10-Q 1 jllipt-20180630x10q.htm 10-Q Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
_________________________________
FORM 10-Q
_________________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to                     
Commission file number: 000-51948
_________________________________
logojllipta10.jpg
Jones Lang LaSalle Income Property Trust, Inc.
(Exact name of registrant as specified in its charter)
_________________________________
Maryland
 
20-1432284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
333 West Wacker Drive, Chicago IL, 60606
(Address of principal executive offices, including Zip Code)
(312) 897-4000
(Registrant’s telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
_________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES      NO  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    YES      NO  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
Large accelerated filer
 
  
Accelerated filer
 
Non-accelerated filer
 
  
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO
The number of shares of the registrant’s Common Stock, $.01 par value, outstanding on August 10, 2018 were 70,211,595 shares of Class A Common Stock, 39,222,167 shares of Class M Common Stock, 11,015,183 of Class A-I Common Stock, 8,011,529 of Class M-I Common Stock and 7,108,702 shares of Class D Common Stock.






Jones Lang LaSalle Income Property Trust, Inc.
INDEX

 
PAGE
NUMBER
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


Item 1. Financial Statements.
Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED BALANCE SHEETS
$ in thousands, except per share amounts
 
 
June 30, 2018
 
December 31, 2017
 
 
(Unaudited)
 
 
ASSETS
 
 
 
 
Investments in real estate:
 
 
 
 
Land (including from VIEs of $25,441 and $28,847, respectively)
 
$
395,741

 
$
388,849

Buildings and equipment (including from VIEs of $156,010 and $178,452, respectively)
 
1,517,764

 
1,465,448

Less accumulated depreciation (including from VIEs of $(25,332) and $(23,379), respectively)
 
(131,061
)
 
(112,132
)
Net property and equipment
 
1,782,444

 
1,742,165

Investment in unconsolidated real estate affiliates
 
130,485

 
132,639

Real estate fund investment
 
93,451

 
93,670

Investments in real estate and other assets held for sale
 

 
45,116

Net investments in real estate
 
2,006,380

 
2,013,590

Cash and cash equivalents (including from VIEs of $5,525 and $5,835, respectively)
 
37,320

 
39,700

Restricted cash (including from VIEs of $597 and $465, respectively)
 
3,596

 
2,536

Tenant accounts receivable, net (including from VIEs of $1,411 and $1,416, respectively)
 
3,976

 
4,955

Deferred expenses, net (including from VIEs of $347 and $316, respectively)
 
9,358

 
9,723

Acquired intangible assets, net (including from VIEs of $6,244 and $11,249, respectively)
 
95,671

 
103,226

Deferred rent receivable, net (including from VIEs of $1,081 and $1,065, respectively)
 
18,240

 
16,874

Prepaid expenses and other assets (including from VIEs of $175 and $125, respectively)
 
10,017

 
6,503

TOTAL ASSETS
 
$
2,184,558

 
$
2,197,107

LIABILITIES AND EQUITY
 
 
 
 
Mortgage notes and other debt payable, net (including from VIEs of $99,816 and $99,988, respectively)
 
$
857,515

 
$
879,022

Liabilities held for sale
 

 
407

Accounts payable and other accrued expenses (including from VIEs of $2,105 and $1,839, respectively)
 
13,880

 
18,473

Accrued offering costs
 
74,207

 
76,583

Distributions payable
 
15,478

 
14,232

Accrued interest (including from VIEs of $367 and $361, respectively)
 
1,895

 
2,360

Accrued real estate taxes (including from VIEs of $1,673 and $1,666, respectively)
 
6,871

 
5,195

Advisor fees payable
 
1,644

 
2,929

Acquired intangible liabilities, net
 
18,042

 
19,649

TOTAL LIABILITIES
 
989,532

 
1,018,850

Commitments and contingencies
 

 

Equity:
 
 
 
 
Class A common stock: $0.01 par value; 200,000,000 shares authorized; 69,592,226 and 69,482,276 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
696

 
695

Class M common stock: $0.01 par value; 200,000,000 shares authorized; 38,833,664 and 37,913,989 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
388

 
379

Class A-I common stock: $0.01 par value; 200,000,000 shares authorized; 10,905,933 and 10,957,660 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
109

 
110

Class M-I common stock: $0.01 par value; 200,000,000 shares authorized; 7,821,245 and 7,421,466 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
78

 
74

Class D common stock: $0.01 par value; 200,000,000 shares authorized; 7,531,714 and 7,531,714 shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively
 
75

 
75

Additional paid-in capital (net of offering costs of $138,538 and $133,753 as of June 30, 2018 and December 31, 2017, respectively)
 
1,533,763

 
1,522,123

Distributions to stockholders
 
(287,278
)
 
(256,811
)
Accumulated deficit
 
(60,467
)
 
(96,217
)
Total Jones Lang LaSalle Income Property Trust, Inc. stockholders’ equity
 
1,187,364

 
1,170,428

Noncontrolling interests
 
7,662

 
7,829

Total equity
 
1,195,026

 
1,178,257

TOTAL LIABILITIES AND EQUITY
 
$
2,184,558

 
$
2,197,107

The abbreviation “VIEs” above means consolidated Variable Interest Entities.
See notes to consolidated financial statements.

3


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
$ in thousands, except share and per share amounts
(Unaudited)
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
Revenues:
 
 
 
 
 
 
 
Minimum rents
$
34,014

 
$
32,113

 
$
68,037

 
$
63,809

Tenant recoveries and other rental income
8,213

 
8,314

 
16,272

 
16,314

Total revenues
42,227

 
40,427

 
84,309

 
80,123

Operating expenses:
 
 
 
 
 
 
 
Real estate taxes
6,162

 
6,108

 
12,640

 
12,182

Property operating expenses
7,273

 
6,860

 
14,413

 
13,424

Provision for doubtful accounts
72

 
31

 
114

 
49

Property general and administrative
246

 
275

 
636

 
556

Advisor fees
4,950

 
4,822

 
9,772

 
9,541

Company level expenses
789

 
478

 
1,512

 
1,239

Depreciation and amortization
15,041

 
14,091

 
29,888

 
28,115

Total operating expenses
34,533

 
32,665

 
68,975

 
65,106

Operating income
7,694

 
7,762

 
15,334

 
15,017

Other income and (expenses):
 
 
 
 
 
 
 
Interest expense
(7,326
)
 
(7,029
)
 
(13,055
)
 
(13,645
)
Income from unconsolidated real estate affiliates and fund investments
2,790

 
3,169

 
3,905

 
1,908

Gain on disposition of property

 

 
29,665

 

Total other income and (expenses)
(4,536
)
 
(3,860
)
 
20,515

 
(11,737
)
Net income
3,158

 
3,902

 
35,849

 
3,280

Less: Net income attributable to the noncontrolling interests
(52
)
 
(104
)
 
(99
)
 
(224
)
Net income attributable to Jones Lang LaSalle Income Property Trust, Inc.
$
3,106

 
$
3,798

 
$
35,750

 
$
3,056

Net income attributable to Jones Lang LaSalle Income Property Trust, Inc. per share-basic and diluted:


 


 


 


Class A
0.02

 
0.03

 
0.27

 
0.02

Class M
0.02

 
0.03

 
0.27

 
0.02

Class A-I
0.02

 
0.03

 
0.27

 
0.02

Class M-I
0.02

 
0.03

 
0.27

 
0.02

Class D
0.02

 
0.03

 
0.27

 
0.02

Weighted average common stock outstanding-basic and diluted
134,233,903

 
135,789,443

 
133,735,396

 
135,575,735

Other comprehensive loss:
 
 
 
 
 
 
 
Foreign currency translation adjustment

 
(8
)
 

 
(12
)
Total other comprehensive loss

 
(8
)
 

 
(12
)
Net comprehensive income
$
3,106

 
$
3,790

 
$
35,750

 
$
3,044


See notes to consolidated financial statements.

