Filed Pursuant to Rule 253(g)(2)
File No. 024-11255
FUNDRISE EQUITY REIT, LLC
SUPPLEMENT NO. 6 DATED OCTOBER 7, 2021
TO THE OFFERING CIRCULAR DATED AUGUST 12, 2021
This document supplements, and should be read in conjunction with, the offering circular of Fundrise Equity REIT, LLC (“we”, “our” or “us”), dated August 12, 2021, as previously supplemented, and filed by us with the Securities and Exchange Commission (the “Commission”) (collectively, the “Offering Circular”). Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the Offering Circular.
The purpose of this supplement is to:
| · | Disclose as an appendix the information contained in the Company’s Semi-Annual Report on Form 1-SA for the Semiannual Period ended June 30, 2021. |
The following information is included as an appendix to the Offering Circular:
TABLE OF CONTENTS
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | 3 |
| Other Information | 13 |
| Index to the Unaudited Consolidated Financial Statements of Fundrise Equity REIT, LLC | 14 |
2
| Item 1. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto contained in this Semiannual Report on Form 1-SA (“Semiannual Report”). The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the Statements Regarding Forward Looking Information contained in our latest offering circular as of the date of this Semiannual Report (the “Offering Circular”) qualified by the Securities and Exchange Commission (“SEC”) as of June 30, 2021, which may be accessed here. Unless otherwise indicated, the latest results discussed below are as of June 30, 2021. The financial statements included in this filing as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 are unaudited and have not been reviewed, and may not include year-end adjustments necessary to make those financial statements comparable to audited results, although in the opinion of management all necessary adjustments have been included to make interim statements of operations not misleading.
Business
Fundrise Equity REIT, LLC is a Delaware limited liability company formed on June 30, 2015 to originate, invest in and manage a diversified portfolio of commercial real estate properties. Operations commenced February 27, 2016. We may also invest, to a limited extent, in commercial real estate loans, as well as commercial real estate debt securities and other select real estate-related assets. We may make our investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. The Company has one reportable segment consisting of investments in real estate. The use of the terms “Fundrise Equity REIT”, the “Company”, “we”, “us” or “our” in this Semiannual Report refer to Fundrise Equity REIT, LLC unless the context indicates otherwise.
As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2016, the Company operates in a manner intended to qualify for treatment as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended.
We are externally managed by Fundrise Advisors, LLC (our “Manager”), which is an investment adviser registered with the SEC, and a wholly-owned subsidiary of Rise Companies Corp. (our “Sponsor”), the parent company of Fundrise, LLC, our affiliate. Fundrise, LLC owns and operates the online investment platform located at www.fundrise.com (the “Fundrise Platform”), which allows investors to hold interests in real estate opportunities that may have been historically difficult to access for some investors. Our Manager has the authority to make all of the decisions regarding our investments, subject to the limitations in our operating agreement and the direction and oversight of our Manager’s investment committee. Our Sponsor also provides asset management, marketing, investor relations and other administrative services on our behalf. Accordingly, we do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us.
Risk Factors
We face risks and uncertainties that could affect us and our business as well as the real estate industry generally. These risks are outlined under the heading “Risk Factors” contained in our Offering Circular, which may be accessed here, as the same may be updated from time to time by our future filings under Regulation A (“Regulation A”) of the Securities Act of 1933, as amended (the “Securities Act”). In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. These risks could result in a decrease in the value of our common shares.
Offering Results
As of June 30, 2021, we were offering up to $50.0 million in our common shares during the rolling twelve-month period under Regulation A (the “Offering”). Effective March 15, 2021, the SEC adopted an amendment to increase the maximum offering amount under Tier 2 of Regulation A from $50.0 million to $75.0 million. The Company is currently utilizing this increased offering amount in its current Offering. The Offering is being conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A, meaning that while the offering of securities is continuous, active sales of securities may occur sporadically over the term of the Offering. As of June 30, 2021 and December 31, 2020, we have raised total gross offering proceeds of approximately $180.3 million and $165.5 million, respectively, from settled subscriptions (including the $200,000 received in the private placements to our Sponsor, and Fundrise, L.P., an affiliate of our Sponsor, and the approximately $2.0 million and $356,000, respectively, received in private placements to third parties), and had settled subscriptions in our Offering and private placements for an aggregate of approximately 16,032,000 and 14,984,000, respectively, of our common shares. Most recently, the Company qualified approximately $28.0 million of additional common shares for sale pursuant to Regulation A on August 12, 2021. Refer to “Recent Developments” for further information.
3
We expect to offer common shares in our Offering until we raise the maximum amount permitted based on the maximum number of common shares we are able to qualify under Regulation A at any given time, unless terminated by our Manager at an earlier time. Until September 30, 2016, the per share purchase price for our common shares was $10.00, an amount that was arbitrarily determined by our Manager. Thereafter, the per share purchase price for our common shares is subject to adjustment every fiscal quarter and, as of January 1st, April 1st, July 1st and October 1st of each year (or as soon as commercially reasonable and announced by us thereafter), will equal the greater of (i) $10.00 per share or (ii) the sum of our net asset value (“NAV”), divided by the number of our common shares outstanding as of the end of the prior fiscal quarter (“NAV per share”).
Below is the NAV per share, as determined in accordance with our valuation policy. Linked in the table is the relevant Form 1-U detailing each NAV evaluation method, incorporated by reference herein.
| Date | NAV Per Share | Link | ||||||||
| September 30, 2016 | $ | 9.55 | Form 1-U | |||||||
| December 31, 2016 | $ | 9.60 | Form 1-U | |||||||
| March 31, 2017 | $ | 9.82 | Form 1-U | |||||||
| June 30, 2017 | $ | 10.25 | Form 1-U | |||||||
| September 30, 2017 | $ | 10.45 | Form 1-U | |||||||
| December 31, 2017 | $ | 10.46 | Form 1-U | |||||||
| March 31, 2018 | $ | 10.71 | Form 1-U | |||||||
| June 30, 2018 | $ | 11.03 | Form 1-U | |||||||
| September 30, 2018 | $ | 11.23 | Form 1-U | |||||||
| December 31, 2018 | $ | 11.30 | Form 1-U | |||||||
| March 31, 2019 | $ | 11.44 | Form 1-U | |||||||
| June 30, 2019 | $ | 11.55 | Form 1-U | |||||||
| October 1, 2019 | $ | 11.75 | Form 1-U | |||||||
| December 31, 2019 | $ | 12.91 | Form 1-U | |||||||
| March 31, 2020 | $ | 12.94 | Form 1-U | |||||||
| June 30, 2020 | $ | 13.00 | Form 1-U | |||||||
| September 30, 2020 | $ | 13.41 | Form 1-U | |||||||
| December 31, 2020 | $ | 14.08 | Form 1-U | |||||||
| March 31, 2021 | $ | 14.30 | Form 1-U | |||||||
| June 30, 2021 | $ | 14.90 | Form 1-U | |||||||
Distributions
To qualify as a REIT, and maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our shareholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain), and to avoid federal income and excise taxes on retained taxable income and gains we must distribute 100% of such income and gains annually. Our Manager may authorize distributions in excess of those required for us to maintain REIT status and/or avoid such taxes on retained taxable income and gains depending on our financial condition and such other factors as our Manager deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare distributions based on daily record dates and pay distributions on a quarterly or other periodic basis. We have not established a minimum distribution level.
While we are under no obligation to do so, we have in the past and expect in the future to declare and pay distributions quarterly in arrears; however, our Manager may declare other periodic distributions as circumstances dictate. In order that investors may generally begin receiving distributions immediately upon our acceptance of their subscription, we expect to authorize and declare distributions based on daily record dates. However, there may also be times when our Manager elects to reduce our rate of distributions in order to preserve or build up a higher level of liquidity at the Company level. For example, in response to the global outbreak of a new strain of coronavirus (“COVID-19”), the Manager determined to delay or reduce distributions from March 31, 2020 through June 30, 2020 in order to preserve liquidity at the Company level. The Manager does not expect any such trend to continue long-term, as, among other things, as a REIT, we are required to distribute at least 90% of our REIT taxable income annually.
On July 13, 2016, we paid our first distribution to shareholders for the distribution period of April 1, 2016 through June 30, 2016. In addition, our Manager has declared daily distributions for shareholders of record as of the close of business on each day for the periods as shown in the table below:
4
| Distribution Period | Daily Distribution Amount/Common Share | Date of Declaration |
Payment Date (1) |
Annualized | Link | ||||||||||
| 04/01/2016 – 04/30/2016 | $ | 0.0021917808 | 03/31/2016 | 07/13/2016 | 8.00 | % | Form 1-U | ||||||||
| 05/01/2016 – 06/30/2016 | $ | 0.0021917808 | 04/20/2016 | 07/13/2016 | 8.00 | % | Form 1-U | ||||||||
| 07/01/2016 – 09/30/2016 | $ | 0.0021917808 | 06/08/2016 | 10/13/2016 | 8.00 | % | Form 1-U | ||||||||
| 10/01/2016 – 10/31/2016 | $ | 0.0021917808 | 09/30/2016 | 01/12/2017 | 8.00 | % | Form 1-U | ||||||||
| 11/01/2016 – 12/31/2016 | $ | 0.0000000000 | N/A | N/A | 0.00 | % | N/A | ||||||||
| 01/01/2017 – 03/31/2017 | $ | 0.0013698630 | 12/31/2016 | 04/21/2017 | 8.00 | %(3) | Form 1-U | ||||||||
| 02/09/2017 – 03/31/2017 | $ | 0.0014504432 | 02/09/2017 | 04/21/2017 | 8.00 | %(3) | Form 1-U | ||||||||
| 04/01/2017 – 06/30/2017 | $ | 0.0021917808 | 03/21/2017 | 07/21/2017 | 8.00 | % | Form 1-U | ||||||||
| 07/01/2017 – 09/30/2017 | $ | 0.0021917808 | 06/26/2017 | 10/10/2017 | 8.00 | % | Form 1-U | ||||||||
| 10/01/2017 – 12/31/2017 | $ | 0.0022465753 | 09/28/2017 | 01/10/2018 | 8.20 | % | Form 1-U | ||||||||
| 01/01/2018 – 01/31/2018 | $ | 0.0016438360 | 12/22/2017 | 04/11/2018 | 6.00 | % | Form 1-U | ||||||||
| 02/01/2018 – 02/28/2018 | $ | 0.0016438356 | 01/26/2018 | 04/11/2018 | 6.00 | % | Form 1-U | ||||||||
| 03/01/2018 – 03/31/2018 | $ | 0.0016438356 | 02/27/2018 | 04/11/2018 | 6.00 | % | Form 1-U | ||||||||
| 04/01/2018 – 04/30/2018 | $ | 0.0016438356 | 03/28/2018 | 07/09/2018 | 6.00 | % | Form 1-U | ||||||||
| 05/01/2018 – 05/31/2018 | $ | 0.0016438356 | 04/30/2018 | 07/09/2018 | 6.00 | % | Form 1-U | ||||||||
| 06/01/2018 – 06/30/2018 | $ | 0.0016438356 | 05/29/2018 | 07/09/2018 | 6.00 | % | Form 1-U | ||||||||
| 07/01/2018 – 07/31/2018 | $ | 0.0016438356 | 06/28/2018 | 10/08/2018 | 6.00 | % | Form 1-U | ||||||||
| 08/01/2018 – 08/31/2018 | $ | 0.0016438356 | 07/27/2018 | 10/08/2018 | 6.00 | % | Form 1-U | ||||||||
| 09/01/2018 – 09/30/2018 | $ | 0.0019178082 | 08/24/2018 | 10/08/2018 | 7.00 | % | Form 1-U | ||||||||
| 10/01/2018 – 10/31/2018 | $ | 0.0019178082 | 09/26/2018 | 01/07/2019 | 7.00 | % | Form 1-U | ||||||||
| 11/01/2018 – 11/30/2018 | $ | 0.0019178082 | 10/29/2018 | 01/07/2019 | 7.00 | % | Form 1-U | ||||||||
| 12/01/2018 – 12/31/2018 | $ | 0.0019178082 | 11/29/2018 | 01/07/2019 | 7.00 | % | Form 1-U | ||||||||
| 01/01/2019 – 01/31/2019 | $ | 0.0019178082 | 12/27/2018 | 04/10/2019 | 7.00 | % | Form 1-U | ||||||||
| 02/01/2019 – 02/28/2019 | $ | 0.0017808219 | 01/30/2019 | 04/10/2019 | 6.50 | % | Form 1-U | ||||||||
| 03/01/2019 – 03/31/2019 | $ | 0.0013698630 | 02/28/2019 | 04/10/2019 | 5.00 | % | Form 1-U | ||||||||
| 04/01/2019 – 04/30/2019 | $ | 0.0016438356 | 03/28/2019 | 07/11/2019 | 6.00 | % | Form 1-U | ||||||||
| 05/01/2019 – 05/31/2019 | $ | 0.0015068493 | 04/30/2019 | 07/11/2019 | 5.50 | % | Form 1-U | ||||||||
| 06/01/2019 – 06/30/2019 | $ | 0.0013698630 | 05/30/2019 | 07/11/2019 | 5.00 | % | Form 1-U | ||||||||
| 07/01/2019 – 07/31/2019 | $ | 0.0016438356 | 06/28/2019 | 10/09/2019 | 6.00 | % | Form 1-U | ||||||||
| 08/01/2019 – 08/31/2019 | $ | 0.0015068493 | 07/30/2019 | 10/09/2019 | 5.50 | % | Form 1-U | ||||||||
| 09/01/2019 – 10/01/2019 | $ | 0.0015068493 | 08/29/2019 | 10/09/2019 | 5.50 | % | Form 1-U | ||||||||
| 10/02/2019 – 10/31/2019 | $ | 0.0012328767 | 10/01/2019 | 01/13/2020 | 4.50 | % | Form 1-U | ||||||||
| 11/01/2019 – 11/30/2019 | $ | 0.0013698630 | 10/31/2019 | 01/13/2020 | 5.00 | % | Form 1-U | ||||||||
| 12/01/2019 – 12/31/2019 | $ | 0.0019178082 | 11/26/2019 | 01/13/2020 | 7.00 | % | Form 1-U | ||||||||
| 01/01/2020 – 01/31/2020 | $ | 0.0015068493 | 12/23/2019 | 04/09/2020 | 5.50 | % | Form 1-U | ||||||||
| 02/01/2020 – 02/29/2020 | $ | 0.0015068493 | 01/29/2020 | 04/09/2020 | 5.50 | % | Form 1-U | ||||||||
| 03/01/2020 – 03/31/2020 | $ | 0.0016438356 | 02/26/2020 | 04/09/2020 | 6.00 | % | Form 1-U | ||||||||
