UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1-K

ANNUAL FINANCIAL REPORT PURSUANT TO REGULATION A

For the fiscal year ended December 31, 2023

RealtyMogul Apartment Growth REIT, Inc.

(Exact name of issuer as specified in its charter)

Commission File Number: 024-10713

(877) 781-7153

(Issuer’s telephone number, including area code)

Common Stock

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

Part II.

STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

We make statements in this Annual Report on Form 1-K (this “Annual Report”) that are 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 Annual Report or in the information incorporated by reference into this Annual Report.

The forward-looking statements included in this Annual Report are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:

Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this Annual Report. All forward-looking statements are made as of the date of this Annual Report and the risk that actual results will differ materially from the expectations expressed in this Annual Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Annual Report, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Annual Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Annual Report will be achieved.

Item 1. Business

The Company

RealtyMogul Apartment Growth REIT, Inc. is a Maryland corporation formed on January 13, 2017 to own and manage a diversified portfolio of preferred equity and joint venture equity investments in multifamily properties located in target markets throughout the United States. The use of the terms “RM Apartment Growth REIT,” the “Company,” “we,” “us” or “our” in this Annual Report refer to RealtyMogul Apartment Growth REIT, Inc., unless the context indicates otherwise. We have elected to be taxed, and currently qualify, as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), commencing with our taxable year ended December 31, 2017.

We operate under the direction of the board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The current board members are Jilliene Helman, Flynann Janisse and Louis S. Weeks III. Ms. Janisse and Mr. Weeks are independent directors. We are externally managed by RM Adviser, LLC (our “Manager”), which is an affiliate of our sponsor, RM Sponsor, LLC (our “Sponsor”). Our Manager and our Sponsor are each wholly-owned subsidiaries of Realty Mogul, Co. Our Manager manages our day-to-day operations and also provides asset management, marketing, investor relations and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our capital. All shares of our common stock are distributed to the public exclusively through an online investment platform we refer to as the Realty Mogul Platform (www.realtymogul.com). The Realty Mogul Platform is operated by RM Technologies, LLC, which is a wholly-owned subsidiary of Realty Mogul, Co. and an affiliate of both our Sponsor and Manager. We do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us.

On August 23, 2017, our initial offering (“Initial Offering”) was qualified by the SEC. Pursuant to the Initial Offering, we offered up to $50,000,000 in shares of our common stock, including shares sold pursuant to our distribution reinvestment plan. On December 23, 2020, we commenced our follow-on offering (the “Follow-on Offering” and, collectively with the Initial Offering, the “Offering”) and terminated our Initial Offering. We are continuing to offer in the Follow-on Offering up to $57,903,648 in shares of our common stock, including shares sold pursuant to our distribution reinvestment plan, which represents the value of the shares available to be offered as of December 8, 2022 out of the rolling 12-month maximum offering amount of $75,000,000 in shares of our common stock. On December 20, 2023, we filed an offering statement in anticipation of our second follow-on offering pursuant to Regulation A with the SEC, which offering statement was subsequently amended and filed with the SEC on April 9, 2024. As permitted under Regulation A, we may continue to offer shares of our common stock pursuant to the Follow-on Offering until the earlier of the qualification date of the offering statement for our second follow-on offering or 180 calendar days after December 23, 2023.

As of December 31, 2023, we had raised total aggregate gross offering proceeds of approximately $62,898,000 and had issued approximately 6,033,000 shares of our common stock in the Offering. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Offering Results” for more information concerning the current status of the Offering.

As of December 31, 2023, our portfolio was comprised of approximately $191,010,000 in real estate investments at original cost that, in the opinion of our Manager, meets our investment objectives. We have made, and intend to continue to make, preferred equity and joint venture equity investments in established, well-positioned apartment communities that have demonstrated consistently high occupancy and income levels across market cycles as well as multifamily properties that offer value added opportunities with appropriate risk-adjusted returns and opportunity for value appreciation.

Investment Strategy

We will invest in the following types of assets: common equity or preferred equity interests in companies whose primary business is to own and operate one or more specified multifamily projects.

For our value-add multifamily investments, our investment strategy involves acquiring apartment communities that can benefit from a value-add plan in which the real estate operator is making both exterior improvements, such as adding amenities like playgrounds, clubhouses and outdoor living areas, as well as interior improvements such as upgraded appliances, air conditioning and finishes. We believe that these investments have a high value from an investment standpoint and also a local community standpoint by enhancing previously underserviced apartment buildings. We also believe that these properties offer downside protection on one’s investment due to the large number of tenants at each property and the adaptability of individual property business plans.

Our Manager, or its affiliates, structures, underwrites and originates many of the products in which we invest as we believe that this provides for the best opportunity to control our partner relationships and optimize the terms of our investments. The underwriting process involves comprehensive financial, structural, operational and legal due diligence of our partners in order to optimize pricing and structuring and mitigate risk. We believe the current and future market environment provides a wide range of opportunities to generate compelling investments with strong risk-return profiles for our stockholders.

Investment Objectives

Our primary investment objectives are to realize capital appreciation in the value of our investments over the long term and to pay attractive and stable cash distributions to stockholders.

Competition

There are numerous REITs and other public and private entities with asset acquisition objectives similar to ours, and others may be organized in the future, which may increase competition for the investments suitable for us. Competitive variables include market presence and visibility, size of investments offered and underwriting standards. To the extent that a competitor is willing to risk larger amounts of capital in a particular transaction or to employ more liberal underwriting standards when evaluating potential investments than we are, our investment volume and profit margins for our investment portfolio could be negatively impacted. Our competitors also may be willing to accept lower returns on their investments and may succeed in buying the assets that we have targeted for acquisition. Although we believe that we are well positioned to compete effectively in each facet of our business, there is significant competition in our market sector and there can be no assurance that we will compete effectively or that we will not encounter increased competition in the future that could limit our ability to compete effectively on new acquisitions.

Risk Factors

We face risks and uncertainties that could affect us and our business as well as the real estate industry generally. These risks are outlined under the heading “Risk Factors” contained in our offering circular dated December 30, 2022, as supplemented (the “Offering Circular”), which may be accessed on the SEC’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system and may be updated from time to time by our future filings under Regulation A. In addition, new risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our financial performance. These risks could result in a decrease in the value of our shares of common stock. As of the date of this Annual Report, there were no material changes to the risk factors previously disclosed in the Offering Circular.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

RM Apartment Growth REIT is a Maryland corporation formed on January 13, 2017 to own and manage a diversified portfolio of preferred equity and joint venture equity investments in multifamily properties located in target markets throughout the United States. See Item 1. “Business – The Company” for more information regarding the Company.

Offering Results

We are continuing to offer in the Follow-on Offering up to $57,903,648 in shares of our common stock including any shares that may be sold pursuant to our distribution reinvestment plan, which represents the value of the shares of our common stock available to be offered as of December 8, 2022 out of the rolling 12-month maximum offering amount of $75,000,000 in our common stock. As of December 31, 2023, we had raised total aggregate gross offering proceeds of approximately $62,898,000 and had issued approximately 6,033,000 shares of common stock in the Offering, purchased by approximately 3,600 unique investors.

On December 20, 2023, we filed an offering statement in anticipation of our second follow-on offering pursuant to Regulation A with the SEC, which offering statement was subsequently amended and filed with the SEC on April 9, 2024. As permitted under Regulation A, we may continue to offer shares of our common stock pursuant to the Follow-on Offering until the earlier of the qualification date of the offering statement for our second follow-on offering or 180 calendar days after December 23, 2023. Our offering price per share equals our most recently announced net asset value (“NAV”) per share and will be adjusted at the beginning of every fiscal quarter (or as soon as commercially reasonable thereafter). In addition, the price per share pursuant to our distribution reinvestment plan equals our most recently announced NAV per share and any repurchases of shares made pursuant to our share repurchase program are made at the most recently announced NAV per share (less any applicable discounts, as set forth in the Offering Circular).

The following table summarizes our NAV per share for the periods indicated below:

Our Investments

The following describes our investment activity for the year ended December 31, 2023. See the section entitled “Recent Developments” below for a discussion of the investments we have made subsequent to December 31, 2023.

Real Estate Investments as of December 31, 2023

The following table sets forth information regarding our portfolio of real estate investments as of December 31, 2023:

2023 Investments in United States Treasury Bills

During 2023, we acquired ten investments in United States treasury bills (“U.S. T-bills”) at a cost of $54,920,000 and eight U.S. T-bills matured for gross proceeds of $48,386,000, of which $475,000 is recognized as interest income, reported in the accompanying consolidated statements of operations in Item 7. “Financial Statements” below.

