UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
None |
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N/A |
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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.
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).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 May 12, 2023, the registrant had
Table of Contents
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PART I. |
FINANCIAL INFORMATION |
2 |
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Item 1. |
Financial Statements (Unaudited) |
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Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022 |
2 |
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Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 |
3 |
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Consolidated Statements of Changes in Equity for the three months ended March 31, 2023 and 2022 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 |
5 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
28 |
Item 3. |
40 |
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Item 4. |
41 |
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PART II. |
42 |
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Item 1. |
42 |
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Item 1A. |
42 |
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Item 2. |
42 |
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Item 3. |
43 |
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Item 4. |
43 |
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Item 5. |
43 |
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Item 6. |
44 |
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45 |
i
Item 1. Financial Statements.
J.P. Morgan Real Estate Income Trust, Inc.
Consolidated Balance Sheets (Unaudited)
(in thousands, except per share data)
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March 31, |
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December 31, |
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2023 |
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2022 |
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ASSETS |
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Investments in real estate, net |
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$ |
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$ |
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Investment in real estate debt |
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Investments in real estate-related and other securities |
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Intangible assets, net |
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Cash |
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Restricted cash |
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Deposits on real estate |
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Other assets, net |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Secured credit facility |
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$ |
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$ |
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Mortgage notes, net |
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Intangible liabilities, net |
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Mandatorily redeemable Class E units |
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Due to affiliate |
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Subscriptions received in advance |
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— |
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Accounts payable, accrued expenses and other liabilities |
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Total liabilities |
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$ |
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$ |
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Equity |
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Common stock- Class E shares, $ |
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$ |
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$ |
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Common stock- Class T shares, $ |
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Common stock- Class S shares, $ |
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Common stock- Class D shares, $ |
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Common stock- Class I shares, $ |
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Preferred stock- $ |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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( |
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Total stockholders' equity |
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$ |
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$ |
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Non-controlling interests in consolidated joint ventures |
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Total equity |
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$ |
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$ |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
2
J.P. Morgan Real Estate Income Trust, Inc.
Consolidated Statements of Operations (Unaudited)
(in thousands, except per share data)
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For the Three Months Ended |
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For the Three Months Ended |
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March 31, 2023 |
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March 31, 2022 (1) |
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Revenues |
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Rental revenue |
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$ |
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$ |
— |
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Total revenues |
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— |
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Expenses |
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Rental property operating |
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— |
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General and administrative |
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— |
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Depreciation and amortization |
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— |
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Total expenses |
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— |
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Other income (expense), net |
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Income from investment in real estate debt |
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— |
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Income from investments in real estate-related and other securities |
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— |
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Mandatorily redeemable Class E units interest costs |
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( |
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— |
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Interest expense |
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( |
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— |
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Other income (expenses), net |
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— |
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Total other income (expense), net |
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( |
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— |
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Net loss |
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$ |
( |
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$ |
— |
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Net loss attributable to non-controlling interests in consolidated joint ventures |
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( |
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— |
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Net loss attributable to JPMREIT stockholders |
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$ |
( |
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— |
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Net loss per share of common stock - basic and diluted |
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$ |
( |
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$ |
( |
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Weighted-average shares of common stock outstanding - basic and diluted |
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(1)
The accompanying notes are an integral part of these consolidated financial statements.
3
J.P. Morgan Real Estate Income Trust, Inc.
(in thousands, except per share data)
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Par Value |
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Common Stock Class E |
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Common Stock Class T |
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Common Stock Class S |
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Common Stock Class D |
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Common Stock Class I |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Total Stockholder's Equity |
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Non-Controlling Interests |
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Total Equity |
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Balance at December 31, 2022 |
$ |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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( |
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( |
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Common stock issued |
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— |
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— |
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— |
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— |
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Distributions declared on common stock |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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— |
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( |
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Distribution reinvestments |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Distributions to non-controlling interests |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Offering costs |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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— |
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( |
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Stock based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2023 |
$ |
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$ |
— |
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$ |
— |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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Par Value |
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Common Stock Class E |
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Common Stock Class T |
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Common Stock Class S |
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Common Stock Class D |
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Common Stock Class I |
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Additional Paid-In Capital |
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Accumulated Deficit |
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Total Stockholder's Equity |
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Non-Controlling Interests |
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Total Equity |
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Balance at December 31, 2021 |
$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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$ |
— |
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$ |
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Net loss (1) |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
— |
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$ |
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$ |
— |
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$ |
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$ |
— |
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$ |
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(1)
The accompanying notes are an integral part of these consolidated financial statements.
4
J.P. Morgan Real Estate Income Trust, Inc.
Consolidated Statement of Cash Flows (Unaudited) (in thousands)
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For the Three Months Ended March 31, 2023 |
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For the Three Months Ended March 31, 2022 (1) |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
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$ |
— |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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— |
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Amortization of below market lease |
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( |
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— |
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Amortization of deferred financing costs |
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— |
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Stock based compensation |
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— |
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Unrealized loss on real estate related and other securities |
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— |
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Unrealized loss on mandatorily redeemable Class E units |
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— |
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Change in assets and liabilities: |
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Increase in other assets |
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( |
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— |
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Increase in due to affiliates |
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— |
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Decrease in accounts payable, accrued expenses and other liabilities |
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( |
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— |
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Net cash used in operating activities |
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( |
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— |
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Cash flows from investing activities: |
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Acquisitions of real estate |
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( |
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— |
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Capital improvements on real estate |
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( |
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— |
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Deposit on real estate acquisition |
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( |
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— |
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Proceeds from real estate-related and other securities |
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— |
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Purchases of real estate-related and other securities |
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( |
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— |
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Net cash used in investing activities |
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( |
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— |
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Cash flows from financing activities: |
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Proceeds from issuance of common stock |
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— |
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Distributions paid on common stock |
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( |
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— |
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Distributions to non-controlling interests |
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( |
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— |
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Repayments of secured credit facility |
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( |
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— |
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Proceeds from subscriptions received in advance |
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— |
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Principal repayments of mortgage notes |
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( |
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— |
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Payment of deferred financing costs on mortgage notes |
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( |
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— |
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Net cash provided by financing activities |
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— |
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Net change in cash and restricted cash: |
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— |
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Cash and restricted cash, at the beginning of the period |
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Cash and restricted cash, at the end of the period |
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$ |
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$ |
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(1)
5
J.P. Morgan Real Estate Income Trust, Inc.
Consolidated Statement of Cash Flows (Unaudited) (in thousands)
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For the Three Months Ended March 31, 2023 |
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For the Three Months Ended March 31, 2022 (1) |
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Reconciliation of cash and restricted cash to the Consolidated Balance Sheets: |
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Cash |
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$ |
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$ |
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Restricted cash |
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— |
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Total cash and restricted cash |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
— |
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Supplemental disclosure of non-cash investing and financing activities: |
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Accrued offering costs due to affiliate |
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$ |
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$ |
— |
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Accrued loan costs due to affiliate |
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$ |
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$ |
— |
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Accrued distributions |
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$ |
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$ |
— |
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Other accrued costs due to affiliate |
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$ |
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$ |
— |
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Distribution re-investment |
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$ |
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$ |
— |
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Accrued acquisition costs |
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$ |
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$ |
— |
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Accrued capex |
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$ |
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$ |
— |
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(1)
The accompanying notes are an integral part of these consolidated financial statements.
6
J.P. Morgan Real Estate Income Trust, Inc.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 2023
1. Organization and Business Purpose
J.P. Morgan Real Estate Income Trust, Inc. (the “Company” or "JPMREIT") was formed on November 5, 2021 as a Maryland corporation and intends to qualify as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company invests primarily in stabilized, income-generating real estate properties, and to a lesser extent, real estate debt, real estate-related securities and other securities. The Company is the sole general partner of J.P. Morgan REIT Operating Partnership, L.P., a Delaware limited partnership (“JPMREIT OP” or “Operating Partnership”). J.P. Morgan REIT OP Special Limited Partner, L.P. (the “Special Limited Partner”), an affiliate of J.P. Morgan Investment Management Inc. (the “Adviser” or “JPMIM” and together with its affiliates “J.P. Morgan”), owns a special limited partner interest in JPMREIT OP. Substantially all of the Company’s business is conducted through JPMREIT OP. The Company and JPMREIT OP are externally managed by JPMIM.
As of March 31, 2023, the Company owned
2. Capitalization
On July 6, 2022, the Company filed a Registration Statement on Form S-11 to register with the Securities and Exchange Commission ("SEC") an offering of up to $
On November 15, 2021, the Company was capitalized with a $
Pursuant to a separate private offering, JPMIM has agreed to purchase $
7
JPMIM has agreed to hold all of the Class E shares and Class E units it purchases pursuant to its capital commitment as part of the Initial Capitalization (the “JPM Initial Capitalization”) until the earlier of (i) the first date that the Company’s NAV reaches $
In addition, subject to certain exceptions, where the shares of the Company’s common stock and Operating Partnership units owned by the Adviser, together with any such shares and units owned by the Adviser and its affiliates, including any shares or units issued in lieu of cash management fees payable to the Adviser or the performance participation payable to the Special Limited Partner (such aggregate ownership, the “JPM Interest”) represent a
On May 26, 2022, JPMIM’s Subscription Agreement dated February 23, 2022 for Class E shares or Class E units was amended to provide that, if the Company receives capital commitments from investors in the private placement of Class E shares exceeding $
3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements include the accounts of the Company, and in the opinion of management, include all necessary adjustments, consisting of only normal and recurring items, necessary for a fair statement of the Company’s financial position and results of operations for the interim period. These financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the applicable rules and regulations of the SEC. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 29, 2023.
All intercompany balances and transactions have been eliminated in consolidation. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
There is no other comprehensive income (loss) for the three months ended March 31, 2023 and 2022, resulting in comprehensive loss equaling net loss. Accordingly, the statement of other comprehensive income (loss) is not presented.
8
From November 15, 2021 (date of the initial capitalization) through June 30, 2022, the Company had not commenced its principal operations and was focused on its formation and the registration of the Offering. The Offering commenced on July 22, 2022 and the Company commenced principal operations on September 2, 2022 with the acquisition of its first investment. Therefore, the Consolidated Statement of Operations and Consolidated Statement of Cash Flows for the three months ended March 31, 2022 is not comparable to the three months ended March 31, 2023 as it was before the Company began operations. Accordingly, not all information within the notes is shown for the comparative period.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and the Company’s subsidiaries in which the Company has a controlling interest. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint ventures is included in non-controlling interests on the Company's Consolidated Balance Sheets and Consolidated Statements of Operations. The non-controlling partner’s interest is generally computed as the joint venture partner’s ownership percentage.
In determining whether the Company has a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, the Company considers whether the entity is a variable interest entity ("VIE") and whether it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has (i) the power to direct the most significant activities impacting the economic performance of the VIE and (ii) the obligation to absorb losses or receive benefits significant to the VIE. Entities that do not qualify as VIEs are generally considered voting interest entities ("VOEs”) and are evaluated for consolidation under the voting interest model. VOEs are consolidated when the Company controls the entity through a majority voting interest or other means. When the requirements for consolidation are not met and the Company has significant influence over the operations of the entity, the investment is accounted for under the equity method of accounting. Equity method investments for which the Company has not elected a fair value option ("FVO”) are initially recorded at cost and subsequently adjusted for the Company’s pro-rata share of net income, contributions and distributions. When the Company elects the FVO, the Company records its share of net asset value of the entity and any related unrealized gains and losses.
The Operating Partnership is considered to be a VIE. The Company consolidates the Operating Partnership because it has the ability to direct the most significant activities of the entities such as purchases, dispositions, financings, budgets, and overall operating plans. Where the Company does not have the power to direct the activities of the VIE that most significantly impact its economic performance, the Company’s interest for those partially owned entities are accounted for using the equity method of accounting.
The Company holds an interest in
Cash
Cash represents cash held in banks, cash on hand and liquid investments with original maturities of three months or less. The Company may have bank balances in excess of federally insured amounts; however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure. The Company did not hold cash equivalents as of March 31, 2023 and December 31, 2022.
Restricted Cash
Restricted cash primarily consists of amounts in escrow related to real estate taxes, insurance and utilities in connection with mortgages at certain of the Company’s properties.
Investments in Real Estate
The Company determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired is not a business, the Company accounts for the transaction as an asset acquisition. All property acquisitions to date have been accounted for as asset acquisitions.
Whether the acquisition of a property acquired is considered a business combination or asset acquisition, the Company recognizes the identifiable tangible and intangible assets acquired, the liabilities assumed, and any non-controlling interest in the acquired entity. In addition, for transactions that are business combinations, the Company evaluates the existence of goodwill or a gain from a bargain purchase. The Company expenses acquisition-related costs associated with business combinations as they are incurred and capitalizes acquisition-related costs associated with asset acquisitions.
9
Upon the acquisition of a property deemed to be an asset acquisition, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price to the acquired assets and assumed liabilities. The Company assesses and considers fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that it deems appropriate, as well as other available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends and market and economic conditions.
The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals.
The cost of buildings and improvements includes the purchase price of the Company’s properties and any acquisition-related costs, along with any subsequent capitalized improvements to such properties.
The Company’s investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Description |
|
Depreciable Life |
Buildings |
|
|
Site improvements - buildings and land |
|
|
Furniture, fixtures and equipment |
|
|
Lease intangibles |
|
Repairs and maintenance are expensed to operations as incurred and are included in property operating expenses on the Company’s Consolidated Statement of Operations. Significant improvements to properties are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.
The Company records acquired above-market and below-market leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be received pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions.
In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related expenses. The amortization of acquired above-market and below-market leases is recorded as an adjustment to rental revenue on the Company’s Consolidated Statements of Operations. The amortization of in-place leases is recorded as an adjustment to depreciation and amortization expense on the Company’s Consolidated Statements of Operations.
The Company’s management reviews its real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. Since cash flows on real estate properties considered to be "long-lived assets to be held and used" are considered on an undiscounted basis to determine whether an asset has been impaired, the Company’s strategy of holding properties over the long term decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material to the Company’s results. If the Company determines that an impairment has occurred, the affected assets must be reduced to their estimated fair value. During the three months ended March 31, 2023,
Investments in Real Estate Debt
The Company’s investment in real estate debt consisted of the Mezzanine Loan (defined below) secured by real estate. The Company elected the fair value option ("FVO") for its real estate debt investment. As such, the resulting unrealized gains and losses of such loan is recorded as a component of income (loss) from investment in real estate debt on the Company’s Consolidated Statements of Operations.
10
Interest income from the Company’s investment in real estate debt is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of premiums and discounts associated with these investments is deferred and recorded over the term of the investment as an adjustment to yield. Upfront costs and fees related to items for which the FVO is elected shall be recognized in earnings as incurred and not deferred. Interest income of $
Investments in Real Estate-Related and Other Securities
The Company’s investments in real estate-related and other securities consist of one commercial mortgage backed security ("CMBS") investment and one United States Government Treasury security ("U.S. Treasury"). The Company has elected to classify its real estate-related and other securities as trading securities, which are recorded at fair value. As such, the Company records changes in fair value and interest income as a component of income (loss) from investments in real estate-related and other securities on the Company’s Consolidated Statements of Operations. An unrealized loss of $
Mandatorily Redeemable Class E Units
The Company reports its mandatorily redeemable Class E units of the Operating Partnership as a liability on its Consolidated Balance Sheets at JPMIM’s cash redemption value. JPMIM’s cash redemption value is determined based on the Company's NAV per Class E unit as of the Company's balance sheet date. For purposes of determining the Company's NAV, the Company's investments in real estate are recorded at fair value based on third party valuations prepared by licensed appraisers in accordance with standard industry practice. These fair value estimates of the Company's investments in real estate are particularly important as they are used for the calculation of NAV, which determines the adjustment to the carrying value of the Company's mandatorily redeemable Class E units. Significant differences in the fair value of the Company's mandatorily redeemable Class E units may result from changes in market conditions that cause the Company's NAV, and thus JPMIM’s redemption value, to increase or decrease during the period and is recorded as a component of mandatorily redeemable Class E units interest cost on the Company's Consolidated Statements of Operations. Distributions declared on the Class E units are recorded as a component of mandatorily redeemable Class E units interest cost on the Company's Consolidated Statements of Operations. Declared but unpaid distributions as of March 31, 2023 and December 31, 2022, respectively, were recorded as a liability within accounts payable, accrued expenses and other liabilities on the Company's Consolidated Balance Sheets.
Fair Value Measurements
Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchical framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:
Level 1 — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.
Level 2 — quoted prices are available in markets that are not active, or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
Level 3 — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment.
These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
11
Valuation of assets and liabilities measured at fair value
The Company’s investments in real estate debt, real estate-related and other securities are recorded at fair value. The Company generally determines the fair value of its investments by utilizing third-party pricing service providers. In determining the value of a particular real estate-related security, the pricing service providers may use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models to determine the reported price. The pricing service providers’ internal models for real estate-related securities usually consider the attributes applicable to a particular class of security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available.
Certain of the Company’s investments in real estate debt include loans secured by real estate, such as its mezzanine loan, are unlikely to have readily available market quotations. In such cases, the Company will generally determine the initial value based on the origination amount or acquisition price of such investment if acquired by the Company or the par value of such investment if originated by the Company. Following the initial measurement, the Company will determine fair value by utilizing or reviewing certain of the following inputs (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield or loan-to-value ratios and (vii) borrower financial condition and performance.
The JPMIM mandatorily redeemable Class E units are carried at their cash redemption value as if the units were repurchased or redeemable at the reporting date, which equals NAV per unit at the reporting date.
The carrying amounts of financial instruments such as other assets, accounts payable, accrued expenses and other liabilities approximate their fair values due to the short-term maturities and market rates of interest of these instruments.
The following table details the Company’s assets and liabilities measured at fair value on a recurring basis ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Investment in real estate debt |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
Investments in real estate-related and other securities |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Mandatorily redeemable Class E units |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||||
The following table details the Company’s assets and liabilities measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):
|
|
Investment in Real Estate Debt (asset) |
|
|
Mandatorily Redeemable Class E Units (liability) |
|
||
Balance at December 31, 2022 |
|
$ |
|
|
$ |
|
||
Purchases |
|
|
— |
|
|
|
— |
|
Proceeds |
|
|
— |
|
|
|
— |
|
Distributions declared |
|
|
— |
|
|
|
|
|
Reclassify to distributions payable/paid |
|
|
— |
|
|
|
( |
) |
Unrealized loss included in mandatorily redeemable Class E units interest costs |
|
|
— |
|
|
|
|
|
Balance at March 31, 2023 |
|
$ |
|
|
$ |
|
||
12
The following tables contain the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy ($ in thousands):
|
|
March 31, 2023 |
||||||||||
|
|
Fair Value |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Weighted Average Rate |
|
Impact to Valuation from an Increase in Input |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate debt |
|
$ |
|
|
|
|
SOFR + |
|
Decrease |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Mandatorily redeemable Class E units (1) |
|
$ |
|
|
|
|
|
Decrease |
||||
(1) Mandatorily redeemable Class E units are carried at the NAV of the Class E units which is determined monthly in accordance with the Company's valuation guidelines.