| 04/01/2020 – 04/30/2020 | $ | 0.0006849315 | 03/30/2020 | 07/09/2020 | 2.50 | % | Form 1-U | ||||||||
| 05/01/2020 – 05/31/2020 | $ | 0.0000000000 | N/A | N/A | 0.00 | % | N/A | ||||||||
| 06/01/2020 – 06/30/2020 | $ | 0.0000000000 | N/A | N/A | 0.00 | % | N/A | ||||||||
| 07/01/2020 – 07/31/2020 | $ | 0.0006849315 | 06/29/2020 | 10/08/2020 | 2.50 | % | Form 1-U | ||||||||
| 08/01/2020 – 08/31/2020 | $ | 0.0012328767 | 07/30/2020 | 10/08/2020 | 4.50 | % | Form 1-U | ||||||||
| 09/01/2020 – 10/01/2020 | $ | 0.0012328767 | 08/28/2020 | 10/08/2020 | 4.50 | % | Form 1-U | ||||||||
| 10/02/2020 – 10/31/2020 | $ | 0.0012328767 | 10/01/2020 | 01/12/2021 | 4.50 | % | Form 1-U | ||||||||
| 11/01/2020 – 11/30/2020 | $ | 0.0012328767 | 10/29/2020 | 01/12/2021 | 4.50 | % | Form 1-U | ||||||||
| 12/01/2020 – 12/31/2020 | $ | 0.0012328767 | 11/25/2020 | 01/12/2021 | 4.50 | % | Form 1-U | ||||||||
| 01/01/2021 – 01/31/2021 | $ | 0.0006849315 | 12/29/2020 | 04/13/2021 | 2.50 | % | Form 1-U | ||||||||
| 02/01/2021 – 02/28/2021 | $ | 0.0009589041 | 01/28/2021 | 04/13/2021 | 3.50 | % | Form 1-U | ||||||||
| 03/01/2021 – 03/31/2021 | $ | 0.0007534247 | 02/25/2021 | 04/13/2021 | 2.75 | % | Form 1-U | ||||||||
| 04/01/2021 – 04/30/2021 | $ | 0.0010958904 | 03/30/2021 | 07/13/2021 | 4.00 | % | Form 1-U | ||||||||
| 05/01/2021 – 05/31/2021 | $ | 0.0012328767 | 04/29/2021 | 07/13/2021 | 4.50 | % | Form 1-U | ||||||||
| 06/01/2021 – 06/30/2021 | $ | 0.0013698630 | 05/28/2021 | 07/13/2021 | 5.00 | % | Form 1-U | ||||||||
| 07/01/2021 – 07/31/2021 | $ | 0.0010958904 | 06/29/2021 | 10/21/2021 | 4.00 | % | Form 1-U | ||||||||
| 08/01/2021 – 08/31/2021 | $ | 0.0012328767 | 07/28/2021 | 10/21/2021 | 4.50 | % | Form 1-U | ||||||||
| 09/01/2021 – 10/01/2021 | $ | 0.0012328767 | 08/27/2021 | 10/21/2021 | 4.50 | % | Form 1-U | ||||||||
| Weighted Average | $ | 0.0015294963 | (4) | 5.58 | %(5) | ||||||||||
5
| (1) | Dates presented are the dates on which the distributions were, or are, scheduled to be distributed; actual distribution dates may vary. |
| (2) | Annualized yield numbers represent the annualized yield amount of each distribution calculated on an annualized basis at the then current rate, assuming a $10.00 per share purchase price. While the Manager is under no obligation to do so, each annualized basis return assumes that the Manager would declare distributions in the future similar to the distributions for each period presented, and there can be no assurance that the Manager will declare such distributions in the future or, if declared, that such distributions would be of a similar amount. | |
| (3) | When taken together, the daily distribution amounts declared and/or paid for the period 01/01/2017 through 03/31/2017 (the “Q1 2017 Distribution Period”), and the additional daily distribution amount for the period 02/09/2017 through 03/31/2017 (the “Additional Q1 2017 Distribution Period”), equate to approximately 8.00% on an annualized basis calculated at the current rate, assuming a $10.00 per share purchase price, for shareholders of record who held our common shares throughout the entirety of both the Q1 2017 Distribution Period and the Additional Q1 2017 Distribution Period. While our Manager is under no obligation to do so, the annualized basis return assumes that our Manager will declare distributions in the future similar to the distributions disclosed herein. | |
| (4) | Weighted average daily distribution amount per common share is calculated as the average of the daily declared distribution amounts from April 1, 2016 through October 1, 2021. | |
| (5) | Weighted average annualized yield is calculated as the annualized yield of the average daily distribution amount for the periods presented, using a $10.00 per share purchase price. |
Any distributions that we make directly impacts our NAV by reducing the amount of our assets. Our goal is to provide a reasonably predictable and stable level of current income, through quarterly or other periodic distributions, while at the same time maintaining a fair level of consistency in our NAV. Over the course of a shareholder’s investment, the shareholder’s distributions plus the change in NAV per share (either positive or negative) will produce the shareholder’s total return.
Our distributions will generally constitute a return of capital to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a shareholder’s adjusted tax basis in the shareholder’s shares, and to the extent that it exceeds the shareholder’s adjusted tax basis will be treated as gain resulting from a sale or exchange of such shares.
Redemption Plan
Although we do not intend to list our common shares for trading on a stock exchange or other trading market, we have adopted a redemption plan designed to provide our shareholders with limited liquidity for their investment in our shares. The Company’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a shareholder could obtain liquidity as described in detail in our Offering Circular. Our Manager may in its sole discretion, amend, suspend, or terminate the redemption plan at any time, including to protect our operations and our non-redeemed shareholders, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason.
Effective as of March 31, 2020, our Manager determined to (i) suspend the processing and payment of redemptions under our redemption plan until further notice, and (ii) delay the consideration and processing of all outstanding redemption requests until further notice. We resumed the processing and payment of redemptions under our redemption plan as of June 30, 2020.
As of June 30, 2021, approximately 2,779,000 common shares had been submitted for redemption since operations commenced, and 100% of such redemption requests have been honored.
Critical Accounting Policies
Our accounting policies have been established to conform with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements, and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the consolidated financial statements.
We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
6
Real Estate Debt Investment Impairment
We recognize losses on both principal and interest of real estate debt investments if it is probable that we will be unable to collect all amounts due according to the contractual terms of the agreement. Indicators of impairment are based on current information and events including economic, industry, and geographical factors, as well as borrower creditworthiness. If indicators are present and an investment is deemed impaired, the impairment is measured based on the expected future cash flows discounted at the investment’s effective interest rate or the fair value of the real property collateralizing the impaired loan, less estimated costs to sell.
The fair value of the investment or the underlying collateral is determined using industry techniques, which include a discounted cash flow, comparable sales or other income approaches. These valuation techniques require assumptions regarding future occupancy, rental rates, capital requirements, capitalization rates and discount rates that could differ materially from actual results and involve a high degree of judgment. If the carrying value is in excess of the estimated fair value of the investment, we would recognize an impairment loss equivalent to the amount required to adjust the carrying value to its estimated fair value, calculated in accordance with current U.S. GAAP fair value provisions. Changes in the facts and circumstances that drive management’s assumptions may result in an impairment to the Company’s assets in a future period that could be material to the Company’s results of operations.
Investments in Equity Method Investees Impairment
The Company evaluates its investments in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. If it is determined that an impairment exists and is other than temporary, then the Company estimates the fair value of the investment using various valuation techniques including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. Such assumptions involve a high degree of judgment and could be impacted by future economic and market conditions. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment loss to reduce the carrying value of its investment to fair value.
Impairment of Rental Real Estate Properties
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When determining if a property has indicators of impairment, we evaluate the property's occupancy and cash flows, our expected holding period for the property, strategic decisions regarding the property's future operations or development, and other market factors. Impairment exists if estimated future undiscounted cash flows associated with those assets are less than the assets' carrying value. Estimates of undiscounted cash flows are based on forward-looking assumptions, including annual and residual cash flows, terminal capitalization rates, and our estimated holding period for each asset. Such assumptions involve a high degree of judgment and could be affected by future economic and market conditions. When impairment exists, the long-lived asset is adjusted to its fair value. Impairment is calculated as the excess of carrying value over the fair value. Fair value is determined using industry techniques, which include a discounted cash flow, comparable sales or income approaches. These valuation techniques require assumptions regarding future occupancy, rental rates, capital requirements, capitalization rate and discount rate that could differ materially from actual results and involve a high degree of judgment. Assets held for sale are recorded at the lower of cost or fair value less costs to sell.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has released several Accounting Standards Updates (each an “ASU”) that may have an impact on our consolidated financial statements. See Recent Accounting Pronouncements in Note 2, Summary of Significant Accounting Policies in our consolidated financial statements for discussion of the relevant ASUs. We are currently evaluating the impact of the various ASUs on our consolidated financial statements and determining our plan for adoption.
Extended Transition Period
Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.
7
Sources of Operating Revenues and Cash Flows
We expect to primarily generate revenues from interest revenue on our real estate debt investments and rental revenue from investments in real estate. We may also seek to acquire investments which generate attractive returns without any leverage. See Note 2, Summary of Significant Accounting Policies - Revenue Recognition, in our consolidated financial statements for further detail.
Results of Operations
On February 27, 2016, we commenced operations. For the six months ended June 30, 2021 and 2020, we had total net income of approximately $21.2 million and $950,000, respectively.
Revenue
Rental Revenue
For the six months ended June 30, 2021 and 2020, we earned rental revenue of approximately $2.2 million and $0, respectively, from the operations of rental real estate properties. The increase in rental revenue is due to the acquisition of two rental real estate properties subsequent to June 30, 2020.
Interest Revenue
For the six months ended June 30, 2021 and 2020, we earned interest revenue of approximately $786,000 and $1.4 million, respectively, from our investments. The decrease in interest revenue is primarily attributable to the full payoff of one of our debt investments, resulting in decreased interest revenue for the six months ended June 30, 2021 compared to the prior period.
Expenses
Depreciation and Amortization
For the six months ended June 30, 2021 and 2020, we incurred depreciation and amortization expense of approximately $1.6 million and $0, respectively. The increase in depreciation and amortization expense is due to the acquisition of two rental real estate properties subsequent to June 30, 2020.
Property Operating and Maintenance
For the six months ended June 30, 2021 and 2020, we incurred property operating and maintenance expense of approximately $1.2 million and $0, respectively, which includes insurance, taxes, and other maintenance costs. The increase in property operating and maintenance expense is due to the acquisition of two rental real estate properties subsequent to June 30, 2020.
Asset Management and Other Fees – Related Party
For the six months ended June 30, 2021 and 2020, we incurred asset management fees of approximately $801,000 and $613,000, respectively. The increase in asset management fees is due to an increase in our NAV, as the asset management fee is calculated as a percentage of NAV each quarter. The increase in NAV is attributable to both an increase in capital raised and the appreciation of our real estate investments compared to the prior year comparative period.
General and Administrative Expenses
For the six months ended June 30, 2021 and 2020, we incurred general and administrative expenses of approximately $274,000 and $168,000, respectively, which included auditing and professional fees, bank fees, software and subscription costs, transfer agent fees, and other expenses associated with operating our business. The increase in general and administrative costs are primarily attributable to increased legal fees associated with certain real estate transactions during the six months ended June 30, 2021.
8
Other Income (Expense)
Equity in Earnings
For the six months ended June 30, 2021 and 2020, we recognized equity in earnings of approximately $22.2 million and $342,000 from our equity method investees, respectively. The increase in equity in earnings is primarily due to the $22.7 million gain recognized from the disposition of the RSE Insight Controlled Subsidiary (“Fundrise Insight One, LLC” described throughout the consolidated financial statements) during the six months ended June 30, 2021. For more information, see Note 3, Investments in Equity Method Investees.
