1-U 1 form1-u.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 1-U

 

CURRENT REPORT

Pursuant to Regulation A of the Securities Act of 1933

 

August 30, 2023

(Date of Report (Date of earliest event reported))

 

RealtyMogul Apartment Growth REIT, Inc.

(Exact name of issue as specified in its charter)

 

Maryland   81-5263630
(State or other jurisdiction   (I.R.S. Employer
of incorporation or organization)   Identification No.)

 

10573 W Pico Blvd,

PMB #603

Los Angeles, CA, 90064

(Full mailing address of

principal executive offices)

 

(877) 781-7153

(Issuer’s telephone number, including area code)

 

Common Stock

(Title of each class of securities issued pursuant to Regulation A)

 

 

 

 
 

 

Item 9. Other Events.

 

On August 30, 2023, RealtyMogul Apartment Growth REIT, Inc. issued an investor communication relating to the quarter ended June 30, 2023. The text of the investor communication is set forth below.

 

Q2 2023*

 

To discuss your REIT holdings, schedule a call with Investor Relations at:

https://calendly.com/realtymogul-investor-relations or call 877-781-7062

 

REALTYMOGUL APARTMENT GROWTH REIT

 

OFFERING OVERVIEW  TOTAL ASSET VALUE1  $260,000,000 
   NUMBER OF INVESTMENTS2   9 
RealtyMogul Apartment Growth REIT is a non-traded REIT, investing in value-add multifamily apartment buildings with both preferred and joint venture equity, with a focus on providing capital appreciation to investors.  TOTAL NUMBER OF MULTIFAMILY UNITS2   1,595 
   INCEPTION TO DATE RETURN3   6.5%
   FIVE-YEAR RETURN3   7.3%
   THREE-YEAR RETURN3   10.0%
   ONE-YEAR RETURN3   -2.0%
   Q2 ANNUALIZED DISTRIBUTION RATE4   4.5%
   DISTRIBUTION FREQUENCY   Quarterly 
   TAX REPORTING FORM   1099-DIV 
   CONSECUTIVE DISTRIBUTIONS4   22 Quarters 

 

KEY OBJECTIVES

 

● To realize capital appreciation in the value of our investments over the long term

● To pay attractive and stable cash distributions.

 

PORTFOLIO STATISTICS5

 

 

 

 

*All data as of June 30, 2023 unless otherwise specified.

 

1 Aggregate value of all underlying properties in RealtyMogul Apartment Growth REIT, Inc. based on the most recent internal valuations as of the end of the fiscal quarter upon which our most recently announced net asset value (“NAV”) per share is based pursuant to our valuation policies; provided, however, the value of properties underlying investments acquired since the effective date of the most recently announced NAV per share is based on the most recent purchase price of such properties. As with any methodology used to estimate value, the methodology employed by our affiliates’ internal accountants or asset managers is based upon a number of estimates and assumptions about future events that may not be accurate or complete. For more information, see the “Description of Our Common Stock – Valuation Policies” section of our offering circular.

2 Based on the current outstanding investments as of July 31, 2023.

3 Returns shown reflect the percent change in the NAV per share from the beginning of the applicable period, plus the amount of any distribution per share declared in the period. All returns shown assume reinvestment of distributions pursuant to RealtyMogul Apartment Growth REIT’s distribution reinvestment plan, are derived from unaudited financial information and are net of all RealtyMogul Apartment Growth REIT expenses, including management fees. An individual stockholder’s total return may vary from the total return, and there is no assurance that stockholders will be able to realize the estimated NAV per share upon attempting to sell their shares. Past performance is historical and not a guarantee of future results. Additional return metrics can be found at the RealtyMogul website.

4 There is no guarantee that stockholders will receive a distribution, and distributions have been paid from net proceeds from our offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager, borrowings in anticipation of future operating cash flow and the issuance of additional securities. The board of directors may in the future declare lower distributions or no distributions at all for any given period.

5 Based on the original real estate investment amounts as of July 31, 2023.

 

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MARKET UPDATES

 

VIEWS FROM MANAGEMENT

 

Dear Investor,

 

Thank you for your continued support of RealtyMogul Apartment Growth REIT. We have now provided 22 consecutive quarters of distributions, totaling over $10,700,000. To date, over 3,500 investors have invested, and RealtyMogul Apartment Growth REIT holds investments in over $260 million6 of real estate. We are also happy to share that as of July 2023, approximately 66% of investors have enrolled in the distribution reinvestment plan (the “DRIP”), allowing for their distributions to compound over time. If you would like to participate in the DRIP, simply log into your account and then select “Reinvest Distributions.”