2023 Real Estate Investment Payoffs

(1) On December 22, 2023, this property (the “Villas del Sol Property”) was sold. The Villas del Sol Property was originally acquired for $10,500,000, or $67,308 per unit, and was sold for $19,350,000, or $124,038 per unit, reflecting an 84.3% increase in property value. The initial underwriting projected a property-level internal rate of return (“IRR”) of 23.6%, a 2.6x equity multiple and 12.0% average cash-on-cash return throughout a 5-year hold period. Based on the Villas del Sol Property’s sale price, the Villas del Sol Property achieved approximately a 38.8% property-level IRR, a 3.5x equity multiple and 14.3% average cash-on-cash return over the 6.0-year hold period. In connection with the sale of the Villas del Sol Property, a disposition fee was paid to our Manager in the amount of $193,500.

Distributions

Our board of directors has authorized and we have paid, and we expect that our board of directors will continue to authorize and we will continue to pay, distributions quarterly in arrears. Stockholders who are record holders with respect to declared distributions will be entitled to such distributions until such time as the stockholders have had their shares repurchased by us. Although our goal is to fund the payment of distributions solely from cash flow from operations, we have paid and may continue to pay distributions from other sources, including the net proceeds of the 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, and we have no limit on the amounts we may pay from such other sources.

On December 18, 2017, our board of directors authorized our first distribution to stockholders of record as of the close of business on December 31, 2017. Our board of directors has authorized quarterly distributions for stockholders of record as of the close of business on the last day of each quarter since that date. Distributions made or authorized in 2023 are shown in the table below.

For the year ended December 31, 2023, we authorized and incurred distributions to our stockholders of approximately $2,593,000. For the year ended December 31, 2022, we authorized and incurred distributions to our stockholders of approximately $2,281,000.

Share Repurchase Program

We have adopted a share repurchase program in order to provide our stockholders with some liquidity that may enable them to sell their shares of common stock to us in limited circumstances. Our board of directors may, in its sole discretion, amend, suspend or terminate the share repurchase program at any time and for any reason. Reasons we may amend, suspend or terminate the share repurchase program include, without limitation, (i) to protect our operations and our remaining stockholders, (ii) to prevent an undue burden on our liquidity, (iii) to preserve our status as a REIT and (iv) following any material decrease in our NAV.

During the year ended December 31, 2023, we repurchased 231,125 shares of common stock for a total of approximately $2,432,000. For the year ended December 31, 2022, we repurchased 191,484 shares of common stock for a total of approximately $2,131,000. A valid repurchase request is one that complies with the applicable requirements and guidelines of our current share repurchase program.

Sources of Operating Revenue and Cash Flow

Our revenue is mainly generated from rental income and tenant reimbursements.

Profitability and Performance Metrics

We calculate funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) to evaluate the profitability and performance of our business. See “– Non-GAAP Financial Measures” below for a description of these metrics. Our investing and management activities related to multifamily real estate are all considered a single reportable business segment for financial reporting purposes. All of the investments we have made to date have been in domestic multifamily real estate assets with similar economic characteristics, and we evaluate the performance of all of our investments using similar criteria.

Market Outlook and Recent Trends

RM Apartment Growth REIT focuses solely on multifamily apartment communities with two main types of business plans – the first is value-add apartment communities that can benefit from a full-scale interior and exterior renovation and the second is stabilized apartment communities that have high projected occupancy. We have invested the majority of our time and capital into value-add projects, focusing on business plans that target higher growth coming from renovations. In terms of asset geography, we have focused on primary and secondary markets, primarily in the Sun Belt. Historically, that is where we have seen the best opportunities for value-add assets. Out of the 16 investments that we have made to date, seven have been in the state of Texas. We have invested in Texas due to the significant growth potential of the Texas Triangle, which is Austin, DFW, Houston and San Antonio and what we consider to be a favorable business climate in the state.

More generally, we believe that the multifamily asset class produces one of the best risk-adjusted returns in real estate. First, we believe the United States currently has a housing supply shortage, which we believe has been exacerbated by current mortgage holders, 60% of which have loans with interest rates below 4%. With record home prices, higher interest rates on 30-year fixed rate mortgages relative to the last two decades and the basic need for housing, we believe there is strong short-term downside protection for this asset class. We also believe this asset class also has built in inflation protection as rents can be reset on an annual basis.

In the wake of the rising interest rate environment of 2022 and 2023, commercial property values have decreased according to Green Street. Since January 2022, short- and long-term interest rates have increased significantly, with the Federal Funds Rate increasing over 5% and the 10-year U.S. Treasury increasing by almost 3%. We believe that cap rates and interest rates are positively correlated. As a result, as interest rates increased over the past two years, cap rates increased across four of the five major asset classes, which we believe is due to a buyer’s need to compensate oneself for the decreased cash flow caused by the higher interest rates.

As it relates to RM Apartment Growth REIT, we saw a similar trend in our NAV per share. Changes to our NAV per share are primarily driven by the value of the real estate in our portfolio. For Q4 2023, NAV per share decreased from $10.41 to $10.13, reflecting a 2.7% decrease quarter over quarter. The Q4 distribution reflected an approximately 4.50% annual distribution rate based on a $10.41 NAV per share. The NAV per share calculation as of December 31, 2023 reflects the total value of RM Apartment Growth REIT’s assets minus the total value of our liabilities, divided by the number of shares outstanding as of December 31, 2023. Since RM Apartment Growth REIT’s NAV per share peak in June 2022, we have seen a decrease in NAV per share by 9.4%, which we believe was caused, in part, by cap rate increases having a downward impact on real estate prices.

Although values are down year-over-year, we believe the underlying property fundamentals in RM Apartment Growth REIT’s portfolio remain strong. As of 4Q23, occupancy for the underlying properties in the portfolio has averaged 91%, and rent collection has averaged 95%. Moreover, for YTD 2022 versus YTD 2023, the underlying properties in the portfolio have averaged net operating income increases of 4.4%, and we have maintained our distributions for 24 consecutive quarters. Lastly, the weighted average interest rate on the property-level mortgages for RM Apartment Growth REIT sits at 4.74% as of 4Q23.

In 2023, we began to see buying signals for value-add assets as we started to see property values decrease and value investment opportunities increase. We acquired one preferred equity investment, Restoration on Candlewood, an apartment community located in Oklahoma City. Rather than investing in common equity, we felt more comfortable investing as preferred equity, which we believe is a more secure position of the capital stack. In connection with this investment, any distributions to equity are made first to pay down our preferred equity investment and only after our investment is paid off are common equity investors paid.

We were also active in acquiring joint venture equity investments with our affiliate, RM Communities, LLC (“RM Communities”). In May 2023, we acquired Ridgeline View Townhomes, a Class A townhome community located in Vancouver, Washington. This was a brand-new asset that RM Communities sourced from a developer with whom they had already purchased two other assets. The business plan was to acquire the property at an attractive basis and burn off concessions from the initial lease-up. We felt a newer vintage asset helped to round out and diversify our traditionally value-add portfolio. The next two acquisitions, Brookside Apartments, a low-rise apartment community located in Raleigh, North Carolina acquired in June 2023, and Hunters Ridge, a Class B apartment community located in East Lansing, Michigan acquired in December 2023, were true value-add plays, with planned unit renovations and exterior improvements. Brookside also represented the REIT’s first investment into the Raleigh-Durham metropolitan statistical area, a market on which we are bullish.

Lastly, we invested a portion of our outstanding cash in short-term U.S. T-bills, which yielded approximately 4.9% on a blended basis. For comparison, from March 2020 to January 2022, 3-month T-bills yielded less than 1%. We felt this was a good investment at this time while we continued to search for additional real estate asset acquisitions.

We believe interest rates are one of the largest drivers of commercial real estate activity given that real estate acquisitions are typically financed, in part, with debt capital. In September 2023, the Fed paused interest rate hikes of the Federal Funds Rate, the overnight rate set by the Fed at which banks borrow and lend their reserves to one another overnight. Similarly, the Fed has indicated that it will begin to explore interest rate decreases, the timing of which, however, remains unclear. We believe any decreases to interest rates would generally have a positive impact on the value of multifamily real estate.

Simultaneous with increases to short- and long-term interest rates over the past two years, property values are off between 7% and 35% from their March 2022 peaks according to Green Street’s Commercial Property Price Index (CPPI), with multifamily properties specifically down 28% based on this index. We see this as a potential buying opportunity.

