SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended
September 30,Or
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from
to .Commission File No. 000-52596
(Exact name of registrant as specified in its charter)
| |
| |
Maryland | 30-0309068 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
518 Seventeenth Street, 17th Floor Denver, CO | 80202 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (303) (303) 228-2200
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
Indicate by check mark whether the registrant 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 registrant was required to submit and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | ||
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||||
Smaller reporting company | ☐ | ||||||
Non-accelerated filer | ☒ | | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of November 10, 2017, 2,097,6944, 2021, there were 15,452,925 shares of the registrant’s Class T common stock, 16,75034,065,634 shares of the registrant’s Class S common stock, 2,519,5826,384,703 shares of the registrant’s Class D common stock, 33,977,25252,893,075 shares of the registrant’s Class I common stock and 95,661,03556,629,226 shares of the registrant’s Class E common stock of Black Creek Diversified Property Fund Inc., each with a par value $0.01 per share, were outstanding.
2
ITEM 1. FINANCIAL STATEMENTS
BLACK CREEK DIVERSIFIED PROPERTY FUND INC.
| | | | | | |
| | As of | ||||
| | September 30, | | December 31, | ||
(in thousands, except per share data) | | 2021 |
| 2020 | ||
| | (Unaudited) | | | | |
ASSETS | | |
| | |
|
Net investment in real estate properties | | $ | 2,196,663 | | $ | 1,954,573 |
Debt-related investments, net | |
| 47,804 | |
| 49,628 |
Cash and cash equivalents | |
| 12,463 | |
| 11,266 |
Restricted cash | |
| 10,533 | |
| 10,468 |
DST Program Loans | |
| 58,276 | |
| 45,229 |
Other assets | | | 52,404 | | | 40,396 |
Total assets | | $ | 2,378,143 | | $ | 2,111,560 |
LIABILITIES AND EQUITY | |
| | |
|
|
Liabilities | |
| | |
|
|
Accounts payable and accrued expenses | | $ | 51,060 | | $ | 40,371 |
Debt, net | |
| 919,185 | |
| 965,305 |
Intangible lease liabilities, net | |
| 51,536 | |
| 40,457 |
Financing obligations, net | |
| 623,050 | |
| 502,533 |
Other liabilities | | | 66,370 | | | 61,205 |
Total liabilities | |
| 1,711,201 | |
| 1,609,871 |
Commitments and contingencies (Note 12) | |
| | |
|
|
Redeemable noncontrolling interest | |
| 8,624 | |
| 3,798 |
Equity | |
| | |
| |
Stockholders’ equity: | |
| | |
| |
Preferred stock, $0.01 par value—200,000 shares authorized, NaN issued and outstanding | |
| — | |
| — |
Class E common stock, $0.01 par value—500,000 shares authorized, 57,259 shares and 60,873 shares issued and outstanding, respectively | |
| 573 | |
| 609 |
Class T common stock, $0.01 par value—500,000 shares authorized, 13,682 shares and 9,831 shares issued and outstanding, respectively | |
| 137 | |
| 98 |
Class S common stock, $0.01 par value—500,000 shares authorized, 32,148 shares and 23,516 shares issued and outstanding, respectively | |
| 321 | |
| 235 |
Class D common stock, $0.01 par value—500,000 shares authorized, 5,990 shares and 4,098 shares issued and outstanding, respectively | |
| 60 | |
| 41 |
Class I common stock, $0.01 par value—500,000 shares authorized, 51,306 shares and 44,723 shares issued and outstanding, respectively | |
| 513 | |
| 447 |
Additional paid-in capital | |
| 1,389,823 | |
| 1,269,146 |
Distributions in excess of earnings | |
| (859,050) | |
| (841,496) |
Accumulated other comprehensive loss | |
| (18,289) | |
| (27,431) |
Total stockholders’ equity | |
| 514,088 | |
| 401,649 |
Noncontrolling interests | |
| 144,230 | |
| 96,242 |
Total equity | | | 658,318 | | | 497,891 |
Total liabilities and equity | | $ | 2,378,143 | | $ | 2,111,560 |
See accompanying Notes to Condensed Consolidated Financial Statements.
3
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Investments in real property | $ | 2,221,700 | $ | 2,204,322 | |||
Accumulated depreciation and amortization | (529,846 | ) | (492,911 | ) | |||
Total net investments in real property | 1,691,854 | 1,711,411 | |||||
Debt-related investments, net | 11,259 | 15,209 | |||||
Total net investments | 1,703,113 | 1,726,620 | |||||
Cash and cash equivalents | 5,841 | 13,864 | |||||
Restricted cash | 8,268 | 7,282 | |||||
Other assets, net | 40,549 | 35,962 | |||||
Total Assets | $ | 1,757,771 | $ | 1,783,728 | |||
LIABILITIES AND EQUITY | |||||||
Liabilities: | |||||||
Accounts payable and accrued expenses (1) | $ | 31,336 | $ | 34,085 | |||
Mortgage notes | 477,946 | 342,247 | |||||
Unsecured borrowings | 673,555 | 706,554 | |||||
Intangible lease liabilities, net | 55,856 | 59,545 | |||||
Other liabilities | 27,581 | 33,206 | |||||
Total Liabilities | 1,266,274 | 1,175,637 | |||||
Equity: | |||||||
Stockholders’ equity: | |||||||
Common stock, $0.01 par value; 1,000,000,000 shares authorized; 139,949,658 and 150,636,393 shares issued and outstanding, as of September 30, 2017 and December 31, 2016, respectively (2) | 1,399 | 1,506 | |||||
Additional paid-in capital | 1,282,495 | 1,361,638 | |||||
Distributions in excess of earnings | (872,249 | ) | (839,896 | ) | |||
Accumulated other comprehensive loss | (4,618 | ) | (6,905 | ) | |||
Total stockholders’ equity | 407,027 | 516,343 | |||||
Noncontrolling interests | 84,470 | 91,748 | |||||
Total Equity | 491,497 | 608,091 | |||||
Total Liabilities and Equity | $ | 1,757,771 | $ | 1,783,728 |
(Unaudited)
| | | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands, except per share data) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Revenues: | | |
| | |
| | |
| | |
| |
Rental revenues | | $ | 53,596 | | $ | 44,129 | | $ | 152,657 | | $ | 132,995 | |
Debt-related income | |
| 2,298 | |
| 981 | |
| 6,741 | |
| 1,181 | |
Total revenues | |
| 55,894 | |
| 45,110 | |
| 159,398 | |
| 134,176 | |
Operating expenses: | |
| | |
|
| |
| | |
|
| |
Rental expenses | |
| 17,842 | |
| 15,881 | |
| 52,318 | |
| 45,792 | |
Real estate-related depreciation and amortization | |
| 18,821 | |
| 15,649 | |
| 52,728 | |
| 44,558 | |
General and administrative expenses | |
| 2,183 | |
| 1,977 | |
| 6,582 | |
| 5,769 | |
Advisory fees, related party | |
| 5,480 | |
| 4,210 | |
| 15,389 | |
| 12,666 | |
Performance participation allocation | |
| 3,774 | |
| 1,333 | |
| 7,769 | |
| 3,343 | |
Acquisition costs and reimbursements | |
| 738 | |
| 240 | |
| 1,451 | |
| 842 | |
Litigation expense | |
| 0 | |
| 2,500 | |
| 0 | |
| 2,500 | |
Impairment of real estate property | |
| 0 | |
| 0 | |
| 758 | |
| 0 | |
Total operating expenses | |
| 48,838 | |
| 41,790 | |
| 136,995 | |
| 115,470 | |
Other expenses (income): | |
| | |
|
| |
| | |
|
| |
Interest expense | |
| 17,866 | |
| 15,290 | |
| 51,477 | |
| 42,930 | |
Gain on sale of real estate property | |
| (25,979) | |
| 0 | |
| (53,321) | |
| (2,192) | |
Other income | |
| (524) | |
| (262) | |
| (1,274) | |
| (619) | |
Total other expenses (income) | |
| (8,637) | |
| 15,028 | |
| (3,118) | |
| 40,119 | |
Net income (loss) | |
| 15,693 | |
| (11,708) | |
| 25,521 | |
| (21,413) | |
Net (income) loss attributable to redeemable noncontrolling interests | | | (99) | | | 39 | | | (169) | | | 71 | |
Net (income) loss attributable to noncontrolling interests | |
| (1,654) | |
| 839 | |
| (2,430) | |
| 1,515 | |
Net income (loss) attributable to common stockholders | | $ | 13,940 | | $ | (10,830) | | $ | 22,922 | | $ | (19,827) | |
Weighted-average shares outstanding—basic | |
| 157,025 | |
| 141,682 | |
| 151,045 | |
| 142,216 | |
Weighted-average shares outstanding—diluted | |
| 176,777 | |
| 153,166 | |
| 168,475 | |
| 153,665 | |
Net income (loss) attributable to common stockholders per common share—basic and diluted | | $ | 0.09 | | $ | (0.08) | | $ | 0.15 | | $ | (0.14) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
4
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
REVENUE: | |||||||||||||||
Rental revenue | $ | 49,478 | $ | 53,258 | $ | 152,022 | $ | 161,504 | |||||||
Debt-related income | 194 | 235 | 654 | 710 | |||||||||||
Total Revenue | 49,672 | 53,493 | 152,676 | 162,214 | |||||||||||
EXPENSES: | |||||||||||||||
Rental expense | 17,516 | 16,437 | 51,520 | 48,388 | |||||||||||
Real estate depreciation and amortization expense | 16,927 | 19,989 | 53,661 | 60,022 | |||||||||||
General and administrative expenses (1) | 2,760 | 2,234 | 7,034 | 7,192 | |||||||||||
Advisory fees, related party | 3,274 | 3,681 | 10,215 | 11,118 | |||||||||||
Acquisition-related expenses | — | 136 | — | 661 | |||||||||||
Impairment of real estate property (2) | — | 2,090 | 1,116 | 2,677 | |||||||||||
Total Operating Expenses | 40,477 | 44,567 | 123,546 | 130,058 | |||||||||||
OTHER (EXPENSES) INCOME: | |||||||||||||||
Other (expense) and income | (664 | ) | 2,308 | (862 | ) | 2,297 | |||||||||
Interest expense | (11,346 | ) | (10,011 | ) | (31,193 | ) | (31,394 | ) | |||||||
Gain on extinguishment of debt and financing commitments | — | — | — | 5,136 | |||||||||||
Gain on sale of real property (3) | 670 | 2,095 | 11,022 | 43,495 | |||||||||||
Net (loss) income | (2,145 | ) | 3,318 | 8,097 | 51,690 | ||||||||||
Net loss (income) attributable to noncontrolling interests | 185 | (353 | ) | (1,591 | ) | (4,826 | ) | ||||||||
NET (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (1,960 | ) | $ | 2,965 | $ | 6,506 | $ | 46,864 | ||||||
NET (LOSS) INCOME PER BASIC AND DILUTED COMMON SHARE | $ | (0.01 | ) | $ | 0.02 | $ | 0.04 | $ | 0.29 | ||||||
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | |||||||||||||||
Basic | 139,925 | 158,688 | 144,998 | 161,274 | |||||||||||
Diluted | 151,739 | 170,952 | 156,918 | 173,760 | |||||||||||
Distributions declared per common share | $ | 0.0892 | $ | 0.0892 | $ | 0.2674 | $ | 0.2677 |
(Unaudited)
| | | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income (loss) | | $ | 15,693 | | $ | (11,708) | | $ | 25,521 | | $ | (21,413) | |
Change from cash flow hedging derivatives | |
| 2,313 | |
| 2,278 | |
| 10,259 | |
| (16,874) | |
Comprehensive income (loss) | |
| 18,006 | |
| (9,430) | |
| 35,780 | |
| (38,287) | |
Comprehensive (income) loss attributable to redeemable noncontrolling interests | | | (114) | | | 31 | | | (239) | | | 126 | |
Comprehensive (income) loss attributable to noncontrolling interests | |
| (1,940) | |
| 678 | |
| (3,477) | |
| 2,769 | |
Comprehensive income (loss) attributable to common stockholders | | $ | 15,952 | | $ | (8,721) | | $ | 32,064 | | $ | (35,392) | |
See accompanying Notes to Condensed Consolidated Financial Statements.
5
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net (loss) income | $ | (2,145 | ) | $ | 3,318 | $ | 8,097 | $ | 51,690 | ||||||
Other Comprehensive (Loss) Income: | |||||||||||||||
Change in value of cash flow hedging derivatives | 948 | 2,901 | 2,360 | (9,880 | ) | ||||||||||
Comprehensive (loss) income | (1,197 | ) | 6,219 | 10,457 | 41,810 | ||||||||||
Comprehensive loss (income) attributable to noncontrolling interests | 169 | (571 | ) | (1,664 | ) | (4,098 | ) | ||||||||
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ | (1,028 | ) | $ | 5,648 | $ | 8,793 | $ | 37,712 |
(Unaudited)
| | | | | | | | | | | | | | | | | | | | |
|
| Stockholders’ Equity |
| | |
| | | ||||||||||||
| | | | | | | | | | | | Accumulated | | | | | | | ||
| | | | | |
| Additional |
| Distributions |
| Other |
| | |
| | | |||
| | Common Stock |
| Paid-in |
| in Excess of |
| Comprehensive | | Noncontrolling | | Total | ||||||||
(in thousands) |
| Shares |
| Amount |
| Capital |
| Earnings |
| Income (Loss) |
| Interests |
| Equity | ||||||
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2020 | | 141,775 | | $ | 1,418 | | $ | 1,263,091 | | $ | (809,999) | | $ | (32,336) | | $ | 83,166 | | $ | 505,340 |
Net loss (excluding $39 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| (10,830) | |
| — | |
| (839) | |
| (11,669) |
Unrealized gain from derivative instruments (excluding $8 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| — | |
| 2,109 | |
| 161 | |
| 2,270 |
Issuance of common stock, net of offering costs |
| 2,835 | |
| 27 | |
| 19,862 | |
| — | |
| — | |
| — | |
| 19,889 |
Share-based compensation, net of forfeitures |
| 4 | |
| — | |
| 32 | |
| — | |
| — | |
| — | |
| 32 |
Redemptions of common stock |
| (2,806) | |
| (28) | |
| (21,025) | |
| — | |
| — | |
| — | |
| (21,053) |
Amortization of share-based compensation |
| — | |
| — | |
| 21 | |
| — | |
| — | |
| — | |
| 21 |
Distributions declared on common stock and noncontrolling interests, net of distribution fees (excludes $47 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| (12,769) | |
| — | |
| (1,029) | |
| (13,798) |
Redemption value allocation adjustment to redeemable noncontrolling interest | | — | | | — | | | (88) | | | — | | | — | | | — | | | (88) |
Redemptions of noncontrolling interests | | — | | | — | | | (7) | | | — | | | — | | | (15) | | | (22) |
Balance as of September 30, 2020 |
| 141,808 | | $ | 1,417 | | $ | 1,261,886 | | $ | (833,598) | | $ | (30,227) | | $ | 81,444 | | $ | 480,922 |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2021 |
| 152,021 | | $ | 1,520 | | $ | 1,330,413 | | $ | (859,021) | | $ | (20,301) | | $ | 116,306 | | $ | 568,917 |
Net income (excluding $99 attributable to redeemable noncontrolling interest) |
| — | | | — | | | — | | | 13,940 | | | — | | | 1,654 | |
| 15,594 |
Unrealized gain from derivative instruments (excluding $15 attributable to redeemable noncontrolling interest) |
| — | | | — | | | — | | | — | | | 2,012 | | | 286 | |
| 2,298 |
Issuance of common stock, net of offering costs |
| 10,268 | | | 103 | | | 75,114 | | | — | | | — | | | — | |
| 75,217 |
Share-based compensation, net of forfeitures |
| 21 | | | — | | | 160 | | | — | | | — | | | — | |
| 160 |
Redemptions of common stock |
| (1,925) | | | (19) | | | (14,731) | | | — | | | — | | | — | |
| (14,750) |
Amortization of share-based compensation |
| — | | | — | | | (100) | | | — | | | — | | | — | |
| (100) |
Issuances of OP Units for DST Interests |
| — | | | — | | | — | | | — | | | — | | | 31,788 | |
| 31,788 |
Distributions declared on common stock and noncontrolling interests, net of distribution fees (excludes $106 attributable to redeemable noncontrolling interest) |
| — | | | — | | | (759) | | | (13,969) | | | — | | | (4,000) | |
| (18,728) |
Redemption value allocation adjustment to redeemable noncontrolling interest |
| — | | | — | | | (108) | | | — | | | — | | | — | |
| (108) |
Redemptions of noncontrolling interests |
| — | | | — | | | (166) | | | — | | | — | | | (1,804) | |
| (1,970) |
Balance as of September 30, 2021 |
| 160,385 | | $ | 1,604 | | $ | 1,389,823 | | $ | (859,050) | | $ | (18,289) | | $ | 144,230 | | $ | 658,318 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2019 | | 140,480 | | $ | 1,405 | | $ | 1,257,147 | | $ | (775,259) | | $ | (14,662) | | $ | 81,657 | | $ | 550,288 |
Net loss (excluding $71 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| (19,827) | |
| — | |
| (1,515) | |
| (21,342) |
Unrealized loss from derivative instruments (excluding $55 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| — | |
| (15,565) | |
| (1,254) | |
| (16,819) |
Issuance of common stock, net of offering costs |
| 12,916 | |
| 128 | |
| 92,222 | |
| — | |
| — | |
| — | |
| 92,350 |
Share-based compensation, net of forfeitures |
| 20 | |
| — | |
| 150 | |
| — | |
| — | |
| — | |
| 150 |
Redemptions of common stock |
| (11,608) | |
| (116) | |
| (86,949) | |
| — | |
| — | |
| — | |
| (87,065) |
Amortization of share-based compensation |
| — | |
| — | |
| 58 | |
| — | |
| — | | | — | |
| 58 |
Issuances of OP Units for DST Interests |
| — | |
| — | |
| — | |
| — | |
| — | |
| 11,233 | |
| 11,233 |
Distributions declared on common stock and noncontrolling interests, net of distribution fees (excludes $141 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| (38,512) | |
| — | |
| (3,079) | |
| (41,591) |
Redemption value allocation adjustment to redeemable noncontrolling interest | | — | | | — | | | (281) | | | — | | | — | | | — | | | (281) |
Redemptions of noncontrolling interests | | — | | | — | | | (461) | | | — | | | — | | | (5,598) | | | (6,059) |
Balance as of September 30, 2020 |
| 141,808 | | $ | 1,417 | | $ | 1,261,886 | | $ | (833,598) | | $ | (30,227) | | $ | 81,444 | | $ | 480,922 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2020 | | 143,041 | | $ | 1,430 | | $ | 1,269,146 | | $ | (841,496) | | $ | (27,431) | | $ | 96,242 | | $ | 497,891 |
Net income (excluding $169 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| 22,922 | |
| — | |
| 2,430 | |
| 25,352 |
Unrealized gain from derivative instruments (excluding $70 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| — | |
| — | |
| 9,142 | |
| 1,047 | |
| 10,189 |
Issuance of common stock, net of offering costs |
| 23,916 | |
| 239 | |
| 173,196 | |
| — | |
| — | |
| — | |
| 173,435 |
Share-based compensation, net of forfeitures |
| 29 | |
| — | |
| 217 | |
| — | |
| — | |
| — | |
| 217 |
Redemptions of common stock |
| (6,601) | |
| (65) | |
| (50,065) | |
| — | |
| — | |
| — | |
| (50,130) |
Amortization of share-based compensation |
| — | |
| — | |
| (72) | |
| — | |
| — | | ` | — | |
| (72) |
Issuances of OP Units for DST Interests |
| — | |
| — | |
| — | |
| — | |
| — | |
| 57,729 | |
| 57,729 |
Distributions declared on common stock and noncontrolling interests, net of distribution fees (excludes $314 attributable to redeemable noncontrolling interest) |
| — | |
| — | |
| (2,001) | |
| (40,476) | |
| — | |
| (9,231) | |
| (51,708) |
Redemption value allocation adjustment to redeemable noncontrolling interest | | — | | | — | | | (293) | | | — | | | — | | | — | | | (293) |
Redemptions of noncontrolling interests | | — | | | — | | | (305) | | | — | | | — | | | (3,987) | | | (4,292) |
Balance as of September 30, 2021 |
| 160,385 | | $ | 1,604 | | $ | 1,389,823 | | $ | (859,050) | | $ | (18,289) | | $ | 144,230 | | $ | 658,318 |
See accompanying Notes to Condensed Consolidated Financial Statements.
6
Stockholders’ Equity | ||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||
Additional | Distributions | Other | ||||||||||||||||||||||||
Common Stock | Paid-in | in Excess of | Comprehensive | Noncontrolling | Total | |||||||||||||||||||||
Shares | Amount | Capital | Earnings | Loss | Interests | Equity | ||||||||||||||||||||
Balances, December 31, 2016 | 150,636 | $ | 1,506 | $ | 1,361,638 | $ | (839,896 | ) | $ | (6,905 | ) | $ | 91,748 | $ | 608,091 | |||||||||||
Comprehensive income: | ||||||||||||||||||||||||||
Net income | — | — | — | 6,506 | — | 1,591 | 8,097 | |||||||||||||||||||
Unrealized change in value of cash flow hedging derivatives | — | — | — | — | 2,287 | 73 | 2,360 | |||||||||||||||||||
Common stock: | ||||||||||||||||||||||||||
Issuance of common stock, net of offering costs | 4,125 | 41 | 31,028 | — | — | — | 31,069 | |||||||||||||||||||
Issuance of common stock, stock-based compensation plans | (99 | ) | (1 | ) | (647 | ) | — | — | — | (648 | ) | |||||||||||||||
Redemptions of common stock | (14,712 | ) | (147 | ) | (110,454 | ) | — | — | — | (110,601 | ) | |||||||||||||||
Amortization of stock-based compensation | — | — | 1,526 | — | — | — | 1,526 | |||||||||||||||||||
Distributions declared on common stock | — | — | — | (38,798 | ) | — | — | (38,798 | ) | |||||||||||||||||
Distributions on unvested Advisor RSUs | — | — | — | (61 | ) | — | — | (61 | ) | |||||||||||||||||
Noncontrolling interests: | ||||||||||||||||||||||||||
Contributions of noncontrolling interests | — | — | — | — | — | 106 | 106 | |||||||||||||||||||
Distributions declared to noncontrolling interests | — | — | — | — | — | (5,840 | ) | (5,840 | ) | |||||||||||||||||
Redemptions of noncontrolling interests | — | — | (596 | ) | — | — | (3,208 | ) | (3,804 | ) | ||||||||||||||||
Balances, September 30, 2017 | 139,950 | $ | 1,399 | $ | 1,282,495 | $ | (872,249 | ) | $ | (4,618 | ) | $ | 84,470 | $ | 491,497 |
(Unaudited)
| | | | | | |
|
| For the Nine Months Ended September 30, | ||||
(in thousands) |
| 2021 |
| 2020 | ||
Operating activities: | | |
| | |
|
Net income (loss) | | $ | 25,521 | | $ | (21,413) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |
| | |
| |
Real estate-related depreciation and amortization | |
| 52,728 | |
| 44,558 |
Straight-line rent and amortization of above- and below-market leases | |
| (6,759) | |
| (6,177) |
Gain on sale of real estate property | |
| (53,321) | |
| (2,192) |
Impairment of real estate property | | | 758 | | | 0 |
Other | |
| 10,991 | |
| 9,220 |
Changes in operating assets and liabilities | |
| 8,832 | |
| 4,851 |
Net cash provided by operating activities | |
| 38,750 | |
| 28,847 |
Investing activities: | |
| | |
|
|
Real estate acquisitions | |
| (346,480) | |
| (162,114) |
Capital expenditures | |
| (22,725) | |
| (28,659) |
Proceeds from disposition of real estate property | |
| 141,360 | |
| 2,752 |
Principal collections on debt-related investments | |
| 2,405 | |
| 129 |
Investment in debt-related investments | |
| (402) | |
| (45,539) |
Other | |
| (333) | |
| (3,355) |
Net cash used in investing activities | |
| (226,175) | |
| (236,786) |
Financing activities: | |
| | |
|
|
Repayments of mortgage notes | |
| (26,241) | |
| (2,223) |
Net repayments of line of credit | |
| (21,000) | |
| 0 |
Redemptions of common stock | |
| (50,130) | |
| (87,065) |
Distributions paid to common stockholders | |
| (23,002) | |
| (22,527) |
Proceeds from issuance of common stock | |
| 166,750 | |
| 81,932 |
Proceeds from financing obligations, net | |
| 163,018 | |
| 179,592 |
Offering costs for issuance of common stock and private placements | |
| (8,689) | |
| (7,331) |
Distributions paid to noncontrolling interest holders and redeemable noncontrolling interest holders | |
| (4,550) | |
| (3,189) |
Redemption of OP Unit holder interests | |
| (4,292) | |
| (6,059) |
Other | |
| (3,177) | |
| (6,533) |
Net cash provided by financing activities | |
| 188,687 | |
| 126,597 |
Net increase (decrease) in cash, cash equivalents and restricted cash | |
| 1,262 | |
| (81,342) |
Cash, cash equivalents and restricted cash, at beginning of period | |
| 21,734 | |
| 107,782 |
Cash, cash equivalents and restricted cash, at end of period | | $ | 22,996 | | $ | 26,440 |
See accompanying Notes to Condensed Consolidated Financial Statements.
