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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
X | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED June 30, 2023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 000-56428
Brookfield Real Estate Income Trust Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | |
Maryland | | 82-2365593 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
250 Vesey Street, 15th Floor
New York, NY 10281
(Address of principal executive offices) (Zip Code)
(212) 417-7000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
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 X 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 X 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.
| | | | | | | | | | | | | | | | | |
Large accelerated filer | ☐ | | | Accelerated filer | ☐ |
| | | |
Non-accelerated filer | X | | | Smaller reporting company | ☐ |
| | | |
| | | | Emerging growth company | X |
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 X
The number of the registrant’s outstanding shares of common stock as of July 31, 2023 was 91,340,640, consisting of 42,365,367 Class I shares, par value $0.01 per share, 35,580,404 Class S shares, par value $0.01 per share, 144,102 Class D shares, par value $0.01 per share, 9,856,197 Class C shares, no par value per share, and 3,394,570 Class E shares, no par value per share.
TABLE OF CONTENTS
WEBSITE DISCLOSURE
Investors and others should note that we use our website, www.BrookfieldREIT.com, to announce material information to investors and the marketplace. While not all of the information that we post on our website is of a material nature, some information could be deemed to be material. Accordingly, we encourage investors, the media, and others interested in us to review the information that we share on our website. Information contained on, or available through, our website is not incorporated by reference into this document.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Brookfield Real Estate Income Trust Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | |
| | | | |
| | June 30, 2023 | | December 31, 2022 |
Assets | | | | |
Investments in real estate, net | | $ | 1,562,729 | | | $ | 1,580,964 | |
Investments in real estate-related loans and securities, net | | 309,416 | | | 332,654 | |
Investments in unconsolidated entities | | 79,600 | | | 80,591 | |
Intangible assets, net | | 43,544 | | | 44,695 | |
Cash and cash equivalents | | 49,561 | | | 61,824 | |
Restricted cash | | 16,369 | | | 18,175 | |
Accounts and other receivables, net | | 9,284 | | | 8,382 | |
Other assets | | 49,272 | | | 23,188 | |
Total Assets | | $ | 2,119,775 | | | $ | 2,150,473 | |
Liabilities and Equity | | | | |
Mortgage loans, secured term loan and secured credit facility, net | | $ | 1,055,862 | | | $ | 1,054,297 | |
| | | | |
Due to affiliates | | 48,570 | | | 52,294 | |
Intangible liabilities, net | | 26,801 | | | 27,475 | |
Accounts payable, accrued expenses and other liabilities | | 51,300 | | | 39,591 | |
Subscriptions received in advance | | 3,804 | | | 8,166 | |
Total Liabilities | | 1,186,337 | | | 1,181,823 | |
Commitments and contingencies | | — | | | — | |
Redeemable non-controlling interests attributable to OP unitholders | | 961 | | | 990 | |
Stockholders’ Equity | | | | |
Preferred stock, $0.01 par value per share, 50,000 shares authorized; no shares issued nor outstanding at June 30, 2023 and December 31, 2022, respectively | | — | | | — | |
Common stock - Class S shares, $0.01 par value per share, 225,000 shares authorized; 36,391 and 36,704 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | | 364 | | | 367 | |
Common stock - Class I shares, $0.01 par value per share, 250,000 shares authorized; 42,330 and 42,397 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | | 423 | | | 424 | |
Common stock - Class T shares, $0.01 par value per share, 225,000 shares authorized; no shares issued nor outstanding as of June 30, 2023 and December 31, 2022. | | — | | | — | |
Common stock - Class D shares, $0.01 par value per share, 100,000 shares authorized; 131 and 36 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively. | | 1 | | | — | |
Common stock - Class C shares, no par value per share, 100,000 shares authorized; 9,856 and 9,343 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | | 94 | | | 94 | |
Common stock - Class E shares, no par value per share, 100,000 shares authorized; 3,378 and 3,210 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively | | — | | | — | |
Additional paid-in capital | | 1,069,535 | | | 1,063,038 | |
Accumulated deficit | | (142,442) | | | (100,709) | |
Total Stockholders’ Equity | | 927,975 | | | 963,214 | |
Non-controlling interests attributable to third party joint ventures | | 4,127 | | | 4,071 | |
Non-controlling interests attributable to preferred stockholders | | 375 | | | 375 | |
Total Equity | | 932,477 | | | 967,660 | |
Total Liabilities and Stockholders’ Equity | | $ | 2,119,775 | | | $ | 2,150,473 | |
See accompanying notes to consolidated financial statements.
The following table presents the assets and liabilities of investments consolidated as variable interest entities for which the Company is determined to be the primary beneficiary ($ in thousands).
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Assets | | | |
Investments in real estate, net | $ | 220,440 | | | $ | 223,810 | |
Intangible assets, net | 6,130 | | | 5,724 | |
Cash and cash equivalents | 1,987 | | | 2,243 | |
Restricted cash | 10,234 | | | 7,849 | |
Accounts and other receivables, net | 3,147 | | | 3,652 | |
Other assets | 3,676 | | | 655 | |
| | | |
Total Assets | $ | 245,614 | | | $ | 243,933 | |
| | | |
Liabilities | | | |
Mortgage loans, net | $ | 177,455 | | | $ | 177,354 | |
Intangible liabilities, net | 22 | | | 25 | |
Accounts payable, accrued expenses and other liabilities | 5,512 | | | 4,755 | |
Total Liabilities | $ | 182,989 | | | $ | 182,134 | |
See accompanying notes to consolidated financial statements.
Brookfield Real Estate Income Trust Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Revenues | | | | | | | |
Rental revenues | $ | 33,502 | | | $ | 27,038 | | | $ | 63,975 | | | $ | 48,698 | |
Other revenues | 3,646 | | | 2,755 | | | 6,205 | | | 4,648 | |
Total revenues | 37,148 | | | 29,793 | | | 70,180 | | | 53,346 | |
Expenses | | | | | | | |
Rental property operating | 14,880 | | | 9,659 | | | 26,608 | | | 17,582 | |
General and administrative | 2,229 | | | 2,484 | | | 4,545 | | | 4,474 | |
Management fee | 3,579 | | | 2,096 | | | 7,257 | | | 3,293 | |
Performance fee | — | | | 4,718 | | | — | | | 8,231 | |
Depreciation and amortization | 12,765 | | | 15,348 | | | 25,569 | | | 28,543 | |
Total expenses | 33,453 | | | 34,305 | | | 63,979 | | | 62,123 | |
Other (expense) income | | | | | | | |
Income from real estate-related loans and securities | 5,149 | | | 1,418 | | | 11,512 | | | 2,489 | |
| | | | | | | |
Interest expense | (14,498) | | | (8,050) | | | (28,430) | | | (14,773) | |
Realized gain on real estate investments, net | 639 | | | — | | | 504 | | | 669 | |
Realized gain on financial instruments | 4 | | | 7,094 | | | 105 | | | 7,094 | |
Unrealized gain (loss) on investments, net | 6,210 | | | (7,799) | | | 1,567 | | | (1,008) | |
Total other (expense) income | (2,496) | | | (7,337) | | | (14,742) | | | (5,529) | |
Net income (loss) | $ | 1,199 | | | $ | (11,849) | | | $ | (8,541) | | | $ | (14,306) | |
Net (income) loss attributable to non-controlling interests in third party joint ventures | $ | (67) | | | $ | 29 | | | $ | 42 | | | $ | 23 | |
Net income attributable to non-controlling interests - preferred stockholders | (45) | | | — | | | (45) | | | — | |
Net (income) loss attributable to redeemable non-controlling interests | (2) | | | 3,673 | | | 6 | | | 4,648 | |
Net income (loss) attributable to stockholders | $ | 1,085 | | | $ | (8,147) | | | $ | (8,538) | | | $ | (9,635) | |
Per common share data: | | | | | | | |
Net income (loss) per share of common stock - basic and diluted | $ | 0.01 | | | $ | (0.18) | | | $ | (0.09) | | | $ | (0.25) | |
Weighted average number of shares outstanding - basic and diluted | 94,231 | | | 44,702 | | | 94,120 | | | 38,235 | |
See accompanying notes to consolidated financial statements.
Brookfield Real Estate Income Trust Inc.
Consolidated Statements of Changes in Stockholders’ Equity (Unaudited)
(in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2023 |
| Par Value | | | | | | | | | | | | |
| Common Stock Class I | | Common Stock Class S | | Common Stock Class C | | Common Stock Class E | | Common Stock Class D | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity | | Non-controlling Interests Attributable to Third Party Joint Ventures | | Non-controlling Interests Attributable to Preferred Stockholders | | Total Equity |
Balance at March 31, 2023 | $ | 422 | | | $ | 369 | | | $ | 94 | | | $ | — | | | $ | 1 | | | $ | 1,066,521 | | | $ | (127,453) | | | $ | 939,954 | | | $ | 3,979 | | | $ | 375 | | | $ | 944,308 | |
Common stock issued | 21 | | | 8 | | | — | | | — | | | — | | | 45,603 | | | — | | | 45,632 | | | — | | | — | | | 45,632 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | 96 | | | — | | | 96 | | | — | | | — | | | 96 | |
Distribution reinvestment | 4 | | | 2 | | | — | | | — | | | — | | | 9,355 | | | — | | | 9,361 | | | — | | | — | | | 9,361 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 87 | | | — | | | 87 | |
Distributions | — | | | — | | | — | | | — | | | — | | | — | | | (16,076) | | | (16,076) | | | (6) | | | (45) | | | (16,127) | |
Common stock repurchased | (24) | | | (15) | | | — | | | — | | | — | | | (51,979) | | | — | | | (52,018) | | | — | | | — | | | (52,018) | |
Offering costs | — | | | — | | | — | | | — | | | — | | | (75) | | | — | | | (75) | | | — | | | — | | | (75) | |
Net income | — | | | — | | | — | | | — | | | — | | | — | | | 1,087 | | | 1,087 | | | 67 | | | 45 | | | 1,199 | |
Allocation to redeemable non-controlling interests | — | | | — | | | — | | | — | | | — | | | 14 | | | — | | | 14 | | | — | | | — | | | 14 | |
Balance at June 30, 2023 | $ | 423 | | | $ | 364 | | | $ | 94 | | | $ | — | | | $ | 1 | | | $ | 1,069,535 | | | $ | (142,442) | | | $ | 927,975 | | | $ | 4,127 | | | $ | 375 | | | $ | 932,477 | |
| | | | | | | | | | | | | | | | | | | | | |
Three months ended June 30, 2022 |
| Par Value | | | | | | | | | | | | |
| Common Stock Class I | | Common Stock Class S | | Common Stock Class C | | Common Stock Class E | | Common Stock Class D | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity | | Non-controlling Interests Attributable to Third Party Joint Ventures | | Non-controlling Interests Attributable to Preferred Stockholders | | Total Equity |
Balance at March 31, 2022 | $ | 39 | | | $ | 247 | | | $ | 35 | | | $ | — | | | $ | — | | | $ | 321,874 | | | $ | (29,898) | | | $ | 292,297 | | | $ | 4,400 | | | $ | 375 | | | $ | 297,072 | |
Common stock issued | 292 | | | 58 | | | 34 | | | — | | | — | | | 534,408 | | | — | | | 534,792 | | | — | | | — | | | 534,792 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | 81 | | | — | | | 81 | | | — | | | — | | | 81 | |
Distribution reinvestment | — | | | 2 | | | — | | | — | | | — | | | 3,382 | | | — | | | 3,384 | | | — | | | — | | | 3,384 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | |
Distributions | — | | | — | | | — | | | — | | | — | | | — | | | (8,482) | | | (8,482) | | | (148) | | | (24) | | | (8,654) | |
Common stock repurchased | (2) | | | (7) | | | — | | | — | | | — | | | (13,513) | | | — | | | (13,522) | | | — | | | — | | | (13,522) | |
Offering costs | — | | | — | | | — | | | — | | | — | | | (5,976) | | | — | | | (5,976) | | | — | | | — | | | (5,976) | |
Net income (loss) | — | | | — | | | — | | | — | | | — | | | — | | | (11,820) | | | (11,820) | | | (28) | | | 24 | | | (11,824) | |
Allocation to redeemable non-controlling interests | — | | | — | | | — | | | — | | | — | | | (29,136) | | | 3,674 | | | (25,462) | | | — | | | — | | | (25,462) | |
Balance at June 30, 2022 | $ | 329 | | | $ | 300 | | | $ | 69 | | | $ | — | | | $ | — | | | $ | 811,120 | | | $ | (46,526) | | | $ | 765,292 | | | $ | 4,230 | | | $ | 375 | | | $ | 769,897 | |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2023 |
| Par Value | | | | | | | | | | | | |
| Common Stock Class I | | Common Stock Class S | | Common Stock Class C | | Common Stock Class E | | Common Stock Class D | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity | | Non-controlling Interests Attributable to Third Party Joint Ventures | | Non-controlling Interests Attributable to Preferred Stockholders | | Total Equity |
Balance at December 31, 2022 | $ | 424 | | | $ | 367 | | | $ | 94 | | | $ | — | | | $ | — | | | $ | 1,063,079 | | | $ | (100,750) | | | $ | 963,214 | | | $ | 4,071 | | | $ | 375 | | | $ | 967,660 | |
Common stock issued | 39 | | | 23 | | | — | | | — | | | 1 | | | 94,323 | | | — | | | 94,386 | | | — | | | — | | | 94,386 | |
| | | | | | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | 177 | | | — | | | 177 | | | — | | | — | | | 177 | |
Distribution reinvestment | 8 | | | 5 | | | — | | | — | | | — | | | 19,569 | | | — | | | 19,582 | | | — | | | — | | | 19,582 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 104 | | | — | | | 104 | |
Distributions | — | | | — | | | — | | | — | | | — | | | — | | | (33,148) | | | (33,148) | | | (6) | | | (45) | | | (33,199) | |
Common stock repurchased | (48) | | | (31) | | | — | | | — | | | — | | | (106,645) | | | — | | | (106,724) | | | — | | | — | | | (106,724) | |
Offering costs | — | | | — | | | — | | | — | | | — | | | (990) | | | — | | | (990) | | | — | | | — | | | (990) | |
Net loss | — | | | — | | | — | | | — | | | — | | | — | | | (8,544) | | | (8,544) | | | (42) | | | 45 | | | (8,541) | |
Allocation to redeemable non-controlling interests | — | | | — | | | — | | | — | | | — | | | 22 | | | — | | | 22 | | | — | | | — | | | 22 | |
Balance at June 30, 2023 | $ | 423 | | | $ | 364 | | | $ | 94 | | | $ | — | | | $ | 1 | | | $ | 1,069,535 | | | $ | (142,442) | | | $ | 927,975 | | | $ | 4,127 | | | $ | 375 | | | $ | 932,477 | |
| | | | | | | | | | | | | | | | | | | | | |
Six Months Ended June 30, 2022 |
| Par Value | | | | | | | | | | | | |
| Common Stock Class I | | Common Stock Class S | | Common Stock Class C | | Common Stock Class E | | Common Stock Class D | | Additional Paid-In Capital | | Accumulated Deficit | | Total Stockholders’ Equity | | Non-controlling Interests Attributable to Third Party Joint Ventures | | Non-controlling Interests Attributable to Preferred Stockholders | | Total Equity |
Balance at December 31, 2021 | $ | 28 | | | $ | 200 | | | $ | 16 | | | $ | — | | | $ | — | | | $ | 249,426 | | | $ | (23,608) | | | $ | 226,062 | | | $ | 4,519 | | | $ | 375 | | | $ | 230,956 | |
Common stock issued | 304 | | | 103 | | | 53 | | | — | | | — | | | 632,031 | | | — | | | 632,491 | | | — | | | — | | | 632,491 | |
Stock-based compensation | — | | | — | | | — | | | — | | | — | | | 81 | | | — | | | 81 | | | — | | | — | | | 81 | |
Distribution reinvestment | — | | | 4 | | | — | | | — | | | — | | | 5,955 | | | — | | | 5,959 | | | — | | | — | | | 5,959 | |
Contributions from non-controlling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 33 | | | — | | | 33 | |
Distributions | — | | | — | | | — | | | — | | | — | | | — | | | (13,284) | | | (13,284) | | | (299) | | | (24) | | | (13,607) | |
Common stock repurchased | (3) | | | (7) | | | — | | | — | | | — | | | (14,314) | | | — | | | (14,324) | | | — | | | — | | | (14,324) | |
Offering costs | — | | | — | | | — | | | — | | | — | | | (12,052) | | | — | | | (12,052) | | | — | | | — | | | (12,052) | |
Net (loss) income | — | | | — | | | — | | | — | | | — | | | — | | | (14,283) | | | (14,283) | | | (23) | | | 24 | | | (14,282) | |
Allocation to redeemable non-controlling interests | — | | | — | | | — | | | — | | | — | | | (50,007) | | | 4,649 | | | (45,358) | | | — | | | — | | | (45,358) | |
Balance at June 30, 2022 | $ | 329 | | | $ | 300 | | | $ | 69 | | | $ | — | | | $ | — | | | $ | 811,120 | | | $ | (46,526) | | | $ | 765,292 | | | $ | 4,230 | | | $ | 375 | | | $ | 769,897 | |
| | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to financial statements.
Brookfield Real Estate Income Trust Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| | | | | | | | | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Cash flows from operating activities: | | | |
Net loss | $ | (8,541) | | | $ | (14,306) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depreciation and amortization | 25,569 | | | 28,543 | |
Management fees | 7,257 | | | 3,293 | |
Performance fees | — | | | 8,231 | |
| | | |
| | | |
Amortization of above and below market leases and lease inducements | (538) | | | (686) | |
Amortization of restricted stock grants | 177 | | | 81 | |
Amortization of deferred financing costs | 1,590 | | | 1,130 | |
Amortization of upfront derivative acquisition costs | 911 | | | — | |
Provision for current expected credit losses | 1,300 | | | — | |
Amortization of origination fees and discount | (49) | | | (112) | |
Paid-in-kind interest | — | | | 172 | |
Realized loss (gain) on investments in real estate-related loans and securities | (504) | | | (669) | |
Unrealized loss (gain) on investments | (1,567) | | | 1,008 | |
Distributions of earnings from unconsolidated entities | 2,333 | | | — | |
Changes in assets and liabilities: | | | |
Increase in lease inducements and origination costs | (423) | | | (259) | |
Upfront derivative acquisition costs | (8,781) | | | — | |
Increase in other assets | (222) | | | (164) | |
Increase in accounts and other receivables | (929) | | | (2,898) | |
Decrease (increase) in accounts payable, accrued expenses and other liabilities | (2,327) | | | 8,860 | |
Increase in due to affiliates | 1,846 | | | 2,011 | |
Net cash provided by operating activities | 17,102 | | | 34,235 | |
| | | |
Cash flows from investing activities | | | |
Acquisitions of real estate | (1,883) | | | (522,997) | |
Purchase of real estate-related loans and securities | (49,160) | | | (73,535) | |
Proceeds from sale of real estate-related loans and securities | 62,600 | | | 3,086 | |
Proceeds from principal repayments of real estate-related loans and securities | 7,971 | | | 1,472 | |
Payment of investment acquisition deposits | — | | | (3,275) | |
Capital improvements to real estate | (3,568) | | | (1,337) | |
Proceeds from sale of preferred membership interests | — | | | 28,831 | |
Purchase of trading securities | (156,771) | | | (14,872) | |
Proceeds from sale of trading securities | 143,847 | | | — | |
Net cash provided by (used in) investing activities | 3,036 | | | (582,627) | |
| | | |
Cash flows from financing activities: | | | |
Borrowings from mortgage loans and secured term loan | — | | | 584,960 | |
Borrowings from secured credit facility | — | | | 251,153 | |
Repayment of mortgage loans | — | | | (214,750) | |
Repayment of secured credit facility | — | | | (256,861) | |
Borrowings from affiliate line of credit | — | | | 43,000 | |
Repayment of affiliate line of credit | — | | | (148,000) | |
Proceeds from issuance of OP units | — | | | 38,000 | |
Payment of deferred financing costs | (25) | | | (3,744) | |
Proceeds from issuance of common stock | 72,318 | | | 321,048 | |
Repurchases of common stock | (93,348) | | | (17,958) | |
Subscriptions received in advance | 3,804 | | | 77,635 | |
Payment of organizational and offering costs | (3,496) | | | (2,569) | |
Distributions to non-controlling interests | (6) | | | (299) | |
Contributions from non-controlling interests | 104 | | | 33 | |
Distributions | (13,513) | | | (4,605) | |
Distributions to non-controlling interests attributable to preferred stockholders | (45) | | | (24) | |
Net cash (used in) provided by financing activities | (34,207) | | | 667,019 | |
| | | |
Net change in cash and cash-equivalents and restricted cash | (14,069) | | | 118,627 | |
Cash and cash-equivalents and restricted cash, beginning of period | 79,999 | | | 60,784 | |
| | | |
Cash and cash-equivalents and restricted cash, end of period | $ | 65,930 | | | $ | 179,411 | |
See accompanying notes to financial statements.
| | | | | | | | | | | |
Reconciliation of cash and cash equivalents and restricted cash to the consolidated balance sheets: | | | |
| Six Months Ended June 30, |
| 2023 | | 2022 |
Cash and cash equivalents | $ | 49,561 | | | $ | 93,577 | |
Restricted cash | 16,369 | | | 85,834 | |
Total cash and cash equivalents and restricted cash | $ | 65,930 | | | $ | 179,411 | |
| | | |
Supplemental disclosures: | | | |
Interest paid | $ | 27,723 | | | $ | 13,260 | |
Non-cash investing and financing activities: | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
Accrued distributions | $ | 101 | | | $ | 3,006 | |
Accrued stockholder servicing fee due to affiliate | $ | 571 | | | $ | 9,483 | |
Accrued offering costs | $ | 245 | | | $ | — | |
Accrued capital improvements | $ | 31 | | | $ | 45 | |
Accrued repurchases of common stock in accounts payable | $ | 9,784 | | | $ | 4,118 | |
Accrued repurchases of common stock in due to affiliates | $ | 3,591 | | | $ | — | |
| | | |
| | | |
See accompanying notes to financial statements.
