UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20172018
☐ | 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: 000-55765
Inland Residential Properties Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
| 80-0966998 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
|
|
|
2901 Butterfield Road, Oak Brook, Illinois |
| 60523 |
(Address of principal executive offices) |
| (Zip Code) |
630-218-8000
(Registrant’s telephone number, including area code)
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 thesuch filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, 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 October 31, 2017,August 2, 2018, there were 1,440,2531,489,222 shares of the registrant’s Class A common stock, 401,754408,816 shares of Class T common stock and 179,287261,967 shares of Class T-3 common stock outstanding.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
TABLE OF CONTENTS
|
|
|
| Page |
Part I - Financial Information | ||||
Item 1. |
| Financial Statements |
|
|
|
|
|
|
|
|
| Consolidated Balance Sheets as of |
| 3 |
|
|
|
|
|
|
|
| 4 | |
|
|
|
|
|
|
| Consolidated Statement of Equity for the |
| 5 |
|
|
|
|
|
|
|
| 6 | |
|
|
|
|
|
|
|
| 8 | |
|
|
|
|
|
Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
|
|
|
|
|
Item 3. |
|
|
| |
|
|
|
|
|
Item 4. |
|
|
| |
|
|
|
|
|
Part II - Other Information | ||||
Item 1. |
|
|
| |
|
|
|
|
|
Item 1A. |
|
|
| |
|
|
|
|
|
Item 2. |
|
|
| |
|
|
|
|
|
Item 3. |
|
|
| |
|
|
|
|
|
Item 4. |
|
|
| |
|
|
|
|
|
Item 5. |
|
|
| |
|
|
|
|
|
Item 6. |
|
|
| |
|
|
|
|
|
|
|
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
|
| September 30, 2017 (unaudited) |
|
| December 31, 2016 |
|
| June 30, 2018 (unaudited) |
|
| December 31, 2017 |
| ||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 9,845,410 |
|
| $ | 6,301,838 |
|
| $ | 9,845,410 |
|
| $ | 9,845,410 |
|
Building and other improvements |
|
| 93,889,256 |
|
|
| 38,889,177 |
|
|
| 94,078,849 |
|
|
| 93,980,734 |
|
Total real estate |
|
| 103,734,666 |
|
|
| 45,191,015 |
|
|
| 103,924,259 |
|
|
| 103,826,144 |
|
Less: accumulated depreciation |
|
| (3,476,700 | ) |
|
| (1,822,971 | ) |
|
| (6,234,848 | ) |
|
| (4,391,774 | ) |
Net real estate |
|
| 100,257,966 |
|
|
| 43,368,044 |
|
|
| 97,689,411 |
|
|
| 99,434,370 |
|
Cash and cash equivalents |
|
| 3,125,185 |
|
|
| 9,038,642 |
|
|
| 4,546,190 |
|
|
| 7,556,763 |
|
Accounts and rents receivable |
|
| 43,481 |
|
|
| 17,961 |
| ||||||||
Accounts and rents receivable, net |
|
| 57,150 |
|
|
| 72,576 |
| ||||||||
Acquired in place lease intangibles, net |
|
| 730,999 |
|
|
| — |
|
|
| 198,345 |
|
|
| 335,674 |
|
Other assets |
|
| 453,652 |
|
|
| 458,316 |
|
|
| 278,987 |
|
|
| 584,905 |
|
Total assets |
| $ | 104,611,283 |
|
| $ | 52,882,963 |
|
| $ | 102,770,083 |
|
| $ | 107,984,288 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages and note payable, net |
| $ | 69,903,047 |
|
| $ | 27,447,459 |
|
| $ | 62,914,280 |
|
| $ | 66,396,156 |
|
Accounts payable and accrued expenses |
|
| 944,218 |
|
|
| 232,736 |
|
|
| 909,857 |
|
|
| 895,189 |
|
Distributions payable |
|
| 190,834 |
|
|
| 137,207 |
|
|
| 212,435 |
|
|
| 213,859 |
|
Due to related parties |
|
| 6,275,230 |
|
|
| 5,684,753 |
|
|
| 5,480,370 |
|
|
| 5,273,153 |
|
Other liabilities |
|
| 171,559 |
|
|
| 67,287 |
|
|
| 216,038 |
|
|
| 212,105 |
|
Total liabilities |
|
| 77,484,888 |
|
|
| 33,569,442 |
|
|
| 69,732,980 |
|
|
| 72,990,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value, 50,000,000 shares authorized, none outstanding |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Class A common stock, $.001 par value, 320,000,000 shares authorized, 1,420,776 shares and 1,098,858 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively |
|
| 1,420 |
|
|
| 1,099 |
| ||||||||
Class T common stock, $.001 par value, 40,000,000 shares authorized, 399,285 shares and 284,283 shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively |
|
| 399 |
|
|
| 284 |
| ||||||||
Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 147,805 shares and none issued and outstanding as of September 30, 2017 and December 31, 2016, respectively |
|
| 148 |
|
|
| — |
| ||||||||
Additional paid in capital (net of offering costs of $10,538,615 and $8,268,768 as of September 30, 2017 and December 31, 2016, respectively) |
|
| 37,519,623 |
|
|
| 25,539,970 |
| ||||||||
Class A common stock, $.001 par value, 320,000,000 shares authorized, 1,486,010 shares and 1,479,155 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
| 1,485 |
|
|
| 1,479 |
| ||||||||
Class T common stock, $.001 par value, 40,000,000 shares authorized, 408,507 shares and 404,069 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
| 409 |
|
|
| 404 |
| ||||||||
Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 260,903 shares and 243,346 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
| 261 |
|
|
| 243 |
| ||||||||
Additional paid in capital (net of offering costs of $4,902,004 and $4,867,250 as of June 30, 2018 and December 31, 2017, respectively) |
|
| 47,714,913 |
|
|
| 47,049,832 |
| ||||||||
Distributions and accumulated losses |
|
| (10,395,195 | ) |
|
| (6,227,832 | ) |
|
| (14,679,965 | ) |
|
| (12,058,132 | ) |
Total stockholders’ equity |
|
| 27,126,395 |
|
|
| 19,313,521 |
|
|
| 33,037,103 |
|
|
| 34,993,826 |
|
Total liabilities and stockholders’ equity |
| $ | 104,611,283 |
|
| $ | 52,882,963 |
|
| $ | 102,770,083 |
|
| $ | 107,984,288 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
| $ | 2,055,873 |
|
| $ | 905,464 |
|
| $ | 4,254,327 |
|
| $ | 2,665,759 |
|
| $ | 2,309,367 |
|
| $ | 1,294,942 |
|
| $ | 4,621,701 |
|
| $ | 2,198,454 |
|
Other property income |
|
| 229,634 |
|
|
| 87,204 |
|
|
| 474,139 |
|
|
| 263,928 |
|
|
| 304,758 |
|
|
| 128,262 |
|
|
| 592,299 |
|
|
| 244,505 |
|
Total income |
|
| 2,285,507 |
|
|
| 992,668 |
|
|
| 4,728,466 |
|
|
| 2,929,687 |
|
|
| 2,614,125 |
|
|
| 1,423,204 |
|
|
| 5,214,000 |
|
|
| 2,442,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
| 722,891 |
|
|
| 299,274 |
|
|
| 1,419,557 |
|
|
| 900,845 |
|
|
| 833,079 |
|
|
| 432,756 |
|
|
| 1,663,972 |
|
|
| 696,666 |
|
Real estate tax expense |
|
| 244,451 |
|
|
| 90,283 |
|
|
| 498,450 |
|
|
| 264,836 |
|
|
| 276,468 |
|
|
| 164,056 |
|
|
| 557,127 |
|
|
| 253,999 |
|
General and administrative expenses |
|
| 350,982 |
|
|
| 201,349 |
|
|
| 1,045,499 |
|
|
| 802,033 |
|
|
| 325,518 |
|
|
| 390,663 |
|
|
| 806,118 |
|
|
| 694,517 |
|
Business management fee |
|
| 158,154 |
|
|
| 68,665 |
|
|
| 318,609 |
|
|
| 205,850 |
|
|
| 158,563 |
|
|
| 91,763 |
|
|
| 316,978 |
|
|
| 160,455 |
|
Acquisition related costs |
|
| 16,484 |
|
|
| — |
|
|
| 87,963 |
|
|
| — |
|
|
| — |
|
|
| 30,266 |
|
|
| — |
|
|
| 71,479 |
|
Depreciation and amortization |
|
| 1,153,501 |
|
|
| 378,531 |
|
|
| 2,132,208 |
|
|
| 1,451,356 |
|
|
| 952,763 |
|
|
| 609,311 |
|
|
| 2,003,376 |
|
|
| 978,707 |
|
Total expenses |
|
| 2,646,463 |
|
|
| 1,038,102 |
|
|
| 5,502,286 |
|
|
| 3,624,920 |
|
|
| 2,546,391 |
|
|
| 1,718,815 |
|
|
| 5,347,571 |
|
|
| 2,855,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (360,956 | ) |
|
| (45,434 | ) |
|
| (773,820 | ) |
|
| (695,233 | ) | ||||||||||||||||
Operating income (loss) |
|
| 67,734 |
|
|
| (295,611 | ) |
|
| (133,571 | ) |
|
| (412,864 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
| (677,534 | ) |
|
| (322,478 | ) |
|
| (1,353,084 | ) |
|
| (1,121,542 | ) |
|
| (607,066 | ) |
|
| (423,299 | ) |
|
| (1,218,700 | ) |
|
| (675,550 | ) |
Interest and other income |
|
| 6,393 |
|
|
| — |
|
|
| 30,907 |
|
|
| — |
|
|
| 5,390 |
|
|
| 14,116 |
|
|
| 12,339 |
|
|
| 24,514 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,032,097 | ) |
| $ | (367,912 | ) |
| $ | (2,095,997 | ) |
| $ | (1,816,775 | ) |
| $ | (533,942 | ) |
| $ | (704,794 | ) |
| $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic and diluted |
| $ | (0.55 | ) |
| $ | (0.39 | ) |
| $ | (1.24 | ) |
| $ | (2.65 | ) |
| $ | (0.25 | ) |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
| $ | (0.67 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, basic and diluted |
|
| 1,885,318 |
|
|
| 942,839 |
|
|
| 1,692,974 |
|
|
| 685,934 |
|
|
| 2,156,997 |
|
|
| 1,696,801 |
|
|
| 2,154,835 |
|
|
| 1,595,207 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited)
|
| Common Stock |
|
| Additional |
|
| Distributions and |
|
|
|
|
|
| Common Stock |
|
| Additional |
|
| Distributions and |
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||||||
|
| Class A |
|
| Class T |
|
| Class T-3 |
|
| Paid-In |
|
| Accumulated |
|
|
|
|
|
| Class A |
|
| Class T |
|
| Class T-3 |
|
| Paid-In |
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Losses |
|
| Total |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Losses |
|
| Total |
| ||||||||||||||||||
Balance at December 31, 2016 |
|
| 1,098,858 |
|
| $ | 1,099 |
|
|
| 284,283 |
|
| $ | 284 |
|
|
| — |
|
| $ | — |
|
| $ | 25,539,970 |
|
| $ | (6,227,832 | ) |
| $ | 19,313,521 |
| ||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 |
|
| 1,479,155 |
|
| $ | 1,479 |
|
|
| 404,069 |
|
| $ | 404 |
|
|
| 243,346 |
|
| $ | 243 |
|
| $ | 47,049,832 |
|
| $ | (12,058,132 | ) |
| $ | 34,993,826 |
| ||||||||||||||||||||||||||||||||||||
Proceeds from the offering |
|
| 282,677 |
|
|
| 282 |
|
|
| 103,570 |
|
|
| 103 |
|
|
| 146,623 |
|
|
| 147 |
|
|
| 12,965,923 |
|
|
| — |
|
|
| 12,966,455 |
|
|
| — |
|
|
| — |
|
|
| 2,296 |
|
|
| 2 |
|
|
| 14,499 |
|
|
| 15 |
|
|
| 404,983 |
|
|
| — |
|
|
| 405,000 |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,269,847 | ) |
|
| — |
|
|
| (2,269,847 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,754 | ) |
|
| — |
|
|
| (34,754 | ) |
Discount on shares to related parties |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 24,530 |
|
|
| — |
|
|
| 24,530 |
| ||||||||||||||||||||||||||||||||||||
Issuance of shares from distribution reinvestment plan |
|
| 25,255 |
|
|
| 25 |
|
|
| 7,030 |
|
|
| 7 |
|
|
| 744 |
|
|
| 1 |
|
|
| 777,117 |
|
|
| — |
|
|
| 777,150 |
|
|
| 19,359 |
|
|
| 19 |
|
|
| 5,271 |
|
|
| 5 |
|
|
| 3,058 |
|
|
| 3 |
|
|
| 648,680 |
|
|
| — |
|
|
| 648,707 |
|
Shares repurchased |
|
| (3,317 | ) |
|
| (3 | ) |
|
| (424 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (80,812 | ) |
|
| — |
|
|
| (80,815 | ) |
|
| (12,906 | ) |
|
| (13 | ) |
|
| (3,129 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (359,846 | ) |
|
| — |
|
|
| (359,861 | ) |
Distributions declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,517,491 | ) |
|
| (1,517,491 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,281,901 | ) |
|
| (1,281,901 | ) |
Stock dividends issued |
|
| 17,120 |
|
|
| 17 |
|
|
| 4,826 |
|
|
| 5 |
|
|
| 438 |
|
|
| — |
|
|
| 553,853 |
|
|
| (553,875 | ) |
|
| — |
| ||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,095,997 | ) |
|
| (2,095,997 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,339,932 | ) |
|
| (1,339,932 | ) |
Equity based compensation |
|
| 183 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 8,889 |
|
|
| — |
|
|
| 8,889 |
|
|
| 402 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,018 |
|
|
| — |
|
|
| 6,018 |
|
Balance at September 30, 2017 |
|
| 1,420,776 |
|
| $ | 1,420 |
|
|
| 399,285 |
|
| $ | 399 |
|
|
| 147,805 |
|
| $ | 148 |
|
| $ | 37,519,623 |
|
| $ | (10,395,195 | ) |
| $ | 27,126,395 |
| ||||||||||||||||||||||||||||||||||||
Balance at June 30, 2018 |
|
| 1,486,010 |
|
| $ | 1,485 |
|
|
| 408,507 |
|
| $ | 409 |
|
|
| 260,903 |
|
| $ | 261 |
|
| $ | 47,714,913 |
|
| $ | (14,679,965 | ) |
| $ | 33,037,103 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (2,095,997 | ) |
| $ | (1,816,775 | ) |
| $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 2,132,208 |
|
|
| 1,451,356 |
|
|
| 2,003,376 |
|
|
| 978,707 |
|
Amortization of debt issuance costs |
|
| 18,888 |
|
|
| 102,698 |
|
|
| 18,124 |
|
|
| 5,950 |
|
Amortization of equity based compensation |
|
| 8,889 |
|
|
| 10,920 |
|
|
| 6,018 |
|
|
| 5,139 |
|
Discount on shares issued to related parties |
|
| 24,530 |
|
|
| 19,356 |
|
|
| — |
|
|
| 24,530 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 295,328 |
|
|
| (74,984 | ) |
|
| 320,713 |
|
|
| 238,845 |
|
