UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMIANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the Fiscal Semiannual Period ended June 30, 2021
Fundrise Growth eREIT VI, LLC
(Exact name of issuer as specified in its charter)
Delaware | 84-2001654 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
11 Dupont Circle NW, 9th Fl, Washington, DC (Address of principal executive offices) | 20036 (Zip Code) |
(202) 584-0550
Registrant’s telephone number, including area code
Common Shares
(Title of each class of securities issued pursuant to Regulation A)
TABLE OF CONTENTS
Item 1. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto contained in this Semiannual Report on Form 1-SA (“Semiannual Report”). The following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the Statements Regarding Forward Looking Information contained in our latest offering circular (our “Offering Circular”) qualified by the Securities and Exchange Commission (“SEC”), which may be accessed here. Unless otherwise indicated, the latest results discussed below are as of June 30, 2021. The consolidated financial statements included in this filing as of June 30, 2021 and for the six months ended June 30, 2021 and 2020 are unaudited and have not been reviewed, and may not include year-end adjustments necessary to make those consolidated financial statements comparable to audited results, although in the opinion of management all necessary adjustments have been included to make interim statements of operations not misleading.
Business
Fundrise Growth eREIT VI, LLC is a Delaware limited liability company formed on June 4, 2019 to originate, invest in and manage a diversified portfolio of commercial real estate properties. We may also invest, to a limited extent, in commercial real estate loans, as well as commercial real estate debt securities (including commercial mortgage-backed securities, collateralized debt obligations, and real estate investment trust (“REIT”) senior unsecured debt) and other real estate-related assets, where the underlying assets primarily consist of commercial real estate properties. We may make our investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. The Company has one reportable segment consisting of investments in real estate. The use of the terms “Fundrise Growth eREIT VI”, the “Company”, “we”, “us” or “our” in this Semiannual Report refer to Fundrise Growth eREIT VI, LLC unless the context indicates otherwise.
As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2020, the Company operates in a manner intended to qualify for treatment as a REIT under the Internal Revenue Code of 1986, as amended.
We are externally managed by Fundrise Advisors, LLC (our “Manager”), which is an investment adviser registered with the SEC, and a wholly-owned subsidiary of Rise Companies Corp. (our “Sponsor”), the parent company of Fundrise, LLC, our affiliate. Fundrise, LLC owns and operates the online investment platform located at www.fundrise.com (the “Fundrise Platform”), which allows investors to hold interests in real estate opportunities that may have been historically difficult to access for some investors. Our Manager has the authority to make all of the decisions regarding our investments, subject to the limitations in our operating agreement and the direction and oversight of our Manager’s investment committee. Our Sponsor also provides asset management, marketing, investor relations and other administrative services on our behalf. Accordingly, we do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us.
Risk Factors
We face risks and uncertainties that could affect us and our business as well as the real estate industry generally. These risks are outlined under the heading “Risk Factors” contained in our latest Offering Circular filed with the SEC, which may be accessed here, as the same may be updated from time to time by our future filings under Regulation A (“Regulation A”) of the Securities Act of 1933, as amended (the “Securities Act”). In addition, new risks may emerge at any time and we cannot predict such risks or estimate the extent to which they may affect our financial performance. These risks could result in a decrease in the value of our common shares.
Offering Results
We have offered and may offer in the future up to $50.0 million in common shares in any rolling twelve-month period under Regulation A (the “Offering”). The SEC adopted an amendment to increase the maximum offering amount under Tier 2 of Regulation A from $50.0 million to $75.0 million. The amendment became effective March 15, 2021, and the Company intends to utilize this increased offering amount in the future. As of June 30, 2021 and December 31, 2020, we had raised total gross offering proceeds of approximately $50.0 million from settled subscriptions (including $15,000 received in the private placements to our Sponsor, and Fundrise, L.P., an affiliate of our Sponsor), and had settled subscriptions in our Offering and separate private placements for an aggregate of approximately 4,996,000 of our common shares.
As of October 30, 2020, the Manager closed the Offering. The Company may in the future file an offering statement to qualify additional common shares for sale pursuant to Regulation A, or offer its common shares pursuant to Regulation D of the Securities Act (“Regulation D”), as determined by the Manager.
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Until September 30, 2020, the per share purchase price for our common shares was $10.00, an amount that was arbitrarily determined by our Manager. Thereafter, the per share purchase price for our common shares has been and will continue to be adjusted at the beginning of each semi-annual period, or such other period as determined by our Manager in its sole discretion, but no less frequently than annually. Our Manager has initially determined to adjust the per share purchase price semi-annually, as of April 1st and October 1st of each year (or as soon as commercially reasonable and announced by us thereafter), to equal the sum of our net asset value (“NAV”), divided by the number of our common shares outstanding as of the end of the prior semi-annual period (“NAV per share”).
Below is the NAV per share, as determined in accordance with our valuation policy. Linked in the table is the relevant Form 1-U detailing each NAV evaluation method, incorporated by reference herein.
Date | NAV Per Share | Link | |||||||
September 30, 2020 | $ | 10.00 | Form 1-U | ||||||
March 31, 2021 | $ | 10.19 | Form 1-U | ||||||
June 30, 2021 | $ | 10.53 | Form 1-U |
Distributions
To qualify as a REIT, and maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our shareholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain), and to avoid federal income and excise taxes on retained taxable income and gains we must distribute 100% of such income and gains annually. Our Manager may authorize distributions in excess of those required for us to maintain REIT status and/or avoid such taxes on retained taxable income and gains depending on our financial condition and such other factors as our Manager deems relevant. Provided we have sufficient available cash flow, we intend to authorize and declare distributions based on daily record dates and pay distributions on a quarterly or other periodic basis. We have not established a minimum distribution level.
While we are under no obligation to do so, we have in the past and expect in the future to declare and pay distributions monthly or quarterly in arrears; however, our Manager may declare other periodic distributions as circumstances dictate. In order that investors may generally begin receiving distributions immediately upon our acceptance of their subscription, we expect to authorize and declare distributions based on daily record dates. However, there may also be times when our Manager elects to reduce our rate of distributions in order to preserve or build up a higher level of liquidity at the Company level. For example, in response to the global outbreak of a new strain of coronavirus (“COVID-19”), the Manager determined to delay or reduce distributions from March 31, 2020 through June 30, 2020 in order to preserve liquidity at the Company level. The Manager does not expect any such trend to continue long-term, as, among other things, as a REIT, we are required to distribute at least 90% of our REIT taxable income annually.
On December 29, 2020, we declared our first distribution to shareholders for the distribution period January 1, 2021 through January 31, 2021. In addition, our Manager has declared daily distributions for shareholders of record as of the close of business on each day for the periods as shown in the table below:
Distribution Period | Daily Distribution Amount/Common Share | Date of Declaration | Payment Date (1) | Annualized Yield | Link | ||||||||||||||
01/01/2021 – 01/31/2021 | 0.0005479452 | 12/29/2020 | 04/13/2021 | 2.00 | % | Form 1-U | |||||||||||||
02/01/2021 – 02/28/2021 | 0.0002739726 | 01/28/2021 | 04/13/2021 | 1.00 | % | Form 1-U | |||||||||||||
03/01/2021 – 03/31/2021 | 0.0001369863 | 02/25/2021 | 04/13/2021 | 0.50 | % | Form 1-U | |||||||||||||
04/01/2021 – 04/30/2021 | 0.0008219178 | 03/30/2021 | 07/13/2021 | 3.00 | % | Form 1-U | |||||||||||||
05/01/2021 – 05/31/2021 | 0.0005479452 | 04/29/2021 | 07/13/2021 | 2.00 | % | Form 1-U | |||||||||||||
06/01/2021 – 06/30/2021 | 0.0004109589 | 05/28/2021 | 07/13/2021 | 1.50 | % | Form 1-U | |||||||||||||
07/01/2021 – 07/31/2021 | 0.0001369863 | 06/29/2021 | 10/21/2021 | 0.50 | % | Form 1-U | |||||||||||||
08/01/2021 – 08/31/2021 | 0.0000000000 | N/A | N/A | 0.00 | % | N/A | |||||||||||||
09/01/2021 – 10/01/2021 | 0.0002739726 | 08/27/2021 | 10/21/2021 | 1.00 | % | Form 1-U | |||||||||||||
Weighted Average | 0.0003489651 | (3) | 1.27 | %(4) |
(1) | Dates presented are the dates on which the distributions were, or are, scheduled to be distributed; actual distribution dates may vary. | |
(2) | Annualized yield numbers represent the annualized yield amount of each distribution calculated on an annualized basis at the then current rate, assuming a $10.00 per share purchase price. While the Manager is under no obligation to do so, each annualized basis return assumes that the Manager would declare distributions in the future similar to the distributions for each period presented, and there can be no assurance that the Manager will declare such distributions in the future or, if declared, that such distributions would be of a similar amount. |
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(3) | Weighted average daily distribution amount per common share is calculated as the average of the daily declared distribution amounts from January 1, 2021 through October 1, 2021. | |
(4) | Weighted average annualized yield is calculated as the annualized yield of the average daily distribution amount for the periods presented, using a $10.00 per share purchase price. |
Any distributions that we make will directly impact our NAV by reducing the amount of our assets. Our goal is to provide a reasonably predictable and stable level of current income, through quarterly or other periodic distributions, while at the same time maintaining a fair level of consistency in our NAV. Over the course of a shareholder’s investment, the shareholder’s distributions plus the change in NAV per share (either positive or negative) will produce the shareholder’s total return.