Our Investments
As of June 30, 2021, we had entered into the following investments. See “Recent Developments” for a description of investments we have made since June 30, 2021. Note that the use of the term “controlled subsidiary” is not intended to conform with U.S. GAAP definition and does not correlate to a subsidiary that would require consolidation under U.S. GAAP.
| Real Property Controlled Subsidiaries (Wholly-Owned Investments) | Location | Type of Property | Approx. Square Footage at Acquisition | Date of Acquisition | Purchase Price | Projected Hold Period | Overview (Form 1-U) | |||||||||
| AP98 Controlled Subsidiary | Conroe, TX | Single-family rental | 197,000 | 12/15/2020 | $ | 31,750,000 | 7 – 10 years | Initial | ||||||||
| West Kernan Controlled Subsidiary | Jacksonville, FL | Multifamily | 267,000 | 04/08/2021 | $ | 66,250,000 | 10 years | Initial | N/A | |||||||
| Real Property and Controlled Subsidiaries (Preferred Equity Investments) | Location | Type of Property | Date of Acquisition | Annual Return (1) | Redemption Date (2) | Total Commitment (3) | LTV (4) | LTC (5) | Overview (Form 1-U) | |||||||||||||||||||||
| Heartwood Lafayette Controlled Subsidiary(6) | Denver, CO | Multifamily | 05/12/2016 | 14.0 | % | 05/12/2021 | $ | 1,600,000 | 82.4 | % | -- | Initial | Update | |||||||||||||||||
| RSE Quest Controlled Subsidiary(7) | Cedar Park, TX | Mixed-Use | 05/09/2018 | 12.0 | % | 05/09/2021 | $ | 9,000,000 | -- | 84.6 | % | Initial | Update | |||||||||||||||||
| RSE Pico Controlled Subsidiary(8) | Los Angeles, CA | Mixed Use | 05/15/2018 | 12.3 | % | 06/01/2021 | $ | 5,000,000 | -- | 84.8 | % | Initial | Update | |||||||||||||||||
| RSE The Reef Controlled Subsidiary | Fort Myers, FL | Multifamily | 08/31/2018 | 10.9 | % | 09/01/2028 | $ | 6,835,000 | 82.1 | % | -- | Initial | N/A | |||||||||||||||||
| RSE- Aura Controlled Subsidiary(9) | San Antonio, TX | Multifamily | 12/19/2018 | 13.0 | % | 12/19/2019 | $ | 4,620,023 | 95.0 | % | -- | Initial | Update | |||||||||||||||||
| (1) | Annual Return refers to the projected annual preferred economic return that we are entitled to receive with priority payment over the other equity invested in the property. The annual return presented does not distinguish between returns that are paid current and those that accrue to the redemption date, nor does it include any increases in annual return that may occur in the future. | |
| (2) | Redemption Date refers to the initial redemption date of each asset, and does not take into account any extensions that may be available. | |
| (3) | Total Commitment refers to the total commitment made by the Company in acquiring the asset, not all of which may have been funded on the acquisition date. | |
| (4) | LTV, or loan-to-value ratio, is the approximate amount of the total commitment amount plus any other debt on the asset, divided by the anticipated future value of the underlying asset at stabilization as reasonably determined by our Manager. LTVs presented are as of the date of acquisition by the Company, and have not been subsequently updated. There can be no assurance that such value will be achieved. For performance evaluation, we generally use LTV for properties that are generating cash flow. | |
| (5) | LTC, or loan-to-cost ratio, is the approximate amount of the total commitment plus any other debt on the asset, divided by the anticipated cost to complete the project. For performance evaluation, we generally use LTC for properties that are under construction. LTCs presented are as of the date of acquisition by the Company, and have not been subsequently updated. There can be no assurance that the anticipated completion cost will be achieved. | |
| (6) | On December 19, 2016, the Heartwood Lafayette Controlled Subsidiary investment was paid off and is no longer outstanding. |
9
| (7) | On December 22, 2020, the RSE Quest Controlled Subsidiary investment was paid off and is no longer outstanding. | |
| (8) | On June 25, 2021, the RSE Pico Controlled Subsidiary investment was paid off and is no longer outstanding. | |
| (9) | On February 27, 2021, the RSE-Aura Controlled Subsidiary investment was paid off and is no longer outstanding. |
| Real Property Controlled Subsidiaries (Joint Venture Investments) | Location | Type of Property | Date of Acquisition | Purchase Price (1) | Overview | (Form 1-U) | ||||||||||||||
| RSE Jacksonville Controlled Subsidiary(4) | Jacksonville, FL | Multifamily | 06/06/2016 | $ | 14,455,000 | Initial | ||||||||||||||
| RSE Insight Controlled Subsidiary(5) | Fort Belvoir, VA | Multifamily | 06/27/2016 | $ | 3,438,986 | Initial | Update | |||||||||||||
| RSE Insight Controlled Subsidiary(5) | Alexandria, VA | Multifamily | 09/14/2016 | $ | 11,421,520 | Initial | Update | |||||||||||||
| RSE Peak Controlled Subsidiary | Richland, WA | Multifamily | 09/19/2016 | $ | 8,460,000 | Initial | Update | |||||||||||||
| RSE Insight Controlled Subsidiary(5) | Woodbridge, VA | Multifamily | 09/28/2016 | $ | 6,770,327 | Initial | Update | |||||||||||||
| RSE REM Controlled Subsidiary | Charlotte, NC | Multifamily | 04/28/2017 | $ | 8,506,500 | Initial | N/A | |||||||||||||
| RSE Aspect Promenade Controlled Subsidiary | Kissimmee, FL | Multifamily | 05/30/2018 | $ | 18,158,000 | Initial | N/A | |||||||||||||
| RSE Aspect Promenade Controlled Subsidiary | Hollywood, FL | Multifamily | 07/18/2018 | $ | 12,316,489 | Initial | Update | |||||||||||||
| NP 85(2) | San Antonio, TX | Multifamily | 12/19/2018 | $ | 8,403,613 | Initial | Update | |||||||||||||
| RSE Aspect Promenade Controlled Subsidiary(3) | Raleigh, NC | Multifamily | 03/29/2019 | (3 | ) | N/A | N/A | |||||||||||||
| RSE Amira Controlled Subsidiary | Tampa, FL | Multifamily | 07/18/2019 | $ | 18,117,000 | Initial | N/A | |||||||||||||
| EVO Controlled Subsidiary | Las Vegas, NV | Multifamily | 12/20/2019 | $ | 6,000,000 | Initial | N/A | |||||||||||||
| Lexington Controlled Subsidiary | Lithonia, GA | Multifamily | 02/26/2021 | $ | 13,591,000 | Initial | N/A | |||||||||||||
| Trellis Controlled Subsidiary | Marietta, GA | Multifamily | 04/02/2021 | $ | 12,513,000 | Initial | N/A | |||||||||||||
| (1) | Purchase Price refers to the total price paid by us for our pro rata share of the equity in the controlled subsidiary. | |
| (2) | On February 27, 2019, the NP 85 investment was fully distributed to us and subsequently dissolved. | |
| (3) | An affiliated entity became a member of the RSE Aspect Promenade Controlled Subsidiary on March 29, 2019, contributing joint venture ownership in the investment located in Raleigh, NC as its initial contribution to the joint venture. As such, the Company’s ownership interest in the RSE Aspect Promenade Controlled Subsidiary decreased to 44.1% and the RSE Promenade Controlled Subsidiary has invested in a total of three properties, disclosed in the table above. | |
| (4) | On September 27, 2019, upon the sale of the two underlying properties, the RSE Jacksonville Controlled Subsidiary investment was fully distributed to us in accordance with the joint venture agreement with the exception of an immaterial holdback, which was used to pay invoices received post sale. | |
| (5) | On February 12, 2021, the RSE Insight Controlled Subsidiary sold the property in Woodbridge, VA (the “Lancaster Property”) for a sales price of approximately $28.5 million. On February 25, 2021, the RSE Insight Controlled Subsidiary sold the properties in Fort Belvoir, VA (the “Canterbury Property”) and Alexandria, VA (the “Sacramento Property”) for a combined sales price of approximately $65.9 million. This completes the sale of all properties held by the RSE Insight Controlled Subsidiary. See Note 3, Investments in Equity Method Investees for further information regarding these dispositions via 1031 Exchange. |
As of June 30, 2021, the Company’s investments in companies that are accounted for under the equity method of accounting also included the initial and subsequent contributions to National Lending, LLC (“National Lending”) in exchange for ownership interests. See Note 10, Related Party Arrangements for further information regarding National Lending.
10
Liquidation Support
Our target liquidating distribution is equal to a 20.00% average, annual non-compounded return as calculated and described below. Our Manager has entered into an agreement to make a payment to us of up to $500,000 if the distributions we pay upon liquidation (together with any distributions made prior to liquidation) are less than a 20.00% average annual non-compounded return. More specifically, our Manager will make the following payments to us upon liquidation if we are unable to achieve an average annual non-compounded return of at least 20.00%:
| Average Annual Non-Compounded Return | Liquidation Support Payment | |||
| 17.00% or less | $ | 500,000 | ||
| 17.10% to 18.00% | $ | 400,000 | ||
| 18.10% to 19.00% | $ | 300,000 | ||
| 19.10% to 19.90% | $ | 200,000 | ||
| 20.00% or greater | $ | - | ||
Liquidity and Capital Resources
We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from our Offering, cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, other term borrowings and securitization financing transactions.
We are dependent upon the net proceeds from our Offering to conduct our operations. We obtain the capital required to primarily originate, invest in and manage a diversified portfolio of real estate investments and conduct our operations from the proceeds of our Offering and from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of June 30, 2021, we had deployed approximately $161.0 million in net capital for thirteen investments and had approximately $22.5 million in cash and cash equivalents and restricted cash. The Company has a continuous funding commitment to maintain a total contribution amount of up to 5% of its assets under management to National Lending. As of June 30, 2021, we anticipate that cash on hand and proceeds from our Offering will provide sufficient liquidity to meet future funding commitments and costs of operations.
We may selectively employ leverage to enhance total returns to our shareholders through a combination of senior financing on our real estate acquisitions, secured facilities, and capital markets financing transactions. We currently have no outstanding unsecured Company level debt as of September 28, 2021 and June 30, 2021. This does not include any debt secured by the real property of our consolidated or unconsolidated investments. Our targeted portfolio-wide leverage after we have acquired an initial substantial portfolio of diversified investments is between 50-85% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During periods when we are growing our portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the initial portfolio) in order to quickly build a diversified portfolio of assets. We seek to secure conservatively structured leverage that is long-term, non-recourse, non-mark-to-market financing to the extent obtainable on a cost-effective basis. To the extent a higher level of leverage is employed it may come either in the form of government-sponsored programs or other long-term, non-recourse, non-mark-to-market financing. Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. However, other than during our initial period of operations, it is our policy to not borrow more than 85% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. We cannot exceed the leverage limit of our leverage policy unless any excess in borrowing over such level is approved by our Manager’s investment committee.
Additionally, because certain of our investments include both current interest payments and interest paid-in kind upon redemption of our investments, there may be differences between net income from operations and cash flow generated from our investments.
We face challenges in order to ensure liquidity and capital resources on a long-term basis. If we are unable to raise additional funds from the issuance of common shares, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and we may be subject to more fluctuations based on the performance of the specific assets we acquire. Further, we have certain direct and indirect operating expenses. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income and would limit our ability to make distributions.
Outlook and Recent Trends
After enduring the worst peacetime economic downturn since the Great Depression, the global economy is experiencing a resounding rebound with the International Monetary Fund (“IMF”) forecasting record-setting growth of 6% for 2021. Fueled by government stimulus, accommodative monetary policy, and accelerated vaccination programs, a generally ‘v-shaped’ recovery has taken hold in most sectors of the economy, including real estate where the Vanguard Real Estate Index that was down -4.72% for 2020, is now up over 30% through August 2021.
11
Within real estate, performance has diverged significantly between sectors, and we are encouraged by our focus on residential assets where we anticipate continued demand growth. Apartment REITs have outperformed the broader REIT sector year-to-date, returning 45% through August 31, 2021 (vs. 30% for all sectors). This follows modest underperformance in 2020 (apartment REITs returned -15% vs. -8% for all sectors).
Meanwhile, after sharply negative performance in 2020 (Office -18%, Lodging -24%), these commercial sectors have continued to underperform the broader REIT sector in 2021 (Office +16%, Lodging +13%); Retail REITs have returned 39% year-to-date after posting the worst performance among REIT sectors in 2020 (-25%).
Multifamily properties have recently recorded unprecedented average national rent growth of over 6% year-over-year in June, with Jeff Adler, VP at Yardi Matrix, noting, “These are the largest year-over-year and monthly increases in the history of our data set.” Single-family rental units have featured even stronger year-over-year growth of 11%.
Despite the potential for setbacks from Delta and other new COVID-19 variants, the U.S. economy is expected to continue on its strong growth trajectory through the end of 2021 and into 2022. On July 27, 2021 the IMF indicated it is maintaining its global growth forecast of 6.0% for 2021 and increasing its 2022 growth forecast to 4.9%, explaining:
“The 2021 global forecast is unchanged from the April 2021 report, but with offsetting revisions. Prospects for emerging markets and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up. These revisions reflect pandemic developments and changes in policy support. The 0.5 percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced economies, particularly the United States, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group.”
The economic tailwinds are likely to broadly drive rent growth, occupancy and asset pricing. On the other hand, economic vibrancy generally raises interest rates, construction costs, and will generally create a more competitive environment for the Company. The current interest rate environment dramatically eased as a result of the Federal Reserve materially lowering rates and broad based liquidity injections, but the Federal Reserve is closely monitoring their policy stance for reevaluating factors. Capital markets are vigilantly monitoring the Federal Reserve’s policy stance. Historically when markets recover, hard assets, such as real estate, see an increase in value as a result of economic expansion.
Off-Balance Sheet Arrangements
As of June 30, 2021 and December 31, 2020, we had no off-balance sheet arrangements.
Related Party Arrangements
For further information regarding “Related Party Arrangements,” please see Note 10, Related Party Arrangements in our consolidated financial statements.
Investments
There have been no real estate investments acquired by or repaid to the Company since June 30, 2021 through September 28, 2021.
12
Other
| Event | Date | Description | ||
| Share Purchase Price Update | 07/01/2021 | Beginning on July 1, 2021 the per share purchase price of our common shares was updated to $14.90 due to a quarterly change in NAV. More information can be found here. | ||
| July 2021 Contribution to National Lending | 07/15/2021 | On July 15, 2021, the Company made an additional contribution of approximately $914,000 to National Lending, bringing its total contributions to approximately $9.9 million. |
Declaration of Distributions | 07/28/2021 | On July 28, 2021, our Manager declared a daily distribution of $0.0012328767 per share for shareholders of record as of the close of business on each day of the period commencing on August 1, 2021 and ending on August 31, 2021. More information can be found here. | ||
| Offering Circular | 08/12/2021 | On August 12, 2021, we qualified an additional $28.0 million of common shares in our Offering, which represents the value of shares available to be offered as of the date of our most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million. More information can be found here. | ||
Declaration of Distributions | 08/27/2021 | On August 27, 2021, our Manager declared a daily distribution of $0.0012328767 per share for shareholders of record as of the close of business on each day of the period commencing on September 1, 2021 and ending on October 1, 2021. More information can be found here. | ||
| Status of our Offering | 09/28/2021 | As of September 28, 2021, we had raised total gross offering proceeds of approximately $183.7 million from settled subscriptions (including the $200,000 received in the private placements to our Sponsor and Fundrise, L.P., and the approximately $3.0 million received in private placements to third parties), and had settled subscriptions in our Offering and private placements for an aggregate of approximately 16,260,000 of our common shares. |
| Item 2. | Other Information |
Departure of Certain Officers
Effective June 7, 2021, Benjamin Miller (i) resigned as the Interim Chief Financial Officer of the Manager and (ii) relinquished his roles as principal financial officer and principal accounting officer of the Company. Mr. Miller remains the Chief Executive Officer of the Manager and principal executive officer of the Company. Additionally, effective June 7, 2021, Alison Staloch (i) was appointed the Chief Financial Officer of the Manager and (ii) assumed the roles of principal financial officer and principal accounting officer of the Company. More information can be found here.
13
| Item 3. | Financial Statements |
INDEX TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF
Fundrise Equity REIT, LLC
| 14 |
Fundrise Equity REIT, LLC
(Amounts in thousands, except share data)
As of | As of | |||||||
| ASSETS | ||||||||
| Cash and cash equivalents | $ | 22,212 | $ | 10,678 | ||||
| Restricted cash | 284 | - | ||||||
| Interest receivable | 39 | 55 | ||||||
| Other assets | 374 | 58 | ||||||
| In-place leases, net | 458 | 591 | ||||||
| Real estate debt investments | 7,851 | 13,964 | ||||||
| Investments in equity method investees | 85,618 | 77,142 | ||||||
| Investments in rental real estate properties, net | 98,192 | 31,943 | ||||||
| Total Assets | $ | 215,028 | $ | 134,431 | ||||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||||
| Liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,147 | $ | 119 | ||||
| Due to related party | 428 | 331 | ||||||
| Settling subscriptions | 86 | 74 | ||||||
| Distributions payable | 1,961 | 1,669 | ||||||
| Redemptions payable | 3,361 | 3,457 | ||||||
| Rental security deposits and other liabilities | 386 | 276 | ||||||
| Notes payable – related party | - | 211 | ||||||
| Mortgages payable, net | 53,410 | - | ||||||
| Total Liabilities | 60,779 | 6,137 | ||||||
| Commitments and Contingencies | ||||||||
| Members’ Equity: | ||||||||
| Common shares, net of redemptions; unlimited shares authorized; 16,031,661 and 14,984,015 shares issued and 13,252,823 and 12,732,418 shares outstanding as of June 30, 2021 and December 31, 2020, respectively | 145,375 | 137,985 | ||||||
| Retained earnings (Accumulated deficit) | 8,874 | (9,691 | ) | |||||
| Total Members’ Equity | 154,249 | 128,294 | ||||||
| Total Liabilities and Members’ Equity | $ | 215,028 | $ | 134,431 | ||||
* Derived from audited consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
| F-1 |
Fundrise Equity REIT, LLC
Consolidated Statements of Operations
(Amounts in thousands, except share and per share data)
| For the Six Months Ended June 30, 2021 (unaudited) | For the Six Months Ended | |||||||
| Revenue | ||||||||
| Rental revenue | $ | 2,212 | $ | - | ||||
| Interest revenue | 786 | 1,358 | ||||||
| Other revenue | 158 | 31 | ||||||
| Total revenue | 3,156 | 1,389 | ||||||
| Expenses | ||||||||
| Depreciation and amortization | 1,642 | - | ||||||
| Property operating and maintenance | 1,192 | - | ||||||
| Asset management and other fees – related party | 801 | 613 | ||||||
| General and administrative expenses | 274 | 168 | ||||||
| Total expenses | 3,909 | 781 | ||||||
| Other income (expense) | ||||||||
| Equity in earnings (losses) | 22,244 | 342 | ||||||
| Interest expense | (169 | ) | - | |||||
| Interest expense – related party | (125 | ) | - | |||||
| Total other income (expense) | 21,950 | 342 | ||||||
| Net income | $ | 21,197 | $ | 950 | ||||
| Net income per basic and diluted common share | $ | 1.59 | $ | 0.09 | ||||
| Weighted average number of common shares outstanding, basic and diluted | 13,349,641 | 11,152,758 | ||||||
The accompanying notes are an integral part of these consolidated financial statements. In the opinion of management, all necessary adjustments have been included in order to make the interim consolidated financial statements not misleading.
| F-2 |
Fundrise Equity REIT, LLC
Consolidated Statements of Members’ Equity
(Amounts in thousands, except share data)
| Common Shares | Retained Earnings (Accumulated |
Total Members’ | ||||||||||||||
| Shares | Amount | Deficit) | Equity | |||||||||||||
| December 31, 2020* | 12,732,418 | $ | 137,985 | $ | (9,691 | ) | $ | 128,294 | ||||||||
| Proceeds from issuance of common shares | 1,047,646 | 14,761 | - | 14,761 | ||||||||||||
| Amortization of deferred offering costs | - | (60 | ) | - | (60 | ) | ||||||||||
| Distributions declared on common shares | - | - | (2,632 | ) | (2,632 | ) | ||||||||||
| Redemptions of common shares | (527,241 | ) | (7,311 | ) | - | (7,311 | ) | |||||||||
| Net income (loss) | - | - | 21,197 | 21,197 | ||||||||||||
| June 30, 2021 (unaudited) | 13,252,823 | $ | 145,375 | $ | 8,874 | $ | 154,249 | |||||||||
| Common Shares | Retained Earnings (Accumulated |
Total Members’ | ||||||||||||||
| Shares | Amount | Deficit) | Equity | |||||||||||||
| December 31, 2019* | 11,111,321 | $ | 115,900 | $ | (7,813 | ) | $ | 108,087 | ||||||||
| Proceeds from issuance of common shares | 137,776 | 1,761 | - | 1,761 | ||||||||||||
| Amortization of deferred offering costs | - | (68 | ) | - | (68 | ) | ||||||||||
| Distributions declared on common shares | - | - | (1,522 | ) | (1,522 | ) | ||||||||||
| Redemptions of common shares | (570,182 | ) | (7,068 | ) | - | (7,068 | ) | |||||||||
| Net income (loss) | - | - | 950 | 950 | ||||||||||||
| June 30, 2020 (unaudited) | 10,678,915 | $ | 110,525 | $ | (8,385 | ) | $ | 102,140 | ||||||||
*Derived from audited financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
Fundrise Equity REIT, LLC
Consolidated Statements of Cash Flows
(Amounts in thousands)
| For the Six Months Ended June 30, 2021 (unaudited) | For the Six Months Ended (unaudited) | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 21,197 | $ | 950 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
| Equity in (earnings) losses | 741 | (134 | ) | |||||
| Return on investment from equity method investees | (22,985 | ) | (208 | ) | ||||
| Depreciation and amortization | 1,642 | - | ||||||
| Amortization of deferred financing costs | 20 | - | ||||||
| Interest revenue received in kind | 1,113 | (1,033 | ) | |||||
| Changes in assets and liabilities: | ||||||||
| Net (increase) decrease in interest receivable | 16 | 2 | ||||||
| Net (increase) decrease in other assets | (360 | ) | 19 | |||||
| Net increase (decrease) in accounts payable and accrued expenses | 794 | (13 | ) | |||||
| Net increase (decrease) in due to related party | 96 | 5 | ||||||
| Net increase (decrease) in rental security deposits and other liabilities | 62 | - | ||||||
| Net cash provided by (used in) operating activities | 2,336 | (412 | ) | |||||
| INVESTING ACTIVITIES: | ||||||||
| Repayment of real estate debt investments | 5,000 | - | ||||||
| Investment in equity method investees | (14,284 | ) | (3,791 | ) | ||||
| Repayment of equity method investees | 25,624 | - | ||||||
| Return of investment from equity method investees | 2,428 | 2,319 | ||||||
| Investment in rental real estate properties | (67,427 | ) | - | |||||
| Improvements of rental real estate properties | (42 | ) | - | |||||
| Issuance of real estate deposits | (700 | ) | (1,125 | ) | ||||
| Release of real estate deposits | 700 | 1,125 | ||||||
| Net cash provided by (used in) investing activities | (48,701 | ) | (1,472 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable – related party | 15,000 | 3,000 | ||||||
| Repayment of notes payable – related party | (15,210 | ) | - | |||||
| Proceeds from mortgages payable | 53,638 | - | ||||||
| Payment of debt issuance costs | (248 | ) | - | |||||
| Proceeds from issuance of common shares | 14,689 | 1,608 | ||||||
| Redemptions paid | (7,407 | ) | (1,733 | ) | ||||
| Proceeds from settling subscriptions | 86 | 878 | ||||||
| Distributions paid | (2,342 | ) | (3,009 | ) | ||||
| Offering costs paid | (23 | ) | (50 | ) | ||||
| Net cash provided by (used in) financing activities | 58,183 | 694 | ||||||
| Net increase (decrease) in cash and cash equivalents and restricted cash | 11,818 | (1,190 | ) | |||||
| Cash and cash equivalents and restricted cash, beginning of period | 10,678 | 10,435 | ||||||
| Cash and cash equivalents and restricted cash, end of period | $ | 22,496 | $ | 9,245 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY: | ||||||||
| Amortization of deferred offering costs | $ | 60 | $ | 68 | ||||
| Distributions reinvested in Fundrise Equity REIT, LLC through programs offered by Fundrise Advisors, LLC | $ | 2 | $ | 114 | ||||
| Settlement of settling subscriptions | $ | 74 | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid – related party note | $ | 126 | $ | - | ||||
| Interest paid – mortgages payable | $ | 90 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
Fundrise Equity REIT, LLC
Notes to Consolidated Financial Statements (unaudited)
| 1. | Formation and Organization |
Fundrise Equity REIT, LLC was formed on June 30, 2015, as a Delaware limited liability company and commenced operations on February 27, 2016. As used herein, the “Company,” “we,” “our,” and “us” refer to Fundrise Equity REIT, LLC except where the context otherwise requires.
The Company has one reportable segment consisting of investments in real estate. The Company was organized primarily to originate, invest in and manage a diversified portfolio of real estate loans, real estate, and may also invest in real estate-related debt securities and other real estate-related assets. The Company may make its investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. Each rental real estate property investment of the Company is acquired by a limited liability company that is a subsidiary of ours. These subsidiaries are wholly owned by the Company and consolidated in these financial statements.
The Company’s business is externally managed by Fundrise Advisors, LLC (the “Manager”), a Delaware limited liability company and an investment adviser registered with the Securities and Exchange Commission (the “SEC”). Subject to certain restrictions and limitations, the Manager is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.
We believe we have operated in such a manner as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. On February 1, 2021, we formed a taxable REIT subsidiary (“TRS”) in connection with the Fundrise Insight One, LLC 1031 Exchange. See Note 3, Investments in Equity Method Investees, for further details. As of June 30, 2021, we have not established an operating partnership or qualified REIT subsidiary, though we may form such entities as required in the future to facilitate certain transactions that might otherwise have an adverse impact on our status as a REIT.
The Company’s initial and subsequent offering of its common shares (the “Offering(s)”) are being conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A (“Regulation A”) of the Securities Act of 1933, as amended (the “Securities Act”), meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of the Offering. A maximum of $50.0 million of the Company’s common shares may be sold to the public in its Offering in any given twelve-month period. The SEC adopted an amendment to increase the maximum offering amount under Tier 2 of Regulation A from $50.0 million to $75.0 million. This amendment became effective March 15, 2021, and the Company intends to utilize this increased offering amount in the future. However, each Offering is subject to qualification by the SEC. The Manager has the authority to issue an unlimited number of common shares.
As of June 30, 2021 and December 31, 2020, after redemptions, the Company had net common shares outstanding of approximately 13,253,000 and 12,732,000, respectively, including common shares held by Rise Companies Corp. (the “Sponsor”), the owner of the Manager. As of June 30, 2021 and December 31, 2020, the Sponsor owned 350 common shares, respectively. In addition, as of June 30, 2021 and December 31, 2020, Fundrise, L.P., an affiliate of the Sponsor, had purchased an aggregate of 19,900 common shares at $10.00 per share in a private placement for an aggregate purchase price of approximately $199,000. As of June 30, 2021 and December 31, 2020, third parties had purchased approximately 144,000 and 27,000 common shares, respectively, in private placements for an aggregate purchase price of approximately $2.0 million and $356,000, respectively. As of June 30, 2021 and December 31, 2020, the total amount of equity outstanding by the Company on a gross basis was approximately $180.3 million and $165.5 million, respectively, and the total amount of settling subscriptions was approximately $86,000 and $74,000, respectively. These amounts were based on a per share price of $14.30 and $13.41 as of June 30, 2021 and December 31, 2020, respectively.
The Company’s Manager has established various plans by which individual clients of the Manager may elect to have distributions received from real estate investment trusts managed by our Manager (“eREITs”), the Fundrise eFund, LLC, and the Fundrise Real Estate Interval Fund, LLC reinvested across such individual client’s Fundrise portfolio according to such individual client’s selected preferences (“Reinvestment Plans”). Shares purchased through such Reinvestment Plans are purchased at the effective price at the time of distribution issuance. For the six months ended June 30, 2021 and 2020, approximately $2,000 and $114,000, respectively, of distributions declared by the Company have been reinvested directly into the Company through such Reinvestment Plans.
| F-5 |
| 2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and the instructions to Form 1-SA and Rule 8-03(b) of Regulation S-X of the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in the financial statements prepared under U.S. GAAP have been condensed or omitted.
In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. Interim results are not necessarily indicative of operating results for any other interim period or for the entire year. The December 31, 2020 consolidated balance sheet and certain related disclosures are derived from the Company’s December 31, 2020 audited financial statements. These consolidated interim financial statements should be read in conjunction with the Company’s annual report, which was filed with the SEC. The consolidated financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020, and certain related notes, are unaudited, have not been reviewed, and may not include year-end adjustments to make those financial statements comparable to audited results.
Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to current year presentation.
Principles of Consolidation
We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIEs”) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. All intercompany balances and transactions have been eliminated in consolidation.
Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents may consist of money market funds, demand deposits and highly liquid investments with original maturities of three months or less.
Cash may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash with major financial institutions. To date, the Company has not experienced any losses with respect to cash.
Restricted Cash
Restricted cash consists of cash balances restricted in use by contractual obligations with third parties. This may include funds escrowed for tenant security deposits, real estate taxes, property insurance, and mortgage escrows required by lenders on certain of our properties to be used for future building renovations or tenant improvements.
Earnings per Share
Basic earnings per share is calculated on the basis of weighted-average number of common shares outstanding during the period. Basic earnings per share is computed by dividing income available to members by the weighted-average common shares outstanding during the period. Diluted net income (loss) per common share equals basic net income (loss) per common share as there were no potentially dilutive securities outstanding during the six months ended June 30, 2021 and 2020.
| F-6 |
Organizational and Offering Costs
Organizational and offering costs of the Company were initially being paid by the Manager on behalf of the Company. Organizational costs include all expenses incurred by the Company in connection with its formation. Offering costs represent costs incurred by the Company in the qualification of the Offering and the marketing and distribution of common shares, include, without limitation, expenses for printing, and amending offering statements or supplementing offering circulars, mailing and distributing costs, telephones, Internet and other telecommunications costs, all advertising and marketing expenses, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees. Pursuant to the Company’s amended and restated operating agreement (the “Operating Agreement”), the Company was obligated to reimburse the Manager, or its affiliates, as applicable, for organizational and offering costs paid by them on behalf of the Company, subject to a minimum offering raise, as described below.
After the Company raised $1.0 million in this offering (not including the $200,000 received or to be received in the private placements to the Sponsor and Fundrise, L.P.), beginning on the date that the Company started its operations, it started to reimburse the Manager, without interest, for these organizational and offering costs incurred both before and after that date. Reimbursement payments were made in monthly installments; however, the aggregate monthly amount reimbursed shall not exceed 0.50% of the aggregate gross offering proceeds from the Offering. If the sum of the total unreimbursed amount of such organizational and offering costs, plus new costs incurred since the last reimbursement payment, exceeded the reimbursement limit described above for the applicable monthly installment, the excess was eligible for reimbursement in subsequent months (subject to the 0.50% limit), calculated on an accumulated basis, until the Manager had been reimbursed in full. The Manager may also incur expenses in relation to subsequent Offerings related to the Company. Such Offerings will be subject to the reimbursement limit of 0.50%; provided however no reimbursement shall be made which, as a result of the reimbursement, would cause the net asset value (“NAV”) to be less than $10.00 per share (“Hurdle Rate”).
During the six months ended June 30, 2021 and 2020, the Manager did not incur reimbursable organizational and offering costs on behalf of the Company and no reimbursements were made to the Manager. Organizational costs are expensed as incurred, and offering costs are amortized ratably as a reduction to members’ equity based on the proportion of gross proceeds raised to the total gross proceeds expected to be raised when the Offering is complete. As of June 30, 2021 and December 31, 2020, approximately $1.4 million and $1.3 million, respectively, of offering costs had been amortized and were included in the consolidated statements of members’ equity.
During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company directly incurred offering costs of approximately $60,000 and $125,000, respectively. Approximately $37,000 and $8,000 were payable as of June 30, 2021 and December 31, 2020, respectively.
Settling Subscriptions
Settling subscriptions presented on the consolidated balance sheets represent equity subscriptions for which funds have been received but common shares have not yet been issued. Under the terms of the Offering Circular for our common shares, subscriptions will be accepted or rejected within thirty days of receipt by us. Once a subscription agreement is accepted, settlement of the shares may occur up to fifteen days later, depending on the volume of subscriptions received; however, we generally issue shares the later of five business days from the date that an investor’s subscription is approved by our Manager or when funds settle in our bank account. We rely on our Automated Clearing House (ACH) provider to notify us that funds have settled for this purpose, which may differ from the time that cash is posted to our bank statement.
Investments in Equity Method Investees
If it is determined that we do not have a controlling interest in a joint venture through our financial interest in a VIE or through our voting interest in a voting interest entity and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee.
| F-7 |
Distributions received from an equity method investee are recognized as a reduction in the carrying amount of the investment. If distributions are received from an equity method investee that would reduce the carrying amount of an equity method investment below zero, the Company evaluates the facts and circumstances of the distributions to determine the appropriate accounting for the excess distribution, including an evaluation of the source of the proceeds and implicit or explicit commitments to fund the equity method investee. The excess distribution is either recorded as a gain from equity method investee, or in instances where the source of proceeds is from financing activities or the Company has a significant commitment to fund the investee, the excess distribution would result in an equity method liability and the Company would continue to record its share of the equity method investee’s earnings and losses. When the Company does not have a significant requirement to contribute additional capital over and above the original capital commitment and the carrying value of the investment in the unconsolidated venture is reduced to zero, the Company discontinues applying the equity method of accounting unless the venture has an expectation of an imminent return to profitability. If the venture subsequently reports net income, the equity method of accounting is resumed only after the Company’s share of that net income equals the share of net losses or distributions not recognized during the period the equity method was suspended.
The Company evaluates its investment in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. If it is determined that an impairment exists and is other than temporary, then the Company would calculate the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment charge to reduce the carrying value of its investment to fair value. No impairment losses were recorded related to equity method investees for the six months ended June 30, 2021 and 2020.
With regard to distributions from equity method investees, we utilize the cumulative earnings approach to determine whether distributions from equity method investments are returns on investment (cash inflow from operating activities) or returns of investment (cash inflow from investing activities). Using the cumulative earnings approach, the Company compares cumulative distributions received for each investment, less distributions received in prior periods that were determined to be returns of investment, with the Company’s cumulative equity in earnings. Generally, cumulative distributions received that do not exceed cumulative equity in earnings represent returns on investment and cumulative distributions received in excess of the cumulative equity in earnings represent returns of investment.
Real Estate Debt Investments
Our real estate debt investments are classified as held to maturity, as we have both the intent and ability to hold these investments until maturity. Accordingly, these assets are carried at cost, net of unamortized loan origination costs and fees, discounts, repayments and unfunded commitments, if applicable, unless such loans or investments are deemed to be impaired. The Company’s real estate debt investments are subject to periodic analysis for potential loan impairment.
A debt related investment is impaired when, based on current information and events (including economic, industry and geographical factors), it is probable that we will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the agreement. When an investment is deemed impaired, the impairment is measured based on the expected future cash flows discounted at the investment’s effective interest rate or the fair value of the real property collateralizing the impaired loan. As a practical expedient, the FASB issued ASC 310, Receivables, which permits a creditor to measure an observable market price for the impaired debt related investment as an alternative to discounting expected future cash flows. Regardless of the measurement method, a creditor should measure impairment based on the fair value of the collateral when the creditor determines that foreclosure is probable. A real estate debt investment is also considered impaired if its terms are modified in a troubled debt restructuring (“TDR”). A TDR occurs when we grant a concession to a borrower in financial difficulty by modifying the original terms of the loan. Impairments on TDR loans are generally measured based on the present value of expected future cash flows discounted at the effective interest rate of the original loan. During the six months ended June 30, 2021 and 2020, we did not have any TDRs. As of June 30, 2021 and December 31, 2020, no real estate debt investments were considered impaired and no impairment losses were recorded related to real estate debt investments.
We have certain investments that are legally structured as equity investments in subsidiaries with rights to receive preferred economic returns (referred to throughout these Notes as “preferred equity” investments). We report these investments as real estate debt investments when the common equity holders have a contractual obligation to redeem our preferred equity interest at a specified date.
Investment in Rental Real Estate Properties
In accordance with FASB ASC 805, Business Combinations, the Company first determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired does not constitute a business, the Company accounts for the transaction as an asset acquisition. The guidance for business combinations states that when substantially all of the fair value of the gross assets to be acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or set of assets is not a business. All property acquisitions to date have been accounted for as asset acquisitions.
| F-8 |
Upon acquisition of a property, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, site improvements, above- and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price (including capitalized transaction costs) to the acquired assets and assumed liabilities. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
The amortization of in-place leases is recorded to amortization expense on the Company’s consolidated statements of operations. The amortization of above- or below-market leases is recorded as an adjustment to rental revenue on the Company’s consolidated statements of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below-market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any lease intangible is written off.
For rental real estate properties, significant improvements are capitalized. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. We capitalize expenditures that improve or extend the life of a property and for certain furniture and fixtures additions.
Costs capitalized in connection with rental real estate property acquisitions and improvement activities are depreciated over their estimated useful lives on a straight-line basis. The depreciation period commences upon the cessation of improvement related activities. For those costs capitalized in connection with rental real estate properties acquisitions and improvement activities and those capitalized on an ongoing basis, the useful lives range of the assets are as follows:
| Description | Depreciable Life | |
| Building and building improvements | 30 – 55 years | |
| Site improvements | 10 – 15 years | |
| Furniture, fixtures and equipment | 5 – 10 years | |
| Lease intangibles | Over lease term |
We evaluate our real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. If the carrying amount of the real estate investment is no longer recoverable and exceeds the fair value of such investment, an impairment loss is recognized. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value. During the six months ended June 30, 2021 and 2020, no such impairment occurred.
Deposits
During the closing on an investment in rental real estate property or real estate held for improvement, we may place a cash deposit on the property being acquired or fund amounts into escrow. These deposits are placed before the closing process of the property is complete. If subsequent to placing the deposit, we acquire the property (the deed is transferred to us), the deposit placed will be credited to the purchase price. If subsequent to placing the deposit, we do not acquire the property (deed is not transferred to us), the deposit will generally be returned to us. The Company may pay a deposit for a property that is ultimately acquired by a related party fund. Upon acquisition of the property, the related party fund would reimburse the Company for the full amount of the deposit.
Debt Issuance Costs
We amortize debt issuance costs using the straight-line method which approximates the effective interest rate method, over the estimated life of the related mortgage payable. We record debt issuance costs related to loans payable, net of amortization, on our consolidated balance sheets as an offset to their related loan payable. We record the amortization of all debt issuance costs as interest expense.
Share Redemptions
Share repurchases are recorded as a reduction of common share par value under our redemption plan, pursuant to which we may elect to redeem shares at the request of our members, subject to certain exceptions, conditions, and limitations. The maximum number of shares purchasable by us in any period depends on a number of factors and is at the discretion of our Manager.
The Company’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a member could obtain liquidity as described in detail in our Offering Circular.
Pursuant to the Company’s redemption plan, a member may only (a) have one outstanding redemption request at any given time and (b) request that we redeem up to the lesser of 5,000 shares or $50,000 worth of shares per each redemption request. In addition, the redemption plan is subject to certain liquidity limitations, which may fluctuate depending on the liquidity of the real estate assets held by the Company. Redemptions are also subject to declining discounts on the redemption price over the course of the time the member has held the shares being redeemed.
| F-9 |
In light of the SEC’s current guidance on redemption plans, we generally intend to limit redemptions in any calendar quarter to shares whose aggregate value (based on the repurchase price per share in effect as of the first day of the last month of such calendar quarter) is 1.25% of the NAV of all of our outstanding shares as of first day of the last month of such calendar quarter (e.g., March 1, June 1, September 1, or December 1), with excess capacity carried over to later calendar quarters in that calendar year. However, as we make a number of commercial real estate investments of varying terms and maturities, our Manager may elect to increase or decrease the amount of common shares available for redemption in any given quarter, as these commercial real estate assets are paid off or sold, but we do not intend to redeem more than 5.00% of the common shares outstanding during any calendar year. Notwithstanding the foregoing, we are not obligated to redeem common shares under the redemption plan.
In addition, our Manager may, in its sole discretion, amend, suspend, or terminate the redemption plan at any time without prior notice, including to protect our operations and our non-redeemed members, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason. However, in the event that we amend, suspend or terminate our redemption plan, we will file an offering circular supplement and/or Form 1-U, as appropriate, and post such information on our website to disclose such amendment. Our Manager may also, in its sole discretion, decline any particular redemption request if it believes such action is necessary to preserve our status as a REIT. Therefore, a member may not have the opportunity to make a redemption request prior to any potential termination of the Company’s redemption plan.
Due to the uncertainty caused by the new strain of coronavirus (COVID-19), our Manager had previously determined to suspend the processing and payment of redemptions under our redemption plan effective March 31, 2020. Effective as of June 30, 2020, our Manager resumed the processing and payment of redemptions under our redemption plan.
Income Taxes
As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2016, the Company operates in a manner intended to qualify for treatment as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its members (which is computed without regard to the distributions paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. GAAP). As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes qualifying dividends to its members. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. On February 1, 2021, we formed a TRS, Fundrise Equity REIT TRS, LLC (“Equity REIT TRS”), to facilitate the disposition of certain investments, which is discussed further in Note 3, Investments in Equity Method Investees. No material provisions have been made for federal income taxes in the accompanying consolidated financial statements during the six months ended June 30, 2021 and 2020. No gross deferred tax assets or liabilities have been recorded as of June 30, 2021 and December 31, 2020.
The tax period for the taxable year ending December 31, 2018 and all tax periods following remain open to examination by the major taxing authorities in all jurisdictions where we are subject to taxation.
Revenue Recognition
Interest revenue is recognized on an accrual basis and any related premium, discount, origination costs and fees are amortized over the life of the investment using the effective interest method. Interest revenue is recognized on real estate debt investments classified as held to maturity securities.
Rental revenue is generally recognized on a straight-line basis over the term of the lease. We periodically review the collectability of our tenant receivables and record an allowance for doubtful accounts for any estimated probable losses. Rental revenue is recorded net of bad debt expense in the consolidated financial statements.
