UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBERJUNE 30, 20202021
OR
☐ 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: 000-56165
Cottonwood Communities, Inc.
(Exact name of Registrant as specified in its charter)
________________________________ | | | | | | | | | | | | | | |
| Maryland | | 61-1805524 | |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) | |
6340 South 3000 East,1245 E. Brickyard Road, Suite 500,250, Salt Lake City, UT 8412184106
(Address of principal executive offices) (Zip code)
(801) 278-0700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
None | N/A | N/A |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| | | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
Non-Accelerated filer | ý | Smaller reporting company | ý | |
| | Emerging growth company | ý | |
| | | | |
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. | ý | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý
As of November 10, 2020,August 13, 2021, there were 11,799,84723,569,544 and 17,51617,518 shares of the registrant’s Class A and Class TTX (previously Class T) common stock outstanding, respectively.respectively, and no shares of Class T, Class D and Class I outstanding.
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Cottonwood Communities, Inc. |
Table of Contents |
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PART I | | |
| Item 1. | | |
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| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
PART II | | |
| Item 1. | | |
| Item 1A. | | |
| Item 2. | | |
| Item 3. | | |
| Item 4. | | |
| Item 5. | | |
| Item 6. | | |
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PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
| Cottonwood Communities, Inc. | Cottonwood Communities, Inc. | Cottonwood Communities, Inc. |
Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets | Condensed Consolidated Balance Sheets |
(in thousands, except share and per share data) | | (in thousands, except share and per share data) |
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Assets | Assets | | (Unaudited) | | | Assets | | (Unaudited) | | |
Real estate assets, net | Real estate assets, net | | $ | 162,382,984 | | | $ | 63,905,651 | | Real estate assets, net | | $ | 1,464,431 | | | $ | 161,092 | |
Investments in unconsolidated real estate entities | Investments in unconsolidated real estate entities | | 26,446,293 | | | 4,961,868 | | Investments in unconsolidated real estate entities | | 159,590 | | | 30,000 | |
Real estate note investment, net | | 6,796,623 | | | 2,059,309 | | |
Investments in real-estate related loans | | Investments in real-estate related loans | | 5,189 | | | 8,255 | |
Cash and cash equivalents | Cash and cash equivalents | | 7,775,107 | | | 47,549,804 | | Cash and cash equivalents | | 37,507 | | | 4,362 | |
Restricted cash | Restricted cash | | 281,159 | | | 192,190 | | Restricted cash | | 19,776 | | | 271 | |
Related party receivables | | 61,109 | | | 0 | | |
Other assets | Other assets | | 1,099,839 | | | 707,524 | | Other assets | | 44,080 | | | 825 | |
Total assets | Total assets | | 204,843,114 | | | 119,376,346 | | Total assets | | $ | 1,730,573 | | | $ | 204,805 | |
Liabilities and equity | | | | | |
Liabilities, Equity, and Noncontrolling Interests | | Liabilities, Equity, and Noncontrolling Interests | | | | |
Liabilities | Liabilities | | Liabilities | |
Credit facilities, net | | 83,261,231 | | | 34,990,146 | | |
Mortgage notes and revolving credit facility, net | | Mortgage notes and revolving credit facility, net | | $ | 680,798 | | | $ | 70,320 | |
Construction loans, net | | Construction loans, net | | 80,814 | | | 0 | |
Preferred stock, net | Preferred stock, net | | 18,525,195 | | | 809,478 | | Preferred stock, net | | 201,378 | | | 29,825 | |
Related party payables | | 319,756 | | | 287,561 | | |
Unsecured promissory notes, net | | Unsecured promissory notes, net | | 48,643 | | | 0 | |
Performance participation allocation due to affiliate | | Performance participation allocation due to affiliate | | 6,455 | | | 0 | |
Accounts payable, accrued expenses and other liabilities | Accounts payable, accrued expenses and other liabilities | | 3,923,465 | | | 992,689 | | Accounts payable, accrued expenses and other liabilities | | 51,496 | | | 2,577 | |
Total liabilities | Total liabilities | | 106,029,647 | | | 37,079,874 | | Total liabilities | | 1,069,584 | | | 102,722 | |
Commitments and contingencies (Note 11) | | |
Commitments and contingencies (Note 12) | | Commitments and contingencies (Note 12) | | 0 | | 0 |
Equity and noncontrolling interests | | Equity and noncontrolling interests | |
Stockholders' equity | Stockholders' equity | | Stockholders' equity | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 11,575,766 shares issued and outstanding at September 30, 2020; 8,851,759 shares issued and outstanding at December 31, 2019 | | 115,758 | | | 88,518 | | |
Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,662,358 shares issued and outstanding at June 30, 2021; 12,232,289 shares issued and outstanding at December 31, 2020 | | Common stock, $0.01 par value, 1,000,000,000 shares authorized; 12,662,358 shares issued and outstanding at June 30, 2021; 12,232,289 shares issued and outstanding at December 31, 2020 | | 126 | | | 122 | |
Additional paid-in capital | Additional paid-in capital | | 115,125,935 | | | 87,973,949 | | Additional paid-in capital | | 126,176 | | | 121,677 | |
Accumulated distributions | Accumulated distributions | | (6,275,555) | | | (2,369,592) | | Accumulated distributions | | (10,825) | | | (7,768) | |
Accumulated deficit | Accumulated deficit | | (10,152,671) | | | (3,396,403) | | Accumulated deficit | | (20,962) | | | (11,948) | |
Total stockholders' equity | Total stockholders' equity | | 98,813,467 | | | 82,296,472 | | Total stockholders' equity | | 94,515 | | | 102,083 | |
Total liabilities and stockholders' equity | | $ | 204,843,114 | | | $ | 119,376,346 | | |
Noncontrolling interests | | Noncontrolling interests | | | | |
Limited partners | | Limited partners | | 348,604 | | | 0 | |
Partially owned entities | | Partially owned entities | | 217,870 | | | 0 | |
Total noncontrolling interests | | Total noncontrolling interests | | 566,474 | | | 0 | |
Total equity and noncontrolling interests | | Total equity and noncontrolling interests | | 660,989 | | | 102,083 | |
Total liabilities, equity and noncontrolling interests | | Total liabilities, equity and noncontrolling interests | | $ | 1,730,573 | | | $ | 204,805 | |
| See accompanying notes to condensed consolidated financial statements | See accompanying notes to condensed consolidated financial statements | See accompanying notes to condensed consolidated financial statements |
| Cottonwood Communities, Inc. | Cottonwood Communities, Inc. | Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Operations | Condensed Consolidated Statements of Operations | Condensed Consolidated Statements of Operations |
(Unaudited) | (Unaudited) | (Unaudited) |
(in thousands, except share and per share data) | | (in thousands, except share and per share data) |
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | Three Months Ended June 30, | | Six Months Ended June 30, |
| | 2020 | | 2019 | | 2020 | | 2019 | | 2021 | | 2020 | | 2021 | | 2020 |
Revenues | Revenues | | | | | | | | Revenues | | | | | | | |
Rental and other property revenues | Rental and other property revenues | $ | 3,054,823 | | | $ | 1,180,972 | | | $ | 7,605,791 | | | $ | 1,548,514 | | Rental and other property revenues | $ | 16,843 | | | $ | 3,011 | | | $ | 20,015 | | | $ | 4,551 | |
Real estate note investment interest | 171,746 | | | 16,699 | | | 360,874 | | | 16,699 | | |
Property management revenues | | Property management revenues | 2,121 | | | 0 | | | 2,121 | | | 0 | |
Other revenues | | Other revenues | 277 | | | 118 | | | 523 | | | 189 | |
Total revenues | Total revenues | 3,226,569 | | | 1,197,671 | | | 7,966,665 | | | 1,565,213 | | Total revenues | 19,241 | | | 3,129 | | | 22,659 | | | 4,740 | |
Expenses | | | | | | | | |
Operating expenses | | Operating expenses | |
Property operations expense | Property operations expense | 1,358,507 | | | 661,181 | | | 3,282,037 | | | 883,822 | | Property operations expense | 6,804 | | | 1,268 | | | 8,152 | | | 1,924 | |
Reimbursable operating expenses to related parties | 263,915 | | | 148,906 | | | 732,998 | | | 399,391 | | |
Asset management fee to related party | 811,233 | | | 296,126 | | | 1,941,542 | | | 453,851 | | |
Property management expense | | Property management expense | 2,552 | | | 0 | | | 2,552 | | | 0 | |
Reimbursable operating expenses | | Reimbursable operating expenses | 74 | | | 233 | | | 331 | | | 469 | |
Asset management fee | | Asset management fee | 1,442 | | | 681 | | | 2,328 | | | 1,130 | |
Performance participation allocation | | Performance participation allocation | 6,455 | | | 0 | | | 6,455 | | | 0 | |
Depreciation and amortization | Depreciation and amortization | 2,295,445 | | | 1,270,577 | | | 5,629,247 | | | 1,716,528 | | Depreciation and amortization | 14,482 | | | 2,490 | | | 15,820 | | | 3,334 | |
General and administrative expenses | General and administrative expenses | 1,534,590 | | | 210,700 | | | 2,315,303 | | | 463,058 | | General and administrative expenses | 2,190 | | | 550 | | | 4,438 | | | 780 | |
Total operating expenses | Total operating expenses | 6,263,690 | | | 2,587,490 | | | 13,901,127 | | | 3,916,650 | | Total operating expenses | 33,999 | | | 5,222 | | | 40,076 | | | 7,637 | |
Other (expense) income | | | | | | | | |
Equity in earnings of unconsolidated real estate entities | 708,067 | | | 0 | | | 1,273,488 | | | 0 | | |
Loss from operations | | Loss from operations | (14,758) | | | (2,093) | | | (17,417) | | | (2,897) | |
Equity in earnings (losses) of unconsolidated real estate entities | | Equity in earnings (losses) of unconsolidated real estate entities | (652) | | | 325 | | | 299 | | | 565 | |
Interest income | Interest income | 6,887 | | | 137,543 | | | 196,821 | | | 299,574 | | Interest income | 136 | | | 5 | | | 137 | | | 190 | |
Interest expense | Interest expense | (1,045,464) | | | (388,186) | | | (2,480,448) | | | (522,822) | | Interest expense | (5,824) | | | (897) | | | (7,154) | | | (1,435) | |
Total other expense | (330,510) | | | (250,643) | | | (1,010,139) | | | (223,248) | | |
Total expenses before asset management fee waiver | (6,594,200) | | | (2,838,133) | | | (14,911,266) | | | (4,139,898) | | |
Asset management fee waived by Advisor | 48,543 | | | 310,484 | | | 188,333 | | | 310,484 | | |
Net expenses after asset management fee waiver | (6,545,657) | | | (2,527,649) | | | (14,722,933) | | | (3,829,414) | | |
Other (expense) income | | Other (expense) income | (302) | | | 12 | | | (275) | | | 140 | |
Net loss | Net loss | $ | (3,319,088) | | | $ | (1,329,978) | | | $ | (6,756,268) | | | $ | (2,264,201) | | Net loss | (21,400) | | | (2,648) | | | (24,410) | | | (3,437) | |
Net loss attributable to noncontrolling interests: | | Net loss attributable to noncontrolling interests: | |
Limited partners | | Limited partners | 12,783 | | | 0 | | | 12,783 | | | 0 | |
Partially owned entities | | Partially owned entities | 2,613 | | | 0 | | | 2,613 | | | 0 | |
Net loss attributable to common stockholders | | Net loss attributable to common stockholders | $ | (6,004) | | | $ | (2,648) | | | $ | (9,014) | | | $ | (3,437) | |
| Weighted-average shares outstanding | 11,225,384 | | | 6,091,617 | | | 10,412,719 | | | 3,613,382 | | |
Weighted-average common shares outstanding | | Weighted-average common shares outstanding | 12,492,221 | | | 10,520,556 | | | 12,362,973 | | | 10,001,922 | |
