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Cottonwood Communities to Restate Financials; Suspends Offerings

Cottonwood Communities to Restate Financials; Suspends Offerings. Alternative investments, Cottonwood, Cottonwood Communities, investment, multifamily, NAV, net asset value, real estate investment trust, REIT, shares, valuation

Cottonwood Communities Inc., a publicly registered non-traded real estate investment trust focused on multifamily real estate investments, announced that they have “briefly” stopped accepting subscriptions for their public offering of common stock (including dividend reinvestment) and their private offerings of preferred equity as they work to correct errors in their quarterly and annual financial reporting for 2022.

The company’s audit committee determined earlier this month that the unaudited consolidated financial statements previously issued for all of 2022 should no longer be relied upon due to an inaccurate presentation of the change in cash flows ascribed to financing and operating activities in the consolidated statement of cash flows.

In a letter issued to its selling group, Cottonwood explains that in 2022 they sold their first shares of Class T and Class D shares in their public offering. The deferred commissions associated with these classes were mistakenly included in the financing cash outflows in the financing activities section of the consolidated statement of cash flows. According to Cottonwood, this also affected the operating activities section and resulted in an overstatement of cash provided by operating activities during 2022.

Cottonwood emphasized in both the letter and in a filing with the SEC that the error in its financial reports had no impact on its total cash flows or cash balances for the affected periods, nor to any other item on the company’s balance sheet, statement of operations, total revenues, net income, or any non-GAAP measure reported such as net operating income or funds from operations.

For their preferred offerings, Cottonwood anticipates accepting subscriptions again beginning Sept. 11, 2023, following the distribution of updated offering materials to reflect this correction. For their common offering, their offering materials will be updated, and they anticipate accepting subscriptions in October (for the November 1, 2023 closing date), upon the filing of an amended 10-K and the SEC declaring effective an amendment to their registration statement with the corrected 10-K.

In addition, due to the restatement process, Cottonwood says they reviewed their internal controls and “implemented steps to prevent this type of error from occurring in the future.”

As The Di Wire previously reported, the company had a 1.9% decrease in monthly NAV per share for July 2023.

Cottonwood Communities, as of June 30, 2023, had a portfolio of $2.6 billion in total assets, with 82.4% of its equity value in operating properties, 5.4% in development, 6.5% in land held for development and 5.7% in real estate-related structured investment. In addition, they have an ownership interest in four land sites planned for development.

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