REAL ESTATE HELD FOR INVESTMENT

6 Months Ended

Jun. 30, 2020

As of June 30, 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 June 30, 2020, these properties were 78% occupied. In addition, as of the June 30, 2020, the Company owned one residential home portfolio consisting of 1,190 single-family homes and encompassing approximately 1.6 million rental square feet and one apartment property, containing 317 units and encompassing approximately 0.3 million rentable square feet, which was 95% and 84% occupied, respectively. 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 June 30, 2020 and December 31, 2019, respectively (in thousands):


	June 30, 2020		December 31, 2019
Land	$	181,392	$	175,317
Buildings and improvements	639,060		618,974
Tenant origination and absorption costs	28,778		30,569
Total real estate, cost	849,230		824,860
Accumulated depreciation and amortization	(80,816)		(65,381)
Total real estate, net	$	768,414	$	759,479

The following table provides summary information regarding the Company’s real estate held for investment as of June 30, 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	$	12,518	$	—	$	13,555	$	(3,991)	$	9,564	90.0	%
Palisades Central II	11/23/2011	Richardson	TX	Office	810		21,412		—		22,222		(6,199)		16,023		90.0	%
Greenway I	11/23/2011	Richardson	TX	Office	561		2,456		—		3,017		(1,147)		1,870		90.0	%
Greenway III	11/23/2011	Richardson	TX	Office	702		3,896		—		4,598		(1,545)		3,053		90.0	%
Undeveloped Land	11/23/2011	Richardson	TX	Undeveloped Land	3,134		—		—		3,134		—		3,134		90.0	%
Total Richardson Portfolio					6,244		40,282		—		46,526		(12,882)		33,644
Park Highlands ⁽¹⁾	12/30/2011	North Las Vegas	NV	Undeveloped Land	36,315		—		—		36,315		—		36,315		100.0%⁽¹⁾
Park Centre	03/28/2013	Austin	TX	Office	3,251		34,766		—		38,017		(7,586)		30,431		100.0	%
1180 Raymond	8/20/2013	Newark	NJ	Apartment	8,292		39,194		—		47,486		(8,537)		38,949		100.0	%
Park Highlands II ⁽¹⁾	12/10/2013	North Las Vegas	NV	Undeveloped Land	27,622		—		—		27,622		—		27,622		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		69,661		4,204		96,455		(13,487)		82,968		100.0	%
The Marq	03/01/2018	Minneapolis	MN	Office	10,387		81,587		3,551		95,525		(8,612)		86,913		100.0	%
City Tower	03/06/2018	Orange	CA	Office	13,930		136,184		7,299		157,413		(15,659)		141,754		100.0	%
Eight & Nine Corporate Centre	06/08/2018	Franklin	TN	Office	17,401		57,920		4,518		79,839		(5,861)		73,978		100.0	%
Georgia 400 Center	05/23/2019	Alpharetta	GA	Office	11,431		73,521		7,466		92,418		(5,347)		87,071		100.0	%
Single-Family Homes Portfolio ⁽²⁾:
Birmingham Homes	11/04/2019	Birmingham	AL	Home	2,444		11,162		162		13,768		(292)		13,476		100.0	%
Houston Homes	11/04/2019	Houston	TX	Home	6,154		22,823		432		29,409		(666)		28,743		100.0	%
Jacksonville Homes	11/04/2019	Jacksonville	FL	Home	2,986		24,253		353		27,592		(647)		26,945		100.0	%
Memphis Homes	11/04/2019	Memphis	TN	Home	2,679		15,809		266		18,754		(426)		18,328		100.0	%
Atlanta Homes	11/04/2019	Atlanta	GA	Home	783		3,884		65		4,732		(120)		4,612		100.0	%
Oklahoma Homes	11/04/2019	Oklahoma City	OK	Home	2,082		14,416		199		16,697		(411)		16,286		100.0	%
Illinois Homes	05/28/2020	Chicago	IL	Home	3,383		13,598		263		17,244		(283)		16,961		100.0	%
Total Single-Family Homes Portfolio					20,511		105,945		1,740		128,196		(2,845)		125,351
					$	181,392	$	639,060	$	28,778	$	849,230	$	(80,816)	$	768,414

_____________________

⁽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.

⁽²⁾ On July 1, 2020, the Company exchanged 4.5% of the outstanding common equity units of the subsidiary that owns the Company’s single family portfolio. See Note 16, “Subsequent Events - Battery Point Trust Inc. Acquisition” for more information.

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 June 30, 2020, the leases, excluding options to extend and apartment leases and single family homes, which have terms that are generally one year or less, had remaining terms of up to 11.7 years with a weighted-average remaining term of 4.5 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 June 30, 2020 and December 31, 2019.

During the six months ended June 30, 2020 and 2019, the Company recognized deferred rent from tenants of $1.7 million and $2.2 million, respectively, net of lease incentive amortization. As of June 30, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $15.5 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 $3.2 million and $3.1 million of unamortized lease incentives as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020, the future minimum rental income from the Company’s properties, excluding apartment leases and single family homes, under non-cancelable operating leases was as follows (in thousands):


July 1, 2020 through December 31, 2020	$	27,533
2021	55,750
2022	49,710
2023	41,525
2024	35,962
Thereafter	88,394
	$	298,874

As of June 30, 2020, the Company’s commercial real estate properties were leased to approximately 239 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
Computer Systems Design	26	$	7,395	12.6	%
Insurance	25	7,185		12.2	%
Health Care and Social Assistance	15	6,769		11.5	%
		$	21,349	36.3	%

_____________________

⁽¹⁾Annualized base rent represents annualized contractual base rental income as of June 30, 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 and six months ended June 30, 2020, the Company recorded adjustments to rental income of $0.6 million and $0.8 million, respectively, for lease payments that were deemed not probable of collection. During the three and six months ended June 30, 2019, the Company recorded adjustments to rental income of $0.1 million and $0.2 million, respectively, for lease payments that were deemed not probable of collection.

Geographic Concentration Risk

As of June 30, 2020, the Company’s real estate investments in Georgia and California represented 16.4% and 13.3%, 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.

Recent Acquisition

On May 28, 2020, the Company acquired a single-family home portfolio consisting of 196 homes in Chicago, Illinois. The seller is not affiliated with the Company or the Advisor. The purchase price was $17.3 million, which includes $0.4 million of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $3.4 million to land, $13.6 million to building and improvements and $0.3 million to tenant origination and absorption costs.

Sale of Real Estate

As of June 30, 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 prior year 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.