For our multifamily acquisition targets, we believe there is still more price discovery to be done in this “new normal” interest rate environment. One of the main barometers for our multifamily underwriting is to compare the affordability of our underwritten rents to median incomes in the area. We believe affordability to be around 25-30% of area median income, and we typically target underwritten rents that support that range. Secondly, we want to be smart about using leverage for our acquisitions. There are still instances in which operators are acquiring properties with negative leverage given how high interest rates still are relative to cap rates. In most cases, we want to avoid negative leverage. Lastly, we want to prudently manage our cash positions and reserves throughout 2024. While the macro climate is looking better, we want to proceed cautiously. We want to protect the REIT by keeping some cash invested in our money market account or U.S. treasuries. As of year-end 2023, approximately 29% of RM Apartment Growth REIT’s unconsolidated assets were in cash and liquid securities. As we proceed in 2024, we want to strike a balance between being prudent with our cash position while also taking advantage of the buying opportunities that we believe will arise in the market.

Critical Accounting Policies

The preparation of financial statements in accordance with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. Such judgments are based on our management’s experience, our historical experience, the experience of our Manager’s affiliates and the industry. We consider these policies critical because we believe that understanding these policies is critical to understanding and evaluating our reported financial results. Additionally, these policies may involve significant management judgments and assumptions, or require estimates about matters that are inherently uncertain. These judgments will affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual events and results could differ from those assumptions and estimates.

Variable Interest Entities and Voting Interest Entities

A variable interest entity (“VIE”) is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes consideration of various factors. These factors include review of the formation and design of the entity, its organizational structure including decision-making ability and relevant financial agreements, and analysis of the forecasted cash flows of the entity. We make an initial determination upon acquisition of a VIE, and reassess the initial evaluation of an entity as a VIE upon the occurrence of certain events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents, has both the: (i) power to direct the activities that most significantly impact the VIE’s performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering various factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of our interest and the other interests. We reassess our determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the future performance of investments held by VIEs and general market conditions. The maximum risk of loss related to our investments is limited to our recorded investment in such entities, if any.

A voting interest entity (“VOE”) is an entity in which equity investors have the characteristics of a controlling financial interest and have sufficient equity at risk to finance its activities. A controlling financial interest exists if limited partners with equity at risk are able to exercise substantive kick-out rights or are able to exercise substantive participation rights. Under the VOE model, generally, only a single limited partner that is able to exercise substantial kick-out rights will consolidate the entity.

As of December 31, 2023 and 2022, the Company held an investment in one entity, which was evaluated under the VIE model and was not consolidated because the Company does not have substantive kick-out rights or a controlling financial interest. This investment is carried on the consolidated financial statements using the equity method because of the Company’s significant influence.

As of December 31, 2023 and 2022, the Company held investments in seven and five entities, respectively, which were evaluated under the VOE model and were consolidated because the Company is able to exercise substantial kick-out rights and substantive participation rights.

Purchase Accounting for Acquisition of Real Estate

The Company adopted the provisions of Accounting Standards Update No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which provides that if substantially all the fair value of the gross assets is concentrated in any individual asset, the acquisition is treated as an asset acquisition as opposed to a business combination. Under an asset acquisition, costs directly related to the acquisition are capitalized as part of the purchase consideration. The fair value of the purchase consideration is then allocated based on the relative fair value of the assets. The estimates of the fair value of the purchase consideration and the fair value of the assets acquired is consistent with the techniques used in a business combination.

Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

Fair Value Option

Accounting Standards Codification (“ASC”) 825 “Fair Value Option for Financial Assets and Financial Liabilities” (“ASC 825”) provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. ASC 825 permits the fair value option election on an instrument-by-instrument basis at initial recognition. We have decided not to make this election.

Revenue Recognition

Rental income is recognized as rental payments become due. Rental payments received in advance are deferred until earned. All leases between the Company and tenants of the property are operating leases and are on terms of one year or less.

For certain properties, in addition to contractual base rent, the tenants pay their share of utilities to the Company. The income and expenses associated with these properties are generally recorded on a gross basis when the Company is the primary obligor.

Tenant fees, such as application fees, administrative fees, late fees and other revenues from tenants are recorded when amounts become due.

Impairment of Real Estate Owned and Allowance for Credit Losses

The Company reviews its real estate portfolio on a quarterly basis to ascertain if there are any indicators of impairment to the value of any of its real estate assets, including deferred costs and intangibles, to determine if there is any need for an impairment charge. In reviewing the portfolio, the Company examines one or more of the following: the type of asset, the current financial statements or other available financial information of the asset and the economic situation in the area in which the asset is located. For each real estate asset owned for which indicators of impairment exist, management performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying amount. If the aggregate undiscounted cash flows are less than the asset’s carrying amount, an impairment loss is recorded to the extent that the estimated fair value is less than the asset’s carrying amount. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. The analysis includes an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, the effects of leasing demand, competition and other factors.

For the years ended December 31, 2023 and 2022, the Company determined that there was no impairment of long-lived assets.

The Company maintains an allowance for credit losses for estimated losses resulting from the inability of a tenant to make required rent payments. As of December 31, 2023 and 2022, there was $303,582 and $681,831 in the allowance for credit losses, respectively.

Results of Operations

Net (loss) income and operating income

The years ended December 31, 2023 and 2022 resulted in a net (loss) income attributable to RM Apartment Growth REIT of approximately $(875,000) and $10,077,000, respectively. This decrease in net income for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the gain on sale of Avon Place Apartments, The Clover on Park Lane and Villas de Sonoma and related losses on extinguishment of debt in 2022 partially offset by the gain on sale of Villas del Sol I and II and an increase in interest income and preferred return income in 2023. Operating income was approximately $2,256,000 for the year ended December 31, 2023, compared to operating income of approximately $948,000 for the year ended December 31, 2022.

Rental Income, net

For the years ended December 31, 2023 and 2022, we earned rental income, net, of approximately $17,543,000 and $17,974,000, respectively. This decrease for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the sales of Avon Place Apartments and The Clover on Park Lane in 2022, partially offset by the acquisitions of Ridgeline View Townhomes and Brookside Apartments in 2023 and increases in rental income in our existing portfolio.

Other Revenue

For the years ended December 31, 2023 and 2022, we earned other revenue of approximately $1,021,000 and $1,219,000, respectively. This decrease for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the sales of Avon Place Apartments and The Clover on Park Lane in 2022 as well as one-time insurance income for Ninety-Nine44 Owner, LLC in 2022, partially offset by the acquisitions of Ridgeline View Townhomes and Brookside Apartments in 2023.

Expenses

Depreciation and Amortization

For the years ended December 31, 2023 and 2022, we incurred depreciation and amortization expenses of approximately $5,046,000 and $4,898,000, respectively. This increase for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the acquisitions of Ridgeline View Townhomes and Brookside Apartments in 2023, partially offset by the sale of Avon Place Apartments in 2022.

General and Administrative Expenses

For the years ended December 31, 2023 and 2022, we incurred general and administrative expenses of approximately $1,511,000 and $1,657,000, respectively. This decrease for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the sales of Avon Place Apartments and The Clover on Park Lane in 2022, partially offset by the acquisitions of Ridgeline View Townhomes and Brookside Apartments in 2023.

Real Estate Operating Expenses

For the years ended December 31, 2023 and 2022, we incurred real estate operating expenses of approximately $10,258,000 and $10,448,000, respectively. This decrease for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to the sales of Avon Place Apartments and The Clover on Park Lane in 2022, partially offset by the acquisitions of Ridgeline View Townhomes and Brookside Apartments in 2023 and increases in real estate operating expenses in our existing portfolio.

Asset Management Fees

For the years ended December 31, 2023 and 2022, we incurred asset management fees of approximately $950,000 and $892,000, respectively. This increase for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to an increase in the Company’s NAV.

Liquidity and Capital Resources

We require capital to fund our investment activities and operating expenses. Our capital sources may include net proceeds from the Offering, cash flow from operations and borrowings under credit facilities.

We currently obtain the capital required to purchase real estate-related investments and conduct our operations from the proceeds of the Offering and any future offerings we may conduct, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations. As of December 31, 2023 and December 31, 2022, we had cash and cash equivalents of approximately $8,560,000 and $10,069,000, respectively, and $8,131,000 and $23,210,000, respectively, invested in marketable securities at fair value that are available to provide capital for operations and investments. We anticipate that proceeds from the Offering, cash flow from operations and available cash will provide sufficient liquidity to meet future funding commitments for at least one year from the date the financial statements are available to be issued.

We expect to selectively employ leverage to enhance total returns to our stockholders. Our targeted portfolio-wide leverage after we have acquired an initial substantial portfolio of diversified investments is up to 75% of the fair market value or expected fair market value (for a value-add acquisition) of our assets; provided, however, we may exceed this limit for certain temporary bridge financings. During the period when we are acquiring our initial portfolio, we may employ greater leverage on individual assets (that will also result in greater leverage of the initial portfolio) in order to quickly build a diversified portfolio of assets. As of December 31, 2023 and 2022, we had outstanding borrowings of approximately $135,482,000 and $116,245,000, respectively, net of deferred financing costs and premium.

In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to make certain payments to our Manager. During our organization and offering stage, these payments will include payments for reimbursement of certain organization and offering expenses. Assuming we raise the maximum offering amount in the Follow-on Offering, our organization and offering expenses are expected to be approximately 3% of gross offering proceeds. If the Follow-on Offering is not successfully completed, we will not be obligated to pay the remaining offering and organizational costs owed to our Manager. In addition, we reimburse our Manager for out-of-pocket expenses incurred on our behalf, including license fees, auditing fees, fees associated with SEC reporting requirements, acquisition expenses, interest expenses, property management fees, insurance costs, tax return preparation fees, marketing costs, taxes and filing fees, administration fees, fees for the services of independent directors and third-party costs associated with the aforementioned expenses.

The sponsors of our joint venture investments in real estate may make payments to our Sponsor or its affiliates in connection with the selection or purchase of investments. We will pay our Manager a monthly asset management fee of one-twelfth of 1.25%, which is based on total equity value, which equals (a) our then-current NAV per share, as determined by our board of directors, multiplied by (b) the number of shares of our common stock then outstanding. Any portion of the asset management fee may be deferred and paid in a subsequent period upon the mutual agreement of the Company and our Manager.

Cash Flow

The following presents our cash flows for the years ended December 31, 2023 and 2022 (in thousands):

For the years ended December 31, 2023 and 2022, net cash provided by operating activities was approximately $42,000 and $1,001,000, respectively, and related principally to net operating income on real estate investments.

For the years ended December 31, 2023 and 2022, net cash (used in) provided by investing activities was approximately $(23,936,000) and $47,843,000, respectively, and related principally to the acquisition of new real estate, the acquisition of new debt investments, investments in existing assets, purchases and sales of marketable securities and proceeds from sales of real estate investments.

For the years ended December 31, 2023 and 2022, net cash provided by (used in) financing activities was approximately $24,955,000 and $(54,098,000), respectively, and related principally to proceeds from the issuance of shares of our common stock, proceeds from the issuance of debt net of repayments of debt, capital contributions from noncontrolling interests and payment of distributions and dividends.

Off-Balance Sheet Arrangements

As of both December 31, 2023 and December 31, 2022, we had no off-balance sheet arrangements.

Related Party Arrangements

For further details, please see “Note 9 – Related Party Arrangements” in Item 7. “Financial Statements” below.

Recent Developments

Offering Proceeds

As of March 31, 2024, we had raised total gross offering proceeds of $63,827,719 from settled subscriptions and issued an aggregate of 6,125,405 shares of our common stock.

Estimated NAV Per Share as of December 31, 2023 and March 31, 2024

On January 8, 2024, our board of directors approved an estimated NAV per share of our common stock of $10.13 as of December 31, 2023. The estimated NAV per share calculation as of December 31, 2023 reflects the total value of our assets minus the total value of our liabilities, divided by the number of shares of our common stock outstanding as of December 31, 2023. On April 23, 2024, our board of directors approved an updated estimated NAV per share of our common stock of $9.75 as of March 31, 2024. The estimated NAV per share calculation as of March 31, 2024 reflects the total value of our assets minus the total value of our liabilities, divided by the number of shares of our common stock outstanding as of March 31, 2024. This estimated NAV per share will be effective until updated by us on or about June 30, 2024, or within a commercially reasonable time thereafter, unless updated by us prior to that time.

As with any methodology used to estimate value, the methodology employed by Realty Mogul, Co.’s internal accountants or asset managers 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 per share 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.

Charter Amendment

On April 9, 2024, we filed with the State Department of Assessments and Taxation of Maryland articles of amendment to our articles of amendment and restatement to increase the number of shares of common stock we have the authority to issue from 9,000,000 to 19,000,000.

Non-GAAP Financial Measures

Our Manager believes that FFO and AFFO, which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and the Company. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. FFO, as defined by NAREIT, is a computation made by analysts and investors to measure a real estate company’s cash flow generated by operations.

We calculate AFFO by subtracting from (or adding to) FFO:

Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash expenses. Additionally, FFO and AFFO serve as measures of our operating performance because they facilitate evaluation of the Company without the effects of selected items required in accordance with GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs.

Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Our unaudited FFO and AFFO calculations for the years ended December 31, 2023 and December 31, 2022 are as follows (in thousands):

Item 3. Directors and Officers

Although our Manager manages our day-to-day operations, we operate under the direction of the board of directors, the members of which are accountable to us and our stockholders as fiduciaries. We currently have three directors, two of whom are independent directors.

In accordance with our charter, a majority of our independent directors generally must approve corporate actions or policies that directly relate to the following:

Committees of the Board of Directors

The entire board of directors will be responsible for supervising our entire business and considering all major business decisions. However, our bylaws provide that the board of directors may establish such committees as the board of directors believes appropriate and in our best interests. The board of directors will appoint the members of the committee in the board of directors’ discretion. Committees typically report to the entire board of directors.

Audit Committee

The board of directors established an audit committee, consisting of Flynann Janisse and Louis S. Weeks III, our independent directors. Louis S. Weeks III serves as chairman of the audit committee. The audit committee, by approval of at least a majority of its members, selects the independent auditors to audit our annual financial statements, reviews with the independent auditors the plans and results of the audit engagement, approves the audit and non-audit services provided by the independent auditors, reviews the independence of the independent auditors and considers the range of audit and non-audit fees and its impact on auditor independence.

Executive Officers and Directors

As of the date of this Annual Report, our executive officers and directors are as follows:

Jilliene Helman has served as our Chief Executive Officer, President and a director since January 2017. She previously served as our Chief Financial Officer and Treasurer from January 2017 to February 2022, and our Secretary from January 2017 to September 2021. Ms. Helman has served as Chief Executive Officer of our Manager since its inception in March 2016 and previously served as its Chief Financial Officer from October 2018 to February 2022. Since May 2012, Ms. Helman has served as the Chief Executive Officer and a director of Realty Mogul, Co., where she is responsible for Realty Mogul, Co.’s strategic direction and operations. During this time, over $1.0 billion of investments with property values worth over $5.9 billion have been listed on the Realty Mogul platform. From July 2008 to September 2012, Ms. Helman served in a variety of capacities at Union Bank, including as a Management Training Associate; an Assistant Vice President, Sales Development Manager; and Vice President, Corporate Risk Management. Ms. Helman held these positions across the wealth management, finance and risk management departments of Union Bank. Ms. Helman is a Certified Wealth Strategist and holds Series 7, Series 63 and Series 24 licenses. Ms. Helman has a Bachelor of Science in Business Administration degree from Georgetown University.

Kevin Moclair has served as our and our Manager’s Chief Accounting Officer and Treasurer since February 2022. Mr. Moclair is responsible for all our financial accounting and reporting. From April 2009 to February 2022, Mr. Moclair served as Chief Accounting Officer for Ladder Capital, an internally-managed commercial REIT specializing in underwriting commercial real estate. In that role, Mr. Moclair developed and implemented the financial reporting infrastructure from initial private equity structure through public debt and equity issuances and related SEC reporting requirements. From 1998 to March 2009, Mr. Moclair served as Controller – US Operations for Rabobank International, a global banking institution focused in the food and agricultural sector. As Controller, he managed the accounting, product control and regulatory reporting functions as well as participating in local and global implementation of reporting processes and systems to support local and global requirements, including Sarbanes-Oxley Act of 2002 implementation and reporting. From 1994 to 1998, Mr. Moclair worked as a senior auditor with Ernst & Young LLP in the Financial Services Audit and Advisory Services Group. Mr. Moclair has a Bachelor of Science in Accounting (Business Administration) degree from Manhattan College, Riverdale, New York.

Flynann Janisse has served as one of our independent directors since July 2017. She is serving as the Executive Director of Rainbow Housing Assistance Corporation (“Rainbow”), President and Executive Director of Equality Community Housing Corporation, and President and Chairman of the Board of Rainbow Housing Texas, Inc. Ms. Janisse supports the national operations of an award-winning Resident Services Division of Rainbow and the asset management for an extensive affordable housing portfolio. Prior to joining Rainbow, Ms. Janisse served as Director of Property Management at Community Services of Arizona, a fully-integrated management company specializing in the management of multifamily, service-enriched affordable housing. Ms. Janisse has extensive experience in managing market rate (REIT), Section 42 Tax Credit, Project Section 8, and HUD and RD-financed housing communities. As an Advisory Board member for Novogradac’s Journal of Tax Credits, Ms. Janisse is honored to provide industry knowledge through publications reaching over 45,000 readers and to serve as a judge for their industry Development of Distinction Awards at the Tax Credit Developers Conference recognizing excellence and ingenuity in the development of tax credit projects across the country using the Low Income Housing Tax Credit Program. With 30+ years of experience in asset management, with an emphasis on the development and implementation of social service programs for service-enriched affordable housing, she has assembled a team of professionals to serve the mission of Rainbow with integrity and passion.

Louis S. Weeks III has served as one of our independent directors since July 2017. As of January 22, 2021, Mr. Weeks also serves as an independent representative of RealtyMogul Income REIT, LLC.Mr. Weeks is the Founder and Principal at SeaburyCoxe Advisors LLC, consultants in financing and investing in commercial real estate. The firm is located in Baltimore, MD and is active nationally with projects and clients in New York, Philadelphia, Hartford and Los Angeles. Mr. Weeks has been involved in commercial real estate investments and finance for more than 35 years. He spent 26 years at ColumbiaNational Real Estate Finance, an 80-year-old Mortgage Banking firm in Baltimore, MD founded by the late James W. Rouse. His responsibilities included 10 years as the firm’s Managing Partner and CEO. He was responsible for the firm’s overall operations, production, servicing and finance. Over the years, Mr. Weeks has arranged debt and equity for clients totaling over $3.0 billion. Mr. Weeks’ early career was spent in the banking industry in New York City with Manufacturers Hanover Trust and Bankers Trust Co. He has been an active member of the local chapters of NAIOP (the Commercial Real Estate Development Association), the Urban Land Institute, the International Council of Shopping Centers, the Mortgage Bankers Association and the Baltimore Downtown Partnership and served on numerous local community organizations. Mr. Weeks graduated from Skidmore College as a Periclean Scholar with a degree in Philosophy and attended Pratt Institute as a candidate for a Masters of Architecture degree.

Compensation of Directors

We pay to each of our directors a retainer of 1,000 shares of our common stock per year, plus an additional retainer of 500 shares of our common stock to the chairman of the audit committee. All directors will receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at each meeting of the board of directors. Directors are not reimbursed by us, our Sponsor, our Manager or any of their affiliates for spouses’ expenses to attend events (if any) to which spouses are invited.

Our Manager

Our Manager manages our day-to-day affairs, and implements our investment strategy. Our Manager and its officers are not required to devote all of their time to our business and are only required to devote such time to our affairs as their duties require.

Executive Officers of our Manager

As of the date of this Annual Report, the executive officers of our Manager and their positions and offices are as follows:

Biographical information for Ms. Helman and Mr. Moclair is provided above under “- Executive Officers and Directors.”

Tara Horne has served as the Chief Compliance Officer of our Manager since June 2023. Ms. Horne is responsible for managing all compliance and regulatory matters for our Manager. Since May 2022, Ms. Horne also serves as a Director of Investment Adviser and Broker Dealer Compliance at DFP Partners where she provides comprehensive compliance-related services to support registered investment advisers and registered broker-dealers, including compliance program ownership and supervision and oversight of firm activities. DFP Partners is engaged with RM Advisers, LLC as a compliance partner. From December 2009 to May 2022, Ms. Horne served in various roles for National Regulatory Services, including senior compliance consultant, manager and compliance examiner of the audit solutions program in which roles she provided compliance support to various clients. During her career as a compliance professional in the financial services industry, Ms. Horne has completed thousands of mock regulatory exams and has extensive experience leading firms through the investment adviser and broker-dealer registration process as well as developing robust control and operational frameworks for a variety of financial institutions, including broker-dealers, clearing agencies, registered investment advisers, private funds and investment banking firms. Ms. Horne is a Certified Anti-Money Laundering Specialist and holds a designation as an Investment Adviser Certified Compliance Professional. Ms. Horne also holds Series 7 and Series 24 licenses. Ms. Horne has a Bachelor of Science in Business Marketing and Finance from California State University of Long Beach, California.

Eric Levy has served as our Manager’s Vice President, Portfolio Manager since January 2019. Mr. Levy has served as a Vice President, Asset Management of Realty Mogul, Co. since October 2017. Mr. Levy is responsible for portfolio and asset management for debt and equity assets held by us and by RealtyMogul Income REIT, LLC. From April 2013 to September 2017, Mr. Levy served as Strategic Projects Manager at World Class Capital Group, a national real estate investment firm focused on acquiring, developing and managing real estate with over $1.2 billion in assets under management. In that role, he led the asset management of over 2.3 million square feet of retail and office properties, oversaw capital improvement plans for over 4.5 million square feet of self-storage facilities, managed portfolio-wide investor reporting and investor relationships and helped to develop the operational infrastructure of the company. From August 2010 to March 2013, Mr. Levy served as Senior Paralegal – M&A, Real Estate, Credit at Willkie, Farr & Gallagher LLP. Mr. Levy has more than ten years of experience in commercial real estate. Mr. Levy has a Bachelor of Arts degree from the University of Wisconsin-Madison.

Compensation of the Executive Officers of our Manager

We do not currently have any employees nor do we currently intend to hire any employees who will be compensated directly by us. As described above, certain of the executive officers of Realty Mogul, Co. also serve as executive officers of our Manager. Each of these individuals receives compensation for his or her services, including services performed for us on behalf of our Manager, from Realty Mogul, Co. As executive officers of our Manager, these individuals will manage our day-to-day affairs, oversee the review, selection and recommendation of investment opportunities, service acquired investments and monitor the performance of these investments to ensure that they are consistent with our investment objectives. We will indirectly bear some of the costs of the compensation paid to these individuals through fees we pay to our Manager. In addition, we pay the Chief Executive Officer and Vice President, Portfolio Manager of our Manager a retainer of 1,000 shares of our common stock per year.

Item 4. Security Ownership of Management and Certain Securityholders

The following table sets forth the beneficial ownership of shares of our common stock as of the date of this Annual Report for each person or group that holds more than 10% of the shares of our common stock, for each of our executive officers and directors and the executive officers of our Manager and for our executive officers and directors and the executive officers of our Manager as a group. To our knowledge, each person that beneficially owns shares of our common stock has sole voting and disposition power with regard to such shares. Percentages of beneficial ownership are based on 5,438,259 shares of our common stock outstanding as of March 18, 2024. As of March 18, 2024, no person or group held more than 10% of our common stock.

Unless otherwise indicated below, each person or entity has an address in care of our principal executive offices at 10573 W. Pico Blvd., PMB #603, Los Angeles, CA 90064.

Item 5. Interest of Management and Others in Certain Transactions

For information responsive to this Item, please see “Note 9 – Related Party Arrangements” in Item 7. “Financial Statements” below.

Item 6. Other Information

None.

Item 7. Financial Statements

RealtyMogul Apartment Growth REIT, Inc.

Index

Independent Auditor’s Report

To the Board of Directors

RealtyMogul Apartment Growth REIT, Inc.

Opinion

We have audited the consolidated financial statements of RealtyMogul Apartment Growth REIT, Inc. (the “Company”) and its subsidiaries, which comprise the consolidated balance sheets as of December 31, 2023 and 2022 and the related consolidated statements of operations, equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position of RealtyMogul Apartment Growth REIT, Inc. and its subsidiaries as of December 31, 2023 and 2022, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America (“GAAS”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company, and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for one year after the date that the consolidated financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the consolidated financial statements.

In performing an audit in accordance with GAAS, we:

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/CohnReznick LLP

Atlanta, Georgia

April 26, 2024

RealtyMogul Apartment Growth REIT, Inc.

Consolidated Balance Sheets

As of December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

RealtyMogul Apartment Growth REIT, Inc.

Consolidated Statements of Operations

For the Years ended December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

RealtyMogul Apartment Growth REIT, Inc.

Consolidated Statements of Equity

For the Years ended December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

RealtyMogul Apartment Growth REIT, Inc.

Consolidated Statements of Cash Flows

For the Year ended December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The accompanying notes are an integral part of these consolidated financial statements.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Note 1 - Formation and Organization

RealtyMogul Apartment Growth REIT, Inc. (the “Company”) was formed as a Maryland corporation on January 13, 2017 to own and manage a diversified portfolio of preferred equity and joint venture equity investments in multifamily properties located in target markets throughout the United States. The Company was formed under the name MogulREIT II, Inc. and, effective October 15, 2021, changed its name to RealtyMogul Apartment Growth REIT, Inc. The use of the terms “RealtyMogul Apartment Growth REIT,” the “Company,” “we,” “us,” or “our” in this annual report refer to RealtyMogul Apartment Growth REIT, Inc., unless the context indicates otherwise.

The Company is externally managed by RM Adviser, LLC (“Manager”), which is an affiliate of the Company’s sponsor, RM Sponsor, LLC (“Sponsor”). Our Manager and our Sponsor are each wholly-owned subsidiaries of Realty Mogul, Co. (“RM”). Our Manager is an investment adviser registered with the Securities and Exchange Commission (“SEC”). Although our Manager manages our day-to-day operations, we operate under the direction of our board of directors, a majority of whom are independent directors.

The Company’s investing and management activities related to multifamily real estate are all considered a single reportable business segment for financial reporting purposes. All of the investments the Company has made to date have been in domestic multifamily real estate assets with similar economic characteristics, and the Company evaluates the performance of all of its investments using similar criterion.

We believe we have operated in such a manner as to qualify as a real estate investment trust (“REIT”) for federal income tax purposes.

On August 23, 2017, we commenced our initial public offering (the “Initial Offering”) of up to $50,000 in shares of common stock, including shares sold pursuant to our distribution reinvestment plan. On December 23, 2020, we commenced our follow-on offering (the “Follow-on Offering” and, together with the Initial Offering, the “Offerings”) and terminated the Initial Offering. We are continuing to offer in the Follow-on Offering up to $57,904 in shares of our common stock, including shares sold pursuant to our distribution reinvestment plan, which represents the value of the shares available to be offered as of December 8, 2022 out of the rolling 12-month maximum offering amount of $75,000 in shares of our common stock. As of December 31, 2023, we had issued 6,033,670 shares of our common stock in the Offerings for gross offering proceeds of approximately $62,898.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying consolidated balance sheets, statements of operations, statements of equity, statements of cash flows and related notes to the consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The Company has adopted a calendar year-end for financial reporting.

GAAP requires any subsidiaries, investments, or affiliates under the Company’s control to be consolidated. The consolidated financial statements of the Company include its controlled joint ventures, Vinegar Hill Asset, LLC, which was acquired during 2017; Avon 46, LLC, which was acquired during 2018; NinetyNine44 Owner, LLC, which was acquired during 2020; RM Orion, LLC, Lotus Village Holdco, LLC and RM Sherwood Oaks, LLC, which were acquired during 2021; and RM Ridgeline View, LLC and RM Brookside, LLC, which were acquired during 2023.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

All significant intercompany balances and transactions are eliminated in consolidation.

Reclassification

The Company has reclassified certain items on the consolidated balance sheets and consolidated statements of operations and cash flows for the prior year to conform with the current year presentation. For the year ended December 31, 2022, tenant reimbursements totaling $886 previously reported in tenant reimbursements and other revenue have been added to rental income, net on the consolidated statement of operations.

In 2023, the Company updated the reporting of distributions to be deducted from (Accumulated Deficit) / Retained Earnings in the Consolidated Statements of Equity in order to be in conformity with common market practice. In prior years, distributions were reported as a deduction from Additional Paid in Capital. A cumulative adjustment of $9,425 of prior year distributions were transferred from Additional Paid in Capital to (Accumulated Deficit) / Retained Earnings in 2023.

Earnings per share

Basic earnings per share is calculated on the basis of weighted-average number of shares of common stock outstanding during the period. Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income per share of common stock equals basic net income per share of common stock as there were no potentially dilutive securities outstanding during the years ended December 31, 2023 and 2022.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual events and results could differ from those assumptions and estimates.

Cash and Cash Equivalents

Cash and cash equivalents consist of demand deposits. Cash and cash equivalents are carried at cost which approximates fair value.

Concentration of Credit Risk

At times, our cash may exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution. The Company mitigates credit risk by placing cash with major financial institutions. To date, the Company has not experienced any losses on cash.

Geographic Concentration

As of December 31, 2023, the Company’s investments in real estate operate in Texas, New York, Michigan, Florida, Oklahoma, Washington and North Carolina. Future operations could be affected by changes in economic or other conditions in those geographical areas or the demand for such housing in those geographical areas.

For the year ended December 31, 2023, the Company’s annualized rental income in real estate equity investments by state is approximately 40%, 18%, 18%, 12%, 7% and 5% for Texas, Michigan, Florida, New York, Washington and North Carolina, respectively.

Organizational, Offering and Related Costs

Organizational and offering costs of the Company are initially being paid by the Manager on behalf of the Company. These organizational and offering costs include all expenses to be paid by the Company in connection with the formation of the Company and the qualification of the Offerings, and the marketing and distribution of shares, including, without limitation, expenses for printing, and amending offering statements or supplementing offering circulars, mailing and distributing costs, advertising and marketing expenses, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of shares under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The Company expenses organization costs as incurred and offering costs, when incurred, will be deferred and charged to additional paid-in capital. The deferred offering costs will be charged against the gross proceeds of the Offerings when received or written off in the event that the Follow-on Offering is not successfully completed.

As of December 31, 2023 and 2022, the Manager has incurred offering costs of $2,012 and $1,893, respectively, on behalf of the Company. As of December 31, 2023 and 2022, $1,887 and $1,717 of offering costs, respectively, had been amortized and were included in the consolidated statements of equity.

Variable Interest Entities and Voting Interest Entities

A variable interest entity (“VIE”) is an entity that lacks one or more of the characteristics of a voting interest entity. A VIE is defined as an entity in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The determination of whether an entity is a VIE includes consideration of various factors. These factors include review of the formation and design of the entity, its organizational structure including decision-making ability and relevant financial agreements, and analysis of the forecasted cash flows of the entity. We make an initial determination upon acquisition of a VIE, and reassess the initial evaluation of an entity as a VIE upon the occurrence of certain events.

A VIE must be consolidated only by its primary beneficiary, which is defined as the party who, along with its affiliates and agents has both the: (i) power to direct the activities that most significantly impact the VIE’s performance; and (ii) obligation to absorb the losses of the VIE or the right to receive the benefits from the VIE, which could be significant to the VIE. We determine whether we are the primary beneficiary of a VIE by considering various factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; the amount and characteristics of its investment; the obligation or likelihood for us or other interests to provide financial support; consideration of the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders and the similarity with and significance to the business activities of our interest and the other interests. We reassess our determination of whether we are the primary beneficiary of a VIE each reporting period. Significant judgments related to these determinations include estimates about the future performance of investments held by VIEs and general market conditions. The maximum risk of loss related to our investments is limited to our recorded investment in such entities, if any.

A voting interest entity (“VOE”) is an entity in which equity investors have the characteristics of a controlling financial interest and have sufficient equity at risk to finance its activities. A controlling financial interest exists if limited partners with equity at risk are able to exercise substantive kick-out rights or are able to exercise substantive participation rights. Under the VOE model, generally, only a single limited partner that is able to exercise substantial kick-out rights will consolidate the entity.

As of December 31, 2023 and 2022, the Company held one investment in an entity, which was evaluated under the VIE model and was not consolidated because the Company does not have substantive kick-out rights or a controlling financial interest. This investment is carried on the consolidated financial statements using the equity method.

As of December 31, 2023 and 2022, the Company held investments in seven and five entities, respectively, which were evaluated under the VOE model and are consolidated because the Company is able to exercise substantial kick-out rights and substantive participating rights.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Commercial Real Estate Debt Investments

Our commercial real estate debt investments are generally classified as held to maturity as we have both the intent and the ability to hold these investments to maturity and, accordingly, are carried at cost, net of unamortized loan fees, premium, discount and unfunded commitments, reduced by an allowance for credit losses. We review our debt related investments on a monthly basis, or more frequently when such an evaluation is needed, to determine if an allowance for credit loss is required. The Company recognizes an allowance for credit losses for financial assets carried at amortized cost and other qualifying receivables to present the net amount expected to be collected as of the consolidated balance sheet date using the probability of default/loss given default method using historical losses adjusted for current conditions and reasonable and supportable forecasts. Such allowance is based on the credit losses expected to arise over the life of the asset (contractual term) which includes consideration of prepayments and based on the Company’s expectations as of the consolidated balance sheet date. Assets are written off when the Company determines that such financial assets are deemed uncollectible or based on regulatory requirements, whichever is earlier. Write-offs are recognized as a deduction from the allowance for credit losses. Expected recoveries of amounts previously written off, not to exceed the aggregate of the amount previously written off, are included in determining the necessary reserve at the consolidated balance sheet date. The Company elected to use the practical expedient for collateral dependent receivables as estimates for the recovery of debt investments is based on collateral value.

We have certain investments that are legally structured as equity investments with rights to receive preferred economic returns. We report these investments as real estate debt securities when the common equity holders have a contractual obligation to redeem our preferred equity interest at a specified date.

Income Taxes

The Company operates and is taxed as a REIT for federal income tax purposes beginning with the year ended December 31, 2017. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its taxable income to its stockholders. As a REIT, the Company generally is not subject to federal corporate income tax on that portion of its taxable income that is currently distributed to stockholders. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. No material provisions have been made for federal income taxes in the accompanying consolidated financial statements, and no gross deferred tax assets or liabilities have been recorded as of December 31, 2023 and 2022.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

For the years ended December 31, 2023 and 2022, $2,593 and $2,281, respectively, in distributions have been declared to stockholders. The Company expects its distributions to be characterized for federal income tax purposes as (i) ordinary income, (ii) non-taxable return of capital, or (iii) long-term capital gain. Distributions that exceed current or accumulated taxable earnings and profits constitute a return of capital for tax purposes and reduce the stockholders’ basis in the shares of common stock. To the extent that distributions exceed both current and accumulated earnings and profits and the stockholders’ basis in shares of common stock, they will generally be treated as a gain or loss upon the sale or exchange of our stockholders’ shares of common stock. We will report the taxability of such distributions in information returns that will be provided to our stockholders and filed with the Internal Revenue Service in the year following such distributions.

Tax periods from 2020 to 2023 remain open to examination by the major taxing authorities in all jurisdictions where we are subject to taxation.

Stock Subscription Receivable

Stock subscription receivable consists of shares that have been issued with subscriptions that have not yet settled. As of December 31, 2023 and 2022, there was $24 and $131, respectively, in subscriptions that had not settled. All of these funds settled subsequent to December 31, 2023 and 2022, respectively. Stock subscription receivable is carried at cost which approximates fair value.

Settling Subscription Payable

Share repurchases initiated in December 31, 2023 and 2022 were settled in February 2024 and February 2023, respectively. The liabilities were reversed subsequent to December 31, 2023 and 2022 when the share repurchases settled in February 2024 and February 2023, respectively.

Revenue Recognition

Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Company and tenants of the property are operating leases and are one year or less.

For certain properties, in addition to contractual base rent, the tenants pay their share of utilities to the Company. The income and expenses associated with these properties are generally recorded on a gross basis when the Company is the primary obligor.

Tenant fees, such as application fees, administrative fees, late fees, and other revenues from tenants are recorded when amounts become due.

As a result of the adoption of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”), the Company has updated its policies as it relates to revenue recognition. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Purchase Accounting for Acquisitions of Real Estate

Prior to January 1, 2018, the Company recorded acquired real estate investments that are consolidated as business combinations when the real estate is occupied, at least in part, at acquisition. Costs directly related to the acquisition of such investments have been expensed as incurred. The purchase consideration included cash paid, the fair value of equity or other assets issued, and the fair value of any assumed debt. The Company assessed the fair value of assumed debt based on estimated cash flow projections that utilize appropriate discount rates and available market information. Such inputs are categorized as Level 3 in the fair value hierarchy. The difference between the fair value and the stated principal of assumed debt is amortized using the effective interest method basis over the terms of the respective debt obligation.

The Company allocated the fair value of the purchase consideration to the fair value of land, buildings, site improvements and intangible assets including in-place leases at the acquisition date. The Company estimated the fair value of the assets using market-based, cost-based, and income-based valuation techniques.

Effective January 1, 2018, the Company adopted the provisions of Accounting Standards Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASC 805”), which provides that if substantially all the fair value of the gross assets is concentrated in any individual asset, the acquisition is treated as an asset acquisition as opposed to a business combination. Under an asset acquisition, costs directly related to the acquisition are capitalized as part of the purchase consideration. The fair value of the purchase consideration is then allocated based on the relative fair value of the assets. The estimates of the fair value of the purchase consideration and the fair value of the assets acquired is consistent with the techniques used in a business combination.

Investments in Equity Method Investees

If it is determined that we do not have a controlling interest in a joint venture through our financial interest in a VIE or through our voting interest in a VOE and we have the ability to provide significant influence, the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is adjusted to recognize our share of net earnings or losses of the affiliate as they occur, with losses limited to the extent of our investment in, advances to, and commitments to the investee. For the years ended December 31, 2023 and 2022, we recorded a loss of $40 and $415, respectively, related to investments in equity method investees.

Distributions received from an equity method investee are recognized as a reduction in the carrying amount of the investment. If distributions are received from an equity method investee that would reduce the carrying amount of an equity method investment below zero, the Company evaluates the facts and circumstances of the distributions to determine the appropriate accounting for the excess distribution, including an evaluation of the source of the proceeds and implicit or explicit commitments to fund the equity method investee. The excess distribution is either recorded as a gain from equity method investee, or in instances where the source of proceeds is from financing activities or the Company has a significant commitment to fund the investee, the excess distribution would result in an equity method liability and the Company would continue to record its share of the equity method investee’s earnings and losses. When the Company does not have a significant requirement to contribute additional capital over and above the original capital commitment and the carrying value of the investment in the unconsolidated venture is reduced to zero, the Company discontinues applying the equity method of accounting unless the venture has an expectation of an imminent return to profitability. If the venture subsequently reports net income, the equity method of accounting is resumed only after the Company’s share of that net income equals the share of net losses or distributions not recognized during the period the equity method was suspended. The Company has elected to classify distributions from equity method investees under the cumulative-earnings approach. For the years ended December 31, 2023 and 2022, the Company recorded a gain from equity method investee of $0 and $65, respectively, related to a distribution that would have reduced the carrying value of the investment below zero.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The Company evaluates its investments in equity method investees for impairment annually or whenever events or changes in circumstances indicate that there may be an other-than-temporary decline in value. To do so, the Company calculates the estimated fair value of the investment using various valuation techniques, including, but not limited to, discounted cash flow models, the Company’s intent and ability to retain its investment in the entity, the financial condition and long-term prospects of the entity, and the expected term of the investment. If the Company determined any decline in value is other-than-temporary, the Company recognizes an impairment charge to reduce the carrying value of its investment to fair value. As of both December 31, 2023 and 2022, the Company determined that there was no impairment of its investments in equity method investees.

Accounting for Long-Lived Assets and Impairment of Real Estate Owned

The Company reviews its real estate portfolio on a quarterly basis to ascertain if there are any indicators of impairment to the value of any of its real estate assets, including deferred costs and intangibles, to determine if there is any need for an impairment charge. In reviewing the portfolio, the Company examines one or more of the following: the type of asset, the current financial statements or other available financial information of the asset, and the economic situation in the area in which the asset is located. For each real estate asset owned for which indicators of impairment exist, management performs a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset to its carrying amount. If the aggregate undiscounted cash flows are less than the asset’s carrying amount, an impairment loss is recorded to the extent that the estimated fair value is less than the asset’s carrying amount. The estimated fair value is determined using a discounted cash flow model of the expected future cash flows through the useful life of the property. The analysis includes an estimate of the future cash flows that are expected to result from the real estate investment’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, the effects of leasing demand, competition and other factors.

As of both December 31, 2023 and 2022, the Company determined that there was no impairment of long-lived assets.

Real Estate Held for Sale

The Company classifies real estate investments as being held for sale when management commits to a plan to sell the asset, the asset is available for immediate sale, an active program to locate a buyer has been initiated, the sale is highly probable to occur within one year, and it is unlikely that significant changes to the plan will be made. When a real estate investment is classified as held for sale, depreciation of the asset is discontinued and the asset is carried at the lower of its carrying amount or the fair value less costs to sell. As of December 31, 2023, no real estate investments were classified as held for sale. As of June 30, 2022, the Company determined that the Avon Place Apartments, a Class B, garden-style apartment community in Avon, Connecticut (the “Avon Property”), should be classified as held for sale at its carrying value in the amount of $22,312. The related mortgage net of debt issuance costs of $22,028 was also classified as held for sale as of June 30, 2022. The Avon Property was sold on September 30, 2022 and proceeds from sale were $32,663 resulting in a gain in the amount of $10,351.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Restricted Cash and Escrows

In November 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash (“ASU 2016-18”), which clarifies the presentation requirements of restricted cash within the statement of cash flows. The standard requires that changes in restricted cash and restricted cash equivalents during the period be included in the beginning and ending cash and cash equivalents balance reconciliation on the statement of cash flows. Restricted cash consists of cash escrowed under the operating agreements and mortgage agreements for debt service, real estate taxes, property insurance, and capital improvements and other restricted deposits.

The adoption of this standard results in amounts detailed below that are reported as escrows and deposits on the consolidated balance sheets to be included in cash and cash equivalents on the consolidated statements of cash flows.

The following are the amounts reported on the consolidated balance sheets that are included in cash and cash equivalents and restricted cash on the consolidated statements of cash flows:

Allowance for Credit Losses

The Company maintains an allowance for credit losses for estimated losses resulting from the inability of a tenant to make required rent payments. As of December 31, 2023 and 2022, there was $304 and $682, respectively, in the allowance for credit losses. The Company records bad debt expense in real estate operating expenses in the consolidated statements of operations.

Depreciation

Depreciation of assets is computed on the straight-line method over the estimated useful life of the asset. Depreciation of buildings is computed on the straight-line method over an estimated useful life ranging from 30 to 49 years. Site improvements and certain building improvements are depreciated on the straight-line method over an estimated useful life of 10 to 15 years, and depreciation of furniture, fixtures and equipment is computed on the straight-line method over an estimated useful life of 5 to 9 years. Improvements are capitalized, while expenditures for maintenance and repairs are charged to expense as incurred. Depreciation expense amounted to $4,756 and $4,516 for the years ended December 31, 2023 and 2022, respectively.

Advertising Costs

The Company’s policy is to expense advertising costs when incurred. Such costs incurred during the years ended December 31, 2023 and 2022 were $204 and $176, respectively.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Deferred Financing Costs and Mortgage Premium

Mortgage costs and premium are deferred and amortized using the straight-line method which management does not believe is materially different than the effective interest rate method, over the terms of the respective debt obligations. The Company recognizes a debt discount or premium in connection with mortgages assumed at fair value in accordance with ASC 805. At December 31, 2023, deferred financing costs amounted to $831, net of accumulated amortization of $1,143. At December 31, 2022, deferred financing costs amounted to $928, net of accumulated amortization of $721. At December 31, 2023, mortgage premium amounted to $791, net of accumulated amortization of $322. At December 31, 2022, mortgage premium amounted to $908, net of accumulated amortization of $205. The Company presents unamortized deferred financing costs and mortgage premium as a direct deduction from the carrying amount of the related debt liability.

Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1 — Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 — Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

On a recurring basis, the Company measures its investment in marketable securities at fair value consisting of its investment in exchange traded funds. The exchange traded funds are freely tradeable in active markets and fair value is based on the quoted market price for identical securities, which represents a Level 1 input and Level 1 measurement. The marketable securities are treated as trading securities with unrealized gains and losses from the change in fair value reported in the consolidated statements of operations.

The Company periodically will enter into interest rate cap agreements that are measured at fair value on a recurring basis in order to limit interest rate risk on variable rate mortgages and are not used for trading purposes. The Company has determined that the total fair value of the interest rate caps at December 31, 2023 and 2022 were $952 and $1,532, respectively, related to the Company’s joint ventures formed to acquire, renovate, own and operate a 222-unit, Class A apartment community in Austin, Texas (“Lotus Village”) and a 199-unit, Class B apartment community in Riverview, Florida (“Sherwood Oaks”), respectively. In determining the fair value of the interest rate cap, management uses the present value of expected cash flows based on market observable interest rate yield curve commensurate with the term of the instrument. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and that of the respective counterparty in the fair value measurement. The credit valuation adjustments utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by either the respective counterparty or the Company. However, management determined the impact on the credit valuation adjustments was not significant to the overall valuation of the interest rate caps as of December 31, 2023 or 2022. As a result, the fair value of the interest rate caps was considered to be based primarily using Level 2 inputs.

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Fair Value Option

ASC 825, Fair Value Option for Financial Assets and Financial Liabilities (“ASC 825”), provides a fair value option election that allows companies to irrevocably elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities. ASC 825 permits the fair value option election on an instrument by instrument basis at initial recognition. We have decided not to make this election.

New accounting pronouncements

On January 1, 2023, the Company adopted Accounting Standards Update No, 2016-13, Measurement of Credit Losses on Financial Instruments, and its related amendments using the modified retrospective method. The new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will recognize credit losses to be incurred over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. In accordance with ASC 326, the Company evaluates certain criteria, including aging and historical write-offs, current economic condition of specific customers and future economic conditions, to determine the appropriate allowance for credit losses. The adoption of ASC 326 had an insignificant impact on opening retained earnings.

Note 3 – Real Estate Debt Investments

We believe the fair value of the debt investments approximates the carrying value of the debt investments as of December 31, 2023. We have invested in one debt-like investment.

The following table presents the Company’s investment in real estate debt related assets as of December 31, 2023:

As of December 31, 2023:

The following table describes our debt related investment activities for the year ended December 31, 2023:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Credit Quality Monitoring

The Company’s debt investments and preferred equity investments that earn interest based on debt-like terms are typically secured by senior liens on real estate properties, mortgage payments, mortgage loans, or interests in entities that have interests in real estate similar to the interests described above. The Company evaluates its debt investments at least quarterly and differentiates the relative credit quality principally based on: (i) whether the borrower is currently paying contractual debt service or guaranteed preferred equity payments in accordance with its contractual terms; and (ii) whether the Company believes the borrower will be able to perform under its contractual terms in the future, as well as the Company’s expectations as to the ultimate recovery of principal at maturity. The Company considered investments for which it expects to receive full payment of contractual principal and interest payments as “performing”. As of December 31, 2023, all investments are considered to be performing and no allowance for loan loss has been recorded. In the event that an investment is deemed other than performing, the Company will evaluate the instrument for any required impairment.

Note 4 – Consolidated Investments in Real Estate

The following table presents the Company’s consolidated acquisitions of real estate as of December 31, 2023:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The following table presents the Company’s consolidated acquisitions of real estate as of December 31, 2022:

As of December 31, 2023 and 2022, the amortization period for the intangible lease assets ranges from three to four months.

At December 31, 2023 and 2022, accumulated amortization of intangible lease assets was $2,455 and $2,165, respectively. For the years ended December 31, 2023 and 2022, the Company recognized amortization expense of $290 and $382, respectively. The unamortized balance of intangible lease assets at both December 31, 2023 and 2022 was $0.

On September 30, 2022, the Company sold the Avon Property which was reported as real estate held for sale as of June 30, 2022 at its carrying value in the amount of $22,312. For the year ended December 31, 2022, the Company recognized proceeds of $32,663 and a gain of $10,351 on the sale of investment in real estate, reported in the consolidated statements of operations.

On January 7, 2022, the Company sold The Clover on Park Lane, a 343-unit multifamily apartment community in Dallas, Texas (the “Clover Property”), which was reported as real estate held for sale as of December 31, 2021 at its carrying value in the amount of $19,911. For the year ended December 31, 2022, the Company recognized proceeds of $37,525 and a gain of $17,614 on the sale of investment in real estate, reported in the consolidated statements of operations.

Minimum Future Rents

The rental properties owned at December 31, 2023 and 2022 are principally leased under 12-month operating leases with certain tenant renewal rights.

Note 5 – Investments in Equity Method Investees

The table below presents the activities of the Company’s investments in equity method investees as of December 31, 2023 and 2022:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

As of December 31, 2023 and 2022, the Company’s investments in entities that are accounted for under the equity method of accounting consist of the following:

The results of operations and financial position of the Company’s equity method investments are summarized below for December 31, 2023:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

Due to the fact that the Company’s equity in the Plano CRP Portfolio, LLC declined to $0, the Company suspended recording losses on the investment.

Note 6 – Marketable Securities

As of December 31, 2023, the Company held one investment in an exchange traded fund and two investments in United States treasury bills (“U.S. T-bills”) with a total cost of $8,261. The table below summarizes the assets measured at fair value on a recurring basis and their respective position level in the fair value hierarchy:

As of December 31, 2022, the Company held one investment in an exchange traded fund and two investments in U.S. T-bills with a total cost of $23,279. The table below summarizes the assets measured at fair value on a recurring basis and their respective position level in the fair value hierarchy:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The unrealized loss on investment in marketable securities included in the consolidated statements of operations attributable to Level 1 measurements was $60 and $119 for the years ended December 31, 2023 and 2022, respectively.

During 2023, the Company purchased ten U.S. T-bills at a cost of $54,920, and eight U.S. T-bills matured for gross proceeds of $48,386, of which $475 is recognized as interest income, reported in the consolidated statements of operations.

During 2022, the Company purchased two U.S. T-bills at a cost of $21,678 and such U.S. T-bills matured during 2023 for gross proceeds of $21,855. For the year ended December 31, 2023, the Company reported $175 of interest income related to these U.S. T-bills, reported in the consolidated statements of operations. On November 18, 2022, the Company purchased one investment in a U.S. T-bill at a cost of $1,620 and it matured on December 20, 2022 for gross proceeds of $1,625. For the year ended December 31, 2022, the Company reported $5 of realized gain on sale of marketable securities, reported in the consolidated statements of operations.

Note 7 – Borrowings

Mortgages Payable

The following table details the Mortgages payable, net, balances per the consolidated balance sheets:

Scheduled principal repayments during the next five years and thereafter as of December 31, 2023 are as follows:

RealtyMogul Apartment Growth REIT, Inc.

Notes to the Consolidated Financial Statements

December 31, 2023 and 2022

(Amounts in thousands, except share and per share data)

The details of the Mortgages payable are as follows: