SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) |
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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation and Consolidation Policy |
Basis of Presentation and Consolidation Policy
The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions
to Form 10-K and Regulation S-X. We follow the accounting principles generally accepted in the United States of America (“GAAP”) and includes the accounts of our wholly owned consolidated subsidiaries and majority-owned controlled subsidiaries.
All intercompany accounts and transactions have been eliminated in consolidation.
Prior to the termination of our status as a BDC, we were an investment company under the Financial Accounting Standards
Board (“FASB”) ASC 946. Under the 1940 Act rules, regulations pursuant to Article 6 of Regulation S-X and ASC 946, subject to certain inapplicable exceptions, we were precluded from consolidating portfolio company investments, including those in
which we had a controlling interest, unless the portfolio company was an investment company. Therefore, our portfolio company investments, including those in which we had a controlling interest, were carried on the consolidated balance sheets at
fair value with changes to fair value recognized as “Net unrealized gain (loss)” on the consolidated statement of operations until the investment was realized, usually upon exit, resulting in any gain or loss on exit being recognized as a
realized gain or loss. However, in the event that any controlled subsidiary exceeded the tests of significance set forth in Rules 3-09 or 4-08(g) of Regulation S-X, we included required financial information for such subsidiary in the notes or as
an attachment to our consolidated financial statements.
As a result of the termination of our status as a BDC, we are no longer an investment company under the FASB ASC 946. We
discontinued applying the guidance in ASC 946 and began to account for the change in status prospectively by accounting for our investments in accordance with other U.S. GAAP as of the date of the change in status.
Our financial statements for
the period subsequent to the termination of our BDC status are prepared on a consolidated basis to include the financial position, results of operations, and our cash flows and of our wholly owned and majority-owned subsidiaries. This change
in status and the application of different accounting principles makes it difficult to compare consolidated financial statements for 2022 and 2021. As such, for the year ended June 30, 2022, the consolidated statements of operations, changes in equity and cash flows have been
presented as they would be for a REIT (on a “successor basis”). For the year ended June 30, 2021, the
consolidated statements of operations, changes in net assets (referred to as “equity” effective June 30, 2021) and cash flows have been presented in two separate statements. For the six months ended December 31, 2020, the consolidated
statements of operations have been presented as they would be for an investment company (on a “predecessor basis”) and for the six months ended June 30, 2021 as they would be for a REIT (on a “successor basis”). The consolidated balance
sheets at June 30, 2022 and 2021, have been presented on the successor basis.
Certain prior period information has been reclassified to conform to the prior year end presentation. The reclassification has no effect on our consolidated balance sheet or the consolidated statement of
operations as previously reported.
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Use of Estimates |
Use of Estimates
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported asset values,
liabilities, revenues, expenses and unrealized gains (losses) on investments during the reporting period. Material estimates that are susceptible to change, and actual results could differ from those estimates.
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Variable Interest Entities |
Variable Interest Entities
We evaluate the need to consolidate our investments in securities in accordance
with ASC 810. In determining whether we have a controlling interest in a variable interest entity and whether to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions and
contractual and substantive participating rights of the partners, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. Refer to Note 6 for additional information.
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Assets and Liabilities Held for Sale |
Assets and Liabilities Held for Sale
We classify long-lived assets or disposal groups to be sold as held for sale in the period in
which all of the following criteria are met:
On the day that these criteria are met, we suspend
depreciation on the investment properties held for sale, including depreciation for tenant improvements and additions, as well as on the amortization of acquired in-place leases. The investment properties and liabilities associated with those
investment properties that are held for sale are classified separately on the consolidated balance sheets for the most recent reporting period and recorded at the lesser of the carrying value or fair value less costs to sell. The prior period
investment properties and liabilities associated with those investment properties that are classified as held for sale have been classified separately as assets and liabilities held for sale on the consolidated balance sheet as of June 30, 2021
for comparative purpose. Refer to Note 5.
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Cash and Restricted Cash |
Cash and Restricted Cash
Our cash represents balances held in current bank accounts and restricted cash includes escrow accounts for real property taxes, insurance,
capital expenditures and tenant improvements, debt service and leasing costs held by lenders, and cash pledged as collateral for securities sold short. These balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to certain
limits. At times, the cash balances held in financial institutions by us may exceed these insured limits.
Restricted cash is subject to a legal or contractual restrictions as to withdrawal or use, including restrictions that require the funds to be used
for a specified purpose and restrictions that limit the purpose for which the funds can be used. We consider cash pledged as collateral for securities sold short to be restricted cash.
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Investments Income Receivable |
Investments Income Receivable
Investment
income represent dividends, distributions, and sales proceeds recognized in accordance with our revenue recognition policy but not yet received as of the date of the consolidated financial statements. The amounts are generally fully collectible
as they are recognized based on completed transactions. We monitor and adjust our receivables, and those deemed to be uncollectible are written-off only after all reasonable collection efforts are exhausted. We have determined that all
investments income receivable balances outstanding as of June 30, 2022 and 2021, are collectible and do not require recording any uncollectible allowance.
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Rents and Other Receivables |
Rents and Other Receivables
We will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required
payments under lease agreements. We exercise judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates. We have determined that all rent receivable balances
outstanding as of June 30, 2022 and 2021, are collectible and do not require recording any uncollectible allowance.
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Capital Pending Acceptance |
Capital Pending Acceptance
We conduct closings for new purchases of our common stock twice per month and admits new stockholders effective beginning the first of each month. Subscriptions are
effective only upon our acceptance. Any gross proceeds received from subscriptions which are not accepted as of the period-end are classified as capital pending acceptance in the consolidated balance sheets. As of June 30, 2022, capital pending acceptance was $85,000. As of June 30, 2021, there was no capital pending
acceptance.
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Organization and Deferred Offering Costs |
Organization and Deferred Offering Costs
Organization costs include, among other things, the cost of legal services
pertaining to the organization and incorporation of the business, incorporation fees, and audit fees relating to the public offerings and the initial statement of assets and liabilities. These costs are expensed as incurred. Offering costs
include, among other things, legal fees and other costs pertaining to the preparation of the registration statements and pre- and post-effective amendments. While we were a BDC, offering costs were capitalized as deferred offering costs as
incurred by us and subsequently amortized to expense over a twelve-month period. Any deferred offering costs that had not been amortized upon the expiration
or earlier termination of an offering were accelerated and expensed upon such expiration or termination. The offering costs incurred by us on the Offering Circular to sell the Series A preferred stock have been classified as a reduction of
equity.
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Income Taxes and Deferred Tax Liability |
Income Taxes and Deferred Tax Liability
The Parent Company has elected to be treated as a REIT for tax purposes under the Code and as a REIT, is not subject to federal income taxes on
amounts that it distributes to the stockholders, provided that, on an annual basis, it distributes at least 90% of its REIT taxable
income to the stockholders and meets certain other conditions. To the extent that it satisfies the annual distribution requirement but distributes less than 100% of its taxable income, it is either subject to U.S. federal corporate income tax on its undistributed taxable income or 4% excise tax on catch-up distributions paid in the subsequent year.
The Parent Company satisfied the annual dividend payment and other REIT requirements for the tax year ended December 31, 2021. Therefore, it did
not incur any tax expense or excise tax on its income from operations during the quarterly periods within the tax year 2021. Similarly, for the tax year 2022, we believe the Parent Company paid the requisite amounts of dividends during the year
and met other REIT requirements such that it will not owe any income taxes. Therefore, the Parent Company did not record any income tax provisions during any fiscal periods within the tax year 2022.
TRS, MacKenzie NY 2 and MacKenzie Satellite are subject to corporate federal and state income tax on their taxable income at regular statutory
rates. However, as of June 30, 2022, they did not have any taxable income for tax years 2021 or 2022. Therefore, TRS, MacKenzie NY
2 and MacKenzie Satellite did not record any income tax provisions during any fiscal period within the tax year 2021 and 2022.
The Operating Partnership is a limited partnership and
its subsidiaries; Addison Property Owner, LLC (the “Addison Property Owner”), Hollywood Hillview Owner, LLC (“Hollywood Hillview”) and MacKenzie BAA IG Shoreline LLC (“MacKenzie Shoreline”) are limited liability companies. Madison and PVT are
also limited liability companies. Accordingly, all income tax liabilities of these entities flow through to their partners, which ultimately is the Company. Therefore, no income tax provisions are recorded for these entities.
The Company and its subsidiaries follow ASC 740, Income Taxes (“ASC 740”), to account for income taxes
using the asset and liability method, under which deferred tax assets and liabilities are recognized for the future tax liabilities attributable to the net unrealized investment gain (losses) on existing investments. In estimating future tax
consequences, we consider all future events, other than enactments of changes in tax laws or rates. The effect on deferred tax assets and liabilities of a change in tax rates will be recognized as income or expense in the period of enactment. In
addition, ASC 740 provides guidance for recognizing, measuring, presenting, and disclosing uncertain tax positions in the financial statements. As of June 30, 2022 and 2021, there were no uncertain tax positions. Management’s determinations regarding ASC 740 are subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going
analysis of tax laws, regulations and interpretations thereof.
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Subsequent Events |
Subsequent Events
Subsequent events are events or transactions that occur after the date of the consolidated statements of assets and liabilities but before the
date the consolidated financial statements are available to be issued. Subsequent events that provide additional evidence about conditions that existed at the date of the consolidated statements of assets and liabilities are considered in the
preparation of the consolidated financial statements presented herein. Subsequent events that occur after the date of the consolidated statements of assets and liabilities that do not provide evidence about the conditions that existed as of the
date of the consolidated statements of net assets are considered for disclosure based upon their significance in relation to our consolidated financial statements taken as a whole.
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Fair Value of Financial Instruments |
Fair Value of Financial Instruments
Fair
value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. We
believe that the carrying amounts of our financial instruments, consisting of cash, restricted cash, investments income, rent and other receivables, prepaid expenses and other assets, mortgage notes payable, accounts payable and accrued
liabilities, below-market lease liabilities, net, deferred rent and other liabilities and due to related entities, approximate the fair values of such items based on their nature, terms, and interest rates.
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Revenue Recognition |
Revenue Recognition
Rental
revenue, net of concessions, which is derived primarily from lease contracts, which include rents that each tenant pays in accordance with the terms of each lease agreement, are recognized on a straight-line basis over the term of the lease,
when collectability is determined to be probable.
Minimum rent,
including rental abatements, lease incentives, and contractual fixed increases attributable to operating leases are recognized on a straight-line basis over the term of the related leases when collectability is probable. Amounts expected to be
received in later years are recorded as deferred rent receivable. If the lease provides for tenant improvements, we determine whether the tenant improvements, for accounting purposes, are owned by the tenant or the Company. When we are the
owner of the tenant improvements, the tenant is 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 (including amounts that can be taken in the form of cash or a credit against the tenant’s rent) that is funded is treated as a lease incentive and amortized as a reduction of rental
revenue over the lease term.
Tenant improvement ownership is determined based on various factors including, but not limited to:
In accordance with ASC Topic 842, we determine whether collectability of lease payments in an operating lease is probable. If we determine the
lease payments are not probable of collection, we fully reserve for rent and reimbursement receivables, including deferred rent receivable, and recognizes rental income on cash basis.
Distributions
received from investments are evaluated by management and recorded as dividend income or a return of capital (reduction of investment) on the ex-dividend date. Operational dividends or distributions received from portfolio investments are
recorded as investment income. Distributions resulting from the sale or refinance of an investee’s underlying assets are compared to the estimated value of the remaining assets and are recorded as a return of capital or as investment income as
appropriate.
Realized gains or
losses on investments are recognized in the period of disposal, distribution, or exchange and are measured by the difference between the proceeds from the sale or distribution and the cost of the investment. Investments are disposed of on a
first-in, first-out basis. Net change in unrealized gain (loss) reflects the net change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gains or losses.
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Dividends and Distributions |
Dividends and Distributions
Dividends (and distributions, if any) to common stockholders are recorded on the date of declaration. The amount, if any, to be paid as a
quarterly dividend (or distribution, if any) is approved quarterly by the Board of Directors and is generally based upon management’s estimate of our earnings for the quarter.
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Fair Value Measurements |
Fair Value Measurements
GAAP establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observables used in measuring
investments at fair value. Market price is impacted by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available actively quoted prices or for which fair value can
be measured from actively quoted prices generally will have a higher degree of market price observables and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an
investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a particular input to the fair value measurement, in its
entirety, requires judgment and considers factors specific to the investment.
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Valuation of Investments |
Valuation of Investments:
Our consolidated financial statements include investments that are measured at their estimated fair values in accordance with GAAP. Our valuation
procedures are summarized below:
Securities for which market quotations are readily available on an exchange will be valued at such price as of the closing price on the day closest
to the valuation date. Where a security is traded but in limited volume, we may instead utilize the weighted average closing price of the security over the prior 10 trading days. We may value securities that do not trade on a national exchange by using published secondary market trading information. When doing so, we first confirm that GAAP
recognizes the trading price as the fair value of the security.
Securities for which reliable market data are not readily available or for which the pricing source does not provide a valuation or methodology or
provides a valuation or methodology that, in the judgment of the Adviser or Board of Directors, does not represent fair value, which we expect will represent a substantial portion of our portfolio, shall each be valued as follows: (i) each
portfolio company or investment is initially valued by the investment professionals responsible for the portfolio investment; (ii) preliminary valuation conclusions are documented and discussed with our senior management; and (iii) the Board of
Directors will discuss valuations and determine the fair value of each investment in our portfolio in good faith based on the input of the Adviser and, where appropriate and necessary, the respective third‑party valuation firms. The
recommendation of fair value will generally be based on the following factors, as relevant:
Securities for which market data is not readily available or for which a pricing source is not sufficient may include the following:
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Valuation of Real Property |
Valuation of Real Property:
When property is owned directly, the valuation process includes a full review of the property financial
information. An Argus model is created using all known data such as current rent rolls, escalators, expenses, market data in the area where the property is located, cap rates, discount rates, mortgages, interest rates, and other pertinent
information. We estimate future leasing and costs associated, generally over a ten-year period, to determine the fair value of the property. Once the fair value is determined, and reviewed by the board, a determination of impairment is made
and documented. In addition, once per year, we obtain a third-party appraisal on directly owned properties.
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements will
express the uncertainty of such valuations, and any change in such valuations, on our consolidated financial statements.
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Equity Securities |
Equity Securities
We have minority and non-controlling equity investments in various limited partnerships and non-traded entities, which do not have readily
determinable fair values. We do not have controlling interests in these entities. Thus, these investments have been recorded as investments in equity securities in accordance with ASC Topic 321, Investments –
Equity Securities, and measured at fair value. The changes in the fair value of these investments are recorded in the consolidated statement of operations.
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Equity Method Investments with Fair Value Option Election |
Equity Method Investments with Fair Value Option Election
We elected the fair value option of accounting for the investments listed below that would have otherwise been recorded under the equity method
of accounting. The primary purpose of electing the fair value option was to enhance the transparency of our financial condition. Changes in the fair value of these investments, which are inclusive of equity in income, are recorded in the
consolidated statement of operations during the period such changes occur. The below list of investments would have been accounted for under the equity method if the fair value method had not been elected and have been included in investments in the
consolidated balance sheets as of June 30, 2022 and 2021:
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Unconsolidated Investments (Non-security) at Fair Value |
Unconsolidated Investments (Non-security) at Fair Value
These are equity method investments that do
not meet the consolidation requirements under ASC 810. Under the 1940 Act, these investments are considered “voting securities” as opposed to “investment securities”. Therefore, we listed these equity method investments separately from rest
of the equity method investments at fair value in the consolidated balance sheets. As of June 30, 2022, our investment in 1300 Main, LP, First & Main, LP, Dimensions 28, LLP, Green Valley Medical Center, LP, Main Street West, LP, Martin
Plaza Associates, LP, One Harbor Center, LP, Westside Professional Center I, LP and Woodland Corporate Center II, LP are considered to be voting securities under the 1940 Act. As of June 30, 2021, our investments in Bishop Berkeley, LLC, BP3
Affiliate, LLC, Britannia Preferred Members, LLC - Class 1 and Class 2, and Dimensions 28, LLP were considered to be voting securities under the 1940 Act. Therefore, these investments were shown as unconsolidated investments (non-security),
at fair value in the consolidated balance sheets. For GAAP purposes, these investments have been recorded under the equity method investments, for which we have elected the fair value option as discussed above.
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Lease Accounting Topic 842 |
Lease Accounting Topic 842
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity is required to recognize
right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor, and parties to sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative information about leasing arrangements to facilitate assessment the amount, timing, and uncertainty of cash flows arising from leases.
In July 2018, the
FASB issued ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”). ASU 2018-11 provides lessors with a practical expedient to not separate lease and non-lease components if both (i) the timing and pattern of revenue
recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. We adopted the practical expedient as of July 1, 2019, to account for
lease and non-lease components as a single component in lease contracts where we or one of our subsidiaries is the lessor.
Our current portfolio consists of commercial office properties and residential apartment buildings whereby we generate rental revenue by leasing office space and apartment units to the building’s tenants. These
tenant leases fall under the scope of Topic 842, and are classified as operating leases. Revenues from such leases are recognized on a straight-line basis over the terms of the lease agreements. Non-lease components of our leases are combined
with the related lease components and accounted for as a single lease component under Topic 842. The balances of net real estate investments and related depreciation on our consolidated financial statements relate to assets for which we are the
lessor.
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Real Estate Assets, Capital Additions, Depreciation and Amortization |
Real Estate Assets, Capital Additions, Depreciation and Amortization
We
capitalize costs, including certain indirect costs, incurred for capital additions, including redevelopment, development, and construction projects. We also allocate certain department costs, including payroll, at the corporate levels as
“indirect costs” of capital additions, if such costs clearly relate to capital additions. We also capitalize interest, property taxes and insurance during periods in which redevelopment, development, and construction projects are in progress.
Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use. Repair and maintenance and tenant turnover costs are expensed as incurred. Repair and maintenance and
tenant turnover costs include all costs that do not extend the useful life of the real estate asset. Depreciation and amortization expense are computed on the straight-line method over the asset’s estimated useful life. We consider the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful
lives of assets by class to be generally as follows:
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Real Estate Purchase Price Allocations |
Real Estate Purchase Price Allocations
In accordance with the guidance for business combinations, upon the acquisition of real estate properties, we evaluate whether the transaction is a business combination or an asset acquisition. If the
transaction does not meet the definition of a business combination, we record the assets acquired, the liabilities assumed, and any non-controlling interest as of the acquisition date, measured at their relative fair values. Acquisition-related
costs are capitalized in the period incurred and are added to the components of the real estate assets acquired. We assess the acquisition-date fair values of all tangible assets, identifiable intangible assets, and assumed liabilities using
methods similar to those used by independent appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on
several 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 was vacant.
Intangible assets include the value of in-place leases, which represents the estimated fair value of the net cash flows of leases in place at the time of acquisition, as compared to the net cash flows that would have occurred had the property
been vacant at the time of acquisition and subject to lease-up. We amortize the value of in-place leases to expense over the remaining non-cancelable term of the respective leases, which is on average five years. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant assumptions to estimate
market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, prevailing interest rates, and the number of years the property will be held for investment. The use of
inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets, and assumed liabilities, which could impact the amount of our net income (loss). Differences in the amount attributed
to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates.
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Contingent Consideration in an Asset Acquisition |
Contingent Consideration in an Asset Acquisition
Contingent consideration recognized is included in the initial cost of the assets acquired. Subsequent changes in the recorded amount of contingent
consideration will generally be recognized as an adjustment to the cost basis of the acquired assets, in accordance with ASC 323-10-35-14a and ASC 360-10-30-1. The subsequent changes will be allocated to the acquired assets based on their
relative fair value at the date of acquisition.
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Impairment of Real Estate Assets |
Impairment of Real Estate Assets
We continually monitor events and changes in circumstances that could indicate
that the carrying value of our real estate and related intangible assets may not be recoverable. When indicators of potential impairment emerge, our assesses whether we will recover the carrying value of the asset through its undiscounted
future cash flows and its eventual disposition. Based on this assessment, if we do not believe that it will recover the carrying value of the real estate and related intangible assets, we will record an impairment loss to the extent that the
carrying value exceeds the estimated fair value of the real estate and related intangible assets. No impairment charges
on assets held for use were recorded for the year ended June 30, 2022, and six months ended June 30, 2021. Impairment charges on assets held for sale are discussed in Note 5.
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Gain on Dispositions of Real Estate Investments |
Gain on Dispositions of Real Estate Investments
Gains
on sales of rental real estate are not considered sales to customers and will generally be recognized pursuant to the provisions of ASC 610-20, Gains and Losses from the Derecognition of Nonfinancial Assets (“ASC 610-20”), which
applies to sales or transfers to noncustomers of nonfinancial assets or in substance nonfinancial assets that do not meet the definition of a business. Generally, our sales of real estate would be considered a sale of a nonfinancial asset as
defined by ASC 610-20. ASC 610-20 refers to the revenue recognition principles under ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606). Under ASC 610-20, if we determine we do not have a controlling financial
interest in the entity that holds the asset and the arrangement meets the criteria to be accounted for as a contract, we will dispose of the asset and recognize a gain or loss on the sale of the real estate when control of the underlying asset
transfers to the buyer.
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Reportable Segments |
Reportable Segments
ASC 280, Segment Reporting, establishes standards for reporting financial and descriptive information
about an enterprise’s reportable segments. We have one reportable segment, income-producing real estate properties, which consists of
activities related to investing in real estate. The real estate properties are geographically diversified throughout the United States, and we evaluate operating performance on an overall portfolio level.
Subsequent change in contingent consideration impacts the cost basis of acquired assets, which may also impact the income statement through subsequent accounting for the acquired asset. We are aware of diversity in practice regarding
the subsequent treatment of the income statement effect of changes to the cost basis of the acquired assets. We generally believe the depreciation or amortization of these assets should be recognized as a cumulative “catch up” adjustment, as
if the additional amount of consideration that is no longer contingent had been accrued from the outset of the arrangement.
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