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 MARCH 31, 2024

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: 000-56543

EXCHANGERIGHT INCOME FUND

(Exact name of registrant as specified in its charter)

Maryland	36-7729360
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1055 E. Colorado Blvd, Suite 310
Pasadena, California	91106
(Address of principal executive offices)	(Zip Code)

(855) 317-4448

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
N/A	N/A	N/A

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 every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	x
		Emerging growth company	x

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 ☒

As of April 30, 2024, the issuer had the following shares of common stock outstanding: 10,220,011 Class A Common Shares, $0.01 par value per share; and 5,729,950 Class I Common Shares, $0.01 par value per share.

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Quarterly Report on Form 10-Q

Quarter ended March 31, 2024

Table of Contents

		Page
Cautionary Note Regarding Forward-Looking Statements		i
Part I. Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets - March 31, 2024 and December 31, 2023 (Unaudited)	1
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) - Three Months ended March 31, 2024 and 2023 (Unaudited)	2
	Condensed Consolidated Statements of Equity - Three Months ended March 31, 2024 and 2023 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows - Three Months ended March 31, 2024 and 2023 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II. Other Information
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	39
Item 4.	Mine Safety Disclosures	39
Item 5.	Other Information	39
Item 6.	Exhibits	40
Signatures		41

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Current Report on Form 10-Q other than historical facts may be considered “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and, as such, may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of ExchangeRight Income Fund (the “Company”) d/b/a the ExchangeRight Essential Income REIT (the "Company") to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. For these statements, the Company claims the protections of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “may”, “will”, “should”, “estimates”, “projects”, “anticipates”, “believes”, “expects”, “intends”, “future”, and words of similar import, or the negative thereof. Forward-looking statements in this Current Report on Form 10-Q include information about possible or assumed future events, including, among other things, discussion and analysis of our future financial condition, results of operations, our strategic plans and objectives, occupancy, leasing rates and trends, liquidity and ability to meet future obligations, anticipated expenditures of capital and other matters. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Form 10-Q is filed with the Securities and Exchange Commission.

Any such forward-looking statements are subject to unknown risks, uncertainties, and other factors, which in some cases are beyond our control, and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to shareholders, and maintain the value of our real estate properties, may be significantly hindered.

Factors that could cause actual results, performance or achievements to differ materially from current expectations include, but are not limited to:

•risks inherent in the real estate business, including tenant defaults, illiquidity of real estate investments, potential liability relating to environmental matters and potential damages from natural disasters;

•general business and economic conditions;

•the accuracy of our assessment that certain businesses are e‑commerce resistant and recession‑resilient;

•the accuracy of the tools we use to determine the creditworthiness of our tenants;

•concentration of our business within certain tenant categories;

•ability to renew leases, lease vacant space or re‑lease space as existing leases expire;

•our ability to successfully execute our acquisition strategies;

•the degree and nature of our competition;

•inflation and interest rate fluctuations;

•failure, weakness, interruption or breach in security of our information systems;

•our failure to generate sufficient cash flows to service our outstanding indebtedness;

•continued volatility and uncertainty in the credit markets and broader financial markets;

•our ability to maintain our qualification as a real estate investment trust (“REIT”) for federal income tax purposes;

•our limited operating history as a REIT, which may adversely affect our ability to make distributions to our shareholders;

•current loans, or future loans, may be subject to certain unfavorable provisions or may not be able to be refinanced;

•changes in, or the failure or inability to comply with, applicable laws or regulations; and

•future sales or issuances of our common shares or other securities convertible into our common shares, or the perception thereof, could cause the value of our common shares to decline and could result in dilution.