Our distributions will generally constitute a return of capital to the extent that they exceed our current and accumulated earnings and profits as determined for U.S. federal income tax purposes. To the extent that a distribution is treated as a return of capital for U.S. federal income tax purposes, it will reduce a shareholder’s adjusted tax basis in the shareholder’s shares, and to the extent that it exceeds the shareholder’s adjusted tax basis will be treated as gain resulting from a sale or exchange of such shares.
Redemption Plan
Although we do not intend to list our common shares for trading on a stock exchange or other trading market, we have adopted a redemption plan designed to provide our shareholders with limited liquidity for their investment in our shares. The Company’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a shareholder could obtain liquidity as described in detail in our Offering Circular. Our Manager may in its sole discretion, amend, suspend, or terminate the redemption plan at any time, including to protect our operations and our non-redeemed shareholders, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason.
Effective as of March 31, 2020, our Manager determined to (i) suspend the processing and payment of redemptions under our redemption plan until further notice, and (ii) delay the consideration and processing of all outstanding redemption requests until further notice. We resumed the processing and payment of redemptions under our redemption plan as of June 30, 2020.
As of June 30, 2021, approximately 681,000 common shares had been submitted for redemption since operations commenced, and 100% of such redemption requests have been honored.
Critical Accounting Policies
Our accounting policies have been established to conform with U.S. generally accepted accounting principles (“U.S. GAAP”). The preparation of consolidated financial statements in conformity with U.S. GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Management believes that we have made these estimates and assumptions in an appropriate manner and in a way that accurately reflects our financial condition. We continually test and evaluate these estimates and assumptions using our historical knowledge of the business, as well as other factors, to ensure that they are reasonable for reporting purposes. However, actual results may differ from these estimates and assumptions. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied, thus resulting in a different presentation of the consolidated financial statements.
We believe the following accounting estimates are the most critical to aid in fully understanding our reported financial results, and they require our most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain.
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Investments in Equity Method Investees Impairment
The Company evaluates its investments in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. If it is determined that an impairment exists and is other than temporary, then the Company estimates the fair value of the investment using various valuation techniques including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. Such assumptions involve a high degree of judgment and could be impacted by future economic and market conditions. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment loss to reduce the carrying value of its investment to fair value.
Impairment of Rental Real Estate Properties and Real Estate Held for Improvement
Long-lived assets are reviewed for impairment at least annually, or whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. When determining if a property has indicators of impairment, we evaluate the property's occupancy and cash flows, our expected holding period for the property, strategic decisions regarding the property's future operations or development, and other market factors. Impairment exists if estimated future undiscounted cash flows associated with those assets are less than the assets' carrying value. Estimates of undiscounted cash flows are based on forward-looking assumptions, including annual and residual cash flows, terminal capitalization rates, and our estimated holding period for each asset. Such assumptions involve a high degree of judgment and could be affected by future economic and market conditions. When impairment exists, the long-lived asset is adjusted to its fair value. Impairment is calculated as the excess of carrying value over the fair value. Fair value is determined using industry techniques, which include a discounted cash flow, comparable sales or other income approaches. These valuation techniques require assumptions regarding future occupancy, rental rates, capital requirements, capitalization rate and discount rate that could differ materially from actual results and involve a high degree of judgment. Assets held for sale are recorded at the lower of cost or fair value less costs to sell.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has released several Accounting Standards Updates (each an “ASU”) that may have an impact on our consolidated financial statements. See Recent Accounting Pronouncements in Note 2, Summary of Significant Accounting Policies in our consolidated financial statements for discussion of the relevant ASUs. We are currently evaluating the impact of the various ASUs on our consolidated financial statements and determining our plan for adoption.
Extended Transition Period
Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.
Sources of Operating Revenues and Cash Flows
We expect to primarily generate revenues from rental revenue from investments in real estate. We may also seek to acquire investments which generate attractive returns without any leverage. See Note 2, Summary of Significant Accounting Policies - Revenue Recognition, in our consolidated financial statements for further detail.
Results of Operations
For the six months ended June 30, 2021 and 2020, we had total net income (losses) of approximately $(1.2 million) and $44,000, respectively.
Revenue
Rental Revenue
For the six months ended June 30, 2021 and 2020, we earned rental revenue of approximately $1.0 million and $147,000, respectively, from the operation of rental real estate properties. The increase in rental revenue is due to higher rental rates earned from tenants occupying our first real estate property acquired in February 2020, which was initially held for development and subsequently placed in-service. Additionally, we acquired our second rental real estate property in September 2020, resulting in an increase in rental revenue during the six months ended June 30, 2021.
Expenses
Property Operating and Maintenance
For the six months ended June 30, 2021 and 2020, we incurred property operating and maintenance expense of approximately $677,000 and $0, respectively, which includes property taxes, utilities, repairs, and other operating costs. The increase in property operating and maintenance expense is due to the acquisition of our first rental real estate property in September 2020, as well as placing one of our development properties in-service in January 2021.
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Depreciation and Amortization
For the six months ended June 30, 2021 and 2020, we incurred depreciation and amortization expense of approximately $328,000 and $0, respectively. The increase in depreciation and amortization expense is due to the acquisition of our first rental real estate property in September 2020 as well as the rental real estate property that was placed in-service in January 2021.
General and Administrative Expenses
For the six months ended June 30, 2021 and 2020, we incurred general and administrative expenses of approximately $266,000 and $122,000, respectively, which includes auditing and professional fees, bank fees, software and subscription costs, transfer agent fees, and other expenses associated with operating our business. The increase in general and administrative expenses is mainly attributable to increased franchise taxes associated with the three real estate investments acquired after June 30, 2020.
Asset Management and Other Fees – Related Party
For the six months ended June 30, 2021 and 2020, we incurred asset management fees due to the Manager of approximately $201,000 and $0, respectively. The increase in asset management fees is due to the expiration of the fee waiver period as of June 30, 2020. In addition, the increase in asset management fees is related to an increase in NAV, as the asset management fee is calculated as a percentage of NAV each quarter.
Other (Expense) Income
Equity in Earnings (Losses)
For the six months ended June 30, 2021 and 2020, we had equity in earnings (losses) of approximately $(780,000) and $3,000, respectively, from our equity method investments. The net loss in the current period is due to the acquisition of our first joint venture investment in December 2020. The equity in earnings recognized during the six months ended June 30, 2020 is from our investment in National Lending, LLC (“National Lending”), which was formed in March 2020.
Our Investments
As of June 30, 2021, we had entered into the following investments. See “Recent Developments” for a description of any investments we have made since June 30, 2021. Note that the use of the term “controlled subsidiary” is not intended to conform with U.S. GAAP definition and does not correlate to a subsidiary that would require consolidation under U.S. GAAP.
Real Property Controlled Subsidiaries (Wholly- | Location | Type of Property | Approx. Acquisition | Date of Acquisition | Approx. Acquisition | Projected Hold Period | Overview (Form 1-U) | |||||||||||||||||
W59 Controlled Subsidiary | Los Angeles, CA | Mixed-Use | 75,000 | 02/07/2020 | $ | 15,040,000 | 10 years | Initial | ||||||||||||||||
L37 Controlled Subsidiary | Nashville, TN | Multifamily | 65,000 | 09/24/2020 | $ | 10,820,000 | 7 – 10 years | Initial | ||||||||||||||||
Z20 Controlled Subsidiary | Nashville, TN | Land | 565,000 | 09/24/2020 | $ | 4,640,000 | 7 – 10 years | Initial |
Real Property Controlled Subsidiaries (Joint Venture Investments) | Location | Property Type | Date of Acquisition | Purchase Price (1) | Overview (Form 1-U) | |||||||||
Parkland Controlled Subsidiary | Orange Park, FL | Multifamily | 12/11/2020 | $ | 15,032,000 | Initial |
(1) | Purchase Price refers to the total price paid by us for our pro rata share of the equity in the controlled subsidiary. |
As of June 30, 2021, the Company's investments in companies that are accounted for under the equity method of accounting also included the initial and subsequent contributions to National Lending in exchange for ownership interests. See Note 8, Related Party Arrangements for further information regarding National Lending.
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Liquidity and Capital Resources
We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from our Offering, cash flow from operations, net proceeds from asset repayments and sales, borrowings under credit facilities, other term borrowings and securitization financing transactions.
We obtain the capital required to primarily originate, invest in and manage a diversified portfolio of real estate investments and conduct our operations from the proceeds of our Offering and from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of June 30, 2021, we had deployed approximately $47.8 million in net capital for five investments and had approximately $2.8 million in cash and cash equivalents. The Company has a continuous funding commitment to maintain a total contribution amount of up to 5% of its assets under management to National Lending. As of June 30, 2021, we anticipate that cash on hand and proceeds from our Offering will provide sufficient liquidity to meet future funding commitments and costs of operations. As of June 30, 2021, the Manager closed the Offering. If the Manager determines, the Company may in the future file an offering statement to qualify additional common shares for sale pursuant to Regulation A, or offer its common shares pursuant to Regulation D.
We may selectively employ leverage to enhance total returns to our shareholders through a combination of senior financing on our real estate acquisitions, secured facilities, and capital markets financing transactions. We currently have outstanding unsecured Company level debt (inclusive of accrued interest) of approximately $6.2 million and $6.1 million as of September 17, 2021 and June 30, 2021, respectively. This does not include any debt secured by the real property of our consolidated or unconsolidated investments, which may represent additional sources of future liquidity. Our targeted portfolio-wide leverage after we have acquired an initial substantial portfolio of diversified investments is between 50%-85% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring our initial portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the initial portfolio) in order to quickly build a diversified portfolio of assets. We seek to secure conservatively structured leverage that is long-term, non-recourse, non-mark-to-market financing to the extent obtainable on a cost-effective basis. To the extent a higher level of leverage is employed it may come either in the form of government-sponsored programs or other long-term, non-recourse, non-mark-to-market financing. Our Manager may from time to time modify our leverage policy in its discretion in light of then current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. However, other than during our initial period of operations, it is our policy to not borrow more than 85% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. We cannot exceed the leverage limit of our leverage policy unless any excess in borrowing over such level is approved by our Manager’s investment committee.
We face challenges in order to ensure liquidity and capital resources on a long-term basis. If we do not raise additional funds from the issuance of common shares, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make. The Company may be subject to more fluctuations based on the performance of the specific assets we acquire. Further, we have certain direct and indirect operating expenses. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income and would limit our ability to make distributions.
Outlook and Recent Trends
After enduring the worst peacetime economic downturn since the Great Depression in 2020, the global economy is experiencing a resounding rebound with the International Monetary Fund (“IMF”) forecasting record-setting growth of 6% for 2021. Fueled by government stimulus, accommodative monetary policy, and accelerated vaccination programs, a generally ‘v-shaped’ recovery has taken hold in most sectors of the economy, including real estate where the Vanguard Real Estate Index that was down -4.72% for 2020, is now up over 30% through August 2021.
Within real estate, performance has diverged significantly between sectors, and we are encouraged by our focus on residential assets where we anticipate continued demand growth.
Apartment REITs have outperformed the broader REIT sector year-to-date, returning 45% through August 31, 2021 (vs. 30% for all sectors). This follows modest underperformance in 2020 (apartment REITs returned -15% vs. -8% for all sectors).
Meanwhile, after sharply negative performance in 2020 (Office -18%, Lodging -24%), these commercial sectors have continued to underperform the broader REIT sector in 2021 (Office +16%, Lodging +13%); Retail REITs have returned 39% year-to-date after posting the worst performance among REIT sectors in 2020 (-25%).
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Multifamily properties have recently recorded unprecedented average national rent growth of over 6% year-over-year in June, with Jeff Adler, VP at Yardi Matrix, noting, “These are the largest year-over-year and monthly increases in the history of our data set.” Single-family rental units have featured even stronger year-over-year growth of 11%.
Despite the potential for setbacks from Delta and other new COVID-19 variants, the U.S. economy is expected to continue on its strong growth trajectory through the end of 2021 and into 2022. On July 27, 2021 the IMF indicated it is maintaining its global growth forecast of 6.0% for 2021 and increasing its 2022 growth forecast to 4.9%, explaining:
“The 2021 global forecast is unchanged from the April 2021 report, but with offsetting revisions. Prospects for emerging markets and developing economies have been marked down for 2021, especially for Emerging Asia. By contrast, the forecast for advanced economies is revised up. These revisions reflect pandemic developments and changes in policy support. The 0.5 percentage-point upgrade for 2022 derives largely from the forecast upgrade for advanced economies, particularly the United States, reflecting the anticipated legislation of additional fiscal support in the second half of 2021 and improved health metrics more broadly across the group.”
The economic tailwinds are likely to broadly drive rent growth, occupancy and asset pricing. On the other hand, economic vibrancy generally raises interest rates, construction costs, and will generally create a more competitive environment for the Company. The current interest rate environment dramatically eased as a result of the Federal Reserve materially lowering rates and broad based liquidity injections, but the Federal Reserve is closely monitoring their policy stance for reevaluating factors. Capital markets are vigilantly monitoring the Federal Reserve’s policy stance. Historically when markets recover, hard assets, such as real estate, see an increase in value as a result of economic expansion.
Off-Balance Sheet Arrangements
As of June 30, 2021 and December 31, 2020, we had no off-balance sheet arrangements.
Related Party Arrangements
For further information regarding “Related Party Arrangements,” please see Note 8, Related Party Arrangements in our consolidated financial statements.
Recent Developments
Investments
There have been no real estate investments acquired by or repaid to the Company since June 30, 2021 through September 17, 2021.
Other
Event | Date | Description | ||
Share Purchase Price Update | 07/01/2021 | Beginning on July 1, 2021, the per share purchase price of our common shares was updated to $10.53 due to a change in NAV. More information can be found here. | ||
Declaration of September 2021 Distributions | 08/27/2021 | On August 27, 2021, our Manager declared a daily distribution of $0.0002739726 per share for shareholders of record as of the close of business on each day of the period commencing on September 1, 2021 and ending on October 1, 2021. More information can be found here. |
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Item 2. | Other Information |
Departure of Certain Officers
Effective June 7, 2021, Benjamin Miller (i) resigned as the Interim Chief Financial Officer of the Manager and (ii) relinquished his roles as principal financial officer and principal accounting officer of the Company. Mr. Miller remains the Chief Executive Officer of the Manager and principal executive officer of the Company. Additionally, effective June 7, 2021, Alison Staloch (i) was appointed the Chief Financial Officer of the Manager and (ii) assumed the roles of principal financial officer and principal accounting officer of the Company. More information can be found here.
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Item 3. | Financial Statements |
Index to the UNAUDITED CONSOLIDATED Financial Statements of
Fundrise Growth ereit VI, LLC
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Fundrise Growth eREIT VI, LLC
(Amounts in thousands, except share data)
As of June 30, 2021 (unaudited) | As of December 31, 2020 (*) | |||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 2,732 | $ | 5,487 | ||||
Restricted cash | 64 | 72 | ||||||
Other assets | 38 | 128 | ||||||
In-place leases, net | - | 75 | ||||||
Investments in equity method investees | 15,806 | 17,061 | ||||||
Investments in real estate held for improvement | 4,681 | 19,716 | ||||||
Investments in rental real estate properties, net | 25,452 | 10,608 | ||||||
Total Assets | $ | 48,773 | $ | 53,147 | ||||
LIABILITIES AND MEMBERS’ EQUITY | ||||||||
Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 323 | $ | 249 | ||||
Due to related party | 112 | 115 | ||||||
Distributions payable | 256 | 80 | ||||||
Redemptions payable | 935 | 1,431 | ||||||
Rental security deposits and other liabilities | 75 | 385 | ||||||
Notes payable – related party | 6,118 | 6,013 | ||||||
Total Liabilities | 7,819 | 8,273 | ||||||
Commitments and Contingencies | ||||||||
Members’ Equity: | ||||||||
Common shares, net of redemptions; unlimited shares authorized; 4,995,902 and 4,995,902 shares issued and 4,315,030 and 4,548,381 shares outstanding as of June 30, 2021 and December 31, 2020, respectively | 43,191 | 45,564 | ||||||
Retained earnings (Accumulated deficit) | (2,237 | ) | (690 | ) | ||||
Total Members’ Equity | 40,954 | 44,874 | ||||||
Total Liabilities and Members’ Equity | $ | 48,773 | $ | 53,147 |
* Derived from audited financial statements
The accompanying notes are an integral part of these consolidated financial statements.
F-1
Fundrise Growth eREIT VI, LLC
Consolidated Statements of Operations
(Amounts in thousands, except share and per share data)
For the Six Months Ended June 30, 2021 (unaudited) | For the Six Months Ended June 30, 2020 (unaudited) | |||||||
Revenue | ||||||||
Rental revenue | $ | 1,043 | $ | 147 | ||||
Other revenue | 75 | 16 | ||||||
Total revenue | 1,118 | 163 | ||||||
Expenses | ||||||||
Property operating and maintenance | 677 | - | ||||||
Depreciation and amortization | 328 | - | ||||||
General and administrative expenses | 266 | 122 | ||||||
Asset management and other fees – related party | 201 | - | ||||||
Total expenses | 1,472 | 122 | ||||||
Other (expense) income | ||||||||
Equity in earnings (losses) | (780 | ) | 3 | |||||
Interest expense – related party | (105 | ) | - | |||||
Total other (expense) income | (885 | ) | 3 | |||||
Net (loss) income | $ | (1,239 | ) | $ | 44 | |||
Net (loss) income per basic and diluted common share | $ | (0.28 | ) | $ | 0.02 | |||
Weighted average number of common shares outstanding, basic and diluted | 4,476,878 | 2,640,428 |
The accompanying notes are an integral part of these consolidated financial statements. In the opinion of management, all necessary adjustments have been included in order to make the interim financial statements not misleading.
