UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____

Commission file number 000-56395

NRI Real Estate Investment and Technology, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland		87-1031361
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1340 South Dixie Highway, Suite 612 Coral Gables, Florida		33146
(Address of Principal Executive Offices)		(Zip Code)

(305) 529-9928

(Registrant’s Telephone Number, Including Area Code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class:		Trading Symbol:		Name of Each Exchange on Which Registered:
None		N/A		N/A

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐		Accelerated filer ☐		Non-accelerated filer ☒
Smaller reporting company ☒		Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 1, 2023, 8,000 shares of common stock, 110 shares of Series A Preferred Stock and no shares of any other class or series of stock of the Company are issued and outstanding.

NRI Real Estate Investment and Technology, Inc.

Table of Contents

		Page
CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS		ii
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	24
Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults upon Senior Securities	25
Item 4.	Mine Safety Disclosures	25
Item 5.	Other Information	25
Item 6.	Exhibits	25
		25
SIGNATURES		26

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report on Form 10-Q (this “Quarterly Report”) of NRI Real Estate Investment and Technology, Inc., a Maryland corporation and formerly known as NRI Real Token, Inc. (the “Company”), other than historical facts are forward-looking statements. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “could,” “intend,” “anticipate,” “plan,” “estimate,” “believe,” “potential,” “continue,” or other similar words. Specifically, we consider, among others, statements concerning future operating results and cash flows, our ability to meet future obligations, and the amount and timing of any future distributions to stockholders to be forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this report is filed with the SEC. We make no representations or warranties (express or implied) about the accuracy of any such forward-looking statements contained in this Quarterly Report, and we do not intend to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any such forward-looking statements are subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered.

The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:

●

We have a limited operating history and may not be successful at operating our business as a real estate investment trust for U.S. federal income tax purposes (a “REIT”), which may adversely affect our ability to make distributions to our stockholders.

●

Failure to qualify as or maintain qualification as a REIT would reduce our net earnings available for investment or distribution to our stockholders.

●

Our advisor, its executive officers and other key personnel, as well as certain of our officers and directors, whose services are essential to the Company, are involved in other business ventures, and face a conflict in allocating their time and other resources between us and the other activities in which they are or may become involved. Failure of our advisor, its executive officers and key personnel, and our officers and directors to devote sufficient time or resources to our operations could result in reduced returns to our stockholders.

●

We pay certain prescribed fees to our advisor and its affiliates regardless of our performance.

●

We have utilized and may continue to utilize substantial debt financing from third parties to acquire properties and to maintain and make capital improvements at our existing Property (as defined herein).

●

As of this date, our only Property is in Miami-Dade, Florida. As a result, any adverse economic, real estate or business conditions in this geographic area could affect our operating results.

●

Demand may be affected by various factors, including the demand for hospitality derived from the University of Miami, business travelers, and transient customers, and price competition from other hotels in the Coral Gables and greater Miami, Florida market; demand for the Property’s apartments, and price competition from other apartment facilities and other residential alternatives; the demand for commercial retail space; and demand for our food and beverage facilities. If demand does not increase or if demand weakens, our operating results and growth prospects could be adversely affected.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

INDEX TO FINANCIAL STATEMENTS

NRI Real Estate Investment and Technology, Inc. & Subsidiaries

Condensed Consolidated and Combined Financial Statements

For the Three Months Ended March 31, 2023 and 2022

(Unaudited)

Condensed Consolidated and Combined Balance Sheets March 31, 2023 (Unaudited) and December 31, 2022 (Audited)		2
Condensed Consolidated and Combined Statements of Operations (Unaudited)		3
Condensed Consolidated and Combined Statements of Equity (Unaudited)		4
Condensed Consolidated and Combined Statements of Cash Flows (Unaudited)		5
Notes to Consolidated Financial Statements (Unaudited)		6

NRI REAL ESTATE INVESTMENT AND TECHNOLOGY, INC. & SUBSIDIARIES

CONSOLIDATED & COMBINED BALANCE SHEETS

	March 31, 2023		December 31, 2022
	(Unaudited)
Assets
Cash & Cash Equivalents	$	3,244,145	$	3,108,974
Restricted cash		1,453,428		2,441,674
Accounts receivable		128,601		428,732
Prepaid expenses and other assets		933,589		502,811
Other Assets		1,506,571		2,102,589
Real estate asset, net		189,456,920		190,646,609
Total assets	$	196,723,254	$	199,231,389
Liabilities and members’ equity
Accounts payable	$	1,213,390	$	2,549,092
Accrued expense and other liabilities		3,839,443		3,074,240
Notes Payable, net of debt issuance costs		143,035,243		141,994,714
Due to affiliates		1,143,162		1,533,317
Total liabilities		149,231,238		149,151,363
Series A Preferred Stock		1		1
Common Stock		80		80
Additional paid in capital		186,201		188,167
Stockholders Equity		19,500,603		21,150,431
Non-Controlling members’ equity		27,662,437		28,568,758
Accumulated other comprehensive income		142,694		172,589
Total equity		47,492,016		50,080,026
Total liabilities and members’ equity	$	196,723,254	$	199,231,389

Please see accompanying Notes to the Consolidated and Combined Financial Statements

NRI REAL ESTATE INVESTMENT AND TECHNOLOGY, INC. & SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (unaudited)

	Three months ended March 31,
	2023			2022
Revenue
Hotel and restaurants revenue:
Rooms	$	3,986,664		$	3,210,385
Food and beverage		2,846,167			3,053,785
Other hotel revenue		134,474			35,958
Total hotel and restaurants revenue	$	6,967,305		$	6,300,128
Residential rental and other property income		2,596,137			2,027,049
Parking		386,352			373,855
Other revenue		1,345,847			449,026
Total revenue	$	11,295,641		$	9,150,058
Operating expenses:
Hotel and restaurants operating expenses	$	6,498,956		$	5,051,632
Residential property operating expenses		990,787			969,868
Parking operating expenses		271,494			237,755
Other operating expenses		851,955			667,711
Depreciation expense		1,552,412			1,545,176
Total operating expenses	$	10,165,604		$	8,472,142
Income (loss) from operations	$	1,130,037		$	677,916
Other income (expense):
Interest income		680			16
Interest expense		(3,688,832	)		(1,996,655	)
Total other income (expense)	$	(3,688,152	)	$	(1,996,639	)
Net loss	$	(2,558,115	)	$	(1,318,723	)
Other comprehensive income
Unrealized loss on investment securities		(29,895	)		-
Comprehensive loss	$	(2,588,010	)	$	(1,318,723	)
Net loss attributable to non-controlling members	$	(895,852	)	$	(461,817	)
Net loss attributable to stockholders	$	(1,662,263	)	$	(856,906	)

Please see accompanying Notes to the Consolidated and Combined Financial Statements

NRI REAL ESTATE INVESTMENT AND TECHNOLOGY, INC. & SUBSIDIARIES

CONSOLIDATED & COMBINED STATEMENTS OF EQUITY (unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022

	Stockholders’ Equity														Partners’ Equity
	Series A preferred stock						Common Stock								Op Units
	Series A preferred stock		Additional paid in capital		Total Series A preferred stock		Common Stock		Additional paid in capital			Total Common Stock			NRI Real Token Thesis LLC		1350 S Dixie Holdings, LLC		NPI South Dixie, LLC		NRI Real Token, LP			Additional Paid in Capital		NRI Real Token Inc		NRI Real Token Advisors LLC		Partners’ Equity		Total Partners’ Equity			Accmulated other comprehensive income			Total Equity			Less: Non-Controlling Interest			Stockholders Equity
Balance at January 1, 2023	$	1	$	97,789	$	97,790	$	80	$	90,378		$	90,458		$	38,255,632	$	-	$	-	$	4,699,890		$	6,763,667	$	-	$	-	$	-	$	49,719,189		$	172,589		$	50,080,026		$	28,568,758		$	21,511,268
Other comprehensive income						-							-																				-		$	(29,895	)		(29,895	)	$	(10,469	)		(19,426	)
Net loss						-				(1,966	)		(1,966	)								(2,556,149	)										(2,556,149	)					(2,558,115	)		(895,852	)		(1,662,263	)
Balance at March 31, 2023	$	1	$	97,789	$	97,790	$	80	$	88,412		$	88,492		$	38,255,632	$	-	$	-	$	2,143,741		$	6,763,667	$	-	$	-	$	-	$	47,163,040		$	142,694		$	47,492,016		$	27,662,437		$	19,829,579

