Item
1. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes appearing at the end of this Semiannual Report. This discussion and analysis contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed in the section entitled “Risk Factors” as disclosed herein and in our Offering
Circular, as amended or supplemented from time to time, which may be accessed here and may be updated from time to time by our future filings under Regulation A. The accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows as of June 30, 2023 and for the six months ended June 30, 2023 and June 30, 2022 are unaudited and have not been reviewed by an external auditor.
Overview
Jamestown
Invest 1, LLC is a Delaware limited liability company formed to acquire and manage a portfolio consisting of real estate investments in urban infill locations in the path of anticipated growth. Possible asset classes could include mixed or single-use properties incorporating office, retail, multifamily, for-sale residential, parking, unimproved land, warehouse/flex, or hotels in the Atlanta, Georgia Metropolitan Statistical Area as well as other MSAs primarily in the Southeast such as Raleigh, North Carolina and Charleston, South Carolina. We may also invest in other major MSAs across the United States, which would generally have populations equal to or greater than 500,000 residents. We are externally managed by Jamestown Invest Manager, L.P. (our "Manager"), a wholly-owned subsidiary of Jamestown, L.P. (“Jamestown”), our sponsor, which operates an online investment portal at www.jamestowninvest.com.
We
had previously offered up to $46,033,490 in our common shares in our Offering Circular dated September 24, 2021, which offering was terminated by the Company effective July 12, 2022. Prior to our offering statement being declared “qualified” by the SEC, we sold 550,100 of our common shares at the initial per share price of $10.00 per share, including approximately 86,550 common shares purchased by our sponsor, in a private placement. As of June 30, 2023 and as of the date of this Semiannual Report, the Company has raised approximately $11,217,110 in capital (in addition to the $5,501,000 in private placement).
Our
Investments
On March 12, 2020, the Company purchased a 51% controlling interest in JT Invest 1 Dairies, LLC (the “Dairies JV”) from Jamestown, our sponsor, for total consideration of $7,279,065. The Dairies JV owns a five-building office campus located in Atlanta, Georgia known as Southern Dairies. Southern Dairies has 83,000 rentable square feet and as of the date of this report, is 90.3% leased to 11 tenants with a weighted average remaining lease term of 6.8 years. See "Investment Objectives and Strategy - Acquired Investments" in our Offering
Circular for more information.
On August 18, 2021, Jamestown, L.P. sold its 49% membership interest in JT Invest 1 Dairies, LLC (the “Dairies JV”) to JT Altera Dairies, L.P., a joint venture between a Jamestown, L.P. subsidiary and Altera Southern Dairies PA, LLC. The transaction was reviewed and approved by an independent representative prior to the closing. Jamestown, L.P. maintains a sponsor co-investment of 200,000 shares in Jamestown Invest 1, LLC, which owns the 51% controlling position in JT Invest 1 Dairies, LLC.
Liquidity and Capital Resources
Proceeds from common shares sold in the Offering were primarily used for property acquisitions and capital expenditures.
We
may selectively employ leverage to enhance total returns to our shareholders through a combination of senior financing and other financing transactions. Our target leverage at stabilization is 60% at the fund level and may be up to 70% on an individual investment calculated as a percentage of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. We seek to secure conservatively structured leverage that is long term and non-recourse to the extent obtainable on a cost-effective basis. Our Manager may from time to time modify our leverage policy in its discretion. We cannot exceed the leverage limit of our leverage policy unless any excess in borrowing over such level is approved by our Manager’s Investment Committee.
The success of our business is significantly related to general economic conditions and, accordingly, our business could be harmed by an economic slowdown
and downturn in real estate asset values, property sales and leasing activities. During an economic downturn, it may also take longer for us to dispose of real estate investments or the selling prices may be lower than originally anticipated. As a result, the carrying value of our real estate investments may become impaired and we could record losses with respect to such impairment or we could experience reduced profitability. Further, our exposure to adverse general economic conditions is heightened by our use of leverage.
All of the conditions described above could materially and adversely impact our business performance and profitability, which could result in our failure to make distributions to our investors and decrease the value of an investment in us. In addition, in an extreme deterioration of economic conditions, we could have insufficient liquidity to meet our debt service
obligations when they come due in
1
future years. If we fail to meet our payment or other obligations under our loan agreements, the lenders under such agreements will be entitled to proceed against the collateral securing such debts.
Distributions
The Manager has declared quarterly cash distributions of $0.075 per share for shareholders of record as of the close of business on March 31, 2021, June 30, 2021, and on September
30, 2021. Beginning December 30, 2021, the Manager declared quarterly dividends of $0.150 per share for shareholders of record as of the close of business each quarter through June 30, 2023. We expect that dividends declared by our Manager will be made on a quarterly basis, or less frequently as determined by our Manager. Any future distributions by the Company will be at the discretion of our Manager, and will be based on, among other factors, our present and reasonably projected future cash flow.
Redemption Plan
We have adopted a redemption plan whereby, on a quarterly basis,
a shareholder may obtain liquidity as described in detail in our Offering Circular, which may be accessed here. Our Manager may in its sole discretion, amend, suspend, or terminate the redemption plan at any time without notice for any reason, including to protect our operations and our non-redeemed shareholders, to prevent an undue burden on our liquidity, to preserve our status as a REIT, following any material decrease in our NAV, or for any other reason.
From inception through June 30, 2023, our Manager has approved redemption requests for an aggregate of 35,193 shares (an aggregate redemption amount of $414,926) for investors under
the redemption plan.
Between July 1, 2023 through the date of this Semiannual Report, we received redemption requests for approximately 6,425 common shares of which none have been fulfilled. As of September 29, 2023, the aggregate shares outstanding were 1,067,039 shares, for total offering proceeds of $10,802,184 (net of redemptions and including the 550,100 shares totaling $5,501,000 received in a private placement prior to the initial offering being declared effective).
We expect to primarily generate operating revenues and cash flows from the operations of our real estate investments. See Note 2, Summary of Significant Accounting Policies, in our consolidated financial statements for further detail.
Cash Flows from Operating Assets
As of June 30, 2023, the Company owned a 51% controlling interest in a joint venture
that owns a five-building office campus located in Atlanta, Georgia known as Southern Dairies.
For the six months ended June 30, 2023 and 2022, net cash provided by operating activities was $312,931 and $6,772, respectively. For the six months ended June 30, 2023 and 2022, net cash flow from operating activities increased primarily due to an increase in rental income and the timing of cash receipts and disbursements for the six months ended 2023 compared to the six months ended 2022 in addition to the change in the value of the interest rate swap.
Cash Flows from Investing
Activities
For the six months ended June 30, 2023 and 2022, net cash used in investing activities was $51,619 and $2,087,446, respectively. For the six months ended June 30, 2023 and 2022, net cash used in investing activities decreased due to leasing commissions and tenant improvements incurred for the six months ended 2022 compared to the six months ended 2023.
Cash Flows from Financing Activities
For the six months ended June 30, 2023 net cash used in financing activities
was $815,719 and for the six months ended June 30, 2022, net cash provided by financing activities was $2,860,356. For the six months ended June 30, 2023 and 2022, net cash provided by financing activities decreased due to loan proceeds received for the six months ended 2022 compared to the six months ended 2023 and terminating fundraising in July 2022.
Based
on a comparison of the six months ended June 30, 2023 versus 2022, total revenues increased by $511,491 due to an increase in parking revenues and the reduction of rent abatements in 2023 compared to 2022, and operating expenses increased by $177,594. Nonoperating expenses increased by $874,109, which was primarily attributable to the change in the value of the mortgage loan payable for the six months ended 2023 compared to the six months ended 2022.
As of June 30, 2023 and 2022, we had no off-balance sheet arrangements.
Related
Party Arrangements
For further information regarding Related Party Arrangements, please see Note 6 in the accompanying consolidated financial statements below.
Recent Developments
Between July 1, 2023 through the date of this Semiannual Report, we received redemption requests for approximately 6,425 common shares of which none have been fulfilled.
As
of September 29, 2023, the aggregate shares outstanding were 1,067,039 shares, for total offering proceeds of $10,802,184 (including the 550,100 shares totaling $5,501,000 received in a private placement prior to the initial offering being declared effective).
Jamestown
Invest 1, LLC (the “Company”) was formed on August 3, 2018, as a Delaware Limited Liability Company and has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes. The Company was organized primarily to acquire and manage a portfolio consisting of real estate investments in urban infill locations in the path of anticipated growth, including mixed or single use properties, incorporating office, retail, multifamily, parking, unimproved land, warehouse/flex, or hotels in the Atlanta, Georgia major metropolitan area (“MSA”) as well as other MSAs primarily in the Southeast such as Raleigh, North Carolina and Charleston, South Carolina. The Company may make its investments through majority-owned
subsidiaries, minority interests or joint venture interests. Substantially all of the Company’s business is managed by Jamestown Invest Manager, L.P. (the “Manager”), a Delaware Limited Liability Company. The Company owns Jamestown Invest 1 OP, L.P. (the “Operating Partnership”), through which it acquires and holds the investments.
On October 24, 2019, the Company filed an offering statement on Form 1-A with the SEC with respect to an offering (the “Offering”) of up to $50,000,000 in common shares, for an initial
price of $10.00 per share.
A maximum of $50,000,000 in the Company’s common shares may be sold to the public in this Offering. The Manager has the authority to issue an unlimited number of common shares. The Company sold 550,100 common shares at the initial per share price of $10.00 in a private placement prior to this offering statement being qualified by the SEC. The Offering was qualified on November 26, 2019. Between November 27, 2019 and December 31, 2019, the Company sold 20,550 common shares at a price of $10.00
per share. Between January 1, 2020 and December 31, 2020, the Company sold 244,635 and 25,525 common shares at a price of $10.00 and $10.02 per share, respectively. Between January 1, 2021 and December 31, 2021, the Company sold approximately 76,800, 40,645, 61,163 and 25,604 common shares at a price of $10.00, $10.34, $10.35 and $10.71 per share, respectively. Between January 1, 2022 and December 31, 2022, the Company
sold approximately 7,305, 37,780 and 12,125 common shares at a price of $10.71, $12.36 and $13.84, respectively. Effective July 12, 2022, the Company stopped accepting new subscriptions.
Between January 1, 2021 and December 31, 2021, the Company redeemed 5,950 shares for a total of $59,644. Between January 1, 2022 and December 31, 2022, the Company redeemed 2,058 shares for a total of $27,234. Between January
1, 2023 and June 30, 2023, the Company redeemed 27,185 shares for a total of $328,048. In the aggregate, Jamestown, L.P. (the "Sponsor"), the owner of the Manager, purchased 200,000 common shares at $10.00 per share between October 2019 and February 2020 for an aggregate purchase price of $2,000,000.
On March 12, 2020, the Company purchased a 51% controlling interest in JT Invest 1 Dairies, LLC (the "Dairies JV") from the Sponsor for total consideration of $7,279,065. The Dairies JV owns a five-building office campus located in Atlanta, Georgia ("Southern Dairies").
2.Summary
of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying consolidated financial statements of the Company are prepared on the accrual basis of accounting in accordance with United States generally accepted accounting principles (GAAP).
The consolidated financial statements of the Company include the accounts of the Operating Partnership and its real estate partnerships for which it has control over the major operating and financing policies. All significant intercompany accounts and transactions among the Company and its subsidiaries
have been eliminated in consolidation.
Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on management’s best judgment. Actual results could materially differ from those estimates.
F-7
Real Estate Acquisition Valuations
In accordance with Accounting Standards
Codification Topic 805, Business Combinations (ASC 805), the Company records acquisitions that meet the definition of a business as a business combination. If the acquisition does not meet the definition of a business, the Company records the acquisition as an asset acquisition. Under a business combination, all assets acquired and liabilities assumed are measured based on their acquisition-date fair values. Under asset acquisitions, the costs of the assets acquired are allocated in proportion to their relative fair values on the date of acquisition. Transaction costs that are related to a business combination are charged to expense as incurred. Transaction costs that are related to an asset acquisition are capitalized as incurred.
The
Company assesses the acquisition date fair values of all tangible assets, identifiable intangibles, and assumed liabilities using methods similar to those used by independent appraisers, generally utilizing a discounted cash flow analysis that applies appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors, including historical operating results, known and anticipated trends, and market and economic conditions. The fair value of tangible assets of an acquired property considers the value of the property as if it were vacant.
The Company records above-market, below-market and in-place lease values for acquired properties based on the present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference
between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining noncancelable term of above-market in-place leases and for the initial term plus any extended term for any leases with below-market renewal options. The Company amortizes any recorded above-market or below-market lease values as a reduction or increase, respectively, to rental income over the remaining noncancelable terms of the respective lease, including any below-market renewal periods. Amortization related to below-market leases amounted to $119,779 and $144,467 for the six months ended June 30, 2023 and 2022, respectively and is included in rental income in the
accompanying consolidated financial statements.
The Company estimates the value of tenant origination and in-place lease costs by considering the estimated carrying costs during hypothetical expected lease-up periods, considering current market conditions. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease up periods.
The Company amortizes the value of deferred leasing costs and tenant origination and in-place lease costs, which includes lease commissions, legal costs and in-place leases, to depreciation
and amortization expense over the remaining noncancelable term of the respective lease. Amortization expense related to deferred leasing costs amounted to $46,601 and $55,189 for the six months ended June 30, 2023 and 2022, respectively and is included in depreciation and amortization in the accompanying consolidated financial statements. Amortization expense related to tenant origination and in-place lease costs amounted to $136,451 and $192,367 for the six months ended June 30, 2023 and 2022, respectively and is included in depreciation and amortization in the accompanying consolidated financial statements.
Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the
Company to make significant assumptions to estimate market lease rates, property-operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, and the number of years the property will be held for investment. The use of inappropriate assumptions would result in an incorrect valuation of the Company’s acquired tangible assets, identifiable intangibles and assumed liabilities, which would impact the amount of the Company’s net income (loss).
Depreciation
Depreciation of the buildings is computed on the straight-line method over an estimated useful life of 48 years. Depreciation of building improvements is computed on the straight-line method over an estimated useful
life ranging from 15 - 39 years. Site improvements are depreciated on the straight-line method over an estimated useful life ranging from 10 - 15 years. Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense amounted to $256,803 and $347,097 for the six months ended June 30, 2023 and 2022, respectively and is included in depreciation and amortization in the accompanying consolidated financial statements.