Valuation of assets and liabilities not measured at fair value
The fair value of the Company’s financial instruments (other than mortgage notes), including cash and cash equivalents and other financial instruments, approximate their carrying or contract value. The fair value of the Company’s indebtedness is estimated by modeling the cash flows required by the Company’s debt agreements and discounting them back to the present value using an appropriate discount rate. Additionally, the Company considers current market rates and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. The inputs used in determining the fair value of the Company’s indebtedness are considered Level 3.
The following table presents the carrying value and fair value of financial instruments that are not carried at fair value on the Consolidated Balance Sheets:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
||||
Secured credit facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Mortgage notes (1) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) Mortgage notes carrying value excludes deferred financing costs and mortgage discounts.
Deposits on Real Estate
Deposits paid on real estate purchase contracts are recorded and classified as deposits on real estate on the Company’s Consolidated Balance Sheets until the related real estate purchase is completed. Deposits are reclassified as a component of real estate at the time the deposit is used to offset the acquisition price of the real estate based on the terms of the underlying agreement. To the extent a deposit is non-refundable and the real estate purchase is terminated, the deposit is expensed to other income (expense), net on the Consolidated Statements of Operations. There were
Deferred Charges
13
Income Taxes
The Company intends to make an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. If the Company qualifies for taxation as a REIT, the Company generally will not be subject to federal corporate income tax to the extent it distributes
Revenue Recognition
The Company commences revenue recognition on its leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of the Company’s contracts are, or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the inception or acquisition of a lease, including new leases that arise from amendments, the Company assesses the terms and conditions of the lease to determine the proper lease classification.
A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a financing lease under certain circumstances in accordance with ASC 842.
The Company’s rental revenue primarily consists of fixed contractual base rent arising from tenant leases at the Company’s properties under operating leases. Revenue under operating leases that are deemed probable of collection, is recognized as revenue on a straight-line basis over the terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in the Company’s Consolidated Balance Sheets. Management exercises judgment in assessing collectability of leases with revenue for any leases deemed not probable of collection being recognized when cash is collected.
Certain of the Company’s contracts contain non-lease components (e.g., charges for management fees, common area maintenance, reimbursement of third-party maintenance expenses, real estate taxes and insurance) in addition to lease components (i.e., monthly rental charges). Services related to non-lease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. The Company elected to apply the practical expedient available under ASC 842, for all classes of assets, not to segregate the lease components from the non-lease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and non-lease components are accounted for in accordance with ASC 842 and reported as rental revenues in the Company’s Consolidated Statements of Operations.
Organization and Offering Costs
Organization costs are expensed as incurred and recorded as a component of general and administrative expenses on the Company’s Consolidated Statements of Operations and offering costs are charged to equity as such amounts are incurred. The Company recognized
The Adviser will advance the Company’s organization and offering costs on behalf of the Company (including legal, accounting, and other expenses attributable to the Company’s organization, but excluding upfront selling commissions, dealer manager fees and stockholder servicing fees) through July 22, 2024, the second anniversary of the commencement of the Offering. The Company will reimburse the Adviser for all such advanced costs ratably over a
The Adviser and its affiliates had incurred organization and offering costs on the Company’s behalf of $
Operating Expenses
The Adviser will advance on our behalf certain of the Company’s operating expenses through the earlier of (i) the first date that the Company’s NAV reaches $
14
The Adviser and its affiliates incurred operating expenses on the Company’s behalf totaling $
Share Repurchases
The Company has adopted a share repurchase plan, whereby on a monthly basis, stockholders may request that the Company repurchase all or any portion of their shares. The Company may choose to repurchase all, some or none of the shares that have been requested to be repurchased at the end of any particular month, in its discretion, subject to any limitations in the share repurchase plan. The total amount of aggregate repurchases of Class T, Class S, Class D, Class E and Class I shares is limited to
Due to the illiquid nature of investments in real estate, the Company may not have sufficient liquid resources to fund repurchase requests and has established limitations on the amount of funds the Company may use for repurchases during any calendar month and quarter. Should repurchase requests, in the Company's judgment, place an undue burden on the Company's liquidity, adversely affect the Company's operations or risk having an adverse impact on the Company as a whole, or should the Company otherwise determine that investing its liquid assets in real properties or other investments rather than repurchasing its shares is in the best interests of the Company as a whole, the Company may choose to repurchase fewer shares in any particular month than have been requested to be repurchased, or none at all. Further, the Company's board of directors may make exceptions to, modify or suspend the Company's share repurchase plan if in its reasonable judgment it deems such action to be in the Company's best interest and the best interests of the Company's stockholders.
Class E share repurchase rights
The Class E shares issued in the Initial Capitalization are not eligible for repurchase pursuant to the share repurchase plan. The Class E shares issued in the Initial Capitalization will only be eligible for repurchase following the earlier to occur of (i) July 22, 2025, the third anniversary of the date the Company commenced the Offering, and (ii) the date that the Company's aggregate NAV is at least $
The aggregate amount of Class E shares that the Company is required to repurchase in any month will be limited to an amount equal to any remaining availability for share repurchases pursuant to the terms and conditions of the share repurchase plan for the Company's Class T, Class S, Class D and Class I shareholders, after the Company has fulfilled all repurchase requests submitted pursuant to the share repurchase plan. In addition, the Company will not repurchase any Class E shares during any period that the share repurchase plan has been suspended.
JPMIM Class E share and unit repurchases
15
Earnings Per Share
Basic net loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock outstanding during the period. Diluted loss per share is computed by dividing net loss for the period by the weighted average number of shares of common stock and common stock equivalents outstanding (unless their effect is anti-dilutive) for the period. For the three months ended March 31, 2023, unvested Class E common shares awarded to the Company's independent directors are excluded from the calculation of diluted earnings per share as the inclusion of such potential common shares in the calculation would be anti-dilutive. There were no other potentially dilutive, unissued common shares for the three months ended March 31, 2022. The weighted average number of shares of common stock outstanding is identical for both basic and diluted shares.
4. Investments in Real Estate
Investments in real estate, net consisted of the following ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Building and building improvements |
|
$ |
|
|
$ |
|
||
Land and land improvements |
|
|
|
|
|
|
||
Furniture, fixtures and equipment |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Investments in real estate, net |
|
$ |
|
|
$ |
|
||
The Company did
5. Investment in Real Estate Debt
The following table details the Company’s investment in real estate debt ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||||||||||
Real Estate Debt |
|
Number of Positions |
|
|
Credit Rating |
|
Coupon |
|
Maturity Date |
|
Cost Basis |
|
|
Fair Value |
|
|
Cost Basis |
|
|
Fair Value |
|
|||||
Mezzanine loan |
|
|
|
|
Not Rated |
|
SOFR + |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
On September 2, 2022, the Company acquired a $
The following table details the amounts recognized for the Company's investment in real estate debt ($ in thousands):
|
|
For the Three Months Ended March 31, 2023 |
|
|
Interest income |
|
$ |
|
|
Total income from investment in real estate debt |
|
$ |
|
|
16
6. Investments in Real Estate-Related and Other Securities
The following table details the Company’s investments in real estate-related and other securities ($ in thousands):
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
Real Estate-Related and Other Securities |
|
Coupon |
|
Maturity Date |
|
Face Amount |
|
|
Cost Basis |
|
|
Fair Value |
|
|
Face Amount |
|
|
Cost Basis |
|
|
Fair Value |
|
||||||
CMBS |
|
SOFR + |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
U.S. Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|||||
Total real estate-related and other securities |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table details the amounts recognized for the Company's investments in real estate-related and other securities ($ in thousands):
|
|
For the Three Months Ended March 31, 2023 |
|
|
Interest income |
|
$ |
|
|
Unrealized loss |
|
|
( |
) |
Total income from investments in real estate-related and other securities |
|
$ |
|
|
7. Intangibles
The gross carrying amount and accumulated amortization of the Company’s intangible assets and liabilities consisted of the following ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Intangible assets: |
|
|
|
|
|
|
||
In-place lease intangibles |
|
$ |
|
|
$ |
|
||
Accumulated amortization: |
|
|
|
|
|
|
||
In-place lease amortization |
|
|
( |
) |
|
|
( |
) |
Intangible assets, net |
|
$ |
|
|
$ |
|
||
Intangible liabilities: |
|
|
|
|
|
|
||
Below-market lease intangibles |
|
$ |
( |
) |
|
$ |
( |
) |
Accumulated amortization: |
|
|
|
|
|
|
||
Below-market lease amortization |
|
|
|
|
|
|
||
Intangible liabilities, net |
|
$ |
( |
) |
|
$ |
( |
) |
The estimated future amortization on the Company’s intangibles for each of the next five years and thereafter as of March 31, 2023 is as follows ($ in thousands):
|
In-place Lease Intangibles |
|
|
Below-market Lease Intangibles |
|
||
2023 (remainder) |
$ |
|
|
$ |
( |
) |
|
2024 |
|
|
|
|
( |
) |
|
2025 |
|
|
|
|
( |
) |
|
2026 |
|
|
|
|
( |
) |
|
2027 |
|
|
|
|
( |
) |
|
Thereafter |
|
|
|
|
( |
) |
|
Total |
$ |
|
|
$ |
( |
) |
|
The in-place lease intangible amortization is recorded in depreciation and amortization while the below-market intangible amortization is recorded in rental revenue on the Company's Consolidated Statements of Operations.
17
8. Mortgage Notes and Secured Credit Facility
Mortgage notes
The following is a summary of the fixed-rate mortgage notes secured by the Company’s properties ($ in thousands):
|
|
|
|
|
|
|
Principal Balance Outstanding |
|
||||||
Indebtedness |
|
Interest Rate |
|
|
Maturity Date |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||
Caroline West Gray |
|
|
% |
|
|
$ |
|
|
$ |
|
||||
Caroline Post Oak |
|
|
% |
|
|
|
|
|
|
|
||||
Coda on Centre |
|
|
% |
|
|
|
|
|
|
|
||||
Total fixed-rate loans |
|
|
|
|
|
|
|
|
|
|
|
|||
Deferred financing costs, net |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Mortgage discount, net |
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Total mortgage notes |
|
|
|
|
|
|
$ |
|
|
$ |
|
|||
Secured credit facility
The following is a summary of the Company's floating-rate Credit Facility secured by the unfunded commitments of the Initial Capitalization ($ in thousands):
|
|
|
|
|
|
|
|
|
Principal Balance Outstanding |
|
||||||
Indebtedness |
|
Interest Rate |
|
Maturity Date |
|
Maximum Facility Size |
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||
Secured credit facility (1) |
|
SOFR + |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
(1) The secured credit facility has
During 2022, the Company, as initial guarantor, and the Operating Partnership, as initial borrower, entered into a credit agreement (“Credit Agreement”) with U.S. Bank National Association (“U.S. Bank”). The Credit Agreement provides for aggregate commitments of up to $
Loans outstanding under the Credit Facility bear interest and line of credit fees, at the Operating Partnership's option, at either a relevant SOFR plus an applicable margin or a "base rate" equal to the higher of (i) zero and (ii) the sum of the Federal Funds Effective Rate plus
The Company may extend the maturity date to a business day that is not later than 12 months after the then-effective stated maturity date, no more than , upon: (a) delivery by the Company of an extension request at least
There were $
18
Mortgage notes and secured credit facility
The following table details the future principal payments due under the Company’s mortgage notes and Credit Facility as of March 31, 2023 ($ in thousands):
Year |
|
Mortgage Notes |
|
|
Secured Credit Facility |
|
|
Total |
|
|||
2023 (remainder) |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2024 |
|
|
|
|
|
— |
|
|
|
|
||
2025 |
|
|
|
|
|
— |
|
|
|
|
||
2026 |
|
|
|
|
|
— |
|
|
|
|
||
2027 |
|
|
|
|
|
— |
|
|
|
|
||
Thereafter |
|
|
|
|
|
— |
|
|
|
|
||
Total future commitments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The Company is subject to various financial and operational covenants under certain of its mortgage notes and the Credit Facility. These covenants require the Company to maintain certain financial ratios, which may include leverage, debt yield, and debt service coverage, among others. As of March 31, 2023, the Company was in compliance with all of its loan covenants that could result in a default under such agreements.
9. Related Party Transactions
The Company and the Operating Partnership entered into an advisory agreement with the Adviser on May 31, 2022, which was amended and restated on on May 12, 2023 (the "Advisory Agreement"). Pursuant to the Advisory Agreement, the Adviser is responsible for sourcing, evaluating and monitoring the Company’s investment opportunities and making decisions related to the acquisition, management, financing and disposition of the Company’s assets, in accordance with the Company’s investment objectives, guidelines, policies and limitations, subject to oversight by the Company’s board of directors.
Certain affiliates of the Company, including the Adviser, will receive fees and compensation in connection with the ongoing management of the assets of the Company. The Adviser will be paid a management fee equal to
The Company, as general partner, and Special Limited Partner entered into the Limited Partnership Agreement of JPMREIT OP on June 3, 2022 as amended on September 20, 2022.
The Special Limited Partner holds a performance participation interest in JPMREIT OP that entitles it to receive an allocation from JPMREIT OP equal to
J.P. Morgan Institutional Investments Inc. (the “Dealer Manager”) serves as the dealer manager for the Offering. The Dealer Manager is a registered broker-dealer affiliated with the Adviser. The Company entered into an agreement (the “Dealer Manager Agreement”) on June 8, 2022 with the Dealer Manager in connection with the Offering.
The Dealer Manager is entitled to receive upfront selling commissions of up to
19
The Dealer Manager also receives a stockholder servicing fee of
The Company may retain certain of the Adviser’s affiliates for necessary services relating to the Company’s investments or its operations, including any administrative services, construction, special servicing, leasing, development, property oversight and other property management services, as well as services related to mortgage servicing, group purchasing, healthcare, consulting/brokerage, capital markets/credit origination, loan servicing property, title or other types of insurance, management consulting and other similar operational matters.
During the year ended December 31, 2022, the Company sold
On September 2, 2022, the Company acquired a $
Due to Affiliates
The following table details the components of due to affiliates ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Organization and offering costs |
|
$ |
|
|
$ |
|
||
Operating expenses |
|
|
|
|
|
|
||
Accrued performance participation allocation |
|
|
|
|
|
— |
|
|
Asset management fee |
|
|
|
|
|
— |
|
|
Total |
|
$ |
|
|
$ |
|
||
Organization and offering costs
The Adviser has advanced $
Operating expenses
The Adviser has advanced $
20
10. Other Assets and Liabilities
The following table summarizes the components of other assets ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Deferred financing costs, net |
|
$ |
|
|
$ |
|
||
Receivables |
|
|
|
|
|
|
||
Acquisition costs |
|
|
|
|
|
|
||
Prepaid expenses |
|
|
|
|
|
|
||
Interest receivable |
|
|
|
|
|
|
||
Straight-line rent receivable |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
The following table summarizes the components of accounts payable, accrued expenses and other liabilities ($ in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Real estate taxes payable |
|
$ |
|
|
$ |
|
||
Accrued expenses |
|
|
|
|
|
|
||
Accounts payable |
|
|
|
|
|
|
||
Distributions payable(1) |
|
|
|
|
|
|
||
Tenant security deposits |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
(1) Included in distributions payable is $
11. Leases
Lessor
The Company’s rental revenue primarily consists of rent earned from operating leases at the Company’s multifamily and net lease industrial properties. Leases at the Company’s industrial property includes a fixed base rent, and a variable rent component. The variable component of the Company’s operating lease at its industrial property consists of the reimbursement of operating expenses such as real estate taxes, insurance, and common area maintenance costs. Rental revenue earned from leases at the Company’s multifamily properties primarily consist of a fixed base rent, and certain leases contain a variable component that allows for the pass-through of certain operating expenses such as utilities.
The lease at the Company’s net lease industrial property is longer term and contains extension and termination options at the lessee’s election. The lease does not have material variable payments, material residual value guarantees or material restrictive covenants. Leases at the Company’s multifamily properties are short term in nature, generally not greater than 12 months in length.
The following table details the components of operating lease income from the Company's industrial property ($ in thousands). The leases at the Company’s multifamily properties are short term, generally 12 months or less, and are therefore not included.
|
|
For the Three Months Ended March 31, 2023 |
|
|
Fixed lease payments |
|
$ |
|
|
Total fixed lease payments |
|
$ |
|
|
The following table presents the undiscounted future minimum rents the Company expects to receive from its industrial property as of March 31, 2023 ($ in thousands). The leases at the Company’s multifamily properties are short term, generally 12 months or less, and are therefore not included.
Year |
|
March 31, 2023 |
|
|
2023 (remainder) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
21
12. Equity
Authorized capital
The Company is authorized to issue preferred stock and five classes of common stock consisting of Class E shares, Class T shares, Class S shares, Class D shares, and Class I shares. The differences among the common share classes relate to upfront selling commissions and ongoing stockholder servicing fees. See Note 2 for additional detail of each share class.
As of March 31, 2023, in accordance with the Company's charter, the Company had authority to issue
Classification |
|
Number of Shares |
|
|
Par Value |
|
||
Class E Shares |
|
|
|
|
$ |
|
||
Class D Shares |
|
|
|
|
|
|
||
Class I Shares |
|
|
|
|
|
|
||
Class S Shares |
|
|
|
|
|
|
||
Class T Shares |
|
|
|
|
|
|
||
Preferred Stock |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Common Stock
The following table details the movement in the Company’s outstanding shares of common stock (in thousands). There were
|
|
For The Three Months Ended March 31, 2023 |
|
|||||||||||||||||||||
|
|
Class E |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|
Total |
|
||||||
Beginning balance, December 31, 2022: |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Common stock issued |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Ending balance, March 31, 2023 |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
||||
Class E share repurchase rights
The Class E shares issued in the Initial Capitalization are not eligible for repurchase pursuant to the share repurchase plan. The Class E shares issued in the Initial Capitalization will only be eligible for repurchase following the earlier to occur of (i) July 22, 2025, the third anniversary of the date the Company commenced this public offering, and (ii) the date that the Company's aggregate NAV is at least $
The aggregate amount of Class E shares that the Company is required to repurchase in any month will be limited to an amount equal to any remaining availability for share repurchases pursuant to the terms and conditions of the share repurchase plan (as described in the prospectus), after the Company has fulfilled all repurchase requests submitted pursuant to the share repurchase plan. In addition, the Company will not repurchase any Class E shares during any period that the share repurchase plan has been suspended.
Distribution reinvestment plan
The Company has adopted a distribution reinvestment plan whereby holders of shares of common stock will have the cash distributions attributable to the shares they own reinvested in additional shares; provided, however, that clients of certain participating broker-dealers that do not permit automatic enrollment in our distribution reinvestment plan and stockholders that are residents of certain states that do not permit automatic enrollment in the distribution reinvestment plan will automatically receive their distributions in cash unless they elect to participate in the distribution reinvestment plan.
The purchase price for shares of our common stock purchased pursuant to the distribution reinvestment plan will be equal to the transaction price for the applicable class of shares at the time the distribution is payable (which will generally be equal to the Company’s prior month’s NAV per share). Stockholders will not pay upfront selling commissions or dealer manager fees when purchasing shares of common stock pursuant to the distribution reinvestment plan. The stockholder servicing fees with respect to Class T shares, Class S shares and Class D shares are calculated based on our NAV for those shares and may reduce the NAV or, alternatively, the distributions payable with respect to shares of each such class, including shares issued in respect of distributions on such shares under the distribution reinvestment plan. Shares acquired under the distribution reinvestment plan will entitle the participant to the same rights and be treated in the same manner as shares purchased in the Offering.
22
Distributions
The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. Each class of common stock receives the same gross distribution per share. The net distribution varies for each class based on the applicable stockholder servicing fee, which is deducted from the monthly distribution per share and paid directly to the applicable distributor.
The following table details the aggregate distributions declared for each applicable class of common stock:
|
|
For the Three Months Ended March 31, 2023 |
|
|||||||||||||||||
|
|
Class E |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|||||
Aggregate gross distributions declared per share of common stock |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
Stockholder servicing fee per share of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net distributions declared per share of common stock |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|||
13. Mandatorily Redeemable Class E Units
During the year ended December 31, 2022, the Company sold
As the sole investor in Class E units of the Operating Partnership, JPMIM's interest does not have any voting rights but is entitled to receive distributions at the same rate applicable to other classes of units.
Operating Partnership units also carry a protective exchange feature whereby in a liquidation, dilution or winding up, each unit will convert into a number of Class I units (or fraction thereof) with an equivalent NAV. Such feature is designed to carry over NAV into a new form of security immediately prior to liquidation and is not deemed a substantive conversion feature as it is only applicable upon liquidation or upon a listing event which is not the intent of this non-listed REIT structure.
The Class E units held by JPMIM are mandatorily redeemable, and only subject to delays to the continuous obligation to ultimately redeem the Class E units once sufficient availability exists under share repurchase agreements. Therefore, the Class E units held by JPMIM are classified as a liability pursuant to Topic 480 — Distinguishing Liabilities from Equity and is presented as “mandatorily redeemable Class E units” at the initial funding amount received, which is equivalent to fair value at the issuance dates. Subsequently, the mandatorily redeemable Class E units are carried at its cash redemption value as if the unit were repurchased or redeemable at the reporting date, which equals NAV per unit. The change in carrying value (changes in NAV per unit) is classified as mandatorily redeemable Class E units interest costs along with any cash distributions declared in the Consolidated Statements of Operations. The Company recorded an unrealized loss of $
The following table details the mandatorily redeemable Class E unit activity for the three months ended March 31, 2023 ($ in thousands):
|
|
For The Three Months Ended March 31, 2023 |
|
|
Balance at the beginning of the year |
|
$ |
|
|
Distributions declared |
|
|
|
|
Reclassification to distributions payable/paid |
|
|
( |
) |
Unrealized loss |
|
|
|
|
Ending balance |
|
$ |
|
|
23
The following table details the future payments due under the Company’s mandatorily redeemable Class E units as of March 31, 2023 ($ in thousands):
Year |
|
Total |
|
|
2023 (remainder) |
|
$ |
— |
|
2024 |
|
|
— |
|
2025 |
|
|
|
|
2026 |
|
|
— |
|
2027 |
|
|
— |
|
Thereafter |
|
|
— |
|
Total future commitments |
|
$ |
|
|
Redemption features
JPMIM has agreed to hold all of the Initial Capitalization until the earlier of (i) the first date that the Company's NAV reaches $
Distributions
The Company generally intends to distribute substantially all of its taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to its stockholders each year to comply with the REIT provisions of the Internal Revenue Code. The mandatorily redeemable Class E units receive the same gross distribution per share as the Class E common stock. For the three months ended March 31, 2023, the Company declared distributions of $
14. Earnings Per Share
The Company's net loss and weighted average number of shares outstanding for the three months ended March 31, 2023 and 2022 consists of the following ($ and shares in thousands):
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 (1) |
|
||
Net loss attributable to JPMREIT stockholders |
|
$ |
( |
) |
|
$ |
— |
|
Weighted-average shares of common stock outstanding, basic and diluted |
|
|
|
|
|
|
||
(1) The Company was formed on November 5, 2021 and commenced operations on September 2, 2022, accordingly, there were minimal operations during the three months ended March 31, 2022.
24
The calculation of basic and diluted net loss per share amounts for the three months ended March 31, 2023 and 2022 consists of the following ($ and shares in thousands except per share numbers):
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 (1) |
|
||
Basic and Diluted Net Loss per Share Attributable to JPMREIT Stockholders |
|
|
|
|
|
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss attributable to JPMREIT stockholders |
|
$ |
( |
) |
|
$ |
— |
|
Denominator: |
|
|
|
|
|
|
||
Weighted-average shares of common stock outstanding |
|
|
|
|
|
|
||
Basic and diluted net loss per share of common stock |
|
$ |
( |
) |
|
$ |
( |
) |
(1) The Company was formed on November 5, 2021 and commenced operations on September 2, 2022, accordingly, there were minimal operations during the three months ended March 31, 2022.
For the three months ended March 31, 2023, unissued Class E common shares awarded to the Company's independent directors are excluded from the calculation of diluted EPS as the inclusion of such potential common shares in the calculation would be anti-dilutive. There were no other potentially dilutive, unissued common shares for the three months ended March 31, 2022.
15. Segment Reporting
The Company operates in
The following table details the total assets by segment ($ in thousands):
Segment |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Multifamily |
|
$ |
|
|
$ |
|
||
Industrial |
|
|
|
|
|
|
||
Investment in real estate debt, real estate-related and other securities |
|
|
|
|
|
|
||
Other (corporate) |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
25
|
|
Multifamily |
|
|
Industrial |
|
|
Investments in real estate debt, real estate-related and other securities |
|
|
Total |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental revenue |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|||
Total revenues |
|
|
|
|
|
|
|
|
— |
|
|
$ |
|
|||
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental property operating |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Total expenses |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|||
Income from investment in real estate debt |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Income from investments in real estate-related and other securities |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Segment net operating income (loss) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Depreciation and amortization |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Mandatorily redeemable Class E units interest costs |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Interest expense |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|||
Net loss attributable to non-controlling interests in consolidated joint ventures |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|||
Net loss attributable to JPMREIT stockholders |
|
|
|
|
|
|
|
|
|
|
$ |
( |
) |
|||
There were minimal operations for the three months ended March 31, 2022, and therefore no comparable table is presented.
16. Commitments and Contingencies
Property purchase commitments
On June 10, 2022, the Company entered into a forward purchase and sale agreement to acquire a truck terminal facility under development on
The Truck Terminal Facility is currently under development by the seller and will be completed prior to acquisition. The Company expects to close the acquisition of the Truck Terminal Facility in the third quarter of 2023. The acquisition of the Truck Terminal Facility is subject to the satisfaction of a number of customary closing conditions, including the delivery of the completed Truck Terminal Facility.
The Truck Terminal Facility is a forward purchase commitment and the Company anticipates the funding schedule, inclusive of deposits and due diligence funding, to require payments of $
Litigation
From time to time, the Company may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2023, the Company was not involved in any material legal proceedings.
17. Economic Dependency
The Company is dependent on the Adviser and its affiliates for certain services that are essential to it, including the sale of the Company’s shares of common stock, acquisition and disposition decisions, and certain other responsibilities. In the event that the Adviser and its affiliates are unable or unwilling to provide such services, the Company would be required to find alternative service providers.
26
18. Subsequent Events
Distributions
The Company declared distributions on all outstanding shares of common stock and Operating Partnership units as of the close of business on the record date of April 28, 2023. The Company paid or reinvested these distributions amounting to $
Capital raising and financing
As part of the Offering, subsequent to March 31, 2023, the Company sold
As part of a private offering, subsequent to March 31, 2023, the Company sold
Subsequent to March 31, 2023, the Company paid $
Distribution Reinvestment Plan
On May 12, 2023, the Company’s board of directors approved an amended distribution reinvestment plan, under which a participating stockholder who seeks the repurchase by the Company of a portion of, but fewer than all, his or her shares will continue to participate in the distribution reinvestment plan with respect to any shares not repurchased. A stockholder’s participation in the distribution reinvestment plan will automatically terminate if he or she seeks the repurchase by the Company of all his or her shares, whether or not all of the stockholder's shares are actually repurchased, and any distributions paid following such repurchase request will be paid in cash.
Advisory Agreement Amendment
On May 12, 2023, following the approval of the Company’s board of directors, including all of the Company’s independent directors, the Company entered into an Amended and Restated Advisory Agreement (the “Amended and Restated Advisory Agreement”) with the Operating Partnership and the Adviser to reflect an updated reimbursement schedule for organization and offering expenses and operating expenses advanced by the Adviser. Pursuant to the Amended and Restated Advisory Agreement, the Adviser will advance the Company’s organization and offering expenses on the Company’s behalf through July 22, 2024, the second anniversary of the commencement of the Offering. In addition, the Adviser will advance the Company’s operating expenses through the earlier of (i) the first day that the Company’s NAV reaches $
Other
Subsequent to March 31, 2023, the Company invested $
The Company evaluated subsequent events through the issuance date of the financial statements, and determined that except as otherwise disclosed herein there were no additional material subsequent events requiring disclosure.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References herein to “Company,” “we,” “us,” or “our” refer to J.P. Morgan Real Estate Income Trust, Inc. unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the unaudited consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
Forward-Looking Statements
This quarterly report on Form 10-Q contains forward-looking statements about our business, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. These statements include our plans and objectives for future operations, including plans and objectives relating to future growth and availability of funds, and are based on current expectations that involve numerous risks and uncertainties. Assumptions relating to these statements involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to accurately predict and many of which are beyond our control. Such forward-looking statements are inherently uncertain and there are or may be important factors that could cause actual outcomes or results to differ materially from those indicated in such statements. We believe these factors also include but are not limited to those described under the section entitled “Risk Factors” in our Registration Statement on Form S-11 (File No. 333-265588), which is accessible on the SEC’s website at www.sec.gov. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included in this document (or our prospectus and other filings). Except as otherwise required by federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future developments or otherwise.
Overview
We are a Maryland corporation formed on November 5, 2021. We were formed to invest primarily in stabilized, income-generating real properties. We are an externally advised, perpetual-life REIT formed to pursue the following investment objectives:
We cannot assure you that we will achieve our investment objectives. In particular, we note that our NAV may be subject to volatility related to changes in the values of our assets.
We intend to qualify as a REIT for federal income tax purposes. We own all or substantially all of our assets through the Operating Partnership, of which we are the sole general partner.
Our board of directors at all times has ultimate oversight and policy-making authority over us, including responsibility for governance, financial controls, compliance and disclosure. Pursuant to the Advisory Agreement, however, we have delegated to the Adviser the authority to source, evaluate and monitor our investment opportunities and make decisions related to the acquisition, management, financing and disposition of our assets, in accordance with our investment objectives, guidelines, policies and limitations, subject to oversight by our board of directors.
Our initial public offering of our common stock commenced on July 22, 2022. We acquired our first investment on September 2, 2022.
We intend to contribute the net proceeds from the Offering which are not used or retained to pay the fees and expenses attributable to our operations to the Operating Partnership. The Operating Partnership will use the net proceeds received from us to make investments in accordance with our investment strategy and policies.
The number and type of properties or real estate-related and other investments that we acquire will depend upon real estate market conditions, the amount of proceeds we raise in the Offering and other circumstances existing at the time we are acquiring such assets.
We are not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting real estate generally, that may be reasonably anticipated to have a material impact on either capital resources or the revenues or income to be derived from acquiring properties, real estate debt and real estate-related or other securities.
28
Q1 2023 Highlights
Capital raising and distributions
Investing
Financing
Portfolio
The following chart outlines the percentage of our assets across investments in real estate, investment in real estate debt and investments in real estate-related and other securities based on fair value by category as of March 31, 2023:
(1) Real estate includes our direct property investments; real estate debt is our Mezzanine Loan; and real estate-related and other securities consists of our CMBS and U.S. Treasury investments.
The following charts further describe the composition of our investments in real estate based on estimated fair value as of March 31, 2023:
29
Investments in real estate
As of March 31, 2023, we owned four real estate properties which are summarized in the following table ($ in thousands):
Property type |
|
Number of Properties |
|
|
Sq. Ft. (in thousands)/Number of Units |
|
|
Occupancy Rate (1) |
|
|
Gross Asset |
|
|
Revenue |
|
|
Percent of Revenue |
|
|||||
Multifamily |
|
|
3 |
|
|
688 units |
|
|
|
90 |
% |
|
$ |
194,802 |
|
|
$ |
3,671 |
|
|
|
93.9 |
% |
Industrial |
|
|
1 |
|
|
424 sq. ft. |
|
|
|
100 |
% |
|
|
19,696 |
|
|
|
238 |
|
|
|
6.1 |
% |
Total |
|
|
4 |
|
|
|
|
|
|
|
|
$ |
214,498 |
|
|
$ |
3,909 |
|
|
|
100.0 |
% |
|
(1) Occupancy for our multifamily properties is measured monthly by dividing property market rent for occupied units by the gross market rent potential of all units. Gross market rent potential is the average monthly market rent of all units at the property. Occupancy is a weighted by the total real estate asset value of all investments in real estate.
(2) Based on fair value as of March 31, 2023.
The following table provides information regarding our real estate properties as of March 31, 2023:
Property Type and Investment |
|
Number of Properties |
|
|
Location(3) |
|
Acquisition Date |
|
Ownership |
|
|
Sq. Feet (in thousands)/Number of Units |
|
|
Occupancy (2) |
|
||||
Multifamily: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Caroline West Gray |
|
|
1 |
|
|
Houston, TX |
|
November 2022 |
|
|
95 |
% |
|
|
275 |
|
|
|
94 |
% |
Caroline Post Oak |
|
|
1 |
|
|
Houston, TX |
|
November 2022 |
|
|
95 |
% |
|
|
238 |
|
|
|
92 |
% |
Coda on Centre |
|
|
1 |
|
|
Pittsburgh, PA |
|
December 2022 |
|
|
100 |
% |
|
|
175 |
|
|
|
82 |
% |
Total multifamily |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
688 |
|
|
|
|
||
Industrial: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
6200 Bristol |
|
|
1 |
|
|
Philadelphia, PA |
|
October 2022 |
|
|
100 |
% |
|
|
424 |
|
|
|
100 |
% |
Total industrial |
|
|
1 |
|
|
|
|
|
|
|
|
|
|
424 |
|
|
|
|
||
(1) Certain of the joint venture agreements entered into by us provide the other partner a profits interest based on certain internal rate of return hurdles being achieved. Such investments are consolidated by us and any profits interest due to the other partner will be reported within non-controlling interests in consolidated joint ventures on our Consolidated Balance Sheets.
(2) Occupancy for our multifamily properties is measured monthly by dividing property market rent for occupied units by the gross market rent potential of all units. Gross market rent potential is the average monthly market rent of all units at the property. Occupancy is a weighted by the total real estate asset value of all investments in real estate.
(3) Refers to the metropolitan statistical area.
30
Lease expirations
The following table details the expiring leases at our industrial property by annualized base rent as of March 31, 2023 ($ in thousands). The table below excludes our multifamily properties as substantially all leases at such properties expire within 12 months:
|
|
Industrial |
|
|||||
Year |
|
Annualized Base Rent(1) |
|
|
% of Total Annualized Based Rent Expiring |
|
||
2023 |
|
$ |
— |
|
|
|
0 |
% |
2024 |
|
|
— |
|
|
|
0 |
% |
2025 |
|
|
— |
|
|
|
0 |
% |
2026 |
|
|
— |
|
|
|
0 |
% |
2027 |
|
|
— |
|
|
|
0 |
% |
2028 |
|
|
— |
|
|
|
0 |
% |
2029 |
|
|
— |
|
|
|
0 |
% |
2030 |
|
|
— |
|
|
|
0 |
% |
2031 |
|
|
— |
|
|
|
0 |
% |
2032 |
|
|
— |
|
|
|
0 |
% |
Thereafter |
|
|
1,234 |
|
|
|
100 |
% |
Total |
|
$ |
1,234 |
|
|
|
100 |
% |
(1) Annualized base rent is determined from the annualized base rent per leased square foot of the applicable year and excludes tenant recoveries, straight-line rent and below-market lease amortization.
Investment in real estate debt
The following table summarizes our investment in real estate debt as of March 31, 2023 and December 31, 2022 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||||||||||
Real Estate Debt |
|
Number of Positions |
|
|
Credit Rating |
|
Coupon |
|
Maturity Date |
|
Cost Basis |
|
|
Fair Value |
|
|
Cost Basis |
|
|
Fair Value |
|
|||||
Mezzanine loan |
|
|
1 |
|
|
Not Rated |
|
SOFR + 5.22% |
|
September 7, 2024 |
|
$ |
16,825 |
|
|
$ |
16,825 |
|
|
$ |
16,825 |
|
|
$ |
16,825 |
|
Investments in real estate-related and other securities
The following table summarizes our investments in real estate-related and other securities as of March 31, 2023 and December 31, 2022 ($ in thousands):
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||||||
Real Estate-Related and Other Securities |
|
Coupon |
|
Maturity Date |
|
Face Amount |
|
|
Cost Basis |
|
|
Fair Value |
|
|
Face Amount |
|
|
Cost Basis |
|
|
Fair Value |
|
||||||
CMBS |
|
SOFR + 0.75% |
|
April 30, 2024 |
|
$ |
1,954 |
|
|
$ |
1,800 |
|
|
$ |
1,859 |
|
|
$ |
2,000 |
|
|
$ |
1,840 |
|
|
$ |
1,842 |
|
U.S. Treasury |
|
4.00% |
|
November 15, 2052 |
|
|
4,550 |
|
|
|
4,921 |
|
|
|
4,810 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total real estate-related and other securities |
|
|
|
|
|
$ |
6,504 |
|
|
$ |
6,721 |
|
|
$ |
6,669 |
|
|
$ |
2,000 |
|
|
$ |
1,840 |
|
|
$ |
1,842 |
|
31
Results of Operations
The following table sets forth information regarding our consolidated results of operations ($ in thousands):
|
|
For the Three Months Ended |
|
|
For the Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 (1) |
|
||
Revenues |
|
|
|
|
|
|
||
Rental revenue |
|
$ |
3,909 |
|
|
$ |
— |
|
Total revenues |
|
|
3,909 |
|
|
|
— |
|
Expenses |
|
|
|
|
|
|
||
Rental property operating |
|
|
1,131 |
|
|
|
— |
|
General and administrative |
|
|
1,103 |
|
|
|
— |
|
Depreciation and amortization |
|
|
2,253 |
|
|
|
— |
|
Total expenses |
|
|
4,487 |
|
|
|
— |
|
Other income (expense), net |
|
|
|
|
|
|
||
Income from investment in real estate debt |
|
|
410 |
|
|
|
— |
|
Income from investments in real estate-related and other securities |
|
|
5 |
|
|
|
— |
|
Mandatorily redeemable Class E units interest costs |
|
|
(4,143 |
) |
|
|
— |
|
Interest expense |
|
|
(2,168 |
) |
|
|
— |
|
Other income (expenses), net |
|
|
3 |
|
|
|
— |
|
Total other income (expense), net |
|
|
(5,893 |
) |
|
|
— |
|
Net loss |
|
$ |
(6,471 |
) |
|
$ |
— |
|
Net loss attributable to non-controlling interests in consolidated joint ventures |
|
|
(53 |
) |
|
|
— |
|
Net loss attributable to JPMREIT stockholders |
|
$ |
(6,418 |
) |
|
|
— |
|
Net loss per share of common stock - basic and diluted |
|
$ |
(1.63 |
) |
|
$ |
(0.02 |
) |
Weighted-average shares of common stock outstanding - basic and diluted |
|
|
3,939 |
|
|
|
20 |
|
(1) From November 15, 2021 (date of our initial capitalization) through June 30, 2022, we had not commenced our principal operations and were focused on our formation and the registration of the Offering. The Offering commenced on July 22, 2022 and we commenced principal operations on September 2, 2022 with the acquisition of our first investment. Therefore, there were minimal operations in the period for the three months ended March 31, 2022. Accordingly, no comparative amounts for the three months ended March 31, 2022 are included.