	Stockholders’ Equity														Partners’ Equity
	Series A preferred stock						Common Stock								Op Units
	Series A preferred stock		Additional paid in capital		Total Series A preferred stock		Common Stock		Additional paid in capital			Total Common Stock			NRI Real Token Thesis LLC		1350 S Dixie Holdings, LLC		NPI South Dixie, LLC		NRI Real Token, LP			Additional Paid in Capital		NRI Real Token Inc		NRI Real Token Advisors LLC		Partners’ Equity		Total Partners’ Equity			Accmulated other comprehensive income		Total Equity			Less: Non-Controlling Interest			Stockholders Equity
Balance at January 1, 2022	$	-	$	-	$	-	$	-	$	-		$	-		$	38,255,632	$	-	$	-	$	15,693,788		$	6,763,667	$	-	$	-	$	-	$	60,713,087		$	-	$	60,713,087		$	32,361,722		$	28,351,365
Issuance of Stock		1		109,999		110,000		80		12,920			13,000																				-					123,000						123,000
Syndication cost						-							-									(17,250	)										(17,250	)				(17,250	)					(17,250	)
Net loss						-				(1,674	)		(1,674	)								(1,317,049	)										(1,317,049	)				(1,318,723	)		(461,817	)		(856,906	)
Balance at March 31, 2022	$	1	$	109,999	$	110,000	$	80	$	11,246		$	11,326		$	38,255,632	$	-	$	-	$	14,359,489		$	6,763,667	$	-	$	-	$	-	$	59,378,788		$	-	$	59,500,114		$	31,899,905		$	27,600,209

Please see accompanying Notes to the Consolidated and Combined Financial Statements

NRI REAL ESTATE INVESTMENT AND TECHNOLOGY, INC. & SUBSIDIARIES

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (unaudited)

	Three months ended March 31,
	2023			2022
Cash flows from operating activities
Net loss	$	(2,558,115	)	$	(1,318,723	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation expense		1,552,412			1,545,176
Amortization of debt issuance costs		406,998			405,232
Changes in operating assets and liabilities:
Accounts Receivable		300,131
Other Assets		566,123			341,914
Prepaid expenses and other assets		(430,778	)		32,418
Accounts payable		(1,725,857	)		(986,212	)
Accrued expenses and other liabilities		765,203			147,358
Net cash (used in) provided by operating activities		(1,123,883	)		167,163
Cash flows from investing activities
Additions to real estate asset		(362,723	)		(174,262	)
Net cash used in investing activities		(362,723	)		(174,262	)
Cash flows from financing activities
Mortgage note proceeds		633,531			962,609
Contributions from members, net		-			110,000
Subscription Receivable		-			1,825,000
Syndication cost		-			(17,250	)
Net cash provided by financing activities		633,531			2,880,359
Net (decrease) increase in cash, restricted cash and cash equivalents		(853,075	)		2,873,260
Cash, restricted cash and cash equivalents at beginning of period		5,550,648			4,608,920
Cash, restricted cash and cash equivalents at end of period	$	4,697,573		$	7,482,180
Supplemental cash flow disclosure
Cash paid for interest	$	3,167,794		$	1,583,575
Non-cash investing and financing activities:
Accounts payable, accrued expenses and due to affiliates included in real estate asset	$			$	16,253

Please see accompanying Notes to the Consolidated and Combined Financial Statements

NRI REAL ESTATE INVESTMENT AND

TECHNOLOGY, INC. & SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED AND

COMBINED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Unless otherwise indicated or unless the context requires otherwise, all references in these financial statements to (“the Company”) refer to NRI Real Estate Investment Technology Inc. together with its commonly controlled and consolidated subsidiaries, including NRI Real Token Thesis LLC, a Delaware limited liability company formed on June 7^th, 2021 and NRI Real Token, L.P.

NRI Real Estate Investment and Technology, Inc., a Maryland corporation and formerly known as NRI Real Token, Inc. was incorporated on June 2, 2021 for the initial purpose of owning, developing and managing THesis Miami, located at 1350 S. Dixie Highway, Coral Gables, Florida 33146. THesis Miami includes a hotel, apartments, retail (restaurants and shopping) units and a parking garage which we refer to herein as the Property or the real estate asset. The Company conducts substantially all of its business through its operating partnership, NRI Real Token, LP, a Delaware limited partnership (the “Operating Partnership”).

Prior to November 19, 2021, the Property was owned and operated by 1350 S Dixie Holdings LLC (the “Property Owner”) which was transferred to the Operating Partnership on November 19, 2021 (the “Closing Date”).

On July 9, 2021, the Company commenced an offering (the “Offering”) of up to $85,000,000 limited partnership units (the “OP Units”) in a private placement to qualified purchasers who met the definition of “accredited investors,” as provided in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). Upon election of the limited partner, subject to certain limitations, each OP Unit is convertible into one share of common stock of the Company, which, subject to the Company successfully establishing the required infrastructure, may represented as digital securities (distributed ledger shares) which are designated as NRI Real Estate Investment and Technology Security Tokens (the “Security Tokens”), or, at the election of the Company, cash in an equivalent value. Each Security Token, if issued, will represent one share of common stock of the Company. Pursuant to the Offering, which concluded on December 31, 2021, the Operating Partnership issued 7,742,309 OP Units resulting in gross offering proceeds of approximately $79.4 million. The net proceeds from the Offering, approximately $73 million, were used to redeem approximately $73 million of interests of 54 Madison Capital, LP (the “Investor Member”) and to pay corresponding closing costs.

Basis of preparation

The accompanying unaudited consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Principles of consolidation

The consolidated and combined financial statements of the Company include the accounts of the Company, entities under common management, the Operating Partnership and all wholly-owned and controlled subsidiaries. All intercompany balances and transactions have been eliminated in the consolidated financial statements.

Under consolidation guidance, we have determined that our Operating Partnership is a variable interest entity because the holders of limited partnership interests do not have substantive kick-out rights or participating rights. Furthermore, we are the primary beneficiary of the Operating Partnership because we have the obligation to absorb losses and the right to receive benefits from the Operating Partnership and the exclusive power to direct the activities of the Operating Partnership. As of March 31, 2023 and 2022, the assets and liabilities of the Company and the Operating Partnership are substantially the same, as the Company does not have any significant assets other than its investment in the Operating Partnership.

The accompanying unaudited consolidated financial statements have been prepared in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) as established by the Financial Accounting Standards Board (“FASB”) in the Accounting Standards Codification (“ASC”) including modifications issued under Accounting Standards Updates (“ASUs”).

Use of estimates

The preparation of consolidated financial statements in conformity with US 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash, restricted cash, and cash equivalents

Restricted cash consists of cash held in accounts specifically for future payments of interest and real estate taxes, reserves for replacement of furniture, fixtures and equipment and tenant security deposits for the residential apartment leases.

