,636 |
| |||
Net income attributable to non-controlling interests in the Operating Partnership |
|
|
|
|
|
|
|
|
|
| $ | 1,697 |
| |||
Net income attributable to ARIS stockholders |
|
|
|
|
|
|
|
|
|
| $ | 7,939 |
|
The following table sets forth the financial results by segment for the three months ended March 31, 2023 ($ in thousands):
|
| Real Estate |
|
| Real Estate Debt |
|
| Other Corporate |
|
| Total |
| ||||
Revenue |
|
|
|
|
|
|
|
|
|
|
| — |
| |||
Rental revenue |
| $ | 993 |
|
| $ | — |
|
| $ | — |
|
| $ | 993 |
|
Total revenues |
|
| 993 |
|
|
| — |
|
|
| — |
|
|
| 993 |
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Rental property operating |
|
| (92 | ) |
|
| — |
|
|
| — |
|
|
| (92 | ) |
Total segment expenses |
|
| (92 | ) |
|
| — |
|
|
| — |
|
|
| (92 | ) |
Income from investments in real estate debt |
|
| — |
|
|
| 735 |
|
|
| — |
|
|
| 735 |
|
Segment net operating income |
| $ | 901 |
|
| $ | 735 |
|
| $ | — |
|
| $ | 1,636 |
|
Depreciation and amortization |
| $ | (283 | ) |
| $ | — |
|
| $ | — |
|
| $ | (283 | ) |
General and administrative |
|
|
|
|
|
|
|
|
|
|
| (1,105 | ) | |||
Management fee |
|
|
|
|
|
|
|
|
|
|
| (399 | ) | |||
Other income, net |
|
|
|
|
|
|
|
|
|
|
| 834 |
| |||
Net income |
|
|
|
|
|
|
|
|
|
| $ | 683 |
| |||
Net income attributable to non-controlling interests in the Operating Partnership |
|
|
|
|
|
|
|
|
|
| $ | 348 |
| |||
Net income attributable to ARIS stockholders |
|
|
|
|
|
|
|
|
|
| $ | 335 |
|
Note 18 - Subsequent Events
Subsequent to the three months ended March 31, 2024, the following events took place:
Investment Activity: The Company funded approximately $19.5 million for previously closed commercial mortgage loans.
Financing Activity: The Company drew approximately $35.0 million pursuant to the JPMorgan Repurchase Agreement.
Equity Activity: The Company issued Class F-I shares to clients of a certain financial intermediary in excess of $100.0 million, the minimum Class A-I subscription requirement. On April 2, 2024 (the "Second Exchange Date"), the Company exchanged approximately 5,225,608 Class F-I shares for approximately 5,155,772 Class A-I shares at an exchange rate based on the NAV per share for its Class F-I shares and Class A-I shares as of the Second Exchange Date.
20
ITEM 2. MANAGEMENT’S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References herein to “Apollo"Apollo Realty Income Solutions,” “ARIS,” “Company,” “we,” “us,”" "ARIS," "Company," "we," "us," or “our”"our" refer to Apollo Realty Income Solutions, Inc. and its subsidiaries unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and accompanying notes thereto appearing elsewhere in this quarterly reportQuarterly Report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about our business, operations, and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our 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 Part I. Item 1A - "Risk Factors" in our prospectusAnnual Report on Form 10-K filed with the SEC on July 1, 2022 (our "prospectus") and elsewhere in this quarterly report on Form 10-Q. We do not undertake to revise or update any forward-looking statements.March 11, 2024.
Forward-Looking Statements
This quarterly reportQuarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology such as "believe", "expect", "anticipate", "estimate", "plan", "continue", "intend", "should", "may" or similar expressions, or the negatives thereof. These may include our financial projections and estimates and their underlying assumptions, statements about plans, objectives and expectations with respect to future operations, statements with respect to acquisitions, statements regarding future performance and statements regarding identified but not yet closed acquisitions. Such forward-looking statements are inherently uncertain and there are or may be important factors that could cause actual outcomes or results to differ materially from those indicated in such statements. We believe these factors also include but are not limited to those described under the section entitled "Risk Factors" in our prospectus,Annual Report on Form 10-K filed with the SEC on March 11,2024, and any such updated factors included in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this document (or our prospectus and other filings). Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Overview
We are a Maryland corporation formed on September 8, 2021. We were formed to invest primarily in a portfolio of diversified income-oriented commercial real estate in the United States. We are an externally advised, perpetual-life corporation that intends to qualify as a real estate investment trust ("REIT")REIT for U.S. federal income tax purposes,purposes. We were formed to directly and indirectly acquire real estate and real estate-related assets and, to a lesser extent, commercial real estate debt. Our investment objectives are to invest in assets that will enable us to:
We cannot assure youThere can be no assurance that we will achieve our investment objectives. Our investments in primarily a portfolio of diversified institutional quality, income-oriented commercial real estate primarily in the United States will focus on a range of asset types. These may include office, hotel, industrial, multifamily and retail assets, as well as others, including, without limitation, healthcare, student housing, life sciences, hospitality, senior living, data centers, manufactured housing and storage properties. Our real estate debt or real estate-related debt securities investments will focus on non-distressed public and private real estate debt, including, but not limited to, commercial mortgage-backed securities, mortgages, loans, mezzanine and other forms of debt, and may also include preferred equity.
We intend to qualify as a REIT for U.S. federal income tax purposes beginning with our taxable year endingended December 31, 2022.2023. We plan to own all or substantially all of our assets through the Operating Partnership, a Delaware limited partnership, of which we are the sole general partner.Partnership.
Our board of directors will, at all times, have ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. However, pursuant to the advisory agreement between us and the Operating Partnership, on the one hand, and ARIS Management, LLC (the "Adviser"), on the other hand,Advisory Agreement, we have delegated to the Adviser the authority to source, evaluate and monitor our investment opportunities and make decisions related to the acquisition, management, financing and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations, subject to oversight by our board of directors.