7
For the Nine Months Ended September 30, | |||||||
2017 | 2016 | ||||||
OPERATING ACTIVITIES: | |||||||
Net income | $ | 8,097 | $ | 51,690 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Real estate depreciation and amortization expense | 53,661 | 60,022 | |||||
Gain on disposition of real property | (11,022 | ) | (43,495 | ) | |||
Impairment of real estate property | 1,116 | 2,677 | |||||
Gain on extinguishment of debt and financing commitments | — | (5,136 | ) | ||||
Other adjustments to reconcile net income to net cash provided by operating activities | 5,241 | 5,663 | |||||
Changes in operating assets and liabilities | (3,265 | ) | (3,583 | ) | |||
Net cash provided by operating activities | 53,828 | 67,838 | |||||
INVESTING ACTIVITIES: | |||||||
Acquisition of real property | (39,538 | ) | (65,861 | ) | |||
Capital expenditures in real property | (18,801 | ) | (18,598 | ) | |||
Proceeds from disposition of real property | 36,250 | 202,665 | |||||
Principal collections on debt-related investments | 3,915 | 349 | |||||
Other investing activities | (1,492 | ) | 7,788 | ||||
Net cash (used in) provided by investing activities | (19,666 | ) | 126,343 | ||||
FINANCING ACTIVITIES: | |||||||
Mortgage note proceeds | 299,469 | 84,045 | |||||
Mortgage note principal repayments | (162,037 | ) | (270,215 | ) | |||
Net (repayments of) proceeds from revolving line of credit borrowings | (34,000 | ) | 151,000 | ||||
Redemption of common shares | (110,665 | ) | (150,588 | ) | |||
Distributions on common stock | (30,086 | ) | (28,698 | ) | |||
Proceeds from sale of common stock | 12,486 | 51,968 | |||||
Offering costs for issuance of common stock | (3,425 | ) | (5,160 | ) | |||
Distributions to noncontrolling interest holders | (6,560 | ) | (5,498 | ) | |||
Redemption of OP Unit holder interests | (3,427 | ) | (4,316 | ) | |||
Other financing activities | (3,940 | ) | 1,915 | ||||
Net cash used in financing activities | (42,185 | ) | (175,547 | ) | |||
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | (8,023 | ) | 18,634 | ||||
CASH AND CASH EQUIVALENTS, beginning of period | 13,864 | 15,769 | |||||
CASH AND CASH EQUIVALENTS, end of period | $ | 5,841 | $ | 34,403 | |||
Supplemental Disclosure of Cash Flow Information: | |||||||
Cash paid for interest | $ | 27,985 | $ | 29,782 | |||
Supplemental Disclosure of Noncash Investing and Financing Activities: | |||||||
Common stock issued pursuant to the distribution reinvestment plan | $ | 18,433 | $ | 15,313 | |||
Non-cash disposition of real property * | $ | — | $ | 7,830 |
(Unaudited)
1. ORGANIZATION
Unless the context otherwise requires, the “Company,” “we,” “our” and“our,” or “us” referrefers to Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except wheresubsidiaries. The Company is externally managed by its advisor. On July 1, 2021, Ares Management Corporation (“Ares”) closed on the context otherwise requires.
The accompanying unaudited condensed consolidated balance sheetsfinancial statements included approximately $48.2 million, after accumulated depreciation and amortization, in net investments in real property in these consolidated variable interest entities as of December 31, 2016. As of September 30, 2017, we did not hold any investment in any joint ventures.
As used herein, the Company’s significant accounting policies during the nine months ended September 30, 2017 other than the updates described below.
Real Property | Land | Building and Improvements | Intangible Lease Assets | Total Investment Amount | Intangible Lease Liabilities | Net Investment Amount | ||||||||||||||||||
As of September 30, 2017: | ||||||||||||||||||||||||
Office | $ | 171,176 | $ | 718,316 | $ | 230,188 | $ | 1,119,680 | $ | (14,917 | ) | $ | 1,104,763 | |||||||||||
Industrial | 12,611 | 67,118 | 19,148 | 98,877 | (575 | ) | 98,302 | |||||||||||||||||
Retail | 292,483 | 598,730 | 111,930 | 1,003,143 | (75,264 | ) | 927,879 | |||||||||||||||||
Total gross book value | 476,270 | 1,384,164 | 361,266 | 2,221,700 | (90,756 | ) | 2,130,944 | |||||||||||||||||
Accumulated depreciation/amortization | — | (236,829 | ) | (293,017 | ) | (529,846 | ) | 34,900 | (494,946 | ) | ||||||||||||||
Total net book value | $ | 476,270 | $ | 1,147,335 | $ | 68,249 | $ | 1,691,854 | $ | (55,856 | ) | $ | 1,635,998 | |||||||||||
As of December 31, 2016: | ||||||||||||||||||||||||
Office | $ | 171,176 | $ | 701,859 | $ | 236,143 | $ | 1,109,178 | $ | (15,121 | ) | $ | 1,094,057 | |||||||||||
Industrial | 8,821 | 63,999 | 16,308 | 89,128 | (344 | ) | 88,784 | |||||||||||||||||
Retail | 293,973 | 599,020 | 113,023 | 1,006,016 | (75,515 | ) | 930,501 | |||||||||||||||||
Total gross book value | 473,970 | 1,364,878 | 365,474 | 2,204,322 | (90,980 | ) | 2,113,342 | |||||||||||||||||
Accumulated depreciation/amortization | — | (215,858 | ) | (277,053 | ) | (492,911 | ) | 31,435 | (461,476 | ) | ||||||||||||||
Total net book value | $ | 473,970 | $ | 1,149,020 | $ | 88,421 | $ | 1,711,411 | $ | (59,545 | ) | $ | 1,651,866 |
Real Property | Property Type | Market | Date of Acquisition | Acquired Ownership | Contract Price | Net Rentable Square Feet | Percent Leased at Acquisition | ||||||||||
Vasco Road | Industrial | East Bay, CA | 7/21/2017 | 100% | $ | 16,248 | 96 | 100% | |||||||||
Northgate | Industrial | Las Vegas, NV | 7/26/2017 | 100% | 24,500 | 248 | 100% | ||||||||||
$ | 40,748 | 344 |
Weighted-Average Amortization Period (Years) | ||||||||||||||||||||||||||||||||
Real Property | Land | Building and Improvements | Intangible Lease Assets | Intangible Lease Liabilities | Total Fair Value | Prorations and Credits | Contract Price | Intangible Lease Assets | Intangible Lease Liabilities | |||||||||||||||||||||||
Vasco Road | $ | 4,880 | $ | 9,637 | $ | 2,382 | $ | (575 | ) | $ | 16,324 | $ | (76 | ) | $ | 16,248 | 5.9 | 8.1 | ||||||||||||||
Northgate | 3,940 | 17,110 | 3,605 | — | 24,655 | (155 | ) | 24,500 | 9.8 | N/A | ||||||||||||||||||||||
Total/ Weighted Average | $ | 8,820 | $ | 26,747 | $ | 5,987 | $ | (575 | ) | $ | 40,979 | $ | (231 | ) | $ | 40,748 | 8.3 | 8.1 |
Property Type | Market | Ownership | Net Rentable Square Feet | Percentage Leased | Disposition Date | Contract Sales Price | Gain on Sale | |||||||||||||
For the nine months ended September 30, 2017 | ||||||||||||||||||||
Retail | Greater Boston | 100% | 51 | 61 | % | 5/31/2017 | $ | 4,500 | $ | — | ||||||||||
Industrial Portfolio (1) | Louisville, KY | 90% | 609 | 100 | % | 6/9/2017 | 26,800 | 10,352 | ||||||||||||
Industrial (2) | Dallas, TX | 100% | 128 | — | % | 7/21/2017 | 7,661 | 670 | ||||||||||||
Total/ Weighted Average | 788 | 81 | % | $ | 38,961 | $ | 11,022 | |||||||||||||
For the nine months ended September 30, 2016 | ||||||||||||||||||||
Office | Washington, DC | 100% | 574 | 100 | % | 2/18/2016 | $ | 158,400 | $ | 41,241 | ||||||||||
Office | Chicago, IL | 80% | 107 | 66 | % | 3/1/2016 | 9,850 | — | ||||||||||||
Office | Chicago, IL | 80% | 199 | 81 | % | 3/1/2016 | 18,000 | 159 | ||||||||||||
Retail | Greater Boston | 100% | 39 | 100 | % | 8/5/2016 | 3,625 | 975 | ||||||||||||
Industrial | Louisville, KY | 90% | 126 | 33 | % | 9/2/2016 | 5,400 | 1,120 | ||||||||||||
Office | Washington, DC | 100% | 178 | — | % | 9/30/2016 | 18,600 | — | ||||||||||||
Total/ Weighted Average | 1,223 | 73 | % | $ | 213,875 | $ | 43,495 |
Reclassifications
Certain items in our NAV will not necessarily be the same as for impairment charges recorded to ourcondensed consolidated financial statements prepared pursuant to GAAP. Since we determine our NAV monthly, impairment charges pursuant to GAAP will likely always be delayed and potentially significantly delayed compared to the change in fair value of our properties included in the calculation of our monthly NAV.
Recently Adopted Accounting Standards
In addition,August 2020, the FASB issued ASU 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40)” (“ASU 2020-06”), which updates various codification topics to simplify the accounting guidance for certain financial instruments with characteristics of liabilities and equity, with a specific focus on convertible instruments and the derivative scope exception for contracts in an entity’s own equity. ASU 2020-06 is effective for annual and interim reporting periods beginning after December 15, 2021, with early adoption permitted for annual and interim reporting periods beginning after December 15, 2020. We adopted this standard as of the reporting period beginning January 1, 2021. The adoption did not have a material effect on our condensed consolidated financial statements.
In January 2021, the FASB issued ASU 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”) to refine the scope of ASU 2020-04 and clarify the guidance as part of FASB’s ongoing monitoring of global reference rate reform activities. The ASU extends the guidance to provide optional expedients and exceptions for applying GAAP to derivative contracts if certain criteria are met. The amendments only apply to derivative contracts that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2021-01 is effective for annual and interim reporting periods beginning after March 12, 2020, with early adoption permitted, through December 31, 2022. The expedients and exceptions do not apply to derivative contracts entered into after December 31, 2022. We adopted this standard immediately upon its issuance. The adoption did not have a material effect on our condensed consolidated financial statements.
8
2. INVESTMENTS IN REAL ESTATE PROPERTIES
The following table summarizes tenant recovery income received from tenants forour consolidated investments in real estate taxes, insurance and other property operating expenses and recognized as rental revenue (amounts in thousands):
| | | | | | |
|
| As of | ||||
(in thousands) |
| September 30, 2021 |
| December 31, 2020 | ||
Land | | $ | 574,254 | | $ | 476,442 |
Buildings and improvements | |
| 1,840,097 | |
| 1,689,474 |
Intangible lease assets | |
| 293,075 | |
| 289,762 |
Investment in real estate properties | |
| 2,707,426 | |
| 2,455,678 |
Accumulated depreciation and amortization | |
| (510,763) | |
| (501,105) |
Net investment in real estate properties | | $ | 2,196,663 | | $ | 1,954,573 |
Acquisitions
During the nine months ended September 30, 2021, we acquired 100% of the following properties, all of which were determined to be asset acquisitions:
| | | | | | | |
($ in thousands) |
| Property Type |
| Acquisition Date |
| Total Purchase Price (1) | |
Radar Distribution Center LLC | | Industrial | | 3/31/2021 | | $ | 49,168 |
Intermountain SC | | Industrial | | 6/30/2021 | | | 61,057 |
Airway Logistics | | Industrial | | 7/9/2021 | | | 24,238 |
Greenwood Business Center | | Industrial | | 8/2/2021 | | | 16,803 |
25 Linden Industrial Center | | Industrial | | 8/31/2021 | | | 17,061 |
Little Orchard Business Park | | Industrial | | 9/8/2021 | | | 96,559 |
Tustin Business Center | | Industrial | | 9/22/2021 | | | 33,285 |
Barrow Crossing | | Retail | | 6/22/2021 | | | 50,205 |
Total acquisitions |
|
|
|
| | $ | 348,376 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Straight-line rent adjustments | $ | (109 | ) | $ | (296 | ) | $ | (464 | ) | $ | (742 | ) | |||
Above-market lease assets | (641 | ) | (1,402 | ) | (2,155 | ) | (3,930 | ) | |||||||
Below-market lease liabilities | 1,355 | 1,529 | 4,138 | 4,608 | |||||||||||
Total increase to rental revenue | $ | 605 | $ | (169 | ) | $ | 1,519 | $ | (64 | ) | |||||
Tenant recovery income (1) | $ | 9,865 | $ | 10,623 | $ | 30,911 | $ | 31,183 |
(1) |
During the nine months ended September 30, 2021, we allocated the purchase price of Credit Riskour acquisitions to land, building and intangible lease assets and liabilities as follows:
| | | |
| | For the Nine Months Ended | |
($ in thousands) |
| September 30, 2021 | |
Land | | $ | 116,421 |
Building | |
| 217,341 |
Intangible lease assets | |
| 27,103 |
Above-market lease assets | |
| 1,317 |
Below-market lease liabilities | |
| (13,806) |
Total purchase price (1) | | $ | 348,376 |
(1) | There was 0 debt assumed in connection with the 2021 acquisitions. |
The weighted-average amortization period for the intangible lease assets and liabilities acquired in connection with our acquisitions during the nine months ended September 30, 2021, as of the respective date of each acquisition, was 8.9 years.
Dispositions
During the nine months ended September 30, 2021, we sold 1 retail property, 1 industrial property, and 2 office properties for net proceeds of approximately $141.4 million. We recorded a net gain on sale of approximately $53.3 million.
During the nine months ended September 30, 2020, we sold 1 retail outparcel for net proceeds of approximately $2.8 million. We recorded a net gain on sale of approximately $2.2 million.
9
Intangible Lease Assets and Liabilities
Intangible lease assets and liabilities as of September 30, 2017 (dollar amounts2021 and square feetDecember 31, 2020 include the following:
| | | | | | | | | | | | | | | | | | |
|
| As of September 30, 2021 |
| As of December 31, 2020 | ||||||||||||||
|
| | |
| Accumulated |
| | |
| | |
| Accumulated |
| | | ||
(in thousands) |
| Gross |
| Amortization |
| Net |
| Gross | | Amortization |
| Net | ||||||
Intangible lease assets | | $ | 269,956 | | $ | (202,569) | | $ | 67,387 | | $ | 266,242 | | $ | (214,055) | | $ | 52,187 |
Above-market lease assets | |
| 23,119 | |
| (19,825) | |
| 3,294 | |
| 23,520 | |
| (21,216) | |
| 2,304 |
Below-market lease liabilities | |
| (92,475) | |
| 40,939 | |
| (51,536) | |
| (79,891) | |
| 39,434 | |
| (40,457) |
Rental Revenue Adjustments and Depreciation and Amortization Expense
The following table summarizes straight-line rent adjustments, amortization recognized as an increase (decrease) to rental revenues from above- and below-market lease assets and liabilities, and real estate-related depreciation and amortization expense:
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Increase (decrease) to rental revenue: | | |
| | |
| | |
| | |
| |
Straight-line rent adjustments | | $ | 2,798 | | $ | 1,322 | | $ | 4,667 | | $ | 3,947 | |
Above-market lease amortization | |
| (138) | |
| (157) | |
| (327) | |
| (275) | |
Below-market lease amortization | |
| 922 | |
| 781 | |
| 2,419 | |
| 2,505 | |
Real estate-related depreciation and amortization: | |
|
| |
|
| |
|
| |
|
| |
Depreciation expense | | $ | 15,332 | | $ | 12,406 | | $ | 42,740 | | $ | 34,660 | |
Intangible lease asset amortization | |
| 3,489 | |
| 3,243 | |
| 9,988 | |
| 9,898 | |
Real Estate Property Impairment
During the nine months ended September 30, 2021, we recorded non-cash impairment charges of $0.8 million related to a retail property located in thousands):
3. DEBT
A summary of our debt is as follows:
| | | | | | | | | | | | |
| | Weighted-Average | | | | | | | | | ||
| | Effective Interest Rate as of | | | | Balance as of | ||||||
| | September 30, | | December 31, | | | | September 30, | | December 31, | ||
($ in thousands) |
| 2021 |
| 2020 |
| Current Maturity Date |
| 2021 |
| 2020 | ||
Line of credit (1) | | 1.48 | % | 1.54 | % | January 2023 | | $ | 85,000 | | $ | 106,000 |
Term loan (2) |
| 3.26 | | 3.27 | | January 2024 | | | 325,000 |
| | 325,000 |
Term loan (3) |
| 3.29 | | 3.29 | | February 2022 | |
| 200,000 |
|
| 200,000 |
Fixed-rate mortgage notes (4) |
| 3.68 | | 3.55 | | October 2022 - December 2029 | |
| 150,346 |
|
| 210,544 |
Floating-rate mortgage note (5) |
| 2.34 | | 2.50 | | November 2021 - January 2022 | |
| 160,957 |
|
| 127,000 |
Total principal amount / weighted-average (6) |
| 3.01 | % | 3.04 | % |
| | $ | 921,303 |
| $ | 968,544 |
Less: unamortized debt issuance costs |
|
|
|
|
|
| | $ | (2,769) |
| $ | (4,083) |
Add: mark-to-market adjustment on assumed debt |
|
|
|
|
|
| |
| 651 |
|
| 844 |
Total debt, net |
|
|
|
|
|
| | $ | 919,185 |
| $ | 965,305 |
Gross book value of properties encumbered by debt | | | | | | | | $ | 557,103 | | $ | 584,637 |
Tenant | Locations | Industry | Annualized Base Rent (1) | % of Total Annualized Base Rent | Square Feet | % of Total Portfolio Square Feet | |||||||||||
Charles Schwab & Co, Inc (2) | 2 | Securities, Commodities, Fin. Inv./Rel. Activities | $ | 23,650 | 15.1 | % | 602 | 7.9 | % | ||||||||
Stop & Shop | 13 | Food and Beverage Stores | 13,498 | 8.6 | % | 803 | 10.5 | % | |||||||||
Novo Nordisk | 1 | Chemical Manufacturing | 4,721 | 3.0 | % | 167 | 2.2 | % | |||||||||
Seton Health Care | 1 | Hospitals | 4,339 | 2.8 | % | 156 | 2.0 | % | |||||||||
Shaw's Supermarket | 4 | Food and Beverage Stores | 4,055 | 2.6 | % | 240 | 3.1 | % | |||||||||
21 | $ | 50,263 | 32.1 | % | 1,968 | 25.7 | % |
(1) |
The effective interest rate is calculated based on the London Interbank Offered Rate (“LIBOR”), plus a margin ranging from 1.30% to 2.10%, depending on our consolidated leverage ratio. As of September 30, 2021, the unused and available portions under the line of credit were approximately $365.0 million and $252.6 million, respectively. The line of credit is available for |
10
general business purposes including, but not limited to, refinancing of existing indebtedness and financing the acquisition of permitted investments, including commercial properties. |
(3) | |
The |
Principal Balance as of | Weighted Average Stated Interest Rate as of | Gross Investment Amount Securing Borrowings as of (1) | |||||||||||||||||||
September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | September 30, 2017 | December 31, 2016 | ||||||||||||||||
Fixed-rate mortgages (2) | $ | 128,934 | $ | 290,970 | 3.9 | % | 4.9 | % | $ | 188,880 | $ | 462,954 | |||||||||
Floating-rate mortgages (3) | 353,100 | 52,500 | 3.5 | % | 2.3 | % | 530,949 | 70,485 | |||||||||||||
Total secured borrowings | 482,034 | 343,470 | 3.6 | % | 4.5 | % | 719,829 | 533,439 | |||||||||||||
Line of credit (4) | 202,000 | 236,000 | 2.9 | % | 2.3 | % | N/A | N/A | |||||||||||||
Term loans (5) | 475,000 | 475,000 | 3.5 | % | 3.2 | % | N/A | N/A | |||||||||||||
Total unsecured borrowings | 677,000 | 711,000 | 3.3 | % | 2.9 | % | N/A | N/A | |||||||||||||
Total borrowings | $ | 1,159,034 | $ | 1,054,470 | 3.4 | % | 3.4 | % | N/A | N/A | |||||||||||
Less: net debt issuance costs | (8,059 | ) | (6,295 | ) | |||||||||||||||||
Add: mark-to-market adjustment on assumed debt | 526 | 626 | |||||||||||||||||||
Total borrowings (net basis) | $ | 1,151,501 | $ | 1,048,801 |
(4) | |
(5) | |
The effective interest rate is calculated based on LIBOR plus a margin. As of September 30, |
(6) | |
As of September 30, 2021, the principal payments due on our outstanding debt during each of the next five years and thereafter were as follows:
| | | | | | | | | | | | |
(in thousands) |
| Line of Credit |
| Term Loans |
| Mortgage Notes |
| Total | ||||
Remainder of 2021 | | $ | 0 | | $ | 0 | | $ | 33,957 | | $ | 33,957 |
2022 (1) | |
| 0 | |
| 200,000 | |
| 127,951 | |
| 327,951 |
2023 (2) | |
| 85,000 | |
| 0 | |
| 0 | |
| 85,000 |
2024 | |
| 0 | |
| 325,000 | |
| 0 | |
| 325,000 |
2025 | |
| 0 | |
| 0 | |
| 70,000 | |
| 70,000 |
Thereafter | |
| 0 | |
| 0 | |
| 79,395 | |
| 79,395 |
Total principal payments | | $ | 85,000 | | $ | 525,000 | | $ | 311,303 | | $ | 921,303 |
(1) | The term of this term loan may be extended pursuant to 2 one-year extension options, subject to certain conditions. |
(2) | The term of the line of credit may be extended pursuant to 2 six-month extension options, subject to certain conditions. |
In July 2017, six mortgage notes were interest-onlythe Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and four mortgage notes were fully amortizing with outstanding principal balancesthe Federal Reserve Bank of approximately $456.1 million and $25.9 million, respectively. None of our mortgage notes are currently recourse to us exceptNew York organized the 655 Montgomery mortgage note (defined below)Alternative Reference Rates Committee (“ARRC”), which is subject to a limited guaranty provided by usidentified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for certain outstanding leasing costs as of September 6, 2017 (the "Outstanding Leasing Costs"). Our recourse liabilityLIBOR in connection with the Outstanding Leasing Costs will decrease as we subsequently fund the Outstanding Leasing Costs. Other than this limited guarantee, the assetsderivatives and credit of each of our consolidated properties pledged as collateral for our mortgage notesother financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to satisfyoccur, our debtinterest payments could change. In addition, uncertainty about the extent and obligations unless we first satisfy the mortgage note payable on the respective underlying property.
LIBOR is expected to be phased out or modified by Bank of America, N.A., as Administrative Agent ("BofA"), we have a $675 million senior unsecured term loan and revolving line of credit (the “Facility”). The Facility provides us with the ability from time to time to increase the size of the Facility up to a total of $900 million less the amount of any prepayments under the term loan component of the Facility, subject to receipt of lender commitments and other conditions.
Debt Covenants
Our line of credit, term loans and $164.0 million, respectively,mortgage note agreements contain various property-level covenants, including customary affirmative and we had full access tonegative covenants. In addition, the unused portionline of the Facility.
11
covenants, including leverage ratio. The maturity date of the $200 million Term Loan is February 27, 2022 with no extension options.
Borrowings | Date Borrowed | Principal Balance | Fixed or Floating Interest Rate | Stated Interest Rate (1) | Contractual Maturity Date | Extension Options | Collateral Type | Collateral Market | |||||||||||
3 Second Street (2) | 1/10/2017 | $ | 127,000 | Floating | 3.50 | % | 1/10/2020 | 2 one-year extension | Office Property | Northern New Jersey | |||||||||
Centerton Square (3) | 6/5/2017 | 75,000 | Floating | 3.48 | % | 7/10/2019 | 2 one-year extension | Retail Property | Philadelphia, PA | ||||||||||
655 Montgomery (4) | 9/6/2017 | $ | 98,600 | Floating | 3.98 | % | 9/7/2020 | 2 one-year extension | Office Property | San Francisco, CA | |||||||||
Total/weighted average borrowings | $ | 300,600 | 3.65 | % |
Debt Obligation | Repayment Date | Balance Repaid/Extinguished | Interest Rate Fixed or Floating | Stated Interest Rate | Contractual Maturity Date | Collateral Type | Collateral Market | ||||||||||
Eastern Retail Portfolio | 1/10/2017 | $ | 110,000 | Fixed | 5.51 | % | 6/11/2017 | Retail Property | Various (1) | ||||||||
Wareham | 5/8/2017 | 24,400 | Fixed | 6.13 | % | 8/8/2017 | Retail Property | Greater Boston | |||||||||
Kingston | 6/1/2017 | 10,574 | Fixed | 6.33 | % | 11/1/2017 | Retail Property | Greater Boston | |||||||||
Sandwich | 6/1/2017 | 15,825 | Fixed | 6.33 | % | 11/1/2017 | Retail Property | Greater Boston | |||||||||
Total/weighted average borrowings | $ | 160,799 | 5.74 | % |
As of September 30, 2017 | ||||||||||||||||
Mortgage Notes | Unsecured Borrowings | Total | ||||||||||||||
Year Ending December 31, | Number of Borrowings Maturing | Outstanding Principal Balance | Number of Borrowings Maturing | Outstanding Principal Balance | Outstanding Principal Balance | |||||||||||
2017 | — | $ | 424 | — | $ | — | $ | 424 | ||||||||
2018 | — | 2,698 | 1 | 275,000 | 277,698 | |||||||||||
2019 | 1 | 78,698 | 1 | 202,000 | 280,698 | |||||||||||
2020 | 2 | 229,460 | — | — | 229,460 | |||||||||||
2021 | 1 | 12,764 | — | — | 12,764 | |||||||||||
2022 | 1 | 3,660 | 1 | 200,000 | 203,660 | |||||||||||
2023 | 2 | 77,899 | — | — | 77,899 | |||||||||||
2024 | — | 1,034 | — | — | 1,034 | |||||||||||
2025 | 1 | 71,094 | — | — | 71,094 | |||||||||||
2026 | — | 1,157 | — | — | 1,157 | |||||||||||
Thereafter | 2 | 3,146 | — | — | 3,146 | |||||||||||
Total | 10 | $ | 482,034 | 3 | $ | 677,000 | $ | 1,159,034 | ||||||||
Less: net debt issuance costs | (4,614 | ) | (3,445 | ) | ||||||||||||
Add: mark-to-market adjustment on assumed debt | 526 | — | ||||||||||||||
Total borrowings (net basis) | $ | 477,946 | $ | 673,555 |
Derivative Instruments
To manage interest rate risk attributable to bothfor certain of our outstanding and forecastedvariable-rate debt, obligations. We generally seek to limit the impact of interest rate changes on earnings and cash flows by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on our secured and unsecured floating rate borrowings. While this hedging strategy is designed to minimize the impact on our net income (loss) and cash provided by operating activities from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes to achieve these risk management objectives.
For derivative instruments that are designated and that qualify as cash flow hedges, under ASC Topic 815the gain or loss is recorded inas a component of accumulated other comprehensive income (loss) income(“AOCI”) on the condensed consolidated balance sheets and is subsequently reclassified into earnings inas interest expense for the same period that the hedged forecasted transaction affects earnings.earnings, which is when the interest expense is recognized on the related debt. During the next 12 months, we estimate that approximately $1.3$7.4 million will be reclassified as an increase to interest expense related to active effective hedges of existing floating-rate debt, and we estimate that approximately $1.9$0.1 million will be reclassified as an increase to interest expense related to effective interest rate swapsterminated hedges where the hedging instrument has been terminated. The ineffective portionlikelihood of the change inoriginally hedged interest payments remains probable.
The following table summarizes the location and fair value of our derivative instruments on our condensed consolidated balance sheets:
| | | | | | | | |
|
| Number of |
| | | | Fair Value | |
($ in thousands) |
| Contracts |
| Notional Amount |
| Other Liabilities | ||
As of September 30, 2021 | | | | | | | | |
Interest rate swaps |
| 13 | | $ | 500,000 | | $ | 16,696 |
Interest rate caps |
| 1 | |
| 127,000 | |
| 0 |
Total derivative instruments |
| 14 | | $ | 627,000 | | $ | 16,696 |
As of December 31, 2020 | | | | | | | | |
Interest rate swaps |
| 14 | | $ | 549,849 | | $ | 26,916 |
Interest rate caps |
| 1 | |
| 127,000 | |
| 0 |
Total derivative instruments |
| 15 | | $ | 676,849 | | $ | 26,916 |
The following table presents the derivatives is recognized directly in earnings.
| | | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Derivative instruments designated as cash flow hedges: | | |
| | |
| | |
| | |
| |
(Loss) gain recognized in AOCI | | $ | (224) | | $ | (292) | | $ | 2,519 | | $ | (22,022) | |
Amount reclassified from AOCI into interest expense | |
| 2,537 | |
| 2,570 | |
| 7,740 | |
| 5,148 | |
Total interest expense presented in the condensed consolidated statements of operations in which the effects of cash flow hedges are recorded | |
| 17,866 | |
| 15,290 | |
| 51,477 | |
| 42,930 | |
Derivative instruments not designated as cash flow hedges: | |
|
| |
|
| |
| | |
|
| |
Loss recognized in income | | $ | 0 | | $ | (1) | | $ | (13) | | $ | (13) | |
4. DST PROGRAM
We have a program to raise capital through private placement offerings by selling beneficial interests (the “DST Interests”) in specific Delaware statutory trusts holding real properties (the “DST Program”). During the nine months ended September 30, 2021 and 2020, we sold approximately $188.0 million and $202.3 million, respectively, in gross interests related to the DST Program, including interests financed by the DST Program Loans (as defined below), and incurred rent obligations of approximately $20.7 million and $13.7 million, respectively, under our available-for-sale securities (amountsmaster lease agreements with investors who are participating in thousands): the DST Program. Additionally, during the nine months ended September 30, 2021 and 2020, 7.6 million partnership units (“OP Units”) in our operating partnership, Black Creek Diversified Property Operating Partnership LP (the “Operating Partnership”) and 1.5 million OP Units, respectively were
12
(Losses) and Gains on Cash Flow Hedges | Unrealized (Losses) and Gains on Available-For-Sale Securities | Accumulated Other Comprehensive Loss | |||||||||
Beginning balance as of December 31, 2016 | $ | (5,849 | ) | $ | (1,056 | ) | $ | (6,905 | ) | ||
Other comprehensive (loss) income: | |||||||||||
Amount of loss reclassified from AOCI into interest expense (effective portion) (net of tax benefit of $0) | 3,815 | — | 3,815 | ||||||||
Change in fair value recognized in AOCI (effective portion) (net of tax benefit of $0) | (1,455 | ) | — | (1,455 | ) | ||||||
Net current-period other comprehensive income | 2,360 | — | 2,360 | ||||||||
Attribution of and other adjustments to AOCI attributable to noncontrolling interests | (121 | ) | 48 | (73 | ) | ||||||
Ending balance as of September 30, 2017 | $ | (3,610 | ) | $ | (1,008 | ) | $ | (4,618 | ) |
issued in exchange for DST Interests, for a net investment of $57.7 million and $11.3 million, respectively, in accordance with our Umbrella Partnership Real Estate Investment Trust (“UPREIT”) structure.
In order to facilitate additional capital raise through the DST Program, we have made and may continue to offer loans (“DST Program Loans”) to finance a portion of the sale of DST Interests to potential investors. As of September 30, 2021 and December 31, 2020, there were approximately $58.3 million and $45.2 million, respectively, of outstanding DST Program Loans that we have made to partially finance the sale of DST Interests. Of the $188.0 million and $202.3 million, respectively, of gross interests sold during the nine months ended September 30, 2021 and 2020, $17.1 million and $22.7 million, respectively, were financed by DST Program Loans. We include our investments in DST Program Loans separately on our condensed consolidated balance sheets in the “DST Program Loans” line item and we include income earned from DST Program Loans in “other income” on our condensed consolidated statements of operations. We do not have a significant credit concentration with any individual purchaser as a result of DST Program Loans.
5. FAIR VALUE
We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate for these purposes. Considerable judgment and a high degree of subjectivity are involved in developing these estimates and, accordingly, they are not necessarily indicative of the amounts that we would realize upon disposition.
Fair ValuesValue Measurements on a Recurring Basis
The following table presents our financial instruments measured at fair value on a recurring basis:
| | | | | | | | | | | | |
|
| | | �� | | |
| | |
| Total | |
(in thousands) | | Level 1 | | Level 2 | | Level 3 | | Fair Value | ||||
As of September 30, 2021 | | | | | | | | | | | | |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Derivative instruments | | $ | 0 | | $ | 16,696 | | $ | 0 | | $ | 16,696 |
Total liabilities measured at fair value | | $ | 0 | | $ | 16,696 | | $ | 0 | | $ | 16,696 |
As of December 31, 2020 | |
|
| |
|
| |
|
| |
|
|
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Derivative instruments | | $ | 0 | | $ | 26,916 | | $ | 0 | | $ | 26,916 |
Total liabilities measured at fair value | | $ | 0 | | $ | 26,916 | | $ | 0 | | $ | 26,916 |
The following methods and assumptions were used to estimate the fair value of each class of financial instrument:
Derivative Instruments
Nonrecurring Fair Value Measurements
As of September 30, 2017, we had assessed the significance of the impact of the credit valuation adjustments and had determined that it was not significant to the overall valuation of our derivative instruments. As a result, we have determined that our derivative valuations are classified in Level 2 of the fair value hierarchy.
Fair Value of Asset Derivatives as of | Fair Value of Liability Derivatives as of | ||||||||||||||||||
Balance Sheet Location | September 30, 2017 | December 31, 2016 | Balance Sheet Location | September 30, 2017 | December 31, 2016 | ||||||||||||||
Derivatives accounted for as hedges: | |||||||||||||||||||
Interest rate contracts | Other assets, net (1) | $ | 1,960 | $ | 2,135 | Other liabilities (1) | $ | (1,687 | ) | $ | (2,777 | ) | |||||||
Derivatives not accounted for as hedges: | |||||||||||||||||||
Interest rate contracts | Other assets, net (1) | $ | 17 | $ | — | Other liabilities (1) | $ | — | $ | — | |||||||||
Total derivatives | $ | 1,977 | $ | 2,135 | $ | (1,687 | ) | $ | (2,777 | ) |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Derivatives Accounted For as Hedges | |||||||||||||||
Derivative type | Interest rate contracts | Interest rate contracts | Interest rate contracts | Interest rate contracts | |||||||||||
Amount of (loss) gain recognized in OCI (effective portion) | $ | (123 | ) | $ | 1,747 | $ | (1,455 | ) | $ | (13,350 | ) | ||||
Location of loss reclassified from accumulated OCI into income (effective portion) | Interest expense | Interest expense | Interest expense | Interest expense | |||||||||||
Amount of loss reclassified from accumulated OCI into income (effective portion) | $ | 1,071 | $ | 1,154 | $ | 3,815 | $ | 3,470 | |||||||
Location of loss recognized in income (ineffective portion and amount excluded from effectiveness testing) | Other (expense) and income | Other (expense) and income | Other (expense) and income | Other (expense) and income | |||||||||||
Amount of loss recognized in income (ineffective portion and amount excluded from effectiveness testing) | $ | — | $ | — | $ | — | $ | — | |||||||
Derivatives Not Accounted For as Hedges | |||||||||||||||
Derivative type | Interest rate cap | N/A | Interest rate cap | N/A | |||||||||||
Amount of loss recognized in income | $ | (14 | ) | $ | — | $ | (114 | ) | $ | — | |||||
Location of loss recognized in income | Other (expense) and income | N/A | Other (expense) and income | N/A |
13
| | | | | | | | | | | | |
| | As of September 30, 2021 | | As of December 31, 2020 | ||||||||
|
| Carrying |
| Fair | | Carrying |
| Fair | ||||
(in thousands) | | Value (1) | | Value | | Value (1) | | Value | ||||
Assets: | | | | | | | | | | | | |
Debt-related investments | | $ | 47,883 | | $ | 47,883 | | $ | 49,885 | | $ | 49,584 |
DST Program Loans | |
| 58,276 | |
| 58,276 | |
| 45,229 | |
| 45,229 |
Liabilities: | |
|
| |
|
| |
|
| |
|
|
Line of credit | | $ | 85,000 | | $ | 85,000 | | $ | 106,000 | | $ | 105,592 |
Term loans | |
| 525,000 | |
| 525,000 | |
| 525,000 | |
| 521,945 |
Mortgage notes | |
| 311,303 | |
| 313,614 | |
| 337,544 | |
| 336,336 |
As of September 30, 2017 | As of December 31, 2016 | ||||||||||||||
Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | ||||||||||||
Assets: | |||||||||||||||
Fixed-rate debt-related investments, net | $ | 11,259 | $ | 11,594 | $ | 15,209 | $ | 15,784 | |||||||
Liabilities: | |||||||||||||||
Fixed-rate mortgage notes (1) | $ | 128,341 | $ | 130,557 | $ | 290,329 | $ | 291,624 | |||||||
Floating-rate mortgage notes | 349,605 | 352,022 | 51,918 | 51,942 | |||||||||||
Floating-rate unsecured borrowings (2) | 673,555 | 677,000 | 706,554 | 711,000 |
(1) |
6. STOCKHOLDERS’ EQUITY
Public Offering
A summary of our performing debt-related investments are estimated using a discounted cash flow methodology. This method discounts estimated future cash flows using rates management determines best reflect current market interest rates that would be offeredpublic offerings (including shares sold through the primary offering and distribution reinvestment plan (“DRIP”)) for loans with similar characteristics and credit quality. Credit spreads and market interest rates used to determine the fair value of these instruments are based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values.
| | | | | | | | | | | | | | | | | | |
(in thousands) |
| Class T |
| Class S |
| Class D |
| Class I |
| Class E |
| Total | ||||||
Amount of gross proceeds raised: | | | | | | | | | | | | | | | | | | |
Primary offering | | $ | 31,724 | | $ | 68,283 | | $ | 15,367 | | $ | 51,376 | | $ | 0 | | $ | 166,750 |
DRIP | |
| 1,430 | |
| 3,377 | |
| 655 | |
| 6,266 | |
| 5,274 | |
| 17,002 |
Total offering | | $ | 33,154 | | $ | 71,660 | | $ | 16,022 | | $ | 57,642 | | $ | 5,274 | | $ | 183,752 |
Number of shares sold: | |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Primary offering | |
| 3,826 | |
| 8,873 | |
| 2,024 | |
| 6,956 | |
| 0 | |
| 21,679 |
DRIP | |
| 188 | |
| 444 | |
| 86 | |
| 824 | |
| 695 | |
| 2,237 |
Total offering | |
| 4,014 | |
| 9,317 | |
| 2,110 | |
| 7,780 | |
| 695 | |
| 23,916 |
14
Common Stock
The following table describes the changes in each class of common shares during the periods presented below:
| | | | | | | | | | | | |
|
| Class T |
| Class S |
| Class D |
| Class I |
| Class E |
| Total |
(in thousands) | | Shares | | Shares | | Shares | | Shares | | Shares | | Shares |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 | | | | | | | | | | | | |
Balance as of June 30, 2020 |
| 8,510 |
| 21,870 |
| 3,783 |
| 44,311 |
| 63,301 |
| 141,775 |
Issuance of common stock: |
| |
| | | | | | | |
|
|
Primary shares |
| 602 |
| 668 | | 151 | | 709 | | 0 |
| 2,130 |
Distribution reinvestment plan |
| 51 |
| 119 | | 23 | | 262 | | 250 |
| 705 |
Share-based compensation |
| 0 |
| 0 | | 0 | | 4 | | 0 |
| 4 |
Redemptions of common stock |
| (22) |
| (419) | | (38) | | (856) | | (1,471) |
| (2,806) |
Balance as of September 30, 2020 |
| 9,141 |
| 22,238 |
| 3,919 |
| 44,430 |
| 62,080 |
| 141,808 |
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2021 | | | | | | | | | | | | |
Balance as of June 30, 2021 |
| 11,692 |
| 28,958 |
| 5,509 |
| 47,745 |
| 58,117 |
| 152,021 |
Issuance of common stock: |
| |
| | | | | | | |
|
|
Primary shares |
| 1,985 |
| 3,245 |
| 568 |
| 3,700 |
| 0 |
| 9,498 |
Distribution reinvestment plan |
| 69 |
| 162 |
| 32 |
| 282 |
| 225 |
| 770 |
Share-based compensation |
| 0 |
| 0 |
| 0 |
| 21 |
| 0 |
| 21 |
Redemptions of common stock |
| (64) |
| (217) |
| (119) |
| (442) |
| (1,083) |
| (1,925) |
Balance as of September 30, 2021 |
| 13,682 |
| 32,148 |
| 5,990 |
| 51,306 |
| 57,259 |
| 160,385 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 | | | | | | | | | | | | |
Balance as of December 31, 2019 |
| 5,852 |
| 20,593 |
| 3,499 |
| 43,732 |
| 66,804 |
| 140,480 |
Issuance of common stock: |
|
|
| |
|
|
|
|
|
|
|
|
Primary shares |
| 3,322 |
| 3,083 |
| 508 |
| 3,869 |
| 0 |
| 10,782 |
Distribution reinvestment plan |
| 132 |
| 353 |
| 69 |
| 804 |
| 776 |
| 2,134 |
Share-based compensation |
| 0 |
| 0 |
| 0 |
| 20 |
| 0 |
| 20 |
Redemptions of common stock |
| (165) |
| (1,791) |
| (157) |
| (3,995) |
| (5,500) |
| (11,608) |
Balance as of September 30, 2020 |
| 9,141 |
| 22,238 |
| 3,919 |
| 44,430 |
| 62,080 |
| 141,808 |
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2021 | | | | | | | | | | | | |
Balance as of December 31, 2020 |
| 9,831 |
| 23,516 |
| 4,098 |
| 44,723 |
| 60,873 |
| 143,041 |
Issuance of common stock: |
| |
| |
| |
| |
| |
|
|
Primary shares |
| 3,826 |
| 8,873 |
| 2,024 |
| 6,956 |
| 0 |
| 21,679 |
Distribution reinvestment plan |
| 188 |
| 444 |
| 86 |
| 824 |
| 695 |
| 2,237 |
Share-based compensation |
| 0 |
| 0 |
| 0 |
| 29 |
| 0 |
| 29 |
Redemptions of common stock |
| (163) |
| (685) |
| (218) |
| (1,226) |
| (4,309) |
| (6,601) |
Balance as of September 30, 2021 |
| 13,682 |
| 32,148 |
| 5,990 |
| 51,306 |
| 57,259 |
| 160,385 |
15
Distributions
The following table summarizes our distribution activity (including distributions to noncontrolling interests and distributions reinvested in shares of our common stock) for the periods below:
| | | | | | | | | | | | | | | |
| | Amount | |||||||||||||
|
| | |
| Common Stock |
| | |
| | |
| | | |
| | Declared per | | Distributions | | Other Cash | | Reinvested in | | Total | |||||
(in thousands, except per share data) | | Common Share (1) | | Paid in Cash | | Distributions (2) | | Shares | | Distributions | |||||
2021 |
| |
|
| |
|
| |
|
| |
|
| |
|
March 31 | | $ | 0.09375 | | $ | 7,562 | | $ | 2,010 | | $ | 5,526 | | $ | 15,098 |
June 30 | |
| 0.09375 | |
| 7,696 | |
| 2,266 | |
| 5,723 | |
| 15,685 |
September 30 | |
| 0.09375 | |
| 7,984 | |
| 2,613 | |
| 5,985 | |
| 16,582 |
Total | | $ | 0.28125 | | $ | 23,242 | | $ | 6,889 | | $ | 17,234 | | $ | 47,365 |
2020 | |
|
| |
|
| |
|
| |
|
| |
|
|
March 31 | | $ | 0.09375 | | $ | 7,533 | | $ | 1,499 | | $ | 5,360 | | $ | 14,392 |
June 30 | |
| 0.09375 | |
| 7,539 | |
| 1,611 | |
| 5,316 | |
| 14,466 |
September 30 | |
| 0.09375 | |
| 7,482 | |
| 1,592 | |
| 5,282 | |
| 14,356 |
December 31 | |
| 0.09375 | |
| 7,464 | |
| 1,750 | |
| 5,347 | |
| 14,561 |
Total | | $ | 0.37500 | | $ | 30,018 | | $ | 6,452 | | $ | 21,305 | | $ | 57,775 |
(1) | Amount reflects the total quarterly distribution rate, subject to adjustment for class-specific fees. |
(2) | Includes other cash distributions consisting of (i) distributions paid to holders of OP Units; and (ii) ongoing distribution fees paid to the dealer manager for our public offerings, Ares Wealth Management Solutions, LLC (formerly known as Black Creek Capital Markets, LLC, the “Dealer Manager”), with respect to certain classes of our shares. See “Note 8” for further detail regarding the current and historical ongoing distribution fees. |
Redemptions and Repurchases
Below is a summary of redemptions and repurchases pursuant to our share redemption program for the nine months ended September 30, 2017 (shares2021 and dollar amounts2020. Our board of directors may modify, suspend or terminate our current share redemption programs if it deems such action to be in thousands):
| | | | | | | | |
| | For the Nine Months Ended September 30, | | | ||||
(in thousands, except for per share data) |
| 2021 |
| 2020 |
| | ||
Number of shares requested for redemption or repurchase |
| | 6,601 |
| | 11,608 |
| |
Number of shares redeemed or repurchased |
| | 6,601 |
| | 11,608 |
| |
% of shares requested that were redeemed or repurchased |
| | 100.0 | % | | 100.0 | % | |
Average redemption or repurchase price per share | | $ | 7.59 | | $ | 7.50 | | |
16
Class E | Class T | Class S | Class D | Class I | Total | ||||||||||||||||||||||||||||||||||||
Shares | Amount (1) | Shares | Amount (1) | Shares | Amount (1) | Shares | Amount (1) | Shares | Amount (1) | Shares | Amount (1) | ||||||||||||||||||||||||||||||
Balances, December 31, 2016 | 112,325 | $ | 1,298,189 | 2,001 | $ | 14,758 | N/A | N/A | 2,271 | $ | 16,381 | 34,039 | $ | 243,049 | 150,636 | $ | 1,572,377 | ||||||||||||||||||||||||
Issuance of common stock: | |||||||||||||||||||||||||||||||||||||||||
Shares sold | — | — | 125 | 975 | 17 | 125 | 265 | 1,996 | 1,264 | 9,515 | 1,671 | 12,611 | |||||||||||||||||||||||||||||
Distribution reinvestment plan | 1,546 | 11,615 | 48 | 360 | — | — | 56 | 420 | 804 | 6,038 | 2,454 | 18,433 | |||||||||||||||||||||||||||||
Stock-based compensation (2) | — | — | — | — | — | — | — | — | (99 | ) | (878 | ) | (99 | ) | (878 | ) | |||||||||||||||||||||||||
Redemptions and repurchases of common stock | (12,718 | ) | (95,404 | ) | (82 | ) | (615 | ) | — | — | (84 | ) | (632 | ) | (1,828 | ) | (13,718 | ) | (14,712 | ) | (110,369 | ) | |||||||||||||||||||
Balances, September 30, 2017 | 101,153 | $ | 1,214,400 | 2,092 | $ | 15,478 | 17 | $ | 125 | 2,508 | $ | 18,165 | 34,180 | $ | 244,006 | 139,950 | $ | 1,492,174 |
7. REDEEMABLE NONCONTROLLING INTERESTS
The responsibilities of our Advisor cover all facets of our business, and include the selection and underwriting of our real property and debt-related investments, the negotiations for these investments, the asset management and financing of these investments and the oversight of real property dispositions.
The following table summarizes the redeemable noncontrolling interests activity for the nine months ended September 30, 2021 and 2020:
| | | | |
($ in thousands) | | | | |
As of December 31, 2019 | | $ | 0 | |
Settlement of 2019 performance participation allocation (1) | | | 3,776 | |
Distributions declared on redeemable noncontrolling interests | | | (141) | |
Net loss attributable to redeemable noncontrolling interests | | | (71) | |
Change from cash flow hedging activities attributable to redeemable noncontrolling interests | | | (55) | |
Redemption value allocation adjustment to redeemable noncontrolling interests | | | 281 | |
As of September 30, 2020 | | $ | 3,790 | |
| | | | |
As of December 31, 2020 | | $ | 3,798 | |
Settlement of 2020 performance participation allocation (2) | | | 4,608 | |
Distributions declared on redeemable noncontrolling interests | | | (314) | |
Net income attributable to redeemable noncontrolling interests | | | 169 | |
Change from cash flow hedging activities attributable to redeemable noncontrolling interests | | | 70 | |
Redemption value allocation adjustment to redeemable noncontrolling interests | | | 293 | |
As of September 30, 2021 | | $ | 8,624 | |
(1) | The 2019 performance participation allocation in the amount of $3.8 million became payable to the Former Sponsor on December 31, 2019. At the Advisor’s election, it was paid in the form of Class I OP Units valued at $3.8 million (based on the NAV per unit as of December 31, 2019), which were issued to the Former Sponsor in January 2020 and subsequently transferred to its members or their affiliates. |
(2) | The 2020 performance participation allocation in the amount of $4.6 million became payable to the Former Sponsor on December 31, 2020. At the Advisor’s election, it was paid in the form of Class I OP Units valued at $4.6 million (based on the NAV per unit as of December 31, 2020), which were issued to the Former Sponsor in January 2021 and subsequently transferred to its members or their affiliates. |
17
8. RELATED PARTY TRANSACTIONS
Summary of Fees and Expenses
The table below summarizes the feefees and expenses incurred by us for services provided by the Advisor and its affiliates, and by the Dealer Manager related to the services the Dealer Manager provided in connection with our public offerings and any related amounts payable:
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | Payable as of | | ||||||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 |
| September 30, 2021 |
| December 31, 2020 | | ||||||
Selling commissions and dealer manager fees (1) | | $ | 845 | | $ | 226 | | $ | 1,866 | | $ | 1,216 | | $ | 0 | | $ | 0 | |
Ongoing distribution fees (1)(2) | | | 788 | | | 515 | | | 2,064 | | | 1,482 | | | 291 | | | 188 | |
Advisory fees - fixed component | | | 5,480 | | | 4,210 | | | 15,389 | | | 12,666 | | | 1,893 | | | 1,547 | |
Performance participation allocation | |
| 3,774 | |
| 1,333 | |
| 7,769 | |
| 3,343 | |
| 7,769 | |
| 4,608 | |
Other expense reimbursements— Advisor (3)(4) | |
| 2,950 | |
| 2,691 | |
| 8,783 | |
| 7,271 | |
| 3,804 | |
| 2,112 | |
Other expense reimbursements—Dealer Manager | |
| 107 | |
| 45 | |
| 249 | |
| 431 | |
| 0 | |
| 0 | |
DST Program selling commissions, dealer manager and distribution fees (1) | |
| 3,106 | |
| 547 | |
| 6,422 | |
| 3,044 | |
| 236 | |
| 0 | |
Other DST Program related costs—Advisor (3) | |
| 1,710 | |
| 515 | |
| 3,978 | |
| 3,084 | |
| 82 | |
| 0 | |
Total | | $ | 18,760 | | $ | 10,082 | | $ | 46,520 | | $ | 32,537 | | $ | 14,075 | | $ | 8,455 | |
(1) | All or a portion of these amounts will be retained by, or reallowed (paid) to, participating broker-dealers and servicing broker-dealers. |
(2) | The distribution fees accrue daily and are payable monthly in arrears. Additionally, we accrue for future estimated amounts payable related to ongoing distribution fees. The future estimated amounts payable of approximately $26.4 million and $15.5 million as of September 30, 2021 and December 31, 2020, respectively, are included in other liabilities on the consolidated balance sheets. |
(3) | Includes costs reimbursed to the Advisor related to the DST Program. |
(4) | Other expense reimbursements include certain expenses incurred for organization and offering, acquisition and general administrative services provided to us under the advisory agreement, including, but not limited to, certain expenses described after this footnote, allocated rent paid to both third parties and affiliates of our Advisor, equipment, utilities, insurance, travel and entertainment. |
Certain of the expense reimbursements described in the table above include a portion of the compensation expenses of officers and employees of the Advisor or its affiliates related to activities for which the Advisor did not otherwise receive a separate fee. Amounts incurred related to these compensation expenses for the three months ended September 30, 2021, and 2020 were approximately $2.6 million and $2.1 million, respectively. Amounts incurred related to these compensation expenses for the nine months ended September 30, 2021, and 2020 were approximately $7.3 million and $5.8 million, respectively. No reimbursement is made for compensation of our named executive officers unless the named executive officer is providing stockholder services, as outlined in the advisory agreement.
Acquisition Expense Reimbursements. Pursuant to the Advisory Agreement, subject to certain limitations, we agreed to reimburse the Advisor for all acquisition expenses incurred on our behalf in connection with the saleselection and acquisition of an assetproperties, real estate-related assets, and other investments, whether or not such investments are acquired. As these expense reimbursements were not directly attributable to a specified property, they were expensed as incurred on the condensed consolidated statements of operations.