Sale of investments in equity method investees are recognized when we have surrendered control. Once control has been surrendered, the recorded amounts of the transferred item are derecognized, all proceeds received from the transfer are recognized, and any gain or loss on the transfer are recognized. Gain (loss) on equity method investees will be recorded within equity in earnings (losses) in the consolidated financial statements.
| F-10 |
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which eases the potential burden in accounting for reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of June 30, 2021. We will continue evaluating the impact of the adoption of this standard on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which changes the accounting for leases for both lessors and lessees. The guidance requires lessees to recognize right-of-use assets and lease liabilities for virtually all of their leases, including leases embedded in other contractual arrangements, among other changes. In June 2020, the FASB voted to delay the fiscal year effective date of this standard by one year, and the interim period effective date by one year. The standard will now be effective for annual reporting periods beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. We are currently assessing the impact of this update on the presentation of our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 was originally effective for annual reporting periods, and interim periods within those years beginning after December 15, 2020. In November 2019, the FASB voted to delay the effective date of this standard by two years. The standard is now effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2022, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 840, Leases, addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate an exceptionally high volume of concessions being so rapidly executed to address the sudden liquidity constraints of certain lessees caused by the COVID-19 pandemic. In April 2020, the FASB issued a question and answer document that allows lessors to elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 is a lease modification under ASC 840. This election would allow lessors to bypass a lease-by-lease analysis, and instead choose to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. Lessors making this election would continue to recognize property rental revenue on a straight-line basis. Rent abatements would be recognized as reductions to property rental revenue during the period for which they relate. Rent deferrals would not impact the recognition of property rental revenue, but would result in an increase to tenant receivables during the deferral period.
We did not grant any lease-related relief as a result of COVID-19 during the six months ended June 30, 2021. In the future, we may enter into discussions with tenants to grant concessions and additional lease-related relief, such as the deferral of lease payments, for a period of time. We have elected to account for possible COVID-19 related concessions provided to our tenants as a deferred payment in which we will continue to recognize revenue on the existing straight-line basis over the remaining applicable lease term. Any changes in payment will be recognized through rent receivables, which is recorded in “Other assets” in our consolidated balance sheets. Any identified uncollectible amounts related to the deferred payments will be recognized as an adjustment to rental revenue.
Extended Transition Period
Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.
| 3. | Investments in Equity Method Investees |
The table below presents the activity of the Company’s investments in equity method investees as of and for the periods presented (amounts in thousands):
| F-11 |
| Investments in Equity Method Investees: | For the Six Months Ended June 30, 2021 | For the Year Ended December 31, 2020 | ||||||
| Beginning balance | $ | 77,142 | $ | 77,262 | ||||
| New investments in equity method investees (1) | 14,284 | 3,889 | ||||||
| Repayment of equity method investees (1) | (25,624 | ) | - | |||||
| Distributions received | (2,428 | ) | (4,889 | ) | ||||
| Equity in earnings (losses) of equity method investees (1) | 22,244 | 880 | ||||||
| Ending balance | $ | 85,618 | $ | 77,142 | ||||
| (1) | In February 2021, Fundrise Insight One, LLC sold the Lancaster Mill, Canterbury Square, and Sacramento Square properties for a combined sales price of approximately $94.4 million. The dispositions were structured with the intention of deferring taxable gain from the sale of the three properties under Section 1031 of the Internal Revenue Code (“1031 Exchange”). The dispositions of the three properties were executed as two distinct 1031 Exchange transactions; the Lancaster Property 1031 Exchange (“Lancaster Mill 1031 Exchange”) and the Canterbury Property and Sacramento Property 1031 Exchange (“Canterbury Square and Sacramento Square 1031 Exchange”).
Lancaster Mill 1031 Exchange
On January 19, 2021, Fundrise Insight One, LLC formed a new continuation JV, FR-PC Lexington JV, LLC, and on February 10, 2021, assigned all membership interests in the Lancaster Mill property to FR-PC Lexington JV, LLC. Concurrently, membership interests in FR-PC Lexington JV, LLC were distributed pro rata up to the members of the Fundrise Insight One, LLC.
On February 12, 2021, FR-PC Lexington JV, LLC sold the Lancaster Mill property for a sales price of approximately $28.5 million, with net proceeds from the sale totaling approximately $13.6 million.
On February 26, 2021, FR-PC Lexington JV, LLC acquired Lexington on the Green, a 216-unit garden-style apartment property in Lithonia, GA, for an initial purchase price of $13.6 million, which represents the stated value of our equity interest, utilizing the proceeds deferred from the sale of the Lancaster Mill property and the new equity contributions from the controlling member. This acquisition completed the Lancaster 1031 Exchange.
Canterbury Square and Sacramento Square 1031 Exchange
On February 25, 2021, Fundrise Insight One, LLC sold Canterbury Square and Sacramento Square for a combined sales price of approximately $65.9 million, with net proceeds from the sales totaling approximately $30.8 million.
On April 8, 2021, Fundrise Insight One, LLC acquired a 301-unit apartment property in Jacksonville, FL (“West Kernan Property”) for a purchase price of approximately $66.3 million, utilizing the proceeds deferred from the sales of the Canterbury Square and Sacramento Square properties and new senior mortgage, interest-only loan of approximately $36.4 million. This acquisition completed the Canterbury Square and Sacramento Square 1031 Exchange.
Following this acquisition, we renamed Fundrise Insight One, LLC to the West Kernan Investment for financial reporting purposes. See Note 5, Investments in Rental Real Estate Properties, for further information regarding the West Kernan Investment’s acquisition of the West Kernan Property.
As a result of these sales, the Company recognized a gain on disposition of equity method investees of approximately $23.0 million during the six months ended June 30, 2021, which is recognized within equity in earnings. During the six months ended June 30, 2020, the $208,000 gain from equity method investees was a result of distributions in excess of equity investment in the Fundrise Peak I, LLC entity. |
As of June 30, 2021, the Company’s material investments in companies that are accounted for under the equity method of accounting consist of the following:
| (1) | Acquired in 2016, a 90% non-controlling member interest in Fundrise Peak I, LLC, whose activities are carried out through the following wholly-owned asset: The Villas at Meadow Springs, an apartment complex located in Richland, WA. |
| (2) | Acquired in 2017, a 50% non-controlling member interest in Grand Reserve at Pavilions LP, whose activities are carried out through the following wholly-owned asset: Pavilion Crossings Apartments, a rental property in Charlotte, NC, built between 2000 and 2003. |
| F-12 |
| (3) | Acquired in 2018, a 60.8% non-controlling member interest in The Aspect AL LP, whose activities are carried out through the following wholly-owned assets: The Aspect Apartments, an apartment complex in Kissimmee, FL; The EnV Apartments, an apartment complex in Hollywood, FL. On March 3, 2019, an existing bridge loan between Fundrise Midland Opportunistic REIT, LLC, a related party, and Aspect Promenade JV LP related to The Sterling Tower Center, an apartment complex, in Raleigh, NC, converted into additional ownership of the Aspect AL LP after receiving approval from HUD. This conversion diluted our member interest in the Aspect AL LP to 44.1%. |
| (4) | Acquired in 2019, a 60% non-controlling member interest in Amira JV LP, whose activities are carried out through the following wholly-owned asset: Westly Shores Property, a single stabilized garden-style multifamily project in Tampa, FL. |
| (5) | Acquired in 2019, a 13.03% non-controlling member interest in FR-ICG EVO Parent LLC, whose activities are carried out through the following wholly-owned asset: EVO property, a mid-rise multifamily property in Las Vegas, NV. |
| (6) | Acquired in 2019, the contributions to National Lending, LLC (“National Lending”) in exchange for ownership interests. See Note 10, Related Party Arrangements for further information regarding National Lending. |
| (7) | Acquired in 2021, a 95% non-controlling member interest in FR-PC Lexington JV LLC, whose activities are carried out through the following wholly-owned asset: Lexington Property, a stabilized garden-style multifamily property in Lithonia, GA. |
| (8) | Acquired in 2021, a 90% non-controlling member interest in FR-MP Trellis JV LLC, whose activities are carried out through the following wholly-owned asset: Trellis Property, a stabilized garden-style multifamily property in Marietta, GA. |
As of and for the six months ended June 30, 2021, the condensed financial position and results of operations of the Company’s material equity method investments are summarized below (amounts in thousands):
| Fundrise Peak I, LLC | Grand Reserve at Pavilions LP | The Aspect AL LP | Amira JV LP | |||||||||||||
| Condensed balance sheet information: | As of June | As of June 30, 2021 | As of June 30, 2021 | As of June 30, 2021 | ||||||||||||
| Real estate assets, net | $ | 32,717 | $ | 46,661 | $ | 176,301 | $ | 67,641 | ||||||||
| Other assets | 805 | 1,097 | 15,079 | 1,717 | ||||||||||||
| Total assets | $ | 33,522 | $ | 47,758 | $ | 191,380 | $ | 69,358 | ||||||||
| Mortgage notes payable | $ | 36,825 | $ | 35,137 | $ | 120,454 | $ | 42,450 | ||||||||
| Other liabilities | 541 | 543 | 2,492 | 822 | ||||||||||||
| Equity | (3,844 | ) | 12,078 | 68,434 | 26,086 | |||||||||||
| Total liabilities and equity | $ | 33,522 | $ | 47,758 | $ | 191,380 | $ | 69,358 | ||||||||
| Company’s equity investment, net | $ | - | $ | 5,837 | $ | 25,408 | $ | 15,649 | ||||||||
| FR-ICG EVO Parent LLC | FR-PC Lexington JV, LLC | FR-MP Trellis JV LLC | National Lending, LLC | |||||||||||||
| Condensed balance sheet information (continued): | As of June 30, 2021 | As of June 30, 2021 | As of June 30, 2021 | As of June 30, 2021 | ||||||||||||
| Real estate assets, net | $ | 98,044 | $ | 30,869 | $ | 34,637 | $ | - | ||||||||
| Other assets | 3,345 | 1,404 | 954 | 62,995 | ||||||||||||
| Total assets | $ | 101,389 | $ | 32,273 | $ | 35,591 | $ | 62,995 | ||||||||
| Mortgage notes payable | $ | 63,724 | $ | 18,360 | $ | 21,846 | $ | - | ||||||||
| Other liabilities | 562 | 541 | 367 | - | ||||||||||||
| Equity | 37,103 | 13,372 | 13,378 | 62,995 | ||||||||||||
| Total liabilities and equity | $ | 101,389 | $ | 32,273 | $ | 35,591 | $ | 62,995 | ||||||||
| Company’s equity investment, net | $ | 4,765 | $ | 12,773 | $ | 12,009 | $ | 9,177 | ||||||||
| F-13 |
| Fundrise Insight One, LLC | Fundrise Peak I, LLC | Grand Reserve at Pavilions LP | The Aspect AL LP | Amira JV LP | ||||||||||||||||
| Condensed income statement information: | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2021 | |||||||||||||||
| Total revenue | $ | 1,227 | $ | 2.329 | $ | 3,078 | $ | 9,968 | $ | 3,496 | ||||||||||
| Total expenses | (26,000 | )(1) | 2,949 | 2,870 | 9,126 | 3,420 | ||||||||||||||
| Net income (loss) | $ | 27,227 | $ | (620 | ) | $ | 208 | $ | 842 | $ | 76 | |||||||||
| Company’s equity in net income (loss) of investee | $ | 22,821 | (2) | $ | 245 | $ | 104 | $ | 371 | $ | 46 | |||||||||
| Company’s share of origination costs within equity | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||
| (1) | The total expenses on the condensed income statement for Fundrise Insight One, LLC is comprised of the gross gain on sale of the properties of approximately $29.6 million offset by approximately $3.6 million of operating expenses for the six months ended June 30, 2021. |
| (2) | The Company’s equity in net income of investee related to Fundrise Insight One, LLC is comprised of approximately $71,000 for our share of net operating income for the six months ended June 30, 2021 as well as the approximately $22.7 million gain on sale of the investment. |
| Condensed income statement information (continued): |
FR-ICG EVO Parent June 30, 2021 | FR-PC Lexington June 30, 2021 | FR-MP Trellis For the Period | National Lending, LLC For the Six Months Ended June 30, 2021 | ||||||||||
| Total revenue | $ | 3,327 | $987 | $ | 729 | $ | 435 | |||||||
| Total expenses | 5,890 | 1,340 | 903 | 6 | ||||||||||
| Net income (loss) | $ | (2,563 | ) | $ | (353) | $ | (174 | ) | $ | 429 | ||||
| Company’s equity in net income (loss) of investee | $ | (329 | ) | $ | (336) | $ | (157 | ) | $ | 82 | ||||
| Company’s share of origination costs within equity | $ | - | $ | (289) | $ | (314 | ) | $ | - | |||||
As of December 31, 2020 and for the six months ended June 30, 2020, the condensed financial position and results of operations of the Company’s material equity method investments are summarized below (amount in thousands):
| Jax2 JV LLC | Fundrise Insight One LLC | Fundrise Peak I, LLC | Grand Reserve at Pavilions LP | |||||||||||||
| Condensed balance sheet information: | As of December | As of December 31, 2020 | As of December 31, 2020 | As of December 31, 2020 | ||||||||||||
| Real estate assets, net | $ | - | $ | 63,285 | $ | 33,812 | $ | 46,991 | ||||||||
| Other assets | - | 1,754 | 626 | 579 | ||||||||||||
| Total assets | $ | - | $ | 65,039 | $ | 34,438 | $ | 47,570 | ||||||||
| Mortgage notes payable | $ | - | $ | 47,360 | $ | 36,582 | $ | 34,936 | ||||||||
| Other liabilities | - | 615 | 520 | 241 | ||||||||||||
| Equity | - | 17,064 | (2,664 | ) | 12,393 | |||||||||||
| Total liabilities and equity | $ | - | $ | 65,039 | $ | 34,438 | $ | 47,570 | ||||||||
| Company’s equity investment, net | $ | - | $ | 16,214 | $ | - | $ | 6,197 | ||||||||
| F-14 |
| The Aspect AL LP | Amira JV LP | FR-ICG EVO Parent LLC | National Lending, LLC | |||||||||||||
| Condensed balance sheet information (continued): | As of December 31, 2020 | As of December 31, 2020 | As of December 31, 2020 | As of December 31, 2020 | ||||||||||||
| Real estate assets, net | $ | 178,420 | $ | 68,476 | $ | 102,910 | $ | - | ||||||||
| Other assets | 3,441 | 956 | 1,797 | 52,950 | ||||||||||||
| Total assets | $ | 181,861 | $ | 69,432 | $ | 104,707 | $ | 52,950 | ||||||||
| Mortgage notes payable | $ | 120,860 | $ | 42,094 | $ | 60,095 | $ | - | ||||||||
| Other liabilities | 1,111 | 382 | 3,954 | - | ||||||||||||
| Equity | 59,890 | 26,956 | 40,658 | 52,950 | ||||||||||||
| Total liabilities and equity | $ | 181,861 | $ | 69,432 | $ | 104,707 | $ | 52,950 | ||||||||
| Company’s equity investment, net | $ | 26,015 | $ | 16,170 | $ | 5,222 | $ | 7,324 | ||||||||
| Jax2 JV LLC | Fundrise Insight One LLC | Fundrise Peak I, LLC | Grand Reserve at Pavilions LP | |||||||||||||
| Condensed income statement information: | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | ||||||||||||
| Total revenue | $ | 7 | $ | 3,857 | $ | 2,201 | $ | 2,786 | ||||||||
| Total expenses | 59 | 3,455 | 1,736 | 2,802 | ||||||||||||
| Net income (loss) | $ | (52 | ) | $ | 402 | $ | 465 | $ | (16 | ) | ||||||
| Company’s equity in net income (loss) of investee | $ | (35 | ) | $ | 381 | $ | 207 | $ | (8 | ) | ||||||
| The Aspect AL LP | Amira JV LP | FR-ICG EVO Parent LLC | National Lending, LLC | |||||||||||||
| Condensed income statement information (continued): | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | For the Six Months Ended June 30, 2020 | ||||||||||||
| Total revenue | $ | 9,405 | $ | 3,088 | $ | 3,365 | $ | 311 | ||||||||
| Total expenses | 8,936 | 3,200 | 6,376 | 14 | ||||||||||||
| Net income (loss) | $ | 469 | $ | (112 | ) | $ | (3,011 | ) | $ | 297 | ||||||
| Company’s equity in net income (loss) of investee | $ | 207 | $ | (67 | ) | $ | (392 | ) | $ | 49 | ||||||
| 4. | Real Estate Debt Investments |
The following table describes our real estate investment activity (amounts in thousands):
| Real Estate Debt Investments: | For the Six Months Ended June 30, 2021 | For the Year Ended December 31, 2020 | ||||||
| Beginning balance | $ | 13,964 | $ | 23,476 | ||||
| Interest revenue received in kind | (1,113 | ) | (512 | ) | ||||
| Investments(1) | - | - | ||||||
| Principal repayments(2) | (5,000 | ) | (9,000 | ) | ||||
| Ending balance | $ | 7,851 | $ | 13,964 | ||||
| (1) | There were no new investments during the six months ended June 30, 2021 or the year ended December 31, 2020. | |
| (2) | During the six months ended June 30, 2021, the principal repayments included full repayment from one preferred equity investment. During the year ended December 31, 2020, the principal repayments included full repayment from one preferred equity investment. |
| F-15 |
As of June 30, 2021 and December 31, 2020, there were no discount or origination costs or fees that were includable in the carrying value of our real estate debt investments.
