Exchangeright Income Fund
10/29/2026 | Press release | Distributed by Public on 10/29/2026 12:01
Quarterly Report for Quarter Ending SEPTEMBER 30, 2026 (Form 10-Q)
Management's Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion of our financial condition and results of operations in conjunction with the unaudited interim condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q, as well as the audited consolidated financial statements and the notes thereto as of and for the year ended December 31, 2025 and the "Management's Discussion and Analysis of Financial Condition and Results of Operations" related thereto included in the Company's Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 26, 2026. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategies for our business, includes forward-looking statements that involve risks and uncertainties. You should read "Item 1A. Risk Factors" of our Form 10-K that was filed with the Securities and Exchange Commission on February 26, 2026 and the "Cautionary Note Regarding Forward-Looking Statements" section of this Form 10-Q for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward-looking statements.
Company Overview
ExchangeRight Income Fund, doing business as ExchangeRight Essential Income REIT, a Maryland statutory trust, is a self-administered real estate company, formed on January 11, 2019, focusing on investing in single-tenant, primarily investment-grade net-leased real estate. The Company, through the Operating Partnership, owned 475 properties in 39 states as of September 30, 2026. These properties were 98.4% leased as of September 30, 2026 and are occupied by 44 different primarily national investment-grade necessity-based tenants and are additionally diversified by industry, geographic region and lease term.
The Company has elected and is qualified to be taxed as a REIT for U.S. federal income tax purposes beginning with the taxable year ended December 31, 2019. The Company is the sole general partner and a limited partner of the Operating Partnership, a Delaware limited partnership formed on January 9, 2019. Substantially all of the Company's business is conducted through the Operating Partnership. The Trust Properties are owned and controlled by the Company and are managed by the Property Manager and the Asset Manager, which are both wholly-owned subsidiaries of ExchangeRight, pursuant to executed management agreements with each respective entity.
Recent Developments
During the nine months ended September 30, 2026, uncertainty in the global macroeconomic environment continued, driven by the conflict with Iran and the resulting general geopolitical instability in the Middle East, the effect these geopolitical conflicts and events have had on energy and commodity prices, inflationary expectations, and interest rates, continued elevated interest rate levels in certain sectors (including mortgage rates), and uneven global economic growth. While overall inflation rates moderated on a year-over-year basis during 2024 and 2025, consumer and producer inflation rates began to rise once again in March through May 2026, with the consumer price index peaking at 4.2% on a year-over-year basis, driven principally by increasing energy prices. During the third quarter of 2026, the CPI fell to 3.7% on a year-over-year basis as of September 2026, but persistently elevated energy prices continue to be the principal contributor to inflationary pressures, with energy prices rising 20.4% on a year-over-year basis as of September 30, 2026. This has resulted in debt yields and benchmark interest rate levels remaining at elevated levels during the third quarter of 2026, including the benchmark 10-year U.S. Treasury Note yield hovering around 5% and mortgage rates which remain at 15-year highs. In this regard, the Federal Reserve raised the federal funds rate 25 basis points to 4.0% in September 2026, with many market analysts expecting one additional 25 basis point increase before year-end. Current analyst expectations regarding the pace of future rate increases moderate markedly in 2027.
Substantially all of the Company's tenant leases contain provisions designed to partially mitigate the negative impact of inflation in the near term. Such lease provisions include clauses that require tenants to reimburse the Company for inflation-sensitive costs such as real estate taxes or insurance and many of the operating expenses it incurs. The Company has been able to mitigate a significant portion of interest rate increases in the current period as all of its mortgage debt is currently effectively fixed-rate financing as of September 30, 2026. The Company has borrowed $295.5 million under its delayed draw term loan facility as of September 30, 2026, which is impacted by fluctuating interest rates as the interest on the term loan facility is not fixed long-term. Further inflation rate increases or elevated interest rates over a prolonged period of time may have a material adverse impact on the Company's business. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.
Highlights for the Nine Months Ended September 30, 2026
Operating Results
The September 2026 distribution marked the 91st consecutive month of providing stable distributions to our investors. We have increased the distribution we pay five times since our inception. The Company declared distributions totaling $38.2 million for the nine months ended September 30, 2026. As of September 30, 2026, the Company's cumulative inception-to-date cash flows from operating activities have funded 100% of our cumulative inception-to-date declared distributions. The Company's current distributions represent a 6.27% annualized distribution rate, based on the $0.1449 per share distribution rate and $27.72 NAV per share as of September 30, 2026. The following table details the annualized distribution rate based on the $0.1449 per share distribution rate in effect as of September 30, 2026 and current offering price of the Company's common shares:
|
Class I |
Class A |
Class S |
Class D |
Class ER-I |
Class ER-A |
Class ER-S |
Class ER-D |
|||||||||||||||||||||||||
|
Offering price (effective October 22, 2026) |
$ |
27.72 |
$ |
29.47 |
$ |
28.73 |
$ |
27.72 |
$ |
27.72 |
$ |
29.47 |
$ |
28.73 |
$ |
27.72 |
||||||||||||||||
|
Annualized distribution rate (a) |
6.27 |
% |
5.90 |
% |
5.20 |
% |
6.02 |
% |
6.27 |
% |
5.90 |
% |
5.20 |
% |
6.02 |
% |
||||||||||||||||
|
Trailing 12 month total return (b) |
8.42 |
% |
1.97 |
% |
n/a |
8.17 |
% |
n/a |
n/a |
n/a |
n/a |
|||||||||||||||||||||
|
Three-year total annual return (b) |
6.81 |
% |
4.42 |
% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
||||||||||||||||||||||
|
Inception-to-date total annual return (b) |
8.46 |
% |
7.15 |
% |
n/a |
n/a |
n/a |
n/a |
n/a |
n/a |
||||||||||||||||||||||
(a)
The annualized distribution rate is calculated by the September 30, 2026 distribution rate in effect of $0.1449 per share divided by the offering price per share in connection with the Company's September 30, 2026 NAV declaration less any dealer manager fees. The Company believes the annualized distribution rate is a useful measure of our overall investment performance.
(b)
Total return is calculated as the change in NAV per share at the end of the respective period versus the respective share class offering price per share at the beginning of the respective period plus any distributions per share declared during the period. The Company believes total return is a useful measure of the overall investment performance of our shares.
Leasing
The Company's portfolio is 98.4% leased and its weighted average lease term as of September 30, 2026 is 5.3 years. The Company executed 38 lease renewals with 13 different tenants during the nine months ended September 30, 2026 with average new rents over rents prior to the renewal of 4.7% for the period.
Capital
On April 15, 2026, the Operating Partnership (as the borrower) and the Company entered into an Amended and Restated Credit Agreement which provides the Company with senior secured credit facilities consisting of a revolving credit facility (the "Revolving Credit Facility") in the initial maximum principal amount of $200,000,000 until April 15, 2029 and a delayed draw term loan facility (the "DDTL Facility," and collectively with the Revolving Credit Facility, the "Facilities") in the initial maximum principal amount of $400,000,000 pursuant to which delayed draw term loans may be borrowed through October 15, 2026. The Facilities may be increased up to a maximum principal amount of $1,000,000,000 through additional revolver loans or term loans, upon request of the Borrower, subject to, among other things, the receipt of commitments for the increased amount. The Amended and Restated Credit Agreement replaces, in its entirety, the prior revolving credit facility which was entered into on May 30, 2024. As of September 30, 2026, the Company did not have any outstanding borrowings under the Revolving Credit Facility and had borrowed $295.5 million under the DDTL Facility with an interest rate of 5.97%. The Company was in compliance with all financial covenants.
From October 1, 2026 through the date of this filing, the Company borrowed $130.5 million under its Facilities, which resulted in the Company borrowing the maximum capacity of $400.0 million under the DDTL Facility and net borrowings of $26.0 million under its Revolving Credit Facility. The $130.5 million of proceeds were used to repay (1) an $86.0 million mortgage loan assumed in connection with a portfolio acquisition on October 6, 2026 and (2) a $44.5 million mortgage loan assumed in connection with a portfolio acquisition on October 8, 2026.
The Company has been able to mitigate a larger immediate impact from the current elevated interest rate environment as all of its outstanding mortgage loans payable are effectively fixed as of September 30, 2026. The Company has also experienced regular net inflows of capital since its inception. All redemption requests since inception have been fully satisfied.
Real Estate Investments
The following table details information about our tenants as of September 30, 2026:
|
Weighted |
||||||||||||||||||||||||||||||||
|
Number of leases |