Brookfield Real Estate Income Trust Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Organization and Business Purpose
Brookfield Real Estate Income Trust Inc. (the “Company”) was formed on July 27, 2017 as a Maryland corporation and has elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2019. The Company invests primarily in well-located, high-quality real estate properties that generate strong current cash flow and could further appreciate in value through proactive, best-in-class asset management. To a lesser extent, the Company invests in real estate-related debt investments, including real estate-related loans and real estate-related securities. Brookfield REIT OP GP LLC, a wholly owned subsidiary of the Company, is the sole general partner of Brookfield REIT Operating Partnership L.P. (the “Operating Partnership”). Substantially all of the Company’s business is conducted through the Operating Partnership. The Company and the Operating Partnership are externally managed by Brookfield REIT Adviser LLC (the “Adviser”), an affiliate of Brookfield Asset Management Ltd. (together with its affiliates, “Brookfield”). Prior to the Adviser Transition (as defined below) that occurred on November 2, 2021, the Company was externally managed by Oaktree Fund Advisors, LLC (the “Oaktree Adviser” or the “Sub-Adviser”), an affiliate of Oaktree Capital Management, L.P. (“Oaktree”).
On November 2, 2021, the Company consummated a series of related transactions and actions (the “Adviser Transition”) where the Company engaged the Sub-Adviser to (i) manage certain of the Company’s real estate properties and real estate-related debt investments that were acquired by the Company prior to the Adviser Transition and (ii) select and manage the Company’s liquid assets.
The Company had previously registered with the Securities and Exchange Commission (the “SEC”) its initial public offering of up to $2.0 billion in shares of common stock (the “Initial Public Offering”), which was declared effective on April 30, 2018 and terminated on November 2, 2021. The Company subsequently registered a follow-on offering with the SEC of up to $7.5 billion in shares of common stock, consisting of up to $6.0 billion in shares in its primary offering and up to $1.5 billion in shares pursuant to its distribution reinvestment plan, which was declared effective on November 2, 2021 (the “Current Offering” and with the Initial Public Offering, the “Offering”).
Pursuant to the Current Offering, the Company is offering to the public any combination of four classes of shares of its 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. The publicly offered share classes have different upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees. The purchase price per share for each class of common stock varies and generally equals the Company’s prior month’s net asset value (“NAV”) per share, as determined monthly, plus applicable upfront selling commissions and dealer manager fees. The Company intends to continue selling shares on a monthly basis.
In addition to the Offering, the Company is conducting private offerings of Class I and Class C shares to feeder vehicles that offer interests in such vehicles to non-U.S. persons. The offer and sale of Class I and Class C shares to the feeder vehicles is exempt from the registration provisions of the Securities Act of 1933, as amended (the “Securities Act”) by virtue of Section 4(a)(2) and Regulation S promulgated thereunder. The Company is also offering Class E shares to Brookfield and its affiliates and certain of Brookfield’s and Oaktree’s employees and the Company’s independent directors in one or more private offerings. The offer and sale of Class E shares is exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) of the Securities Act and Regulation D promulgated thereunder.
As of June 30, 2023, the Company owned 19 investments in real estate, one investment in an unconsolidated real estate venture, three investments in real estate-related loans, and 79 investments in real estate-related debt securities. The Company currently operates in five reportable segments: rental housing, net lease, office, logistics, and real estate-related loans and securities. Rental housing includes multifamily and single-family rental homes. Effective June 30, 2023, the Company made changes to its reportable segments as detailed in Note 14.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. Certain comparative figures have been reclassified to conform to the current year presentation. These statements reflect all normal and recurring adjustments which, in the opinion of management, are necessary to present fairly the financial position, results of operations and cash flows of the Company for the interim periods presented. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC.
The Company consolidates all entities in which it retains a controlling financial interest through majority ownership or voting rights and entities that meet the definition of a variable interest entity (“VIE”) for which it is deemed to be the primary beneficiary. The Company is the primary beneficiary of a VIE when it has (i) the power to direct the activities of a VIE that most significantly influence the VIE’s economic performance, and (ii) the obligation to absorb losses of the VIE that could potentially be significant to the VIE, or the right to receive benefits from the VIE that potentially could be significant to the VIE. The Operating Partnership is considered to be a VIE. The Company consolidates the Operating Partnership because it has the ability to direct the most significant activities of the entities as its sole general partner. The Company also consolidates all VIEs for which it is the primary beneficiary. Where the Company does not have the power to direct the activities of the VIE that most significantly impact its economic performance, the Company’s interest for those partially owned entities are accounted for using the equity method of accounting. Equity method investments for which the Company has not elected a fair value option (“FVO”) are initially recorded at cost and subsequently adjusted for the Company’s pro-rata share of net income, contributions, and distributions. When the Company elects the FVO, the Company records its share of net asset value of the entity and any related unrealized gains and losses.
The Operating Partnership and the Company’s joint ventures are considered to be VIEs. The Company consolidates these entities, excluding its equity method investments, because it has the ability to direct the most significant activities of the entities such as purchases, dispositions, financings, budgets, and overall operating plans.
For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities, and operations of each joint venture is included in non-controlling interests as equity of the Company. The non-controlling joint venture partner’s interest is generally computed as the joint venture partner’s ownership percentage. Certain of the joint ventures formed by the Company provide the other partner a profits interest based on certain internal rate of return hurdles being achieved. Any profits interest due to the other partner is reported within non-controlling interest.
Use of Estimates
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 and accrued expenses at the date of the balance sheet. The Company believes the estimates and assumptions underlying the consolidated financial statements are reasonable and supportable based on the information available as of June 30, 2023.
Investments in Real Estate
In accordance with the guidance for business combinations, the Company determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired does not constitute a business, the Company accounts for the transaction as an asset acquisition. The guidance for business combinations states that when substantially all of the fair value of the gross assets to be acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or set of assets is not a business.
The Company evaluates each real estate acquisition to determine whether the integrated set of acquired assets and activities meets the definition of a business. Generally, acquisitions of real estate or in-substance real estate are not expected to meet the definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. All property acquisitions to date have been accounted for as asset acquisitions because substantially all of the fair value was concentrated in the land, buildings and related intangible assets.
The Company capitalizes acquisition-related costs associated with asset acquisitions. Upon acquisition of a property, the Company assesses the fair value of the acquired tangible and intangible assets (including land, buildings, tenant improvements, above- or below-market leases, acquired in-place leases, and other intangible assets and assumed liabilities) and allocates the
purchase price to the acquired assets and assumed liabilities. The Company assesses and considers fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that it deems appropriate, as well as other available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions.
The estimated fair value of acquired in-place leases include the costs the Company would have incurred to lease the properties to their occupancy levels 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. The Company evaluates avoided costs over the time period over which occupancy levels at the date of acquisition would be achieved had the property been acquired vacant. 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 are amortized over the remaining lease terms as a component of depreciation and amortization expense.
For acquired in-place leases, above- and below-market lease values are recorded based on the present value (using an interest rate that reflects the risks associated with the lease acquired) of the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates for the corresponding in-place leases. The values of acquired above- and below-market leases are amortized over the terms of the related leases and recognized as either increases (for below-market leases) or decreases (for above-market leases) to rental revenue. Should a tenant terminate its lease, the unamortized portion of the in-place lease value is charged to amortization expense and the unamortized portion of the above- or below-market lease value is charged to rental revenue.
Significant improvements to properties are capitalized and depreciated over their estimated useful life. Expenditures for ordinary repairs and maintenance are expensed to operations as incurred.
The cost of buildings and improvements includes the purchase price of the Company’s properties and any acquisition-related costs, along with any subsequent improvements to such properties. 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 |
Building | | 30-40 years |
Building and site improvements | | 5-21 years |
Furniture, fixtures and equipment | | 1-9 years |
Tenant improvements | | Shorter of estimated useful life or lease term |
In-place lease intangibles | | Over lease term |
Above and below market leases | | Over lease term |
Lease origination costs | | Over lease term |
Present value of tax abatement savings | | Over tax abatement period |
When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.
The Company’s management reviews its real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. In reviewing the portfolio, the Company’s management examines the type of asset, the economic situation in the area in which the asset is located, the economic situation in the industry in which the tenant is involved and the timeliness of the payments made by the tenant under its lease, changes in holding period, as well as any current correspondence that may have been had with the tenant, including property inspection reports. For each real estate asset for which indicators of impairment are identified, the Company performs a recoverability analysis that compares future undiscounted cash flows expected to result from the Company’s use and eventual disposition of the asset to its carrying value. If the undiscounted cash flow analysis yields an amount which is less than the asset’s carrying amount, an impairment loss will be recorded equal to the amount by which the carrying value of the asset exceeds its estimated fair value. Since cash flows on real estate properties considered to be “long-lived assets to be held and used” are considered on an undiscounted basis to determine whether an asset has been impaired, the Company’s strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material to the Company’s results. During the periods presented, no such impairment occurred.
Assets Held for Sale
The Company classifies the assets and liabilities related to its real estate investments as held for sale when a sale is probable to occur within one year. The Company considers a sale to be probable when a binding contract has been executed, the buyer has posted a non-refundable deposit, and there are limited contingencies to closing. The Company classifies held for sale assets and
liabilities at the lower of depreciated cost or fair value less closing costs. There were no properties held for sale as of June 30, 2023 and December 31, 2022.
Investments in Unconsolidated Entities
Investments in unconsolidated entities are initially recorded at cost and subsequently adjusted for the Company’s pro-rata share of net income, contributions, and distributions. The Company’s investments in unconsolidated entities are periodically assessed for impairment and an impairment loss would be recorded when the fair value of the investment falls below the carrying value and such decline is determined to be other-than-temporary. For further details on the Company’s investments in unconsolidated entities, see Note 4 to the Company’s Consolidated Financial Statements.
The Company has elected the FVO for its investment in unconsolidated entities and therefore reports this investment at fair value. As such, the resulting unrealized gains and losses are recorded as a component of Unrealized (loss) gain on investments, net on the Company’s Consolidated Statements of Operations.
Investments in Real Estate-Related Loans and Securities
Real estate-related loans that the Company has the intent and ability to hold for the foreseeable future are classified as held for investment. Originated loans are recorded at amortized cost, or outstanding unpaid principal balance less net deferred loan fees. Net deferred loan fees include unamortized origination and other fees charged to the borrower less direct incremental loan origination costs incurred by the Company. Purchased loans are recorded at amortized cost, or unpaid principal balance plus purchase premium or less unamortized discount. Costs to purchase loans are expensed as incurred.
Interest income related to the Company’s loans is recognized based upon contractual interest rate and unpaid principal balance of the loans as a component of Income from real estate-related loans and securities on the Company’s Consolidated Statements of Operations. Net deferred loan fees on originated loans are deferred and amortized as adjustments to interest income over the expected life of the loans using the effective yield method. Premium or discount on purchased loans are amortized as adjustments to interest income over the expected life of the loans using the effective yield method. When a loan is prepaid, prepayment fees and any excess of proceeds over the carrying amount of the loan are recognized as additional interest income.
The Company assesses the collectability of its real estate-related loans to estimate credit losses over the contractual term of each loan on a periodic basis. The Company’s estimate of credit losses is based on relevant factors, including historical realized loss rates, current market conditions, and reasonable and supportable forecasts that affect the collectability of its investments. The Company also considers, among other things, payment status, lien position, borrower or tenant financial resources, and underlying collateral. The Company recognizes an allowance for credit loss when the carrying amount of a loan differs from the amount expected to be collected. For further details on the Company’s allowance for credit loss, see Note 6 to the Company’s Consolidated Financial Statements.
The Company has elected to classify its real estate debt securities as trading securities and carry such investments at fair value. As such, the resulting unrealized gains and losses of such securities are recorded as a component of Unrealized (loss) gain on investments, net on the Company’s Consolidated Statements of Operations. Interest income from trading securities is recognized based on the stated terms of the security. Interest income from real estate-related debt securities is recorded as a component of Income from real estate-related loans and securities on the Company’s Consolidated Statements of Operations.
Revenue Recognition
Rental revenue primarily consists of base rent arising from tenant leases at the Company’s properties. Base rent is recognized on a straight-line basis over the life of the lease, including any rent steps or abatement provisions. The Company begins to recognize revenue upon the acquisition of the related property or when a tenant takes possession of the leased space. Other rental revenues include amounts due from tenants for costs related to common area maintenance, real estate taxes, and other recoverable costs included in lease agreements. The Company recognizes the reimbursement of such costs incurred as tenant reimbursement income.
The Company evaluates the collectability of receivables related to rental revenue on an individual lease basis. In making this determination, the Company 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. The Company will recognize revenue from such leases prospectively, based on actual amounts received. If the Company subsequently determines that it is probable it will collect substantially all of the lessee’s remaining lease payments under the lease term, the Company will reinstate the receivables balance.
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 have bank balances in excess of federally insured amounts; however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure.
Restricted Cash
Restricted cash primarily consists of cash received for subscriptions prior to the date in which the subscriptions are effective, which is held in a bank account controlled by the Company’s transfer agent but in the name of the Company. The remaining balance of restricted cash primarily consists of amounts in escrow related to real estate taxes, construction reserves and insurance in connection with mortgages at certain of the Company’s property and tenant security deposits.
Trading Securities
Trading securities consist of U.S. government securities that are available to support the Company’s current operations and liquidity. Trading securities are measured at fair value. As such, the resulting unrealized gains and losses of such securities are recorded as a component of Unrealized (loss) gain on investments, net on the Company’s Consolidated Statements of Operations. Interest income from trading securities is recognized based on the stated terms of the security and is recorded as a component of Income from real estate-related loans and securities on the Company’s Consolidated Statements of Operations.
Foreign Currency
In the normal course of business, the Company makes investments in real estate outside the United States through subsidiaries that have a non-U.S. dollar functional currency. Non-U.S. dollar denominated assets and liabilities of these foreign subsidiaries are translated to U.S. dollars at the prevailing exchange rate at the reporting date and income, expenses, gains, and losses are translated at the average exchange rate over the applicable period. Gains and losses from translation of foreign denominated transactions into U.S. dollars are included in current results of operations as a component of Unrealized (loss) gain on investments, net on the Company’s Consolidated Statements of Operations.
Deferred Charges
The Company’s deferred charges include financing and leasing 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 and term loans are recorded as an offset to the related liability and amortized over the term of the applicable financing instruments. Deferred financing costs related to the Company’s revolving credit facility are recorded as a component of Other assets on the Company’s Consolidated Balance Sheets and amortized over the term of the applicable financing agreements. Deferred leasing costs incurred in connection with new leases, which consist primarily of brokerage and legal fees, are recorded as a component of Other assets on the Company’s Consolidated Balance Sheets and amortized over the life of the related lease.
Derivative Instruments
In the normal course of business, the Company is exposed to the effect of interest rate changes and, with regard to its non-U.S. investments, changes in foreign currency exchange rates. The Company seeks to manage these risks by following established risk management policies and procedures including the use of derivatives to hedge interest rate and currency rate risk. These financial instruments may include interest rate swaps and other derivative contracts. Upfront costs paid in connection with acquiring interest rate swaps and caps are amortized over the term of the applicable derivative instrument as a component of Interest expense on the Company’s Consolidated Statements of Operations.
The Company recognizes all derivatives as either assets or liabilities in the Company’s Consolidated Balance Sheets and measures those instruments at fair value. Changes in the fair values of the Company’s derivatives are recorded in current-period earnings as a component of Unrealized gain (loss) on investments, net on the Company’s Consolidated Statements of Operations. The Company recognized $3.6 million and $0.5 million of net unrealized gains on its derivative instruments during the three and six months ended June 30, 2023, respectively. The Company recognized $6.3 million and $5.8 million of net unrealized losses on its derivative instruments during the three and six months ended June 30, 2022, respectively. Realized gains or losses on foreign currency derivatives are recorded as Realized gain on financial instruments in the Company’s Consolidated Statements of Operations. The Company recognized $0.0 million and $0.1 million of realized gains on its foreign currency swap contracts during the three and six months ended June 30, 2023, respectively. The Company recognized a $7.1 million realized gain on its foreign currency swap contracts during the three and six months ended June 30, 2022.
As of June 30, 2023, the Company’s derivative instruments consisted of the following ($ and £ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Instruments | | Notional Amount | | Weighted Average Strike Rate | | Weighted Average Maturity (years) |
Interest Rate Swaps | 2 | | $ | 283,800 | | | 2.4% | | 4.2 |
Interest Rate Caps | 3 | | $ | 170,350 | | | 4.3% | | 0.6 |
Foreign Currency Swap Contracts(1) | 1 | | £ | 62,100 | | | N/A | | 1.1 |
| | | | | |
(1) | The Company’s foreign currency swap matured in August 2023, at which time the Company entered into a new foreign currency swap contract with a one-year term for the same notional amount. |
| |
Fair Value Measurement
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 hierarchical 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 Measured at Fair Value
The Company’s investments in real estate-related securities and trading securities are reported at fair value. The Company generally determines the fair value of its investments in real estate-related securities and trading securities by utilizing third-party pricing service providers. In determining the value of a particular investment, the pricing service providers may use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models to determine the reported price. The pricing service providers’ internal models for securities such as real estate debt generally consider the attributes applicable to a particular class of the security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. The inputs used in determining the Company’s real estate-related securities and trading securities reported at fair value are considered Level 2.
The Company’s derivative financial instruments are reported at fair value. The fair values of the Company’s interest rate swaps are determined using a discounted cash flow analysis based on the terms of the contract and the forward interest rate curve adjusted for the Company’s nonperformance risk. The fair values of the Company’s interest rate caps are determined using models developed by the respective counterparty as well as third-party pricing service providers that use as their basis readily observable market parameters (such as forward yield curves and credit default swap data). The fair value of the Company’s foreign currency swap is determined by comparing the contracted forward exchange rate to the current market exchange rate. The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying instruments. The inputs used in determining the Company’s derivative financial instruments reported at fair value are considered Level 2.
The Company has elected the FVO for its equity method investment and therefore, reports this investment at fair value. As such, the resulting unrealized gains and losses are recorded as a component of Unrealized (loss) gain on investments, net on the Company’s Consolidated Statements of Operations. The Company separately values the assets and liabilities of the equity method investment. To determine the fair value of the assets of the equity method investments, the Company utilizes a
discounted cash flow methodology, taking into consideration various factors including discount rate and exit capitalization rate. The Company determines the fair value of the indebtedness of the equity method investment by modeling the cash flows required by the debt agreements and discounting them back to the present value using an estimated market yield. Additionally, the Company considers current market rates and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. After the fair value of the assets and liabilities are determined, the Company applies its ownership interest to the net asset value and reflects this amount as its equity method investment at fair value. The inputs used in determining the Company’s equity method investment carried at fair value are considered Level 3.
The Company’s carrying values of cash and cash equivalents, restricted cash, accounts receivable and other receivables, accounts payable, accrued liabilities and other liabilities approximate fair value because of the short-term nature of these instruments.
The following table details the Company’s assets and liabilities measured at fair value on a recurring basis ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | | | | | | | | | |
Investments in real estate-related securities | $ | — | | | $ | 277,907 | | | $ | — | | | $ | 277,907 | | | $ | — | | | $ | 299,894 | | | $ | — | | | $ | 299,894 | |
Investment in unconsolidated entities | — | | | — | | | 79,600 | | | 79,600 | | | — | | | — | | | 80,591 | | | 80,591 | |
Derivatives | — | | | 16,234 | | | — | | | 16,234 | | | — | | | 4,349 | | | — | | | 4,349 | |
Total | $ | — | | | $ | 294,141 | | | $ | 79,600 | | | $ | 373,741 | | | $ | — | | | $ | 304,243 | | | $ | 80,591 | | | $ | 384,834 | |
Liabilities: | | | | | | | | | | | | | | | |
Derivatives | $ | — | | | $ | 3,568 | | | $ | — | | | $ | 3,568 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Total | $ | — | | | $ | 3,568 | | | $ | — | | | $ | 3,568 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
The following table details the Company’s assets measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):
| | | | | |
| Investment in unconsolidated entities |
Balance as of December 31, 2022 | $ | 80,591 | |
Distributions of earnings from unconsolidated entities | (2,333) | |
Unrealized gain on investments | 1,342 | |
Balance as of June 30, 2023 | $ | 79,600 | |
The following tables contain the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 |
| Fair Value | | Valuation Technique | | Unobservable Inputs | | Average | | Impact to Valuation from an Increase in Input |
Investments in unconsolidated entities | $ | 79,600 | | | Discounted cash flow | | Discount Rate | | 5.9 | % | | Decrease |
| | | | | Exit Capitalization Rate | | 4.8 | % | | Decrease |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Fair Value | | Valuation Technique | | Unobservable Inputs | | Average | | Impact to Valuation from an Increase in Input |
Investments in unconsolidated entities | $ | 80,591 | | | Discounted cash flow | | Discount Rate | | 5.5 | % | | Decrease |
| | | | | Exit Capitalization Rate | | 4.8 | % | | Decrease |
Valuation of Liabilities Not Measured at Fair Value
The fair value of the Company’s indebtedness is estimated by modeling the cash flows required by the Company’s debt agreements and discounting them back to the present value using an appropriate discount rate. Additionally, the Company considers current market rate and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. The inputs used in determining the fair value of the Company’s indebtedness are considered Level 3. As of June 30, 2023, the fair value of the Company’s mortgage loans and other indebtedness was approximately $27.1 million below the outstanding principal balance.
Income Taxes
The Company believes that it qualifies to be taxed as a REIT for U.S. federal income tax purposes. The Company generally will not be subject to federal corporate income tax to the extent it distributes 90% 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.
The Company has formed wholly owned subsidiaries that are taxed as taxable REIT subsidiaries (“TRSs”) that are subject to taxation at the federal, state and local levels, as applicable. In general, a TRS may perform additional services for the Company’s tenants and generally may engage in any real estate or non-real estate-related business. The Company will account for applicable income taxes by utilizing the asset and liability method. As such, the Company will record deferred tax assets and liabilities for the future tax consequences resulting from the difference between the carrying value of existing assets and liabilities and their respective tax basis. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized.
Organization and Offering Expenses
Organizational expenses are expensed as incurred on the Company’s Consolidated Statements of Operations, and offering costs are charged to equity as incurred on the Company’s Consolidated Statements of Changes in Stockholders’ Equity.
The Adviser and its affiliates advanced $12.5 million of organization and offering expenses on the Company’s behalf through July 5, 2022, and the Company reimburses the Adviser for all such advanced expenses ratably over the 60 months following July 6, 2022. Additionally, the Adviser advanced $1.1 million of organization and offering costs from July 6, 2022 through July 5, 2023, and the Company reimburses the Adviser for all such advanced expenses ratably over the 60 months following July 6, 2023. Any amount due to the Adviser but not paid is recorded as a component of Due to affiliates on the Company’s Consolidated Balance Sheets.
Earnings Per Share
The Company uses the two-class method in calculating earnings per share (“EPS”) when it issues securities other than common stock that contractually entitle the holder to participate in dividends and earnings of the Company when, and if, the Company declares dividends on its common stock. Basic earnings per share (“Basic EPS”) for the Company’s common stock are computed by dividing net income allocable to common stockholders by the weighted average number of shares of common stock outstanding for the period, respectively. Diluted earnings per share (“Diluted EPS”) is calculated similarly, however, it reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock, where such exercise or conversion would result in a lower earnings per share amount.
The Company includes unvested shares of restricted stock in the computation of diluted EPS by using the more dilutive of the two-class method or treasury stock method. Any anti-dilutive securities are excluded from the diluted EPS calculation. For the three and six months ended June 30, 2023 and 2022, there were no dilutive participating securities.
Stockholder Servicing Fee
The Company has entered into a dealer manager agreement with Brookfield Oaktree Wealth Solutions LLC, a registered broker-dealer affiliated with the Adviser (“Dealer Manager”), to serve as the dealer manager for the Current Offering. The Dealer Manager is entitled to receive upfront selling commissions and dealer manager fees of up to 3.5% of the transaction price and ongoing stockholder servicing fees of 0.85% per annum of the aggregate NAV for outstanding Class S and Class T shares with a limit of up to, in the aggregate, 8.75% of the gross proceeds from such shares. The Dealer Manager is entitled to receive upfront selling commissions of up to 1.5% of the transaction price and ongoing stockholder servicing fees of 0.25% per annum of the aggregate NAV for outstanding Class D shares with a limit of up to, in the aggregate, 8.75% of the gross proceeds from such shares. There are no upfront selling commissions, dealer manager fees or ongoing stockholder servicing fees with respect to Class I shares. The Dealer Manager has entered into agreements with the selected dealers distributing the Company’s shares in the Current Offering, which provide, among other things, for the re-allowance of the full amount of the selling commissions and dealer manager fees and all or a portion of the stockholder servicing fees received by the Dealer Manager to such selected dealers. The Company accrues the full cost of the stockholder servicing fee as an offering cost at the time each
Class T, Class S and Class D share is sold, which is recorded as a component of Due to affiliates in the Company’s Consolidated Balance Sheets.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which provides temporary optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform Accounting Standards Update (“ASU”) 2020-04, and 2022-06 - Reference Rate Reform (“Topic 848”). Among other things, for all types of hedging relationships, Topic 848 allows an entity to change the reference rate and other critical terms related to reference rate reform without having to remeasure the value or reassess a previous accounting determination. The amendments in this guidance may be applied immediately on a prospective basis to any related changes through December 31, 2024. During the three months ended June 30, 2023, the Company entered into loan modifications in connection with the transition from LIBOR to Secured Overnight Financing Rate (“SOFR”) for its variable rate loans and applied the practical expedient to all such modifications. As of June 30, 2023, the Company adopted the guidance and it did not have a significant impact on the Company’s consolidated financial statements or disclosures.
3. Investments in Real Estate
As of June 30, 2023 and December 31, 2022, the Company’s investments in real estate, net, consisted of the following ($ in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Building and building improvements | | $ | 1,324,184 | | | $ | 1,321,137 | |
Land and land improvements | | 262,061 | | | 261,487 | |
Tenant improvements | | 34,817 | | | 34,468 | |
Furniture, fixtures and equipment | | 26,984 | | | 25,996 | |
Accumulated depreciation | | (85,317) | | | (62,124) | |
Investments in real estate, net | | $ | 1,562,729 | | | $ | 1,580,964 | |
Acquisitions
During the six months ended June 30, 2023, the Company acquired $1.7 million of real estate investments, which were comprised of six single-family rental homes.
During the year ended December 31, 2022, the Company acquired $550.4 million of real estate investments, which were comprised of three rental housing properties, two logistics properties and 466 single-family rental homes.
The following table provides further details of the properties acquired during the six months ended June 30, 2023 and year ended December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment | | Ownership Interest | | Location | | Segment | | Acquisition Date | | Square Feet/Units | | Purchase Price(1) |
2626 South Side Flats | | 100% | | Pittsburgh, PA | | Rental Housing | | January 2022 | | 264 | | $ | 92,459 | |
2003 Beaver Road | | 100% | | Landover, MD | | Logistics | | February 2022 | | 38,000 | | 9,646 | |
187 Bartram Parkway | | 100% | | Franklin, IN | | Logistics | | February 2022 | | 300,000 | | 28,912 | |
The Parker at Huntington Metro | | 100% | | Alexandria, VA | | Rental Housing | | March 2022 | | 360 | | 136,779 | |
Briggs + Union | | 100% | | Mount Laurel, NJ | | Rental Housing | | April 2022 | | 490 | | 158,648 | |
Single-Family Rentals | | 100% | | Various | | Rental Housing | | Various 2022 | | 466 | | 123,995 | |
Single-Family Rentals | | 100% | | Various | | Rental Housing | | Various 2023 | | 6 | | 1,681 | |
| | | | | | | | | | | | $ | 552,120 | |
| | | | | |
(1) | Purchase price is inclusive of closing costs. |
The following table summarizes the purchase price allocation of the properties acquired during the six months ended June 30, 2023 and year ended December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Building and building improvements | | $ | 1,418 | | | $ | 453,211 | |
Land and land improvements | | 263 | | | 78,095 | |
Tenant improvements | | — | | | 1,232 | |
Furniture, fixtures and equipment | | — | | | 9,530 | |
In-place lease intangibles | | — | | | 5,664 | |
Lease origination costs | | — | | | 902 | |
Tax abatement intangible | | — | | | 2,195 | |
Above-market lease intangibles | | — | | | 65 | |
Below-market lease intangibles | | — | | | (454) | |
Total purchase price(1) | | $ | 1,681 | | | $ | 550,440 | |
| | | | |
| | | | |
| | | | | |
(1) | Purchase price is inclusive of closing costs. |
| |
4. Investments in Unconsolidated Entities
The Company holds an investment in an unconsolidated joint venture that it has elected to account for using the FVO, as the Company’s ownership interest in the joint venture does not meet the requirements for consolidation.
On November 2, 2021, the Company acquired a 20% interest in Principal Place, a net lease property located in London, United Kingdom, through an indirect interest in the joint venture that owns the property. As of June 30, 2023 and December 31, 2022, the fair value of the Company’s interest in Principal Place was $79.6 million and $80.6 million, respectively.
The following tables provide summarized financial information of the joint venture that owns Principal Place as of and for the periods set forth below ($ in thousands):
| | | | | | | | | | | |
| As of June 30, 2023 | | As of December 31, 2022 |
Total Assets | $ | 1,053,717 | | | $ | 1,019,861 | |
Total Liabilities | 630,999 | | | 602,652 | |
Total Equity | $ | 422,718 | | | $ | 417,209 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Total Revenues | $ | 12,010 | | | $ | 11,394 | | | $ | 23,483 | | | $ | 24,813 | |
Total Expenses | 13,949 | | | 13,046 | | | 26,786 | | | 26,857 | |
Net Loss | $ | (1,939) | | | $ | (1,652) | | | $ | (3,303) | | | $ | (2,044) | |
5. Intangibles
The gross carrying amount and accumulated amortization of the Company’s intangible assets consisted of the following as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | |
Intangible assets | June 30, 2023 | | December 31, 2022 |
In-place lease intangibles | $ | 32,610 | | | $ | 33,141 | |
Lease origination costs | 13,883 | | | 13,667 | |
Lease inducements | 2,632 | | | 1,708 | |
Tax intangibles | 5,249 | | | 5,249 | |
Above-market lease intangibles | 114 | | | 114 | |
Total intangible assets | 54,488 | | | 53,879 | |
Accumulated amortization: | | | |
In-place lease intangibles | (5,526) | | | (4,823) | |
Lease origination costs | (3,473) | | | (2,887) | |
Lease inducements | (914) | | | (787) | |
Tax intangibles | (1,004) | | | (669) | |
Above-market lease intangibles | (27) | | | (18) | |
Total accumulated amortization | (10,944) | | | (9,184) | |
Intangible assets, net | $ | 43,544 | | | $ | 44,695 | |
| | | |
Intangible liabilities: | | | |
Below-market lease intangibles | $ | (28,919) | | | $ | (28,919) | |
Accumulated amortization | 2,118 | | | 1,444 | |
Intangible liabilities, net | $ | (26,801) | | | $ | (27,475) | |
The weighted average amortization periods of the Company’s intangible assets is 179 months and intangible liabilities is 266 months.
The following table details the Company’s future amortization of intangibles for each of the next five years and thereafter as of June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| In-place Lease Intangibles | | Above-market Lease Intangibles | | Other Intangibles | | Below-market Lease Intangibles |
2023 (remaining) | $ | 1,161 | | | $ | 9 | | | $ | 1,353 | | | $ | (674) | |
2024 | 2,010 | | | 18 | | | 2,542 | | | (1,345) | |
2025 | 1,867 | | | 18 | | | 2,413 | | | (1,340) | |
2026 | 1,678 | | | 18 | | | 2,128 | | | (1,332) | |
2027 | 1,521 | | | 7 | | | 1,823 | | | (1,327) | |
2028 | 1,436 | | | 5 | | | 1,386 | | | (1,327) | |
Thereafter | 17,411 | | | 12 | | | 4,728 | | | (19,456) | |
Total | $ | 27,084 | | | $ | 87 | | | $ | 16,373 | | | $ | (26,801) | |
6. Investments in Real Estate-Related Loans and Securities
The following table summarizes the components of investments in real estate-related loans and securities as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Real estate-related loans | | $ | 31,509 | | | $ | 32,760 | |
Real estate-related securities | | 277,907 | | | 299,894 | |
Total investments in real estate-related loans and securities | | $ | 309,416 | | | $ | 332,654 | |
The following tables detail the Company’s real estate-related loan investments as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | June 30, 2023 |
Investment | | Collateral | | Interest Rate(1) | | Maturity Date | | Payment Terms | | Face Amount | | Unamortized Discount/Origination Fees | | Allowance Adjustment | | Carrying Amount |
IMC/AMC Bond Investment | | International Markets Center AmericasMart Atlanta | | L+6.15% | | December 2023 | | Principal due at maturity | | $ | 25,000 | | | $ | (35) | | | $ | — | | | $ | 24,965 | |
The Avery Senior Loan(2) | | The Avery Condominium San Francisco, California | | L+7.30% | | February 2023(3) | | Principal due at maturity(4) | | 6,315 | | | — | | | (1,062) | | | 5,253 | |
The Avery Mezzanine Loan(2) | | The Avery Condominium San Francisco, California | | L+12.50% | | February 2023(3) | | Principal due at maturity(4) | | 1,529 | | | — | | | (238) | | | 1,291 | |
Total | | | | | | | | | | $ | 32,844 | | | $ | (35) | | | $ | (1,300) | | | $ | 31,509 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | December 31, 2022 |
Investment | | Collateral | | Interest Rate(1) | | Maturity Date | | Payment Terms | | Face Amount | | Unamortized Discount/Origination Fees | | Carrying Amount |
IMC/AMC Bond Investment | | International Markets Center AmericasMart Atlanta | | L+6.15% | | December 2023 | | Principal due at maturity | | $ | 25,000 | | | $ | (78) | | | $ | 24,922 | |
The Avery Senior Loan(2) | | The Avery Condominium San Francisco, California | | L+7.30% | | February 2023(3) | | Principal due at maturity(4) | | 6,315 | | | (5) | | | 6,310 | |
The Avery Mezzanine Loan(2) | | The Avery Condominium San Francisco, California | | L+12.50% | | February 2023(3) | | Principal due at maturity(4) | | 1,529 | | | (1) | | | 1,528 | |
Total | | | | | | | | | | $ | 32,844 | | | $ | (84) | | | $ | 32,760 | |
| | | | | |
(1) | | The term “L” refers to the one-month US dollar-denominated LIBOR. As of June 30, 2023 and December 31, 2022, one-month LIBOR was equal to 5.22% and 4.39%, respectively. |
(2) | | The Company’s investment is held through its membership interest in an entity which aggregates the Company’s interest with interests held by other funds managed by the Sub-Adviser. The Company has been allocated its proportionate share of the loan based on its membership interest in the aggregating entity. |
(3) | | The Sub-Adviser is negotiating a loan modification with the borrower. |
(4) | | The loan agreement requires mandatory prepayments simultaneous with the closing of the sale of any condominium unit. During the six months ended June 30, 2023 and 2022, the Company received aggregate net repayments of $0.0 million and $1.6 million, respectively. |
For the three and six months ended June 30, 2023, the Company recognized a $1.3 million allowance adjustment for estimated credit loss, which is recorded as a component of Income from real estate-related loans and securities on the Company’s Consolidated Statements of Operations. The allowance adjustment is related to The Avery Senior Loan and The Avery Mezzanine Loan and is based on the expected timing of loan repayments, forecasted cash flows from the underlying collateral, and the current macroeconomic environment. The Company estimates its credit loss allowance primarily using the discounted cash flow method based on projected future principal cash flows for each individual loan. For the three and six months ended June 30, 2022, no allowance for expected credit loss was recognized. There have been no write-offs related to the Company’s investments in real estate-related loans.
The Company’s investments in real estate-related securities consist of commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”), and corporate bonds. The following tables detail the Company’s investments in real estate-related securities as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2023 |
Type of Security | | Number of Positions | | Weighted Average Coupon(1) | | Weighted Average Maturity Date(2) | | Face Amount | | Cost Basis | | Fair Value |
CMBS - floating | | 33 | | L+3.58% | | October 2025 | | $ | 170,731 | | | $ | 162,687 | | | $ | 163,925 | |
CMBS - fixed | | 7 | | 4.51% | | September 2024 | | 54,458 | | | 49,722 | | | 47,499 | |
RMBS - floating | | 11 | | L+2.30% | | February 2025 | | 23,860 | | | 23,524 | | | 23,781 | |
RMBS - fixed | | 28 | | 4.81% | | June 2026 | | 45,231 | | | 43,950 | | | 42,702 | |
| | | | | | | | | | | | |
Total | | 79 | | 7.24% | | August 2025 | | $ | 294,280 | | | $ | 279,883 | | | $ | 277,907 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
Type of Security | | Number of Positions | | Weighted Average Coupon(1) | | Weighted Average Maturity Date(2) | | Face Amount | | Cost Basis | | Fair Value |
CMBS - floating | | 33 | | L+3.64% | | November 2025 | | $ | 177,192 | | | $ | 169,014 | | | $ | 168,765 | |
CMBS - fixed | | 10 | | 4.54% | | June 2024 | | 74,771 | | | 69,705 | | | 69,555 | |
RMBS - floating | | 8 | | L+2.46% | | November 2024 | | 19,325 | | | 19,048 | | | 19,175 | |
RMBS - fixed | | 24 | | 4.69% | | February 2026 | | 42,989 | | | 41,658 | | | 40,414 | |
Corporate bonds | | 1 | | 4.75% | | March 2029 | | 2,500 | | | 2,075 | | | 1,985 | |
Total | | 76 | | 6.63% | | July 2025 | | $ | 316,777 | | | $ | 301,500 | | | $ | 299,894 | |
| | | | | |
(1) | The term “L” refers to the relevant floating benchmark rates, which include USD LIBOR and Secured Overnight Financing Rate (“SOFR”), as applicable to each security and loan. As of June 30, 2023 and December 31, 2022, one-month LIBOR was equal to 5.22% and 4.39%, respectively. As of June 30, 2023 and December 31, 2022, SOFR was equal to 5.09% and 4.30%, respectively. |
(2) | Weighted average maturity date is based on the fully extended maturity date of the instruments. |
During the three and six months ended June 30, 2023, the Company recorded net unrealized losses on its investments in real estate-related securities of $1.3 million and $0.4 million, respectively, and net realized losses and gains on its real estate-related securities investments of $0.0 million and $0.2 million, respectively.
During the three and six months ended June 30, 2022, the Company recorded net unrealized losses on its real estate-related securities investments of $0.6 million and $1.3 million, respectively, and net realized gains on its real estate-related securities investments of $0.0 million and $0.7 million, respectively. Such amounts are recorded as components of Other (expense) income on the Company’s Consolidated Statements of Operations.
7. Accounts and Other Receivables and Other Assets
The following tables summarize the components of Accounts and other receivables, net and Other assets as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | |
Accounts and other receivables, net | June 30, 2023 | | December 31, 2022 |
Straight-line rent receivables | $ | 4,946 | | | $ | 4,132 | |
Accounts receivable, net | 2,712 | | | 3,007 | |
Interest receivable | 1,626 | | | 1,243 | |
| | | |
Total accounts and other receivables, net | $ | 9,284 | | | $ | 8,382 | |
| | | |
Other assets | June 30, 2023 | | December 31, 2022 |
Trading securities | $ | 29,678 | | | $ | 15,918 | |
Derivative instruments | 16,234 | | | 4,349 | |
Prepaid expenses | 2,848 | | | 2,344 | |
Other | 512 | | | 457 | |
Acquisition deposits | — | | | 120 | |
Total other assets | $ | 49,272 | | | $ | 23,188 | |
8. Accounts Payable, Accrued Expenses and Other Liabilities
The following table summarizes the components of Accounts payable, accrued expenses and other liabilities as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Stock repurchases payable | $ | 22,370 | | | $ | 12,586 | |
Accounts payable and accrued expenses | 7,451 | | | 10,901 | |
Distributions payable | 5,351 | | | 5,250 | |
Real estate taxes payable | 4,086 | | | 3,508 | |
Accrued interest expense | 3,925 | | | 3,217 | |
Derivative instruments | 3,568 | | | — | |
Tenant security deposits | 3,053 | | | 2,895 | |
Prepaid rent | 1,496 | | | 1,234 | |
Total accounts payable, accrued expenses and other liabilities | $ | 51,300 | | | $ | 39,591 | |
9. Mortgage Loans, Secured Term Loan and Secured Credit Facility
The following table summarizes the components of total indebtedness, net as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Principal Balance Outstanding |
Indebtedness | | Interest Rate(1) | | Maturity Date(2) | | June 30, 2023 | | December 31, 2022 |
Anzio Apartments mortgage loan | | L+1.59% (7) | | May 2029 | | $ | 44,400 | | | $ | 44,400 | |
Two Liberty Center mortgage loan | | SOFR+1.60%(5) | | August 2024 | | 62,085 | | | 62,085 | |
Lakes at West Covina mortgage loan | | SOFR+1.66%(6) | | February 2025 | | 25,604 | | | 25,604 | |
Arbors of Las Colinas mortgage loan | | SOFR+2.24% | | January 2031 | | 45,950 | | | 45,950 | |
1110 Key Federal Hill mortgage loan | | 2.34% | | October 2028 | | 51,520 | | | 51,520 | |
Domain mortgage loan | | SOFR+1.50% | | December 2026 | | 48,700 | | | 48,700 | |
DreamWorks Animation Studios mortgage loan | | 3.20% | | March 2029 | | 212,200 | | | 212,200 | |
Briggs + Union mortgage loan | | SOFR+1.75% | | December 2027 | | 80,000 | | | 80,000 | |
Secured Multifamily Term Loan | | SOFR+1.70% | | March 2027 | | 372,760 | | | 372,760 | |
Secured Credit Facility (3) | | SOFR+2.00% | | January 2025 | | 118,985 | | | 118,985 | |
Affiliate Line of Credit(4) | | SOFR+2.25% | | November 2023 | | — | | | — | |
Total indebtedness | | | | | | 1,062,204 | | | 1,062,204 | |
Less: deferred financing costs, net | | | | | | (6,342) | | | (7,907) | |
Total indebtedness, net | | | | | | $ | 1,055,862 | | | $ | 1,054,297 | |
| | | | | |
(1) | The term “L” refers to the one-month US dollar-denominated LIBOR. As of June 30, 2023 and December 31, 2022, one-month LIBOR was 5.22% and 4.39%, respectively. As of June 30, 2023 and December 31, 2022, SOFR was 5.09% and 4.30%, respectively. |
(2) | Includes the fully extended maturity date for loans with extension options that are at the Company’s discretion and the Company currently expects to be able to exercise. |
(3) | As of June 30, 2023 and December 31, 2022, borrowings on the Secured Credit Facility were secured by the following properties: 6123-6227 Monroe Court, 2003 Beaver Road, 187 Bartram Parkway, and certain single-family rentals. |
(4) | Borrowings under the Affiliate Line of Credit (defined below) bear interest at a rate of the lowest then-current interest rate for any similar credit product offered by a third-party lender to the Company or its subsidiaries or, if not available, SOFR plus a 0.10% credit adjustment and a 2.25% margin. |
(5) | In April 2023, the interest rate benchmark was converted from LIBOR to SOFR and the spread was adjusted from 1.50% to 1.60%. |
(6) | In March 2023, the interest rate benchmark was converted from LIBOR to SOFR and the spread was adjusted from 1.55% to 1.66%. |
(7) | Subsequent to June 30, 2023, the interest rate benchmark was converted from LIBOR to SOFR plus a 0.11% credit adjustment. |
The following table presents the future principal payments due under the Company’s mortgage loans and other indebtedness as of June 30, 2023 ($ in thousands):
| | | | | | | | |
Year | | Amount |
2023 (remaining) | | $ | — | |
2024 | | 62,349 | |
2025 | | 145,183 | |
2026 | | 50,062 | |
2027 | | 454,275 | |
2028 | | 53,100 | |
Thereafter | | 297,235 | |
Total | | $ | 1,062,204 | |
The mortgage loans, Secured Multifamily Term Loan (defined below), and Secured Credit Facility (defined below) are subject to various financial and operational covenants. These covenants require the Company to maintain certain financial ratios, which may include leverage, debt yield, and debt service coverage, among others. As of June 30, 2023, the Company is in compliance with all of its loan covenants that could result in a default under such agreements. At Two Liberty Center, cash flows from the property are currently held in a restricted cash account due to a debt service coverage ratio requirement.