4


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENT OF EQUITY
$ in thousands, except share and per share amounts
(Unaudited)
 
Common Stock
 
Additional
Paid In
Capital
 
Distributions
to 
Stockholders
 
Accumulated
Deficit
 
Noncontrolling
Interests
 
Total
Equity
Shares
 
Amount
Balance, January 1, 2018
133,307,105

 
$
1,333

 
$
1,522,123

 
$
(256,811
)
 
$
(96,217
)
 
$
7,829

 
$
1,178,257

Issuance of common stock
4,587,394

 
45

 
54,136

 

 

 

 
54,181

Repurchase of shares
(3,209,717
)
 
(32
)
 
(37,710
)
 

 

 

 
(37,742
)
Offering costs

 

 
(4,786
)
 

 

 

 
(4,786
)
Net income

 

 

 

 
35,750

 
99

 
35,849

Cash distributed to noncontrolling interests

 

 

 

 

 
(266
)
 
(266
)
Distributions declared per share ($0.26)

 

 

 
(30,467
)
 

 

 
(30,467
)
Balance, June 30, 2018
134,684,782

 
$
1,346

 
$
1,533,763

 
$
(287,278
)
 
$
(60,467
)
 
$
7,662

 
$
1,195,026

See notes to consolidated financial statements.

5


Jones Lang LaSalle Income Property Trust, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
$ in thousands (Unaudited)

 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$
35,849

 
$
3,280

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,309

 
27,630

Gain on disposition of property
(29,665
)
 

Provision for doubtful accounts
114

 
49

Straight line rent
(1,411
)
 
(1,535
)
Income from unconsolidated real estate affiliates and fund investments
(3,905
)
 
(1,908
)
Distributions from unconsolidated real estate affiliates and fund investments
2,797

 
6,940

Net changes in assets, liabilities and other
(2,726
)
 
3,810

Net cash provided by operating activities
30,362

 
38,266

CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchase of real estate investments
(57,458
)
 
(1,029
)
Proceeds from sale of real estate investments and fixed assets
74,478

 

Capital improvements and lease commissions
(9,822
)
 
(6,514
)
Investment in unconsolidated real estate affiliates

 
(90
)
Deposits for investments under contract

 
(3,000
)
Deposits refunded for investments under contract

 
50

Distributions from unconsolidated real estate affiliates
3,482

 

Net cash provided by (used in) investing activities
10,680

 
(10,583
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Issuance of common stock
34,843

 
26,655

Repurchase of shares
(37,774
)
 
(45,122
)
Offering costs
(7,161
)
 
(8,437
)
Distributions to stockholders
(10,076
)
 
(9,251
)
Distributions paid to noncontrolling interests
(266
)
 
(1,373
)
Contributions received from noncontrolling interests

 
1,162

Deposits for loan commitments
(50
)
 

Draws on credit facility

 
125,000

Payment on credit facility
(65,000
)
 
(35,000
)
Proceeds from mortgage notes and other debt payable
45,000

 

Debt issuance costs
(283
)
 
(1,666
)
Principal payments on mortgage notes and other debt payable
(1,791
)
 
(71,074
)
Net cash used in financing activities
(42,558
)
 
(19,106
)
Net (decrease) increase in cash, cash equivalents and restricted cash
(1,516
)
 
8,577

Effect of exchange rates

 
11

Cash, cash equivalents and restricted cash at the beginning of the period
42,432

 
47,749

Cash, cash equivalents and restricted cash at the end of the period
$
40,916

 
$
56,337

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash shown per Consolidated Balance Sheets to cash, cash equivalents and restricted per Consolidated Statements of Cash Flows
 
 
 
Cash and cash equivalents
$
37,320

 
$
54,687

Restricted cash
3,596

 
1,223

Restricted cash included in assets held for sale

 
427

Cash, cash equivalents and restricted cash at the end of the period
$
40,916

 
$
56,337

 
 
 
 
Supplemental disclosure of cash flow information:
 
 
 
Interest paid
$
16,415

 
$
12,989

Non-cash activities:
 
 
 
Write-offs of receivables
$
5

 
$
40

Write-offs of retired assets and liabilities
2,239

 
8,400

Change in liability for capital expenditures
5,074

 
209

Net liabilities transferred at sale of real estate investment
659

 

Net liabilities assumed at acquisition
511

 

Change in issuance of common stock receivable and redemption of common stock payable
159

 
229

Change in accrued offering costs
(2,376
)
 
(6,301
)
See notes to consolidated financial statements.

6


Jones Lang LaSalle Income Property Trust, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$ in thousands, except per share amounts
NOTE 1—ORGANIZATION
General
Except where the context suggests otherwise, the terms “we,” “us,” “our” and the “Company” refer to Jones Lang LaSalle Income Property Trust, Inc. The terms “Advisor” and “LaSalle” refer to LaSalle Investment Management, Inc.
Jones Lang LaSalle Income Property Trust, Inc. is an externally advised, daily valued perpetual-life real estate investment trust ("REIT") that owns and manages a diversified portfolio of apartment, industrial, office, retail and other properties located in the United States. Over time our real estate portfolio may be further diversified on a global basis through the acquisition of properties outside of the United States and may be complemented by investments in real estate-related debt and equity securities. We were incorporated on May 28, 2004 under the laws of the State of Maryland. We believe that we have operated in such a manner to qualify to be taxed as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2004, when we first elected REIT status. As of June 30, 2018, we owned interests in a total of 69 properties, located in 19 states.
On April 1, 2018, we converted to an “UPREIT” structure by contributing substantially all of our assets to JLLIPT Holdings LP, a Delaware limited partnership (our “operating partnership”), of which we are the initial limited partner and JLLIPT Holdings GP, LLC (our wholly owned subsidiary) is the sole general partner. We refer to this re-structuring as the “contribution.” An “Umbrella Partnership Real Estate Investment Trust,” which we refer to as an “UPREIT,” is a REIT that holds all or substantially all of its assets through a partnership in which a REIT holds an interest. We converted to this structure to facilitate tax-free contributions of properties to our operating partnership in exchange for limited partnership interests in our operating partnership. A transfer of property directly to a REIT in exchange for shares of common stock of a REIT is generally a taxable transaction to the transferring property owner. In an UPREIT structure, a property owner who desires to defer taxable gain on the disposition of his property may transfer the property to our operating partnership in exchange for limited partnership interests in the operating partnership and defer taxation of gain until the limited partnership interests are disposed of in a taxable transaction.
On January 16, 2015, our follow-on Registration Statement on Form S-11 was declared effective by the Securities and Exchange Commission (the "SEC") (Commission File No. 333-196886) with respect to our continuous public offering of up to $2,700,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,400,000 of shares offered in our primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan (the “First Extended Public Offering”). We reserve the right to terminate the First Extended Public Offering at any time and to extend the First Extended Public Offering term to the extent permissible under applicable law. As of June 30, 2018, we have raised aggregate gross proceeds from the sale of shares of our Class A, Class M, Class A-I and Class M-I common stock in our First Extended Public Offering of $1,136,451.
On January 12, 2018, we filed a Registration Statement on Form S-11 with the SEC (Commission File No. 333-222533) to register a public offering of up to $3,000,000 in any combination of shares of our Class A, Class M, Class A-I and Class M-I common stock, consisting of up to $2,700,000 of shares offered in our primary offering and up to $300,000 in shares offered pursuant to our distribution reinvestment plan (the “Second Extended Public Offering”). On July 6, 2018, the SEC declared the Second Extended Public Offering effective and the First Extended Public Offering automatically terminated. We reserve the right to terminate the Second Extended Public Offering at any time and to extend the Second Extended Public Offering term to the extent permissible under applicable law.
On March 3, 2015, we commenced a private offering (the "Private Offering") of up to $350,000 in shares of our Class D common stock with an indefinite duration. As of June 30, 2018, we have raised aggregate gross proceeds from the sale of our Class D shares in our Private Offering of $68,591.
As of June 30, 2018, 69,592,226 shares of Class A common stock, 38,833,664 shares of Class M common stock, 10,905,933 shares of Class A-I common stock, 7,821,245 shares of Class M-I common stock, and 7,531,714 shares of Class D common stock were outstanding and held by a total of 12,810 stockholders.




7



LaSalle acts as our advisor pursuant to the second amended and restated advisory agreement between us and LaSalle (the “Advisory Agreement”). On May 8, 2018, we renewed our Advisory Agreement with our Advisor for a one-year term expiring on June 5, 2019. Our Advisor, a registered investment advisor with the SEC, has broad discretion with respect to our investment decisions and is responsible for selecting our investments and for managing our investment portfolio pursuant to the terms of the Advisory Agreement. Our executive officers are employees of and compensated by our Advisor. We have no employees, as all operations are managed by our Advisor.
LaSalle is a wholly-owned, but operationally independent subsidiary of our sponsor, Jones Lang LaSalle Incorporated ("JLL" or our "Sponsor"), a New York Stock Exchange-listed professional services firm that specializes in real estate and investment management. Affiliates of our sponsor invested an aggregate of $50,200 (with a current value of $61,095) through purchases of shares of our common stock.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and include the accounts of our wholly owned subsidiaries, consolidated variable interest entities ("VIE") and the unconsolidated investment in real estate affiliate accounted for under the equity method of accounting. We consider the authoritative guidance of accounting for investments in common stock, investments in real estate ventures, investors accounting for an investee when the investor has the majority of the voting interest but the minority partners have certain approval or veto rights, determining whether a general partner or general partners as a group controls a limited partnership or similar entity when the limited partners have certain rights and the consolidation of VIEs in which we own less than a 100% interest. All significant intercompany balances and transactions have been eliminated in consolidation.

Parenthetical disclosures are shown on our Consolidated Balance Sheets regarding the amounts of VIE assets and liabilities that are consolidated. As of June 30, 2018, our VIEs include The District at Howell Mill, The Edge at Lafayette, Grand Lakes Marketplace and Townlake of Coppell due to the limited partnership structures and our partners having limited participation rights and no kick-out rights. The creditors of our VIEs do not have general recourse to us.
Noncontrolling interests represent the minority members’ proportionate share of the equity in our VIEs. At acquisition, the assets, liabilities and noncontrolling interests were measured and recorded at the estimated fair value. Noncontrolling interests will increase for the minority members’ share of net income of these entities and contributions and decrease for the minority members’ share of net loss and distributions. As of June 30, 2018, noncontrolling interests represented the minority members’ proportionate share of the equity of the entities listed above as VIEs.
Certain of our joint venture agreements include provisions whereby, at certain specified times, each party has the right to initiate a purchase or sale of its interest in the joint ventures at an agreed upon fair value. Under these provisions, we are not obligated to purchase the interest of our outside joint venture partners.
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with the accounting policies described in the consolidated financial statements and related notes included in our Form 10-K filed with the SEC on March 8, 2018 (our “2017 Form 10-K”) and should be read in conjunction with such consolidated financial statements and related notes. The following notes to these interim consolidated financial statements highlight changes to the notes included in the December 31, 2017 audited consolidated financial statements included in our 2017 Form 10-K and present interim disclosures as required by the SEC.
The interim financial data as of June 30, 2018 and for the three and six months ended June 30, 2018 and 2017 is unaudited. In our opinion, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.
Allowance for Doubtful Accounts
An allowance for doubtful accounts is provided against the portion of accounts receivable and deferred rent receivable that is estimated to be uncollectible. Such allowance is reviewed periodically based upon our recovery experience. At June 30, 2018 and December 31, 2017, our allowance for doubtful accounts was $404 and $296, respectively.



8


Restricted Cash
Restricted cash includes amounts established pursuant to various agreements for loan escrow accounts, loan commitments and property sale proceeds. When we sell a property, we can elect to enter into a like-kind exchange pursuant to the applicable Internal Revenue Service guidance whereby the proceeds from the sale are placed in escrow with a qualified intermediary until a replacement property can be purchased. At June 30, 2018, our restricted cash balance on our Consolidated Balance Sheet was primarily related to loan escrow amounts.
Deferred Expenses
Deferred expenses consist of lease commissions. Lease commissions are capitalized and amortized over the term of the related lease as a component of depreciation and amortization expense. Accumulated amortization of deferred expenses at June 30, 2018 and December 31, 2017 was $4,568 and $3,816, respectively.
Acquisitions
We have allocated a portion of the purchase price of our acquisitions to acquired intangible assets, which include acquired in-place lease intangibles, acquired above-market in-place lease intangibles and acquired ground lease intangibles, which are reported net of accumulated amortization of $54,775 and $47,130 at June 30, 2018 and December 31, 2017, respectively, on the accompanying Consolidated Balance Sheets. The acquired intangible liabilities represent acquired below-market in-place leases, which are reported net of accumulated amortization of $9,128 and $8,300 at June 30, 2018 and December 31, 2017, respectively, on the accompanying Consolidated Balance Sheets.
Assets and Liabilities Measured at Fair Value
The Financial Accounting Standards Board’s (“FASB”) guidance for fair value measurement and disclosure states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering assumptions, authoritative guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1—Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that we have access to at the measurement date.
Level 2—Observable inputs, other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs are those in markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
Level 3—Unobservable inputs for the asset or liability. Unobservable inputs are those inputs that reflect our own assumptions that market participants would use to price the asset or liability based on the best available information.
The authoritative guidance requires the disclosure of the fair value of our financial instruments for which it is practicable to estimate that value. The guidance does not apply to all balance sheet items. Market information as available or present value techniques have been utilized to estimate the amounts required to be disclosed. Since such amounts are estimates, there can be no assurance that the disclosed value of any financial instrument could be realized by immediate settlement of the instrument.
Our real estate fund investment is accounted for under the fair value option and falls within Level 3 of the hierarchy. The fair value is recorded based upon changes in the net asset value of the limited partnership as determined from the financial statements of the real estate fund. During the three and six months ended June 30, 2018, we recorded increases in fair value classified within the Level 3 category of $2,370 and $3,263, respectively, in our investment in the NYC Retail Portfolio (see Note 4-Unconsolidated Real Estate Affiliates and Fund Investments). During the three and six months ended June 30, 2017, we recorded an increase in fair value of $1,414 and a decrease in fair value of $703, respectively.
We have estimated the fair value of our mortgage notes and other debt payable reflected on the Consolidated Balance Sheets at amounts that are based upon an interpretation of available market information and valuation methodologies (including discounted cash flow analysis with regard to fixed rate debt) for similar loans made to borrowers with similar credit ratings and for the same maturities. The fair value of our mortgage notes and other debt payable using Level 2 inputs was $9,247 lower and $4,051 higher than the aggregate carrying amounts at June 30, 2018 and December 31, 2017, respectively. Such fair value estimates are not necessarily indicative of the amounts that would be realized upon disposition of our mortgage notes payable.