 

For Q2 2023, NAV per share decreased from $11.11 to $10.47, reflecting a 5.7% decrease quarter over quarter. Distributions for Q2 2023 reflected an approximately 4.50% annual distribution rate based on an $11.11 NAV per share. The NAV per share calculation as of June 30, 2023 reflects the total value of our assets minus the total value of our liabilities, divided by the number of shares outstanding as of June 30, 2023. To determine the NAV per share, our manager marks to market the Apartment Growth REIT’s assets and liabilities, which primarily consist of the Apartment Growth REIT’s real estate investments.

 

RealtyMogul Apartment Growth REIT is focused entirely on multifamily apartment communities. We have pursued this strategy because we believe multifamily assets have significant upside potential due to the nationwide housing shortage as a result of under-building, according to Fannie Mae. We also believe that there is additional upside potential as a result of the rise in pricing of single-family homes after the COVID-19 pandemic and the rise in the up-front and ongoing costs of mortgages, both of which may increase the cost of a single-family home, according to S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index and Freddie Mac. We further believe that multifamily assets provide downside protection as a result of the large numbers of tenants at each multifamily property, creating diverse income streams.

 

Capitalization rates, or cap rates, are based on the net operating income that a property is expected to generate and are calculated by dividing the net operating income by the property’s asset value, expressed as a percentage. Cap rates can have a significant impact on real estate investment valuations. For example, if the net operating income on an investment remains consistent, applying a lower cap rate for valuation purposes can yield a higher property value; conversely a higher cap rate environment can yield a lower property value.

 

In connection with determining cap rates for RealtyMogul Apartment Growth REIT’s properties, RM Adviser uses various data sources, including the PWC Investor Survey, which has estimated a market cap rate of 5.25% in Q2 23, up from 4.45% in Q2 22, an almost 18% increase year over year.

 

In addition, because real estate is often acquired with debt, we believe interest rates and cap rates are seen as positively correlated. For example, as interest rates rise and fall, so do cap rates and in turn, property valuations. As it relates to the current interest rate environment, since January 2022, short- and long-term interest rates have increased significantly – since that time, the Federal Funds Rate has increased by over 5% and the 10-year U.S. Treasury has increased by almost 3%.7 Since 3Q23, the NAV per share for Apartment Growth REIT has decreased largely due to increased interest rates putting pressure on cap rates, which has caused decreases in property valuations. Valuations fluctuate over time, and we believe a benefit of investing in a non-traded REIT is the long-term investment horizon with less focus on quarter-to-quarter changes. Furthermore, while valuations have fallen, we have seen positive trends, including the following: tenant occupancy over the properties in our portfolio remains high at over 90% as of Q2 23, rents have increased 32% over prior rents for our current multifamily renovation projects as further described below, and the majority our portfolio is financed with fixed-rate mortgages.

 

To paraphrase one of the most influential investors of our time, Warren Buffett famously maintains to be “fearful when others are greedy, and greedy when others are fearful.” As property valuations have decreased, we have continued to source new acquisitions and look for compelling opportunities with the cash reserves we accumulated in 2022.

 

We will also continue to seek a diversified portfolio of multifamily real estate investments to provide stockholders exposure to the multifamily real estate market through their investment in RealtyMogul Apartment Growth REIT.8 As of July 2023, RealtyMogul Apartment Growth REIT has nine investments spread across eight markets. Since 4Q21, we have sold three investments that were consolidated on our balance sheet and two investments in which we had minority positions, which sales resulted in an aggregate of $138,325,000 of property value upon exit.9

 

 

 

6 Aggregate value of all underlying properties in RealtyMogul Apartment Growth REIT, Inc. based on the most recent internal valuations as of the end of the fiscal quarter upon which our most recently announced NAV per share is based pursuant to our valuation policies; provided, however, the value of properties underlying investments acquired since the effective date of the most recently announced NAV per share is based on the most recent purchase price of such properties. As with any methodology used to estimate value, the methodology employed by our affiliates’ internal accountants or asset managers is based upon a number of estimates and assumptions about future events that may not be accurate or complete. For more information, see the “Description of Our Common Stock – Valuation Policies” section of our offering circular.

