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Item 7. Management’s Discussion and Analysis

2024-03-21 compared with 2023-03-23 · 90 added, 60 removed, 125 unchanged (55% of the section changed)

6 unchanged sentences

Our investment strategy includes acquiring existing income-producing properties as well as developing new properties on land already owned or acquired for a specific development project.

Our operations are managed by Pillar in accordance with an Advisory Agreement.

Our operations are managed by Pillar in accordance with an Advisory Agreement and a Cash Management Agreement.

Pillar’s duties include, but are not limited to, locating, evaluating and recommending real estate and real estate-related investment opportunities.

Pillar also arranges our debt and equity financing with third party lenders and investors.

We rely upon the employees of Pillar render services to us in accordance with the terms of the Advisory Agreement.

We rely upon the employees of Pillar to render services to us in accordance with the terms of the Advisory Agreement.

Pillar is considered to be a related party due to its ownership by RAI.

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• On March 30, 2021, we sold a 50% ownership interest in Overlook at Allensville Phase II, a 144 unit multifamily property in Sevierville, Tennessee to Macquarie, for $2.6 million, resulting in a gain on sale of $1.4 million.

Concurrent with the sale, we each contributed our 50% ownership interests in Overlook at Allensville Phase II into VAA.

Concurrent with the sale, we each contributed our 50% ownership interests in the property into VAA.

• On August 26, 2021, we sold 600 Las Colinas, a 512,173 square foot office building in Irving, Texas for $74.8 million, resulting in a gain on sale of $27.3 million.

We used the proceeds to pay off the mortgage note payable on the property (See "Financing Activities") and for general corporate purposes.

We used the proceeds from the sale to pay off the mortgage note payable on the property (See "Financing Activities") and for general corporate purposes.

• During the year ended December 31, 2021, we sold a total of 134.7 acres of land from our holdings in Windmill Farms for $20.2 million in aggregate, resulting in gains on sale of $10.3 million .

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• On January 14, 2022, we sold Toulon, a 240 unit multifamily property in Gautier, Mississippi for $26.8 million, resulting in a gain on sale of $9.4 million.

We used the proceeds to pay off the $14.7 million mortgage note payable on the property and for general corporate purposes.

We used the proceeds from the sale to pay off the $14.7 million mortgage note payable on the property and for general corporate purposes.

• On May 17, 2022 , we sold Fruitland Park, a 6,722 square foot commercial building in Fruitland Park, Florida for $0.8 million , resulting in a gain on sale of $0.7 million .

We used the proceeds for general corporate purposes.

• On September 16, 2022, we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge , Louisiana for $11.8 million in connection with a sale of properties by VAA (See "Other Developments"), resulting in a gain on sale of $1.9 million.

We used the proceeds to pay off the $9.6 million mortgage note payable on the property and for general corporate purposes.

• On November 1, 2022, we acquired seven multifamily properties from VAA (See "Other Developments") with a fair value of $219.5 million .

We used the proceeds from the sale for general corporate purposes.

• On September 16, 2022, we sold Sugar Mill Phase III, a 72 unit multifamily property in Baton Rouge , Louisiana for $11.8 million in connection with the sale of properties by VAA (See "Other Developments"), resulting in a gain on sale of $1.9 million.

We used the proceeds from the sale to pay off the $9.6 million mortgage note payable on the property and for general corporate purposes.

• On November 1, 2022, we acquired the seven multifamily properties from VAA (See "Other Developments") with a fair value of $219.5 million .

• During the year ended December 31, 2022 , we sold a total of 26.9 acres of land from our holdings in Windmill Farms for $5.1 million in aggregate, resulting in gains on sale of $4.2 million.

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Financing Activities

• On March 2, 2021 , we extended our $1.2 million loan on Athens to August 28, 2022 .

• On March 4, 2021 , we extended the maturity of our $6.4 million loan on Windmill Farms until February 28, 2023 at a reduced interest rate of 5%.

• On March 2, 2021 , we extended our loan on Athens to August 28, 2022 .

• On March 4, 2021 , we extended the maturity of our loan on Windmill Farms until February 28, 2023 at a reduced interest rate of 5%.

• On August 25, 2021, we replaced the existing loan on Villas at Bon Secour with a new $20.0 million loan that bears interest at 3.08% and matures on September 1, 2031.