9


Derivative Financial Instruments
We record all derivatives on the Consolidated Balance Sheets at fair value in prepaid expenses and other assets or accounts payable and other accrued expenses. Changes in the fair value of our derivatives are recorded as a component of interest expense on our Consolidated Statements of Operations and Comprehensive Income as we have not designated our derivative instruments as hedges. Our objective in using interest rate derivatives is to manage our exposure to interest rate movements. To accomplish this objective, we use interest rate caps and swaps.
As of June 30, 2018, we had the following outstanding interest rate derivatives related to managing our interest rate risk:
Interest Rate Derivative
 
Number of Instruments
 
Notional Amount
Interest Rate Caps
 
1
 
$
17,680

Interest Rate Swaps
 
6
 
171,400

The fair value of our interest rate caps and swaps represent assets of $6,758 and $3,366 at June 30, 2018 and December 31, 2017, respectively.
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires us to make estimates and assumptions. These estimates and assumptions impact the reported amounts of assets and liabilities and the disclosure 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. For example, significant estimates and assumptions have been made with respect to useful lives of assets, recoverable amounts of receivables, fair value of derivatives and real estate assets, initial valuations and related amortization periods of deferred costs and intangibles, particularly with respect to property acquisitions. Actual results could differ from those estimates.
Recently Adopted Accounting Pronouncements
Effective January 1, 2018, we adopted Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606), which uses a five step model to recognize revenue from customer contracts in an effort to increase consistency and comparability throughout global capital markets and across industries. The model requires identification of the contract, identification of any separate performance obligations in the contract, determination and allocation of the total transaction price, and recognition of revenue as the performance obligation is satisfied. The new standard replaced most existing revenue guidance within U.S. GAAP. Our arrangements with customers are principally determined to be leases (which are outside the scope of this new revenue guidance). We do account for certain point-of-sale transactions including daily parking (recorded in tenant recoveries and other rental income in our Consolidated Statement of Operations and Comprehensive Income) in accordance with the new revenue standard. The pattern and timing of revenue recognition for these point of sale transactions is consistent with our prior accounting model. We adopted the standard using the cumulative effect transition method however the adoption did not result in a cumulative-effect adjustment.

Effective January 1, 2018, we adopted Accounting Standard Update 2017-05, Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets, on a modified retrospective basis. This new pronouncement, which added guidance for partial sales of nonfinancial assets and clarified the scope of Subtopic 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets, applies to the derecognition of all nonfinancial assets (including sale of real estate transactions) for which the counterparty is not a customer. The sale of real estate is reported in gain on disposition of property on our Consolidated Statements of Operations and Comprehensive Income. The adoption of this pronouncement did not have a material effect on our financial statements and did not result in a cumulative-effect adjustment.
Effective January 1, 2018, we adopted Accounting Standard Update 2016-15, Statement of Cash Flows (Topic 230). The new guidance was intended to reduce the existing diversity in practice of how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The core principle of the standard required the classification of eight specific issues identified under ASC 230 to be presented as either financing, investing or operating, or some combination thereof, depending upon the nature of the issue. The adoption of this pronouncement did not have a material effect on our financial statements and related disclosures.
Effective January 1, 2018, we adopted Accounting Standard Update 2016-18, Statement of Cash Flows (Topic 230) – Restricted Cash. The new guidance required that restricted cash be included as a component of total cash and cash equivalents as presented on the statement of cash flows. The standard resulted in an increase in net cash used in investing activities from ($10,266) to ($10,583) for the six months ended June 30, 2017.

10


NOTE 3—PROPERTY
The primary reason we make acquisitions of real estate investments in the apartment, industrial, office, retail and other property sectors is to invest capital contributed by stockholders in a diversified portfolio of real estate assets. All references to square footage and units are unaudited.
Acquisition
On June 6, 2018, we acquired, through a 1031 exchange, the Villas at Legacy, a garden-style 328-unit apartment community located in Plano, Texas, for approximately $57,800. The acquisition was funded with cash on hand.
We allocated the purchase price for our 2018 acquisition in accordance with authoritative guidance as follows:
 
2018 Acquisition
Land
$
6,888

Building and equipment
48,504

In-place lease intangible (acquired intangible assets)
2,577

 
$
57,969

Amortization period for intangible assets and liabilities
6 months


NOTE 4—UNCONSOLIDATED REAL ESTATE AFFILIATES AND FUND INVESTMENTS
Unconsolidated Real Estate Affiliates
Chicago Parking Garage
Chicago Parking Garage is a 366 stall, multi-level parking facility located in a large mixed-use property in Chicago, Illinois owned as a condominium interest. In accordance with authoritative guidance, Chicago Parking Garage is accounted for as an investment in an unconsolidated real estate affiliate. At June 30, 2018 and December 31, 2017, the carrying amount of our investment in Chicago Parking Garage was $17,165 and $17,046, respectively.
Pioneer Tower
On June 28, 2016, we acquired Pioneer Tower, a 17 story, 296,000 square foot multi-tenant office property in Portland, Oregon for approximately $121,750 using cash on hand. Pioneer Tower sits atop a retail property owned by an independent third party. The land under the property is owned as a condominium interest with the owner of the retail property. In accordance with authoritative guidance, Pioneer Tower is accounted for as an investment in an unconsolidated real estate affiliate. At June 30, 2018 and December 31, 2017, the carrying amount of our investment in Pioneer Tower was $113,320 and $115,593, respectively.
Summarized Combined Statements of Operations—Unconsolidated Real Estate Affiliates—Equity Method Investments
 
 
Three Months Ended June 30, 2018

Three Months Ended June 30, 2017

Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
Total revenues
 
$
3,175

 
$
2,977

 
$
6,188

 
$
5,963

Total operating expenses
 
2,754

 
2,644

 
5,545

 
5,372

Net income
 
$
421

 
$
333

 
$
643

 
$
591








11


Real Estate Fund Investment
NYC Retail Portfolio
On December 8, 2015, a wholly-owned subsidiary of the Company acquired an approximate 28% interest in a newly formed limited partnership, Madison NYC Core Retail Partners, L.P., which acquired an approximate 49% interest in entities that initially owned 15 retail properties located in the greater New York City area (the “NYC Retail Portfolio”), the result of which is that we own an approximate 14% interest in the NYC Retail Portfolio. The purchase price for such portion was approximately $85,600 including closing costs. In December 2017, the 51% owner of the NYC Retail Portfolio entered into an agreement to sell its interest to a group of investors including some existing investors in the NYC Retail Portfolio along with some new investors.  The transaction will take place over a period not to exceed two years and will be structured in the form of a series of like-kind exchanges funded by the new investor group. We chose not to increase our investment in the NYC Retail Portfolio. As of June 30, 2018, the NYC Retail Portfolio owned 13 retail properties totaling approximately 2,451,000 square feet across urban infill locations in Manhattan, Brooklyn, Queens, the Bronx, Staten Island and New Jersey. The venture acquired six properties during the second quarter of 2018 that will be distributed to the 51% owner in exchange for its partnership interests in ten of the NYC Retail Portfolio properties.
At acquisition we made the election to account for our interest in the NYC Retail Portfolio under the fair value option. This fair value election was made as the investment is in the form of a commingled fund with institutional partners where fair value accounting provides the most relevant information about the financial condition of the investment. We record increases and decreases in our investment each reporting period based on the change in the fair value of the investment as estimated by the general partner. Critical inputs to NAV estimates include valuations of the underlying real estate assets which incorporate investment-specific assumptions such as discount rates, capitalization rates and rental growth rates. We did not consider adjustments to NAV estimates provided by the general partner, including adjustments for any restrictions to the transferability of ownership interests embedded within the investment agreement to which we are a party, to be necessary based upon (1) our understanding of the methodology utilized and inputs incorporated to estimate NAV at the investment level, (2) consideration of market demand for the retail assets held by the venture, and (3) contemplation of real estate and capital markets conditions in the localities in which the venture operates. The Company has no unfunded commitments. Our investment in the NYC Retail Portfolio is presented on our Consolidated Balance Sheets within real estate fund investment. Changes in the fair value of our investment as well as cash distributions received are recorded on our Consolidated Statements of Operations and Comprehensive Income within income from unconsolidated real estate affiliates and fund investments. As of June 30, 2018 and December 31, 2017, the carrying amount of our investment in the NYC Retail Portfolio was $93,451 and $93,670, respectively. During the three and six months ended June 30, 2018 we recorded increases in fair value of our investment in the NYC Retail Portfolio of $2,370 and $3,263 respectively. During the three and six months ended June 30, 2018, we received a return of capital distribution of $3,482. During the three and six months ended June 30, 2017 we recorded an increase and decrease in fair value of our investment in the NYC Retail Portfolio of $1,414 and $703, respectively. During the three and six months ended June 30, 2017 we received distributions of income totaling $1,383 and $2,020, respectively. On January 17, 2017, a 116,000 square foot retail property in the NYC Retail Portfolio was sold and its mortgage loan extinguished.
Summarized Statement of Operations - NYC Retail Portfolio Investment - Fair Value Option Investment
 
Three Months Ended June 30, 2018
 
Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2018
 
Six Months Ended June 30, 2017
Total revenue
$
11

 
$
1,194

 
$
1,883

 
$
4,644

 
 
 
 
 
 
 
 
Net investment (loss) income
(345
)
 
853

 
1,166

 
3,972

Net change in unrealized gain on investment in real estate venture
8,660

 
9,944

 
11,619

 
2,294

Net income
$
8,315

 
$
10,797

 
$
12,785

 
$
6,266






12



NOTE 5—MORTGAGE NOTES AND OTHER DEBT PAYABLE
Mortgage notes and other debt payable have various maturities through 2054 and consist of the following:
Mortgage notes and other debt payable
 
Maturity Date
 
Interest
Rate
 
Amount payable as of
June 30, 2018
 
December 31, 2017
Mortgage notes payable (1)
 
December 1, 2018 - March 1, 2054
 
3.00% - 5.30%
 
$
709,120

 
$
665,912

Credit facility
 
 
 
 
 
 
 
 
Revolving line of credit
 
May 26, 2020
 
3.44%
 
55,000

 
120,000

Term loans
 
May 26, 2022
 
3.10%
 
100,000

 
100,000

TOTAL
 
 
 
 
 
$
864,120

 
$
885,912

Net debt discount on assumed debt and debt issuance costs
 

 
(6,605
)
 
(6,890
)
Mortgage notes and other debt payable, net
 
$
857,515

 
$
879,022

(1)     On June 20, 2018, we entered into a $45,000 mortgage payable on 180 North Jefferson. The interest-only mortgage note bears an interest rate of 3.89% and matures on July 1, 2023.

Aggregate future principal payments of mortgage notes and other debt payable as of June 30, 2018 are as follows: 
Year
 
Amount
2018
 
$
20,022

2019
 
13,717

2020
 
131,075

2021
 
29,295

2022
 
107,314

Thereafter
 
562,697

Total
 
$
864,120

 
Credit Facility
On May 26, 2017, we entered into a credit agreement providing for a $250,000 revolving line of credit and unsecured term loan with a syndicate of six lenders led by JPMorgan Chase Bank, N.A., Bank of America, N.A., and PNC Bank, National Association. The $250,000 credit facility (the "Credit Facility") consists of a $200,000 revolving line of credit (the “Revolving Line of Credit”) and a $50,000 term loan (the “Term Loan”). On August 4, 2017, we expanded our Credit Facility to $300,000. The additional $50,000 borrowing was in the form of a five-year Term Loan maturing on May 26, 2022. The primary interest rate is based on LIBOR, plus a margin ranging from 1.25% to 2.00% depending on our leverage ratio or alternatively, we can choose to borrow at a “base rate” equal to (i) the highest of (a) the Federal Funds Rate plus 0.5%, (b) the prime rate announced by JPMorgan Chase Bank, N.A., and (c) LIBOR plus 1.0%, plus (ii) a margin ranging from 0.25% to 1.00% for base rate loans. The maturity date of the Revolving Line of Credit is May 26, 2020 and contains two 12-month extension options that we may exercise upon (i) payment of an extension fee equal to 0.15% of the gross capacity under the Revolving Line of Credit at the time of the extension, and (ii) compliance with the other conditions set forth in the credit agreement. We intend to use the Revolving Line of Credit to cover short-term capital needs, for new property acquisitions and working capital. We may not draw funds on our Credit Facility if we (i) experience a material adverse effect, which is defined to include, among other things, (a) a material adverse effect on the business, assets, operations or financial condition of the Company taken as a whole; (b) the ability of any loan party to perform any of its obligations under any loan document; or (c) a material adverse effect upon the validity or enforceability of any loan document or (ii) are in default, as that term is defined in the agreement, including a default under certain other loan agreements and/or guarantees entered into by us or our subsidiaries. As of June 30, 2018, we believe no material adverse effects had occurred.





