Related and Affiliated Party Transactions

9 Months Ended

Sep. 30, 2024

Related Party Transactions [Abstract]

Related and Affiliated Party Transactions

Note 10. Related and Affiliated Party Transactions

Acquisition Fee

The Company acquired a property from an unaffiliated entity on May 30, 2024. As outlined in the asset management agreement, the Company paid a 1% acquisition fee on this property acquisition totaling $0.1 million to ExchangeRight at the time of acquisition. This acquisition fee was included as part of the purchase price consideration.

Organization and Offering Costs

The Sponsor incurs certain organization and offering costs in connection with the offerings of Class A Common Shares, Class I Common Shares, Class S Common Shares, Class ER Common Shares and OP Units and the organization of the Company. These costs include, but are not limited to, fees related to special purpose entity formation, legal and accounting fees, marketing expenses and other costs and expenses directly related to the offering and organization of the Company. All of these expenses are paid by the Sponsor or its affiliates. The Sponsor earns an amount equal to 1.00% of the net transaction price of sales of Class I, Class A, Class S and Class ER Common Shares, which is expected to offset the organizational and offering costs incurred described above.

Offering costs of $0.1 million and $0.3 million were included in total equity for the three and nine months ended September 30, 2024, respectively, for which the Company was obligated to pay the Sponsor. In addition, Class A and Class ER Common Shares incur broker-dealer commissions as an offering cost, a portion of which could be eligible to be earned by an affiliate of the Company. The net commissions for Class A Common Shares totaled $0.2 million and $0.7 million, respectively, for the three and nine months ended September 30, 2024 and were included in total equity. The net commissions for Class ER Common Shares totaled $0.1 million for the three and nine months ended September 30, 2024 and were included in total equity.

Class I Common Share and Noncontrolling Interest Ownership Interests

ExchangeRight Income Fund GP, LLC, owned 600,000 Class I Common Shares as of September 30, 2024, which were purchased on the same terms as other investors at acquisition.

In addition, ExchangeRight has made an investment into OP Units on the same terms offered to OP Unit holders. ExchangeRight owns 77,308 OP Units as of September 30, 2024.

Performance Participation

In addition to distributions payable on the 600,000 Class I Common Shares that ExchangeRight Income Fund GP, LLC holds, ExchangeRight Income Fund GP, LLC also holds a special limited partnership interest in our Operating Partnership, which entitles it to receive an incentive fee in accordance with the following waterfall:

(1) First, 100% to the holders of OP Units (including OP Units held by the Company, with respect to common shares issued by the Company) until they have received distributions, in cash, equal to a seven percent (7.0%) cumulative, non-compounding annual return on all capital contributions made, or deemed to have been made, to the Operating Partnership;

(2) Second, 100% to the holders of OP Units, pro rata in accordance with their respective capital accounts, until all of the holders of OP Units have received cumulative distributions, in cash, equal to their respective capital contributions made, or deemed to have been made, to the Operating Partnership; and

(3) Third, (i) 80% to the holders of OP Units, pro rata in accordance with their respective capital accounts, and (ii) 20% to the special limited partner.

Performance participation earned during the three and nine months ended September 30, 2024 was de minimis. No performance participation was earned during the three and nine months ended September 30, 2023. These amounts will become payable in common shares or, under certain circumstances, cash, if the common shares, or the common equity securities of a successor entity in a business combination, are listed on a national securities exchange or if the Company engages in a business combination transaction in which its common shareholders receive cash or listed common equity securities of the surviving entity.

Asset Management and Property Management Fees

An annual asset management fee is payable by the Operating Partnership to the Asset Manager, pursuant to an asset management agreement between the Asset Manager and the Operating Partnership. The asset management fee is an amount equal to fifteen basis points (0.15%) of the Company’s assets under management. The asset management fee is payable quarterly (0.0375% each quarter) and in arrears. The asset management agreement had an initial term of five years and was automatically renewed at the expiration of the initial term. This agreement will automatically renew at any subsequent five-year term for an additional five-year term.

An annual property management fee is payable by the Operating Partnership to the Property Manager pursuant to a property management agreement between the Operating Partnership and the Property Manager. The property management fee is equal to 1.10% of the gross revenues received by the Company from the Trust Properties and any other assets acquired by the Company, but excluding reimbursements relating to real estate taxes, insurance and common area maintenance charges and the fees earned by the Company from the RSLCA and noted receivable from affiliates. The current term of the property management agreement expires on February 28, 2025, and will automatically renew at the expiration of the term and any subsequent three-year term for an additional three-year term.

Asset management and property management fees for the three and nine months ended September 30, 2024 and 2023 were as follows:

	Three months ended September 30,					Nine months ended September 30,
	2024			2023		2024			2023
Asset management fees	$	23,000	(a)	$	375,000	$	192,000	(a)	$	1,269,000
Property management fees	$	193,000	(b)	$	181,000	$	393,000	(b)	$	534,000

(a)Asset management fees are net of $0.4 million for the three months ended September 30, 2024 and $1.2 million for the nine months ended September 30, 2024 in fees which were irrevocably waived by the asset manager.

(b)Property management fees are net of $0.2 million for the nine months ended September 30, 2024 in fees which were irrevocably waived by the property manager. No property management fees were waived during the three months ended September 30, 2024.