UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024
OR
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______ to ______
Commission File Number: 333-273163
EQT Exeter Real Estate Income Trust, Inc.
(Exact name of Registrant as specified in its charter)
| | | | | | | | |
Maryland | | 88-4108741 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
Five Radnor Corporate Center
100 Matsonford Road, Suite 250
Radnor, Pennsylvania 19087
(Address of principal executive offices) (Zip Code)
(610) 828-3200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
None | | None | | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☐ | Accelerated filer | ☐ |
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Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
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Emerging growth company | ☒ | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 14, 2024, the registrant had the following shares of common stock outstanding: 107,124 shares of Class I common stock, 993,065 shares of Class A-I common stock and 97,310 shares of Class E common stock. There were no shares of Class T common stock, Class S common stock, Class D common stock and Class A-II common stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EQT Exeter Real Estate Income Trust, Inc.
Consolidated Balance Sheets
| | | | | | | | | | | |
| September 30, 2024 (unaudited) | | December 31, 2023 |
Assets | | | |
Investments in real estate, net | $ | 266,883,331 | | | $ | — | |
Cash and cash equivalents | 44,152,679 | | | 405,049 | |
Restricted cash | 14,522,215 | | | — | |
Real estate related intangibles, net | 24,320,203 | | | — | |
Deferred offering expenses | 5,040,990 | | | — | |
Other assets | 4,092,065 | | | — | |
Total Assets | $ | 359,011,483 | | | $ | 405,049 | |
Liabilities and (Deficit) Equity | | | |
Mortgage notes, net | $ | 153,222,910 | | | $ | — | |
Accounts payable and accrued expenses | 3,323,673 | | | — | |
Due to affiliates | 9,608,799 | | | — | |
Total Liabilities | 166,155,382 | | | — | |
| | | |
Redeemable non-controlling interest | 196,388,009 | | | — | |
| | | |
(Deficit) Equity | | | |
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized and 220 shares of Class A ($1,000 liquidation preference per share, callable prior to December 31, 2024 at $50 redemption premium per share) issued and outstanding at September 30, 2024 and December 31, 2023, respectively | 220,000 | | | 220,000 | |
Common stock - Class T Shares, $0.01 par value per share, 500,000,000 authorized and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Common stock - Class S Shares, $0.01 par value per share, 500,000,000 authorized and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Common stock - Class D Shares, $0.01 par value per share, 500,000,000 authorized and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Common stock - Class I Shares, $0.01 par value per share, 500,000,000 authorized and 52,032 shares and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | 520 | | | — | |
Common stock - Class A-I Shares, $0.01 par value per share, 50,000,000 and 0 shares authorized and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Common stock - Class A-II Shares, $0.01 par value per share, 50,000,000 and 0 shares authorized and 0 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively | — | | | — | |
Common stock - Class E Shares, $0.01 par value per share, 100,000,000 shares authorized and 97,019 shares and 58,500 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively (including 38,156 unvested restricted shares) | 971 | | | 585 | |
Additional paid-in capital | 619,757 | | | 327,748 | |
Accumulated deficit | (4,373,156) | | | (143,284) | |
Total (Deficit) Equity | (3,531,908) | | | 405,049 | |
Total Liabilities, Redeemable non-controlling interest and (Deficit) Equity | $ | 359,011,483 | | | $ | 405,049 | |
The accompanying notes are an integral part of these consolidated financial statements.
EQT Exeter Real Estate Income Trust, Inc.
Consolidated Statements of Operations
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended | | For the Nine Months Ended |
| September 30, 2024 | | September 30, 2023 | | September 30, 2024 | | September 30, 2023 |
Revenues | | | | | | | |
Rental revenue | $ | 3,584,159 | | | $ | — | | | $ | 4,712,756 | | | $ | — | |
| 3,584,159 | | | — | | | 4,712,756 | | | — | |
| | | | | | | |
Expenses | | | | | | | |
Rental property operating expenses | $ | 430,557 | | | $ | — | | | $ | 490,797 | | | $ | — | |
General and administrative expenses | 848,215 | | | 33,660 | | | 2,932,912 | | | 34,625 | |
Organization expenses | — | | | — | | | 1,186,955 | | | — | |
Depreciation and amortization | 1,145,357 | | | — | | | 1,654,751 | | | — | |
Total Expenses | 2,424,129 | | | 33,660 | | | 6,265,415 | | | 34,625 | |
Other Income/(expense) | | | | | | | |
Interest income | 118,548 | | | — | | | 136,768 | | | — | |
Interest expense | (1,134,803) | | | — | | | (1,134,803) | | | — | |
Total other income/(expense) | (1,016,255) | | | — | | | (998,035) | | | — | |
Net Income/(loss) | $ | 143,775 | | | $ | (33,660) | | | $ | (2,550,694) | | | $ | (34,625) | |
Dividends to preferred stockholders | (5,500) | | | (5,500) | | | (16,500) | | | (6,844) | |
Adjust redeemable non-controlling interest to redemption value | (394,792) | | | — | | | (4,145,705) | | | — | |
Net income/(loss) attributable to redeemable non-controlling interest | (143,309) | | | — | | | 2,494,160 | | | — | |
Net loss attributable to common stockholders | $ | (399,826) | | | $ | (39,160) | | | $ | (4,218,739) | | | $ | (41,469) | |
Net loss per share of common stock - basic and diluted | $ | (8.36) | | | $ | (1.96) | | | $ | (143.69) | | | $ | (2.07) | |
Weighted-average shares of common stock outstanding - basic and diluted | 47,828 | | | 20,000 | | | 29,361 | | | 20,000 | |
There were no operations during the three and nine months ended September 30, 2023.
The accompanying notes are an integral part of these consolidated financial statements.
EQT Exeter Real Estate Income Trust, Inc.
Consolidated Statements of Changes in (Deficit) Equity and Redeemable Non-Controlling Interest
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | | | | |
| Preferred Stock Class A | Shares | $ Amount | Additional Paid- In Capital | Accumulated Deficit | Total Equity (Deficit) | | Redeemable Non-controlling Interest |
Balance at January 1, 2024 | $ | 220,000 | | 58,500 | | $ | 585 | | $ | 327,748 | | $ | (143,284) | | $ | 405,049 | | | $ | — | |
Net loss | — | | — | | — | | — | | (56,607) | | (56,607) | | | (2,514,960) | |
Stock based compensation | — | | — | | — | | 96,250 | | — | | 96,250 | | | — | |
| | | | | | | | |
Contribution from redeemable non-controlling interest | — | | — | | — | | — | | — | | — | | | 62,200,000 | |
Adjust redeemable non-controlling interest to redemption value | — | | — | | — | | — | | (2,543,177) | | (2,543,177) | | | 2,543,177 | |
Offering expenses | — | | — | | — | | — | | — | | — | | | (75,205) | |
Balance at March 31, 2024 | $ | 220,000 | | 58,500 | | $ | 585 | | $ | 423,998 | | $ | (2,743,068) | | $ | (2,098,485) | | | $ | 62,153,012 | |
Net loss | — | | — | | — | | — | | (390) | | (390) | | | (122,509) | |
Stock based compensation | — | | — | | — | | 96,250 | | — | | 96,250 | | | — | |
Contribution from redeemable non-controlling interest | — | | — | | — | | — | | — | | — | | | 2,300,000 | |
Distributions to redeemable non-controlling interest | — | | — | | — | | — | | — | | — | | | (707,468) | |
Adjust redeemable non-controlling interest to redemption value | — | | — | | — | | — | | (1,207,736) | | (1,207,736) | | | 1,207,736 | |
Distribution reinvestment | — | | 144 | | 1 | | 1,440 | | — | | 1,441 | | | — | |
Preferred stock dividend | — | | — | | — | | — | | (11,000) | | (11,000) | | | — | |
Distributions declared on common stock | — | | — | | — | | — | | (6,580) | | (6,580) | | | — | |
Balance at June 30, 2024 | $ | 220,000 | | 58,644 | | $ | 586 | | $ | 521,688 | | $ | (3,968,774) | | $ | (3,226,500) | | | $ | 64,830,771 | |
Net income | — | | — | | — | | — | | 466 | | 466 | | | 143,309 | |
Issuance of common stock | — | | 52,032 | | 520 | | 524,480 | | — | | 525,000 | | | — | |
Offering expenses | — | | — | | — | | (524,480) | | — | | (524,480) | | | — | |
Adjust redeemable non-controlling interest to redemption value | — | | — | | — | | — | | (394,792) | | (394,792) | | | 394,792 | |
Stock based compensation | — | | — | | — | | 96,250 | | — | | 96,250 | | | — | |
Contribution from redeemable non-controlling interest | — | | — | | — | | — | | — | | — | | | 132,600,000 | |
Distribution reinvestment | — | | 219 | | 3 | | 2,201 | | — | | 2,204 | | | — | |
Distributions declared on common stock | — | | — | | — | | — | | (10,056) | | (10,056) | | | — | |
Distributions to redeemable non-controlling interest | — | | — | | — | | — | | — | | — | | | (1,580,863) | |
Issuance of restricted stock awards | — | | 38,156 | | 382 | | (382) | | — | | — | | | — | |
Balance at September 30, 2024 | $ | 220,000 | | 149,051 | | $ | 1,491 | | $ | 619,757 | | $ | (4,373,156) | | $ | (3,531,908) | | | $ | 196,388,009 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | |
| | |
| Preferred Stock Class A | Shares | $ Amount | Additional Paid- In Capital | Accumulated Deficit | | Total Equity |
Balance at January 1, 2023 | $ | — | | 20,000 | | $ | 200 | | $ | 199,800 | | $ | (65) | | | $ | 199,935 | |
Balance at March 31, 2023 | $ | — | | 20,000 | | $ | 200 | | $ | 199,800 | | $ | (65) | | | $ | 199,935 | |
Net loss | — | | | — | | — | | (965) | | | (965) | |
Issuance of preferred stock | 220,000 | | — | | — | | — | | — | | | 220,000 | |
Preferred stock dividend | — | | — | | — | | — | | (1,344) | | | (1,344) | |
Balance at June 30, 2023 | $ | 220,000 | | 20,000 | | $ | 200 | | $ | 199,800 | | $ | (2,374) | | | $ | 417,626 | |
Net loss | — | | — | | — | | — | | (33,660) | | | (33,660) | |
Stock based compensation | — | | — | | — | | 32,083 | | — | | | 32,083 | |
Issuance of restricted stock awards | — | | — | | 385 | | (385) | | — | | | — | |
Balance at September 30, 2023 | $ | 220,000 | | 20,000 | | $ | 585 | | $ | 231,498 | | $ | (36,034) | | | $ | 416,049 | |
The accompanying notes are an integral part of these consolidated financial statements.
EQT Exeter Real Estate Income Trust, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | |
| For the Nine Months Ended |
| September 30, 2024 | | September 30, 2023 |
CASH FLOWS PROVIDED BY/ (USED IN) OPERATING ACTIVITIES | | | |
Net loss | $ | (2,550,694) | | | $ | (34,625) | |
Adjustments to reconcile net loss to net cash used in operating activities | | | |
Depreciation and amortization | 1,654,751 | | | — | |
Straight-line rent amortization | (1,840,520) | | | — | |
Non-cash compensation expense | 288,750 | | | 32,083 | |
Amortization of deferred financing costs | 10,157 | | | — | |
Change in assets and liabilities | | | |
Other assets | (123,249) | | | — | |
Due to affiliates | 3,842,703 | | | — | |
Accounts payable and accrued expenses | 635,786 | | | — | |
Net cash provided by/(used in) operating activities | 1,917,684 | | | (2,542) | |
| | | |
CASH FLOWS USED IN INVESTING ACTIVITIES | | | |
Acquisitions of real estate | (292,115,324) | | | — | |
Net cash used in investing activities | (292,115,324) | | | — | |
| | | |
CASH FLOWS FROM FINANCING ACTIVITIES | | | |
Proceeds from mortgage notes | 154,056,880 | | | — | |
Payment of deferred financing costs on mortgage notes | (776,792) | | | — | |
Contributions from redeemable non-controlling interest | 197,100,000 | | | — | |
Payment of deposit | (870,638) | | | — | |
Proceeds from issuance of preferred stock
| — | | | 220,000 | |
Proceeds from issuance of common stock | 525,000 | | | — | |
Dividends paid on preferred stock
| (11,000) | | | (1,344) | |
Distributions paid on common stock | (7,424) | | | — | |
Distributions paid on redeemable non-controlling interest | (1,548,541) | | | — | |
Net cash provided by financing activities | 348,467,485 | | | 218,656 | |
Net increase in cash, cash equivalents and restricted cash | 58,269,845 | | | 216,114 | |
Cash, cash equivalents and restricted cash at beginning of period | 405,049 | | | 199,935 | |
Cash, cash equivalents and restricted cash at end of period | $ | 58,674,894 | | | $ | 416,049 | |
| | | |
Non-cash investing and financing activity | | | |
Accrued offering expenses due to affiliates | $ | 5,640,675 | | | $ | — | |
Other accrued costs due to affiliates | $ | 125,420 | | | $ | — | |
Accrued acquisition costs | $ | 88,862 | | | $ | — | |
Accrued deferred financing costs | $ | 67,335 | | | $ | — | |
Working capital assumed | $ | 635,283 | | | $ | — | |
Distribution reinvestment | $ | 3,644 | | | $ | — | |
Distributions accrued and not paid — redeemable non-controlling interest | $ | 739,789 | | | $ | — | |
Distributions accrued and not paid — common stock | $ | 5,632 | | | $ | — | |
There were no operations during the nine months ended September 30, 2023.