Net loss per common share - basic and diluted | Net loss per common share - basic and diluted | $ | (0.30) | | | $ | (0.22) | | | $ | (0.65) | | | $ | (0.63) | | Net loss per common share - basic and diluted | $ | (0.48) | | | $ | (0.25) | | | $ | (0.73) | | | $ | (0.34) | |
| See accompanying notes to condensed consolidated financial statements | See accompanying notes to condensed consolidated financial statements | See accompanying notes to condensed consolidated financial statements | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Stockholders' Equity |
(Unaudited) |
(in thousands, except share data) |
| | | | | | | | | | |
| Cottonwood Communities, Inc. Stockholders' Equity | | | Noncontrolling interests | |
| Common Stock | Additional Paid-In Capital | Accumulated Distributions | Accumulated Deficit | Total Stockholders' Equity | | Limited Partners | Partially Owned Entities | Total Equity and Noncontrolling Interests |
| Shares | Amount | |
Balance at January 1, 2021 | 12,232,289 | | $ | 122 | | $ | 121,677 | | $ | (7,768) | | $ | (11,948) | | $ | 102,083 | | | $ | — | | $ | — | | $ | 102,083 | |
Share-based compensation | — | | — | | 45 | | — | | — | | 45 | | | — | | — | | 45 | |
Distributions to investors | — | | — | | — | | (1,511) | | — | | (1,511) | | | — | | — | | (1,511) | |
Net loss | — | | — | | — | | — | | (3,010) | | (3,010) | | | — | | — | | (3,010) | |
Balance at March 31, 2021 | 12,232,289 | | 122 | | 121,722 | | (9,279) | | (14,958) | | 97,607 | | | — | | — | | 97,607 | |
CRII Merger | 430,070 | | 4 | | 4,654 | | — | | — | | 4,658 | | | 363,278 | | 221,656 | | 589,592 | |
Development contributions from noncontrolling interests | — | | — | | — | | — | | — | | — | | | — | | 83 | | 83 | |
Share-based compensation | — | | — | | — | | — | | — | | — | | | 421 | | — | | 421 | |
Other | — | | — | | (200) | | — | | — | | (200) | | | — | | — | | (200) | |
Distributions to investors | — | | — | | — | | (1,546) | | — | | (1,546) | | | (2,312) | | (1,256) | | (5,114) | |
Net loss | — | | — | | — | | — | | (6,004) | | (6,004) | | | (12,783) | | (2,613) | | (21,400) | |
Balance at June 30, 2021 | 12,662,359 | | $ | 126 | | $ | 126,176 | | $ | (10,825) | | $ | (20,962) | | $ | 94,515 | | | $ | 348,604 | | $ | 217,870 | | $ | 660,989 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Stockholders' Equity |
(Unaudited) |
| | | | | | | | | | | | |
| | Stockholders' Equity | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Distributions | | Accumulated Deficit | | Total Equity |
| | Shares | | Amount | | | | |
Balance at January 1, 2020 | | 8,851,759 | | | $ | 88,518 | | | $ | 87,973,949 | | | $ | (2,369,592) | | | $ | (3,396,403) | | | $ | 82,296,472 | |
Issuance of common stock | | 1,304,712 | | | 13,047 | | | 12,963,697 | | | — | | | — | | | 12,976,744 | |
Distributions to investors | | — | | | — | | | — | | | (1,183,119) | | | — | | | (1,183,119) | |
Net loss | | — | | | — | | | — | | | — | | | (790,050) | | | (790,050) | |
Balance at March 31, 2020 | | 10,156,471 | | | 101,565 | | | 100,937,646 | | | (3,552,711) | | | (4,186,453) | | | 93,300,047 | |
Issuance of common stock | | 709,841 | | | 7,098 | | | 7,042,267 | | | — | | | — | | | 7,049,365 | |
Share based compensation | | — | | | — | | | 27,000 | | | — | | | — | | | 27,000 | |
Distributions to investors | | — | | | — | | | — | | | (1,309,923) | | | — | | | (1,309,923) | |
Net loss | | — | | | — | | | — | | | — | | | (2,647,130) | | | (2,647,130) | |
Balance at June 30, 2020 | | 10,866,312 | | | 108,663 | | | 108,006,913 | | | (4,862,634) | | | (6,833,583) | | | 96,419,359 | |
Issuance of common stock | | 740,761 | | | 7,408 | | | 7,365,322 | | | — | | | — | | | 7,372,730 | |
Common stock repurchases | | (31,307) | | | (313) | | | (268,300) | | | — | | | — | | | (268,613) | |
Share based compensation | | — | | | — | | | 22,000 | | | — | | | — | | | 22,000 | |
Distributions to investors | | — | | | — | | | — | | | (1,412,921) | | | — | | | (1,412,921) | |
Net loss | | — | | | — | | | — | | | — | | | (3,319,088) | | | (3,319,088) | |
Balance at September 30, 2020 | | 11,575,766 | | | $ | 115,758 | | | $ | 115,125,935 | | | $ | (6,275,555) | | | $ | (10,152,671) | | | $ | 98,813,467 | |
| | | | | | | | | | | | |
| | Stockholders' Equity | | |
| | Common Stock | | Additional Paid-In Capital | | Accumulated Distributions | | Accumulated Deficit | | Total Equity |
| | Shares | | Amount | | | | |
Balance at January 1, 2019 | | 366,654 | | | $ | 3,667 | | | $ | 3,662,233 | | | $ | 0 | | | $ | (100,209) | | | $ | 3,565,691 | |
Issuance of common stock | | 1,523,319 | | | 15,233 | | | 15,186,682 | | | — | | | — | | | 15,201,915 | |
Distributions to investors | | — | | | — | | | — | | | (58,045) | | | — | | | (58,045) | |
Net loss | | — | | | — | | | — | | | — | | | (231,511) | | | (231,511) | |
Balance at March 31, 2019 | | 1,889,973 | | | 18,900 | | | 18,848,915 | | | (58,045) | | | (331,720) | | | 18,478,050 | |
Issuance of common stock | | 3,169,474 | | | 31,695 | | | 31,525,121 | | | — | | | — | | | 31,556,816 | |
Distributions to investors | | — | | | — | | | — | | | (537,172) | | | — | | | (537,172) | |
Net loss | | — | | | — | | | — | | | — | | | (702,712) | | | (702,712) | |
Balance at June 30, 2019 | | 5,059,447 | | | 50,595 | | | 50,374,036 | | | (595,217) | | | (1,034,432) | | | 48,794,982 | |
Issuance of common stock | | 2,030,747 | | | 20,307 | | | 20,110,906 | | | — | | | — | | | 20,131,213 | |
Distributions to investors | | — | | | — | | | — | | | (767,563) | | | — | | | (767,563) | |
Net loss | | — | | | — | | | — | | | — | | | (1,329,978) | | | (1,329,978) | |
Balance at September 30, 2019 | | 7,090,194 | | | $ | 70,902 | | | $ | 70,484,942 | | | $ | (1,362,780) | | | $ | (2,364,410) | | | $ | 66,828,654 | |
| | | | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements |
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| Cottonwood Communities, Inc. Stockholders' Equity | | | Noncontrolling interests | |
| Common Stock | Additional Paid-In Capital | Accumulated Distributions | Accumulated Deficit | Total Stockholders' Equity | | Limited Partners | Partially Owned Entities | Total Equity and Noncontrolling Interests |
| Shares | Amount | |
Balance at January 1, 2020 | 8,851,759 | | $ | 89 | | $ | 87,974 | | $ | (2,370) | | $ | (3,396) | | $ | 82,297 | | | $ | — | | $ | — | | $ | 82,297 | |
Issuance of common stock | 1,304,712 | | 13 | | 12,964 | | — | | — | | 12,977 | | | — | | — | | 12,977 | |
Distributions to investors | — | | —�� | | — | | (1,183) | | — | | (1,183) | | | — | | — | | (1,183) | |
Net loss | — | | — | | — | | — | | (790) | | (790) | | | — | | — | | (790) | |
Balance at March 31, 2020 | 10,156,471 | | 102 | | 100,938 | | (3,553) | | (4,186) | | 93,301 | | | — | | — | | 93,301 | |
Issuance of common stock | 709,841 | | 7 | | 7,042 | | — | | — | | 7,049 | | | — | | — | | 7,049 | |
Share-based compensation | — | | — | | 27 | | — | | — | | 27 | | | — | | — | | 27 | |
Distributions to investors | — | | — | | — | | (1,310) | | — | | (1,310) | | | — | | — | | (1,310) | |
Net loss | — | | — | | — | | — | | (2,648) | | (2,648) | | | — | | — | | (2,648) | |
Balance at June 30, 2020 | 10,866,312 | | $ | 109 | | $ | 108,007 | | $ | (4,863) | | $ | (6,834) | | $ | 96,419 | | | $ | — | | $ | — | | $ | 96,419 | |
| | | | | | | | | | |
See accompanying notes to condensed consolidated financial statements | | | | |
| | | | | | | | | | | | | | |
Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
| | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (6,756,268) | | | $ | (2,264,201) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 5,629,247 | | | 1,716,528 | |
Equity in earnings | | (1,273,488) | | | 0 | |
Amortization of real estate note investment issuance cost | | 36,547 | | | 0 | |
Amortization of debt issuance costs | | 154,606 | | | 35,570 | |
Noncash interest expense on preferred stock | | 270,216 | | | 0 | |
Share based compensation | | 49,000 | | | 0 | |
Changes in operating assets and liabilities: | | | | |
Related party receivables | | (61,109) | | | (312,846) | |
Other assets | | (311,215) | | | 1,413 | |
Related party payables | | 32,195 | | | 302,861 | |
Accounts payable, accrued expenses and other liabilities | | 2,405,626 | | | 713,126 | |
Net cash provided by operating activities | | 175,357 | | | 192,451 | |
Cash flows from investing activities: | | | | |
Acquisitions of real estate | | (53,904,597) | | | (31,171,298) | |
Capital improvements to real estate | | (164,178) | | | (73,186) | |
Investments in unconsolidated real estate entities | | (20,210,937) | | | 0 | |
Issuance of real estate note investment including issuance costs | | (4,773,861) | | | (1,119,994) | |
Net cash used in investing activities | | (79,053,573) | | | (32,364,478) | |
Cash flows from financing activities: | | | | |
Proceeds from line of credit | | 12,000,000 | | | 0 | |
Repayments of line of credit | | (13,500,000) | | | 0 | |
Proceeds from issuance of preferred stock, net of issuance costs | | 17,445,501 | | | 0 | |
Proceeds from issuance of common stock | | 26,512,608 | | | 66,377,134 | |
Common stock repurchases | | (268,613) | | | 0 | |
Distributions to common stockholders | | (2,997,008) | | | (874,358) | |
Net cash provided by financing activities | | 39,192,488 | | | 65,502,776 | |
Net (decrease) increase in cash and cash equivalents and restricted cash | | (39,685,728) | | | 33,330,749 | |
Cash and cash equivalents and restricted cash, beginning of period | | 47,741,994 | | | 3,406,175 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 8,056,266 | | | $ | 36,736,924 | |
| | | | |
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: | | | | |
Cash and cash equivalents | | $ | 7,775,107 | | | $ | 36,549,491 | |
Restricted cash | | 281,159 | | | 187,433 | |
Total cash and cash equivalents and restricted cash | | $ | 8,056,266 | | | $ | 36,736,924 | |
| | | | |
Supplemental disclosure of non-cash investing and financing activities: | | | | |
Credit facilities entered into in conjunction with acquisition of real estate | | $ | 49,616,479 | | | $ | 35,995,000 | |
| | | | |
See accompanying notes to condensed consolidated financial statements |
| | | | | | | | | | | | | | |
Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Cash Flows |
(Unaudited) |
(in thousands) |
| | | | |
| | Six Months Ended June 30, |
| | 2021 | | 2020 |
Cash flows from operating activities: | | | | |
Net loss | | $ | (24,410) | | | $ | (3,437) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 15,820 | | | 3,334 | |
Share-based compensation | | 466 | | | 27 | |
Other operating | | 697 | | | 257 | |
Equity in earnings of unconsolidated real estate entities | | (299) | | | (565) | |
Distributions from unconsolidated real estate entities - return on capital | | 800 | | | 0 | |
Changes in operating assets and liabilities: | | | | |
Other assets | | (1,225) | | | (344) | |
Performance participation allocation | | 6,455 | | | 0 | |
Accounts payable, accrued expenses and other liabilities | | 7,503 | | | 1,268 | |
Net cash provided by operating activities | | 5,807 | | | 540 | |
Cash flows from investing activities: | | | | |
Cash, cash equivalents and restricted cash acquired in connection with the CRII Merger | | 51,943 | | | 0 | |
Acquisition of real estate | | 0 | | | (53,905) | |
Capital expenditures and development activities | | (22,322) | | | (57) | |
Investments in unconsolidated real estate entities | | (11,262) | | | (5,211) | |
Contributions to investments in real-estate related loans | | (6,319) | | | (3,286) | |
Proceeds from settlement of investments in real-estate related loans | | 9,332 | | | 0 | |
Other investing activities | | 178 | | | 0 | |
Net cash provided by (used in) investing activities | | 21,550 | | | (62,459) | |
Cash flows from financing activities: | | | | |
Principal payments on mortgage notes | | (78) | | | 0 | |
Proceeds from revolving credit facility | | 3,500 | | | 12,000 | |
Repayments on revolving credit facility | | (15,000) | | | (4,500) | |
Proceeds from construction loans | | 16,700 | | | 0 | |
Proceeds from issuance of Series 2019 Preferred Stock, net of issuance costs | | 27,264 | | | 11,483 | |
Repurchases of preferred stock | | (623) | | | 0 | |
Proceeds from issuance of common stock | | 0 | | | 19,858 | |
Distributions to common stockholders | | (3,049) | | | (1,906) | |
Distributions to noncontrolling interests - limited partners | | (2,156) | | | 0 | |
Distributions to noncontrolling interests - partially owned entities | | (1,265) | | | 0 | |
Net cash provided by financing activities | | 25,293 | | | 36,935 | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | 52,650 | | | (24,984) | |
Cash and cash equivalents and restricted cash, beginning of period | | 4,633 | | | 47,742 | |
Cash and cash equivalents and restricted cash, end of period | | $ | 57,283 | | | $ | 22,758 | |
| | | | |
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: | | | | |
Cash and cash equivalents | | $ | 37,507 | | | $ | 22,486 | |
Restricted cash | | 19,776 | | | 272 | |
Total cash and cash equivalents and restricted cash | | $ | 57,283 | | | $ | 22,758 | |
| | | | | | | | | | | | | | |
Cottonwood Communities, Inc. |
Condensed Consolidated Statements of Cash Flows (Continued) |
(Unaudited) |
(in thousands) |
| | Six Months Ended June 30, |
Supplemental disclosure of non-cash investing and financing activities: | | 2021 | | 2020 |
Fair value of assets acquired and liabilities assumed with the CRII Merger: | | | | |
Real estate assets | | $ | 1,296,241 | | | $ | 0 | |
Investments in unconsolidated real estate entities | | $ | 118,829 | | | $ | 0 | |
Intangibles | | $ | 32,122 | | | $ | 0 | |
Debt | | $ | 734,852 | | | $ | 0 | |
Preferred stock | | $ | 143,979 | | | $ | 0 | |
Other assets acquired | | $ | 62,166 | | | $ | 0 | |
Other liabilities assumed | | $ | 40,934 | | | $ | 0 | |
Fair value of equity issued to CRII Shareholders in the CRII Merger | | $ | 4,658 | | | $ | 0 | |
Fair value of noncontrolling interests from the CRII Merger | | $ | 584,934 | | | $ | 0 | |
Credit facility entered into in conjunction with acquisition of real estate | | $ | 0 | | | $ | 49,616 | |
| | | | |
See accompanying notes to condensed consolidated financial statements |
Cottonwood Communities, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1.Organization and Business
Cottonwood Communities, Inc. ("CCI") is a Maryland corporation formed to invest in multifamily apartment communities and real estate relatedestate-related assets located throughout the United States. The Company elected to be taxed as a real estate investment trust or REIT beginning with the taxable year ending December 31, 2019. The CompanyOperating Partnership, together with its subsidiaries, holds the Company's real estate interests and conducts its business through its operating partnership,the ongoing operations of the Company. Our Operating Partnership was Cottonwood Communities O.P., LP (the “Operating Partnership”("CCOP"). Unless prior to the CRII Merger and is Cottonwood Residential O.P., LP ("CROP") after the CRII Merger. The CRII Merger is defined and described in more detail below. CCI is the sole member of the general partner of the Operating Partnership, and owns general partners interests in our Operating Partnership alongside third party limited partners. As used herein, the term “Company”, “we”, “our” or “us” includes CRII, our Operating Partnership and its subsidiaries, unless the context indicates otherwise, the “Company,” “we,” “our” or “us” refers to Cottonwood Communities, Inc. and its consolidated subsidiaries, including the Operating Partnership.otherwise.
We are externally managed and have 0 employees. CC Advisors III, LLC ("CCA III") manages our business as our external advisor and, as of the CRII Merger described below, is our advisor. Cottonwood Communities Management, LLC isthe Special Limited Partner owning a special partner interest in CROP. Following the CRII Merger, we became the property manager for our stabilized multifamily apartment communities.
We are offering $750,000,000have registered $750.0 million in shares of common stock in an initial public offering (the “Offering”"Offering"), made upconsisting of $675,000,000$675.0 million in shares throughof common stock offered in our primary offering and $75,000,000$75.0 million in shares of common stock through our distribution reinvestment plan (the "DRP Program”Offering”) at a purchase price. The Offering commenced in August 2018 and was suspended in December 2020 while CCI pursued the mergers described below. Prior to the suspension, 2 classes of $10.00 per share (with discountscommon stock were available to certain categories of purchaserspurchase in the primary offering) in both offerings. Our common stock has 2 classes,Offering, Class A and Class T. TheTX (previously designated Class T). These share classes have ahad different selling commission structure; however, these offering-relatedunderwriting compensation expenses are beingthat were paid on our behalf by our advisor.Advisor. We are offeringhave filed a post-effective amendment to sell any combinationthe Registration Statement for the Offering to register and offer three new classes of Class A and Class Tshares of common stock in the primary offering, Class T, Class D and Class I, and all five classes in the DRP Offering. Underwriting compensation expenses for the Offering with a dollar value up toof the maximum offering amount.new classes will effectively be paid by purchasers of the new classes or borne by us.
WeOn August 12, 2021, we filed a registration statement to register $1.0 billion in shares of common stock in a follow-on offering, consisting of $900.0 million in shares of common stock offered in a primary offering and $100.0 million in shares of common stock through the DRP Offering.
On November 8, 2019, we launched a private placement offering exempt from registration under the Securities Act (the "Private Offering") pursuant to which we are also offering a maximum of $50,000,000$100.0 million in shares of Series 2019 Preferred Stock to accredited investors at a purchase price of $10.00 per share in a private offering (the "Private Offering").share. Offering-related expenses in the Private Offering are paid from offering proceeds.
We own and operate a diverse portfolio of investments in multifamily apartment communities located in targeted markets throughout the United States. As of June 30, 2021, we owned interests in 29 multifamily apartment communities with a total of 8,373 units, which includes 1,079 units in 4 multifamily apartment communities under construction. In addition, we had preferred equity investments in 3 multifamily apartment developments totaling 1,073 units, a mezzanine loan in 1 multifamily apartment development, 2 parcels of land held for development as well as various smaller real estate investments. We also manage 20 properties for third parties, bringing the total number of multifamily apartment communities which we own interests in, invest, or manage to 55, representing 15,365 units in 13 states.
Merger with Cottonwood Residential II, Inc. and Cottonwood Residential O.P., LP
On May 7, 2021, we completed our merger with Cottonwood Residential II, Inc. ("CRII") (the "CRII Company Merger"), and the merger of CCOP with and into CROP (the “CROP Merger,” and together with the CRII Company Merger, the "CRII Merger") through a stock-for-stock and unit-for-unit transaction provided for pursuant to the Agreement and Plan of Merger dated January 26, 2021 by us.and among us, CCOP, Cottonwood Communities GP Subsidiary, LLC ("Merger Sub"), CRII and CROP.
At September 30, 2020,the effective time of the CRII Merger, each issued and outstanding share of CRII’s common stock (the “CRII Common Stock”) converted into 2.015 shares of shares of our Class A common stock, each issued and outstanding share of Series 2016 preferred stock of CRII converted into 1 share of our newly designated Series 2016 preferred stock, and each issued and outstanding share of Series 2017 preferred stock of CRII converted into 1 share of our newly designated Series 2017 preferred stock.
At the effective time of the CROP Merger, each participating partnership unit of CROP (i.e., all CROP partnership units other than preferred units) issued and outstanding immediately prior to the CROP Merger split into 2.015 participating partnership units of CROP (the “CROP Unit Split”), whereupon (i) each issued and outstanding Series 2019 preferred unit of CCOP ("CCOP Series 2019 Preferred Stock") converted into 1 Series 2019 preferred unit of CROP, the terms of which mirrored the CCOP Series 2019 Preferred Stock, (ii) each issued and outstanding LTIP Unit of CCOP (the “CCOP LTIP Units”) was converted into the right to receive 1 LTIP Unit of CROP, the terms and conditions of which mirrored the CCOP LTIP Units, (iii) each issued and outstanding Special LTIP Unit of CCOP (the “CCOP Special LTIP Units”) converted into the right to receive 1 Special LTIP Unit of CROP, the terms and conditions of which mirrored the CCOP Special LTIP Units, and (iv) except as set forth above, each issued and outstanding general partner unit of CCOP and CCOP Common Unit converted into the right to receive 1 common limited partner unit of CROP (“CROP Common Unit”). After giving effect to the CROP Unit Split, each CROP Common Unit, general partner unit and LTIP unit issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding, and each CROP preferred unit issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding and continues to be held by the general partner, Merger Sub.
Upon consummation of the CRII Merger, the separate existence of CRII and CCOP ceased. The CRII Merger was intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.
As a result of the CRII Merger, we owned 2 multifamily apartment communities, 1acquired CRII’s property management business and its employees as well as the personnel who historically performed certain administrative and other services for us on behalf of CCA III, including legal, accounting, property development oversight and certain services relating to construction management, shareholder relations, human resources, renter insurance and information technology. As a result, we manage approximately 13,000 units in West Palm Beach, Floridastabilized assets, including approximately 7,300 for Cottonwood affiliates (including us), and the second in the Greater Boston, Massachusetts area; have issued a B Note secured by a deed of trust on a multifamily341 unit development project in Allen, Texas; have made 2 preferred equity investments in multifamily development projects, 1 in Ybor City, Floridathe lease up stage. We also directly employ the individuals that perform the foregoing administrative services. CCA III continues to manage our operations as our external advisor pursuant to an amended and the second in the Astoria neighborhood of Queens, New York; and have entered into an agreement to provide a preferred equity investment for a multifamily development project in Denver, Colorado.restated advisory agreement.
COVID-19 PandemicMuch of the historical information regarding our structure and agreements presented throughout these condensed consolidated financial statements changed materially as a result of the CRII Merger on May 7, 2021.
OneChange in Sponsor
Immediately prior to the consummation of the most significant risksCRII Merger, CRII and uncertainties facingits affiliates completed certain transactions to restructure the real estate industry generally continuesownership of CCA III such that our sponsor changed from CRII to beCottonwood Communities Advisors, LLC, the effectsole owner of CCA III.
CMRI Merger and CMRII Merger
In addition to the CRII Merger that closed on May 7, 2021, on January 26, 2021, we entered into separate merger agreements to acquire each of Cottonwood Multifamily REIT I, Inc. ("CMRI") ("CMRI Merger") and Cottonwood Multifamily REIT II, Inc. ("CMRII") ("CMRII Merger") in stock-for-stock transactions. Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the ongoing public health crisisInternal Revenue Code of 1986, as amended. The CMRI Merger and CMRII Merger both closed on July 15, 2021. Each asset held by CMRI and CMRII were owned through joint ventures with CROP. As a result of the novel coronavirus disease (COVID-19) pandemic. During the nine months ended September 30, 2020, we did not experience significant disruptions in our operations from the COVID-19 pandemic; however we continue to closely monitor the impactconsummation of the COVID-19 pandemicCMRI Merger and the CMRII Merger, our ownership interest in the properties held through joint ventures with CROP increased to 100% on all aspects of our business, including how the pandemic will impact our tenants and multifamily communities.July 15, 2021.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The condensed consolidated financial statements, including the condensed notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. The condensed consolidated balance sheet as of December 31, 20192020 has been derived from the Company’s audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the period ending December 31, 20192020 filed with the SEC.
The accompanying condensed consolidated financial statements include the accounts of the Company and its subsidiaries for which we have a controlling interest. All intercompany balances and transactions have been eliminated in consolidation.
5Some of our partially owned and unconsolidated properties are owned through a tenant in common (“TIC interest”) structure. TIC interests constitute separate and undivided interests in real property. TIC interests in properties for which we exercise significant influence are accounted for using the equity method of accounting until we have acquired a 100% interest in the property.
Certain amounts in the prior year condensed consolidated financial statements and notes to the condensed consolidated financial statements have been reclassified to conform to the current year presentation. Such reclassifications did not impact previously reported net loss or accumulated deficit or change net cash provided by or used in operating, investing or financing activities.
Business Combinations
We account for business combinations by recognizing assets acquired and liabilities assumed at their fair values as of Contents
the acquisition date and expensing transaction costs. Differences between the transaction price and the fair value of identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, are accounted for as goodwill, or conversely, as a gain on bargain purchase. Transaction costs are included within general and administrative expenses on our condensed consolidated statements of operations as incurred.
Organization and Offering Costs
All organization and offering costs in connection with the offeringdistribution of our common stock are paid byClass A and Class TX shares in the primary portion of the Offering were the obligation of our advisor. We willdid not incur any liability for or reimburse our advisor for any of these organizational and offering costs. As of September 30, 2020, our advisor incurred approximately $13,341,000 in organizationalcosts, which totaled $14.1 million. Organization and offering costs fromin connection with the issuancedistribution of common stock.our Class T, Class D and Class I shares will be paid by purchasers of the shares or borne by us.
Other Assets
Other assets consist primarily of intangible assets acquired in connection with the CRII Merger, as well as receivables, deferred tax assets, prepaid expenses, equipment, related party notes, related party receivables and other assets.
Unsecured Promissory Notes
The 2017 and 2019 6% Notes and 2017 6.25% Notes are unsecured notes issued to investors outside of the United States. These unsecured promissory notes are described in Note 6. These instruments are similar in nature, have fixed interest rates and maturity dates, and are denominated in U.S. dollars. Noncontrolling Interests
The portion of ownership interests in consolidated entities not held by CCI are reported as noncontrolling interests. Equity and net income (loss) attributable to CCI and to noncontrolling interests are presented separately on the consolidated financial statements. Changes in noncontrolling ownership interests are accounted for as equity transactions.
Noncontrolling interest – limited partners – These noncontrolling interests represent ownership interest in CROP ("OP Units") not held by CCI, the general partner. Net income or loss is allocated to these limited partners of CROP based on their ownership percentage. Issuance of additional Common Stock or OP Units to limited partners changes the ownership interests of both CCI and the limited partners of CROP.
Consistent with the 1-for-one relationship between the OP Units issued to CCI, limited partners are attributed a share of net income or loss in CROP based on their weighted-average ownership interest in CROP during the period.
Noncontrolling interest – partially owned entities – These noncontrolling interests represent ownership interests that are not held by us in consolidated entities. Net income (loss) is allocated to noncontrolling interests in partially owned entities based on ownership percentage in those entities.
Refer to Note 11 for more information on our noncontrolling interests.
3. Real Estate Assets, Net
The following table summarizes the carrying amounts of our consolidated real estate assets:assets (in thousands):
| | | September 30, 2020 | | December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
Building and building improvements | $ | 134,776,296 | | | $ | 52,466,583 | | |
Land and land improvements | 28,182,025 | | | 10,658,155 | | |
Land | | Land | $ | 166,059 | | | $ | 23,894 | |
Buildings and improvements | | Buildings and improvements | 1,088,117 | | | 139,110 | |
Furniture, fixtures and equipment | Furniture, fixtures and equipment | 3,983,344 | | | 2,015,778 | | Furniture, fixtures and equipment | 1,581 | | | 3,983 | |
Intangible assets | Intangible assets | 3,808,756 | | | 1,503,325 | | Intangible assets | 37,027 | | | 3,809 | |
Construction in progress (1) | | Construction in progress (1) | 196,733 | | | 0 | |
| | 170,750,421 | | | 66,643,841 | | | 1,489,517 | | | 170,796 | |
Less: Accumulated depreciation and amortization | Less: Accumulated depreciation and amortization | (8,367,437) | | | (2,738,190) | | Less: Accumulated depreciation and amortization | (25,086) | | | (9,704) | |
Real estate assets, net | Real estate assets, net | $ | 162,382,984 | | | $ | 63,905,651 | | Real estate assets, net | $ | 1,464,431 | | | $ | 161,092 | |
| (1) Includes construction in progress for our development projects and capitalized costs for improvements not yet placed in service at our stabilized properties. | | (1) Includes construction in progress for our development projects and capitalized costs for improvements not yet placed in service at our stabilized properties. |
CRII Merger
On May 7, 2021, we completed the CRII Merger, which was accounted for as a business combination in accordance with ASC 805, Business Combinations ("ASC 805"). Based on an evaluation of the relevant factors and the guidance in ASC 805, Cottonwood Communities Inc. was determined to be both the legal and accounting acquirer. In order to make this consideration, various factors have been analyzed including which entity issued its equity interests, relative voting rights, existence of noncontrolling interests, control of the board of directors, management composition, relative size, transaction initiation, operational structure, relative composition of employees, and other factors. The most significant factor identified was the relative voting rights, as CCI shareholders hold the majority of the controlling financial (voting) interests. CCI also initiated the transaction and was the entity issuing common equity interests in the merger.
The consideration given in exchange for CRII (in thousands, except share and unit data) is as follows:
| | | | | |
CRII Common stock issued and outstanding | 213,434 | |
Exchange ratio | 2.015 | |
CCI common stock issued as consideration | 430,070 | |
CCI's estimated value per share as of May 7, 2021 | $ | 10.83 | |
Value of CCI common stock issued as consideration | $ | 4,658 | |
The allocation of the purchase price below requires significant judgment and represents management's best estimate of the fair value as of the acquisition date. Under ASC 805 we are allowed a measurement period to complete the accounting for the CRII Merger and to make adjustments if necessary. The following table shows the preliminary purchase price allocation of CRII's identifiable asset and liabilities assumed as of May 7, 2021 (in thousands):
| | | | | |
Assets | |
Real estate assets (1) | $ | 1,296,241 | |
Investments in unconsolidated real estate entities | 118,829 | |
Cash and cash equivalents | 31,799 | |
Restricted cash | 20,144 | |
Other assets (2) | 42,345 | |
Total assets acquired | $ | 1,509,358 | |
| |
Liabilities | |
Mortgage notes, net | $ | 622,095 | |
Construction loans | 64,114 | |
Preferred stock | 143,979 | |
Unsecured promissory notes | 48,643 | |
Accounts payable, accrued expenses and other liabilities | 40,934 | |
Total liabilities assumed | 919,765 | |
Consolidated net assets acquired | 589,593 | |
Noncontrolling interests (3) | (584,934) | |
Net assets acquired | $ | 4,658 | |
|
(1) Real estate assets acquired in connection with the CRII Merger include $33.2 million of intangible lease assets, which have a weighted-average amortization period of 0.5 years. |
(2) Other assets includes $32.1 million of intangible assets from the CRII Merger. Of this amount, $8.0 million relates to a promote asset which was removed upon the closing of the CMRI and CMR II Mergers on July 15, 2021. The remaining $24.1 million of intangible assets have a weighted-average amortization period of 8.8 years, and include $22.2 million related to the acquisition of CRII's property management and ancillary businesses (with a weighted-average amortization period of 9.2 years) and $1.9 million related to acquired disposition fees on certain properties and promotes on development assets (with a weighted-average amortization period of 3.8 years). |
(3) The fair value of noncontrolling interests is based on the fair value of assets and liabilities held by the noncontrolling interests at their ownership share. These values were determined using methods similar to those used by independent appraisers, and include using replacement cost estimates less depreciation, discounted cash flows, market comparisons, and direct capitalization of net operating income. |
As a result of the CRII Merger we consolidated 17 multifamily apartment communities and 4 development properties as well as added 6 multifamily apartment communities accounted for under the equity method of accounting.
The revenue and net loss generated from the assets acquired and liabilities assumed with the CRII Merger since the May 7, 2021 acquisition date to June 30, 2021 are as follows (in thousands):
| | | | | |
Revenue | $ | 16,252 | |
Net loss | $ | (9,372) | |
Pro Forma Financial Information (unaudited)
The following condensed pro forma operating information is presented as if the CRII Merger occurred in 2020 and had been included in operations as of January 1, 2020. The pro forma operating information excludes certain nonrecurring adjustments, such as acquisition fees and expenses incurred, to reflect the pro forma impact the acquisition would have on earnings on a continuous basis (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Pro forma revenue: | | | | | | | |
Historic results | $ | 19,241 | | | $ | 3,129 | | | $ | 22,659 | | | $ | 4,740 | |
CRII Merger (excluding those in historic results) | 11,510 | | | 21,377 | | | 36,657 | | | 43,545 | |
Total | $ | 30,751 | | | $ | 24,506 | | | $ | 59,316 | | | $ | 48,285 | |
| | | | | | | |
Pro forma net loss: | | | | | | | |
Historic results | $ | (21,400) | | | $ | (2,648) | | | $ | (24,410) | | | $ | (3,437) | |
CRII Merger (excluding those in historic results) | (5,341) | | | (22,412) | | | (13,300) | | | (49,641) | |
Total | $ | (26,741) | | | $ | (25,060) | | | $ | (37,710) | | | $ | (53,078) | |
The pro forma information is not necessarily indicative of the results which actually would have occurred if the business combination had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods. Pro forma net losses for the three and six months ended June 30, 2020 include the amortization of $33.2 million of intangible lease assets, which have a weighted-average amortization period of 0.5 years.
Asset acquisition
During the six months ended June 30, 2021, there were no asset acquisitions of consolidated real estate assets in 2021.
On March 19, 2020, we acquired Cottonwood One Upland, a multifamily apartment community in the Greater Boston area for $103,600,000,$103.6 million, excluding closing costs. We funded the purchase with an initial draw of $50,000,000$50.0 million from our $67,600,000$67.6 million credit facility with JP Morgan and proceeds from our offerings. Acquired assets and liabilities were recorded at relative fair value as an asset acquisition.
The following table summarizes the purchase price allocation of the real estate assets acquiredCottonwood One Upland during the ninesix months ended SeptemberJune 30, 2020:2020 (in thousands):
| | | Allocated Amounts | | Allocated Amounts |
Property | Property | Building | Land | Land Improvements | Personal Property | Intangible | Total | Property | Building | Land | Land Improvements | Personal Property | Intangible | Total |
Cottonwood One Upland | Cottonwood One Upland | $ | 82,145,536 | | $ | 14,514,535 | | $ | 3,009,335 | | $ | 1,967,566 | | $ | 2,305,430 | | $ | 103,942,402 | | Cottonwood One Upland | $ | 82,146 | | $ | 14,515 | | $ | 3,009 | | $ | 1,967 | | $ | 2,305 | | $ | 103,942 | |
The weighted-average amortization period for the intangible lease assets acquired in connection with the Cottonwood One Upland acquisition was 0.5 years.
4. Investments in Unconsolidated Real Estate Entities
Lector85 InvestmentOur investments in unconsolidated real estate entities consist of ownership interests in stabilized properties and preferred equity investments in development projects.
DuringStabilized Properties
Our investments in stabilized properties and related activity is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Property | Location | % Owned | May 7, 2021 Purchase Date Value | Investment | Equity in Earnings (Losses) | Distributions | Balance at June 30, 2021 |
Stabilized Assets | | | | | | | |
3800 Main | Houston, TX | 50.0% | $ | 11,239 | | $ | 0 | | $ | (395) | | $ | 0 | | $ | 10,844 | |
Cottonwood Bayview | St. Petersburg, FL | 71.0% | 34,401 | | 0 | | (528) | | (140) | | 33,733 | |
Cottonwood Ridgeview | Plano, TX | 90.5% | 36,260 | | 0 | | (530) | | 0 | | 35,730 | |
Fox Point | Salt Lake City, UT | 52.8% | 18,668 | | 0 | | (316) | | (374) | | 17,978 | |
Toscana at Valley Ridge | Lewisville, TX | 58.6% | 11,017 | | 0 | | (181) | | (64) | | 10,772 | |
Melrose Phase II | Nashville, TN | 24.9% | 4,823 | | 498 | | (64) | | (222) | | 5,035 | |
Other | | | 2,421 | | 0 | | (26) | | 0 | | 2,395 | |
Total | | | $ | 118,829 | | $ | 498 | | $ | (2,040) | | $ | (800) | | $ | 116,487 | |
Preferred Equity Investments
Our preferred equity investments consist of the nine months ended September 30, 2020, we contributed $5,210,937 to our joint venture with Milhaus, LLC for the development of Lector85, a 254-unit multifamily projectfollowing ($ in Ybor City, Florida. This constituted the remaining amount of our $9,900,000 commitment. During the threethousands):
| | | | | | | | | | | | | | | | | | | | | | | |
Development | Location | Units | Commitment Date | Preferred Return | Total Commitment | Amount Funded to Date |
Lector85 | Ybor City, FL | 254 | 08/15/2019 | 13 | % | (1) | $ | 9,900 | | $ | 9,900 | |
Vernon Boulevard | Queens, NY | 534 | 07/23/2020 | 13 | % | (2) | 15,000 | | 15,000 | |
Riverfront | West Sacramento, CA | 285 | 11/30/2020 | 16 | % | | 15,092 | | 13,444 | |
Total | | | | | | $ | 39,992 | | $ | 38,344 | |
| | | | | | | |
(1) Will be reduced to 10% annually upon the later to occur of (i) stabilization of the development project or (ii) the one-year anniversary of the receipt of all temporary certificates of occupancy subject to certain financial conditions being satisfied. |
(2) In addition to the preferred return, we receive a profit participation upon a liquidity event, pari passu alongside the preferred equity contribution from the Preferred Co-Investor. |
The preferred equity investments have liquidation rights and nine months ended September 30, 2020, we recordedpriorities that are different from ownership percentages. As such, equity in earnings of $328,900 and $894,321, respectively, from the Lector85 Investment underis determined using the hypothetical liquidation book value ("HLBV") method. Activity for the six months ended June 30, 2021 is as follows (in thousands):
| | | | | | | | | | | | | | |
Development | Balance at December 31, 2020 | Contributions | Equity in Earnings | Balance at June 30, 2021 |
Lector85 | $ | 11,396 | | 0 | | $ | 805 | | $ | 12,201 | |
Vernon Boulevard | 15,886 | | 0 | | 1,052 | | 16,938 | |
Riverfront | 2,718 | | 10,764 | | 482 | | 13,964 | |
Total | $ | 30,000 | | $ | 10,764 | | $ | 2,339 | | $ | 43,103 | |
Vernon Boulevard InvestmentActivity during the six months ended June 30, 2020 is as follows (in thousands):
On July 24, 2020, we and a publicly-traded multifamily REIT (the “Preferred Co-Investor”) made a preferred equity investment in an entity that is developing a 3-building multifamily apartment community in the Astoria neighborhood of Queens, New York (the “Project”). Our preferred contribution was $15,000,000 (the “Vernon Boulevard Investment”). The Preferred Co-Investor contributed $40,000,000. In connection with our investment, we entered a joint venture agreement with the Preferred Co-Investor as well as an entity owned by a New York-based real estate development, investment and management firm (the “Developer”) and a foreign fund. The Developer contributed approximately $62,000,000 in common equity and is the manager of the joint venture. | | | | | | | | | | | | | | |
Development | Balance at December 31, 2019 | Contributions | Equity in Earnings | Balance at June 30, 2020 |
Lector85 | $ | 4,962 | | $ | 5,211 | | $ | 565 | | $ | 10,738 | |
Pursuant to the terms of the joint venture agreement, the Vernon Boulevard Investment has a preferred return of 13% per annum and receives a profit participation upon a liquidity event, pari passu alongside the preferred equity contribution from the Preferred Co-Investor. Decisions of the members require approval of a majority5. Investments in interest of the preferred equity holders and a majority in interest of the common holders. The Vernon Boulevard Investment has an expected redemption of July 2025 and is senior to the common equity. Additional funding for the Project will come from a $225,000,000 construction loan. The total development cost is estimated to be $342,000,000.Real-Estate Related Loans
The $15,000,000 investment constitutes the full amount of our commitment. During the three and nine months ended September 30, 2020, we recorded equity in earnings of $379,167 from the Vernon Boulevard Investment under the hypothetical liquidation book value method.
5. Real EstateDolce B Note Investment
During the three and ninesix months ended SeptemberJune 30, 2020,2021, we issued approximately $1,488,000$310,000 and $4,942,000,$1.1 million, respectively, of our $10,000,000$10.0 million B noteNote with the developer of Dolce Twin Creeks, Phase II, a 366-unit multifamily project in Allen Texas, bringing the total amount issuedfunded to approximately $6,736,000.$9.3 million.
Net interest income from the Dolce B Note was $171,746approximately $80,000 and $360,874$326,000 for the three and ninesix months ended SeptemberJune 30, 2021, respectively. Net interest income from the Dolce B Note was approximately $117,000 and $189,000 for the three and six months ended June 30, 2020, respectively. NoNaN allowance was recorded on the Dolce B Note during this period.
6. Credit Facilities
We have a credit facility agreement with Berkadia Commercial Mortgage, LLC (the "Berkadia Credit Facility"), for which we have an advance of $35,995,000 secured by Cottonwood West Palm. The advance is interest-only until maturity and bears a fixed interest rate of 3.93%. The advance matures on Maythe periods ended June 30, 2029 and can be prepaid subject to certain fees and conditions.There is no limit on the amount that we can draw on the Berkadia Credit Facility so long as we maintain the loan-to-value ratio and other requirements set forth in the loan documents.2021 or 2020.
On March 19, 2020,May 7, 2021, the borrower of the Dolce B Note prepaid in conjunction withfull the acquisitionoutstanding principal balance plus accrued interest as a result of Cottonwood One Upland,refinancing the project upon completion.
Integra Peaks Mezzanine Loan
On June 30, 2021, we entered into a secured revolving credit facilityco-lender agreement with J.P. Morgan Chase Bank, N.A.,to participate in a $19.5 million mezzanine loan originated for the purpose of developing a 300-unit multifamily apartment community located in Reno, Nevada. The project will consist of five 4-story elevator serviced garden-style apartments situated on a 12.1 acre site. The borrower, an unaffiliated lender (the “JP Morgan Credit Facility”). third party, will use the mezzanine loan proceeds, along with $14.1 million in common equity and $42.5 million in construction loan proceeds to complete the project.
Pursuant to the terms of the JP Morgan Credit Facility,co-lender agreement, we've committed to fund a total of $13.0 million of the mezzanine loan, with the remaining $6.5 million funded by our co-lender (an unaffiliated third party). Generally, we may obtain advances secured against Cottonwood One Upland upand our co-lender participate on parity with respect to the amountdraw requests, interest and priority in repayment at maturity. The mezzanine loan bears interest at a rate of $67,600,000,12.0% per annum, compounded monthly, and, subject to certain debt service coverage ratio requirements. Upon the closing of Cottonwood One Upland, our initial advance was $50,000,000. During the three months ended September 30, 2020, our total borrowings on this credit facility decreased to $48,500,000.limitations and fees, may be prepaid in whole or in part.
As of June 30, 2021, the borrower had funded its entire common equity commitment and we had funded approximately $5.2 million of our commitment under the co-lender agreement. The JP Morgan Credit Facilityundrawn mezzanine loan proceeds are expected to be fully drawn by the end of 2021, at which point the borrower will commence draws on the construction loan. The mezzanine loan has an initialoriginal maturity date of March 19, 202330, 2024 with the option to extend for 2 one-year periods subject to the satisfaction of certain conditions set forth in the loan agreement. The advances carry an interest-only term and bear floating interest rates of 1-month LIBOR plus a spread ranging from 1.50% to 1.75%, depending on certain debt yield metrics set forth in the loan agreement and as evidenced by a promissory note. We have the right to prepay all or a portion of the JP Morgan Credit Facility at any time subject to certain conditions contained in the loan documents.
We may finance other future acquisitions through the JP Morgan Credit Facility. The aggregate loan-to-value ratio for all advances made with respect to the JP Morgan Credit Facility cannot exceed 65% at the time any advance is made. The limit on the amount that we can borrow under the JP Morgan Credit Facility is $125,000,000 so long as we maintain the loan-to-value and debt coverage ratios, and other requirements set forth in the JP Morgan Credit Facility loan documents. Each advance will be cross-collateralized with the other advances. The JP Morgan Credit Facility permits us to sell the multifamily apartment communities that are secured by the JP Morgan Credit Facility individually provided that certain loan-to-value and debt coverage ratios, and other requirements, are met.
We werein compliance with all covenants associated with our outstanding credit facilities as of September 30, 2020.extension options.
6. Debt
Mortgage Notes and Revolving Credit Facility
The following table is a summary of the mortgage notes and revolving credit facility secured by our properties as of June 30, 2021 and December 31, 2020 ($ in thousands):
| | | | | | | | | | | | | | |
| | | Principal Balance Outstanding |
Indebtedness | Weighted-Average Interest Rate | Weighted-Average Remaining Term (1) | June 30, 2021 | December 31, 2020 |
Fixed rate loans | | | | |
Fixed rate mortgages | 4.03% | 4.2 Years | $ | 213,517 | | $ | 35,995 | |
Total fixed rate loans | | | 213,517 | | 35,995 | |
Variable rate loans (2) | | | | |
Floating rate mortgages (3) | 2.81% | 7.0 Years | 440,813 | | 0 | |
Variable rate revolving credit facility (4) | 1.63% | 3.7 Years | 24,000 | | 35,500 | |
Total variable rate loans | | | 464,813 | | 35,500 | |
Total secured loans | | | 678,330 | | 71,495 | |
Unamortized debt issuance costs | | | (1,215) | | (1,175) | |
Premium on assumed debt, net | | | 3,683 | | 0 | |
Mortgage notes and revolving credit facility, net | | | $ | 680,798 | | $ | 70,320 | |
| | | | |
(1) For loans where we have the ability to exercise extension options at our own discretion, the maximum maturity date has been assumed. |
(2) The interest rate of our variable rate loans is primarily based on one-month LIBOR, which was 0.10% on June 30, 2021. |
(3) Our floating rate mortgages are accompanied by interest rate cap hedging instruments as required by the lenders. |
(4) We may obtain advances secured against Cottonwood One Upland up to $67.6 million on our variable rate revolving credit facility, as well as finance other future acquisitions up to $125.0 million in total revolving debt capacity, as long as certain loan-to-value ratios and other requirements are maintained. |
The aggregate maturities, including amortizing principal payments on mortgage notes for years subsequent to June 30, 2021 are as follows (in thousands):
| | | | | |
Year | Total |
2021 | $ | 697 | |
2022 | 2,349 | |
2023 | 107,456 | |
2024 | 140,373 | |
2025 | 4,140 | |
Thereafter | 423,315 | |
| $ | 678,330 | |
We are in compliance with all covenants associated with our mortgage notes and revolving credit facility as of June 30, 2021.