The foregoing list is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The foregoing should be read in conjunction with the complete discussion of risk factors we face, which are set forth in “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on April 11, 2024.

i

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Balance Sheets

(Unaudited)

	March 31,			December 31,
	2024			2023
ASSETS
Real estate:
Land	$	209,073,000		$	209,073,000
Buildings and improvements		893,374,000			893,225,000
		1,102,447,000			1,102,298,000
Less accumulated depreciation		(69,441,000	)		(62,243,000	)
Real estate, net		1,033,006,000			1,040,055,000
Intangible lease assets, net		65,336,000			68,616,000
RSLCA notes receivable from affiliates		28,962,000			22,251,000
Restricted cash		11,270,000			12,275,000
Cash and cash equivalents		6,091,000			7,053,000
Receivables		9,496,000			8,990,000
Notes receivable from affiliates		6,017,000			6,017,000
Right-of-use asset		4,664,000			4,652,000
Other assets		1,479,000			1,095,000
Due from affiliates		-			536,000
TOTAL ASSETS	$	1,166,321,000		$	1,171,540,000
LIABILITIES AND EQUITY
Mortgage loans payable, net	$	580,144,000		$	589,962,000
Revolving credit facility		15,000,000			-
Intangible lease liabilities, net		23,854,000			24,595,000
Accounts payable, accrued expenses and other liabilities		8,423,000			10,083,000
Right-of-use liability		5,028,000			4,977,000
Pending trade deposits		1,988,000			1,386,000
Distributions payable		3,456,000			3,452,000
Due to affiliates		849,000			43,000
Total liabilities		638,742,000			634,498,000
Commitments and contingencies
Equity:
Class A common shares, $0.01 par value per share, 80,036,009 and 79,873,720 shares authorized, 10,199,215 and 10,017,613 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		102,000			100,000
Class I common shares, $0.01 par value per share, 80,036,009 and 79,873,720 shares authorized, 5,644,258 and 5,768,982 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		56,000			58,000
Class S common shares, $0.01 par value per share, 80,036,009 and 79,873,720 shares authorized, 0 and 0 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively		-			-
Additional paid-in capital		409,958,000			408,358,000
Cumulative distributions in excess of net income		(65,664,000	)		(58,448,000	)
Accumulated other comprehensive (loss)		(31,000	)		(360,000	)
Total shareholders’ equity		344,421,000			349,708,000
Noncontrolling interests attributable to operating partnership		183,158,000			187,334,000
Total equity		527,579,000			537,042,000
TOTAL LIABILITIES AND EQUITY	$	1,166,321,000		$	1,171,540,000

See accompanying notes to condensed consolidated financial statements.

1

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Statements of Operations and Comprehensive (Loss)

(Unaudited)

	Three months ended March 31,
	2024			2023
Revenues
Rental revenue	$	20,469,000		$	19,527,000
Interest income on notes receivable from affiliates		923,000			1,166,000
Other		28,000			6,000
Total revenues		21,420,000			20,699,000
Operating Expenses
Property operating expenses		2,905,000			2,870,000
Management fees to affiliates		324,000			621,000
General and administrative expenses		337,000			428,000
Depreciation and amortization		10,368,000			10,157,000
Provision for impairment		250,000			-
Total operating expenses		14,184,000			14,076,000
Income from Operations		7,236,000			6,623,000
Other Income (Expense)
Interest expense		(7,838,000	)		(7,232,000	)
Interest income		13,000			-
Total other income (expense)		(7,825,000	)		(7,232,000	)
Net (loss)		(589,000	)		(609,000	)
Net loss attributable to noncontrolling interests		199,000			206,000
Net (loss) attributable to common shareholders	$	(390,000	)	$	(403,000	)
Net (loss) per common share attributable to common shareholders, basic and diluted	$	(0.02	)	$	(0.03	)
Weighted average number of common shares outstanding, basic and diluted		15,705,274			14,786,099
Other comprehensive (loss):
Net (loss)	$	(589,000	)	$	(609,000	)
Other comprehensive (loss) - unrealized gain (loss) on change in fair value of cash flow hedges		497,000			(879,000	)
Comprehensive (loss)		(92,000	)		(1,488,000	)
Comprehensive loss attributable to noncontrolling interests		31,000			500,000
Comprehensive (loss) attributable to common shareholders	$	(61,000	)	$	(988,000	)

See accompanying notes to condensed consolidated financial statements.

2

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Statements of Equity

Three months ended March 31, 2024

(Unaudited)

																												Noncontrolling
																			Cumulative			Accumulated						interest
	Common Shares															Additional			distributions			other			Total			attributable to
	Class A					Class I						Class S				paid-in			in excess			comprehensive			shareholders'			operating			Total
	Shares			Amount		Shares			Amount			Shares		Amount		capital			of net income			(loss)			equity			partnership			equity
Balance, December 31, 2023		10,017,613		$	100,000		5,768,982		$	58,000			-	$	-	$	408,358,000		$	(58,448,000	)	$	(360,000	)	$	349,708,000		$	187,334,000		$	537,042,000
Net (loss)		-			-		-			-			-		-		-			(390,000	)		-			(390,000	)		(199,000	)		(589,000	)
Unrealized gain on change in fair value of cash flow hedges		-			-		-			-			-		-		-			-			329,000			329,000			168,000			497,000
Issuance of common shares		214,923			2,000		85,569			1,000			-		-		8,479,000			-			-			8,482,000			-			8,482,000
Issuance of common shares under DRIP		19,638			-		16,573			-							968,000									968,000			-			968,000
Repurchase of common shares		(52,959	)		-		(251,315	)		(3,000	)		-		-		(8,060,000	)		-			-			(8,063,000	)		-			(8,063,000	)
Conversion of OP Units to common shares		-			-		24,449			-			-		-		661,000			-			-			661,000			(661,000	)		-
Offering costs		-			-		-			-			-		-		(448,000	)		-			-			(448,000	)		-			(448,000	)
Distributions		-			-		-			-			-		-		-			(6,826,000	)		-			(6,826,000	)		(3,484,000	)		(10,310,000	)
Balance, March 31, 2024		10,199,215		$	102,000		5,644,258		$	56,000			-	$	-	$	409,958,000		$	(65,664,000	)	$	(31,000	)	$	344,421,000		$	183,158,000		$	527,579,000

See accompanying notes to condensed consolidated financial statements.

3

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Statements of Equity

Three months ended March 31, 2023

(Unaudited)

																													Noncontrolling
																				Cumulative			Accumulated						interest
	Common Shares																Additional			distributions			other			Total			attributable to
	Class A						Class I						Class S				paid-in			in excess			comprehensive			shareholders'			operating			Total
	Shares			Amount			Shares			Amount			Shares		Amount		capital			of net income			(loss)			equity			partnership			equity
Balance, December 31, 2022		9,268,108		$	93,000			5,193,941		$	52,000			-	$	-	$	371,459,000		$	(30,761,000	)	$	-		$	340,843,000		$	188,231,000		$	529,074,000
Net (loss)		-			-			-			-			-		-		-			(403,000	)		-			(403,000	)		(206,000	)		(609,000	)
Unrealized (loss) on change in fair value of cash flow hedges		-			-			-			-			-		-		-			-			(585,000	)		(585,000	)		(294,000	)		(879,000	)
Issuance of common shares		446,995			5,000			256,807			3,000			-		-		20,622,000			-			-			20,630,000			-			20,630,000
Redemption of common shares		(64,461	)		(1,000	)		(73,645	)		(1,000	)		-		-		(3,531,000	)		-			-			(3,533,000	)		-			(3,533,000	)
Offering costs		-			-			-			-			-		-		(995,000	)		-			-			(995,000	)		-			(995,000	)
Distributions		-			-			-			-			-		-		-			(6,423,000	)		-			(6,423,000	)		(3,275,000	)		(9,698,000	)
Balance, March 31, 2023		9,650,642		$	97,000			5,377,103		$	54,000			-	$	-	$	387,555,000		$	(37,587,000	)	$	(585,000	)	$	349,534,000		$	184,456,000		$	533,990,000

See accompanying notes to condensed consolidated financial statements.

4

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss)	$	(589,000	)	$	(609,000	)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Depreciation and amortization		10,368,000			10,157,000
Provision for impairment		250,000			-
Amortization of deferred rent receivables/liabilities, net		(218,000	)		(252,000	)
Amortization of above/below-market lease intangibles, net		(624,000	)		(591,000	)
Amortization of assumed below/above-market debt, net		956,000			714,000
Amortization of lease incentives		64,000			53,000
Amortization of deferred financing costs		73,000			204,000
Amortization of deferred ground rent		40,000			40,000
Changes in assets and liabilities, net of assets acquired and liabilities assumed:
Receivables		(288,000	)		(486,000	)
Other assets		(419,000	)		247,000
Due from affiliates		536,000			(205,000	)
Accounts payable, accrued expenses and other liabilities		(1,164,000	)		106,000
Due to affiliates		806,000			464,000
Net cash provided by operating activities		9,791,000			9,842,000
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions of real estate		-			(2,259,000	)
Improvements of real estate		(399,000	)		(239,000	)
Advances on notes receivable from affiliated parties		(1,000	)		(3,000	)
Advances on RSLCA notes receivable from affiliated party		(38,831,000	)		(33,762,000	)
Repayments on RSLCA notes receivable from affiliated party		32,120,000			23,050,000
Net cash used in investing activities		(7,111,000	)		(13,213,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of Class A and Class I common shares		7,095,000			13,187,000
Offering costs from issuance of Class A and Class I common shares		(448,000	)		-
Repurchases of Class A and Class I common shares		(8,063,000	)		(3,533,000	)
Proceeds from pending trade deposits		1,988,000			3,375,000
Proceeds from mortgage loans payable		-			65,430,000
Repayments of mortgage loans payable		(10,831,000	)		(6,451,000	)
Proceeds from revolving credit facility		15,000,000			-
Repayments of revolving credit facilities		-			(73,311,000	)
Payments of financing costs		(53,000	)		(781,000	)
Class A and Class I common shares distributions		(5,974,000	)		(6,341,000	)
Noncontrolling interests distributions		(3,362,000	)		(3,283,000	)
Net cash used in financing activities		(4,648,000	)		(11,708,000	)
Net (decrease) in cash, cash equivalents and restricted cash		(1,968,000	)		(15,079,000	)
Cash, cash equivalents and restricted cash at beginning of year		19,329,000			36,645,000
Cash, cash equivalents and restricted cash at end of period	$	17,361,000		$	21,566,000

See accompanying notes to condensed consolidated financial statements.

5

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Three months ended March 31,
	2024		2023
Reconciliation to consolidated balance sheets:
Cash and cash equivalents	$	6,091,000	$	8,717,000
Restricted cash		11,270,000		12,849,000
Cash, cash equivalents and restricted cash at end of period	$	17,361,000	$	21,566,000
Supplemental disclosures of cash flow information:
Cash paid for interest	$	6,745,000	$	6,298,000
Supplemental disclosures of non-cash investing and financing activities:
Distributions payable	$	3,456,000	$	3,271,000
Distributions reinvested into Class A and Class I common shares	$	968,000	$	-
Conversion of OP Units to Class I common shares	$	661,000	$	-

See accompanying notes to condensed consolidated financial statements.

6

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Notes to Condensed Consolidated Financial Statements

March 31, 2024

Note 1. Business and Organization

ExchangeRight Income Fund, doing business as ExchangeRight Essential Income REIT, a Maryland statutory trust (the “Trust” or the “Company”), is a self-administered real estate company, formed on January 11, 2019, focusing on investing in single-tenant, primarily investment-grade net-leased real estate. The Company, through its operating partnership, ExchangeRight Income Fund Operating Partnership, LP, a Delaware limited partnership of which the Company is the sole general partner (the “Operating Partnership”) owned 352 properties in 34 states (collectively, the “Trust Properties”) as of March 31, 2024. The Trust Properties are occupied by 36 different primarily national investment-grade necessity-based retail tenants and are additionally diversified by industry, geographic region and lease term.

Unless the context requires otherwise, references to (i) the “Company” or the “General Partner” refer to ExchangeRight Income Fund, d/b/a ExchangeRight Essential Income REIT, together with its subsidiaries, including ExchangeRight Income Fund Operating Partnership, LP, a Delaware limited partnership of which the Company is the sole general partner, together with its subsidiaries, (ii) “Operating Partnership” or the “Partnership” refers to ExchangeRight Income Fund Operating Partnership, LP, together with its subsidiaries, (iii) “Trustee” refers to a related party, ExchangeRight Income Fund Trustee, LLC, a Delaware limited liability company, which is the sole trustee of the Company, (iv) “ExchangeRight” or “Sponsor” refers to ExchangeRight Real Estate, LLC, a California limited liability company, which is the Company’s sponsor and the sole member and manager of the Trustee, together with its subsidiaries, (v) “ExchangeRight Income Fund GP, LLC” refers to a wholly-owned subsidiary of ExchangeRight which owns 600,000 of the Company’s Class I common shares and holds a special limited partnership interest in the Operating Partnership, which entitles ExchangeRight Income Fund GP, LLC to receive a promote interest in the profits of the Operating Partnership in accordance with the distribution waterfall set forth in the Operating Partnership’s limited partnership agreement, (vi) “Advisor” or “Advisors” refers to any person or persons, if any, appointed, employed or contracted with by the General Partner and responsible for directing or performing the day-to-day business affairs of the General Partner, including any person to whom the Advisor hereafter subcontracts substantially all of such functions, and (vii) “Advisory Agreement” refers to the agreement among the Partnership, the General Partner and any Advisor, pursuant to which any such Advisor will direct or perform the day-to-day business affairs of the General Partner and the Partnership.

The Company has elected and is qualified to be taxed as a real estate investment trust (“REIT”) for United States of America (“U.S.”) federal income tax purposes beginning with the taxable year ended December 31, 2019. The Company is the sole general partner and a limited partner of the Operating Partnership which was formed on January 9, 2019. Substantially all of the Company’s business is conducted through the Operating Partnership. The Trust Properties are owned and controlled by the Company and are managed by ExchangeRight Net-Leased Property Management, LLC (the “Property Manager”) and ExchangeRight Net-Leased Asset Management, LLC (the “Asset Manager”), which are both wholly-owned subsidiaries of ExchangeRight, pursuant to executed property management and asset management agreements with each respective entity.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and the instructions to Form 10-Q. These unaudited interim condensed consolidated financial statements, in the opinion of management, include all adjustments of a normal recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The unaudited interim condensed consolidated financial statements should be read in conjunction with the Company’s audited annual consolidated financial statements and related notes included in Company's Form 10-K that was filed with the Securities and Exchange Commission on April 11, 2024. The consolidated results of operations for interim periods are not necessarily indicative of the results of operations to be expected for any subsequent interim period or for the fiscal year ending December 31, 2024.

7

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Notes to Condensed Consolidated Financial Statements

March 31, 2024

Principles of Consolidation

The unaudited interim condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, its subsidiaries and any single member limited liability companies or other entities which are consolidated in accordance with GAAP. Intercompany transactions and balances have been eliminated upon consolidation.

The Company consolidates variable interest entities (“VIEs”) when it is the primary beneficiary. Generally, a VIE is an entity with one or more of the following characteristics: (1) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (2) as a group, the holders of the equity investment at risk (a) lack the power through voting or similar rights to make decisions about the entity’s activities that significantly impact the entity’s performance, (b) have no obligation to absorb the expected losses of the entity, or (c) have no right to receive the expected residual returns of the entity, or (3) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately fewer voting rights.

A VIE is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE has (1) the power to direct the activities that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. Significant judgments related to these determinations include estimates about the current values, performance of real estate held by these VIEs, and general market conditions.

Use of Estimates

The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company’s most significant assumptions and estimates relate to the useful lives of real estate assets, real estate impairment assessments and allocation of fair value of purchase consideration. These estimates are based on historical experience and other assumptions which management believes are reasonable. The Company evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.

Cash, Cash Equivalents and Restricted Cash

Cash and cash equivalents consist of cash in banks and short-term investments with original maturities when purchased of less than ninety days. The Company did not have any cash equivalents as of March 31, 2024.

The terms of mortgage loans payable may require the Company to deposit certain replacement and other reserves with its lenders. Restricted cash was $ 11.3 million as of March 31, 2024, and represents funds held in reserve by lenders to cover real estate taxes, insurance, repairs, tenant improvements and leasing commissions of the underlying properties collateralized by the respective loan.

Note 3. Investments in Real Estate

The Company acquires, owns, and manages primarily single-tenant, investment-grade net-leased real estate. The Company owned 352 properties in 34 states as of March 31, 2024. As of March 31, 2024, the Company’s portfolio was 98.6% leased and is occupied by 36 different primarily national investment-grade necessity-based retail tenants, and is additionally diversified by industry, geographic region, and lease term.

Real estate activity for the three months ended March 31, 2024 is composed of the following:

8

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Notes to Condensed Consolidated Financial Statements

March 31, 2024

Cost
Balance - beginning of year	$	1,102,298,000
Improvements		399,000
Provision for impairment		(250,000	)
Balance - end of period	$	1,102,447,000
Accumulated depreciation
Balance - beginning of year	$	(62,243,000	)
Depreciation expense		(7,198,000	)
Balance - end of period	$	(69,441,000	)
Net book value - end of period	$	1,033,006,000

Revenues

Substantially all of the Company’s tenants are subject to net-lease agreements where the tenant is generally responsible for minimum monthly rent and actual property operating expenses incurred, including property taxes, insurance and maintenance. In addition, certain of the Company’s tenants are subject to future rent increases based on fixed amounts or, in limited cases, increases in the consumer price index. In addition, certain leases provide for additional rent calculated as a percentage of the tenants’ gross sales above a specified level. The Company recorded no percentage rent revenue for the three months ended March 31, 2024 and 2023. Certain of the Company’s properties are subject to leases under which it retains responsibility for specific costs and expenses of the property. The Company’s leases typically provide the tenant one or more multi-year renewal options to extend their leases, subject to generally the same terms and conditions, including rent increases.

All lease-related income is reported as a single line item, rental revenue, in the condensed consolidated statements of operations and comprehensive income. Rental revenue is comprised of the following:

	Three months ended March 31,
	2024		2023
Base rents	$	17,021,000	$	16,030,000
Tenant reimbursables		2,606,000		2,434,000
Straight-line rent adjustments		218,000		252,000
Above/below market lease amortization, net		624,000		591,000
Lease termination income		-		220,000
	$	20,469,000	$	19,527,000

Concentration of Credit Risk

As of March 31, 2024, the Company’s portfolio is occupied by 36 different primarily national investment-grade necessity-based retail tenants, and is additionally diversified by industry, geographic region, and lease term. The following tenants contributed more than 10% of contractual base rents during the three months ended March 31, 2024:

Tenant	% of Total Base Rents
Dollar General	17.8%
Walgreens	16.0%

Note 4. Notes Receivable

RSLCA Notes Receivable From Affiliated Party

The Company has invested in a short-term mezzanine loan to ExchangeRight (“ExchangeRight Mezz Loans”) for ExchangeRight’s Delaware Statutory Trust (“DST”) programs under a Revolving Secured Line of Credit Agreement (“RSLCA”).

9

ExchangeRight Income Fund

(d/b/a ExchangeRight Essential Income REIT)

Notes to Condensed Consolidated Financial Statements

March 31, 2024

The loan agreement, as amended, matures on April 4, 2027, with a maximum of $250.0 million outstanding at any time, and bears interest at a rate equal to 12.0% per annum, while outstanding.

The Company’s notes receivable under the RSLCA are secured by interests in an affiliated party that indirectly owns net-leased necessity-based retail properties similar to the Company’s acquired properties, as well as a pledge agreement and subordination agreement provided by ExchangeRight. As a result, the risk profile of an investment in these notes is intended to be similar to ownership of the Company’s acquired properties while providing liquidity and an enhanced risk-adjusted return over investments with similar liquidity. The Company’s investment in the RSLCA notes receivable are held at amortized cost and totaled $29.0 million as of March 31, 2024.

Notes Receivable from Affiliated Parties

On August 25, 2022, the Company entered into a real estate note as the lender with a two-property net-leased DST managed by ExchangeRight. The real estate note matures on August 25, 2027, generates interest at a fixed-rate of 6.00% and requires monthly interest only payments from the borrower. The Company's receivable under this real estate note totaled $3.6 million as of March 31, 2024 and is included in notes receivable from affiliates in the condensed consolidated balance sheets.

On November 18, 2022, the Company entered into a junior unsecured line of credit agreement as the lender with a four property net-leased DST managed by ExchangeRight. The junior unsecured line of credit agreement is for a maximum of $2.6 million, matures on November 18, 2027, generates interest at a fixed-rate of 7.25% and requires monthly interest only payments from the borrower. The Company's receivable under this junior unsecured line of credit agreement totaled $2.4 million as of March 31, 2024 and is included in notes receivable from affiliates in the condensed consolidated balance sheets.

Note 5. Intangible Assets and Liabilities

Intangible assets and liabilities consisted of the following as of March 31, 2024: