REAL ESTATE HELD FOR INVESTMENT

3 Months Ended

Mar. 31, 2020

REAL ESTATE HELD FOR INVESTMENT

As of March 31, 2020, the Company owned six office properties and one office portfolio consisting of four office buildings and 14 acres of undeveloped land, encompassing, in the aggregate, approximately 3.0 million rentable square feet. As of March 31, 2020, these properties were 81% occupied. In addition, the Company owned one residential home portfolio consisting of 993 single-family homes and encompassing approximately 1.4 million rental square feet and one apartment property, containing 317 units and encompassing approximately 0.3 million rentable square feet, which was 92% and 88% occupied, respectively as of March 31, 2020. The Company also owned three investments in undeveloped land with approximately 1,000 developable acres. The following table summarizes the Company’s real estate held for investment as of March 31, 2020 and December 31, 2019, respectively (in thousands):


	March 31, 2020		December 31, 2019
Land	$	177,247	$	175,317
Buildings and improvements	622,162		618,974
Tenant origination and absorption costs	30,179		30,569
Total real estate, cost	829,588		824,860
Accumulated depreciation and amortization	(74,128)		(65,381)
Total real estate, net	$	755,460	$	759,479

The following table provides summary information regarding the Company’s real estate held for investment as of March 31, 2020 (in thousands):


Property	Date Acquired or Foreclosed on	City	State	Property Type	Land		Building and Improvements		Tenant Origination and Absorption		Total Real Estate, at Cost		Accumulated Depreciation and Amortization		Total Real Estate, Net		Ownership %
Richardson Portfolio:
Palisades Central I	11/23/2011	Richardson	TX	Office	$	1,037	$	12,337	$	—	$	13,374	$	(3,787)	$	9,587	90.0	%
Palisades Central II	11/23/2011	Richardson	TX	Office	810		21,405		—		22,215		(5,894)		16,321		90.0	%
Greenway I	11/23/2011	Richardson	TX	Office	561		2,393		—		2,954		(1,118)		1,836		90.0	%
Greenway III	11/23/2011	Richardson	TX	Office	702		3,896		—		4,598		(1,501)		3,097		90.0	%
Undeveloped Land	11/23/2011	Richardson	TX	Undeveloped Land	3,134		—		—		3,134		—		3,134		90.0	%
Total Richardson Portfolio					6,244		40,031		—		46,275		(12,300)		33,975
Park Highlands ⁽¹⁾	12/30/2011	North Las Vegas	NV	Undeveloped Land	35,802		—		—		35,802		—		35,802		100.0%⁽¹⁾
Park Centre	03/28/2013	Austin	TX	Office	3,251		34,766		—		38,017		(7,091)		30,926		100.0	%
1180 Raymond	8/20/2013	Newark	NJ	Apartment	8,292		39,178		—		47,470		(8,216)		39,254		100.0	%
Park Highlands II ⁽¹⁾	12/10/2013	North Las Vegas	NV	Undeveloped Land	27,373		—		—		27,373		—		27,373		100.0%⁽¹⁾
Richardson Land II	09/04/2014	Richardson	TX	Undeveloped Land	3,418		—		—		3,418		—		3,418		90.0	%
Crown Pointe	02/14/2017	Dunwoody	GA	Office	22,590		68,872		4,440		95,902		(12,558)		83,344		100.0	%
The Marq	03/01/2018	Minneapolis	MN	Office	10,387		81,098		4,179		95,664		(8,206)		87,458		100.0	%
City Tower	03/06/2018	Orange	CA	Office	13,930		135,526		7,937		157,393		(14,570)		142,823		100.0	%
Eight & Nine Corporate Centre	06/08/2018	Franklin	TN	Office	17,401		57,867		4,572		79,840		(5,137)		74,703		100.0	%
Georgia 400 Center	05/23/2019	Alpharetta	GA	Office	11,431		72,924		7,574		91,929		(4,253)		87,676		100.0	%
Single-Family Homes Portfolio:
Birmingham Homes	11/04/2019	Birmingham	AL	Home	2,444		11,105		162		13,711		(206)		13,505		100.0	%
Houston Homes	11/04/2019	Houston	TX	Home	6,154		22,714		432		29,300		(468)		28,832		100.0	%
Jacksonville Homes	11/04/2019	Jacksonville	FL	Home	2,986		24,154		353		27,493		(460)		27,033		100.0	%
Memphis Homes	11/04/2019	Memphis	TN	Home	2,679		15,715		266		18,660		(299)		18,361		100.0	%
Atlanta Homes	11/04/2019	Atlanta	GA	Home	783		3,860		65		4,708		(84)		4,624		100.0	%
Oklahoma Homes	11/04/2019	Oklahoma City	OK	Home	2,082		14,352		199		16,633		(280)		16,353		100.0	%
Total Single-Family Homes Portfolio					17,128		91,900		1,477		110,505		(1,797)		108,708
					$	177,247	$	622,162	$	30,179	$	829,588	$	(74,128)	$	755,460

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⁽¹⁾ The Company owns 100% of the common members’ equity of Park Highlands and Park Highlands II. On September 7, 2016 and January 8, 2019, a subsidiary of the Company that owns a portion of Park Highlands and Park Highlands II, sold 820 units of 10% Class A non-voting preferred membership units for $0.8 million and 1,927 units of 10% Class A2 non-voting preferred membership units for $1.9 million, respectively, to accredited investors. The amount of the Class A and A2 non-voting preferred membership units raised, net of offering costs, is included in other liabilities on the accompanying consolidated balance sheets.

Operating Leases

Certain of the Company’s real estate properties are leased to tenants under operating leases for which the terms and expirations vary. As of March 31, 2020, the leases, excluding options to extend and apartment leases, which have terms that are generally one year or less, had remaining terms of up to 12.0 years with a weighted-average remaining term of 4.4 years. Some of the leases have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires a security deposit from tenants in the form of a cash deposit and/or a letter of credit. The amount required as a security deposit varies depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of its security deposit. Security deposits received in cash and assumed in real estate acquisitions related to tenant leases are included in other liabilities in the accompanying consolidated balance sheets were both $4.3 million as of March 31, 2020 and December 31, 2019.

During the three months ended March 31, 2020 and 2019, the Company recognized deferred rent from tenants of $1.0 million and $1.3 million, respectively, net of lease incentive amortization. As of March 31, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $14.9 million and $13.6 million, respectively, and is included in rents and other receivables on the accompanying balance sheets. The cumulative deferred rent balance included $3.3 million and $3.1 million of unamortized lease incentives as of March 31, 2020 and December 31, 2019, respectively.

As of March 31, 2020, the future minimum rental income from the Company’s properties, excluding apartment leases, under non-cancelable operating leases was as follows (in thousands):


April 1, 2020 through December 31, 2020	$	40,750
2021	54,573
2022	48,656
2023	40,287
2024	34,691
Thereafter	88,180
	$	307,137

As of March 31, 2020, the Company’s commercial real estate properties were leased to approximately 243 tenants over a diverse range of industries and geographic areas. The Company’s highest tenant industry concentrations (greater than 10% of annualized base rent) were as follows:


Industry	Number of Tenants	Annualized Base Rent ⁽¹⁾ (in thousands)		Percentage of Annualized Base Rent
Insurance	25	$	7,180	12.2	%
Computer Systems Design	25	6,949		11.8	%
Health Care and Social Assistance	16	6,924		11.8	%
		$	21,053	35.8	%

_____________________

⁽¹⁾Annualized base rent represents annualized contractual base rental income as of March 31, 2020, adjusted to straight-line any contractual tenant concessions (including free rent), rent increases and rent decreases from the lease’s inception through the balance of the lease term.

No other tenant industries accounted for more than 10% of annualized base rent. No material tenant credit issues have been identified at this time. During the three months ended March 31, 2020 and 2019, the Company recorded adjustments to rental income of $0.2 million and $0.1 million, respectively, for lease payments that were deemed not probable of collection.

Geographic Concentration Risk

As of March 31, 2020, the Company’s real estate investments in Georgia and California represented 16.9% and 13.7%, respectively, of the Company’s total assets. As a result, the geographic concentration of the Company’s portfolio makes it particularly susceptible to adverse economic developments in the Georgia and California real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for office space resulting from the local business climate, could adversely affect the Company’s operating results and its ability to make distributions to stockholders.

Sale of Real Estate

As of March 31, 2020 and December 31, 2019, the Company had recorded contract liabilities of $3.1 million related to deferred proceeds received from the buyers of the Park Highlands land sales and another developer for the value of land that was contributed to a master association that is consolidated by the Company, which was included in other liabilities on the accompanying consolidated balance sheets.