Interest revenue received in kind represents accruable interest receivable from related real estate debt investments upon maturity. Interest revenue received in kind is presented grouped with Real estate debt investments in these consolidated financial statements.
The following table presents the Company’s investments in real estate debt investments as of June 30, 2021 (dollar amounts in thousands):
| Asset Type | Number | Principal Amount or Cost (1) | Future Funding Commitments | Carrying Value | ||||||||||||
| Preferred equity | 1 | $ | 7,851 | $ | - | $ | 7,851 | |||||||||
| Balance as of June 30, 2021 | 1 | $ | 7,851 | $ | - | $ | 7,851 | |||||||||
| (1) | This includes the stated amount of funds disbursed to date, interest that is contractually converted into principal, and interest revenue received in kind. |
The following table presents the Company’s investments in real estate debt investments as of December 31, 2020 (dollar amounts in thousands):
| Asset Type | Number | Principal Amount or Cost (1) | Future Funding Commitments | Carrying Value | ||||||||||||
| Preferred equity | 2 | $ | 13,964 | $ | - | $ | 13,964 | |||||||||
| Balance as of December 31, 2020 | 2 | $ | 13,964 | $ | - | $ | 13,964 | |||||||||
| (1) | This includes the stated amount of funds disbursed to date, interest that is contractually converted into principal, and interest revenue received in kind. |
The following table presents certain information about the Company’s investments in real estate debt investments, as of June 30, 2021, by contractual maturity grouping (dollar amounts in thousands):
| Asset Type | Number | Amounts Maturing Within One Year | Amounts Maturing After One Year Through Five Years | Amounts Maturing After Five Years Through Ten Years | Amounts Maturing After Ten Years | |||||||||||||||
| Preferred equity | 1 | $ | - | $ | - | $ | 7,851 | $ | - | |||||||||||
| Balance as of June 30, 2021 | 1 | $ | - | $ | - | $ | 7,851 | $ | - | |||||||||||
The following table presents certain information about the Company’s investments in real estate debt investments, as of December 31, 2020, by contractual maturity grouping (dollar amounts in thousands):
| Asset Type | Number | Amounts Maturing Within One Year | Amounts Maturing After One Year Through Five Years | Amounts Maturing After Five Years Through Ten Years | Amounts Maturing After Ten Years | |||||||||||||||
| Preferred equity | 2 | $ | 6,303 | $ | - | $ | 7,661 | $ | - | |||||||||||
| Balance as of December 31, 2020 | 2 | $ | 6,303 | $ | - | $ | 7,661 | $ | - | |||||||||||
| F-16 |
Credit Quality Monitoring
The Company’s real estate debt investments that earn interest based on debt-like terms are typically secured by senior liens on real estate properties, mortgage payments, mortgage loans, or interests in entities that have preferred interests in real estate similar to the interests just described. The Company evaluates its real estate debt investments at least annually and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service or guaranteed preferred equity payments in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company considered investments for which it expects to receive full payment of contractual principal and interest payments as “performing.” As of June 30, 2021 and December 31, 2020, all investments were considered to be performing. In the event that an investment is deemed other than performing, the Company will evaluate the instrument for any required impairment.
| 5. | Investments in Rental Real Estate Properties |
The following table presents the Company’s investment in rental real estate properties, net (amounts in thousands):
| As of June 30, 2021 | As of December 31, 2020 | |||||||
| Land | $ | 14,323 | $ | 5,106 | ||||
| Building and building improvements | 77,116 | 24,556 | ||||||
| Site improvements | 4,741 | 1,409 | ||||||
| Furniture, fixtures and equipment | 2,681 | 899 | ||||||
| Work in progress | 42 | - | ||||||
| Total gross investment in rental real estate properties | $ | 98,903 | $ | 31,970 | ||||
| Less: Accumulated depreciation | (711 | ) | (27 | ) | ||||
| Total investment in rental real estate properties, net | $ | 98,192 | $ | 31,943 | ||||
As of June 30, 2021 and December 31, 2020, we had invested in two and one rental real estate properties, respectively, which consist of the following:
| (1) | In December 2020, the Company directly acquired ownership of a wholly-owned subsidiary which purchased a residential subdivision consisting of 124 single-family rental homes and totaling approximately 197,000 rentable square feet (the “AP98 Property”) located in Conroe, TX, for a purchase price of approximately $32.3 million. | |
| (2) | In April 2021, the Company directly acquired ownership of a majority-owned subsidiary, the West Kernan Investment, which purchased the West Kernan Property, for a purchase price of approximately $66.3 million. This acquisition completed the Canterbury Square and Sacramento Square 1031 Exchange discussed further in Note 3, Investments in Equity Method Investees. |
As of June 30, 2021 and December 31, 2020, the carrying amount of our investment in rental real estate properties included capitalized transaction costs of approximately $2.3 million and $843,000, respectively, which includes acquisition fees paid to the Sponsor of approximately $1.3 million and $635,000, respectively.
For the six months ended June 30, 2021 and 2020, the Company recognized approximately $684,000 and $0 of depreciation expense, respectively, on our investments in rental real estate properties.
The following table summarizes the asset acquisition allocation for our investment in rental real estate properties acquired during the six months ended June 30, 2021 (amounts in thousands):
| West Kernan Property | ||||
| Land | $ | 9,230 | ||
| Building and building improvements | 52,560 | |||
| Site improvements | 3,332 | |||
| Furniture, fixtures and equipment | 1,768 | |||
| In-place leases | 825 | |||
| Working capital | 1,400 | |||
| Other prorations | (288 | ) | ||
| Total | 68,827 | |||
| Mortgage payable | (36,138 | ) | ||
| Deferred loan costs | 70 | |||
| Net cash paid | $ | 32,759 | ||
There were no investments in rental real estate properties acquired during the six months ended June 30, 2020.
| F-17 |
| 6. | Intangible Assets |
As of June 30, 2021 and December 31, 2020, the Company’s intangible assets consist of in-place leases allocated from the purchase price of our investments in rental real estate properties.
As of June 30, 2021 and December 31, 2020, in-place leases, net, totaled approximately $458,000 and $591,000, respectively. In-place lease assets are amortized over the life of the lease. For the six months ended June 30, 2021 and 2020, amortization of in-place lease assets was approximately $958,000 and $0, respectively, and is included in depreciation and amortization in the consolidated statements of operations. The remaining in-place lease assets will be fully amortized in 2021.
| 7. | Distributions |
Distributions are calculated based on members of record each day during the distribution period.
The table below outlines the Company’s total distributions declared to members and distributions relating to members, the Sponsor and its affiliates for the six months ended June 30, 2021 and the year ended December 31, 2020 (all tabular amounts are in thousands except per share data):
| Members | ||||||||||||||||
| Distributions for the Period: | Daily Distribution Per-Share Amount | Total Declared | Date of Declaration | Total Paid/Reinvested as of June 30, 2021 | Payment Date | |||||||||||
| February 1, 2021 through February 28, 2021 | 0.0009589041 | $ | 356 | 01/28/2021 | $ | 356 | 04/13/2021 | |||||||||
| March 1, 2021 through March 31, 2021 | 0.0007534247 | 315 | 02/25/2021 | 315 | 04/13/2021 | |||||||||||
| April 1, 2021 through April 30, 2021 | 0.0010958904 | 441 | 03/30/2021 | - | 07/13/2021 | |||||||||||
| May 1, 2021 through May 31, 2021 | 0.0012328767 | 514 | 04/29/2021 | - | 07/13/2021 | |||||||||||
| June 1, 2021 through June 30, 2021 | 0.0013698630 | 551 | 05/28/2021 | - | 07/13/2021 | |||||||||||
| July 1, 2021 through July 31, 2021 | 0.0010958904 | 457 | (2) | 06/29/2021 | - | 10/21/2021 | ||||||||||
| Total | $ | 2,634 | (1) | $ | 671 | |||||||||||
| Members | ||||||||||||||||
| Distributions for the Period: | Daily Distribution Per-Share Amount | Total Declared | Date of Declaration | Total Paid/Reinvested as of December 31, 2020 | Payment Date | |||||||||||
| February 1, 2020 through February 29, 2020 | 0.0015068493 | $ | 488 | 01/29/2020 | $ | 488 | 04/09/2020 | |||||||||
| March 1, 2020 through March 31, 2020 | 0.0016438356 | 568 | 02/26/2020 | 568 | 04/09/2020 | |||||||||||
| April 1, 2020 through April 30, 2020 | 0.0006849315 | 229 | 03/30/2020 | 229 | 07/09/2020 | |||||||||||
| May 1, 2020 through May 31, 2020 | 0.0000000000 | - | N/A | - | N/A | |||||||||||
| June 1, 2020 through June 30, 2020 | 0.0000000000 | - | N/A | - | N/A | |||||||||||
| July 1, 2020 through July 31, 2020 | 0.0006849315 | 237 | 06/29/2020 | 237 | 10/08/2020 | |||||||||||
| August 1, 2020 through August 31, 2020 | 0.0012328767 | 434 | 07/30/2020 | 434 | 10/08/2020 | |||||||||||
| September 1, 2020 through October 1, 2020 | 0.0012328767 | 417 | 08/28/2020 | 417 | 10/08/2020 | |||||||||||
| October 2, 2020 through October 31, 2020 | 0.0012328767 | 442 | 10/01/2020 | - | 01/12/2021 | |||||||||||
| November 1, 2020 through November 30, 2020 | 0.0012328767 | 459 | 10/29/2020 | - | 01/12/2021 | |||||||||||
| December 1, 2020 through December 31, 2020 | 0.0012328767 | 494 | 11/25/2020 | - | 01/12/2021 | |||||||||||
| January 1, 2021 through January 31, 2021 | 0.0006849315 | 274 | (3) | 12/29/2020 | - | 04/13/2021 | ||||||||||
| Total | $ | 4,042 | (1) | $ | 2,373 | |||||||||||
| (1) | Total distributions declared to related parties are included in total distributions declared to all members. For the six months ended June 30, 2021 and the year ended December 31, 2020, total distributions declared to related parties were approximately $4,000 and $8,000, respectively. | |
| (2) | The liability for the July 2021 distribution was estimated based on the daily distribution per-share amount multiplied by the number of members as of the date of the preparation of the June 30, 2021 consolidated financial statements, and is scheduled to be paid within three weeks after the end of September 2021. | |
| (3) | The liability for the January 2021 distribution was estimated based on the daily distribution per-share amount multiplied by the number of members as of the date of the preparation of the December 31, 2020 financial statements. This amount was subsequently determined to be approximately $274,000. |
| F-18 |
| 8. | Mortgages Payable |
The following is a summary of the mortgage notes secured by the Company’s investments in rental real estate properties as of June 30, 2021 and December 31, 2020 (dollar amounts in thousands):
| Borrower | Amount of Loan | Interest Rate | Maturity Date | Balance at June 30, 2021 | Balance at December 31, 2020 | |||||||||||
| West Kernan Investment (1) | $ | 36,438 | SOFR* + 1.65% | 04/07/2022 | $ | 36,138 | $ | - | ||||||||
| AP98 Investment (2) | $ | 17,500 | SOFR* + 1.65% | 06/24/2022 | $ | 17,500 | $ | - | ||||||||
| * | SOFR represents the Daily Simple Secured Overnight Financing Rate established per the loan agreement. |
| (1) | The $36.4 million mortgage loan requires monthly, interest-only payments until maturity, at which time the entire outstanding principal balance becomes due. The loan was funded net of a $300,000 reserve withheld by the lender. | |
| (2) | The $17.5 million mortgage loan requires monthly, interest-only payments until maturity, at which time the entire outstanding principal balance becomes due. |
Loan costs are being amortized over the loan term on the straight-line method, which approximates the effective interest method. As of June 30, 2021 and December 31, 2020 total loan costs incurred were approximately $248,000 and $0, respectively. Unamortized loan costs are reflected on the consolidated balance sheets as a reduction to the related mortgage notes payable. For the six months ended June 30, 2021 and 2020, amortization of loan costs was approximately $20,000 and $0, respectively, and is included within interest expense in the consolidated statements of operations.
During the six months ended June 30, 2021 and 2020, we incurred interest expense related to mortgage notes payable of approximately $149,000 and $0, respectively.
| 9. | Fair Value of Financial Instruments |
We are required to disclose an estimate of fair value of our financial instruments for which it is practicable to estimate the value. The fair value of a financial instrument is the amount at which such financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges by willing parties.
We determine the fair value of certain investments in accordance with the fair value hierarchy that requires an entity to maximize the use of observable inputs. The fair value hierarchy includes the following three levels based on the objectivity of the inputs, which were used for categorizing the assets or liabilities for which fair value is being measured and reported:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
As of June 30, 2021 and December 31, 2020, the Company’s significant financial instruments consist of cash and cash equivalents, related party notes payable, real estate debt investments (inclusive of interest revenue received in kind), and mortgage loans payable. With the exception of real estate debt investments, the carrying amounts of the Company’s financial instruments approximate their fair values due to their short-term nature.
As of June 30, 2021 and December 31, 2020, the aggregate carrying value of our real estate debt investments, inclusive of interest revenue received in kind, was approximately $7.9 million and $14.0 million, respectively, and the aggregate fair values approximated their carrying values.
| F-19 |
The aggregate fair value of our real estate debt investments including interest revenue received in kind is based on unobservable Level 3 inputs which management has determined to be its best estimate of current market values. The methods utilized generally include a discounted cash flow method (an income approach) and recent investment method (a market approach). Significant inputs and assumptions include the market-based interest or preferred return rate (discount rates), loan to value ratios, and expected repayment and prepayment dates. Where inputs are not observable, we review the appropriateness of the proposed valuation methodology to ensure it is consistent with how a market participant would arrive at the unobservable input. The valuation methodologies utilized in the absence of observable inputs may include extrapolation techniques and the use of comparable observable inputs. The discount rate utilized was approximately 11%.
Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. The methods used may produce a fair value calculation that is not indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods are appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value could result in a different estimate of fair value at the reporting date.
| 10. | Related Party Arrangements |
Fundrise Advisors, LLC, Manager
The Manager and certain affiliates of the Manager will receive fees and compensation in connection with the Company’s Offering, and the acquisition, management and sale of the Company’s real estate investments.
The Manager was reimbursed for organizational and offering expenses incurred in conjunction with the Offering upon meeting the Hurdle Rate. See Note 2, Summary of Significant Accounting Policies – Organizational and Offering Costs for the amount of organizational and offering costs incurred and payable for the six months ended June 30, 2021 and 2020.
The Company will reimburse the Manager for actual expenses incurred on behalf of the Company in connection with the selection, acquisition or origination of an investment, to the extent not reimbursed by the borrower, whether or not the Company ultimately acquires or originates the investment. The Company will reimburse the Manager for out-of-pocket expenses paid to third parties in connection with providing services to the Company. This does not include the Manager’s overhead, employee costs borne by the Manager, utilities or technology costs. Expense reimbursements payable to the Manager also may include expenses incurred by the Sponsor in the performance of services pursuant to a shared services agreement between the Manager and the Sponsor, including any increases in insurance attributable to the management or operation of the Company. For the six months ended June 30, 2021 and 2020, the Manager incurred approximately $18,000 and $12,000 of costs on our behalf, respectively. Approximately $6,000 and $6,000 were due and payable as of June 30, 2021 and December 31, 2020, respectively.
The Company will pay the Manager a quarterly asset management fee of one-fourth of 0.85% of our NAV at the end of each prior quarter. This rate is determined by our Manager in its sole discretion, but cannot exceed an annualized rate of 1.00%. In addition, the Manager may in its sole discretion waive its asset management fee, in whole or in part. The Manager will forfeit any portion of the asset management fee that is waived.
During the six months ended June 30, 2021 and 2020, we have incurred asset management fees of approximately $801,000 and $613,000, respectively. As of June 30, 2021 and December 31, 2020, approximately $414,000 and $323,000, respectively, of asset management fees remain payable to the Manager.
Additionally, the Company is required to pay the Manager for servicing any non-performing asset. The Company is required to reimburse the Manager for actual expenses incurred on our behalf in connection with the special servicing of non-performing assets. The Manager will determine, in its sole discretion, whether an asset is non-performing. As of June 30, 2021 and December 31, 2020, the Manager has not designated any asset as non-performing and no special servicing fees are payable to the Manager. For the six months ended June 30, 2021 and 2020, no special servicing fees have been incurred or paid to the Manager.
The Company will also reimburse the Manager for actual expenses incurred on our behalf in connection with the liquidation of any of our equity investments in real estate. As of June 30, 2021 and December 31, 2020, no disposition fees are payable to the Manager. For the six months ended June 30, 2021 and 2020, no disposition fees have been incurred.
Fundrise Lending, LLC
As an alternative means of acquiring loans or other investments for which we do not yet have sufficient funds, and in order to comply with certain state lending requirements, Fundrise Lending, LLC, a wholly-owned subsidiary of our Sponsor or its affiliates may close and fund a loan or other investment prior to it being acquired by us. This allows us the flexibility to deploy our offering proceeds as funds are raised. We then will acquire such investment at a price equal to the fair market value of the loan or other investment (including reimbursements for servicing fees and accrued interest, if any), so there is no mark-up (or mark-down) at the time of our acquisition. During the six months ended June 30, 2021 and 2020, the Company did not purchase any investments that were owned by Fundrise Lending, LLC.
| F-20 |
For situations where our Sponsor, Manager or their affiliates have a conflict of interest with us that is not otherwise covered by an existing policy we have adopted or a transaction is deemed to be a “principal transaction”, the Manager has appointed an independent representative (the “Independent Representative”) to protect the interests of the members and review and approve such transactions. Any compensation payable to the Independent Representative for serving in such capacity on our behalf will be payable by us. Principal transactions are defined as transactions between our Sponsor, Manager or their affiliates, on the one hand, and us or one of our subsidiaries, on the other hand. Our Manager is only authorized to execute principal transactions with the prior approval of the Independent Representative and in accordance with applicable law. Such prior approval may include but not be limited to pricing methodology for the acquisition of assets and/or liabilities for which there are no readily observable market prices. During the six months ended June 30, 2021 and 2020, fees of approximately $3,000 and $5,000, respectively, were paid to the Independent Representative as compensation for those services and included as general and administrative expense in the consolidated statements of operations.
Fundrise, L.P., Member
Fundrise, L.P. is a member of the Company and held 19,900 shares as of June 30, 2021 and December 31, 2020. One of our Sponsor’s wholly-owned subsidiaries is the general partner of Fundrise, L.P.
Rise Companies Corp, Member and Sponsor
Rise Companies Corp. is a member of the Company and held 350 shares as of June 30, 2021 and December 31, 2020.
During the six months ended June 30, 2021 and 2020, the Sponsor incurred approximately $21,000 and $8,000 of operating costs on our behalf, respectively. Approximately $8,000 and $2,000 were due and payable as of June 30, 2021 and December 31, 2020, respectively.
The following table presents the Company’s acquisition fees related to investments in real estate properties paid to the Sponsor (amounts in thousands):
| For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2020 | |||||||
| Acquisition fees incurred and paid to the Sponsor | $ | 655 | $ | - | ||||
| Total | $ | 655 | $ | - | ||||
Investment in National Lending, LLC
In July 2019, our Manager formed a self-sustaining lending entity, National Lending, which is financed by each of the eREITs affiliated with our Sponsor. National Lending is managed by an independent manager (the “Independent Manager”) through a management agreement at a market rate. Each eREIT contributes an amount to National Lending in exchange for ownership interests, originally not to exceed 3% of its assets under management to National Lending. On March 23, 2020, the Company entered into an Amended and Restated Operating Agreement with National Lending, which increased the maximum contribution for partnership interest from 3.00% to approximately 5.00% of a partner’s assets under management. Accordingly, the Company has a continuous funding commitment to maintain a total contribution amount of up to 5% of its assets under management to National Lending. As of June 30, 2021 and December 31, 2020, we have contributed approximately $9.0 million and $7.2 million for a 14.5% and 13.8% ownership in National Lending, respectively.
National Lending may provide short-term bridge financing through promissory notes to any of the eREITs, including us, who have contributed in order to maintain greater liquidity and better finance such eREIT’s individual real estate investment strategies. The promissory notes bear a market rate of interest and are generally repaid via the capital raised by each of the borrowing eREITs’ Offerings. All transactions between National Lending and the borrowing eREITs are reviewed by the Independent Manager.
During the six months ended June 30, 2021, the Company entered into one promissory note with National Lending. The note was issued on March 30, 2021 in the principal amount of $15.0 million. The promissory note bore a 3.5% interest rate and was to mature one year from the date of issuance. The Company repaid the promissory note in full plus accrued interest on June 25, 2021. The Company incurred approximately $125,000 in interest expense during the six months ended June 30, 2021. As of June 30, 2021, the Company has outstanding principal and interest payable of $0.
| F-21 |
During the year ended December 31, 2020, the Company entered into two promissory notes with National Lending. The first note was issued on June 29, 2020 in the principal amount of $3.0 million. The promissory note bore a 1.0% interest rate and was to mature one year from the date of issuance. The Company paid off the entire balance of the promissory note and related interest on July 28, 2020. The second note was issued on December 14, 2020 in the principal amount of $10.0 million, bore an interest rate of 3.5%, and was to mature one year from the date of issuance. The Company paid off the entire balance of the promissory note and related interest on December 30, 2020. The Company incurred approximately $0 in interest expense during the six months ended June 30, 2020. As of December 31, 2020, the Company had outstanding principal and interest payable of $0.
National Commercial Real Estate Trust Promissory Note
On November 23, 2020, the Company entered into a $210,000 promissory note with National Commercial Real Estate Trust (“NCRET”), a wholly-owned statutory trust of Rise Companies Corp. The duration of the note was three months and the interest rate was 3%. The transaction between NCRET and the Company was reviewed by the Independent Representative. On February 23, 2021, the Company fully repaid the promissory note with NCRET in the amount of approximately $212,000, including approximately $2,000 of accrued interest.
| 11. | Economic Dependency |
Under various agreements, the Company has engaged or will engage our Manager and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of the Company’s common shares available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon our Manager and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.
| 12. | Commitments and Contingencies |
Legal Proceedings
As of the date of the consolidated financial statements we are not currently named as a defendant in any active or pending litigation. However, it is possible that the company could become involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, management is not aware of any litigation likely to occur that we currently assess as being significant to us.
Liquidation Support
Our target liquidating distribution is equal to a 20.00% average, annual non-compounded return as calculated and described below. Our Manager has entered into an agreement to make a payment to us of up to $500,000 if the distributions we pay upon liquidation (together with any distributions made prior to liquidation) are less than a 20.00% average annual non-compounded return. More specifically, our Manager will make the following payments to us upon liquidation if we are unable to achieve an average annual non-compounded return of at least 20.00%:
| Average Annual Non-Compounded Return | Liquidation Support Payment | |||
| 17.00% or less | $ | 500,000 | ||
| 17.10% to 18.00% | $ | 400,000 | ||
| 18.10% to 19.00% | $ | 300,000 | ||
| 19.10% to 19.90% | $ | 200,000 | ||
| 20.00% or greater | $ | - | ||
| 13. | Subsequent Events |
In connection with the preparation of the accompanying consolidated financial statements, we have evaluated events and transactions occurring through September 28, 2021 for potential recognition or disclosure.
| F-22 |
Offering
The Company qualified approximately $28.0 million of additional common shares on August 12, 2021, which represents the value of shares available to be offered as of the date of our most recent offering circular out of the rolling 12-month maximum offering amount of $75.0 million.
As of September 28, 2021, we had raised total gross offering proceeds of approximately $183.7 million from settled subscriptions (including the $200,000 received in the private placements to our Sponsor and Fundrise, L.P., an affiliate of our Sponsor, and the approximately $3.0 million received in private placements to third parties), and had settled subscriptions in our Offering and private placements for a gross aggregate of approximately 16,260,000 of our common shares.
Additional Contributions to National Lending, LLC
On July 15, 2021, the Company contributed an additional $914,000 to National Lending in accordance with the subscription agreement, for a total cumulative contribution of approximately $9.9 million, which is equivalent to approximately 14.7% ownership as of July 15, 2021.
Investment in Equity Method Investments – Additional Financing
On August 19, 2021, Amira JV LP executed a $12.9 million supplemental loan with a 3.84% fixed interest rate and duration of approximately three years.
| F-23 |
