REAL ESTATE HELD FOR INVESTMENT

9 Months Ended

Sep. 30, 2020

As of September 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 September 30, 2020, these properties were 80% occupied. In addition, as of the September 30, 2020, the Company owned one residential home portfolio consisting of 1,769 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 91% and 87% 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 September 30, 2020 and December 31, 2019, respectively (in thousands):


	September 30, 2020		December 31, 2019
Land	$	193,602	$	175,317
Buildings and improvements	689,202		618,974
Tenant origination and absorption costs	27,984		30,569
Total real estate, cost	910,788		824,860
Accumulated depreciation and amortization	(88,290)		(65,381)
Total real estate, net	$	822,498	$	759,479

The following table provides summary information regarding the Company’s real estate held for investment as of September 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	$	13,035	$	—	$	14,072	$	(4,194)	$	9,878	90.0	%
Palisades Central II	11/23/2011	Richardson	TX	Office	810		22,016		—		22,826		(6,496)		16,330		90.0	%
Greenway I	11/23/2011	Richardson	TX	Office	561		2,456		—		3,017		(1,176)		1,841		90.0	%
Greenway III	11/23/2011	Richardson	TX	Office	702		3,960		—		4,662		(1,584)		3,078		90.0	%
Undeveloped Land	11/23/2011	Richardson	TX	Undeveloped Land	3,134		—		—		3,134		—		3,134		90.0	%
Total Richardson Portfolio					6,244		41,467		—		47,711		(13,450)		34,261
Park Highlands (1)	12/30/2011	North Las Vegas	NV	Undeveloped Land	36,817		—		—		36,817		—		36,817		100.0%(1)
Park Centre	03/28/2013	Austin	TX	Office	3,251		34,766		—		38,017		(8,066)		29,951		100.0	%
1180 Raymond	08/20/2013	Newark	NJ	Apartment	8,292		39,231		—		47,523		(8,857)		38,666		100.0	%
Park Highlands II (1)	12/10/2013	North Las Vegas	NV	Undeveloped Land	27,854		—		—		27,854		—		27,854		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		69,663		3,618		95,871		(13,987)		81,884		100.0	%
The Marq	03/01/2018	Minneapolis	MN	Office	10,387		81,976		3,551		95,914		(9,618)		86,296		100.0	%
City Tower	03/06/2018	Orange	CA	Office	13,930		137,780		6,713		158,423		(16,780)		141,643		100.0	%
Eight & Nine Corporate Centre	06/08/2018	Franklin	TN	Office	17,401		58,011		4,518		79,930		(6,639)		73,291		100.0	%
Georgia 400 Center	05/23/2019	Alpharetta	GA	Office	11,431		73,841		7,368		92,640		(6,426)		86,214		100.0	%
Single-Family Homes Portfolio	Multiple	Multiple	Multiple	Home	31,987		152,467		2,216		186,670		(4,467)		182,203		96.1%(2)
					$	193,602	$	689,202	$	27,984	$	910,788	$	(88,290)	$	822,498

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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.

(2) As of September 30, 2020, the Company owned 96.1% of the equity of the single-family homes portfolio. All of these single-family homes are held by PORT OP, LP (“PORT OP”). PORT, a wholly owned subsidiary of the Company, owns 96.1% of the equity in PORT OP. PORT OP qualifies as a VIE and the Company is the primary beneficiary. In addition, PORT has authorized and issued preferred stock. See Note 14V, “PORT Preferred Stock” 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 September 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 12.9 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 September 30, 2020 and December 31, 2019.

During the three and nine months ended September 30, 2020, the Company recognized deferred rent from tenants of $2.6 million and $0.9 million, respectively, net of lease incentive amortization. During the three and nine months ended September 30, 2019, the Company recognized deferred rent from tenants of $3.2 million and $1.0 million, respectively, net of lease incentive amortization. As of September 30, 2020 and December 31, 2019, the cumulative deferred rent receivable balance, including unamortized lease incentive receivables, was $16.7 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 September 30, 2020 and December 31, 2019, respectively.