Impairment of Real Estate and Related Intangible Assets and Liabilities
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of real estate and related intangible
assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, management assesses whether the carrying value of the assets will be recovered through the future undiscounted operating cash flows expected from the use
F-8
of and eventual disposition of the property. If, based on the analysis, the Company does not believe that it will be able to recover the carrying value of the asset, the Company will record an impairment charge to the extent the carrying value exceeds
the estimated fair value of the asset. For the six months ended June 30, 2023 and 2022, the Company did not record any impairment charges related to its real estate investments.
Revenue Recognition and Expenses
The majority of the Company’s revenue is earned through the lease of rental space at its underlying properties. These revenues are accounted for as leases under Accounting Standards Codification Topic 842, Leases (ASC 842), which amended the guidance in the former Accounting Standards Codification Topic 840 (ASC 840). The
Company adopted ASC 842 effective January 1, 2022 under the modified retrospective approach and elected the optional transition method to apply the provisions of ASC 842 as of the adoption date, rather than the prior year presented. The Company also elected to use the practical expedient package, which allowed the Company not to reassess prior conclusions about lease identification, lease classification and initial direct costs.
The Company's primary source of revenue is income arising from lease agreements which may include base rent, parking rent or reimbursements from tenants for real estate taxes, insurance,
and other operating expenses. Base rent is recognized on a straight-line basis over the terms of the related leases. As of June 30, 2023 and December 31, 2022, straight-line rent receivable was $622,240 and $415,283, respectively. The Company recognizes the reimbursement of expenses from tenants as the related expenses are incurred. In addition, termination fees arising from contractual agreements with tenants are considered lease modifications. The Company recognizes the income upon execution of the agreement. Lease revenues are accounted for in accordance with ASC 842 and are included in rental income in the accompanying consolidated financial statements.
Interest
income is recognized on an accrual basis and recorded in the period in which it is earned.
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows
$
1,680,650
$
2,235,057
The
Company classifies short-term, highly liquid investments with original maturities of approximately 90 days or less and money market accounts as cash equivalents. The Company invests its cash primarily in deposits and money market funds with commercial banks. At times, cash balances may exceed federally insured amounts. Management believes it mitigates credit risk by depositing cash in and investing through major financial institutions.
Restricted cash consists of tenant security deposits.
Accounts Receivable - Allowance for Doubtful Accounts
In the normal course of business, the Company extends unsecured credit to its tenants. The
Company performs on-going credit evaluations of its tenants and maintains an allowance for doubtful accounts when considered necessary. Accounts receivable are generally due under normal trade terms requiring payment within 30 days from the invoice date. Unpaid accounts receivable do not bear interest.
Bad debts are provided using the allowance for doubtful accounts method based on historical experience and management’s evaluation of outstanding accounts receivable at the end of each year. Management's evaluation includes considerations of the anticipated outcomes for any accounts in dispute and whether it is deemed probable that substantially all of the receivable will be collected or otherwise the accounts receivable balance for the tenant is fully reserved. The allowance for doubtful accounts was $0 and $9,970 as of June 30, 2023 and December
31, 2022, respectively.
F-9
Fair Value Measurements
From time to time the Company may purchase interest rate caps, swaps or other financial instruments. Under GAAP, the Company is required to measure certain financial instruments at fair value on a recurring basis. In addition, the Company may be required to measure other non-financial and financial assets and liabilities at fair value on a non-recurring basis. Fair value is defined as the price that would be received
upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:
•Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
•Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
•Level 3 – Valuations based on inputs that are unobservable and significant to the overall
fair value measurement. Level 3 valuations incorporate certain assumptions and projections that are not observable in the market, and significant professional judgment is used in determining the fair value assigned to such assets and liabilities.
The availability of observable inputs can vary from instrument to instrument and is affected by a wide variety of factors, including the type of instrument, whether the instrument is new and not yet established in the marketplace, and other characteristics particular to the transaction. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
Fair value is a market‑based
measure considered from the perspective of a market participant rather than an entity‑specific measure. Therefore, even when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified between the levels. There were no reclassifications between levels in 2023.
Organization, Offering and Related Costs
Organization
and offering costs of the Company are being paid by the Manager. These organization and offering costs include all expenses in connection with the formation of the Company and the qualification of the Offering, and the marketing and distribution of shares, including, without limitation, expenses for printing, and amending offering statements or telecommunications costs, all advertising and marketing expenses, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees. The Company will not be obligated to reimburse the Manager, or its affiliates, as applicable,
for organization and offering costs paid by them on behalf of the Company.
Share Redemptions
The Company adopted a redemption plan, whereby on a quarterly basis, shareholders may request that the Company redeem not less than 25% of their shares. In addition, the redemption plan is subject to certain liquidity limitations, which may fluctuate depending on the liquidity of the real estate assets held.
For the first eighty-nine (89) days following the settlement of the common shares subject to the redemption request (the “Introductory Period”), the per share redemption price
will be equal to the purchase price of the shares being redeemed less the aggregate sum of distributions paid and declared but unpaid with respect to such shares, rounded down to the nearest cent.
Beginning on the ninetieth (90th) day following the settlement of the common shares subject to the redemption request (the “Post-Introductory Period”), the per share redemption price will be calculated based on a declining discount to the net asset value (the “NAV”) per share in effect at the time the redemption request is made without any reduction for distributions paid or declared and rounded down to the nearest cent.
F-10
Holding
Period from Date of Settlement
Effective Redemption Price (as percentage of NAV per share) Before Deduction of any Participation Allocation and Third-Party Costs (1)
Less than 90 days (Introductory Period)
100%
(2) (3)
90 days until 3 years
97%
3 years to 4 years
98%
4
years to 5 years
99%
More than 5 years
100%
(1)
The Effective Redemption Price will be rounded down to the nearest $0.01 and proceeds received by investors from any redemption will be further reduced by the Participation Allocation payable to the Manager in connection with such redemption (Note 6).
(2)
The per share
redemption price during the Introductory Period is calculated based upon the purchase price of the shares, not the per share price in effect at the time of the redemption request.
(3)
The Effective Redemption Price during the Introductory Period will be reduced by the aggregate sum of distributions paid or payable on such shares, the amount of which we are unable to calculate at this time.
Because the NAV per share is calculated at the end of each quarter the redemption price for shares held at least ninety (90) days may change between the date the redemption request is received and the date on which redemption proceeds are paid. As a result, the redemption price that a shareholder will receive may be different from the redemption price on the day the redemption request is made.
In
addition, the Manager may, in its sole discretion, amend, suspend, or terminate the redemption plan at any time without notice, including to protect the operations and the non-redeemed shareholders, to prevent an undue burden on liquidity, to preserve the status as a REIT, following any material decrease in the NAV, or for any other reason. However, in the event that the Manager amends, suspends or terminates the redemption plan, an offering circular supplement and/or Form 1-U, as appropriate, will be filed to disclose such amendment. The Manager may also, in its sole discretion, decline any particular redemption request if it believes such action is necessary to preserve the status as a REIT.
For the six months ended June 30, 2023, 27,185 shares were redeemed for a total amount of $328,048. For the year ended December 31, 2022,
2,058 shares were redeemed for a total amount of $27,234. All shares redeemed and accrued were at a discount equal to 97% of the current NAV. As of June 30, 2023 and December 31, 2022, $161,807 and $7,456, respectively remained payable and are included in accrued redemptions in the accompanying consolidated balance sheets.
Distributions
To date, the Manager has declared quarterly cash distributions of $0.075 per share for shareholders of record as of the close of business on March 31, 2021, June 30, 2021, and on September 30, 2021 and $0.150 per share for
shareholders of record as of the close of business beginning December 30, 2021. During 2022, the Manager declared a quarterly cash distribution of $0.150 per share. As of June 30, 2023 and December 31, 2022, distributions in the amount of $326,216 and $655,087 have been declared, respectively, of which $167,130 and $168,936, respectively, were accrued and included in accrued distributions in the accompanying consolidated financial statements.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended, and operates as such. To qualify as a REIT, the
Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of the Company’s annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Company generally will not be subject to U.S. federal income tax on income that it distributes to its shareholders, provided that it distributes 100% of its REIT taxable income. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise
taxes on its undistributed income.
F-11
Risks and Uncertainties
In the normal course of business, the Company encounters economic risk, including interest rate risk, credit risk, market risk and inflation risk. Interest rate risk is the result of movements in the underlying variable component of the mortgage financing rates. Credit risk is the risk of default on the Company's real estate investments that results from an underlying tenant’s inability or unwillingness to make contractually required payments. Market
risk reflects changes in the valuation of real estate investments held by the Company. Inflation risk is the risk that rising prices could increase the Company's operating expenses and impact tenants' business operations.
In 2021, the administrator of LIBOR announced that the publication of certain LIBOR settings will cease after December 2021 and publication of the remainder of the LIBOR settings will cease after June 2023. The Company has a material contract that is indexed to LIBOR and has negotiated with the respective counterparty to transition to new alternative rates effective
February 16, 2023 (see notes 4 and 5).
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (ASU 2016-02), establishing Accounting Standards Codification Topic 842 (ASC 842). Lessor accounting will remain substantially similar to the current accounting; however, certain refinements were made to conform the standard with ASC 606, Revenue from Contracts with Customers. ASC 842 requires all lessees to record a lease liability at lease inception, with a corresponding right of use (ROU) asset, except for short-term leases. ASC 842 was effective for the
Company on January 1, 2022. The Company elected to use the practical expedient package, which allows the Company not to reassess prior conclusions about lease identification, lease classification, and initial direct costs. For leases with a term of 12 months or less, the Company will make an accounting policy election by class of underlying asset to not recognize lease liabilities and ROU assets.
For leases where the Company is the lessor, the
Company's accounting for lease components was largely unchanged from existing GAAP; the Company elected the practical expedient to not separate non-lease components from lease components. The Company will account for these line items as a single combined lease component, rental revenue, on the basis of the lease component being the predominant component in the contract. The Company elected to use the practical expedient in transition to not re-evaluate costs that were previously capitalized, including leasing legal costs, under ASC 840.
In
addition, ASC 842 establishes a new methodology for assessing the collectibility of accounts receivable, whereby it must be concluded that it is probable that substantially all of the receivable will be collected, if not the Company must fully reserve the accounts receivable balance. The adoption of the new methodology did not have a material impact to the Company's consolidated financial statements.
In June 2016, the FASB issued Accounting Standards Update 2016-13, Financial Instruments-Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, (ASU 2016-13), establishing Accounting Standards Codification Topic 326 (ASC 326). ASC 326 requires entities to estimate a lifetime
expected credit loss for most financial assets, including (i) trade and other receivables, (ii) other long-term financings including available for sale and held-to-maturity debt securities and (iii) loans. Subsequently, the FASB issued Accounting Standards Update 2018-19, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, which amends the scope of ASU 2016-13 and clarified that receivables arising from operating leases are not within the scope of the standard and should continue to be accounted for in accordance with the leases standard (ASC 842). ASC 326 was effective January 1, 2023 and did not have a material impact to the Company's consolidated financial statements.
In
March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting (ASU 2020-04) establishing Accounting Standards Codification 848 (ASC 848), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU was previously effective as of March 12, 2020 through December 31, 2022. On December 21, 2022, the FASB issued Accounting Standards Update 2022-06, Reference Rate Reform (Topic 848): Deferral of
the Sunset Date of Topic 848 (ASU 2022-06), extending the period of time financial statement preparers can utilize the reference rate reform relief guidance to December 31, 2024. The Company has not yet adopted any of the optional expedients or exceptions as of June 30, 2023. Management is currently evaluating the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
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3. Real Estate
The Company owns a 51% controlling interest in JT Invest 1 Dairies, LLC ("Southern Dairies"). Southern Dairies is a five-building office campus located in Atlanta, Georgia with 83,000 rentable square feet.
As of June 30, 2023 and December 31, 2022, Southern Dairies was approximately 90% and 96% leased, respectively, by tenants whose leases expire on various dates between 2023 and 2035. For the six months ended June 30, 2023, four tenants accounted for 36%, 14%, 13% and 11% of the annualized base rents of Southern Dairies. These leases expire in 2035, 2029, 2029 and 2029, respectively.
As
of June 30, 2023, the future minimum contractual rental income from the Company's real estate investment under its noncancelable operating leases was as follows:
The
Company is also entitled to additional rents, which are not included above, which are primarily based upon escalations of real estate taxes and operating expenses over base period amounts. These are included as rental income in the accompanying consolidated financial statements.
On March 12, 2020, Southern Dairies obtained a $25,817,000 mortgage loan, secured by the real estate, and received initial proceeds in the amount of $21,240,000. The remaining balance of the loan proceeds, in the amount of $4,577,000, may be advanced from time to time as reimbursement for certain leasing costs, upon satisfaction of the requirements stated in the mortgage loan agreement. As of June 30, 2023 and December 31, 2022, the outstanding principal balance was $25,817,000. The loan matures March 12, 2025. and bore an interest at a variable rate based on one-month LIBOR (4.39% as of December 31, 2022) plus 1.55%. On February
16, 2023, a loan amendment was executed which transitioned the interest rate from LIBOR (4.39% as of December 31, 2022) plus 1.55% to term SOFR (5.10% as of June 30, 2023) plus 1.63% adjusted periodically in accordance with the amended loan agreement. Interest only payments are due on a monthly basis through the maturity date. The loan may be prepaid at any time without penalty.
For the six months ended June 30, 2023 and 2022, the Company incurred interest expense related to the mortgage loan payable of $822,747 and $230,432, respectively. For the six months ended June 30, 2023, the
Company incurred $20,000 in loan acquisition costs related to the amendment of the loan and is included in interest expense, net in the accompanying consolidated financial statements.
The fair value of the mortgage loan payable is determined by discounting the difference between the contractual loan payments and estimated market loan payments at an equity discount rate based on asset appraisals that reflect how a typical third-party investor would value the cash flows. Market loan payments are derived from overall market lending rates, debt origination and assumption transactions in the market, and property specific factors, including loan to value and cap rate changes. The Company's mortgage loan payable is classified within Level 3 of the valuation hierarchy.
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The
following table presents additional information about the Level 3 liability measured at fair value on a recurring basis as of June 30, 2023 and December 31, 2022:
The
significant unobservable inputs used in the fair value measurement of the Company’s mortgage loan payable are the selection of certain market interest rates and implied equity discount rates. Management reviews the valuation of the mortgage loan payable quarterly. The difference in the calculated fair value and the balance outstanding is the market valuation adjustment. As of June 30, 2023, the mortgage loan payable balance and the fair value of the mortgage loan payable were $25,817,000 and $25,505,484, respectively. As of June 30, 2023, the market interest rate and implied equity discount rate was assumed to be 5.94% and 7.08%, respectively. As of December 31, 2022, the mortgage loan payable balance and the fair value of the mortgage
loan payable were $25,817,000 and $25,472,148, respectively. As of December 31, 2022, the market interest rate and implied equity discount rate was assumed to be 7.25% and 7.63%, respectively.
