DST Program (Notes)

9 Months Ended

Sep. 30, 2023

Variable Interest Entity [Line Items]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 8—DST PROGRAM

On October 16, 2019, we, through our operating partnership, initiated the DST Program, and on November 8, 2022, our board of directors approved an increase to raise up to a total of $2,000,000 in private placements through the sale of beneficial interests in specific DSTs holding DST Properties, which may be sourced from our existing portfolio or from newly acquired properties sourced from third parties. Each DST Property will be leased back by a wholly owned subsidiary of our operating partnership on a long-term basis of up to ten years pursuant to a master lease agreement. The master lease agreements are expected to be guaranteed by our operating partnership. As compensation for the master lease guarantee, our operating partnership will retain a fair market value purchase option giving it the right, but not the obligation, to acquire the beneficial interests in the DST from the investors at any time after two years from the closing of the applicable DST offering in exchange for OP Units or cash, at our discretion.

The sale of beneficial interests in the DST Property will be accounted for as a failed sale-leaseback transaction due to the fair market value purchase option retained by our operating partnership and as such, the property will remain on our books and records. The proceeds received from each DST offering will be accounted for as a financing obligation on our Consolidated Balance Sheets. Upfront costs for legal work and debt placement costs for the DST totaling $288 are accounted for as deferred loan costs and are netted against the financing obligation as of September 30, 2023.

Under the master lease, we are responsible for subleasing the DST Property to tenants, for covering all costs associated with operating the underlying DST Property, and for paying base rent to the DST that owns such property. For financial reporting purposes (and not for income tax purposes), the DST Properties are included in our consolidated financial statements, with the master lease rent payments accounted for as interest expense. For the three and nine months ended September 30, 2023, we recorded interest expense related to the master lease in the amounts of $8,962 and $27,761, respectively. For the three and nine months ended September 30, 2022, we recorded interest expense related to the master lease in the amounts of $5,492 and $13,885, respectively. We will record non-cash interest expense over the expected period until exercising of the fair market value purchase option for properties that have increased in fair value. We will recognize non-cash interest income at exercise of the fair market value purchase option for properties that have decreased in fair value. We incurred non-cash interest expense of $6,501 and $100,456 for the three and nine months ended September 30, 2023, respectively, and non-cash interest income of $1,348 and $6,169 for the three and nine months ended September 30, 2023, respectively. We incurred non-cash interest expense of $69 and $15,283 for the three and nine months ended September 30, 2022, respectively.

For financial reporting purposes, the rental revenues and rental expenses associated with the underlying property of each master lease are included in the respective line items on our Consolidated Statements of Operations and Comprehensive Income. The net amount we receive from the underlying DST Properties may be more or less than the amount we pay to the investors in the specific DST and are considered operating cash flows and could fluctuate over time.

As of September 30, 2023, we have sold $1,067,000 in interests related to the DST Program. As of September 30, 2023, the following properties are included in our DST Program:

The Penfield	9101 Stony Point Drive	Suwanee Distribution Center
Montecito Marketplace	Reserve at Venice	West Phoenix Distribution Center
Whitestown Distribution Center	Duke Medical Center	6300 Dumbarton Circle
Louisville Airport Distribution Center	Silverstone Marketplace	6500 Kaiser Drive
The Preserve at the Meadows	South Reno Medical Center	Louisville Logistics Center
The Rockwell	Sugar Land Medical Plaza