Filed Pursuant to Rule 424(b)(3)
Registration No. 333-258754
COTTONWOOD COMMUNITIES, INC.
SUPPLEMENT NO. 7 DATED JANUARY 13, 2023
TO THE PROSPECTUS DATED JULY 26, 2022
This document supplements, and should be read in conjunction with, the prospectus of Cottonwood Communities, Inc. dated July 26, 2022 as supplemented by supplement no. 1 dated August 15, 2022, supplement no. 2 dated September 16, 2022, supplement no. 3 dated September 27, 2022, supplement no. 4 dated October 17, 2022, supplement no. 5 dated November 15, 2022 and supplement no. 6 dated December 16, 2022. As used herein, the terms “we,” “our” and “us” refer to Cottonwood Communities, Inc. and, as required by context, Cottonwood Residential O.P., LP, which we refer to as our “Operating Partnership,” and to their subsidiaries. Capitalized terms used in this supplement have the same meanings as set forth in the prospectus. The purpose of this supplement is to disclose:
•the transaction price for each class of our common stock as of February 1, 2023;
•the calculation of our December 31, 2022 net asset value (“NAV”) per share, as determined in accordance with our valuation guidelines, for each of our share classes;
•declaration of distributions for the month of January;
•additional information regarding compensation to our executive officers; and
•updated experts information.
February 1, 2023 Transaction Price
The transaction price for each share class of our common stock for subscriptions accepted (and distribution reinvestment plan issuances) as of February 1, 2023 (and repurchases as of January 31, 2023) is as follows:
| | | | | | | | |
| | Transaction Price (per share) |
| Class T | | $19.5788 |
| Class D | | $19.5788 |
| Class I | | $19.5788 |
| Class A | | $19.5788 |
The transaction price for each of our share classes is equal to such class’s NAV per share as of December 31, 2022. A calculation of the NAV per share is set forth below. The purchase price of our common stock for each share class equals the transaction price of such class, plus applicable upfront selling commissions and dealer manager fees.
December 31, 2022 NAV Calculation
Our board of directors, including a majority of our independent directors, has adopted valuation guidelines, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. Our most recent NAV per share for each share class, which is updated as of the last calendar day of each month, is posted on our website at www.cottonwoodcommunities.com and is also available on our toll-free, automated telephone line at (888) 422-2584.
The December 31, 2022 NAV for our outstanding Class T, Class D, Class I, and Class A shares was calculated pursuant to these valuation guidelines.
Please see “Net Asset Value Calculation and Valuation Guidelines” in our prospectus for a more detailed description of our valuation guidelines, including important disclosures regarding real property valuations, debt-related asset valuations and property management business valuations provided by Altus Group U.S. Inc. (the “Independent Valuation Advisor”). All parties engaged by us in the calculation of our NAV, including CC Advisors III, LLC, our advisor, are subject to the oversight of our board of directors. As described in our valuation guidelines, each real property is appraised by a third-party appraiser (the “Third-Party Appraisal Firm”) at least once per calendar year and reviewed by our advisor and the Independent Valuation Advisor. Additionally, the real property assets not appraised by the Third-Party Appraisal Firm in a given calendar month will be appraised for such calendar month by our Independent Valuation Advisor, and such appraisals are reviewed by our advisor.
Our Operating Partnership has certain classes or series of OP Units that are each economically equivalent to a corresponding class of shares. Accordingly, on the last day of each month, for such classes or series of OP Units, the NAV per OP Unit equals the NAV per share of the corresponding class. To the extent our Operating Partnership has classes of units that do not correspond to a class of our shares, such units will be valued in a manner consistent with our valuation guidelines. The NAV of our Operating Partnership on the last day of each month equals the sum of the NAVs of each fully-diluted outstanding OP Unit on such day. In calculating the fully-diluted outstanding OP Units we include all outstanding vested LTIP Units, unvested time-based LTIP Units and those performance-based LTIP Units that would be earned based on the internal rate of return as of such day.
Our total NAV in the following table includes the NAV of our outstanding classes of common stock as of December 31, 2022 (Class T, Class D, Class I, and Class A) as well as the partnership interests of the Operating Partnership held by parties other than us. The following table sets forth the components of our NAV as of December 31, 2022 and November 30, 2022:
| | | | | | | | |
| As of |
| Components of NAV* | December 31, 2022 | November 30, 2022 |
| Investments in Multifamily Operating Properties | $ | 2,372,786,536 | $ | 2,399,539,386 |
| Investments in Multifamily Development Properties | 130,206,467 | 125,819,801 |
| Investments in Real-estate Related Structured Investments | 60,821,042 | 62,580,831 |
| Investments in Land Held for Development | 78,031,452 | 77,986,375 |
| Operating Company and Other Net Current Assets | 12,033,979 | 9,493,196 |
| Cash and Cash Equivalents | 9,461,342 | 11,455,051 |
| Secured Real Estate Financing | (1,158,364,155) | (1,153,768,110) |
| Subordinated Unsecured Notes | (42,953,000) | (43,393,000) |
| Preferred Equity | (127,064,852) | (127,064,852) |
| Accrued Performance Participation Allocation | (20,687,643) | (24,639,165) |
| Net Asset Value | $ | 1,314,271,168 | $ | 1,338,009,513 |
| Fully-diluted Shares/Units Outstanding | 67,127,144 | 66,918,871 |
| | |
| * Presented as adjusted for our economic ownership percentage in each asset. |
The following table provides a breakdown of our total NAV and NAV per share/unit by class as of December 31, 2022 and November 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Class | | |
| T | | D | | I | | A | | OP(1) | | Total |
| As of December 31, 2022 | | | | | | | | | | | |
| Monthly NAV | $ | 94,274,467 | | | $ | 1,266,224 | | | $ | 76,245,613 | | | $ | 520,892,203 | | | $ | 621,592,661 | | | $ | 1,314,271,168 | |
| Fully-diluted Outstanding Shares/Units | 4,815,122 | | | 64,673 | | | 3,894,288 | | | 26,604,864 | | | 31,748,197 | | | 67,127,144 | |
| NAV per Fully-diluted Share/Unit | $ | 19.5788 | | | $ | 19.5788 | | | $ | 19.5788 | | | $ | 19.5788 | | | $ | 19.5788 | | | |
| As of November 30, 2022 | | | | | | | | | | | |
| Monthly NAV | $ | 93,280,093 | | | $ | 516,216 | | | $ | 73,225,644 | | | $ | 537,873,431 | | | $ | 633,114,129 | | | $ | 1,338,009,513 | |
| Fully-diluted Outstanding Shares/Units | 4,665,287 | | | 25,818 | | | 3,662,289 | | | 26,901,066 | | | 31,664,411 | | | 66,918,871 | |
| NAV per Fully-diluted Share/Unit | $ | 19.9945 | | | $ | 19.9945 | | | $ | 19.9945 | | | $ | 19.9945 | | | $ | 19.9945 | | | |
| | | | | | | | | | | |
(1) Includes the partnership interests of our Operating Partnership held by High Traverse Holdings, an entity beneficially owned by Daniel Shaeffer, Chad Christensen, Gregg Christensen and Eric Marlin and other Operating Partnership interests, including LTIP Units as described above, held by parties other than us. |
Set forth below are the weighted averages of the key assumptions that were used by the Independent Appraisal Firms in the discounted cash flow methodology used in the December 31, 2022, valuations of our real property assets, based on property types.
| | | | | | | | | | | |
| Discount Rate | | Exit Capitalization Rate |
| Operating Assets | 6.18% | | 4.81% |
| Development Assets | 6.00% | | 4.50% |
|
| * Presented as adjusted for our economic ownership percentage in each asset, weighted by gross value. |
A change in these assumptions would impact the calculation of the value of our operating and development assets. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our operating and development asset values:
| | | | | | | | | | | |
| Sensitivities | Change | Operating Asset
Values | Development Asset
Values |
| Discount Rate | 0.25% decrease | 2.4% | 2.2% |
| | 0.25% increase | (2.3)% | (2.2)% |
| Exit Capitalization Rate | 0.25% decrease | 4.1% | 4.4% |
| 0.25% increase | (3.5)% | (3.9)% |
|
| * Presented as adjusted for our economic ownership percentage in each asset. |
Declaration of Distributions
On January 13, 2023, our board of directors declared a distribution for the month of January of $0.06083333, or $0.73 annually, reduced for any class-specific expense allocated to the class, for each class of our common stock to holders of record on January 31, 2023, to be paid in February 2023.
Compensation of Executive Officers
The following disclosure updates the disclosure in the prospectus regarding equity grants to our executive officers.
Grant of LTIP Units
On January 6, 2023, we issued LTIP Units from the Operating Partnership to our executive officers as approved by our compensation committee. The compensation committee approved awards of time-based LTIP Units to our executive officers in an aggregate amount of $1,493,557, including $399,404 to Daniel Shaeffer, our Chief Executive Officer, $134,750 to Gregg Christensen, our Chief Legal Officer and Secretary, $105,000 to Glenn Rand, our Chief Operating Officer. Each of Mr. Shaeffer, Mr. G. Christensen and Mr. Rand were our named executive officers as of December 31, 2021. Each award will vest approximately one-quarter of the awarded amount on January 1, 2024, 2025, 2026 and 2027.
The compensation committee also approved awards of performance-based LTIP Units to our executive officers in an aggregate target amount of $2,773,749, including $741,750 to Daniel Shaeffer, our Chief Executive Officer, $250,250 to Gregg Christensen, our Chief Legal Officer and Secretary, and $195,000 to Glenn Rand, our Chief Operating Officer. The actual amount of each performance-based LTIP Unit award will be determined at the conclusion of a three-year performance period and will depend on the internal rate of return as defined in the award agreement. The earned LTIP Units will become fully vested on the first anniversary of the last day of the performance period, subject to continued employment with the advisor or its affiliates.
The grant of LTIP Units approved by our compensation committee included $1,113,807 time-based awards and $2,068,499 targeted performance-based awards granted to employees of our advisor or its affiliates. The number of units granted were valued by reference to our November 30, 2022 NAV per share as announced on December 16, 2022 of $19.9945. The time-based and performance-based awards were designed to align the executive officers’ and our employees interests with those of our stockholders and to encourage the retention of our executive officers and employees.
Experts
The statements included in this supplement under “December 31, 2022 NAV Calculation,” relating to the role of Altus Group U.S. Inc. have been reviewed by Altus Group U.S. Inc., an independent valuation firm, and are included in this supplement given the authority of such firm as experts in real estate valuations.