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of cash flows at March 31, 2023 and 2022:

	3/31/2023		3/31/2022
Cash and cash equivalents	$	3,244,145	$	4,349,054
Restricted cash		1,453,428		3,133,126
Cash, restricted cash, and cash equivalents	$	4,697,573	$	7,482,180

Real estate asset, net

Costs associated with the acquisition, development, and construction of the Property were capitalized in accordance with Accounting Standards Codification (“ASC”) 970-360-25, Real Estate Project Costs. Such costs include the acquisition of the land, old building and construction in progress costs which include items such as land development, construction materials, construction labor and other project costs such as interest, insurance, real estate taxes, and legal fees.

Property and equipment, also included as part of the real estate asset, are recorded at cost, with depreciation being recognized over the assets’ estimated useful life on the straight-line basis as follows:

		Years
Building and improvements		39
Furniture, fixtures and equipment		7

Expenditures for major improvements and betterments are capitalized and minor repairs and maintenance are charged to expense as incurred.

Income taxes

The Property Owner is organized as a limited liability company and has elected to be treated as a partnership for federal and state income tax purposes. Accordingly, the members of the Property Owner are taxed on their proportional share of the Property Owner’s taxable income (loss). Therefore, no provision for federal and state corporate income taxes has been included in these consolidated financial statements.

The Property Owner recognizes the tax benefits from uncertain tax positions that the entity has taken or expects to take on a tax return. In the unlikely event an uncertain tax position existed in which the Property Owner could incur income taxes, the Property Owner would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by a taxing authority. Reserves for uncertain tax positions would then be recorded if the Property Owner determined it is probable position would not be sustained upon examination.

As of March 31, 2023, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authority. It is the Company’s policy to accrue any interest and penalties associated with its tax obligations when paid. There were no income tax related interest or penalties for the periods ended March 31, 2023 and 2022.

The Company is organized as a C Corp and the Operating Partnership is organized as a limited partnership. Jointly the Company and Operating Partnership form a REIT structure. The Company elected REIT status for the 2022 tax year.

Revenue recognition

The primary sources of revenue include room and food and beverage revenue from the Company’s hotel and restaurants and rental income from the Property Owner’s residential apartments and retail space.

Rooms revenue represents revenue from the occupancy of our hotel rooms, which is driven by the occupancy and average daily rate charged. Rooms revenue includes revenue from guest no-shows, daily use, and early/late departure fees. The contracts for room stays with customers are generally short in duration and revenues are recognized as services are provided over the course of the hotel stay at the daily transaction price agreed under the contract.

Food and beverage revenue consists of revenue from the restaurants and lounges, in room dining and mini bars revenue, and banquet/catering revenue from group and social functions. Payment of the transaction price is due immediately when the customer purchases the goods and services. Therefore, revenue is recognized at a point in time when the physical possession has transferred to the customer.

Residential rental and other property income is recognized over the term of the tenant leases, which is generally for 12 months, when collectability is probable and the tenant has taken possession or controls the physical use of the lease asset. Lease incentives to secure new tenants are recognized as they are incurred given the short-term nature of the related lease arrangements. Reimbursements from tenants for utilities and shared expenses are recognized as revenue and are included in rental and other property income in the period the expenses are incurred, with the corresponding expenses included in residential property operating expenses. Additionally, nonrefundable lease application and administrative fees are recognized as they are earned.

Parking revenue consists of transient self-parking, month-to-month rentals and valet parking. For transient self-parking and valet parking, revenue is recognized at a point in time at the respective transaction price once services are completed. For month-to-month rentals, revenue is recognized over time based on the terms of the rental agreement.

Other revenue primarily includes rental income from certain retail leases which is recognized on a straight line basis over the term of the respective lease agreement.

Debt issuance costs

Cost incurred to acquire debt are recorded as a reduction against the notes payable. Amortization of debt issuance costs is calculated using the straight-line method over the term of the notes payable. Amortization expense during development of the Property was included in the real estate asset on the consolidated balance sheet.

Description of Securities

The Company is authorized to issue 490,000,000 shares of common stock, $0.01 par value per share (“common stock”), and 10,000,000 shares of preferred stock, $0.01 par value per share (“preferred stock”). The charter authorizes the board of directors, with the approval of a majority of the entire board and without any action on the part of stockholders, to amend the charter to increase or decrease the aggregate number of shares of stock that the Company is authorized to issue or the number of authorized shares of any class or series of stock of the Company. As of March 31, 2023, 8,000 shares of common stock, 110 shares of Series A Preferred Stock of the Company are issued and outstanding. Under Maryland law, stockholders generally are not liable for a corporation’s debts or obligations.

Shares Outstanding consist of the following at March 31, 2023 and December 31, 2022:

	3/31/2023						12/31/2022
	Shares		Shares		Book Value		Shares		Shares		Book Value
	Authorized		Issued		per Share		Authorized		Issued		per Share
Series A Preferred Stock		10,000,000		110	$	1,000		10,000,000		110	$	1,000
(par value $0.01)
Common Stock		490,000,000		8000	$	12.50		490,000,000		8000	$	12.50
(par value $0.01)
Weighted Average Shares		500,000,000		8110	$	25.89		500,000,000		8110	$	25.89

The Company has not presented earnings (loss) per share on the accompanying statements of operations as such information is not meaningful.

Series A Preferred Stock has the following rights and privileges:

●

The shares of Series A Preferred Stock are senior to all classes and series of the Company’s stock, including shares of common stock of the Company.

●

Dividends on outstanding shares of Series A Preferred Stock accrue on a daily basis at the rate of 12.0% per annum, and will be cumulative from and including the date of issuance. Dividends on the shares of Series A Preferred Stock are be payable semiannually, in arrears, on June 30 and December 31 of each year, when, as and if authorized by the board of directors of the Company and declared by the Company.

●

The holders of shares of Series A Preferred Stock will not be entitled to vote in the election of directors or on any other matters submitted to the Company’s stockholders.

●

The Company’s outstanding shares of Series A Preferred Stock are subject to redemption, in whole or in part, at any time, upon notice by the Company to the record holder of the shares of Series A Preferred Stock to be redeemed.

●

In the event of any voluntary or involuntary liquidations, dissolution or winding up of the Company’s affairs, the holders of outstanding shares of Series A Preferred Stock will be entitled to be paid, out of the Company’s assets legally available for distribution, a liquidation preference per share of Series A Preferred Stock equal to $1,000 plus the amount of accrued and unpaid dividends.

●

Series A Preferred Stock is not convertible.

On January 31, 2022, we issued 1,040 shares of common stock to certain investors for aggregate consideration of $13,000 under a private placement to purchasers who met the definition of “accredited investors,” as provided in Regulation D of the Securities Act.

On April 11, 2022 the Board of Directors authorized the issuance of up to 7,000 shares of Common Stock to U.S. persons, selected by NRI Real Token Advisors LLC, in exchange for cash consideration of not less than $12.50 per share. On the date of the board resolution, 6,960 common shares were issued for $87,000. The total common shares outstanding after this transaction was 8,000.

New Accounting Pronouncement

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting and in January 2021, the FASB issued 2021-01, Reference Rate Reform (Topic 848), Scope, which further clarified the scope of the reference rate reform optional practical expedients and exceptions outlined in Topic 848. As a result of identified structural risks of interbank offered rates, in particular, the London Interbank Offered Rate (LIBOR), reference rate reform is underway to identify alternative reference rates that are more observable or transaction based. The update provides guidance in accounting for changes in contracts, hedging relationships, and other transactions as a result of this reference rate reform. The optional expedients and exceptions contained within these updates, in general, only apply to contract amendments and modifications entered into prior to January 1, 2023. The provisions of these updates that will most likely affect our financial reporting process related to modifications of contracts with lenders and the related hedging contracts associated with each respective modified borrowing contract. In general, the provisions of these updates would impact the Company by allowing, among other things, the following:

●

Allowing modifications of debt contracts with lenders that fall under the guidance of ASC Topic 470 to be accounted for as a non- substantial modification and not be considered a debt extinguishment.