7 The federal funds target rate ranged from 0.00% to 0.25% as of January 3, 2022 compared to a range of 5.25% to 5.50% as of August 15, 2023. The 10 Year U.S. Treasury rate was 1.63% as of January 3, 2022 compared to 4.21% as of August 15, 2023.

8 An investment in RealtyMogul Apartment Growth REIT, Inc. is not a direct investment in commercial real estate.

9 Certain fees were paid to RM Adviser and its affiliates in connection with such sales. Such fees were paid by the special purpose entities in which we invested and not by us; we are not entitled to these fees.

 

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In 2022, 100% of our distributions were classified as capital gains income.10 Distributions were classified as such because the REIT sold properties which resulted in capital gains. As a REIT investor, you are entitled to capital gains treatment and tax rate on asset sales done by the REIT.

 

During Q2 2023, the U.S. Bureau of Economic Analysis estimated that U.S. seasonally adjusted real GDP increased 2.4% quarter over quarter. The Federal Reserve updated its forecast for 2023 growth in the nation’s GDP from the 0.4% it projected in March 2023 to 1.0% as well as projected a 4.1% unemployment rate for 2023, down from the March 2023 estimate of 4.5%. The unemployment rate ended 2022 at 3.7%. Average hourly earnings for employees increased 5.7% year over year according to the U.S. Bureau of Labor Statistics. In addition, the Consumer Price Index (“CPI”) rose year over year 4.9% in April, 4.0% in May, and 3.0% in June according to the U.S. Bureau of Labor Statistics. Shelter costs, which comprise approximately one-third of CPI, increased 7.8% year over year. Given the economic inflation, the Federal Reserve has taken steps to cool off the economy by increasing the Federal Funds Rate, the rate at which commercial banks borrow and lend their excess reserves to each other overnight, seven times in 2022 and four times in 2023 from a target rate of 0.00% to 0.25% to the current target rate of 5.25% to 5.50%. The Federal Reserve is reducing their balance sheet through quantitative tightening, allowing bonds to mature without reinvestment of the principal. As it relates to real estate purchases, the cost to finance a real estate investment with a mortgage has increased in each quarter of 2022, stabilizing in Q4 2022 before increasing again in Q2 2023; however, we believe that real estate is positively correlated with inflation as property prices and rental income tend to rise as inflation rises. We like multifamily investments in an inflationary environment as the typical one-year lease term allows an owner to mark rents to market on an annual basis. We believe that RealtyMogul Apartment Growth REIT is well positioned as it continues to seek a diversified portfolio of multifamily real estate, which has a low or negative correlation to other major asset classes and over time has exhibited less volatility than other asset classes.11

 

 

 

10 There is no guarantee that shareholders will receive a distribution, and distributions have been paid from sources other than cash flow from operations, including net proceeds from our offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager, borrowings and the issuance of additional securities.

11 Commercial real estate performs differently than other asset classes, such as stocks or bonds, and lacks liquidity. An investment in RealtyMogul Apartment Growth REIT, Inc. is not a direct investment in commercial real estate.

 

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INVESTMENT UPDATES

 

BROOKLYN PORTFOLIO  

VILLAS DEL SOL I & II (FKA PLANO

MULTIFAMILY PORTFOLIO)

 

 

  

 

Location: Brooklyn, NY

 

Equity Investment: $3,000,000

 

Business Plan: Acquire nine rent-stabilized properties, maximize occupancy and increase rents as allowed.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 11/30/2017

 

Asset Management Update: Portfolio occupancy was static quarter over quarter, ending Q2 at 98%, with two vacant units in the 112-unit portfolio. The real estate company has been leasing, and will continue to lease, units according to the legal rents set by the New York Rent Guidelines Board. For the time period from October 2022 to September 2023, the Rent Guidelines Board has allowed for increases of 3.25% for one-year leases and 5% for two-year leases. The property averaged 97% rent collection for Q2 2023.

  

 

Location: Plano, TX

 

Equity Investment: $1,000,000

 

Business Plan: Acquire and renovate a portfolio of garden-style apartment buildings.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 01/09/2018

 

Asset Management Update: Portfolio occupancy increased 1% quarter over quarter, ending Q2 at 95% occupied. 67 of the 156 units have been upgraded with new flooring, appliances, backsplash, and lighting packages. Exterior and common area improvements are complete, and the property is amenitized with an improved leasing office, gazebos, BBQ grills, an upgraded laundry room and soccer court. The property averaged 98% rent collection for Q2 2023. This property was targeted for sale in 2023. As of July 26, 2023, the property is under contract with an anticipated closing in September 2023.

 

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NINETY-NINE44 APARTMENTS

 

 

Location: Dallas, TX

 

Equity Investment: $4,000,000

 

Business Plan: Acquire and renovate a garden-style apartment community.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 9/9/2020

 

Asset Management Update: Property occupancy remained static quarter over quarter, ending Q2 at 95% occupied. As of June 2023, the real estate company renovated 53 units. Of those 53 units, 48 have been leased and have achieved an average premium of $167/month, or 19% over prior rents. The real estate company has completed exterior capex work, including landscaping, parking lot repairs, parking lot restriping, trip hazard repairs, laundry room improvements, carport replacement, and fitness center improvements. The real estate company plans to improve the fans, lighting, and air conditioning for the fitness center as well as playground and private yard improvements in the coming quarters. The property averaged 93% rent collection for Q2 2023.

  

THE ORION

 

 

Location: Orion Township, MI

 

Equity Investment: $5,000,000

 

Business Plan: Acquire and renovate a garden-style apartment community.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 3/23/2021

 

Asset Management Update: Property occupancy decreased 3% quarter over quarter, ending Q2 at 89% occupancy. Since quarter end, occupancy has increased to 91%, as of August 14, 2023. As of June 2023, 100 of the 200 units have been renovated since acquisition. Of those 100 units, 98 have been leased and have achieved an average premium of $323/month, or 28% over prior rents. Exterior improvements continue to progress as the clubhouse remodel, BBQ area, new exterior paint, new signage, new dog park, and parking lot projects have been completed. Improvements to the playground area and irrigation system are underway. Based on current bids, exterior improvements are expected to be completed below budget. The property averaged 99% rent collection for Q2 2023.

 

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LOTUS VILLAGE

 

 

Location: Austin, TX

 

Equity Investment: $2,500,000

 

Business Plan: Acquire and renovate a low-rise apartment community.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 6/25/2021

 

Asset Management Update: Property occupancy remained static quarter over quarter, ending Q2 at 94% occupancy. As of June 2023, 54 of the 222 units have been renovated since acquisition. Of those 54 units, 51 have been leased and have achieved an average premium of $214/month, or 17% over prior rents. The real estate company has completed capex work, including fitness center renovations, pool repairs, signage enhancement, BBQ area updates, dog park updates, landscaping, and garage repairs. The property averaged 94% rent collection for Q2 2023. During Q2 2023, the Company funded a capital call totaling $276,192 to purchase an interest rate cap related to an extension of the loan and provide working capital in anticipation of a 2024 sale of the property.

  

SHERWOOD OAKS

 

 

Location: Riverview, FL

 

Equity Investment: $4,200,000

 

Business Plan: Acquire and renovate a garden-style apartment community.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 11/30/2021

 

Asset Management Update: Property occupancy decreased 4% quarter over quarter, ending Q2 at 93% occupancy. The capital improvements budget includes exterior work as the prior owner previously renovated all unit interiors. Exterior renovations continue to progress with the dog park, pool, parking lot, wastewater facility, fitness center, outdoor amenities, and drainage completed. Other improvements have commenced, including improvements to the landscaping and lighting. The property averaged 92% rent collection for Q2 2023.

 

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RESTORATION ON CANDLEWOOD

 

Restoration on Candlewood

 

Location: Oklahoma City, OK

 

Equity Investment: $5,250,000

 

Business Plan: The borrower used to proceeds of the investment to acquire and lease-up a garden style apartment community.

 

Investment Type: Preferred Equity

 

Acquisition Date: 3/21/2023

 

Required Redemption Date: 3/31/2026

 

Asset Management Update: The property was acquired in March 2023, and the real estate company is implementing its business plan for the property. The property is 60% occupied as of June 2023. Since quarter end, occupancy has increased to 66%, as of July 31, 2023.

  

RIDGELINE VIEW TOWNHOMES

 

 

Location: Vancouver, WA

 

Equity Investment: $4,000,000

 

Business Plan: Acquire a 2022-built, Class A townhome community and grow revenues by reducing concessions associated with initial lease up.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 5/19/2023

 

Asset Management Update: The property was acquired in May 2023, and the real estate company is implementing its business plan for the property. The property is 94% occupied as of June 2023.

 

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BROOKSIDE APARTMENTS

 

 

Location: Raleigh, NC

 

Equity Investment: $3,000,000

 

Business Plan: Acquire and renovate a low-rise apartment community.

 

Investment Type: Joint Venture Equity

 

Acquisition Date: 6/30/2023

 

Asset Management Update: The property was acquired in June 2023, and the real estate company is implementing its business plan for the property. The property is 97% occupied as of June 2023.

  

 

 

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INVESTMENT ACTIVITY

 

DISTRIBUTIONS

 

RealtyMogul Apartment Growth REIT has declared distributions for 22 consecutive quarters. The board of directors authorized a distribution for each month of the second quarter of 2023 on March 20, 2023. Exclusive of special distributions, distributions have been paid on a quarterly basis since January 1, 2018 and equate to approximately 4.5% on an annualized basis based upon the then current per share purchase price.

 

NET ASSET VALUE (NAV)

 

PRICE PER SHARE (AS OF 8/8/23)*   NAV PER SHARE (AS OF 6/30/23)
$10.47   $10.47

 

*Our offering price per share equals our most recently announced NAV per share and will be adjusted at the beginning of every fiscal quarter (or as soon as commercially reasonable thereafter). On August 8, 2023, we announced that our NAV per share is $10.47, as of June 30, 2023. Accordingly, effective August 8, 2023, the offering price per share is $10.47. The price per share pursuant to our distribution reinvestment plan will equal our most recently announced NAV per share and any repurchases of shares made pursuant to our share repurchase program will be made at the most recent NAV per share (less any applicable discounts, as set forth in our offering circular).

 

The NAV per share calculation reflects the total value of our assets minus the total value of our liabilities, divided by the number of shares outstanding.

 

As with any methodology used to estimate value, the methodology employed calculating our NAV per share is based upon a number of estimates and assumptions about future events that may not be accurate or complete. Further, different parties using different assumptions and estimates could derive a different NAV per share, which could be significantly different from our calculated NAV per share. Our NAV will fluctuate over time and does not represent: (i) the price at which our shares would trade on a national securities exchange, (ii) the amount per share a stockholder would obtain if he, she or it tried to sell his, her or its shares or (iii) the amount per share stockholders would receive if we liquidated our assets and distributed the proceeds after paying all our expenses and liabilities.

 

Copyright © 2023 RM Adviser, LLC, All rights reserved.

 

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Previous Updates

 

Please follow the below links to access updates from the prior four quarters. Historical quarterly updates can also be found on the SEC EDGAR website.

 

Q1 2023 Shareholder Letter

 

Q4 2022 Shareholder Letter

 

Q3 2022 Shareholder Letter

 

Q2 2022 Shareholder Letter

 

As always, please feel free to contact us at info@realtymogul.com or call directly with any questions you may have.

 

Sincerely,

 

/s/ Jilliene Helman   /s/ Eric Levy
Jilliene Helman   Eric Levy
CEO, RM Adviser, LLC   Vice President, Portfolio Manager, RM Adviser, LLC

 

Forward-Looking Statements

 

This Current Report on Form 1-U contains forward-looking statements within the meaning of the federal securities laws. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” “continue,” “could,” “might,” “potential,” “predict,” “should,” “will,” “would,” and similar expressions or statements regarding future periods or the negative of these terms are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this Current Report on Form 1-U.

 

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SIGNATURES

 

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.

 

  REALTYMOGUL APARTMENT GROWTH REIT, INC.
     
  By: /s/ Jilliene Helman
  Name: Jilliene Helman
  Title: Chief Executive Officer and President
     
  By: /s/ Eric Levy
  Name: Eric Levy
  Title: Vice President, Portfolio Manager, RM Adviser, LLC
     
  Date: August 30, 2023

 

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