• On August 26, 2021, we paid off the $35.9 million loan on 600 Las Colinas in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On January 14, 2022, the $14.7 million loan on Toulon was paid off in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On January 14, 2022, we paid off the $14.7 million loan on Toulon in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On March 3, 2022 , we extended the loan on Stanford Center to February 26, 2023 .

• On September 1, 2022 , we extended our $1.2 million loan on Athens to August 28, 2023.

• On September 1, 2022 , we extended our loan on Athens to August 28, 2023.

• On September 16, 2022 , we paid off the $9.6 million loan on Sugar Mill Phase III in connection with the sale of the underlying property (See "Acquisitions and Dispositions").

• On October 21, 2022, we paid off the $38.5 million loan on Stanford Center from the cash generated from sale of the VAA Sale Portfolio .

• On November 1, 2022, we assumed the $70.3 million mortgage notes payable on the VAA Holdback Portfolio in connection with the distribution of the underlying properties from VAA (See "Other Developments").

• On January 31, 2023 , we paid off our $66.5 million Series C bonds.

• On October 21, 2022, we paid off the $38.5 million loan on Stanford Center from a portion of our share of the proceeds from sale of the VAA Sale Portfolio (See "Other Developments").

• On November 1, 2022, we agreed to assume the $70.3 million mortgage notes payable on the VAA Holdback Portfolio in connection with the distribution of the underlying properties from VAA (See "Other Developments").

• On January 31, 2023 , we paid off our $67.5 million of Series C bonds.

• On February 28, 2023 , we extended the maturity of our loan on Windmill Farms until February 28, 2024 at a revised interest rate of 7.75%.

• On March 15, 2023 , we entered into a $33.0 million construction loan to finance the development of Lake Wales (See "Development Activities") that bears interest at SOFR plus 3% and matures on March 15, 2026 , with two one-year extension options.

• On May 4, 2023, we paid off the remaining $14.0 million of our Series A Bonds and $28.9 million of our Series B Bonds, which resulted in a loss on early extinguishment of debt of $1.7 million.

• On August 28, 2023, we paid off our $1.2 million loan on Athens .

• On November 6, 2023 , we entered into a $25.4 million construction loan to finance the development of Merano (See "Development Activities") that bears interest at prime plus 0.25% and matures on November 6, 2028 .

As of December 31, 2023 , no advances have been drawn on the loan.

• On December 15, 2023 , we entered into a $23.5 million construction loan to finance the development of Bandera Ridge (See "Development Activities") that bears interest at SOFR plus 3% and matures on December 15, 2028 .

• On February 8, 2024, we extended the maturity of our loan on Windmill Farms to February 28, 2026 at an interest rate of 7.50%.

Development Activities

During 2023, we spent $5.0 million on our ongoing development of Windmill Farms .

Our expenditure includes $1.2 million on the development of land lots for sale to single family home developers and $4.8 million on reimbursable infrastructure investments.

We have investment in nine notes receivable that were issued to fund the development of multifamily properties.

Each of these notes are convertible, at our option, into a 100% ownership interest in the underlying property.

As of December 31, 2022, one of the projects was in construction, one was in lease-up and seven were stabilized.

In 2022, we advanced $2.1 million on these development notes.

Our expenditure included $0.5 million on the development of land lots for sale to single family home developers and $4.5 million on reimbursable infrastructure investments.

In connection with the project, we entered into an agreement to sell 276 lots for a total of $13.1 million.

The agreement provides for the lots to be delivered over a two-year period.

We expect the first installment to be completed in June 2024.

On March 15, 2023, we entered into a development agreement with Pillar to build a 240 unit multifamily property in Lake Wales, Florida (" Lake Wales ") that is expected to be completed in 2025 for a total cost of approximately $55.3 million.

The cost of construction will be funded in part by a $33.0 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land and certain entitlement costs from a related party at an appraised value of $6.1 million.

As of December 31, 2023, we have incurred a total of $16.9 million in development costs.

On November 6, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in McKinney , Texas (" Merano ") that is expected to be completed in 2025 for a total cost of approximately $51.9 million.

The cost of construction will be funded in part by a $25.4 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

As of December 31, 2023, we have incurred a total of $7.2 million in development costs.

On December 15, 2023, we entered into a development agreement with Pillar to build a 216 unit multifamily property in Temple , Texas (" Bandera Ridge ") that is expected to be completed in 2025 for a total cost of approximately $49.6 million.

The cost of construction will be funded in part by a $23.5 million construction loan (See "Financing Activities") .

The development agreement provides for a $1.6 million fee that will be paid to Pillar over the construction period.