The accompanying notes are an integral part of these consolidated financial statements.
EQT Exeter Real Estate Income Trust, Inc.
Notes to Consolidated Financial Statements (Unaudited)
September 30, 2024
1. Organization and Business Purpose
EQT Exeter Real Estate Income Trust, Inc. (the “Company”) was formed on September 2, 2022, as a Maryland corporation. The Company was organized to invest primarily in stabilized, income oriented commercial real estate in the United States. The Company is the sole general partner of EQT Exeter REIT Operating Partnership, LP, a Delaware limited partnership (“EQRT OP”). EQRT Special Limited Partner LLC, a Delaware limited liability company (the “Special Limited Partner”) and an affiliate of the Company's advisor, owns a special limited partner interest in EQRT OP. Substantially all of the Company’s business is conducted through EQRT OP. The Company commenced its principal operations with the acquisition of its first real estate investment on March 20, 2024. The Company and EQRT OP are externally managed by Exeter Property Group, LLC (the “Adviser”), an affiliate of EQT AB (the “Sponsor”).
The Company intends to elect to be taxed as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ending December 31, 2024. In order to qualify and to maintain qualification as a REIT, the Company will be required to, among other things, distribute as dividends at least 90% of its REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to stockholders and meet certain tests regarding the nature of its income and assets.
As of September 30, 2024, the Company owned three industrial properties.
2. Summary of Significant Accounting Policies
Basis of Presentation
These financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the Securities and Exchange Commission ("SEC") and include the accounts of the Company and the Company's subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements, in the opinion of management, include all necessary adjustments, consisting of only normal and recurring items, necessary for a fair statement of the Company’s financial position and results of operations for the interim period. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements. The accompanying unaudited consolidated interim financial statements do not include all information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited consolidated financial statements as of December 31, 2023 as filed with the SEC. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year or any future period.
There is no comprehensive income (loss) therefore the Consolidated Statement of Comprehensive Income (Loss) is not presented.
Principles of Consolidation
The Company consolidates all entities that it controls through either majority ownership or voting rights. In addition, the Company consolidates all variable interest entities ("VIEs") of which it is considered the primary beneficiary. VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as the primary beneficiary and is generally the entity with (i) the power to direct the activities that most significantly affect the VIE's economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
EQRT OP is considered to be a VIE. The Company consolidates this entity as it has the ability to direct the most significant activities of the entity such as purchases, dispositions, financings, budgets, and overall operating plans. The share of assets, liabilities and operations of the Company related to EQRT OP units held by parties other than the Company are included in redeemable non-controlling interest in the mezzanine equity section on the Company's Consolidated Balance Sheets.
Cash and Cash Equivalents
Cash and cash equivalents represent cash held in banks, cash on hand, and liquid investments with original maturities of three months or less. The Company may at times have bank balances in excess of federally insured amounts. As of September 30, 2024, the Company held $43,279,409 of cash equivalents and did not hold any cash equivalents as of December 31, 2023.
Restricted Cash
Restricted cash primarily consists of amounts in escrow related to tenant improvement reimbursements at certain of the Company’s properties. As of September 30, 2024, the Company held $14,522,215 of restricted cash and did not hold any restricted cash as of December 31, 2023.
Deferred Financing Costs
Deferred financing costs include legal, structuring and other loan costs incurred by the Company for its financing agreements. Deferred financing costs related to the Company’s mortgage notes are recorded as an offset to the related liability and amortized over the term of the applicable financing instruments as interest expense. As of September 30, 2024, the Company recorded net deferred financing costs of $833,970 and did not record any deferred financing costs as of December 31, 2023.
Fair Value Measurements
Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchal framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:
Level 1- quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.
Level 2- quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
Level 3- pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
Valuation of assets and liabilities not measured at fair value
The fair values of financial instruments, including cash and cash equivalents, restricted cash, accounts receivable and other financial instruments, included in other assets, accounts payable, accrued expenses and other liabilities approximate their respective carrying values at September 30, 2024 and December 31, 2023.
The carrying amount of the Company’s mortgage notes approximate fair value as of September 30, 2024. There were no mortgage notes outstanding as of December 31, 2023.
Investments in Real Estate and Lease Intangibles
Acquisitions of properties are accounted for utilizing the acquisition method and, accordingly, the operations of acquired properties are included in the Company's results of operations from their respective dates of acquisition. The Company allocates the purchase price to acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-market” and “below-market” leases, acquired in-place leases, other identified intangible assets and assumed liabilities) based on their respective fair values at the date of acquisition.
The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The fair value of acquired in-place leases is the costs the Company would have incurred to lease the properties to the occupancy level of the properties at the date of acquisition. Such estimates include the fair value of leasing commissions, legal costs, and other direct costs that would be incurred to lease the properties to such occupancy levels. Additionally, the Company evaluates the time period over which such occupancy levels would be achieved. Such evaluation includes an estimate of the net market-based rental revenues and net operating costs (primarily consisting of real estate taxes, insurance and utilities) that would be incurred during the lease-up period. Acquired in-place leases as of the date of acquisition are amortized over the remaining lease term. The amortization of in-place lease intangibles is recorded in depreciation and amortization expense on the Company's Consolidated Statements of Operations.
Acquired above- and below-market lease values are recorded based on the present value of the difference between the contractual amounts to be paid pursuant to the in-place leases and the Company's estimate of fair value lease rates for the corresponding in-place leases. The capitalized above- and below-market rentals are amortized as adjustments to rental revenue over the remaining terms of the respective leases, which include periods covered by bargain renewal options. Should a tenant terminate its lease, the unamortized portion of the in-place lease value will be charged to amortization expense and the unamortized portion of above-market or below-market lease value will be charged to rental revenue.
The Company's investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
| | | | | | | | | | | | | | |
Description | | Depreciable Life |
Buildings and improvements | | 10 | — | 40 years |
| | | | |
Lease intangibles and leasehold improvements | | Lease term |
Significant improvements to properties are capitalized, whereas repairs and maintenance expenses at the Company's properties are expensed as incurred and included in rental property operating expenses on the Company's Consolidated Statements of Operations.
Impairment of Real Estate Portfolio
The Company reviews its real estate portfolio to ascertain if there are any indicators of impairment in the value of any of its real estate assets, including deferred costs and intangibles, in order to determine if there is any need for an impairment charge. For each real estate asset owned for which indicators of impairment exist, if the undiscounted cash flow analysis yields an amount which is less than the assets’ carrying amount, an impairment loss will be recorded to the extent that the fair value is lower than the asset’s carrying amount. Real estate assets that are expected to be disposed of are valued at the lower of carrying amount or fair value less costs to sell on an individual asset basis. Any impairment charge taken with respect to any part of the Company's real estate portfolio will reduce the Company's earnings and assets to the extent of the amount of any impairment charge, but it will not affect the Company's cash flow or its distributions until such time as the Company disposes of the property.
Revenue Recognition
The Company's rental revenue consists of base rent and tenant reimbursement income arising from tenant leases at the Company's properties under operating leases. Base rent is recognized on a straight-line basis over the life of the lease, including any rent step-ups or abatements. The Company accounts for base rental revenue (lease component) and common area expense reimbursement (non-lease component) as one lease component under Accounting Standards Codification 842, "Leases". Expenses paid by the lessee directly to a third party on behalf of the Company under triple-net lease arrangements, where the tenant is solely responsible for property-related costs such as real estate taxes, are excluded from non-lease components and from recognition in the Company’s statement of operations. Conversely, tenant reimbursements for non-lease components, such as utilities, insurance, and real estate taxes, are classified within this lease component.
The Company evaluates the collectability of receivables related to rental revenue on an individual lease basis. Management exercises judgment in assessing collectability and considers the length of time a receivable has been outstanding, tenant creditworthiness, payment history, available information about the financial condition of the tenant, and current economic trends, among other factors. Tenant receivables that are deemed uncollectible are recognized as a reduction to rental revenue. Any future cash receipt on leases that were previously deemed uncollectible will be recorded as income on a cash basis.
Income Taxes
The Company was a taxable corporation for the year ended December 31, 2023. The Company intends to make an election to be taxed and to operate in a manner that will allow it to qualify as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ending December 31, 2024. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes 100% of its taxable income to its stockholders. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
Organization and Offering Expenses
Pursuant to the advisory agreement among the Company, EQRT OP, and the Adviser, the Adviser or its affiliates have agreed to pay for all organization and offering expenses on behalf of the Company (including legal, accounting, and other expenses attributable to the Company’s organization, but excluding upfront selling commissions, dealer manager fees and distribution fees) through March 19, 2025, which is the first anniversary of the date the Company broke escrow for its initial public offering (the "Offering"). The Company will reimburse the Adviser for all such advanced expenses ratably over the 60-month period following March 19, 2025.
As of September 30, 2024 and December 31, 2023, the Adviser and its affiliates have incurred organization and offering expenses on the Company’s behalf of $6,827,630 and $5,470,431, respectively, related to the Offering and private offerings. The Company recorded such advances on its Consolidated Balance Sheets as a component of Due to affiliates.
As of September 30, 2024, the Company recorded $5,040,990 of deferred offering expenses on its Consolidated Balance Sheets. These costs are charged to equity as shares are sold in the offerings.
Operating Expenses
The Adviser will advance, on behalf of the Company, certain of the Company's general and administrative expenses through the earlier of (i) the first date that the aggregate net asset value ("NAV") of the Company's outstanding shares of common stock, along with EQRT OP units held by parties other than the Company, reaches $500 million and (ii) March 19, 2025, which is the first anniversary of the date the Company broke escrow for the Offering, at which point the Company will reimburse the Adviser for all such advanced general and administrative expenses ratably over the 60 months following such date.
As of September 30, 2024 and December 31, 2023, the Adviser has advanced $2,758,461 and $960,534, respectively. The Company recorded such advances on its Consolidated Balance Sheets as a component of Due to affiliates.
Share Based Payments
The Company records compensation cost related to the restricted common stock awards for its independent directors based on the grant date fair value which is amortized into expense over the vesting period on a straight-line basis.
Net Loss per Share of Common Stock
Basic net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per common share is computed by dividing net loss attributable to common stockholders for the period by the weighted average number of shares of common stock and common stock equivalents outstanding (unless their effect is anti-dilutive) for the period. For the three and nine months ended September 30, 2024, unvested Class E common shares awarded to the Company's independent directors are excluded from the calculation of diluted earnings per share as the inclusion of such potential common shares in the calculation would be anti-dilutive. The Company does not have any other dilutive securities outstanding that would cause basic net loss per share and diluted net loss per share to differ.
3. Investment in Real Estate
Investment in real estate, net, consisted of the following:
| | | | | | | | |
| | September 30, 2024 |
Building and building improvements | | $ | 200,159,676 | |
Land and land improvements | | 67,736,916 | |
| | |
Total | | 267,896,592 | |
Accumulated depreciation | | (1,013,261) | |
Investment in real estate, net | | $ | 266,883,331 | |
Acquisitions
During the three and nine months ended September 30, 2024, the Company acquired two and three real estate investments, respectively.
On March 20, 2024, the Company, through an indirect subsidiary, acquired a manufacturing and distribution warehouse facility in Georgetown, Texas (the "Georgetown Property"). On August 14, 2024, the Company, through an indirect subsidiary, acquired a bulk distribution warehouse facility in Middletown, Pennsylvania (the "Middletown Property"). On August 15, 2024, the Company, through an indirect subsidiary, acquired a bulk industrial facility in Portland, Tennessee (the “Nashville Property”). The following table summarizes the purchase price allocation for the acquisitions:
| | | | | | | | | | | | | | | | | | | | |
| | Georgetown Property | | Middletown Property | | Nashville Property |
Building and building improvements | | $ | 31,895,302 | | | $ | 118,409,425 | | | $ | 49,854,948 | |
Land and land improvements | | 21,795,966 | | | 35,157,436 | | | 10,783,515 | |
In-place lease intangibles | | 2,364,599 | | | 4,421,547 | | | 2,818,761 | |
Tenant origination costs | | 5,009,231 | | | 6,981,335 | | | 3,347,404 | |
Total purchase price | | 61,065,098 | | | 164,969,743 | | | 66,804,628 | |
Working capital assumed | | (107,579) | | | 1,054,407 | | | (1,582,111) | |
Unpaid acquisition costs | | (13,317) | | | (45,234) | | | (30,311) | |
Net purchase price | | $ | 60,944,202 | | | $ | 165,978,916 | | | $ | 65,192,206 | |
4. Intangibles
The Company did not have any intangibles as of December 31, 2023. The gross carrying amount and accumulated amortization of the Company's real estate related intangible assets consisted of the following as of September 30, 2024:
| | | | | | | | |
| | September 30, 2024 |
Intangible assets: | | |
In-place lease intangibles | | $ | 9,604,907 | |
Tenant origination costs | | 15,337,970 | |
| | 24,942,877 | |
Accumulated amortization: | | |
In-place lease intangibles | | (219,229) | |
Tenant origination costs | | (403,445) | |
Real estate related intangibles, net | | $ | 24,320,203 | |
The intangible assets associated with the properties are amortized over the remaining lease terms. As a result, the Company's real estate related intangibles have a weighted average amortization period of approximately 10.1 years remaining.
The estimated future amortization of the Company's real estate related intangibles for each of the next five years and thereafter as of September 30, 2024, is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | In-Place Lease Intangibles | | Tenant Origination Costs | | Total |
2024 (remaining) | | $ | 232,010 | | | $ | 374,613 | | | $ | 606,623 | |
2025 | | 928,043 | | | 1,498,455 | | | 2,426,498 | |
2026 | | 928,043 | | | 1,498,455 | | | 2,426,498 | |
2027 | | 928,043 | | | 1,498,455 | | | 2,426,498 | |
2028 | | 928,043 | | | 1,498,455 | | | 2,426,498 | |
2029 | | 928,043 | | | 1,498,455 | | | 2,426,498 | |
Thereafter | | 4,513,453 | | | 7,067,637 | | | 11,581,090 | |
| | $ | 9,385,678 | | | $ | 14,934,525 | | | $ | 24,320,203 | |
5. Other Assets
The following table details the components of the Company's other assets at September 30, 2024. The Company did not have any other assets as of December 31, 2023.
| | | | | | | | |
| | September 30, 2024 |
Receivables | | $ | 2,099,215 | |
Prepaid expenses | | 1,078,725 | |
Other(1) | | 914,125 | |
Other Assets | | $ | 4,092,065 | |
(1) Included in other assets is a $0.87 million deposit with a financial institution that is refundable at September 30, 2024 based on the terms of the loan application.
6. Mortgage Notes
On August 14, 2024, the Company, through an indirect subsidiary, entered into a seven-and-a-half-year mortgage loan with New York Life, an unaffiliated lender, for borrowings of $85.25 million secured by the Middletown Property (the “Middletown Mortgage Loan”).
On August 15, 2024, the Company, through certain of its subsidiaries, entered into a ten-year mortgage loan with State Farm, an unaffiliated lender, for borrowings of up to $109.60 million (as subsequently supplemented, the “State Farm Portfolio Mortgage Loan”). As of September 30, 2024, the outstanding principal balance of the State Farm Portfolio Mortgage Loan was $68.81 million.
The following table details the mortgage notes as of September 30, 2024. There were no mortgage notes outstanding as of December 31, 2023.
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | Principal Balance Outstanding |
Indebtedness | | Weighted Average Interest Rate | | Weighted Average Maturity Date | | September 30, 2024 |
Fixed rate mortgage notes | | 5.53% | | 4/14/2033 | | $ | 154,056,880 | |
Total loans secured by real estate | | | | 154,056,880 | |
Deferred financing costs, net | | | | (833,970) | |
Mortgage notes, net | | | | $ | 153,222,910 | |
The following table details the future principal payments due under the Company’s mortgage notes as of September 30, 2024:
| | | | | | | | |
Year | | Mortgage Notes |
2024 (remaining) | | $ | — | |
2025 | | — | |
2026 | | — | |
2027 | | — | |
2028 | | — | |
2029 | | — | |
Thereafter | | 154,056,880 | |
Total future principal payments | | $ | 154,056,880 | |
For the three and nine months ended September 30, 2024, the Company recognized interest expense of $1,134,803 related to its outstanding mortgage notes, which includes amortization of deferred financing costs of $10,157. There was no interest expense recognized for the three and nine months ended September 30, 2023.
The Company is subject to various financial covenants under certain of its mortgage notes. These covenants require the Company to maintain certain financial ratios, including net worth and liquidity, among others. As of September 30, 2024, the Company was in compliance with all of its loan covenants that could result in a default under such agreements.
7. Related Party Transactions
The following table presents the details of due to affiliates:
| | | | | |
| September 30, 2024 |
Due to the Adviser | |
Advanced organization and offering expenses | $ | 6,827,630 | |
Advanced general and administrative expenses | 2,758,461 | |
| 9,586,091 | |
Due to Exeter Property Group Advisors, LLC | |
Property management fee | 22,708 | |
Total Due to Affiliates | $ | 9,608,799 | |
The Company and EQRT OP entered into an amended and restated advisory agreement with the Adviser on March 19, 2024, which was renewed on July 31, 2024. Pursuant to the advisory agreement, the Adviser is responsible for sourcing, evaluating and monitoring the Company’s investment opportunities and making decisions related to the acquisition,
management, financing and disposition of the Company’s assets, in accordance with the Company’s investment objectives, guidelines, policies and limitations, subject to oversight by the Company’s board of directors.
The Company will pay the Adviser an annual management fee (payable monthly in arrears) of 1.25% of the aggregate NAV represented by the Company’s Class T shares, Class S shares, Class D shares and Class I shares, 0.50% of the aggregate NAV represented by the Company's Class A-I shares and 0.90% of the aggregate NAV represented by the Company's Class A-II shares. Additionally, to the extent that EQRT OP issues EQRT OP units to parties other than the Company, EQRT OP will pay the Adviser a management fee equal to 1.25% of the aggregate NAV of EQRT OP units not held by the Company per annum, payable monthly in arrears. No management fee will be paid with respect to Class E shares or Class E units of EQRT OP. The management fee will be paid, at the Adviser’s election, in cash, Class E shares of common stock, or Class E units of EQRT OP. The Adviser has agreed to waive its management fee for the first six full calendar months following March 19, 2024, the date the Company broke escrow for the Offering. If the Adviser elects to receive any portion of its management fee in Class E shares or Class E units of EQRT OP, the Company may be obligated to repurchase such Class E shares or Class E units from the Adviser at a later date. Such repurchases will be outside the Company’s share repurchase plan and thus will not be subject to the repurchase limits of the share repurchase plan or any Early Repurchase Deduction. See Note 10, "Equity and Redeemable Non-controlling Interest--Share Repurchases".
So long as the advisory agreement has not been terminated, the Special Limited Partner will hold a performance participation interest in EQRT OP that entitles it to receive an allocation from EQRT OP equal to 12.5% of the annual Total Return, subject to a 5% annual Hurdle Amount and a High-Water Mark, with a Catch-Up (each term as defined in the EQRT OP Second Amended and Restated Limited Partnership Agreement). Such allocation will be measured annually and accrued monthly. Class E units of EQRT OP will not be subject to the performance participation allocation. Distributions on the performance participation interest may be distributable in cash or Class E units at the election of the Special Limited Partner. See Note 10, "Equity and Redeemable Non-controlling Interest--Share Repurchases".
In addition, EQTE Brokerage LLC, (the “Dealer Manager”), an affiliate of the Adviser, serves as the dealer manager for the Offering. The Dealer Manager registered as a broker dealer with the SEC and the Financial Industry Regulatory Authority, Inc. (“FINRA”) on May 16, 2023. The Company entered into an agreement (the “Dealer Manager Agreement”) with the Dealer Manager in connection with the Offering on August 1, 2023. The Dealer Manager also serves as the dealer manager for the Company’s private offerings of Class A-I and Class A-II shares to “accredited investors” as defined in Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act").
The Dealer Manager is entitled to receive upfront selling commissions of up to 3.0%, and upfront dealer manager fees of 0.5%, of the transaction price of each Class T share sold in the primary offering; however, such amounts may vary for certain selected dealers provided that the sum will not exceed 3.5% of the transaction price. The Dealer Manager is entitled to receive upfront selling commissions of up to 3.5% of the transaction price of each Class S share sold in the primary offering. The Dealer Manager is entitled to receive upfront selling commissions of up to 1.5% of the transaction price of each Class D share sold in the primary offering. The Dealer Manager anticipates that all or a portion of the upfront selling commissions and dealer manager fees will be retained by, or reallowed (paid) to, selected dealers. No upfront selling commissions or dealer manager fees are paid with respect to purchases of Class A-I shares, Class A-II shares, Class I shares, Class E shares or shares of any class sold pursuant to the Company’s distribution reinvestment plan.
Subject to FINRA limitations on underwriting compensation and certain other limitations and subject to the provisions for the conversion of Class T shares, Class S shares and Class D shares into Class I shares, the Dealer Manager will also receive a distribution fee of 0.85%, 0.85% and 0.25% per annum of the aggregate NAV of the Company’s outstanding Class T shares, Class S shares and Class D shares, respectively. There is no distribution fee with respect to Class A-I shares, Class A-II shares, Class I shares or Class E shares. The distribution fees will be paid monthly in arrears. The Dealer Manager will reallow (pay) all or a portion of the distribution fees to selected dealers and servicing broker-dealers, and will rebate distribution fees to the Company to the extent a broker-dealer is not eligible to receive them. The Company will cease paying the distribution fee with respect to any Class T share, Class S share or Class D share held in a stockholder’s account at the end of the month in which the Dealer Manager, in conjunction with the transfer agent, determines that total upfront selling commissions, dealer manager fees and distribution fees paid with respect to the shares held by such stockholder within such account would equal or exceed, in the aggregate, 8.75% (or a lower limit as set forth in the applicable agreement between the Dealer Manager and a selected dealer at the time such shares were issued) of the gross proceeds from the sale of such shares and purchased in a primary offering (i.e., an offering other than a distribution reinvestment plan) (collectively, the “Fee Limit”). At the end of such month, each such Class T share, Class S share or Class D share in such account (including shares in such account purchased through the distribution reinvestment plan or received as a stock dividend) will convert into a number of Class I shares (including any fractional shares) with an equivalent aggregate NAV as such share. The Company will accrue the cost of the distribution fee as an offering expense at the time each Class T, Class S and Class D share is sold during the primary offering.
The Company expects to retain an affiliate of the Adviser to provide property management and leasing services for most, if not all, of the properties the Company acquires. In connection with the acquisitions of the Georgetown Property, on March 20, 2024, the Middletown Property, on August 14, 2024, and the Nashville Property, on August 15, 2024, the Company, through indirect subsidiaries, entered into property management agreements with Exeter Property Group Advisors, LLC (the “Property Manager”), an affiliate of the Adviser (the “Property Management Agreements”). The Property Management Agreements have terms through the end of the calendar year and will be renewed automatically for successive one-year periods unless terminated by either party giving the other party notice not less than thirty (30) days prior to the expiration of the then-current term. Pursuant to the Property Management Agreements, the Company will pay the Property Manager management fees equal to the lesser of the then-current market rate for services provided and the amount of such fee per the terms of the tenant lease. The Company will pay the Property Manager leasing commissions based on the then-current market rate; provided if the tenant is represented by a broker, the aggregate commissions would be no more than the then-current market rate. The Company will reimburse the Property Manager for all reasonable and actual expenditures. During the three and nine months ended September 30, 2024, the Company accrued $28,713 and $38,436 of property management fees due to the Property Manager, respectively. As of September 30, 2024, $22,708 of property management fees remained unpaid to the Property Manager.
The Company may retain an affiliate of the Adviser to provide development and construction services for certain properties the Company acquires. In addition, the Company may retain certain of the Adviser’s affiliates for necessary services relating to the Company’s investments or its operations, including accounting services, valuation support services, account management services, corporate secretarial services, data management services, directorship services, information technology services, finance/ budget services, human resources, judicial processes, legal services, operational services, risk management services, tax services, treasury services, loan management services, property, title and/or other types of insurance and related services, transaction support services, transaction consulting services and other similar operational matters. The Adviser’s affiliates may charge fees and expenses to the Company for the provision of such services. EQRT OP may also issue equity incentive compensation to certain employees of such affiliates for services provided. Any compensation paid to the Adviser’s affiliates for any such services will not reduce the management fee nor the performance participation allocation.
In addition to the organization, offering and general and administrative expense reimbursements described herein (see Note 2, "Summary of Significant Accounting Policies"), the Company will reimburse the Adviser for out-of-pocket costs and expenses the Adviser incurs in connection with the services it provides to the Company, including, but not limited to, (i) the actual cost of goods and services used by the Company and obtained from third parties, including fees paid to administrators, consultants, attorneys, technology providers and other service providers, and brokerage fees paid in connection with the purchase and sale of investments and securities, and (ii) expenses of managing and operating the Company’s properties, whether payable to an affiliate or a non-affiliated person.
The Company will not pay the Adviser any acquisition, financing (except interest payments to the lender in cases where the lender is an affiliate of the Adviser) or other similar fees in connection with making investments. The Company will, however, reimburse the Adviser for out-of-pocket expenses in connection with the selection and acquisition of properties and real estate-related securities, whether or not such investments are acquired, and make payments to third parties in connection with making investments. In connection with the Company's acquisition of the Georgetown Property, on March 20, 2024, Middletown Property, on August 14, 2024, and the Nashville Property, on August 15, 2024, the Adviser assigned the respective purchase and sale agreements to the Company's subsidiaries for $1,500,000, $4,000,000 and $1,500,000, respectively, representing the deposit amounts under the purchase and sale agreements. The Adviser also advanced $103,602 in closing costs for the Georgetown Property, $29,991 in closing costs for the Middletown Property and $50,387 in closing costs for the Nashville Property. The Company repaid the Adviser for the deposits and all of the closing costs on the respective acquisition dates.
On July 11, 2023, the Adviser and EQRT OP entered into an Investment Management Agreement (the “Investment Management Agreement”) with J.P. Morgan Investment Management Inc. (“JP Morgan”). Pursuant to the Investment Management Agreement, JP Morgan will serve as a sub-advisor to the Adviser and act as the investment manager for the Company’s portfolio of short-term investments, which may include real estate-related securities. Under the terms of the Investment Management Agreement, JP Morgan’s fee for its services will be paid entirely by the Adviser and not by the Company.
In addition, see Note 10, "Equity and Redeemable Non-controlling Interest", for information regarding investments in the Company or EQRT OP by the Adviser, an affiliate of the Sponsor and eight officers and employees of the Adviser and its affiliates.
8. Leases
The Company's rental revenue consists of rent earned from the operating leases at the Company's industrial properties. The leases include fixed base rents, subject to periodic step-ups and variable components. The variable components of the Company's operating leases consist of reimbursement of operating expenses such as insurance, real estate taxes and common area maintenance costs.
The following table summarizes the fixed and variable components of the Company's operating leases for the three and nine months ended September 30, 2024:
| | | | | | | | | | | | | | |
| | Three Months Ended September 30, 2024 | | Nine Months Ended September 30, 2024 |
Fixed lease payments | | $ | 3,159,595 | | | $ | 4,234,579 | |
Variable lease payments | | 424,564 | | | 478,177 | |
Total rental revenue | | $ | 3,584,159 | | | $ | 4,712,756 | |
The following table presents the undiscounted future minimum rents the Company expects to receive for its industrial properties as of September 30, 2024:
| | | | | | | | |
Year | | Future Minimum Rents |
2024 (remaining) | | $ | 3,667,736 | |
2025 | | 18,137,933 | |
2026 | | 18,727,464 | |
2027 | | 19,338,752 | |
2028 | | 19,970,657 | |
2029 | | 20,624,358 | |
Thereafter | | 112,151,974 | |
| | $ | 212,618,874 | |
9. Economic Dependency
The Company is dependent on the Adviser and its affiliates for certain services that are essential to it, including the sale of the Company’s shares of common stock, acquisition and disposition decisions, and certain other responsibilities. In the event that the Adviser and its affiliates are unable or unwilling to provide such services, the Company would be required to find alternative service providers.
10. Equity and Redeemable Non-controlling Interest
Authorized Capital
As of September 30, 2024 and December 31, 2023, the Company was authorized to issue up to 2,200,000,000 and 2,100,000,000 shares of common stock, par value $0.01 per share, respectively, and up to 100,000,000 shares of preferred stock, par value $0.01 per share, respectively. Of the 100,000,000 shares of preferred stock authorized as of September 30, 2024 and December 31, 2023, 220 shares were issued and classified as Class A shares.
As of September 30, 2024 and December 31, 2023, the Company had the following classes of common stock authorized, issued and outstanding:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | September 30, 2024 | | December 31, 2023 |
Classification | | Par Value Per Share | | Shares Authorized | | Shares Issued and Outstanding | | Shares Authorized | | Shares Issued and Outstanding |
Class A-I Shares | | $0.01 | | 50,000,000 | | | — | | | — | | | — | |
Class A-II Shares | | $0.01 | | 50,000,000 | | | — | | | — | | | — | |
Class T Shares | | $0.01 | | 500,000,000 | | | — | | | 500,000,000 | | | — | |
Class S Shares | | $0.01 | | 500,000,000 | | | — | | | 500,000,000 | | | — | |
Class D Shares | | $0.01 | | 500,000,000 | | | — | | | 500,000,000 | | | — | |
Class I Shares | | $0.01 | | 500,000,000 | | | 52,032 | | | 500,000,000 | | | — | |
Class E Shares (1) | | $0.01 | | 100,000,000 | | | 97,019 | | | 100,000,000 | | | 58,500 | |
Total | | | | 2,200,000,000 | | | 149,051 | | | 2,100,000,000 | | | 58,500 | |
(1) Included in Class E shares issued and outstanding is an aggregate of 38,156 unvested restricted shares of Class E common stock, $0.01 par value per share, with a grant date fair value of $10.09 per share that the Company issued to its four independent directors as compensation for their services pursuant to the Company’s independent director compensation plan on September 3, 2024. See "Share Based Compensation" below for details.
Offerings
On August 1, 2023, the Company registered the Offering with the SEC for up to $5,000,000,000 in shares of common stock, consisting of up to $4,000,000,000 in shares in its primary offering and up to $1,000,000,000 in shares pursuant to its distribution reinvestment plan. The Company intends to sell any combination of four classes of shares of its common stock in the Offering, Class T shares, Class S shares, Class D shares and Class I shares, with a dollar value up to the maximum offering amount. The share classes in the Offering have different upfront selling commissions and dealer manager fees, and different ongoing distribution fees. The terms of the Offering required the Company to hold investors’ funds from the Offering in an interest-bearing escrow account until the Company received purchase orders for at least $25,000,000 of its common stock or units of EQRT OP in the Offering or in separate private transactions (including purchase orders by the Adviser, the Sponsor, their affiliates and the Company’s directors and officers, which purchases were not limited in amount) and the Company’s board of directors authorized the release of funds in the escrow account to the Company. On March 19, 2024, EQT Exeter Holdings US, Inc. (“EQT Exeter Holdings”), an affiliate of the Sponsor, purchased 6,220,000 Class E units of EQRT OP for $62,200,000, or $10.00 per unit. As such, as of March 19, 2024, the Company satisfied the minimum offering requirement for all jurisdictions other than Pennsylvania and the Company’s board of directors authorized the Company to break escrow in the Offering. As of August 14, 2024, the Company also satisfied the minimum offering requirement for Pennsylvania. The purchase price per share for each class of common stock in the Offering will vary and will generally equal the Company’s prior month’s NAV per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees.
The Company is conducting a private offering of its Class A-I shares to “accredited investors” as defined in Regulation D promulgated under the Securities Act. This private offering is being conducted pursuant to Regulation D and other applicable exemptions. The Company intends to offer Class A-II shares in a separate private offering to accredited investors after the termination of the primary offering of Class A-I shares. The purchase price per share for each class of common stock in the private offerings will vary and will generally equal the Company's prior month's NAV per share, as determined monthly.
EQT Exeter Holdings has committed to purchase $200,000,000 in Class E shares of the Company’s common stock or Class E units of EQRT OP, or a combination thereof (the “Sponsor Committed Amount”); provided that EQT Exeter Holdings may invest a smaller amount to the extent the reduction is offset by an investment by other affiliates of the Sponsor and their officers and employees. As of September 30, 2024, EQT Exeter Holdings had purchased 19,628,251.459 Class E units of EQRT OP for an aggregate purchase price of approximately $197.10 million as part of the Sponsor Committed Amount.
Class E shares and Class E units are not available for purchase in the Offering. Class E shares and Class E units are only available for purchase in private transactions by (i) the Adviser, the Sponsor and their affiliates, (ii) employees of the Adviser, the Sponsor and their affiliates and (iii) the Company’s officers and directors. During the escrow period, the per share purchase price for Class E shares and Class E units was $10.00 per share or unit. After the close of the escrow period, Class E shares and Class E units are sold at the then-current transaction price, which will generally be the prior month’s NAV per share or unit for such class. The Class E shares and Class E units are not subject to any upfront selling
commissions, dealer manager fees, distribution fees, management fees payable to the Adviser or the performance participation allocation to the Special Limited Partner.
In 2022, the Company was capitalized with a $200,000 investment by the Adviser in exchange for the issuance of 20,000 shares of the Company’s common stock. The Adviser may not sell, transfer or dispose of these 20,000 shares to any party other than an affiliate of the Adviser while the Sponsor or any affiliate serves as the sponsor to the Company.
Distributions
Distributions are authorized at the discretion of the Company's board of directors, in accordance with its earnings, cash flows and general financial condition. The Company generally intends to distribute substantially all of its REIT taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to its stockholders each year to comply with the REIT provisions of the Code.
The following table details the aggregate distributions declared on the Company’s shares of Class E and Class I common stock, which were the only two classes of the Company's common stock outstanding, during the three and nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2024 | | Nine Months Ended September 30, 2024 |
| Class E | Class I | | Class E | Class I |
Aggregate distributions declared per share of common stock | $ | 0.11322 | | $ | 0.03769 | | | $ | 0.22557 | | $ | 0.03769 | |
| | | | | |
| | | | | |
Preferred Stock
On June 9, 2023, the Company issued 220 shares of Class A preferred stock to eight officers and employees of the Adviser and its affiliates at a price of $1,000 per share. The shares of Class A preferred stock pay a 10% annual dividend and have a $1,000 per share liquidation preference. The Class A preferred stock may be redeemed at any time in the Company’s discretion by payment of $1,000 per share plus a $50 per share redemption premium in the event of redemption prior to December 31, 2024. The shares of Class A preferred stock have no voting rights and may not be converted into any other class of security.
For the three months ended September 30, 2024 and 2023, the Company's board of directors did not declare any dividends on the Class A preferred shares. Cumulative dividends declared on the Class A preferred shares were $16,500 and $1,344 during the nine months ended September 30, 2024 and 2023, respectively.
The Consolidated Statements of Operations includes $5,500 of unpaid cumulative dividends on Class A preferred shares for the three and nine months ended September 30, 2024 and 2023 that were not recorded on the Consolidated Balance Sheets as of September 30, 2024 and 2023 as the dividends were not declared by the Company's board of directors. These dividends would be payable to holders in December 2024 when and if declared by the board of directors.
Share Based Compensation
The Company's board of directors approved the EQT Exeter Real Estate Income Trust, Inc. Independent Director Compensation Plan (the "Director Compensation Plan"), pursuant to which, up to 500,000 shares of the Company's Class E common stock are available for issuance. The restricted shares of Class E common stock issued pursuant to the Director Compensation Plan vest (i) on the one year anniversary of the grant date, provided that the independent director remains on the board of directors on such vesting date, or (ii) upon the earlier occurrence of his or her termination of service due to his or her death, disability or, if approved by the board of directors, upon a change of control of the Company or for “good reason.”
On September 1, 2023, the Company issued an aggregate of 38,500 restricted shares of Class E common stock to the Company’s four independent directors as compensation for their services pursuant to the Director Compensation Plan; these 38,500 restricted shares became fully vested on September 3, 2024, upon the one-year anniversary of the grant date. On September 3, 2024, the Company issued an aggregate of 38,156 restricted shares of Class E common stock to the Company’s four independent directors as compensation for their services pursuant to the Director Compensation Plan. During the three and nine months ended September 30, 2024, the Company recorded $96,250 and $288,750, respectively, of restricted stock amortization in general and administrative expenses in the Consolidated Statements of Operations. During the three and nine months ended September 30, 2023, the Company recorded $32,083 of restricted stock
amortization in general and administrative expenses in the Consolidated Statements of Operations. The following summarizes the activity for Class E common stock issued pursuant to the Director Compensation Plan during the nine months ended September 30, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the Nine Months Ended September 30, 2024 | | As of September 30, 2024 |
Type | | Restricted Stock | | Weighted Average Grant Date Fair Value (per share) | | Remaining Amortization Period | | Unrecognized Compensation Cost |
Unvested restricted shares as of December 31, 2023 | | 38,500 | | | $ | 10.00 | | | 0 months | | $ | — | |
Granted | | 38,156 | | | $ | 10.09 | | | 11 months | | $ | 352,911 | |
Forfeited | | — | | | | | | | |
Vested | | (38,500) | | | $ | 10.00 | | | | | |
Unvested restricted shares, end of period | | 38,156 | | | | | | | |
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan whereby stockholders in the Offering (other than Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors, and clients of certain selected dealers that do not permit automatic enrollment in the distribution reinvestment plan) will have their cash distributions automatically reinvested in additional shares of the Company’s common stock unless they elect to receive their distributions in cash. Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors in the Offering, and clients of certain selected dealers that do not permit automatic enrollment in the Company’s distribution reinvestment plan, will automatically receive their distributions in cash unless they elect to have their cash distributions reinvested in additional shares of the Company’s common stock. Investors in Class A-I and Class A-II common stock who purchase shares in private offerings will have their cash distributions automatically reinvested in additional shares of the Company's common stock unless they elect to receive their distributions in cash. Investors in Class E common stock may also elect to have their cash distributions reinvested in additional shares of the Company’s common stock. The purchase price for shares purchased under the distribution reinvestment plan will be equal to the most recently disclosed transaction price for such shares at the time of the record date for the distribution. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares under the distribution reinvestment plan; however, all outstanding Class T, Class S and Class D shares, including those purchased under the distribution reinvestment plan, will be subject to ongoing distribution fees.
Share Repurchases
The Company has adopted a share repurchase plan whereby, on a monthly basis, stockholders may request that the Company repurchase all or any portion of their shares. The Company may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in its discretion, subject to a number of limitations in the share repurchase plan. The aggregate NAV of total repurchases of Class A-I, Class A-II, Class T, Class S, Class D, Class I and Class E shares (including repurchases at certain non-U.S. investor access funds primarily created to hold shares of the Company’s common stock, if any, but excluding any Early Repurchase Deduction (as defined below) applicable to the repurchased shares) is limited to no more than 2% of the Company’s aggregate NAV per month (measured using the aggregate NAV attributable to stockholders as of the end of the immediately preceding month) and no more than 5% of the Company’s aggregate NAV per calendar quarter (measured using the average aggregate NAV attributable to stockholders as of the end of the immediately preceding three months).
EQT Exeter Holdings and affiliates of the Sponsor and their officers and employees purchasing Class E shares and Class E units in satisfaction of the Sponsor Committed Amount must agree to hold all such shares and units they acquire until the earlier of (i) the first date that the aggregate NAV of the Company’s outstanding shares of common stock, along with the EQRT OP units held by parties other than the Company, reaches $1.0 billion and (ii) March 19, 2027, which is three years from the date of the initial investment by EQT Exeter Holdings. Following such date, holders of Class E shares and Class E units purchased in connection with the Sponsor Committed Amount may request the Company repurchase such Class E shares or Class E units; provided, that (1) the Company will only process repurchases of such Class E shares or Class E units for cash after all other stockholder repurchase requests have been processed, (2) such repurchases of Class E shares
for cash will be subject to the 2% monthly and 5% quarterly limitations on repurchases and (3) upon a repurchase request, EQRT OP will repurchase Class E units for Class E shares or cash (at the holder’s election) unless the board of directors of the Company determines that any such repurchase for cash would be prohibited by applicable law or the partnership agreement of EQRT OP, in which case such Class E units will be repurchased for an amount of Class E shares with an aggregate NAV equivalent to the aggregate NAV of such Class E units; provided further, that repurchases of Class E units for cash will be subject to the 2% monthly and 5% quarterly limitations on repurchases in the share repurchase plan treating all outstanding EQRT OP units held by persons other than the Company as having been exchanged for shares of the Company as of the respective monthly and quarterly measurement dates for calculation of the 2% monthly and 5% quarterly limitations under the repurchase plan. For the avoidance of doubt, repurchases of Class E units for Class E shares will not be subject to the requirement that all other stockholder repurchase requests under the share repurchase plan have been processed and will not be subject to the 2% monthly and 5% quarterly limitations on repurchases. Repurchases of Class E shares and Class E units acquired in connection with the Sponsor Committed Amount will not be subject to the Early Repurchase Deduction.
Shares held by the Adviser acquired as payment of the Adviser’s management fee will not be subject to the share repurchase plan, including with respect to any repurchase limits or the Early Repurchase Deduction, and will not be included in the calculation of the Company’s aggregate NAV for purposes of the 2% monthly or 5% quarterly limitations on repurchases. Notwithstanding the foregoing, the Company has adopted a policy that requires the affiliated-transactions committee of the Company’s board of directors to approve any repurchase request of the Adviser for Class E shares received as payment for the management fee that, when combined with any stockholder repurchase requests submitted through the share repurchase plan, would cause the Company to exceed the 2% monthly or 5% quarterly repurchase limitations of the share repurchase plan. Such approval must find that the repurchase will not impair the Company’s capital or operations and is consistent with the fiduciary duties of the Company’s independent directors.
In addition, holders of Class E units issued in connection with distributions on the performance participation interest may request EQRT OP repurchase such Class E units for Class E shares or cash (at the holder’s election) unless the board of directors of the Company determines that any such repurchase for cash would be prohibited by applicable law or the partnership agreement of EQRT OP, in which case such Class E units will be repurchased for an amount of Class E shares with an aggregate NAV equivalent to the aggregate NAV of such Class E units; provided further, that repurchases of Class E units for cash will be subject to the 2% monthly and 5% quarterly limitations on repurchases in the share repurchase plan treating all outstanding EQRT OP units held by persons other than the Company as having been exchanged for shares of the Company as of the respective monthly and quarterly measurement dates for calculation of the 2% monthly and 5% quarterly limitations under the share repurchase plan. In addition, any repurchases of Class E units in respect of distributions on the performance participation interest will not be subject to the Early Repurchase Deduction.
Shares would be repurchased at a price equal to the transaction price in effect on the applicable repurchase date, subject to any Early Repurchase Deduction. Shares that have not been outstanding for at least one year would be repurchased at 98% of the transaction price (“Early Repurchase Deduction”). The Early Repurchase Deduction will not apply to shares acquired through the Company’s distribution reinvestment plan nor will it apply in the following circumstances (subject to the conditions described in the share repurchase plan): repurchases resulting from death, qualifying disability or divorce; in the event that a stockholder’s shares are repurchased because the stockholder has failed to maintain the $500 minimum account balance; or due to trade or operational error. Due to the illiquid nature of investments in real estate, the Company may not have sufficient liquid resources to fund repurchase requests and has established limitations on the amount of funds the Company may use for repurchases during any calendar month and quarter. The Company’s board of directors may make exceptions to modify or suspend the share repurchase plan if it deems in its reasonable judgment such action to be in the Company’s best interest. The Company’s board of directors will not terminate the share repurchase plan absent a liquidity event which results in the Company’s stockholders receiving cash or securities listed on a national securities exchange or where otherwise required by law.
Redeemable non-controlling interest
As of September 30, 2024, EQRT OP had issued 19,628,251.459 Class E units to EQT Exeter Holdings for aggregate consideration of $197,100,000. The Company has classified these Class E units as redeemable non-controlling interest in mezzanine equity on the Company's Consolidated Balance Sheets. The redeemable non-controlling interest is recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such EQRT OP units at the end of each measurement period.
The following table details the redeemable non-controlling interest activity related to these units during the nine months ended September 30, 2024:
| | | | | | | | |
Fair Value at March 19, 2024 | | $ | 62,200,000 | |
Contributions | | 134,900,000 | |
Offering expenses | | (75,205) | |
Net loss allocation | | (2,494,160) | |
Distributions to non-controlling interest | | (2,288,331) | |
Adjustment to redemption value | | 4,145,705 | |
Balance, September 30, 2024 | | $ | 196,388,009 | |
11. Commitments and Contingencies
As of September 30, 2024 and December 31, 2023, the Company was not subject to any material litigation nor was the Company aware of any material litigation threatened against it.
12. Subsequent Events
As of the date of this filing, the Company has evaluated subsequent events and determined that, except as disclosed herein, no events have occurred which would require an adjustment to or additional disclosure in the consolidated financial statements.
Acquisition and Financing
On October 16, 2024, the Company, through an indirect subsidiary (the “Washington Buyer”), acquired a 202,464 square foot bulk last mile industrial facility (the “Washington Building”) located on approximately 45.1 acres of land in Tukwila, Washington (the “Washington Land”) that is subject to a Ground Lease (defined below). The purchase price to acquire the Washington Building and all of the seller’s interest in the Ground Lease (together, the “Washington Property”) was $81.50 million, exclusive of closing costs.
At closing on October 16, 2024, the seller assigned its interest as a tenant in a ground lease (the “Ground Lease”) for the Washington Land to the Washington Buyer, and the Washington Buyer acquired a leasehold interest in the Washington Land. The initial term of the Ground Lease expires on December 31, 2074, and the Ground Lease has two ten-year extension options. As of October 16, 2024, the annualized base rent payable by the Washington Buyer to the landlord under the Ground Lease is approximately $4.9 million. The base rent under the Ground Lease is subject to 15% increases every five years with the next increase occurring on January 1, 2029. The Ground Lease is an absolute net lease whereby the Washington Buyer is required to pay all taxes, utilities, maintenance, and expenses associated with the Washington Land.
On August 15, 2024, the Company, through certain of its subsidiaries (collectively, the “State Farm Borrowers”), entered into the State Farm Portfolio Mortgage Loan with State Farm, an unaffiliated lender, for borrowings of up to $109.60 million. On October 16, 2024, in connection with the acquisition of the Washington Property, the Company drew down approximately $40.79 million under the State Farm Portfolio Mortgage Loan, the Washington Property was added as additional collateral to secure the loan, and the Washington Buyer was added as one of the State Farm Borrowers. As of October 16, 2024, the outstanding principal balance of the State Farm Portfolio Mortgage Loan was approximately $109.60 million, inclusive of approximately $8.94 million that is held in an escrow account and is available for funding upon completion of certain tenant improvements at the Nashville Property and subject to the terms and conditions of the loan documents. As of October 16, 2024, the State Farm Portfolio Mortgage Loan was secured by the Washington Property, the Nashville Property and the Georgetown Property.
Distributions
On October 31, 2024, the Company declared a distribution of $0.03769 per share for its Class E, Class I and Class A-I common stock and a distribution of $0.03769 per unit for the Class E units of EQRT OP for stockholders and unitholders, respectively, as of the close of business on October 31, 2024. These distributions were paid on November 11, 2024 and were paid in cash or reinvested in shares of the Company's common stock for stockholders participating in the Company's distribution reinvestment plan.
Capital Raising
On October 1, 2024, the Company issued 21,253.730 Class I shares of common stock in the Offering at a price per share of $10.05 for an aggregate purchase price of approximately $0.21 million.
On November 1, 2024, the Company issued 33,366.632 Class I shares of common stock in the Offering at a price per share of $10.01 for an aggregate purchase price of approximately $0.33 million.
On October 1, 2024, the Company issued 260,995.023 Class A-I shares of common stock at a price per share of $10.05 to accredited investors in a private placement for an aggregate purchase price of approximately $2.62 million.
On November 1, 2024, the Company issued 731,148.845 Class A-I shares of common stock at a price per share of $10.01 to accredited investors in a private placement for an aggregate purchase price of approximately $7.32 million.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References herein to “EQRT”, the “Company,” “we,” “us,” or “our” refer to EQT Exeter Real Estate Income Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws and the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology such as "believe", "expect", "anticipate", "estimate", "plan", "continue", "intend", "should", "may" or similar expressions, or the negatives thereof. These may include our financial projections and estimates and their underlying assumptions, statements about plans, objectives and expectations with respect to future operations, statements with respect to acquisitions, statements regarding future performance and statements regarding identified but not yet closed acquisitions. Such forward-looking statements are inherently uncertain and there are or may be important factors that could cause actual outcomes or results to differ materially from those indicated in such statements. We believe these factors also include but are not limited to those described under Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 29, 2024 (the "Annual Report") and in supplement no. 8 dated October 23, 2024 to our prospectus dated April 19, 2024, filed with the SEC, and any such updated factors included in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this document and our other filings with the SEC. Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Overview
We are a Maryland corporation formed on September 2, 2022. We were formed to invest primarily in stabilized, income-oriented commercial real estate in the United States in a range of asset types. To a lesser extent, we also plan to invest in real estate related securities to provide a source of liquidity for our share repurchase plan, cash management and other purposes. We are an externally advised, perpetual-life corporation. We are externally managed by Exeter Property Group, LLC (our "Adviser" or "EQT Exeter"), an affiliate of EQT AB (our "Sponsor").
Our investment objectives are to invest in assets that will enable us to:
•generate current income in the form of regular stable cash distributions to achieve an attractive cash yield;
•preserve and protect invested capital;
•provide a source of potential inflation protection and realize appreciation in net asset value from proactive investment management and asset management; and
•provide an investment alternative for stockholders seeking to allocate a portion of their long-term investment portfolios to commercial real estate with lower volatility than listed public real estate companies.
We cannot assure you that we will achieve our investment objectives. In particular, we note that the net asset value (“NAV”) of non-traded REITs may be subject to volatility related to the values of their underlying assets, and appraisal-based valuations are estimates of fair value and may not necessarily correspond to realizable value.
We plan to own all or substantially all of our assets through our operating partnership, EQT Exeter REIT Operating Partnership, LP, a Delaware limited partnership (the "Operating Partnership" or "EQRT OP"), of which we are the sole general partner.
Our board of directors will at all times have ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to the advisory agreement among us, the Operating Partnership and our Adviser, however, we have delegated to our Adviser the authority to source, evaluate and monitor our investment opportunities and make decisions related to the acquisition, management, financing and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations, subject to oversight by our board of directors. Affiliates of our Adviser also have extensive experience in providing responsive and professional property management and leasing services as well as development and construction services. We have retained and expect to continue to retain an affiliate of our Adviser to provide property management and leasing services for most, if
not all, of the properties we acquire and to provide development and construction services as needed. We believe our most compelling potential competitive strength is our relationship with EQT Exeter, a premier investment manager and, of crucial importance, a vertically integrated operator built on the talent and experience of an extensive network of “hyper-local” real estate professionals.
From September 2, 2022 (date of our formation) to March 18, 2024, our activity had been to prepare for our fundraising through our initial public offering of our common stock. We have registered with the SEC an offering of up to $5,000,000,000 in shares of common stock (the "Offering"), consisting of up to $4,000,000,000 in shares in our primary offering and up to $1,000,000,000 in shares pursuant to our distribution reinvestment plan. The terms of the Offering required us to hold investors’ funds from the Offering in an interest-bearing escrow account until we received purchase orders for at least $25,000,000 of our common stock or units of the Operating Partnership in the Offering or in separate private transactions (including purchase orders by the Adviser, the Sponsor, their affiliates and our directors and officers, which purchases were not limited in amount) and our board of directors authorized the release of funds in the escrow account to us. On March 19, 2024, the Operating Partnership issued 6,220,000 Class E units to EQT Exeter Holdings US, Inc. (“EQT Exeter Holdings”), an affiliate of our Sponsor, for an aggregate purchase price of $62,200,000, or $10.00 per unit. As such, as of March 19, 2024, we satisfied the minimum offering requirement for all jurisdictions other than Pennsylvania and our board of directors authorized us to break escrow in the Offering. As of August 14, 2024, we also satisfied the minimum offering requirement for Pennsylvania. As of November 14, 2024, EQT Exeter Holdings had purchased 19,628,251.459 Class E units of the Operating Partnership for an aggregate purchase price of approximately $197.10 million as part of the Sponsor Committed Amount. See the discussion of the Sponsor Committed Amount under “—Liquidity and Capital Resources” below.
As of November 14, 2024, we have sold 106,652.08 Class I shares in the primary portion of the Offering for gross offering proceeds of $1,072,600 and 471.80 Class I shares in the Offering pursuant to our distribution reinvestment plan for an approximate total value of $4,731. As of November 14, 2024, we have not sold any Class T, Class S or Class D shares in the Offering. As of November 14, 2024, approximately $4,998,922,669 in shares remain available for sale pursuant to the Offering, including up to approximately $999,995,269 in shares pursuant to our distribution reinvestment plan.
We are also conducting a private offering of Class A-I shares to “accredited investors” as defined in Regulation D ("Regulation D") promulgated under the Securities Act of 1933, as amended. This private offering is being conducted pursuant to Regulation D and other applicable exemptions. As of November 14, 2024, we have sold approximately 993,064.76 Class A-I shares of common stock to accredited investors in a private placement for an aggregate purchase price of approximately $9.95 million, including shares issued pursuant to our distribution reinvestment plan. We intend to offer Class A-II shares in a separate private offering to accredited investors after the termination of the primary offering of Class A-I shares.
On March 20, 2024, we acquired our first real estate investment, a 449,642 square foot light manufacturing and distribution warehouse facility on approximately 55 acres of land in Georgetown, Texas (the “Georgetown Property”). The Georgetown Property, constructed in 2023, is 100% leased to a single tenant. The purchase price of the Georgetown Property was approximately $60.9 million, exclusive of closing costs. We initially funded the acquisition of the Georgetown Property with proceeds from the initial sale of Class E units of the Operating Partnership to EQT Exeter Holdings.
On August 14, 2024, we acquired a 1,219,021 square foot bulk distribution warehouse facility on approximately 196.3 acres of land in Middletown, Pennsylvania (the “Middletown Property”). Construction was completed on the Middletown Property in 2023, and the Middletown Property is 100% leased to a single tenant. The purchase price of the Middletown Property was approximately $170.50 million, exclusive of closing costs. We funded the acquisition of the Middletown Property with proceeds from the sale of Class E units of our Operating Partnership to EQT Exeter Holdings and debt financing.
On August 15, 2024, we acquired a 638,330 square foot bulk industrial facility on approximately 38.1 acres of land in Portland, Tennessee (the “Nashville Property”). Construction was completed on the Nashville Property in 2023, and the Nashville Property is 100% leased to a single tenant. The purchase price of the Nashville Property was $75.00 million, exclusive of closing costs. We funded the acquisition of the Nashville Property with proceeds from the sale of Class E units of our Operating Partnership to EQT Exeter Holdings and debt financing.
The number and type of properties or real estate-related securities that we acquire will depend upon real estate market conditions, the amount and timing of offering proceeds we raise and other circumstances existing at the time we acquire
such assets. Subsequent to September 30, 2024, we acquired an industrial property in Tukwila, Washington. See “—Subsequent Events” below.
We are not aware of any material trends or uncertainties, favorable or unfavorable, other than regional or global economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties or real estate-related securities, other than those referred to in our Annual Report.
Results of Operations
From September 2, 2022 (date of our formation) to March 18, 2024, our activity had been to prepare for our fundraising through our initial public offering of our common stock and we had not commenced principal operations. As such, comparative results for the three and nine months ended September 30, 2023 have not been presented.
Rental revenue
For the three and nine months ended September 30, 2024, we earned $3,584,159 and $4,712,756 of rental income from our real estate investments, respectively.
Rental property operating expenses
Rental property operating expenses consist of the costs of ownership and operation of our real estate investments. Examples of rental property operating expenses include insurance, utilities, real estate taxes and repair and maintenance expenses. During the three and nine months ended September 30, 2024, rental property operating expenses were $430,557 and $490,797, respectively.
General and administrative expenses and organization expenses
For the three months ended September 30, 2024, we recorded $848,215 of general and administrative expenses and no organization expenses. For the nine months ended September 30, 2024, we recorded $2,932,912 of general and administrative expenses and $1,186,955 of organization expenses. General and administrative expenses include but are not limited to audit expenses, legal expenses, transfer agent expenses and fund administration expenses. We do not expect to incur additional material organization expenses in the future as our formation is complete and we have commenced principal operations. For a discussion of our Adviser’s support measures, see “—Liquidity and Capital Resources” below.
Depreciation and amortization
Depreciation and amortization expenses are mostly impacted by the fair values assigned to buildings and building improvements, land improvements, in-place lease intangibles and tenant origination costs as part of the initial purchase price allocation of our real estate investments. During the three and nine months ended September 30, 2024, we recorded $1,145,357 and $1,654,751 in depreciation and amortization expenses, respectively.
Interest income
For the three and nine months ended September 30, 2024, we recorded $118,548 and $136,768 of interest income, respectively, which consisted of interest earned from a short-term investments account.
Interest expense
For the three and nine months ended September 30, 2024, we recorded $1,134,803 of interest expense relating to our outstanding mortgage indebtedness, which includes amortization of deferred financing costs of $10,157.
Adjustment to redeemable non-controlling interest to redemption value
As of September 30, 2024, the Operating Partnership had issued 19,628,251 Class E units to EQT Exeter Holdings for aggregate consideration of $197,100,000. We have classified these Class E units as redeemable non-controlling interests in mezzanine equity on our Consolidated Balance Sheets. The redeemable non-controlling interest is recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such Operating Partnership units at the end of each measurement period.
For the three and nine months ended September 30, 2024, we recorded $394,792 and $4,145,705, respectively, as an adjustment to the redeemable non-controlling interest to record it at its redemption value.
Net Asset Value
We calculate NAV per share in accordance with the valuation guidelines that have been approved by our board of directors. The purchase price per share for each class of our common stock will generally be equal to our prior month's NAV per share for the applicable share class, as determined monthly, plus applicable selling commissions and dealer manager fees. Our NAV for each class of shares is based on the net asset values of our investments (including real estate related securities), the addition of any other assets (such as cash on hand) and the deduction of any liabilities, including class-specific accruals, as described in our valuation guidelines. Our Adviser is ultimately responsible for the determination of our monthly NAV. For more information regarding the calculation of our NAV per share of each class and how our properties and real estate related securities are valued, see “Net Asset Value Calculation and Valuation Guidelines” in our prospectus, as amended and supplemented.
Our total NAV presented in the following tables includes the NAV of our outstanding classes of common stock as of September 30, 2024 as well as Class E units of our Operating Partnership held by an affiliate of our Sponsor. The following table provides a breakdown of the major components of our total NAV as of September 30, 2024 ($ and shares/units in thousands):
| | | | | |
Components of NAV | September 30, 2024 |
Investments in real estate | $ | 293,474 | |
Cash and cash equivalents | 44,153 | |
Restricted cash | 14,522 | |
Other assets | 2,145 | |
Mortgage notes, net of deferred financing costs | (153,223) | |
Other liabilities | (3,346) | |
Preferred stock | (226) | |
Net asset value | $ | 197,499 | |
Number of outstanding shares/units | 19,739 | |
The following table sets forth our total NAV and NAV per share/unit by class as of September 30, 2024 ($ and shares/units in thousands, except per share/unit data):
| | | | | | | | | | | | | | | | | | | | | | | |
NAV Per Share/Unit | Class I Shares | | Class E Shares | | Class E Units | | Total |
Net asset value | $ | 521 | | | $ | 589 | | | $ | 196,389 | | | $ | 197,499 | |
Number of outstanding shares/units | 52 | | | 59 | | | 19,628 | | | 19,739 | |
NAV per share/unit as of September 30, 2024 | $ | 10.01 | | | $ | 10.01 | | | $ | 10.01 | | | |
Consistent with our disclosure in our prospectus, as amended and supplemented, regarding our NAV calculation, our investments in real estate are initially valued at cost, which we expect to represent fair value at that time. In the future, as we establish new values for our newly acquired real estate investments, we will provide information on key assumptions used in the valuation methodology and a sensitivity analysis related thereto.
The valuation of the Georgetown Property as of September 30, 2024 was provided by Altus Group U.S. Inc., our Independent Valuation Advisor, in accordance with our valuation guidelines. Certain key assumptions that were used by the Independent Valuation Advisor in the discounted cash flow analysis are set forth in the following table.
| | | | | | | | | | | | | | |
Property Type | | Discount Rate | | Exit Capitalization Rate |
Industrial | | 7.25% | | 5.75% |
A change in these assumptions would impact the calculation of the value of the Georgetown Property. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on the value of the Georgetown Property:
| | | | | | | | | | | | | | |
Input | | Hypothetical Change | | Industrial Property Value |
Discount Rate | | 0.25% decrease | | 2.05% |
| | 0.25% increase | | (1.84)% |
Exit Capitalization Rate | | 0.25% decrease | | 2.69% |
| | 0.25% increase | | (2.49)% |
The following table reconciles deficit and redeemable non-controlling interest per our Consolidated Balance Sheets as of September 30, 2024 to our NAV ($ shown in thousands):
| | | | | | | | |
Reconciliation of Deficit and Redeemable Non-controlling Interest to NAV | | As of September 30, 2024 |
Deficit under GAAP | | $ | (3,532) | |
Redeemable non-controlling interest | | 196,388 |
Total deficit and redeemable non-controlling interest under GAAP | | $ | 192,856 | |
Adjustments: | | |
Preferred stock and accumulated dividends | | (226) |
Organization, offering and operating expenses | | 4,287 |
Real estate investments, closing costs and straight-line rent | | (1,073) |
Accumulated depreciation and amortization | | 1,655 | |
NAV | | $ | 197,499 | |
The following describes the adjustments to reconcile GAAP deficit and redeemable non-controlling interest per our Consolidated Balance Sheet to our NAV:
•Our investments in real estate are presented at historical cost in our GAAP consolidated financial statements. As such, any changes in the fair values of our investments in real estate are not included in our GAAP results. For purposes of determining our NAV, our investments in real estate are recorded at fair value. In addition, adjustments made in accordance with GAAP for straight-line adjustments to rental income are excluded from NAV.
•The Adviser has agreed to advance all of our organization and offering expenses on our behalf (other than upfront selling commissions, dealer manager fees and the distribution fees) through March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering. We will reimburse our Adviser for all such advanced expenses ratably over the 60 months following March 19, 2025. For purposes of calculating our NAV, the organization and offering expenses advanced, waived or paid by our Adviser will not be recognized as expenses or as a component of equity and are not reflected in our NAV until we pay our Adviser for these costs. Our Adviser will advance on our behalf certain of our general and administrative expenses through the earlier of (i) the first date that the aggregate NAV of our outstanding shares of common stock, along with the Operating Partnership units held by parties other than us, reaches $500 million and (ii) March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering, at which point we will reimburse our Adviser for all such advanced expenses ratably over the 60 months following such date. These advanced general and administrative expenses are not recognized as expenses or as a component of equity and are not reflected in our NAV until we reimburse the Adviser for these expenses.
•In accordance with GAAP, we depreciate our investments in real estate and amortize certain other assets and liabilities. Such depreciation and amortization expenses are not included for purposes of determining our NAV.
Liquidity and Capital Resources
Our primary needs for liquidity and capital resources are to fund our investments, to make distributions to our stockholders, to repurchase shares of our common stock pursuant to our share repurchase plan, to pay our offering and operating fees and expenses and to pay interest on our outstanding indebtedness. We anticipate our offering and operating fees and expenses will include, among other things, the management fee we will pay to our Adviser, distribution fees we will pay to the Dealer Manager, legal, audit and valuation expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution expenses and fees related to acquiring, financing, appraising and managing our properties. In addition, the Operating Partnership will make distributions on the performance participation allocation to
its special limited partner. We do not have any office or personnel expenses as we do not have any employees. We will reimburse our Adviser for certain out-of-pocket expenses incurred by them in connection with our operations.
Our Adviser has agreed to several support measures. Our Adviser agreed to waive its management fee for the first six full calendar months following March 19, 2024, the date on which we broke escrow for the Offering. We commenced accruing the management fee on October 1, 2024. Our Adviser has also agreed to advance all of our organization and offering expenses on our behalf (excluding upfront selling commissions, dealer manager fees and the distribution fees) through March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering. We will reimburse our Adviser for all such advanced expenses ratably over the 60 months following March 19, 2025.
In addition, our Adviser will advance on our behalf certain of our general and administrative expenses through the earlier of (i) the first date that the aggregate NAV of our outstanding shares of common stock, along with the Operating Partnership units held by parties other than us, reaches $500 million and (ii) March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering, at which point we will reimburse our Adviser for all such advanced expenses ratably over the 60 months following such date.
As of September 30, 2024 and December 31, 2023, the Adviser had incurred $6,827,630 and $5,470,431, respectively, of organization and offering expenses and $2,758,461 and $960,534, respectively, of general and administrative related costs on our behalf.
EQT Exeter Holdings has committed to purchase a total of $200,000,000 in Class E shares of our common stock or Class E units of our Operating Partnership, or a combination thereof (the “Sponsor Committed Amount”); provided that EQT Exeter Holdings may invest a smaller amount to the extent the reduction is offset by an investment by other affiliates of the Sponsor or their officers and employees. As of November 14, 2024, EQT Exeter Holdings had purchased 19,628,251.459 Class E units of the Operating Partnership for an aggregate purchase price of approximately $197.10 million as part of the Sponsor Committed Amount.
Class E shares and Class E units are only available for purchase in private transactions by (i) the Adviser, the Sponsor and their affiliates, (ii) employees of the Adviser, the Sponsor and their affiliates and (iii) our officers and directors. The Class E shares and Class E units are not subject to any upfront selling commissions, dealer manager fees, distribution fees, management fees payable to our Adviser or the performance participation allocation to the special limited partner.
During the three months ended September 30, 2024, in connection with our real estate acquisitions, we incurred mortgage indebtedness in an aggregate principal amount of approximately $154.06 million. These mortgage notes are secured by our real estate investments and bear interest at fixed rates ranging from 5.35% to 5.75%. The notes have maturity dates ranging from March 1, 2032 to September 1, 2034. We intend to meet our obligations related to these mortgage notes through a combination of cash flows generated by our operations, proceeds from property dispositions, and refinancing activities as appropriate. We evaluate our debt obligations to optimize our capital structure and reduce the cost of capital. As of September 30, 2024, we are in compliance with all covenants related to our mortgage notes, including net worth and liquidity, among others. We believe that our existing cash balance, cash flows from operations and cash flows from financing activities are sufficient to meet our debt service obligations and other liquidity needs in the foreseeable future.
The following table details our outstanding mortgage notes as of September 30, 2024. There were no mortgage notes outstanding as of December 31, 2023.
| | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | Principal Balance Outstanding |
Indebtedness | | Weighted Average Interest Rate | | Weighted Average Maturity Date | | September 30, 2024 |
Fixed rate mortgage notes | | 5.53% | | 4/14/2033 | | $ | 154,056,880 | |
Total loans secured by real estate | | | | 154,056,880 | |
Deferred financing costs, net | | | | (833,970) | |
Mortgage notes, net | | | | $ | 153,222,910 | |
Subsequent to September 30, 2024, we made an additional draw on one of our mortgage notes. See “—Subsequent Events” below.
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ending December 31, 2024. In order to qualify and maintain our qualification as a REIT, we are required to, among other things, distribute as dividends at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders and meet certain tests regarding the nature of our income and assets. No assurances can be provided regarding our qualification as a REIT.
Over time, we generally intend to fund our cash needs for items other than asset acquisitions from operations. We expect our cash needs for acquisitions will be funded primarily from the sale of shares of our common stock and units of the Operating Partnership and through the assumption or incurrence of debt. We may also fund repurchase requests under our share repurchase plan from sources other than cash flow from operations, including, without limitation, the sale or repayment of our assets, borrowings or offering proceeds, and we have no limits on the amounts we may pay from such sources.
Although we have not received any commitments from lenders to fund a line of credit to date, we may decide to obtain a line of credit to fund acquisitions, to repurchase shares pursuant to our share repurchase plan and for any other corporate purpose. If we decide to obtain a line of credit, we would expect that it would afford us borrowing availability to fund repurchases. As our assets increase, however, it may not be commercially feasible or we may not be able to secure an adequate line of credit to fund share repurchases. Moreover, actual availability may be reduced at any given time if we use borrowings under the line of credit to fund share repurchases or for other corporate purposes.
Other potential future sources of capital include proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.
Distributions
Distributions are authorized at the discretion of our board of directors, in accordance with our earnings, cash flows and general financial condition. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be made in anticipation of cash flows which we expect to receive during a later quarter and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform.
Beginning in April 2024, we have declared monthly distributions for each outstanding class of our common stock with a record date as of the close of business as of the last calendar day of each month. Such distributions are generally paid 10 days after month-end. The following table summarizes each record date for distributions and the distributions declared per share for each outstanding class of our common stock as of September 30, 2024. As of September 30, 2024, we did not have any outstanding shares of Class T, Class S, Class D, Class A-I or Class A-II common stock.
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Record Date | | Class I shares | | Class E shares |
April 30, 2024 | | $ | — | | | $ | 0.03724 | |
May 31, 2024 | | — | | | 0.03750 | |
June 30, 2024 | | — | | | 0.03761 | |
July 31, 2024 | | — | | | 0.03769 | |
August 31, 2024 | | — | | | 0.03784 | |
September 30, 2024 | | 0.03769 | | | 0.03769 | |
Total | | $ | 0.03769 | | | $ | 0.22557 | |
The following table summarizes distributions paid on our shares of common stock, shares of Class A preferred stock and Class E units of our Operating Partnership held by an affiliate of our Sponsor during the three and nine months ended September 30, 2024:
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| Three Months Ended September 30, 2024 | | Nine Months Ended September 30, 2024 |
| Amount | Percentage | | Amount | Percentage |
Distributions | | | | | |
Paid in cash | $ | 1,088,099 | | 99.8 | % | | $ | 1,555,965 | | 99.1 | % |
Reinvested in shares | 2,205 | | 0.2 | % | | 3,644 | | 0.2 | % |
Dividends to preferred stockholders | — | | — | % | | 11,000 | | 0.7 | % |
Total distributions | $ | 1,090,304 | | 100.0 | % | | $ | 1,570,609 | | 100.0 | % |
| | | | | |
Source of Distributions | | | | | |
Paid from cash flow from current period operating activities | $ | 766,182 | | 70.3 | % | | $ | 1,570,609 | | 100.0 | % |
Paid from cash flow from prior period operating activities in excess of distributions paid during prior periods | 324,122 | | 29.7 | % | | — | | — | % |
Total sources of distributions | $ | 1,090,304 | | 100.0 | % | | $ | 1,570,609 | | 100.0 | % |
| | | | | |
Net cash provided by operating activities | $ | 766,182 | | | | $ | 1,917,684 | | |
For the nine months ended September 30, 2024, our net loss was $2.55 million.
In addition to the distributions shown above, we declared a distribution of $0.03769 per unit for Class E units of our Operating Partnership to limited partners as of the close of business on September 30, 2024. These distributions were paid on October 10, 2024.
Such amounts are recorded in accounts payable and accrued expenses on the Consolidated Balance Sheets as of September 30, 2024.
Fees and Expenses Payable to Our Adviser and its Affiliates
The table below provides information regarding fees and expenses payable to our Adviser and its affiliates in connection with our offerings and our operations. The table includes amounts incurred for the nine months ended September 30, 2024 and related amounts payable.
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| | Nine Months Ended September 30, 2024 |
Form of Compensation | | Incurred | | Payable |
Offering | | | | |
Advanced organization and offering expenses (1) | | $ | 6,827,630 | | | $ | 6,827,630 | |
Operational | | | | |
Advanced general and administrative expenses (2) | | 2,758,461 | | 2,758,461 |
Acquisition related (3) | | 7,183,980 | | — |
Property management fee | | 38,436 | | 22,708 |
Total | | $ | 16,808,507 | | | $ | 9,608,799 | |
(1) Our Adviser has agreed to advance all of our organization and offering expenses on our behalf (excluding upfront selling commissions, dealer manager fees and the distribution fees) through March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering. We will reimburse our Adviser for all such advanced expenses ratably over the 60 months following March 19, 2025.
(2) Our Adviser will advance on our behalf certain of our general and administrative expenses through the earlier of (i) the first date that the aggregate NAV of our outstanding shares of common stock, along with the Operating Partnership units held by parties other than us, reaches $500 million and (ii) March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering, at which point we will reimburse our Adviser for all such advanced expenses ratably over the 60 months following such date.
(3) In connection with our acquisition of the Georgetown Property, on March 20, 2024, our Adviser assigned the purchase and sale agreement for the property to our indirect subsidiary for $1,500,000, which was the amount of the deposit under
the purchase and sale agreement. Our Adviser also advanced $103,602 of closing costs on our behalf for this acquisition. We repaid our Adviser for the deposit and the advanced closing costs on March 20, 2024.
In connection with our acquisition of the Middletown Property, on August 14, 2024, our Adviser assigned the purchase and sale agreement for the property to our indirect subsidiary for $4,000,000, which was the amount of the deposit under the purchase and sale agreement. Our Adviser also advanced $29,991 of closing costs on our behalf for this acquisition. We repaid our Adviser for the deposit and the advanced closing costs on August 14, 2024.
In connection with our acquisition of the Nashville Property, on August 15, 2024, our Adviser assigned the purchase and sale agreement for the property to our indirect subsidiary for $1,500,000, which was the amount of the deposit under the purchase and sale agreement. Our Adviser also advanced $50,387 of closing costs on our behalf for this acquisition. We repaid our Adviser for the deposit and the advanced closing costs on August 15, 2024.
We do not reimburse our Adviser or its affiliates for the salaries or benefits of our named executive officers.
Cash Flows
The following table provides a breakdown of the net change in our cash, cash equivalents and restricted cash.
| | | | | |
| Nine Months Ended September 30, 2024 |
Cash flows provided by operating activities | $ | 1,917,684 | |
Cash flows used in investing activities | (292,115,324) | |
Cash flows provided by financing activities | 348,467,485 | |
Net increase in cash, cash equivalents and restricted cash | $ | 58,269,845 | |
Cash flows provided by operating activities were $1.92 million and were primarily attributable to rental payments received from our real estate investments for the nine months ended September 30, 2024.
Cash flows used in investing activities were $292.12 million and were related to our acquisitions of real estate investments during the nine months ended September 30, 2024.
Cash flows provided by financing activities related to EQT Exeter Holdings' acquisitions of $197.10 million of Class E units of the Operating Partnership and the sale of $0.53 million of Class I shares during the nine months ended September 30, 2024 as well as $154.06 million of proceeds from debt financings, partially offset by (i) a total of $1.57 million of distribution payments made on common stock, Class E units of our Operating Partnership and preferred stock during the nine months ended September 30, 2024; (ii) a $0.87 million deposit paid to a financial institution during the nine months ended September 30, 2024 and (iii) a $0.78 million payment of deferred financing costs during the nine months ended September 30, 2024.
Contractual Obligations and Commitments
The following table aggregates our contractual obligations and commitments with payments due subsequent to September 30, 2024.
| | | | | | | | | | | | | | | | | |
Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years |
Advanced general and administrative expenses(1) | $ | 2,758,461 | | $ | 321,820 | | $ | 1,103,384 | | $ | 1,333,257 | | $ | — | |
Advanced organization and offering expenses(1) | 6,827,630 | | 796,557 | | 2,731,052 | | 3,300,021 | | — | |
Mortgage indebtedness (2) | 227,117,628 | | 8,517,271 | | 17,034,542 | | 17,034,542 | | 184,531,273 | |
Total | $ | 236,703,719 | | $ | 9,635,648 | | $ | 20,868,978 | | $ | 21,667,820 | | $ | 184,531,273 | |
(1) For the terms of reimbursement of advanced general and administrative expenses and organization and offering expenses see above under “Fees and Expenses Payable to Our Adviser and its Affiliates.” For purposes of this table, we have assumed that advanced general and administrative expenses will be reimbursed ratably over the 60 months following March 19, 2025.
(2) Our mortgage indebtedness includes both principal and interest payments. Monthly payments are interest only during the respective terms of the mortgage loans.
Off-Balance Sheet Arrangements
As of September 30, 2024, we did not have any off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of the financial statements in accordance with accounting principles generally accepted in the United States of America ("GAAP") involves significant judgments and assumptions about matters that are inherently uncertain. These judgments will affect our reported amounts and our disclosures of contingent assets and liabilities as of the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. There have been no material changes to our Critical Accounting Policies described in our Annual Report.
Subsequent Events
Acquisition and Financing
On October 16, 2024, we, through an indirect subsidiary (the “Washington Buyer”), acquired a 202,464 square foot bulk last mile industrial facility (the “Washington Building”) located on approximately 45.1 acres of land in Tukwila, Washington (the “Washington Land”) that is subject to a Ground Lease (defined below). The purchase price to acquire the Washington Building and all of the seller’s interest in the Ground Lease (together, the “Washington Property”) was $81.50 million, exclusive of closing costs.
At closing on October 16, 2024, the seller assigned its interest as a tenant in a ground lease (the “Ground Lease”) for the Washington Land to the Washington Buyer, and the Washington Buyer acquired a leasehold interest in the Washington Land. The initial term of the Ground Lease expires on December 31, 2074, and the Ground Lease has two ten-year extension options. As of October 16, 2024, the annualized base rent payable by the Washington Buyer to the landlord under the Ground Lease is approximately $4.9 million. The base rent under the Ground Lease is subject to 15% increases every five years with the next increase occurring on January 1, 2029. The Ground Lease is an absolute net lease whereby the Washington Buyer is required to pay all taxes, utilities, maintenance, and expenses associated with the Washington Land.
On August 15, 2024, we, through certain of our subsidiaries (collectively, the “State Farm Borrowers”), entered into a ten-year mortgage loan with State Farm, an unaffiliated lender, for borrowings of up to $109.60 million (as supplemented, the “State Farm Portfolio Mortgage Loan”). On October 16, 2024, in connection with the acquisition of the Washington Property, we drew down approximately $40.79 million under the State Farm Portfolio Mortgage Loan, the Washington Property was added as additional collateral to secure the loan and the Washington Buyer was added as one of the State Farm Borrowers. As of October 16, 2024, the outstanding principal balance of the State Farm Portfolio Mortgage Loan was approximately $109.60 million, inclusive of approximately $8.94 million that is held in an escrow account and is available for funding upon completion of certain tenant improvements at the Nashville Property and subject to the terms and conditions of the loan documents. As of October 16, 2024, the State Farm Portfolio Mortgage Loan was secured by the Washington Property, the Nashville Property and the Georgetown Property.
Distributions
On October 31, 2024, we declared a distribution of $0.03769 per share for our Class E, Class I and Class A-I common stock and a distribution of $0.03769 per unit for the Class E units of our Operating Partnership for stockholders and unitholders, respectively, as of the close of business on October 31, 2024. These distributions were paid on November 11, 2024 and were paid in cash or reinvested in shares of our common stock for stockholders participating in our distribution reinvestment plan.
Capital Raising
Subsequent to September 30, 2024 and through November 14, 2024, we issued 55,092.17 Class I shares of common stock in the Offering for an aggregate purchase price of approximately $0.55 million, including shares issued in the Offering pursuant to the distribution reinvestment plan.
Subsequent to September 30, 2024 and through November 14, 2024, we issued 993,064.755 Class A-I shares of common stock to accredited investors in a private placement for an aggregate purchase price of approximately $9.95 million, including shares issued in the private placement pursuant to the distribution reinvestment plan. The offer and sale of the Class A-I shares is exempt from the registration provisions of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) thereof and Rule 506(c) of Regulation D promulgated thereunder.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We may be exposed to interest rate changes primarily as a result of long-term debt used to maintain liquidity, fund capital expenditures and expand our investment portfolio and operations. Market fluctuations in real estate financing may affect the availability and cost of funds needed to expand our investment portfolio. In addition, restrictions upon the availability of real estate financing or high interest rates for real estate loans could adversely affect our ability to dispose of real estate in the future. We will seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our assets.
All of our mortgage indebtedness as of September 30, 2024 was fixed rate debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt, unless such instruments mature or are otherwise terminated. The fair value of our mortgage notes was initially valued at the carrying amount (including net deferred financing costs), which approximate fair value as of September 30, 2024. As we expect to hold our fixed rate instruments to maturity (unless the property securing the debt is sold and the loan is repaid) and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.
Also, we may be exposed to both credit risk and market risk.
Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, we will assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We will maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy will be designed to minimize the impact on our net income and funds from operations from changes in interest rates, the overall returns on your investment may be reduced.
Real estate property values are subject to volatility and may be adversely affected by a number of factors, including but not limited to national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Principal Executive Officer (“PEO”) and Principal Financial Officer (“PFO”). Based upon this evaluation, our PEO and PFO have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our PEO and PFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of September 30, 2024, we were not involved in any material legal proceedings.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed under Part I, Item 1A "Risk Factors" in our Annual Report, other than those disclosed in supplement no. 8 dated October 23, 2024 (“Supplement No. 8”) to our prospectus dated April 19, 2024, filed with the SEC.
You should carefully consider the risk factors set forth in the Annual Report and in Supplement No. 8 and the other information set forth elsewhere in this quarterly report on Form 10-Q. You should be aware that these risk factors and other information may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
All sales of unregistered securities during the three and nine months ended September 30, 2024 were previously reported.
Use of Proceeds
On August 1, 2023, our Registration Statement on Form S-11 (File No. 333-273163) with respect to the Offering was declared effective under the Securities Act. We commenced the Offering on August 1, 2023 upon retaining EQTE Brokerage LLC, an affiliate of our Adviser, as the dealer manager for the Offering. We are offering on a continuous basis up to $5,000,000,000 in shares of common stock, consisting of up to $4,000,000,000 in shares in our primary offering and up to $1,000,000,000 in shares pursuant to our distribution reinvestment plan. We are offering to sell any combination of four classes of shares of our common stock, Class T shares, Class S shares, Class D shares and Class I shares, with a dollar value up to the maximum offering amount. Each class of shares is sold at the then-current transaction price, which will generally be the prior month’s NAV per share for such class, plus applicable upfront selling commissions and dealer manager fees.
The terms of the Offering required us to hold investors’ funds from the Offering in an interest-bearing escrow account until we received purchase orders for at least $25,000,000 of our common stock or units of the Operating Partnership in the Offering or in separate private transactions (including purchase orders by the Adviser, the Sponsor, their affiliates and our directors and officers, which purchases were not limited in amount) and our board of directors authorized the release of funds in the escrow account to us. On March 19, 2024, the Operating Partnership issued 6,220,000 Class E units to EQT Exeter Holdings, an affiliate of our Sponsor, for an aggregate purchase price of $62,200,000, or $10.00 per unit. As such, as of March 19, 2024, we satisfied the minimum offering requirement for all jurisdictions other than Pennsylvania and our board of directors authorized us to break escrow in the Offering. As of August 14, 2024, we also satisfied the minimum offering requirement for Pennsylvania.
As of September 30, 2024, we have sold approximately 52,032 Class I shares in the Offering for gross offering proceeds of $0.53 million. No upfront selling commissions, dealer manager fees or distribution fees are paid with respect to purchases of Class I shares. As of September 30, 2024, we have not sold any Class T, Class S or Class D shares in the Offering.
As of September 30, 2024, our Adviser and its affiliates have incurred on our behalf $6,422,540 of organization and offering expenses in connection with the Offering. Our Adviser agreed to advance all of our organization and offering expenses on our behalf (excluding upfront selling commissions, dealer manager fees and the distribution fees) through March 19, 2025, the first anniversary of the date on which we broke escrow for the Offering. We will reimburse our Adviser for all such advanced expenses ratably over the 60 months following March 19, 2025.
We have used the proceeds from unregistered sales of Class E units of the Operating Partnership, proceeds from unregistered sales of Class A-I shares of our common stock, proceeds from the Offering and debt financings to acquire $374.46 million of real estate investments as of November 14, 2024.
Share Repurchases
During the three months ended September 30, 2024, we did not repurchase any shares of our common stock pursuant to our share repurchase plan and no shares had been requested to be repurchased under the plan.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Unregistered Sales of Equity Securities
On November 11, 2024, we issued 146.227 shares of Class E common stock at a price per share of $10.01 to two of our independent directors, for an aggregate purchase price of $1,463.73. The shares issued to our independent directors pursuant to our distribution reinvestment plan were issued in private transactions exempt from registration under Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”).
On November 11, 2024, we issued 920.887 shares of Class A-I common stock at a price per share of $10.01 for an aggregate purchase price of $9,218.07. The shares issued were pursuant to our distribution reinvestment plan to accredited investors in a private placement and were exempt from the registration provisions of the Securities Act, by virtue of Section 4(a)(2) thereof and Rule 506(c) of Regulation D promulgated thereunder. EQTE Brokerage LLC (the “Dealer Manager”), an affiliate of our Adviser, serves as the dealer manager for our private offering of Class A-I shares to accredited investors. Pursuant to the dealer manager agreement for the offering, no fees, commissions or other compensation (other than the customary reimbursement of expenses and indemnification) are payable to the Dealer Manager.
ITEM 6. EXHIBITS
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| Agreement of Purchase and Sale and Joint Escrow Instructions between DPIF2 WA 6 Oxbow, LLC, a Delaware limited liability company, as Seller, and Exeter Property Group, LLC, a Delaware limited liability company, as Buyer, dated July 31, 2024 (incorporated by reference to Exhibit 10.12 to the Company’s Post-Effective Amendment No. 8 to Form S-11, Commission File No. 333-273163, filed October 23, 2024) |
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| Agreement regarding Second Funding, Permitted Releases, Substitutions and Transfers by and among EQRT 110 Southeast Inner Loop, L.P., EQRT 1500 Shoals, L.P. and State Farm Life Insurance Company, dated August 15, 2024 (incorporated by reference to Exhibit 10.14.3 to the Company’s Post-Effective Amendment No. 8 to Form S-11, Commission File No. 333-273163, filed October 23, 2024) |
| Allonge to Promissory Note, dated as of August 15, 2024, made by EQRT 110 Southeast Inner Loop, L.P., and EQRT 1500 Shoals, L.P., to State Farm Life Insurance Company, dated October 16, 2024 (incorporated by reference to Exhibit 10.14.4 to the Company’s Post-Effective Amendment No. 8 to Form S-11, Commission File No. 333-273163, filed October 23, 2024) |
| Master Joinder Agreement by and among EQRT 110 Southeast Inner Loop, L.P., EQRT 1500 Shoals, L.P., EQRT 2871 102nd, L.P., and State Farm Life Insurance Company, dated October 16, 2024 (incorporated by reference to Exhibit 10.14.5 to the Company’s Post-Effective Amendment No. 8 to Form S-11, Commission File No. 333-273163, filed October 23, 2024) |
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101.INS | Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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| | EQT EXETER REAL ESTATE INCOME TRUST, INC. |
November 14, 2024 | | /s/ Ali Houshmand |
Date | | Ali Houshmand President, Portfolio Manager and Director (Principal Executive Officer) |
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November 14, 2024 | | /s/ J. Peter Lloyd |
Date | | J. Peter Lloyd Chief Financial Officer and Director (Principal Financial Officer) |