Rental revenue
During the three months ended March 31, 2023, we recognized $3.9 million of rental revenue from our four real estate investments. Rental revenue primarily consists of base rent arising from tenant leases at our multifamily and industrial properties. Rental revenue, aside from short term leases generally less than one year in term, is recognized on a straight-line basis over the life of the lease, including any fixed and measurable rent escalations and abatements.
Rental property operating expenses
Rental property operating expenses consist of the costs of ownership and operation of the real estate investments. Examples of rental property operating expenses include insurance, utilities, real estate taxes and repair and maintenance expenses. Rental property operating expenses also include general and administrative expenses unrelated to the operations of the properties. During the three months ended March 31, 2023, rental property operating expenses were $1.1 million.
General and administrative expenses
During the three months ended March 31, 2023, general and administrative expenses were $1.1 million which includes $0.9 million related to general corporate matters, such as professional fees, legal fees and insurance premiums and $0.2 million in director compensation and restricted stock amortization.
Depreciation and amortization expenses
Depreciation and amortization expenses are impacted by the fair values assigned to buildings, personal property and in-place lease assets as part of the initial purchase price allocation. During the three months ended March 31, 2023, depreciation and amortization expenses were $2.3 million, driven by depreciation of $1.1 million and $1.2 million of amortization of in-place lease intangibles.
Income from investment in real estate debt
During the three months ended March 31, 2023, we recognized $0.4 million of interest income from our investment in real estate debt.
32
Income from investments in real estate-related and other securities
During the three months ended March 31, 2023, income from our investments in real estate-related and other securities was $5,000, which consisted of interest income of $59,000 partially offset by an unrealized loss of $54,000 on our real estate-related and other investments.
Mandatorily redeemable Class E units interest costs
During the three months ended March 31, 2023, we incurred costs related to our mandatorily redeemable Class E units of $4.1 million, which consisted of an allocation of appreciation of $3.7 million relating to the unrealized loss of the mandatorily redeemable non-controlling interest and distribution expense of $0.5 million.
Interest expense
During the three months ended March 31, 2023, interest expense was $2.2 million, which primarily consisted of interest expense incurred on our mortgage notes and Credit Facility.
Other income (expense), net
During the three months ended March 31, 2023, other income was less than $0.01 million and consisted of interest earned from bank accounts.
Net loss attributable to non-controlling interests in consolidated joint ventures
During the three months ended March 31, 2023, net loss attributable to non-controlling interests in consolidated joint ventures was approximately $0.05 million due to the 5% non-controlling interest in the Caroline West Gray and Caroline Post Oak properties held by our joint venture partner.
Liquidity and Capital Resources
Our primary needs for liquidity and capital resources are to fund our investments, to make distributions to our stockholders, to repurchase shares of our common stock pursuant to our share repurchase plan, to pay our offering and operating fees and expenses and to pay interest on any outstanding indebtedness we may incur. We anticipate our offering and operating fees and expenses will include, among other things, the management fee we will pay to the Adviser, the performance participation allocation that the Operating Partnership will pay to the Special Limited Partner, stockholder servicing fees we will pay to the Dealer Manager, legal, audit and valuation expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution expenses and fees related to acquiring, financing, appraising and managing our properties. We do not have any office or personnel expenses as we do not have any employees.
The Adviser will advance our organization and offering expenses on our behalf (other than upfront selling commissions, dealer manager fees and stockholder servicing fees) through July 22, 2024, the second anniversary of the commencement of the Offering. We will reimburse the Adviser for such advanced expenses ratably over the 60 months following July 22, 2024, the second anniversary of the commencement of the Offering. We accrued approximately $5.7 million and 5.5 million of organization and offering expenses payable to the Adviser which are included in due to affiliate on our Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively. In addition, the Adviser will advance on our behalf certain of our operating expenses through the earlier of (i) the first date that our NAV reaches $500 million and (ii) December 31, 2024 at which point we will reimburse the Adviser for all such advanced expenses ratably over the 60 months following such date. The Adviser advanced, and we accrued, approximately $5.3 million and $4.4 million of operating expenses which are included in due to affiliate on our Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022, respectively.
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code. In order to maintain our qualification as a REIT, we are required to, among other things, distribute as dividends at least 90% of our REIT taxable income, determined without regard to the dividends-paid deduction and excluding net capital gains, to our stockholders and meet certain tests regarding the nature of our income and assets.
On November 15, 2021, we were capitalized with a $0.2 million investment by the Adviser in exchange for 20,000 shares of our Class E common stock. The Adviser has agreed to not sell, transfer or dispose of the shares to any party other than an affiliate of the Adviser for so long as the Adviser or its affiliate performs an advisory function for the us.
Pursuant to a separate private offering, JPMIM has agreed to purchase $25.0 million in Class E shares or Class E units, or a combination thereof, and up to an additional $75.0 million in Class E shares or Class E units. As of March 31, 2023, we received $162.1 million in commitments to purchase shares of our common stock and Class E units, including the shares and units to be purchased by JPMIM, and have sold $28.1 million in Class E shares and $45.6 million Class E units from such commitments. We are not required to call all of the capital commitments made by investors pursuant to the Initial Capitalization prior to their expiration. In addition, we sold $2.5 million Class E shares to employees of the Adviser.
33
Over time, we generally intend to fund our cash needs for items other than asset acquisitions from operations. Our cash needs for acquisitions will be funded primarily from the sale of shares of our common stock and through the assumption or incurrence of secured or unsecured financings from banks or other lenders and proceeds from the sales of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures.
If we are unable to raise substantial funds, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we have certain fixed operating expenses, including certain expenses as a publicly offered REIT, regardless of whether we are able to raise substantial funds. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make distributions.
On August 31, 2022 we entered into a Credit Facility with U.S. Bank. The Credit Facility may be used to fund acquisitions, to repurchase shares pursuant to our share repurchase plan or for any other corporate purpose. Funds available under the Credit Facility may be reduced at any given time if we use borrowings under the Credit Facility to fund share repurchases, distributions, investments, or for other corporate purposes.
The following table is a summary of our mortgage note indebtedness as of March 31, 2023 and December 31, 2022 ($ in thousands):
|
|
|
|
|
|
|
Principal Balance Outstanding |
|
||||||
Indebtedness |
|
Interest Rate |
|
|
Maturity Date |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||
Caroline West Gray |
|
|
5.44 |
% |
|
12/1/2029 |
|
$ |
45,911 |
|
|
$ |
45,911 |
|
Caroline Post Oak |
|
|
5.44 |
% |
|
12/1/2029 |
|
|
40,528 |
|
|
|
40,528 |
|
Coda on Centre |
|
|
4.28 |
% |
|
5/30/2029 |
|
|
29,273 |
|
|
|
29,399 |
|
Total fixed-rate loans |
|
|
|
|
|
|
|
115,712 |
|
|
|
115,838 |
|
|
Deferred financing costs, net |
|
|
|
|
|
|
|
(1,164 |
) |
|
|
(1,202 |
) |
|
Mortgage discount, net |
|
|
|
|
|
|
|
(841 |
) |
|
|
(876 |
) |
|
Total mortgage notes |
|
|
|
|
|
|
$ |
113,707 |
|
|
$ |
113,760 |
|
|
The following table is a summary of our secured credit facility indebtedness as of March 31, 2023 and December 31, 2022 ($ in thousands):
|
|
|
|
|
|
|
|
|
Principal Balance Outstanding |
|
||||||
Indebtedness |
|
Interest Rate |
|
Maturity Date |
|
Maximum Facility Size |
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||
Secured credit facility (1) |
|
SOFR + 1.65% |
|
8/31/2023 |
|
$ |
65,000 |
|
|
$ |
21,300 |
|
|
$ |
40,200 |
|
(1) The secured credit facility has two, one-year extensions of the maturity date at our request. See Note 8 — "Mortgage Notes and Secured Credit Facility" to our consolidated financial statements in this Quarterly Report on Form 10-Q.
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash ($ in thousands):
|
For the Three Months Ended |
|
|
|
March 31, 2023 |
|
|
Net cash used in operating activities |
$ |
(1,545 |
) |
Net cash used in investing activities |
|
(6,323 |
) |
Net cash provided by financing activities |
|
14,390 |
|
Net change in cash |
$ |
6,522 |
|
Cash flows used in operating activities were $1.5 million for the three months ended March 31, 2023 due to a $6.5 million net loss and a net decrease in liabilities of $1.3 million partially offset by a $3.7 million unrealized loss of mandatorily redeemable Class E units, a $2.3 million adjustment from depreciation and amortization and $0.3 million of other adjustments. The net decrease in accounts payable, accrued expenses and other liabilities was driven primarily by the payment of real estate tax liabilities of $2.1 million that were assumed in exchange for an equal reduction in cash consideration as part of our acquisition of Caroline West Gray and Caroline Post Oak multi-family investments during the three-months ended December 31, 2022.
Cash flows used in investing activities were $6.3 million for the three months ended March 31, 2023 due to $4.9 million used to purchase a U.S. Treasury, $0.7 million for acquisitions of real estate and $0.7 million of deposits paid on real estate acquisitions.
34
Cash flows provided by financing activities totaled $14.4 million for the three months ended March 31, 2023 due $24.9 million of proceeds from the issuance of common stock and $8.8 million of proceeds from subscriptions received in advance partially offset by $19.0 million of repayments of borrowings and $0.3 million of distributions paid.
Distributions
We generally intends to distribute substantially all of our taxable income, which does not necessarily equal net income as calculated in accordance with GAAP, to our stockholders each year to comply with the REIT provisions of the Internal Revenue Code. Each class of common stock receives the same gross distribution per share. The net distribution varies for each class based on the applicable stockholder servicing fee, which is deducted from the monthly distribution per share.
The following table details the aggregate distributions declared for each applicable class of common stock:
|
|
For the Three Months Ended March 31, 2023 |
|
|||||||||||||||||
|
|
Class E |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|||||
Aggregate gross distributions declared per share of common stock |
|
$ |
0.1005 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.0670 |
|
|
$ |
0.1005 |
|
Stockholder servicing fee per share of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net distributions declared per share of common stock |
|
$ |
0.1005 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
0.0670 |
|
|
$ |
0.1005 |
|
The following tables summarizes our distributions declared and paid during the three months ended March 31, 2023 ($ in thousands):
|
|
For the Three Months Ended March 31, 2023 |
|
||||
|
|
Amount |
|
Percentage |
|
||
Distributions (1) |
|
|
|
|
|
||
Payable in cash |
|
$ |
258 |
|
|
81 |
% |
Reinvested in shares |
|
|
60 |
|
|
19 |
% |
Total distributions |
|
$ |
318 |
|
|
100 |
% |
Source of Distributions |
|
|
|
|
|
||
Cash flows from operating activities |
|
$ |
- |
|
|
0 |
% |
Offering proceeds (2) |
|
|
318 |
|
|
100 |
% |
Total sources of distributions |
|
$ |
318 |
|
|
100 |
% |
Cash flows from operating activities (3) |
|
$ |
(1,545 |
) |
|
|
|
(1) Excludes distributions paid on Class E units.
(2) Includes proceeds from the sale of Class E units, Class E shares, Class D shares and Class I shares.
(3) Cash used in operating activities was primarily driven by a settlement of approximately $2.1 million of real estate tax liabilities that were assumed as part of our acquisition of Caroline West Gray and Caroline Post Oak multi-family investments during the three months ended December 31, 2022. In conjunction with the acquisition of Caroline West Gray and Caroline Post Oak, and as a result of agreeing to assume the real estate tax liabilities of the seller of approximately $2.1 million, we reduced the cash consideration to the seller by approximately $2.1 million. The first quarter tax payment was made directly to the taxing authority and not the seller. Therefore the payment is included as a cash flow used in operating activities and not as an investing activity.
In addition to the distributions declared and paid on our common stock, we declared $0.5 million and paid $0.5 million for Class E unit distributions during the three months ended March 31, 2023. Such amounts are recorded in mandatorily redeemable Class E unit interest costs on the Consolidated Statements of Operations and accounts payable, accrued expenses and other liabilities on the Consolidated Balance Sheets, respectively.
Net Asset Value
Our board of directors, including a majority of our independent directors, has adopted valuation guidelines that contain a comprehensive set of methodologies to be used by the Adviser and our independent valuation advisor in connection with estimating the values of our assets and liabilities for purposes of our NAV calculation. The overarching principle of these guidelines is to produce a valuation that represents a fair and accurate estimate of the value of our investments or the price that would be received for our investments in an arm’s-length transaction between a willing buyer and a willing seller in possession of all material information about our investments. These valuation guidelines are largely based upon standard industry practices used by private, open-end real estate funds and other public, non-listed REITs, and are administered by the Adviser.
35
As a public company, we are required to issue financial statements based on historical cost in accordance with GAAP, which are subject to an independent audit. To calculate our NAV for purposes of establishing a purchase and repurchase price for our shares, we have adopted a model, as explained below, that adjusts the value of our assets from historical cost to fair value in accordance with the GAAP principles set forth in FASB Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures. However, our valuation procedures and our NAV are not subject to GAAP and are not subject to independent audit. Our NAV may differ from equity reflected on our audited financial statements, even if we are required to adopt a fair value basis of accounting for GAAP financial statement purposes in the future. Because these fair value calculations involve significant professional judgment in the application of both observable and unobservable attributes, the calculated fair value of our assets may differ from their actual realizable value or future fair value. Furthermore, no rule or regulation requires that we calculate NAV in a certain way. While we believe our NAV calculation methodologies are consistent with standard industry practices, there is no rule or regulation that requires we calculate NAV in a certain way. As a result, other public, non-listed REITs may use different methodologies or assumptions to determine NAV.
At the beginning of each calendar year, the Adviser develops a valuation plan with the objective of having each of our operating properties appraised each quarter, except for newly acquired properties as described below. Our independent valuation advisor and the other independent third-party appraisal firms will take into account customary and accepted financial and commercial procedures and considerations as they deem relevant, which may include, without limitation, the review of documents, materials and information relevant to valuing the property that are provided by the Adviser, such as (i) historical or forecasted operating revenues and expenses of the property; (ii) lease agreements on the property; (iii) the revenues and expenses of the property; (iv) information regarding recent or planned estimated capital expenditures; and (v) any other information relevant to valuing the real estate property. Appraisals are performed in accordance with the Code of Ethics and the Uniform Standards of Professional Appraisal Practices, the real estate appraisal industry standards created by The Appraisal Foundation, or the similar industry standard for the country where the property appraisal is conducted. Each appraisal must be reviewed, approved and signed by an individual with the professional designation of MAI (Member of the Appraisal Institute) or similar designation or, for international appraisals, a public or other certified expert for real estate valuations. Upon conclusion of the appraisal, the independent valuation advisor or the independent third-party appraisal firm prepares a written report with an estimated gross fair value of the property. Any appraisal provided by a firm other than our independent valuation advisor is performed in accordance with our valuation guidelines and is not considered in the Adviser’s valuation of the applicable property until our independent valuation advisor has confirmed the reasonableness of such appraisal.
In accordance with the valuation guidelines, our fund administrator calculates our NAV per share for each class of our common stock as of the last calendar day of each month, using a process that reflects several components (each as described above), including the estimated fair value of (1) each of our properties based upon individual appraisal reports provided quarterly by third party independent valuation firms or our independent valuation advisor, (2) our real estate-related assets for which third-party market quotes are available, (3) our other real estate-related assets, if any, and (4) our other assets and liabilities. The NAV per share for the share classes we are offering to the public may differ because stockholder servicing fees, management fees and the performance participation allocable to a specific class of shares are only included in the NAV calculation for that class.
At the end of each month, before taking into consideration additional issuances of shares of capital stock, share repurchases or class-specific expense accruals for that month, any change in our aggregate NAV (whether an increase or decrease) is allocated among each class of shares based on each class’s relative percentage of the previous aggregate NAV plus issuances of shares that were effective on the first calendar day of such month. The NAV calculation is available generally within 15 calendar days after the end of the applicable month. Changes in our monthly NAV include, without limitation, accruals of our net portfolio income, interest expense, the management fee, any accrued performance participation, distributions, unrealized/realized gains and losses on assets, any applicable organization and offering costs and any expense reimbursements. Changes in our monthly NAV also include material non-recurring events, such as capital expenditures and material property acquisitions and dispositions occurring during the month. Notwithstanding anything herein to the contrary, the Adviser may in its discretion consider material market data and other information that becomes available after the end of the applicable month in valuing our assets and liabilities and calculating our NAV for a particular month. On an ongoing basis, the Adviser will adjust the accruals to reflect actual operating results and the outstanding receivable, payable and other account balances resulting from the accumulation of monthly accruals for which financial information is available.
The Adviser has advanced, and will continue to advance, our organization and offering expenses on our behalf (other than upfront selling commissions, dealer manager fees and stockholder servicing fees) through July 22, 2024, the second anniversary of the commencement of this offering. We will reimburse the Adviser for such advanced expenses ratably over the 60 months following July 22, 2024. For purposes of calculating our NAV, the organization and offering expenses paid by the Adviser through July 22, 2024 are not recognized as expenses or as a component of equity and reflected in our NAV until we reimburse the Adviser for these expenses. In addition, the operating expenses paid by the Adviser through the earlier of (i) the first date that our NAV reaches $500 million and (ii) December 31, 2024 are not recognized as expenses or as a component of equity and reflected in our NAV until we reimburse the Adviser for these expenses.
36
Following the aggregation of the net asset values of our investments, the addition of any other assets (such as cash on hand) and the deduction of any other liabilities, our fund administrator incorporates any class-specific adjustments to our NAV, including additional issuances and repurchases of our common stock and accruals of class-specific stockholder servicing fees, management fees and any accrued performance participation. For each applicable class of shares, each of the stockholder servicing fee and the management fee is calculated as a percentage of the aggregate NAV for such class of shares. At the close of business of each record date for any declared distribution, our NAV for each class will be reduced to reflect the accrual of our liability to pay any distribution to our stockholders of record of such class. NAV per share for each class is calculated by dividing such class’s NAV at the end of each month by the number of shares outstanding for that class at the end of such month.
We calculate NAV per share in accordance with the valuation guidelines that have been approved by our board of directors. We believe our NAV is a meaningful supplemental non-GAAP operating metric. The following table provides a breakdown of the major components of our NAV as of March 31, 2023 ($ and shares in thousands):
Components of NAV |
|
March 31, 2023 |
|
|
Investments in real estate |
|
$ |
214,507 |
|
Investment in real estate debt |
|
|
16,825 |
|
Investments in real estate-related and other securities |
|
|
6,743 |
|
Cash and cash equivalents |
|
|
12,088 |
|
Restricted cash |
|
|
222 |
|
Other assets |
|
|
6,769 |
|
Debt obligations |
|
|
(135,836 |
) |
Other liabilities |
|
|
(2,370 |
) |
Subscriptions received in advance |
|
|
(8,832 |
) |
Accrued performance participation allocation |
|
|
(118 |
) |
Stockholder servicing fees payable the following month (1) |
|
|
- |
|
Non-controlling interests in joint ventures |
|
|
(7,952 |
) |
JPMIM mandatorily redeemable Class E units (2) |
|
|
(49,470 |
) |
Net asset value |
|
$ |
52,576 |
|
Number of outstanding shares |
|
|
4,896 |
|
(1) Stockholder servicing fees only apply to Class T, Class S and Class D shares. For purposes of NAV, we recognize the stockholder servicing fee as a reduction of NAV on a monthly basis as such fee is paid. Under accounting principles generally accepted in the United States of America (“GAAP”), we accrue the full cost of the stockholder servicing fee as an offering cost at the time we sell Class T, Class S and Class D shares. As of March 31, 2023, we have not incurred any stockholder servicing fees.
(2) Represents Class E units in the Operating Partnership held by the Adviser that are mandatorily redeemable and only subject to delays to the continuous obligation to ultimately redeem the Class E units once sufficient availability exists under the share repurchase agreements. Therefore, the Class E units held by JPMIM are classified as a liability pursuant to ASC 480 Distinguishing Liabilities From Equity and are presented as “JPMIM mandatorily redeemable Class E units” at the initial funding amount received, which is equivalent to fair value at the issuance dates. Subsequently, the JPMIM mandatorily redeemable Class E units are carried at their cash redemption value as if the units were repurchased or redeemable at the reporting date, which equals NAV per unit of $10.88.
The following table provides a breakdown of our total NAV and NAV per share by share class as of March 31, 2023 ($ and shares):
NAV Per Share |
|
Class E |
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|
Total |
|
||||||
Net asset value |
|
$ |
33,468 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
511 |
|
|
$ |
18,598 |
|
|
$ |
52,576 |
|
Number of outstanding shares |
|
|
3,077 |
|
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
1,769 |
|
|
|
4,896 |
|
NAV Per Share as of March 31, 2023 |
|
$ |
10.88 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10.39 |
|
|
$ |
10.51 |
|
|
|
|
|
Set forth below are the weighted averages of the key assumptions in the discounted cash flow methodology used in the March 31, 2023 valuations, based on property types. Once we own more than one industrial property, we will include the key assumptions for such property type.
Property Type |
|
Discount Rate |
|
|
Exit Capitalization Rate |
|
||
Multifamily properties |
|
|
6.38 |
% |
|
|
5.13 |
% |
37
These assumptions are determined by our independent valuation advisor and reviewed by the Adviser. A change in these assumptions would impact the calculation of the value of our property investments. For example, assuming all other factors remain unchanged, the changes listed below would result in the following effects on our investment values:
Input |
|
Hypothetical Change |
|
Industrial Investment Values |
|
|
Multifamily Investment Values |
|
||
Discount rate |
|
0.25% decrease |
|
|
2.03 |
% |
|
|
2.06 |
% |
(Weighted average) |
|
0.25% increase |
|
|
(2.03 |
)% |
|
|
(1.90 |
)% |
Exit capitalization rate |
|
0.25% decrease |
|
|
3.55 |
% |
|
|
3.29 |
% |
(Weighted average) |
|
0.25% increase |
|
|
(3.55 |
)% |
|
|
(2.88 |
)% |
The following table reconciles stockholders’ equity per our Consolidated Balance Sheet to our NAV:
Reconciliation of Stockholders’ Equity to NAV |
|
March 31, 2023 |
|
|
Stockholders’ equity under GAAP |
|
$ |
33,557 |
|
Adjustments: |
|
|
|
|
Organization, offering costs and operating expenses(1) |
|
|
2,007 |
|
Unrealized real estate appreciation(2) |
|
|
13,467 |
|
Accumulated depreciation and amortization(3) |
|
|
3,545 |
|
NAV |
|
$ |
52,576 |
|
(1) The Adviser has agreed to advance our organization and offering expenses on our behalf (other than upfront selling commissions and stockholder servicing fees) through the second anniversary of the commencement of the Offering. We will reimburse the Adviser for such advanced expenses ratably over the 60-months following July 22, 2024, the second anniversary of the commencement of the Offering. In addition, the Adviser has agreed to advance on our behalf certain of our operating expenses through the earlier of (i) the first date that our NAV reaches $500 million and (ii) December 31, 2024 at which point we will reimburse the Adviser for all such advanced expenses ratably over the 60 months following such date. Under GAAP, organization costs are expensed as incurred and offering costs are charged to equity as such amounts are incurred. For the purposes of calculating NAV, such costs will be recognized as a reduction to NAV as they are reimbursed ratably over the 60 month reimbursement period.
(2) Our investments in real estate are presented under historical cost in our GAAP consolidated financial statements. As such, any changes in the fair market value of our investments in real estate are not included in our GAAP results. For purposes of determining our NAV, our investments in real estate are recorded at fair value.
(3) In accordance with GAAP, we depreciate our investments in real estate and amortize certain other assets and liabilities. Such depreciation and amortization is not recorded for purposes of determining our NAV.
Critical Accounting Policies
The preparation of the financial statements in accordance with GAAP involves significant judgments and assumptions and requires estimates about matters that are inherently uncertain. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements.
Purchase price allocation of acquired investments in real estate
Upon the acquisition of a property, we assess the fair value of acquired tangible and intangible assets and liabilities (including land, buildings, tenant improvements, above-market and below-market leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocate the purchase price to the acquired assets and assumed liabilities on a relative fair value basis in accordance with Accounting Standard Codification 805, Business Combinations. All expenses related to the acquisition are capitalized and allocated among the identified assets. Generally, the most significant portion of the allocation is to the building and land and requires the use of market-based estimates and assumptions.
We assess and consider fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates, as well as other available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.
38
Acquired above-market and below-market leases are recorded at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in place lease values that are based on our evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, we consider leasing commissions, legal and other related expenses. A change in any of the assumptions above, which are subjective, could have a material impact on our results of operations.
The allocation of the purchase price directly affects the following in our consolidated financial statements:
Mandatorily redeemable Class E units
We report our mandatorily redeemable Class E units of the Operating Partnership as a liability on our Consolidated Balance Sheets at JPMIM’s cash redemption value. JPMIM’s cash redemption value is determined based on our NAV per Class E unit as of our balance sheet date. For purposes of determining our NAV, our investments in real estate are recorded at fair value based on independent third-party valuations prepared by licensed appraisers in accordance with standard industry practice or in the case of real estate-related and other securities using readily available actively quoted prices.
These fair value estimates of our investments in real estate are particularly important as they are used for the calculation of NAV, which determines the adjustment to the carrying value of our mandatorily redeemable Class E units. Significant differences in the fair value of our mandatorily redeemable Class E units may result from changes in market conditions that cause our NAV, and thus JPMIM’s redemption value, to increase or decrease during the period which is recorded as a component of Mandatorily redeemable Class E units interest costs on our Consolidated Statements of Operations.
Investment in real estate debt
Our investment in real estate debt consists of an investment in the Mezzanine Loan. Our investment in real estate debt is carried at fair value as we elected the fair value option. Investments with readily available, actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Our real estate debt investment is unlikely to have readily available market quotations. As such, we determine fair value by utilizing or reviewing certain of the following (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield or loan-to-value ratios and (vii) borrower financial condition and performance. We classify these investments as Level 3 within the valuation hierarchy. Judgments used to determine fair value of Level 3 instruments are more significant than those required when determining the fair value of instruments classified as Level 1 or 2 due to the inherent uncertainty of the estimates and judgments used. These values may differ materially from the values that would have been used had a ready market for these investments existed. External factors may cause those values and the values of those investments for which readily observable inputs exists, to increase or decrease over time, impacting the value of our investment which is recorded in income (loss) from investments in real estate debt on the Consolidated Statements of Operations.
39
Contractual Obligations
The following table aggregates our contractual obligations and commitments with payments due subsequent to March 31, 2023 ($ in thousands):
Obligations |
|
Total |
|
|
Less than 1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
More than 5 years |
|
|||||
Indebtedness (1) |
|
$ |
155,035 |
|
|
$ |
4,506 |
|
|
$ |
13,063 |
|
|
$ |
13,051 |
|
|
$ |
124,415 |
|
Property purchase commitments (2) |
|
|
68,475 |
|
|
|
68,475 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Secured credit facility (3) |
|
|
21,922 |
|
|
|
21,922 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Organizational, offering and operating costs |
|
|
11,071 |
|
|
|
— |
|
|
|
2,788 |
|
|
|
4,428 |
|
|
|
3,855 |
|
Mandatorily redeemable Class E units (4) |
|
|
49,470 |
|
|
|
— |
|
|
|
49,470 |
|
|
|
— |
|
|
|
— |
|
Total |
|
$ |
305,973 |
|
|
$ |
94,903 |
|
|
$ |
65,321 |
|
|
$ |
17,479 |
|
|
$ |
128,270 |
|
(1) The allocation of our indebtedness includes both principal and interest payments.
(2) The property purchase commitments relate to the forward purchase and sale agreement to acquire a truck terminal facility under development in Garden City, Georgia. See Note 16 — “Commitments and Contingencies” to our consolidated financial statements in this Quarterly Report on Form 10-Q.
(3) The secured credit facility indebtedness includes both principal and interest payments based on the interest rate in effect at March 31, 2023.
(4) We will be required to repurchase mandatorily redeemable Class E units and Class E shares owned by JPMIM starting at the earliest of (i) the first date that our NAV reaches $1.5 billion or (ii) July 22, 2025, three years from the commencement of the Offering. See Note 13 — “Mandatorily Redeemable Class E Units” to our consolidated financial statement in this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest rate risk
We are exposed to interest rate risk with respect to our variable-rate indebtedness, whereas an increase in interest rates would directly result in higher interest expense costs. We may seek to manage or mitigate our risk to the exposure of interest risk through interest rate protection agreements to fix or cap a portion of our variable rate debt. As of March 31, 2023, the outstanding principal balance of our variable rate indebtedness was $21.3 million from our Credit Facility, which is indexed to the one-month forward-looking term rate based on SOFR as maintained by CME Group Benchmark Administration Ltd. (the "Reference Rate"). For the three months ended March 31, 2023, a 10% increase the Reference Rate would have resulted in increased interest expense of less than $0.1 million.
We have invested a portion of our portfolio in floating rate investments in real estate debt and real estate-related securities and intend to invest in both fixed and floating rate real estate debt investments and securities in the future. On floating-rate investments in real estate debt and real estate-related securities, our net income will increase or decrease depending on interest rate movements. Additionally, interest rate movement can impact the valuation of real estate debt and real estate-related securities depending on various aspects of the instrument, including, but not limited to, the credit rating, duration and structure of the interest rate payments.
Market risk
Market risk is the adverse effect on the value of a financial instrument that results from a change in interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. With regard to variable rate financing, we will assess our interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. We will maintain risk management control systems to monitor interest rate cash flow risk attributable to both our outstanding and forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy will be designed to minimize the impact on our net income from changes in interest rates, the overall returns on your investment may be reduced. Our board of directors has not yet established policies and procedures regarding our use of derivative financial instruments for hedging or other purposes and as of March 31, 2023, we did not own any derivative financial instruments for hedging or other purposes.
Credit risk
We are exposed to credit risk with respect to the tenants that occupy properties we own. To mitigate this risk, we undertake a credit evaluation of major tenants prior to making an investment. This analysis includes extensive due diligence of a potential tenant’s creditworthiness and business, as well as an assessment of the strategic importance of the property to the tenant’s core business operations.
40
Additionally, we are exposed to credit risk in the real estate-related debt investments that we make with respect to a borrower’s ability to make required interest and principal payments on scheduled due dates. We manage this risk by conducting a credit analysis prior to making an investment and by actively monitoring our portfolio and the underlying credit quality. In addition, we re-evaluate the credit risk inherent in our investments on a regular basis under fundamental considerations such as gross domestic product, unemployment, interest rates, retail sales, store closing/openings, corporate earnings, housing inventory, affordability and regional home price trends.
Real estate market value risk
Real estate property values are subject to volatility and may be adversely affected by a number of factors, including but not limited to national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). Based upon this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by SEC rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no changes in our “internal control over financial reporting” (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
41
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is not currently involved in any material litigation.
Item 1A. Risk Factors.
There have been no material changes to the risk factors contained in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
On January 3, 2023, we issued 6,962 unregistered Class E shares of common stock at a price per share of $10.05 to accredited investors in a private placement of Class E shares for an aggregate purchase price of $0.1 million .
On January 3, 2023, pursuant to our distribution reinvestment plan, we issued 705 Class E Shares at a price per share of $10.05 to accredited investors for an aggregate purchase price of $0.01 million.
On February 1, 2023, we issued 30,798 unregistered Class E shares of common stock at a price per share of $10.07 to accredited investors in a private placement of Class E shares for an aggregate purchase price of $0.3 million .
On February 1, 2023, pursuant to our distribution reinvestment plan, we issued 731 Class E Shares at a price per share of $10.07 to accredited investors for an aggregate purchase price of $0.01 million.
On February 2, 2023, we issued 674,581 unregistered Class E shares of common stock at a price per share of $10.07 to accredited investors in a private placement of Class E shares for an aggregate purchase price of $6.8 million .
On March 1, 2023, pursuant to our distribution reinvestment plan, we issued 1,019 Class E Shares at a price per share of $10.08 to accredited investors for an aggregate purchase price of $0.01 million.
The transactions described above were exempt from the registration provisions of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) and Regulation D thereof because they were not part of any public offering and did not involve any general solicitation or general advertising.
Share repurchases
During the period ended March 31, 2023, we did not repurchase any shares of our common stock pursuant to our share repurchase plan.
Use of Proceeds
On July 22, 2022, our Registration Statement on Form S-11 (File No. 333-265588), covering our public offering of up to $5 billion of common stock, was declared effective under the Securities Act. The offering price for each class of our common stock is determined monthly and is made available on our website and in prospectus supplement filings.
As of March 31, 2023, we received gross proceeds of $18.3 million from the Offering. The following table presents information about the Offering and use of proceeds therefrom ($ in thousands):
|
|
Class T |
|
|
Class S |
|
|
Class D |
|
|
Class I |
|
|
Total |
|
|||||
Offering proceeds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Shares sold |
|
|
— |
|
|
|
— |
|
|
|
49 |
|
|
|
1,769 |
|
|
|
1,818 |
|
Gross offering proceeds |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
495 |
|
|
$ |
17,782 |
|
|
$ |
18,277 |
|
Selling commissions and other dealer manager fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Accrued stockholder servicing fees |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net offering proceeds |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
495 |
|
|
$ |
17,782 |
|
|
$ |
18,277 |
|
We primarily used the net proceeds from the unregistered sales along with the Offering toward the acquisition of $202.3 million of real estate, an investment in real estate debt of $16.8 million and $6.7 million in real estate-related and other securities. In addition to the net proceeds from the Offering, we financed our investments with $21.3 million of financing from the credit facility and $113.7 million from mortgage notes, including an assumed loan of $28.2 million. In addition, we may from time to time use proceeds from the Offering to pay down our credit facility if there are no acquisitions at the time proceeds are received. See Item 2—“Management’s
42
Discussion and Analysis of Financial Condition and Results of Operations— Liquidity and Capital Resources” for additional details on our borrowings.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Unregistered Sales of Equity Securities
On April 3, 2023, we issued 1,206,916 and 11,690 unregistered Class E shares and Class I shares of common stock at a price per share of $10.83 and $10.69, to accredited investors in a private placement of Class E shares and Class I shares for an aggregate purchase price of $13.1 million and $0.1 million, respectively.
On April 3, 2023, pursuant to our distribution reinvestment plan, we issued 792 Class E Shares at a price per share of $10.83 to accredited investors for an aggregate purchase price of $0.01 million.
On May 1, 2023, we issued 18,389 and 19,025 unregistered Class E shares and Class I shares of common stock at a price per share of $10.88 and $10.51, to accredited investors in a private placement of Class E shares and Class I shares for an aggregate purchase price of $0.2 million and $0.2 million, respectively.
On May 1, 2023, pursuant to our distribution reinvestment plan, we issued 813 Class E Shares at a price per share of $10.88 to accredited investors for an aggregate purchase price of $0.01 million.
The transactions described above were exempt from the registration provisions of the Securities Act of 1933, as amended, by virtue of Section 4(a)(2) and Regulation D thereof as they were not part of any public offering and did not involve any general solicitation or general advertising.
Other
On May 12, 2023, our board of directors approved an amended distribution reinvestment plan, under which a participating stockholder who seeks the repurchase by us of a portion of, but fewer than all, his or her shares will continue to participate in the distribution reinvestment plan with respect to any shares not repurchased. A stockholder’s participation in the distribution reinvestment plan will automatically terminate if he or she seeks the repurchase by us of all his or her shares, whether or not all of the stockholder’s shares are actually repurchased, and any distributions paid following such repurchase request will be paid in cash.
On May 12, 2023, following the approval of our board of directors, including all of our independent directors, we entered into an Amended and Restated Advisory Agreement (the “Amended and Restated Advisory Agreement”), with the Operating Partnership and the Adviser, to reflect an updated reimbursement schedule for organization and offering expenses and operating expenses advanced by the Adviser. Pursuant to the Amended and Restated Advisory Agreement, the Adviser will advance our organization and offering expenses on our behalf through July 22, 2024, the second anniversary of the commencement of the Offering. In addition, the Adviser will advance our operating expenses through the earlier of (i) the first day that our NAV reaches $500 million and (ii) December 31, 2024. The terms of the Advisory Agreement otherwise remain unchanged.
43
Item 6. Exhibits.
Furnish the exhibits required by Item 601 of Regulation S-K (§ 229.601 of this chapter).
Exhibit Number |
|
Description |
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
4.1* |
|
Amended and Restated Distribution Reinvestment Plan, dated May12, 2023. |
10.1* |
|
|
31.1* |
|
|
31.2* |
|
|
32.1** |
|
|
32.2** |
|
|
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
** Furnished herewith.
44
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
J.P. Morgan Real Estate Income Trust, Inc. |
|
|
|
|
|
Date: May 12, 2023 |
|
By: |
/s/ Michael P. Kelly |
|
|
|
Michael P. Kelly |
|
|
|
Chairperson of the Board and Chief Executive Officer |
|
|
|
|
Date: May 12, 2023 |
|
By: |
/s/ Lawrence A. Goodfield, Jr. |
|
|
|
Lawrence A. Goodfield, Jr. |
|
|
|
Chief Financial Officer and Treasurer |
45
Exhibit 4.1
AMENDED AND RESTATED DISTRIBUTION REINVESTMENT PLAN
This Amended and Restated Distribution Reinvestment Plan (the “Plan”) is adopted by J.P. Morgan Real Estate Income Trust, Inc. (the “Company”) pursuant to its Articles of Amendment and Restatement (as amended, restated or otherwise modified from time to time, the “Charter”). Unless otherwise defined herein, capitalized terms shall have the same meaning as set forth in the Charter.