As of September 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):


October 1, 2020 through December 31, 2020	$	14,056
2021	57,171
2022	50,817
2023	42,545
2024	36,856
Thereafter	92,949
	$	294,394

As of September 30, 2020, the Company’s commercial real estate properties were leased to approximately 235 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	$	7,256	11.8	%
Computer Systems Design	25	7,088		11.5	%
Health Care and Social Assistance	15	6,769		11.0	%
		$	21,113	34.3	%

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(1) Annualized base rent represents annualized contractual base rental income as of September 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 nine months ended September 30, 2020, the Company recorded adjustments to rental income of $0.4 million and $1.1 million, respectively, for lease payments that were deemed not probable of collection. During the three and nine months ended September 30, 2019, the Company recorded adjustments to rental income of $0.2 million and $0.4 million, respectively, for lease payments that were deemed not probable of collection.

Geographic Concentration Risk

As of September 30, 2020, the Company’s real estate investments in Georgia and California represented 15.7% and 12.9%, 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 Acquisitions

Battery Point Trust Inc. Acquisition

On July 1, 2020, the Company acquired, through its subsidiaries, Battery Point Trust Inc., a Maryland corporation (“Battery Point”). Battery Point is a real estate investment trust that owns 559 single-family rental homes throughout the Midwestern and Southeastern United States. The Company recorded this acquisition as an asset acquisition and the relative fair value of Battery Point's real estate assets were recorded as: $11.1 million to land, $44.6 million to building and improvements and $0.5 million to tenant origination and absorption costs. The Company also assumed a $36.6 million mortgage loan and $16.0 million of A-3 Preferred Units, which were eliminated in consolidation.

All of these assets are held by the Company through its subsidiary, PORT OP (formerly known as Reven Housing REIT OP, L.P.).

The Company acquired Battery Point by acquiring all the 1,000,000 outstanding shares of Battery Point common stock from BPT Holdings, LLC (“BPT Holdings”), a wholly owned subsidiary of the Advisor. The Advisor is the Company’s external advisor and is owned and controlled by Keith D. Hall, the Company’s Chief Executive Officer and a director, and Peter M. McMillan, the Company’s President and Chairman of the Board. In exchange, BPT Holdings received 510,816 common equity units in PORT OP, approximately 4.5% of the outstanding common equity units, as of July 1, 2020. The value of the interests exchanged was estimated by the participants at approximately $3.0 million. The common equity units issued to BPT Holdings are redeemable after one year at the request of BPT Holdings for all or a portion of the common equity units at a redemption price equal to and in the form of cash based on the unit price of PORT. The following table summarizes the redeemable non-controlling interest activity related to the BPT Holdings for the nine months ended September 30, 2020 (in thousands):


Issuance of PORT OP Units	$	3,024
Net loss attributable to redeemable noncontrolling interest	(23)
September 30, 2020	$	3,001

Prior to the acquisition date, the Company accounted for its investment in the Battery Point A-3 Preferred Units as an equity investment without a readily determinable fair value. The acquisition-date carrying value of the previous equity interest was $14.0 million and is included in the measurement of the consideration transferred. The Company recognized a gain of $2.0 million as a result of remeasuring its prior equity interest in the Battery Point A-3 Preferred Units held before the acquisition. The gain is included in the line item “Gain from remeasurement of prior equity interest” in the consolidated statement of operations. As a result of the Battery Point acquisition, the Company’s 640,000 shares of Battery Point Series A-3 Preferred Units were eliminated in consolidation.

Single-Family Home Acquisitions

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.

On July 29, 2020, the Company, through a wholly owned subsidiary of PORT OP, acquired a single-family home portfolio consisting of 12 homes in Alabama, Arkansas, and Illinois. The portfolio was purchased from DayMark Financial Acceptance LLC, an entity affiliated with the Advisor. The acquisition fee was waived for this acquisition. The purchase price was $1.0 million, which includes $10,000 of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $0.2 million to land and $0.8 million to building and improvements.

On August 14, 2020, the Company, through a wholly owned subsidiary of PORT OP, acquired a single-family home portfolio consisting of 11 homes in Memphis, Tennessee. The seller is not affiliated with the Company or the Advisor. The purchase price was $1.0 million, which includes $8,000 of capitalized acquisition costs. The Company recorded this acquisition as an asset acquisition and recorded $0.2 million to land, $0.8 million to building and improvements and $11,000 to tenant origination and absorption costs.

Sale of Real Estate

As of September 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.