Mortgage Loans
During the six months ended June 30, 2023, the Company did not obtain financing or repay any mortgage loans related to its properties. During the year ended December 31, 2022, the Company obtained financing of $1.1 billion in mortgage loans related to its properties, which were subject to customary terms and conditions. During the year ended December 31, 2022, the Company repaid $730.6 million of mortgage loans.
Secured Multifamily Term Loan
In March 2022, the Company entered into a term loan (the “Secured Multifamily Term Loan”) providing for a senior secured loan with an aggregate principal amount of $372.8 million. Borrowings on the Secured Multifamily Term Loan are secured by The Burnham, Flats on Front, Verso, 2626 South Side Flats and The Parker at Huntington Metro. Borrowings under the Secured Multifamily Term Loan bear interest at a rate of SOFR plus 1.70%. The Secured Multifamily Term Loan matures in March 2025, and has two one-year extension options, subject to certain conditions.
Secured Credit Facility
In November 2021, the Company entered into a credit agreement with a lender (the “Secured Credit Facility”) providing for a senior secured credit facility to be used for the acquisition or refinancing of properties. Borrowings on the Secured Credit Facility are secured by certain properties owned by the Company.
The initial maximum aggregate principal amount of the facility was $250.0 million, which was increased to $500.0 million in March 2022. In May 2022, the interest rate benchmark was converted from LIBOR to SOFR plus 1.95%. The Secured Credit Facility had an initial maturity date in November 2022, which was extended to January 2023.
In December 2022, the Company refinanced the Secured Credit Facility with the lender. The maximum aggregate principal amount of the facility was amended to $300.0 million, inclusive of a $100.0 million revolving credit amount which the Company may repay and re-borrow upon request, subject to certain conditions. The Company may increase the available capacity on the Secured Credit Facility by an additional $1.2 billion, subject to lender approval. The Secured Credit Facility bears interest at a rate of SOFR plus 2.00% and has a maturity date of January 2025.
As of June 30, 2023 and December 31, 2022, there were $119.0 million of outstanding borrowings on the Secured Credit Facility.
Affiliate Line of Credit
In November 2021, the Company entered into a revolving line of credit with an affiliate of Brookfield (the “Affiliate Line of Credit”), providing for a discretionary, unsecured, uncommitted credit facility in a maximum aggregate principal amount of $125.0 million. The Affiliate Line of Credit had an initial maturity date of November 2, 2022, and has one-year extension options subject to the lender’s approval. Effective November 2, 2022, the maturity date was extended to November 2, 2023, and the interest rate benchmark was converted from LIBOR to SOFR. Borrowings under the Affiliate Line of Credit bear interest at a rate of the lowest then-current interest rate for any similar credit product offered by a third-party lender to the Company or its subsidiaries or, if not available, SOFR plus a 0.10% credit adjustment and a 2.25% margin. As of June 30, 2023 and December 31, 2022, there were no outstanding borrowings on the Affiliate Line of Credit.
10. Related Party Transactions
Advisory Agreement
Pursuant to the advisory agreement among the Adviser, the Operating Partnership and the Company (the “Advisory Agreement”), the Adviser is entitled to an annual management fee equal to 1.25% of the Company’s NAV on its Class C, Class D, Class I, Class S and Class T shares of common stock (no management fee is paid on the Class E shares), payable monthly, as compensation for the services it provides to the Company. The management fee can be paid, at the Adviser’s election, in cash or shares of the Company’s common stock. To date, the Adviser has elected to receive the management fee in Class I and Class E shares of the Company’s common stock. During the three and six months ended June 30, 2023, management fees earned by the Adviser were $3.6 million and $7.3 million, respectively. During the three and six months ended June 30, 2022, management fees earned by the Adviser were $2.1 million and $3.3 million, respectively.
During the six months ended June 30, 2023, the Company issued 554,307 unregistered Class I shares of common stock to the Adviser for the payment of management fees earned from December 2022 through May 2023. The Company also had an accrued payable of $1.2 million related to the management fee as of June 30, 2023, which is included in Due to affiliates on the Company’s Consolidated Balance Sheets. During July 2023, the Adviser was issued 90,722 unregistered Class I shares as payment for the $1.2 million management fee accrued as of June 30, 2023.
The Adviser is entitled to a performance fee based on the total return of the Company’s Class C, Class D, Class I, Class S and Class T common shares (no performance fee is paid on the Class E common shares). Total return is defined as distributions paid or accrued plus the change in the Company’s NAV, adjusted for subscriptions and repurchases. Pursuant to the Advisory Agreement, the performance fee is equal to 12.5% of the total return in excess of a 5% total return (after recouping any loss carryforward amount), subject to a catch-up. The performance fee becomes payable at the end of each calendar year and can be paid, at the Adviser’s election, in cash, shares of the Company’s common stock, or units of the Operating Partnership.
During the three and six months ended June 30, 2023, the Company recognized no performance fees in the Company’s Consolidated Statements of Operations. During the three and six months ended June 30, 2022, the Company recognized $4.7 million and $8.2 million, respectively, of performance fees in the Company’s Consolidated Statements of Operations, respectively. The performance fee for 2022 became payable on December 31, 2022, and in January 2023 the Company issued 481,598 shares of Class I common stock to the Adviser as payment for the 2022 performance fee.
Repurchase of Adviser Shares
During the six months ended June 30, 2023, the Company repurchased outside of its share repurchase plan 1,039,789 shares of Class I common stock from the Adviser for total consideration of $13.6 million. There were no shares repurchased from the Adviser during the six months ended June 30, 2022.
Sub-Adviser Agreements
The Adviser has engaged the Sub-Adviser to (i) perform the functions related to selecting and managing the Company’s liquid assets, including real estate-related debt securities, (the “Liquidity Sleeve”) pursuant to a sub-advisory agreement (the “Liquidity Sleeve Sub-Advisory Agreement”) and (ii) manage the Oaktree Option Investments (as defined below) pursuant to a separate sub-advisory agreement (the “Oaktree Assets Sub-Advisory Agreement” and together with the Liquidity Sleeve Sub-Advisory Agreement, the “Sub-Advisory Agreements”).
Pursuant to the Liquidity Sleeve Sub-Advisory Agreement, the Sub-Adviser provides services related to the acquisition, management and disposition of the Liquidity Sleeve in accordance with the Company’s investment objectives, strategy, guidelines, policies and limitations. Pursuant to the Oaktree Assets Sub-Advisory Agreement, the Sub-Adviser manages the Oaktree Option Investments.
The Sub-Adviser earns management and performance fees pursuant to the terms of the Sub-Advisory Agreements. These fees are paid by the Adviser out of the management and performance fees by the Adviser; therefore, no management or performance fees related to the Sub-Advisory Agreements have been recognized in the Company’s Consolidated Statements of Operations.
Dealer Manager Agreement
The Company has engaged the Dealer Manager, a registered broker-dealer affiliated with the Adviser, as the dealer manager for the Current Offering. The Company pays to the Dealer Manager selling commissions, dealer manager fees and stockholder servicing fees in connection with sales of the Company’s common stock in the Current Offering. The Company accrues the full amount of the future stockholder servicing fees payable to the Dealer Manager for Class S, Class T, and Class D shares up to the 8.75% of gross proceeds limit at the time such shares are sold. The Dealer Manager has entered into agreements with the selected dealers distributing the Company’s shares in the Offering, which provide, among other things, for the re-allowance of the full amount of the selling commissions and dealer manager fees and all or a portion of the stockholder servicing fees received by the Dealer Manager to such selected dealers.
Advanced Organization and Offering Costs
The Adviser and its affiliates advanced all of the Company’s organization and offering expenses (other than upfront selling commissions, dealer manager fees and stockholder servicing fees) through July 5, 2023, subject to the following reimbursement terms: (1) the Company reimburses the Adviser for all such advanced expenses paid through July 5, 2022 ratably over the 60 months following July 6, 2022; and (2) the Company reimburses the Adviser for all such advanced expenses paid from July 6, 2022 through July 5, 2023 ratably over the 60 months following July 6, 2023.
Affiliate Line of Credit
In November 2021, the Company entered into the Affiliate Line of Credit, providing for a discretionary, unsecured, uncommitted credit facility in a maximum aggregate principal amount of $125.0 million. For further details on the Affiliate Line of Credit, see Note 9 to the Company’s Consolidated Financial Statements.
Brookfield Repurchase Arrangement
One or more affiliates of Brookfield (individually or collectively, as the context may require, the “Brookfield Investor”) was issued shares of the Company’s common stock and Class E units of the Operating Partnership (“OP Units”) in connection with its contribution of certain properties on November 2, 2021 (the “Brookfield Portfolio”). The Company and the Operating Partnership have entered into a repurchase arrangement with the Brookfield Investor (the “Brookfield Repurchase Arrangement”) pursuant to which the Company and the Operating Partnership will offer to repurchase shares of common stock or Class E OP Units from the Brookfield Investor at a price per unit equal to the most recently determined NAV per share or unit immediately prior to each repurchase. The Brookfield Investor has agreed to not seek repurchase of the shares of common stock and Class E OP Units that it owns if doing so would bring the value of its equity holdings in the Company and the Operating Partnership below $50.0 million. In addition, the Brookfield Investor has agreed to hold all of the shares of common stock and Class E OP Units that it received in consideration for the contribution of the Brookfield Portfolio until the earlier of (i) the first date that the Company’s NAV reaches $1.5 billion and (ii) the date that is the third anniversary of November 2, 2021. Following such date, the Brookfield Investor may cause the Company to repurchase its shares and Class E OP Units (above the $50.0 million minimum), in an amount equal to the sum of (a) the amount available under the Company’s share repurchase plan’s 2% monthly and 5% quarterly caps (after accounting for third-party investor repurchases) and (b) 25% of the amount by which net proceeds from the Offering and the Company’s private offerings of common stock for a given month exceed the amount of repurchases for such month pursuant to the Company’s share repurchase plan. The Company will not effect any such repurchase during any month in which the full amount of all shares requested to be repurchased by third-party investors under the share repurchase plan is not repurchased. The Brookfield Repurchase Arrangement does not apply to shares of common stock or units of the Operating Partnership held by affiliates of Brookfield that are feeder vehicles primarily created to offer interests in such feeder vehicles to non-U.S. persons. During the six months ended June 30, 2023, the Company and the Operating Partnership did not repurchase any shares or Class E OP Units from the Brookfield Investor as part of the Brookfield Repurchase Arrangement.
Option Investments Purchase Agreement
On November 2, 2021, the Company and Oaktree entered into a purchase option agreement (the “Option Investments Purchase Agreement”) pursuant to which Oaktree will have the right to purchase the Operating Partnership’s entire interest in four properties (Anzio Apartments, Arbors of Las Colinas, Two Liberty Center, and Lakes at West Covina; collectively the “Equity Option Investments”) and five real estate-related loans and securities (IMC/AMC Bond Investment, 111 Montgomery, The Avery Senior Loan, The Avery Mezzanine Loan, and BX 2019 IMC G; collectively the “Debt Option Investments” and, together with the Equity Option Investments, the “Oaktree Option Investments”). The 111 Montgomery loan was repaid in full by the borrower in November 2022 prior to the commencement of the option period. Pursuant to the Option Investments Purchase Agreement, Oaktree will have the right to purchase all of the Equity Option Investments or all of the Debt Option Investments, or both, subject to certain restrictions, for a period of twelve months following the earlier of (i) 18 months after November 2, 2021, the date of completion of the Adviser Transition, and (ii) the date on which the Company notifies Oaktree that it has issued in the aggregate $1.0 billion of the Company’s common stock to non-affiliates since November 2, 2021, at a price equal to the fair value of the Equity Option Investments and Debt Option Investments, as determined in connection with the Company’s most recently determined NAV immediately prior to the closing of such purchase. The twelve month option period commenced on May 2, 2023. Oaktree has not exercised its right to purchase the Oaktree Option Investments.
Brookfield Investor Subscriptions
On November 30, 2021, the Operating Partnership and the Brookfield Investor entered into a subscription agreement (the “Brookfield Subscription Agreement”) pursuant to which the Brookfield Investor agreed to purchase up to $83.0 million of Class E OP Units upon the request of the general partner of the Operating Partnership, of which the Company is the sole member. On December 1, 2021, the Brookfield Investor was issued 3,756,480 Class E OP Units in exchange for $45.0 million. On January 3, 2022, the Brookfield Investor was issued 3,075,006 Class E OP Units in exchange for $38.0 million. On June 29,
2022, the Company, the Operating Partnership and the Brookfield Investor entered into an agreement pursuant to which all such Class E OP Units issued to the Brookfield Investor in connection with the Brookfield Subscription Agreement were converted to Class I shares of the Company’s common stock at the then-applicable conversion factor per unit based on the most recently determined NAV of Class E OP Units and Class I shares.
On April 3, 2023, the Brookfield Investor was issued 756,475 Class I shares in the Current Offering in exchange for $10.0 million. On May 1, 2023, the Brookfield Investor was issued 617,909 Class I shares in the Current Offering in exchange for $8.0 million. The Class I shares held by the Brookfield Investor in connection with the Brookfield Subscription Agreement and subsequent subscriptions are not subject to the Brookfield Repurchase Arrangement, but the Brookfield Investor may request the Company repurchase its shares, in whole or in part, subject to the terms and conditions of the Company’s share repurchase plan.
Affiliate Service Provider Expenses
The Company may retain certain of the Adviser’s affiliates for necessary services relating to the Company’s investments or its operations, including any administrative services, construction, special servicing, leasing, development, property oversight and other property management services, as well as services related to group purchasing, healthcare, consulting/brokerage, capital markets/credit origination, loan servicing, property, title and/or other types of insurance, management consulting and other similar operational matters.
The Company has engaged Brookfield Properties, an affiliate of Brookfield, to provide operational services (including, without limitation, property management, leasing, and construction management) and corporate support services (including, without limitation, accounting and administrative services) for the Company and certain of its properties. The Company has also engaged Conrex, an affiliate of Brookfield, to provide operational services (including, without limitation, property management, renovation, leasing, and turnover and maintenance oversight) for the Company’s single-family rental properties.
The Company also reimburses Brookfield Properties, Conrex and other Brookfield operating affiliates for operating personnel expenses, including, but not limited to, employees who provide on-site maintenance, leasing, administrative and operational support services. Such employees may be fully dedicated or a shared resource amongst other investments. Employees’ compensation and expenses continue to be an expense of the affiliate, and if they are a shared resource, the affiliate allocates such expense to the Company according to their policies and procedures. Personnel expenses may include IT costs, HR support (i.e. payroll and benefits), rent and office services, basic financial services (i.e., account receivables, bank account administration), professional development, travel, professional fees and similar expenses.
The following table summarizes the Company’s affiliate service provider expenses for the three and six months ended June 30, 2023 and 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Property management fees(1) | $ | 714 | | | $ | 526 | | | $ | 1,432 | | | $ | 845 | |
Single-family rental leasing, maintenance and turnover oversight fees(1) | 189 | | | 168 | | | 278 | | | 210 | |
Capitalized construction management fees(2) | 23 | | | 39 | | | 36 | | | 49 | |
Capitalized single-family rental renovation oversight fees(2) | 10 | | | 160 | | | 32 | | | 200 | |
Reimbursed personnel costs(3) | 1,711 | | | 1,080 | | | 3,313 | | | 1,929 | |
Total | $ | 2,647 | | | $ | 1,973 | | | $ | 5,091 | | | $ | 3,233 | |
| | | | | |
(1) | | Included in Rental property operating expenses on the Company’s Consolidated Statements of Operations. |
(2) | | Included in Investments in real estate, net on the Company’s Consolidated Balance Sheets. |
(3) | | For the three and six months ended June 30, 2023, $1.5 million and $2.8 million, respectively, included in Rental property operating expenses and $0.2 million and $0.5 million, respectively, included in General and administrative expenses on the Company’s Consolidated Statements of Operations. For the three and six months ended June 30, 2022, $1.1 million and $1.9 million, respectively, included in Rental property operating expenses and $0.0 million and $0.0 million included in General and administrative expenses on the Company’s Consolidated Statements of Operations. |
Captive Insurance Company
BPG Bermuda Insurance Limited (“BAM Insurance Captive”), a Brookfield affiliate, provides property and liability insurance for certain of the Company’s properties. For the three and six months ended June 30, 2023, the Company incurred $0.0 million and $0.1 million, respectively, for insurance premiums. For the three and six months ended June 30, 2022, the Company incurred $0.1 million and $0.1 million, respectively, for insurance premiums provided by BAM Insurance Captive.
On March 31, 2023, Obsidian Mutual, a Brookfield affiliate, replaced BAM Insurance Captive in providing property insurance for certain of the Company’s properties. For the three and six months ended June 30, 2023, the Company incurred $0.0 million for insurance premiums provided by Obsidian Mutual.
Affiliate Title Service Provider
Horizon Land Services (“Horizon”), a Brookfield affiliate, provides title insurance for certain of the Company’s properties. Horizon acts as an agent for one or more underwriters in issuing title policies and/or providing support services in connection with the Company acquiring or financing its properties. For the three and six months ended June 30, 2023, the Company incurred $0.0 million for title services provided by Horizon. For the three and six months ended June 30, 2022, the Company incurred $0.0 million and $0.2 million, respectively, for title services provided by Horizon.
Terrorism Insurance Provider
Liberty IC Casualty LLC (“Liberty”), a Brookfield affiliate, provides terrorism insurance for certain of the Company’s properties. For the three and six months ended June 30, 2023, the insurance premiums incurred by the Company were insignificant. No comparable financial information has been presented for the three and six months ended June 30, 2022 as the insurance program commenced in 2023.
Submetering Services
Certain of the Company’s properties sold submetering infrastructure and associated equipment to Metergy, an affiliate of Brookfield. Sale proceeds earned by the Company for the three and six months ended June 30, 2023 was $0.4 million and $0.4 million, respectively. Metergy provides submetering services to certain of the Company’s properties. For the three and six months ended June 30, 2023, the Company incurred fees of $0.0 million and $0.0 million, respectively. No comparable financial information has been presented for the three and six months ended June 30, 2022 as the submetering program commenced in 2023.
Due to Affiliates
The following table details the components of Due to affiliates as of June 30, 2023 and December 31, 2022 ($ in thousands):
| | | | | | | | | | | | | | |
| | June 30, 2023 | | December 31, 2022 |
Accrued stockholder servicing fee | | $ | 27,967 | | | $ | 29,477 | |
Advanced organization and offering costs | | 10,994 | | | 12,002 | |
Stock repurchase payable to the Adviser for management and performance fees | | 3,591 | | | — | |
Accrued performance fee | | — | | | 6,566 | |
Other(1) | | 3,327 | | | 2,118 | |
Accrued management fee | | 1,161 | | | 1,239 | |
Accrued affiliate service provider expenses | | 1,524 | | | 887 | |
OP units distributions payable | | 6 | | | 5 | |
Total | | $ | 48,570 | | | $ | 52,294 | |
| | | | | |
(1) | | Represents costs advanced by the Adviser and the Sub-Adviser on behalf of the Company for general corporate expenses provided by unaffiliated third parties. |
11. Stockholders’ Equity and Redeemable Non-controlling Interests
Authorized Capital
On April 30, 2018, the SEC declared effective the Company’s registration statement on Form S-11 for the Initial Public Offering. On November 2, 2021, the SEC declared effective the Company’s registration statement on Form S-11 (File No. 333-255557) for the Current Offering of up to $6.0 billion in shares in its primary offering and up to $1.5 billion in shares pursuant to its distribution reinvestment plan. The Initial Public Offering terminated upon the commencement of the Current Offering. Pursuant to the Current Offering, the Company is offering to sell any combination of four classes of shares of its 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. The share classes have different upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees. The Company is also offering Class I, Class C and Class E shares in private offerings exempt from registration. Other than the differences in upfront selling commissions, dealer manager fees, ongoing stockholder servicing fees, management fees and performance fees, each class of common stock has the same economic and voting rights.
| | | | | | | | | | | | | | | | | |
Classification | | No. of Authorized Shares (in thousands) | | Par Value Per Share |
Preferred stock | | 50,000 | | $ | 0.01 |
Class S common stock | | 225,000 | | $ | 0.01 |
Class I common stock | | 250,000 | | $ | 0.01 |
Class T common stock | | 225,000 | | $ | 0.01 |
Class D common stock | | 100,000 | | $ | 0.01 |
Class C common stock | | 100,000 | | $ | 0.00 |
Class E common stock | | 100,000 | | $ | 0.00 |
| | 1,050,000 | | |
Common Stock
The following table details the movement in the Company’s outstanding shares of common stock for the six months ended June 30, 2023 (in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
| Class S | | Class I | | Class D | | Class T(1) | | Class C | | Class E | | Total |
December 31, 2022 | 36,704 | | | 42,397 | | | 36 | | | — | | | 9,343 | | | 3,210 | | | 91,690 | |
Common stock issued | 2,348 | | | 3,868 | | | 95 | | | — | | | 800 | | | 29 | | | 7,140 | |
Distribution reinvestment | 480 | | | 841 | | | — | | | — | | | — | | | 164 | | | 1,485 | |
| | | | | | | | | | | | | |
Common stock repurchased | (3,141) | | | (4,776) | | | — | | | — | | | (287) | | | (25) | | | (8,229) | |
June 30, 2023 | 36,391 | | | 42,330 | | | 131 | | | — | | | 9,856 | | | 3,378 | | | 92,086 | |
(1) As of June 30, 2023, no Class T shares had been issued.
Distributions
The Company generally intends to distribute substantially all of its 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.
Each class of the Company’s common stock receives the same aggregate gross distribution per share. The net distribution varies for each class based on the applicable stockholder servicing fees, management fees and performance fees, which are deducted from the monthly distribution per share.
The following table details the net distributions declared for each applicable class of common stock for the six months ended June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Six Months Ended June 30, 2023 |
| Class S | | Class I | | Class D | | Class T(1) | | Class C | | Class E |
Aggregate gross distributions declared per share of common stock | $ | 0.7763 | | | $ | 0.7763 | | | $ | 0.7763 | | | $ | — | | | $ | 0.7763 | | | $ | 0.7763 | |
Stockholder servicing fee per share of common stock | (0.0545) | | | — | | | (0.0162) | | | — | | | — | | | — | |
Management fee per share of common stock | (0.0816) | | | (0.0822) | | | (0.0820) | | | — | | | (0.0803) | | | — | |
Performance fee per share of common stock | (0.3353) | | | (0.3353) | | | (0.3353) | | | — | | | (0.3353) | | | — | |
Net distributions declared per share of common stock | $ | 0.3049 | | | $ | 0.3588 | | | $ | 0.3428 | | | $ | — | | | $ | 0.3607 | | | $ | 0.7763 | |
| | | | | |
(1) | The Company did not have any Class T shares of common stock issued or outstanding, thus no distributions were declared for Class T during the six months ended June 30, 2023. |
Distribution Reinvestment Plan
The Company has adopted a distribution reinvestment plan whereby stockholders (other than Alabama, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors) will have their cash distributions automatically reinvested in additional shares of common stock unless they elect to receive their distributions in cash. Alabama, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington investors 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. The per share purchase price for shares purchased pursuant to the distribution reinvestment plan will be equal to the offering price before upfront selling commissions and dealer manager fees (the “transaction price”) at the time the distribution is payable, which will generally be equal to the Company’s prior month’s NAV per share for that share class. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares pursuant to the distribution reinvestment plan. The stockholder servicing fees with respect to shares of the Company’s Class T shares, Class S shares and Class D shares are calculated based on the NAV for those shares and may reduce the NAV or, alternatively, the distributions payable with respect to shares of each such class, including shares issued in respect of distributions on such shares under the distribution reinvestment plan. During the six months ended June 30, 2023 and 2022, $19.6 million and $6.0 million of distributions were reinvested for 1,485,033 and 461,759 shares of common stock, respectively.
Non-controlling Interests Attributable to Preferred Shareholders
Certain subsidiaries of the Company have elected to be treated as REITs for U.S. federal income tax purpose. These subsidiaries have issued preferred non-voting shares to be held by investors to ensure compliance with the Code requirement that REITs have at least 100 shareholders. The preferred shares have a price of $1,000 and carry a 12.0% annual dividend payable annually. As of June 30, 2023, there were $375,000 of preferred non-voting shares outstanding.
Redeemable Non-controlling Interest
The Brookfield Investor was issued Class E OP Units in connection with its contribution of the Brookfield Portfolio on November 2, 2021, subsequent cash contributions to the Operating Partnership pursuant to the Brookfield Subscription Agreement, and the settlement of prior year performance participation allocation. Due to the ability of the Brookfield Investor to redeem its Class E OP Units for shares of common stock or cash, subject to certain restrictions, the Company has classified the Class E OP Units held by the Brookfield Investor as Redeemable non-controlling interest in mezzanine equity on the Company’s Consolidated Balance Sheets. The Redeemable non-controlling interest is recorded at the greater of the carrying amount, adjusted for its share of the allocation of income or loss and dividends, or the redemption value, which is equivalent to fair value, of such units at the end of each measurement period.
The following table summarizes the Redeemable non-controlling interest activity for the six months ended June 30, 2023 and 2022 ($ in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
Balance at beginning of the year | | $ | 990 | | | $ | 200,086 | |
Limited Partner cash contribution | | — | | | 38,000 | |
Settlement of prior year performance participation allocation | | — | | | 2,346 | |
Conversion to Class I shares | | — | | | (284,785) | |
GAAP net loss allocation | | (6) | | | (4,648) | |
Distributions | | (58) | | | (7,788) | |
Distributions reinvested | | 57 | | | 7,787 | |
Fair value allocation | | (22) | | | 50,007 | |
Ending balance | | $ | 961 | | | $ | 1,005 | |
Share Repurchase Plan
The Company has adopted a share repurchase plan, whereby, subjected to certain limitations, stockholders may request on a monthly basis that the Company repurchase all or any portion of their shares. Should repurchase requests, in the Company’s judgment, place an undue burden on its liquidity, adversely affect its operations or risk having an adverse impact on the Company as a whole, or should the Company otherwise determine that investing its liquid assets in real properties or other illiquid investments rather than repurchasing its shares is in the best interests of the Company as a whole, then the Company may choose to repurchase fewer shares than have been requested to be repurchased, or none at all. Further, the Company’s board of directors may modify and suspend the Company’s share repurchase plan if it deems such action to be in the Company’s best interest and the best interest of its stockholders.
In addition, the total amount of shares that the Company will repurchase is limited, in any calendar month, to shares whose aggregate value (based on the repurchase price per share on the date of the repurchase) is no more than 2% of its aggregate NAV as of the last day of the previous calendar month and, in any calendar quarter, to shares whose aggregate value is no more than 5% of its aggregate NAV as of the last day of the previous calendar quarter. The monthly and quarterly repurchase limits exclude shares repurchased from the Adviser that were issued as payment of management or performance fees. In the event that the Company determines to repurchase some but not all of the shares submitted for repurchase during any month, shares repurchased at the end of the month will be repurchased on a pro rata basis. All unsatisfied repurchase requests must be resubmitted after the start of the next month or quarter, or upon the recommencement of the share repurchase plan, as applicable.
Shares are repurchased at a price equal to the transaction price on the applicable repurchase date, subject to any early repurchase deduction. Shares that have not been outstanding for at least one year are repurchased at 98% of the transaction price.
During the six months ended June 30, 2023 and 2022, the Company repurchased 7,189,628 and 959,150 shares of common stock representing a total of $93.1 million and $14.3 million, respectively. The Company satisfied all repurchase requests during the six months ended June 30, 2023 and 2022.
12. Commitments and Contingencies
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of June 30, 2023, the Company was not subject to any material litigation nor was the Company aware of any material litigation threatened against it.
13. Leases
The Company’s rental revenue primarily consists of rent earned from operating leases at the Company’s rental housing, office, logistics, and net lease properties. Leases at the Company’s office, logistics, and net lease properties generally include a fixed base rent and certain leases also contain a variable component. The variable component of the Company’s operating leases at its office, logistics, and net lease properties primarily consist of the reimbursement of operating expenses such as real estate taxes, insurance, and common area maintenance costs. Rental revenue earned from leases at the Company’s rental housing properties primarily consist of a fixed base rent and certain leases contain a variable component that allows for the pass-through of certain operating expenses such as utilities.
The following table details the components of operating lease income from leases in which the Company is the lessor for the periods set forth below ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2023 | | 2022 | | 2023 | | 2022 |
Fixed lease payments | $ | 29,226 | | | $ | 25,612 | | | $ | 58,327 | | | $ | 45,865 | |
Variable lease payments | 4,276 | | | 1,426 | | | 5,648 | | | 2,833 | |
Total rental revenues | $ | 33,502 | | | $ | 27,038 | | | $ | 63,975 | | | $ | 48,698 | |
The following table details the undiscounted future minimum rents the Company expects to receive for its logistics, net lease, and office properties as of June 30, 2023. The table below excludes the Company’s rental housing properties as substantially all leases are shorter term in nature ($ in thousands):
| | | | | | | | |
Year | | Future Minimum Rents |
2023 (remaining) | | $ | 15,948 | |
2024 | | 29,703 | |
2025 | | 29,127 | |
2026 | | 26,402 | |
2027 | | 24,236 | |
2028 | | 23,178 | |
Thereafter | | 122,227 | |
Total | | $ | 270,821 | |
14. Segment Reporting
As of June 30, 2023, the Company operates in five reportable segments: rental housing, office, logistics, net lease and real estate-related loans and securities. The Company continually evaluates the financial information used by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance.
In connection with the change in the Company’s CODM that occurred during the quarter, the Company made the following change to its reportable segments based on the information used by the CODM. Effective June 30, 2023, rental housing was established as a new reportable segment, consisting of multifamily and single-family rental properties due to the similar operating nature of these investments. Comparative periods have been recast to reflect these changes.
The Company allocates resources and evaluates results based on the performance of each segment individually. The Company believes that segment net operating income is the key performance metric that captures the unique operating characteristics of each segment.
The following table sets forth the Company’s assets by segment ($ in thousands):
| | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 |
Rental Housing | $ | 1,084,539 | | | $ | 1,086,914 | |
Office | 125,322 | | | 124,001 | |
Logistics | 109,461 | | | 112,019 | |
Net lease | 420,422 | | | 426,789 | |
Real estate-related loans and securities | 309,416 | | | 332,654 | |
Other (Corporate) | 70,615 | | | 68,096 | |
Total assets | $ | 2,119,775 | | | $ | 2,150,473 | |
The following table sets forth the financial results by segment for the three months ended June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental Housing | | Office | | Logistics | | Net Lease | | Real estate-related loans and securities | | Total |
Revenues: | | | | | | | | | | | |
Rental revenues | $ | 21,034 | | | $ | 3,248 | | | $ | 1,705 | | | $ | 7,515 | | | $ | — | | | $ | 33,502 | |
Other revenues | 3,351 | | | 243 | | | — | | | 52 | | | — | | | 3,646 | |
Total revenues | 24,385 | | | 3,491 | | | 1,705 | | | 7,567 | | | — | | | 37,148 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Rental property operating | 9,625 | | | 1,450 | | | 523 | | | 3,282 | | | — | | | 14,880 | |
Total expenses | 9,625 | | | 1,450 | | | 523 | | | 3,282 | | | — | | | 14,880 | |
Income from real estate-related loans and securities | — | | | — | | | — | | | — | | | 5,149 | | | 5,149 | |
Segment net operating income | $ | 14,760 | | | $ | 2,041 | | | $ | 1,182 | | | $ | 4,285 | | | $ | 5,149 | | | $ | 27,417 | |
| | | | | | | | | | | |
Realized gain on real estate investments | | | | | | | | | | | $ | 639 | |
Realized gain on financial instruments | | | | | | | | | | | 4 | |
Unrealized gain on investments | | | | | | | | | | | 6,210 | |
Depreciation and amortization | | | | | | | | | | | (12,765) | |
General and administrative expenses | | | | | | | | | | | (2,229) | |
Management fee | | | | | | | | | | | (3,579) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest expense | | | | | | | | | | | (14,498) | |
Net income | | | | | | | | | | | 1,199 | |
Net income attributable to non-controlling interests in third party joint ventures | | | | | | | | | | | (67) | |
Net income attributable to non-controlling interests - preferred stockholders | | | | | | | | | | | (45) | |
Net income attributable to redeemable non-controlling interests | | | | | | | | | | | (2) | |
Net income attributable to stockholders | | | | | | | | | | | $ | 1,085 | |
The following table sets forth the financial results by segment for the three months ended June 30, 2022 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental Housing | | Office | | Logistics | | Net Lease | | Real estate-related loans and securities | | Total |
Revenues: | | | | | | | | | | | |
Rental revenues | $ | 17,259 | | | $ | 3,196 | | | $ | 1,761 | | | $ | 4,822 | | | $ | — | | | $ | 27,038 | |
Other revenues | 2,604 | | | 151 | | | — | | | — | | | — | | | 2,755 | |
Total revenues | 19,863 | | | 3,347 | | | 1,761 | | | 4,822 | | | — | | | 29,793 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Rental property operating | 7,245 | | | 1,328 | | | 513 | | | 573 | | | — | | | 9,659 | |
Total expenses | 7,245 | | | 1,328 | | | 513 | | | 573 | | | — | | | 9,659 | |
Income from real estate-related loans and securities | — | | | — | | | — | | | — | | | 1,418 | | | 1,418 | |
Segment net operating income | $ | 12,618 | | | $ | 2,019 | | | $ | 1,248 | | | $ | 4,249 | | | $ | 1,418 | | | $ | 21,552 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Realized gain on financial instruments | | | | | | | | | | | $ | 7,094 | |
Unrealized loss on investments | | | | | | | | | | | (7,799) | |
Depreciation and amortization | | | | | | | | | | | (15,348) | |
General and administrative expenses | | | | | | | | | | | (2,484) | |
Management fee | | | | | | | | | | | (2,096) | |
Performance fee | | | | | | | | | | | (4,718) | |
| | | | | | | | | | | |
Interest expense | | | | | | | | | | | (8,050) | |
Net loss | | | | | | | | | | | (11,849) | |
Net loss attributable to non-controlling interests in third party joint ventures | | | | | | | | | | | 29 | |
| | | | | | | | | | | |
Net loss attributable to redeemable non-controlling interests | | | | | | | | | | | 3,673 | |
Net loss attributable to stockholders | | | | | | | | | | | $ | (8,147) | |
The following table sets forth the financial results by segment for the six months ended June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental Housing | | Office | | Logistics | | Net Lease | | Real estate-related loans and securities | | Total |
Revenues: | | | | | | | | | | | |
Rental revenues | $ | 41,709 | | | $ | 6,239 | | | $ | 3,680 | | | $ | 12,347 | | | $ | — | | | $ | 63,975 | |
Other revenues | 5,734 | | | 419 | | | — | | | 52 | | | — | | | 6,205 | |
Total revenues | 47,443 | | | 6,658 | | | 3,680 | | | 12,399 | | | — | | | 70,180 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Rental property operating | 18,506 | | | 2,949 | | | 1,283 | | | 3,870 | | | — | | | 26,608 | |
Total expenses | 18,506 | | | 2,949 | | | 1,283 | | | 3,870 | | | — | | | 26,608 | |
Income from real estate-related loans and securities | — | | | — | | | — | | | — | | | 11,512 | | | 11,512 | |
Segment net operating income | $ | 28,937 | | | $ | 3,709 | | | $ | 2,397 | | | $ | 8,529 | | | $ | 11,512 | | | $ | 55,084 | |
| | | | | | | | | | | |
Realized gain on real estate investments | | | | | | | | | | | $ | 504 | |
Realized gain on financial instruments | | | | | | | | | | | 105 | |
Unrealized gain on investments | | | | | | | | | | | 1,567 | |
Depreciation and amortization | | | | | | | | | | | (25,569) | |
General and administrative expenses | | | | | | | | | | | (4,545) | |
Management fee | | | | | | | | | | | (7,257) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Interest expense | | | | | | | | | | | (28,430) | |
Net loss | | | | | | | | | | | $ | (8,541) | |
Net loss attributable to non-controlling interests in third party joint ventures | | | | | | | | | | | 42 | |
Net income attributable to non-controlling interests - preferred stockholders | | | | | | | | | | | (45) | |
Net loss attributable to redeemable non-controlling interests | | | | | | | | | | | 6 | |
Net loss attributable to stockholders | | | | | | | | | | | $ | (8,538) | |
The following table sets forth the financial results by segment for the six months ended June 30, 2022 ($ in thousands): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Rental Housing | | Office | | Logistics | | Net Lease | | Real estate-related loans and securities | | Total |
Revenues: | | | | | | | | | | | |
Rental revenues | $ | 29,533 | | | $ | 6,398 | | | $ | 3,060 | | | $ | 9,707 | | | $ | — | | | $ | 48,698 | |
Other revenues | 4,316 | | | 332 | | | — | | | — | | | — | | | 4,648 | |
Total revenues | 33,849 | | | 6,730 | | | 3,060 | | | 9,707 | | | — | | | 53,346 | |
| | | | | | | | | | | |
Expenses: | | | | | | | | | | | |
Rental property operating | 12,737 | | | 2,658 | | | 1,024 | | | 1,163 | | | — | | | 17,582 | |
Total expenses | 12,737 | | | 2,658 | | | 1,024 | | | 1,163 | | | — | | | 17,582 | |
Income from real estate-related loans and securities | — | | | — | | | — | | | — | | | 2,489 | | | 2,489 | |
Segment net operating income | $ | 21,112 | | | $ | 4,072 | | | $ | 2,036 | | | $ | 8,544 | | | $ | 2,489 | | | $ | 38,253 | |
| | | | | | | | | | | |
Realized gain on real estate investments | | | | | | | | | | | $ | 669 | |
Realized gain on financial instruments | | | | | | | | | | | 7,094 | |
Unrealized loss on investments | | | | | | | | | | | (1,008) | |
Depreciation and amortization | | | | | | | | | | | (28,543) | |
General and administrative expenses | | | | | | | | | | | (4,474) | |
Management fee | | | | | | | | | | | (3,293) | |
Performance fee | | | | | | | | | | | (8,231) | |
| | | | | | | | | | | |
Interest expense | | | | | | | | | | | (14,773) | |
Net loss | | | | | | | | | | | $ | (14,306) | |
Net loss attributable to non-controlling interests in third party joint ventures | | | | | | | | | | | 23 | |
| | | | | | | | | | | |
Net loss attributable to redeemable non-controlling interests | | | | | | | | | | | 4,648 | |
Net loss attributable to stockholders | | | | | | | | | | | $ | (9,635) | |
15. Subsequent Events
The Company has evaluated events from June 30, 2023 through the date the financial statements were issued and determined that no events have occurred that require additional disclosure.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References herein to the “Company,” “we,” “us,” or “our” refer to Brookfield 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 financial statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.
Forward-Looking Statements
Statements contained in this Form 10-Q that are not historical facts, particularly those in the section entitled "Recent Developments – Business Outlook" and "Liquidity and Capital Resources", are based on our current expectations, estimates, projections, opinions, and/or beliefs. Such statements are not facts and involve known and unknown risks, uncertainties, and other factors. Investors should not rely on these statements as if they were fact. Certain information contained in this Form 10-Q constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “target,” “estimate,” “intend,” “continue,” “forecast,” or “believe” or the negatives thereof or other variations thereon or other comparable terminology. Due to various risks and uncertainties, including those described under Item 1A. Risk Factors in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 and under Part II, Item 1A. Risk Factors in this Form 10-Q and elsewhere in this Form 10-Q, actual events or results or our actual performance may differ materially from those reflected or contemplated in such forward-looking statements. No representation or warranty is made as to future performance or such forward-looking statements. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved. We do not undertake to revise or update any forward-looking statements.
Overview
We are a Maryland corporation formed on July 27, 2017 to invest in commercial real estate assets. We seek to invest in well- located, high quality real estate properties that generate strong current cash flow and could further appreciate in value through our proactive, best-in-class asset management strategies. Our real estate-related debt strategy seeks to achieve high current income and superior risk-adjusted returns, as well as provide a source of liquidity.
We are externally managed by Brookfield REIT Adviser LLC (the “Adviser”), an affiliate of Brookfield Asset Management Ltd. (together with its affiliates, “Brookfield”). We are structured as an umbrella partnership real estate investment trust, which means that we own substantially all of our assets through our operating partnership, Brookfield REIT Operating Partnership L.P. (the “Operating Partnership”), of which we are the sole general partner. Prior to the Adviser Transition (as defined below) that occurred on November 2, 2021, the Company was externally managed by Oaktree Fund Advisors, LLC (the “Oaktree Adviser” or the “Sub-Adviser”), an affiliate of Oaktree Capital Management, L.P. (“Oaktree”).
On November 2, 2021, the Company consummated a series of related transactions and actions (the “Adviser Transition”) where the Company engaged the Sub-Adviser to (i) manage certain of the Company’s real estate properties and real estate-related debt investments that were acquired by the Company prior to the Adviser Transition and (ii) select and manage the Company’s liquid assets.
On April 30, 2018, the Securities and Exchange Commission (the “SEC”), declared effective our registration statement on Form S-11 (File No. 333-223022) for our initial public offering of up to $2.0 billion in shares of our common stock (the “Initial Public Offering”). On November 2, 2021, the SEC declared effective our registration statement on Form S-11 (File No. 333-255557) for our follow-on public offering of up to $7.5 billion in shares of our common stock consisting of up to $6.0 billion in shares of common stock in our primary offering and up to $1.5 billion in shares of common stock pursuant to our distribution reinvestment plan, in any combination of purchases of Class S, Class T, Class D and Class I shares of our common stock (the “Follow-On Public Offering”). The share classes have different upfront selling commissions and ongoing stockholder servicing fees. The Initial Public Offering terminated upon the commencement of the Follow-On Public Offering.