6
As of June 30, 2022, we have neither engaged in any operations (other than our initial capitalization) nor generated any revenues. Our entire activity since inception to June 30, 2022 was our initial capitalization and to prepare for our proposed fundraising through our initial public offering of our common stock. We have registered with the Securities and Exchange Commission (the “SEC”) an offeringSEC the Offering of up to $5,000,000,000$5.0 billion in shares of common stock, consisting of up to $4,000,000,000$4.0 billion in shares in our primary offering and up to $1,000,000,000$1.0 billion in shares pursuant to our distribution reinvestment plan (the “Offering”).plan. The share classes have different upfront selling commissions and ongoing stockholder servicing fees, as well as varying management and performance participation fees. See "Note 11 - Related Party Transactions" to our condensed consolidated financial statements for additional information. As of December 22, 2022, we had satisfied the minimum offering requirement and our board of directors authorized the release of proceeds from escrow. We intend to continue selling shares in the Offering on a monthly basis.
After21
As of May 10, 2024, we have received purchase orders for at least $100,000,000 in any combination of purchases of Class S, Class D, Class I, Class F-S, Class F-D and Class F-Iissued (i) 30,051,804 shares of our common stock (consisting of 15,583,004 Class A-II shares, 12,560,151 Class A-I shares, 1,615,954 Class F-I shares, 287,900 Class I shares, and 4,795 Class S shares) in our boardprimary offering for total proceeds of directors has authorized the release$614.2 million and (ii) 114,258 shares of such fundsour common stock (consisting of 69,474 Class A-I shares, 40,357 Class F-I shares, 3,610 Class A-II shares, and 817 Class I shares) pursuant to us from escrow, we intend to contributeour distribution reinvestment plan for a total value of $2.4 million. We have contributed the net proceeds from the Offering which are not used or retained to pay the fees and expenses attributable tosale of our operationsClass S shares, Class I shares, Class F-I shares, Class A-I shares, Class A-II shares to the Operating Partnership in respect ofexchange for a corresponding number of Class S Class D,units, Class I units, Class F-S,F-I units, Class F-DA-I units, and Class F-IA-II units. The Operating Partnership will usehas primarily used the net proceeds received from us to make investments in accordance with our investment strategyreal estate, real estate debt and policies.
As of June 30, 2022, we had neither acquired nor entered into any arrangements to acquire any properties or real estate-related securities, with the net proceeds from the Offering. The number and typeas further described below under "Portfolio". We intend to continue selling shares of properties or real estate-related securities that we acquire will depend upon real estate market conditions, the amount and timing of proceeds we raise inour common stock on a monthly basis through the Offering and other circumstances existing at the time we are acquiring such assets. private offerings.
We are not aware of any material trends or uncertainties, favorable or unfavorable, other than regional or globalnational economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those referredestate debt.
Q1 Highlights
Operating Results
Investments
Portfolio
Investments in Real Estate
The following table provides information regarding our prospectus.portfolio of real estate properties as of March 31, 2024 ($ in thousands) :
|
| March 31, 2024 |
| |||||||||||||||||
Investment |
| Number of Properties |
|
| Property Type |
| Location |
| Acquisition Date |
| Sq. Feet (in thousands) |
|
| Occupancy |
| Gross Asset Value (1) |
| |||
Rickenbacker |
|
| 1 |
|
| Industrial |
| Columbus, Ohio |
| January 2023 |
|
| 165 |
|
| 100% |
| $ | 52,300 |
|
16000 Pines |
|
| 1 |
|
| Retail |
| Pembroke Pines, Florida |
| August 2023 |
|
| 118 |
|
| 100% |
| $ | 57,800 |
|
Hallmark |
|
| 1 |
|
| Industrial |
| Liberty, Missouri |
| October 2023 |
|
| 847 |
|
| 100% |
| $ | 66,000 |
|
Total investments in Real Estate: |
|
|
|
|
|
|
|
|
|
|
| 1,131 |
|
|
|
| $ | 176,100 |
|
___________
22
Investments in Real Estate Debt
The following table summarizes our investments in real estate debt as of March 31, 2024 ($ in thousands):
___________
| March 31, 2024 |
| ||||||||||||||||||
Type of Investment in Real Estate Debt |
| Number of Positions |
| Weighted Average Coupon(1) |
|
| Weighted Average Maturity Date (2) |
| Face Amount |
|
| Cost Basis |
|
| Fair Value |
| ||||
Commercial real estate loan |
| 13 |
|
| 9.0 | % |
| March 2028 |
| $ | 399,911 |
|
| $ | 399,777 |
|
| $ | 399,911 |
|
Mezzanine loan |
| 1 |
|
| 10.0 | % |
| September 2026 |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
Real estate-related securities |
| 14 |
|
| 7.0 | % |
| May 2037 |
|
| 24,457 |
|
|
| 24,104 |
|
|
| 24,329 |
|
Total investments in real estate debt |
| 28 |
|
| 9.0 | % |
| July 2028 |
| $ | 474,368 |
|
| $ | 473,881 |
|
| $ | 474,240 |
|
The following table summarizes our investments in commercial real estate loans as of March 31, 2024 ($ in thousands):
Commercial Real Estate Loan Portfolio |
| |||||||||||||||||||||
|
|
|
| March 31, 2024 |
| |||||||||||||||||
# |
| Type |
| Property Type |
| Geography |
| Coupon(1) |
| Maturity Date(2) |
| Commitment |
|
| Cost Basis |
|
| Fair Value |
| |||
1 |
| First Mortgage |
| Industrial |
| Northeast |
| 9.3% |
| March 2028 |
| $ | 50,000 |
|
| $ | 46,056 |
|
| $ | 46,056 |
|
2 |
| First Mortgage |
| Multifamily |
| Northeast |
| 9.7% |
| October 2025 |
|
| 50,000 |
|
|
| 36,935 |
|
|
| 37,070 |
|
3 |
| First Mortgage |
| Data Center |
| Mid-Atlantic |
| 9.4% |
| June 2028 |
|
| 50,000 |
|
|
| 42,806 |
|
|
| 42,806 |
|
4 |
| First Mortgage |
| Hotel |
| Various |
| 9.5% |
| August 2026 |
|
| 25,000 |
|
|
| 25,000 |
|
|
| 25,000 |
|
5 |
| First Mortgage |
| Hotel |
| Various |
| 9.1% |
| July 2028 |
|
| 25,000 |
|
|
| 23,795 |
|
|
| 23,795 |
|
6 |
| Mezzanine |
| Industrial |
| Various |
| 10.0% |
| September 2026 |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
7 |
| First Mortgage |
| Other (3) |
| West |
| 9.3% |
| September 2028 |
|
| 100,000 |
|
|
| 2,576 |
|
|
| 2,576 |
|
8 |
| First Mortgage |
| Multifamily |
| Northeast |
| 8.9% |
| June 2025 |
|
| 26,000 |
|
|
| 26,000 |
|
|
| 26,000 |
|
9 |
| First Mortgage |
| Self-Storage |
| Various |
| 8.6% |
| December 2028 |
|
| 50,000 |
|
|
| 17,659 |
|
|
| 17,659 |
|
10 |
| First Mortgage |
| Multifamily |
| Midwest |
| 9.6% |
| December 2028 |
|
| 25,000 |
|
|
| 3,554 |
|
|
| 3,554 |
|
11 |
| First Mortgage |
| Multifamily |
| Northeast |
| 8.3% |
| January 2029 |
|
| 50,000 |
|
|
| 50,000 |
|
|
| 50,000 |
|
12 |
| First Mortgage |
| Multifamily |
| West |
| 8.3% |
| February 2029 |
|
| 60,000 |
|
|
| 60,000 |
|
|
| 60,000 |
|
13 |
| First Mortgage |
| Hotel |
| West |
| 9.1% |
| February 2029 |
|
| 50,000 |
|
|
| 45,070 |
|
|
| 45,070 |
|
14 |
| First Mortgage |
| Data Center |
| Mid-Atlantic |
| 9.2% |
| April 2029 |
|
| 85,000 |
|
|
| 20,326 |
|
|
| 20,325 |
|
|
| Total/Weighted Average |
|
|
| 9.1% |
| January 2028 |
| $ | 696,000 |
|
| $ | 449,777 |
|
| $ | 449,911 |
|
____________
Results of Operations
The following table sets forth information regarding our consolidated results of operations ($ in thousands):
23
|
| Three Months Ended March 31, |
|
| Change |
| ||||||
| 2024 |
|
| 2023 |
|
| $ |
| ||||
Revenues |
|
|
|
|
|
|
|
|
| |||
Rental revenue |
| $ | 3,663 |
|
| $ | 993 |
|
| $ | 2,670 |
|
Total revenues |
|
| 3,663 |
|
|
| 993 |
|
|
| 2,670 |
|
Expenses |
|
|
|
|
|
|
|
|
| |||
Rental property operating |
| $ | 573 |
|
| $ | 92 |
|
| $ | 481 |
|
General and administrative |
|
| 1,537 |
|
|
| 1,105 |
|
|
| 432 |
|
Management fee |
|
| 1,511 |
|
|
| 399 |
|
|
| 1,112 |
|
Performance participation allocation |
|
| 203 |
|
|
| — |
|
|
| 203 |
|
Depreciation and amortization |
|
| 1,455 |
|
|
| 283 |
|
|
| 1,172 |
|
Total expenses |
| $ | 5,279 |
|
| $ | 1,879 |
|
| $ | 3,400 |
|
Other income |
|
|
|
|
|
|
|
|
| |||
Income from investments in real estate debt |
|
| 11,114 |
|
|
| 735 |
|
|
| 10,379 |
|
Other income |
|
| 908 |
|
|
| 834 |
|
|
| 74 |
|
Interest expense |
|
| (770 | ) |
|
| — |
|
|
| (770 | ) |
Total other income |
|
| 11,252 |
|
|
| 1,569 |
|
|
| 9,683 |
|
Net income (loss) |
| $ | 9,636 |
|
| $ | 683 |
|
| $ | 8,953 |
|
Rental Revenue
Rental revenue primarily consists of base rent arising from tenant leases at our properties. Rental revenue is recognized on a straight-line basis over the life of the lease. During the three months ended March 31, 2024 and 2023, rental revenue was $3.7 million and $1.0 million, respectively. The increase in rental revenue was due to the acquisition of two additional properties, 16000 Pines and Hallmark, subsequent to March 31, 2023.
Rental Property Operating Expenses
Rental property operating expenses consist of the costs of ownership and operation of our real estate investments. Examples of property operating expenses include real estate taxes, insurance, utilities and repair and maintenance expenses. During the three months ended March 31, 2024 and 2023, rental property operating expenses were $0.6 million and $0.1 million, respectively. The increase in rental property operating expenses was due to the acquisition of two additional properties, 16000 Pines and Hallmark, subsequent to March 31, 2023.
General and Administrative Expenses
General and administrative expenses consist primarily of legal fees, accounting fees and other professional services. During the three months ended March 31, 2024 and 2023, general and administrative expenses were $1.5 million and $1.1 million, respectively. The increase was due to an increase in transaction activity.
Management Fee
Management fees are earned by our Adviser for providing services pursuant to the Advisory Agreement and are based on the month end NAV for the respective share classes. During the three months ended March 31, 2024 and 2023, management fees were $1.5 million and $0.4 million, respectively. The increase was due to the increase in our average NAV from March 31, 2023 to March 31, 2024 which was primarily driven by our capital raise activity.
Performance Participation Allocation
The performance participation allocation relates to allocations from the Operating Partnership to the Special Limited Partner based on the total return of the Operating Partnership. Total return is defined as distributions paid or accrued plus the change in NAV. During the three months ended March 31, 2023, there was no performance participation allocation as the return hurdle was not achieved. During the three months ended March 31, 2024, the performance participation allocation was $0.2 million as a result of the hurdle amount being achieved in the share classes subject to the expense.
Depreciation and Amortization
Depreciation and amortization expenses are impacted by the values assigned to buildings and in-place lease assets as part of the initial purchase price allocation. During the three months ended March 31, 2024 and 2023, depreciation and amortization expenses were $1.5 million and $0.3 million respectively. The increase was due to the acquisition of two additional properties, 16000 Pines and Hallmark, subsequent to March 31, 2023.