●

Allowing a change to contractual terms of a hedging instrument in conjunction with reference rate reform to not require a designation of the hedging relationship.

●

Allowing a change to the interest rate used for margining, discounting, or contract price alignment for a derivative that is a cash flow hedge to not be considered a change to the critical terms of the hedge and will not require a designation of the hedging relationship.

The Company is evaluating the potential impacts of ASU No. 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on the financial statements.

2. LIQUIDITY

The Company incurred a net loss of $2.56 million for the period ended March 31, 2023. On May 10, 2021, the Company entered into two new loan agreements with Starwood Property Mortgage, the details of which are discussed in Note 4. From inception through March 31, 2023, the Company had borrowed approximately $145.3 million to fund construction of the Property, with approximately $4.7 million remaining availability on its existing credit facilities as of March 31, 2023. If the Company is experiencing a cash shortfall, it may seek financing alternatives to meet its current obligations and pay operating costs.

3. REAL ESTATE ASSET, NET

Real estate asset, net is recorded at cost. Improvements and replacements are capitalized when they extend the useful life of the asset. Costs of repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful life of up to 39 years for buildings and improvements, two to seven years for furniture, fixtures and equipment. We are required to make subjective assessments as to the useful lives of our real estate asset for purposes of determining the amount of depreciation to record on an annual basis with respect to our real estate asset. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our real estate asset, we would depreciate these investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis.

Based on the occurrence of certain events or changes in the circumstances, we review the recoverability of the real estate asset’s carrying value. Such changes in circumstances include the following:

●

a significant change in the market price of a long-lived asset,

●

a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition,

●

a significant change in legal factors or in the business climate that could affect the value of the long-lived asset, including an adverse action or assessment by a regulator,

●

an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset,

●

a current period operating or cash flow loss with a history of operating or cash flow losses or a projection of forecast that demonstrates continuing losses associated with the use of the long-lived asset, and

●

a current expectation that, it is more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

We review our real estate asset on an on-going basis to evaluate the existence of any of the aforementioned events or changes in circumstances that would require us to test for recoverability. In general, our review of recoverability is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the asset’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value expected, as well as the effects of hotel demand, competition and other factors. Other assumptions used in the review of recoverability include the holding period and the expected terminal capitalization rate. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. We are required to make subjective assessments as to whether there are impairments in the values of our real estate asset.

	3/31/2023			12/31/2022
Land	$	38,000,000		$	38,000,000
Building and improvements		152,219,280			151,964,491
Furniture, fixtures and equipment		16,217,434			16,109,499
Real estate assets		206,436,714			206,073,990
Less: accumulated depreciation		(16,979,794	)		(15,427,381	)
Real estate asset, net	$	189,456,920		$	190,646,609

4. NOTES PAYABLE

Notes Payable consist of the following at March 31, 2023 and December 31, 2022:

	3/31/2023			12/31/2022
Senior Loan	$	112,594,757		$	112,103,770
Mezzanine Loan		32,688,800			32,546,256
Less: unamortized debt issuance costs		(2,248,314	)		(2,655,312	)
Notes payable, net of debt issuance costs	$	143,035,243		$	141,994,714

Contractual Debt Maturities

The following table summarizes the contractual debt maturities and scheduled amortization payments, excluding debt premiums discounts and debt issuance costs, as of March 31, 2023, and does not consider extension options available to the Company.

2023	-
2024	$	145,283,557
2025		-
2026		-
2027		-
Thereafter		-
Total	$	145,283,557

On May 10, 2021, the Prior Operating Company, a subsidiary of the Property Owner at the time, entered into a new loan agreement (the “Senior Loan”) with Starwood Property Mortgage SUB-12-A, LLC to borrow a principal sum of $116.3 million, of which $107.6 million was advanced at closing. Subsequent to closing on May 10, 2021, the Senior Loan was split into two notes through a Note Severance and Splitter Agreement with Starwood Property Mortgage SUB-12-A: (i) Promissory Note A-1 with a principal sum of $107.6 million and (ii) Promissory Note A-2 with a principal sum of $8.7 million (combined as the “Senior Loan”). The Senior Loan has an initial maturity date of May 9, 2024.

Additionally on May 10, 2021, 1350 S Dixie Mezz Borrower (“Mezz Borrower”), a subsidiary of the Property Owner at the time, closed on a promissory note (the “Mezz Loan A-1”) with Starwood Property Mortgage SUB-12-A, LLC to borrow a principal sum of $31.2 million and a promissory note (the “Mezz Loan A-2”) with Starwood Property Mortgage SUB- 12-A, LLC to borrow a principal sum of $2.5 million. Mezz Loan A-1 and Mezz Loan A-2 combined are recorded on the financials as one loan (the “Mezz Loan”) for a total principal sum of $33.8 million of which $31.2 million was advanced at closing. Mezzanine Loan has an initial maturity date of May 9, 2024.

On November 19, 2021, the Senior Loan and Mezz Loan were amended and restated, to, among other things, permit the restructuring of the Company’s corporation structure. In addition, February 14, 2022, the loan agreements were amended to, among other things, allow for distributions of cash and shares by the Company to permit compliance with applicable tax rules. Until certain cash flow tests are met, annual cash distributions will be capped at $150,000 per year while distributions of Company shares will be capped at $600,000, permitting a combined distribution of $750,000 per annum.

On September 20, 2022, the Company and the Lender amended the Senior Loan and Mezz Loan to, among other things, change the benchmark for the interest rate calculation from one month USD London Inter-Bank Offered Rate (“LIBOR”) to the one month term Secured Overnight Financing Rate (“SOFR”) (i) in anticipation of the planned phasing out of the LIBOR benchmark rate in 2023, and (ii) to modify the interest rate cap requirements in an effort to minimize the impact of the cap purchases on the Company’s cash balances. The Senior Loan spread was changed from 2.25% to 2.35%. The Mezzanine Loan spread was changed from 11.14% to 11.24%, reflecting the historic difference between SOFR and LIBOR. As part of the loan amendments, the Company was able to negotiate a higher strike price of its interest rate cap rates at 3.15%, and a reduced term of one year, both of which had the effect of reducing the upfront cash outlay required to purchase the interest rate caps.

Additionally, on September 22, 2022, the Senior Loan Borrower and Mezz Borrower purchased two interest rate caps from Goldman Sachs Bank USA, one each for the Senior Loan and Mezz Loan. Both interest rate caps have a maturity of October 9, 2023, with notional values of $116,250,000 and $33,750,000, respectively, and a strike rate of 3.15%. The purpose of the interest rate caps is to protect the Mezz Borrower and Senior Loan Borrower from increases in the benchmark interest rate until October 9, 2023. The cost of the interest rate cap for the Senior Loan and Mezz Loan was $1,420,000 and $410,000, respectively. The fair value of the interest rate cap for the Senior Loan and Mezz Loan at March 31, 2023 was $1,490,878.

As of March 31, 2023 the Senior Loan had a principal balance of $112.6 million compared to a principal balance on December 31, 2022 of $112.1 million. The Mezz Loan had a principal balance of $32.7 million as of March 31, 2023 compared to a principal balance on December 31, 2022 of $32.5 million.

Aggregate interest expense related to the loans was approximately $3.7 million and $2 million for the three months ended March 31, 2023 and 2022, respectively.