In connection with the closing of the loan, we purchased the land from a related party at an appraised value of $2.7 million.

As of December 31, 2023, we have incurred a total of $3.1 million in development costs.

In 2021, Landing on Bayou Cane, a 240 unit multifamily property in Houma , Louisiana suffered extensive damage from Hurricane Ida and required extensive renovation.

As of December 31, 2023, we completed the restoration and lease-up of the property for a total cost of $16.7 million, which was primarily funded by insurance proceeds.

Other Developments

During 2021, we recorded a loss of $29.6 million on the remeasurements of certain assets ("Earn Out Obligation") that were sold in connection with our initial investment in VAA .

On June 17, 2022, we entered into an agreement to sell 45 properties (“VAA Sale Portfolio”) held by VAA and one property held by our SPC subsidiary.

On September 15, 2022, we entered into a Distribution and Holdback Property Agreement (“Distribution Agreement”) with Macquarie, which provides the timing and ordering of the distribution of the net proceeds from the sale of the VAA Sale Portfolio, the repayment of the Mezzanine Loans, and the distribution of the remaining seven properties of VAA (“VAA Holdback Portfolio”).

On September 16, 2022, VAA completed the sale of the VAA Sale Portfolio for $1.8 billion, resulting in gain on sale of $738.4 million to the joint venture.

In connection with sale, we received an initial distribution of $182.8 million from VAA, which included the payment of the remaining balance of our Earn Out Obligation to Macquarie.

On November 1, 2022, in connection with the sale of the VAA Sale Portfolio, we received an additional distribution from VAA, which included a cash payment of $204.0 million and the full operational control of the VAA Holdback Portfolio, which resulted a $73.2 million gain on the remeasurement of assets.

We are in the process of negotiating the assumption of the mortgage notes payable on the VAA Holdback Portfolio.

Our ownership interest in VAA is held by SPC, and is therefore our share of the proceeds from the sale of the VAA Sale Portfolio is subject to the debt covenants of the bonds issued by SPC.

These provisions include restrictions on the distribution of cash from SPC.

On September 16, 2022, VAA sold 45 properties (“VAA Sale Portfolio”) for $1.8 billion, resulting in a gain on sale of $738.4 million to the joint venture.

In connection with the sale, we received an initial distribution of $182.8 million from VAA.

On November 1, 2022, we received an additional distribution from VAA, which included the full operational control of the remaining seven properties (collectively referred to herein as the “VAA Holdback Portfolio”) and a cash payment of $204.0 million.

The VAA Holdback Portfolio consists of Blue Lake Villas , a 186 unit multifamily property in Waxahachie , Texas ;

Blue Lake Villas Phase II , a 70 unit multifamily property in Waxahachie , Texas ;

Northside on Travis , a 200 unit multifamily property in Sherman , Texas ;

Parc at Denham Springs , a 224 unit multifamily property in Denham Spring , Louisiana ;

Residences at Holland Lake , a 208 unit multifamily property in Weatherford , Texas ;

Villas of Park West I , a 148 unit multifamily property in Pueblo , Colorado;

and Villas of Park West II , a 112 unit multifamily property in Pueblo , Colorado.

On March 23, 2023, we received $18.0 million from VAA, which represented the remaining distribution of the proceeds from the sale of the VAA Sale Portfolio.

We used our share of the proceeds from the sale of the VAA Sale Portfolio to invest in short-term investments and real estate, pay down our debt and for general corporate purposes.

Critical Accounting Policies

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We move a property in and out of Same Properties based on whether the property is substantially leased-up and in operation for the entirety of both periods of the comparison.

For the comparison of the year ended December 31, 2022 to the year ended December 31, 2021 , the Redevelopment Property is Landing Bayou.

For the comparison of the year ended December 31, 2023 to the year ended December 31, 2022 , the Redevelopment Property is Landing on Bayou Cane.

The Acquisition Properties are Blue Lake Villas, Blue Lake Villas Phase II, Northside on Travis, Parc at Denham Springs, Residences at Holland Lake, Villas of Park West I and Villas of Park West II.

The Disposition Properties are 600 Las Colinas, Fruitland Park, Overlook at Allensville Phase II, Sugar Mill Phase III and Toulon.

The following table provides a summary of the results of operations of 2022 and 2021:

The Disposition Properties are Fruitland Park, Sugar Mill Phase III and Toulon.