The Company is subject to certain financial and nonfinancial covenants under the mortgage loan. As of June 30, 2023, the Company was in compliance with all covenants.
5. Derivative Instrument
The fair value of the interest
rate swap is based on the notional, payment frequency, day count fraction, fixed and floating rates, and other factors, including the credit strength of both counterparties. The present value of expected cash flow differences is calculated based on prevailing market and contractual interest rates and credit spreads. The valuations are performed by an independent appraiser consistent with market standards for valuing derivatives. Management reviews the valuation of the interest rate swap quarterly. The Company's derivative instrument is classified within Level 2 of the valuation hierarchy.
To limit the Company's exposure to interest rate fluctuations on the mortgage loan payable, the
Company has entered into an interest rate swap agreement. The interest rate swap agreement fixed the one-month LIBOR portion of the interest rate at a total all-in-rate of 2.683% and a notional amount of $21,240,000. Effective March 1, 2023, the one-month LIBOR rate was transitioned to one-month term SOFR. The agreement expires on March 3, 2025. For the six months ended June 30, 2023, the Company received $389,940 in interest income related to the swap. For the six months ended 2022, the Company incurred $70,666 in interest expense related to the derivative. Both amounts are included as a component of interest expense, net, in the accompanying
consolidated financial statements, respectively.
In accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activities, the Company has not designated the interest rate swap as a cash flow hedge. Accordingly, the Company recognizes any changes in fair value as a component of realized and unrealized gains (losses) in the accompanying consolidated financial statements. For the six months ended June 30, 2023 and 2022, the total change in unrealized gain on the interest rate swap was a decrease of $130,907 and an increase of $1,068,170, respectively.
6. Related
Party Arrangements
Jamestown Investment Manager, L.P.
Subject to certain restrictions and limitations, the Manager is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.
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The Manager is entitled to a quarterly asset management fee equal to 1.25% per annum, based on net offering proceeds until March 31, 2020, after which it became based on NAV at the end
of the prior quarter. For the six months ended June 30, 2023 and 2022, the Company incurred an asset management fee of $85,127 and $86,244, respectively.
The Manager is entitled to a quarterly fund administration fee equal to 0.60% per annum, based on net offering proceeds until March 31, 2020, after which it became based on NAV at the end of the prior quarter, in part to reimburse the Manager for certain costs. For the six months ended June 30, 2023 and 2022, the Company incurred a fund administration fee
of $40,237 and $41,397, respectively.
The Company will reimburse the Manager and any third party for actual expenses incurred in connection with the selection or acquisition of an investment, whether or not the Company ultimately acquires or originates the investment.
Real Estate Investment Level Services
The Manager may retain one or more of its affiliates (Affiliate) to perform services for the Company’s real estate investments, including property management, leasing, construction management, sustainability consulting, creative and marketing services, architecture, legal and
tax services.
An Affiliate serves as the property management company for Southern Dairies and is entitled to receive a monthly management fee and cost reimbursements, as defined by the property management agreement. For the six months ended June 30, 2023 and 2022, the Affiliate received property management fees of $38,353 and $21,971, respectively and cost reimbursements totaling approximately $52,100 and $43,000, respectively, of which $35,594 and $43,283 remained payable as of June 30, 2023 and December 31, 2022, respectively and is included in due to related parties in the accompanying consolidated financial statements.
The following amounts are either capitalized into the cost basis
of the real estate or included in operating and maintenance and general and administrative expenses in the accompanying consolidated financial statements.
•An Affiliate receives construction management and development fees and cost reimbursements in connection with building or tenant improvements. For the six months ended June 30, 2023 and 2022, the Affiliate received construction management and development fees and cost reimbursements, including expenses related to employee time and travel, totaling approximately $23,800 and $13,900, respectively.
•An Affiliate provides legal services for certain real estate investments and the Partnership. For the six months ended June 30, 2023 and
2022, the Affiliate received cost reimbursements, including expenses related to employee time and travel, totaling approximately $4,600 and $4,000, respectively.
•An Affiliate provides tax services for certain real estate investments. For the six months ended June 30, 2023 and 2022, the Affiliate received cost reimbursements, including expenses related to employee time totaling approximately $400 and $0, respectively.
•An Affiliate provides services to certain real estate investments, including aesthetics evaluation, design consulting, brand development, public relations coordination, and event coordination. For the six months ended June 30,
2023 and 2022, the Affiliate received cost reimbursements, including expenses related to employee time and travel, totaling approximately $15,700 and $19,000, respectively.
•An Affiliate provides services to certain real estate investments for sustainability consulting. For the six months ended June 30, 2023 and 2022, the Affiliate received cost reimbursements, including expenses related to third party fees, employee time and travel, totaling approximately $13,900 and $2,500, respectively.
•In addition, an Affiliate was reimbursed for other administrative expenses for certain real estate investments and the Partnership. For the six months ended June 30,
2023 and 2022, the Affiliate was reimbursed approximately $22,100 and $9,200, respectively.
As of June 30, 2023 and December 31, 2022, $39,973 and $182,057, respectively, remained payable to various affiliates related to these services and is included in due to related parties in the accompanying consolidated financial statements.
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Jamestown Invest 1 OP, L.P.
The Manager, as a Special Limited Partner, will hold a performance participation interest in the Operating Partnership that entitles
it to receive a performance participation allocation from the Operating Partnership (the “Participation Allocation”), payable in full upon a Liquidity Event (as defined below) or, to the extent allocable to redeemed shares, at the time of redemption. The Participation Allocation will be equal to 20% of (i) the NAV (without reduction for any accrued Participation Allocation) as of the applicable date, increased by (ii) the aggregate capital distributions and dividends paid or accrued with respect to interests in the Operating Partnership, if any, less (iii) the aggregate initial purchase price for all interests in the Operating Partnership. If the NAV as of the applicable date, increased by capital distributions and dividends paid or accrued, is less than $10.00 per share, no Participation Allocation will be paid. The redemption price for any redeeming investor for any redemption of shares will be our NAV as of the redemption date (including any accrued participation
allocation). “Liquidity Event” shall mean the occurrence of a liquidity event, including but not limited to a liquidation of the Company upon the sale of all of the properties, a public listing, or a merger with a public or non-public company. As of June 30, 2023 and December 31, 2022, the Participation Allocation was $936,701 and $900,031, respectively and is included in accrued participation allocation in the accompanying consolidated financial statements.
7. Economic Dependency
Under various agreements, the
Company has engaged or will engage Jamestown, L.P. and its affiliates to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, property management services, the sale of the Company’s common shares available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations. As a result of these relationships, the Company is dependent upon Jamestown, L.P. and its affiliates.
8. Commitments
and Contingencies
In the normal course of business, the Company may be subject to various litigation and in some instances the amount sought may be substantial. Although the outcome of such claims, litigation, and disputes cannot be predicted with certainty, in the opinion of management based on facts known at this time, the resolution of such matters are not anticipated to have a material adverse effect on the consolidated financial position or results of operations of the Company.
9. Subsequent Events
The
Company evaluated subsequent events through September 29, 2023, which is the date the consolidated financial statements were available to be issued. Management has concluded that there were no significant events requiring recognition and/or disclosure in the consolidated financial statements other than those disclosed herein and below.
Between July 1, 2023 and September 29, 2023, the Company received redemption requests for approximately 6,425 common shares of which none have been redeemed. As of September 29, 2023, the aggregate shares outstanding were 1,067,039 shares, for total offering proceeds of $10,802,184 (including the 550,100
shares totaling $5,501,000 received in a private placement prior to the initial offering being declared effective).
Amended and Restated Limited Liability Company Agreement of JT Invest 1 Dairies, LLC between Jamestown Invest 1 OP, L.P. and Jamestown, L.P. (Incorporated by reference to Exhibit 6.2 to the
Company's Current Report on Form 1-U, filed on March 16, 2020)
Pursuant
to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
This Semiannual Report on Form 1-SA contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, and descriptions of goals and objectives. You can identify these forward-looking statements by the use of words such as “outlook,”“believes,”“expects,”“potential,”“continues,”“may,”“will,”“should,”“could,”“seeks,”“projects,”“predicts,”“intends,”“plans,”“estimates,”“anticipates” or the negative version of these words or other comparable words, which generally are not historical in nature. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Some of the factors that may affect outcomes and
results include, but are not limited to: (i) national, international, regional and local economic and political climates, (ii) changes in global financial markets and interest rates, (iii) increased or unanticipated competition for our properties, (iv) risks associated with acquisitions, dispositions and development of properties, (v) maintenance of real estate investment trust status, tax structuring, and changes in income tax laws and rates, (vi) availability of financing and capital, the levels of debt that the Company maintain and its credit rating, (vii) risks of pandemics such as COVID-19, including escalations of outbreaks and mitigation measures imposed in response thereto, (viii) environmental uncertainties, including risks of natural disasters, and (ix) those additional factors described under the section entitled “Risk Factors” in the
Company’s offering circular, dated September 24, 2021 and filed by us with the Securities and Exchange Commission (the “Commission”) on September 24, 2021 (the “Offering Circular”), as such factors may be updated from time to time in the Company’s subsequent filings with the Commission, which are accessible on the Commission’s website at www.sec.gov. In addition, past performance is not indicative of future results. Accordingly, there are or will be important factors that could cause actual outcomes or results to differ materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction
with the other cautionary statements that are included in the Company’s filings with the Commission. The Company undertakes no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
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Dates Referenced Herein and Documents Incorporated by Reference