Construction Loans
Information on our construction loans are as follows ($ in thousands):
| | | | | | | | | | | | | | |
Development | Interest Rate | Final Expiration Date | Loan Amount | Amount Drawn at June 30, 2021 |
Sugarmont | Daily Libor + 3.0% | September 30, 2022 | $ | 63,250 | | $ | 49,344 | |
Park Ave | Daily Libor + 1.75% | November 30, 2023 | 37,000 | | 20,420 | |
Cottonwood on Broadway | Daily Libor + 1.9% | May 15, 2024 | 44,625 | | 11,050 | |
Cottonwood on Highland | Daily Libor + 2.75% (1) | December 1, 2024 | 37,000 | | 0 | |
| | | $ | 181,875 | | $ | 80,814 | |
| | | | |
(1) The Daily Libor rate for the Cottonwood on Highland construction loan is subject to a minimum floating index embedded floor rate of 0.5%, resulting in a minimum interest rate of 3.25%. |
Unsecured Promissory Notes, Net
CROP issued notes to foreign investors outside of the United States. These notes are unsecured and subordinate to all of CROP's debt. Each note has 2 one-year extension options during which the interest rate will increase 0.25% each additional period.
Information on our unsecured promissory notes are as follows ($ in thousands):
| | | | | | | | | | | | | | |
| Offering Size | Interest Rate | Maturity Date | June 30, 2021 |
2017 6.25% Notes | $ | 5,000 | | 6.25% | December 31, 2021 | $ | 5,000 | |
2017 6% Notes | 35,000 | | 6.00% | December 31, 2022 | 20,918 | |
2019 6% Notes | 25,000 | | 6.00% | December 31, 2023 | 22,725 | |
| $ | 65,000 | | | | $ | 48,643 | |
7. Fair Value of Financial Instruments
We estimate the fair value of our financial instruments using available market information and valuation methodologies we believe to be appropriate. As of SeptemberJune 30, 20202021 and December 31, 2019,2020, the fair values of cash and cash equivalents, restricted cash, other assets, related party payables, and accounts payable, accrued expenses and other liabilities approximate their carrying values due to the short-term nature of these instruments.
Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability. Fair value measurements are categorized into one of three levels of the fair value hierarchy based on the lowest level of significant input used. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. Considerable judgment and a high degree of subjectivity are involved in developing these estimates. These estimates may differ from the actual amounts that we could realize upon settlement.
The fair value hierarchy is as follows:
Level 1 - Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2 - Other observable inputs, either directly or indirectly, other than quoted prices included in Level 1, including:
•Quoted prices for similar assets/liabilities in active markets;
•Quoted prices for identical or similar assets/liabilities in non-active markets (e.g., few transactions, limited information, non-current prices, high variability over time);
•Inputs other than quoted prices that are observable for the asset/liability (e.g., interest rates, yield curves, volatilities,volatility, default rates); and
•Inputs that are derived principally from or corroborated by other observable market data.
Level 3 - Unobservable inputs that cannot be corroborated by observable market data.
The table below includes the carrying value and fair value for our financial instruments for which it is practicable to estimate fair value:value (in thousands):
| | | As of September 30, 2020 | | As of December 31, 2019 | | June 30, 2021 | | December 31, 2020 |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Financial Asset: | Financial Asset: | | | | | | | | | Financial Asset: | | | | | | | | |
Real estate note investment | | $ | 6,735,530 | | | $ | 6,735,530 | | | $ | 1,793,771 | | | $ | 1,793,771 | | |
Investments in real-estate related loans | | Investments in real-estate related loans | | $ | 9,026 | | | $ | 9,026 | | | $ | 8,206 | | | $ | 8,206 | |
| Financial Liability: | Financial Liability: | | Financial Liability: | |
Berkadia Credit Facility | | $ | 35,995,000 | | | $ | 39,603,000 | | | $ | 35,995,000 | | | $ | 37,410,000 | | |
JP Morgan Credit Facility | | $ | 48,500,000 | | | $ | 48,500,000 | | | $ | 0 | | | $ | 0 | | |
Fixed rate mortgages | | Fixed rate mortgages | | $ | 213,517 | | | $ | 217,001 | | | $ | 35,995 | | | $ | 38,658 | |
Floating rate mortgages | | Floating rate mortgages | | $ | 440,813 | | | $ | 442,805 | | | $ | 0 | | | $ | 0 | |
Variable rate revolving credit facility | | Variable rate revolving credit facility | | $ | 24,000 | | | $ | 24,000 | | | $ | 35,500 | | | $ | 35,500 | |
Construction loans | | Construction loans | | $ | 80,814 | | | $ | 80,814 | | | $ | 0 | | | $ | 0 | |
Series 2016 Preferred Stock | | Series 2016 Preferred Stock | | $ | 140,833 | | | $ | 140,833 | | | $ | 0 | | | $ | 0 | |
Series 2017 Preferred Stock | | Series 2017 Preferred Stock | | $ | 2,586 | | | $ | 2,586 | | | $ | 0 | | | $ | 0 | |
Series 2019 Preferred Stock | Series 2019 Preferred Stock | | $ | 20,561,909 | | | $ | 20,561,909 | | | $ | 1,198,000 | | | $ | 1,198,000 | | Series 2019 Preferred Stock | | $ | 63,757 | | | $ | 63,757 | | | $ | 32,933 | | | $ | 32,933 | |
Unsecured promissory notes, net | | Unsecured promissory notes, net | | $ | 48,643 | | | $ | 48,643 | | | $ | 0 | | | $ | 0 | |
Our real estate note investment, Berkadia Credit Facility, JP Morgan Credit Facilityinvestments in real-estate related loans, fixed and Series 2019 Preferred Stockfloating rate mortgages, variable rate revolving credit facility, construction loans, preferred stock and unsecured promissory notes are categorized as Level 3 in the fair value hierarchy.
8. Preferred Stock
We have three classes of preferred stock outstanding, Series 2016, Series 2017 and Series 2019, each of which were offered at a price of $10.00 per share. Our Series 2016 Preferred Stock and the Series 2017 Preferred Stock were issued in connection with the CRII Merger in exchange for the corresponding series of preferred stock held at CRII. The Series 2019 Preferred Stock is currently being offered for sale in the Private Offering.
Each class of preferred stock receives a fixed preferred dividend based on a cumulative, but not compounded, annual return. Each class has a fixed redemption date with extension options at our discretion, subject to an increase in the preferred dividend rate, and is classified as a liability on the condensed consolidated balance sheet. Dividends to preferred stockholders paid at an annual rate of 5.5%, are classified as interest expense on the condensed consolidated statement of operations. We can also redeem our preferred stock early for cash plus all accrued and unpaid dividends.
Information on our preferred stock is as follows:
| | | | | | | | | | | | | | | | | | | | |
| | | | | Shares Outstanding at |
| Dividend Rate | Extension Dividend Rate | Redemption Date | Maximum Extension Date | June 30, 2021 | December 31, 2020 |
Series 2016 Preferred Stock | 6.5% | 7.0% | January 31, 2022 | January 31, 2023 | 14,083,310 | | 0 | |
Series 2017 Preferred Stock | 7.5% | 8.0% | January 31, 2022 | January 31, 2024 | 258,550 | | 0 | |
Series 2019 Preferred Stock | 5.5% | 6.0% | December 31, 2023 | December 31, 2025 | 6,375,713 | | 3,308,326 | |
During the ninesix months ended SeptemberJune 30, 2021 and 2020 we raised approximately $19,364,000$30.6 million and $12.8 million of Series 2019 Preferred Stock. WeDuring the six months ended June 30, 2021 and 2020, we incurred approximately $451,000$1.2 million and $214,000 in dividends on our Series 2019 Preferred Stock, forrespectively. During the nineperiod from the CRII Merger closing on May 7, 2021 to June 30, 2021, we incurred approximately $1.5 million and $29,000 in dividends on our Series 2016 Preferred Stock and Series 2017 Preferred Stock, respectively. During the six months ended SeptemberJune 30, 2020. We had 2,063,146 and 119,8002021, we repurchased 10,000 shares of Series 2019 Preferred Stock outstanding asfor $90,000 and during the period from the CRII Merger closing on May 7, 2021 to June 30, 2021 we repurchased 55,990 shares of SeptemberSeries 2016 Preferred Stock for approximately $533,000. NaN shares of Series 2019 Preferred Stock were repurchased during the six months ended June 30, 20202020.
Our preferred stock ranks senior to our common stock and December 31, 2019, respectively.on parity with each other with respect to distribution rights and rights upon liquidation, dissolution or winding up.
9. Stockholders' Equity
Other than the 430,070 of common shares issued in association with the CRII Merger, 0 shares of common stock were issued during the three or six months ended June 30, 2021 as our offering was suspended. During the three and six months ended SeptemberJune 30, 2020, and 2019 we raised approximately $7,373,000$7.0 million and $20,131,000$20.0 million of common stock, and paid approximately $1,091,000 and $563,000 in distributions to common stockholders, respectively. During the nine months ended September 30, 2020 and 2019 we raised approximately $27,399,000 and $66,890,000 of common stock and paid approximately $2,997,000 and $874,000 in distributions to common stockholders, respectively. As of SeptemberJune 30, 2020,2021, we had 11,575,76612,662,358 of common stock outstanding, of which 11,558,25412,644,840 was Class A common stock and 17,51217,518 was Class TTX (formerly Class T) common stock.
LTIP Unit Awards
On March 25, 2020, we amended the agreement of our Operating Partnership effective February 1, 2020 to establish LTIP Units, a new series of partnership units, and to permit the admission of additional limited partners.
We also entered into LTIP Unit Award Agreements with certain executive officers and a person associated with the dealer manager for our Offering, awarding 12,438 time-based LTIP Units and a target total of 37,312 performance-based LTIP Units. The time-based LTIP Units vest over a four year period at a rate of 25% each on January 1 of the following years: 2021, 2022, 2023 and 2024. The actual amount of each performance-based award is determined at the conclusion of the performance period, which is December 31, 2022 and will depend on the internal rate of return as defined in the award agreement. The earned performance-based LTIP Units will become fully vested on the first anniversary of the last day of the performance period, subject to continued employment with the advisor or its affiliates.
The number of units was awarded at the estimated value per share of our common stock of $10.00. Time based LTIP Units, whether vested or unvested, receive the same distribution per unit as common stockholders. Performance based LTIP units receive 10% of that amount per unit on the total target units during the performance period, whereupon the participant receives an additional grant of LTIP Units the equivalent of 90% of distributions that would have been paid on the earned units during the performance period. Share based compensation for these awards during the three and nine months ended September 30, 2020 was approximately $22,000 and $49,000, respectively.
