United States securities and exchange commission logo
May 25, 2023
David Van Steenis
Chief Financial Officer
ExchangeRight Income Fund
9215 Northpark Drive
Johnston, IA 50131
Re: ExchangeRight
Income Fund
Form 10-12G
Filed April 27,
2023
File No. 000-56543
Dear David Van Steenis:
We have reviewed your filing and have the following comments. In
some of our
comments, we may ask you to provide us with information so we may better
understand your
disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 10-12G filed April 27, 2023
Item 1. Business
Investment Objectives and Strategy, page 4
1. We note your disclosure
that you will primarily focus on investment-grade tenants. Please
clarify how you
determine a tenant is "investment-grade" if it is not rated by an agency.
Additionally, we note,
on page 8, you rely on the parent company's credit rating. Please
advise, to the extent a
company is a subsidiary, if the parent company has provided
guarantees for its
subsidiaries. To the extent is has not, please advise why you believe it is
appropriate to use the
parent company's credit rating or revise.
2. Please disclose the
average age of the properties in your portfolio.
David Van Steenis
FirstName LastNameDavid
ExchangeRight Income FundVan Steenis
Comapany
May NameExchangeRight Income Fund
25, 2023
May 25,
Page 2 2023 Page 2
FirstName LastName
3. We note that you focus on net leases that obligate the tenant to pay
not only their rent, but
also the costs of property taxes, insurance and property maintenance,
often including
repairs and replacements. Please revise to clarify the percentage of
properties, broken
down by each tenant, that are triple net leased. It may be helpful to
include an additional
column in your tenant summary to include the type of lease.
Clearly-defined aggregation strategy..., page 7
4. Please revise to separately discuss your redemption plan.
Additionally, in this new
section, please clarify that affiliates may seek to have their shares
repurchased. Please
disclose if they are subject to the same limitations as the common
shareholders. Please
similarly revise your disclosure on page 121.
Real Estate Investments, page 7
5. Please add a footnote to the table to clarify how your rental
disclosures take into account
tenant concessions and abatements. Please make similar revisions to
your disclosure on
page 80.
Stable distributions paid monthly that are covered by cash flow from
operations, page 7
6. We note that it is your intent to pay distributions out of cash flow
from operations, subject
to REIT qualification requirements. Please clarify whether you have
paid distributions
from other sources, and, if so, please disclose the sources used.
Further, please revise
your disclosure on page 107 to quantify the amount paid from each
source. Additionally,
please add a risk factor to disclose the risk that distributions have
been paid and may in
the future be paid from sources other than cash flow from operations.
Identified Trust Properties, page 11
7. Please clarify how the purchase price for the properties was
determined. If the price was
not determined by independent appraisers, please add risk factor
disclosure to address the
risk. Further, please clarify, if the value of a property decreases
prior to your
determination to purchase it, will the overall purchase price be
revised to reflect the
decrease in value. Please file the agreement in accordance with Item
601(b)(10) of
Regulation S-K.
Item 1.A Risk Factors
Risk Factors Summary, page 16
8. We note that your summary risk factors are now six pages in length.
Please revise to limit
to two pages and disclose only the principal factors that make an
investment in the
registrant or offering speculative or risky, as required by Item105(b)
of Regulation S-K.
We are subject to risks associated with the current interest rate
environment..., page 22
9. Please revise to quantify the amount of your floating rate debt
outstanding.
David Van Steenis
FirstName LastNameDavid
ExchangeRight Income FundVan Steenis
Comapany
May NameExchangeRight Income Fund
25, 2023
May 25,
Page 3 2023 Page 3
FirstName LastName
We are subject to risks related to tenant concentration, and an adverse
development..., page 25
10. Given the significant amount of current in-place net rents and current
net operating
income from Dollar General and Walgreens, please revise to disclose
that Dollar General
and Walgreens are public companies.
Our Trustee may be removed only under limited circumstances, page 42
11. Please expand this risk factor to clarify the impact on your
shareholders if you Trustee
commits fraud or embezzlement and sufficient votes to remove the
trustee are not
obtained, including that they could lose their entire investment.
Interest-only indebtedness may increase our risk of default, page 49
12. Please revise to quantify the amount of your interest-only debt
outstanding and address the
material risks that you face with this type of financing.
RSLCA Notes Receivable from Affiliated Party, page 61
13. We note your disclosure that, pursuant to the loan agreement, your
affiliate will pay you
12% per annum. Please clarify why your affiliate has agreed to enter
into this loan and
pay you a higher rate of interest than it would likely be required to
pay if it obtained a loan
from a bank. Please add disclosure to clarify if this arrangement will
continue past 2027,
and if not, disclose the impact this could have on your operations,
including your
redemption plan, and add risk factor disclosure as appropriate.
Item 5. Directors and Executive Officers, page 91
14. For each of your trustees serving as directors, please provide the
disclosure required by
Item 401(e) of Regulation S-K.
Item 6. Executive Compensation, page 96
15. We refer to your statement that none of your executive officers will
receive direct
compensation from you, and that you will reimburse the manager or
their affiliates for
expenses incurred on your behalf, as disclosed on page 72, which may
include
compensation. Please revise to disclose any such type of compensation
paid to your
executive officers and trustees. In this regard, we note that all
compensation paid to your
named executive officers and directors shall be reported, including
"transactions between
the registrant and a third party where a purpose of the transaction is
to furnish
compensation to any such named executive officer or director." Refer
to Item 402(a)(2)
of Regulation S-K.
Item 7. Certain Relationships and Related Transactions, and Director
Independence, page 97
16. Please ensure that you disclose all fees paid to your manager and its
affiliates, including
reimbursements. Please also disclose amounts paid on your behalf by
your manager. For
David Van Steenis
FirstName LastNameDavid
ExchangeRight Income FundVan Steenis
Comapany
May NameExchangeRight Income Fund
25, 2023
May 25,
Page 4 2023 Page 4
FirstName LastName
example, on page 101, please disclose the organization and offering
costs that have been
incurred by you and by your manager. Please refer to Item 404 of
Regulation S-K.
Item 11. Description of Registrant's Securities to be Registered , page 115
17. Please ensure that you provide all of the disclosure in this section
required by Item 202 of
Regulation S-K, with respect to all classes of your shares.
Share Repurchase Program, page 121
18. Please clarify, in this section, whether any shareholder requests for
repurchase have not
been honored since inception.
Notes to Pro Forma Condensed Consolidated Financial Statements
Adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet,
page F-60
19. We note from your disclosure in note (f) that your pro forma balance
sheet reflects the
assumption that the Company will raise the necessary $1.2 billion of
equity capital and
that based on historical results of actual acquisitions, the Company
assumed 60% of the
sales proceeds that will be allocable to DST investors of the
Identified Portfolios will be
reinvested via a tax-deferred Code Section 721 exchange into the
Operating Partnership.
Please further explain to us your basis for making the assumption that
60% of equity
capital raised would be through the Code Section 721 exchanges into
the Operating
Partnership provided that it appears the DST investors will receive
the right to elect either
cash or OP Units in exchange for interest in the Identified Portfolios
as disclosed on page
97. Additionally, please tell us why you believe it is appropriate to
assume the
remaining cash equity will be raised to complete the acquisition of
the Identified
Portfolios. Within your response, please address that you do not
appear to have a firm
commitment from an underwriter.
General
20. Please clarify how you convey your NAV price changes and whether you
would file a
new Form D each time. Additionally, please clarify how you will notify
shareholders if
there is a significant event that causes the current quarterly price
to be an inaccurate
representation of your NAV.
21. We note that you and your subsidiaries intend to operate your business
in a manner that
will permit you to maintain exemptions from registration under the
Investment Company
Act of 1940. Please provide us with a detailed analysis of these
exemptions and how your
investment strategy will support these exemptions. Further, please
note that we may refer
your response to the Division of Investment Management for further
review.
22. Please be advised that you are responsible for analyzing the
applicability of the tender
offer rules, including Rule 13e-4 and Regulation 14E, to your share
repurchase program.
We urge you to consider all the elements of your share repurchase
program in determining
David Van Steenis
ExchangeRight Income Fund
May 25, 2023
Page 5
whether the program is consistent with relief granted by the Division of
Corporation
Finance in prior no action letters. To the extent you are relying on
Blackstone Real Estate
Income Trust, Inc. (Letter dated September 12, 2016), Rich Uncles NNN
REIT, Inc.
(Letter dated December 21, 2016), Hines Global REIT II, Inc. (Letter
dated April
26,2017), or Black Creek Diversified Property Fund Inc. (Letter dated
September 1,
2017), please provide us with an analysis as to how your program is
consistent with such
relief, and address how the JPM Mandatory Repurchases may impact this
analysis. To the
extent you have questions as to whether the program is entirely
consistent with the relief
previously granted by the Division of Corporation Finance, you may
contact the
Division s Office of Mergers and Acquisitions at 202-551-3440.
23. Please be advised that you are responsible for analyzing the
applicability of Regulation
M to your repurchase program. We urge you to consider all the elements of
your repurchase program in determining whether the program is consistent
with the class
relief granted by the Division of Market Regulation in the class
exemptive letter
granted Alston & Bird LLP dated October 22, 2007. To the extent you have
questions as
to whether the program is entirely consistent with that class exemption
you may contact
the Division of Trading and Markets at 202-551-5777.
24. Please clarify whether the filing is voluntary or mandatory under Section
12(g) of the
Exchange Act. To the extent that this filing is voluntary, please note
that your registration
statement becomes effective automatically 60 days after the date you
filed it and that you
are subject to the reporting requirements of the Securities Exchange Act
of 1934. If you
disclose you are not required to register pursuant to Section 12(g) of
the Exchange Act,
please consider withdrawing the Form 10 registration statement and file
it again at such
time as you are able to respond to outstanding comments.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
You may contact Peter McPhun at 202-551-3581 or Isaac Esquivel at
202-551-3395 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Stacie Gorman at 202-551-3585 or Jeffrey Gabor at 202-551-2544 with any
other
questions.
Sincerely,
FirstName LastNameDavid Van Steenis
Division of
Corporation Finance
Comapany NameExchangeRight Income Fund
Office of Real
Estate & Construction
May 25, 2023 Page 5
cc: David P. Hooper, Esq.
FirstName LastName