Annualized base rents |
average lease |
||||||||||||||||||||||||||||||
|
Tenant |
NN (a) |
NNN (b) |
Total |
GLA (c) |
Total |
% of total |
Per sq. ft (d) |
term (yrs) (e) |
||||||||||||||||||||||||
|
Walgreens |
34 |
31 |
65 |
937,300 |
$ |
21,063,400 |
19.9 |
% |
$ |
22.47 |
3.1 |
|||||||||||||||||||||
|
Dollar General |
31 |
121 |
152 |
1,428,800 |
15,729,100 |
14.9 |
% |
$ |
11.01 |
4.6 |
||||||||||||||||||||||
|
Tractor Supply |
27 |
6 |
33 |
713,400 |
9,595,500 |
9.1 |
% |
$ |
13.45 |
8.2 |
||||||||||||||||||||||
|
Hobby Lobby |
13 |
1 |
14 |
814,500 |
6,481,300 |
6.1 |
% |
$ |
7.96 |
4.0 |
||||||||||||||||||||||
|
Pick 'n Save |
6 |
1 |
7 |
427,400 |
6,099,300 |
5.8 |
% |
$ |
14.27 |
3.2 |
||||||||||||||||||||||
|
BioLife Plasma Services |
- |
8 |
8 |
125,800 |
4,651,600 |
4.4 |
% |
$ |
36.98 |
7.5 |
||||||||||||||||||||||
|
Fresenius Medical Care |
14 |
2 |
16 |
140,700 |
4,168,500 |
3.9 |
% |
$ |
29.63 |
4.8 |
||||||||||||||||||||||
|
Hy-Vee |
- |
3 |
3 |
280,100 |
3,776,500 |
3.6 |
% |
$ |
13.48 |
12.3 |
||||||||||||||||||||||
|
Family Dollar |
20 |
13 |
33 |
287,100 |
3,767,100 |
3.6 |
% |
$ |
13.12 |
3.9 |
||||||||||||||||||||||
|
Advance Auto Parts |
26 |
4 |
30 |
215,000 |
3,341,200 |
3.2 |
% |
$ |
15.54 |
4.3 |
||||||||||||||||||||||
|
Stop & Shop |
- |
1 |
1 |
102,100 |
2,940,000 |
2.8 |
% |
$ |
28.80 |
10.2 |
||||||||||||||||||||||
|
Kroger |
4 |
- |
4 |
261,900 |
2,162,600 |
2.0 |
% |
$ |
8.26 |
5.7 |
||||||||||||||||||||||
|
CVS Pharmacy |
7 |
1 |
8 |
93,200 |
2,120,500 |
2.0 |
% |
$ |
22.75 |
5.1 |
||||||||||||||||||||||
|
Napa Auto Parts |
- |
19 |
19 |
164,300 |
1,990,700 |
1.9 |
% |
$ |
12.12 |
9.8 |
||||||||||||||||||||||
|
Dollar Tree |
16 |
- |
16 |
155,600 |
1,603,700 |
1.5 |
% |
$ |
10.31 |
3.5 |
||||||||||||||||||||||
|
Publix |
2 |
- |
2 |
96,800 |
1,548,400 |
1.5 |
% |
$ |
16.00 |
13.7 |
||||||||||||||||||||||
|
Giant Eagle |
3 |
- |
3 |
150,600 |
1,459,000 |
1.4 |
% |
$ |
9.69 |
4.9 |
||||||||||||||||||||||
|
Old National Bank |
- |
3 |
3 |
41,600 |
1,381,900 |
1.3 |
% |
$ |
33.22 |
3.3 |
||||||||||||||||||||||
|
Verizon Wireless |
5 |
- |
5 |
27,400 |
1,304,800 |
1.2 |
% |
$ |
47.62 |
1.2 |
||||||||||||||||||||||
|
GIANT Food Store |
- |
1 |
1 |
51,400 |
1,110,900 |
1.1 |
% |
$ |
21.61 |
3.9 |
||||||||||||||||||||||
|
Valspar |
- |
1 |
1 |
167,200 |
1,068,400 |
1.0 |
% |
$ |
6.39 |
7.6 |
||||||||||||||||||||||
|
AutoZone |
5 |
2 |
7 |
59,200 |
886,300 |
0.8 |
% |
$ |
14.97 |
5.4 |
||||||||||||||||||||||
|
O'Reilly |
8 |
1 |
9 |
63,000 |
884,100 |
0.8 |
% |
$ |
14.03 |
5.3 |
||||||||||||||||||||||
|
Walmart Supercenter |
- |
1 |
1 |
222,700 |
765,000 |
0.7 |
% |
$ |
3.44 |
5.3 |
||||||||||||||||||||||
|
Walmart Neighborhood Market |
- |
1 |
1 |
41,800 |
738,600 |
0.7 |
% |
$ |
17.67 |
5.0 |
||||||||||||||||||||||
|
Sherwin-Williams |
7 |
- |
7 |
46,500 |
699,100 |
0.7 |
% |
$ |
15.03 |
4.9 |
||||||||||||||||||||||
|
FedEx |
1 |
- |
1 |
124,700 |
681,600 |
0.6 |
% |
$ |
5.47 |
9.8 |
||||||||||||||||||||||
|
Goodwill |
2 |
- |
2 |
42,800 |
653,200 |
0.6 |
% |
$ |
15.26 |
3.6 |
||||||||||||||||||||||
|
Ross Stores |
1 |
- |
1 |
25,800 |
354,800 |
0.3 |
% |
$ |
13.75 |
2.3 |
||||||||||||||||||||||
|
Food Lion |
1 |
- |
1 |
41,300 |
351,400 |
0.3 |
% |
$ |
8.51 |
7.1 |
||||||||||||||||||||||
|
PNC Bank, N.A. |
- |
1 |
1 |
6,100 |
277,600 |
0.3 |
% |
$ |
45.51 |
12.0 |
||||||||||||||||||||||
|
HomeGoods |
1 |
- |
1 |
22,200 |
266,900 |
0.3 |
% |
$ |
12.02 |
4.5 |
||||||||||||||||||||||
|
Epic Health & Fitness |
- |
1 |
1 |
14,200 |
222,000 |
0.2 |
% |
$ |
15.63 |
14.2 |
||||||||||||||||||||||
|
MedSpring |
1 |
- |
1 |
4,600 |
193,100 |
0.2 |
% |
$ |
41.98 |
0.4 |
||||||||||||||||||||||
|
The Christ Hospital |
- |
1 |
1 |
9,300 |
188,700 |
0.2 |
% |
$ |
20.29 |
1.3 |
||||||||||||||||||||||
|
A Plus Childcare and Learning Academy |
1 |
- |
1 |
11,500 |
183,100 |
0.2 |
% |
$ |
15.92 |
6.2 |
||||||||||||||||||||||
|
Truist Bank |
- |
1 |
1 |
3,200 |
183,000 |
0.2 |
% |
$ |
57.19 |
2.1 |
||||||||||||||||||||||
|
Octapharma Plasma |
1 |
- |
1 |
11,300 |
152,700 |
0.1 |
% |
$ |
13.51 |
3.5 |
||||||||||||||||||||||
|
Five Below |
1 |
- |
1 |
8,500 |
142,000 |
0.1 |
% |
$ |
16.71 |
4.3 |
||||||||||||||||||||||
|
Huntington National Bank |
- |
1 |
1 |
4,500 |
116,700 |
0.1 |
% |
$ |
25.93 |
5.3 |
||||||||||||||||||||||
|
Adult and Child Health |
- |
1 |
1 |
6,000 |
116,300 |
0.1 |
% |
$ |
19.38 |
3.3 |
||||||||||||||||||||||
|
Dollar General Market |
- |
1 |
1 |
10,700 |
109,300 |
0.1 |
% |
$ |
10.21 |
12.7 |
||||||||||||||||||||||
|
Athletico Physical Therapy |
1 |
- |
1 |
3,400 |
77,000 |
0.1 |
% |
$ |
22.65 |
5.0 |
||||||||||||||||||||||
|
Archana Grocery |
1 |
- |
1 |
9,300 |
74,600 |
0.1 |
% |
$ |
8.02 |
6.8 |
||||||||||||||||||||||
|
Total Occupied Portfolio |
240 |
228 |
468 |
7,474,800 |
$ |
105,681,500 |
100.0 |
% |
$ |
14.14 |
5.3 |
|||||||||||||||||||||
|
Vacant |
117,700 |
|||||||||||||||||||||||||||||||
|
Total Portfolio |
7,592,500 |
|||||||||||||||||||||||||||||||
(a)
"NN" or "Double Net" means leases where landlord will have some obligations for roof, parking lot, and/or building structure but where the tenant remains obligated for operating costs of property taxes, insurance, and property maintenance.
(b)
"NNN" or "Triple Net" means leases where the tenant is obligated pursuant to its lease for the costs of property taxes, insurance, and property maintenance, often including both repairs and replacements.
(c)
"GLA" means gross leasable area.
(d)
Annualized base rent per square foot is calculated as the aggregate, annualized contractual minimum rent for all occupied spaces divided by the aggregate GLA of all occupied spaces as of September 30, 2026. Tenant concessions and abatements are reflected in this measure. Furthermore, from time to time, a limited number of short-term (generally one to three months) free rent concessions may be provided to tenants prior to initial occupancy or upon a renewal extension. As of September 30, 2026, no tenants were in a free rent concession period.
(e)
Weighted based on annualized base rents.
The following table details the industries in which our tenants operate as of September 30, 2026:
|
Number |
GLA |
Annualized base rents |
||||||||||||||||||
|
Industry |
of leases |
Square feet |
% of total |
Dollars (a) |
% of total |
|||||||||||||||
|
Healthcare and Pharmacy Retail |
73 |
1,030,500 |
13.6 |
% |
$ |
23,183,900 |
21.9 |
% |
||||||||||||
|
Discount Necessity Retail |
202 |
1,882,200 |
24.8 |
% |
21,209,200 |
20.1 |
% |
|||||||||||||
|
Grocery |
25 |
1,685,400 |
22.2 |
% |
21,026,300 |
19.9 |
% |
|||||||||||||
|
Farm and Rural Supply |
33 |
713,400 |
9.4 |
% |
9,595,500 |
9.1 |
% |
|||||||||||||
|
Discount Specialty Retail |
18 |
888,000 |
11.7 |
% |
7,543,400 |
7.1 |
% |
|||||||||||||
|
Discount Automotive |
65 |
501,500 |
6.6 |
% |
7,102,300 |
6.7 |
% |
|||||||||||||
|
Healthcare Providers |
13 |
170,000 |
2.2 |
% |
5,408,300 |
5.1 |
% |
|||||||||||||
|
Medical Care |
17 |
145,300 |
1.9 |
% |
4,361,600 |
4.1 |
% |
|||||||||||||
|
Banking Services |
6 |
55,400 |
0.7 |
% |
1,959,200 |
1.9 |
% |
|||||||||||||
|
Paint and Supplies |
8 |
213,700 |
2.8 |
% |
1,767,500 |
1.7 |
% |
|||||||||||||
|
Other |
8 |
189,400 |
2.5 |
% |
2,524,300 |
2.4 |
% |
|||||||||||||
|
Total |
468 |
7,474,800 |
98.4 |
% |
$ |
105,681,500 |
100.0 |
% |
||||||||||||
|
Vacant |
117,700 |
1.6 |
% |
|||||||||||||||||
|
Total Portfolio |
7,592,500 |
100.0 |
% |
|||||||||||||||||
(a)
Annualized base rents are calculated as the aggregate, annualized contractual minimum rent for all the space as of September 30, 2026. Tenant concessions and abatements are reflected in this amount. Furthermore, from time to time, a limited number of short-term (generally one to three months) free rent concessions may be provided to tenants prior to initial occupancy or upon a renewal extension. As of September 30, 2026, no tenants were in a free rent concession period.
The following table details our contractual lease expirations as of September 30, 2026 (assuming no exercise of contractual extension options):
|
Number |
GLA |
Annualized base rents |
||||||||||||||||||||||
|
Year |
of leases |
Square feet |
% of total |
Dollars |
% of total |
Per sq. ft. (a) |
||||||||||||||||||
|
Remainder of 2026 |
1 |
6,800 |
0.1 |
% |
$ |
119,800 |
0.1 |
% |
$ |
17.62 |
||||||||||||||
|
2027 |
23 |
252,500 |
3.4 |
% |
4,767,400 |
4.5 |
% |
$ |
18.88 |
|||||||||||||||
|
2028 |
61 |
825,300 |
11.0 |
% |
13,002,300 |
12.3 |
% |
$ |
15.75 |
|||||||||||||||
|
2029 |
67 |
982,600 |
13.1 |
% |
12,598,200 |
11.9 |
% |
$ |
12.82 |
|||||||||||||||
|
2030 |
61 |
993,400 |
13.3 |
% |
15,958,800 |
15.1 |
% |
$ |
16.06 |
|||||||||||||||
|
2031 |
81 |
1,080,200 |
14.5 |
% |
15,363,100 |
14.5 |
% |
$ |
14.22 |
|||||||||||||||
|
2032 |
67 |
1,238,000 |
16.6 |
% |
14,191,300 |
13.4 |
% |
$ |
11.46 |
|||||||||||||||
|
2033 |
37 |
477,200 |
6.4 |
% |
7,426,900 |
7.0 |
% |
$ |
15.56 |
|||||||||||||||
|
2034 |
19 |
451,100 |
6.0 |
% |
5,105,000 |
4.8 |
% |
$ |
11.32 |
|||||||||||||||
|
2035 |
9 |
76,000 |
1.0 |
% |
1,536,400 |
1.5 |
% |
$ |
20.22 |
|||||||||||||||
|
2036 |
8 |
273,800 |
3.7 |
% |
4,297,200 |
4.1 |
% |
$ |
15.69 |
|||||||||||||||
|
2037 |
7 |
82,800 |
1.1 |
% |
1,018,000 |
1.0 |
% |
$ |
12.29 |
|||||||||||||||
|
2038 |
9 |
159,600 |
2.1 |
% |
2,062,300 |
2.0 |
% |
$ |
12.92 |
|||||||||||||||
|
2039 |
6 |
281,500 |
3.8 |
% |
4,455,100 |
4.2 |
% |
$ |
15.83 |
|||||||||||||||
|
2040 |
7 |
150,200 |
2.0 |
% |
2,204,200 |
2.1 |
% |
$ |
14.68 |
|||||||||||||||
|
Thereafter |
5 |
143,800 |
1.9 |
% |
1,575,500 |
1.5 |
% |
$ |
10.96 |
|||||||||||||||
|
Total |
468 |
7,474,800 |
100.0 |
% |
$ |
105,681,500 |
100.0 |
% |
$ |
14.14 |
||||||||||||||
(a)
Annualized base rent per square foot is calculated as the aggregate, annualized contractual minimum rent for all occupied spaces divided by the aggregate GLA of all occupied spaces as of September 30, 2026. Tenant concessions and abatements are reflected in this measure. Furthermore, from time to time, a limited number of short-term (generally one to three months) free rent concessions may be provided to tenants prior to initial occupancy or upon a renewal extension. As of September 30, 2026, no tenants were in a free rent concession period.
The following table details leasable area for the Company's owned properties and annualized base rents for occupied properties by state for our portfolio as of September 30, 2026:
|
Number |
GLA |
Annualized base rents |
||||||||||||||||||
|
State |
of leases |
Square feet |
% of total |
Dollars (a) |
% of total |
|||||||||||||||
|
Ohio |
53 |
1,295,700 |
17.1 |
% |
$ |
11,231,600 |
10.6 |
% |
||||||||||||
|
Wisconsin |
28 |
751,600 |
9.9 |
% |
10,284,100 |
9.8 |
% |
|||||||||||||
|
Illinois |
47 |
505,300 |
6.7 |
% |
9,840,400 |
9.3 |
% |
|||||||||||||
|
Texas |
50 |
562,500 |
7.4 |
% |
8,037,800 |
7.6 |
% |
|||||||||||||
|
Louisiana |
48 |
503,300 |
6.6 |
% |
6,487,700 |
6.1 |
% |
|||||||||||||
|
Florida |
24 |
291,100 |
3.8 |
% |
5,525,400 |
5.2 |
% |
|||||||||||||
|
Tennessee |
22 |
332,700 |
4.4 |
% |
4,779,900 |
4.5 |
% |
|||||||||||||
|
Georgia |
17 |
311,600 |
4.1 |
% |
4,493,800 |
4.3 |
% |
|||||||||||||
|
Virginia |
16 |
292,800 |
3.9 |
% |
4,321,000 |
4.1 |
% |
|||||||||||||
|
Pennsylvania |
19 |
245,200 |
3.2 |
% |
4,179,700 |
4.0 |
% |
|||||||||||||
|
Alabama |
16 |
302,900 |
4.0 |
% |
4,120,600 |
3.9 |
% |
|||||||||||||
|
Indiana |
16 |
319,800 |
4.2 |
% |
3,991,700 |
3.8 |
% |
|||||||||||||
|
Minnesota |
3 |
280,100 |
3.7 |
% |
3,776,500 |
3.6 |
% |
|||||||||||||
|
Michigan |
21 |
266,800 |
3.5 |
% |
3,762,500 |
3.6 |
% |
|||||||||||||
|
South Carolina |
17 |
206,200 |
2.7 |
% |
3,325,200 |
3.1 |
% |
|||||||||||||
|
Massachusetts |
1 |
102,100 |
1.4 |
% |
2,940,000 |
2.8 |
% |
|||||||||||||
|
North Carolina |
15 |
216,800 |
2.9 |
% |
2,747,800 |
2.6 |
% |
|||||||||||||
|
Missouri |
12 |
125,100 |
1.6 |
% |
2,514,800 |
2.4 |
% |
|||||||||||||
|
California |
4 |
58,600 |
0.8 |
% |
1,031,100 |
1.0 |
% |
|||||||||||||
|
Arkansas |
4 |
154,100 |
2.0 |
% |
943,500 |
0.9 |
% |
|||||||||||||
|
Arizona |
2 |
23,700 |
0.3 |
% |
894,900 |
0.8 |
% |
|||||||||||||
|
Oklahoma |
5 |
68,600 |
0.9 |
% |
851,400 |
0.8 |
% |
|||||||||||||
|
New Jersey |
4 |
49,300 |
0.7 |
% |
841,900 |
0.8 |
% |
|||||||||||||
|
Connecticut |
4 |
47,600 |
0.6 |
% |
702,800 |
0.7 |
% |
|||||||||||||
|
Nevada |
1 |
31,100 |
0.4 |
% |
692,800 |
0.7 |
% |
|||||||||||||
|
Utah |
2 |
44,700 |
0.6 |
% |
680,100 |
0.6 |
% |
|||||||||||||
|
Maine |
2 |
25,700 |
0.3 |
% |
390,200 |
0.4 |
% |
|||||||||||||
|
Idaho |
2 |
34,100 |
0.5 |
% |
355,300 |
0.3 |
% |
|||||||||||||
|
Maryland |
1 |
20,000 |
0.3 |
% |
321,900 |
0.3 |
% |
|||||||||||||
|
Iowa |
3 |
29,300 |
0.4 |
% |
309,300 |
0.3 |
% |
|||||||||||||
|
Kansas |
1 |
26,200 |
0.3 |
% |
248,300 |
0.2 |
% |
|||||||||||||
|
Kentucky |
1 |
8,400 |
0.1 |
% |
180,800 |
0.2 |
% |
|||||||||||||
|
New Mexico |
1 |
10,600 |
0.1 |
% |
141,700 |
0.1 |
% |
|||||||||||||
|
Wyoming |
1 |
7,000 |
0.1 |
% |
132,200 |
0.1 |
% |
|||||||||||||
|
Washington |
1 |
6,900 |
0.1 |
% |
131,500 |
0.1 |
% |
|||||||||||||
|
Rhode Island |
1 |
8,400 |
0.1 |
% |
131,400 |
0.1 |
% |
|||||||||||||
|
Colorado |
1 |
8,000 |
0.1 |
% |
119,400 |
0.1 |
% |
|||||||||||||
|
Mississippi |
1 |
9,300 |
0.1 |
% |
115,800 |
0.1 |
% |
|||||||||||||
|
South Dakota |
1 |
9,300 |
0.1 |
% |
104,700 |
0.1 |
% |
|||||||||||||
|
Total Portfolio |
468 |
7,592,500 |
100.0 |
% |
$ |
105,681,500 |
100.0 |
% |
||||||||||||
(a)
Annualized base rents are calculated as the aggregate, annualized contractual minimum rent for all the space as of September 30, 2026. Tenant concessions and abatements are reflected in this amount. Furthermore, from time to time, a limited number of short-term (generally one to three months) free rent concessions may be provided to tenants prior to initial occupancy or upon a renewal extension. As of September 30, 2026, no tenants were in a free rent concession period.
Activity for the Nine Months Ended September 30, 2026
Acquisitions
During the nine months ended September 30, 2026, the Company, through the Operating Partnership, acquired the following properties via merger agreements with DSTs that were previously managed by the Sponsor on behalf of its investors:
|
Mortgage assumption |
||||||||||||||
|
Date |
Properties Acquired |
Acquisition relative fair value |
Contractual amount |
Fixed interest rate |
Maturity date |
|||||||||
|
March 20, 2026 |
$ |
68,364,000 |
$ |
38,457,000 |
4.20% |
March 2028 |
||||||||
|
March 26, 2026 |
$ |
90,886,000 |
$ |
51,435,000 |
4.42% |
September 2028 |
||||||||
|
June 11, 2026 |
$ |
55,740,000 |
$ |
20,000,000 |
(a) |
2.90% |
June 2026 |
|||||||
|
June 25, 2026 |
$ |
118,217,000 |
$ |
68,800,000 |
(a) |
3.52% |
September 2026 |
|||||||
|
July 30, 2026 |
$ |
91,688,000 |
$ |
52,282,000 |
4.63% |
January 2029 |
||||||||
|
August 5, 2026 |
$ |
90,828,000 |
$ |
51,050,000 |
4.34% |
May 2029 |
||||||||
(a) Upon assumption of the mortgages on the date of acquisition, the Company repaid these mortgage loans payable utilizing proceeds from borrowings on its revolving lines of credit.
There were no acquisition fees related to these property acquisitions.
During the nine months ended September 30, 2026, the Company acquired three properties from unaffiliated entities for a total purchase price of $6.6 million. Per the asset management agreement, the Company paid a 1.0% acquisition fee on each of these property acquisitions to ExchangeRight at the time of the acquisition totaling $66,000 (see Note 10. Related and Affiliated Party Transactions for further details).
All acquisitions during the nine months ended September 30, 2026 were accounted for as asset acquisitions and the related purchase prices were allocated to the acquired tangible and identifiable intangible assets or assumed liabilities based on their relative fair value.
Dispositions
During the nine months ended September 30, 2026, the Company sold three properties for cash to unaffiliated entities for $5.1 million, recognizing a loss of $0.9 million which is included in loss on sale of real estate, net on the condensed consolidated statements of operations and comprehensive (loss) income. Two of these properties were previously included in the assets related to real estate held for sale on the Company's consolidated balance sheet.
Properties Held for Sale
The Company previously entered into separate sales contracts with individual third-parties to sell four of its properties, two of which were sold during the nine months ended September 30, 2026. In connection with the execution of these contracts, the Company recorded the assets associated with these properties at the lower of (a) cost or (b) fair value less estimated costs to sell, which resulted in impairment charges during the year ended December 31, 2025, totaling $2.0 million related to three of the four properties. Further, upon the sale of one of the properties the Company recorded an additional impairment charge of $0.1 million during the nine months ended September 30, 2026 as the actual closing costs for this property were higher than estimated in December 2025. The carrying value of the fourth property in which the Company entered into a sales contract was below its fair value, therefore no impairment charge was recorded.
Guaranties
The Operating Partnership has entered into agreements with certain DSTs of which ExchangeRight serves as the master lessee via a master lease agreement. In these guaranty agreements, the Operating Partnership is the guarantor on the master lease agreements entered into between these DSTs and ExchangeRight as the master lessee. The guaranties are for the full term of the master leases, which range from 15 and 20 years. Under these guaranties, the Operating Partnership guarantees the payment of all obligations and liabilities of the master lessee as outlined in the respective master lease agreements. As of September 30, 2026, the maximum remaining contractual payments under these lease agreements totaled $1,672.7 million, although the master lease
rental obligation will be terminated or eliminated in consolidation upon a sale or merger of the DST. The Company has not been obligated to make any payments under these guaranties as of September 30, 2026.
In consideration for entering into each of these guaranties, the Operating Partnership will receive quarterly payments of $2,500 for each guaranty while the master lease is outstanding and the guaranty is in effect at any point during the quarter. The Company earned $0.1 million and $30,000 under these guaranties during the three months ended September 30, 2026 and 2025, respectively, and $0.2 million and $0.1 million under these guaranties during the nine months ended September 30, 2026 and 2025, respectively, which was included in other income on the condensed consolidated statements of operations and comprehensive (loss) income. Furthermore, as potential additional consideration under the guaranty agreements, the Operating Partnership is entitled to 25% to 50% of the net disposition fee earned by ExchangeRight (as defined in the agreement) if the DST for which the Operating Partnership is providing the guaranty is sold. The Company recorded a noncontingent guaranty receivable related to the full payment of the guaranty fees of $5.7 million as of September 30, 2026, which is included in due from affiliates on the condensed consolidated balance sheet and an offsetting noncontingent guaranty liability, which is included in accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheet.
RSLCA Notes Receivable from Affiliates
The Company has invested in the ExchangeRight Mezz Loans for the DST programs under the RSLCA. The loan agreement, as amended, matures on April 4, 2027 and bears interest at a rate equal to 12.0% per annum, while outstanding. On September 18, 2024, the Company entered into the first amendment to the Restated and Uncommitted Senior Revolving Line of Credit Agreement (the "Amendment") with ExchangeRight. Under the Amendment, the Company is due a one quarter percent (0.25%) unused facility fees and a one quarter percent (0.25%) annual access fee, both payable by ExchangeRight quarterly in arrears.
ExchangeRight structured the RSLCA, including the 12.0% interest rate, as a way to provide an enhanced risk-adjusted return to the Company. The current capacity under the RSLCA is a maximum of $250.0 million outstanding at any time. ExchangeRight had net advances of $4.6 million during the nine months ended September 30, 2026 increasing the balance of the RSLCA notes receivable to $25.6 million at September 30, 2026.
Revolving Lines of Credit
On April 15, 2026, the Operating Partnership (as the borrower) and the Company entered into an Amended and Restated Credit Agreement which provides the Company with the Revolving Credit Facility in the initial maximum principal amount of $200,000,000 until April 15, 2029 and the DDTL Facility, in the initial maximum principal amount of $400,000,000 pursuant to which delayed draw term loans may be borrowed through October 15, 2026. The Facilities may be increased up to a maximum principal amount of $1,000,000,000 through additional revolver loans or term loans, upon request of the Borrower, subject to, among other things, the receipt of commitments for the increased amount. As of September 30, 2026, the Company had $295.5 million under the DDTL Facility with an interest rate of 5.97% and the Company had not drawn any amount under the Revolving Credit Facility. See "Capital" above.
On May 19, 2021, ExchangeRight entered into a revolving line of credit in which the Company has access to utilize available capacity under this revolving line of credit. The Company is legally responsible for the specific borrowings related to the Company, whereas ExchangeRight is the guarantor on all outstanding borrowings in relation to this secured revolving line of credit. The revolving line of credit agreement, as amended in March 2025, now has a maturity date of March 27, 2028, with a maximum aggregate amount being borrowed by the Company and ExchangeRight totaling $100.0 million outstanding at any time and requires monthly payments. As of September 30, 2026, the Company had no borrowings outstanding under this revolving line of credit and ExchangeRight had $45.2 million outstanding under this revolving line of credit, resulting in $54.8 million available for borrowing by the Company and ExchangeRight as of September 30, 2026.
Common Shares and Noncontrolling Interests
The Company's common shares consist of Class I Common Shares, Class A Common Shares, Class D Common Shares, Class S Common Shares, Class ER-I Common Shares, Class ER-A Common Shares, Class ER-D Common Shares, and Class ER-S Common Shares. Following is a description of these classes of common shares. For purposes of this description, the Class ER-I Common Shares, Class ER-A Common Shares, Class ER-D Common Shares, and Class ER-S Common Shares are collectively referred to as the "Class ER Common Shares".
Class I Common Shares, Class A Common Shares, Class D Common Shares, and Class S Common Shares
The Class I Common Shares, Class A Common Shares, Class D Common Shares, and Class S Common Shares have identical rights and privileges, including identical voting rights, but have different upfront selling commissions and related fees. Each Class A Common Share and each Class S Common Share shall automatically and without any action on the part of the shareholder thereof convert into the same number of Class I Common Shares upon a "Conversion Event". For these purposes, a "Conversion Event" is defined in the Company's Third Amended and Restated Declaration of Trust, dated June 10, 2025 (the "Amended Declaration of Trust") to generally mean (i) the listing of any class of the Company's shares on a national securities exchange pursuant to an effective registration statement filed with the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, or (ii) any merger, consolidation, transfer of all or substantially all of the assets or other business combination of the Operating Partnership or the Company, as a result of which all outstanding Company shares are cancelled in exchange for the right to receive cash or securities that have been, as of the closing date of such transaction, listed on a national securities exchange for at least 180 days, or a combination thereof. Each Class D Common Share shall automatically and without any action on the part of the shareholder thereof convert into a number of Class I Common Shares equal to the Class D Conversion Rate (as defined below) upon a Conversion Event, unless, at least five days before the effective date of such Conversion Event, the Trustee determines, in its sole and absolute discretion, that such conversion shall not occur in connection with such Conversion Event, but any such determination will not preclude the conversion of Class D Common Shares into Class I Common Shares in connection with the occurrence of any successive Conversion Event. The "Class D Conversion Rate" means a fraction, the numerator of which is the net asset value ("NAV") of the Company allocable to the Class D Common Shares, divided by the number of outstanding Class D Common Shares, and the denominator of which is the NAV of the Company allocable to the Class I Common Shares, divided by the number of outstanding Class I Common Shares immediately prior to the Conversion Event. Otherwise, the Class D Common Shares have the same preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions as the Class A Common Shares, Class I Common Shares, and Class S Common Shares.