1. Distribution Reinvestment. As agent for the stockholders (the “Stockholders”) of the Company who purchase shares of the Company’s common stock, $0.01 par value per share (collectively, “Shares”), pursuant to (i) the unregistered private offering of the Company’s Class E Common Stock, $0.01 par value per share, pursuant to the applicable exemption from registration under the Securities Act of 1933, as amended (the “Securities Act”) (the “Private Placement”) or the Company’s continuous public offering of Shares (the “Initial Public Offering”), or (ii) any future public offering of Shares (a “Future Public Offering”), and who do not opt out of participating in the Plan or who affirmatively elect to participate in the Plan, as applicable (as set forth in Section 3 below) (the “Participants”), the Company will apply all dividends and other distributions declared and paid in respect of the Shares held by each Participant and attributable to the class of Shares held by such Participant (the “Distributions”), including Distributions paid with respect to any full or fractional Shares acquired under the Plan, to the purchase of additional Shares of the same class for such Participant.
2. Effective Date. The initial effective date of this Plan was May 31, 2022 and the effective date of this amended and restated Plan shall be May 12, 2023.
3. Procedure for Participation. Any Stockholder (unless such Stockholder is a resident of Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, North Carolina, Ohio, Oregon, Vermont and Washington or is a client of a participating broker-dealer that does not permit automatic enrollment in the Plan) who has received a copy of (i) the private placement memorandum with respect to the Private Placement (the “Memorandum”) or (ii) the Prospectus, as contained in the applicable registration statement filed by the Company with the Securities and Exchange Commission (the “SEC”), with respect to the Initial Public Offering or any Future Public Offering, as applicable, will automatically become a Participant unless they elect not to become a Participant by noting such election on their subscription agreement. Any Stockholder who is a resident of Alabama, Arkansas, Idaho, Kansas, Kentucky, Maine, Maryland, Massachusetts, Nebraska, New Jersey, Ohio, Oregon, Vermont or Washington or is a client of a participating broker-dealer that does not permit automatic enrollment in the Plan will only become a Participant if the Stockholder notes such an election on the Stockholder’s subscription agreement. If any Stockholder initially elects not to be a Participant, they may later become a Participant by subsequently completing and executing an enrollment form or any appropriate authorization form as may be available from the Company, the Company’s transfer agent, the dealer manager for the applicable offering or any soliciting dealer participating in the distribution of Shares for the offering. Participation in the Plan will begin with the next Distribution payable after acceptance of a Participant’s subscription, enrollment or authorization. Shares will be purchased under the Plan on the date that Distributions are paid by the Company.
4. Suitability. Each Participant is requested to promptly notify the Company in writing if the Participant experiences a material change in his or her financial condition, including the failure to meet the income, net worth, investment concentration, status as an “accredited investor” as defined by Regulation D of the Securities Act (solely with respect to purchasers in the Private Placement) or other investment suitability standards imposed by such Participant’s state of residence or the Company and set forth in the Memorandum or the Company’s most recent prospectus. For the avoidance of doubt, this request in no way shifts to the Participant the responsibility of the Company’s sponsor, or any other person selling Shares on behalf of the Company to the Participant, to make every reasonable effort to determine that the purchase of Shares by Stockholders who purchased Shares in the Initial Public Offering or any Future Public Offering is a suitable and appropriate investment based on information provided by such Participant.
5. Purchase of Shares.
|
A. |
Participants will acquire Shares from the Company (including Shares purchased by the Company for the Plan in a secondary market (if available) or on a stock exchange (if listed)) under the Plan (the “Plan Shares”) at a price equal to the net asset value (“NAV”) per Share applicable to the class of Shares purchased by the Participant on the date that the Distribution is payable (calculated as of the most recent month end). No upfront selling commissions will be payable with respect to Shares purchased pursuant to the Plan, but such Shares may be subject to ongoing stockholder servicing fees. Participants in the Plan may purchase fractional Shares so that 100% of the Distributions will be used to acquire Shares. However, a Participant will not be able to acquire Plan Shares and such Participant’s participation in the Plan will be terminated to the extent that a reinvestment of such Participant’s Distributions in Shares would cause the percentage ownership or other limitations contained in the Charter to be violated. |
|
B. |
Plan Shares to be distributed by the Company in connection with the Plan may (but are not required to) be supplied from: (i) Class E shares that will be issued by the Company in the Private Placement pursuant to an applicable exemption from registration under the Securities Act, (ii) Shares that will be registered with the SEC in connection with the Initial Public Offering, or (iii) Shares to be registered with the SEC in connection with a Future Public Offering. |
6. Taxes. THE REINVESTMENT OF DISTRIBUTIONS DOES NOT RELIEVE A PARTICIPANT OF ANY INCOME TAX LIABILITY THAT MAY BE PAYABLE IN RESPECT OF THE DISTRIBUTIONS. INFORMATION REGARDING POTENTIAL TAX INCOME LIABILITY OF PARTICIPANTS MAY BE FOUND IN THE PUBLIC FILINGS MADE BY THE COMPANY WITH THE SEC.
7. Share Certificates. The ownership of the Shares purchased through the Plan will be in book-entry form unless and until the Company issues certificates for its outstanding Shares.
8. Reports. On a quarterly basis, the Company shall provide each Participant a statement of account describing, as to such Participant: (i) the Distributions reinvested during the quarter; (ii) the number and class of Shares purchased pursuant to the Plan during the quarter; (iii) the per Share purchase price for such Shares; and (iv) the total number of Shares purchased on behalf of the Participant under the Plan. On an annual basis, tax information with respect to income earned on Shares under the Plan for the calendar year will be provided to each applicable participant.
9. Termination by Participant. A Participant may terminate participation in the Plan at any time, without penalty, by delivering 10 days’ prior written notice to the Company. This notice must be received by the Company prior to the last day of a quarter in order for a Participant’s termination to be effective for such quarter (i.e., a timely termination notice will be effective as of the last day of a quarter in which it is timely received and will not affect participation in the Plan for any prior quarter). Any transfer of Shares by a Participant to a non-Participant will terminate participation in the Plan with respect to the transferred Shares. If a Participant requests that the Company repurchase a portion, but fewer than all, of the Participant’s Shares, the Participant will continue to participate in the Plan with respect to the Participant’s Shares for which repurchase was requested but that were not repurchased. If a Participant requests that the Company repurchase all the Participant’s Shares, the Participant’s participation in the Plan will automatically terminate, whether or not all of the Participant’s Shares are actually repurchased, and any distributions paid following such repurchase request will be paid in cash. If a Participant terminates Plan participation, the Company may, at its option, ensure that the terminating Participant’s account will reflect the whole number of Shares in such Participant’s account and provide a check for the cash value of any fractional share in such account. Upon termination of Plan participation for any reason, future Distributions will be distributed to the Stockholder in cash.
10. Amendment, Suspension or Termination by the Company. The Board of Directors may by majority vote amend any aspect of the Plan; provided, however, that the Plan cannot be amended to eliminate a Participant’s right to terminate participation in the Plan and that notice of any material amendment must be provided to Participants at least 10 days prior to the effective date of that amendment. The Board of Directors may by majority vote suspend or terminate the Plan for any reason upon notice to the Participants. Any notice required by this Section 10 may be satisfied by the Company disclosing to stockholders in a prospectus supplement (or post-effective amendment if required by the Securities Act) or special or periodic report filed by the Company.
11. Liability of the Company. The Company shall not be liable for any act done in good faith, or for any good faith omission to act, including, without limitation, any claims or liability (i) arising out of failure to terminate a Participant’s account upon such Participant’s death prior to timely receipt of notice in writing of such death or (ii) with respect to the time and the prices at which Shares are purchased or sold for a Participant’s account. To the extent that indemnification may apply to liabilities arising under the Securities Act, or the securities laws of a particular state, the Company has been advised that, in the opinion of the SEC and certain state securities commissioners, such indemnification is contrary to public policy and, therefore, unenforceable.
Exhibit 10.1
AMENDED AND RESTATED ADVISORY AGREEMENT
AMONG
J.P. MORGAN REAL ESTATE INCOME TRUST, INC.,
J.P. MORGAN REIT OPERATING PARTNERSHIP, L.P.,
AND
J.P. MORGAN INVESTMENT MANAGEMENT INC.
TABLE OF CONTENTS
|
|
Page |
1. |
DEFINITIONS |
1 |
2. |
APPOINTMENT |
5 |
3. |
DUTIES OF THE ADVISER |
5 |
4. |
AUTHORITY OF ADVISER |
8 |
5. |
BANK ACCOUNTS |
9 |
6. |
RECORDS; ACCESS |
9 |
7. |
LIMITATIONS ON ACTIVITIES |
9 |
8. |
OTHER ACTIVITIES OF THE ADVISER |
10 |
9. |
RELATIONSHIP WITH DIRECTORS AND OFFICERS |
11 |
10. |
MANAGEMENT FEE |
12 |
11. |
EXPENSES |
13 |
12. |
OTHER SERVICES |
16 |
13. |
REIMBURSEMENT TO THE ADVISER |
16 |
14. |
NO JOINT VENTURE |
17 |
15. |
TERM OF AGREEMENT |
17 |
16. |
TERMINATION BY THE PARTIES |
17 |
17. |
ASSIGNMENT TO AN AFFILIATE |
17 |
18. |
PAYMENTS TO AND DUTIES OF ADVISER UPON TERMINATION |
17 |
19. |
INDEMNIFICATION BY THE COMPANY AND THE OPERATING PARTNERSHIP |
18 |
20. |
INDEMNIFICATION BY ADVISER |
18 |
21. |
NON-SOLICITATION |
18 |
22. |
MISCELLANEOUS |
19 |
23. |
TRADEMARK |
21 |
24. |
INITIAL INVESTMENT |
21 |
Amended and restated ADVISORY AGREEMENT
THIS AMENDED AND RESTATED ADVISORY AGREEMENT (this “Agreement”), dated as of the 12th day of May, 2023 (the “Effective Date”), is by and among J.P. Morgan Real Estate Income Trust, Inc., a Maryland corporation (the “Company”), J.P. Morgan REIT Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”), and J.P. Morgan Investment Management Inc., a Delaware corporation (the “Adviser” and together with the Company and the Operating Partnership, the “Parties”). Capitalized terms used herein shall have the meanings ascribed to them in Section 1 below.
W I T N E S S E T H
WHEREAS, the Company intends to qualify as a REIT, and to invest its funds in investments permitted by the terms of Sections 856 through 860 of the Code;
WHEREAS, the Company is the general partner of the Operating Partnership and intends to conduct all of its business and make all or substantially all Investments through the Operating Partnership;
WHEREAS, the Company and the Operating Partnership desire to avail themselves of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Adviser and to have the Adviser undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the Board, all as provided herein;
WHEREAS, the Adviser is willing to undertake to render such services, subject to the supervision of the Board, on the terms and conditions hereinafter set forth;
WHEREAS the Parties entered into that certain Advisory Agreement, dated May 31, 2022 (the “Original Advisory Agreement”); and
WHEREAS the Parties now desire to amend and restate the Original Advisory Agreement pursuant to the terms hereof.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms have the definitions hereinafter indicated:
“Acquisition Expenses” shall have the meaning set forth in the Charter.
“Adviser” shall mean J.P. Morgan Investment Management Inc., a Delaware corporation.
“Adviser Expenses” shall have the meaning set forth in Section 11(b).
“Affiliate” shall have the meaning set forth in the Charter.
“Average Invested Assets” shall have the meaning set forth in the Charter.
1
“Board” shall mean the board of directors of the Company, as of any particular time.
“Business Day” shall have the meaning set forth in the Charter.
“Bylaws” shall mean the bylaws of the Company, as amended from time to time.
“Cause” shall mean, with respect to the termination of this Agreement, fraud, criminal conduct, willful misconduct or willful or negligent breach of fiduciary duty by the Adviser in connection with performing its duties hereunder.
“CEA” shall mean the U.S. Commodity Exchange Act, as amended.
“Change of Control” shall mean any event (including, without limitation, issue, transfer or other disposition of shares of capital stock of the Company or equity interests in the Operating Partnership, merger, share exchange or consolidation) after which any “person” (as that term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended), directly or indirectly, of securities of the Company or the Operating Partnership representing greater than 50% or more of the combined voting power of Company’s or the Operating Partnership’s then outstanding securities, respectively; provided, that, a Change of Control shall not be deemed to occur as a result of any widely distributed public offering of the Shares.
“Charter” shall mean the Articles of Incorporation of the Company filed with the Maryland State Department of Assessments and Taxation in accordance with the Maryland General Corporation Law, as amended from time to time.
“Class D Common Shares” shall have the meaning set forth in the Charter.
“Class E Common Shares” shall have the meaning set forth in the Charter.
“Class E Units” shall mean Class E units of the Operating Partnership.
“Class I Common Shares” shall have the meaning set forth in the Charter.
“Class I Units” shall mean Class I units of the Operating Partnership.
“Class S Common Shares” shall have the meaning set forth in the Charter.
“Class S Units” shall mean Class S units of the Operating Partnership.
“Class T Common Shares” shall have the meaning set forth in the Charter.
“Class T Units” shall mean Class T units of the Operating Partnership.
“Class D NAV per Share” shall have the meaning set forth in the Charter.
“Class E NAV per Share” shall have the meaning set forth in the Charter.
2
“Class I NAV per Share” shall have the meaning set forth in the Charter.
“Class S NAV per Share” shall have the meaning set forth in the Charter.
“Class T NAV per Share” shall have the meaning set forth in the Charter.
“Code” shall mean the Internal Revenue Code of 1986, as amended.
“Commencement Date” shall mean July 22, 2022, the date on which the Securities and Exchange Commission declared the Registration Statement effective.
“Company” shall have the meaning set forth in the preamble of this Agreement.
“Company Management Fee” shall have the meaning set forth in Section 10(a).
“Director ” shall mean a member of the Board.
“Distributions” shall have the meaning set forth in the Charter.
“Excess Amount” shall have the meaning set forth in Section 13.
“Exchange Act” shall have the meaning set forth in the Charter.
“Expense Year” shall have the meaning set forth in Section 13.
“GAAP” shall mean generally accepted accounting principles as in effect in the United States of America from time to time.
“Gross Proceeds” shall mean the aggregate purchase price of all Shares sold for the account of the Company through an Offering, without deduction for Selling Commissions. The purchase price of any Class T Common Share or Class S Common Share shall be deemed to be the full, non-discounted offering price at the time of purchase of each such Class T Common Share or Class S Common Share.
“Independent Appraiser” shall have the meaning set forth in the Charter.
“Independent Director” shall have the meaning set forth in the Charter.
“Initial Investment” shall have the meaning set forth in Section 23.
“Investment Company Act” shall mean the Investment Company Act of 1940, as amended.
“Investment Guidelines” shall mean the investment guidelines adopted by the Board, as amended from time to time, pursuant to which the Adviser has discretion to acquire and dispose of Investments for the Company without the prior approval of the Board.
“Investments” shall mean any investments by the Company or the Operating Partnership, directly or indirectly, in Real Property, Real Estate-Related Assets or other assets.
3
“Joint Ventures” shall have the meaning set forth in the Charter.
“J.P. Morgan” means, collectively, J.P. Morgan Investment Management Inc., a Delaware corporation, and any Affiliate thereof.
“JPM-Advised Funds” shall mean any investment fund managed, sponsored or advised by the Adviser or any asset management Affiliate of the Adviser into which the Company has made an investment.
“JPMorgan Names” shall have the meaning set forth in Section 23.
“Management Fee” shall have the meaning set forth in Section 10(a).
“Mortgage” shall have the meaning set forth in the Charter.
“NASAA REIT Guidelines” shall have the meaning set forth in the Charter.
“NAV” shall mean the Company’s net asset value, calculated pursuant to the Valuation Guidelines.
“Net Income” shall have the meaning set forth in the Charter.
“Offering” shall have the meaning set forth in the Charter.
“OP Management Fee” shall have the meaning set forth in Section 10(a).
“Operating Partnership” shall have the meaning set forth in the preamble of this Agreement.
“Operating Partnership Agreement” shall mean the Limited Partnership Agreement of the Operating Partnership, as amended from time to time.
“Organization and Offering Expenses” shall have the meaning set forth in the Charter.
“Other J.P. Morgan Accounts” shall mean investment funds, REITs, vehicles, accounts, products and other similar arrangements sponsored, advised or managed by J.P. Morgan, whether currently in existence or subsequently established (in each case, including any related successor funds, alternative vehicles, supplemental capital vehicles, surge funds, over-flow funds, co-investment vehicles and other entities formed in connection with J.P. Morgan side-by-side or additional general partner investments with respect thereto).
“Person” shall mean an individual, corporation, business trust, estate, trust, partnership, joint venture, limited liability company or other legal entity.
“Prospectus” shall have the meaning set forth in the Charter.
“Real Estate-Related Securities” shall have the meaning set forth in the Charter.
4
“Real Estate-Related Assets” shall mean any investments by the Company or the Operating Partnership in Mortgages and Real Estate-Related Securities.
“Real Property” shall have the meaning set forth in the Charter.
“Registration Statement” shall mean the registration statement on Form S-11, as may be amended from time to time, of the Company filed with the Securities and Exchange Commission related to the registration of the Shares for the Company’s initial Offering.
“REIT” shall have the meaning set forth in the Charter.
“Securities Act” shall have the meaning set forth in the Charter.
“Selling Commissions” shall have the meaning set forth in the Charter.
“Services” shall have the meaning set forth in Section 8(c).
“Shares” shall have the meaning set forth in the Charter.
“Stockholder Servicing Fee” shall have the meaning set forth in the Charter.
“Stockholders” shall have the meaning set forth in the Charter.
“Termination Date” shall mean the date of termination of this Agreement or expiration of this Agreement in the event this Agreement is not renewed for an additional term.
“Total Operating Expenses” shall have the meaning set forth in the Charter.
“Treasury Regulations” shall mean the Procedures and Administration Regulation promulgated by the U.S. Department of Treasury under the Code, as amended.
“Valuation Guidelines” shall mean the valuation guidelines adopted by the Board, as amended from time to time.
“2%/25% Guidelines” shall have the meaning set forth in the Charter.
2. APPOINTMENT. The Company and the Operating Partnership hereby appoint the Adviser to serve as their investment adviser on the terms and conditions set forth in this Agreement, and the Adviser hereby accepts such appointment. By accepting such appointment, the Adviser acknowledges that it has a contractual and fiduciary responsibility to the Company and the Stockholders. Except as otherwise provided in this Agreement, the Adviser hereby agrees to use its commercially reasonable efforts to perform the duties set forth herein, provided that the Company pays the Adviser the fees set forth in Section 10 hereof and reimburses the Adviser for costs and expenses in accordance with Section 11 hereof.