Other

In connection with obtaining the prior Senior and Mezz Loans, the Prior Operating Company and Mezz Borrower incurred $3.25 million of debt issuance cost, which have been deferred and have been amortized fully upon refinancing of the loans in May 2021. In connection with the refinancing of the loans, the Prior Operating Company and Mezz Borrower, incurred an additional $2.24 million of debt issuance cost during the year ended December 31, 2021. The Company incurred an additional $2.58 million of financing costs in connection with the acquisition of the Property, which have been capitalized and are included in deferred loan costs. Amortization expense of debt issuance costs incurred totaled $406,998 and $405,232 for the three months ended March 31, 2023 and 2022, respectively.

5. RELATED PARTY TRANSACTIONS

The development activities of the Company are conducted by a related party, NP International USA, LLC in exchange for a development management fee. This development fee is payable in installments between the initial funding received by the Property Owner through 30 days after the scheduled project completion date. The development management fee is 5% of base hard cost as outlined in the Limited Liability Company agreement of the Property Owner, of which 44.5% is paid to a member in exchange for consulting services. There were no charges for the development management fee for the three months ended March 31, 2023 and March 31, 2022. There were no amounts payable for the development management fee at March 31, 2023 and December 31, 2022.

The construction management activities of the Company are conducted by a related party, NRI Construction LLC, in exchange for construction management fee. NRI Construction LLC is an affiliate entity of executives of the Company. This fee is payable in installments between the effective date of the commencement of the construction project through the scheduled project completion date. Charges for the construction management fee totaled approximately $12,275 and $20,000 for the three months ended March 31, 2023 and 2022, respectively. Amounts payable for the construction management fee at March 31, 2023 and December 31, 2022 were $12,275 and $0, respectively. The construction fees were included in construction in progress during the period the Property was under construction. These intercompany payables amounts were eliminated in consolidation.

The day to day operations and activities of the Company are conducted by a related party, NRI Real Token Advisors, LLC (the “Advisor”), in exchange for an advisory fee. NRI Real Token Advisors, LLC is an affiliate entity of executives of the Company. This fee is payable on a monthly basis in arrears based on the total gross revenue of the Property. Charges for the advisory fee totaled approximately $119,761 and $88,343 for the 3 months ended March 31, 2023 and 2022. Additionally, the Advisor is reimbursed for operational expenses by the Company. This includes, but is not limited to, salary and wage reimbursement, travel and supplies. Reimbursements for the Advisor totaled $0 for the three months ended March 31, 2023 and $0 for the three month period ended March 31, 2022. There were $0 charges payable to the Advisor for reimbursements at March 31, 2023 and $0 at December 31, 2022.

The facilities management for the Property are administered through the Shared Facilities Management Agreement (the “Shared Facilities Agreement”) with NPI Management, Inc. (“NPI Management”), an affiliate of the Operating Partnership. NPI Management, Inc. is an affiliate entity of executives of the Company. NPI Management performs certain management, maintenance and other administrative duties required to be performed under the Declaration of Covenants, Restrictions and Easements for the property. NPI Management does not receive a management fee for its services, but is reimbursed for costs including “burden on labor” and overhead. The Shared Facilities Management Agreement had an initial term ending on February 1, 2021 and automatically renews for one year periods unless otherwise terminated by the parties. The Shared Facilities Management Agreement was automatically extended at the end of the initial term. Each of the Property Owner and NPI Management may terminate the Shared Facilities Management Agreement without cause with 30-days’ notice.

6. CONCENTRATION OF RISK

Cash and cash equivalents

The Company, in the normal course of business, maintains checking and savings account balances that may exceed the FDIC insurance coverage limit.

7. COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company and its consolidated and combined subsidiaries are subject to certain claims and complaints that arise during the ordinary course of business. The Company is not aware of any claims or complaints that would have a significant effect on the financial position or results of operations of the Company if disposed of unfavorably.

Hotel Management Agreement

In November 2019, the Prior Operating Company entered into a Hotel Management Agreement (the “Management Agreement”) with a Hotel Management Company (the “Manager”) for an initial term of 10 years, commencing on the opening of the hotel at the Property. For services rendered as defined by the Management Agreement, the Manager will earn a base fee equal to the sum of (i) 3% of total revenues and (ii) 1% of food and beverage (“F&B”) area income, as defined within the Management Agreement. Additionally, the Manager is entitled to an annual incentive fee in the event that the net operating income, as defined, exceeds the projected net operating income set forth within each fiscal years approved budget. The aggregate of the base fees and incentive fees payable to the Manager in any given fiscal year may not exceed 5% of the sum of total revenues and F&B area income. The Manager was paid $152,188 and $206,864 for the periods ended March 31, 2023 and 2022 respectively. The manager was paid $190,654 and $174,282 for the incentive fee over those same respective periods.

Leasing Property Management Agreement

In July 2019, the Prior Operating Company became party to a Residential Property Management Agreement (the “Residential Agreement”) with Gables Residential Services, Inc. (the “Property Manager”) for the residential portion of the project. For services rendered as defined within the Residential Agreement, the Property Manager earns a fee equal to the greater of (i) 3% of gross receipts or (ii) $10,000 until the property reaches stabilization, defined as 93% occupancy of all leasable units. Upon stabilization, the Property Manager earns a fee equal to the greater of (i) 3% of gross receipts or (ii) $12,000. In no event shall the Property Manager earn more than 4% of gross receipts. The Property Manager was paid $77,113 and $60,828 for the three months ended March 31, 2023 and 2022, respectively, per the Residential Agreement.

REIT Lease Agreement

On November 9, 2021, the Prior Operating Company (the “Lessor”) entered a REIT Lease Agreement (the “Lease”) with NRI Real Token Tenant, LLC (the “Lessee”), a wholly owned subsidiary of the Company, for the Lessor’s interest in the hotel. The Lease term is 3 years from the commencement date. The Lease terms require annual base rent of $1.5 million, payable in twelve monthly installments and Percentage Rent for Rooms Revenue greater than $8.0 million and F&B Revenue greater than $9.5 million.

Parking Facilities Management Agreement

On July 12, 2019, the Property Owner entered into a three-year Parking Facilities Management Agreement with Legacy Parking Company, LLC (“Legacy”). Legacy provides 24/7 operational and management services for the parking facility at the Property, including the preparation of annual budgets and the collection of parking revenues. The Property Owner pays Legacy a base, annual management fee of $15,000, paid in monthly installments, as well as an incentive management fee equal to 9.5% of the net operating income of the parking facility (generally, parking revenues minus operating expenses) in excess of (a) $500,000 for the first year and (b) $600,000 for the remainder of the term subject to a cap of 4% of the annual parking revenues. The agreement automatically renews for one-year terms unless otherwise terminated by either party. Each of Property Owner and Legacy may terminate the agreement with a 30-days’ notice (in the case of Property Owner) and a 60-days’ notice (in the case of Legacy). Legacy was paid $5,517 and $5,852 for the three months ended March 31, 2023 and 2022, respectively per the Parking Facilities Management Agreement.

Shared Facilities Management Agreement

On May 28, 2020, Property Owner entered into a Shared Facilities Management Agreement effective as of February 1, 2020, with NPI Management, Inc. (“NPI Management”), an affiliate of the Operating Partnership, for the Paseo de la Riviera project. NPI Management performs certain management, maintenance and other administrative duties required to be performed under the Declaration of Covenants, Restrictions and Easements for the property. NPI Management receives reimbursements for costs including “burden on labor” and overhead as well as a shared facilities fee. The Shared Facilities Management Agreement had an initial term ending on February 1, 2021 and automatically renews for one year periods unless otherwise terminated by the parties. The Shared Facilities Management Agreement was automatically extended at the end of the initial term. Each of the Property Owner and NPI Management may terminate the Shared Facilities Management Agreement without cause with 30-days’ notice. The shared facilities fee was $167,786 and $152,442 for the three months ended March 31, 2023 and 2022. These amounts are recorded as an expense in the current year and are classified in the due to affiliates balance on the Company’s balance sheet.

8. COVID-19

On January 30, 2020, the world health organization announced a global health emergency because of a new strain of coronavirus originated in Wuhan, China (the “Covid-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the world health organization classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. Therefore, should this matter continue for an extended period of time, it could negatively impact our business, results of operations, and financial position, however, the related financial impact cannot be reasonably estimated at this time. Management is actively monitoring the global situation and its effect on the Company’s financial condition, liquidity, operations, suppliers, industry, and workforce.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) act was enacted and signed into law. Management has evaluated the provisions of the act and does not believe the act will have a material impact on the Company.

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

The following discussion and analysis provides information we believe is relevant to an assessment and understanding of our results of operations, financial condition, liquidity and cash flows for the periods presented below. This discussion should be read in conjunction with the interim unaudited consolidated financial statements and related notes contained elsewhere in this Quarterly Report and in conjunction with the audited consolidated financial statements and related notes for the year ended December 31, 2022, our “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Form 10-K for the year ended December 31, 2022 (the “2022 Annual Report”), filed with the SEC. As discussed in the section above titled “Cautionary Note Regarding Forward-Looking Statements,” the following discussion contains forward-looking statements that are based upon our current expectations, including with respect to our future revenues and operating results. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below as well as in the 2022 Annual Report.

As used herein, the terms “we,” “our,” “us,” and “the Company” refers to NRI Real Estate Investment and Technology, Inc., NRI Real Token LP, a Delaware limited partnership (the “Operating Partnership”) and their subsidiaries except where the context otherwise requires.

Overview

We were incorporated on June 2, 2021, for the initial purpose of owning, developing and managing the Property, which was acquired by the Operating Partnership on November 19, 2021. The Property includes a hotel, apartments, retail (restaurants and shopping) units and a parking garage. We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Code, beginning with the taxable year ending December 31, 2022. We believe that, commencing with such taxable year, we have been organized and operated in such a manner so that we will qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but can provide no assurance that we will operate in a manner so as to remain qualified as a REIT. We have not requested an opinion of counsel regarding our status under the Code as a REIT. Effective on May 13, 2022, we changed our name from “NRI Real Token Inc.” to “NRI Real Estate Investment and Technology, Inc.”

We conduct substantially all of our business through the Operating Partnership. We are the general partner of the Operating Partnership. We and the Operating Partnership are advised by NRI Real Token Advisors LLC, a Delaware limited liability company (the “Advisor”) pursuant to an agreement (the “Advisory Agreement”) under which the Advisor performs advisory services regarding acquisition, asset management, accounting, financing and disposition of the Property, and is responsible for managing, operating and maintaining the Property and day-to-day management of the Company.

Prior to the formation of the Company, the Property was owned and operated by 1350 S Dixie Holdings LLC (the “Property Owner”) which was acquired by the Operating Partnership. Our financial statements for the periods prior to the acquisition of the Property are those of 1350 S Dixie Holdings LLC.

On July 9, 2021, the Company commenced an offering (the “Offering”) of up to $85,000,000 limited partnership units (the “OP Units”) in a private placement to qualified purchasers who meet the definition of “accredited investors,” as provided in Regulation D of the Securities Act of 1933, as amended (the “Securities Act”). Upon election of the limited partner, subject to certain limitations, each OP Unit is convertible into one share of common stock of the Company, which, subject to the Company successfully establishing the required infrastructure, may be issued in the form of digital securities (distributed ledger shares) which are designated as NRI Real Estate Investment and Technology Security Tokens (the “Security Tokens”), or, at the election of the Company, cash in an equivalent value. Each Security Token, if issued, will represent one share of common stock of the Company. Pursuant to the Offering, which concluded on December 31, 2021, the Operating Partnership issued 7,742,309 OP Units resulting in gross offering proceeds of approximately $79.4 million. The net proceeds from the Offering, approximately $73 million, were used to redeem approximately $73 million of interests of 54 Madison Capital, LP (the “Investor Member”) and to pay corresponding closing costs.

As of the date of this Quarterly Report, we own only the Property.

Market Outlook

According to a February 8, 2023, report from STR, Inc., the Miami market continued to recover strongly in 2022. The Miami market’s gross operating profit per available room (“GOPAR”) surpassed 2019 levels, with the metric ending the year at 155% of the comparable 2019 level.

Recent Developments

In connection with the Senior Loan (as defined below) and Mezzanine Loan (as defined below), we expect our cash flows to continue to be impacted due to requirements to purchase interest rate caps under the respective loan agreements, as well as the increase in interest rates. We have also seen an increase in property insurance premiums for the Property. Our current property insurance policy premium increased from $870,000 in 2022 to $1.3 million in 2023.

Liquidity and Capital Resources

Overview

As of March 31, 2023, we owned only the Property. We developed the Property with the capital investment provided by the Sponsor and a prior investor whose interest was repurchased with substantially all of the proceeds of the Offering. Operating cash needs during the three months ended March 31, 2023 and 2022 were met through cash flow generated by the Property, equity capital contributions and proceeds from the Senior Loan and Mezzanine Loan. See “Liquidity and Capital Resources—Debt.”

We currently have indebtedness on the Property and may in the future obtain lines of credit or other financings secured by our assets in order to bridge the acquisition of, or acquire additional properties, to fund property improvements and other capital expenditures, to make distributions, and for other purposes. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for U.S. federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute annually to our stockholders at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain).

The Property generates cash flow in the form of hotel room rentals, apartment rental revenue, retail rent revenue and guest expenditures, which are reduced by operating expenditures, debt service payments and corporate general and administrative expenses. Our Property is owned by a direct subsidiary of the Operating Partnership, which leases the hotel portion of the Property to the TRS Lessee. The TRS Lessee is required to make rent payments to the owner of the Property pursuant to the lease agreement relating to the Property. Such TRS Lessee’s ability to make rent payments to the owner and our liquidity, including our ability to make distributions to our stockholders, are dependent upon the TRS Lessee’s ability to generate cash flow from the hotel operations of the Property. The TRS Lessee is dependent upon Hersha and Alpareno, with whom it has entered into a hotel management agreement to operate the hotel operations and a food and beverage management agreement to operate the food and beverage operations, respectively.

Debt

Starwood Property Trust Debt Agreements

Senior Loan

On November 19, 2021, 1350 S Dixie, LLC amended and restated its existing $116,250,000 loan (the “Senior Loan”) to refinance the Property. The Senior Loan is secured by a first mortgage on the Property and was made by Starwood Property Mortgage SUB-12-A, L.L.C., as Initial Lender and Administrative Agent on behalf of itself as Initial Lender and any other parties that may become lenders under the Senior Loan. The Senior Loan has an initial maturity date of May 9, 2024, with two options to extend for one year each. The conditions for each extension include (i) payment of an extension fee equal to 0.25% of the principal balance of the Loan being extended, (ii) with respect to the first extension option, the property must have achieved a debt yield of not less than 6.50%, and with respect to the second option, the property shall have achieved a Debt Yield of not less than seven and one-quarter percent (7.25%).

Prior to the September 2022 Amendments (as described below), the Senior Loan bore interest at 2.25% over Libor (with a Libor floor of 0.25%) per annum, but was reducible to 2.00% over Libor per annum if the Administrative Agent determined that the Property had achieved a Debt Yield of not less than 6.75% for one calendar quarter.