The following table (amounts in thousands) provides a summary of the results of operations of 2023 and 2022:

For the Years Ended December 31,

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General, administrative and advisory (20,198) (18,786) (1,412)

Interest, net 9,030 (5,659) 14,689

Interest income, net 17,345 9,030 8,315

Loss on early extinguishment of debt (1,710) (2,805) 1,095

Gain (loss) on foreign currency transactions 20,067 (6,175) 26,242

Gain sale, remeasurement or write down of assets 87,132 24,647 62,485

Gain on foreign currency transactions 993 20,067 (19,074)

(Loss) gain sale, remeasurement or write down of assets (1,923) 87,132 (89,055)

Income from joint ventures 3,242 469,268 (466,026)

Other (expense) income (94,644) 5,298 (99,942)

Other income (expense) 2,021 (94,644) 96,665

Net income $ 5,251 $ 475,317 $ (470,066)

Comparison of the year ended December 31, 2023 to the year ended December 31, 2022:

Our $468.9 million increase in net income in 2022 is primarily attributed to the following:

• The $2.0 million increase in profit the multifamily is due to increases of $2.5 million from the Acquisition Properties and $0.4 million from the Same Properties offset in part a decrease of $0.6 million from the Disposition Properties and $0.3 million from the Redevelopment Property .

• The $3.2 million decrease in profit from the commercial properties is due to a decreases of $2.6 million from the Disposition Properties and $0.6 million from the Same Properties .

• The decrease in general, administrative and advisory expenses is primarily due to the decrease in legal costs from the arbitration settlement in 2021 (See " Other Developments" in Management's Overview) and a decrease in other administrative and advisory expenses .

• The change in interest, net is due a $7.2 million increase in interest income and $4.8 million decrease in interest expense.

The increase in interest income is due to an increase in interest from our convertible loans, an increase in interest rates and an increase in short term investments in 2022.

The increase in short-term investments is due the $388.0 million in cash distributions received from VAA in 2022 (See " Other Developments" in Management's Overview ).

The decrease in interest expense is primarily due to pay downs of our bonds payable and repayment of mortgage notes payable on properties sold in 2021 and 2022 (See " Acquisitions and Dispositions " in Management's Overview).

• The increase in gain on foreign currency transactions is due to a favorable change in the U.S.

Dollar and the New Israeli Shekel conversion rate.

• Gain on sale, remeasurement or write down of assets increased $65.8 million from $23.4 million in 2021 to $89.2 million in 2022.

The increase is due to the $73.2 million gain on remeasurement of the VAA Holdback Portfolio in 2022 and other transactions described in "Other Developments" and " Acquisitions and Dispositions " in Management's Overview.

• The increase in income from joint ventures is primarily due our share of the gain on the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).

• The change in other (expense) income is primarily due to the $104.2 million increase in tax expense as a result of the sale of the VAA Sale Portfolio in 2022.

Our $470.1 million decrease in net income in 2023 is primarily attributed to the following:

• The $6.6 million increase in profit from the multifamily properties is due to increases of $5.6 million from the Acquisition Properties and $2.3 million from the Redevelopment Property offset in part by decreases of $1.0 million from the Same Properties and $0.3 million from the Disposition Properties .

The increase in profit from the Redevelopment property is due to the completion of the restoration and lease-up of Landing on Bayou Cane in 2023.

The decrease in profit from the Same Properties is primarily due to an increase in insurance cost in 2023.

• The $3.2 million decrease in profit from the commercial properties is primarily due to a decline in occupancy and an increase in insurance cost .

• The $8.3 million increase in interest income, net is due to a $8.0 million decrease in interest expense and a $0.3 million increase in interest income.

The decrease in interest expense is primarily due to the pay down of our bonds payable in 2023 (See " Financing Activities " in Management's Overview).

The increase in interest income is primarily due to a $9.9 million increase in interest on short term investments offset in part by a $9.6 million decrease in interest income from notes receivable and receivable from related party.

The increase in short-term investments is primarily due to the $388.0 million in cash distributions received from VAA in 2022 (See " Other Developments" in Management's Overview ).

The decrease in interest income from notes receivable is primarily due to the forgiveness of $4.2 million in interest income in connection with the UHF loan modification in 2023.

• The decrease in gain on foreign currency transactions is due to a change in the U.S.

Dollar and the New Israeli Shekel conversion rate in connection with the bonds that were listed on the Tel-Aviv Stock Exchange (See "Financing Activities") .

• (Loss) gain on sale, remeasurement or write down of assets changed $91.1 million from a gain of $89.2 million in 2022 to a loss of $1.9 million in 2023.

The decrease in gain is primarily due to the $73.2 million gain on remeasurement of the VAA Holdback Portfolio in 2022 (See "Other Developments" in Management's Overview) and property dispositions in 2022 (See "Acquisitions and Dispositions" in Management's Overview).

• The decrease in income from joint ventures is primarily due to our share of the gain on the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).

• The $101.3 million change in other income (expense) is primarily due to the income tax expense incurred in connection with the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).

Comparison of the year ended December 31, 2022 to the year ended December 31, 2021:

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and fund possible property acquisitions.

We anticipates that our cash, cash equivalents and short-term investments as of December 31, 2022, along with cash that will be generated in 2023 from notes and interest receivables, will be sufficient to meet all of our cash requirements.

We intends to selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements.

We anticipate that our cash, cash equivalents and short-term investments as of December 31, 2023, along with cash that will be generated in 2024 from notes and interest receivables, will be sufficient to meet all of our cash requirements.

We may also selectively sell land and income-producing assets, refinance or extend real estate debt and seek additional borrowings secured by real estate to meet our liquidity requirements.

Although history cannot predict the future, historically, we have been successful at refinancing and extending a portion of our current maturity obligations.

7 unchanged sentences

Net cash used in financing activities $ (139,020) $ (112,377) $ (26,643)

The increase in cash used in operating activities is primarily due to payments of taxes related to our share of the gain on the sale of VAA Sale Portfolio in 2022.

The increase in cash provided by investing activities is primarily due the $376.9 million increase in distribution from joint venture and the $175.3 million redemption of short term investments in 2022 offset in part by the $261.6 million purchase of short term investments in 2022, the $61.0 million decrease in proceeds from the sale of real estate and the $15.1 million decrease in collection of notes receivable.

The increase in distribution from joint venture is due to the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview).

The increase in cash used in financing activities is primarily due to the $20.0 million proceeds from mortgages, notes and bonds payable in 2021 offset in part by a $7.9 million decrease in payments of mortgages, notes and bonds payable.

The decrease in cash used in operating activities is primarily due to an increase in interest income and an increase in rents provided by the Acquisition Properties (See "Acquisitions and Dispositions" in Management's Overview).

The increase in interest income is primarily due to an increase in short-term investments and cash equivalents and an increase in interest rates.

The decrease in cash provided by investing activities is primarily due to a $362.9 million decrease in distribution from joint venture (See "Other Developments" in Management's Overview) and a $44.4 million decrease in proceeds from the sale of real estate (See " Acquisitions and Dispositions " in Management's Overview), offset in part by a $131.7 million decrease in investment in short-term investments.

The decrease in distribution from joint venture is due to the sale of the VAA Sale Portfolio in 2022 (See "Other Developments" in Management's Overview) and the decrease in investment in short-term investments is due to the investment of those distributions in 2022.

The $26.6 million increase in cash used in financing activities is primarily due to an $87.4 million increase in the repayments of bond payable offset in part by a $60.8 million decrease in repayments of mortgage and other notes payable.

The increase in repayments of bonds payable is primarily due to the payoff of our bonds in 2023 (See " Financing Activities " in Management's Overview) and the decrease in the repayments of the mortgage and other notes payable is primarily due to the payoff of the mortgage notes on Toulon and Sugar Mill Phase III in 2022 in connection with the sales of the underlying properties.

Funds From Operations ("FFO")

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Adjustments for unconsolidated joint ventures are calculated to reflect FFO on the same basis.

We also presents FFO excluding the impact of the effects of foreign currency translation.

We also present FFO excluding the impact of the effects of foreign currency translation.

FFO and FFO on a diluted basis are useful to investors in comparing operating and financial results between periods.

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Depreciation and amortization on consolidated assets 13,646 9,686 11,870

Gain on sale, remeasurement or write down of assets (87,132) (24,647) (36,895)

Loss (gain) on sale, remeasurement or write down of assets 1,923 (87,132) (24,647)

Gain on sale of land 188 4,752 16,645

Gain on sale of assets from unconsolidated joint venture at our pro rata share less noncontrolling interest (265,804) — —

Gain on sale of assets from unconsolidated joint venture at our pro rata share — (265,804) —

Depreciation and amortization on unconsolidated joint ventures at pro rata share 272 8,424 11,604

5 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis