Business description of EXCHANGERIGHT-INCOME-FUND from last 10-k form

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

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

risks inherent in the real estate business, including tenant defaults, illiquidity of real estate investments, potential liability relating to environmental matters and potential damages from natural disasters;
general business and economic conditions;
the accuracy of our assessment that certain businesses are e‑commerce resistant and recession‑resilient;
the accuracy of the tools we use to determine the creditworthiness of our tenants;
concentration of our business within certain tenant categories;
ability to renew leases, lease vacant space or re‑lease space as existing leases expire;
our ability to successfully execute our acquisition strategies;
the degree and nature of our competition;
inflation and interest rate fluctuations;
failure, weakness, interruption or breach in security of our information systems;
our failure to generate sufficient cash flows to service our outstanding indebtedness;
continued volatility and uncertainty in the credit markets and broader financial markets;
our ability to maintain our qualification as a real estate investment trust (“REIT”) for federal income tax purposes;
our limited operating history as a REIT, which may adversely affect our ability to make distributions to our shareholders;
current loans, or future loans, may be subject to certain unfavorable provisions or may not be able to be refinanced;
changes in, or the failure or inability to comply with, applicable laws or regulations; and
future sales or issuances of our common shares or other securities convertible into our common shares, or the perception thereof, could cause the value of our common shares to decline and could result in dilution.

The foregoing list is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The foregoing should be read in conjunction with the complete discussion of risk factors we face, which are set forth below in “” of this Annual Report on Form 10-K.

 

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PART I

ITEM 1. BUSINESS.

General

ExchangeRight Income Fund, doing business as ExchangeRight Essential Income REIT, a Maryland statutory trust, (the “Company”) is a self-administered real estate company, formed on January 11, 2019, focusing on investing in single-tenant, primarily investment-grade net-leased real estate. The Company, through its operating partnership, ExchangeRight Income Fund Operating Partnership, LP, a Delaware limited partnership (the “Operating Partnership”) owned 352 properties in 34 states (collectively, the “Trust Properties”) as of December 31, 2023. The Trust Properties are occupied by 36 different primarily national investment-grade necessity-based retail tenants as of December 31, 2023 and are additionally diversified by industry, geographic region and lease term. The Company has collected 100% of all of its contractual rents from its net-leased properties since inception, including through the COVID-19 pandemic and for the year ended December 31, 2023.

We are structured as an umbrella partnership REIT, commonly called an UPREIT, and own all of our assets and conduct substantially all of our business through the Operating Partnership, which was formed on January 9, 2019. The Company is the sole general partner and a limited partner of the Operating Partnership. As of December 31, 2023, an aggregate of 23,825,540 common units of limited partnership interest in the Operating Partnership (“OP Units”) are issued and outstanding. The Company owns 15,786,595 of the issued and outstanding OP Units in the Operating Partnership, investors who completed tax-deferred Code Section 721 exchanges into the Operating Partnership own 7,961,637 of the issued and outstanding OP Units and ExchangeRight Real Estate, LLC, a California limited liability company (“ExchangeRight”), which is the Company’s sponsor and the sole member and manager of the Company’s trustee, owns 77,308 of the issued and outstanding OP Units in the Operating Partnership. Additionally, ExchangeRight owns 600,000 of the Company’s 15,786,595 issued and outstanding OP Units disclosed above through its ownership in ExchangeRight Income Fund GP, LLC (“EIFG”).

On February 9, 2019, we commenced an offering of up to $100.0 million of our common shares of beneficial ownership (“Common Shares”) under a private placement to qualified investors who meet the definition of “accredited investor” under Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). We expect to conduct the offering on a continuous basis until the Company’s trustee, ExchangeRight Income Fund Trustee, LLC, a Delaware limited liability company (the “Trustee”) determines to terminate the offering. The maximum dollar amount of the offering has been increased over time. All sales of our Common Shares sold from inception through July 31, 2023 were sold in reliance on the exemptions provided by Rule 506(b) of Regulation D and all sales of our Common Shares sold from and after August 1, 2023 have been sold in reliance on the exemptions provided by Rule 506(c) of Regulation D. The following table details the increases in the maximum dollar amount of the offering of our Common Shares, prior to selling commissions, as approved by the Trustee, since the inception of the offering:

As of December 31, 2023, the Company had issued 5,981,840 Class I Common Shares and 10,201,495 Class A Common Shares pursuant to the offering, resulting in gross offering proceeds of approximately $439.9 million since inception. Of these issued Common Shares, 5,758,060 Class I Common Shares and 10,006,962 Class A Common Shares remained outstanding as of December 31, 2023.

After deductions for payments of selling commissions (net of support received from ExchangeRight), marketing and diligence allowances, wholesale selling costs and expenses, and other offering expenses, we have received net offering proceeds since inception of approximately $423.0 million as of December 31, 2023. The net offering proceeds have been contributed to the Operating Partnership in exchange for OP Units, and the Operating Partnership has used the net proceeds

 

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of the offering to acquire the Trust Properties, and to pay certain fees and expenses related to the offering and acquisition of the Trust Properties.

The Class I Common Units are issued to holders of interests in various Delaware statutory trusts (“DSTs”) in connection with the Operating Partnership’s acquisition of the DSTs. These acquisitions of the DSTs are accomplished pursuant to various merger agreements entered into between the applicable DST and the Operating Partnership. Under the terms of the merger agreements, the subject DST merges into the Operating Partnership as a wholly-owned subsidiary, and in consideration therefor, the holders of ownership interests in the DSTs are offered the opportunity to elect to exchange their interests in the DSTs for cash (taxable), to perform another Code Section 1031 exchange (tax-deferred), or exchange their interests in the DSTs for Class I Common Units (tax-deferred) or any combination thereof. As a result of these mergers, the Operating Partnership acquired ownership of the properties owned by each DST. As of December 31, 2023, the Operating Partnership had issued 8,199,471 Class I Common Units, resulting in $225.6 million in gross offering proceeds. Of these issued Class I Common Units, 7,961,637 remained outstanding as of December 31, 2023.

Following its inception, ExchangeRight acquired Class I Common Units to accelerate property acquisitions on behalf of the Company. Such capital investment was in lieu of the Company borrowing additional funds. This capital infusion ensured a more quickly diversified portfolio acquisition for the benefit of the Company’s shareholders. ExchangeRight’s investment in Class I Common Units were at the same terms as offered to the other OP Unit holders at the time of acquisition. As of December 31, 2023, ExchangeRight held 77,308 Class I Common Units.