Mezzanine Loan

On November 19, 2021, 1350 S Dixie Mezz Borrower, LLC (“Mezzanine Borrower”), amended and restated its existing $33,750,000 mezzanine loan agreement with Starwood Property Mortgage SUB-12-A, L.L.C as initial lender and administrative agent on behalf of itself and future lenders as part of the refinancing of the Property. The Mezzanine Loan is secured by a pledge by Mezzanine Borrower of its 100% ownership interest in 1350 S Dixie LLC. The Mezzanine Loan has an initial maturity date of May 9, 2024, with two options to extend for one year each. The conditions for each extension include (i) payment of an extension fee equal to 0.25% of the principal balance of the Loan being extended, (ii) with respect to the first extension option, the property must have achieved a debt yield of not less than 6.50%, and with respect to the second option, the property must have achieved a Debt Yield of not less than 7.25%

Prior to the September 2022 Amendments, the Mezzanine Loan bore interest at 11.138890% over Libor (with a Libor floor of .25%) per annum, but was reducible to 10.88890% over Libor per annum if the Administrative Agent determined that the Property had achieved a Debt Yield of not less than 6.75% for one calendar quarter. Generally, if means do not exist for determining Libor, or a different index is being used in the market, an alternative index and spread will be used, which is intended to result in an interest rate charged to borrower equivalent to the interest rate being charged at the time Libor is discontinued as the index.

Senior Loan and Mezzanine Loan Amendments

February 2022 Amendments

On February 14, 2022, the Senior Loan and Mezzanine Loan were amended to, among other things, allow for distributions of cash and shares by the Company to permit compliance with applicable tax rules. Until certain cash flow tests are met, annual cash distributions will be capped at $150,000 per year while distributions of Company shares will be capped at $600,000 per year, permitting a combined distribution of $750,000 per annum. While the Company considers these distribution caps sufficient for calendar year 2022, any additional required distributions to comply with such tax rules will require lender consent. While there can be no assurance, the Company estimates that it will satisfy the cash flow test thresholds in 2023.

September 2022 Amendments

As of September 23, 2022, the Senior Loan and Mezzanine Loan were amended to, among other things, allow, so long as no Event of Default (as defined in each loan) exists, distributions from the Excess Cash Flow Reserve Account (as defined in each loan), upon the request of the Company, by the Lender to disburse funds from such account to (i) make distributions in connection with the Company’s compliance with REIT tax requirements and (ii) to cover any costs to obtain an Interest Rate Cap Agreement (as defined in such loan).

In addition, the Senior Loan interest rate was amended to bear interest at 2.35% over the Term SOFR (as defined in each loan) per annum, but reduces to 2.10% over the Term SOFR per annum if the Administrative Agent determines that the Property has achieved a Debt Yield of not less than 6.75% for one calendar quarter. The Administrative Agent has since determined that the Property has achieved the requisite Debt Yield and the applicable interest rate was reduced accordingly, effective beginning with the interest payment for the period from March 9, 2023 through April 9, 2023. The Term SOFR maintains a floor of 0.15%.

The Mezzanine Loan interest rate was amended to bear interest at 11.23889% over the Term SOFR (as defined in each loan) per annum, but reduces to 10.98889% over the Term SOFR per annum if the Administrative Agent determines that the Property has achieved a Debt Yield of not less than 6.75% for one calendar quarter. The Administrative Agent has since determined that the Property has achieved the requisite Debt Yield and the applicable interest rate was reduced accordingly, effective beginning with the interest payment for the period from March 9, 2023 through April 9, 2023. The Term SOFR maintains a floor of 0.15%.

Under both amendments, the Company was required to purchase an Interest Rate Cap Agreement for a term of one year (with extensions or a new agreement to be in effect until the initial maturity date) at a strike price equal 3.15%. Any proceeds from the Interest Rate Cap Agreements entered into were assigned to the Lenders under the Senior Loan and Mezzanine loan as collateral. Total proceeds for the twelve months ended December 31, 2022 were $633,531 and are included in interest expense on the statement of operations. Total proceeds for the three months ended March 31, 2022 were $962,609. Both Interest Rate Cap Agreements have a maturity of October 9, 2023, and notional values of $116,250,000 and $33,750,000, respectively, for the Senior Loan and Mezzanine Loan. The purpose of the Interest Rate Cap Agreements is to protect the Company from increases in the benchmark interest rate until October 9, 2023. The cost of the two Interest Rate Cap Agreements was $1,420,000 for the Senior Loan and $410,000 for the Mezzanine Loan.

Results of Operations

The following sections contain comparisons of our results of operations for the three months ended March 31, 2023 compared to the three ended March 31, 2022.

Three months ended March 31, 2023 compared to the three ended March 31, 2022

Revenue

Total revenue was $11.3 million and $9.2 million for the three months ended March 31, 2023 and 2022, respectively. Total revenue for the three months ended March 31, 2023 included $7.0 million in hotel and restaurant revenue (which includes $4.0 million in room revenue and $3.0 million food and beverage revenue), $2.6 million residential rental and other property income, $0.4 million parking revenue and $1.3 million other revenue. Total revenue for the three months ended March 31, 2022 included $6.3 million in hotel and restaurant revenue (which includes $3.2 million in room revenue and $3.1 million food and beverage revenue), $2.0 million residential rental and other property income, $0.4 million parking revenue and $.5 million other revenue. The Hotel’s performance is trending positively comparable to 2022, with room revenue reporting a 24% increase compared to the three months ended March 31, 2022. We expect that room revenue and food and beverage revenue as well will increase in future periods as a result of higher occupancy and increased restaurant demand.

We expect residential revenue will increase in future periods as a result of renewing leases and signing new leases at increased market rents relative to in-place rents.

Operating Expenses

Hotel and Restaurant Operating Expenses

Hotel and restaurant operating expenses were $6.5 million and $5.1 million for the three months ended March 31, 2023 and 2022, respectively. These hotel and restaurant operating expenses consisted primarily of salaries and wages. We expect hotel and restaurant operating expense to increase due to increased occupancy adding labor and occupied room costs and increased covers at the restaurant adding additional cost of goods sold as well as higher labor cost and increased insurance costs.

Residential Property Operating Expenses

Residential property operating expenses were $1.0 million and $1.0 million for the three months ended March 31, 2023 and 2022, respectively. These residential property operating expenses consisted primarily of salaries and wages and marketing. We expect residential property operating expense to increase slightly as a result of unit maintenance related to the first unit turnover.

Parking Operating Expenses

Parking operating expenses was $0.3 million and $.2 million for the three months ended March 31, 2023 and 2022. These parking operating expenses consisted primarily of salaries and wages. We expect parking operating expenses to increase in the future due to additional valet personnel related to increased occupancy and higher food and beverage demand.

Other Operating Expenses

Other operating expenses were $0.9 million and $0.7 million for the three months ended March 31, 2023 and 2022, respectively. These other operating expenses consisted primarily of shared facilities expenses. We expect other operating expense to increase in the future as a result of higher occupancy within the retail component of the Property.

Depreciation Expense

Depreciation expense was $1.6 million and $1.5 million for the three months ended March 31, 2023 and 2022. These depreciation expenses were related to depreciation of the real estate asset. We expect these amounts to remain fairly consistent as construction is mostly complete.

Interest Expense

Interest expense was $3.7 million and $2.0 million for the three months ended March 31, 2023 and 2022, respectively. Interest expense in this period related primarily to the Senior Loan and the Mezzanine Loan. We expect that in future periods our interest expense will vary based on the amount of our borrowings, which will depend on the cost of borrowings.

Key Business Metrics

Our management reviews a number of key performance indicators, each as described below, to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions.

Hotel

Average Daily Rate (ADR)

ADR is a performance indicator that management believes reflects the average room revenue generated by the Property. Our management believes ADR is a key metric to measure our hotel business because it reflects our pricing power in the market and can be compared against our competitive set to gauge our Property’s relative competitiveness. We define ADR as the total room revenue generated over a given period divided by the total number of rooms sold over the same period.

The table below sets forth our ADR with respect to the hotel at the Property for the three months ended March 31, 2023.

	Three Months Ended March 31,
	2023		2022
Average Daily Rate (ADR)	$	253.62	$	232.35

Hotel Occupancy

Hotel Occupancy is a performance indicator that management believes reflects market demand for room nights. Our management believes that Hotel Occupancy is a key metric to measure our hotel business because it measures how many room nights are sold over a given period of time, and can be compared against our competitive set to gauge our Property’s relative performance. We define Hotel Occupancy as total number of room nights sold over a given period divided by the total number of room nights available over the same period.

The table below sets forth our average annual Hotel Occupancy with respect to the hotel at the Property for the three months ended March 31, 2023, and 2022, respectively.

	Three Months Ended March 31,
	2023			2022
Hotel Occupancy		71.3	%		62.7	%

Revenue per Available Room (RevPar)

RevPar is a performance indicator that management believes reflects Hotel performance from a room revenue perspective. Our management believes RevPar is a key metric to measure our hotel business because RevPar combines both pricing power (Average Daily Rate) as well as room demand (Hotel Occupancy). We define RevPar as Average Daily Rate for a given period multiplied by the Hotel Occupancy over the same period.

The table below sets forth our RevPar with respect to the hotel at the Property for the three months ended March 31, 2023, and 2022, respectively.

	Three Months Ended March 31,
	2023		2022
Revenue per Available Room (RevPar)	$	180.80	$	145.60

Leased properties (residential and retail)

Leased Occupancy

Leased Occupancy is a performance indicator that management believes reflects the demand and income potential of the leased components of our Property. Our management believes that Leased Occupancy is a key metric to measure the performance of our apartments and retail businesses because leased occupancy reflects the current demand for our apartment or retail units and the potential ability of these units to generate income. We define Leased Occupancy for the apartment component as the total number of apartment units leased divided by the total number of rentable apartment units in the apartment component of the Property. We define Leased Occupancy for the retail component as the total number of retail square footage leased divided by the total number of rentable square footage in the retail component of the Property.

The table below sets forth our Leased Occupancy with respect to the apartments and retail components at the Property as of March 31, 2023, and 2022, respectively.

Apartment Component – Leased Occupancy

As of Date

Leased
Occupancy

March 31, 2023

99.0

March 31, 2022

99.5

Retail Component – Leased Occupancy

As of Date

Leased
Occupancy

March 31, 2023

86.0

March 31, 2022

51.4

Lease Terms

Our hotel, commercial and retail properties are subject to lease agreements with us. Below is a schedule summarizing the Property’s current leases and their expected expirations as of March 31, 2023.

Tenant	Lease Expiration	Type
NRI Real Token Tenant, LLC	11/19/2024	Hotel
My Salon	12/2/2030	Retail
Legends Hospitality	12/31/2032	Retail
Rebecca Lenard, DMD, P.A.	2/28/2033	Retail
Crema Gourmet	8/31/2033(1)	Retail
Zuri Aesthetics	8/31/2033(1)	Retail

(1)

The Lease Term begins on the Rent Commencement Date and continues for 10 Lease Years. The Rent Commencement Date is the earlier of August 13, 2023 or the date that Tenant opens for business in the premises. Once the Rent Commencement Date is ascertainable the Landlord and Tenant will enter into a supplemental agreement to fix the date of expiration of the Lease Term.

Critical Accounting Policies

Real Estate Asset, net

●

a significant change in the market price of a long-lived asset,

●

a significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition,

●

a significant change in legal factors or in the business climate that could affect the value of the long-lived asset, including an adverse action or assessment by a regulator,

●

an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset,

●

a current expectation that, it is more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Revenue Recognition

Residential rental and other property income are recognized over the term of tenant leases, which is generally twelve months, when collectability is probable and the tenant has taken possession or controls the physical use of the leased asset. Lease incentives to secure new tenants are recognized as they are incurred given the short-term nature of the related lease arrangements. Reimbursements from tenants for utilities and shared expenses are recognized as revenue and are included in rental and other property income in the period expenses are incurred, with corresponding expenses included in residential property operating expenses. Additionally, non-refundable lease application and administrative fees are recognized as they are earned.

Income Taxes

The Company believes it has been organized and operated in a manner so as to qualify as a REIT commencing with its taxable year ending December 31, 2022, and has elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with such year. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it distribute annually at least 90% of its REIT taxable income, subject to certain adjustments and excluding any net capital gain, to stockholders. The Company’s intention is to adhere to the REIT qualification requirements and to maintain its qualification for taxation as a REIT. As a REIT, the Company is generally not subject to U.S. federal corporate income tax on the portion of taxable income that is distributed to stockholders. If the Company fails to qualify for taxation as a REIT in any taxable year, the Company will be subject to U.S. federal income taxes at the regular corporate rate and it may not be able to qualify as a REIT for four subsequent taxable years. As a REIT, the Company may be subject to certain state and local taxes on its income and property, and to U.S. federal income and excise taxes on undistributed taxable income. Taxable income from non-REIT activities managed through the Company’s TRS is subject to U.S. federal, state, and local income taxes at the applicable rates. The TRS accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax basis, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company performs an annual review for any uncertain tax positions and, if necessary, will record the expected future tax consequences of uncertain tax positions in the consolidated financial statements.

Off-Balance Sheet Arrangements

As of March 31, 2023 and 2022, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Related-Party Transaction and Agreements

We have entered into agreements with the Advisor and its affiliates whereby we have paid, and may continue to pay, certain fees to, or reimburse certain expenses of, the Advisor or its affiliates for acquisition and advisory fees and expenses, organization and offering costs, and asset and property management fees and expenses. See Note 5 – Related Party Transactions and Note 7 – Commitments and Contingencies to our unaudited consolidated financial statements included in this Quarterly Report for descriptions and additional information regarding these agreements.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Quantitative and qualitative disclosures about market risks have been omitted as permitted under rules applicable to smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

We have established disclosure controls and procedures which are designed to provide reasonable assurance of achieving their objectives and to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized, disclosed and reported within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. This information is also accumulated and communicated to our management and Board of Directors to allow timely decisions regarding required disclosure.

In connection with the preparation of this Quarterly Report, as of March 31, 2023, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act.

Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023, the end of the period covered by this Quarterly Report.

We have not engaged an independent registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet date or for any period reported in our financial statements. Presently, we are a non-accelerated filer and therefore our management is not presently required to perform an annual assessment of the effectiveness of our internal control over financial reporting. This requirement will apply in conjunction with our Annual Report on Form 10-K for the fiscal year ending December 31, 2023. Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting for so long as we remain a smaller reporting company.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls or our internal controls over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls’ effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives and, based on an evaluation of our controls and procedures, our principal executive officer and our principal financial officer concluded our disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2023, the end of the period covered by this Quarterly Report.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. See Note 7 “Commitments and Contingencies” of the notes to the consolidated financial statements included as part of this Quarterly Report for a discussion of ongoing legal proceedings and governmental authority inquiries. Other than such proceedings, management is not aware of any current or pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our property is subject, the outcome of which would, in management’s judgment based on information currently available, have a material adverse effect on our results of operations or financial condition, nor is management aware of any such legal proceedings contemplated by governmental authorities.

Item 1A. Risk Factors

During the three months ended March 31, 2023, there have been no material changes to the risk factors disclosed in the 2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.		Description
31.1*		Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
31.2*		Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002
32.1*		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
32.2*		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*	Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NRI REAL ESTATE INVESTMENT AND TECHNOLOGY, INC.

Date: August 2, 2023	By:	/s/ Brent Reynolds
		Brent Reynolds Chief Executive Officer, President and Director
		(principal executive officer)

Date: August 2, 2023	By:	/s/ Timothy A. O’Neill
		Timothy A. O’Neill
		Chief Investment Officer and Director
		(principal financial and accounting officer)

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NRI Real Estate Investment & Technology, Inc. 10-Q