Completion of the Transaction with Ares
On July 1, 2021, Ares Management Corporation (“Ares”) closed on the acquisition of Black Creek Group’s U.S. real estate investment advisory and distribution business, including Black Creek Diversified Property Advisors LLC, the Company’s Former Advisor (the “Transaction”). On the same date, the Company’s Former Advisor assigned the advisory agreement to the Company’s New Advisor. Ares did not acquire the Former Sponsor, and the ability of our Advisor to share in or earnCompany now considers the Ares real estate commissionsgroup to be the Company’s sponsor.
18
Ares intends to continue to operate the business of Black Creek Group consistent with past practice. The principals of Black Creek Group, the rest of the management team and separately agreedthe Company’s current officers are expected to pay our Advisor $1.4 millioncontinue to serve in considerationtheir roles with respect to the Company for the foreseeable future, although a member of disposition services rendered priorAres’ personnel has joined the Company’s board of directors and members of Ares’ personnel have joined the Advisor’s investment committee. Any changes to Septemberthe Company’s management team or investment policies will require approval of the Company’s board of directors. Although such changes may be made in the future, no such changes have been approved at this time.
Advisory Agreement
On July 1, 20172021, in connection with the Transaction, the Company and for which the Advisor has not otherwise been paid a fee;Operating Partnership entered into the Second Amended and
Limited Partnership Agreement
On July 1, Class E OP Units held by third parties until the NAV of such shares or units exceeds $10.00 per share or unit, the benefit of which will be shared among all holders of Fund Interests.
Award | Grant Date | Vesting Dates | Number of Unvested Shares | Grant Date NAV per Class I Share | |||||||
Company RSU | 2/25/2015 | 4/13/2018 | 66 | $ | 7.18 | ||||||
Company RSU | 2/4/2016 | 4/15/2019 | 57 | 7.41 | |||||||
Total/ weighted average | 123 | $ | 7.29 |
9. NET INCOME (LOSS) PER COMMON SHARE
The computation of our Advisor.basic and diluted net income (loss) per share attributable to common stockholders is as follows:
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, | | ||||||||
(in thousands, except per share data) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income (loss) attributable to common stockholders—basic | | $ | 13,940 | | $ | (10,830) | | $ | 22,922 | | $ | (19,827) | |
Net income (loss) attributable to redeemable OP Units | | | 99 | | | (39) | | | 169 | | | (71) | |
Net income (loss) attributable to OP Units | |
| 1,654 | |
| (839) | |
| 2,430 | |
| (1,515) | |
Net income (loss) attributable to common stockholders—diluted | | $ | 15,693 | | $ | (11,708) | | $ | 25,521 | | $ | (21,413) | |
Weighted-average shares outstanding—basic | |
| 157,025 | |
| 141,682 | |
| 151,045 | |
| 142,216 | |
Incremental weighted-average shares effect of conversion of OP Units | |
| 19,752 | |
| 11,484 | |
| 17,430 | |
| 11,449 | |
Weighted-average shares outstanding—diluted | |
| 176,777 | |
| 153,166 | |
| 168,475 | |
| 153,665 | |
Net income (loss) per share attributable to common stockholders: | |
|
| |
|
| |
|
| |
|
| |
Basic | | $ | 0.09 | | $ | (0.08) | | $ | 0.15 | | $ | (0.14) | |
Diluted | | $ | 0.09 | | $ | (0.08) | | $ | 0.15 | | $ | (0.14) | |
19
| | | | | | |
| | For the Nine Months Ended | ||||
| | September 30, | ||||
(in thousands) | | 2021 | | 2020 | ||
Distributions reinvested in common stock | | $ | 17,001 | | $ | 15,972 |
Change in accrued future ongoing distribution fees | | | 10,864 | | | 335 |
Increase in DST Program Loans receivable through DST Program capital raising | | | 17,105 | | | 22,700 |
Redeemable noncontrolling interest issued as settlement of performance participation allocation | | | 4,608 | | | 3,776 |
Redemption value allocation adjustment to redeemable noncontrolling interest | | | 293 | | | 281 |
Mortgage notes assumed on real estate acquisitions at fair value | | | 0 | | | 9,834 |
Issuances of OP Units for DST Interests | |
| 57,729 | |
| 11,240 |
Restricted Cash
Restricted cash consists of lender and property-related escrow accounts. The following table summarizes feespresents the components of the beginning of period and other amounts earned byend of period cash, cash equivalents and restricted cash reported within the condensed consolidated statements of cash flows:
| | | | | | | |
| | For the Nine Months Ended | | ||||
| | September 30, | | ||||
(in thousands) |
| 2021 |
| 2020 | | ||
Beginning of period: | | | | | | | |
Cash and cash equivalents | | $ | 11,266 | | $ | 97,772 | |
Restricted cash | |
| 10,468 | |
| 10,010 | |
Cash, cash equivalents and restricted cash | | $ | 21,734 | | $ | 107,782 | |
End of period: | | | | | | | |
Cash and cash equivalents | | $ | 12,463 | | $ | 16,124 | |
Restricted cash | |
| 10,533 | |
| 10,316 | |
Cash, cash equivalents and restricted cash | | $ | 22,996 | | $ | 26,440 | |
20
11. SIGNIFICANT RISKS AND UNCERTAINTIES
Significant Risks and Uncertainties
Currently, one of the most significant risks and uncertainties is the adverse effect of the current novel coronavirus (COVID-19) pandemic. A number of our Advisorcustomers previously announced temporary closures of their stores and its related parties in connection with services performed for usrequested rent deferral or rent abatement during the threepandemic, particularly in early 2020.
The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:
● | reduced economic activity could severely impact our customers’ businesses, financial condition and liquidity and could cause customers to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income; |
● | the negative financial impact of the pandemic could impact our future compliance with financial covenants of our credit facility and other debt agreements; and |
● | weaker economic conditions could cause us to recognize impairment in value of our tangible or intangible assets. |
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business, including how it will impact our customers and business partners. While COVID-19 has not had a material effect on our condensed consolidated financial statements during the year ended December 31, 2020 and the nine months ended September 30, 20172021 and 2016 (amounts in thousands, except footnoted information):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Advisory fees (1) | $ | 3,274 | $ | 3,681 | $ | 10,215 | $ | 11,118 | |||||||
Other reimbursements paid to our Advisor (2) | 2,203 | 1,928 | 6,507 | 6,232 | |||||||||||
Other reimbursements paid to our Dealer Manager | 151 | 155 | 489 | 237 | |||||||||||
Advisory fees related to the disposition of real properties (3) | 1,477 | 271 | 1,763 | 2,078 | |||||||||||
Development management fee (4) | — | — | — | 31 | |||||||||||
Primary dealer fee (5) | — | — | — | 1,697 | |||||||||||
Selling commissions | 4 | 7 | 29 | 73 | |||||||||||
Dealer manager fees | 79 | 99 | 306 | 274 | |||||||||||
Distribution fees | 27 | 18 | 65 | 52 | |||||||||||
Total | $ | 7,215 | $ | 6,159 | $ | 19,374 | $ | 21,792 |
12. COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2021, we were not involved in any material legal proceedings.
Environmental Matters
A majority of the properties we acquire are subject to environmental reviews either by us or the previous owners. In addition, we may incur environmental remediation costs associated with certain expensesland parcels we may acquire in connection with the development of the land. We have acquired certain properties in urban and industrial areas that may have been leased to or previously owned by commercial and industrial companies that discharged hazardous materials. We may purchase various environmental insurance policies to mitigate our exposure to environmental liabilities. We are not aware of any environmental liabilities that we believe would have a material adverse effect on our business, financial condition, or results of operations as of September 30, 20172021.
13. SEGMENT FINANCIAL INFORMATION
Our 4 reportable segments are office, retail, residential and December 31, 2016. Pursuantindustrial. Factors used to determine our reportable segments include the Advisory Agreement, effective September 1, 2017, we accrue the advisory fee on a monthly basisphysical and pay our Advisor amounts due subsequent to each month-end. Prior to September 1, 2017, we accrued the advisory fee on a daily basis. In addition, we recorded a liability of approximately $1.9 million for dealer manager and distribution fees that we estimate that we may pay to our Dealer Manager in future periods for shareseconomic characteristics of our common stock sold inproperties and the related operating activities. Our chief operating decision makers rely on net operating income, among other factors, to make decisions about allocating resources and assessing segment performance. Net operating income is the key performance metric that captures the unique operating characteristics of each segment. Items that are not directly assignable to a segment, such as certain corporate items, are not allocated but reflected as reconciling items.
21
The following table reflects our Follow-On Offeringtotal assets by business segment as of September 30, 2017. We anticipate that our Dealer Manager will reallow substantially all of such fees to third-party broker dealers.
| | | | | | |
| | As of | ||||
(in thousands) |
| September 30, 2021 | | December 31, 2020 | ||
Assets: | | | | | | |
Office properties | | $ | 387,423 | | $ | 459,646 |
Retail properties | |
| 712,769 | |
| 670,455 |
Residential properties | |
| 356,234 | |
| 363,322 |
Industrial properties | |
| 740,237 | |
| 461,150 |
Corporate | |
| 181,480 | |
| 156,987 |
Total assets | | $ | 2,378,143 | | $ | 2,111,560 |
The following table sets forth the numerator and denominator used to calculate basic net (loss) income per common share to the numerator and denominator used to calculate diluted net (loss) income per common sharefinancial results by segment for the three and nine months ended September 30, 20172021 and 2016 are described in the following table (amounts in thousands, except per share information):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
Numerator | 2017 | 2016 | 2017 | 2016 | |||||||||||
Net (loss) income | $ | (2,145 | ) | $ | 3,318 | $ | 8,097 | $ | 51,690 | ||||||
Net loss (income) attributable to noncontrolling interests | 185 | (353 | ) | (1,591 | ) | (4,826 | ) | ||||||||
Net (loss) income attributable to common stockholders | (1,960 | ) | 2,965 | 6,506 | 46,864 | ||||||||||
Dilutive noncontrolling interests share of net (loss) income | (165 | ) | 230 | 526 | 3,639 | ||||||||||
Numerator for diluted earnings per share – adjusted net (loss) income | $ | (2,125 | ) | $ | 3,195 | $ | 7,032 | $ | 50,503 | ||||||
Denominator | |||||||||||||||
Weighted average shares outstanding-basic | 139,925 | 158,688 | 144,998 | 161,274 | |||||||||||
Incremental weighted average shares effect of conversion of OP units | 11,814 | 12,264 | 11,920 | 12,486 | |||||||||||
Weighted average shares outstanding-diluted | 151,739 | 170,952 | 156,918 | 173,760 | |||||||||||
NET (LOSS) INCOME PER COMMON SHARE -BASIC AND DILUTED | $ | (0.01 | ) | $ | 0.02 | $ | 0.04 | $ | 0.29 |
| | | | | | | | | | | | | | | |
(in thousands) |
| Office |
| Retail |
| Residential |
| Industrial |
| Consolidated | |||||
For the Three Months Ended September 30, 2021 | | | | | | | | | | | | | | | |
Rental revenues | | $ | 16,887 | | $ | 18,679 | | $ | 7,237 | | $ | 10,793 | | $ | 53,596 |
Rental expenses |
| | (7,111) |
| | (4,660) |
| | (3,257) |
| | (2,814) |
| | (17,842) |
Net operating income | | $ | 9,776 | | $ | 14,019 | | $ | 3,980 | | $ | 7,979 | | $ | 35,754 |
Real estate-related depreciation and amortization | | $ | 4,945 | | $ | 5,336 | | $ | 2,283 | | $ | 6,257 | | $ | 18,821 |
For the Three Months Ended September 30, 2020 | | | | | | | | | | | | | | | |
Rental revenues | | $ | 16,237 | | $ | 17,310 | | $ | 4,351 | | $ | 6,231 | | $ | 44,129 |
Rental expenses | | | (7,748) | | | (4,535) | | | (2,282) | | | (1,316) | | | (15,881) |
Net operating income | | $ | 8,489 | | $ | 12,775 | | $ | 2,069 | | $ | 4,915 | | $ | 28,248 |
Real estate-related depreciation and amortization | | $ | 4,851 | | $ | 5,309 | | $ | 2,234 | | $ | 3,255 | | $ | 15,649 |
For the Nine Months Ended September 30, 2021 | | | | | | | | | | | | | | | |
Rental revenues | | $ | 49,663 | | $ | 53,600 | | $ | 20,885 | | $ | 28,509 | | $ | 152,657 |
Rental expenses | | | (22,116) |
| | (13,854) |
| | (9,666) |
| | (6,682) | | | (52,318) |
Net operating income | | $ | 27,547 | | $ | 39,746 | | $ | 11,219 | | $ | 21,827 | | $ | 100,339 |
Real estate-related depreciation and amortization | | $ | 14,814 | | $ | 14,445 | | $ | 7,612 | | $ | 15,857 | | $ | 52,728 |
For the Nine Months Ended September 30, 2020 | | | | | | | | | | | | | | | |
Rental revenues | | $ | 48,988 | | $ | 53,053 | | $ | 14,591 | | $ | 16,363 | | $ | 132,995 |
Rental expenses | | | (23,061) | | | (12,561) | | | (6,638) | | | (3,532) | | | (45,792) |
Net operating income | | $ | 25,927 | | $ | 40,492 | | $ | 7,953 | | $ | 12,831 | | $ | 87,203 |
Real estate-related depreciation and amortization | | $ | 14,676 | | $ | 14,867 | | $ | 6,560 | | $ | 8,455 | | $ | 44,558 |
We have three reportable operating segments, which include our three real property operating sectors (office, industrial, and retail), and we measure our profit and loss of our operating segments based onconsider net operating income (“NOI”). We organize and analyze the operations and results of each of these segments independently, due to inherently different considerations for each segment. Such considerations include, but are not limited to, the nature and characteristics of the investment, investment strategies and objectives. Specifically, the physical characteristics of our buildings, the related operating characteristics, the geographic markets, and the type of tenants are inherently different for each of our segments. The following tables set forth revenue and the components of NOI of our segments for the three and nine months ended September 30, 2017 and 2016 (amounts in thousands):
For the Three Months Ended September 30, | |||||||||||||||
Revenues | NOI | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Office | $ | 27,099 | $ | 31,082 | $ | 15,730 | $ | 20,657 | |||||||
Industrial | 1,538 | 1,449 | 1,194 | 968 | |||||||||||
Retail | 20,841 | 20,727 | 15,038 | 15,196 | |||||||||||
Total | $ | 49,478 | $ | 53,258 | $ | 31,962 | $ | 36,821 |
For the Nine Months Ended September 30, | |||||||||||||||
Revenues | NOI | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Office | $ | 84,163 | $ | 96,034 | $ | 50,253 | $ | 64,785 | |||||||
Industrial | 4,438 | 4,694 | 3,172 | 3,345 | |||||||||||
Retail | 63,421 | 60,776 | 47,077 | 44,986 | |||||||||||
Total | $ | 152,022 | $ | 161,504 | $ | 100,502 | $ | 113,116 |
22
The following table is a reconciliation of our reported net income (loss) income attributable to common stockholders to our NOInet operating income for the three and nine months ended September 30, 20172021 and 2016 (amounts2020:
| | | | | | | | | | | | | |
| | For the Three Months Ended | | For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
Net income (loss) attributable to common stockholders | | $ | 13,940 | | $ | (10,830) | | $ | 22,922 | | $ | (19,827) | |
Debt-related income | |
| (2,298) | |
| (981) | |
| (6,741) | |
| (1,181) | |
Real estate-related depreciation and amortization | |
| 18,821 | |
| 15,649 | |
| 52,728 | |
| 44,558 | |
General and administrative expenses | |
| 2,183 | |
| 1,977 | |
| 6,582 | |
| 5,769 | |
Advisory fees, related party | |
| 5,480 | |
| 4,210 | |
| 15,389 | |
| 12,666 | |
Performance participation allocation | |
| 3,774 | |
| 1,333 | |
| 7,769 | |
| 3,343 | |
Acquisition costs and reimbursements | |
| 738 | |
| 240 | |
| 1,451 | |
| 842 | |
Litigation expense | |
| 0 | |
| 2,500 | |
| 0 | |
| 2,500 | |
Impairment of real estate property | |
| 0 | |
| 0 | |
| 758 | |
| 0 | |
Other income | | | (524) | | | (262) | | | (1,274) | | | (619) | |
Interest expense | |
| 17,866 | |
| 15,290 | |
| 51,477 | |
| 42,930 | |
Gain on sale of real estate property | |
| (25,979) | |
| 0 | |
| (53,321) | |
| (2,192) | |
Net income (loss) attributable to redeemable noncontrolling interests | | | 99 | | | (39) | | | 169 | | | (71) | |
Net income (loss) attributable to noncontrolling interests | |
| 1,654 | |
| (839) | |
| 2,430 | |
| (1,515) | |
Net operating income | | $ | 35,754 | | $ | 28,248 | | $ | 100,339 | | $ | 87,203 | |
14. SUBSEQUENT EVENTS
Purchase of Membership Interests
On October 20, 2021, we acquired a majority interest in thousands):
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Net (loss) income attributable to common stockholders | $ | (1,960 | ) | $ | 2,965 | $ | 6,506 | $ | 46,864 | ||||||
Debt-related income | (194 | ) | (235 | ) | (654 | ) | (710 | ) | |||||||
Real estate depreciation and amortization expense | 16,927 | 19,989 | 53,661 | 60,022 | |||||||||||
General and administrative expenses | 2,760 | 2,234 | 7,034 | 7,192 | |||||||||||
Advisory fees, related party | 3,274 | 3,681 | 10,215 | 11,118 | |||||||||||
Acquisition-related expenses | — | 136 | — | 661 | |||||||||||
Impairment of real estate property | — | 2,090 | 1,116 | 2,677 | |||||||||||
Other expense and (income) | 664 | (2,308 | ) | 862 | (2,297 | ) | |||||||||
Interest expense | 11,346 | 10,011 | 31,193 | 31,394 | |||||||||||
Gain on extinguishment of debt and financing commitments | — | — | — | (5,136 | ) | ||||||||||
Gain on sale of real property | (670 | ) | (2,095 | ) | (11,022 | ) | (43,495 | ) | |||||||
Net (loss) income attributable to noncontrolling interests | (185 | ) | 353 | 1,591 | 4,826 | ||||||||||
Net operating income | $ | 31,962 | $ | 36,821 | $ | 100,502 | $ | 113,116 |
Acquisition of Property
Subsequent to September 30, 2021, we acquired (excluding properties related to our total assets by business segmentDST Program) 1 industrial property located in Burlington, New Jersey for a purchase price of approximately $6.4 million.
Acquisition Under Contract
On November 3, 2021, we entered into a contract to acquire an industrial property located in Houston, Texas with a purchase price of approximately $17.4 million. There can be no assurance that we will complete the acquisition of the property under contract.
Agreement to Sell Property
On October 29, 2021, we entered into an agreement to sell a retail property located in Portsmouth, New Hampshire (“Durgin Square”) to an unrelated third party for a gross sales price of approximately $40.5 million. Our accounting basis (net of accumulated depreciation and amortization) for this real estate property as of September 30, 2017 and December 31, 2016 (amounts in thousands):2021 was approximately $21.7 million. There can be no assurance that we will complete the disposition of the property under this agreement.
23
As of | |||||||
September 30, 2017 | December 31, 2016 | ||||||
Segment assets: | |||||||
Office | $ | 807,451 | $ | 825,961 | |||
Industrial | 76,065 | 57,651 | |||||
Retail | 808,338 | 827,799 | |||||
Total segment assets, net | 1,691,854 | 1,711,411 | |||||
Non-segment assets: | |||||||
Debt-related investments, net | 11,259 | 15,209 | |||||
Cash and cash equivalents | 5,841 | 13,864 | |||||
Other non-segment assets (1) | 48,817 | 43,244 | |||||
Total assets | $ | 1,757,771 | $ | 1,783,728 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References to the terms “we,” “our,” or “us” refer to Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries. The following discussion and analysis should be read together with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities“Securities Act,” and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange“Exchange Act.” Such forward-looking statements may relate to, without limitation, our future capital expenditures, distributions, acquisitions and acquisitionsdispositions (including the amount and nature thereof), other developmentdevelopments and trends of the real estate industry, business strategies, and the expansion and growth of our operations. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments and other factors we believe are appropriate. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Such statements are subject to a number of assumptions, risks and uncertainties thatwhich may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements are generally identifiable by the use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” “project,” “continue,” or the negative of these words, or other similar words or terms. Readers are cautioned not to place undue reliance on these forward-looking statements. Among
Some of the factorsrisks and uncertainties that may cause our actual results, performance or achievements to vary are general economic and business (particularly real estate and capital market) conditions being less favorable than expected,differ materially from those expressed or implied by forward-looking statements include, among others, the following:
● | the impact of macroeconomic trends, such as the unemployment rate, availability of credit, and the COVID-19 pandemic, which may have a negative effect on the following, among other things: |
● | the fundamentals of our business, including overall market occupancy, space utilization for our tenants, who we refer to as customers from time-to-time herein, and rental rates; |
● | the financial condition of our customers, some of which are retail, financial, legal and other professional firms, our lenders, and institutions that hold our cash balances and short-term investments, which may expose us to increased risks of breach or default by these parties; |
● | customers’ ability to pay rent on their leases or our ability to re-lease space that is or becomes vacant; and |
● | the value of our real estate assets, which may limit our ability to dispose of assets at attractive prices or obtain or maintain debt financing secured by our properties or on an unsecured basis; |
● | general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on customers’ financial condition, and competition from other developers, owners and operators of real estate); |
● | our ability to effectively raise and deploy proceeds from our ongoing public offerings; |
● | risks associated with the demand for liquidity under our share redemption program and our ability to meet such demand; |
● | risks associated with the availability and terms of debt and equity financing and the use of debt to fund acquisitions and developments, including the risk associated with interest rates impacting the cost and/or availability of financing; |
● | the business opportunities that may be presented to and pursued by us, changes in laws or regulations (including changes to laws governing the taxation of real estate investment trusts (“REITs”)); |
● | challenges related to the integration of Black Creek Group into the business operations and corporate culture of Ares, the allocation of corporate resources, and the retention of Black Creek Group personnel, which could adversely impact our business and reduce the synergies that we expect to benefit from as a result of the acquisition of Black Creek Group’s U.S. real estate investment advisory and distribution business by Ares; |
● | conflicts of interest arising out of our relationships with the Sponsor, the Advisor, and their affiliates; |
● | changes in accounting principles, policies and guidelines applicable to REITs; |
● | environmental, regulatory and/or safety requirements; and |
● | the availability and cost of comprehensive insurance, including coverage for terrorist acts. |
24
For a further discussion of these factors and other risk factors, that could lead to actual results materially different from those describedsee Part I, Item 1A, “Risk Factors” in the forward-looking statements, see risk factors contained under (i) the heading "Risk Factors" in Post-Effective Amendment No. 10 to our Registration Statement2020 Form 10-K, as supplemented by our Quarterly Reports on Form S-11 (File No. 333-197767), filed with the Securities10-Q and Exchange Commission (the "Commission") on September 1, 2017 and available at www.sec.gov, which are incorporated herein by reference and update the risk factors under the same heading in our Annual ReportCurrent Reports on Form 10-K; and (ii) Part II, Item 1A of this Quarterly Report on Form 10-Q. These new risk factors are equally applicable to all of our current investors, regardless of which class of our common stock they own.
Black Creek Diversified Property Fund Inc. (f/k/a Dividend Capital Diversified Property Fund Inc.) is a Maryland corporationNAV-based perpetual life REIT that was formed on April 11, 2005, to investas a Maryland corporation. We are primarily focused on investing in and operating a diverse portfolio of real property. As of September 30, 2021, our real property portfolio consisted of 61 properties, totaling approximately 12.6 million square feet located in 28 markets throughout the U.S.
We have operated and real estate related investments. As used herein, “the Company,” “we,” “our” and “us” referelected to Black Creek Diversified Property Fund Inc. and its consolidated subsidiaries and partnerships except where the context otherwise requires.
As a NAV-based perpetual life REIT, we intend to conduct ongoing public primary offerings of our common stock on a perpetual basis. We arealso intend to conduct an externally managed REIT and have no employees. Our day-to-day activities are managed by Black Creek Diversified Total Advisors LLC (f/k/a Dividend Capital Total Advisors LLC) (our “Advisor”), a related party, under the terms and conditions of an advisory agreement (as amended fromongoing distribution reinvestment plan offering for our stockholders to reinvest distributions in our shares. From time to time, we intend to file new registration statements on Form S-11 with the “Advisory Agreement”).
Additionally, we have a program to raise capital through private placement offerings by selling DST Interests. These private placement offerings are exempt from registration requirements pursuant to Section 4(a)(2) of the Securities Act. We anticipate that these interests may serve as replacement properties for investors seeking to complete like-kind exchange transactions under Section 1031 of the Code. Similar to our prior private placement offerings, we expect that the DST Program will give us the opportunity to expand and earnings include rent received from customersdiversify our capital raise strategies by offering what we believe to be an attractive and unique investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions under operating leases at our properties, including reimbursements from customersSection 1031 of the Code. We also make loans (“DST Program Loans”) to finance a portion of the sale of DST Interests to certain purchasers of the interests in the Delaware statutory trusts to finance no more than 50% of the purchase price payable upon their acquisition of such interests. During the nine months ended September 30, 2021, we sold $188.0 million of gross interests related to the DST Program, $17.1 million of which were financed by DST Program Loans. See “Note 4” to the Condensed Consolidated Financial Statements” for certain operating costs. Our primary expenses include rental expenses, depreciation and amortization expenses, general and administrative expenses, advisory fees and interest expenses.
We currently have three business segments, consisting of investmentsoperate in (i)four reportable segments: office, property, (ii) industrial property,retail, residential and (iii) retail property. We may have additional segments in the future to the extent we enter into additional real property sectors, such as multifamily, hospitality, and other real property types. For a discussion of our business segments and the associated revenue and net operating income by segment, see Note 10 to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q. We also have investments in real estate related-debt investments (which we refer to as “debt-related investments”).
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Average | | | | | | | | | |
| | | | | | | | % of Total | | Effective Annual | | | | | | | % of |
| |
($ and square feet in thousands, |
| Number of |
| Number of |
| Rentable |
| Rentable |
| Base Rent per |
| % |
| Aggregate |
| Aggregate | | ||
except for per square foot data) | | Markets (1) | | Real Properties | | Square Feet | | Square Feet |
| Square Foot (2) | | Leased | | Fair Value | | Fair Value | | ||
Office properties |
| 7 |
| 7 |
| 1,716 |
| 13.7 | % | $ | 34.16 |
| 82.6 | % | $ | 663,250 |
| 23.0 | % |
Retail properties |
| 9 |
| 26 |
| 3,343 |
| 26.6 | |
| 18.59 |
| 94.1 | |
| 967,450 |
| 33.6 | |
Residential properties |
| 4 |
| 4 |
| 1,222 |
| 9.7 | |
| 24.06 |
| 95.5 | |
| 401,450 |
| 14.0 | |
Industrial properties |
| 19 |
| 24 |
| 6,292 |
| 50.0 | |
| 5.78 |
| 98.4 | |
| 845,400 |
| 29.4 | |
Total real property portfolio |
| 28 |
| 61 |
| 12,573 |
| 100.0 | % | $ | 14.34 |
| 94.8 | % | $ | 2,877,550 |
| 100.0 | % |
Geographic Markets | Number of Properties | Net Rentable Square Feet | % Leased (1) | Aggregate Fair Value | |||||||||||
Office properties | 13 | 16 | 3,429 | 83.3 | % | $ | 1,190,050 | ||||||||
Industrial properties | 4 | 4 | 1,389 | 88.3 | % | 86,550 | |||||||||
Retail properties | 9 | 33 | 3,751 | 95.7 | % | 1,006,500 | |||||||||
Real properties | 20 (2) | 53 | 8,569 | 89.5 | % | $ | 2,283,100 |
(1) |
(2) | Amount calculated as total annualized base rent, which includes the impact of any contractual tenant concessions (cash basis) per the terms of the lease, divided by total lease square footage as of September 30, 2021. |
25
We maywill continue to focus our investment activities on expanding a high-quality, diversified real property portfolio throughout the U.S. Although we generally target investments in four primary property categories of office, industrial,(office, retail, residential and multifamily. Although we may own properties in each of these categories, we are not tied to specific allocation targetsindustrial), our charter and we may not always have significant holdings, or any holdings at all, in each category. For example, webylaws do not currently own multifamilypreclude us from investing in other types of commercial property, real estate assets, although we intend to consider multifamily investment opportunities in the future and our ownership of industrialdebt, or real estate assets is less than 5% of our portfolio as of September 30, 2017. From 2013 through 2016, our investment strategy primarily focused on multi-tenant office and necessity-oriented, multi-tenant retail investments located in what we believe are strong markets poised for long-term growth. However, our current,estate-related equity securities. Our near-term investment strategy intendsis likely to prioritize new investments in the industrial and multifamily and de-emphasize investments in retail and office. We are currently workingresidential sectors due to relatively attractive fundamental conditions. Recently, we were focused on selling certain non-strategic office and retail assets. If successful, theThe disposition of these assets will helpproperties has helped us to increase our current allocation to industrialresidential and multifamilyindustrial real estate assets and our shorter term liquidity.liquidity to pursue new investment opportunities. However, there can be no assurance that we will be successful in thisour investment strategy, including with respect to any particular asset class. We also intend to continue to hold an allocation of properties in the office and retail sectors, the latter of which is largely grocery-anchored. To a lesser extent we may invest in other types of real estate including, but not limited to, hospitality, medical offices, manufactured housing, student housing and unimproved land. We anticipate that the majority ofland, however we have no investments in these sectors currently. Additionally, to provide diversification to our real property investments will be made in the United States, althoughportfolio, we may alsocontinue to invest in Canada and Mexico, and potentially elsewhere on a limited basis, to the extent that opportunities exist that may help us meetreal estate-related debt, which will generally include mortgage loans secured by real estate, mezzanine debt, loans associated with our investment objectives.
Net Asset Value Calculation
Our board of directors, including a majority of our independent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. One fundamental elementWith the approval of the valuation process, the valuation of our real property portfolio, is managed by Altus Group U.S., Inc., an independent valuation firm (“the Independent Valuation Firm”) approved by our board of directors, including a majority of our independent directors. All partiesdirectors, we have engaged Altus Group U.S. Inc., a third-party valuation firm, to serve as our independent valuation advisor (‘‘Altus Group’’ or the “Independent Valuation Advisor”) with respect to providing monthly real property appraisals, reviewing annual third-party real property appraisals, reviewing the internal valuations of debt-related assets and liabilities performed by our Advisor, helping us administer the valuation and review process for the real properties in our portfolio, and assisting in the calculationdevelopment and review of our NAV, including the Advisor, are subject to the oversight of our board of directors.valuation procedures. As part of this process, our Advisor reviews the estimates of the values of our real property portfolio, and real estate-related assets, and other assets and liabilities within our portfolio for consistency with our valuation guidelines and the overall reasonableness of the valuation conclusions, and informs our board of directors of its conclusions (as needed, but at least once per year as part of their annual review, described below).conclusions. Although ourthird-party appraisal firms, the Independent Valuation FirmAdvisor, or other pricing sources may consider any comments received from us or our Advisor toor other valuation sources for their individual valuations, the final estimated fair values of our real properties or certain other assets and liabilities are determined by the Independent Valuation Firm orAdvisor and the final estimates of fair values of our real estate-related assets, our other assets, and our liabilities are determined by the applicable pricing source. Oursource, subject to the oversight of our board of directors. With respect to the valuation of our real properties, the Independent Valuation FirmAdvisor provides our board of directors with periodic valuation reports and is available to meet with our board of directors to review valuation information, as well as our valuation guidelines and the operation and results of the valuation and review process generally. All parties engaged by us in connection with our valuation procedures, including the Independent Valuation Advisor, ALPS Fund Services Inc. (“ALPS”), and our Advisor, are subject to the oversight of our board of directors. Our board of directors has the right to engage additional valuation firms and pricing sources to review the valuation process or valuations, if deemed appropriate. Every month our senior management team and our Independent Valuation Firm hold an NAV committee meeting to review the prior month’s adjustments to NAV and discuss any possible changes to the NAV policies and procedures which may be recommended to the board of directors. The information reviewed by this committee is summarized for the audit committee. At least once each calendar year our board of directors, including a majority of our independent directors, reviews the appropriateness of our valuation procedures. With respect to the valuation of our properties,procedures with input from the Independent Valuation Firm provides the board of directors with periodic valuation reports.Advisor. From time to time our board of directors, including a majority of our independent directors, may adopt changes to the valuation procedures if itit: (1) determines that such changes are likely to result in a more accurate reflection of NAV or a more efficient or less costly procedure for the determination of NAV without having a material adverse effect on the accuracy of such determinationdetermination; or (2) otherwise reasonably believes a change is appropriate for the determination of NAV. We will publicly announce material changes to our valuation procedures. See Exhibit 4.4 of this Quarterly Report on Form 10-Q for a more detailed description of our valuation procedures or the identity or role of, including important disclosure regarding real property valuations provided by the Independent Valuation Firm.
As of September 30, 2017 | As of June 30, 2017 (1) | |||||||
Office properties | $ | 1,190,050 | $ | 1,187,550 | ||||
Industrial properties | 86,550 | 54,850 | ||||||
Retail properties | 1,006,500 | 1,007,600 | ||||||
Real properties | $ | 2,283,100 | $ | 2,250,000 | ||||
Cash and other assets, net of other liabilities | 5,916 | (508 | ) | |||||
Debt obligations | (1,159,579 | ) | (1,111,852 | ) | ||||
Aggregate Fund NAV | $ | 1,129,437 | $ | 1,137,640 | ||||
Total Fund Interests outstanding | 151,550 | 151,738 | ||||||
NAV per Fund Interest | $ | 7.45 | $ | 7.50 |
Our valuation procedures, which address specifically each category of our assets and liabilities and are applied separately from the preparation of our financial statements in accordance with GAAP, involve adjustments from historical cost. There are certain factors which cause NAV to be different from net book valuetotal equity or stockholders’ equity on a GAAP basis. Most significantly, the valuation of our real estate assets, which is the largest component of our NAV calculation, will beis provided to us by the Independent Valuation Firm on a monthly basis.Advisor. For GAAP purposes, these assets are generally recorded at depreciated or amortized cost. In addition, after August 31, 2017, we valued our debt-related investments and real estate-related liabilities in accordance with fair value standards under GAAP. Also for NAV purposes, we mark-to-market our hedging instruments on a frequency that management determines to be practicable under the circumstances. However, our NAV policies and procedures allow for that frequency to change to be more or less frequent. Other examplesAnother example that will cause our NAV to differ from our GAAP net book value includetotal equity or stockholders’ equity is the straight-lining of rent, which results in a receivable for GAAP purposes that is not included in the determination of our NAV. Third party appraisers may valueThe fair values of our individual real estate assets and certain liabilities are determined using appraisal standards that deviate from fair value standardswidely accepted methodologies and, as appropriate, the GAAP principles within the FASB Accounting Standards Codification under GAAP. The use of such appraisal standards may causeTopic 820, Fair Value Measurements and Disclosures and are used by ALPS in calculating our NAV per share. However, our valuation procedures and our NAV are not subject to deviate from GAAP fair value principles.and will not be subject to independent audit. We did not develop our valuation procedures with the intention of complying with fair value concepts under GAAP and, therefore, there could be differences
26
between our fair values and the fair values derived from the principal market or most advantageous market concepts of establishing fair value under GAAP.
As used below, “Fund Interests” means our outstanding shares of common stock, along with OP Units, which may be or were held directly or indirectly by the Advisor, the Former Sponsor, members or affiliates of the Former Sponsor, and third parties, and “Aggregate Fund NAV” means the NAV of all the Fund Interests.
The following table sets forth the components of Aggregate Fund NAV as of September 30, 2021 and December 31, 2020:
| | | | | | | |
|
| As of | |||||
(in thousands) | | September 30, 2021 | | | December 31, 2020 | ||
Investments in office properties | | $ | 663,250 | | | $ | 753,950 |
Investments in retail properties | |
| 967,450 | | |
| 906,100 |
Investments in residential properties | |
| 401,450 | | |
| 388,350 |
Investments in industrial properties | |
| 845,400 | | |
| 516,100 |
Total investment in real estate properties | | | 2,877,550 | | | | 2,564,500 |
Debt-related investments | |
| 47,883 | | |
| 49,584 |
DST Program Loans | | | 58,276 | | | | 45,229 |
Total investments | | | 2,983,709 | | | | 2,659,313 |
Cash and cash equivalents | |
| 12,463 | | |
| 11,266 |
Restricted cash | |
| 10,533 | | |
| 10,468 |
Other assets | |
| 32,392 | | |
| 27,987 |
Line of credit, term loans and mortgage notes | |
| (921,303) | | |
| (968,544) |
Financing obligations associated with our DST Program | |
| (629,670) | | |
| (507,204) |
Other liabilities | |
| (56,679) | | |
| (46,729) |
Accrued performance participation allocation | |
| (7,769) | | |
| (4,608) |
Accrued advisory fees | |
| (1,880) | | |
| (1,548) |
Aggregate Fund NAV | | $ | 1,421,796 | | | $ | 1,180,401 |
Total Fund Interests outstanding | |
| 181,499 | | |
| 156,527 |
The following table sets forth the NAV per Fund Interest as of September 30, 2021:
| | | | | | | | | | | | | | | | | | | | | |
|
| | |
| Class T |
| Class S |
| Class D |
| Class I |
| Class E |
| OP | ||||||
(in thousands, except per Fund Interest data) | | Total | | Shares | | Shares | | Shares | | Shares | | Shares | | Units | |||||||
Monthly NAV | | $ | 1,421,796 | | $ | 107,177 | | $ | 251,836 | | $ | 46,923 | | $ | 401,916 | | $ | 448,546 | | $ | 165,398 |
Fund Interests outstanding | |
| 181,499 | |
| 13,682 | |
| 32,148 | |
| 5,990 | |
| 51,306 | |
| 57,259 | |
| 21,114 |
NAV Per Fund Interest | | $ | 7.83 | | $ | 7.83 | | $ | 7.83 | | $ | 7.83 | | $ | 7.83 | | $ | 7.83 | | $ | 7.83 |
Under GAAP, we record liabilities for dealer manager andongoing distribution fees that (i) we (i) currently owe Black Creek Capital Markets, LLC (f/k/a Dividend Capital Securities LLC) (our “Dealer Manager”)the Dealer Manager under the terms of our Dealer Managerdealer manager agreement and (ii) for anwe estimate that we may pay to ourthe Dealer Manager in future periods for shares of our common stock sold pursuant to the prior offering, which commenced on July 12, 2012 and terminated on September 15, 2015, and the current follow-on offering, which commenced on September 16, 2015.stock. As of September 30, 2017,2021, we recorded a total liability for dealer manager andestimated approximately $26.4 million of ongoing distribution fees of approximately $1.9 million, comprised of a $14,000 currentwere potentially payable to our dealer manager and a $1.9 million estimated liability for dealer manager and distributions fees that we may pay to our dealer manager in future periods.the Dealer Manager. We do not deduct the $1.9 million liability for estimated future dealer manager and distribution fees in our calculation of NAV since we intend for our NAV to reflect our estimated value on the date that we determine our NAV.
We include no discounts to our NAV for the illiquid nature of our shares, including the limitations on yourour stockholders’ ability to redeem shares under our share redemption program and our ability to suspend or terminate our share redemption program at any time. Our NAV generally does not consider exit costs (e.g. selling costs and commissions related to the sale of a property) that would likely be incurred if our assets and liabilities were liquidated or sold.sold today. While we may use market pricing concepts to value individual components of our NAV, our per share NAV is not derived from the market pricing information of open-end real estate funds listed on stock exchanges.
Our NAV is not a representation, warranty or guarantee that: (1)(i) we would fully realize our NAV upon a sale of our assets; (2)(ii) shares of our common stock would trade at our per share NAV on a national securities exchange; and (3)(iii) a stockholder would be able to realize the per share NAV if such stockholder attempted to sell his or her shares to a third party.
27
The September 30, 2017 valuation forvaluations of our real properties wasas of September 30, 2021, excluding certain newly acquired properties that are currently held at cost which we believe reflects the fair value of such properties, were provided by the Independent Valuation FirmAdvisor in accordance with our valuation procedures and determined starting with the appraised value. The aggregate real property valuation of $2.28 billion compares to a GAAP basis of real properties (before accumulated amortization and depreciation and the impact of intangible lease liabilities) of $2.13 billion, representing an increase of approximately $152.2 million or 7.1%.procedures. Certain key assumptions that were used by ourthe Independent Valuation FirmAdvisor in the discounted cash flow analysis are set forth in the following table based on weighted averagesweighted-averages by property type.
Office | Industrial | Retail | Weighted Average Basis | |||||||||
Exit capitalization rate | 6.46 | % | 7.25 | % | 6.41 | % | 6.47 | % | ||||
Discount rate / internal rate of return ("IRR") | 7.36 | % | 7.79 | % | 7.01 | % | 7.22 | % | ||||
Annual market rent growth rate | 3.15 | % | 2.84 | % | 2.86 | % | 3.01 | % | ||||
Average holding period (years) | 10.1 | 11.1 | 10.1 | 10.1 |
| | | | | | | | | | | |
| | | | | | | | | | Weighted- | |
|
| Office |
| Retail |
| Residential |
| Industrial |
| Average Basis | |
Exit capitalization rate |
| 6.18 | % | 6.25 | % | 5.07 | % | 5.18 | % | 5.76 | % |
Discount rate / internal rate of return |
| 6.68 | % | 6.82 | % | 6.07 | % | 5.89 | % | 6.42 | % |
Average holding period (years) |
| 9.6 |
| 10.0 |
| 10.0 |
| 10.0 |
| 9.9 | |
A change in the exit capitalization and discount rates used would impact the calculation of the value of our real properties.property. For example, assuming all other factors remain constant, the changes listed below would result in the following effects on the value of our real properties, excluding certain newly acquired properties that are currently held at cost which we believe reflects the fair value of such properties:
Input | Hypothetical Change | Office | Industrial | Retail | Weighted Average Values | |||||||||
Exit capitalization rate (weighted average) | 0.25% decrease | 2.69 | % | 2.13 | % | 2.43 | % | 2.55 | % | |||||
0.25% increase | (2.49 | )% | (1.98 | )% | (2.25 | )% | (2.36 | )% | ||||||
Discount rate (weighted average) | 0.25% decrease | 2.04 | % | 2.05 | % | 1.92 | % | 1.99 | % | |||||
0.25% increase | (2.00 | )% | (2.00 | )% | (1.88 | )% | (1.94 | )% |
| | | | | | | | | | | | | |
|
| Hypothetical |
| |
| |
| |
| |
| Weighted- |
|
Input | | Change | | Office | | Retail | | Residential | | Industrial | | Average Values |
|
Exit capitalization rate (weighted-average) |
| 0.25% decrease |
| 2.98 | % | 2.51 | % | 3.37 | % | 3.54 | % | 3.03 | % |
|
| 0.25% increase |
| (2.74) | % | (2.31) | % | (3.06) | % | (3.21) | % | (2.77) | % |
Discount rate (weighted-average) |
| 0.25% decrease |
| 2.04 | % | 1.91 | % | 2.00 | % | 2.05 | % | 1.99 | % |
|
| 0.25% increase |
| (1.99) | % | (1.86) | % | (1.96) | % | (2.00) | % | (1.94) | % |
From September 30, 2017 valuation ofthrough November 30, 2019, we valued our debt obligations wasdebt-related investments and real estate-related liabilities generally in accordance with fair value standards under GAAP. The key assumption used inBeginning with our valuation for December 31, 2019, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity (which for fixed rate debt not subject to interest rate hedges may be the discounted cash flow analysis wasdate near maturity at which time the marketdebt will be eligible for prepayment at par for purposes herein), including those subject to interest rate. Marketrate hedges, were valued at par (i.e. at their respective outstanding balances). In addition, because we utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates relatingthrough interest rate swaps or to the underlying debt obligations are basedlimit interest rate exposure through interest rate caps) on unobservable Level 3 inputs,individual loans, each loan and associated interest rate hedge is treated as one financial instrument which we have determinedis valued at par if intended to be our best estimateheld to maturity. This policy of current market interest ratesvaluing at par applies regardless of similar instruments. The weighted average marketwhether any given interest rate used in the September 30, 2017 valuation was 3.13%.
28
Reconciliation of Stockholders’ Equity and Noncontrolling Interests to NAV
The following table reconciles stockholders’ equity and noncontrolling interests per our condensed consolidated balance sheet to our NAV as of September 30, 2021:
| | | |
(in thousands) | | As of September 30, 2021 | |
Total stockholder's equity | | $ | 514,088 |
Noncontrolling interests | | | 144,230 |
Total equity under GAAP | | | 658,318 |
| | | |
Adjustments: | | | |
Accrued distribution fee (1) | | | 26,352 |
Unrealized net real estate, debt and interest rate hedge appreciation (depreciation) (2) | | | 273,405 |
Accumulated depreciation and amortization (3) | | | 469,824 |
Other adjustments (4) | | | (6,103) |
Aggregate Fund NAV | | $ | 1,421,796 |
(1) | Accrued distribution fee represents the accrual for the full cost of the distribution fee for Class T, Class S, and Class D shares. Under GAAP, we accrued the full cost of the distribution fee payable over the life of each share (assuming such share remains outstanding the length of time required to pay the maximum distribution fee) as an offering cost at the time we sold the Class T, Class S, and Class D shares. For purposes of calculating the NAV, we recognize the distribution fee as a reduction of NAV on a monthly basis when such fee is paid and do not deduct the liability for estimated future distribution fees that may become payable after the date as of which our NAV is calculated. |
(2) | Our real estate and real estate-related investments are presented as historical cost in our condensed consolidated financial statements. Additionally, our mortgage notes, term loans and line of credit are presented at their carrying value in our condensed consolidated financial statements. As such, any increases of decreases in the fair market value of our real estate and real estate-related investments or our debt instruments are not included in our GAAP results. For purposes of determining our NAV, our real estate and real estate-related investments and certain of debt are recorded at fair value. Notwithstanding, our property-level mortgages and corporate-level credit facilities that are intended to be held to maturity, including those subject to interest rates hedges, are valued at par (i.e. at their respective outstanding balances). |
(3) | We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. Such depreciation and amortization is not recorded for purposes of determining our NAV. |
(4) | Includes (i) straight-line rent receivables, which are recorded in accordance with GAAP but not recorded for purposes of determining our NAV (ii) redeemable noncontrolling interests related to our OP Units, which are included in our determination of NAV but not included in total equity, and (iii) other minor adjustments. |
Performance
Our NAV increased from $7.54 per share as of December 31, 2020 to $7.83 per share as of September 30, 2021. The increase in NAV was primarily driven by performance of our real estate portfolio, including dispositions of a retail property, an industrial property, and two office properties for net proceeds of approximately $141.4 million, which resulted in an increase to NAV, as well as the acquisitions of seven industrial properties for an aggregate contractual purchase price of $295.4 million and one retail property for a contractual purchase price of $50.0 million, which have been accretive to portfolio returns.
29
Effective December 31, 2019, our board of directors approved amendments to our valuation procedures which revised the way we value property-level mortgages, corporate-level credit facilities and associated interest rate hedges when loans, including associated interest rate hedges, are intended to be held to maturity, effectively eliminating all mark-to-market adjustments for such loans and hedges from the calculation of our NAV. The following table summarizes the impact of interest rate movements on our share class returns assuming we continued to include the mark-to-market adjustments for all borrowing-related interest rate hedge and debt instruments beginning with the December 31, 2019 NAV:
| | | | | | | | | | | | | |
|
| |
| |
| One-Year |
| |
| |
| Since NAV |
|
| | Trailing | | | | (Trailing | | Three-Year | | Five-Year | | Inception |
|
(as of September 30, 2021) (1) | | Three-Months | | Year-to-Date | | 12-Months) | | Annualized | | Annualized | | Annualized (2) |
|
Class T Share Total Return (with upfront selling commissions and dealer manager fees) (3) | | (0.21) | % | 3.47 | % | 4.79 | % | 4.36 | % | 4.48 | % | 6.03 | % |
Adjusted Class T Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | (0.14) | % | 3.96 | % | 5.34 | % | 4.09 | % | 4.31 | % | 5.94 | % |
Difference | | (0.07) | % | (0.49) | % | (0.55) | % | 0.27 | % | 0.17 | % | 0.09 | % |
| | | | | | | | | | | | | |
Class T Share Total Return (without upfront selling commissions and dealer manager fees) (3) | | 3.29 | % | 7.10 | % | 8.46 | % | 5.57 | % | 5.12 | % | 6.18 | % |
Adjusted Class T Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | 3.36 | % | 7.60 | % | 9.03 | % | 5.29 | % | 4.95 | % | 6.09 | % |
Difference | | (0.07) | % | (0.50) | % | (0.57) | % | 0.28 | % | 0.17 | % | 0.09 | % |
| | | | | | | | | | | | | |
Class S Share Total Return (with upfront selling commissions and dealer manager fees) (3) | | (0.21) | % | 3.47 | % | 4.79 | % | 4.36 | % | 4.48 | % | 6.03 | % |
Adjusted Class S Share Total Return (with upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | (0.14) | % | 3.96 | % | 5.34 | % | 4.09 | % | 4.31 | % | 5.94 | % |
Difference | | (0.07) | % | (0.49) | % | (0.55) | % | 0.27 | % | 0.17 | % | 0.09 | % |
| | | | | | | | | | | | | |
Class S Share Total Return (without upfront selling commissions and dealer manager fees) (3) | | 3.29 | % | 7.10 | % | 8.46 | % | 5.57 | % | 5.12 | % | 6.18 | % |
Adjusted Class S Share Total Return (without upfront selling commissions and dealer manager fees) (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | 3.36 | % | 7.60 | % | 9.03 | % | 5.29 | % | 4.95 | % | 6.09 | % |
Difference | | (0.07) | % | (0.50) | % | (0.57) | % | 0.28 | % | 0.17 | % | 0.09 | % |
| | | | | | | | | | | | | |
Class D Share Total Return (3) | | 3.44 | % | 7.58 | % | 9.11 | % | 6.20 | % | 5.73 | % | 6.55 | % |
Adjusted Class D Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | 3.52 | % | 8.08 | % | 9.69 | % | 5.92 | % | 5.56 | % | 6.45 | % |
Difference | | (0.08) | % | (0.50) | % | (0.58) | % | 0.28 | % | 0.17 | % | 0.10 | % |
| | | | | | | | | | | | | |
Class I Share Total Return (3) | | 3.51 | % | 7.78 | % | 9.38 | % | 6.47 | % | 6.04 | % | 6.96 | % |
Adjusted Class I Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | 3.58 | % | 8.29 | % | 9.96 | % | 6.19 | % | 5.87 | % | 6.86 | % |
Difference | | (0.07) | % | (0.51) | % | (0.58) | % | 0.28 | % | 0.17 | % | 0.10 | % |
| | | | | | | | | | | | | |
Class E Share Return Total Return (3) | | 3.51 | % | 7.78 | % | 9.38 | % | 6.47 | % | 6.06 | % | 7.01 | % |
Adjusted Class E Share Total Return (continued inclusion of mark-to-market adjustments for borrowing-related interest rate hedge and debt instruments) (4) | | 3.58 | % | 8.29 | % | 9.96 | % | 6.19 | % | 5.89 | % | 6.92 | % |
Difference | | (0.07) | % | (0.51) | % | (0.58) | % | 0.28 | % | 0.17 | % | 0.09 | % |
(1) | Performance is measured by total return, which includes income and appreciation (i.e., distributions and changes in NAV) and is a compound rate of return that assumes reinvestment of all distributions for the respective time period, and excludes upfront selling commissions and dealer manager fees paid by investors, except for returns noted “with upfront selling commissions and dealer |
30
manager fees” (“Total Return”). Past performance is not a guarantee of future results. Current performance may be higher or lower than the performance data quoted. |
(2) | NAV inception was September 30, 2012, which is when we first sold shares of our common stock after converting to an NAV-based REIT on July 12, 2012. Investors in our fixed price offerings prior to NAV inception on September 30, 2012 are likely to have a lower return. |
(3) | The Total Returns presented are based on actual NAVs at which stockholders transacted, calculated pursuant to our valuation procedures. From NAV inception to November 30, 2019, these NAVs reflected mark-to-market adjustments on our borrowing-related interest rate hedge positions; and from September 1, 2017 to November 30, 2019, these NAVs also reflected mark-to-market adjustments on our borrowing-related debt instruments. Prior to September 1, 2017, our valuation policies dictated marking borrowing-related debt instruments to par except in certain circumstances; therefore, we did not formally track mark-to-market adjustments on our borrowing-related debt instruments during such time. |
(4) | The Adjusted Total Returns presented are based on adjusted NAVs calculated as if we had continued to mark our hedge and debt instruments to market following a policy change to largely exclude borrowing-related interest rate hedge and debt marks to market from our NAV calculations (except in certain circumstances pursuant to our valuation procedures), beginning with our NAV calculated as of December 31, 2019 NAV. Therefore, the NAVs used in the calculation are identical to those presented per Note (3) above from NAV inception through November 30, 2019. The adjusted NAVs include the incremental impacts to advisory fees and performance fees; however, the adjusted NAVs are not assumed to have impacted any share purchase or redemption. For calculation purposes, transactions were assumed to occur at the adjusted NAVs. |
Impacts of COVID-19
With respect to COVID-19, we are continuing to assess impacts to our portfolio and commercial real estate more broadly. Our properties have not experienced the same level of stress and valuation declines seen within harder hit sectors in which we are not invested such as hospitality, gaming, senior housing or shopping malls, nor do we have any investments in real estate securities which have experienced significant volatility. Where appropriate, we have restructured leases and may restructure additional leases to provide temporary rent relief needed by certain customers while positioning ourselves to recapture abated rent over time. This, coupled with various government stimulus efforts designed to help smaller businesses in this environment, has helped us recover a significant portion of 2020 deferred rent in 2021. We can provide no assurances that we will be able to collect rent at the same level that we did prior to the pandemic going forward. Furthermore, we can provide no assurances that we will be able to recover unpaid rent. As of September 30, 2021, contractual rent collections are consistent with average annual collections prior to the pandemic. In addition, we are pleased to report that our retail portfolio as a whole has remained stable, and many of our customers are successfully supplementing their in-store sales with e-commerce and curbside pick-up.
We remain an active buyer of institutional quality, income-producing and defensive real estate, particularly within the industrial and residential sectors which we believe should provide increased appreciation potential for the fund over time and complement our retail and office investment allocations that provide for higher income potential. Accordingly, as of September 30, 2021, we acquired seven industrial properties and one grocery-anchored retail property in 2021 for an aggregate contractual purchase price of $345.4 million.
RESULTS OF OPERATIONS
Summary of 2021 Activities
During the nine months ended September 30, 2021, we completed the following activities:
● | We acquired seven industrial properties and one grocery-anchored retail property comprising 1.8 million square feet for an aggregate contractual purchase price of approximately $345.4 million. |
● | We sold one industrial property, one retail property, and two office properties for net proceeds of approximately $141.4 million and recorded a net gain on sale of approximately $53.3 million related to the sale of our industrial and office properties, and an impairment of $0.8 million related to the sale of our retail property. |
● | We leased approximately 1.4 million square feet, which included 520,000 square feet of new leases and 887,000 square feet of renewals. We are currently 94.8% leased as of September 30, 2021, as compared to 93.1% as of December 31, 2020. |
● | We decreased our leverage ratio from 37.1% as of December 31, 2020, to 31.5% as of September 30, 2021. Our leverage ratio for reporting purposes is calculated as the outstanding principal balance of our borrowings divided by the fair value of our real property and debt-related investments not associated with the DST Program (determined in accordance with our valuation procedures). By calculating the leverage ratio net of cash and cash equivalents (based on the outstanding principal balance of our borrowings less cash and cash equivalents) our leverage ratio decreased from 36.6% as of December 31, 2020, to 31.1% as of September 30, 2021. |
31
● | We raised $166.8 million of gross proceeds from the sale of common stock in our ongoing public primary offerings and $17.0 million from the sale of common stock under our distribution reinvestment plan. Additionally, we raised $188.0 million of gross capital through private placement offerings by selling DST Interests, $17.1 million of which were financed by DST Program Loans. |
● | We redeemed 6.6 million shares of common stock at a weighted-average purchase price of $7.59 per share for an aggregate amount of $50.1 million. |
32
Results for the Three and Nine Months Ended September 30, 2021 Compared to the Same Periods in 2020
The following table summarizes our results of operations for the three and nine months ended September 30, 2021, as compared to the same periods in 2020. We evaluate the performance of consolidated operating properties we own and manage using a same store analysis because the population of properties in this analysis is consistent from period to period, thereby eliminating the effects of any material changes in the composition of the aggregate portfolio on performance measures. We have defined the same store portfolio to include consolidated operating properties owned for the entirety of both the current and prior reporting periods for which the operations had been stabilized. Other operating properties not meeting the same store criteria are reflected in the non-same store portfolio. The same store operating portfolio for the three-month periods presented below includes 47 properties totaling 8.9 million square feet owned as of July 1, 2020, which portfolio represented 70.8% of total rentable square feet as of September 30, 2021. The same store operating portfolio for the nine-month periods presented below includes 43 properties totaling approximately 7.6 million square feet owned as of January 1, 2020, which portfolio represented 60.6% of total rentable square feet as of September 30, 2021.
33
| | | | | | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended | | | | | |
| For the Nine Months Ended | | | | | | | ||||||||
|
| September 30, |
| Change |
| September 30, |
| Change | | ||||||||||||||
($ in thousands, except per square foot data) |
| 2021 |
| 2020 |
| $ |
| % |
| 2021 |
| 2020 |
| $ |
| % | | ||||||
Rental revenues: | | |
| | |
| |
|
| |
| | |
| | |
| |
|
| |
| |
Same store properties | | $ | 44,607 | | $ | 40,596 | | $ | 4,011 | | 9.9 | | $ | 121,442 | | $ | 117,835 | | $ | 3,607 | | 3.1 | % |
Non-same store properties | |
| 8,989 | |
| 3,533 | |
| 5,456 | | NM | |
| 31,215 | |
| 15,160 | |
| 16,055 | | NM | |
Total rental revenues | |
| 53,596 | |
| 44,129 | |
| 9,467 | | 21.5 | |
| 152,657 | |
| 132,995 | |
| 19,662 | | 14.8 | |
Rental expenses: | |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
| |
Same store properties | |
| (14,994) | |
| (14,500) | |
| (494) | | (3.4) | |
| (42,070) | |
| (40,454) | |
| (1,616) | | (4.0) | |
Non-same store properties | |
| (2,848) | |
| (1,381) | |
| (1,467) | | NM | |
| (10,248) | |
| (5,338) | |
| (4,910) | | (92.0) | |
Total rental expenses | |
| (17,842) | |
| (15,881) | |
| (1,961) | | (12.3) | |
| (52,318) | |
| (45,792) | |
| (6,526) | | (14.3) | |
Net operating income: | |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
| |
Same store properties | |
| 29,613 | |
| 26,096 | |
| 3,517 | | 13.5 | |
| 79,372 | |
| 77,381 | |
| 1,991 | | 2.6 | |
Non-same store properties | |
| 6,141 | |
| 2,152 | |
| 3,989 | | NM | |
| 20,967 | |
| 9,822 | |
| 11,145 | | NM | |
Total net operating income | |
| 35,754 | |
| 28,248 | |
| 7,506 | | 26.6 | |
| 100,339 | |
| 87,203 | |
| 13,136 | | 15.1 | |
Other income and (expenses): | |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
| |
Debt-related income | |
| 2,298 | |
| 981 | |
| 1,317 | | NM | |
| 6,741 | |
| 1,181 | |
| 5,560 | | NM | |
Real estate-related depreciation and amortization | |
| (18,821) | |
| (15,649) | |
| (3,172) | | (20.3) | |
| (52,728) | |
| (44,558) | |
| (8,170) | | (18.3) | |
General and administrative expenses | |
| (2,183) | |
| (1,977) | |
| (206) | | (10.4) | |
| (6,582) | |
| (5,769) | |
| (813) | | (14.1) | |
Advisory fees, related party | |
| (5,480) | |
| (4,210) | |
| (1,270) | | (30.2) | |
| (15,389) | |
| (12,666) | |
| (2,723) | | (21.5) | |
Performance participation allocation | |
| (3,774) | |
| (1,333) | |
| (2,441) | | NM | |
| (7,769) | |
| (3,343) | |
| (4,426) | | NM | |
Acquisition costs and reimbursements | |
| (738) | |
| (240) | |
| (498) | | NM | |
| (1,451) | |
| (842) | |
| (609) | | (72.3) | |
Litigation expense | |
| — | |
| (2,500) | |
| 2,500 | | NM | |
| — | |
| (2,500) | |
| 2,500 | | NM | |
Impairment of real estate property | |
| — | |
| — | |
| — | | — | |
| (758) | |
| — | |
| (758) | | NM | |
Interest expense | |
| (17,866) | |
| (15,290) | |
| (2,576) | | (16.8) | |
| (51,477) | |
| (42,930) | |
| (8,547) | | (19.9) | |
Gain on sale of real estate property | |
| 25,979 | |
| — | |
| 25,979 | | NM | |
| 53,321 | |
| 2,192 | |
| 51,129 | | NM | |
Other income | |
| 524 | |
| 262 | |
| 262 | | 100.0 | |
| 1,274 | |
| 619 | |
| 655 | | NM | |
Total other (expenses) income | |
| (20,061) | |
| (39,956) | |
| 19,895 | | 49.8 | |
| (74,818) | |
| (108,616) | |
| 33,798 | | 31.1 | |
Net income (loss) | |
| 15,693 | |
| (11,708) | |
| 27,401 | | NM | |
| 25,521 | |
| (21,413) | |
| 46,934 | | NM | |
Net (income) loss attributable to redeemable noncontrolling interests | | | (99) | | | 39 | | | (138) | | NM | | | (169) | | | 71 | | | (240) | | NM | |
Net (income) loss attributable to noncontrolling interests | |
| (1,654) | |
| 839 | |
| (2,493) | | NM | |
| (2,430) | |
| 1,515 | |
| (3,945) | | NM | |
Net income (loss) attributable to common stockholders | | $ | 13,940 | | $ | (10,830) | | $ | 24,770 | | NM | | $ | 22,922 | | $ | (19,827) | | $ | 42,749 | | NM | |
Same store supplemental data: | |
|
| |
|
| |
|
| |
| |
|
| |
|
| |
|
| |
| |
Same store average percentage leased | |
| 94.0 | % |
| 93.3 | % |
|
| |
| |
| 92.7 | % |
| 92.8 | % |
|
| |
| |
Same store average annualized base rent per square foot | | $ | 15.95 | | $ | 15.41 | |
|
| |
| | $ | 17.72 | | $ | 17.61 | |
|
| |
| |
NM = Not meaningful
Rental Revenues. Rental revenues are comprised of rental income, straight-line rent, and amortization of above- and below-market lease assets and liabilities. Total rental revenues increased by $9.5 million and $19.7 million for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020. For the three and nine months ended September 30, 2021, same store revenues increased $4.0 million and $3.6 million, respectively, as compared to the same periods in 2020, primarily driven by a termination fee received at our Bala Pointe office property and increased occupancy at certain of our office, retail, and residential properties in 2021. Non-same store revenue increased by $5.5 million and $16.1 million for the three and nine months ended
34
September 30, 2021, respectively, as compared to the same periods in 2020, as a result of net positive acquisition activity, primarily in the industrial and residential segments after accounting for dispositions, primarily in the office segment.
The following table presents the components of our consolidated rental revenues:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended September 30, | | Change | | | For the Nine Months Ended September 30, | | Change | | ||||||||||||||
(in thousands) |
| 2021 |
| 2020 |
| $ |
| % | |
| 2021 |
| 2020 |
| $ |
| % | | ||||||
Rental income | | $ | 50,014 | | $ | 42,183 | | $ | 7,831 | | 18.6 | % | | $ | 145,898 | | $ | 126,818 | | $ | 19,080 | | 15.0 | % |
Straight-line rent | |
| 2,798 | |
| 1,322 | |
| 1,476 | | 111.6 | | |
| 4,667 | |
| 3,947 | |
| 720 | | 18.2 | |
Amortization of above- and below-market intangibles | |
| 784 | |
| 624 | |
| 160 | | 25.6 | | |
| 2,092 | |
| 2,230 | |
| (138) | | (6.2) | |
Total rental revenues | | $ | 53,596 | | $ | 44,129 | | $ | 9,467 |
| 21.5 | % | | $ | 152,657 | | $ | 132,995 | | $ | 19,662 |
| 14.8 | % |
Rental Expenses. Rental expenses include certain property operating expenses typically reimbursed by our customers, such as real estate taxes, property insurance, property management fees, repair and maintenance, and include certain non-recoverable expenses, such as consulting services and roof repairs. Total rental expenses for the three and nine months ended September 30, 2021 increased by $2.0 million and $6.5 million, respectively, as compared to the same periods in 2020, primarily due to (i) an increase in non-same store rental expenses as a result of our acquisition activity since January 1, 2020, which was partially offset by our disposition activity since January 1, 2020; (ii) increased real estate tax expense driven by net acquisition activity and operating expenses associated with certain properties; and (iii) increased repairs and maintenance expense, including snow removal and parking lot repairs incurred during the second quarter of 2021.
The following table presents the various components of our rental expenses:
| | | | | | | | | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended | | | | | | |
| For the Nine Months Ended | | | | | | | ||||||||
| | September 30, | | Change | | | September 30, | | Change | | ||||||||||||||
(in thousands) |
| 2021 |
| 2020 |
| $ |
| % | |
| 2021 |
| 2020 |
| $ |
| % | | ||||||
Real estate taxes | | $ | 7,148 | | $ | 5,966 | | $ | 1,182 | | 19.8 | % | | $ | 21,191 | | $ | 18,234 | | $ | 2,957 | | 16.2 | % |
Repairs and maintenance | |
| 4,319 | |
| 4,030 | |
| 289 | | 7.2 | | |
| 14,001 | |
| 11,520 | |
| 2,481 | | 21.5 | |
Utilities | |
| 1,888 | |
| 1,696 | |
| 192 | | 11.3 | | |
| 5,305 | |
| 4,585 | |
| 720 | | 15.7 | |
Property management fees | |
| 1,282 | |
| 1,104 | |
| 178 | | 16.1 | | |
| 3,689 | |
| 3,159 | |
| 530 | | 16.8 | |
Insurance | |
| 661 | |
| 483 | |
| 178 | | 36.9 | | |
| 1,782 | |
| 1,360 | |
| 422 | | 31.0 | |
Other | |
| 2,544 | |
| 2,602 | |
| (58) | | (2.2) | | |
| 6,350 | |
| 6,934 | |
| (584) | | (8.4) | |
Total rental expenses | | $ | 17,842 | | $ | 15,881 | | $ | 1,961 | | 12.3 | % | | $ | 52,318 | | $ | 45,792 | | $ | 6,526 | | 14.3 | % |
Other Income and Expenses. The net amount of other factors remain constant,expenses decreased by $19.9 million and $33.8 million, respectively, for the three and nine months ended September 30, 2021, respectively, as compared to the same periods in 2020, primarily as a result of (i) larger gains on 2021 dispositions; (ii) increased interest income earned on debt-related investments in 2021; and (iii) litigation expense incurred during 2020.These drivers were partially offset by (i) an increase in real estate-related depreciation and amortization driven by our net acquisition activity and lease termination amortization; (ii) an increase in interest expense driven by higher interest expense on financing obligations associated with an increase in the weighted-average market interest rate ratesale of 0.25% would decreaseinterests related to our DST Program; and (iii) an increase in base advisory fees, driven by an increase in NAV, and an increase in performance participation allocation, driven by the fair valueperformance of our debt obligationsportfolio.
Segment Summary for the Three and Nine Months Ended September 30, 2021 Compared to the Same Periods in 2020
Our segments are based on our internal reporting of operating results used to assess performance based on the type of our properties. Our markets are aggregated into four reportable segments: office, retail, residential and industrial. These segments are comprised of the markets by approximately 0.22%.which management and its operating teams conduct and monitor business. See “Note 13 to the Condensed Consolidated Financial Statements” for further information on our segments. Management considers rental revenues and net operating income (“NOI”) aggregated by segment to be the appropriate way to analyze performance. See “Additional Measures of Performance”
35
below for detail regarding the use of NOI. The following table sets forthsummarizes certain operating trends in our consolidated same store properties by segment:
| | | | | | | | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended | | | | | | | | For the Nine Months Ended | | | | | | | ||||||||
| | September 30, | | Change | | | September 30, | | Change | | ||||||||||||||
($ in thousands, except per square foot data) | | 2021 |
| 2020 |
| | $ |
| % | | | 2021 |
| 2020 |
| $ |
| % | | |||||
Rental revenues: | | |
| | |
| | |
| |
| | | |
| | |
| | |
| |
| |
Office | | $ | 15,954 | | $ | 14,000 | | $ | 1,954 | | 14.0 | % | | $ | 44,322 | | $ | 42,152 | | $ | 2,170 | | 5.1 | % |
Retail | |
| 17,475 | |
| 16,831 | |
| 644 | | 3.8 | | |
| 49,631 | |
| 49,154 | |
| 477 | | 1.0 | |
Residential | |
| 5,320 | |
| 4,350 | |
| 970 | | 22.3 | | |
| 15,273 | |
| 14,591 | |
| 682 | | 4.7 | |
Industrial | |
| 5,858 | |
| 5,415 | |
| 443 | | 8.2 | | |
| 12,216 | |
| 11,938 | |
| 278 | | 2.3 | |
Total same store rental revenues | |
| 44,607 | |
| 40,596 | |
| 4,011 | | 9.9 | | |
| 121,442 | |
| 117,835 | |
| 3,607 | | 3.1 | |
Non-same store properties | |
| 8,989 | |
| 3,533 | |
| 5,456 | | NM | | |
| 31,215 | |
| 15,160 | |
| 16,055 | | NM | |
Total rental revenues | | $ | 53,596 | | $ | 44,129 | | $ | 9,467 | | 21.5 | % | | $ | 152,657 | | $ | 132,995 | | $ | 19,662 | | 14.8 | % |
NOI: | |
|
| |
|
| |
|
| |
| | |
|
| |
|
| |
|
| |
| |
Office | | $ | 9,398 | | $ | 7,504 | | $ | 1,894 | | 25.2 | % | | $ | 25,027 | | $ | 22,932 | | $ | 2,095 | | 9.1 | % |
Retail | |
| 13,128 | |
| 12,341 | |
| 787 | | 6.4 | | |
| 37,084 | |
| 37,402 | |
| (318) | | (0.9) | |
Residential | |
| 3,019 | |
| 2,068 | |
| 951 | | 46.0 | | |
| 8,440 | |
| 7,952 | |
| 488 | | 6.1 | |
Industrial | |
| 4,068 | |
| 4,183 | |
| (115) | | (2.7) | | |
| 8,821 | |
| 9,095 | |
| (274) | | (3.0) | |
Total same store NOI | |
| 29,613 | |
| 26,096 | |
| 3,517 | | 13.5 | | |
| 79,372 | |
| 77,381 | |
| 1,991 | | 2.6 | |
Non-same store properties | |
| 6,141 | |
| 2,152 | |
| 3,989 | | NM | | |
| 20,967 | |
| 9,822 | |
| 11,145 | | NM | |
Total NOI | | $ | 35,754 | | $ | 28,248 | | $ | 7,506 | | 26.6 | % | | $ | 100,339 | | $ | 87,203 | | $ | 13,136 | | 15.1 | % |
Same store average percentage leased: | | | | | | | | | | | | | | | | | | | | | | | | |
Office | |
| 82.8 | % |
| 83.2 | % | | | |
| | |
| 81.6 | % |
| 83.6 | % | |
| |
| |
Retail | |
| 93.8 | |
| 93.7 | | |
| |
| | |
| 93.8 | |
| 94.3 | | |
| |
| |
Residential | |
| 95.4 | |
| 86.6 | | |
| |
| | |
| 94.1 | |
| 87.8 | | |
| |
| |
Industrial | |
| 99.8 | |
| 100.0 | | |
| |
| | |
| 99.5 | |
| 100.0 | | |
| |
| |
Same store average annualized base rent per square foot: | | | | | | | | | | | | | | | | | | | | | | | | |
Office | | $ | 31.00 | | $ | 30.99 | | |
| |
| | | $ | 31.71 | | $ | 31.46 | | |
| |
| |
Retail | |
| 18.75 | |
| 17.96 | | |
| |
| | |
| 18.76 | |
| 18.45 | | |
| |
| |
Residential | |
| 23.93 | |
| 21.80 | | |
| |
| | |
| 23.12 | |
| 23.70 | | |
| |
| |
Industrial | |
| 4.94 | |
| 4.93 | | |
| |
| | |
| 5.41 | |
| 5.33 | | |
| |
| |
NM = Not meaningful
Office Segment. For the quarterly changesthree and nine months ended September 30, 2021, our office segment same store NOI increased by $1.9 million and $2.1 million, respectively, as compared to the componentssame periods in 2020, primarily due to a termination fee received at our Bala Pointe property and increased occupancy at our 3 Second Street property.
Retail Segment. For the three months ended September 30, 2021, our retail segment same store NOI increased by $0.8 million as compared to the same period in 2020, primarily due to increased occupancy and reduced operating expenses at certain properties in 2021. For the nine months ended September 30, 2021, our retail segment same store NOI remained relatively consistent as compared to the same period in 2020.
Residential Segment. For the three and nine months ended September 30, 2021, our residential segment same store NOI increased by $1.0 million and $0.5 million, respectively, as compared to the same periods in 2020, primarily due to increased occupancy and reduced rent concessions at certain of NAV forour residential properties during the Company and the reconciliationthird quarter of NAV changes for each class2021.
36
Total | Class E Common Stock | Class T Common Stock | Class S Common Stock | Class D Common Stock | Class I Common Stock | Class E OP Units | |||||||||||||||||||||
NAV as of June 30, 2017 | $ | 1,137,640 | $ | 756,313 | $ | 15,428 | N/A | $ | 18,640 | $ | 258,112 | $ | 89,147 | ||||||||||||||
Fund level changes to NAV | |||||||||||||||||||||||||||
Realized/unrealized losses on net assets | (6,035 | ) | (4,013 | ) | (82 | ) | — | (99 | ) | (1,369 | ) | (472 | ) | ||||||||||||||
Income accrual | 16,173 | 10,768 | 221 | — | 266 | 3,658 | 1,260 | ||||||||||||||||||||
Dividend accrual | (13,546 | ) | (9,097 | ) | (147 | ) | — | (202 | ) | (3,040 | ) | (1,060 | ) | ||||||||||||||
Advisory fee | (3,283 | ) | (2,187 | ) | (45 | ) | — | (54 | ) | (742 | ) | (255 | ) | ||||||||||||||
Performance-based fee | — | — | — | — | — | — | — | ||||||||||||||||||||
Class specific changes to NAV | |||||||||||||||||||||||||||
Dealer Manager fee | (79 | ) | — | (16 | ) | — | (19 | ) | (44 | ) | — | ||||||||||||||||
Distribution fee | (28 | ) | — | (24 | ) | — | (4 | ) | — | — | |||||||||||||||||
NAV as of September 30, 2017 before share/unit sale/redemption activity | $ | 1,130,842 | $ | 751,784 | $ | 15,335 | $ | — | $ | 18,528 | $ | 256,575 | $ | 88,620 | |||||||||||||
Dollar/unit sale/redemption activity | |||||||||||||||||||||||||||
Amount sold | 9,202 | 5,046 | 305 | 125 | 278 | 3,448 | — | ||||||||||||||||||||
Amount redeemed | (10,607 | ) | (2,983 | ) | (47 | ) | — | (113 | ) | (5,783 | ) | (1,681 | ) | ||||||||||||||
NAV as of September 30, 2017 | $ | 1,129,437 | $ | 753,847 | $ | 15,593 | $ | 125 | $ | 18,693 | $ | 254,240 | $ | 86,939 | |||||||||||||
Shares/units outstanding as of June 30, 2017 | 151,738 | 100,877 | 2,058 | N/A | 2,486 | 34,427 | 11,890 | ||||||||||||||||||||
Shares/units sold | 1,229 | 674 | 41 | 17 | 37 | 460 | — | ||||||||||||||||||||
Shares/units redeemed | (1,417 | ) | (398 | ) | (7 | ) | — | (15 | ) | (773 | ) | (224 | ) | ||||||||||||||
Shares/units outstanding as of September 30, 2017 | 151,550 | 101,153 | 2,092 | 17 | 2,508 | 34,114 | 11,666 | ||||||||||||||||||||
NAV per share/unit as of June 30, 2017 | $ | 7.50 | $ | 7.50 | N/A | $ | 7.50 | $ | 7.50 | $ | 7.50 | ||||||||||||||||
Change in NAV per share/unit | (0.05 | ) | (0.05 | ) | N/A | (0.05 | ) | (0.05 | ) | (0.05 | ) | ||||||||||||||||
NAV per share/unit as of September 30, 2017 | $ | 7.45 | $ | 7.45 | $ | 7.45 | $ | 7.45 | $ | 7.45 | $ | 7.45 |
Industrial Segment. For the three and nine months ended September 30, 2021, our industrial segment same store NOI decreased by $0.1 million and $0.3 million, respectively, as compared to the same periods in 2020, primarily due to increased operating results, followed by a discussion of FFO (as defined below), which weexpenses specifically related to bad debt expense at our Kaiser Business Center property.
ADDITIONAL MEASURES OF PERFORMANCE
Net Income and NOI
We define NOI as GAAP rental revenues less GAAP rental expenses. We consider NOI to be a meaningfulan appropriate supplemental performance measure and believe NOI provides useful information to our investors regarding our results of our operating performance. We also use net operating income ("NOI")operations because NOI reflects the specific operating performance of our real properties and excludes certain items that are not considered to be controllable in connection with the management of each property,the properties, such as other-than-temporary impairment, losses related to provisions for losses on debt-related investments, gains or losses on derivatives, acquisition-related expenses, gains or losses on extinguishment of debt and financing commitments, interest income,real estate-related depreciation and amortization, general and administrative expenses, advisory fees, impairment charges, interest expense, gains on sale of properties, other income and expense, gains and losses on the extinguishment of debt and noncontrolling interests. However, NOI should not be viewed as an alternative measure of our operating financial performance as a whole, since it does excludeexcludes such items, thatwhich could materially impact our results of operations. Further, our NOI may not be comparable to that of other real estate companies, as they may use different methodologies for calculating NOI. Therefore, we believe net income (loss), as defined by GAAP, to be the most appropriate measure to evaluate our overall financial performance. We present NOIRefer to “Results of Operations—Results for the Three and Nine Months Ended September 30, 2021 Compared to the Same Periods in the tables below, and include2020” above for a reconciliation toof our GAAP net income as defined by GAAP, in Note 10(loss) to our financial statements included in “Item 1. Financial Statements” of this Quarterly Report on Form 10-Q.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | ||||||||||||||||||||||
Revenue | |||||||||||||||||||||||||||||
Base rental revenue - Same Store Portfolio (1) | $ | 36,297 | $ | 40,874 | $ | (4,577 | ) | -11 | % | $ | 111,485 | $ | 122,402 | $ | (10,917 | ) | -9 | % | |||||||||||
Average % leased | 88 | % | 94 | % | (6 | )% | -6 | % | 89 | % | 94 | % | (5 | )% | -5 | % | |||||||||||||
Other rental revenue - Same Store Portfolio (2) | 11,115 | 10,702 | 413 | 4 | % | 34,547 | 31,885 | 2,662 | 8 | % | |||||||||||||||||||
Total rental revenue - Same Store Portfolio | 47,412 | 51,576 | (4,164 | ) | -8 | % | 146,032 | 154,287 | (8,255 | ) | -5 | % | |||||||||||||||||
Rental revenue - Non-Same Store Portfolio | 2,066 | 1,682 | 384 | 23 | % | 5,990 | 7,217 | (1,227 | ) | -17 | % | ||||||||||||||||||
Total rental revenue | $ | 49,478 | $ | 53,258 | $ | (3,780 | ) | -7 | % | $ | 152,022 | $ | 161,504 | $ | (9,482 | ) | -6 | % | |||||||||||
Rental Expenses | |||||||||||||||||||||||||||||
Same Store Portfolio | $ | 16,886 | $ | 15,942 | $ | 944 | 6 | % | $ | 49,483 | $ | 46,190 | $ | 3,293 | 7 | % | |||||||||||||
Non-Same Store Portfolio | 630 | 495 | 135 | 27 | % | 2,037 | 2,198 | (161 | ) | -7 | % | ||||||||||||||||||
Total rental expenses | $ | 17,516 | $ | 16,437 | $ | 1,079 | 7 | % | $ | 51,520 | $ | 48,388 | $ | 3,132 | 6 | % | |||||||||||||
Net Operating Income | |||||||||||||||||||||||||||||
Real property - Same Store Portfolio (2) | $ | 30,526 | $ | 35,634 | $ | (5,108 | ) | -14 | % | $ | 96,549 | $ | 108,097 | $ | (11,548 | ) | -11 | % | |||||||||||
Real property - Non-Same Store Portfolio | 1,436 | 1,187 | 249 | 21 | % | 3,953 | 5,019 | (1,066 | ) | -21 | % | ||||||||||||||||||
Total net operating income (3) | $ | 31,962 | $ | 36,821 | $ | (4,859 | ) | -13 | % | $ | 100,502 | $ | 113,116 | $ | (12,614 | ) | -11 | % |
Same Store Portfolio | Base Rent for the Three Months Ended September 30, | Average % Leased for the Three Months Ended September 30, | Annualized Base Rent per Square Foot for the Three Months Ended September 30 (1), | |||||||||||||||||||||||
2017 | 2016 | $ Change | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
Office | $ | 20,779 | $ | 25,407 | $ | (4,628 | ) | 81.5 | % | 95.6 | % | $ | 29.75 | $ | 30.99 | |||||||||||
Industrial | 870 | 847 | 23 | 84.5 | % | 84.5 | % | 3.94 | 3.84 | |||||||||||||||||
Retail | 14,648 | 14,620 | 28 | 95.7 | % | 95.8 | % | 16.69 | 16.65 | |||||||||||||||||
Total base rental revenue - same store | $ | 36,297 | $ | 40,874 | $ | (4,577 | ) | 88.3 | % | 94.3 | % | $ | 20.20 | $ | 21.30 |
Same Store Portfolio | Base Rent For the Nine Months Ended September 30, | Average % Leased For the Nine Months Ended September 30, | Annualized Base Rent per Square Foot for the Six Months Ended September 30 (1), | |||||||||||||||||||||||
2017 | 2016 | $ Change | 2017 | 2016 | 2017 | 2016 | ||||||||||||||||||||
Office | $ | 64,447 | $ | 75,704 | $ | (11,257 | ) | 84.5 | % | 95.8 | % | $ | 29.65 | $ | 30.72 | |||||||||||
Industrial | 2,590 | 2,522 | 68 | 84.5 | % | 84.5 | % | 3.91 | 3.81 | |||||||||||||||||
Retail | 44,448 | 44,176 | 272 | 94.9 | % | 95.0 | % | 17.02 | 16.90 | |||||||||||||||||
Total base rental revenue - same store | $ | 111,485 | $ | 122,402 | $ | (10,917 | ) | 89.2 | % | 94.0 | % | $ | 20.46 | $ | 21.32 |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | ||||||||||||||||||||||
Real estate taxes | $ | 6,854 | $ | 6,249 | $ | 605 | 9.7 | % | $ | 20,325 | $ | 18,038 | $ | 2,287 | 12.7 | % | |||||||||||||
Repairs and maintenance | 4,456 | 4,638 | (182 | ) | (3.9 | )% | 14,104 | 13,212 | 892 | 6.8 | % | ||||||||||||||||||
Utilities | 2,100 | 2,281 | (181 | ) | (7.9 | )% | 5,871 | 6,207 | (336 | ) | (5.4 | )% | |||||||||||||||||
Property management fees | 1,177 | 1,169 | 8 | 0.7 | % | 3,592 | 3,543 | 49 | 1.4 | % | |||||||||||||||||||
Insurance | 362 | 350 | 12 | 3.4 | % | 1,077 | 985 | 92 | 9.3 | % | |||||||||||||||||||
Other | 1,937 | 1,255 | 682 | 54.3 | % | 4,514 | 4,205 | 309 | 7.3 | % | |||||||||||||||||||
Total same store rental expense | $ | 16,886 | $ | 15,942 | $ | 944 | 5.9 | % | $ | 49,483 | $ | 46,190 | $ | 3,293 | 7.1 | % |
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
Debt Obligation | 2017 | 2016 | 2017 | 2016 | |||||||||||
Mortgage notes | $ | 4,239 | $ | 5,702 | $ | 11,362 | $ | 18,812 | |||||||
Unsecured borrowings | 7,040 | 4,290 | 19,667 | 12,559 | |||||||||||
Financing obligations | 67 | 19 | 164 | 23 | |||||||||||
Total interest expense | $ | 11,346 | $ | 10,011 | $ | 31,193 | $ | 31,394 |
Funds From Operations
We believe that FFO, in addition to net income (loss) and cash flows from operating activities as defined by GAAP, are useful supplemental performance measures that our management uses to evaluate our consolidated operating performance. However, this supplemental, non-GAAP measure should not be considered as an alternative to net income (loss) or to cash flows from operating activities as an indication of our performance and is not intended to be used as a liquidity measure indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders. No single measure can provide users of financial information with sufficient information and only our disclosures read as a whole can be relied upon to adequately portray our financial position, liquidity, and results of operations. In addition, other REITs may define FFO and similar measures differently and choose to treat certain accounting line items in a manner different from us due to specific differences in investment and operating strategy or for other reasons.
FFO. As defined by the National Association of Real Estate Investment Trusts (“NAREIT”), FFO is a non-GAAP measure that excludes certain items such as real estate-related depreciation and amortization. We believe FFO is a meaningful supplemental measure of our operating performance that is useful to investors because historical cost accounting for real estate assetsdepreciation and amortization in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time, as reflected through depreciation and amortization expense. However, since real estate values have historically risentime. By excluding gains or fallen with market and other conditions, many industry investors and analysts have considered presentationlosses on the sale of operating results for real estate companies that use historical cost accounting to be insufficient. Thus, NAREIT createdassets, we believe FFO asprovides a supplementalhelpful additional measure of our consolidated operating performance for real estate investment trusts that consists of net income (loss), calculated in accordance with GAAP, plus real estate-related depreciation and amortization and impairment of depreciable real estate, less gains (or losses) from dispositions of real estate held for investment purposes.
For the Three Months Ended September 30, | For the Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Reconciliation of net earnings to FFO: | |||||||||||||||
Net (loss) income attributable to common stockholders | $ | (1,960 | ) | $ | 2,965 | $ | 6,506 | $ | 46,864 | ||||||
Add (deduct) NAREIT-defined adjustments: | |||||||||||||||
Depreciation and amortization expense | 16,927 | 19,989 | 53,661 | 60,022 | |||||||||||
Gain on sale of real property | (670 | ) | (2,095 | ) | (11,022 | ) | (43,495 | ) | |||||||
Impairment of real estate property | — | 2,090 | 1,116 | 2,677 | |||||||||||
Noncontrolling interests’ share of net (loss) income | (185 | ) | 353 | 1,591 | 4,826 | ||||||||||
Noncontrolling interests’ share of FFO | (1,081 | ) | (1,719 | ) | (4,018 | ) | (6,298 | ) | |||||||
FFO attributable to common shares-basic | 13,031 | 21,583 | 47,834 | 64,596 | |||||||||||
FFO attributable to dilutive OP Units | 1,100 | 1,668 | 3,923 | 5,002 | |||||||||||
FFO attributable to common shares-diluted | $ | 14,131 | $ | 23,251 | $ | 51,757 | $ | 69,598 | |||||||
FFO per share-basic and diluted | $ | 0.09 | $ | 0.14 | $ | 0.33 | $ | 0.40 | |||||||
Weighted average number of shares outstanding | |||||||||||||||
Basic | 139,925 | 158,688 | 144,998 | 161,274 | |||||||||||
Diluted | 151,739 | 170,952 | 156,918 | 173,760 |
37
The following unaudited table presents a complete picturereconciliation of our financial condition and operating performance. We caution investors against using FFO to determine a price to earnings ratio or yield relative to our NAV. We believe thatGAAP net income (loss) computed under GAAP remains theto NAREIT FFO:
| | | | | | | | | | | | | |
|
| For the Three Months Ended |
| For the Nine Months Ended | | ||||||||
| | September 30, | | September 30, | | ||||||||
(in thousands, except per share data) |
| 2021 |
| 2020 |
| 2021 |
| 2020 | | ||||
GAAP net income (loss) attributable to common stockholders | | $ | 13,940 | | $ | (10,830) | | $ | 22,922 | | $ | (19,827) | |
GAAP net income (loss) per common share—basic and diluted | | $ | 0.09 | | $ | (0.08) | | $ | 0.15 | | $ | (0.14) | |
Reconciliation of GAAP net income (loss) to NAREIT FFO: | |
|
| |
|
| |
|
| |
|
| |
GAAP net income (loss) attributable to common stockholders | | $ | 13,940 | | $ | (10,830) | | $ | 22,922 | | $ | (19,827) | |
Real estate-related depreciation and amortization | |
| 18,821 | |
| 15,649 | |
| 52,728 | |
| 44,558 | |
Impairment of real estate property | |
| — | |
| — | |
| 758 | |
| — | |
Gain on sale of real estate property | |
| (25,979) | |
| — | |
| (53,321) | |
| (2,192) | |
Noncontrolling interests’ share of net income (loss) | |
| 1,654 | |
| (839) | |
| 2,430 | |
| (1,515) | |
Redeemable noncontrolling interests' share of net income (loss) | | | 99 | | | (39) | | | 169 | | | (71) | |
Noncontrolling interests’ share of NAREIT FFO | |
| (898) | |
| (282) | |
| (2,470) | |
| (1,467) | |
Redeemable noncontrolling interests' share of NAREIT FFO | | | (54) | | | (13) | | | (171) | | | (69) | |
NAREIT FFO attributable to common stockholders—basic | |
| 7,583 | |
| 3,646 | |
| 23,045 | |
| 19,417 | |
NAREIT FFO attributable to OP Units | |
| 952 | |
| 295 | |
| 2,641 | |
| 1,536 | |
NAREIT FFO | | $ | 8,535 | | $ | 3,941 | | $ | 25,686 | | $ | 20,953 | |
Weighted-average shares outstanding—basic | |
| 157,025 | |
| 141,682 | |
| 151,045 | |
| 142,216 | |
Weighted-average shares outstanding—diluted | |
| 176,777 | |
| 153,166 | |
| 168,475 | |
| 153,665 | |
NAREIT FFO per common share—basic and diluted | | $ | 0.05 | | $ | 0.03 | | $ | 0.15 | | $ | 0.14 | |
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our primary measuresources of performance and that FFO is only meaningful when used in conjunction withcapital for meeting our cash requirements include debt financings, cash generated from operating activities, net income (loss) computed under GAAP. Further, we believe that our consolidated financial statements, prepared in accordance with GAAP, provide the most meaningful picture of our financial condition and operating performance.
Our Advisor, subject to the oversight of our board of directors and, under certain circumstances, the investment committee or other committees established by our board of directors, will evaluate potential acquisitions or dispositions and will engage in negotiations with buyers, sellers and lenders on our behalf. Pending investment in property, debt, or other investments, we may decide to temporarily invest any unused proceeds from our public offerings in certain investments that are expected to yield lower returns than those earned on real estate assets. These lower returns may affect our ability to make distributions to our stockholders. Potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from our public and private offerings, proceeds from the sale of existing investments,assets, and prospective debtundistributed funds from operations.
The global pandemic and resulting shut down of large parts of the U.S. economy has created significant uncertainty and enhanced investment risk across many asset classes, including real estate. The COVID-19 pandemic could have a material adverse effect on our financial condition, results of operations and cash flows as the reduced economic activity severely impacts certain of our customers’ businesses, financial condition and liquidity and may cause certain customers to be unable to meet their obligations to us in full. However, as of September 30, 2021, contractual rent collections are consistent with average annual collections prior to the pandemic. We are pleased with these collections given the pandemic’s significant impacts on the broader economy, thus reflecting the relatively defensive nature of our assets.
As of September 30, 2021, our financial position was strong with 31.5% leverage, or equity issuances will31.1% leverage net of $12.5 million of cash and cash equivalents. In addition, our portfolio was 94.8% leased as of September 30, 2021 and is diversified across 61 properties totaling 12.6 million square feet across 28 geographic markets. Our properties contain a diverse roster of 480 commercial customers, large and
38
small, and has an allocation based on fair value of real estate properties as determined by our NAV calculation of 23.0% office, 33.6% retail which is primarily grocery-anchored, 29.4% industrial, and 14.0% residential.
We believe that our cash on-hand, anticipated net offering proceeds, proceeds from our line of credit, and other financing and disposition activities should be sufficient to meet our liquidityanticipated future acquisition, operating, debt service, distribution and capital needsredemption requirements.
Cash Flows. The following table summarizes our cash flows for the foreseeable future,following periods:
| | | | | | | | | | |
|
| For the Nine Months Ended September 30, | | | | | ||||
(in thousands) |
| 2021 |
| 2020 |
| $ Change | | |||
Total cash provided by (used in): | | |
| | |
| | |
| |
Operating activities | | $ | 38,750 | | $ | 28,847 | | $ | 9,903 | |
Investing activities | |
| (226,175) | |
| (236,786) | |
| 10,611 | |
Financing activities | |
| 188,687 | |
| 126,597 | |
| 62,090 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 1,262 | | $ | (81,342) | | $ | 82,604 | |
Net cash provided by operating activities increased by approximately $9.9 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to net acquisition activity, which was partially offset by an increase in interest expense due to our increasing rent obligations resulting from our DST Program and an increase in performance-based fees paid to the Advisor in 2021.
Net cash used in investing activities decreased by approximately $10.6 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to (i) an increase in net disposition proceeds of $138.6 million received in 2021 related to the sale of one retail property, one industrial property, and two office properties, as compared to the sale of one retail outparcel during the corresponding period in 2020; (ii) cash paid to acquire a debt-related investment during 2020 of $45.5 million; and (iii) $5.9 million of lower capital expenditure activity. These drivers were partially offset by a $184.4 million increase in acquisition activity during the nine months ended September 30, 2021, as compared to the same period in 2020.
Net cash provided by financing activities increased by approximately $62.1 million for the nine months ended September 30, 2021, compared to the same period in 2020, primarily due to an increase in net offering activity from our DST Program and public offering of $66.9 million and a decrease of redemptions of $38.7 million. These drivers were partially offset by a $45.0 million net increase in repayments of the line of credit and mortgage notes during the nine months ended September 30, 2021, compared to the same period in 2020.
Capital Resources and Uses of Liquidity
In addition to our cash and cash equivalents balances available, our capital resources and uses of liquidity are as follows:
Line of Credit and Term Loans. As of September 30, 2021, we had an aggregate of $975.0 million of commitments under our unsecured credit agreements, including $450.0 million under our line of credit and $525.0 million under our two term loans. As of that date, we had: (i) $85.0 million outstanding under our line of credit; and (ii) $525.0 million outstanding under our term loans. The weighted-average effective interest rate across all of our unsecured borrowings is 3.02%, which includes the effect of the interest rate swap agreements related to $500.0 million in borrowings under our term loans.
The unused and available portions under our line of credit were $365.0 million and $252.6 million, respectively. Our $450.0 million line of credit matures in January 2023, and may be extended pursuant to two six-month extension options, subject to certain conditions, including the next 12 months.payment of extension fees. Our capital requirements over$325.0 million term loan matures in January 2024, with no extension option available. Our $200.0 million term loan matures in February 2022, and may be extended pursuant to two one-year extension options, subject to certain conditions, including the next 12 monthspayment of an extension fee. Our line of credit borrowings are anticipated to include,available for general corporate purposes, including but are not limited to operating expenses, distributionthe refinancing of other debt, payment of redemptions, acquisition and operation of permitted investments. Refer to “Note 3 to the Condensed Consolidated Financial Statements” for additional information regarding our line of credit and term loans.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”), which identified the Secured Overnight Financing Rate (“SOFR”)
39
as its preferred alternative rate for LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by the FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments debt servicecould change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments including debt maturities of approximately $277.4 million, redemption payments, issuer tender offers, and acquisitions of real property and debt-related investments. Borrowings that are subjecthigher or lower than if LIBOR were to extension optionsremain available in its current form.
LIBOR is expected to be phased out or modified by June 2023, and the writing of contracts using LIBOR is expected to stop by the end of 2021. As of September 30, 2021, our line of credit and our term loans are also subjectour only indebtedness with initial or extended maturity dates beyond 2023 that have exposure to certain lender covenantsLIBOR. The agreements governing the line of credit and restrictions that we must meet to extend the initial maturity date. We currently believe that we will qualifyterm loans provide procedures for these extension options. However, we cannot guarantee that we will meet the requirements to extend the notes upon initial maturity. Indetermining a replacement or alternative base rate in the event that LIBOR is discontinued. However, there can be no assurances as to whether such replacement or alternative base rate will be more or less favorable than LIBOR. We intend to monitor the developments with respect to the potential phasing out of LIBOR after 2023 and work with our lenders to seek to ensure any transition away from LIBOR will have minimal impact on our financial condition, but can provide no assurances regarding the impact of the discontinuation of LIBOR.
Mortgage Notes. As of September 30, 2021, we do not qualifyhad property-level borrowings of approximately $311.3 million outstanding with a weighted-average remaining term of approximately 2.5 years. These borrowings are secured by mortgages or deeds of trust and related assignments and security interests in the collateralized properties, and had a weighted-average interest rate of 2.99%. Refer to extend“Note 3 to the notes,Condensed Consolidated Financial Statements” for additional information regarding the mortgage notes.
Debt Covenants. Our line of credit, term loan and mortgage note agreements contain various property-level covenants, including customary affirmative and negative covenants. In addition, our line of credit and term loan agreements contain certain corporate level financial covenants, including leverage ratio, fixed charge coverage ratio, and tangible net worth thresholds. These covenants may limit our ability to incur additional debt, or to pay distributions. We were in compliance with our debt covenants as of September 30, 2021.
Leverage. We use financial leverage to provide additional funds to support our investment activities. We may finance a portion of the purchase price of any real estate asset that we expect to repay themacquire with proceedsborrowings on short or long-term basis from new borrowings or available proceeds from our revolving credit facility.
Offering Proceeds. For the nine months ended September 30, 2017.
Lease Expirations | ||||||||||||||||
Year (1) | Number of Leases Expiring | Annualized Base Rent (2) | % | Square Feet | % | |||||||||||
2017 (3) | 21 | $ | 9,276 | 5.9 | % | 253 | 3.3 | % | ||||||||
2018 | 95 | 8,590 | 5.5 | % | 361 | 4.7 | % | |||||||||
2019 | 103 | 24,972 | 15.9 | % | 1,114 | 14.6 | % | |||||||||
2020 | 125 | 24,743 | 15.8 | % | 1,115 | 14.6 | % | |||||||||
2021 | 68 | 17,117 | 10.9 | % | 1,279 | 16.8 | % | |||||||||
2022 | 63 | 13,154 | 8.4 | % | 715 | 9.4 | % | |||||||||
2023 | 46 | 20,289 | 12.9 | % | 791 | 10.4 | % | |||||||||
2024 | 27 | 5,432 | 3.5 | % | 336 | 4.4 | % | |||||||||
2025 | 22 | 4,997 | 3.2 | % | 214 | 2.8 | % | |||||||||
2026 | 18 | 3,442 | 2.2 | % | 210 | 2.8 | % | |||||||||
Thereafter | 50 | 24,787 | 15.8 | % | 1,246 | 16.2 | % | |||||||||
Total | 638 | $ | 156,799 | 100.0 | % | 7,634 | 100.0 | % |
Distributions.To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the deduction for distributions paid and by excluding net capital gains. The payment of distributions is determined by our board of directors and may be adjusted at its discretion at any time. Distribution levels are set by our board of directors at a level it believes to be appropriate and sustainable based upon a review of a variety of factors including the current and anticipated market conditions, current and anticipated future performance and make-up of our investments, our overall financial projections and expected future cash needs. We intend to continue to make distributions on a monthly basis.
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The following table sets forth the amounts andoutlines sources used, as determined on a GAAP basis, to pay total gross distributions (which are paid in cash or reinvested in shares of distributions declaredour common stock through our distribution reinvestment plan) for the three and nine months ended September 30, 2017 and 2016 (dollar amounts in thousands, except footnoted information):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| Amount | | | |
| Source of Distributions Paid in Cash | | ||||||||||||||||||||||
|
| Declared |
| | |
| | | | |
| | | | |
| Total Cash |
| | |
| |
| | | | | | ||
|
| per | | | |
| | | | |
| | | | |
| Flows from |
| Cash Flows from | | | | | | | |||||
(in thousands, except per share |
| Common | | | | Reinvested in | | Total |
| Operating |
| Operating | | | |
| | | ||||||||||||
data) |
| Share (1) |
| Paid in Cash (2) |
| Shares |
| Distributions |
| Activities (3) |
| Activities |
| Borrowings | | |||||||||||||||
2021 | | |
| | |
| |
| | |
| |
| | |
| | |
| | |
| |
| | |
| |
| |
March 31 | | $ | 0.09375 | | $ | 9,572 |
| 63.4 | % | $ | 5,526 |
| 36.6 | % | $ | 15,098 | | $ | 7,659 | | $ | 7,659 |
| 80.0 | % | $ | 1,913 |
| 20.0 | % |
June 30 | |
| 0.09375 | |
| 9,962 |
| 63.5 | |
| 5,723 |
| 36.5 | |
| 15,685 | |
| 14,204 | |
| 9,962 |
| 100.0 | |
| — |
| — | |
September 30 | |
| 0.09375 | |
| 10,597 |
| 63.9 | |
| 5,985 |
| 36.1 | |
| 16,582 | |
| 16,887 | |
| 10,597 |
| 100.0 | |
| — |
| — | |
Total | | $ | 0.28125 | | $ | 30,131 |
| 63.6 | % | $ | 17,234 |
| 36.4 | % | $ | 47,365 | | $ | 38,750 | | $ | 28,218 | | 93.7 | % | $ | 1,913 | | 6.3 | % |
2020 | |
|
| |
|
|
|
| |
|
|
|
| |
|
| |
|
| |
|
|
|
| |
|
|
|
| |
March 31 | | $ | 0.09375 | | $ | 9,032 |
| 62.8 | % | $ | 5,360 |
| 37.2 | % | $ | 14,392 | | $ | 7,455 | | $ | 7,455 |
| 82.5 | % | $ | 1,577 |
| 17.5 | % |
June 30 | |
| 0.09375 | |
| 9,150 |
| 63.3 | |
| 5,316 |
| 36.7 | |
| 14,466 | |
| 11,384 | |
| 9,150 |
| 100.0 | |
| — |
| — | |
September 30 | |
| 0.09375 | |
| 9,074 |
| 63.2 | |
| 5,282 |
| 36.8 | |
| 14,356 | |
| 10,008 | |
| 9,074 |
| 100.0 | |
| — |
| — | |
December 31 | |
| 0.09375 | |
| 9,214 |
| 63.3 | |
| 5,347 |
| 36.7 | |
| 14,561 | |
| 12,281 | |
| 9,214 |
| 100.0 | |
| — |
| — | |
Total | | $ | 0.37500 | | $ | 36,470 |
| 63.1 | % | $ | 21,305 |
| 36.9 | % | $ | 57,775 | | $ | 41,128 | | $ | 34,893 | | 95.7 | % | $ | 1,577 | | 4.3 | % |
For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||||||||||||
Distributions: | September 30, 2017 | % of Total Distributions | September 30, 2016 | % of Total Distributions | September 30, 2017 | % of Total Distributions | September 30, 2016 | % of Total Distributions | |||||||||||||||||||
Common stock distributions paid in cash | $ | 7,549 | 55.2 | % | $ | 8,907 | 57.7 | % | $ | 23,865 | 56.1 | % | $ | 27,747 | 59.0 | % | |||||||||||
Other cash distributions (1) | 1,195 | 8.7 | % | 1,257 | 8.2 | % | 3,745 | 8.8 | % | 3,838 | 8.1 | % | |||||||||||||||
Total cash distributions | $ | 8,744 | 63.9 | % | $ | 10,164 | 65.9 | % | $ | 27,610 | 64.9 | % | $ | 31,585 | 67.1 | % | |||||||||||
Common stock distributions reinvested in common shares | 4,937 | 36.1 | % | 5,264 | 34.1 | % | 14,933 | 35.1 | % | 15,483 | 32.9 | % | |||||||||||||||
Total distributions | $ | 13,681 | 100.0 | % | $ | 15,428 | 100.0 | % | $ | 42,543 | 100.0 | % | $ | 47,068 | 100.0 | % | |||||||||||
Sources of distributions: | |||||||||||||||||||||||||||
Cash flow from operations (2) | $ | 18,237 | 133.3 | % | $ | 24,477 | 158.7 | % | $ | 53,828 | 126.5 | % | $ | 67,838 | 144.1 | % | |||||||||||
Financial performance metric: | |||||||||||||||||||||||||||
NAREIT-defined FFO (3) | $ | 14,131 | 103.3 | % | $ | 23,251 | 150.7 | % | $ | 51,757 | 121.7 | % | $ | 69,598 | 147.9 | % |
(1) |
(2) | Includes other cash distributions |
(3) | |
For the three months ended September 30, 2021 and 2020, our FFO was $8.5 million, or 51.5% of our total distributions, and $3.9 million, or 27.5% of our total distributions, respectively. For the nine months ended September 30, 2021 and 2020, our FFO was $25.7 million, or 54.2% of our total distributions, and $21.0 million, or 48.5% of our total distributions, respectively. FFO is a non-GAAP operating metric and should not be used as a liquidity measure. However, management believes the relationship between FFO and distributions may be meaningful for investors to better understand the sustainability of our operating performance compared to distributions made. Refer to “Additional Measures of Performance” above for the definition of FFO, as well as a detailed reconciliation of our GAAP net income (loss) to FFO.
Redemptions.Below is a summary of (i) Class E common stockredemptions and repurchases pursuant to our self-tender offers, (ii) repurchases pursuant to our Class E Share Redemption Program (which terminated effectiveshare redemption program for the nine months ended September 1, 2017) (the “Class E SRP”), (iii) repurchases pursuant to our Second Amended30, 2021 and Restated Class A, W and I Share Redemption Program (which terminated effective September 1, 2017) (the “Class AWI SRP”) and (iv) repurchases pursuant to2020. Our board of directors may modify, suspend or terminate our current share redemption program, adopted September 1, 2017 and amended as of October 13, 2017 (the "New SRP"), for each of the last four quarterly periods (number of shares in thousands). Redemption requests accepted in September 2017 pursuantprograms if it deems such action to our New SRP are considered redeemed on October 1, 2017 and are not includedbe in the table below. Please see "Subsequent Events" included in "Item 2. Management's Discussion and Analysis"best interest of this Quarterly Report on Form 10-Q for additional information regarding redemptions paid subsequentour stockholders. Refer to September 30, 2017.
For the Quarter Ended: | Number of Shares Requested for Redemption or Purchase | Number of Shares Redeemed or Purchased | Percentage of Shares Requested for Redemption Redeemed or for Purchase Purchased | Price Paid per Share | |||||||||
December 31, 2016 | |||||||||||||
Class E SRP – Death or Disability Redemptions | 360 | 360 | 100 | % | $ | 7.48 | |||||||
Self-Tender Offer Purchases (1) | 7,697 | 7,697 | 100 | % | 7.44 | ||||||||
Class AWI SRP | 301 | 301 | 100 | % | 7.47 | ||||||||
Total / Average | 8,358 | 8,358 | 100 | % | 7.44 | ||||||||
March 31, 2017 | |||||||||||||
Class E SRP – Death or Disability Redemptions | 249 | 249 | 100 | % | 7.56 | ||||||||
Self-Tender Offer Purchases (1) | 5,685 | 5,685 | 100 | % | 7.51 | ||||||||
Class AWI SRP | 414 | 414 | 100 | % | 7.55 | ||||||||
Total / Average | 6,348 | 6,348 | 100 | % | 7.51 | ||||||||
June 30, 2017 | |||||||||||||
Class E SRP – Death or Disability Redemptions | 315 | 315 | 100 | % | 7.52 | ||||||||
Self-Tender Offer Purchases (1) | 6,071 | 6,071 | 100 | % | 7.49 | ||||||||
Class AWI SRP | 786 | 786 | 100 | % | 7.51 | ||||||||
Total / Average | 7,172 | 7,172 | 100 | % | 7.49 | ||||||||
September 30, 2017 | |||||||||||||
Class E SRP – Death or Disability Redemptions | 387 | 387 | 100 | % | 7.49 | ||||||||
Class AWI SRP | 805 | 805 | 100 | % | 7.48 | ||||||||
Total / Average | 1,192 | 1,192 | 100 | % | 7.48 | ||||||||
Average | 5,768 | 5,768 | 100 | % | $ | 7.48 |
| | | | | | | |
| | For the Nine Months Ended September 30, | |||||
(in thousands, except for per share data) |
| 2021 |
| 2020 | | ||
Number of shares requested for redemption or repurchase | | | 6,601 | | | 11,608 | |
Number of shares redeemed or repurchased |
| | 6,601 |
| | 11,608 | |
% of shares requested that were redeemed or repurchased |
| | 100.0 | % | | 100.0 | % |
Average redemption or repurchase price per share | | $ | 7.59 | | $ | 7.50 | |
For the threenine months ended September 30, 2017. 2021 and 2020, we received and redeemed in full eligible redemption requests for an aggregate amount of approximately $50.1 million and $87.1 million, respectively, which we redeemed using cash flows from operating activities in excess of our distributions paid in cash, cash on hand, proceeds from our public offerings, proceeds from the disposition of properties, and borrowings under our revolving line of credit. We generally repay funds borrowed from our revolving line of credit from a variety of sources including: cash flows from operating activities in excess of our distributions; proceeds from our public offerings; proceeds from the disposition of properties; and other longer-term borrowings.
SUBSEQUENT EVENTS
Purchase of Membership Interests
On October 20, 2021, we acquired a majority interest in an entity that owns a residential property in Tucson, Arizona, which is a student housing property, for a total contractual purchase price of approximately $124.0 million.
Acquisition of Property
Subsequent to September 30, 2017.
Acquisition Under Contract
On November 3, 2021, we entered into a contract to acquire an industrial property located in Houston, Texas with a purchase price of approximately $17.4 million. There can be no assurance that we will complete the acquisition of the property under contract.
Agreement to Sell Property
On October 17, 2017,29, 2021, we disposed ofentered into an agreement to sell a non-strategic officeretail property located in Silicon Valley, CA comprising 143,000 net rentable square feet ("Jay Street"Portsmouth, New Hampshire (“Durgin Square”) to an unrelated third party. We sold Jay Street, which hadparty for a net basisgross sales price of approximately $30.9 million$40.5 million. Our accounting basis (net of accumulated depreciation and amortization) for this real estate property as of September 30, 2017, for a total sales price2021 was approximately $21.7 million. There can be no assurance that we will complete the disposition of $44.9 million. Jay Streetthe property under this agreement.
CONTRACTUAL OBLIGATIONS
A summary of future obligations as of December 31, 2020 was 100% leaseddisclosed in our 2020 Form 10-K. Except as otherwise disclosed in “Note 3 to the Condensed Consolidated Financial Statements” relating to our debt obligations, there were no material changes outside the ordinary course of business.
OFF-BALANCE SHEET ARRANGEMENTS
As of September 30, 2017.
CRITICAL ACCOUNTING ESTIMATES
Our unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conjunction with the rules and regulations of the SEC. The preparation of our unaudited condensed consolidated financial statements requires significant management judgments, assumptions, and estimates about matters that are inherently uncertain. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the condensed 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 reported in our condensed consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. For a retail propertydetailed description of our critical accounting estimates, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Philadelphia, PA comprising 426,000 net rentable square feet ( "Centerton Square") to an unrelated third party. We sold Centerton Square, which had a net basis of approximately $75.8 million asour 2020 Form 10-K. As of September 30, 2017, for a total sales price of $129.6 million. Centerton Square was 100% leased as of September 30, 2017.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to the impact of interest rate changes. Our interest rate risk ismanagement objectives are to limit the adverse effect on the valueimpact of assets and liabilities that results from a change in the applicable market resulting from a variety of factors such as perceived risk, interest rate changes inflationon earnings and cash flows, and optimize overall general economic changes. Accordingly,borrowing costs. To achieve these objectives, we manage our market risk by matching projected cash inflows from operating, investingoften plan to borrow on a fixed interest rate basis for longer-term debt and financing activities with projected cash outflows forutilize interest rate swap agreements on certain variable interest rate debt service, acquisitions, capital expenditures, distributionsin order to stockholders and unit holders, and other cash requirements. Our outstanding borrowings are directly impacted bylimit the effects of changes in market conditions. This impact is largely mitigated by the fact that the majority of our outstanding borrowings have fixed interest rates which minimizeon our exposure to the risk that fluctuating interest rates may pose to our operating results and liquidity.
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Fixed Interest Rate Debt. As of September 30, 2021, our fixed interest rate debt consisted of $150.3 million under our mortgage notes and $500.0 million of borrowings under our term loans that were effectively fixed through the use of interest rate swaps. In total, our fixed interest rate debt represented 70.6% of our total consolidated debt as of September 30, 2021. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed interest rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed-rate borrowings was $130.6 millionfixed interest rate debt. As of September 30, 2021, the fair value and the carrying value of our fixed-rate borrowingsfixed interest rate debt, excluding the values of any associated hedges, was $128.3 million.$652.7 million and $650.3 million, respectively. The fair value estimate of our fixed-rate borrowingsthis debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated as ofon September 30, 2017. As2021. Given we generally expect to hold our fixed-rate borrowingsfixed interest rate debt instruments to maturity or when they otherwise open up for prepayment at par, and the amounts due under such debt instruments wouldshould be limited to the outstanding principal balance and any accrued and unpaid interest at such time, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed-rate borrowings,fixed interest rate debt instruments due to market fluctuations in interest rates, would have a significant impact on our operations.
Variable Interest Rate Debt.As of September 30, 2017, we had approximately $680.12021, our consolidated variable interest rate debt consisted of $85.0 million of unhedged floating-rate borrowings under our line of credit, $25.0 million of borrowings under our term loans and $161.0 million under our mortgage notes, which represented 29.4% of our total consolidated debt. Interest rate changes on the variable portion of our variable-rate debt could impact our future earnings and cash flows, but would not necessarily affect the fair value of such debt. As of September 30, 2021, we were exposed to market risks related to fluctuations in interest rates on $271.0 million of consolidated borrowings. A hypothetical 25 basis points increase in the all-in rate on the outstanding indexed to LIBOR rates. If the LIBOR rates relevant tobalance of our remaining variable rate borrowings were to increase 10%, we estimate that our quarterly interest expense would increase by approximately $210,000 based on our outstanding floating-raterate debt as of September 30, 2017.
Derivative Instruments. As of September 30, 2021, we had 14 outstanding derivative instruments with a total notional amount of $627.0 million. These derivative instruments were comprised of interest rate changes on earningsswaps and cash flows and to lower our overall borrowing costs by selectively utilizing derivative instruments to hedge exposures to changes in interest rates on loans secured by our assets. We 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 iscaps that were designed to minimizemitigate the impactrisk of future interest rate increases by either providing a fixed interest rate or capping the variable interest rate for a limited, pre-determined period of time. See “Note 3 to the Condensed Consolidated Financial Statements” for further detail on our net income (loss)derivative instruments. We are exposed to credit risk of the counterparty to our interest rate cap and funds from operations from changes in interest rates, the overall returns on our investments may be reduced. Our board of directors has established policies and procedures regarding our use of derivative instruments for hedging or other purposes. During the nine months ended September 30, 2017, we recorded an increase in our net asset value of approximately $932,000 as a result of changesswap agreements in the valueevent of our derivatives. Changesnon-performance under the terms of the agreements. If we were not able to replace these caps or swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate yield curve directly impacton the valueamount outstanding under our debt that is fixed or capped through the use of our derivatives and, as capital market expectations of future interest rates have declined, so have the value of our derivatives.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the direction of the end of the period covered by this report, management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures.procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2021. Based upon theon this evaluation, our Chief Executive Officerprincipal executive officer and Chief Financial Officerprincipal financial officer have concluded that, theas of September 30, 2021, our disclosure controls and procedures were effective as of the end of the period covered by this report to ensure that information required to be disclosed in the reports we file and submit under the Exchange Act, is recorded, processed, summarized and reported as and when required. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file and submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
There have not been noany changes in our internal control over financial reporting that occurred(as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our last fiscal quarterthe three months ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1A. RISK FACTORS
In addition to the heading "Risk Factors"other information set forth in Post-Effective Amendment No. 10 to our Registration Statement on Form S-11 (File No. 333-197767), filed with the Commission on September 1, 2017 and available at www.sec.gov, are incorporated herein by reference and updatethis report, you should carefully consider the risk factors under the same headingdiscussed in Part I, Item 1A, “Risk Factors” of our 2020 Form 10-K, as supplemented by our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, which could materially affect our business, financial condition, and/or future results. The risks described in our Annual Report2020 Form 10-K, as supplemented by our Quarterly Reports on Form 10-K. These new risk factors10-Q and Current Reports on Form 8-K, are equally applicablenot the only risks facing us. Additional risks and uncertainties not currently known to allus or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.
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There have been satisfied beginning with the fourth quarter of 2016, in the future we could experience situations like that described above in which redemption demand exceeds capacity. Our current share redemption program has different limitations than our share redemption program did during that time, but it remains true that our ability to redeem your shares may be limited, and our board of directors may modify, suspend or terminate our share redemption program at any time. Furthermore, we may redeem fewer shares than have been requested in any particular month to be redeemed under our share redemption program, or none at all, in our discretion at any time. If a redemption request under our share redemption program is unsatisfied, it must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share redemption program, as applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Share Redemption Program and Other Redemptions or Repurchases
While stockholders may request on a monthly basis that we redeem all or any portion of their shares; however,shares pursuant to our share redemption program, we are not obligated to redeem any shares and may choose to redeem only some, or even none, of the shares that have been requested to be redeemed in any particular month, in our discretion. Additionally,In addition, our boardability to fulfill redemption requests is subject to a number of directorslimitations. As a result, share redemptions may not be available each month. Under our share redemption program, to the extent we choose to redeem shares in any particular month, we will only redeem shares as of the last calendar day of that month (each such date, a “Redemption Date”). Shares redeemed on the Redemption Date remain outstanding on the Redemption Date and are no longer outstanding on the day following the Redemption Date. Redemptions will be made at the transaction price in effect on the Redemption Date, except that shares that have not been outstanding for at least one year will be redeemed at 95% of the transaction price (an “Early Redemption Deduction”). The Early Redemption Deduction may be waived in certain circumstances including: (i) in the case of redemption requests arising from the death or qualified disability of the holder; (ii) in the event that a stockholder’s shares are redeemed because the stockholder has failed to maintain the right$2,000 minimum account balance or (iii) with respect to modify, suspendshares purchased through our distribution reinvestment plan. To have his or terminateher shares redeemed, a stockholder’s redemption request and required documentation must be received in good order by 4:00 p.m. (Eastern time) on the New SRP if it deems such actionsecond to last business day of the applicable month. Settlements of share redemptions will be in our best interest andmade within three business days of the best interestRedemption Date. An investor may withdraw its redemption request by notifying the transfer agent before 4:00 p.m. (Eastern time) on the last business day of our stockholders.
The total amount of aggregate redemptions of Class E, Class T, Class S, Class D, Class I and Class IE shares (based on the price at which the shares are redeemed) will be limited during each calendar month to 2% of the aggregate NAV of all classes as of the last calendar day of the previous quarter and in each calendar quarter will be limited to 5% of the aggregate NAV of all classes of shares as of the last calendar day of the previous calendar quarter; provided, however, that every month and quarter each class of our common stock will be allocated capacity within such aggregate limit to allow stockholders in such class to either (a) redeem shares (based on the price at which the shares are redeemed) equal to at least 2% of the aggregate NAV of such share class as of the last calendar day of the previous quarter, or, if more limiting, (b) redeem shares (based on the price at which the shares are redeemed) over the course of a given quarter equal to at least 5% of the aggregate NAV of such share class as of the last calendar day of the previous quarter (collectively referred to herein as the “2% and 5% limits”), which in the second and third months of a quarter could be less than 2% of the NAV of such share class. In the event that we determine to redeem some but not all of the shares submitted for redemption during any month, shares redeemed at the end of the month will be redeemed on a pro rata basis. Even if the class-specific allocations are exceeded for a class, the program may offer such class additional capacity under the aggregate program limits. Redemptions and pro rata treatment, if necessary, will first be applied within the class-specific limitsallocated capacity and then applied on an aggregate basis in a second step.to the extent there is remaining capacity. All unsatisfied redemption requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the New SRP,share redemption program, as applicable.
For both the aggregate and class-specific allocations described above, (i) provided that the New SRPshare redemption program has been operating and not suspended for the first month of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for that month will carry over to the second month and (ii) provided that the New SRPshare redemption program has been operating and not suspended for the first two months of a given quarter and that all properly submitted redemption requests were satisfied, any unused capacity for those two months will carry over to the third month. In no event will such carry-over capacity permit the redemption of shares with aggregate value (based on the redemption price per share for the month the redemption is effected) in excess of 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter (provided that for these purposes redemptions may be measured on a net basis as described in the paragraph below).
We currently measure the foregoing redemption allocations and limitations based on net redemptions during a month or quarter, as applicable. The term “net redemptions” means, during the applicable period, the excess of our share redemptions (capital outflows) over the proceeds from the sale of our shares (capital inflows). Net redemptions for the class-specific allocations will be based only on the capital inflows and outflows of that class, while net redemptions for the overall program limits would be based on capital inflows and outflows of all classes. Thus, for any given calendar quarter, the maximum amount of redemptions during that quarter will be equal to (1)(i) 5% of the combined NAV of all classes of shares as of the last calendar day of the previous calendar quarter, plus (2)(ii) proceeds from sales of new shares in our ongoing public offeringsthis offering (including purchases pursuant to our distribution reinvestment plan) and the Class E distribution reinvestment plan offering since the beginning of the current calendar quarter. The
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given month, except that redemptions in a month would be subject to the 2% limit described above (subject to potential carry-over capacity), and netting would be measured on a monthly basis. With respect to future periods, our board of directors may choose whether the allocations and limitations will be applied to “gross redemptions,” i.e., without netting against capital inflows, rather than to net redemptions.
Although the vast majority of our assets consist of properties that cannot generally be readily liquidated on short notice without impacting our ability to realize full value upon their disposition, we intend to maintain a number of sources of liquidity including (i) cash equivalents (e.g. money market funds), other short-term investments, U.S. government securities, agency securities and liquid real estate-related securities and (ii) one or more borrowing facilities. We may fund redemptions from any available source of funds, including operating cash flows, borrowings, proceeds from this offering and/or sales of our assets.
Should redemption requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the company as a whole, or should we otherwise determine that investing our liquid assets in real properties or other illiquid investments rather than redeeming our shares is in the best interests of the company as a whole, then we may choose to redeem fewer shares than have been requested to be redeemed, or none at all. Further, our board of directors may modify, suspend or terminate our share redemption program if it deems such action to be in our best interest and the best interest of our stockholders. If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no redemption requests will be accepted for such month and stockholders who wish to have their shares redeemed the following month must resubmit their redemption requests. The above description of the share redemption program is a summary of certain of the terms of the share redemption program. Please see the full text of the share redemption program, which is incorporated by reference as Exhibit 4.2 to this Quarterly Report on Form 10-Q, for all the terms and conditions.
The table below summarizes the redemption activity for the three months ended September 30, 2017, we2021, for which all eligible redemption requests were redeemed (i) approximately 1.2 million shares of common stock pursuant to the Class E SRP and the Class AWI SRP for approximately $8.9 million, as described further in the table below (number of shares in thousands, except footnoted information).
| | | | | | | | | |
|
| |
| | |
| Total Number of Shares |
| Maximum Number of |
| | | | | | | Redeemed as Part of | | Shares That May Yet Be |
| | Total Number of | | Average Price | | Publicly Announced | | Redeemed Pursuant | |
(shares in thousands) | | Shares Redeemed | | Paid Per Share (1) | | Plans or Programs (2) | | to the Program (3) | |
For the Month Ended: |
|
|
| |
|
|
|
|
|
July 31, 2021 |
| 502 | | $ | 7.63 |
| 423 | | — |
August 31, 2021 |
| 648 | |
| 7.65 |
| 648 |
| — |
September 30, 2021 (4) |
| 775 | |
| 7.69 |
| 775 |
| — |
Total |
| 1,925 | | $ | 7.66 |
| 1,846 |
| — |
Total Number of Shares Redeemed or Repurchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Pursuant to the Program (1) | ||||||||||
July 1 - July 30, 2017 | 242 | $ | 7.50 | 242 | — | ||||||||
August 1 - August 31, 2017 | 950 | 7.48 | 950 | — | |||||||||
September 1 - September 30, 2017 (2) | — | — | — | — | |||||||||
Total | 1,192 | $ | 7.48 | 1,192 | — |
(1) |
(2) | In July 2021, 78,881 shares were redeemed for an average price per share of $7.66 pursuant to privately negotiated transactions. |
(3) | We limit the number of shares that may be redeemed under the share redemption program as described above. |
(4) | Redemption requests accepted in September |
ITEM 5. OTHER INFORMATION
Disclosure Pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act
Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act, require an issuer to disclose in its annual and quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran. We are required to include certain disclosures in our periodic reports if we or any of our “affiliates” (as defined in Rule 12b-2 under the Exchange Act) knowingly engaged in certain specified activities, transactions or dealings relating to Iran or with certain individuals or entities targeted by United States’ economic sanctions during the period covered by the report. Disclosure is generally required even where the activities, transactions or dealings were conducted in compliance with applicable law. Neither we nor any of our controlled affiliates or subsidiaries knowingly engaged in any of the specified activities relating to Iran or
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otherwise engaged in any activities associated with Iran during the reporting period. However, because the SEC defines the term “affiliate” broadly, it includes any person or entity that is under common control with us as well as any entity that controls us or is controlled by us. The description that follows has been provided to us by Ares.
On January 31, 2019, funds and accounts managed by Ares’ European direct lending strategy (together, the “Ares funds”) collectively acquired a 32% equity stake in Daisy Group Limited (“Daisy”). Daisy is a provider of communication services to businesses based in the United Kingdom. The Ares funds do not hold a majority equity interest in Daisy and do not have the right to appoint a majority of directors to Daisy’s board of directors.
Subsequent to completion of the Ares funds’ investment in Daisy, in connection with Ares’ routine quarterly survey of its investment funds’ portfolio companies, Daisy informed the Ares funds that it has customer contracts with Melli Bank Plc, Persia International Bank Plc and Bank Saderat PLC. Melli Bank Plc, Persia International Bank Plc and Bank Saderat PLC have been designated by the Office of Foreign Assets Control within the U.S. Department of Treasury pursuant to Executive Order 13324. Daisy generated a total of £84,806 in annual revenues (less than 0.02% of Daisy’s annual revenues) from its dealings with Melli Bank Plc, Persia International Bank Plc and Bank Saderat PLC and de minimis net profits. Daisy entered into the customer contracts with Melli Bank Plc, Persia International Bank Plc and Bank Saderat PLC prior to the Ares funds’ investment in Daisy.
Daisy has given notice of termination of the contracts to Melli Bank Plc, Persia International Bank Plc and Bank Saderat PLC. Following termination of the contracts, Daisy does not intend to engage in any further dealings or transactions with Melli Bank Plc, Persia International Bank Plc or Bank Saderat PLC.
Distribution Reinvestment Plan Suitability Requirements
Pursuant to the terms of our distribution reinvestment plan (“DRP”), participants in the DRP must promptly notify us if at any time they fail to meet the current suitability requirements for making an investment in us.
The current suitability standards require that Class E stockholders participating in the DRP other than investors in Arizona, California, Ohio and Oregon have either:
● | a net worth (exclusive of home, home furnishings and automobiles) of $150,000 or more; or |
● | a net worth (exclusive of home, home furnishings and automobiles) of at least $45,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $45,000 annual gross income. |
The current suitability standards require that Class E stockholders participating in the DRP in Arizona, California, Ohio and Oregon must have either:
● | a net worth (exclusive of home, home furnishings and automobiles) of $250,000 or more; or |
● | a net worth (exclusive of home, home furnishings and automobiles) of at least $70,000 and had during the last tax year, or estimate that such investor will have during the current tax year, a minimum of $70,000 annual gross income. |
In addition, Class E stockholders participating in the DRP in Ohio and Oregon must have a net worth of at least 10 times their investment in us and any of our affiliates.
Stockholders can notify us of any changes to their ability to meet the suitability requirements or change their DRP election by contacting us at Black Creek Diversified Property Fund Inc., Investor Relations, 518 17th Street, Suite 1700, Denver, Colorado 80202, Telephone: (303) 228-2200.
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ITEM 6.
EXHIBITS
Exhibit | Description | |||
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| | | ||
3.1 | ||||
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3.2 | | |||
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3.3 | | |||
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3.4 | | |||
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3.5 | | |||
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3.6 | | |||
| | | ||
3.7 | | |||
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3.8 | | |||
| | | ||
3.9 | | |||
| | | ||
3.10 | | |||
| | | ||
3.11 | | |||
| | | ||
4.1 | | |||
| | | ||
4.2 | | |||
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4.3 | ||||
| ||||
| | |
4.4 | | |
| | |
4.5 | | |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
31.1* | | |
| | |
31.2* | |
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Exhibit | Description | |
---|---|---|
| | |
| | |
32.1* | | |
| | |
99.1* | | |
| | |
101 | | The following materials from Black Creek Diversified Property Fund Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, filed on November 10, 2021, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) Condensed Consolidated Statements of Equity, (v) Condensed Consolidated Statements of Cash Flows, and (vi) Notes to the Condensed Consolidated Financial Statements. |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
* | Filed or furnished herewith. |
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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.
| | |
| ||
| BLACK CREEK DIVERSIFIED PROPERTY FUND INC. | |
| | |
November | By: | /s/ |
| | Jeffrey W. Taylor |
| | |
November 10, 2021 | By: | /s/ LAINIE P. MINNICK |
| | Lainie P. Minnick Managing Director, Chief Financial Officer and Treasurer |
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