Accounts and rents receivable |
|
| (44,929 | ) |
|
| 15,082 |
|
|
| 15,426 |
|
|
| (28,076 | ) |
Due to related parties |
|
| 410,670 |
|
|
| 227,083 |
|
|
| 310,959 |
|
|
| 219,235 |
|
Other liabilities |
|
| 36,332 |
|
|
| 6,637 |
|
|
| 3,933 |
|
|
| 133,126 |
|
Other assets |
|
| 93,182 |
|
|
| 66,086 |
|
|
| 128,504 |
|
|
| (8,551 | ) |
Net cash flows provided by operating activities |
|
| 879,101 |
|
|
| 7,459 |
|
|
| 1,467,121 |
|
|
| 505,005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of real estate |
|
| (59,288,960 | ) |
|
| — |
|
|
| — |
|
|
| (22,936,173 | ) |
Capital expenditures |
|
| (60,328 | ) |
|
| (101,318 | ) |
|
| (121,088 | ) |
|
| (20,166 | ) |
Net cash flows used in investing activities |
|
| (59,349,288 | ) |
|
| (101,318 | ) |
|
| (121,088 | ) |
|
| (22,956,339 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of mortgage and note payable |
|
| (2,200,000 | ) |
|
| (18,300,000 | ) | ||||||||
Proceeds from mortgages and note payable |
|
| 44,930,000 |
|
|
| — |
| ||||||||
Payment of note payable |
|
| (3,500,000 | ) |
|
| — |
| ||||||||
Proceeds from mortgage and note payable |
|
| — |
|
|
| 23,000,000 |
| ||||||||
Proceeds from offering |
|
| 12,966,455 |
|
|
| 18,741,902 |
|
|
| 405,000 |
|
|
| 9,632,568 |
|
Payment of debt issuance costs |
|
| (293,300 | ) |
|
| (329 | ) |
|
| — |
|
|
| (57,726 | ) |
Distributions paid |
|
| (686,715 | ) |
|
| (297,691 | ) |
|
| (634,616 | ) |
|
| (430,053 | ) |
Shares repurchased |
|
| (80,815 | ) |
|
| — |
|
|
| (359,861 | ) |
|
| — |
|
Payment of offering costs |
|
| (2,078,895 | ) |
|
| (2,482,210 | ) |
|
| (267,129 | ) |
|
| (1,563,568 | ) |
Net cash flows provided by (used in) financing activities |
|
| 52,556,730 |
|
|
| (2,338,328 | ) |
|
| (4,356,606 | ) |
|
| 30,581,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
| $ | (5,913,457 | ) |
| $ | (2,432,187 | ) | ||||||||
Net (decrease) increase in cash and cash equivalents |
| $ | (3,010,573 | ) |
| $ | 8,129,887 |
| ||||||||
Cash and cash equivalents, at beginning of the period |
|
| 9,038,642 |
|
|
| 5,281,172 |
|
|
| 7,556,763 |
|
|
| 9,038,642 |
|
Cash and cash equivalents, at end of period |
| $ | 3,125,185 |
|
| $ | 2,848,985 |
|
| $ | 4,546,190 |
|
| $ | 17,168,529 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(unaudited)
|
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the purchase of real estate, the Company acquired assets and assumed liabilities as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land |
| $ | 3,543,573 |
|
| $ | — |
|
| $ | — |
|
| $ | 1,492,382 |
|
Building and other improvements |
|
| 53,188,092 |
|
|
| — |
|
|
| — |
|
|
| 20,643,086 |
|
Furniture, fixtures and equipment |
|
| 1,767,003 |
|
|
| — |
|
|
| — |
|
|
| 339,645 |
|
Acquired in place lease intangibles |
|
| 1,194,134 |
|
|
| — |
|
|
| — |
|
|
| 645,035 |
|
Assumed assets and liabilities, net |
|
| (403,842 | ) |
|
| — |
|
|
| — |
|
|
| (183,975 | ) |
Purchase of real estate |
| $ | 59,288,960 |
|
| $ | — |
|
| $ | — |
|
| $ | 22,936,173 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 1,406,141 |
|
| $ | 1,028,884 |
|
| $ | 1,223,960 |
|
| $ | 675,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions payable |
| $ | 190,834 |
|
| $ | 103,354 |
|
| $ | 212,435 |
|
| $ | 176,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued offering costs payable |
| $ | 732,675 |
|
| $ | 461,312 |
|
| $ | 490,105 |
|
| $ | 756,106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock dividends issued |
| $ | 553,875 |
|
| $ | 119,788 |
|
| $ | — |
|
| $ | 553,986 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued through distribution reinvestment plan |
| $ | 777,150 |
|
| $ | 256,050 |
|
| $ | 648,707 |
|
| $ | 479,079 |
|
See accompanying notes to consolidated financial statements.
7
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SeptemberJune 30, 20172018
(unaudited)
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited consolidated financial statements of Inland Residential Properties Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2016,2017, which are included in the Company’s 20162017 Annual Report on Form 10-K/A, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report.
NOTE 1 - ORGANIZATION
The Company was formed on December 19, 2013 to primarily acquire and manage a portfolio of multi-family properties located primarily in the top 100 United States metropolitan statistical areas, which generally contain populations greater than 500,000 people. The Company entered into a business management agreement (as amended, the “Business Management Agreement”) with Inland Residential Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), to be the Business Manager to the Company. Substantially all of the Company’s business is conducted through Inland Residential Operating Partnership, L.P. (the “operating partnership”), of which the Company is the sole general partner. The Company elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with the tax year ended December 31, 2015.
At SeptemberJune 30, 2017,2018, the Company owned real estate consisting of three multi-family communities totaling 623 units. The properties consist of 677,142 square feet of residential and 10,609 square feet of retail gross leasable area. During the ninesix months ended SeptemberJune 30, 2017,2018, the properties’ weighted average daily occupancy for residential was 92.1%94.2% and at SeptemberJune 30, 2017, 5902018, 605 units, or 94.7%97.1% of the total residential units were leased. At SeptemberJune 30, 2017,2018, 100% of the retail units were occupied.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K10-K/A for the year ended December 31, 2016,2017, as filed with the Securities and Exchange Commission on March 17, 2017,21, 2018, under the heading “Note 2 - Summary of Significant Accounting Policies.” There has been no change to the Company’s significant accounting policies during the ninesix months ended SeptemberJune 30, 2017.2018 except as noted below.
General
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
RecentRecently Adopted Accounting Pronouncements
In November 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new update will require that amounts described as restricted cash and restricted cash equivalents be included in beginning and ending-of-period reconciliation of cash shown on the statement of cash flows. The amendment iswas effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. TheAt June 30, 2018, the Company does not believe that ASU No. 2016-18 will have a materialrestricted cash in its consolidated balance sheets and therefore, the new guidance has had no impact onto its consolidated financial statements andor related disclosures.
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The Company selected the modified retrospective transition method which would include a cumulative effect of applying the standard on January 1, 2018. As the Company has reviewed its revenue streams and has concluded its previous recognition of revenue is in compliance with the new standard, no cumulative effect adjustment is required. Common area
8
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
maintenance reimbursements that may be impacted will not be addressed until the Company's adoption of ASU No. 2016-02, Leases (Topic 842) considering its revisions to accounting for common area maintenance.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842).The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and
8
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
operating leases. ASU No. 2016-02 supersedes the previous leases standard, Leases (Topic 840). The Company anticipates that it will be required to bifurcate certain lease revenues between lease and non-lease components. Additionally, only incremental direct leasing costs may be capitalized under this new guidance, which is consistent with the Company’s existing policies. The new standard is effective for fiscal years beginning after December 15,On July 30, 2018 including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company expects to adopt the guidance on a modified retrospective basis and upon adoption of the Leases guidance, non-lease components of new, extended or modified leases, including common area maintenance reimbursements, will be accounted for under the Revenue from Contracts with Customers guidance as described below.
In May 2014, the FASB issued ASU No. 2014-09,2018-11, Revenue from Contracts with CustomersTargeted Improvements, Leases (Topic 842), which requireswould provide lessors with a practical expedient, by class of underlying assets, to not separate non-lease components from the related lease components and, instead, to account for those components as a single lease component, if certain criteria are met. ASU No. 2018-11 also provides companies with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to recognize the amountopening balance of revenue to which it expects to be entitled forretained earnings in the transferperiod of promised goods or services to customers. Theadoption. Both ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard isNo. 2016-02 and ASU No 2018-11 are effective for the Company on January 1, 2018. Early2019, with early adoption is permitted but not prior to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. Once ASU No. 2016-02 becomes effective, the new revenue standard will apply to certain executory costs and other non-lease components even though the revenue for such activities are not separately stipulated in the tenant’s lease.permitted. The Company is currently evaluatingcontinuing to evaluate this guidance and the specific revenue streams that could be most significantly impacted by this ASU and expects that the revenue recognition from these activities and other miscellaneous income will be generally consistent with current recognition methods, and therefore does not expect material changes to theimpact on its consolidated financial statementsstatements. The Company expects to utilize the practical expedients in the amendment as a resultpart of adoption. Common area reimbursements to be impacted by ASU No. 2014-09 will not be addressed until the Company'sits adoption of ASU No. 2016-02, considering its revisions to accounting for common area maintenance described above.
2016-02.
NOTE 3 – EQUITY
The Company is authorized to sell up to $1,000,000,000commenced an offering of shares of common stock consisting of Class A common stock, $.001 par value per share (“Class A Shares”), at a price and shares of $25.00 per share, Class T common stock, $.001 par value per share (“Class T Shares”), at a price of $23.95 per share, and Class T-3 common stock, $.001 par value per share (“Class T-3 Shares” and, together with the Class A Shares and the Class T Shares, the “Shares”), at a price of $24.14 per share, in any combination, in an initial “reasonable best efforts” offering (the “Offering”). The Company is also authorized to issue up to $190,000,000 of Class A, Class T and Class T-3 Shares at a per share price of $23.75, $22.81 and $22.81, respectively, pursuant to the Company’s distribution reinvestment plan (as amended, the “DRP”). The Company commenced its Offering of Class A Shares and Class T Shares on February 17, 2015 (the “Offering”) and, effective February 2, 2017, the Company reallocated certain of the remaining shares offered in the Offering to offer shares of Class T-3 Shares.
common stock, $.001 par value per share (“Class T-3 Shares”). The Company ceased accepting subscription agreements dated after December 31, 2017 and terminated the Offering on January 3, 2018. Excluding DRP proceeds,the distribution reinvestment plan (as amended, the “DRP”), the Company generated gross proceeds of $6,946,458, $2,480,508 and $3,539,489 from sales of itsissued 1,401,711 Class A Shares, 390,230 Class T Shares and 255,666 Class T-3 Shares respectively, duringgenerating gross proceeds of approximately $50 million from the nine months ended September 30, 2017.Offering. As of SeptemberJune 30, 2017,2018, the Company had 1,420,776, 399,2851,486,010, 408,507 and 147,805260,903 Class A Shares, Class T Shares and Class T-3 Shares outstanding, respectively.
ForOn February 2, 2018, the nine months ended September 30, 2017, theCompany’s board of directors determined an estimated per share net asset value (“Estimated Per Share NAV”) for each class of its common stock. The Company declared cash distributionsintends to publish an updated estimated value of $1,517,491, paid total distributions of $1,463,865 and issued stock dividends of 22,384its shares to stockholders.
9
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)on at least an annual basis.
The Company provides the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.
Distribution Reinvestment Plan
The Company provides stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. For participants in the DRP, cash distributions paid on Class A Shares, Class T Shares and Class T-3 Shares, as applicable, are used to purchase Class A Shares, Class T Shares and Class T-3 Shares, respectively. Such purchases under the DRP are not subject to selling commissions, dealer manager fees, distribution and stockholder servicing fees or reimbursement of issuer costs in connection with shares of common stock issued through the DRP. Under the DRP, and arebeginning with the February 2018 distribution payment made initiallyto stockholders in March 2018 until the Company announces new estimated per share net asset values, distributions may be reinvested for shares of common stock at a price of $23.75, $22.81 and $22.81 per Class Athe applicable Estimated Per Share Class T Share and Class T-3NAV.
Share, respectively. The price is subject to change after the earlier of (1) the change of the public offering price in a public “reasonable best efforts” offering of the Company’s Class A Shares from $25.00 per Class A Share, Class T Shares from $23.95 per Class T Share or Class T-3 Shares from $24.14 per Class T-3 Share, as applicable, if there is a change, and (2) termination of all “reasonable best efforts” public offerings of the Company’s Class A Shares, Class T Shares or Class T-3 Shares, as applicable.
9
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Distributions reinvested through the DRP were $777,150$648,707 and $256,050$479,079 for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.
Share Repurchase Program
Under the share repurchase program (as amended, the “SRP”), the Company is authorized, in its discretion, to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested. Subject to funds being available, the Company limits the number of shares repurchased during any calendar year to no more than 5% of the number of shares of common stock outstanding on December 31st of the previous calendar year. Funding for the SRP is limited to the proceeds that the Company receives from the DRP during the same period. In the case of repurchases made upon the death of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole direction, may, at any time, amend, suspend or terminate the SRP.
Repurchases through the SRP were $71,649 for Class A Shares and $9,166 for Class T Shares in$359,861 during the ninesix months ended SeptemberJune 30, 2017.2018. There were no repurchases through the SRP induring the ninesix months ended SeptemberJune 30, 2016.2017.
NOTE 4 – ACQUISITIONS
During the ninesix months ended SeptemberJune 30, 2017,2018, the Company through its wholly owned subsidiaries, acquired the properties listed below from unaffiliated third parties. The Commons at Town Center was financed by entering into a seven-year mortgage loan for $13,800,000 and an eight-month note payable for $9,200,000. Verandas at Mitylene was funded with the proceeds of a ten–year mortgage loan for approximately $21,900,000 and offering proceeds of approximately $14,700,000.
2017 Acquisitions
Date Acquired |
| Property Name |
| Location |
| Total Number of Residential Units |
| Square Footage |
|
| Purchase Price (b) |
| ||
2nd Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/3/2017 |
| Commons at Town Center |
| Vernon Hills, IL |
| 85 |
|
| 105,442 |
| (a) | $ | 23,000,000 |
|
3rd Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/27/2017 |
| Verandas at Mitylene |
| Montgomery, AL |
| 332 |
|
| 376,968 |
|
| $ | 36,550,000 |
|
10
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
|
|
|
|
The acquisitions were accounted for as asset acquisitions. For the nine months ended September 30, 2017, the Company incurred $318,780 of total acquisition costs, $230,817 of which were capitalized as the acquisition of netdid not acquire any real estate in the accompanying consolidated balance sheets and $87,963 of acquisition, dead deal and transaction related costs that are recorded in acquisition related costs in the accompanying consolidated statements of operations. properties.
The following table presents certain additional information regarding the Company’s acquisitions during the nine months ended September 30, 2017. The amounts recognized for major assets acquired and liabilities assumed as of the acquisition date are as follows:
|
| For the Nine Months Ended September 30, |
|
| |
|
| 2017 |
|
| |
Land |
| $ | 3,543,573 |
|
|
Building and other improvements |
|
| 53,188,092 |
|
|
Furniture, fixtures and equipment |
|
| 1,767,003 |
|
|
Acquired in place lease intangibles |
|
| 1,194,134 |
|
|
Assumed assets and liabilities, net |
|
| (403,842 | ) |
|
Total |
| $ | 59,288,960 |
|
|
NOTE 5 – ACQUIRED INTANGIBLE ASSETS
The following table summarizes the Company’s identified intangible assets and liabilities as of SeptemberJune 30, 20172018 and December 31, 2016:2017:
|
| September 30, 2017 |
|
| December 31, 2016 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||||
Intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired in place lease value |
| $ | 1,194,134 |
|
| $ | — |
|
| $ | 592,511 |
|
| $ | 592,511 |
|
Accumulated amortization |
|
| (463,135 | ) |
|
| — |
|
|
| (394,166 | ) |
|
| (256,837 | ) |
Acquired lease intangibles, net |
| $ | 730,999 |
|
| $ | — |
|
| $ | 198,345 |
|
| $ | 335,674 |
|
As of SeptemberJune 30, 2017,2018, the weighted average amortization period for acquired in place lease intangibles is 1.33.6 years.
The portion of the purchase price allocated to acquired in place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.
Amortization pertaining to acquired in place lease value is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
Amortization recorded as amortization expense: |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Acquired in place lease value |
| $ | 351,094 |
|
| $ | — |
|
| $ | 463,135 |
|
| $ | — |
|
| $ | 21,259 |
|
| $ | 112,041 |
|
| $ | 137,329 |
|
| $ | 112,041 |
|
1110
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Estimated amortization of the respective intangible lease assets and liabilities as of SeptemberJune 30, 20172018 for each of the five succeeding years and thereafter is as follows:
|
| Acquired In-Place Leases |
|
|
| Acquired In-Place Leases |
|
| ||
2017 (remainder of year) |
| $ | 395,325 |
|
| |||||
2018 |
|
| 179,847 |
|
| |||||
2018 (remainder of year) |
| $ | 42,518 |
|
| |||||
2019 |
|
| 85,035 |
|
|
|
| 85,035 |
|
|
2020 |
|
| 48,976 |
|
|
|
| 48,976 |
|
|
2021 |
|
| 21,816 |
|
|
|
| 21,816 |
|
|
2022 |
|
| — |
|
| |||||
Thereafter |
|
| — |
|
|
|
| — |
|
|
Total |
| $ | 730,999 |
|
|
| $ | 198,345 |
|
|
NOTE 6 – MORTGAGES AND NOTE PAYABLE, NET
As of SeptemberJune 30, 20172018 and December 31, 2016,2017, the Company had the following mortgages and note payable:
|
|
|
|
|
|
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
|
|
|
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||||||||||
Type of Debt |
| Maturity Date |
| Interest Rate per Annum |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
|
| Maturity Date |
| Interest Rate per Annum |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
| ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Mortgage -The Retreat at Market Square |
| September 30, 2023 |
|
| 3.64 | % |
| $ | 27,450,000 |
|
|
|
|
|
| $ | 27,450,000 |
|
|
| 3.64 | % | ||||||||||||||||||||||
Mortgage - Commons at Town Center |
| May 3, 2024 |
|
| 3.69 | % |
|
| 13,800,000 |
|
|
|
|
|
|
| — |
|
|
|
|
| ||||||||||||||||||||||
Mortgage - Verandas at Mitylene |
| August 1, 2027 |
|
| 3.88 | % |
|
| 21,930,000 |
|
|
|
|
|
|
| — |
|
|
|
|
| ||||||||||||||||||||||
Mortgages Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
The Retreat at Market Square |
| September 30, 2023 |
|
| 3.64 | % |
| $ | 27,450,000 |
|
|
|
|
|
| $ | 27,450,000 |
|
|
|
|
| ||||||||||||||||||||||
Commons at Town Center |
| May 3, 2024 |
|
| 3.69 | % |
|
| 13,800,000 |
|
|
|
|
|
|
| 13,800,000 |
|
|
|
|
| ||||||||||||||||||||||
Verandas at Mitylene |
| August 1, 2027 |
|
| 3.88 | % |
|
| 21,930,000 |
|
|
|
|
|
|
| 21,930,000 |
|
|
|
|
| ||||||||||||||||||||||
Total Mortgages |
|
|
|
|
|
|
| $ | 63,180,000 |
|
|
| 3.73 | % |
| $ | 27,450,000 |
|
|
| 3.64 | % |
|
|
|
|
|
|
| $ | 63,180,000 |
|
|
| 3.73 | % |
| $ | 63,180,000 |
|
|
| 3.73 | % |
Note Payable - Commons at Town Center |
| January 3, 2018 |
|
| 5.40 | % |
|
| 7,000,000 |
|
|
| 5.40 | % |
|
| — |
|
|
| — |
| ||||||||||||||||||||||
Note Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||
Commons at Town Center |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 3,500,000 |
|
|
| 5.40 | % | ||||||||||||||||||||||
Total debt before debt issuance costs |
|
|
|
|
|
|
| $ | 70,180,000 |
|
|
| 3.90 | % |
| $ | 27,450,000 |
|
|
| 3.64 | % |
|
|
|
|
|
|
| $ | 63,180,000 |
|
|
| 3.73 | % |
| $ | 66,680,000 |
|
|
| 3.82 | % |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (276,953 | ) |
|
|
|
|
|
| (2,541 | ) |
|
|
|
|
|
|
|
|
|
|
|
| (265,720 | ) |
|
|
|
|
|
| (283,844 | ) |
|
|
|
|
Total debt |
|
|
|
|
|
|
| $ | 69,903,047 |
|
|
|
|
|
| $ | 27,447,459 |
|
|
|
|
|
|
|
|
|
|
|
| $ | 62,914,280 |
|
|
|
|
|
| $ | 66,396,156 |
|
|
|
|
|
The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was $70,180,000$63,180,000 and $27,450,000$66,680,000 as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively, and its estimated fair value was $69,197,574$60,953,330 and $26,957,385$65,281,610 as of SeptemberJune 30, 20172018 and December 31, 2016,2017, respectively.
Mortgages
The mortgage loans require compliance with certain covenants such as debt service ratios, investment restrictions and distribution limitations. As of SeptemberJune 30, 2017,2018, the Company is in compliance with all financial covenants related to its mortgage loans.
The scheduled principal payments and maturities on the Company’s mortgages are as follows:
Note Payable
1211
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
The note payable has customary affirmative, negative and financial covenants, agreements, representations, warranties and borrowing conditions including various customary events of default. The Sponsor has agreed to guarantee the obligations or liabilities of the Company’s subsidiary to lender under the note payable. The Company has not paid, and will not pay, any fees or other consideration to the Sponsor for this guarantee. As of September 30, 2017, the Company is in compliance with all financial covenants related to the note payable. For the three month period ending September 30, 2017, the Company paid $2,200,000 to reduce the principal balance on the note payable.
As of September 30, 2017, scheduled principal payments and maturities on the Company’s mortgages and note payable were as follows:
|
| September 30, 2017 |
|
| June 30, 2018 |
| ||||||||||||||||||||||
Scheduled Principal Payments and Maturities by Year: |
| Scheduled Principal Payments |
|
| Maturities of Mortgages |
|
| Maturity of Note Payable |
|
| Total |
|
| Scheduled Principal Payments |
|
| Maturities of Mortgages |
|
| Total |
| |||||||
2017 (remainder of the year) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||
2018 |
|
| — |
|
|
| — |
|
|
| 7,000,000 |
|
|
| 7,000,000 |
| ||||||||||||
2018 (remainder of year) |
| $ | — |
|
| $ | — |
|
| $ | — |
| ||||||||||||||||
2019 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2020 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
2021 |
|
| 124,063 |
|
|
| — |
|
|
| — |
|
|
| 124,063 |
|
|
| 124,063 |
|
|
| — |
|
|
| 124,063 |
|
2022 |
|
| 505,081 |
|
|
| — |
|
|
| 505,081 |
| ||||||||||||||||
Thereafter |
|
| 853,206 |
|
|
| 62,202,731 |
|
|
| — |
|
|
| 63,055,937 |
|
|
| 348,125 |
|
|
| 62,202,731 |
|
|
| 62,550,856 |
|
Total |
| $ | 977,269 |
|
| $ | 62,202,731 |
|
| $ | 7,000,000 |
|
| $ | 70,180,000 |
|
| $ | 977,269 |
|
| $ | 62,202,731 |
|
| $ | 63,180,000 |
|
The weighted average years to maturity for the Company’s debt is 6.756.72 years.
Note Payable
The Company paid in full the outstanding balance of its note payable and accrued interest in January 2018.
NOTE 7 – DISTRIBUTIONS
The Company currently pays distributions based on daily record dates, payable in arrears the following month, equal tomonth. From January 1, 2018 through February 28, 2018, distributions were declared in a daily amount ofequal to $0.003424658 per Class A Share, $0.002768493 per Class T Share and $0.003306849 per Class T-3 Share, based uponon a 365-day year.period. From March 1 through March 31, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758488 per Class T Share and $0.003323017 per Class T-3 Share, based on a 365-day period. From April 1, 2018 through June 30, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758356 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. The Company issued 22,38422,396 in stock dividends during the ninesix months ended SeptemberJune 30, 2017. The table below presents the distributions paid and declared for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.
|
| Three Months Ended |
|
| Nine Months Ended |
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||||||||||||
|
| September 30, |
|
| September 30, |
|
| June 30, |
|
| June 30, |
| ||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||||||
Distributions paid |
| $ | 554,733 |
|
| $ | 382,440 |
|
| $ | 1,463,865 |
|
| $ | 553,741 |
|
| $ | 652,414 |
|
| $ | 488,222 |
|
| $ | 1,283,323 |
|
| $ | 909,132 |
|
Distributions declared |
| $ | 569,307 |
|
| $ | 290,835 |
|
| $ | 1,517,491 |
|
| $ | 633,357 |
|
| $ | 644,988 |
|
| $ | 506,971 |
|
| $ | 1,281,901 |
|
| $ | 948,184 |
|
NOTE 8 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted EPS. As a result of a net loss for the three and ninesix months ended SeptemberJune 30, 2017, 4792018, 735 and 843699 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss for the three and ninesix months ended SeptemberJune 30, 2016, 4682017, 811 and 340761 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. The Company does not apply the two-class method for calculating EPS as its share classes only differ on the timing of its payment of distribution and stockholder servicing fees.
NOTE 9 – EQUITY-BASED COMPENSATION
In accordance with the Company’s Employee and Director Incentive Restricted Share Plan (the “RSP”), restricted shares are issued to non-employee directors as compensation.
Under the RSP, restricted shares generally vest over a one to three year vesting period from the date of the grant based on the specific terms of the grant. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service
13
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
period. At vesting, any restrictions on the shares lapse. The number of shares that may be issued under the RSP is limited to 5% of
12
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
outstanding shares. Compensation expense associated with the director restricted shares is included in general and administrative expenses in the accompanying consolidated financial statements. Compensation expense under the RSP was $3,750$2,707 and $8,889$6,018 for the three and ninesix months ended SeptemberJune 30, 2017,2018, respectively. Compensation expense under the RSP was $4,844$2,778 and $10,920$5,139 for the three and ninesix months ended SeptemberJune 30, 2016,2017, respectively. As of SeptemberJune 30, 2017,2018, the Company had $16,366$6,875 of unrecognized compensation costexpense related to the unvested restricted share awards. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.601.35 years. A summary of the status of the restricted shares is presented below:
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Aggregate Intrinsic Value |
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Aggregate Intrinsic Value |
| ||||||
Outstanding at December 31, 2016 |
|
| 804 |
|
| $ | 18,334 |
|
| $ | 18,334 |
| ||||||||||||
Outstanding at December 31, 2017 |
|
| 1,133 |
|
| $ | 25,834 |
|
| $ | 25,834 |
| ||||||||||||
Granted |
|
| 658 |
|
|
| 15,000 |
|
|
| 15,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
Vested |
|
| (183 | ) |
|
| (4,167 | ) |
|
| (4,167 | ) |
|
| (402 | ) |
|
| (9,166 | ) |
|
| (9,166 | ) |
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding at September 30, 2017 |
|
| 1,279 |
|
| $ | 29,167 |
|
| $ | 29,167 |
| ||||||||||||
Outstanding at June 30, 2018 |
|
| 731 |
|
| $ | 16,668 |
|
| $ | 16,668 |
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 – SEGMENT REPORTING
The Company has one reportable segment, multi-family real estate, as defined by U.S. GAAP for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.
NOTE 11 – TRANSACTIONS WITH RELATED PARTIES
The following table summarizes the Company’s related party transactions for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017. The Sponsor and its affiliates will not require repayment of acquisition related costs (fee), certain offering costs, mortgage financing fee and Sponsor non-interest bearing advances until subsequent to 12 months from the issuance of this report.
|
|
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Amount Unpaid as of |
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Amount Unpaid as of |
| ||||||||||||||||||||||||||||||
|
|
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
|
| September 30, 2017 |
|
| December 31, 2016 |
|
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||||||||||||
General and administrative reimbursements |
| (a) |
| $ | 113,404 |
|
| $ | 57,023 |
|
| $ | 323,436 |
|
| $ | 314,819 |
|
| $ | 112,709 |
|
| $ | 80,386 |
|
| (a) |
| $ | 89,839 |
|
| $ | 119,724 |
|
| $ | 256,665 |
|
| $ | 210,031 |
|
| $ | 96,312 |
|
| $ | 98,863 |
|
Affiliate share purchase discounts |
| (b) |
|
| — |
|
|
| 4,814 |
|
|
| 24,530 |
|
|
| 19,356 |
|
|
| — |
|
|
| — |
|
| (b) |
|
| — |
|
|
| 974 |
|
|
| — |
|
|
| 24,530 |
|
|
| — |
|
|
| — |
|
Total general and administrative costs |
|
|
| $ | 113,404 |
|
| $ | 61,837 |
|
| $ | 347,966 |
|
| $ | 334,175 |
|
| $ | 112,709 |
|
| $ | 80,386 |
|
|
|
| $ | 89,839 |
|
| $ | 120,698 |
|
| $ | 256,665 |
|
| $ | 234,561 |
|
| $ | 96,312 |
|
| $ | 98,863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs |
| (c) |
| $ | 41,714 |
|
| $ | — |
|
| $ | 200,061 |
|
| $ | — |
|
| $ | 698,835 |
|
| $ | 686,250 |
|
| (c) |
|
| — |
|
| $ | 123,418 |
|
| $ | — |
|
| $ | 158,276 |
|
| $ | 686,250 |
|
| $ | 686,250 |
|
Offering costs |
| (d) |
| $ | 341,566 |
|
| $ | 622,450 |
|
| $ | 1,451,749 |
|
| $ | 1,897,066 |
|
| $ | 1,656,554 |
|
| $ | 1,476,746 |
|
| (d) |
|
| — |
|
| $ | 712,154 |
|
| $ | 20,151 |
|
| $ | 1,110,183 |
|
| $ | 1,501,524 |
|
| $ | 1,609,242 |
|
Reimbursement of offering costs |
| (e) |
|
| — |
|
| $ | — |
|
| $ | 3,976 |
|
| $ | — |
|
| $ | 432,228 |
|
| $ | 428,252 |
| ||||||||||||||||||||||||||
Business management fee |
| (e) |
| $ | 158,154 |
|
| $ | 68,665 |
|
| $ | 318,609 |
|
| $ | 205,850 |
|
| $ | 684,604 |
|
| $ | 365,995 |
|
| (f) |
| $ | 158,563 |
|
| $ | 91,763 |
|
| $ | 316,978 |
|
| $ | 160,455 |
|
| $ | 659,815 |
|
| $ | 342,837 |
|
Mortgage financing fee |
| (f) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 114,375 |
|
| $ | 114,375 |
|
| (g) |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 114,375 |
|
| $ | 114,375 |
|
Sponsor non-interest bearing advances |
| (g) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 2,950,000 |
|
| $ | 2,950,000 |
|
| (h) |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,950,000 |
|
| $ | 1,950,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management fee |
|
|
| $ | 83,654 |
|
| $ | 40,987 |
|
| $ | 184,208 |
|
| $ | 117,715 |
|
| $ | — |
|
| $ | — |
|
|
|
| $ | 100,449 |
|
| $ | 61,409 |
|
| $ | 204,896 |
|
| $ | 100,554 |
|
| $ | — |
|
| $ | — |
|
Property operating expenses |
|
|
|
| 218,509 |
|
|
| 85,357 |
|
|
| 348,223 |
|
|
| 254,347 |
|
|
| 58,153 |
|
|
| 11,001 |
|
|
|
|
| 219,769 |
|
|
| 129,715 |
|
|
| 439,217 |
|
|
| 223,135 |
|
|
| 39,866 |
|
|
| 43,334 |
|
Total property operating expenses |
| (h) |
| $ | 302,163 |
|
| $ | 126,344 |
|
| $ | 532,431 |
|
| $ | 372,062 |
|
| $ | 58,153 |
|
| $ | 11,001 |
|
| (i) |
| $ | 320,218 |
|
| $ | 191,124 |
|
| $ | 644,113 |
|
| $ | 323,689 |
|
| $ | 39,866 |
|
| $ | 43,334 |
|
(a) | The Business Manager and its affiliates are entitled to reimbursement for certain general and administrative expenses incurred relating to the Company’s administration. Such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets. |
1413
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
(c) | Prior to August 8, 2016 under the Business Management Agreement, the Company was required to pay the Business Manager or its affiliates an acquisition fee equal to 1.5% of the “contract purchase price,” as defined in that agreement, of each property and real estate-related asset acquired. The Business Management Agreement was amended to, among other things, delete the obligation to pay acquisition fees, real estate sales commissions and mortgage financing fees payable to the Business Manager by the Company with respect to transactions occurring on or after August 8, 2016. The Business Manager and its affiliates continue to be reimbursed for acquisition related costs of the Business Manager and its affiliates relating to the Company’s acquisition of properties and real estate assets, regardless of whether the Company acquires the properties or real estate assets, subject to the limits provided in the amended agreement. |
(d) | The Company |
(e) | Other organization and offering expenses exceeded the maximum expense cap. Total offering costs were $10,969,745, of which $7,070,590 were other organization and offering expenses subject to the maximum expense cap. Total proceeds raised in the Offering were $50,140,909, resulting in cap excess of $6,067,772. The Business Manager reimbursed the Company an estimated amount of $6,500,000 during the year ended December 31, 2017. The overpayment of $432,228 and $428,252 at June 30, 2018 and December 31, 2017, respectively, is included in due to related parties in the accompanying consolidated balance sheets. |
(f) | The Company pays the Business Manager an annual business management fee equal to 0.6% of its “average invested assets,” payable quarterly in an amount equal to 0.15% of the Company’s average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities or consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets. |
14
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
15
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
prior to August 8, 2016, which have been previously accrued for and are owed to the Business Manager, are expected to be paid in the future and are included in due to related parties in the accompanying consolidated balance sheets. |
| This amount represents non-interest bearing advances made by the Sponsor which the Company intends to repay. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets. |
| The Company pays Inland Residential Real Estate Services LLC (the “Real Estate Manager”) a monthly property management fee of up to 4% of the gross income from any property managed directly by the Real Estate Manager or its affiliates. The Real Estate Manager may reduce, in its sole discretion, the amount of the management fee payable in connection with a particular property, subject to these limits. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses, benefits and severance payments for persons performing services, including without limitation acquisition due diligence services, for the Real Estate Manager and its affiliates (excluding the executive officers of the Real Estate Manager and the Company’s executive officers). |
NOTE 12 – OPERATING LEASES
The Company’s residential lease terms are generally for twelve months or less. The retail lease terms range from 1 to 4 years. Minimum lease payments to be received under retail operating leases as of September 30, 2017 for the years indicated, assuming no expiring leases are renewed, are as follows:
|
| Minimum Lease Payments |
| |
2017 (remainder of year) |
| $ | 67,713 |
|
2018 |
|
| 257,350 |
|
2019 |
|
| 254,650 |
|
2020 |
|
| 172,750 |
|
2021 |
|
| 78,119 |
|
Thereafter |
|
| — |
|
Total |
| $ | 830,582 |
|
NOTE 1312 – SUBSEQUENT EVENTS
Note Payable
Subsequent to September 30, 2017, the Company paid $2,000,000 to reduce the principal balance on the note payable.
Cash distributions
The Company’s board of directors declared cash distributions payable to stockholders of record of Class A, Class T and Class T-3 Shares each day beginning on the close of business OctoberJuly 1, 20172018 through the close of business February 28,October 31, 2018. Through that date distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002768493$0.002758356 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. Distributions were paid monthly in arrears as follows.
Distribution Month |
| Month Distribution Paid |
| Gross Amount of Distribution Paid |
|
| Distribution Reinvested through DRP |
|
| Shares Issued |
|
| Net Cash Distribution |
| ||||
September 2017 |
| October 2017 |
| $ | 190,907 |
|
| $ | 101,608 |
|
|
| 4,325 |
|
| $ | 89,299 |
|
October 2017 |
| November 2017 |
| $ | 204,163 |
|
| $ | 106,270 |
|
|
| 4,525 |
|
| $ | 97,893 |
|
Distribution Month |
| Month Distribution Paid |
| Gross Amount of Distribution Paid |
|
| Distribution Reinvested through DRP |
|
| Shares Issued |
|
| Net Cash Distribution |
| ||||
June 2018 |
| July 2018 |
| $ | 212,435 |
|
| $ | 105,150 |
|
|
| 4,491 |
|
| $ | 107,285 |
|
July 2018 |
| August 2018 |
| $ | 219,959 |
|
| $ | 107,884 |
|
|
| 4,607 |
|
| $ | 112,075 |
|
16
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Residential Properties Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K10-K/A for the year ended December 31, 2016,2017, as filed with the Securities and Exchange Commission on March 17, 2017,21, 2018, and factors described below:
There is no established public trading market for our shares, and our stockholders may not be able to sell their shares under our share repurchase program (as amended, the “SRP”) and, if our stockholders are able to sell their shares under the SRP, they may not be able to recover the amount of their investment in our shares;
Our board does not have any current plans to list our shares or pursue any other liquidity event, and weWe cannot guarantee that a liquidity event will occur;
To date,Historically, we have not consistently generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid and may continue to pay, distributions from the net proceeds of our “reasonable best efforts” offering (the “Offering”) and distribution reinvestment plan (as amended, the “DRP”), and may continue to pay distributions from other sources including the proceeds of our DRP, which reduces the amount of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment and is dilutive to our stockholders;
Based on sales volume to date, we expect to raise substantially less than the maximum offering amount inBecause our Offering which will continue until February 16, 2018. Because we expect to raise substantially less than the maximum offering amount, we will not be able to invest in as diverse a portfolio only consists of three properties, as we otherwise would, which will cause the value of our stockholders' investment to vary more widely with the performance of specific assets, and cause our fixed operating expenses to constitute a greater percentage of our gross income. Raising fewer proceeds in our Offering, therefore, increases the risk that our stockholders will not receiveincome and, as a result, may make it more difficult to generate sufficient income to provide for a full return of their investment.invested capital to stockholders;
We have incurred net losses on a U.S. generally accepted accounting principles (“U.S. GAAP”) basis for the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 and for the year ended December 31, 2016;2017;
Our charter generally limits the total amount we may borrow to 300% of our net assets, equivalent to 75% of the costs of our assets;
The interest of later investors in our common stock will be diluted as a result of our payment of stock dividends that have been declared and will be further diluted if we make additional stock dividends;
We may not be able to raise capital sufficient to achieve our investment objectives;
The prior performance of programs sponsored by Inland Real Estate Investment Corporation (our “Sponsor”) should not be used to predict our future results;
Market disruptions may adversely impact many aspects of our operating results and operating condition;
The number and value of real estate assets we acquire will depend, in part, on the net proceeds raised in our Offering;
We do not have employees and willinstead rely on Inland Residential Business Manager & Advisor, Inc. or our “Business Manager” and Inland Residential Real Estate Services LLC or our “Real Estate Manager” to manage our business and assets;
Persons performing services for our Business Manager and our Real Estate Manager are employed by our SponsorInland Real Estate Investment Corporation (our “Sponsor”) or its affiliates and face competing demands for their time and service;
We do not have arm’s-length agreements with our Business Manager, Real Estate Manager or other affiliates of our Sponsor;
Our Sponsor may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Manager;
We rely on entities affiliated with our Sponsor to identify real estate assets;
We pay fees, which may be significant, to our Business Manager, Real Estate Manager and other affiliates of our Sponsor;
We have not identified all of the specific real estate assets that we will acquire with the net proceeds raised in our Offering, thus it is a “blind pool” offering;
AnyOur properties that we acquire and own may compete with the properties owned by other programs sponsored by our Sponsor or Inland Private Capital Corporation for, among other things, tenants;
There are limits on the ownership and transferability of our shares; and
If we fail to continue to qualify as a REIT,real estate investment trust, our operations and distributions to stockholders will be adversely affected.
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
The following discussion and analysis relates to the three and ninesix months ended SeptemberJune 30, 20172018 and 20162017 and as of SeptemberJune 30, 20172018 and December 31, 2016.2017. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this report.
Overview
We are an externally managed Maryland corporation formed in December 2013 to primarily acquire and manage a portfolio of multi-family properties located primarily in the top 100 United States metropolitan statistical areas, which generally contain populations greater than 500,000 people. We expect that ourOur real estate portfolio will consist primarilyconsists of “stabilized” Class A and Class B multi-family properties. We are managed by our Business Manager. Substantially all of our business is conducted through Inland Residential Operating Partnership, L.P. (the “operating partnership”), of which we are the sole general partner. We elected to be taxed as a real estate investment trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with our taxable year ended December 31, 2015.
We are authorized to sell up to $1,000,000,000 of shares of common stock which consist of Class A Shares, at a price of $25.00 per share, Class T Shares, at a price of $23.95 per share, and Class T-3 Shares, at a price of $24.14 per share, in any combination, on a “reasonable best efforts” basis. We are also authorized to issue up to $190,000,000 of Class A, Class T and Class T-3 Shares at a per share price of $23.75, $22.81 and $22.81, respectively, pursuant to our DRP. We commenced our Offering of Class A Shares and Class T Shares on February 17, 2015 and, effective February 2, 2017, we reallocated certain of the remaining shares being offered in our Offering to offer Class T-3 Shares.
We ceased accepting subscriptions agreements dated after December 31, 2017 and terminated the Offering on January 3, 2018. Excluding the DRP, the Company Highlights – Three Months Ended September 30, 2017
Acquisitions
During the three months ended September 30, 2017, we acquired a fee simple interest in a 376,968 square foot apartment community known as the Verandas at Mitylene located in Montgomery, Alabama. We purchased the Verandas at Mitylene for approximately $36.6 million, plus closing costs.
Financings
The acquisition of Verandas at Mitylene was financed by obtaining a mortgage loan, secured by the property, in an aggregate principal amount equal to approximately $21.9 million,issued 1,401,711 Class A Shares, 390,230 Class T Shares and the remaining purchase price was funded with offering proceeds.
For the three months ended September 30, 2017, we paid $2.2 million towards the note payable that partially funded the acquisition of Commons at Town Center.
Excluding DRP proceeds, we generated255,666 Class T-3 Shares generating gross proceeds of approximately $1.5 million, $0.2 million and $1.6$50 million from salesthe Offering.
On February 5, 2018, the Company reported an estimated per share net asset value for each class of ourits common stock equal to $23.15, $24.32 and $23.55 per Class A Shares,Share, Class T SharesShare and Class T-3 Shares, respectively,Share, respectively.
Our fixed operating expenses, including property operating expenses and expenses related to operating as a public reporting company, relative to our gross income is disproportionately large due to the size of our portfolio. As a result, during prior periods, operating income did not generate sufficient cash flow to fully cover distribution payments. However, during the three monthsmost recent six month period ended SeptemberJune 30, 2017.2018, distribution payments were covered in full from operating cash flow. We continue to review alternative strategies that could produce positive cash flow or generate a liquidity event. These strategies could include a sale of our assets.
Select Property Information
As of SeptemberJune 30, 2017,2018, we owned three communities located in three states consisting of 623 residential units. In addition, we own ground level retail space totaling 10,609 square feet at one property. We own and lease retail space at our properties when we believe the retail space will increase the attractiveness of our communities and add convenience to our residents. The table below presents information for each of our communities as of SeptemberJune 30, 2017.2018.
Community | Community | Location |
| Total Number of Residential Units |
|
| Average Rental Rate per Residential Unit (a) |
|
| 2017 Residential Average Occupancy |
|
| Leased Residential Units |
|
| Purchase Price |
|
| Debt Balance |
|
| Interest Rate (b) |
| Community | Location |
| Total Number of Residential Units |
|
| Average Rental Rate per Residential Unit (a) |
|
| 2018 Residential Average Daily Occupancy |
|
| Leased Residential Units |
|
| Purchase Price |
|
| Debt Balance |
|
| Interest Rate |
| ||||||||||||||
The Retreat at Market Square | The Retreat at Market Square | Frederick, MD |
|
| 206 |
|
| $ | 1,539 |
|
|
| 93.2 | % |
| 196 |
|
| $ | 45,727,557 |
|
| $ | 27,450,000 |
|
|
| 3.64 | % | The Retreat at Market Square | Frederick, MD |
|
| 206 |
|
| $ | 1,601 |
|
|
| 94.8 | % |
|
| 198 |
|
| $ | 45,727,557 |
|
| $ | 27,450,000 |
|
|
| 3.64 | % | |
Commons at Town Center | Commons at Town Center | Vernon Hills, IL |
|
| 85 |
|
|
| 1,931 |
|
|
| 91.8 | % |
| 79 |
|
|
| 23,000,000 |
|
|
| 20,800,000 |
|
|
| 4.37 | % | Commons at Town Center | Vernon Hills, IL |
|
| 85 |
|
|
| 1,919 |
|
|
| 94.8 | % |
|
| 85 |
|
|
| 23,148,049 |
|
|
| 13,800,000 |
|
|
| 3.69 | % | |
Verandas at Mitylene | Verandas at Mitylene | Montgomery, AL |
|
| 332 |
|
|
| 903 |
|
|
| 91.6 | % |
| 315 |
|
|
| 36,550,000 |
|
|
| 21,930,000 |
|
|
| 3.88 | % | Verandas at Mitylene | Montgomery, AL |
|
| 332 |
|
|
| 941 |
|
|
| 93.5 | % |
|
| 322 |
|
|
| 36,651,566 |
|
|
| 21,930,000 |
|
|
| 3.88 | % | |
|
| Total |
|
| 623 |
|
| $ | 1,255 |
|
|
|
|
|
|
| 590 |
|
| $ | 105,277,557 |
|
| $ | 70,180,000 |
|
|
|
|
|
| Total |
|
| 623 |
|
| $ | 1,296 |
|
|
|
|
|
|
| 605 |
|
| $ | 105,527,172 |
|
| $ | 63,180,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Average rental rate per residential unit is for the last month of the period presented. |
|
|
Our communities include garden-style apartments generally defined as properties with multiple one to three story buildings in landscaped settings and mid-rise apartments situated in more urban settings. The following table sets forth a summary of our communities by building type as of SeptemberJune 30, 2017.2018.
Liquidity and Capital Resources
General
As of June 30, 2018, and December 31, 2017, we had total debt outstanding excluding unamortized debt issuance costs of approximately $63.2 million and $66.7 million, respectively, which bore interest at a weighted average interest rate of 3.73% per annum. As of June 30, 2018, and December 31, 2017, our borrowings were 60% and 63%, respectively, of the purchase price of our investment properties. As of June 30, 2018, the weighted average years to maturity for our mortgages was approximately 6.72 years. We do not anticipate significant capital expenditures to our properties in 2018. At June 30, 2018 and December 31, 2017 our cash and cash equivalent balance was $4.5 million and $7.6 million, respectively. Our primary uses and sources of cash are as follows:
Uses |
| Sources | |||||||||||
Short-term liquidity and capital needs such as: |
| • | Cash receipts from our | ||||||||||
• | Interest on |
| • | Proceeds from the | |||||||||
• |
|
| • | Proceeds from new or refinanced mortgage loans | |||||||||
• |
|
|
|
|
|
|
| ||||||
• |
| ||||||||||||
| Distributions to stockholders |
|
|
| |||||||||
• | Non-transaction based fees payable to our Business Manager and Real Estate Manager | ||||||||||||
|
|
|
|
|
|
|
| ||||||
• | Repurchases of shares under the SRP |
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
| |||
Long-term liquidity and capital needs such as: |
|
|
|
|
|
| |||||||
• |
| ||||||||||||
| Interest & principal payments on | ||||||||||||
|
|
|
|
|
|
|
| ||||||
• | Capital expenditures |
|
|
|
|
|
| ||||||
• | Repurchases of shares under the SRP |
|
|
|
|
|
| ||||||
• | Payment to Sponsor and its affiliates of deferred advances and fees |
As we continue our capital raising efforts, a majority of the net proceeds will be used to repay the outstanding balance on the note payable. The Sponsor has agreed to guarantee the obligations or liabilities of our subsidiary to lender under our note payable. In the event the amount raised is insufficient to repay the remaining balance owed at maturity, we will rely on the Sponsor guarantee to pay off any remaining amount due. Amounts paid on our behalf would become due to the Sponsor and would not bear interest or have a defined due date. The amount would be repaid with future operating proceeds or upon sale of our assets, which would reduce the amount of cash we have available to pay distributions or fund operations.
Cash Flow Analysis
|
| Nine Months Ended September 30, |
|
| Change |
|
| Six Months Ended June 30, |
|
| Change |
| ||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 vs. 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| ||||||
Net cash flows provided by operating activities |
| $ | 879,101 |
|
| $ | 7,459 |
|
| $ | 871,642 |
|
| $ | 1,467,121 |
|
| $ | 505,005 |
|
| $ | 962,116 |
|
Net cash flows used in investing activities |
| $ | (59,349,288 | ) |
| $ | (101,318 | ) |
| $ | (59,247,970 | ) |
| $ | (121,088 | ) |
| $ | (22,956,339 | ) |
| $ | 22,835,251 |
|
Net cash flows provided by (used in) financing activities |
| $ | 52,556,730 |
|
| $ | (2,338,328 | ) |
| $ | 54,895,058 |
| ||||||||||||
Net cash flows (used in) provided by financing activities |
| $ | (4,356,606 | ) |
| $ | 30,581,221 |
|
| $ | (34,937,827 | ) |
Operating activities
Cash provided by operating activities increased $0.9$1.0 million for the ninesix months ended SeptemberJune 30, 20172018 compared to the ninesix months ended SeptemberJune 30, 20162017 primarily due to payments made in 2016 related to our 2015 acquisition, cash generated from property operations from our recent acquisitions, and timing of payments.payments including real estate taxes and cash receipts.
Investing activities
|
| Nine Months Ended September 30, |
|
| Change |
|
| Six Months Ended June 30, |
|
| Change |
| ||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 vs. 2016 |
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| ||||||
Purchase of real estate |
| $ | (59,288,960 | ) |
| $ | — |
|
| $ | (59,288,960 | ) |
| $ | — |
|
| $ | (22,936,173 | ) |
| $ | 22,936,173 |
|
Capital expenditures |
|
| (60,328 | ) |
|
| (101,318 | ) |
|
| 40,990 |
|
| $ | (121,088 | ) |
| $ | (20,166 | ) |
| $ | (100,922 | ) |
Net cash flows used in investing activities |
| $ | (59,349,288 | ) |
| $ | (101,318 | ) |
| $ | (59,247,970 | ) |
| $ | (121,088 | ) |
| $ | (22,956,339 | ) |
| $ | 22,835,251 |
|
We have not acquired any properties in 2018 and do not presently intend to acquire additional properties unless we are able to access additional sources of capital.
|
| Six Months Ended June 30, |
|
| Change |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| |||
Proceeds from offering net of offering costs |
| $ | 137,871 |
|
| $ | 8,069,000 |
|
| $ | (7,931,129 | ) |
Distributions paid |
|
| (634,616 | ) |
|
| (430,053 | ) |
|
| (204,563 | ) |
Shares repurchased |
|
| (359,861 | ) |
|
| — |
|
|
| (359,861 | ) |
Total changes related to debt |
|
| (3,500,000 | ) |
|
| 22,942,274 |
|
|
| (26,442,274 | ) |
Net cash (used in) provided by financing activities |
| $ | (4,356,606 | ) |
| $ | 30,581,221 |
|
| $ | (34,937,827 | ) |
For the six months ended June 30, 2018, cash used more cash in our investingby financing activities was $4.4 million and for the ninesix months ended SeptemberJune 30, 2017, compared to the nine months ended September 30, 2016 primarily due to the acquisition of Commons at Town Center and Verandas at Mitylene in 2017.
Financing activities
|
| Nine Months Ended September 30, |
|
| Change |
| ||||||
|
| 2017 |
|
| 2016 |
|
| 2017 vs. 2016 |
| |||
Proceeds from offering net of offering costs |
| $ | 10,887,560 |
|
| $ | 16,259,692 |
|
| $ | (5,372,132 | ) |
Distributions paid |
|
| (686,715 | ) |
|
| (297,691 | ) |
|
| (389,024 | ) |
Shares repurchased |
|
| (80,815 | ) |
|
| — |
|
|
| (80,815 | ) |
Total changes related to debt |
|
| 42,436,700 |
|
|
| (18,300,329 | ) |
|
| 60,737,029 |
|
Net cash provided by (used in) financing activities |
| $ | 52,556,730 |
|
| $ | (2,338,328 | ) |
| $ | 54,895,058 |
|
Cashcash provided by financing activities increased $54.9was $30.6 million. The decrease in cash was primarily because we obtained a mortgage loan and a mezzanine loan in an aggregate amount of $22.9 million forto finance our acquisitions in 2017. During the ninesix months ended SeptemberJune 30, 2017 compared to2018, we paid off our note payable in an aggregate amount of $3.5 million. During the ninesix months ended SeptemberJune 30, 2016. During the nine months ended September 30,2018 and 2017, and 2016, we generated proceeds from the sale of our shares, net of offering costs paid, of approximately $10.9$0.1 million and $16.3$8.1 million, respectively. Proceeds from our offering decreased during the six months ended June 30, 2018 compared to the six months ended June 30, 2017 as we terminated our offering on January 3, 2018. During the ninesix months ended SeptemberJune 30, 2018, we paid approximately $1.3 million in distributions net of $0.6 million reinvested in the DRP. During the six months ended June 30, 2017, we obtained mortgage loans and a note payablepaid $0.9 million distributions net of $0.5 million reinvested in an aggregate amount of $44.9the DRP. We repurchased $0.4 million to finance our acquisitions and paid $2.2 million toward our note payable. During the nine months ended September 30, 2016, we paid $18.3 million toward our mortgage loan. During the nine months ended September 30, 2017 and 2016, we paid approximately $0.7 million and $0.3 million, respectively, in distributions and repurchased $80,815 of shares in 2017.2018.
Distributions
A summary of the cash distributions declared and paid, and cash flows provided by operations for the ninesix months ended SeptemberJune 30, 20172018 and 20162017 is as follows:
| Nine Months Ended September 30, |
|
| Six Months Ended June 30, |
| |||||||||||
|
| 2017 |
|
| 2016 |
|
| 2018 |
|
| 2017 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash distributions declared |
| $ | 1,517,491 |
|
| $ | 633,357 |
|
| $ | 1,281,901 |
|
| $ | 948,184 |
|
Distributions declared per Class A Share (1) |
| $ | 0.94 |
|
| $ | 0.94 |
| ||||||||
Distributions declared per Class T Share (1) |
| $ | 0.76 |
|
| $ | 0.76 |
| ||||||||
Distributions declared per Class T-3 Share (1) |
| $ | 0.90 |
|
| $ | — |
| ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash distributions paid (2) |
| $ | 1,463,865 |
|
| $ | 553,741 |
|
| $ | 1,283,323 |
|
| $ | 909,132 |
|
Cash distributions paid |
|
| 686,715 |
|
|
| 297,691 |
|
|
| 634,616 |
|
|
| 430,053 |
|
Distributions reinvested via DRP |
|
| 777,150 |
|
|
| 256,050 |
|
|
| 648,707 |
|
|
| 479,079 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operations |
| $ | 879,101 |
|
| $ | 7,459 |
|
| $ | 1,467,121 |
|
| $ | 505,005 |
|
Net offering proceeds (3) |
| $ | 10,887,560 |
|
| $ | 16,259,692 |
|
| $ | 137,871 |
|
| $ | 8,069,000 |
|
(1) |
|
(2) |
|
(3) | The Offering commenced on February 17, |
Results of operations
The following discussion is based on our consolidated financial statements for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017.
These sections describeThis section describes and comparecompares our results of operations for the three and ninesix months ended SeptemberJune 30, 20172018 and 2016.2017. We generate almost all of our net operating income from property operations. In order to evaluate our overall portfolio, management analyzes the net operating income of our property that we have owned and operated for both periods presented, in their entirety, referred to herein as “same store” properties. By evaluating the property net operating income of our “same store” properties, management is able to
monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income.
Comparison of the three months ended SeptemberJune 30, 20172018 and 20162017
A total of one multi-family property was acquired on or before JulyApril 1, 20162017 and represents our “same store” property during the three months ended SeptemberJune 30, 20172018 and 2016.2017. “Non-same store,” as reflected in the table below, consists of properties acquired after JulyApril 1, 2016.2017. For the three months ended SeptemberJune 30, 2017 and 2016,2018, two properties constituted non-same store properties.properties, and for the three months ended June 30, 2017 one property was considered a non-same store property. The following table presents property net operating income broken out between same store and non-same store, prior to amortization of intangibles, interest, and depreciation and amortization for the three months ended SeptemberJune 30, 20172018 and 2016,2017, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.
| Total |
|
| Same Store |
|
| Non-Same Store |
|
| Total |
|
| Same Store |
|
| Non-Same Store |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 |
|
|
|
| 2016 |
|
|
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
| ||||||||||||||||||
Rental income | $ | 2,055,873 |
| $ | 905,464 |
| $ | 1,150,409 |
|
| $ | 902,170 |
|
| $ | 905,464 |
|
| $ | (3,294 | ) |
| $ | 1,153,703 |
|
| $ | — |
|
| $ | 1,153,703 |
|
| $ | 2,309,367 |
|
| $ | 1,294,942 |
|
| $ | 1,014,425 |
|
| $ | 916,715 |
|
| $ | 927,333 |
|
| $ | (10,618 | ) |
| $ | 1,392,652 |
|
| $ | 367,609 |
|
| $ | 1,025,043 |
| ||||||
Other property income |
| 229,634 |
|
| 87,204 |
|
| 142,430 |
|
|
| 86,739 |
|
|
| 87,204 |
|
|
| (465 | ) |
|
| 142,895 |
|
|
| — |
|
| $ | 142,895 |
|
|
| 304,758 |
|
|
| 128,262 |
|
|
| 176,496 |
|
|
| 111,314 |
|
|
| 79,923 |
|
|
| 31,391 |
|
|
| 193,444 |
|
|
| 48,339 |
|
| $ | 145,105 |
| ||||||
Total income | $ | 2,285,507 |
| $ | 992,668 |
| $ | 1,292,839 |
|
| $ | 988,909 |
|
| $ | 992,668 |
|
| $ | (3,759 | ) |
| $ | 1,296,598 |
|
| $ | — |
|
| $ | 1,296,598 |
|
| $ | 2,614,125 |
|
| $ | 1,423,204 |
|
| $ | 1,190,921 |
|
| $ | 1,028,029 |
|
| $ | 1,007,256 |
|
| $ | 20,773 |
|
| $ | 1,586,096 |
|
| $ | 415,948 |
|
| $ | 1,170,148 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property operating expenses | $ | 722,891 |
| $ | 299,274 |
| $ | 423,617 |
|
| $ | 329,922 |
|
| $ | 299,274 |
|
| $ | 30,648 |
|
| $ | 392,969 |
|
|
| — |
|
| $ | 392,969 |
|
| $ | 833,079 |
|
| $ | 432,756 |
|
| $ | 400,323 |
|
| $ | 306,881 |
|
| $ | 322,629 |
|
| $ | (15,748 | ) |
| $ | 526,198 |
|
|
| 110,127 |
|
| $ | 416,071 |
| ||||||
Real estate tax expense |
| 244,451 |
|
| 90,283 |
|
| 154,168 |
|
|
| 89,820 |
|
|
| 90,283 |
|
|
| (463 | ) |
|
| 154,631 |
|
|
| — |
|
|
| 154,631 |
|
|
| 276,468 |
|
|
| 164,056 |
|
|
| 112,412 |
|
|
| 89,656 |
|
|
| 87,596 |
|
|
| 2,060 |
|
|
| 186,812 |
|
|
| 76,460 |
|
|
| 110,352 |
| ||||||
Total property operating expenses | $ | 967,342 |
| $ | 389,557 |
| $ | 577,785 |
|
| $ | 419,742 |
|
| $ | 389,557 |
|
| $ | 30,185 |
|
| $ | 547,600 |
|
| $ | — |
|
| $ | 547,600 |
|
| $ | 1,109,547 |
|
| $ | 596,812 |
|
| $ | 512,735 |
|
| $ | 396,537 |
|
| $ | 410,225 |
|
| $ | (13,688 | ) |
| $ | 713,010 |
|
| $ | 186,587 |
|
| $ | 526,423 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Property net operating income | $ | 1,318,165 |
| $ | 603,111 |
| $ | 715,054 |
|
| $ | 569,167 |
|
| $ | 603,111 |
|
| $ | (33,944 | ) |
| $ | 748,998 |
|
| $ | — |
|
| $ | 748,998 |
|
| $ | 1,504,578 |
|
| $ | 826,392 |
|
| $ | 678,186 |
|
| $ | 631,492 |
|
| $ | 597,031 |
|
| $ | 34,461 |
|
| $ | 873,086 |
|
| $ | 229,361 |
|
| $ | 643,725 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
General and administrative expenses |
| (350,982 | ) |
|
|
| (201,349 | ) |
|
|
| (149,633 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (325,518 | ) |
|
| (390,663 | ) |
|
| 65,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Acquisition related costs |
| (16,484 | ) |
| — |
| (16,484 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (30,266 | ) |
|
| 30,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Business management fee |
| (158,154 | ) |
| (68,665 | ) |
| (89,489 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (158,563 | ) |
|
| (91,763 | ) |
|
| (66,800 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Depreciation and amortization |
| (1,153,501 | ) |
| (378,531 | ) |
| (774,970 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (952,763 | ) |
|
| (609,311 | ) |
|
| (343,452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest expense |
| (677,534 | ) |
| (322,478 | ) |
| (355,056 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (607,066 | ) |
|
| (423,299 | ) |
|
| (183,767 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Interest and other income |
| 6,393 |
|
|
|
| — |
|
|
|
| 6,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 5,390 |
|
|
| 14,116 |
|
|
| (8,726 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Net loss | $ | (1,032,097 | ) |
|
| $ | (367,912 | ) |
|
| $ | (664,185 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (533,942 | ) |
| $ | (704,794 | ) |
| $ | 170,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss. Net loss was $1,032,097$533,942 and $367,912$704,794 for the three months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.
Total property net operating income. On a “same store” basis, comparing the results of operations of our investment property owned during the three months ended SeptemberJune 30, 20172018, with the results of the same investment property owned during the three months ended SeptemberJune 30, 20162017, property net operating income decreased $33,944.increased $34,461. The decreaseincrease is primarily due to increaseddecreased property operating expenses as a result of a common area painting project.and increased other property income.
“Non-same store” total property net operating income increased $748,998$643,725 during 20172018 as compared to 2016.2017. The increase is a result of acquiring two additional properties after JulyApril 1, 2016.2017.
General and Administrative expenses. General and administrative expenses increased $149,633decreased $65,145 in 20172018 compared to 2016.2017. This increasedecrease is primarily due to growtha decrease in our portfolio.legal fees.
Acquisition related costs. Acquisition related expenses increased $16,484decreased $30,266 in 20172018 compared to 2016.2017. The increasedecrease is attributed to ourno acquisition related activity.activity in 2018.
Business management fee. Business management fees increased $89,489$66,800 in 20172018 compared to 2016.2017. The increase is due to the acquisition of two additional properties which increased assets under management.
Depreciation and Amortization. Depreciation and amortization increased $774,970$343,452 in 2017, as2018 compared to 2016.2017. The increase is primarily due to the two acquisitions inafter April 1, 2017.
Interest Expense. Interest expense increased $355,056$183,767 in 20172018 compared to 2016.2017. The increase is primarily due to additional financings after October 1, 2016.borrowings to fund acquisitions in 2017. The average debt balance increased approximately $20,400,000 in 2018 compared to 2017.
Interest and other income. Interest and other income increased $6,392.decreased $8,726. The increasedecrease is primarily due to higherlower interest earned as a result of higherlower cash balances in 20172018 compared to 2016.2017.
Comparison of the ninesix months ended SeptemberJune 30, 20172018 and 20162017
A total of one multi-family property was acquired on or before January 1, 20162017 and represents our “same store” property during the ninesix months ended SeptemberJune 30, 20172018 and 2016.2017. “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2016.2017. For the ninesix months ended SeptemberJune 30, 2017 and 2016,2018, two properties constituted non-same store properties.properties, and for the six months ended June 30, 2017 one property was considered a non-same store property. The following table presents property net operating income broken out between same store and non-same store, prior to amortization of intangibles, interest, and depreciation and amortization for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.
| Total |
|
| Same Store |
|
| Non-Same Store |
| Total |
|
| Same Store |
|
| Non-Same Store |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Nine Months Ended September 30, |
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
|
| 2017 |
|
| 2016 |
|
| Change |
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
| ||||||||||||||||||
Rental income | $ | 4,254,327 |
|
| $ | 2,665,759 |
|
| $ | 1,588,568 |
|
| $ | 2,733,015 |
|
| $ | 2,665,759 |
|
| $ | 67,256 |
|
| $ | 1,521,312 |
|
| $ | — |
|
| $ | 1,521,312 |
| $ | 4,621,701 |
|
| $ | 2,198,454 |
|
| $ | 2,423,247 |
|
| $ | 1,832,485 |
|
| $ | 1,830,845 |
|
| $ | 1,640 |
|
| $ | 2,789,216 |
|
| $ | 367,609 |
|
| $ | 2,421,607 |
|
Other property income |
| 474,139 |
|
|
| 263,928 |
|
|
| 210,211 |
|
|
| 282,906 |
|
|
| 263,928 |
|
|
| 18,978 |
|
|
| 191,233 |
|
|
| — |
|
|
| 191,233 |
|
| 592,299 |
|
|
| 244,505 |
|
|
| 347,794 |
|
|
| 211,947 |
|
|
| 196,166 |
|
|
| 15,781 |
|
|
| 380,352 |
|
|
| 48,339 |
|
|
| 332,013 |
|
Total income | $ | 4,728,466 |
|
| $ | 2,929,687 |
|
| $ | 1,798,779 |
|
| $ | 3,015,921 |
|
| $ | 2,929,687 |
|
| $ | 86,234 |
|
| $ | 1,712,545 |
|
| $ | — |
|
| $ | 1,712,545 |
| $ | 5,214,000 |
|
| $ | 2,442,959 |
|
| $ | 2,771,041 |
|
| $ | 2,044,432 |
|
| $ | 2,027,011 |
|
| $ | 17,421 |
|
| $ | 3,169,568 |
|
| $ | 415,948 |
|
| $ | 2,753,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses | $ | 1,419,557 |
|
| $ | 900,845 |
|
| $ | 518,712 |
|
| $ | 916,461 |
|
| $ | 900,845 |
|
| $ | 15,616 |
|
| $ | 503,096 |
|
|
| — |
|
| $ | 503,096 |
| $ | 1,663,972 |
|
| $ | 696,666 |
|
| $ | 967,306 |
|
| $ | 604,674 |
|
| $ | 586,539 |
|
| $ | 18,135 |
|
| $ | 1,059,298 |
|
|
| 110,127 |
|
| $ | 949,171 |
|
Real estate tax expense |
| 498,450 |
|
|
| 264,836 |
|
|
| 233,614 |
|
|
| 267,359 |
|
|
| 264,836 |
|
|
| 2,523 |
|
|
| 231,091 |
|
|
| — |
|
|
| 231,091 |
|
| 557,127 |
|
|
| 253,999 |
|
|
| 303,128 |
|
|
| 180,051 |
|
|
| 177,539 |
|
|
| 2,512 |
|
|
| 377,076 |
|
|
| 76,460 |
|
|
| 300,616 |
|
Total property operating expenses | $ | 1,918,007 |
|
| $ | 1,165,681 |
|
| $ | 752,326 |
|
| $ | 1,183,820 |
|
| $ | 1,165,681 |
|
| $ | 18,139 |
|
| $ | 734,187 |
|
| $ | — |
|
| $ | 734,187 |
| $ | 2,221,099 |
|
| $ | 950,665 |
|
| $ | 1,270,434 |
|
| $ | 784,725 |
|
| $ | 764,078 |
|
| $ | 20,647 |
|
| $ | 1,436,374 |
|
| $ | 186,587 |
|
| $ | 1,249,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income | $ | 2,810,459 |
|
| $ | 1,764,006 |
|
| $ | 1,046,453 |
|
| $ | 1,832,101 |
|
| $ | 1,764,006 |
|
| $ | 68,095 |
|
| $ | 978,358 |
|
| $ | — |
|
| $ | 978,358 |
| $ | 2,992,901 |
|
| $ | 1,492,294 |
|
| $ | 1,500,607 |
|
| $ | 1,259,707 |
|
| $ | 1,262,933 |
|
| $ | (3,226 | ) |
| $ | 1,733,194 |
|
| $ | 229,361 |
|
| $ | 1,503,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| (1,045,499 | ) |
|
| (802,033 | ) |
|
| (243,466 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (806,118 | ) |
|
| (694,517 | ) |
|
| (111,601 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs |
| (87,963 | ) |
|
| — |
|
|
| (87,963 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
| (71,479 | ) |
|
| 71,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business management fee |
| (318,609 | ) |
|
| (205,850 | ) |
|
| (112,759 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (316,978 | ) |
|
| (160,455 | ) |
|
| (156,523 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| (2,132,208 | ) |
|
| (1,451,356 | ) |
|
| (680,852 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,003,376 | ) |
|
| (978,707 | ) |
|
| (1,024,669 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (1,353,084 | ) |
|
| (1,121,542 | ) |
|
| (231,542 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1,218,700 | ) |
|
| (675,550 | ) |
|
| (543,150 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
| 30,907 |
|
|
| — |
|
|
| 30,907 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 12,339 |
|
|
| 24,514 |
|
|
| (12,175 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (2,095,997 | ) |
| $ | (1,816,775 | ) |
| $ | (279,222 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
| $ | (276,032 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss. Net loss was $2,095,997$1,339,932 and $1,816,775$1,063,900 for the ninesix months ended SeptemberJune 30, 20172018 and 2016,2017, respectively.
Total property net operating income. On a “same store” basis, comparing the results of operations of our investment property owned during the full ninesix months ended September June 30, 2017,2018, with the results of the same investment property owned during the full ninesix months
ended September June 30, 2016,2017, property net operating income increased $68,095. decreased $3,226. The increasedecrease is primarily due to increased property income due to increased occupancy and markets rents, offset by increased property operating expenses due primarily to an increase in common area painting projects.expenses.
“Non-same store” total property net operating income increased $978,358$1,503,833 during 20172018 as compared to 2016.2017. The increase is a result of acquiring two additional properties after January 1, 2016.2017.
General and administrativeAdministrative expenses.General and administrative expenses increased $243,466$111,601 in 20172018 compared to 2016. The2017. This increase is primarily due to the growth in our portfolio.portfolio and valuation related costs.
Acquisition related costs.Acquisition related expenses increased $87,963decreased $71,479 in 20172018 compared to 2016.2017. The increasedecrease is attributed to ourno acquisition related activity.activity in 2018.
Business management fee. Business management fees increased $112,759$156,523 in 20172018 compared to 2016.2017. The increase is due to the acquisition of two additional properties in mid 2017 which increased assets under management.
Depreciation and amortization.Amortization. Depreciation and amortization increased $680,852$1,024,669 in 2017, as2018 compared to 2016. This2017. The increase is due to acquisitions during 2017.
Interest Expense. Interest expense increased $231,542$543,150 in 20172018 compared to 2016.2017. The increase is due to borrowings to fund recent acquisitions.acquisitions in 2017. The average debt balance increased approximately $28,650,000 in 2018 compared to 2017.
Interest and other income. Interest and other income increased $30,907.decreased $12,175. The increasedecrease is primarily due to higherlower interest earned as a result of higherlower cash balances in 20172018 compared to 2016.2017.
Critical Accounting Policies
Disclosures discussing all significant accounting policies are set forth in our Annual Report on Form 10-K10-K/A for the year ended December 31, 2016,2017, as filed with the Securities and Exchange Commission on March 17, 2017,21, 2018, under the heading “Critical Accounting Policies”. There have been no changes to our critical accounting policies during the threesix months ended SeptemberJune 30, 2017.2018.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Subsequent Events
For information related to subsequent events, reference is made to Note 1312 – “Subsequent Events” which is included in our SeptemberJune 30, 20172018 Notes to Consolidated Financial Statements in Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We aremay be exposed to interest rate changes primarily as a result of long-term debt used to purchase properties or other real estate assets, maintain liquidity and fund capital expenditures or operations. We seek to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. As of SeptemberJune 30, 2017,2018, we had outstanding debt of approximately $70.2$63.2 million, excluding mortgage premium and unamortized debt issuance costs.costs, bearing interest rates ranging from 3.64% to 3.88% per annum. The weighted average interest rate was 3.90%3.73%. With regardAs of June 30, 2018, the weighted average years to fixed rate financing, interest rate fluctuations generally affect the fair value, but notmaturity for our earnings or cash flows. Therefore, interest rate risk does not have a significant impact on our fixed rate debt obligations until their maturity or earlier prepayment.mortgages was approximately 6.72 years.
With regard to any variable rate financing, our Business Manager will assess our interest rate cash flow risk by continually identifyingAs of June 30, 2018 and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. Our Business Manager will maintain risk management control systems to monitor interest rate cash flow risk attributable to both of our outstanding or forecasted debt obligations as well as our potential offsetting hedge positions. While this hedging strategy will be designed to minimize the impact on our net income and funds from operations from changes in interest rates, the overall returns on stockholder investments may be reduced. Presently,December 31, 2017, we dodid not have any variable rate debt.
We may use derivative financial instruments to hedge exposures to changesAs of June 30, 2018, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $63.2 million and a fair value of $61.0 million. As of December 31, 2017, our fixed-rate debt consisted of secured mortgage financings and a note payable with a carrying value of $66.7 million and a fair value of $65.3 million. Changes in interest rates do not affect interest expense incurred on loans secured by our assets. Derivative instruments may includefixed-rate debt until their maturity or earlier repayment, but interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from our currently anticipated hedging strategy. If we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to both credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. Ifrates do affect the fair value of a derivative contract is positive,our fixed-rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the counterparty will owe us, which creates credit risk for us because the counterparty may not perform. Market risk is the adverse effect on thefair value of a financial instrument that results from a change inour fixed-rate debt would decrease by $3.4 million at June 30, 2018. If market interest rates. We will seekrates were to managedecrease by 1% (100 basis points), the market risk associated with interest-rate contractsfair value of our fixed-rate debt would increase by establishing and monitoring parameters that limit the types and degree of market risk that may be undertaken. There is no assurance we will be successful. Presently, we do not have any derivative financial instruments.$3.6 million at June 30, 2018.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended SeptemberJune 30, 20172018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to, and none of our properties are not subject to, any material pending legal proceedings.
The following risk factors supplement the risk factors set forth in our Annual Report on Form 10-K10-K/A for the year ended December 31, 2016.2017.
We have incurred a net losslosses on a U.S. GAAP basis for the ninesix months ended SeptemberJune 30, 2018 and 2017.
We have incurred a net losslosses on a U.S. GAAP basis for the three and ninesix months ended SeptemberJune 30, 2018 and 2017 of approximately $1.0$1.3 million and $2.1$1.1 million, respectively. Our losslosses can be attributed, in part, to property operating, interest, general and administrative expenses, and non-cash charges for depreciation and amortization. We may incur net losses in the future, which could have a material adverse impact on our financial condition, operations, cash flow, and our ability to service our indebtedness and pay distributions to our stockholders. We are subject to all of the business risks and uncertainties associated with any business, including the risk that the valuebusiness. As of a stockholder’s investment could decline substantially. We were formed in December 2013 and, as of SeptemberJune 30, 2017,2018, we had acquired three multi-family communities. We cannot assure our stockholders that, in the future, we will be profitable or that we will realize growth in the value of our assets.
To date, we have not generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid, and may continue to pay, distributions from the net proceeds of our Offering and DRP, which reduces the amount of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment, and is dilutive to our stockholders.
We have not yet generated sufficient cash flow from operations to fund distribution payments and may not do so unless our asset base grows significantly. Our organizational documents permit us to pay distributions from sources other than cash flow from operations. Specifically, some or all of our distributions may be paid from retained cash flow, from borrowings and from cash flow from investing activities, including the net proceeds from the sale of our assets, or from the net proceeds of our Offering and DRP. Accordingly, until such time as we are generating cash flow from operations sufficient to cover distributions we have paid and will likely continue to pay distributions from the net proceeds of our Offering and DRP or other sources. We have not established any limit on the extent to which we may use alternate sources, including borrowings or proceeds of the Offering and DRP, to pay distributions. There is no assurance we will generate sufficient cash flow from operations to cover distributions. We began declaring distributions to stockholders of record during November 2015. Of the cash distributions paid to stockholders through September 30, 2017, 58% ($1.4 million) have been paid from the net proceeds of our Offering and DRP. To the extent we pay cash distributions, or a portion thereof, from sources other than cash flow from operations, we will have less capital available to invest in properties and other real estate-related assets, the book value per share may decline, and there will be no assurance that we will be able to sustain distributions at that level.
Based on sales volume to date, we expect to raise substantially less than the maximum offering amount in our Offering which will continue until February 16, 2018. Because we expect to raise substantially less than the maximum offering amount, we will not be able to invest in as diverse a portfolio of properties as we otherwise would, which will cause the value of our stockholders' investment to vary more widely with the performance of specific assets, and cause our fixed operating expenses to constitute a greater percentage of our gross income. Raising fewer proceeds inincome due to the size of our Offering, therefore, increases the risk that our stockholders will not receiveportfolio and, as a result, may make it more difficult to generate sufficient income to provide for a full return of their investment.invested capital to stockholders.
Shares of our common stock are being offered on a “reasonable best efforts” basis throughOur fixed operating expenses, including property operating expenses and expenses related to operating as a public offering, which commenced on February 17, 2015. As of September 30, 2017, we have sold approximately $45.9 million ofreporting company, relative to our shares through the Offering and have invested in three properties. Our Offering will continue until February 16, 2018. As we continue our capital raising efforts, a majority of the net proceeds will be used to repay the outstanding balance on a note payable that matures on January 3, 2018. As of September 30, 2017, the outstanding balance under the note payable was $7 million. Subsequent to September 30, 2017, we paid $2 million to reduce the outstanding balance to $5 million. Our ability to make additional investments will be limited until we are able to pay off the outstanding balance on the note payable. In the event the amount raisedgross income is insufficient to repay the remaining balance owed at maturity, we will rely on the Sponsor guarantee to pay off any remaining amount due and amounts paid on our behalf would becomedisproportionately large due to the Sponsor. We expect to repay the amount with future operating proceeds or upon salesize of our assets. We cannot guaranteeportfolio. As a result, the Company historically has been unable to cover its distribution payments to stockholders from operating cash flows, although the Company did fund distributions during the most recent six month period ended June 30, 2018 from operating cash flows. A smaller portfolio increases the likelihood that we will have sufficient future operating proceeds to repayany single property’s performance would materially affect our overall investment performance and the Sponsor, in which case we may need to sell our assets. Unless we raise significant additional proceeds, we will not be able to achieve a broadly diversified portfolio. Adverse developments with respect to a single asset or a geographic region will have a greater adverse impact on our operations than they otherwise would. In addition,
our inability to raise substantial funds has increased our fixed operating expenses as a percentagevalue of our gross income. Each of these factors could have an adverse effect on our financial condition and ability to make distributions to our stockholders.stockholders’ investment.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On February 17, 2015, our Registration Statement on Form S-11 (File No. 333-199129), covering a public offering of up to $1,190,000,000 of shares of Class A and Class T common stock was declared effective under the Securities Act, and on February 2, 2017, Post-Effective Amendment No. 9 to our Registration Statement on Form S-11 (File No. 333-199129), reallocating certain of the remaining shares being offered to offer Class T-3 Shares as a new class of common stock pursuant to the Offering and the DRP, was declared effective under the Securities Act. The Offering commenced on February 17, 2015 and is ongoing.
We are offering up to $1,000,000,000 of Class A Shares, Class T Shares and Class T-3 Shares, in any combination. We are also offering up to $190,000,000 of Class A, Class T and Class T-3 Shares in the DRP. We reserve the right to reallocate the shares between our reasonable best efforts Offering and the DRP, and among share classes.
From the effective date of the Offering through September 30, 2017, we had sold the following securities in the Offering and the DRP for the following aggregate offering proceeds:
1,349,902 Class A Shares, 384,760 Class T Shares and 146,623 Class T-3 Shares, equal to $45,899,384 in aggregate gross offering proceeds, in the reasonable best efforts Offering.
41,686 Class A Shares, 9,209 Class T Shares and 744 Class T-3 Shares, equal to $1,217,071 in aggregate gross offering proceeds, pursuant to the DRP.
From the effective date of the Offering through September 30, 2017, we have paid the following costs in connection with the issuance and distribution of the registered securities:
Type of Costs |
| Amount |
| |
Offering costs paid to related parties (1) |
| $ | 3,950,896 |
|
Offering costs paid to non-related parties |
|
| 3,338,958 |
|
Total offering costs paid |
| $ | 7,289,854 |
|
|
|
From the effective date of the Offering through September 30, 2017, the net offering proceeds to us from the Offering and the DRP, after deducting the total expenses incurred described above, were approximately $39.8 million. As of September 30, 2017, we used $20.5 million to repay a portion of our debt which was originally incurred in connection with the purchase of real estate, approximately $15.5 million in related costs associated with our purchase of real estate, of which approximately $0.2 million was paid to related parties and approximately $1.4 million to pay distributions. The remaining proceeds were held as cash at September 30, 2017.
Recent Sales of Unregistered Equity Securities
During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act.
Share Repurchase Program
The SRP is designed to provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us. The terms under which we may repurchase shares may differ between repurchases upon the death or “qualifying disability” of a stockholder or “Exceptional Repurchases” and all other repurchases or “Ordinary Repurchases.” The repurchase price for Ordinary Repurchases is equal to $21.60 per share, $21.61 per share and $21.61 per share for Class A Shares, Class T Shares and Class T-3 Shares, respectively, until the initial valuation date, and thereafter the repurchase price is equal to 96.0% of the most recent applicable estimated value per share reported by us.
In the case of Ordinary Repurchases, we may repurchase shares beneficially owned by a stockholder continuously for at least one year and who purchased their shares from us or received their shares through a non-cash transfer, if requested, if we choose to repurchase them. However, in the event a stockholder is having all of his or her shares repurchased, our board may waive the one-year holding requirement for shares purchased under our DRP. We may make Ordinary Repurchases only if we have sufficient funds available to complete the repurchase. In any given calendar month, we are authorized to use only the proceeds from our DRP during that month to make Ordinary Repurchases; provided that, if we have excess funds during any particular month, we may, but are not obligated to, carry those excess funds to the subsequent calendar month for the purpose of making Ordinary Repurchases. Subject to funds being available, in the case of Ordinary Repurchases, we limit the number of shares repurchased during any calendar year to no more than 5% of the number of Class A Shares, Class T Shares and Class T-3 Shares outstanding on December 31st of the previous calendar year. In the event that we determine not to repurchase all of the shares presented during any month, including as a result of having insufficient funds or satisfying the 5% limit, to the extent we decide to repurchase shares, shares will be repurchased on a pro rata basis up to the limits described above. Any stockholder whose Ordinary Repurchase request has been partially accepted in a particular calendar month will have the remainder of his or her request included with all new repurchase requests we have received in the immediately following calendar month, unless he or she chooses to withdraw that request.
Prior to our initial valuation date, the repurchase price for Ordinary Repurchases was equal to $21.60 per Class A Share, $21.61 per Class T Share and $21.61 per Class T-3 Share. After the initial valuation date, the repurchase price is equal to 96.0% of the most recent applicable estimated value per share reported by us. Accordingly, until we announce new estimated per share net asset values, the repurchase price for Ordinary Repurchases is $22.22 per Class A Share, $23.35 per Class T Share and $22.61 per Class T-3 Share, beginning with the February 28, 2018 repurchase date.
InPrior to our initial valuation date, the case ofrepurchase price for Exceptional Repurchases we may repurchase shares at a repurchase pricewas equal to $22.50 per share,Class A Share, $22.51 per shareClass T Share and $22.51 per share for Class A Shares, Class T Shares and Class T-3 Shares, respectively, untilShare. After the initial valuation date, and thereafter the repurchase price is equal to 100.0% of the most recent applicable estimated value per share reported by us. Accordingly, until we announce new estimated per share net asset values, the repurchase price for Exceptional Repurchases is $23.15 per Class A Share, $24.32 per Class T Share and $23.55 per Class T-3 Share, beginning with the February 28, 2018 repurchase date. Exceptional Repurchases are not subject to a one-year holding period, or the 5% repurchase limit discussed above, and may be repurchased with funds from any source.
The SRP will immediately terminate if our shares become listed for trading on a national securities exchange. In addition, our board of directors, in its sole discretion, may, at any time, amend, suspend or terminate the SRP.
During the three months ended SeptemberJune 30, 2017,2018, we repurchased 3,31712,906 Class A Shares, and 4242,909 Class T Shares and no Class T-3 Shares under the SRP.
Period |
| Total Shares Requested to be Repurchased |
|
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Amount of Shares Repurchased |
|
| Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(1) |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
July 2017 |
|
| 2,695 |
|
|
| 2,695 |
|
| $ | 21.60 |
|
| $ | 58,204 |
|
|
| 2,695 |
|
|
| 66,462 |
|
August 2017 |
|
| 492 |
|
|
| 492 |
|
| $ | 21.61 |
|
| $ | 10,632 |
|
|
| 492 |
|
|
| 65,970 |
|
September 2017 |
|
| 554 |
|
|
| 554 |
|
| $ | 21.62 |
|
| $ | 11,979 |
|
|
| 554 |
|
|
| 65,416 |
|
Total |
|
| 3,741 |
|
|
| 3,741 |
|
| $ | 21.60 |
|
| $ | 80,815 |
|
|
| 3,741 |
|
|
|
|
|
Period |
| Total Shares Requested to be Repurchased |
|
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Amount of Shares Repurchased |
|
| Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(1) |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||||
April 2018 |
|
| 11,552 |
|
|
| 11,552 |
|
| $ | 22.42 |
|
| $ | 258,934 |
|
|
| 11,552 |
|
|
| 94,556 |
|
May 2018 |
|
| 4,263 |
|
|
| 4,263 |
|
| $ | 22.46 |
|
| $ | 95,781 |
|
|
| 4,263 |
|
|
| 90,293 |
|
June 2018 |
|
| — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
| 90,293 |
|
Total |
|
| 15,815 |
|
|
| 15,815 |
|
| $ | 22.43 |
|
| $ | 354,715 |
|
|
| 15,815 |
|
|
|
|
|
| (1) | Our SRP was announced on February 17, 2015. |
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Not Applicable.
The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Exhibit No. |
| Description |
|
|
|
|
|
|
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
| ||
|
|
| |
|
| |
31.1 |
| |
|
|
|
31.2 |
| |
| ||
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
| ||
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the period ended |
|
|
|
|
|
|
* | Filed |
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.
INLAND RESIDENTIAL PROPERTIES TRUST, INC. | ||
|
|
|
|
| /s/ Mitchell A. Sabshon |
By: |
| Mitchell A. Sabshon |
|
| President and Chief Executive Officer |
Date: |
|
|
|
|
|
|
| /s/ Catherine L. Lynch |
By: |
| Catherine L. Lynch |
|
| Chief Financial Officer and Treasurer ( |
Date: |
|
|
| ||
|
| |
| ||
|
|
3227