Form 1-SA Cardone Equity Fund V, For: Jun 30
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-SA
SEMI-ANNUAL REPORT PURSUANT TO REGULATION A
For the semi-annual period ended June 30, 2024
| CARDONE EQUITY FUND V, LLC |
Commission File No. 024-10865
82-5477495
Employer Identification Number
Delaware
(State or other jurisdiction of incorporation or organization)
Cardone Capital, LLC
18909 NE 29th Avenue
Aventura, FL 33180
Office: (310) 777-0255
Email: [email protected]
All correspondence:
Jonathan Sabo, Esq.
Dodson Robinette PLLC
1431 E. McKinney St. Suite 130
Denton, TX 76209
EMAIL FOR CORRESPONDENCE: [email protected]
Class A Interests
(Title of each class of securities issued pursuant to Regulation A)
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Table of Contents |
STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
We make statements in this Semi-Annual Report on Form 1-SA (“Report”) of Cardone Equity Fund V, LLC (the “Company”, “we”, “our” or “us”) that are forward-looking statements within the meaning of the federal securities laws. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” and similar expressions or statements regarding future periods 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 Report or in the information incorporated by reference into this Report.
The forward-looking statements included in this 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 condition and future business decision, 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. The Company does not promise to update any forward-looking statements to reflect changes in the underlying assumptions or factors, new information, future events, or other changes.
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On a regular basis, we evaluate these estimates. These estimates are based on management’s historical industry experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.
Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
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| · | changes in economic conditions generally and the real estate market specifically; |
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| · | limited ability to dispose of assets because of the relative illiquidity of real estate investments; |
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| · | intense competition in the real estate market that may limit our ability to attract or retain tenants or re-lease units; |
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| · | defaults on or non-renewal of leases by tenants; |
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| · | increased interest rates and operating costs; |
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| · | our failure to obtain necessary outside refinancing; |
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| · | decreased rental rates or increased vacancy rates; |
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| · | changes in multi-family or geographic market trends; |
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| · | changes in real estate and zoning laws and increases in real property tax rates and values; |
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| · | failure of acquisitions to yield anticipated results; |
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| · | failure to achieve the target returns, internal rate of return, multiple and distributions to Members; |
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| · | legislative or regulatory changes impacting our business or our assets; and |
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| · | exposure to liability relating to environmental and health and safety matters. |
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| Table of Contents |
Item 1. Management’s Discussion and Analysis of Financial Conditions and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included elsewhere in this Semiannual Report on Form 1-SA (“Semiannual Report”). Our fiscal year end is December 31st. Our financial statements are prepared in accordance with Generally Accepted Accounting Principles. This Semiannual Report may contain forward-looking information within the meaning of the federal securities laws, which involve known and unknown risks, uncertainties and other important factors which may impact our actual results.
Overview
Cardone Equity Fund V, LLC (“CEF V” or the “Company”), a Delaware limited liability corporation, was formed to invest directly or indirectly in multifamily apartment complexes located in Florida and Texas.
On September 20, 2019, the Company completed raising $50 million under Regulation A Plus from over 2,200 individual investors, and completed its investments in five income producing multifamily real estate properties located in Delray Beach, Florida; Sugar Land, Texas; Sunrise, Florida; Naples, Florida; and Panama City Beach, Florida.
The Company made its investments through limited liability companies (“LLC’s”) (treated as partnerships) that own a single multifamily property (single purpose entities “SPE’s”). The LLC's are co-owned by the Company, Cardone Equity Fund IV, LLC (“CEF IV”), a related entity by common management, and Grant Cardone, Manager of Cardone Capital LLC, the Company’s Manager. Grant Cardone typically owns from 1% to 5% of the LLC’s. CEF IV raised $106 million of capital from accredited investors that began its operations in September 2018. The Manager parallel invested the funds raised from the Company’s offering, funds raised from CEF IV’s offering and funds from Grant Cardone in all property acquisitions at varying ownership levels. The amount invested varied depending on the lender’s requirements and the amount of funds raised by the Company and CEF IV.
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| Table of Contents |
Results of Operations
As of June 30, 2024, the Company was invested in five multifamily properties which have a fair market value of $99,177,644, which remained unchanged over the December 31, 2023 value of $99,177,644. These investments had a cost of $32,399,077 and $34,661,412 as of June 30, 2024 and December 31, 2023, respectively. For the first six months of 2024, unrealized gains totaled $2,342,335, and net operating expenses totaled $363,414, netting to an increase in net assets from operations of $1,982,416, as compared to unrealized gains of $3,444,424 and net operating expenses of $ 347,414, resulting in an increase in net assets from operations of $3,097,010 for the first six months of 2023. Our results of operations as of June 30, 2024, may not be indicative of those expected in future periods as the fair market value of the assets will fluctuate with changes in general economic conditions and the real estate market specifically.