F-2
Fundrise Growth eREIT VI, LLC
Consolidated Statements of Members’ Equity
(Amounts in thousands, except share data)
Common Shares | Retained (Accumulated | Total Members’ | ||||||||||||||
Shares | Amount | deficit) | Equity | |||||||||||||
December 31, 2020 (*) | 4,548,381 | 45,564 | $ | (690 | ) | $ | 44,874 | |||||||||
Offering costs | - | (92 | ) | - | (92 | ) | ||||||||||
Distributions declared on common shares | - | - | (308 | ) | (308 | ) | ||||||||||
Redemptions of common shares | (233,351 | ) | (2,281 | ) | - | (2,281 | ) | |||||||||
Net loss | - | - | (1,239 | ) | (1,239 | ) | ||||||||||
June 30, 2021 (unaudited) | 4,315,030 | $ | 43,191 | $ | (2,237 | ) | $ | 40,954 |
Common Shares | Retained (Accumulated | Total Members’ | ||||||||||||||
Shares | Amount | deficit) | Equity | |||||||||||||
December 31, 2019 (*) | 1,500 | $ | 15 | $ | - | $ | 15 | |||||||||
Proceeds from issuance of common shares | 4,831,955 | 48,320 | - | 48,320 | ||||||||||||
Redemptions of common shares | (171,385 | ) | (1,705 | ) | - | (1,705 | ) | |||||||||
Net income | - | - | 44 | 44 | ||||||||||||
June 30, 2020 (unaudited) | 4,662,070 | $ | 46,630 | $ | 44 | $ | 46,674 |
*Derived from audited financial statements
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Fundrise Growth eREIT VI, LLC
Consolidated Statements of Cash Flows
(Amounts in thousands)
For the Six Months Ended June 30, 2021 (unaudited) | For the Six Months Ended June 30, 2020 (unaudited) | |||||||
OPERATING ACTIVITIES: | ||||||||
Net (loss) income | $ | (1,239 | ) | $ | 44 | |||
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating activities: | ||||||||
Equity in (earnings) losses | 780 | (3 | ) | |||||
Depreciation and amortization | 328 | - | ||||||
Organizational costs | 15 | - | ||||||
Changes in assets and liabilities: | ||||||||
Net (increase) decrease in other assets | 90 | (28 | ) | |||||
Net increase (decrease) in accounts payable and accrued expenses | 73 | 17 | ||||||
Net increase (decrease) in due to related party | 101 | 13 | ||||||
Net increase (decrease) in rental security deposits and other liabilities | (310 | ) | 2 | |||||
Net cash provided by (used in) operating activities | (162 | ) | 45 | |||||
INVESTING ACTIVITIES: | ||||||||
Investments in equity method investees | - | (1,054 | ) | |||||
Return of investment from equity method investees | 475 | - | ||||||
Investments in real estate held for improvement | - | (15,155 | ) | |||||
Improvements of real estate held for improvement | (30 | ) | (68 | ) | ||||
Improvements related to rental real estate properties | (32 | ) | - | |||||
Release of real estate deposits | - | 650 | ||||||
(Issuance) of real estate deposits | - | (922 | ) | |||||
Net cash provided by (used in) investing activities | 413 | (16,549 | ) | |||||
FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common shares | - | 48,320 | ||||||
Redemptions paid | (2,777 | ) | (845 | ) | ||||
Proceeds from settling subscriptions | - | 163 | ||||||
Distributions paid | (132 | ) | - | |||||
Reimbursements (to) from related party | (105 | ) | - | |||||
Net cash provided by (used in) financing activities | (3,014 | ) | 47,638 | |||||
Net increase (decrease) in cash and cash equivalents and restricted cash | (2,763 | ) | 31,134 | |||||
Cash and cash equivalents and restricted cash, beginning of period | 5,559 | 15 | ||||||
Cash and cash equivalents and restricted cash, end of period | $ | 2,796 | $ | 31,149 | ||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY: | ||||||||
Offering costs accrued | $ | 2 | $ | - | ||||
Improvements of real estate held for improvement included in accounts payable | $ | 1 | $ | - | ||||
Investments in real estate held for improvement placed in service | $ | 15,348 | $ | - |
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Fundrise Growth eREIT VI, LLC
Notes to Consolidated Financial Statements (unaudited)
1. | Formation and Organization |
Fundrise Growth eREIT VI, LLC was formed on June 4, 2019, as a Delaware limited liability company and substantially commenced operations on January 9, 2020. As used herein, the “Company,” “we,” “our,” and “us” refer to Fundrise Growth eREIT VI, LLC except where the context otherwise requires.
The Company has one reportable segment consisting of investments in real estate. The Company was organized primarily to originate, invest in and manage a diversified portfolio of real estate investments and other real estate-related assets. The Company may make its investments through majority-owned subsidiaries, some of which may have rights to receive preferred economic returns. Each real estate property held for improvement or for rent by the Company is acquired by a limited liability company that is a subsidiary of ours. These subsidiaries are wholly owned by the Company and consolidated in these financial statements.
The Company’s business is externally managed by Fundrise Advisors, LLC (the “Manager”), a Delaware limited liability company and an investment adviser registered with the Securities and Exchange Commission (the “SEC”). Subject to certain restrictions and limitations, the Manager is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.
We intend to continue operating in such a manner as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes. We hold substantially all of our assets directly, and as of June 30, 2021 and December 31, 2020, have not established an operating partnership or any taxable REIT subsidiaries, though we may form such entities as required in the future to facilitate certain transactions that might otherwise have an adverse impact on our status as a REIT. As of June 30, 2021 and December 31, 2020, we elected to treat certain wholly-owned subsidiaries as qualified REIT subsidiaries (“QRSs”) to facilitate certain transactions that might otherwise have an adverse impact on our status as a REIT. See Note 2, Summary of Significant Accounting Policies – Income Taxes for further information.
The Company’s initial offering of its common shares (the “Offering”) was conducted as a continuous offering pursuant to Rule 251(d)(3) of Regulation A (“Regulation A”) of the Securities Act of 1933, as amended (the “Securities Act”), meaning that while the offering of securities is continuous, active sales of securities may happen sporadically over the term of an Offering. Under this Offering, a maximum of $50.0 million of the Company’s common share could be sold to the public in any given twelve-month period. The SEC adopted an amendment to increase the maximum offering amount under Tier 2 of Regulation A from $50.0 million to $75.0 million. This amendment became effective March 15, 2021, and the Company may utilize this increased offering amount in the future. However, each Offering is subject to qualification by the SEC. The Manager has the authority to issue an unlimited number of common shares. The Company qualified its initial $50.0 million of common shares on December 4, 2019.
As of October 30, 2020, the Manager closed the Offering. The Company may in the future file an offering statement to qualify additional common shares for sale pursuant to Regulation A, or offer its common shares pursuant to Regulation D of the Securities Act (“Regulation D”), as determined by the Manager.
As of June 30, 2021 and December 31, 2020, after redemptions, the Company had net common shares outstanding of approximately 4,315,000 and 4,548,000, respectively, including common shares issued to Rise Companies Corp. (the “Sponsor”), the owner of the Manager. As of June 30, 2021 and December 31, 2020, the Sponsor owned 500 common shares. In addition, as of June 30, 2021 and December 31, 2020, Fundrise, L.P., an affiliate of the Sponsor, had purchased an aggregate of 1,000 common shares at $10.00 per share in a private placement for an aggregate purchase price of approximately $10,000. As of June 30, 2021 and December 31, 2020, the total amount of equity outstanding by the Company on a gross basis was approximately $49.9 million. These amounts were based on a $10.19 and $10.00 per share price, respectively.
The Company’s Manager has established various plans by which individual clients of the Manager may elect to have distributions received from real estate investment trusts managed by our Manager (“eREITs”), the Fundrise eFund, LLC, and the Fundrise Real Estate Interval Fund, LLC reinvested across such individual client's Fundrise portfolio according to such individual client's selected preferences ("Reinvestment Plans"). Shares purchased through such Reinvestment Plans are done so at the effective price at the time of distribution issuance. For the six months ended June 30, 2021 and 2020, no distributions declared by the Company have been reinvested directly into the Company through such Reinvestment Plans.
F-5
2. | Summary of Significant Accounting Policies |
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting and the instructions to Form 1-SA and Rule 8-03(b) of Regulation S-X of the rules and regulations of the SEC. Accordingly, certain information and note disclosures normally included in the consolidated financial statements prepared under U.S. GAAP have been condensed or omitted.
In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature. Interim results are not necessarily indicative of operating results for any other interim period or for the entire year. The December 31, 2020 consolidated balance sheet and certain related disclosures are derived from the Company’s December 31, 2020 audited consolidated financial statements. These consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto included in the Company’s annual report, which was filed with the SEC. The consolidated financial statements as of June 30, 2021 and for the six months ended June 30, 2021 and 2020, and certain related notes, are unaudited, have not been reviewed, and may not include year-end adjustments to make those consolidated financial statements comparable to audited results.
Certain amounts in the prior year’s consolidated financial statements have been reclassified to conform to current year presentation.
Principles of Consolidation
We consolidate entities when we own, directly or indirectly, a majority interest in the entity or are otherwise able to control the entity. We consolidate variable interest entities (“VIEs”) in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation, if we are the primary beneficiary of the VIE as determined by our power to direct the VIE’s activities and the obligation to absorb its losses or the right to receive its benefits, which are potentially significant to the VIE. A VIE is broadly defined as an entity with one or more of the following characteristics: (a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support; (b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.
Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents may consist of money market funds, demand deposits and highly liquid investments with original maturities of three months or less.
Cash may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250,000 per institution. The Company mitigates credit risk by placing cash with major financial institutions. To date, the Company has not experienced any losses with respect to cash.
Restricted Cash
Restricted cash consists of cash balances restricted in use by contractual obligations with third parties. This may include funds escrowed for tenant security deposits, real estate taxes, property insurance, and mortgage escrows required by lenders on certain of our properties to be used for future building renovations or tenant improvements.
F-6
Earnings per Share
Basic earnings per share is calculated on the basis of weighted-average number of common shares outstanding during the period. Basic earnings per share is computed by dividing income available to members by the weighted-average common shares outstanding during the period. Diluted net income (loss) per common share equals basic net income (loss) per common share as there were no potentially dilutive securities outstanding during the six months ended June 30, 2021 and the year ended December 31, 2020.
Organizational and Offering Costs
Organizational and offering costs of the Company were initially paid by the Manager on behalf of the Company. These organizational and offering costs include all expenses to be paid by the Company in connection with the formation of the Company and the qualification of the Offering, and the distribution of shares, including, without limitation, expenses for printing, and amending offering statements or supplementing offering circulars, mailing and distributing costs, telephones, internet and other telecommunications costs, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees. The Company anticipates that, pursuant to the Company’s amended and restated operating agreement (the “Operating Agreement”), the Company will be obligated to reimburse the Manager, or its affiliates, as applicable, for organizational and offering costs paid by them on behalf of the Company. The Manager has decided that the Company shall only reimburse the Manager for the organizational and offering costs subject to a minimum net asset value (“NAV”), as described below.
After the Company has reached a NAV greater than $10.00 per share (“Hurdle Rate”), the Company is obligated to start reimbursing the Manager, without interest, for organizational and offering costs incurred, both, before and after the date that the Hurdle Rate is reached. The total amount payable to the Manager will be based on the dollar amount that the NAV exceeds the Hurdle Rate, multiplied by the number of shares outstanding. Reimbursement payments will be made in monthly installments, but the aggregate monthly amount reimbursed shall not exceed 0.50% of the aggregate gross offering proceeds from the Offering provided. No reimbursement shall be made if the reimbursement would cause the NAV to be less than the Hurdle Rate. If the sum of the total unreimbursed amount of such organizational and offering costs, plus new costs incurred since the last reimbursement payment, exceeds the reimbursement limit described above for the applicable monthly installment, the excess will be eligible for reimbursement in subsequent months (subject to the 0.50% limit), calculated on an accumulated basis, until the Manager has been reimbursed in full.
The Company will recognize a liability for organizational costs and offering costs payable to the Manager when it is probable and estimable that a liability has been incurred in accordance with ASC 450, Contingencies. As a result, no liability was recognized by the Company until it reached the Hurdle Rate. After the Company’s NAV exceeded the Hurdle Rate, it recognized a liability with a corresponding reduction to equity for offering costs, and a liability and a corresponding expense to general and administrative expenses for organizational costs.
As of June 30, 2021 and December 31, 2020, the Manager had incurred cumulative organizational and offering costs of approximately $110,000 and $107,000, respectively, on behalf of the Company. The Hurdle Rate was met as of March 31, 2021, and approximately $107,000 and $0 of offering costs were reimbursed or were reimbursable to the Manager as of June 30, 2021 and December 31, 2020, respectively. Of the $107,000 due to the Manager as of June 30, 2021, approximately $15,000 was related to organizational costs and is included within general and administrative expenses in the consolidated statements of operations. During the six months ended June 30, 2021 and 2020, the Company reimbursed the Manager approximately $105,000 and $0, respectively. As such, approximately $2,000 and $0 remained payable as of June 30, 2021 and December 31, 2020, respectively.
During the periods ended June 30, 2021 and 2020, the Company did not directly incur any offering costs. As such, no amounts were payable as of June 30, 2021 and December 31, 2020.
Settling Subscriptions
Settling subscriptions presented on the consolidated balance sheets represent equity subscriptions for which funds have been received but common shares have not yet been issued. Under the terms of the Offering Circular for our common shares, subscriptions will be accepted or rejected within thirty days of receipt by us. Once a subscription agreement is accepted, settlement of the shares may occur up to fifteen days later, depending on the volume of subscriptions received; however, we generally issue shares the later of five business days from the date that an investor’s subscription is approved by our Manager or when funds settle in our bank account. We rely on our Automated Clearing House (ACH) provider to notify us that funds have settled for this purpose, which may differ from the time that cash is posted to our bank statement.
Investments in Equity Method Investees
If it is determined that we do not have a controlling interest in a joint venture through our financial interest in a VIE or through our voting interest in a voting interest entity and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee.
F-7
The Company evaluates its investment in equity method investees for impairment whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. To do so, the Company would calculate the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If the Company determined any decline in value is other-than-temporary, the Company would recognize an impairment charge to reduce the carrying value of its investment to fair value. No impairment losses were recorded related to equity method investees for the six months ended June 30, 2021 and 2020.
With regard to distributions from equity method investees, we utilize the cumulative earnings approach to determine whether distributions from equity method investments are returns on investment (cash inflow from operating activities) or returns of investment (cash inflow from investing activities). Using the cumulative earnings approach, the Company compares cumulative distributions received for each investment, less distributions received in prior periods that were determined to be returns of investment, with the Company’s cumulative equity in earnings. Generally, cumulative distributions received that do not exceed cumulative equity in earnings represent returns on investment and cumulative distributions received in excess of the cumulative equity in earnings represent returns of investment.
Investment in Rental Real Estate Properties and Real Estate Held for Improvement
Our investments in rental real estate properties and real estate held for improvement may include the acquisition of unimproved land, homes, multifamily properties, townhomes or condominiums, office space, or industrial properties that are (i) held as rental properties or (ii) held for redevelopment or are in the process of being renovated.
In accordance with FASB ASC 805, Business Combinations, the Company first determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired does not constitute a business, the Company accounts for the transaction as an asset acquisition. The guidance for business combinations states that when substantially all of the fair value of the gross assets to be acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the asset or set of assets is not a business. All property acquisitions to date have been accounted for as asset acquisitions.
Whether the acquisition of a property acquired is considered a business combination or asset acquisition, the Company recognizes the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity. If the property acquired constitutes a business combination, the Company expenses acquisition-related costs as they are incurred and evaluates the existence of goodwill or a gain from a bargain purchase. If the property acquired is determined to be an asset acquisition, the Company capitalizes acquisition-related costs, but does not recognize goodwill or earnings on a gain from bargain purchase.
Upon acquisition of a property, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, site improvements, above- and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price (including capitalized transaction costs) to the acquired assets and assumed liabilities. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. During this process, we also evaluate each investment for purposes of determining whether a property can be immediately rented (presented on the consolidated balance sheets as “Investments in rental real estate properties, net”) or will need improvements or redevelopment (presented on the consolidated balance sheets as “Investments in real estate held for improvement”).
The amortization of in-place leases is recorded to depreciation and amortization expense on the Company’s consolidated statements of operations. The amortization of above- or below-market leases is recorded as an adjustment to rental revenue on the Company’s consolidated statements of operations. We consider qualitative and quantitative factors in evaluating the likelihood of a tenant exercising a below-market renewal option and include such renewal options in the calculation of in-place lease value when we consider these to be bargain renewal options. If the value of below-market lease intangibles includes renewal option periods, we include such renewal periods in the amortization period utilized. If a tenant vacates its space prior to contractual termination of its lease, the unamortized balance of any in-place lease value is written off.
For rental real estate properties, significant improvements are capitalized. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. We capitalize expenditures that improve or extend the life of a property and for certain furniture and fixtures additions.
F-8
For real estate held for improvement, we capitalize the costs of improvement as a component of our investment in each property. These include renovation costs and other capitalized costs associated with activities that are directly related to preparing our properties for their intended use. Other costs may include interest, property taxes, property insurance, and utilities. Incidental operations are revenue-producing activities engaged in during the development period to reduce the net cost of developing the property for its intended use. Incremental revenues from incidental operations in excess of incremental costs of incidental operations are a direct reduction to the capitalized project costs. We capitalize direct and incremental costs associated with incremental revenue on a straight-line basis over the terms of the respective leases. The capitalization period associated with our improvement activities begins at such time that development activities commence and concludes at the time that a property is available to be rented or sold.
Costs capitalized in connection with rental real estate property acquisitions and improvement activities are depreciated over their estimated useful lives on a straight-line basis. The depreciation period commences upon the cessation of improvement related activities. For those costs capitalized in connection with rental real estate properties acquisitions and improvement activities and those capitalized on an ongoing basis, the useful lives range of the assets are as follows:
Description | Depreciable Life | |
Building and building improvements | 20 – 30 years | |
Site improvements | 10 – 15 years | |
Furniture, fixtures and equipment | 5 – 10 years | |
Lease intangibles | Over lease term |
We evaluate our real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. If the carrying amount of the real estate investment is no longer recoverable and exceeds the fair value of such investment, an impairment loss is recognized. The impairment loss is recognized based on the excess of the carrying amount of the asset over its fair value. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value. During the six months ended June 30, 2021 and 2020, no such impairment occurred.
Real Estate Deposits
During the closing on an investment in rental real estate property or real estate held for improvement, we may place a cash deposit on the property being acquired or fund amounts into escrow. These deposits are placed before the closing process of the property is complete. If subsequent to placing the deposit, we acquire the property (the deed is transferred to us), the deposit placed will be credited to the purchase price. If subsequent to placing the deposit, we do not acquire the property (deed is not transferred to us), the deposit will be returned to us. The Company may pay a deposit for a property that is ultimately acquired by a related party fund. Upon acquisition of the property, the related party fund would reimburse the Company for the full amount of the deposit.
Deferred Leasing Costs
We capitalize direct and incremental costs associated with the successful negotiation of leases on a straight-line basis over the terms of the respective leases. Deferred leasing costs are classified in “Other assets” on the consolidated balance sheets. If an applicable lease terminates prior to the expiration of its initial lease term, we write off the carrying amount of the costs to amortization expense.
Share Redemptions
Share repurchases are recorded as a reduction of common share par value under our redemption plan, pursuant to which we may elect to redeem shares at the request of our members, subject to certain exceptions, conditions, and limitations. The maximum number of shares purchasable by us in any period depends on a number of factors and is at the discretion of our Manager.
The Company’s redemption plan provides that on a quarterly basis, subject to certain exceptions, a member could obtain liquidity as described in detail in our Offering Circular.
Pursuant to the Company’s redemption plan, a member may only (a) have one outstanding redemption request at any given time and (b) request that we redeem up to the lesser of 5,000 shares or $50,000 worth of shares per each redemption request. In addition, the redemption plan is subject to certain liquidity limitations, which may fluctuate depending on the liquidity of the real estate assets held by the Company. Redemptions are also subject to declining discounts on the redemption price over the course of the time the member has held the shares being redeemed.
In light of the SEC’s current guidance on redemption plans, we generally intend to limit redemptions in any calendar quarter to shares whose aggregate value (based on the repurchase price per share in effect as of the first day of the last month of such calendar quarter) is 1.25% of the NAV of all of our outstanding shares as of first day of the last month of such calendar quarter (e.g., March 1, June 1, September 1, or December 1), with excess capacity carried over to later calendar quarters in that calendar year. However, as we make a number of commercial real estate investments of varying terms and maturities, our Manager may elect to increase or decrease the amount of common shares available for redemption in any given quarter, as these commercial real estate assets are paid off or sold, but we do not intend to redeem more than 5.00% of the common shares outstanding during any calendar year. Notwithstanding the foregoing, we are not obligated to redeem common shares under the redemption plan.
F-9
In addition, our Manager may, in its sole discretion, amend, suspend, or terminate the redemption plan at any time without prior notice, including to protect our operations and our non-redeemed members, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason. However, in the event that we amend, suspend or terminate our redemption plan, we will file an offering circular supplement and/or Form 1-U, as appropriate, and post such information on our website to disclose such amendment. Our Manager may also, in its sole discretion, decline any particular redemption request if it believes such action is necessary to preserve our status as a REIT. Therefore, a member may not have the opportunity to make a redemption request prior to any potential termination of the Company’s redemption plan.
Due to the uncertainty caused by the new strain of coronavirus (COVID-19), our Manager had previously determined to suspend the processing and payment of redemptions under our redemption plan effective March 31, 2020. Effective as of June 30, 2020, our Manager resumed the processing and payment of redemptions under our redemption plan.
Income Taxes
As a limited liability company, we have elected to be taxed as a C corporation. Commencing with the taxable year ending December 31, 2020, the Company operates in a manner intended to qualify for treatment as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its members (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with U.S. GAAP). As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent it distributes qualifying dividends to its members. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. No material provisions have been made for federal income taxes in the accompanying consolidated financial statements for the six months ended June 30, 2021 and 2020. No gross deferred tax assets or liabilities have been recorded as of June 30, 2021 and December 31, 2020.
As of June 30, 2021 and December 31, 2020, we elected to treat certain wholly-owned subsidiaries as QRSs. The QRSs are corporations that are wholly-owned by the Company and are disregarded for both federal and state income tax purposes. A corporation that is a QRS shall not be treated as a separate corporation, and all assets, liabilities, and items of income, deduction, and credit of a QRS shall be treated as assets, liabilities and such items (as the case may be) of the REIT.
All tax periods since inception remain open to examination by the major taxing authorities in all jurisdictions where we are subject to taxation.
Revenue Recognition
Rental revenue is recognized on a straight-line basis over the term of the lease. We will periodically review the collectability of our tenant receivables and record an allowance for doubtful accounts for any estimated probable losses. Bad debt expense will be recorded within property operating and maintenance expenses in the consolidated financial statements.
As of June 30, 2021, all non-cancelable future rental revenue was related to multifamily properties with lease terms of one year or less. For the six months ended June 30, 2021 and 2020, no single tenant accounted for a significant amount of rental revenue.
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848), which eases the potential burden in accounting for reference rate reform on financial reporting. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has not adopted any of the optional expedients or exceptions as of June 30, 2021. We will continue evaluating the impact of the adoption of this standard on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which changes the accounting for leases for both lessors and lessees. The guidance requires lessees to recognize right-of-use assets and lease liabilities for virtually all of their leases, including leases embedded in other contractual arrangements, among other changes. In June 2020, the FASB voted to delay the fiscal year effective date of this standard by one year, and the interim period effective date by one year. The standard will now be effective for annual reporting periods beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. We are currently assessing the impact of this update on the presentation of our consolidated financial statements.
F-10
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 was originally effective for annual reporting periods, and interim periods within those years beginning after December 15, 2020. In November 2019, the FASB voted to delay the effective date of this standard by two years. The standard is now effective for annual reporting periods (including interim periods within those periods) beginning after December 15, 2022, with early adoption permitted. We are currently in the process of evaluating the impact of the adoption of this standard on our consolidated financial statements.
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, many lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in ASC 840, Leases, addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance did not contemplate an exceptionally high volume of concessions being so rapidly executed to address the sudden liquidity constraints of certain lessees caused by the COVID-19 pandemic. In April 2020, the FASB issued a question and answer document that allows lessors to elect not to evaluate whether lease-related relief provided to mitigate the economic effects of COVID-19 is a lease modification under ASC 840. This election would allow lessors to bypass a lease-by-lease analysis, and instead choose to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. Lessors making this election would continue to recognize property rental revenue on a straight-line basis. Rent abatements would be recognized as reductions to property rental revenue during the period for which they relate. Rent deferrals would not impact the recognition of property rental revenue, but would result in an increase to tenant receivables during the deferral period.
We did not grant any lease-related relief as a result of COVID-19 during the six months ended June 30, 2021. In the future, we may be in discussions with tenants to grant concessions and additional lease-related relief, such as the deferral of lease payments, for a period of time . We have elected to account for possible COVID-19 related concessions provided to our tenants as a deferred payment in which we will continue to recognize revenue on the existing straight-line basis over the remaining applicable lease term. Any changes in payment will be recognized through rent receivables, which is recorded in “Other Assets” in our consolidated balance sheets. Any identified uncollectible amounts related to the deferred payments will be recognized as an adjustment to rental revenue.
Extended Transition Period
Under Section 107 of the Jumpstart Our Business Startups Act of 2012, we are permitted to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. This permits us to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to companies that adopt accounting standard updates upon the public business entity effective dates.
3. | Investments in Equity Method Investees |
The table below presents the activity of the Company’s investments in equity method investees as of and for the periods presented (amounts in thousands):
Investments in Equity Method Investees: | For the Six Months Ended June 30, 2021 | For the Year Ended December 31, 2020 | ||||||
Beginning balance | $ | 17,061 | $ | - | ||||
New investments in equity method investees | - | 17,368 | ||||||
Distributions received | (475 | ) | - | |||||
Equity in earnings (losses) of equity method investees | (780 | ) | (307 | ) | ||||
Ending balance | $ | 15,806 | $ | 17,061 |
As of June 30, 2021 and December 31, 2020, the Company’s investments in companies that are accounted for under the equity method of accounting consist of the following:
(1) | Acquired in December 2020, a 95% non-controlling member interest in FR-PC Parkland JV LLC, whose activities are carried out through the following wholly-owned asset: Parkland at Orange Park, a garden-style multifamily complex in Orange Park, FL. |
(2) | Acquired in January 2020, the contributions to National Lending, LLC (“National Lending”) in exchange for ownership interests. See Note 8, Related Party Arrangements for further information regarding National Lending. |
F-11
As of and for the six months ended June 30, 2021, the condensed financial position and results of operations of the Company’s equity method investments are summarized below (amounts in thousands):
Condensed balance sheet information: | FR-PC Parkland JV LLC As of June 30, 2021 | National Lending, LLC As of June 30, 2021 | ||||||
Real estate assets, net | $ | 52,571 | $ | - | ||||
Other assets | 3,564 | 62,995 | ||||||
Total assets | $ | 56,135 | $ | 62,995 | ||||
Mortgage notes payable | $ | 41,572 | $ | - | ||||
Other liabilities | 513 | 3 | ||||||
Equity | 14,050 | 62,992 | ||||||
Total liabilities and equity | $ | 56,135 | $ | 62,995 | ||||
Company’s equity investment, net | $ | 13,432 | $ | 2,374 |
Condensed income statement information: | FR-PC Parkland JV LLC For the Six Months Ended June 30, 2021 | National Lending, LLC For the Six Months Ended June 30, 2021 | ||||||
Total revenue | $ | 2,456 | $ | 588 | ||||
Total expenses | 3,300 | 16 | ||||||
Net income (loss) | $ | (844 | ) | $ | 572 | |||
Company's equity in earnings (losses) of investee | $ | (802 | ) | $ | 22 |
As of December 31, 2020 and for the six months ending June 30, 2020, the condensed financial position and results of operations of the company’s equity basis investments are summarized below (amounts in thousands):
Condensed balance sheet information: | FR-PC Parkland JV LLC As of December 31, 2020 | National Lending, LLC As of December 31, 2020 | ||||||
Real estate assets, net | $ | 52,911 | $ | - | ||||
Other assets | 4,188 | 52,950 | ||||||
Total assets | $ | 57,099 | $ | 52,950 | ||||
Mortgage notes payable | $ | 41,572 | $ | - | ||||
Other liabilities | 133 | - | ||||||
Equity | 15,394 | 52,950 | ||||||
Total liabilities and equity | $ | 57,099 | $ | 52,950 | ||||
Company’s equity investment, net | $ | 14,709 | $ | 2,352 |
Condensed income statement information: | National Lending, LLC For the Six Months Ended June 30, 2020 | |||
Total revenue | $ | 311 | ||
Total expenses | 14 | |||
Net income (loss) | $ | 297 | ||
Company’s equity in net income (loss) of investee | $ | 3 |
F-12
4. | Investments in Rental Real Estate Properties and Real Estate Held for Improvement |
The following table presents the Company’s investments in rental real estate properties, net (amounts in thousands):
As of June 30, | As of December 31, | |||||||
Land | $ | 9,841 | $ | 2,254 | ||||
Building and building improvements | 14,690 | 7,212 | ||||||
Site improvements | 1,112 | 1,112 | ||||||
Furniture, fixtures and equipment | 93 | 93 | ||||||
Work in progress - Building | 31 | - | ||||||
Total gross investment in rental real estate properties | $ | 25,767 | $ | 10,671 | ||||
Less: Accumulated depreciation | (315 | ) | (63 | ) | ||||
Total investment in rental real estate properties, net | $ | 25,452 | $ | 10,608 |
As of June 30, 2021 and December 31, 2020, we had two and one rental real estate properties, respectively, which consists of the following:
1) | In September 2020, the Company directly acquired ownership of a wholly-owned subsidiary which purchased a multifamily property containing 52 units and totaling approximately 65,000 rentable square feet (the “L37 Property”) located in Nashville, TN, for approximately $10.8 million. |
2) | In February 2020, the Company directly acquired ownership of a wholly-owned subsidiary which purchased three office/industrial buildings totaling approximately 75,000 square feet on an approximately 1.74 acre lot (the “W59 Property”) located in Los Angeles, CA for approximately $15.0 million. On January 11, 2021, the Company decided to no longer pursue the original redevelopment plan for the W59 Controlled Subsidiary. As such, the asset was placed in-service on January 11, 2021, and we commenced recognizing revenue, expenses, and depreciation in accordance with our policy, as outlined in Note 2, Summary of Significant Accounting Policies – Investment in Rental Real Estate Properties and Real Estate Held for Improvement. The property was previously in Real Estate Held for Improvement on the consolidated balance sheets for the year ended December 31, 2020. |
As of June 30, 2021 and December 31, 2020, the carrying amount of our investment in rental real estate properties above included capitalized transaction costs of approximately $474,000 and $320,000, respectively, which includes acquisition fees paid to the Sponsor of approximately $360,000 and $210,000, respectively.
For the six months ended June 30, 2021 and 2020, the Company recognized approximately $253,000 and $0, respectively, of depreciation expense on our investments in rental real estate properties.
The following table presents the Company’s investments in real estate held for improvement (amounts in thousands):
As of June 30, | As of December 31, | |||||||
Land | $ | 4,642 | $ | 12,294 | ||||
Building | - | 7,502 | ||||||
Work in progress | 39 | 202 | ||||||
Incremental revenues, net of leasing commissions | - | (282 | ) | |||||
Total investment in real estate held for improvement | $ | 4,681 | $ | 19,716 |
As of June 30, 2021 and December 31, 2020, we had one and two investments in real estate held for improvement, respectively, which consist of the following:
1) | In September 2020, the Company directly acquired ownership of a wholly-owned subsidiary which purchased vacant, unimproved land totaling approximately 13 acres (the “Z20 Property”) located in Nashville, TN, for approximately $4.6 million. |
F-13
As of June 30, 2021 and December 31, 2020, our investment in real estate held for improvement included capitalized transaction costs of approximately $142,000 and $296,000, respectively, which includes acquisition fees paid to the Sponsor of approximately $90,000 and $240,000, respectively.
5. | Intangible Assets |
The Company’s intangible assets consist of in-place leases allocated from the purchase price of our September 2020 investment in rental real estate properties.
As of June 30, 2021 and December 31, 2020, in-place leases, net, totaled approximately $0 and $75,000, respectively. In-place lease assets are amortized over the life of the lease. For the six months ended June 30, 2021 and 2020, amortization of in-place lease assets was approximately $75,000 and $0, respectively, and is included in depreciation and amortization in the consolidated statements of operations.
In-place leases were fully amortized and there are no remaining intangible assets as of June 30, 2021.
6. | Distributions |
Distributions are calculated based on members of record each day during the distribution period.
The table below outlines the Company’s total distributions declared to members, the Sponsor and its affiliates for the six months ended June 30, 2021 and the year ended December 31, 2020 (all tabular amounts are in thousands except per share data):
Members | ||||||||||||||||||
Distributions for the Period: | Daily Distribution Per-Share Amount | Total Declared | Date of Declaration | Total Paid/Reinvested as of June 30, 2021 | Payment Date | |||||||||||||
February 1, 2021 through February 28, 2021 | 0.0002739726 | $ | 33 | 01/28/2021 | $ | 33 | 04/13/2021 | |||||||||||
March 1, 2021 through March 31, 2021 | 0.0001369863 | 19 | 02/25/2021 | 19 | 04/13/2021 | |||||||||||||
April 1, 2021 through April 30, 2021 | 0.0008219178 | 109 | 03/30/2021 | - | 07/13/2021 | |||||||||||||
May 1, 2021 through May 31, 2021 | 0.0005479452 | 75 | 04/29/2021 | - | 07/13/2021 | |||||||||||||
June 1, 2021 through June 30, 2021 | 0.0004109589 | 54 | 05/28/2021 | - | 07/13/2021 | |||||||||||||
July 1, 2021 through July 31, 2021 | 0.0001369863 | 18 | (2) | 06/29/2021 | - | 10/21/2021 | ||||||||||||
Total | $ | 308 | (1) | $ | 52 |
Members | ||||||||||||||||||
Distributions for the Period: | Daily Distribution Per-Share Amount | Total Declared | Date of Declaration | Total Paid/Reinvested as of December 31, 2020 | Payment Date | |||||||||||||
January 1, 2021 through January 31, 2021 | 0.0005479452 | $ | 80 | (3) | 12/29/2020 | $ | - | 04/13/2021 | ||||||||||
Total | $ | 80 | (1) | $ | - |
(1) | For the six months ended June 30, 2021 and the year ended December 31, 2020, total distributions declared to related parties totaled less than $1,000. |
(2) | The liability for the July 2021 distribution was estimated based on the daily distribution per-share amount multiplied by the number of members as of the date of the preparation of the June 30, 2021 consolidated financial statements, and is scheduled to be paid within three weeks after the end of September 2021. |
(3) | The liability for the January 2021 distribution was estimated based on the daily distribution per-share amount multiplied by the number of members as of the date of the preparation of the December 31, 2020 consolidated financial statements. This amount was subsequently determined to be approximately $79,000. |
F-14
7. | Fair Value of Financial Instruments |
We are required to disclose an estimate of fair value of our financial instruments for which it is practicable to estimate the value. The fair value of a financial instrument is the amount at which such financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation. For certain of our financial instruments, fair values are not readily available since there are no active trading markets as characterized by current exchanges by willing parties.
We determine the fair value of certain investments in accordance with the fair value hierarchy that requires an entity to maximize the use of observable inputs. The fair value hierarchy includes the following three levels based on the objectivity of the inputs, which were used for categorizing the assets or liabilities for which fair value is being measured and reported:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
As of June 30, 2021, the Company’s significant financial instruments consist of cash and cash equivalents and notes payable. The carrying amount of the Company’s financial instruments approximates their fair values due to their short-term nature.
8. | Related Party Arrangements |
Fundrise Advisors, LLC, Manager
The Manager and certain affiliates of the Manager will receive fees and compensation in connection with the Company’s Offering, and the acquisition, management and sale of the Company’s real estate investments.
The Manager is reimbursed for organizational and offering expenses incurred in conjunction with the Offering upon meeting the Hurdle Rate. See Note 2, Summary of Significant Accounting Policies – Organizational and Offering Costs for the amount of organizational and offering costs incurred and payable for the six months ended June 30, 2021 and 2020.
The Company will also reimburse the Manager for actual expenses incurred on behalf of the Company in connection with the selection, acquisition or origination of an investment, to the extent not reimbursed by the borrower, whether or not the Company ultimately acquires or originates the investment. The Company will reimburse the Manager for out-of-pocket expenses paid to third parties in connection with providing services to the Company. This does not include the Manager’s overhead, employee costs borne by the Manager, utilities or technology costs. Expense reimbursements payable to the Manager also may include expenses incurred by the Sponsor in the performance of services pursuant to a shared services agreement between the Manager and the Sponsor, including any increases in insurance attributable to the management or operation of the Company. For the six months ended June 30, 2021 and 2020, the Manager incurred approximately $13,000 and $11,000 of operational costs on our behalf, respectively. As of June 30, 2021 and December 31,2020, approximately $3,000 and $8,000 were due and payable, respectively.
The Company will pay the Manager a quarterly asset management fee of one-fourth of 0.85% of our NAV, which until September 30, 2020 was based on our net offering proceeds as of the end of each quarter, and thereafter has been and will continue to be based on our NAV at the end of each prior semiannual period. This rate is determined by our Manager in its sole discretion, but cannot exceed an annualized rate of 1.00%. The Manager agreed, for a period from inception until June 30, 2020 (the “Fee Waiver Period”), to waive its asset management fee. Following the conclusion of the Fee Waiver Period, the Manager may in its sole discretion continue to waive its asset management fee, in whole or in part. The Manager will forfeit any portion of the asset management fee that is waived. The Manager decided to further waive its asset management fees through September 30, 2020.
F-15
During the six months ended June 30, 2021 and 2020, we have incurred asset management fees of approximately $201,000 and $0, respectively. As of June 30, 2021 and December 31, 2020, approximately $98,000 and $102,000, respectively, of asset management fees were payable to the Manager.
The Company may be charged by the Manager a development management fee of 5.00% of total development costs, excluding property. However, such development fee is only intended to be charged if it is net of a fee being charged by the developer of the equity investment project or if there is no outside developer of the equity investment project. Our Manager may, in its sole discretion, waive its development management fee, in whole or in part. The Manager will forfeit any portion of the development management fee that is waived. For the six months ended June 30, 2021 and 2020, we have incurred development management fees of approximately $2,000 and $3,000, respectively. As of June 30, 2021 and December 31, 2020, approximately $1,000 and $2,000, respectively, of development management fees remained payable to the Manager.
The Company will also reimburse the Manager for actual expenses incurred on our behalf in connection with the special servicing of non-performing assets. The Manager will determine, in its sole discretion, whether an asset is non-performing. As of June 30, 2021 and December 31, 2020, the Manager has not designated any asset as non-performing and no special servicing fees are payable to the Manager. Accordingly, for the six months ended June 30, 2021 and 2020, no special servicing fees have been paid or incurred.
The Company will reimburse the Manager for actual expenses incurred on our behalf in connection with the liquidation of equity investments in real estate, and we will also pay the Manager an equity disposition fee of up to 1.50% of the gross proceeds from such sale if our Manager is acting as the real estate developer or is engaged by the developer to sell the project. As of June 30, 2021 and December 31, 2020, no disposition fees are payable to the Manager. Accordingly, for the six months ended June 30, 2021 and 2020, no disposition fees have been incurred or paid to the Manager.
Fundrise Lending, LLC
As an alternative means of acquiring loans or other investments for which we do not yet have sufficient funds, and in order to comply with certain state lending requirements, Fundrise Lending, LLC, a wholly-owned subsidiary of our Sponsor or its affiliates may close and fund a loan or other investment prior to it being acquired by us. This allows us the flexibility to deploy our offering proceeds as funds are raised. We then will acquire such investment at a price equal to the fair market value of the loan or other investment (including reimbursements for servicing fees and accrued interest, if any), so there is no mark-up (or mark-down) at the time of our acquisition. During the six months ended June 30, 2021 and the year ended December 31, 2020, the Company did not purchase any investments that were owned by Fundrise Lending, LLC.
For situations where our Sponsor, Manager, or their affiliates have a conflict of interest with us that is not otherwise covered by an existing policy we have adopted or a transaction is deemed to be a “principal transaction”, the Manager will appoint an independent representative (the “Independent Representative”) to protect the interests of the members and review and approve such transactions. Any compensation payable to the Independent Representative for serving in such capacity on our behalf will be payable by us. Principal transactions are defined as transactions between our Sponsor, Manager or their affiliates, on the one hand, and us or one of our subsidiaries, on the other hand. Our Manager is only authorized to execute principal transactions with the prior approval of the Independent Representative and in accordance with applicable law. Such prior approval may include but not be limited to pricing methodology for the acquisition of assets and/or liabilities for which there are no readily observable market prices. During the six months ended June 30, 2021 and 2020, fees of approximately $3,000 and $5,000, respectively, were paid to the Independent Representative as compensation for those services and included as general and administrative expense in the consolidated statements of operations.
Fundrise, L.P., Member
Fundrise, L.P. is a member of the Company and held 1,000 shares as of June 30, 2021 and December 31, 2020. One of our Sponsor’s wholly-owned subsidiaries is the general partner of Fundrise, L.P.
Rise Companies Corp, Member and Sponsor
Rise Companies Corp. is a member of the Company and held 500 common shares as of June 30, 2021 and December 31, 2020.
For the six months ended June 30, 2021 and 2020, the Sponsor incurred approximately $16,000 and $19,000, respectively, of operational costs on our behalf. Approximately $8,000 and $3,000 of such costs were due and payable as of June 30, 2021 and December 31, 2020, respectively.
The following table presents the Company’s acquisition fees related to investments in real estate properties paid to the Sponsor (amounts in thousands):
For the Six Months Ended June 30, 2021 | For the Six Months Ended June 30, 2020 | |||||||
Acquisition fees incurred and paid to the Sponsor | $ | - | $ | 150 | ||||
Total | $ | - | $ | 150 |
F-16
Investment in National Lending, LLC
In July 2019, our Manager formed a self-sustaining lending entity, National Lending, which is financed by each of the eREITs affiliated with our Sponsor. National Lending is managed by an independent manager (the “Independent Manager”) through a management agreement at a market rate that is customary for the industry. Each eREIT contributes an amount to National Lending in exchange for ownership interests, originally not to exceed 3.00% of its assets under management to National Lending. On March 23, 2020, the Company entered into an Amended and Restated Operating Agreement with National Lending, which increased the maximum contribution for partnership interest from 3.00% to approximately 5.00% of a partner’s assets under management. Accordingly, the Company has a continuous funding commitment to maintain a total contribution amount of up to 5.00% of its assets under management to National Lending. As of June 30, 2021 and December 31, 2020, the Company has contributed approximately $2.3 million for a 3.79% and 4.48% ownership in National Lending, respectively.
National Lending may provide short-term bridge financing through promissory notes to any of the eREITs who have contributed to it in order to maintain greater liquidity and better finance such eREIT’s individual real estate investment strategies. The promissory notes bear a market rate of interest and are generally repaid via the capital raised by each of the borrowing eREITs’ Offerings. All transactions between National Lending and the borrowing eREITs are reviewed by the Independent Manager.
During the year ended December 31, 2020, the Company entered into one promissory note with National Lending. The note was issued on December 9, 2020 in the principal amount of $6.0 million. The promissory note bears a 3.5% interest rate and matures one year from the date of issuance. During the six months ended June 30, 2021, the Company did not enter into any additional promissory notes with National Lending. For the six months ended June 30, 2021 and 2020, the Company incurred approximately $105,000 and $0, respectively, in interest expense on notes with National Lending. As of June 30, 2021 and December 31, 2020, the Company had outstanding interest payable of approximately $118,000 and $13,000, respectively, on this note.
9. | Economic Dependency |
Under various agreements, the Company has engaged or will engage our Manager and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of the Company’s common shares available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon our Manager and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.
10. | Commitments and Contingencies |
Reimbursable Organizational and Offering Costs
The Company has a contingent liability related to potential future reimbursements to the Manager for organizational and offering costs that were paid by the Manager on the Company’s behalf. As of June 30, 2021 and December 31, 2020, approximately $3,000 and $107,000, respectively, of organizational and offering costs incurred by the Manager may be subject to reimbursement by the Company in future periods, based on achieving specific performance hurdles as described in Note 2, Summary of Significant Accounting Policies – Organizational and Offering Costs.
Legal Proceedings
As of the date of the consolidated financial statements, we are not currently named as a defendant in any active or pending litigation. However, it is possible that the company could become involved in various litigation matters arising in the ordinary course of our business. Although we are unable to predict with certainty the eventual outcome of any litigation, management is not aware of any litigation likely to occur that we currently assess as being significant to us.
F-17
11. | Subsequent Events |
In connection with the preparation of the accompanying consolidated financial statements, we have evaluated events and transactions occurring through September 17, 2021 for potential recognition or disclosure. The Company is not aware of any subsequent event which would require recognition or disclosure.
F-18
Item 4. | Exhibits |
INDEX OF EXHIBITS
** | Filed previously |
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this Semiannual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Washington, DC on September 17, 2021.
Fundrise Growth eREIT VI, LLC | ||
By: | Fundrise Advisors, LLC, a Delaware limited liability company, its Manager |
By: | /s/ Benjamin S. Miller | ||
Name: | Benjamin S. Miller | ||
Title: | Chief Executive Officer |
Pursuant to the requirements of Regulation A, this Semiannual Report has been signed below by the following persons on behalf of the issuer in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Benjamin S. Miller | Chief Executive Officer of | September 17, 2021 | ||
Benjamin S. Miller | Fundrise Advisors, LLC | |||
(Principal Executive Officer) | ||||
/s/ Alison A. Staloch | Chief Financial Officer of | September 17, 2021 | ||
Alison A. Staloch | Fundrise Advisors, LLC | |||
(Principal Financial Officer and Principal Accounting Officer) |
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