13



Borrowings under the Credit Facility are guaranteed by us and certain of our subsidiaries. The Credit Facility requires the maintenance of certain financial covenants, including: (i) unencumbered property pool leverage ratio; (ii) debt service coverage ratio; (iii) maximum total leverage ratio; (iv) fixed charges coverage ratio; (v) minimum net asset value; (vi) maximum secured debt ratio; (vii) maximum secured recourse debt ratio; (viii) maximum permitted investments; and (ix) unencumbered property pool criteria. The Credit Facility provides the flexibility to move assets in and out of the unencumbered property pool during the term of the Credit Facility. At June 30, 2018, we had $55,000 outstanding under the Revolving Line of Credit at a blended rate of 3.44% (LIBOR + 1.35%) and $100,000 outstanding under the Term Loans at LIBOR + 1.30%. We swapped the LIBOR portion of our $100,000 in Term Loans to a blended fixed rate of 1.80% (all in rate of 3.10% at June 30, 2018).
Covenants
At June 30, 2018, we were in compliance with all debt covenants.

Debt Issuance Costs
Debt issuance costs are capitalized, and presented net of mortgage notes and other debt payable, and amortized over the terms of the respective agreements as a component of interest expense. Accumulated amortization of debt issuance costs at June 30, 2018 and December 31, 2017 was $4,003 and $3,377, respectively.
NOTE 6—COMMON STOCK
We have five classes of common stock: Class A, Class M, Class A-I, Class M-I, and Class D. The fees payable to LaSalle Investment Management Distributors, LLC, an affiliate of our Advisor and the dealer manager for our offerings (the "Dealer Manager"), with respect to each outstanding share of each class, as a percentage of net asset value ("NAV"), are as follows:
 
 
Selling Commission (1)
 
Dealer Manager Fee (2)
Class A Shares (3)
 
up to 3.0%
 
0.85%
Class M Shares
 
None
 
0.30%
Class A-I Shares
 
up to 1.5%
 
0.30%
Class M-I Shares (3)
 
None
 
None
Class D Shares (4)
 
up to 1.0%
 
None
(1)
Selling commissions are paid on the date of sale of our common stock.
(2)
We accrue all future dealer manager fees up to the ten percent regulatory limitation as accrued offering costs on our Consolidated Balance Sheets on the date of sale of our common stock. For NAV calculation purposes, dealer manager fees are accrued daily, on a continuous basis equal to 1/365th of the stated fee.
(3)
Effective April 1, 2018, we decreased the Dealer Manager Fee on Class A shares from 1.05% to 0.85% and eliminated the Dealer Manager Fee on Class M-I shares.
(4)
Shares of Class D common stock are only being offered pursuant to a private offering.
The selling commissions and dealer manager fees are offering costs and are recorded as a reduction of additional paid in capital.
Stock Transactions
The stock transactions for each of our classes of common stock for the six months ended June 30, 2018 were as follows:
 
Shares of
Class A
Common Stock
 
Shares of
Class M
Common Stock
 
Shares of
Class A-I
Common Stock
 
Shares of
Class M-I
Common Stock
 
Shares of
Class D
Common Stock
Balance, December 31, 2017
69,482,276

 
37,913,989

 
10,957,660

 
7,421,466

 
7,531,714

Issuance of common stock
1,648,862

 
1,937,616

 
133,003

 
867,913

 

Repurchase of common stock
(1,538,912
)
 
(1,017,941
)
 
(184,730
)
 
(468,134
)
 

Balance, June 30, 2018
69,592,226

 
38,833,664

 
10,905,933

 
7,821,245

 
7,531,714




14



Stock Issuances
The stock issuances for our classes of common stock, including those issued through our distribution reinvestment plan, for the six months ended June 30, 2018 were as follows:
 
 
Six Months Ended
 
 
June 30, 2018
 
 
# of shares
 
Amount
Class A Shares
 
1,648,862
 
$
19,561

Class M Shares
 
1,937,616
 
22,832

Class A-I Shares
 
133,003
 
1,564

Class M-I Shares
 
867,913
 
10,224

Total
 
 
 
$
54,181

Share Repurchase Plan
Our share repurchase plan allows stockholders, subject to a one-year holding period, with certain exceptions, to request that we repurchase all or a portion of their shares of common stock on a daily basis at that day's NAV per share, limited to 5% of aggregate Company NAV per quarter. For the six months ended June 30, 2018, we repurchased 3,209,717 shares of common stock in the amount of $37,742. During the six months ended June 30, 2017, we repurchased 3,980,121 shares of common stock in the amount of $45,352.
Distribution Reinvestment Plan
Pursuant to our distribution reinvestment plan, holders of shares of any class of our common stock may elect to have their cash distributions reinvested in additional shares of our common stock at the NAV per share applicable to the class of shares being purchased on the distribution date. For the six months ended June 30, 2018, we issued 1,631,138 shares of common stock for $19,145 under the distribution reinvestment plan. For the six months ended June 30, 2017, we issued 1,757,665 shares of common stock for $19,881 under the distribution reinvestment plan.
Earnings Per Share
We compute net income per share for Class A, Class M, Class A-I, Class M-I and Class D common stock using the two-class method. Our Advisor may earn a performance fee (see Note 7- Related Party Transactions), which may impact the net income of each class of common stock differently. In periods where no performance fee is recognized in our Consolidated Statements of Operations and Comprehensive Income, the net income per share will be the same for each class of common stock.
Basic and diluted net income per share for each class of common stock is computed using the weighted-average number of common shares outstanding during the period for each class of common stock. We have not issued any dilutive or potentially dilutive securities, and thus the basic and diluted net income per share for a given class of common stock is the same for each period presented.

15



The following table sets forth the computation of basic and diluted net income per share for each of our Class A, Class M, Class A-I, Class M-I and Class D common stock:
 
 
Three Months Ended June 30, 2018
 
 
Class A
 
Class M
 
Class A-I
 
Class M-I
 
Class D
Basic and diluted net income per share:
 
 
 
 
 
 
 
 
 
 
Allocation of net income per share before performance fee
 
$
1,610

 
$
896

 
$
252

 
$
174

 
$
174

Weighted average number of common shares outstanding
 
69,585,939

 
38,730,214

 
10,886,733

 
7,499,303

 
7,531,714

Basic and diluted net income per share:
 
$
0.02

 
$
0.02

 
$
0.02

 
$
0.02

 
$
0.02

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2018
 
 
Class A
 
Class M
 
Class A-I
 
Class M-I
 
Class D
Basic and diluted net income per share:
 
 
 
 
 
 
 
 
 
 
Allocation of net income per share before performance fee
 
$
18,587

 
$
10,285

 
$
2,910

 
$
1,956

 
$
2,013

Weighted average number of common shares outstanding
 
69,529,126

 
38,481,068

 
10,882,942

 
7,310,546

 
7,531,714

Basic and diluted net income per share:
 
$
0.27

 
$
0.27

 
$
0.27

 
$
0.27

 
$
0.27

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2017
 
 
Class A
 
Class M
 
Class A-I
 
Class M-I
 
Class D
Basic and diluted net income per share:
 
 
 
 
 
 
 
 
 
 
Allocation of net income per share before performance fee
 
$
1,957

 
$
1,038

 
$
365

 
$
215

 
$
223

Weighted average number of common shares outstanding
 
69,969,651

 
37,110,222

 
13,061,115

 
7,684,963

 
7,963,493

Basic and diluted net income per share:
 
$
0.03

 
$
0.03


$
0.03

 
$
0.03

 
$
0.03

 
 
 
 
 
 
 
 
 
 
 
 
 
Six Months ended June 30, 2017
 
 
Class A
 
Class M
 
Class A-I
 
Class M-I
 
Class D
Basic and diluted net income per share:
 
 
 
 
 
 
 
 
 
 
Allocation of net income per share before performance fee
 
$
1,577

 
$
833

 
$
295

 
$
172

 
$
179

Weighted average number of common shares outstanding
 
69,989,675

 
36,937,988

 
13,064,150

 
7,620,429

 
7,963,493

Basic and diluted net income per share:
 
$
0.02

 
$
0.02

 
$
0.02

 
$
0.02

 
$
0.02

Organization and Offering Costs
Organization and offering costs include, but are not limited to, legal, accounting and printing fees and personnel costs of our Advisor attributable to our organization, preparation of the registration statement, registration and qualification of our common stock for sale with the SEC and in the various states and filing fees incurred by our Advisor. LaSalle agreed to fund our organization and offering expenses for the Second Extended Public Offering until July 6, 2018, the day the registration statement was declared effective by the SEC, following which time we will commence reimbursing LaSalle over 36 months. Following the First Extended Public Offering commencement date, we began paying directly or reimbursing LaSalle if it pays on our behalf any organization and offering costs incurred during the First Extended Public Offering period (other than selling commissions and dealer manager fees) as and when incurred. After the termination of the First Extended Public Offering, LaSalle has agreed to reimburse us to the extent that the organization and offering costs that we incur exceed 15% of our gross proceeds from the First Extended Public Offering. Organization costs are expensed, whereas offering costs are recorded as a reduction of capital in excess of par value. As of June 30, 2018 and December 31, 2017, LaSalle had paid $1,607 and $1,049, respectively, of organization and offering costs on our behalf which we had not yet been reimbursed. These costs are included in Accrued offering costs on the Consolidated Balance Sheets.




16



NOTE 7—RELATED PARTY TRANSACTIONS
On October 1, 2012, we entered into a first amended and restated advisory agreement with LaSalle (the"Advisory Agreement"), pursuant to which we pay a fixed advisory fee of 1.25% of our NAV calculated daily. The Advisory Agreement allows for a performance fee to be earned for each share class based on the total return of that share class during the calendar year. The performance fee is calculated as 10% of the return in excess of 7% per annum. On May 8, 2018, we renewed our Advisory Agreement for a one year term expiring on June 5, 2019.
Fixed advisory fees for the three and six months ended June 30, 2018 were $4,950 and $9,772, respectively. The fixed advisory fees for the three and six months ended June 30, 2017 were $4,822 and $9,541, respectively. There were no performance fees for the six months ended June 30, 2018 and 2017. Included in Advisor fees payable at June 30, 2018 was $1,644 of fixed fee expense. Included in Advisor fees payable for the year ended December 31, 2017 was $1,660 of fixed fee and $1,269 of performance fee expense.
We pay Jones Lang LaSalle Americas, Inc. (“JLL Americas”), an affiliate of our Advisor, for property management, leasing, mortgage brokerage and sales brokerage services performed at various properties we own. For the three and six months ended June 30, 2018, JLL Americas was paid $244 and $459, respectively, for property management and leasing services. For the three and six months ended June 30, 2017, JLL Americas was paid $469 and $698, respectively, for property management and leasing services.
We pay the Dealer Manager selling commissions and dealer manager fees in connection with our offerings. For the three and six months ended June 30, 2018, we paid the Dealer Manager selling commissions and dealer manager fees totaling $2,129 and $4,599, respectively. For the three and six months ended June 30, 2017, we paid Dealer Manager selling commissions and dealer manager fees totaling $2,486 and $4,986, respectively. A majority of the selling commissions and dealer manager fees are reallowed to participating broker-dealers. Included in Accrued offering costs, at June 30, 2018 and December 31, 2017 were $71,807 and $75,301 of future dealer manager fees payable, respectively.
As of June 30, 2018 and December 31, 2017, we owed $1,607 and $1,049, respectively, for organization and offering costs paid by LaSalle (see Note 6-Common Stock). These costs are included in Accrued offering costs.
NOTE 8—COMMITMENTS AND CONTINGENCIES
We are involved in various claims and litigation matters arising in the ordinary course of business, some of which involve claims for damages. Many of these matters are covered by insurance, although they may nevertheless be subject to deductibles or retentions. Although the ultimate liability for these matters cannot be determined, based upon information currently available, we believe the ultimate resolution of such claims and litigation will not have a material adverse effect on our financial position, results of operations or liquidity.
From time to time, we have entered into contingent agreements for the acquisition and financing of properties. Such acquisitions and financings are subject to satisfactory completion of due diligence or meeting certain leasing or occupancy thresholds.
We are subject to fixed ground lease payments on South Beach Parking Garage of $100 per year until September 30, 2021 and these payments will increase every five years thereafter by the lesser of 12% or the cumulative CPI over the previous five year period. We are also subject to a variable ground lease payment calculated as 2.5% of revenue. The lease expires September 30, 2041 and has a ten-year renewal option.
The operating agreement for Townlake of Coppell allows the unrelated third party joint venture partner, owning a 10% interest, to put their interest to us at a market determined value for a period of 90 days beginning in 2019.

17



NOTE 9—SEGMENT REPORTING
We have five reportable operating segments: apartment, industrial, office, retail and other properties. Consistent with how our chief operating decision makers evaluate performance and manage our properties, the financial information summarized below is presented by operating segment and reconciled to net income for the three and six months ended June 30, 2018 and 2017.
 
 
 Apartment
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Assets as of June 30, 2018
 
$
608,774

 
$
480,875

 
$
260,839

 
$
567,968

 
$
20,963

 
$
1,939,419

Assets as of December 31, 2017
 
599,794

 
489,112

 
263,883

 
575,093

 
20,845

 
1,948,727

 
 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
11,054

 
$
7,296

 
$
6,739

 
$
8,859

 
$
66

 
$
34,014

   Tenant recoveries and other rental income
 
1,128

 
2,373

 
1,096

 
3,050

 
566

 
8,213

Total revenues
 
$
12,182

 
$
9,669

 
$
7,835

 
$
11,909

 
$
632

 
$
42,227

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 

   Real estate taxes
 
$
1,922

 
$
1,885

 
$
739

 
$
1,426

 
$
190

 
$
6,162

   Property operating expenses
 
3,237

 
648

 
1,515

 
1,690

 
183

 
7,273

 Provision for doubtful accounts
 

 

 

 
72

 

 
72

Total segment operating expenses
 
$
5,159

 
$
2,533

 
$
2,254

 
$
3,188

 
$
373

 
$
13,507

Operating income - Segments
 
$
7,023

 
$
7,136

 
$
5,581

 
$
8,721

 
$
259

 
$
28,720

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
1,107

 
$
306

 
$
141

 
$
1,288

 
$
21

 
$
2,863

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
28,720

   Property general and administrative
 
 
 
 
 
 
 
 
 
 
 
246

   Advisor fees
 
 
 
 
 
 
 
 
 
 
 
4,950

   Company level expenses
 
 
 
 
 
 
 
 
 
 
 
789

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
15,041

Operating income
 
 
 
 
 
 
 
 
 
 
 
$
7,694

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 

   Interest expense
 
 
 
 
 
 
 
 
 
 
 
$
(7,326
)
   Income from unconsolidated real estate affiliates and fund investments
 
 
 
 
 
 
 
2,790

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
 
 
$
(4,536
)
Net income
 
 
 
 
 
 
 
 
 
 
 
$
3,158

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to total consolidated assets as of June 30, 2018
Assets per reportable segments
 
 
 
 
 
 
 
 
 
 
 
$
1,939,419

Investment in unconsolidated real estate affiliates, real estate fund investment and corporate level assets
 
245,139

Total consolidated assets
 
 
 
 
 
 
 
 
 
 
 
$
2,184,558

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to total consolidated assets as of December 31, 2017
Assets per reportable segments
 
 
 
 
 
 
 
 
 
 
 
$
1,948,727

Investment in unconsolidated real estate affiliates, real estate fund investment and corporate level assets
 
248,380

Total consolidated assets
 
 
 
 
 
 
 
 
 
 
 
$
2,197,107



18



 
 
 Apartment
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Three Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
9,436

 
$
7,952

 
$
7,037

 
$
7,619

 
$
69

 
$
32,113

   Tenant recoveries and other rental income
 
920

 
2,785

 
1,326

 
2,681

 
602

 
8,314

Total revenues
 
$
10,356

 
$
10,737

 
$
8,363

 
$
10,300

 
$
671

 
$
40,427

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
1,566

 
$
2,022

 
$
955

 
$
1,455

 
$
110

 
$
6,108

   Property operating expenses
 
2,747

 
681

 
1,741

 
1,470

 
221

 
6,860

   Provision for doubtful accounts
 
5

 

 
1

 
25

 

 
31

Total segment operating expenses
 
$
4,318

 
$
2,703

 
$
2,697

 
$
2,950

 
$
331

 
$
12,999

Operating income - Segments
 
$
6,038

 
$
8,034

 
$
5,666

 
$
7,350

 
$
340

 
$
27,428

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
875

 
$
498

 
$
876

 
$
674

 
$
2

 
$
2,925

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
27,428

   Property general and administrative
 
 
 
 
 
 
 
 
 
 
 
275

   Advisor fees
 
 
 
 
 
 
 
 
 
 
 
4,822

   Company level expenses
 
 
 
 
 
 
 
 
 
 
 
478

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
14,091

Operating income
 
 
 
 
 
 
 
 
 
 
 
$
7,762

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 
 
   Interest expense
 
 
 
 
 
 
 
 
 
 
 
$
(7,029
)
   Income from unconsolidated real estate affiliates and fund investments
 
 
 
 
 
3,169

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
 
 
$
(3,860
)
Net income
 
 
 
 
 
 
 
 
 
 
 
$
3,902



19



 
 
 Apartments
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Six Months Ended June 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
22,277

 
$
14,904

 
$
13,097

 
$
17,627

 
$
132

 
$
68,037

   Tenant recoveries and other rental income
 
2,270

 
4,982

 
1,748

 
6,091

 
1,181

 
16,272

Total revenues
 
$
24,547

 
$
19,886

 
$
14,845

 
$
23,718

 
$
1,313

 
$
84,309

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 

   Real estate taxes
 
$
4,017

 
$
3,877

 
$
1,485

 
$
2,958

 
$
303

 
$
12,640

   Property operating expenses
 
6,503

 
1,298

 
2,867

 
3,354

 
391

 
14,413

   Provision for (recovery of) doubtful accounts
 

 

 

 
115

 
(1
)
 
$
114

Total segment operating expenses
 
$
10,520

 
$
5,175

 
$
4,352

 
$
6,427

 
$
693

 
$
27,167

Operating income - Segments
 
$
14,027

 
$
14,711

 
$
10,493

 
$
17,291

 
$
620

 
$
57,142

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
2,203

 
$
465

 
$
177

 
$
1,856

 
$
42

 
$
4,743

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
57,142

   Property general and administrative
 
 
 
 
 
 
 
 
 
 
 
636

   Advisor fees
 
 
 
 
 
 
 
 
 
 
 
9,772

   Company level expenses
 
 
 
 
 
 
 
 
 
 
 
1,512

   Depreciation and amortization
 
 
 
 
 
 
 
 
 
 
 
29,888

Operating income
 
 
 
 
 
 
 
 
 
 
 
$
15,334

Other income and (expenses):
 
 
 
 
 
 
 
 
 
 
 

   Interest expense
 
 
 
 
 
 
 
 
 
 
 
$
(13,055
)
   Income from unconsolidated real estate affiliates and fund investments
 
3,905

   Gain on disposition of property
 
 
 
 
 
29,665

Total other income and (expenses)
 
 
 
 
 
 
 
 
 
 
 
$
20,515

Net income
 
 
 
 
 
 
 
 
 
 
 
$
35,849


 

20



 
 
 Apartments
 
 Industrial
 
 Office
 
 Retail
 
Other
 
 Total
Six Months Ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
 
 
 
 
   Minimum rents
 
$
18,827

 
$
15,624

 
$
13,994

 
$
15,226

 
$
138

 
$
63,809

   Tenant recoveries and other rental income
 
1,974

 
5,257

 
2,612

 
5,204

 
1,267

 
16,314

Total revenues
 
$
20,801

 
$
20,881

 
$
16,606

 
$
20,430

 
$
1,405

 
$
80,123

Operating expenses:
 
 
 
 
 
 
 
 
 
 
 
 
   Real estate taxes
 
$
3,079

 
$
4,097

 
$
1,892

 
$
2,890

 
$
224

 
$
12,182

   Property operating expenses
 
5,383

 
1,276

 
3,499

 
2,821

 
445

 
13,424

   Provision for doubtful accounts
 
17

 

 
(3
)
 
35

 

 
49

Total segment operating expenses
 
$
8,479

 
$
5,373

 
$
5,388

 
$
5,746

 
$
669

 
$
25,655

Operating income - Segments
 
$
12,322

 
$
15,508

 
$
11,218

 
$
14,684

 
$
736

 
$
54,468

 
 
 
 
 
 
 
 
 
 
 
 
 
Capital expenditures by segment
 
$
1,193

 
$
829

 
$
2,500

 
$
1,372

 
$
185

 
$
6,079

 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation to net income
Operating income - Segments
 
 
 
 
 
 
 
 
 
 
 
$
54,468

   Property general and administrative