Income from Investments in Real Estate Debt
24
Income from investments in real estate debt consist of interest income, fees revenue, realized gains and losses and unrealized gains and losses resulting from the changes in fair value of our real estate debt investments and real-estate related securities. During the three months ended March 31, 2024 and 2023, income from investments in real estate debt was $11.1 million and $0.7 million, respectively. The increase is due to to acquisition activity over the last twelve months resulting in higher interest income and origination fees. As of June 30, 2022,March 31, 2024, we wereowned 28 positions in real estate-related loans and securities, compared to two positions as of March 31, 2023, and the balance of our organizational periodinvestments in real estate debt, at fair value increased from $58.7 million to $474.2 million during the same time period.
Other Income
Other income primarily consists of interest earned on our cash and hadcash equivalents balance. During the three months ended March 31, 2024 and 2023, other income was $0.9 million and $0.8 million, respectively. The increase was a result of cash being maintained in higher yielding deposit accounts during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.
Interest Expense
Interest expense consists of interest expenses incurred on our mortgage note and amortization of deferred financing costs related to our mortgage note and secured financings on investments in real estate debt. During the three months ended March 31, 2024, interest expense was $0.8 million. There was no interest expense during the three months ended March 31, 2023 as we did not commenced our principal operations or generatedhave any revenues.debt obligations.
Liquidity and Capital Resources
Our primary needs for liquidity and capital resources are to fund our investments, to make distributions to our stockholders, to repurchase shares of our common stock pursuant to our share repurchase plan, to pay our offering costs, operating fees and expenses and to pay interest on any outstanding indebtedness we may incur. We anticipate our offering and operating fees and expenses will include, among other things, the management fee we will pay to the Adviser, the performance participation allocation that the Operating Partnership will pay to the Special Limited Partner, stockholder servicing fees we will pay to the Dealer Manager, legal, audit and valuation expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution expenses and fees related to acquiring, financing, appraising and managing our properties. We do not have any office or personnel expenses as we do not have any employees.
The Adviser has advanced on our behalf organization and offering costs of $7.9 million and general and administrative expenses of $7.1 million as of March 31, 2024. We will reimburse the Adviser and its affiliates for certain out-of-pocket expenses in connection with our operations. The Adviser has agreed that it and/or its affiliates will advance all of our organization and offering expenses on our behalf (including legal, accounting, and other expenses attributable to our organization, but excluding upfront selling commissions, dealer manager fees and stockholder servicing fees) through the first anniversary of the date on which we break escrow for the Offering. We will reimburse the Adviser and its affiliates for such advanced expenses ratably over the 60 months following the first anniversary of the datea 60-month period beginning on which we break escrow for the Offering. As of June 30, 2022 and February 18, 2022, the Adviser and its affiliates had incurred approximately $4.3 million and $2.4 million, respectively, of organization and offering expenses on our behalf.
We intend to qualify as a REIT for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2022. In order to maintain our qualification as a REIT, we are required to, among other things, distribute as dividends at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders and meet certain tests regarding the nature of our income and assets.22, 2024.
Over time, we generally intend to fund our cash needs for items other than asset acquisitions from operations. We expect our cash needs for acquisitions will be funded primarily from the sale of shares of our common stock and through the assumption or incurrence of debt.
Although we have not received any commitments from lenders to fund, weWe may decide to obtain debtincur indebtedness to fund acquisitions, to repurchase shares pursuant to our share repurchase plan and for any other corporate purpose. If we decide to obtain a line of credit,incur indebtedness, we would expect that it would afford us borrowing availability to fund repurchases. As our assets increase, however, it may not be commercially feasible, or we may not be able to secure an adequate line of creditborrowings to fund share repurchases. Moreover, actual availability may be reduced at any given time if we use borrowings under the line of credit to fund share repurchases or for other corporate purposes.
Other potential future sources of capital include secured or unsecured financings from banks or other lenders and proceeds from the sale of assets or equity issuances by the Operating Partnership.Partnership or the sale of beneficial interests in specific Delaware statutory trusts holding real properties, including properties placed by the Operating Partnership or affiliates of Apollo. If necessary, we may use financings or other sources of capital to fund share repurchases or in the event of unforeseen significant capital expenditures. We have not yet identified any sources for these types of financings.
7In October 2023, the Sellers entered into the JPM Repurchase Agreement with the Buyer. The JPM Repurchase Agreement provides for a maximum aggregate purchase price of $250.0 million and has a three-year term plus two one-year extension options. Subject to the terms and conditions thereof, the JPM Repurchase Agreement provides for the purchase, sale and repurchase of senior mortgage loans and participation interests in performing senior mortgage loans satisfying certain conditions set forth in the JPM Repurchase Agreement. The Operating Partnership has agreed to provide a limited guarantee of the obligations of the Sellers under the JPM Repurchase Agreement.
As of March 31, 2024, we had $46.5 million of cash on hand and up to $250.0 million of undrawn capacity on our JPM Repurchase Agreement. Additionally, as of March 31, 2024, we had a $36.0 million mortgage secured by one of our equity properties.
Funds From Operations and Adjusted Funds From Operations
We believe funds from operations (“FFO”) is a meaningful non-GAAP supplemental measure of our operating results. Our condensed consolidated financial statements are presented , among other things, requires depreciation of real estate investments to be calculated on a straight-line basis. As a result, our operating results imply that the value of our real estate investments has decreased evenly over time. However, we believe that the value of our real estate investments will fluctuate over time based on market conditions and, as such, depreciation under historical cost accounting may be less informative as a measure of our performance. FFO is an operating measure defined by the National Association of Real Estate Investment Trusts (“NAREIT”) that is broadly used in the REIT industry. FFO, as defined by NAREIT and presented below, is calculated as net income or loss (computed in accordance with GAAP), excluding (i) depreciation and amortization, (ii) impairment of investments in real estate, (iii) net gains or losses from sales of real estate, and (iv) consolidated and unconsolidated joint ventures.