10. Related-Party Transactions
Asset Management Fee
Under the amended and restated advisory agreement entered May 7, 2021, CROP pays our advisor a monthly management fee equal to 0.0625% of GAV (gross asset value of CROP, calculated pursuant to our valuation guidelines and reflective of the ownership interest held by CROP in such gross assets), subject to a cap of 0.125% of net asset value of CROP. Prior to May 7, 2021, we paid our advisor an annual asset management fee in an amount equal to 1.25% per annum (paid monthly) of the gross book value of our assets as of the last day of the prior month.
Asset management fees to our advisor for the three months ended SeptemberJune 30, 2021 and 2020 were approximately $1.4 million and 2019 were $811,233 and $296,126,$681,000, respectively. Asset management fees to our advisor for the ninesix months ended SeptemberJune 30, 20202021 and 2019 were $1,941,542 and $453,851, respectively. Asset management fees waived by our advisor during the three and nine months ended September 30, 2020 were $48,543approximately $2.3 million and $188,333,$1.1 million, respectively. There were $310,484 of asset management fees waived during the three and nine months ended September 30, 2019.
Acquisition expenses reimbursedPerformance Participation Allocation
The Special Limited Partner, so long as the advisory agreement has not been terminated, holds a performance participation interest in CROP that entitles it to receive an allocation of CROP's total return to its capital account. Total return is defined as all distributions accrued or paid (without duplication) on the Participating Partnership units (all units in our advisorOperating Partnership with the exception of preferred units) plus the change in the aggregate net asset value of such Participating Partnership units. Under the Operating Partnership agreement, the annual total return will be allocated solely to the Special Limited Partner only after the other unit holders have received a total return of 5% (after recouping any loss carryforward amount) and such allocation will continue until the allocation between the Special Limited Partner and all other unit holders is equal to 12.5% and 87.5%, respectively. Thereafter, the Special Limited Partner will receive an allocation of 12.5% of the annual total return. The allocation of the performance participation interest is ultimately determined at the end of each calendar year, accrues monthly and will be paid in cash or Class I units at the election of the Special Limited Partner after the completion of each calendar year.
We recognized $6.5 million of performance participation expense with the approval of the June 30, 2021 NAV, as the performance hurdle was achieved. CROP's operating partnership agreement was amended with the CRII Merger to provide for the three and nine months ended September 30, 2020 and 2019 were not significant, as we have generally incurred and paid such expenses directly.performance participation allocation. Therefore, there was no performance participation allocation prior to the CRII Merger.
Other
Reimbursable company operating expenses to our advisor or its affiliates for the three months ended SeptemberJune 30, 2021 and 2020 were approximately $74,000 and 2019 were $263,915 and $148,906,$233,000, respectively. Reimbursable company operating expenses to our advisor or its affiliates for the ninesix months ended SeptemberJune 30, 2021 and 2020 were approximately $331,000 and 2019$469,000, respectively. As a result of the merger, employees who had previously provided services to us and were $732,998 and $399,391, respectively.
Property management feesreimbursed to our property manager for the three months ended September 30, 2020 and 2019 were $108,067 and $38,753, respectively. Property management fees toAdvisor are now our property manager for the nine months ended September 30, 2020 and 2019 were $269,525 and $53,297, respectively. Property management fees to our property manager are classified as property operations expense on the condensed consolidated statements of operations.employees.
11. Noncontrolling Interests
Noncontrolling Interests - Limited Partners
Common Limited OP Units and LTIP Units are CROP units not owned by CCI and collectively referred to as “Noncontrolling Interests – Limited Partners.”
Common Limited OP Units - Common Limited OP Units share in the profits, losses and cash distributions of CROP as defined in the partnership agreement, subject to certain special allocations and receive distributions equivalent to distributions declared to the holders of CCI common stock.
LTIP Units - Certain executives and key employees receive LTIP Units in CROP as equity incentive compensation. LTIP Units are a separate series of limited partnership units, which are convertible into Common Limited OP Units upon achieving certain time vesting and performance requirements. Unless otherwise provided, the time vesting LTIP Units (whether vested or unvested) entitle the holder to receive current distributions from CROP, and the performance LTIP Units (whether vested or unvested) entitle the holder to receive 10% of the current distributions from CROP during the applicable performance period. When the LTIP Units have vested and sufficient income has been allocated to the holder of the vested LTIP Units, the LTIP Units will automatically convert to Common Limited OP Units in CROP on a 1-for-one basis. LTIP Units constitute profits interests and have 0 voting rights in CROP.
In conjunction with the CRII Merger, 528,451 time vesting LTIP units were awarded to executives as retention grants. As of June 30, 2021, there were 661,391 unvested time LTIP awards and 430,851 unvested performance LTIP awards outstanding. Share-based compensation was $466,000 for the six months ended June 30, 2021. Share-based compensation was not significant during the same period in 2020. Total unrecognized compensation expense for LTIP Units at June 20, 2020 is $7.5 million and is expected to be recognized on a straight-line basis through June 2025.
Noncontrolling Interests - Partially Owned Entities
As of June 30, 2021, noncontrolling interests in entities not wholly owned by us ranged from 1% to 91%, with the average being 52%.
12. Commitments and Contingencies
Dolce B NoteRiverfront
As of SeptemberJune 30, 2020,2021, we had a remaining commitment of up to approximately $3,264,000$1.6 million on the Dolce B-Note.Riverfront preferred equity investment.
2980 Huron InvestmentIntegra Peaks Mezzanine Loan
On October 25, 2019, we entered into a joint venture to provide $20,000,000 of preferred equity in an entity that has purchased and intends to develop 0.84 acres in the Union Station North neighborhood in downtown Denver, Colorado (the "2980 Huron Project"). Our contributions will only be made following the contribution of the full $17,500,000 of common equity by our joint venture partner. As of SeptemberJune 30, 2020, no draws have been made2021, we had a remaining commitment of up to approximately $7.8 million on our $20,000,000 commitment and we do not have commencement or completion dates for the 2980 Huron Project.
Pursuant to the joint venture agreement, our obligation to advance the funds for our preferred equity membership interest is subject to the satisfaction of certain conditions which have not been satisfied. Further, our contractual obligation to fund our preferred equity investment has expired. We can provide no assurance we will ultimately advance funds for the 2980 Huron Investment.Integra Peaks Mezzanine Loan.
Litigation
As of September 30, 2020, we were notWe are subject to anya variety of legal actions for personal injury, property damage, or other matters arising in the ordinary course of its business, most of which are covered by liability insurance. Various claims of employment and resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, as of June 30, 2021, we believe the final outcome of such legal proceedings and claims will not have a material litigation nor were we awareadverse effect on our liquidity, financial position or results of any material litigation threatened against us.operations.
Environmental
As an owner of real estate, we are subject to various federal, state and local environmental laws. Compliance with existing laws has not had a material adverse effect on us. However, we cannot predict the impact of new or changed laws or regulations on our properties or on properties that we may acquire in the future.
Distribution Reinvestment Plan
We have adopted a distribution reinvestment plan whereby stockholders may elect to have us apply their dividends and other distributions to the purchase of additional shares of common stock. ParticipantsThe distribution reinvestment plan was temporarily suspended in December 2020 along with the Offering. On August 10, 2021, our board of directors adopted an amended and restated distribution reinvestment plan in connection with the registration of new classes of shares in the plan will acquire common stock at the per share price effective on the date of purchase (currently $10.00).Offering. See Note 13 - Subsequent Events below.
Share Repurchase Programs
Series 2019 Preferred Stock
UponOur board of directors has adopted a share repurchase program with respect to our preferred stock whereby, upon the request of a holder of our Series 2016, Series 2017 or Series 2019 Preferred Stock,preferred stock, we may, at the sole discretion of the board of directors, repurchase their shares at the following prices, which are dependent on how long a redeemingsuch preferred stockholder has held each share:
| | | | | | | | | |
Share Purchase Anniversary | Repurchase Price |
Less than 1 year | $8.80 | |
1 year | $9.00 | |
2 years | $9.20 | |
3 years | $9.40 | |
4 years | $9.60 | |
5 years | $9.80 | |
A stockholder’s death or complete disability, 2 years or more (Series 2019), 6 years of more (Series 2016 and Series 2017) | $10.00 | |
NaN Series 2019Repurchase information on our Preferred Stock
shares were redeemed during the three or nine months ended September 30, 2020.is disclosed in Note 8 above.
Common Stock
Our boardIn December 2020, in conjunction with the pursuit of directors has adopted athe mergers described in Note 1, we suspended our share repurchase program that permits holders of common stock to request, on a quarterlyperiodic basis, that we repurchase all or any portion of their shares. Our board of directors approved the resumption of the share repurchase program effective for repurchases for the month ended June 30, 2021.
Our share repurchase program provides that we may make repurchases with an aggregate value of up to 2% of our aggregate net asset value or "NAV" each month and up to 5% of our NAV each quarter. We may choosehave no restrictions on the source of funds used to repurchase all, someshares pursuant to our share repurchase program. For our Class T, Class D and Class I shares, the repurchase price will be equal to the transaction price at the date of repurchase, or noneat 95% of the transaction price on the repurchase date if the shares have been held for less than a year.
For our Class A and Class TX (formerly Class T) shares, the repurchase price will be equal to the transaction price at the date of repurchase, subject to the following: (i) shares that have been requested tooutstanding for at least five years and less than six years will be repurchased at our discretion, subject to limitations in95.0% of the share repurchase plan. The total amount of aggregate repurchasedtransaction price, (ii) shares that have been outstanding for at least three years and less than five years will be limited to 5%repurchased at 90.0% of the weighted average numbertransaction price and (iii) shares that have been outstanding for at least one year and less than three years will be repurchased at 85.0% of the transaction price. The transaction price is the then-current offering price per share and is generally the prior month’s NAV per share for such class.
NaN shares of common stock outstandingwere repurchased during the prior calendar year. In addition, during any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year.three or six months ended June 30, 2021 and 2020.
TheCommon Limited OP Units
Beginning one year after acquiring any Common Limited OP Units, the common limited partners have the right to request the Operating Partnership repurchase price is subject totheir Common Limited OP Unit as described below. We may, in our sole discretion, honor the repurchase request at the following discounts, dependingprices, which are dependent on how long a redeeming stockholdersuch limited partner has held each share:
| | | | | |
Share Purchase Anniversary | Repurchase Price as a Percentage of Estimated Value (1)
|
Less than 1 year | No repurchase allowed |
1 year - 2 years | 85% |
3 years - 4 years | 90% |
5 years and thereafter | 95% |
A stockholder’s death or complete disability, less than 2 years | 95% |
A stockholder’s death or complete disability, 2 years or more | 100% |
unit:
| | | | | |
(1) | For the purposes of the share repurchase program, the “estimated value per share” will initially be equal to the purchase price per share at which the original purchaser or purchasers of the shares bought its shares from us, and the purchase price per share will be adjusted to reflect any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares outstanding.
We plan to establish an estimated net asset value (“NAV”) per share of our common stock based on valuations of our assets and liabilities no later than May 17, 2021 and annually thereafter. Upon our establishment of an estimated NAV per share, the estimated NAV per share will be the estimated value per share pursuant to the share repurchase program.1.Beginning one year after acquisition of a Common Limited OP Unit and continuing for the three-year period thereafter, the purchase price for the repurchased Common Limited OP Unit shall be equal to 80% of the NAV of the Common Limited OP Units.2.Beginning four years after acquisition of a Common Limited OP Unit and continuing for the two-year period thereafter, the purchase price for the repurchased Common Limited OP Units shall be equal to 85% of the NAV of the CROP Common Units. 3.Beginning six years after acquisition of a Common Limited OP Unit and continuing thereafter, the purchase price for the repurchased Common Limited OP Unit shall be equal to 90% of the NAV of the Common Limited OP Units. |
During the three and nine months ended September 30, 2020, we redeemed 31,307 and 0 shares of Class A and Class T common stock, respectively, pursuantSubject to our share redemption program for $268,613, which was an average repurchase price of $8.58.