3. DUTIES OF THE ADVISER. Subject to the oversight of the Board and the terms and conditions of this Agreement (including the Investment Guidelines) and consistent with the provisions of the Company’s most recent Prospectus for the Shares, the Charter and Bylaws and the Operating Partnership Agreement, the Adviser will have plenary authority with respect to the
5
management of the business and affairs of the Company and the Operating Partnership and will be responsible for implementing the investment strategy of the Company and the Operating Partnership. The Adviser will perform (or cause to be performed through one or more of its Affiliates or third parties) such services and activities relating to the selection of investments and rendering investment advice to the Company and the Operating Partnership as may be appropriate or otherwise mutually agreed from time to time, which may include, without limitation:
(a) serving as an advisor to the Company and the Operating Partnership with respect to the establishment and periodic review of the Investment Guidelines for the Company’s and the Operating Partnership’s investments, financing activities and operations;
(b) sourcing, evaluating and monitoring the Company’s and the Operating Partnership’s investment opportunities and executing the acquisition, management, financing and disposition of the Company’s and the Operating Partnership’s assets, in accordance with the Investment Guidelines and the Company’s policies and objectives and limitations, subject to oversight by the Board;
(c) with respect to prospective acquisitions, purchases, sales, exchanges or other dispositions of Investments, conducting negotiations on the Company’s and the Operating Partnership’s behalf with sellers, purchasers, and other counterparties and, if applicable, their respective agents, advisors and representatives, and determining the structure and terms of such transactions;
(d) providing the Company with portfolio management and other related services;
(e) serving as the Company’s advisor with respect to decisions regarding any of the Company’s financings, hedging activities or borrowings, including (1) assisting the Company in developing criteria for debt and equity financing that is specifically tailored to the Company’s investment objectives, and (2) advising the Company with respect to obtaining appropriate financing for the Investments (which, in accordance with applicable law and the terms and conditions of this Agreement and the Charter and Bylaws, may include financing by the Adviser or its Affiliates) and (3) negotiating and entering into, on the Company’s and the Operating Partnership’s behalf, financing arrangements (including one or more credit facilities), repurchase agreements, interest rate or currency swap agreements, hedging arrangements, foreign exchange transactions, derivative transactions, and other agreements and instruments required or appropriate in connection with the Company’s and the Operating Partnership’s activities;
(f) engaging and supervising, on the Company’s and the Operating Partnership’s behalf and at the Company’s and the Operating Partnership’s expense, independent contractors, advisors, consultants, attorneys, accountants, administrators, auditors, appraisers, independent valuation agents, escrow agents and other service providers (which may include Affiliates of the Adviser) that provide various services with respect to the Company and Operating Partnership, including, without limitation, on-site managers, building and maintenance personnel, investment banking, securities brokerage, mortgage brokerage, credit analysis, risk management services, asset management services, loan servicing, other financial, legal or accounting services, due diligence services, underwriting review services, and all other services (including custody and
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transfer agent and registrar services) as may be required relating to the Company’s and the Operating Partnership’s activities or investments (or potential Investments);
(g) coordinating and managing operations of any Joint Venture or co-investment interests held by the Company or the Operating Partnership and conducting matters with the Joint Venture or co-investment partners;
(h) communicating on the Company’s and the Operating Partnership’s behalf with the holders of any of the Company’s equity or debt securities as required to satisfy the reporting and other requirements of any governmental bodies or agencies or trading markets and to maintain effective relations with such holders;
(i) advising the Company in connection with policy decisions to be made by the Board;
(j) engaging one or more subadvisors with respect to the management of the Company and the Operating Partnership, including, where appropriate, Affiliates of the Adviser;
(k) evaluating and recommending to the Board hedging strategies and engaging in hedging activities on the Company’s and the Operating Partnership’s behalf, consistent with the Company’s qualification as a REIT and with the Investment Guidelines;
(l) investing and reinvesting any moneys and securities of the Company and the Operating Partnership (including investing in short-term investments pending investment in other investments, payment of fees, costs and expenses, or payments of dividends or distributions to the Company’s stockholders and the Operating Partnership’s limited partners) and advising the Company as to the Company’s and the Operating Partnership’s capital structure and capital raising;
(m) determining valuations for the Company’s Real Property and Real Estate-Related Assets and calculate, as of the last Business Day of each month, the Class T NAV per Share, Class S NAV per Share, Class D NAV per Share, Class I NAV per Share and Class E NAV per Share in accordance with the Valuation Guidelines, and in connection therewith, obtain appraisals performed by an Independent Appraiser and other independent third-party appraisal firms concerning the value of the Real Properties and obtain market quotations or conduct fair valuation determinations concerning the value of Real Estate-Related Assets;
(n) providing input in connection with the appraisals performed by the Independent Appraisers;
(o) monitoring the Company’s Real Property and Real Estate Related Assets for events that may be expected to have a material impact on the most recent estimated values;
(p) monitoring each Independent Appraiser’s valuation process to ensure that it complies with the Company’s valuation guidelines;
(q) delivering to, or maintain on behalf of, the Company copies of appraisals obtained in connection with the investments in any Real Property;
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(r) in the event that the Company is a commodity pool under the CEA, acting as the Company’s commodity pool operator for the period and on the terms and conditions set forth in this Agreement, including, for the avoidance of doubt, the authority to make any filings, submissions or registrations (including for exemptive or “no action” relief) to the extent required or desirable under the CEA (and the Company hereby appoints the Adviser to act in such capacity and the Adviser accepts such appointment and agrees to be responsible for such services);
(s) placing, or arranging for the placement of, orders of Real Estate-Related Securities pursuant to the Adviser’s investment determinations for the Company and the Operating Partnership either directly with the issuer or with a broker or dealer (including any Affiliated broker or dealer); and
(t) performing such other services from time to time in connection with the management of the Company’s investment activities as the Board shall reasonably request or the Adviser shall deem appropriate under the particular circumstances.
4. AUTHORITY OF ADVISER.
(a) Pursuant to the terms of this Agreement (including the restrictions included in this Section 4 and in Section 7), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Board (by virtue of its approval of this Agreement and authorization of the execution hereof by the officers of the Company) hereby delegates to the Adviser the authority to take, or cause to be taken, any and all actions and to execute and deliver any and all agreements, certificates, assignments, instruments or other documents and to do any and all things that, in the judgment of the Adviser, may be necessary or advisable in connection with the Adviser’s duties described in Section 3, including the making of any Investment that fits within the Company’s investment objectives, strategy and guidelines, policies and limitations and within the discretionary limits and authority as granted to the Adviser from time to time by the Board.
(b) Notwithstanding the foregoing, any Investment that does not fit within the Investment Guidelines will require the prior approval of the Board or any duly authorized committee of the Board, as the case may be. Except as otherwise set forth herein, in the Investment Guidelines or in the Charter, any Investment that fits within the Investment Guidelines may be made by the Adviser on the Company’s or the Operating Partnership’s behalf without the prior approval of the Board or any duly authorized committee of the Board.
(c) The prior approval of a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in the transaction will be required for each transaction to which the Adviser or its Affiliates is a party.
(d) The Board will review the Investment Guidelines with sufficient frequency and at least annually and may, at any time upon the giving of notice to the Adviser, amend the Investment Guidelines; provided, however, that such modification or revocation shall be effective upon receipt by the Adviser or such later date as is specified by the Board and included in the notice provided to the Adviser and such modification or revocation shall not be applicable to investment transactions to which the Adviser has committed the Company or the Operating
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Partnership prior to the date of receipt by the Adviser of such notification, or if later, the effective date of such modification or revocation specified by the Board.
(e) The Adviser may retain, for and on behalf, and at the sole cost and expense, of the Company, such services as the Adviser deems necessary or advisable in connection with the management and operations of the Company, which may include Affiliates of the Adviser; provided, that any such services may only be provided by Affiliates to the extent such services are approved by a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in such transactions as being fair and reasonable to the Company and on terms and conditions not less favorable to the Company than those available from non-Affiliated third parties. In performing its duties under Section 3, the Adviser shall be entitled to rely reasonably on qualified experts and professionals (including, without limitation, accountants, legal counsel and other professional service providers) hired by the Adviser at the Company’s sole cost and expense.
5. BANK ACCOUNTS. The Adviser may establish and maintain one or more bank accounts in the name of the Company and the Operating Partnership and any subsidiary thereof and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company or the Operating Partnership, consistent with the Adviser’s authority under this Agreement, provided that no funds shall be commingled with the funds of the Adviser; and the Adviser shall from time to time render, upon request by the Board, its audit committee or the auditors of the Company, appropriate accountings of such collections and payments to the Board, its audit committee and the auditors of the Company, as applicable.
6. RECORDS; ACCESS. The Adviser shall maintain, or shall cause to be maintained, appropriate records of its activities hereunder and make such records, or shall cause such records to be made, available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours. The Adviser shall at all reasonable times have access to the books and records of the Company and the Operating Partnership.
7. LIMITATIONS ON ACTIVITIES. The Adviser shall refrain from any action that, in its sole judgment made in good faith, (i) would adversely and materially affect the qualification of the Company as a REIT under the Code or the Company’s and the Operating Partnership’s status as entities excluded from investment company status under the Investment Company Act, or (ii) would materially violate any law, rule or regulation of any governmental body or agency having jurisdiction over the Company and the Operating Partnership or of any exchange on which the securities of the Company may be listed or that would otherwise not be permitted by the Charter, the Bylaws or the Operating Partnership Agreement. If the Adviser is ordered to take any action by the Board, the Adviser shall seek to notify the Board if it is the Adviser’s reasonable judgment that such action would adversely and materially affect such status or violate any such law, rule or regulation or the Charter, the Bylaws or the Operating Partnership Agreement. Notwithstanding the foregoing, neither the Adviser nor any of its Affiliates shall be liable to the Company, the Operating Partnership, the Board, or the Stockholders for any act or omission by the Adviser or any of its Affiliates, except as provided in Section 20 of this Agreement.
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8. OTHER ACTIVITIES OF THE ADVISER.
(a) Nothing in this Agreement shall (i) prevent the Adviser or any of its Affiliates, officers, directors or employees from engaging in other businesses or from rendering services of any kind to any other Person or entity, whether or not the investment objectives or policies of any such other Person or entity are similar to those of the Company, including, without limitation, the sponsoring, advising or managing of any Other J.P. Morgan Accounts, (ii) in any way bind or restrict the Adviser or any of its Affiliates, officers, directors or employees from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom the Adviser or any of its Affiliates, officers, directors or employees may be acting, or (iii) prevent the Adviser or any of its Affiliates, officers, directors or employees from receiving fees or other compensation or profits from such activities described in this Section 8(a) which shall be for the sole benefit of the Adviser (or its Affiliates, officers, directors or employees). While information and recommendations supplied to the Company shall, in the Adviser’s reasonable and good faith judgment, be appropriate under the circumstances and in light of the investment objectives and policies of the Company, such information and recommendations may be different in certain material respects from the information and recommendations supplied by the Adviser or any Affiliate of the Adviser to others (including, for greater certainty, the Other J.P. Morgan Accounts and their investors, as described more fully in Section 8(b)).
(b) The Adviser and the Company acknowledge and agree that, notwithstanding anything to the contrary contained herein, (i) Affiliates of the Adviser sponsor, advise or manage Other J.P. Morgan Accounts and may in the future sponsor, advise or manage additional Other J.P. Morgan Accounts, (ii) with respect to Other J.P. Morgan Accounts with investment objectives or guidelines that overlap with the Company’s but that do not have priority over the Company, the Adviser and its Affiliates will allocate investment opportunities between the Company and such Other J.P. Morgan Accounts in accordance with J.P. Morgan’s prevailing policies and procedures on a basis that the Adviser and its Affiliates determine to be reasonable to the Company and such Other J.P. Morgan Accounts in their sole discretion, and there may be circumstances where investments that are consistent with the Company’s Investment Guidelines may be shared with or allocated to one or more Other J.P. Morgan Accounts (in lieu of the Company) in accordance with J.P. Morgan’s prevailing policies and procedures.
(c) In connection with the services of the Adviser hereunder, the Company and the Board acknowledge and agree that (i) as part of J.P. Morgan’s regular businesses, personnel of the Adviser and its Affiliates will devote a substantial amount of their working time and resources to other projects and matters (including with respect to one or more Other J.P. Morgan Accounts), and that conflicts may arise with respect to the allocation of personnel between the Company and one or more Other J.P. Morgan Accounts or the Adviser and such other Affiliates, (ii) unless prohibited by the Charter, Other J.P. Morgan Accounts may invest, from time to time, in investments in which the Company also invests (including at a different level of an issuer’s capital structure (e.g., an investment by an Other J.P. Morgan Account in a debt or mezzanine interest with respect to the same portfolio entity in which the Company owns an equity interest or vice versa) or in a different tranche of equity or debt with respect to an issuer in which the Company has an interest) and while J.P. Morgan will seek to resolve any such conflicts in a fair and reasonable manner in accordance with its prevailing policies and procedures with respect to conflicts resolution among Other J.P. Morgan Accounts generally, such transactions are not
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required to be presented to the Board or any committee thereof for approval (unless otherwise required by the Charter or Investment Guidelines), and there can be no assurance that any conflicts will be resolved in the Company’s favor, (iii) the Company will from time to time pay fees to the Adviser and its Affiliates, including portfolio entities of Other J.P. Morgan Accounts, for providing various services described in the Prospectus (collectively, “Services”), which fees will be in addition to the compensation paid to the Adviser pursuant to Section 10 hereof, (iv) the Adviser and its Affiliates will from time to time receive fees from portfolio entities or other issuers for providing Services, including with respect to Other J.P. Morgan Accounts and related portfolio entities, and while such fees will give rise to conflicts of interest the Company will not receive the benefit of any such fees, and (v) the terms and conditions of the governing agreements of such Other J.P. Morgan Accounts (including with respect to the economic, reporting, and other rights afforded to investors in such Other J.P. Morgan Accounts) are materially different from the terms and conditions applicable to the Company and the Stockholders, and neither the Company nor the Stockholders (in such capacity) shall have the right to receive the benefit of any such different terms applicable to investors in such Other J.P. Morgan Accounts as a result of an investment in the Company or otherwise. The Adviser shall keep the Board reasonably informed on a periodic basis in connection with the foregoing.
(d) The Adviser is not permitted to consummate on the Company’s behalf any transaction that involves (i) the sale of any investment to or (ii) the acquisition of any investment from J.P. Morgan, any Other J.P. Morgan Account or any of their Affiliates unless such transaction is approved by a majority of the Directors, including a majority of the Independent Directors, not otherwise interested in such transaction as being fair and reasonable to the Company. In addition, for any such acquisition by the Company, the Company’s purchase price will be limited to the cost of the property to the Affiliate, including acquisition-related expenses, or if substantial justification exists, the current appraised value of the property as determined by an Independent Appraiser. In addition, the Company may enter into Joint Ventures with Other J.P. Morgan Accounts, or with J.P. Morgan, the Adviser, one or more Directors, or any of their respective Affiliates, only if a majority of the Directors (including a majority of the Independent Directors) not otherwise interested in the transaction approve the transaction as being fair and reasonable to the Company and on substantially the same, or no less favorable, terms and conditions as those received by other Affiliate joint venture partners. The Adviser will seek to resolve any conflicts of interest in a fair and reasonable manner in accordance with its prevailing policies and procedures with respect to conflicts resolution among Other J.P. Morgan Accounts generally, but only those transactions set forth in this Section 8(d) will be expressly required to be presented for approval to the Independent Directors or any committee thereof (unless otherwise required by the Charter or the Investment Guidelines).
(e) For the avoidance of doubt, it is understood that neither the Company nor the Board has the authority to determine the salary, bonus or any other compensation paid by the Adviser to any director, officer, member, partner, employee, or stockholder of the Adviser or its Affiliates, including any person who is also a director or officer employee of the Company.
9. RELATIONSHIP WITH DIRECTORS AND OFFICERS. Subject to Section 7 of this Agreement and to restrictions advisable with respect to the qualification of the Company as a REIT, directors, managers, officers and employees of the Adviser or an Affiliate of the Adviser or any corporate parent of an Affiliate, may serve as a Director or officer of the Company, except
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that no director, officer or employee of the Adviser or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or officer other than (a) reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board or (b) as otherwise approved by the Board, including a majority of the Independent Directors, and no such Director shall be deemed an Independent Director for purposes of satisfying the Director independence requirement set forth in the Charter. For so long as this Agreement is in effect, the Adviser shall have the right to nominate, subject to the ultimate approval of such nomination by the Board, one Director nominee who is Affiliated with the Adviser to the slate of Directors to be voted on by the Stockholders at the Company’s annual meeting of Stockholders; provided, however, that such nomination right shall be suspended only for such period of time as necessary so that a majority of the Directors are at all times Independent Directors. Furthermore, the Board shall consult with the Adviser in connection with (i) its selection of each Independent Director for nomination to the slate of Directors to be voted on at the annual meeting of Stockholders, and (ii) filling any vacancies created by the removal, resignation, retirement or death of any Director.
10. MANAGEMENT FEE.
(a) The Company will pay the Adviser a management fee (the “Company Management Fee”) equal to 1.00% of NAV for the Class T Common Shares, Class S Common Shares, Class D Common Shares and Class I Common Shares per annum, payable monthly, before giving effect to any accruals for the Management Fee, the Stockholder Servicing Fee, the Performance Allocation (as defined in the Operating Partnership Agreement) or any Distributions. The Operating Partnership will pay the Adviser a management fee (the “OP Management Fee” and, together with the Company Management Fee, the “Management Fee”) equal to 1.00% of the net asset value of the Operating Partnership attributable to Operating Partnership units held by unitholders other than the Company. Notwithstanding the foregoing, if the Company invests in any JPM-Advised Fund for which the Company incurs a management fee with respect to its investment in such JPM‑Advised Fund, the most recently determined value of such JPM-Advised Fund investment will be excluded from the NAV for purposes of calculating the Management Fee. For the avoidance of doubt, no Management Fee shall be paid on Class E Common Shares or Class E Units of the Operating Partnership. The Adviser shall receive the Management Fees as compensation for services rendered hereunder. Notwithstanding the foregoing, the Adviser has agreed to waive the Management Fee with respect to the period from the effective date of this Agreement through December 31, 2022.
(b) The Company Management Fee may be paid, at the Adviser’s election, in cash or cash equivalent aggregate NAV amounts of Class E Common Shares, Class I Common Shares, Class I Units, or Class E Units. The OP Management Fee may be paid, at the Adviser’s election, in cash or cash equivalent aggregate NAV amounts of Class E Units or Class I Units. If the Adviser elects to receive any portion of its Management Fee in Class E Common Shares, Class I Common Shares, Class I Units, or Class E Units, the Adviser may elect to have the Company or the Operating Partnership repurchase such Class E Common Shares, Class I Common Shares, Class E Units or Class I Units from the Adviser at a later date. Class E Common Shares, Class I Common Shares, Class E Units, and Class I Units obtained by the Adviser will not be subject to the repurchase limits of the Company’s share repurchase plan or any reduction or penalty for an early repurchase. The Operating Partnership will repurchase any such Operating Partnership units for
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cash unless the Board determines that any such repurchase for cash would be prohibited by applicable law or the Charter, in which case such Operating Partnership units will be repurchased, at the Adviser’s election, for the Company’s Class I Common Shares or Class E Common Shares with an equivalent aggregate NAV. The Adviser will have the option of exchanging Class E Common Shares or Class I Common Shares for an equivalent aggregate NAV amount of Class T Common Shares, Class S Common Shares or Class D Common Shares.
(c) In the event this Agreement is terminated or its term expires without renewal, the Adviser will be entitled to receive its prorated Management Fee through the date of termination. Such proration shall take into account the number of days of any partial calendar month or calendar year for which this Agreement was in effect.
(d) In the event the Company or the Operating Partnership commences a liquidation of its Investments during any calendar year, the Company and the Operating Partnership will pay the Adviser the Management Fee from the proceeds of the liquidation.
11. EXPENSES.
(a) As required by the NASAA REIT Guidelines, the cumulative Selling Commissions, Stockholder Servicing Fees and Organization and Offering Expenses paid by the Company will not exceed 15.0% of Gross Proceeds from the sale of Shares in an Offering.
(b) Subject to Sections 4(e) and 11(c), the Adviser shall be responsible for the expenses related to any and all personnel of the Adviser who provide investment advisory services to the Company pursuant to this Agreement (including, without limitation, each of the officers of the Company and any Directors who are also directors, officers or employees of the Adviser or any of its Affiliates), including, without limitation, salaries, bonus and other wages, payroll taxes and the cost of employee benefit plans of such personnel, and costs of insurance with respect to such personnel (“Adviser Expenses”).
(c) In addition to the compensation paid to the Adviser pursuant to Section 10 hereof, the Company or the Operating Partnership shall pay all of its costs and expenses directly or reimburse the Adviser or its Affiliates for costs and expenses of the Adviser and its Affiliates incurred on behalf of the Company, other than Adviser Expenses. Without limiting the generality of the foregoing, it is specifically agreed that the following costs and expenses of the Company or the Operating Partnership are not Adviser Expenses and shall be paid by the Company or the Operating Partnership and shall not be paid by the Adviser or Affiliates of the Adviser:
(i) Organization and Offering Expenses; provided that within 60 days after the end of the month in which an Offering terminates, the Adviser shall reimburse the Company to the extent the Organization and Offering Expenses, Selling Commissions and Stockholder Servicing Fees borne by the Company exceed 15.0% of the Gross Proceeds raised in the completed Offering;
(ii) Acquisition Expenses, subject to limitations set forth in the Charter;
(iii) fees, costs and expenses in connection with the issuance and transaction costs incident to the trading, settling, disposition and financing of the Investments of
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the Company and its Subsidiaries (whether or not consummated), including brokerage commissions, hedging costs, prime brokerage fees, custodial expenses, clearing and settlement charges, forfeited deposits, and other investment costs fees and expenses actually incurred in connection with the pursuit, making, holding, settling, monitoring or disposing of actual or potential investments;
(iv) the actual cost of goods and services used by the Company and obtained from Persons not Affiliated with the Adviser, including fees paid to administrators, consultants, attorneys, technology providers and other services providers, and brokerage fees paid in connection with the purchase and sale of Investments;
(v) all fees, costs and expenses of legal, tax, accounting, consulting, auditing (including internal audit), finance, administrative, investment banking, capital market, transfer agency, escrow agency, custody, prime brokerage, asset management, property management, data or technology services and other non-investment advisory services rendered to the Company by the Adviser or its Affiliates in compliance with Section 4(e);
(vi) expenses of managing and operating the Company’s and the Operating Partnership’s Real Properties, whether payable to an Affiliate of the Adviser or a non-Affiliated Person;
(vii) the compensation and expenses of the Directors (excluding those directors who are directors, officers or employees of the Adviser), the cost of liability insurance to indemnify the Company’s directors and officers and expenses incurred in connection with preparation of materials for meetings of the Board and its committees;
(viii) interest and fees and expenses arising out of borrowings made by the Company, including, but not limited to, costs associated with the establishment and maintenance of any of the Company’s credit facilities, other financing arrangements, or other indebtedness of the Company (including commitment fees, accounting fees, legal fees, closing and other similar costs) or any of the Company’s securities offerings, whether or not any facilities, arrangements or indebtedness are implemented or such securities are offered;
(ix) expenses connected with communications to holders of the Company’s securities or securities of the Subsidiaries and other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including, without limitation, all costs of preparing and filing required reports with the SEC, the costs payable by the Company to any transfer agent and registrar, expenses in connection with the listing or trading of the Company’s securities on any exchange, the fees payable by the Company to any such exchange in connection with its listing, costs of preparing, printing and mailing the Company’s annual report to the Stockholders and proxy materials with respect to any meeting of the Stockholders and any other reports or related statements;
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(x) the Company’s allocable share of costs associated with technology-related expenses, including without limitation, any computer software or hardware, electronic equipment or purchased information technology services from third-party vendors or Affiliates of the Adviser, technology service providers and related software/hardware utilized in connection with the Company’s investment and operational activities;
(xi) the Company’s allocable share of expenses incurred by managers, officers, personnel and agents of the Adviser for travel on the Company’s behalf and other out-of-pocket expenses incurred by them in connection with the purchase, financing, refinancing, sale or other disposition of an Investment;
(xii) expenses relating to compliance-related matters and regulatory filings relating to the Company’s activities (including, without limitation, expenses relating to the preparation and filing of Form ADV, any reports to be filed with the U.S. Commodity Futures Trading Commission, reports, disclosures, or other regulatory filings of the Adviser and its Affiliates relating to the Company’s activities (including the Company’s pro rata share of the costs of the Adviser and its Affiliates of regulatory expenses that relate to the Company and Other J.P. Morgan Accounts));
(xiii) the costs of any litigation involving the Company or the Operating Partnership or their assets and the amount of any judgments or settlements paid in connection therewith, directors and officers, liability or other insurance and indemnification or extraordinary expense or liability relating to the affairs of the Company;
(xiv) all taxes and statutory, regulatory or license fees or other governmental charges;
(xv) all insurance costs incurred in connection with the operation of the Company’s business except for the costs attributable to the insurance that the Adviser elects to carry for itself and its personnel;
(xvi) expenses of managing, improving, developing, operating and selling Investments, whether payable to an Affiliate of the Adviser or a non-Affiliated Person;
(xvii) expenses incurred in connection with maintaining the status of the Company as a REIT or the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the Board to or on account of holders of the Company’s securities, including, without limitation, in connection with any distribution reinvestment plan;
(xviii) expenses incurred in connection with any audit, investigation, settlement, or judgment of pending or threatened proceedings (whether civil, criminal, regulatory or otherwise) against the Company or the Operating Partnership, or against any Director or officer of the Company or in his or her capacity as such for which the Company is required to indemnify such Director or officer by any court or governmental agency;
(xix) expenses incurred in connection with the formation, organization and continuation of any corporation, partnership, Joint Venture or other entity through which the Investments are made or in which any such entity invests; and
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(xx) expenses incurred related to industry association memberships or attending industry conferences on behalf of the Company.
(d) The Adviser may, at its option, elect not to seek reimbursement for certain expenses during a given period, which determination shall not be deemed to construe a waiver of reimbursement for similar expenses in future periods.
(e) Any reimbursement payments owed by the Company to the Adviser may be offset by the Adviser against amounts due to the Company from the Adviser. Cost and expense reimbursement to the Adviser shall be subject to adjustment at the end of each calendar year in connection with the annual audit of the Company.
(f) Notwithstanding the foregoing, the Adviser shall pay for all or a portion of Organization and Offering Expenses (other than Selling Commissions and Stockholder Servicing Fees) incurred prior to the second anniversary of the Commencement Date. All Organization and Offering Expenses (other than Selling Commissions and Stockholder Servicing Fees) paid by the Adviser pursuant to this Section 11(f) shall be reimbursed by the Company to the Adviser in 60 equal monthly installments starting with the first full month following the second anniversary of the Commencement Date.
(g) Notwithstanding anything herein to the contrary, the Adviser may pay for certain of the costs and expenses of the Company contemplated by Section 11(c) above (excluding Organization and Offering Expenses) incurred through the earlier of (i) the first date that the Company's NAV reaches $500 million and (ii) December 31, 2024. Subject to Section 13, all such expenses paid by the Adviser pursuant to this Section 11(g) shall be reimbursed by the Company to the Adviser in 60 equal monthly installments starting with the first full month following such date.
12. OTHER SERVICES. Should the Board request that the Adviser or any director, officer or employee thereof render services for the Company and the Operating Partnership other than set forth in Section 3, such services shall be separately compensated at such rates and in such amounts as are agreed by the Adviser and the Independent Directors, subject to the limitations contained in the Charter, and shall not be deemed to be services pursuant to the terms of this Agreement.
13. REIMBURSEMENT TO THE ADVISER. Commencing upon the first four fiscal quarters after the Commencement Date, the Company shall not reimburse the Adviser at the end of any fiscal quarter for Total Operating Expenses that in the four consecutive fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”) the greater of 2.0% of Average Invested Assets or 25.0% of Net Income (the “2%/25% Guidelines”) for such four fiscal quarters unless the Independent Directors determine that such Excess Amount was justified, based on unusual and nonrecurring factors that the Independent Directors deem sufficient. If the Independent Directors do not approve such Excess Amount as being so justified, the Adviser shall reimburse the Company the amount by which the Total Operating Expenses exceeded the 2%/25% Guidelines. If the Independent Directors determine such Excess Amount was justified, then, within 60 days after the end of any fiscal quarter of the Company for which Total Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the Adviser, at the direction of the Independent
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Directors, shall cause such fact to be disclosed to the Stockholders in writing (or the Company shall disclose such fact to the Stockholders in the next quarterly report of the Company or by filing a Current Report on Form 8-K with the Securities and Exchange Commission within 60 days of such quarter end), together with an explanation of the factors the Independent Directors considered in determining that such excess were justified. The Company will ensure that such determination will be reflected in the minutes of the meetings of the Board. All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a consistent basis.
14. NO JOINT VENTURE. The Company and the Operating Partnership, on the one hand, and the Adviser on the other, acknowledge that they are entering into this Agreement as independent contractors and that this Agreement shall not create and shall not be construed to create a relationship of principal and agent, tenancy, co-partners, joint venturers, employer and employee, master and servant, or any similar relationship between each other, and nothing in this Agreement shall be construed to impose any liability as such on either of them.
15. TERM OF AGREEMENT. This Agreement shall continue in force until one year from the Effective Date, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties. It is the duty of the Board to evaluate the performance of the Adviser annually before renewing the Agreement, and each such renewal shall be for a term of no more than one year,
16. TERMINATION BY THE PARTIES. This Agreement may be terminated (i) at the option of the Adviser immediately upon a Change of Control of the Company or Operating Partnership; (ii) immediately by the Company or the Operating Partnership for Cause or upon the bankruptcy of the Adviser; or (iii) upon 60 days’ written notice without Cause or penalty by a majority vote of the Independent Directors; or (iv) upon 60 days’ written notice by the Adviser. The provisions of Sections 18 through 23 survive termination of this Agreement.
17. ASSIGNMENT TO AN AFFILIATE. This Agreement may be assigned by the Adviser to an Affiliate of the Adviser with the approval of a majority of the Directors (including a majority of the Independent Directors). The Adviser may assign any rights to receive fees or other payments under this Agreement to any Person without obtaining the consent of the Board. This Agreement shall not be assigned by the Company or the Operating Partnership without the approval of the Adviser, except in the case of an assignment by the Company or the Operating Partnership to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company and the Operating Partnership are bound by this Agreement. This Agreement shall be binding on successors to the Company resulting from a Change in Control or sale of all or substantially all the assets of the Company or the Operating Partnership, and shall likewise be binding on any successor to the Adviser.
18. PAYMENTS TO AND DUTIES OF ADVISER UPON TERMINATION.
(a) After the Termination Date, the Adviser shall not be entitled to compensation for further services hereunder except it shall be entitled to receive from the Company or the Operating Partnership within 30 days after the effective date of such termination all unpaid
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reimbursements of expenses and all earned but unpaid fees payable to the Adviser prior to termination of this Agreement, subject to the 2%/25% Guidelines to the extent applicable.
(b) The Adviser shall promptly upon termination:
(i) pay over to the Company and the Operating Partnership all money collected and held for the account of the Company and the Operating Partnership pursuant to this Agreement, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii) deliver to the Board all assets, including all Investments, and documents of the Company and the Operating Partnership then in the custody of the Adviser; and
(iv) cooperate with, and take all reasonable actions requested by, the Company and Board in making an orderly transition of the advisory function.
19. INDEMNIFICATION BY THE COMPANY AND THE OPERATING PARTNERSHIP. The Company and the Operating Partnership shall indemnify and hold harmless the Adviser and its Affiliates, including their respective officers, directors, partners and employees, from all liability, claims, damages or losses arising in the performance of their duties hereunder, and related expenses, including reasonable attorneys’ fees, to the extent such liability, claims, damages or losses and related expenses are not fully reimbursed by insurance, and to the fullest extent possible without such indemnification being inconsistent with the laws of the State of Maryland, the Charter or the provisions of Section II.G of the NASAA REIT Guidelines.
20. INDEMNIFICATION BY ADVISER. The Adviser shall indemnify and hold harmless the Company and the Operating Partnership from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that (i) such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and (ii) are incurred by reason of the Adviser’s bad faith, fraud, willful misconduct, gross negligence or reckless disregard of its duties under this Agreement; provided, however, that the Adviser shall not be held responsible for any action of the Board in following or declining to follow any advice or recommendation given by the Adviser.
21. NON-SOLICITATION. In the event of a termination without Cause of this Agreement by the Company pursuant to Section 16(iii) hereof, for two (2) years after the Termination Date, the Company shall not, without the consent of the Adviser, employ or otherwise retain any employee of the Adviser or any of its Affiliates or any person who has been employed by the Adviser or any of its Affiliates at any time within the two (2) year period immediately preceding the date on which such person commences employment with or is otherwise retained by the Company. The Company acknowledges and agrees that, in addition to any damages, the Adviser may be entitled to equitable relief for any violation of this Section 21 by the Company, including, without limitation, injunctive relief.
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22. MISCELLANEOUS.
(a) Notices. Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report or other communication is required by the Charter, the Bylaws, or accepted by the party to whom it is given, and shall be given by being delivered by hand, by courier or overnight carrier, by registered or certified mail, by electronic mail or posted on a password protected website maintained by the Adviser and for which the Company has received access instructions by electronic mail, when posted, using the contact information set forth herein:
The Company: |
J.P. Morgan Real Estate Income Trust, Inc. |
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277 Park Avenue, 9th Floor |
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New York, NY 10172 |
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Attention: Dave S. Esrig |
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Email: dave.esrig@jpmorgan.com |
with required copy to: |
Alston & Bird LLP |
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1201 West Peachtree Street |
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Atlanta, GA 30309 |
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Attention: Rosemarie A. Thurston |
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Email: rosemarie.thurston@alston.com |
The Adviser: |
J.P. Morgan Investment Management Inc. |
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277 Park Avenue, 9th Floor |
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New York, NY 10172 |
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Attention: Christian P. Porwoll |
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Email: christian.p.porwoll@jpmorgan.com |
with required copy to: |
Alston & Bird LLP |
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1201 West Peachtree Street |
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Atlanta, GA 30309 |
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Attention: Rosemarie A. Thurston |
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Email: rosemarie.thurston@alston.com |
Any party may at any time give notice in writing to the other parties of a change in its address for the purposes of this Section 22(a).
(b) Modification. This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by the parties hereto, or their respective successors or assignees.
(c) Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
(d) Governing Law; Exclusive Jurisdiction; Jury Trial. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of New
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York. The parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in Borough of Manhattan, New York for purposes of any suit, action or other proceeding arising from this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or thereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts. Each of the parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of any such dispute. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(e) Entire Agreement. This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance or usage of the trade inconsistent with any of the terms hereof.
(f) Indulgences, No Waivers. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
(g) Gender; Number. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
(h) Headings. The titles and headings of Sections and Subsections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
(i) Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including any electronic signature covered by the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act, the Electronic Signatures and Records Act or other applicable law (e.g., www.docusign.com)), or other transmission method. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
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23. TRADEMARK. The Adviser hereby grants the Company and the Operating Partnership a fully paid-up, royalty-free, non-exclusive, non-transferable license to use the name “J.P. Morgan Real Estate Income Trust, Inc,” “J.P. Morgan REIT Operating Partnership, L.P.,” “J.P. Morgan Investment Management Inc.” and the names of each of their Affiliates, and all derivations (collectively, the “JPMorgan Names”) solely in connection with the operation, maintenance, and execution of business of the Company and the Operating Partnership. Use of the JPMorgan Names must be in accordance with the brand guidelines found on jpmorganchasebrand.com, as updated from time to time. All rights in and to the JPMorgan Names not expressly granted herein to the Company and the Operating Partnership are retained and reserved by the Adviser (or its Affiliates). The Company and the Operating Partnership agree not to contest the validity of the Adviser’s (or its Affiliates’) rights to the JPMorgan Names. At no time during the term of the Agreement or following the termination of the Agreement shall the Company or the Operating Partnership have any right, title or interest to the name or goodwill attached to the JPMorgan Names. Upon the termination of this Agreement at any time and for any reason, all of the Company’s and the Operating Partnership’s right, title and interest in and to the use of the JPMorgan Names shall terminate and any goodwill thereto shall vest in the Adviser (or its Affiliates). The Company and the Partnership shall have sixty (60) days from the date of termination to cease all further use of the JPMorgan Names.
24. INITIAL INVESTMENT. The Adviser or one of its Affiliates has contributed $200,000 (the “Initial Investment”) in exchange for the initial issuance of Shares of the Company. The Adviser or its Affiliates may not sell any of the Shares purchased with the Initial Investment while the Adviser acts in an advisory capacity to the Company. The restrictions included above shall not apply to any Shares acquired by the Adviser or its Affiliates other than the Shares acquired through the Initial Investment. Neither the Adviser nor its Affiliates shall vote any Shares they now own, or hereafter acquire, or consent that such Shares be voted, on matters submitted to the Stockholders regarding (i) the removal of J.P. Morgan Investment Management Inc. as the Adviser; (ii) the removal of any member of the Board; or (iii) any transaction by and between the Company and the Adviser, a member of the Board or any of their Affiliates.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Advisory Agreement as of the date and year first above written.
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J.P. Morgan Real Estate Income Trust, Inc. |
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By: |
/s/ Christian Porwoll |
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Name: Christian Porwoll |
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Title: Secretary |
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J.P. Morgan REIT Operating Partnership, L.P. |
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By: |
J.P. Morgan Real Estate Income Trust, Inc., as general partner |
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By: |
/s/ Christian Porwoll |
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Name: Christian Porwoll |
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Title: Secretary |
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J.P. Morgan Investment Management Inc. |
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By: |
/s/ Christian Porwoll |
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Name: Christian Porwoll |
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Title: Managing Director |
Signature Page to Amended and Restated Advisory Agreement
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael P. Kelly, certify that:
Date: May 12, 2023 |
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By: |
/s/ Michael P. Kelly |
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Michael P. Kelly |
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Chairperson of the Board and Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Lawrence A. Goodfield Jr., certify that:
Date: May 12, 2023 |
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By: |
/s/ Lawrence A. Goodfield, Jr. |
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Lawrence A. Goodfield, Jr. |
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Chief Financial Officer and Treasurer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of J.P. Morgan Real Estate Income Trust, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 12, 2023 |
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By: |
/s/ Michael P. Kelly |
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Michael P. Kelly |
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Chairperson of the Board and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of J.P. Morgan Real Estate Income Trust, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 12, 2023 |
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By: |
/s/ Lawrence A. Goodfield, Jr. |
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Lawrence A. Goodfield, Jr. |
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Chief Financial Officer and Treasurer |