25
We also believe that adjusted FFO (“AFFO”) is a meaningful supplemental non-GAAP disclosure of our operating results. AFFO further adjusts FFO in order for our operating results to reflect the specific characteristics of our business by adjusting for items we believe are not related to our core operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) straight-line rental income and expense, (ii) unrealized gains or losses from changes in the fair value of real estate debt and other financial instruments, (iii) non-cash performance participation allocation, even if repurchased by us, (iv) amortization of restricted stock awards, (v) amortization of above- and below-market lease intangibles, and (vi) similar adjustments for unconsolidated joint ventures. AFFO is not defined by NAREIT and our calculation of AFFO may not be comparable to disclosures made by other REITs.
FFO and AFFO should not be considered to be more relevant or accurate than the GAAP methodology in calculating net income or in evaluating our operating performance. In addition, FFO and AFFO should not be considered as alternatives to net income as indications of our performance or as alternatives to cash flows from operating activities as indications of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO and AFFO are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders.
For the Three Months Ended March 31, 2024 | ||||
Net income | $ | 9,636 | ||
Adjustments to arrive at FFO: | ||||
Depreciation and amortization | 1,455 | |||
FFO | $ | 11,091 | ||
Adjustments to arrive at AFFO: | ||||
Straight-line rental income | (388 | ) | ||
Unrealized (gain)/loss from change in fair value of real estate debt and real estate related securities | (152 | ) | ||
Non-cash performance participation allocation | 203 | |||
Amortization of restricted stock awards | 25 | |||
Amortization of above- and below-market leases, net | (190 | ) | ||
AFFO | $ | 10,589 |
Comparison to the three months ended March 31, 2023 is not meaningful.
Net Asset Value
NAV per share is calculated in accordance with the valuation guidelines approved by our board of directors. Our total NAV presented in the following tables includes the NAV of our Class I shares, Class F-I shares, Class A-I, Class A-II and Class E shares and units of the Operating Partnership held by parties other than the Company. The following table provides a breakdown of the major components of our total NAV as of March 31, 2024 ($ and shares/units in thousands):
Components of NAV |
| March 31, 2024 |
| |
Investments in real estate |
| $ | 176,100 |
|
Investments in real estate debt |
|
| 474,240 |
|
Cash |
|
| 46,466 |
|
Restricted cash |
|
| 11 |
|
Other assets |
|
| 4,579 |
|
Mortgage notes at fair value, net of deferred financing costs |
|
| (35,554 | ) |
Other liabilities |
|
| (6,066 | ) |
Accrued performance participation allocation |
|
| (203 | ) |
Management fee payable |
|
| (529 | ) |
Net asset value |
| $ | 659,044 |
|
Number of outstanding shares/units |
|
| 31,599 |
|
The following table provides a breakdown of our total NAV and NAV per share/unit by class as of March 31, 2024 ($ and shares/units in thousands, except per share/unit data):
26
NAV Per Share/Unit |
| Class I Shares |
|
| Class F-I Shares |
|
| Class A-I Shares |
|
| Class A-II Shares |
|
| Class E Shares(1) |
|
| Third-party Operating Partnership Class A-I Units(2) |
|
| Third-party Operating Partnership Class E Units(2) |
|
| Total |
| ||||||||
Net asset value |
| $ | 4,195 |
|
| $ | 111,837 |
|
| $ | 133,158 |
|
| $ | 295,892 |
|
| $ | 3,793 |
|
| $ | 108,336 |
|
| $ | 1,833 |
|
| $ | 659,044 |
|
Number of outstanding shares/units |
|
| 202 |
|
|
| 5,416 |
|
|
| 6,364 |
|
|
| 14,172 |
|
|
| 181 |
|
|
| 5,177 |
|
|
| 87 |
|
|
| 31,599 |
|
NAV per share/unit as of March 31, 2024 |
| $ | 20.7895 |
|
| $ | 20.6496 |
|
| $ | 20.9244 |
|
| $ | 20.8789 |
|
| $ | 20.9890 |
|
| $ | 20.9244 |
|
| $ | 20.9890 |
|
| $ | 20.8566 |
|
___________
Consistent with our disclosure in the Prospectus regarding our NAV calculation, our investments in real estate and real estate debt are initially valued at cost. Once we establish new values for our real estate investments, we provide information on key assumptions used in the discounted cash flow methodology and a sensitivity analysis related thereto. The valuations of our real properties as of March 31, 2024 , excluding certain newly acquired properties that are held at cost which we believe reflects the fair value of such properties, were provided by the independent valuation advisor in accordance with our valuation procedures. Certain key assumptions that were used by the independent valuation advisor in the discounted cash flow analysis are set forth in the following table based on weighted-averages by property types where we have multiple real estate investments. Once we own more than one retail property, we will include the key assumptions for such property type.
Property Type |
| Discount Rate |
| Exit Capitalization Rate |
Industrial |
| 8.0% |
| 6.5% |
A change in these assumptions or factors would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values:
Input | Hypothetical Change | Industrial Investment Values | ||
Discount rate | 0.25% Decrease | +2.08% | ||
(weighted average) | 0.25% Increase | (2.02)% | ||
Exit Capitalization Rate | 0.25% Decrease | +2.09% | ||
(weighted average) | 0.25% Increase | (1.93)% |
The following table reconciles stockholders' equity and the Operating Partnership unitholders' capital per our condensed consolidated balance sheet to our NAV ($ in thousands):
Reconciliation of Stockholders' Equity to NAV |
| March 31, 2024 |
| |
Stockholders' equity under U.S. GAAP |
| $ | 533,017 |
|
Non-controlling interests attributable to the Operating Partnership and preferred shareholders |
|
| 103,230 |
|
Redeemable non-controlling interests |
|
| 1,824 |
|
Total stockholders' equity, redeemable non-controlling interests and the Operating Partnership partners' capital under GAAP |
| $ | 638,071 |
|
Adjustments: |
|
|
| |
Advanced organization and offering costs and advanced operating expenses |
|
| 14,981 |
|
Accumulated depreciation and amortization |
|
| 1,788 |
|
Unrealized net real estate appreciation |
|
| 4,204 |
|
NAV |
| $ | 659,044 |
|
The following details the adjustments to reconcile GAAP stockholders' equity to our NAV:
27
Distributions
Beginning in April 2023, we have declared monthly distributions for each class of our common stock, which are generally paid 20 days after month-end. Each class of our common stock received the same aggregate gross distribution per share, however, the net distribution varies for each class based on the applicable fees. The table below details the net per share distribution for each of our share classes for the three months ended March 31, 2024:
Record Date |
| Class I |
|
| Class F-I |
|
| Class A-I |
|
| Class A-II |
|
| Class E |
| |||||
January 31, 2024 |
| $ | — |
|
| $ | 0.0800 |
|
| $ | 0.0798 |
|
| $ | 0.0811 |
|
| $ | 0.0972 |
|
February 29,2024 |
|
| 0.0755 |
|
|
| 0.0800 |
|
|
| 0.0798 |
|
|
| 0.0813 |
|
|
| 0.0973 |
|
March 31, 2024 |
|
| 0.0850 |
|
|
| 0.0895 |
|
|
| 0.0893 |
|
|
| 0.0907 |
|
|
| 0.1068 |
|
Total |
| $ | 0.1605 |
|
| $ | 0.2495 |
|
| $ | 0.2489 |
|
| $ | 0.2531 |
|
| $ | 0.3013 |
|
The following tables summarize our distributions declared during the three months ended March 31, 2024 ($ in thousands):
|
| Three Months Ended March 31, 2024 |
| |||||
|
| Amount |
|
| Percentage |
| ||
Distributions |
|
|
|
|
|
| ||
Payable in cash |
| $ | 6,074 |
|
|
| 80 | % |
Reinvested in shares |
|
| 1,516 |
|
|
| 20 | % |
Total distribution |
| $ | 7,590 |
|
|
| 100 | % |
Sources of distributions |
|
|
|
|
|
| ||
Cash flows from operating activities(1) |
| $ | 7,590 |
|
|
| 100 | % |
Total sources of distributions |
| $ | 7,590 |
|
|
| 100 | % |
|
|
|
|
|
|
| ||
AFFO |
| $ | 10,589 |
|
|
|
|
___________
There were no distributions during the three months ended March 31, 2023.
Cash Flows
On February 18, 2022, weThe following table provides a breakdown of the net change in our cash and cash equivalents ($ in thousands):
|
| Three Months Ended March 31, 2024 |
| |
Cash flows provided by operating activities |
| $ | 13,323 |
|
Cash flows used in investing activities |
|
| (145,813 | ) |
Cash flows provided by financing activities |
|
| 83,762 |
|
Net decrease in cash and cash equivalents |
| $ | (48,728 | ) |
Cash flows provided by operating activities were capitalized with$13.3 million for the three months ended March 31, 2024, primarily as a $200,000 investmentresult of income generated on our investments.
Cash flows used in investing activities were $145.8 million for the three months ended March 31, 2024. This was comprised of $147.0 million of investments in commercial mortgage loans, net of $1.2 million for repayments of real estate-related securities.
Cash flows provided by Apollo ARIS Holdings LLC, an indirect wholly-ownedfinancing activities were $83.8 million for the three months ended March 31, 2024, primarily due to $88.4 million of proceeds from the issuance of our common stock net of offering costs. This was offset by the payment of $4.5 million in cash distributions and $0.2 million of share repurchases during the three months ended March 31, 2024. Cash flows provided by financing activities also includes $0.1 million from the issuance of preferred stock in a subsidiary of Apollo Global Management, Inc. ("Apollo") in exchange for 10,000 shares of Class I shares. There have been no other cash flows from inception through June 30, 2022. As of June 30, 2022, we had not declared or paid any distributions.REIT.
Critical Accounting Policies
BelowOur discussion and analysis of our financial condition and results of operations is a discussion of the accounting policies that management believes will be critical once we commence operations. We consider these policies critical because they involve significant judgments and assumptions and require estimates about matters that are inherently uncertain and because they are important for understanding and evaluatingbased upon our reported financial results. Our accounting policies have been established to conform with GAAP. The preparation of thecondensed consolidated financial statements, which have been prepared in accordance with GAAP requires managementGAAP. There have been no material changes to use judgments in the application of such policies. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reportedCritical Accounting Policies described in our consolidated financial statements. Additionally, other companies may utilize different estimates that may impactAnnual Report on Form 10-K filed with the comparability of our results of operations to those of companies in similar businesses.SEC on March 11, 2024.
Principles of Consolidation
We will consolidate all entities that we control through either majority ownership or voting rights. In addition, we will consolidate all variable interest entities ("VIEs") of which we are considered the primary beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE’s economic performance and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.28
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). We use a hierarchical 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 marketplace, including the existence and transparency of transactions between market participants. Investments with readily available actively 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 — quoted prices are available in active markets for identical investments as of the measurement date. We do not adjust the quoted price for these investments.
Level 2 — 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 — 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.
We intend to elect the fair value option and therefore will report our investments in real estate debt at fair value. We will generally determine the fair value of our investments in real estate debt by utilizing third-party pricing service providers whenever available.
In determining the fair value of a particular asset, pricing service providers may use (i) broker-dealer quotations, (ii) reported trades or (iii) valuation estimates from their internal pricing models to determine the reported price. The pricing service providers' internal models for securities, such as real estate debt, generally consider the attributes applicable to a particular class of the security (e.g., credit rating or seniority), current market data, and estimated cash flows for each security, and incorporate specific collateral performance, as applicable.
8
Investment Property and Lease Intangibles
Acquisitions of properties will be accounted for utilizing the acquisition method and, accordingly, the results of operations of acquired properties will be included in our results of operations from their respective dates of acquisition. An independent appraiser report will be used to record the purchase of identifiable assets acquired and liabilities assumed such as land, buildings and improvements, equipment and identifiable intangible assets and liabilities such as amounts related to in-place leases, acquired above- and below-market leases, tenant relationships, asset retirement obligations and mortgage loans payable.Recent Accounting Pronouncements
The estimated fair valueSee Note 2 - Summary of acquired in-place leases will be the costs we would have incurredSignificant Accounting Policies to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include the fair value of leasing commissions, legal costs, and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, we will evaluate the time period over which such occupancy levels would be achieved. Such evaluation will include an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition will be amortized over the remaining lease terms.our condensed consolidated financial statements in this Quarterly Report on Form 10-Q for a discussion concerning recent accounting pronouncements.
Acquired above- and below-market lease values will be recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the in-place leases and our estimate of fair market value lease rates for the corresponding in-place leases. The capitalized above- and below-market lease values will be amortized as adjustments to rental revenue over the remaining terms of the respective leases, which include periods covered by bargain renewal options. Should a tenant terminate its lease, the unamortized portion of the in-place lease value will be charged to amortization expense and the unamortized portion of out-of-market lease value will be charged to rental revenue.
Value of Real Estate Portfolio
Real estate assets will be evaluated for impairment on a quarterly basis. We will consider the following factors when performing our impairment analysis: (1) Management, having the authority to approve the action, commits to a plan to sell the asset; (2) significant negative industry and economic outlook or trends; (3) expected material costs necessary to extend the life or operate the real estate asset; and (4) our ability to hold and dispose of the real estate asset in the ordinary course of business. A real estate asset is considered impaired when the sum of estimated future undiscounted cash flows to be generated by the real estate asset over the estimated remaining holding period is less than the carrying value of such real estate asset. An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. When determining the fair value of a real estate asset, we make certain assumptions including, but not limited to, consideration of projected operating cash flows, comparable selling prices and projected cash flows from the eventual disposition of the real estate asset based upon our estimate of a capitalization rate and discount rate.
Income Taxes
As a REIT, we will not be subject to U.S. federal income tax with respect to the portion of our income that meets certain criteria and is distributed annually to stockholders. We intend to operate in a manner that allows us to meet the requirements for taxation as a REIT. Many of these requirements, however, are highly technical and complex. We will monitor the business and transactions that may potentially impact our REIT status. If we were to fail to meet these requirements, we could be subject to U.S. federal income tax on our taxable income at regular corporate rates. We would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. We would also be disqualified for the four taxable years following the year during which qualification was lost unless we were entitled to relief under specific statutory provisions.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We had no significant operations as of June 30, 2022. When we commence operations, we expect that our primary market risk exposure will be interest rate risk with respect to our indebtedness and credit risk and market risk with respect to use of derivative financial instruments. As of June 30, 2022, we had no indebtedness and did not use any derivative financial instruments.Interest Rate Risk
We may be exposed to interest rate changes primarily as a result of long-term debt we may use to maintain liquidity, fund capital expenditures, repurchase shares of our common stock and expand our investment portfolio and operations. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of real estate in the future. We will seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets. Also, we will be exposed to both credit risk and market risk.
As of March 31, 2024, we held $474.2 million of investments in real estate debt, including real estate debt securities. Our investments in real estate debt are primarily floating-rate and indexed to SOFR, thereby exposing us to interest rate risk resulting in increases or decreases to net income depending on interest rate movements. While we cannot predict factors that may or may not affect interest rates, a 50bps increase or decrease in the SOFR would have resulted in an increase or decrease to income from investments in real estate debt of $0.6 million for the three months ended March 31, 2024.
Credit risk is the failureRisk
We are subject to varying degrees of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instrumentsconnection with our other target assets. We seek to mitigate this risk by entering into transactionsseeking to acquire high quality assets, at appropriate prices given anticipated and unanticipated losses, and by deploying a value-driven approach to underwriting and diligence, consistent with high-quality counterparties.the Adviser’s historical investment strategy, with a focus on current cash flows and potential risks to cash flow. The Adviser seeks to enhance its due diligence and underwriting efforts by accessing the Adviser’s knowledge base and industry contacts. Nevertheless, unanticipated credit losses could occur, which could adversely impact our operating results.
Market risk is the adverse effect onRisk
Our investments in real estate debt are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; retroactive changes to building or similar codes; pandemics; natural disasters and other acts of god. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limitborrower to repay the types and degree of market risk thatunderlying loans or loans, as the case may be, undertaken. With regardwhich could also cause us to variable rate financing, we will assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We will maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy will be designed to minimize the impact on our net income and funds from operations from changes in interest rates, the overall returns on your investment may be reduced.suffer losses.
10
29
Table of Contents
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, and summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to the Company's management, including its Co-Chief Executive Officers ("Co-CEOs") and Interim Chief Financial Officer ("CFO"), as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. An evaluation of the effectiveness of the design and operation of our “disclosuredisclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),procedures as of the end of the period covered by this quarterly reportQuarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Co-Chief Executive Officers (“Co-CEOs”)Co-CEOs and Chief Financial Officer (“CFO”).CFO. Based upon this evaluation, our Co-CEOs and CFO have concluded that our 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 timely 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 our management, including our Co-CEOs and Interim CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal ControlsControl over Financial Reporting
There have been no changes in our “internalinternal control over financial reporting”reporting (as that term is defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this quarterly reportQuarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actionsaction arising in the ordinary course of business. As of June 30, 2022,March 31, 2024, we were not involved in any material legal proceedings.
ITEM 1A. RISK FACTORS
We have disclosed under the heading “Risk Factors” in our prospectus, filed with the SEC, risk factors which materially affect our business, financial condition or results of operations. There have been no material changes fromto the risk factors previously disclosed. You should carefully consider the risk factors set forthdisclosed under Part I, Item 1A. "Risk Factors" in the prospectus and the other information set forth elsewhere in this quarterly reportour Annual Report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.10-K for the year ended December 31, 2023.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
On February 18, 2022,During the three months ended March 31, 2024, we issued 10,000sold equity securities that were not registered under the Securities Act. As described in Note 11 - Related Party Transactions to our condensed consolidated financial statements, the Adviser is entitled to an annual management fee payable monthly in cash, shares of common stock, or units of the Operating Partnership, in each case at the Adviser's election. For the three months ended March 31, 2024, the Adviser elected to receive its management fee in Class IE shares par value $0.01 per share, to Apollo ARIS Holdings LLC, an indirect wholly-owned subsidiaryand Class E units of Apollo, for an aggregate purchase price of $200,000. No sales commission or other consideration was paid inthe Operating Partnership. In connection with the sale. Adviser's election, we issued 56,577 Class E shares and 12,885 Class E units of the Operating Partnership to the Adviser during the three months ended March 31, 2024 in satisfaction of the management fee from December 2023 to February 2024.
The sale was consummated without registration underSpecial Limited Partner is entitled to an annual performance participation allocation payable annually in cash or units of the Securities ActOperating Partnership, in each case at the Special Limited Partner's election. For the three months ended March 31, 2024, the Special Limited Partner elected to receive its performance participation allocation in Class E units of 1933, as amended (the “Securities Act”),the Operating Partnership. In connection with the Special Limited Partner's election, we issued 26,977 Class E units of the Operating Partnership to the Special Limited Partner during the three months ended March 31, 2024 in satisfaction of the performance participation allocation for year ended December 31, 2023.
During the three months ended March 31, 2024, all unitholders of the Operating Partnership elected to reinvest their dividends. In connection with such dividend reinvestment, we issued 56,702 and 942 Class A-I units and Class E units of the Operating Partnership, respectively, in lieu of cash for the dividends paid during the three months ended March 31, 2024. These issuances were made in reliance upon the exemption from registration set forth in Section 4(a)(2) of the Securities Act as transactions not involving any public offering.
During the three months ended June 30, 2022, we did not sell or issue any equity securities that were not registered under the Securities Act.
Use of Offering Proceeds
On June 29, 2022, ourthe Registration Statement on Form S-11 (File No. 333-264456) with respect tofor the Offering was declared effective under the Securities Act. AsThe offering price for each class of June 30, 2022, we had not received subscriptions for our common stock is determined monthly and therefore,is made available on our website and in prospectus supplement filings.
As of March 31, 2024, we had not received anynet proceeds of $533.7 million from the Offering. The following table summarizes certain information about the Offering proceeds therefrom (in thousands):
|
| Class I Shares |
|
| Class F-I Shares |
|
| Class E Shares |
|
| Class A-I Shares |
|
| Class A-II Shares |
|
| Total |
| ||||||
Offering proceeds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Shares sold |
|
| 201,505 |
|
|
| 15,564,999 |
|
|
| 177,723 |
|
|
| 8,669,205 |
|
|
| 1,671,686 |
|
|
| 26,285,118 |
|
Gross offering proceeds |
| $ | 4,176 |
|
| $ | 314,055 |
|
| $ | 3,671 |
|
| $ | 177,185 |
|
| $ | 34,660 |
|
| $ | 533,747 |
|
Selling commissions and dealer manager fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Accrued stockholder servicing fees |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net offering proceeds |
| $ | 4,176 |
|
| $ | 314,055 |
|
| $ | 3,671 |
|
| $ | 177,185 |
|
| $ | 34,660 |
|
| $ | 533,747 |
|
We primarily used the net proceeds of the Offering along with the unregistered sales towards the acquisition of $172.0 million in real estate, $449.9 million in commercial real estate loans, and $25.3 million in real estate-related securities. During the three months ended March 31, 2024, we repurchased 5,000 Class A-II shares and 2,476 of Class F-I shares pursuant to our share repurchase plan for $0.2 million.
Share Repurchase Plan
We have adopted a share repurchase plan, whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. We may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in our discretion, subject to any limitations in the share repurchase plan. The aggregate NAV of total repurchases of Class S shares, Class D shares, Class I shares, Class F-S shares, Class F-D shares, Class F-I shares, Class A-I shares, Class A-II shares, Class A-III shares and Class E shares is limited to 2% of the aggregate NAV per month and 5% of the aggregate NAV per calendar quarter. Shares are repurchased at a price equal to the transaction price on the applicable repurchase date. Due to the illiquid nature of investments in real estate, we may not have sufficient liquid resources to fund repurchase requests and have established limitations on the amount of funds we may use for repurchases during any calendar month and quarter. Further, our board of directors may modify or suspend the share repurchase plan.
During the three months ended March 31, 2024, we repurchased Class A-II shares and Class F-I shares in January and February in the following amounts:
31
Month of |
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs |
|
| Repurchases as Percentage of NAV(1) |
|
| Maximum Number of Shares Pending Repurchase Pursuant to Publicly Announced Plans or Programs |
| |||||
January 2024 |
|
| 5,000 |
|
| $ | 20.73 |
|
|
| 5,000 |
|
|
| 0.02 | % |
|
| — |
|
February 2024 |
|
| 2,476 |
|
|
| 20.54 |
|
|
| 2,476 |
|
|
| 0.01 | % |
|
| — |
|
March 2024 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total |
|
| 7,477 |
|
| $ | 20.63 |
|
|
| 7,477 |
|
|
| 0.03 | % |
|
| — |
|
____________
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.None
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ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.On May 8, 2024, we entered into a Third Amended and Restated Advisory Agreement (the "Third Amended and Restated Advisory Agreement") by and among us, the Operating Partnership and the Adviser to, among others, make certain revisions as requested by a state securities regulator clarifying the Adviser's fiduciary responsibility and certain of our expenses.
The foregoing description of the Third Amended and Restated Advisory Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Third Amended and Restated Advisory Agreement, a copy of which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
ITEM 6. EXHIBITS
Exhibit Number | Description | |
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3.2 | ||
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4.2 | ||
4.3 | ||
10.1* | ||
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| |
31.1* | ||
31.2* | ||
31.3* | ||
32.1* | ||
101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema |
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101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |
104* | Cover Page Interactive Data File (embedded with the Inline XBRL document) | |
* | Filed herewith |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Apollo Realty Income Solutions, Inc. | |||
| By: | /s/ Philip Mintz | |
Philip Mintz | |||
Co-President, | |||
(Co-Principal Executive Officer) | |||
| By: | /s/Randy | |
Randy | |||
Co-President, | |||
(Co-Principal Executive Officer) | |||
| By: | /s/ | |
Interim Chief Financial Officer, Treasurer and Secretary | |||
(Principal Financial Officer and Principal Accounting Officer) |
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