The multifamily portfolio revenues increased 3% during the first half of 2024 as compared to the first half of 2023. This increase was primarily driven by an increase in rents. Average occupancy remained strong during the first half of 2024 at about 95% which was slightly higher than the first half of 2023. The portfolio’s first half of 2024 expenses and net operating income increased at a rate of about 7% and 1%, respectively, from first half of 2023 levels. The first part of 2024 has seen a slowing in rental growth, but the portfolio is still performing well and able to maintain a 5% cash distribution. The Manager anticipates cash flow will continue to stay steady in 2024, as demand for rental units remains strong in the Company’s locations.
Liquidity and Capital Resources
The value of an investment in the Company will fluctuate with the performance of the specific assets in which the Company invested. In certain circumstances, the Company established reserves from the gross offering proceeds for initial deferred maintenance and repairs, value add improvements and certain capital improvement projects of the properties, which may require additional funding from the Company. To the extent that the Company has insufficient funds for such purposes, the Company may establish additional reserves from cash flow from operations, or from net cash proceeds from the sale of properties. As of June 30, 2024, the investment properties had about $3,107,600 cash reserves, of which about $883,651 was generated from operations in excess of distributions.
As of June 30, 2024, CEF V had no outstanding debt. The LLC’s which the Company invested in leveraged their individual assets from 60% to 75% of the cost of the acquisition price.
Trends and Key Information Affecting our Performance
The continued migration to the south has kept our assets well positioned, in the Sunbelt, where our property holdings are focused, the demand for garden style apartment complexes continues to increase, as those searching for a home increasingly desire to live in Class A multifamily properties that offer a package of amenities. Coupled with the limited supply of single-family homes and increase rates of home ownership due to rise of interest rates as well as general inflation issues residents are staying longer than they have in previous years. Because of this and the properties’ great locations, the Company benefited with an average occupancy rate of 95% for the first six months of 2024. Our properties are in desirable locations and will benefit from the wave of new renters leaving major metros, most of whom are now free to work remotely. Job growth and steady rental rates provide the backdrop for strong renter demand. We believe that other factors impacting the renter, such as delaying home purchases due to increasing prices, and increased interest rates support the value proposition of owning multifamily properties.
None.
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| Table of Contents |
| Financial Statements - Index |
| As of June 30, 2023 |
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| F-4 |
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| F-6 |
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| F-7 |
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| 6 |
| Table of Contents |
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| Statements of Net Assets |
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| As of June 30, 2024 and December 31, 2023 |
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| June 30, 2024 |
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| December 31, 2023 |
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| (unaudited) |
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| Assets: |
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| Real estate investments, at fair value (cost of $39,050,210 and $42,851,242, respectively) |
| $ | 99,177,644 |
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| $ | 99,177,644 |
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| Cash |
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| 44,303 |
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| 141,948 |
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| Other receivables |
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| - |
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| - |
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| Deferred offering costs |
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| Total assets |
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| 99,221,947 |
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| 99,319,592 |
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| Liabilities: |
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| Offering proceeds |
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| Accounts payable |
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| 944 |
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| 18,638 |
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| Accrued expenses and other related party payables |
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| - |
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| - |
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| Total liabilities |
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| 944 |
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| 18,638 |
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| Net assets |
| $ | 99,221,003 |
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| $ | 99,300,954 |
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See accompanying notes which are an integral part of these financial statements.
| F-1 |
| Table of Contents |
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| Schedule of Real Estate Investments |
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| As of June 30, 2024 - (unaudited) |
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| Investment |
| Ownership Interest |
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| Cost Basis |
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| Fair Market Value |
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| Cardone Delray Member, LLC1 |
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| 39.02% |
| $ | 9,497,322 |
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| $ | 32,599,289 |
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| Cardone Stella Member, LLC2 |
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| 30.82% |
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| 5,947,974 |
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| 13,010,937 |
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| Cardone Sawgrass Member, LLC3 |
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| 24.27% |
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| 8,572,828 |
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| 20,246,424 |
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| Cardone Laguna Member, LLC4 |
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| 36.87% |
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| 5,985,204 |
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| 26,885,838 |
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| Cardone Ashley Member, LLC5 |
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| 22.21% |
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| 2,315,749 |
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| 6,435,156 |
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| $ | 32,319,077 |
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| $ | 99,177,644 |
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1 Cardone Delray Member, LLC owns 100% of Atlantic Delray Beach, LLC (d/b/a: 10X Living at Delray) which holds an investment in a 346 unit multifamily apartment community located in Delray Beach, FL. The Company invested in Cardone Delray Member, LLC on January 1, 2019. The Company's proportional share of this investment represents 31.81% of net assets.
2 Cardone Stella Member, LLC owns 100% of Stella 351, LLC (d/b/a: Stella at Riverstone) which holds an investment in a 351 unit multifamily apartment community located in Sugar Land, TX. The Company invested in Cardone Stella Member, LLC on January 25, 2019. The Company's proportional share of this investment represents 12.70% of net assets.
3 Cardone Sawgrass Member, LLC owns 100% of Sunrise Village Development, LLC (d/b/a: 10X Living at Sawgrass) which holds an investment in a 501 unit multifamily apartment community located in Sunrise, FL. The Company invested in Cardone Sawgrass Member, LLC on July 16, 2019. The Company's proportional share of this investment represents 19.76% of net assets.
4 Cardone Laguna Member, LLC owns 100% of Fountain View Circle, LLC (d/b/a: 10X Living at Naples) which holds an investment in a 456 unit multifamily apartment community located in Naples, FL. The Company invested in Cardone Laguna Member, LLC on July 1, 2019. The Company's proportional share of this investment represents 26.24% of net assets.
5 Cardone Ashley Member, LLC owns 100% of ABP Borrower, LLC (d/b/a: 10X Living at Breakfast Point) which holds an investment in a 360 unit multifamily apartment community located in Panama City Beach, FL. The Company invested in Cardone Ashley Member, LLC on September 16, 2019. The Company's proportional share of this investment represents 6.28% of net assets.
See accompanying notes which are an integral part of these financial statements.
| F-2 |
| Table of Contents |
| Cardone Equity Fund V, LLC | ||||||||||||
| Schedule of Real Estate Investments |
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| As of December 31, 2023 |
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| Ownership |
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| Cost |
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| Fair Market |
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| Investment |
| Interest |
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| Basis |
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| Value |
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| Cardone Delray Member, LLC1 |
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| 39.02% |
| $ | 9,899,888 |
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| $ | 32,599,289 |
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| Cardone Stella Member, LLC2 |
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| 30.82% |
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| 6,371,332 |
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| 13,010,937 |
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| Cardone Sawgrass Member, LLC3 |
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| 24.27% |
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| 9,106,589 |
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| 20,246,424 |
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| Cardone Laguna Member, LLC4 |
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| 36.87% |
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| 6,787,982 |
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| 26,885,838 |
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| Cardone Ashley Member, LLC5 |
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| 22.21% |
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| 2,495,621 |
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| 6,435,156 |
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| $ | 34,661,412 |
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| $ | 99,177,644 |
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____________
1 Cardone Delray Member, LLC owns 100% of Atlantic Delray Beach, LLC (d/b/a: 10X Living at Delray) which holds an investment in a 346 unit multifamily apartment community located in Delray Beach, FL. The Company invested in Cardone Delray Member, LLC on January 1, 2019. The Company's proportional share of this investment represents 31.81% of net assets.
2 Cardone Stella Member, LLC owns 100% of Stella 351, LLC (d/b/a: Stella at Riverstone) which holds an investment in a 351 unit multifamily apartment community located in Sugar Land, TX. The Company invested in Cardone Stella Member, LLC on January 25, 2019. The Company's proportional share of this investment represents 12.70% of net assets.
3 Cardone Sawgrass Member, LLC owns 100% of Sunrise Village Development, LLC (d/b/a: 10X Living at Sawgrass) which holds an investment in a 501 unit multifamily apartment community located in Sunrise, FL. The Company invested in Cardone Sawgrass Member, LLC on July 16, 2019. The Company's proportional share of this investment represents 19.76% of net assets.
4 Cardone Laguna Member, LLC owns 100% of Fountain View Circle, LLC (d/b/a: 10X Living at Naples) which holds an investment in a 456 unit multifamily apartment community located in Naples, FL. The Company invested in Cardone Laguna Member, LLC on July 1, 2019. The Company's proportional share of this investment represents 26.24% of net assets.
5 Cardone Ashley Member, LLC owns 100% of ABP Borrower, LLC (d/b/a: 10X Living at Breakfast Point) which holds an investment in a 360 unit multifamily apartment community located in Panama City Beach, FL. The Company invested in Cardone Ashley Member, LLC on September 16, 2019. The Company's proportional share of this investment represents 6.28% of net assets.
See accompanying notes which are an integral part of these financial statements.
| F-3 |
| Table of Contents |
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| Statements of Operations |
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| As of June 30, 2024 and June 30, 2023 |
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| Six Months Ended |
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| Six Months Ended |
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| June 30, 2024 |
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| June 30, 2023 |
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| (unaudited) |
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| (unaudited) |
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| Investment income |
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| 3,225 |
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| 2,452 |
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| Expenses |
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| Interest expense |
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| Asset management fee |
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| 250,000 |
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| 250,000 |
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| Professional fees |
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| 109,314 |
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| 99,866 |
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| Administrative and other |
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| 4,100 |
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| - |
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| Total expenses |
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| 363,414 |
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| 349,866 |
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| Net investment loss |
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| (360,189 | ) |
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| (349,866 | ) |
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| Change in unrealized gains on real estate investments |
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| 2,342,335 |
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| 3,442,999 |
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| Net increase in net assets resulting from operations |
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| 1,982,146 |
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| 3,093,133 |
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See accompanying notes which are an integral part of these financial statements.
| F-4 |
| Table of Contents |
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| Statements of Changes in Net Assets |
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| For six month periods from December 31, 2021 to June 30, 2024 |
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| Total |
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| Members Class A Interests |
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| Managing Member Class B Interests |
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| Balances, December 31, 2021 |
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| 90,272,599 |
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| 74,217,356 |
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| 16,055,243 |
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| Distributions |
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| (1,391,077 | ) |
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| (1,081,222 | ) |
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| (309,855 | ) |
| Offering and syndication costs |
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| - |
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| Net increase in net assets resulting from operations |
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| 6,914,997 |
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| 4,494,749 |
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| 2,420,248 |
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| Balances, June 30, 2022 |
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| 95,796,519 |
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| 77,630,883 |
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| 18,165,636 |
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| Distributions |
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| (1,560,811 | ) |
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| (1,159,111 | ) |
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| (401,700 | ) |
| Offering and syndication costs |
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| - |
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| - |
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| - |
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| Net increase in net assets resulting from operations |
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| 8,235,508 |
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| 5,353,080 |
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| 2,882,430 |
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| Balances, December 31, 2022 |
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| 102,471,216 |
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| 81,824,852 |
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| 20,646,366 |
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| Distributions |
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| (1,742,468 | ) |
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| (1,238,109 | ) |
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| (504,359 | ) |
| Offering and syndication costs |
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| - |
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| Net increase in net assets resulting from operations |
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| 3,097,010 |
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| 2,013,056 |
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| 1,083,954 |
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| Balances, June 30, 2023 |
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| 103,825,758 |
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| 82,599,799 |
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| 21,225,959 |
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| Distributions |
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| (1,973,406 | ) |
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| (1,283,505 | ) |
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| (689,901 | ) |
| Offering and syndication costs |
|
| - |
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| - |
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| - |
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| Net increase in net assets resulting from operations |
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| (2,551,398 | ) |
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| (1,658,409 | ) |
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| (892,989 | ) |
| Balances, December 31, 2023 |
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| 99,300,954 |
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| 79,657,885 |
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| 19,643,069 |
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| Distributions |
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| (2,062,097 | ) |
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| (1,356,329 | ) |
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| (705,768 | ) |
| Offering and syndication costs |
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| - |
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|
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| Net increase in net assets resulting from operations |
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| 1,982,146 |
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| 1,288,395 |
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|
| 693,751 |
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| Balances, June 30, 2024 |
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| 99,221,003 |
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| 79,589,951 |
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| 19,631,052 |
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See accompanying notes which are an integral part of these financial statements.
| F-5 |
| Table of Contents |
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| Statements of Cash Flows |
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| For the six month periods ended June 30, 2024 and June 30, 2023 |
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| Period Ended |
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| Period Ended |
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| June 30, 2024 |
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| June 30, 2023 |
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| (unaudited) |
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| (unaudited) |
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| Cash flows from operating activities: |
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| Net increase in net assets resulting from operations |
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| 1,982,146 |
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| 3,097,010 |
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| Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: |
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| Change in unrealized gains on investments |
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| (2,342,335 | ) |
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| (3,444,424 | ) |
| Purchase of investments |
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|
|
| Distributions from investments |
|
| 2,342,335 |
|
|
| 2,109,995 |
|
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
| Advance from related party |
|
|
|
|
|
|
|
|
| Accounts payable |
|
| (17,694 | ) |
|
| 3,321 |
|
| Accrued expenses and other related party payables |
|
| - |
|
|
| - |
|
| Net cash provided by operating activities |
|
| 1,964,452 |
|
|
| 1,765,902 |
|
|
|
|
|
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
|
|
| Offering proceeds |
|
|
|
|
|
|
|
|
| Offering and syndication costs |
|
|
|
|
|
|
|
|
| Other receivables |
|
| - |
|
|
| - |
|
| Distributions |
|
| (2,062,097 | ) |
|
| (1,742,468 | ) |
| Net cash used in financing activities |
|
| (2,062,097 | ) |
|
| (1,742,468 | ) |
|
|
|
|
|
|
|
|
|
|
| Net increase/(decrease) in cash |
|
| (97,645 | ) |
|
| 23,434 |
|
| Cash, beginning of period |
|
| 141,948 |
|
|
| 83,807 |
|
| Cash, end of period |
|
| 44,303 |
|
|
| 107,241 |
|
See accompanying notes which are an integral part of these financial statements.
| F-6 |
| Table of Contents |
CARDONE EQUITY FUND V, LLC (the “Company”), is a limited liability company organized May 4, 2018 under the laws of Delaware and is located in Aventura, Florida.
The Company started accepting subscriptions on December 12, 2018 and commenced operations on January 1, 2019 when $6,982,521 was invested in its first multifamily real estate investment. On September 20, 2019, the Company completed raising $50 million under Regulation A Plus from over 2,200 individual investors and completed its investments in five multifamily real estate properties. The fund-raising activities were completed through Cardone Capital, LLC’s (the “Manager”) online platform.
The Company made its investments through limited liability companies (“LLC’s”) (treated as partnerships) that own a single multifamily property (single purpose entities “SPE’s”). The LLC's are co-owned by the Company, Cardone Equity Fund IV, LLC (“CEF IV”), a related entity by common management, and Grant Cardone, Managing Member of Cardone Capital, LLC. Grant Cardone owns from 1% to 5% of the LLC’s. CEF IV raised $106 million of capital from accredited investors and began its operations in September 2018. The Manager parallel invested the funds raised from the Company’s offering, funds raised from CEF IV’s offering and funds from Grant Cardone in all property acquisitions at varying ownership levels. The amount invested varied depending on the lender’s requirements and the amount of funds raised by the Company and CEF IV.
The Company is not registered as an Investment Company under the Investment Company Act of 1940, as amended.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements have been prepared under accounting principles generally accepted in the United States of America (“GAAP”) for investment companies. The Company is an investment company that follows the specialized accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 “Financial Services – Investment Companies.” The Company adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of investment income, expenses and gains (losses) during the reporting period. Actual results could differ from those estimates.
Cash and Concentration of Cash Balance
The Company’s cash in bank deposit accounts, at times, may exceed federally insured limits.
Real Estate Investments
Investments in real estate are carried at fair value. Costs to acquire real estate investments are capitalized as a component of investment cost. The fair values of real estate investments are estimated based on the price that would be received to sell an asset in an orderly transaction between marketplace participants at the measurement date.
Investments without a public market are valued based on assumptions made and valuation techniques used by the Manager. Such valuation techniques may include discounted cash flow analysis, prevailing market capitalization rates or earnings multiples applied to earnings from the investment, analysis of recent comparable sales transactions, actual sale negotiations and bona fide purchase offers received from third parties, consideration of the amount that currently would be required to replace the asset, as well as independent external appraisals. In general, the Manager considers multiple valuation techniques when measuring the fair value of a real estate investment. However, in certain circumstances, a single valuation technique may be appropriate.
| F-7 |
| Table of Contents |
Real Estate Investments (continued)
The fair value of real estate investments does not reflect the Company’s transaction sale costs, which may be incurred upon disposition of the real estate investments. Such costs are estimated to approximate 2% - 3% of gross property fair value. The Company also reflects its real estate equity investments net of investment level financing. Valuation adjustments attributable to underlying financing arrangements are considered in the real estate equity valuation.
The Company may invest in real estate and real estate related investments for which no liquid market exists. The market prices for such investments may be volatile and may not be readily ascertainable. Additionally, there may be limited availability of observable transaction data and inputs which may make it more difficult to determine the fair value of such investments. Amounts ultimately realized by the Company from real estate investments sold may differ from the fair values presented, and the differences could be material.
Fair Value Measurement
FASB guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The investments in real estate will fall into Level 3 category, therefore, fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of the reporting date.
Investments in Real Estate Transactions
Purchases and sales of real estate investments are recorded on a transaction basis. Distributions from the real estate investment are first applied to the cost of the investment until the total cost has been recovered, after which point any further distributions are recorded as realized gains. Further, realized gains and losses on real estate investment transactions will be recognized upon the sale of the investment. Changes in unrealized gains and losses are included in the results of operations.
Risks and Uncertainties
The Company’s business and operations are sensitive to general business and economic conditions in the U.S. and worldwide along with local, state, and federal governmental policy decisions. Adverse developments in these general business and economic conditions could have a material adverse effect on the Company’s financial conditions and the results of operations.
| F-8 |
| Table of Contents |
Income Taxes
The Company is a limited liability company, treated as a partnership for U.S. income tax purposes. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its members. Therefore, no provision for income tax has been recorded in the accompanying financial statements. Income from the Company is reported and taxed to the members on their individual tax returns.
The Bipartisan Budget Act of 2015 provides that any entity treated as a partnership for U.S. income tax purposes may be directly assessed for federal income taxes, interest and penalties arising from partnership audits and/or adjustments (the “Assessment”), rather than the owners of the entity being liable for the Assessment. Any such Assessment against the entity would impact the equity interests of current owners’ pro-rata at the time the Assessment is levied absent claw-back provisions to any former owners or other special allocation provisions within the entity’s governing documents.
The Company complies with FASB ASC 740 for accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a tax return for open tax years (generally a period of three years from the later of each return’s due date or the date filed) that remain subject to examination by the Company’s major tax jurisdictions.
For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
NOTE 3: FAIR VALUE MEASUREMENTS
The fair value for certain financial instruments is derived using valuation techniques that involve significant management judgment. The price transparency of financial instruments is a key determinant of the degree of judgment involved in determining the fair value of the Company’s financial instruments. Financial instruments for which actively quoted prices or pricing parameters are available and for which markets contain orderly transactions will generally have a higher degree of price transparency than financial instruments for which markets are inactive or consist of non-orderly trades. The Company evaluates several factors when determining if a market is inactive or when market transactions are not orderly. The following is a summary of the methods and assumptions used by management in estimating the fair value of each class of financial instrument for which it is practicable to estimate the fair value:
Cash, accrued expenses and other related party payables: these balances approximate their fair values due to the short maturities of these items.
Real estate investments are stated at fair value of the ownership interests of the underlying entities. The Company’s ownership interests are valued based on the fair value of the underlying real estate, any related mortgage loans payable, and other factors, such as ownership percentage, distribution provisions and capital call obligations. The Company’s estimates of the values of real estate properties have been prepared giving consideration to the income, direct capitalization and sales comparison approaches of estimating property value. The income approach estimates an income stream for a property (typically 10 years) and discounts this income plus a reversion (presumed sale) into a present value at a risk adjusted rate. Yield rates and growth assumptions utilized in this approach are derived from market transactions as well as other financial and industry data. The direct capitalization approach is based on the net operating income (NOI) of the underlying real estate for a stabilized operation divided by the market capitalization rate. The sales comparison approach compares recent transactions to the appraised property. Adjustments are made for dissimilarities which typically provide a range of value. The direct capitalization approach was used to value all of the Company’s real estate investments as of June 30 2024 and December 31, 2023. The terminal cap rate and the discount rate are significant inputs to these valuations. These rates are based on the location, type and nature of each property, and current and anticipated market conditions. Significant increases in discount or capitalization rates in isolation would result in a significantly lower fair value measurement. Significant decreases in discount or capitalization rates in isolation would result in a significantly higher fair value measurement.
| F-9 |
| Table of Contents |
Investment values were determined based on capitalization rates of 4.25% to 5.55% as of June 30, 2024 and December 31, 2023. Fair value measurements take into consideration the estimated effect of physical depreciation, historical cost depreciation and amortization on real estate related investments.
Upon the disposition of all real estate investments by an investee entity, the Company will continue to state its equity in the remaining net assets of the investee entity during the wind-down period. The Company’s real estate investments are classified within level 3 of the valuation hierarchy.
The following is a reconciliation of the beginning and ending balances for assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the semi-annual periods ended June 30, 2024, December 31, 2023, June 30, 2023, December 31, 2022, June 30, 2022, and December 31, 2021:
| Description |
| Real Estate Investments |
| |
| Beginning balance, December 31, 2021 |
| $ | 90,407,109 |
|
| Unrealized gain on real estate investments |
|
| 7,251,485 |
|
| Distributions from real estate investments |
|
| (1,391,077 | ) |
| Ending Balance, June 30, 2022 |
|
| 96,267,517 |
|
| Unrealized gain on real estate investments |
|
| 8,536,741 |
|
| Distributions from real estate investments |
|
| (2,409,955 | ) |
| Ending Balance, December 31, 2022 |
|
| 102,394,303 |
|
| Unrealized gain on real estate investments |
|
| 3,442,999 |
|
| Distributions from real estate investments |
|
| (2,109,995 | ) |
| Ending Balance, June 30, 2023 |
| $ | 103,727,307 |
|
| Unrealized gain on real estate investments |
|
| (2,270,860 | ) |
| Distributions from real estate investments |
|
| (2,278,803 | ) |
| Ending Balance, December 31, 2023 |
| $ | 99,177,644 |
|
| Unrealized gain on real estate investments |
|
| 2,342,335 |
|
| Distributions from real estate investments |
|
| (2,342,335 | ) |
| Ending Balance, June 30, 2024 |
| $ | 99,177,644 |
|
NOTE 4: MEMBERS’ EQUITY/NET ASSETS
On September 20, 2019, the Company completed raising the maximum amount of $50,000,000 by offering 50,000 Class A Interests at $1,000 per Interest through a Tier II offering pursuant to Regulation A under the Securities Act, also known as “Reg A Plus” and sold the Interests directly to investors. The minimum investment was $5,000. The Class A Members in the Company will receive a 65% profits interest.
The Manager’s Class B Interest is a 35% profits interest and is subordinate to the Class A Interest.
Losses for any fiscal year shall be allocated among the Members in proportion to their positive capital account balances, giving consideration to their respective ownership period, until the balance of each capital account equals zero. Thereafter, all losses shall be allocated in accordance to each Member’s respective Percentage Interest in the Company. Profits will first be allocated pro rata to the Members in accordance with the amount of Losses previously allocated if such previous Losses were not offset by Profits. Thereafter, Profits shall be allocated in accordance with actual distributions of Distributable Cash and shall be allocated 65% to the Class A Members (in proportion to their respective Percentage Interests) and 35% to the Class B Interests. In all cases, giving consideration to their respective ownership period.
| F-10 |
| Table of Contents |
Shown below are the distributions made to investors
|
|
| Class A |
|
| Class B |
| ||
| Distributions YTD as of 06/30/24 |
| $ | 1,356,329 |
|
| $ | 705,768 |
|
|
|
|
|
|
|
|
|
|
|
| Distributions YTD as of 6/30/23 |
| $ | 1,239,982 |
|
| $ | 1,215,914 |
|
|
|
|
|
|
|
|
|
|
|
| Life to Date Distributions 06/30/24 |
|
| 11,569,719 |
|
|
| 2,611,583 |
|
|
|
|
|
|
|
|
|
|
|
| Life to Date Distributions 06/30/23 |
|
| 8,931,758 |
|
|
| 1,927,469 |
|
|
|
|
|
|
|
|
|
|
|
| Amounts owed to balance 06/30/24 |
| $ | - |
|
| $ | 3,618,226 |
|
In accordance with the operating agreement, distributions will be allocated 65% to the Class A Members and 35% to the Class B Members. At the Manager’s discretion, a reduced percentage of distributions has been paid to date to the Class B Interest Holder, the Manager, with the intention that at a later time, when the cash flow from operations increases or an exit event occurs, the Manager may adjust cash distributions to be allocated on a cumulative 65%/35% basis.
NOTE 5: RELATED PARTY TRANSACTIONS
The Company has engaged the Manager to manage the Company, under a management agreement. The Company is subject to the following fees under this agreement:
Acquisition Fee
Each of the Company’s real estate investments, are obligated to pay the Company’s Manager or its designated affiliate 1% of the investment’s fixed asset purchase price. This fee will be paid at the discretion of the Manager, but no later than the liquidation of the real estate investment. Should the fee be paid at acquisition, it is included as an acquisition cost of the SPE purchasing the property.
As of June 30, 2023 a total of $3,045,000 of acquisition fees have been paid with $1,621,762 remaining to be paid. The Company’s proportional share paid, based on the ownership of the respective investments, totaled $849,421 and $575,402 remains to be paid.
Disposition Fee
For each real estate investment, the Company will pay its Manager or its designated affiliate 1% of the investment’s sale price. This fee will be paid at the disposition of the real estate investment.
| F-11 |
| Table of Contents |
Asset Management Fee
The Company will pay the Manager, or its designated affiliate, a 1% annualized Asset Management Fee during the first three years of operations which will be calculated based on the Contributed Capital as of the end of each prior month. After the first three years, the amount of Contributed Capital will be reduced for the return of capital to Members from the liquidation and disposition from the sale of one of the Company’s assets. This fee will be payable monthly at the discretion of the Manager. For the periods ending June 30 2024 and June 30 2023 the Company incurred $250,000 and $250,000 respectively in Asset Management Fee expense.
Marketing Fee
Beginning in 2022, a portion of the property management fee paid to one of the property managers was remitted to a designated affiliate of the Manager for assistance with the properties’ marketing program. This fee totaled 64,300 for the period ending June 30, 2024 and $62,078 for the period ended June 30, 2023.
Co-investments
As of June 30, 2024 the Company has co-invested with CEF IV and Grant Cardone as follows:
|
|
| 10X Living at Delray |
|
| Stella at Riverstone |
|
| 10X Living at Sawgrass |
|
| 10X Living at Naples |
|
| 10X Living at Breakfast Point |
| |||||||||||||||||||||||||
| Entity |
| Investment |
|
| Percentage |
|
| Investment |
|
| Percentage |
|
| Investment |
|
| Percentage |
|
| Investment |
|
| Percentage |
|
| Investment |
|
| Percentage |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
| CEF IV |
| $ | 20,386,500 |
|
|
| 59.52 | % |
| $ | 18,759,605 |
|
|
| 64.14 | % |
| $ | 35,597,729 |
|
|
| 70.67 | % |
| $ | 16,909,610 |
|
|
| 58.11 | % |
| $ | 14,120,800 |
|
|
| 72.79 | % |
| CEF V |
|
| 13,363,500 |
|
|
| 39.02 | % |
|
| 9,015,395 |
|
|
| 30.82 | % |
|
| 12,227,271 |
|
|
| 24.27 | % |
|
| 10,730,390 |
|
|
| 36.87 | % |
|
| 4,309,200 |
|
|
| 22.21 | % |
| Grant Cardone |
|
| 500,000 |
|
|
| 1.46 | % |
|
| 1,475,000 |
|
|
| 5.04 | % |
|
| 2,550,000 |
|
|
| 5.06 | % |
|
| 1,460,000 |
|
|
| 5.02 | % |
|
| 970,000 |
|
|
| 5.00 | % |
| Total |
| $ | 34,250,000 |
|
|
| 100.00 | % |
| $ | 29,250,000 |
|
|
| 100.00 | % |
| $ | 50,375,000 |
|
|
| 100.00 | % |
| $ | 29,100,000 |
|
|
| 100.00 | % |
| $ | 19,400,000 |
|
|
| 100.00 | % |
NOTE 6: FINANCIAL RISKS AND UNCERTAINTIES
The Company is subject to several risks including the following:
Liquidity Risk
Liquidity risk is the risk that the Company will not be able to raise funds to fulfill its commitments.
Market Risk
Market risk is the potential loss that can be caused by increases or decreases in the fair value of investments resulting from market fluctuations.
Credit Risk
Credit risk represents the potential loss that would occur if counterparties fail to perform pursuant to the terms of their obligations.
| F-12 |
| Table of Contents |
NOTE 7: FINANCIAL HIGHLIGHTS
The following summarizes the Company’s financial highlights for the years ended June 30, 2024 and 2023
|
|
| Class A Members |
|
| Class A Members |
| ||
|
|
| June 30, 2024 |
|
| June 30, 2023 |
| ||
| Total return 1 |
|
|
|
|
|
| ||
| End of year since-inception internal rate of return |
|
| 13.38 | % |
|
| 19.69 | % |
| Beginning of year since-inception internal rate of return |
|
| 14.42 | % |
|
| 18.26 | % |
|
|
|
|
|
|
|
|
|
|
| Expense ratios 2 |
|
|
|
|
|
|
|
|
| Operating expense |
|
| 0.56 | % |
|
| 0.55 | % |
|
|
|
|
|
|
|
|
|
|
| Net investment income (loss) ratios 3 |
| (0.56 | %) |
| (0.55 | %) | ||
1 Total return is calculated based on a dollar-weighted internal rate of return methodology net of fees. The internal rate of return is computed on a since-inception basis using annual compounding and the actual dates of cash inflows received by and outflows paid to investors and including ending net asset value as of each measurement date. Because total return is calculated for the Class A Members taken as a whole, an individual Class A Member’s return may vary from these returns based on a different management fee and incentive arrangements (as applicable) and the timing of capital contributions.
2 These expense ratios are calculated for the Class A Members taken as a whole using weighted average of net assets for the year. The computation of such ratios is based on the amount of expenses assessed to an individual Class A Member’s capital may vary from these ratios based on different management fee incentive arrangements (as applicable) and the timing of capital transactions.
3 The net investment income(loss) ratios are calculated for the Class A Members taken as a whole using weighted average net assets for the year. The computation of the net investment income ratio is based on the amount of net investment income assessed to an individual Class A Member’s capital may vary from these ratios based on different management fee arrangements (as applicable).
NOTE 8: OTHER MATTERS
Cardone Capital LLC, Grant Cardone, the Company, and Cardone Equity Fund V, LLC are currently defendants in a putative class action lawsuit brought by an investor who alleges violations of the federal securities laws in connection with the sale of interests in Cardone Equity Fund V, LLC and Cardone Equity Fund VI, LLC. Luis Pino v. Cardone Capital, LLC et al., Case # 2:20-cv-08499-JFW was filed in Federal District Court for the Central District of California on September 16, 2020 and was dismissed with prejudice on April 30, 2021. Having lost in Federal District Court, the plaintiff filed an appeal to the Ninth Circuit Court of Appeals on May 28, 2021, Case # 21-55564. On December 21, 2022, the Ninth Circuit Court of Appeals entered an opinion and memorandum reversing in part and remanding to allow plaintiff to attempt to re-plead certain claims. On June 26, 2023, plaintiff filed a second amended complaint asserting the same claims, and on October 4, 2023, the court dismissed the second amended complaint with prejudice. On November 8, 2023, plaintiff filed a notice of appeal of the dismissal, which appeal remains pending.
The defendants believe that the allegations in this lawsuit are without merit and will vigorously defend against the action. However, given the uncertainty of litigation and the preliminary stage of this appeal, the defendants cannot reasonably estimate if any loss may result from this action. The Company may also incur legal fees or other expenses in connection with the defense against these claims.
NOTE 9: SUBSEQUENT EVENTS
For the period July 1, 2024 to December 29, 2024 Cardone Equity Fund V, LLC has distributed an additional $1,395,840 to Class A Members and $175,000 to the Class B Members.
Management has evaluated subsequent events through December 29, 2024, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
| F-13 |
| Table of Contents |
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
| ||
|
|
|
|
|
|
____________
* Filed previously and incorporated herein by reference
| 7 |
| Table of Contents |
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Cardone Equity Fund V, LLC | ||
|
| ||
| By: | Cardone Capital LLC, its Manager | |
|
| ||
| By: | /s/ Grant Cardone |
|
| Name: | Grant Cardone |
|
| Title: | Chief Executive Officer | |
| Date: | December 31, 2024 | |
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
| Signature |
| Title |
| Date |
|
| ||||
| /s/ Grant Cardone |
| Chief Executive Officer of Cardone Capital LLC |
| December 31, 2024 |
| Grant Cardone |
| (Principal Executive Officer) | ||
|
|
|
|
|
|
| /s/ Ryan Tseko |
| Executive Vice President of Cardone Real Estate Acquisitions LLC |
| December 31, 2024 |
| Ryan Tseko |
| (Principal Financial and Accounting Officer) |
|
|
| 8 |