Class ER-I Common Shares, Class ER-A Common Shares, Class ER-D Common Shares, and Class ER-S Common Shares
The terms, conditions, rights, preferences, and obligations of the Class ER Common Shares are substantially similar to each other, but are substantially dissimilar to the other classes of Common Shares of the Company. Each of the Class ER Common Shares are subject to mandatory conversion upon the occurrence of certain events. In this regard, each Class ER Common Share will automatically and without any action on the part of the shareholder convert into an equal number of Class I Common Shares, Class A Common Shares, Class S Common Shares, or Class D Common Shares of the Company, as applicable, on a 1:1 basis, upon a Conversion Event, unless, at least five days before the effective date of such Conversion Event, the Trustee determines, in its sole and absolute discretion, that such conversion shall not occur in connection with such Conversion Event. Each of the Class ER Common Shares are also subject to the optional conversion rights of the Company. In this regard, from and after the fifth anniversary of the closing date of a Class ER Common shareholder's purchase of the applicable class of such common shares, the Trustee, on behalf of the Company, will have the right to cause each Class ER Common Shareholder, without any action on the part of the shareholder, to convert any or all of such holder's Class ER Common Shares, as applicable, into an equal number of the respective Class I Common Shares, Class A Common Shares, Class S Common Shares, or Class D Common Shares, on a 1:1 basis. Each Class ER Common Shareholder will have the right, upon the seventh anniversary of the closing date of a shareholder's purchase of Class ER Common Shares (subject to three one-year extensions in the Trustee's discretion), to require the Company to redeem the Class ER Common Shares, in whole or in part, held by such shareholder, as well as the right to convert such Class ER Common Shares to the respective Class I Common Share, Class A Common Share, Class S Common Share, or Class D Common Shares on a 1:1 basis. The Class ER Common Shares have no other redemption rights and are not eligible for repurchase or redemption under the Company's share repurchase program. Otherwise, the Class ER Common Shares have the same preferences, rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications, and terms and conditions as the Class A Common Shares, Class I Common Shares, and Class S Common Shares.
The following table provides a summary of certain Class I, Class A, Class S, Class D, Class ER-I, Class ER-A, Class ER-S and Class ER-D Common Shares attributes during the nine months ended September 30, 2026:
|
Offering price |
||||||||||||||||||||||||||||||||
|
Effective date |
Class I |
Class A |
Class D |
Class S |
Class ER-I |
Class ER-A |
Class ER-D |
Class ER-S |
||||||||||||||||||||||||
|
January 1, 2026 through February 3, 2026 |
$ |
27.30 |
$ |
29.03 |
$ |
27.30 |
$ |
28.29 |
$ |
27.30 |
$ |
29.03 |
$ |
27.30 |
$ |
28.29 |
||||||||||||||||
|
February 4, 2026 through April 27, 2026 |
$ |
27.46 |
$ |
29.20 |
$ |
27.46 |
$ |
28.46 |
$ |
27.46 |
$ |
29.20 |
$ |
27.46 |
$ |
28.46 |
||||||||||||||||
|
April 28, 2026 through July 21, 2026 |
$ |
27.58 |
$ |
29.32 |
$ |
27.58 |
$ |
28.58 |
$ |
27.58 |
$ |
29.32 |
$ |
27.58 |
$ |
28.58 |
||||||||||||||||
|
July 22, 2026 through September 30, 2026 |
$ |
27.63 |
$ |
29.38 |
$ |
27.63 |
$ |
28.63 |
$ |
27.63 |
$ |
29.38 |
$ |
27.63 |
$ |
28.63 |
||||||||||||||||
The Company issued the following shares during the three and nine months ended September 30, 2026:
|
Three Months Ended |
Nine Months Ended |
|||||||
|
Class I |
70,226 |
201,330 |
||||||
|
Class A |
81,295 |
429,804 |
||||||
|
Class D |
80,630 |
227,547 |
||||||
|
Class ER-I |
- |
95,961 |
||||||
|
Class ER-A |
20,605 |
241,182 |
||||||
|
Class ER-D |
- |
6,940 |
||||||
(a)
No Class S or Class ER-S Common Shares were sold during the three and nine months ended September 30, 2026.
The Company received an aggregate of $7.1 million and $34.1 million in proceeds during the three and nine months ended September 30, 2026, respectively, as a result of these share issuances.
The Company redeemed 91,627 Class I Common Shares and 190,507 Class A Common Shares totaling $7.7 million during the three months ended September 30, 2026. The Company redeemed 341,231 Class I Common Shares and 505,111 Class A Common Shares totaling $23.0 million during the nine months ended September 30, 2026.
During the nine months ended September 30, 2026, the Company, through the Operating Partnership, acquired 118 properties via six merger agreements with DSTs that were previously managed by the Sponsor on behalf of its investors and issued 9,344,239 OP units in conjunction with these acquisitions.
Results of Operations
Comparison of the Three Months Ended September 30, 2026 and 2025
As of September 30, 2026, the Company owned 475 properties that were 98.4% leased. As of September 30, 2025, the Company owned 361 properties that were 98.6% leased. The following table details the Company's results of operations for the three months ended September 30, 2026 and 2025, respectively:
|
Three Months Ended September 30, |
||||||||||||
|
2026 |
2025 |
Change |
||||||||||
|
Rental revenue |
$ |
30,175,000 |
$ |
21,759,000 |
$ |
8,416,000 |
||||||
|
Interest income on notes receivable from affiliates |
1,344,000 |
1,178,000 |
166,000 |
|||||||||
|
Other |
88,000 |
55,000 |
33,000 |
|||||||||
|
Property operating expenses |
(3,583,000 |
) |
(2,519,000 |
) |
(1,064,000 |
) |
||||||
|
Management fees to affiliates |
(886,000 |
) |
(40,000 |
) |
(846,000 |
) |
||||||
|
General and administrative expenses |
(568,000 |
) |
(364,000 |
) |
(204,000 |
) |
||||||
|
Depreciation and amortization |
(16,587,000 |
) |
(11,066,000 |
) |
(5,521,000 |
) |
||||||
|
Loss on sale of real estate, net |
(902,000 |
) |
- |
(902,000 |
) |
|||||||
|
Interest expense |
(13,658,000 |
) |
(9,450,000 |
) |
(4,208,000 |
) |
||||||
|
Interest income |
9,000 |
4,000 |
5,000 |
|||||||||
|
Net (loss) |
$ |
(4,568,000 |
) |
$ |
(443,000 |
) |
$ |
(4,125,000 |
) |
|||
Rental revenues consist of base rents, tenant reimbursables, straight-line rent adjustments, and above and below market lease amortization. Rental revenues increased $8.4 million, or 38.7%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 primarily due to the acquisition of 127 properties at various dates from August 2025 through August 2026. The rental revenues associated with these acquired properties were $8.1 million and $0.0 million for the three months ended September 30, 2026 and 2025, respectively. This increase was also driven by an increase in lease termination income of $0.9 million as a result of consideration received for permitting certain tenants to terminate their lease prior to the contractual expiration during the three months ended September 30, 2026. These increases were offset by a decrease in rental revenues for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 of $0.3 million related to the 11 properties sold between December 2025 and July 2026 as well as decrease in rental revenues due to an increase in vacant properties.
Interest income on notes receivable from affiliates includes interest earned from (1) outstanding advances under the RSLCA which bears interest at a rate equal to 12.0% per annum in addition to an Unused Facility Fee and an Annual Access Fee, (2) a $3.6 million real estate note receivable from an affiliated party, (3) a $2.4 million note receivable from an affiliated party, (4) a $14.2 million note receivable from an affiliated party, and (5) a $1.1 million note receivable from an affiliated party. Interest income on notes receivable from affiliates increased $0.2 million, or 14.1%, for the three months ended September 30, 2026 due to an increase in interest earned on the RSLCA of $0.2 million, which was the result of an approximate $5.6 million increase in the average daily outstanding balance of the RSLCA during the three months ended September 30, 2026 versus the three months ended September 30, 2025.
Property operating expenses increased $1.1 million, or 42.2% for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The increase in property operating expenses for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was primarily due to the acquisition of 127 properties at various dates from August 2025 through August 2026. The property operating expenses associated with these properties acquired were $1.0 million and $0.0 million for the three months ended September 30, 2026 and 2025, respectively.
Management fees to affiliates increased $0.8 million, or 2115.0%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Asset management fees increased $0.6 million during the three months ended September 30, 2026 compared to the three months ended September 30, 2025 and property management fees increased $0.2 million during the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Asset management fees for the three months ended September 30, 2026 consisted of $0.6 million of earned fees per the management agreement, net of $0.1 million of fees which were irrevocably waived by the asset manager. Asset management fees for the three months ended September 30, 2025 consisted of $0.5 million of earned fees per the management agreement, net of $0.5 million of fees which were irrevocably waived by the asset manager. Property management fees consisted of $0.3 million of earned fees per the management agreement for the three months ended September 30, 2026. Property management fees consisted of $0.2 million of earned fees per the management agreement, net of $0.2 million of fees which were irrevocably waived by the property manager for the three months ended September 30, 2025.
General and administrative expenses increased $0.2 million, or 56.0%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. The increase in general and administrative expenses for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was primarily due to an increase in professional fees, including audit and tax related professional fees, which is primarily attributable to the property acquisitions.
Depreciation and amortization increased $5.5 million, or 49.9%, for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Depreciation and amortization during the three months ended September 30, 2026 was impacted by the acquisition of 127 properties at various dates from August 2025 through August 2026. Depreciation and amortization expense associated with these properties totaled $6.1 million and $0.0 million for the three months ended September 30, 2026 and 2025, respectively, which was offset by a decrease in depreciation and amortization expense of $0.2 million related to the 11 properties sold between December 2025 and July 2026, as well as a decrease as a result of certain intangible assets being fully depreciated.
Loss on sale of real estate, net during the three months ended September 30, 2026 related to loss on the sale of one property in July 2026. There was no gain or loss on sale of real estate recognized during the three months ended September 30, 2025.
Interest expense increased $4.2 million, or 44.5%, during the three months ended September 30, 2026 compared to the three months ended September 30, 2025 as a result of (1) an increase in interest expense of $2.4 million related to the Company's borrowings under its revolving line of credit facility, (2) the assumption of a $38.5 million mortgage loan payable in connection
with the acquisition of 16 properties via a merger agreement with one former 1031-exchangeable portfolio in March 2026, (3) the assumption of a $51.4 million mortgage loan payable in connection with the acquisition of 23 properties via a merger agreement with one former 1031-exchangeable portfolio in March 2026, (4) the assumption of a $52.3 million mortgage loan payable in connection with the acquisition of 21 properties via a merger agreement with one former 1031-exchangeable portfolio in July 2026, (5) the assumption of a $51.1 million mortgage loan payable in connection with the acquisition of 18 properties via a merger agreement with one former 1031-exchangeable portfolio in August 2026, and (6) an increase of $0.3 million in amortization of deferred financing costs associated with the Company's revolving line of credit. These increases were offset by a $0.8 million decrease in interest expense on certain mortgage debts that were paid off upon maturity between May 2025 and September 2026.
Comparison of the Nine Months Ended September 30, 2026 and 2025
As of September 30, 2026, the Company owned 475 properties that were 98.4% leased. As of September 30, 2025, the Company owned 361 properties that were 98.6% leased. The following table details the Company's results of operations for the nine months ended September 30, 2026 and 2025, respectively:
|
Nine Months Ended September 30, |
||||||||||||
|
2026 |
2025 |
Change |
||||||||||
|
Rental revenue |
$ |
79,165,000 |
$ |
65,603,000 |
$ |
13,562,000 |
||||||
|
Interest income on notes receivable from affiliates |
3,680,000 |
3,783,000 |
(103,000 |
) |
||||||||
|
Other |
256,000 |
111,000 |
145,000 |
|||||||||
|
Property operating expenses |
(9,928,000 |
) |
(8,329,000 |
) |
(1,599,000 |
) |
||||||
|
Management fees to affiliates |
(2,201,000 |
) |
(560,000 |
) |
(1,641,000 |
) |
||||||
|
General and administrative expenses |
(1,603,000 |
) |
(1,102,000 |
) |
(501,000 |
) |
||||||
|
Depreciation and amortization |
(40,937,000 |
) |
(33,110,000 |
) |
(7,827,000 |
) |
||||||
|
Provisions for impairment |
(1,890,000 |
) |
- |
(1,890,000 |
) |
|||||||
|
Loss (gain) on sales of real estate, net |
(902,000 |
) |
5,184,000 |
(6,086,000 |
) |
|||||||
|
Interest expense |
(34,120,000 |
) |
(27,990,000 |
) |
(6,130,000 |
) |
||||||
|
Interest income |
31,000 |
14,000 |
17,000 |
|||||||||
|
Net (loss) income |
$ |
(8,449,000 |
) |
$ |
3,604,000 |
$ |
(12,053,000 |
) |
||||
Rental revenues consist of base rents, tenant reimbursables, straight-line rent adjustments, and above and below market lease amortization. Rental revenues increased $13.6 million, or 20.7%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 primarily due to the acquisition of 138 properties at various dates from March 2025 through August 2026. The rental revenues associated with these acquired properties were $15.0 million and $1.4 million for the nine months ended September 30, 2026 and 2025, respectively. This increase was also driven by an increase in lease termination income of $2.9 million as a result of consideration received for permitting certain tenants to terminate their lease prior to the contractual expiration during the nine months ended September 30, 2026. These increases were offset by a decrease in rental revenues for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 of $1.8 million related to the 25 properties sold between April 2025 and July 2026 as well as decrease in rental revenues due to an increase in vacant properties.
Interest income on notes receivable from affiliates includes interest earned from (1) outstanding advances under the RSLCA which bears interest at a rate equal to 12.0% per annum in addition to an Unused Facility Fee and an Annual Access Fee, (2) a $3.6 million real estate note receivable from an affiliated party, (3) a $2.4 million note receivable from an affiliated party, (4) a $14.2 million note receivable from an affiliated party, and (5) a $1.1 million note receivable from an affiliated party. Interest income on notes receivable from affiliates decreased $0.1 million, or 2.7%, for the nine months ended September 30, 2026 due to a decrease in interest earned on the RSLCA of $0.1 million, which was a result of an approximate $1.2 million decrease in the average daily outstanding balance of the RSLCA during the nine months ended September 30, 2026 versus the nine months ended September 30, 2025.
Property operating expenses increased $1.6 million, or 19.2% for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase in property operating expenses for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was primarily due to the acquisition of 138 properties at various dates from March 2025 through August 2026. The property operating expenses associated with these properties acquired were $1.6 million and $0.1 million for the nine months ended September 30, 2026 and 2025, respectively. The increase in property operating expenses was also due to an increase in expenses incurred at vacant properties during the nine months ended September
30, 2026 compared to the nine months ended September 30, 2025. This increase was offset by a decrease in operating expenses of $0.3 million related to the 25 properties sold between April 2025 and July 2026.
Management fees to affiliates increased $1.6 million, or 293.0%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Asset management fees increased $1.1 million during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 and property management fees increased $0.5 million during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Asset management fees for the nine months ended September 30, 2026 consisted of $1.5 million of earned fees per the management agreement, net of $0.5 million of fees which were irrevocably waived by the asset manager. Asset management fees for the nine months ended September 30, 2025 consisted of $1.6 million of earned fees per the management agreement, net of $1.3 million of fees which were irrevocably waived by the asset manager. Property management fees consisted of $0.7 million of earned fees per the management agreement for the nine months ended September 30, 2026. Property management fees consisted of $0.6 million of earned fees per the management agreement, net of $0.4 million of fees which were irrevocably waived by the property manager for the nine months ended September 30, 2025.
General and administrative expenses increased $0.5 million, or 45.5%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. The increase in general and administrative expenses for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was primarily due to an increase in professional fees, including audit and tax related professional fees, which is primarily attributable to the property acquisitions, as well as administrative fees associated with the certain of the Company's mortgage loans.
Depreciation and amortization increased $7.8 million, or 23.6%, for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Depreciation and amortization during the nine months ended September 30, 2026 was impacted by the acquisition of 138 properties at various dates from March 2025 through July 2026. Depreciation and amortization expense associated with these properties totaled $10.4 million and $0.7 million for the nine months ended September 30, 2026 and 2025, respectively, which was offset by a decrease in depreciation and amortization expense of $1.0 million related to the 25 properties sold between April 2025 and July 2026, as well as a decrease as a result of certain intangible assets being fully depreciated.
Provisions for impairment for the nine months ended September 30, 2026 related to the impairment of three properties, one of which was considered held for sale as of September 30, 2026. The estimation and evaluation of these impairment charges relies on judgments and assumptions made by management in determining the impairment charges to record. It is possible that such judgments and/or estimates will change; if this occurs, we may recognize additional impairment charges for these properties or other properties owned by the Company.
Loss/(gain) on sales of real estate, net during the nine months ended September 30, 2026 related to loss on the sale of one property in July 2026. Gain on sales of real estate, net during the nine months ended September 30, 2025 related to gains on the sale of six properties in April 2025 and the sale of seven properties in June 2025. These gains on sale of real estate were offset by a loss on the sale of one property in June 2025.
Interest expense increased $6.1 million, or 21.9%, during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 as a result of (1) an increase in interest expense of $4.7 million related to the Company's borrowings under its revolving line of credit, (2) the assumption of a $38.5 million mortgage loan payable in connection with the acquisition of 16 properties via a merger agreement with one former 1031-exchangeable portfolio in March 2026, (3) the assumption of a $51.4 million mortgage loan payable in connection with the acquisition of 23 properties via a merger agreement with one former 1031-exchangeable portfolio in March 2026, (4) the assumption of a $52.3 million mortgage loan payable in connection with the acquisition of 21 properties via a merger agreement with one former 1031-exchangeable portfolio in July 2026, (5) the assumption of a $51.1 million mortgage loan payable in connection with the acquisition of 18 properties via a merger agreement with one former 1031-exchangeable portfolio in August 2026, and (6) an increase of $0.5 million in amortization of deferred financing costs associated with the Company's revolving line of credit. These increases were offset by a $2.5 million decrease in interest expense on certain mortgage debts that were paid off upon maturity between May 2025 and September 2026.
Liquidity and Capital Resources
The Company has historically funded, and expects to continue to fund, short-term liquidity requirements, including debt service and distributions to our shareholders and distributions to holders of noncontrolling interests, from its operations. The Company funds acquisitions and certain capital expenditures primarily from the sale of shares of its Common Shares, the issuance
of additional OP Units, and through the assumption or incurrence of debt. The Company believes that its current liquidity position is sufficient to meet its expected acquisition activity. We expect to fund our current liquidity requirements from a combination of cash on hand, cash flow generated from operations, secured financings, or a line of credit.
The Company's strategy targets properties with net leases to insulate our shareholders from rising costs and surprise repair costs that affect other types of real estate investments. Longer lease terms primarily with investment-grade national tenants successfully operating in historically recession-resilient sectors are also intended to provide stable income that can help bridge economic cycles.
The Company has invested in the ExchangeRight Mezz Loans for the DST programs under the RSLCA. The loan agreement, as amended, matures on April 4, 2027 and bears interest at a rate equal to 12.0% per annum, while outstanding. On September 18, 2024, the Company entered into the Amendment to the Restated and Uncommitted Senior Revolving Line of Credit Agreement with ExchangeRight. For a description of the Amendment, see "RSLCA Notes Receivable from Related Party" above.
ExchangeRight structured the RSLCA, including the 12.0% interest rate, as a way to provide an enhanced risk-adjusted return to the Company. The current capacity under the RSLCA is a maximum of $250.0 million outstanding at any time. ExchangeRight had net advances of $4.6 million during the nine months ended September 30, 2026 increasing the balance of the RSLCA notes receivable to $25.6 million at September 30, 2026.
The Company's notes receivable under the RSLCA are secured by interests in an entity that indirectly owns net-leased necessity-based properties similar to the Company's acquired properties, as well as a pledge agreement and subordination agreement provided by ExchangeRight. As a result, the risk profile of an investment in this program is intended to be similar to ownership of the Company's acquired properties while providing liquidity and an enhanced risk-adjusted return over investments with similar liquidity.
In order to continue qualifying as a REIT, the Company is required to distribute at least 90% of its "REIT taxable income", as defined in the Code. The Company paid monthly distributions relating to its common shares during the nine months ended September 30, 2026. While the Company intends to continue paying regular monthly distributions, future distribution declarations will continue to be at the discretion of the Trustee, and will depend on the cash flow and financial condition of the Company, capital requirements, annual distribution requirements under the REIT provisions of the Code and such other factors as the Trustee may deem relevant.
The Operating Partnership (as the borrower) and the Company entered into an Amended and Restated Credit Agreement which, as of September 30, 2026, provides the Company with a Revolving Credit Facility of up to a maximum amount of $200.0 million with a maturity date of April 15, 2029 and a DDTL Facility of up to a maximum of $400.0 million, which delayed draw term loans may be borrowed through October 15, 2026. As of September 30, 2026, the Company did not have any outstanding borrowings under the Revolving Credit Facility and had borrowed $295.5 million under the DDTL Facility. For a description of the material terms of the Amended and Restated Credit Agreement thereunder, see "Capital" above.
On May 19, 2021, ExchangeRight entered into a revolving line of credit in which the Company has access to utilize available capacity under this revolving line of credit. The Company is legally responsible for the specific borrowings related to the Company, whereas ExchangeRight is the guarantor on all outstanding borrowings in relation to this revolving line of credit. The revolving line of credit agreement, as amended in March 2025, now has a maturity date of March 27, 2028, with a maximum aggregate amount being borrowed by the Company and ExchangeRight totaling $100.0 million outstanding at any time and requires monthly payments. As of September 30, 2026, the Company had no borrowings outstanding under this revolving line of credit and ExchangeRight had $45.2 million outstanding under this revolving line of credit, resulting in $54.8 million available for borrowing by the Company and ExchangeRight as of September 30, 2026.
Fixed-rate mortgage loans payable were composed of the following as of September 30, 2026:
|
September 30, 2026 |
|||||||||||||
|
Maturity |
Balance |
Contractual |
|||||||||||
|
Description (a) |
Amortization |
date |
outstanding |
interest rate |
|||||||||
|
Fixed-rate mortgage |
Interest-only |
12/2026 |
$ |
28,110,000 |
4.06 |
% |
|||||||
|
Fixed-rate mortgage (b) |
Interest-only |
4/2027 |
31,200,000 |
4.38 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
6/2027 |
32,722,000 |
3.98 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
9/2027 |
36,860,000 |
3.99 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
12/2027 |
33,441,000 |
4.09 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
1/2028 |
35,840,000 |
4.05 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
2/2028 |
38,530,000 |
6.12 |
% |
||||||||
|
Fixed-rate mortgage (c) |
Interest-only |
2/2028 |
26,900,000 |
5.80 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
3/2028 |
38,457,000 |
4.20 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
4/2028 |
37,795,000 |
4.27 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
7/2028 |
43,522,000 |
4.32 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
9/2028 |
51,435,000 |
4.42 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
1/2029 |
52,282,000 |
4.63 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
5/2029 |
51,050,000 |
4.34 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
8/2029 |
63,943,000 |
4.03 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
10/2029 |
30,231,000 |
3.13 |
% |
||||||||
|
Fixed-rate mortgage |
Interest-only |
1/2031 |
37,564,000 |
3.45 |
% |
||||||||
|
$ |
669,882,000 |
4.31 |
% |
(d) |
|||||||||
|
Unamortized issuance costs, net |
(475,000 |
) |
|||||||||||
|
Unamortized below market debt discount, net |
(14,538,000 |
) |
|||||||||||
|
$ |
654,869,000 |
||||||||||||
(a)
Fixed-rate mortgages are now recourse loans pursuant to their pre-defined loan terms, unless otherwise noted.
(b)
Fixed-rate mortgage is a nonrecourse loan pursuant to its pre-defined loan terms.
(c)
Mortgage bears interest at a variable-rate of 1.70% in excess of SOFR and concurrent with the closing of the mortgage, the Company entered into an interest rate swap agreement which effectively converted the variable-rate mortgage to a fixed-rate mortgage. Accordingly, this mortgage has been presented as a fixed-rate mortgage.
(d)
The weighted average effective interest rate on mortgage loans payable was 5.20% as of September 30, 2026.
The following table details the Company's scheduled debt maturities as of September 30, 2026:
|
Mortgage loans payable |
Delayed draw |
|||||||||||
|
Year |
balloon payments |
term loan facility |
Total |
|||||||||
|
Remainder of 2026 |
$ |
28,110,000 |
$ |
- |
$ |
28,110,000 |
||||||
|
2027 |
134,223,000 |
- |
134,223,000 |
|||||||||
|
2028 |
272,479,000 |
- |
272,479,000 |
|||||||||
|
2029 |
197,506,000 |
295,538,000 |
493,044,000 |
|||||||||
|
2030 |
- |
- |
- |
|||||||||
|
Thereafter |
37,564,000 |
- |
37,564,000 |
|||||||||
|
$ |
669,882,000 |
$ |
295,538,000 |
$ |
965,420,000 |
|||||||
The mortgage loans payable mature at various dates from December 2026 through January 2031. The Company intends to repay the mortgage debt maturing in 2026 and 2027 with either available cash, proceeds from repayments under the RSLCA, secured debt financing, unsecured debt financing, or a combination of these options. Mortgage loans payable may require the Company to deposit certain replacement and other reserves with its lenders. Such "restricted cash" is generally available only for property-level requirements for which the reserves have been established and is not available to fund other property-level or Company-level obligations. The Company had $17.6 million in restricted cash as of September 30, 2026.
Cash Flows
The sources and uses of cash reflected in the Company's consolidated statements of cash flows for the nine months ended September 30, 2026 and 2025 are summarized below:
|
Nine Months Ended September 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Cash flows provided by (used in): |
||||||||
|
Operating activities |
$ |
40,542,000 |
$ |
32,734,000 |
||||
|
Investing activities |
$ |
(6,732,000 |
) |
$ |
(4,094,000 |
) |
||
|
Financing activities |
$ |
(23,888,000 |
) |
$ |
(31,270,000 |
) |
||
Operating Activities
Net cash from operating activities was $40.5 million and $32.7 million for the nine months ended September 30, 2026 and 2025, respectively. Cash flows from operations increased $7.8 million, or 23.9%, during the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 primarily due to an increase in the results for the 138 properties acquired at various dates from March 2025 through August 2026. This increase was offset by a decrease in results for the 25 properties sold between April 2025 and July 2026 and an increase in cash paid for interest of $3.8 million.
Investing Activities
Net cash flows used in investing activities were primarily the result of the advances and repayments on the RLSCA, dispositions of real estate, and property acquisitions. During the nine months ended September 30, 2026, the Company acquired 121 properties for a total cash outlay of $6.6 million, had $4.6 million in net advances under the RSLCA, and incurred expenditures of $0.3 million for improvements of real estate. These cash outflows were offset by $4.7 million in proceeds from the sale of three properties from June 2026 through July 2026. During the nine months ended September 30, 2025, the Company acquired 13 properties for a total cash outlay of $39.7 million and incurred expenditures of $0.7 million for improvements of real estate. These cash outflows were offset by $29.2 million in proceeds from the sale of 14 properties at various dates and $7.1 million in net repayments under the RSLCA.
Financing Activities
During the nine months ended September 30, 2026, the Company had mortgage loan repayments of $138.1 million, redemptions of $23.0 million of Class I Common Shares and Class A Common Shares, distributions of $18.8 million to the holders of Class I Common Shares, Class A Common Shares, Class D Common Shares, Class ER-I Common Shares, Class ER-A Common Shares, and Class ER-D Common Shares, distributions of $14.4 million to the holders of OP Units, and payments of deferred financing costs of $5.7 million. These cash outflows were offset by borrowings from its revolving credit facility of $138.1 million, net proceeds of $27.3 million from the issuance of Class I Common Shares, Class A Common Shares, Class D Common Shares, Class ER-I Common Shares, Class ER-A Common Shares, and Class ER-D Common Shares, proceeds from the issuance of noncontrolling interests of $9.1 million, net proceeds from reserves upon the assumption of loans payable which were due back to certain DSTs previously managed by ExchangeRight of $0.8 million, and pending trade deposits of $0.8 million.
During the nine months ended September 30, 2025, the Company had balloon mortgage loan repayments of $49.9 million, redemptions of $28.5 million of Class I and Class A Common Shares, distributions of $18.3 million to the holders of Class I Common Shares, Class A Common Shares, Class D Common Shares, Class ER-I Common Shares, Class ER-A Common Shares, and Class ER-D Common Shares, distributions of $11.4 million to the holders of OP Units, financing costs of $0.4 million related to the expansion of the Company's line of credit, and offering costs of $0.1 million in relation to the issuance of noncontrolling interests, which was offset by borrowings from its revolving credit facilities of $49.9 million, net proceeds of $26.7 million from the issuance of Class I Common Shares, Class A Common Shares, Class D Common Shares, Class ER-I Common Shares, Class ER-A Common Shares, and Class ER-D Common Shares, and pending trade deposits of $0.8 million.
Distributions
The amount of distributions payable to the Company's shareholders is determined by the Trustee and is dependent on a number of factors, including funds available for distribution, the Company's financial condition, capital expenditure requirements, requirements of Maryland law and annual distribution requirements needed to qualify and maintain its status as a REIT. Our distribution policy is for our inception-to-date cash flow from operations to always exceed our distributions that have
been declared or paid, rather than making distributions out of investor equity or financing, subject only to REIT qualification requirements or to avoid incurring federal income tax. The Trustee has authorized, and the Company has declared, distributions through September 30, 2026. The distributions are payable on approximately the 15th day following each month end to shareholders of record at the close of business on the last day of the prior month. Distributions in the aggregate amount of $4.9 million were declared but not yet paid as of September 30, 2026. The unpaid distributions as of September 30, 2026 were paid in cash or settled in common shares under the Company's Dividend Reinvestment and Direct Share Purchase Plan ("DRIP") during October 2026.
The following table provides a summary of the monthly distributions declared and paid per Class I Common Share, Class A Common Share, Class D Common Share, Class ER-I Common Share, Class ER-A Common Share, and Class ER-D Common Share for the nine months ended September 30, 2026:
|
September 30, 2026 |
||||||||||||||||||||||||
|
Class I |
Class A |
Class D |
Class ER-I |
Class ER-A |
Class ER-D |
|||||||||||||||||||
|
January |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
February |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
March |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
April |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
May |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
June |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
July |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
August |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
September |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
$ |
1.3041 |
$ |
1.3041 |
$ |
1.3041 |
$ |
1.3041 |
$ |
1.3041 |
$ |
1.3041 |
|||||||||||||
The following table provides a summary of the monthly distributions declared and paid per Class I Common Share, Class A Common Share, and Class ER-I Common Share for the nine months ended September 30, 2025:
|
September 30, 2025 |
||||||||||||||||||||||||
|
Class I |
Class A |
Class D |
Class ER-I (a) |
Class ER-A |
Class ER-D |
|||||||||||||||||||
|
January |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
February |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
March |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
April |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
May |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
June |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
July |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
August |
$ |
0.1449 |
$ |
0.1449 |
n/a |
$ |
0.1449 |
n/a |
n/a |
|||||||||||||||
|
September |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
$ |
0.1449 |
||||||||||||
|
$ |
1.3041 |
$ |
1.3041 |
$ |
0.1449 |
$ |
1.3041 |
$ |
0.1449 |
$ |
0.1449 |
|||||||||||||
(a) On June 10, 2025, pursuant to the Third Amended and Restated Declaration of Trust of the Company, the Company renamed the Class ER Common Shares as Class ER-I Common Shares.
The Trustee approved the DRIP. The following table lists the Common Shares issued and total distributions reinvested under the DRIP during the nine months ended September 30, 2026 and 2025:
|
Nine months ended September 30, 2026 |
Nine months ended September 30, 2025 |
||||||||||||||||
|
Common Shares |
Total |
Common Shares |
Total |
||||||||||||||
|
Share Class |
Issued |
Reinvestment |
Issued |
Reinvestment |
|||||||||||||
|
Class I |
76,389 |
(a) |
$ |
2,081,000 |
(a) |
73,188 |
(c) |
$ |
1,979,000 |
(c) |
|||||||
|
Class A |
66,077 |
(b) |
1,801,000 |
(b) |
63,627 |
1,720,000 |
|||||||||||
|
Class S |
- |
- |
- |
- |
|||||||||||||
|
Class D |
2,012 |
54,000 |
- |
- |
|||||||||||||
|
Total |
144,478 |
$ |
3,936,000 |
136,815 |
$ |
3,699,000 |
|||||||||||
(a) Includes the issuance of 23,621 Class I Common Shares totaling $644,000 in connection with OP Unitholder and Class ER-I Common Share distributions being reinvested back into the Company's Class I Common Shares based on OP Unitholders' or Class ER-I Common Shareholders' election.
(b) Includes the issuance of 4,737 Class A Common Shares totaling $129,000 in connection with Class ER-A Common Share distributions being reinvested back into the Company's Class A Common Shares based on Class ER-A Common Shareholders' election.
(c) Includes the issuance of 24,196 Class I Common Shares totaling $654,000 in connection with OP Unitholder and Class ER-I Common Share distributions being reinvested back into the Company's Class I Common Shares based on OP Unitholders' or Class ER-I Common Shareholders' election.
The following table details the sources of our cash distributions during the nine months ended September 30, 2026 and 2025:
|
Nine Months Ended September 30, |
||||||||
|
2026 |
2025 |
|||||||
|
Cash Distributions |
||||||||
|
Common Shares |
$ |
18,764,000 |
$ |
18,332,000 |
||||
|
Noncontrolling interests |
14,413,000 |
11,374,000 |
||||||
|
Total cash distributions |
$ |
33,177,000 |
$ |
29,706,000 |
||||
|
Sources of Distributions |
||||||||
|
Cash flows from operating activities (a) |
$ |
33,177,000 |
$ |
29,706,000 |
||||
|
Cash flows from operating activities |
$ |
40,542,000 |
$ |
32,734,000 |
||||
|
Funds from Operations ("FFO") (b) |
$ |
35,405,000 |
$ |
31,644,000 |
||||
|
Adjusted FFO (b) |
$ |
38,269,000 |
$ |
33,506,000 |
||||
(a)
As of September 30, 2026, the Company's cumulative inception-to-date cash flows from operating activities funded 100% of the Company's cumulative inception-to-date cash distributions.
(b)
A reconciliation of net (loss) income attributable to common shareholders' to FFO and Adjusted FFO (both non-GAAP measures) for the nine months ended September 30, 2026 and 2025, respectively, is provided below.
Contractual Obligations
The following table sets forth the Company's significant debt repayments, interest payments, and operating lease obligations at September 30, 2026:
|
Mortgage loans |
Delayed draw |
Interest |
Operating ground |
|||||||||||||||||
|
Year |
payable |
term loan facility |
payments (a) |
lease obligation |
Total |
|||||||||||||||
|
Remainder of 2026 |
$ |
28,110,000 |
$ |
- |
$ |
11,759,000 |
$ |
71,000 |
$ |
39,940,000 |
||||||||||
|
2027 |
134,223,000 |
- |
43,735,000 |
285,000 |
178,243,000 |
|||||||||||||||
|
2028 |
272,479,000 |
- |
29,772,000 |
285,000 |
302,536,000 |
|||||||||||||||
|
2029 |
197,506,000 |
295,538,000 |
8,589,000 |
285,000 |
501,918,000 |
|||||||||||||||
|
2030 |
- |
- |
1,296,000 |
287,000 |
1,583,000 |
|||||||||||||||
|
Thereafter |
37,564,000 |
- |
- |
28,173,000 |
65,737,000 |
|||||||||||||||
|
Total |
$ |
669,882,000 |
$ |
295,538,000 |
$ |
95,151,000 |
$ |
29,386,000 |
$ |
1,089,957,000 |
||||||||||
(a)
The interest rates used in this calculation are the rates in effect for all debt obligations as of September 30, 2026.
Related and Affiliated Party Transactions and Agreements
The Company has entered into agreements with ExchangeRight and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, ExchangeRight or its affiliates for acquisition fees and actual incurred out-of-pocket expenses, but specifically excluding reimbursement related to employee compensation. The Company is also subject to a fee arrangement with ExchangeRight and its affiliates for organization and offering costs and asset and property management fees.
ExchangeRight incurs certain organization and offering costs in connection with the Company's current private securities offering of its common shares and the organization of the Company. These costs include, but are not limited to, fees related to special purpose entity formation, legal and accounting fees, valuation fees related to any expansion of the offering, marketing expenses and other costs and expenses directly related to the offering and organization of the Company. All of these
expenses are paid by ExchangeRight or its affiliates. ExchangeRight earns a percentage of the gross proceeds from the offering which is expected to offset the organizational and offering costs incurred described above. This amount is equal to 1.00% of the net transaction price of sales of common shares. Offering costs of $0.1 million and $0.3 million were included in total equity for the three and nine months ended September 30, 2026, for which the Company was obligated to reimburse ExchangeRight.
The Operating Partnership has entered into guaranty agreements with certain DSTs of which ExchangeRight serves as the master lessee via a master lease agreement. In these guaranty agreements, the Operating Partnership is the guarantor on the master lease agreements entered into between these DSTs and ExchangeRight as the master lessee. The guaranties are for the full term of the master leases, which range from 15 and 20 years. Under these guaranties, the Operating Partnership guarantees the payment of all obligations and liabilities of the master lessee as outlined in the respective master lease agreements. As of September 30, 2026, the maximum remaining contractual payments under these lease agreements totaled $1,672.7 million, although the master lease rental obligation will be terminated or eliminated in consolidation upon a sale or merger of the DST. The Company has not been obligated to make any payments under these guaranties as of September 30, 2026.
In consideration for entering into each of these guaranties, the Operating Partnership will receive quarterly payments of $2,500 for each guaranty while the master lease is outstanding and the guaranty is in effect at any point during the quarter. The Company earned $0.1 million and $30,000 under these guaranties during the three months ended September 30, 2026 and 2025, respectively, and $0.2 million and $0.1 million under these guaranties during the nine months ended September 30, 2026 and 2025, respectively, which was included in other income on the condensed consolidated statements of operations and comprehensive (loss) income. Furthermore, as potential additional consideration under the guaranty agreements, the Operating Partnership is entitled to 25% to 50% of the net disposition fee earned by ExchangeRight (as defined in the agreement) if the DST for which the Operating Partnership is providing the guaranty is sold. The Company recorded a noncontingent guaranty receivable related to the full payment of the guaranty fees of $5.7 million as of September 30, 2026, which is included in due from affiliates on the condensed consolidated balance sheet and an offsetting noncontingent guaranty liability, which is included in accounts payable, accrued expenses and other liabilities on the condensed consolidated balance sheet.
Off-Balance Sheet Arrangements
The Operating Partnership has entered into guaranty agreements with certain DSTs of which ExchangeRight serves as the master lessee via a master lease agreement. In these guaranty agreements, the Operating Partnership is the guarantor on the master lease agreements entered into between these DSTs and ExchangeRight as the master lessee. The guaranties are for the full term of the master leases, which are for 15 and 20 years, respectively. Under these guaranties, the Operating Partnership guarantees the payment of all obligations and liabilities of the master lessee as outlined in the respective master lease agreements. As of September 30, 2026, the maximum remaining contractual payments under these lease agreements totaled $1,672.7 million, although the master lease rental obligation will be terminated or eliminated in consolidation upon a sale or merger of the DST. The Company has not been obligated to make any payments under these guaranties as of September 30, 2026.
Other than these guaranties and the items disclosed in the Contractual Obligations section above, the Company had no off-balance sheet arrangements as of September 30, 2026 that are reasonably likely to have a current or future material effect on the Company's financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The Company's most critical accounting policies are summarized below. Other accounting policies are summarized in Note 2, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements as of and for the year ended December 31, 2025 included in the Company's Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on February 26, 2026. There have been no material changes in such critical accounting policies during the nine months ended September 30, 2026.
Principles of Consolidation
The unaudited interim condensed consolidated financial statements include the accounts of the Company, the Operating Partnership, its subsidiaries and any single member limited liability companies or other entities which are consolidated in accordance with GAAP.
Generally, a variable interest entities ("VIEs") is an entity with one or more of the following characteristics: (1) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (2) as a group, the holders of the equity investment at risk (a) lack the power through voting or similar rights to make
decisions about the entity's activities that significantly impact the entity's performance, (b) have no obligation to absorb the expected losses of the entity, or (c) have no right to receive the expected residual returns of the entity, or (3) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately fewer voting rights.
A VIE is required to be consolidated by its primary beneficiary. The primary beneficiary of a VIE has (1) the power to direct the activities that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be significant to the VIE. Significant judgments related to these determinations include estimates about the current values, performance of real estate held by these VIEs, and general market conditions.
The consolidated financial statements include the accounts of the Company, the Operating Partnership and its subsidiaries, all of which are consolidated in accordance with GAAP. The Operating Partnership meets the criteria of a VIE as its limited partners, as a group, lack the power to make decisions about the activities that significantly impact the performance of the Operating Partnership. ExchangeRight, its related party group, and the Company, as a whole, have the characteristics of the primary beneficiary as they collectively have the power and benefits of the Operating Partnership. Substantially all of the Company's business is conducted through the Operating Partnership. The Company does not have any significant operations or, apart from our interest in the Operating Partnership, any significant assets. As such, the Operating Partnership is consolidated in the Company's consolidated financial statements. The assets and liabilities of the Operating Partnership are reflected in the total assets and liabilities of the Company on the consolidated balance sheet as the Operating Partnership's assets can only be used to settle the obligations of the Operating Partnership.
Use of Estimates
The preparation of the unaudited interim condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited interim condensed consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company's most significant assumptions and estimates relate to the useful lives of real estate assets, lease accounting, real estate impairment assessments and allocation of fair value of purchase consideration. These estimates are based on historical experience and other assumptions which management believes are reasonable. The Company evaluates its estimates on an ongoing basis and makes revisions to these estimates and related disclosures as experience develops or new information becomes known. Actual results could differ from those estimates.
Investment in Real Estate
Real estate assets are stated at cost, less accumulated depreciation and amortization. Assets are recognized at fair value at acquisition date.
The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business and therefore accounted for as a business combination or if the acquisition transaction should be accounted for as an asset acquisition. Under Accounting Standards Update ("ASU") 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business" ("ASU 2017-01"), an acquisition does not qualify as a business when substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that qualify as asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.
The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, buildings, site improvements and tenant improvements. Intangible assets include the value of in-place leases and above-market leases and intangible liabilities include below-market leases. The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to the tangible assets based on the relative fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions as well as costs to execute similar leases based on the specific characteristics of each tenant's lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including tenant improvements, leasing commissions, legal and other related expenses.
The values of acquired above-market and below-market leases are recorded based on the present values (using discount rates which reflect the risks associated with the leases acquired) of the differences between the contractual amounts to be received and management's estimate of market lease rates, measured over the terms of the respective leases that management deemed appropriate at the time of the acquisitions. Such valuations include consideration of the noncancelable terms of the respective leases as well as any applicable renewal periods. The fair values associated with below-market rental renewal options are determined based on the Company's experience and the relevant facts and circumstances that existed at the time of the acquisitions. The values of the above-market and below-market leases are amortized over the term of the respective leases, including certain renewal options (as applicable), as an adjustment to rental revenue on the Company's consolidated statements of operations and comprehensive (loss) income. The value of other intangible assets (including leasing commissions, tenant improvements, etc.) is amortized to expense over the applicable terms of the respective leases. If a lease were to be terminated prior to its stated expiration or not renewed, all unamortized amounts relating to that lease would be recognized in operations at that time. In making estimates of fair values for purposes of allocating purchase price, the Company utilizes a number of sources and also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate; e.g., location, size, demographics, value and comparative rental rates; tenant credit profile and the importance of the location of the real estate to the operations of the tenant's business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the relative fair value of the tangible and intangible assets and liabilities acquired. The Company's methodology for measuring and allocating the fair value of real estate acquisitions includes both observable market data (categorized as level 2 on the three-level valuation hierarchy of Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement), and unobservable inputs that reflect the Company's own internal assumptions (categorized as level 3 under ASC Topic 820). Given the significance of the unobservable inputs the Company believes the allocations of fair value of real estate acquisitions should be categorized as level 3 under ASC Topic 820.
Management reviews each real estate investment for impairment whenever events or circumstances indicate that the carrying value of a real estate investment may not be recoverable. The review of recoverability of real estate investments held for use is based on an estimate of the future cash flows that are expected to result from the real estate investment's use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, capital expenditures, competition and other factors. If an impairment event exists due to the projected inability to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds estimated fair value.
Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. The Company considers the period of future benefit of each respective asset to determine its appropriate useful life. The estimated useful lives of the Company's real estate assets by class are generally as follows:
|
Description |
Depreciable life |
|
|
Buildings |
39 years |
|
|
Building and site improvements |
Ranging from 5 to 28 years |
|
|
Tenant improvements |
Shorter of the term of the related lease or useful life |
|
|
Intangible lease assets and liabilities |
Term of the related lease |
Expenditures for improvements that substantially extend the useful lives of the assets are capitalized. Expenditures for maintenance, repairs, and betterments that do not substantially prolong the normal useful life of an asset are expensed as incurred.
Revenue Recognition and Receivables
Management has determined that predominantly all of the Company's leases with its various tenants are operating leases. The Company recognizes minimum rent, including rental abatements, lease incentives, and contractual fixed increases attributable to operating leases on a straight-line basis over the term of the related leases when collectability is reasonably assured and records amounts expected to be received in later years as deferred rent receivable. Deferred rent receivable represents rent earned in excess of rent received as a result of straight-lining rents over the terms of the leases, in accordance with the guidance and is included in receivables on the accompanying condensed consolidated balance sheets. Deferred rent liability represents rent received in excess of rent earned as a result of straight-lining rents over the terms of the leases. The Company records property operating expense reimbursements due from tenants for common area maintenance, real estate taxes and other recoverable costs in the period the related expenses are incurred.
A limited number of operating leases contain contingent rent provisions under which tenants are required to pay, as additional rent, a percentage of their sales in excess of a specified amount. The Company defers recognition of contingent rental income until those specified sales targets are met. Revenues also may include items such as lease termination fees, which tend to fluctuate more than rents from year to year. Termination fees are fees that the Company has agreed to accept in consideration for permitting certain tenants to terminate their lease prior to the contractual expiration. The Company recognizes lease termination income when the following conditions are met: (1) the lease termination agreement has been executed, (2) the lease termination fee is determinable, (3) all the Company's landlord services pursuant to the terminated lease have been rendered, and (4) collectability of the lease termination fee is assured.
If the lease provides for tenant improvements, the Company determines whether the tenant improvements, for accounting purposes, are owned by the tenant or by the Company. When the Company is the owner of the tenant improvements, the tenant is typically not considered to have taken physical possession or have control of the physical use of the leased asset until the tenant improvements are substantially completed.
When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Tenant improvement ownership is determined based on various factors including, but not limited to:
•
whether the lease stipulates how a tenant improvement allowance may be spent;
•
whether the amount of a tenant improvement allowance is in excess of market rates;
•
whether the tenant or landlord retains legal title to the improvements at the end of the lease term;
•
whether the tenant improvements are unique to the tenant or general-purpose in nature; and
•
whether the tenant improvements are expected to have any residual value at the end of the lease.
Noncontrolling Interests
The Company presents noncontrolling interests, which represents OP Units, and classifies such interests as a component of equity, separate from the Company's shareholders' equity. Noncontrolling interests were created as part of contribution and merger agreements with former 1031-exchangeable portfolios that were previously managed by ExchangeRight on behalf of investors and recognized at fair value as of the date of the transaction.
Income Taxes
The Company has elected and is qualified to be taxed as a REIT, as it complies with the related provisions under the Internal Revenue Code of 1986, as amended. Accordingly, the Company generally is not and will not be subject to U.S. federal income tax to the extent of its distributions to shareholders and as long as certain asset, income and share ownership tests are met. To qualify as a REIT, the Company must annually distribute at least 90% of its REIT taxable income to its shareholders and meet certain other requirements. Under certain circumstances, federal income and excise taxes may be due on its undistributed taxable income. The Company may also be subject to certain state, local and franchise taxes. If the Company fails to meet these requirements, it will be subject to U.S. federal income tax, which could have a material adverse impact on its results of operations and amounts available for distributions to its shareholders. Application of tax laws and regulations to various types of transactions is susceptible to varying interpretations. Therefore, amounts reported in the consolidated financial statements could be changed at a later date upon examination and final determination by the taxing authorities. No such examinations by taxing authorities are presently in process.
The Company provides for uncertain tax positions based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. Management is required to determine whether a tax position is more likely than not to be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Because assumptions are used in determining whether a tax benefit is more likely than not to be sustained upon examination by tax authorities, actual results may differ from the Company's estimates under different assumptions or conditions.
Inflation
During the nine months ended September 30, 2026, uncertainty in the global macroeconomic environment continued, driven by the conflict with Iran and the resulting general geopolitical instability in the Middle East, the effect these geopolitical conflicts and events have had on energy and commodity prices, inflationary expectations, and interest rates, continued elevated interest rate levels in certain sectors (including mortgage rates), and uneven global economic growth. While overall inflation rates
moderated on a year-over-year basis during 2024 and 2025, consumer and producer inflation rates began to rise once again in March through May 2026, with the consumer price index peaking at 4.2% on a year-over-year basis, driven principally by increasing energy prices. During the third quarter of 2026, the CPI fell to 3.7% on a year-over-year basis as of September 20, 2026, but persistently elevated energy prices continue to be the principal contributor to inflationary pressures, with energy prices rising 20.4% on a year-over-year basis as of September 30, 2026. This has resulted in debt yields and benchmark interest rate levels remaining at elevated levels during the third quarter of 2026, including the benchmark 10-year U.S. Treasury Note yield hovering around 5% and mortgage rates which remain at 15-year highs. In this regard, the Federal Reserve raised the federal funds rate 25 basis points to 4.0% in September 2026, with many market analysts expecting one additional 25 basis point increase before year-end. Current analyst expectations regarding the pace of future rate increases moderate markedly in 2027.
Substantially all of the Company's tenant leases contain provisions designed to partially mitigate the negative impact of inflation in the near term. Such lease provisions include clauses that require tenants to reimburse the Company for inflation-sensitive costs such as real estate taxes or insurance and many of the operating expenses it incurs. The Company has been able to mitigate a significant portion of interest rate increases in the current period as all of its mortgage debt is currently effectively fixed-rate financing as of September 30, 2026. The Company has borrowed $295.5 million under its DDTL Facility as of September 30, 2026, which is impacted by fluctuating interest rates as the interest on the DDTL Facility is not fixed long-term. Further inflation rate increases or elevated interest rates over a prolonged period of time may have a material adverse impact on the Company's business. It remains difficult to predict the full impact of recent events and any future changes in interest rates or inflation.
Non-GAAP Financial Measures
FFO and Adjusted FFO
FFO is a widely recognized supplemental non-GAAP measure utilized to evaluate the financial performance of a REIT. The Company presents FFO in accordance with the definition adopted by the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT generally defines FFO as net income (determined in accordance with GAAP), excluding gains (losses) from sales of real estate properties, impairment write-downs on real estate properties directly attributable to decreases in the value of depreciable real estate, plus real estate related depreciation and amortization, and adjustments for partnerships and joint ventures to reflect FFO on the same basis. The Company considers FFO to be an appropriate measure of its financial performance because it captures features particular to real estate performance by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than other depreciable assets.
The Company also considers Adjusted Funds From Operations ("Adjusted FFO") to be an additional meaningful financial measure of financial performance as it provides supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. The Company believes Adjusted FFO further assists in comparing the Company's performance across reporting periods on a consistent basis by excluding such items.
FFO and Adjusted FFO should be reviewed with net income (loss) attributable to common shareholders, the most directly comparable GAAP financial measure, when trying to understand the Company's operating performance. FFO and Adjusted FFO do not represent cash generated from operating activities and should not be considered as an alternative to net income (loss) income attributable to common shareholders or to cash flow from operating activities. The Company's computations of FFO and Adjusted FFO may differ from the computations utilized by other REITs and, accordingly, may not be comparable to such REITs.
A reconciliation of net (loss) income attributable to common shareholders to FFO and Adjusted FFO for the three and nine months ended September 30, 2026 and 2025, is as follows:
|
Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
|
2026 |
2025 |
2026 |
2025 |
|||||||||||||
|
Net (loss) income attributable to common shareholders |
$ |
(2,417,000 |
) |
$ |
(289,000 |
) |
$ |
(4,777,000 |
) |
$ |
2,323,000 |
|||||
|
Depreciation and amortization |
16,635,000 |
11,114,000 |
41,062,000 |
33,224,000 |
||||||||||||
|
Loss (gain) on sales of real estate, net |
902,000 |
- |
902,000 |
(5,184,000 |
) |
|||||||||||
|
Provisions for impairment |
- |
- |
1,890,000 |
- |
||||||||||||
|
Net loss (income) attributable to noncontrolling interests |
(2,151,000 |
) |
(154,000 |
) |
(3,672,000 |
) |
1,281,000 |
|||||||||
|
FFO applicable to diluted common shares (a) |
12,969,000 |
10,671,000 |
35,405,000 |
31,644,000 |
||||||||||||
|
Adjustments: |
||||||||||||||||
|
Straight-line rent adjustments |
(246,000 |
) |
(218,000 |
) |
(739,000 |
) |
(653,000 |
) |
||||||||
|
Above/below market lease amortization, net |
(697,000 |
) |
(635,000 |
) |
(1,892,000 |
) |
(1,871,000 |
) |
||||||||
|
Amortization of deferred financing costs |
475,000 |
197,000 |
1,011,000 |
527,000 |
||||||||||||
|
Above/below market debt amortization, net |
1,751,000 |
1,146,000 |
4,276,000 |
3,650,000 |
||||||||||||
|
Straight-line ground rent adjustments |
40,000 |
40,000 |
121,000 |
121,000 |
||||||||||||
|
Amortization of tax incentive financing arrangement |
28,000 |
29,000 |
87,000 |
88,000 |
||||||||||||
|
Adjusted FFO applicable to diluted common shares (a) |
$ |
14,320,000 |
$ |
11,230,000 |
$ |
38,269,000 |
$ |
33,506,000 |
||||||||
|
FFO per diluted common shares |
$ |
0.37 |
$ |
0.41 |
$ |
1.17 |
$ |
1.23 |
||||||||
|
Adjusted FFO per diluted common shares |
$ |
0.41 |
$ |
0.43 |
$ |
1.27 |
$ |
1.30 |
||||||||
|
Weighted average number of diluted common shares (a): |
||||||||||||||||
|
Common shares |
17,265,206 |
16,621,322 |
17,086,441 |
16,586,493 |
||||||||||||
|
OP Units |
17,435,223 |
9,257,142 |
13,137,550 |
9,152,395 |
||||||||||||
|
34,700,429 |
25,878,464 |
30,223,992 |
25,738,888 |
|||||||||||||
(a)
FFO applicable to diluted common shares and Adjusted FFO applicable to diluted common shares includes FFO and Adjusted FFO for the three and nine months ended September 30, 2026 that is attributable to Class NLP OP Units as income (losses) attributable to noncontrolling interest associated with the Operating Partnership as income (losses) is allocated proportionately amongst all classes. Weighted average number of diluted common shares used to compute FFO and Adjusted FFO applicable to diluted common shares includes 8,264,695 and 3,935,292 Class NLP OP Units for the three and nine months ended September 30, 2026, respectively, which are excluded from the computation of net (loss) income per common share attributable to common shareholders for the three and nine months ended September 30, 2026 as they do not have any current rights to convert their units into units of any other class or series of units of, or any other securities or partnership interests in, the Company. There were no Class NLP OP Units issued or outstanding during the three and nine months ended September 30, 2025 and thus had no effect on FFO, Adjusted FFO and weighted average number of diluted common shares for those periods.
Net Asset Value
The Company calculates NAV per share in accordance with the valuation guidelines that have been approved by our Trustee. Our Trustee has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our NAV. To calculate our NAV for the purpose of establishing a purchase and redemption price for our shares, our Trustee has adopted a model which adjusts the value of certain of our investments in real estate assets from historical cost to fair value. Our Trustee oversees the process of determining our estimated NAV per share, which includes considering estimated values of our commercial real estate assets and investments, including related liabilities, based upon, in certain instances, reports of the discounted cash flows generated by the underlying real estate provided by an independent valuation firm. The Trustee, upon its receipt and review of such valuation report, will determine a reasonable range for our estimated NAV per share and an estimated NAV per share. The independent valuation firm is not responsible for, and does not prepare, our NAV per share. The final determination of our NAV per share is made by our Trustee. The estimated NAV per share will represent approximately the mid-point of the range of values reflecting the effect of using different discount rates and terminal capitalization rates in the sensitivity analysis. Such NAV may be declared prior to the finalization, and ultimate issuance, of our quarterly or annual financial statements which may result in an immaterial variance in the declared NAV per share to the final reconciliation of NAV per share after the review and issuance of such financial statements
is completed. If any such variance was ever determined to be material, our Trustee would declare a revised NAV per share for the quarter. Our Trustee has used the mid-point of the independent valuation firm's real estate value range in setting the NAV per share since our formation.
We will cause our real property portfolio to be valued quarterly by an independent valuation firm, which will apply the fair value methodologies detailed within the Financial Accounting Standards Board ASC Topic 820, Fair Value Measurements and Disclosures. An independent valuation firm will review information provided by our Trustee regarding the properties we own as of the end of the quarter including location, building size, tenancy, lease rates, lease term and various other relevant metrics. The independent valuation firm will also research and analyze market data and valuation benchmarks in connection with each quarterly valuation. The independent valuation firm will utilize the income approach (i.e., discounted cash flow) to value and may perform the following actions in connection with its quarterly valuations:
•
Hold interviews with the employees of our Trustee regarding historical valuation methodology, expertise of the portfolio, and industry expertise;
•
Independently research comparable portfolio transactions and individual property transactions;
•
Review third-party market reports; and
•
Independently review tenant leases for the subject properties.
In performing each quarterly valuation, our Trustee will provide the independent valuation firm with certain data, including but not limited to the following:
•
Real property listing: a master list of all leased properties including all relevant details of each such property including location, lease terms, and other relevant factors.
•
Leases and lease amendments: the lease files provide data such as property type, address, lease terms and rent details for the leased real property.
•
Estoppels and move-in notices: the documents utilized to verify commencement of leases for build-to-suit properties.
•
Property surveys: the documents that verify the size of each leased premise.
The Company's total NAV presented in the following tables includes the NAV of our Class I, Class A, Class S and Class D Common Shares, as well as the OP Units as of September 30, 2026 and December 31, 2025, respectively, and per share/unit is identical for Class I, Class A, Class S and Class D Common Shares and OP Units. The following table provides a breakdown of the major components of the Company's NAV as of September 30, 2026 and December 31, 2025:
|
Components |
September 30, 2026 |
December 31, 2025 |
||||||
|
Investments in real estate |
$ |
1,873,150,000 |
$ |
1,334,550,000 |
||||
|
RSLCA notes receivable from affiliates |
25,619,000 |
21,007,000 |
||||||
|
Notes receivable from affiliates |
21,400,000 |
21,400,000 |
||||||
|
Restricted cash |
17,569,000 |
10,835,000 |
||||||
|
Cash and cash equivalents |
13,852,000 |
10,664,000 |
||||||
|
Receivables |
8,244,000 |
6,118,000 |
||||||
|
Other assets |
2,131,000 |
1,237,000 |
||||||
|
Mortgage loans payable |
(654,869,000 |
) |
(514,758,000 |
) |
||||
|
Term loan |
(291,513,000 |
) |
- |
|||||
|
Revolving credit facility |
- |
(157,403,000 |
) |
|||||
|
Accounts payable, accrued expenses and other liabilities |
(14,208,000 |
) |
(9,853,000 |
) |
||||
|
Distributions payable |
(4,902,000 |
) |
(3,777,000 |
) |
||||
|
Pending trade deposits |
(829,000 |
) |
(1,505,000 |
) |
||||
|
Due to affiliates, net |
(1,646,000 |
) |
(180,000 |
) |
||||
|
NAV |
$ |
993,998,000 |
$ |
718,335,000 |
||||
|
Class I Common Shares |
5,709,656 |
5,759,806 |
||||||
|
Class A Common Shares |
9,918,759 |
9,994,066 |
||||||
|
Class S Common Shares |
- |
- |
||||||
|
Class D Common Shares |
296,458 |
68,911 |
||||||
|
Class ER-I Common Shares |
939,251 |
843,290 |
||||||
|
Class ER-A Common Shares |
431,693 |
190,511 |
||||||
|
Class ER-S Common Shares |
- |
- |
||||||
|
Class ER-D Common Shares |
46,931 |
39,991 |
||||||
|
OP Units |
18,514,768 |
9,260,279 |
||||||
|
Total outstanding Common Shares/OP Units |
35,857,516 |
26,156,854 |
||||||
|
NAV per share/unit |
$ |
27.72 |
$ |
27.46 |
||||
The following table reconciles shareholders' equity per the Company's condensed consolidated balance sheet to the Company's NAV as of September 30, 2026 and December 31, 2025:
|
Reconciliation of Shareholders' Equity to NAV |
September 30, 2026 |
December 31, 2025 |
||||||
|
Total shareholders' equity |
$ |
313,474,000 |
$ |
327,981,000 |
||||
|
Noncontrolling interests in operating partnership |
413,794,000 |
192,813,000 |
||||||
|
Total equity per GAAP |
727,268,000 |
520,794,000 |
||||||
|
Adjustment: |
||||||||
|
Fair value adjustment of real estate investments |
266,730,000 |
197,541,000 |
||||||
|
NAV |
$ |
993,998,000 |
$ |
718,335,000 |
||||
The Company's investments in real estate are presented under historical cost in our consolidated financial statements. As such, any increases or decreases in the fair market value of the Company's investments in real estate are not recorded in the Company's GAAP results other than in the event of an impairment or upon a sale. The Company's mortgage loans payable, DDTL Facility, and Revolving Credit Facility are valued at GAAP carrying value in the Company's NAV calculation for any financings that are anticipated to be held to maturity. In addition, because the Company plans to utilize interest rate hedges to stabilize interest payments (i.e. to fix all-in interest rates through interest rate swaps or to limit interest rate exposure through interest rate caps) on individual loans and intends to hold each interest rate hedge until maturity, each interest rate hedge will be valued at par and thus its market value in accordance with GAAP will be excluded from the calculation of NAV. The Company entered into an interest rate swap agreement concurrent with the closing of the $26.9 million mortgage entered into in February 2023. At September 30, 2026, $159,000 is included in other assets relating to the fair value of this interest rate swap agreement, which was not included for the calculation of NAV.
While the Company believes that the independent valuation firm's assumptions and inputs are reasonable, a change in these assumptions and inputs may significantly impact the fair value of the real estate properties and the Company's estimated NAV per share. For purposes of determining the Company's NAV, the Company's investments in real estate as of (1) September 30, 2026 are recorded at fair value using a weighted average discount rate of 6.35% with a range of 6.25% to 6.45% and weighted average exit capitalization rate of 5.75% with a range of 5.65% to 5.85% and (2) December 31, 2025 are recorded at fair value
using a weighted average discount rate of 6.40% with a range of 6.30% to 6.50% and weighted average exit capitalization rate of 5.75% with a range of 5.65% to 5.85%. Assuming all other factors remain unchanged, the tables below present the estimated increase or decrease to the Company's September 30, 2026 and December 31, 2025 NAV for the changes in the weighted average discount and exit capitalization rate.
|
NAV per share/unit |
||||||||||
|
Input |
Hypothetical change |
September 30, 2026 |
December 31, 2025 |
|||||||
|
Discount rate (weighted average) |
25 bps decrease |
$ |
28.71 |
$ |
28.42 |
|||||
|
Discount rate (weighted average) |
25 bps increase |
$ |
26.75 |
$ |
26.50 |
|||||
|
Exit capitalization rate (weighted average) |
25 bps decrease |
$ |
29.10 |
$ |
28.80 |
|||||
|
Exit capitalization rate (weighted average) |
25 bps increase |
$ |
26.44 |
$ |
26.20 |
|||||
Exchangeright Income Fund published this content on October 29, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on October 29, 2026 at 18:01 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]