In addition to the Follow-On Public Offering, we are conducting private offerings of Class I and Class C shares to feeder vehicles that offer interests in such vehicles to non-U.S. persons. The offer and sale of Class I and Class C shares to the feeder vehicles is exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) and Regulation S promulgated thereunder. We are also offering Class E shares to Brookfield and its affiliates and certain of Brookfield’s and Oaktree’s employees and the Company’s independent directors in one or more private offerings. The offer and sale of Class E shares is exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) and Regulation D thereunder.
We qualified as a REIT for U.S. federal income tax purposes beginning with our taxable year ending December 31, 2019, and we generally will not be subject to U.S. federal income taxes on our taxable income to the extent we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT.
As of June 30, 2023, we owned and operated 19 investments in real estate and held investments in one unconsolidated real estate interest, three real estate-related loans, and 79 short-term real estate-related debt securities. We are not aware of any material trends or uncertainties, favorable or unfavorable, other than national 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 owning properties, real estate-related loans or real estate-related securities.
Recent Developments
Business Outlook
Our portfolio was constructed to generate stable income and appreciation over the long-term and has produced an annualized total return since inception of 11.83% for Class I shares. Recent performance continues to be impacted by lingering uncertainty about how the U.S. Federal Reserve’s monetary tightening policy will effect rising interest rates and inflation, which has led to cautious valuation and growth assumptions within private real estate. Given the current macroeconomic environment, our third-party appraisers have continued to expand capitalization rate assumptions, putting downward pressure on real estate valuations.
Our business and real estate valuations are affected by the broader financial markets, including ongoing economic uncertainty attributable to rising financing costs, inflationary concerns, market volatility and other macroeconomic factors in the U.S. and globally. The uncertainty of the economy as it recovers from these concerns could further destabilize the financial markets and geographies in which we operate. However, we believe our carefully constructed portfolio of investments is positioned to perform well through this period and over the long-term.
Despite the substantial current dislocation in the real estate sector and the overall U.S. economy, the real estate fundamentals and operating performance of our portfolio remain strong, with consistently high occupancy (98%) and growing cash flows. We continue to see strong fundamentals and a positive outlook in rental housing — multifamily apartments and single-family rental homes — which make up 63% of the value of our real estate properties. We believe the strong operating performance of our rental housing properties is attributable to our strategy of owning desirable buildings with best-in-class amenities, favorable tenant demographics, and in markets with tight housing supply.
We believe the recent economic conditions have presented some of the best risk-adjusted return opportunities in recent years in real estate credit. Over the past 12 months, we have invested substantially all newly raised capital into real estate-related securities, primarily floating-rate CMBS, which has continued to perform well in today’s environment. Our real estate-related securities have a current yield of over 8%, with all-in yields-to-maturity of approximately 10%. Partnering with Oaktree and their extensive credit expertise, we expect to continue to capitalize on attractive opportunities to invest in real estate debt as the current market dislocation continues and real estate transactions are limited.
Please refer to Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, and elsewhere in this Quarterly Report on Form 10-Q for additional disclosure relating to material trends or uncertainties that may impact our business.
Q2 2023 Highlights
Operating and Capital Raising Results:
•Year-to-date total returns through June 30, 2023, excluding upfront selling commissions, were -3.79% for Class S shares, -3.35% for Class I shares and -2.09% for Class D shares. Negative performance in 2023 has been mostly attributable to a widening of discount rates over the last six months as a result of continuous interest rate increases from the Federal Reserve, which typically has an adverse affect on real estate valuations. Total return is calculated as the percent change in the NAV per share from the beginning of the applicable period, plus the amount of any net distributions per share declared in the period. Management believes total return is a useful measure of the overall performance of our shares. As of June 30, 2023, no Class T shares of common stock had been issued.
•Annualized total returns from inception through June 30, 2023, excluding upfront selling commissions, were 10.72% for Class S, 11.83% for Class I, and -2.47% for Class D shares. Since inception returns for Class D shares are calculated from June 1, 2022, the date the first Class D shares were issued.
•Raised $41.9 million of gross proceeds from the sale of our common stock through public and private offerings during the three months ended June 30, 2023.
•In June 2023, declared net distributions per share of $0.0510 for Class S shares, $0.0598 for Class I shares and $0.0571 for Class D shares, resulting in annualized distribution rates of 4.82% for Class S shares, 5.61% for Class I shares and 5.33% for Class D shares as of June 30, 2023.
•Reinvested distributions of $9.4 million during the three months ended June 30, 2023.
Investing and Financing Activity:
•No significant investing or financing activities took place in the second quarter of 2023.
•As of June 30, 2023, our leverage ratio was 44.8%. Our leverage ratio is calculated by dividing (i) the consolidated property-level and entity-level debt, excluding any third-party interests in such debt, net of cash, loan-related restricted cash, and trading securities by (ii) the gross asset value of real estate equity investments (calculated using the greater of fair value and cost of gross real estate assets), excluding any third-party interests in such investments, plus our equity in real estate-related debt investments. There is no indebtedness on our real estate-related debt investments. The leverage ratio would be higher if our pro rata share of debt within our unconsolidated investment was included in the calculation.
Current Portfolio:
•Our portfolio as of June 30, 2023 based on fair value consisted of 83% real estate properties, 13% real estate-related loans and securities, and 4% cash, cash equivalents, and short-term U.S. Treasuries.
•Our real estate properties as of June 30, 2023 based on fair value consisted of rental housing (63%), net lease (26%), office (6%) and logistics (5%).
•As of June 30, 2023, our real estate-related loans and securities consisted of 82 investments with an aggregate fair value of $310.3 million.
Portfolio
Investments in Real Estate
The following table provides information regarding our portfolio of real estate properties as of June 30, 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment(1) | | Location | | Property Type | | Acquisition Date | | Ownership Percentage(2) | | Purchase Price(3) | | Square Feet/ Number of Units | | Occupancy Rate(4) |
Anzio Apartments | | Atlanta, GA | | Rental Housing | | April 2019 | | 90% | | $ | 59.2 | | | 448 | | 91% |
Arbors of Las Colinas | | Dallas, TX | | Rental Housing | | December 2020 | | 90% | | 63.5 | | | 408 | | 96% |
1110 Key Federal Hill | | Baltimore, MD | | Rental Housing | | September 2021 | | 100% | | 73.6 | | | 224 | | 100% |
Domain | | Orlando, FL | | Rental Housing | | November 2021 | | 100% | | 74.1 | | | 324 | | 95% |
The Burnham | | Nashville, TN | | Rental Housing | | November 2021 | | 100% | | 129.0 | | | 328 | | 94% |
Flats on Front | | Wilmington, NC | | Rental Housing | | December 2021 | | 100% | | 97.5 | | | 273 | | 99% |
Verso | | Beaverton, OR | | Rental Housing | | December 2021 | | 100% | | 74.0 | | | 172 | | 98% |
2626 South Side Flats | | Pittsburgh, PA | | Rental Housing | | January 2022 | | 100% | | 90.0 | | | 264 | | 98% |
The Parker at Huntington Metro | | Alexandria, VA | | Rental Housing | | March 2022 | | 100% | | 136.0 | | | 360 | | 98% |
Briggs + Union | | Mount Laurel, NJ | | Rental Housing | | April 2022 | | 100% | | 158.0 | | | 490 | | 97% |
Single-Family Rentals | | Various | | Rental Housing | | Various | | 100% | | 128.5 | | | 486 | | 91% |
Principal Place(5) | | London, UK | | Net Lease | | November 2021 | | 20% | | 99.8 | | | 644,000 | | 100% |
DreamWorks Animation Studios | | Glendale, CA | | Net Lease | | December 2021 | | 100% | | 326.5 | | | 497,000 | | 100% |
Two Liberty Center | | Arlington, VA | | Office | | August 2019 | | 97% | | 91.2 | | | 179,000 | | 90% |
Lakes at West Covina | | Los Angeles, CA | | Office | | February 2020 | | 95% | | 41.0 | | | 177,000 | | 93% |
6123-6227 Monroe Ct | | Morton Grove, IL | | Logistics | | November 2021 | | 100% | | 17.2 | | | 208,000 | | 82% |
8400 Westphalia Road | | Upper Marlboro, MD | | Logistics | | November 2021 | | 100% | | 27.0 | | | 100,000 | | 100% |
McLane Distribution Center | | Lakeland, FL | | Logistics | | November 2021 | | 100% | | 26.7 | | | 211,000 | | 100% |
2003 Beaver Road | | Landover, MD | | Logistics | | February 2022 | | 100% | | 9.4 | | | 38,000 | | 100% |
187 Bartram Parkway | | Franklin, IN | | Logistics | | February 2022 | | 100% | | 28.8 | | | 300,000 | | 100% |
Total | | | | | | | | | | $ | 1,751.0 | | | | | |
| | | | | |
(1) | | Investments in real estate properties includes our consolidated property investments and our unconsolidated investment in Principal Place. |
(2) | | The joint venture agreements entered into by us (other than the Principal Place joint venture) provide the other partner a profits interest based on achieving certain internal rate of return hurdles. Such investments are consolidated by us and any profits interest due to the other partners is reported within non-controlling interests. |
(3) | | Purchase price is presented in millions and excludes acquisition costs. |
(4) | | For rental housing investments, except single-family rentals, occupancy represents the percentage of all leased units divided by the total available units as of the date indicated. Single-family rentals occupancy represents all occupied homes divided by the total stabilized homes as of the date indicated. For office, net lease and logistics investments, occupancy represents the percentage of all leased square footage divided by the total available square footage as of the date indicated. |
(5) | | Purchase price represents our initial equity investment in the joint venture of £73.3 million GBP converted to USD using the spot rate on the acquisition date. |
Investments in Real Estate-Related Loans and Securities
The following table details our investments in real estate-related loans as of June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment | | Collateral | | Interest Rate(1) | | Maturity Date | | Payment Terms | | Face Amount | | Unamortized Discount/Origination Fees | | Allowance Adjustment | | Carrying Amount |
IMC/AMC Bond Investment | | International Markets Center AmericasMart Atlanta | | L+6.15% | | December 2023 | | Principal due at maturity | | $ | 25,000 | | | $ | (35) | | | $ | — | | | $ | 24,965 | |
The Avery Senior Loan(2) | | The Avery Condominium San Francisco, California | | L+7.30% | | February 2023(3) | | Principal due at maturity(4) | | 6,315 | | | — | | | (1,062) | | | 5,253 | |
The Avery Mezzanine Loan(2) | | The Avery Condominium San Francisco, California | | L+12.50% | | February 2023(3) | | Principal due at maturity(4) | | 1,529 | | | — | | | (238) | | | 1,291 | |
Total | | | | | | | | | | $ | 32,844 | | | $ | (35) | | | $ | (1,300) | | | $ | 31,509 | |
| | | | | |
(1) | | The term “L” refers to the one-month US dollar-denominated LIBOR. As of June 30, 2023, one-month LIBOR was equal to 5.22%. |
(2) | | Our investment is held through a membership interest in an entity which aggregates our interest with interests held by other funds managed by the Sub-Adviser. We have been allocated our proportionate share of the loan based on our membership interest in the aggregating entity. |
(3) | | The Sub-Adviser is negotiating a loan modification with the borrower. |
(4) | | The loan agreement requires mandatory prepayments simultaneous with the closing of the sale of any condominium unit. |
The following table details our investments in real estate-related securities as of June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | |
Type of Security | | Number of Positions | | Weighted Average Coupon(1) | | Weighted Average Maturity Date(2) | | Face Amount | | Cost Basis | | Fair Value |
CMBS - floating | | 33 | | L+3.58% | | October 2025 | | $ | 170,731 | | | $ | 162,687 | | | $ | 163,925 | |
CMBS - fixed | | 7 | | 4.51% | | September 2024 | | 54,458 | | | 49,722 | | | 47,499 | |
RMBS - floating | | 11 | | L+2.30% | | February 2025 | | 23,860 | | | 23,524 | | | 23,781 | |
RMBS - fixed | | 28 | | 4.81% | | June 2026 | | 45,231 | | | 43,950 | | | 42,702 | |
Total | | 79 | | 7.24% | | August 2025 | | $ | 294,280 | | | $ | 279,883 | | | $ | 277,907 | |
| | | | | |
(1) | | The term “L” refers to the relevant floating benchmark rates, which include USD LIBOR and Secured Overnight Financing Rate (“SOFR”), as applicable to each security and loan. As of June 30, 2023, one-month LIBOR was equal to 5.22%. As of June 30, 2023, SOFR was equal to 5.09%. |
(2) | | Weighted average maturity date is based on the fully extended maturity date of the instruments. |
Lease Expirations
The following table details the expiring leases at our consolidated office, logistics, and net lease properties by annualized base rent and square footage as of June 30, 2023 ($ and square feet data in thousands). The table below excludes our rental housing properties as substantially all leases at such properties expire within 12 months.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Year | | Number of Expiring Leases | | Annualized Base Rent(1) | | % of Total Annualized Base Rent Expiring | | Square Feet | | % of Total Square Feet Expiring |
| | | | | | | | | | |
2023 (remaining) | | 7 | | $ | 2,099 | | | 6 | % | | 43 | | | 3 | % |
2024 | | 6 | | 507 | | | 2 | % | | 53 | | | 3 | % |
2025 | | 17 | | 3,353 | | | 10 | % | | 112 | | | 7 | % |
2026 | | 8 | | 2,794 | | | 8 | % | | 94 | | | 6 | % |
2027 | | 3 | | 1,029 | | | 3 | % | | 55 | | | 3 | % |
2028 | | 9 | | 1,940 | | | 6 | % | | 52 | | | 3 | % |
2029 | | 5 | | 3,293 | | | 10 | % | | 170 | | | 11 | % |
2030 | | 3 | | 553 | | | 2 | % | | 54 | | | 3 | % |
2031 | | — | | | — | | | — | % | | — | | | — | % |
2032 | | 1 | | 1,343 | | | 4 | % | | 211 | | | 13 | % |
Thereafter | | 4 | | 16,529 | | | 49 | % | | 770 | | | 48 | % |
Total | | 63 | | $ | 33,440 | | | 100 | % | | 1,614 | | | 100 | % |
| | | | | |
(1) | | Annualized base rent is determined from the annualized base rent per leased square foot of the applicable year and excludes tenant recoveries, straight-line rent, and above-market and below-market lease amortization. |
Results of Operations
The following table sets forth information regarding our consolidated results of operations ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | | Six Months Ended June 30, | | Change | |
| 2023 | | 2022 | | $ | | | 2023 | | 2022 | | $ | |
Revenues | | | | | | | | | | | | | |
Rental revenues | $ | 33,502 | | | $ | 27,038 | | | $ | 6,464 | | | | $ | 63,975 | | | $ | 48,698 | | | $ | 15,277 | | |
Other revenues | 3,646 | | | 2,755 | | | 891 | | | | 6,205 | | | 4,648 | | | 1,557 | | |
Total revenues | 37,148 | | | 29,793 | | | 7,355 | | | | 70,180 | | | 53,346 | | | 16,834 | | |
Expenses | | | | | | | | | | | | | |
Rental property operating | 14,880 | | | 9,659 | | | 5,221 | | | | 26,608 | | | 17,582 | | | 9,026 | | |
General and administrative | 2,229 | | | 2,484 | | | (255) | | | | 4,545 | | | 4,474 | | | 71 | | |
Management fee | 3,579 | | | 2,096 | | | 1,483 | | | | 7,257 | | | 3,293 | | | 3,964 | | |
Performance fee | — | | | 4,718 | | | (4,718) | | | | — | | | 8,231 | | | (8,231) | | |
| | | | | | | | | | | | | |
Depreciation and amortization | 12,765 | | | 15,348 | | | (2,583) | | | | 25,569 | | | 28,543 | | | (2,974) | | |
Total expenses | 33,453 | | | 34,305 | | | (852) | | | | 63,979 | | | 62,123 | | | 1,856 | | |
Other (expense) income | | | | | | | | | | | | | |
Income from real estate-related loans and securities | 5,149 | | | 1,418 | | | 3,731 | | | | 11,512 | | | 2,489 | | | 9,023 | | |
| | | | | | | | | | | | | |
Interest expense | (14,498) | | | (8,050) | | | (6,448) | | | | (28,430) | | | (14,773) | | | (13,657) | | |
Realized (loss) gain on real estate investments, net | 639 | | | — | | | 639 | | | | 504 | | | 669 | | | (165) | | |
Realized gain on financial instruments | 4 | | | 7,094 | | | (7,090) | | | | 105 | | | 7,094 | | | (6,989) | | |
Unrealized (loss) gain on investments, net | 6,210 | | | (7,799) | | | 14,009 | | | | 1,567 | | | (1,008) | | | 2,575 | | |
Total other (expense) income | (2,496) | | | (7,337) | | | 4,841 | | | | (14,742) | | | (5,529) | | | (9,213) | | |
Net income (loss) | $ | 1,199 | | | $ | (11,849) | | | $ | 13,048 | | | | $ | (8,541) | | | $ | (14,306) | | | $ | 5,765 | | |
Net (income) loss attributable to non-controlling interests in third party joint ventures | (67) | | | 29 | | | (96) | | | | 42 | | | 23 | | | 19 | | |
Net income attributable to non-controlling interests - preferred stockholders | (45) | | | — | | | (45) | | | | (45) | | | — | | | (45) | | |
Net loss attributable to redeemable non-controlling interests | (2) | | | 3,673 | | | (3,675) | | | | 6 | | | 4,648 | | | (4,642) | | |
Net loss attributable to stockholders | $ | 1,085 | | | $ | (8,147) | | | $ | 9,232 | | | | $ | (8,538) | | | $ | (9,635) | | | $ | 1,097 | | |
Per common share data: | | | | | | | | | | | | | |
Net income (loss) per share of common stock - basic and diluted | $ | 0.01 | | | $ | (0.18) | | | $ | 0.19 | | | | (0.09) | | | $ | (0.25) | | | $ | 0.16 | | |
Weighted average number of shares outstanding - basic and diluted | 94,231 | | | 44,702 | | | 49,529 | | | | 94,120 | | | 38,235 | | | 55,885 | | |
Revenues
Revenues primarily consist of base rent arising from tenant leases at our rental housing, net lease, office and logistics properties. During the three and six months ended June 30, 2023, revenues increased $7.4 million to $37.1 million and increased $16.8 million to $70.2 million compared to the three and six months ended June 30, 2022, respectively. The increase was primarily driven by rental revenue generated from property acquisitions. Rental revenue also increased due to same property rental growth at certain rental housing properties. The components of revenue during these periods are as follows ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Change | | Six Months Ended June 30, | | Change |
| 2023 | | 2022 | | $ | | 2023 | | 2022 | | $ |
Rental revenue | $ | 28,909 | | | $ | 25,639 | | | $ | 3,270 | | | $ | 57,427 | | | $ | 45,399 | | | $ | 12,028 | |
Tenant reimbursements | 4,593 | | | 1,399 | | | 3,194 | | | 6,548 | | | 3,299 | | | 3,249 | |
Ancillary income and fees | 3,646 | | | 2,755 | | | 891 | | | 6,205 | | | 4,648 | | | 1,557 | |
Total revenue | $ | 37,148 | | | $ | 29,793 | | | $ | 7,355 | | | $ | 70,180 | | | $ | 53,346 | | | $ | 16,834 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Rental Property Operating Expenses
Rental property operating expenses consist of the costs of ownership and operation of our real estate properties, including real estate taxes, repairs and maintenance expenses, utilities, property management fees, and insurance expenses. During the three and six months ended June 30, 2023, rental property operating expenses increased $5.2 million to $14.9 million and increased $9.0 million to $26.6 million compared to the three and six months ended June 30, 2022, respectively. The increase was
primarily due to property acquisitions during the period. Same property operating expenses also contributed to the increase in rental property operating expenses.
General and Administrative Expenses
General and administrative expenses are corporate-level expenses that relate mainly to our compliance and administration costs, including legal fees, audit fees, professional tax fees, valuation fees, board of director fees and other professional fees. During the three and six months ended June 30, 2023, general and administrative expenses decreased $0.3 million to $2.2 million and increased $0.1 million to $4.5 million compared to the three and six months ended June 30, 2022, respectively.
Management Fee
Management fees are earned by our Adviser for providing services pursuant to the Advisory Agreement. During the three and six months ended June 30, 2023, management fees increased $1.5 million to $3.6 million and increased $4.0 million to $7.3 million compared to the three and six months ended June 30, 2022, respectively. Management fees are calculated based on our aggregate NAV of Class S, Class I, Class T, Class D, and Class C shares (no management fees are paid on Class E shares) and are paid monthly. The increase in the current period was due to the growth of our NAV of Class S, Class I, Class D and Class C shares, which increased by $146.5 million from June 30, 2022 to June 30, 2023 primarily due to the issuance of new shares.
Performance Fee
Performance fees relate to amounts payable to the Adviser based on the total return for the period, subject to a minimum return hurdle. Total return is defined as distributions paid or accrued plus the change in NAV, adjusted for subscriptions and repurchases. The performance fee is accrued monthly and becomes payable at the end of each calendar year. There was no performance fee accrued during the three months ended June 30, 2023 due to the total return not exceeding the hurdle. During the three and six months ended June 30, 2022, the accrued performance fee was $4.7 million and $8.2 million, respectively, due to the higher total return in the prior year.
Depreciation and Amortization
During the three and six months ended June 30, 2023, depreciation and amortization decreased $2.6 million to $12.8 million and decreased $3.0 million to $25.6 million compared to the three and six months ended June 30, 2022.
Income from Real Estate-Related Loans and Securities
During the three and six months ended June 30, 2023, interest income from real estate-related loans and securities increased $3.7 million to $5.1 million and increased $9.0 million to $11.5 million compared to the three and six months ended June 30, 2022, respectively. The increase in interest income is due to acquisition activity of real estate-related securities over the course of the last twelve months. As of June 30, 2023, we owned 79 positions in real estate-related loans and securities, compared to just seven positions as of June 30, 2022. As of June 30, 2023, our investments in real estate-related securities had a weighted average coupon of 7.24%.
Interest Expense
Interest expense is primarily related to interest payable on our mortgage loans, secured term loan, Secured Credit Facility and Affiliate Line of Credit. Interest expense increased $6.4 million to $14.5 million and increased $13.7 million to $28.4 million during the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, respectively. The increase was primarily due to the impact of rising interest rates on our variable rate debt as well as additional indebtedness due to property acquisitions.
Realized (Loss) Gain on Real Estate Investments, Net
Realized (loss) gain on real estate investments is related to the gains and losses recognized upon disposition of our investments in real estate and real estate-related loans and securities. During the six months ended June 30, 2023, we sold real estate-related securities for aggregate gross proceeds of $62.6 million resulting in a realized loss of $0.5 million, compared to the sale of real estate related securities for aggregate gross proceeds of $3.1 million resulting in a realized gain of $0.7 million during the six months ended June 30, 2022.
Realized Gain on Financial Instruments
Realized gains on financial instruments consist of foreign currency swap settlements related to our unconsolidated non-U.S. investment in Principal Place. For the three and six months ended June 30, 2023 we had realized gains on financial instruments of $0.0 million and $0.1 million, respectively, due to decreases in the GBP to USD exchange rate. We had realized gains on financial instruments of $7.1 million during the three and six months ended June 30, 2022.
Unrealized (Loss) Gain on Investments, Net
Unrealized (loss) gain on investments, net consist of changes in the fair value of our investments in real estate-related securities and investments in unconsolidated entities. During the three and six months ended June 30, 2023, we recognized unrealized gains of $6.2 million and $1.6 million, respectively, compared to unrealized losses of $7.8 million and $1.0 million during the three and six months ended June 30, 2022, respectively. The unrealized gain during the current period was primarily attributable to an increase in the fair value of our derivative instruments.
Net (Income) Loss Attributable to Redeemable Non-Controlling Interests
Net loss attributable to redeemable non-controlling interests was $0.0 million for the six months ended June 30, 2023 as compared to Net loss attributable to redeemable non-controlling interests of $4.6 million for the six months ended June 30, 2022. The loss or income allocable to redeemable non-controlling interests is related to interests held in the Operating Partnership by parties other than us.
Reimbursement by the Adviser
Pursuant to the Advisory Agreement, the Adviser will reimburse us for any expenses that cause our Total Operating Expenses in any four consecutive fiscal quarters to exceed the greater of: (i) 2% of our Average Invested Assets or (ii) 25% of our Net Income (each as defined in our charter) (the “2%/25% Limitation”). For the four consecutive quarters ended June 30, 2023, our Total Operating Expenses did not exceed the 2%/25% Limitation.
Liquidity and Capital Resources
Our primary needs for liquidity are to fund 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 expenses, to fund capital expenditures at our properties, and to pay debt service on our outstanding indebtedness. Our operating expenses include, among other things, fees and expenses related to managing our properties and other investments, the management and performance fees we pay to the Adviser (to the extent the Adviser elects to receive such fees in cash) and general corporate expenses.
We believe that our current liquidity position is sufficient to meet the operating needs of our business, with $385.3 million of liquidity as of June 30, 2023, consisting of $49.6 million of unrestricted cash and cash equivalents, $29.7 million of short-term U.S. Treasury Bonds, $181.0 million of undrawn available capacity on our Secured Credit Facility and $125.0 million of undrawn available capacity on our Affiliate Line of Credit. We may also generate additional liquidity through the sale of our real estate-related securities, which totaled $277.9 million as of June 30, 2023.
Our portfolio remains conservatively leveraged at 44.8% as of June 30, 2023, and we believe we can generate additional liquidity by incurring indebtedness secured by our investments. Our leverage ratio is calculated by dividing (i) the consolidated property level and entity-level debt, excluding any third-party interests in such debt, net of cash, loan-related restricted cash, and trading securities by (ii) the gross asset value of real estate equity investments (calculated using the greater of fair value and cost of gross real estate assets), excluding any third-party interests in such investments, plus our equity in real estate-related debt investments. Additionally, there is no indebtedness on our real estate-related debt investments. The leverage ratio would be higher if our pro rata share of debt within our unconsolidated investment was included in the calculation.
We expect our cash needs for acquisitions and other investments will be funded primarily from the sale of shares of our common stock and through the assumption or incurrence of debt. During the three months ended June 30, 2023, we received $41.9 million of proceeds from the sale of shares of our common stock, including proceeds from our private offerings. In addition, during the three and six months ended June 30, 2023, we repurchased $48.4 million and $93.1 million in shares of our common stock under our share repurchase plan.
The following table is a summary of our indebtedness as of June 30, 2023 ($ in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indebtedness | | Interest Rate(1) | | Maturity Date(2) | | Maximum Facility Size | | Principal Balance Outstanding | |
Anzio Apartments mortgage loan | | L+1.59%(8) | | May 2029 | | | | $ | 44,400 | | |
Two Liberty Center mortgage loan | | SOFR+1.60%(6) | | August 2024 | | | | 62,085 | | |
Lakes at West Covina mortgage loan | | SOFR+1.66%(7) | | February 2025 | | | | 25,604 | | |
Arbors of Las Colinas mortgage loan | | SOFR+2.24% | | January 2031 | | | | 45,950 | | |
1110 Key Federal Hill mortgage loan | | 2.34% | | October 2028 | | | | 51,520 | | |
Domain mortgage loan | | SOFR+1.50% | | December 2026 | | | | 48,700 | | |
DreamWorks Animation Studios mortgage loan | | 3.20% | | March 2029 | | | | 212,200 | | |
Briggs + Union mortgage loan | | SOFR+1.75% | | December 2027 | | | | 80,000 | | |
Secured Multifamily Term Loan(3) | | SOFR+1.70% | | March 2027 | | | | 372,760 | | |
Secured Credit Facility(4) | | SOFR+2.00% | | January 2025 | | $ | 300,000 | | | 118,985 | | |
Affiliate Line of Credit(5) | | SOFR+2.25% | | November 2023 | | $ | 125,000 | | | — | | |
Total Indebtedness | | | | | | | | $ | 1,062,204 | | |
| | | | | |
(1) | The term “L” refers to the one-month US dollar-denominated LIBOR. As of June 30, 2023 and December 31, 2022, one-month LIBOR was 5.22% and 4.39%, respectively. As of June 30, 2023 and December 31, 2022, SOFR was 5.09% and 4.30%, respectively. |
(2) | Includes the fully extended maturity date for loans with extension options that are at our discretion and we currently expect to be able to exercise. |
(3) | As of June 30, 2023, borrowings on the Secured Multifamily Term Loan are secured by The Burnham, Flats on Front, Verso, 2626 South Side Flats and The Parker at Huntington Metro. The Secured Multifamily Term Loan matures on March 21, 2025, and has two one-year extension options to March 2026 and 2027, subject to certain conditions. |
(4) | As of June 30, 2023, borrowings on the Secured Credit Facility were secured by the following properties: 6123-6227 Monroe Court, 2003 Beaver Road, 187 Bartram Parkway, and certain single-family rentals. |
(5) | Borrowings under the Affiliate Line of Credit bear interest at a rate of the lowest then-current interest rate for any similar credit product offered by a third-party lender to us or our subsidiaries or, if not available, SOFR plus a 0.10% credit adjustment and a 2.25% margin. |
(6) | In April 2023, the interest rate benchmark was converted from LIBOR to SOFR and the spread was adjusted from 1.50% to 1.60%. |
(7) | In March 2023, the interest rate benchmark was converted from LIBOR to SOFR and the spread was adjusted from 1.55% to 1.66%. |
(8) | Subsequent to June 30, 2023, the interest rate benchmark was converted from LIBOR to SOFR plus a 0.11% credit adjustment. |
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash ($ in thousands):
| | | | | | | | | | | | | |
| Six months ended | | |
| June 30, 2023 | | June 30, 2022 | | |
Cash flows provided by operating activities | $ | 17,102 | | | $ | 34,235 | | | |
Cash flows provided by (used in) investing activities | 3,036 | | | (582,627) | | | |
Cash (used in) provided by financing activities | (34,207) | | | 667,019 | | | |
Net change in cash and cash equivalents and restricted cash | $ | (14,069) | | | $ | 118,627 | | | |
Cash flows provided by operating activities decreased $17.1 million during the six months ended June 30, 2023 compared to the corresponding period in 2022. The decrease is primarily due to $8.8 million of upfront derivative acquisition costs in the current period, which are deferred and amortized to net income over the term of the instrument, as well as increased interest expense as a result of rising interest rates on our floating rate debt. This decrease was partially offset by an increase in rental revenues compared to the prior period.
Cash flows (used in) provided by investing activities increased $585.7 million for the six months ended June 30, 2023 compared to the corresponding period in 2022. The increase is primarily due to a net decrease of $606.9 million used in the acquisitions of real estate, real estate-related securities and trading securities. This was partially offset by $28.8 million of proceeds received in the prior period from the sale of preferred membership interests.
Cash flows (used in) provided by financing activities decreased $701.2 million for the six months ended June 30, 2023 compared to the corresponding period in 2022. The decrease is due to a $259.5 million decrease in borrowings, net of repayments, a $248.7 million decrease in proceeds from the issuance of common stock, a $75.4 million increase in repurchases
of common stock, a $73.8 million decrease in subscriptions received in advance, and a $38.0 million decrease in proceeds received from the issuance of OP Units.
Net Asset Value
Our board of directors, including a majority of our independent directors, has adopted valuation guidelines that contain a comprehensive set of methodologies to be used by the Adviser and our independent valuation advisor in connection with estimating the values of our assets and liabilities for purposes of our NAV calculation. The calculation of our NAV is intended to be a calculation of the fair value of our assets less our outstanding liabilities and will likely differ from the book value of our equity reflected in our financial statements. The purchase and repurchase price per share for each class of our common stock is the then-current transaction price, which generally equals our prior month’s NAV per share, as determined monthly, plus, for purchases only, applicable selling commissions and dealer manager fees.
For more information on the calculation of our NAV and the valuation method used, please refer to Item 5 of our Annual Report on Form 10-K for the year ended December 31, 2022.
Our total NAV presented in the following tables includes the NAV of our Class S, Class I, Class T, Class D, Class C and Class E shares of common stock, as well as partnership interests in the Operating Partnership held by parties other than us. The following table provides a breakdown of the major components of our NAV as of June 30, 2023 ($ and shares/units in thousands):
| | | | | | | | |
Components of NAV | | June 30, 2023 |
Investments in real estate | | $ | 1,756,337 | |
Investments in real estate-related loans and securities | | 310,305 | |
Investments in unconsolidated entities | | 79,600 | |
Cash and cash equivalents | | 49,561 | |
Restricted cash | | 16,369 | |
Other assets | | 60,289 | |
Debt obligations | | (1,035,137) | |
| | |
Accrued stockholder servicing fees(1) | | (328) | |
Management fee payable | | (1,161) | |
Dividend payable | | (5,357) | |
Subscriptions received in advance | | (3,804) | |
Other liabilities | | (54,774) | |
Non-controlling interests in joint ventures | | (20,380) | |
Net asset value | | $ | 1,151,520 | |
Number of shares/units outstanding | | 92,163 |
| | | | | |
(1) | Stockholder servicing fees only apply to Class S, Class T and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under GAAP, we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class S, Class T and Class D shares of our common stock. As of June 30, 2023, we have accrued under GAAP approximately $28.0 million of stockholder servicing fees. |
The following table provides a breakdown of our total NAV and NAV per share/unit by class as of June 30, 2023 ($ and shares/ units in thousands, except per share/unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAV Per Share/Unit | | Class S Shares | | Class I Shares | | Class D Shares | | Class T Shares | | Class C Shares(1) | | Class E Shares(1) | | Third-party Operating Partnership Units(2) | | Total |
Net asset value | | $ | 453,813 | | | $ | 531,682 | | | $ | 1,648 | | | $ | — | | | $ | 121,073 | | | $ | 42,343 | | | $ | 961 | | | $ | 1,151,520 | |
Number of shares/units outstanding | | 36,391 | | | 42,330 | | | 131 | | | — | | | 9,856 | | | 3,378 | | | 77 | | | 92,163 | |
NAV Per Share/Unit as of June 30, 2023 | | $ | 12.4704 | | | $ | 12.5603 | | | $ | 12.6073 | | | $ | — | | | $ | 12.2839 | | | $ | 12.5345 | | | $ | 12.5345 | | | |
| | | | | |
(1) | Class C and Class E shares of our common stock are offered to investors pursuant to private offerings. |
(2) | Includes the units of the Operating Partnership held by parties other than us. |
As of June 30, 2023, no Class T shares had been issued.
Set forth below are the weighted averages of the key assumptions in the discounted cash flow methodology used in the June 30, 2023 valuations, based on property types.
| | | | | | | | | | | | | | |
Property Type | | Discount Rate | | Exit Capitalization Rate |
Rental Housing | | 6.7% | | 5.2% |
Net Lease | | 6.4% | | 4.6% |
Office | | 8.3% | | 6.8% |
Logistics | | 6.7% | | 5.6% |
These assumptions are determined by our independent valuation advisor. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Input | | Hypothetical Change | | Rental Housing Investment Values | | Net Lease Investment Values | | Office Investment Values | | Logistics Investment Values |
Discount Rate | | .25% Decrease | | 2.0% | | 2.0% | | 2.1% | | 2.0% |
(weighted average) | | .25% Increase | | (1.9)% | | (2.0)% | | (2.0)% | | (1.9)% |
Exit Capitalization Rate | | .25% Decrease | | 3.1% | | 3.9% | | 2.5% | | 3.0% |
(weighted average) | | .25% Increase | | (2.8)% | | (3.3)% | | (2.3)% | | (2.8)% |
The preceding tables do not include recently acquired properties, which are held at cost in accordance with our valuation guidelines.
The following table reconciles Stockholders’ Equity per our Consolidated Balance Sheets to our NAV ($ in thousands):
| | | | | | | | |
Reconciliation of Stockholders’ Equity to NAV | | June 30, 2023 |
Stockholders’ equity under U.S. GAAP | | $ | 927,975 | |
Redeemable non-controlling interest | | 961 | |
Total partners’ capital of Operating Partnership under GAAP | | 928,936 | |
Adjustments: | | |
Accrued stockholder servicing fee | | 27,638 | |
Deferred rent | | (4,946) | |
Advanced organizational and offering costs | | 11,243 | |
Unrealized net real estate appreciation | | 70,721 | |
Accumulated amortization of discount | | (36) | |
Accumulated depreciation and amortization | | 117,964 | |
NAV | | $ | 1,151,520 | |
The following details the adjustments to reconcile stockholders’ equity under GAAP to our NAV:
•Accrued stockholder servicing fee represents the accrual for the full cost of the stockholder servicing fee for Class S and Class D shares. Under GAAP, we accrued the full cost of the stockholder servicing fee payable over the life of each share (assuming such share remains outstanding the length of time required to pay the maximum stockholder servicing fee) as an offering cost at the time we sold such share. Refer to Note 2 — “Summary of Significant Accounting Policies” to our unaudited consolidated financial statements for further details of the GAAP treatment regarding the stockholder servicing fee. For purposes of calculating NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid.
•Deferred rent represents straight-line rental revenue recorded under GAAP. For purposes of calculating NAV, deferred rental revenues are excluded.
•The Adviser and its affiliates advanced organization and offering expenses on our behalf (other than upfront selling commissions, dealer manager fees and stockholder servicing fees) through July 5, 2023, subject to the following reimbursement terms: (1) all such advanced expenses paid through July 5, 2022 are reimbursed ratably over the 60 months following July 6, 2022; and (2) all such advanced expenses paid from July 6, 2022 through July 5, 2023 are reimbursed ratably over the 60 months following July 6, 2023. Under GAAP, organization costs are expensed as incurred and offering costs are charged to equity as such amounts are incurred. For purposes of calculating NAV, such costs are recognized as a reduction to NAV as they are reimbursed to the Adviser.
•Our investments in real estate are presented at their depreciated historical cost basis in our GAAP consolidated financial statements. Our investments in real estate-related loans are presented at their amortized cost basis in our GAAP consolidated financial statements. Additionally, our mortgage loans, term loans, and credit facilities (“Debt”) are presented at their carrying value in our GAAP consolidated financial statements. As such, any changes in the fair market value of our investments in real estate, investments in real estate-related loans or Debt are not included in our GAAP results. For purposes of calculating NAV, our investments in real estate, investments in real estate-related loans, and our Debt are recorded at fair value and any changes in fair value are recognized as unrealized net real estate appreciation.
•We amortize the discount on our investments in real estate-related loans over the term of the loan in accordance with GAAP. For purposes of calculating NAV, our investments in real estate-related loans are recorded at fair value and such amortization is excluded.
•We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. For the purposes of calculating NAV, such depreciation and amortization is excluded.
Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution
We believe funds from operations (“FFO”) is a meaningful non-GAAP supplemental measure of our operating results. Our Consolidated Financial Statements are presented under historical cost accounting which, among other things, requires depreciation of real estate investments to be calculated on a straight-line basis. As a result, our operating results imply that the value of our real estate investments will decrease evenly over a set time period. However, we believe that the value of real estate investments will fluctuate over time based on market conditions and as such, depreciation under historical cost accounting may be less informative. FFO is a standard REIT industry metric defined by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO, as defined by NAREIT and presented below, is calculated as net income or loss (computed in accordance with GAAP), excluding (i) gains or losses from sales of depreciable real property, (ii) impairment write-downs on depreciable real property, plus (iii) real estate-related depreciation and amortization, and (iv) after adjustments for our share of consolidated and unconsolidated joint ventures.
We also believe that adjusted FFO (“AFFO”) is a meaningful non-GAAP supplemental disclosure of our operating results. AFFO further adjusts FFO in order for our operating results to reflect the specific characteristics of our business by adjusting for items we believe are not related to our operations. Our adjustments to FFO to arrive at AFFO include removing the impact of (i) straight-line rental income, (ii) amortization of above- and below-market lease intangibles, (iii) amortization of mortgage premium/discount, (iv) organization costs, (v) amortization of restricted stock awards, (vi) unrealized gains and losses from changes in fair value of real estate-related loans and securities, (vii) non-cash performance fee or other non-cash incentive compensation, and (viii) similar adjustments for unconsolidated joint ventures.
We also believe funds available for distribution (“FAD”) is an additional meaningful non-GAAP supplemental disclosure that provides useful information for considering our operating results and certain other items relative to the amount of our distributions by removing the impact of certain non-cash items on our distributions. FAD is calculated as AFFO excluding (i) management fees paid in shares or operating partnership units even if repurchased by us, and including deductions for (ii) stockholder servicing fees paid during the period, and (iii) similar adjustments for unconsolidated joint ventures. FAD is not indicative of cash available to fund our cash needs and does not represent cash flows from operating activities in accordance with GAAP, as it excludes adjustments for working capital items and actual cash receipts from interest income recognized on real estate related securities. Cash flows from operating activities in accordance with GAAP would generally be adjusted for such items. Furthermore, FAD is adjusted for stockholder servicing fees and recurring tenant improvements, leasing commissions, and other capital expenditures, which are not considered when determining cash flows from operating activities in accordance with GAAP.
The following table presents a reconciliation of FFO, AFFO and FAD to net loss attributable to our stockholders and redeemable non-controlling interests. We believe it is meaningful to include redeemable non-controlling interests since it is a component of our NAV ($ in thousands):
| | | | | | | | | | | | | | |
| Six months ended | | | |
| June 30, 2023 | | June 30, 2022 | | | |
Net loss attributable to REIT shareholders including Redeemable non-controlling interest | $ | (8,544) | | | $ | (14,283) | | | | |
Adjustments to arrive at FFO: | | | | | | |
Depreciation and amortization | 25,569 | | | 28,543 | | | | |
Amount attributed to non-controlling interests of third party joint ventures for above adjustments | (396) | | | (376) | | | | |
FFO attributable to stockholders and redeemable non-controlling interests | $ | 16,629 | | | $ | 13,884 | | | | |
Adjustments to arrive at AFFO: | | | | | | |
Straight-line rental income | $ | (814) | | | $ | (1,157) | | | | |
Amortization of above and below market leases and lease inducements | (538) | | | (686) | | | | |
Amortization of deferred financing costs | 1,590 | | | 1,130 | | | | |
Amortization of origination fees and discount | (49) | | | (112) | | | | |
Amortization of restricted stock awards | 177 | | | 81 | | | | |
Unrealized (gain) loss on investments(1) | (1,567) | | | 1,008 | | | | |
Non-cash performance fee | — | | | 8,231 | | | | |
Amount attributed to non-controlling interests of third party joint ventures for above adjustments | (6) | | | (9) | | | | |
AFFO attributable to stockholders and redeemable non-controlling interests | 15,422 | | | 22,370 | | | | |
Adjustments to arrive at FAD: | | | | | | |
Realized (gain) loss on investments in real estate loans and securities | (504) | | | (669) | | | | |
Non-cash management fee | 7,257 | | | 3,293 | | | | |
Stockholder servicing fees | (2,038) | | | (1,362) | | | | |
FAD attributable to stockholders and redeemable non-controlling interests | $ | 20,137 | | | $ | 23,632 | | | | |
| | | | | |
(1) | Unrealized (gain) loss on investments relates to mark-to-market changes on our investments in real estate-related securities, derivative contracts, and unconsolidated joint venture reported at fair value. Unrealized (gain) loss on investments includes $2.1 million and $2.1 million of net operating income less interest expense attributable to our share in the unconsolidated joint venture reported at fair value for the six months ended June 30, 2023 and 2022, respectively. |
FFO, AFFO, and FAD should not be considered to be more relevant or accurate than the GAAP methodology in calculating net income (loss) or in evaluating our operating performance. In addition, FFO, AFFO, and FAD should not be considered as alternatives to net income (loss) as indications of our performance or as alternatives to cash flows from operating activities as indications of our liquidity, but rather should be reviewed in conjunction with these and other GAAP measurements. Further, FFO, AFFO, and FAD are not intended to be used as liquidity measures indicative of cash flow available to fund our cash needs, including our ability to make distributions to our stockholders.
Distributions
We generally intend to distribute substantially all of our taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to our stockholders each year to satisfy the requirements for qualification as a REIT under the Code.
Each class of our common stock receives the same aggregate gross distribution per share. The net distribution varies for each class based on the applicable stockholder servicing fees, management fees and performance fees, which are class-specific expenses and deducted from the monthly distribution per share.
The following table details the aggregate net distributions declared for each class of common stock for the six months ended June 30, 2023:
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| | Class S | | Class I | | Class D | | Class T(1) | | Class C | | Class E |
Aggregate gross distributions declared per share of common stock | | $ | 0.7763 | | | $ | 0.7763 | | | $ | 0.7763 | | | $ | — | | | $ | 0.7763 | | | $ | 0.7763 | |
Stockholder servicing fee per share of common stock | | (0.0545) | | | — | | | (0.0162) | | | — | | | — | | | — | |
Management fee per share of common stock | | (0.0816) | | | (0.0822) | | | (0.0820) | | | — | | | (0.0803) | | | — | |
Performance fee per share of common stock | | (0.3353) | | | (0.3353) | | | (0.3353) | | | — | | | (0.3353) | | | — | |
Net distributions declared per share of common stock | | $ | 0.3049 | | | $ | 0.3588 | | | $ | 0.3428 | | | $ | — | | | $ | 0.3607 | | | $ | 0.7763 | |
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(1) | We did not have any Class T shares of common stock issued or outstanding, thus no distributions were declared for Class T during the six months ended June 30, 2023. |
The following tables summarize our distributions declared during the three and six months ended June 30, 2023 and 2022 ($ in thousands):
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| Three Months Ended June 30, 2023 | | Three Months Ended June 30, 2022 |
| Amount | | Percentage | | Amount | | Percentage |
Distributions | | | | | | | |
Payable in cash | $ | 6,686 | | | 42 | % | | $ | 5,098 | | | 60 | % |
Reinvested in shares | 9,390 | | | 58 | % | | 3,384 | | | 40 | % |
Total distributions | $ | 16,076 | | | 100 | % | | $ | 8,482 | | | 100 | % |
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Sources of Distributions | | | | | | | |
Cash flows from operating activities(1) | $ | 16,076 | | | 100 | % | | $ | 8,482 | | | 100 | % |
Total sources of distributions | $ | 16,076 | | | 100 | % | | $ | 8,482 | | | 100 | % |
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Cash flows from operating activities | $ | 15,378 | | | | | $ | 23,778 | | | |
Funds from Operations(2) | $ | 13,655 | | | | | $ | 3,234 | | | |
Adjusted Funds from Operations(2) | $ | 7,577 | | | | | $ | 14,555 | | | |
Funds Available for Distribution(2) | $ | 9,534 | | | | | $ | 15,875 | | | |
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(1) | Includes cash flows from operating activities in prior periods. As of June 30, 2023, our distributions since inception have been funded 100% from cash flows from operating activities. |
(2) | See “Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution” above for descriptions of Funds from Operations (FFO), Adjusted Funds from Operations (AFFO), and Funds Available for Distribution (FAD), for reconciliations of these metrics to GAAP Net loss attributable to stockholders and redeemable non-controlling interests, and for considerations on how to review these metrics. |
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| Six Months Ended June 30, 2023 | | Six Months Ended June 30, 2022 |
| Amount | | Percentage | | Amount | | Percentage |
Distributions | | | | | | | |
Payable in cash | $ | 13,501 | | | 41 | % | | $ | 7,325 | | | 55 | % |
Reinvested in shares | 19,647 | | | 59 | % | | 5,959 | | | 45 | % |
Total distributions | $ | 33,148 | | | 100 | % | | $ | 13,284 | | | 100 | % |
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Sources of Distributions | | | | | | | |
Cash flows from operating activities(1) | $ | 33,148 | | | 100 | % | | $ | 13,284 | | | 100 | % |
Total sources of distributions | $ | 33,148 | | | 100 | % | | $ | 13,284 | | | 100 | % |
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Cash flows from operating activities | $ | 17,102 | | | | | $ | 34,235 | | | |
Funds from Operations(2) | $ | 16,629 | | | | | $ | 13,884 | | | |
Adjusted Funds from Operations(2) | $ | 15,422 | | | | | $ | 22,370 | | | |
Funds Available for Distribution(2) | $ | 20,137 | | | | | $ | 23,632 | | | |
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(1) | Includes cash flows from operating activities in prior periods. As of June 30, 2023, our distributions since inception have been funded 100% from cash flows from operating activities. |
(2) | See “Funds from Operations, Adjusted Funds from Operations and Funds Available for Distribution” above for descriptions of Funds from Operations (FFO), Adjusted Funds from Operations (AFFO), and Funds Available for Distribution (FAD), for reconciliations of these metrics to GAAP Net loss attributable to stockholders and redeemable non-controlling interests, and for considerations on how to review these metrics. |
Distribution Policy
We intend to distribute sufficient income so that we satisfy the requirements for qualification as a REIT. In order to qualify as a REIT, we are required to distribute 90% of our annual REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders. Generally, income distributed to stockholders will not be taxable to us under the Code if we distribute at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains.
Distribution Reinvestment Plan
We have adopted a distribution reinvestment plan whereby stockholders (other than Alabama, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Texas, Vermont and Washington investors) will have their cash distributions automatically reinvested in additional shares of common stock unless they elect to receive their distributions in cash. Alabama, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Texas, Vermont and Washington investors will automatically receive their distributions in cash unless they elect to have their cash distributions reinvested in additional shares of our common stock. The per share purchase price for shares purchased pursuant to the distribution reinvestment plan will be equal to the offering price before upfront selling commissions and dealer manager fees (the “transaction price”) at the time the distribution is payable, which will generally be equal to our prior month’s NAV per share for that share class. Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares pursuant to the distribution reinvestment plan. The stockholder servicing fees with respect to our Class T, Class S and Class D shares are calculated based on the NAV for those shares and may reduce the NAV or, alternatively, the distributions payable with respect to shares of each such class, including shares issued in respect of distributions on such shares under the distribution reinvestment plan.
Critical Accounting Estimates
The preparation of these financial statements in accordance with GAAP involve significant judgement and assumptions and require estimates about matters that are inherently uncertain. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at 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. The following is a summary of our significant accounting policies that we believe are the most affected by our judgements, estimates, and assumptions.
Refer to Note 2 — “Summary of Significant Accounting Policies” to our financial statements in this Quarterly Report on Form 10-Q for a summary of our critical accounting policies.
Principles of Consolidation and Variable Interest Entities
We consolidate entities in which we retain a controlling financial interest or entities that meet the definition of a variable interest entity (“VIE”) for which we are deemed to be the primary beneficiary. In performing our analysis of whether we are the primary beneficiary, at initial investment and at each quarterly reporting period, we consider whether we individually have the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and also have the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The determination of whether an entity is a VIE, and whether we are the primary beneficiary, involves significant judgments, including the determination of which activities most significantly affect the entity’s performance, estimates about the current and future fair values and performance of assets held by the entity and/or general market conditions.
Investments in Real Estate
In accordance with the guidance for business combinations, we determine whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired is not a business, we account for the transaction as an asset acquisition. We evaluate each real estate acquisition to determine whether the integrated set of acquired assets and activities meets the definition of a business.
Upon acquisition of a property, we assess the fair value of the 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) and we allocate the purchase price to the acquired assets and assumed liabilities. The most significant portion of the allocation is to building and land and requires the use of market based estimates and assumptions. We assess and consider fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that we deem appropriate, as well as other available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends and market and economic conditions.
We also consider an allocation of the purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. For acquired in-place leases, above- and below-market lease values are recorded at their fair values (using a discount rate that reflects the risks associated with the lease acquired) equal to the difference between the contractual amounts to be paid pursuant to the in-place leases and management’s estimate of fair market value lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses.
Impairment of Long-Lived Assets
We review our real estate portfolio each quarter or when there is an event or change in circumstances to determine if there are any indicators of impairment in the carrying values of any of our real estate assets. If the carrying amount of the real estate asset is no longer recoverable and exceeds the fair value of such investment, an impairment loss is recognized. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. The evaluation of anticipated future cash flows is highly subjective and is based in part on assumptions regarding future occupancy, rental rates and capital requirements that could differ materially from actual results. Since cash flows on real estate properties considered to be “long-lived assets to be held and used” are considered on an undiscounted basis to determine whether an asset has been impaired, our strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If our strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized, and such loss could be material to our results. If we determine that an impairment has occurred, the affected assets must be reduced to their fair value.
Recent Accounting Pronouncements
See Note 2 — “Summary of Significant Accounting Policies” to our financial statements in this Quarterly Report on Form 10-Q for a discussion concerning recent accounting pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to interest rate risk with respect to our variable-rate indebtedness, where an increase in interest rates would directly result in higher interest expense costs. We seek to manage our exposure to interest rate risk by utilizing a mix of fixed and floating rate financings with staggered maturities and through interest rate protection agreements to fix or cap a portion of our variable rate debt. As of June 30, 2023, the outstanding principal balance of our variable rate indebtedness was $798.5 million.
Certain of our mortgage loans and other indebtedness are variable rate and are indexed to the U.S. Dollar denominated LIBOR and the U.S. Dollar denominated SOFR (the “Reference Rates”). For the six months ended June 30, 2023, a 10% increase in the Reference Rate would have resulted in increased interest expense of $0.8 million. We have executed interest rate swaps and caps with a notional amount of $454.2 million as of June 30, 2023 to hedge the risk of increasing interest rates.
Investments in Real Estate-Related Loans and Securities
As of June 30, 2023, we held $309.4 million of investments in real estate-related loans and securities. Certain of our investments are floating rate and indexed to the Reference Rate and as such, are exposed to interest rate risk. Our net income will increase or decrease depending on interest rate movements. While we cannot predict factors which may or may not affect interest rates, for the six months ended June 30, 2023, a 10% increase or decrease in the Reference Rate would have resulted in an increase or decrease to income from our real estate-related loans and securities of $0.6 million.
We may also be exposed to market risk with respect to our investments in real estate-related securities due to changes in the fair value of our investments. We seek to manage our exposure to market risk with respect to our investments in real estate-related securities by making investments in securities backed by different types of collateral and varying credit ratings. The fair value of our investments may fluctuate, thus the amount we will realize upon any sale of our investments is unknown. As of June 30, 2023, the fair value at which we may sell our investments in real estate-related securities is not known, but a 10% change in the fair value of our investments in real estate-related securities may result in an unrealized gain or loss of $31.0 million.
Foreign Currency Risk
We may be exposed to currency risks related to our non-U.S. investments that are denominated in currencies other than the U.S. Dollar (“USD”). We seek to manage or mitigate our exposure to the effects of currency changes by entering into derivative financial instruments to the extent it is cost effective to do so. However, our currency hedging strategies may not eliminate all of our currency risk due to, among other things, changes in the timing or amount of foreign currency denominated cash flows from our non-U.S. investments. As of June 30, 2023, we have one foreign currency derivative with a notional hedged amount of £62.1 million GBP.
Credit Risk
Credit risk includes the failure of the counterparty to perform under the terms of a 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 seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties.
LIBOR Transition
In July 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”) (the authority that regulates LIBOR) announced its intention to cease sustaining LIBOR by the end of 2021. The ICE Benchmark Administration (the “IBA”), which is supervised by the FCA, ended publication of the one-week and two-month USD LIBOR tenors on December 31, 2021, and the remaining USD LIBOR tenors (overnight, one-month, three-month, six-month and 12-month) ended following their publication on June 30, 2023. On April 3, 2023, the FCA announced that it will compel the IBA to publish an unrepresentative synthetic USD LIBOR through September 30, 2024 for use in legacy contracts. As of June 30, 2023, the Company has adopted the transition and it had a minimal impact on the Company’s consolidated financial statements and disclosures.
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 Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures (a) were 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) included, 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 CEO and CFO, 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 June 30, 2023, the Company was not subject to any material litigation nor was the Company aware of any material litigation threatened against it.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Unregistered Sales of Equity Securities
During the three months ended June 30, 2023, we sold equity securities that were not registered under the Securities Act. As described in Note 10 to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q, the Adviser is entitled to a management fee payable monthly in cash or shares of common stock, in each case at the Adviser’s election. For the three months ended June 30, 2023, the Adviser elected to receive its management fees in Class I shares and we issued 186,733 unregistered Class I shares to the Adviser in satisfaction of the April 2023 and May 2023 management fees of $2.4 million. Additionally, we issued 90,722 unregistered Class I shares to the Adviser in July 2023 in satisfaction of the June 2023 management fee of $1.2 million. These shares were issued at the applicable NAV per share at the end of each month for which the fee was earned. Each issuance to the Adviser was made pursuant to Section 4(a)(2) of the Securities Act.
We have also sold Class I and Class C shares in private offerings to feeder vehicles that offer interests in such feeder vehicles to non-U.S. persons. These shares were issued at the applicable NAV per share on the date the shares were sold. The offer and sale of Class I and Class C shares to the feeder vehicles was exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) and Regulation S thereunder. During the three months ended June 30, 2023, we issued 882,500 unregistered Class I and Class C shares to feeder vehicles for aggregate consideration of $11.4 million, including unregistered shares issued pursuant to our distribution reinvestment plan.
We have also sold Class I and Class E shares to Brookfield and its affiliates and certain of Brookfield’s and Oaktree’s employees in one or more private offerings. These shares were issued at the applicable NAV per share on the date the shares were sold. The offer and sale of Class I and Class E shares was exempt from the registration provisions of the Securities Act by virtue of Section 4(a)(2) and Regulation D thereunder. During the three months ended June 30, 2023, we issued 1,739,656 unregistered Class I and Class E shares to Brookfield and its affiliates and certain of Brookfield’s and Oaktree’s employees for aggregate consideration of $22.8 million, including unregistered shares issued pursuant to our distribution reinvestment plan.
Share Repurchases
We have adopted a share repurchase plan, whereby on a monthly basis, stockholders may request that we repurchase all or any portion of their shares. We 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 our discretion, subject to any limitations in the share repurchase plan.
Under our share repurchase plan, to the extent we choose to repurchase shares in any particular month, we will only repurchase shares as of the opening of the last calendar day of that month (each such date, a “Repurchase Date”). Repurchases will be made at the transaction price in effect on the Repurchase Date (which will generally be equal to our prior month’s NAV per share), except that shares that have not been outstanding for at least one year will be repurchased at 98% of the transaction price (an “Early Repurchase Deduction”) subject to certain limited exceptions. Settlements of share repurchases will be made within three business days of the Repurchase Date. The Early Repurchase Deduction will not apply to shares acquired through our distribution reinvestment plan, to shares the Adviser elects to receive instead of cash in respect of its management or performance fees, or to shares issued to an affiliate of Brookfield in exchange for Class E units of the Operating Partnership ("Class E OP Units") that were issued to such entity in connection with its contribution of certain assets to the Operating Partnership in connection with the Adviser Transition. In addition, shares of our common stock are sold to certain feeder vehicles primarily created to hold our shares that in turn offer interests in such feeder vehicles to non-U.S. persons. For such feeder vehicles and similar arrangements in certain markets, we may not apply the Early Repurchase Deduction to the feeder vehicles or underlying investors, often because of administrative or systems limitations.
The total amount of aggregate repurchases of our common stock (excluding any Early Repurchase Deduction) is limited to no more than 2% of our aggregate NAV per month (measured using the aggregate NAV as of the end of the immediately preceding month) and no more than 5% of our aggregate NAV per calendar quarter (measured using the aggregate NAV as of the end of the immediately preceding quarter). The monthly and quarterly repurchase limits exclude shares repurchased from the Adviser that were issued as payment of management or performance fees.
Should repurchase requests, in our judgment, place an undue burden on our liquidity, adversely affect our operations or risk having an adverse impact on the company as a whole, or should we otherwise determine that investing our liquid assets in real estate properties or other illiquid investments rather than repurchasing our shares is in the best interests of the Company as a whole, then we may choose to repurchase fewer shares than have been requested to be repurchased, or none at all. Further, our board of directors may modify or suspend our share repurchase plan if it deems such action to be in our best interest and the best interest of our stockholders. In the event that we determine to repurchase some but not all of the shares submitted for repurchase during any month, shares repurchased at the end of the month will be repurchased on a pro rata basis.
If the transaction price for the applicable month is not made available by the tenth business day prior to the last business day of the month (or is changed after such date), then no repurchase requests will be accepted for such month and stockholders who wish to have their shares repurchased the following month must resubmit their repurchase requests.
Pursuant to the Brookfield Repurchase Arrangement, we and the Operating Partnership will offer to repurchase shares of common stock or Class E OP Units, as applicable, from the Brookfield Investor at a price per share or unit equal to the most recently determined NAV per share or unit immediately prior to each repurchase. The Brookfield Investor has agreed to not seek repurchase of the shares of common stock and Class E OP Units that it owns if doing so would bring the value of its equity holdings in us and the Operating Partnership below $50.0 million. In addition, the Brookfield Investor has agreed to hold all of the shares of common stock and Class E OP units that it received in consideration for the contribution of the Brookfield Portfolio until the earlier of (i) the first date that our NAV reaches $1.5 billion and (ii) the date that is the third anniversary of the date of the prospectus for the Follow-On Public Offering. Following such date, the Brookfield Investor may cause us to repurchase its shares and Class E OP Units (above the $50.0 million minimum), in an amount equal to the sum of (a) the amount available under our share repurchase plan’s 2% monthly and 5% quarterly caps (after accounting for third-party investor repurchases) and (b) 25% of the amount by which net proceeds from the Follow-On Public Offering and our private offerings of common stock for a given month exceed the amount of repurchases for such month pursuant to our share repurchase plan. We will not effect any such repurchase during any month in which the full amount of all shares requested to be repurchased by third-party investors under our share repurchase plan is not repurchased. The Brookfield Repurchase Arrangement does not apply to shares of our common stock or units of the Operating Partnership held by affiliates of Brookfield that are feeder vehicles primarily created to offer interests in such feeder vehicles to non-U.S. persons. Shares of our common stock or Class E OP Units held by the Brookfield Investor that were not issued as consideration for the contribution of the Brookfield Portfolio are not subject to the Brookfield Repurchase Arrangement, but may be redeemed, in whole or in part, for cash upon the request of the Brookfield Investor, subject to the limitations of our share purchase plan. For the six months ended June 30, 2023, the Company and the Operating Partnership did not repurchase any shares or OP Units as part of the Brookfield Repurchase Arrangement.
During the three months ended June 30, 2023, we repurchased shares of our common stock in the following amounts, which represented all of the share repurchase requests received for the same period.
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Month of: | | Total Number of Shares Repurchased(1) | | Repurchases as a Percentage of Shares Outstanding(2) | | Average Price Paid Per Share | | Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares Pending Repurchase Pursuant to Publicly Announced Plans or Programs(3) |
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April 2023 | | 854,979 | | | 0.91 | % | | $ | 12.8243 | | | 854,979 | | | — | |
May 2023 | | 1,171,360 | | | 1.24 | % | | $ | 12.8847 | | | 1,171,360 | | | — | |
June 2023(4) | | 2,033,649 | | | 2.16 | % | | $ | 12.7659 | | | 1,753,110 | | | — | |
Total | | 4,059,988 | | | | | | | 3,779,449 | | | |
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(1) | Repurchases are limited under the share repurchase plan as described above. |
(2) | Includes shares repurchased outside of the share repurchase plan. Shares repurchased under the share repurchase plan as a percentage of monthly NAV were 0.93%, 1.25%, and 1.88% for April 2023, May 2023 and June 2023, respectively. |
(3) | All repurchase requests under our share repurchase plan were satisfied during the period. |
(4) | Includes 280,539 Class I shares repurchased from the Adviser outside of the share repurchase plan related to shares that were previously issued to the Adviser as payment of management fees. |
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
On August 9, 2023, our board of directors approved certain amendments to our valuation guidelines in order to update our valuation process for international properties.
ITEM 6. EXHIBITS
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Exhibit Number | | Description |
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101.INS | | Inline XBRL Instance Document |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
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101.SCH | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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+ | This exhibit shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act or the Exchange Act. |
* | Filed herewith. |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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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| | Brookfield Real Estate Income Trust Inc. |
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August 11, 2023 | | /s/ Brian W. Kingston |
Date | | Brian W. Kingston |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
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August 11, 2023 | | /s/ Dana E. Petitto |
Date | | Dana E. Petitto |
| | Chief Financial Officer |
| | (Principal Financial Officer) |
| |
August 11, 2023 | | /s/ Theodore C. Hanno |
Date | | Theodore C. Hanno |
| | Chief Accounting Officer |
| | (Principal Accounting Officer) |
| | |