Our board of directors may, in its sole discretion, amend, suspendin the case of the death or terminate our sharecomplete disability of a limited partner, the repurchase programof the Common Limited OP Units may occur at any time after acquisition of a Common Limited OP Unit and, if accepted by us, the purchase price for any reason upon 15 days’ noticethe repurchased Common Limited OP Units will be equal to our stockholders. 95% of the NAV of the Common Limited OP Units.
12.13. Subsequent Events
We evaluate subsequent events up until the date the condensed consolidated financial statements are issued and have determined there are none to be reported or disclosed in the condensed consolidated financial statements other than those mentioned below.
StatusCompletion of the Private Offering
As of November 10, 2020, we had sold 2,620,480 shares of Series 2019 Preferred Stock for aggregate gross offering proceeds of $26,088,409. In connection with the sale of these shares in the Private Offering, the Company paid aggregate selling commissions of $1,704,428CMRI Merger and placement fees of $506,930.CMRII Merger
StatusOn July 15, 2021, we completed the CMRI Merger and the CMRII Merger, each through a stock-for-stock transaction as described in Note 1. At the effective time of the Offering
AsCMRI Merger, each issued and outstanding share of November 10, 2020, we had sold 11,799,847CMRI’s common stock converted into 1.175 shares of our Class A common stock. At the effective time of the CMRII Merger, each issued and outstanding share of CMRII’s common stock converted into 1.072 shares of our Class A common stock. We issued 10,995,210 shares of our Class A common stock upon the closing of the mergers. Each asset held by CMRI and 17,516CMRII was owned through joint ventures with CROP. As a result of the consummation of the CMRI Merger and the CMRII Merger our ownership interest in the properties held through joint ventures with CROP increased to 100%.
Pro forma revenues and earnings have not been presented as the initial accounting for the transaction is incomplete as of the date the consolidated financial statements are issued. We are in the process of assessing the fair value of the acquired tangible assets, liabilities assumed and any applicable intangible assets and liabilities for this business combination.
Distribution Reinvestment Plan
On August 10, 2021, our board of directors adopted an amended and restated distribution reinvestment plan. The per share purchase price for shares purchased pursuant to the distribution reinvestment plan will be equal to the transaction price for such shares in effect on the distribution date. Shares will generally be sold at the prior month’s NAV per share of the class of share being purchased (which will be our most recently disclosed NAV per share at such time). We may offer shares at a price that we believe reflects the NAV per share of such stock more appropriately than the prior month’s NAV per share (including by updating a previously disclosed transaction price) where we believe there has been a material change (positive or negative) to our NAV per share since the end of the prior month. However, our board of directors may determine, in its sole discretion, to designate certain distributions as ineligible for reinvestment through the distribution reinvestment plan, without notice to participants, without suspending the plan and without affecting the future operation of the plan with respect to participants. We will resume offering shares of our Class T common stock in the Offering for aggregate gross offering proceeds of $117,566,430. Included in these amounts were 140,781 shares of common stock sold pursuant to our distribution reinvestment plan upon effectiveness of the DRP Programpost-effective no. 6 to the registration statement for aggregate gross offering proceedsthe Offering.
Sixth Amended and Restated CROP Partnership Agreement
At the effective time of the CMRI Merger and the CMRII Merger, we, through our wholly owned subsidiary, the sole general partner of CROP, entered the Sixth Amended and Restated Limited Partnership Agreement of CROP (the “Sixth OP Agreement”) by and among Merger Sub, CC Advisors III, LLC, the special limited partner and the Limited Partners set forth on Exhibit A thereto. The Sixth OP Agreement amends the previous operating partnership agreement to reflect the mergers of the operating partnerships of CMRI and CMRII into CROP at the effective time of the mergers.
Dividends PaidDeclared - Series 20192016 Preferred Stock
Subsequent to September 30, 2020 and through the dateOn August 10, 2021, our board of this report, we paid $190,539directors declared cash distributions at a daily distribution rate of dividends$0.00191781 to holders of record of our Series 20192016 Preferred Stock at an effective annualfor each day in the months of September, October and November 2021. The daily distribution rate of 5.5%is equal to 7.0% annually on the $10.00 purchase price, assumingprice.
Dividends Declared - Series 2017 Preferred Stock
On August 10, 2021, our board of directors declared cash distributions are paid every day forat a year at the daily distribution rate.rate of $0.00205479 to holders of record of our Series 2017 Preferred Stock for each day in the months of September, October and November 2021. The daily distribution rate is equal to 7.5% annually on the $10.00 purchase price.
Dividends Declared - Series 2019 Preferred Stock
On November 11, 2020,August 10, 2021, our board of directors declared cash distributions at a daily distribution rate of $0.00150273 for December 2020 and declared cash distributions at a daily distribution rate of $0.00150685, for January and February 2021, or 5.5% annually on the $10.00 purchase price, to holders of record of our Series 2019 Preferred Stock for each day in the months of December 2020, January 2021September, October and FebruaryNovember 2021.
Distributions Paid - Common Stock
Subsequent to September 30, 2020 and through the date of this report, we paid $962,567 of distributions to our common stockholders at an effective annual rate of 5.0% on the $10.00 purchase price, assuming distributions are paid every day for a year at the daily distribution rate.
Distributions Declared - Common Stock
OurOn August 10, 2010, our board of directors has authorized cash distributions ondeclared a gross distribution for the outstanding sharesmonth of September of $0.04333333, or $0.52 annually, for each class of our common stock basedto holders of record on daily record dates as follows:
| | | | | | | | | | | | | | |
Authorization Date | Period | Daily Distribution Amount | Annualized Rate (1) | Expected Payment |
October 25, 2020 | November 1, 2020 – November 30, 2020 | $0.00136612 | 5% | December 2020 |
November 11, 2020 | December 1, 2020 – December 31, 2020 | $0.00136612 | 5% | January 2021 |
November 11, 2020 | January 1, 2021 – January 31, 2021 | $0.00136986 | 5% | February 2021 |
November 11, 2020 | February 1, 2021 – February 28, 2021 | $0.00136986 | 5% | March 2021 |
(1) Annualized rate is based on the $10.00 purchase price and assumes distributions are paid every day for a year at the daily distribution amount. |
HoldersSeptember 25, 2021, to be paid in October. Each class of our common stock may choosewill receive the same aggregate gross distribution per share. The net distribution varies for each class based on applicable distribution fees, which are deducted from the monthly distribution per share and paid directly to receive cashthe applicable distributor.
Distributions Declared - CROP Units
As the sole member of the sole general partner of CROP, we declared distributions or purchase additional shares.on Common Limited OP Units an Preferred OP Units to correspond to the distributions declared on our common stock and preferred stock.
Folllow-On Offering
On August 12, 2021, we filed a registration statement to register $1.0 billion in shares of common stock in a follow-on offering, consisting of $900.0 million in shares of common stock offered in a primary offering and $100.0 million in shares of common stock through the DRP Offering.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
References herein to "Company," “we,” us,” and “our” refer to Cottonwood Communities, Inc. together with its subsidiaries. The following discussion of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes.
Forward-Looking Statements
This Quarterly Report on Form10-Q contains 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 Exchange Act of 1934, as amended (the “Exchange Act”). Forward lookingForward-looking statements include statements about our business, including, in particular, statements about our plans, strategies and objectives. You can generally identify forward-looking statements by our use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. You should not rely on these forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our actual results, performance and achievements may be materially different from those expressed or implied by these forward-looking statements.
The following are someis a summary of the principal risks that could adversely affect our business, financial condition, results of operations and cash flows and an investment in our common stock. You should interpret many of the risks identified in this summary as being heightened as a result of the ongoing and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:numerous adverse impacts of the novel coronavirus disease (“COVID-19”) pandemic.
•The COVID-19 pandemic, together with the resulting measures imposed to contain the virus, has had a negative impact on the economy and business activity globally. TheAlthough we have not seen a material impact on our operations to date, the extent to which the COVID-19 pandemic impactsmay impact our operations, the personal financial position of our tenants and the development projects in which we have invested remains uncertain and cannot be predicted with confidence, and will depend on the ultimate scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.confidence.
•We dependSince there is no public trading market for shares of our common stock, the repurchase of shares by us will likely be the only way for our stockholders to dispose of their shares. Our share repurchase program will provide stockholders with the opportunity to request that we repurchase their shares on a monthly basis, but we are not obligated to repurchase any shares and may choose to repurchase only some, or even none, of the shares that have been requested to be repurchased in any particular month in our discretion. In addition, repurchases will be subject to available liquidity and other significant restrictions. Further, our board of directors may modify or suspend our share repurchase program if in its reasonable judgment it deems a suspension to be in our best interest and the best interest of our stockholders, such as when a repurchase request would place an undue burden on our advisor to identify suitable investments and to manageliquidity, adversely affect our investments. There is no assuranceoperations or risk having an adverse impact on the company that we will be able to successfully achieve our investment objectives.would outweigh the benefit of the repurchase offer.
•We haveThe offering price and repurchase price for shares of our common stock are generally based on our prior month’s NAV (which will be our most recently disclosed NAV per share at such time) plus, in the case of our offering price, applicable upfront selling commissions and dealer manager fees, and are not based on any public trading market. In addition to being up to a month old when share purchases and repurchases take place, our NAV does not currently represent our enterprise value and may not accurately reflect the actual prices at which our assets could be liquidated on any given day, the value a third party would pay for all or substantially all of our shares, or the price that our shares would trade at on a national stock exchange. Furthermore, our board of directors may amend our NAV procedures from time to time. While there will be independent annual appraisals of our properties, the appraisal of properties is inherently subjective and our NAV may not accurately reflect the actual price at which our properties could be liquidated on any given day.
•The amount of distributions we may make is uncertain. Our distributions may be paid distributions from sources such as borrowings, offering proceeds, advances or the deferral of fees and expense reimbursements (which may continue to fund distributions with offering proceeds.constitute a return of capital). We have not established a limit on the amount of proceeds from ourthis offering that we may use to fund distributions. To the extent we fund distributionsDistributions from sources other than our cash flow from operations we will have lesswould reduce the funds available to us for investmentinvestments in multifamily apartment communities and multifamily real estate-related assets, and thewhich could reduce your overall return to our stockholders may be reduced. Distributions may also be paid from other sources such as borrowings, advances or the deferral of fees and expense reimbursements.return. During the early stages of our operations, these distributionsit is likely that we will use sources of funds which may constitute a return of capital to fund distributions. As of June 30, 2021, we have funded a portion of our distributions with offering proceeds.
•In connection with our offerings, we incur fees and expenses, which decreases the amount of cash we have available for operations and new investments. In the future we may conduct other offerings of common stock (whether existing or new classes), preferred stock or of interests in our Operating Partnership. We may also amend the terms of our current offerings. We may structure or amend such offerings to attract institutional investors or other sources of capital. The costs of our offerings and future offerings may negatively impact our ability to pay distributions and your overall return.
•Some of our officers and certain of our directors are also officers and directors of our sponsor,We depend on our advisor orand its affiliates. As a result,affiliates to select investments and, in part, to manage our officers and affiliated directors are subject to conflicts of interest.business.
•Our ability to raise money and achieve our investment objectives depends on the ability of the dealer manager to successfully market our offering. If we raise substantially less than the maximum offering amount, we may not be able to invest in a diverse portfolio of assets and the value of an investment in us may vary more widely with the performance of certain investments.
•We pay certainsubstantial fees and expenses to our advisor and its affiliates. These fees increase the risk that you will not earn a profit on your investment. These fees were not negotiated at arm’s length and therefore may be higher than fees payable to unaffiliated third parties.
•Certain of our officers and our directors are also officers and directors of our sponsor, advisor and their affiliates and, as a result, are subject to conflicts of interest, including conflicts arising from time constraints and the fact that the fees our advisor receives for services rendered to us are based on our NAV, which our advisor is responsible for determining.
•Development projects in which we invest will be subject to potential development and construction delays which couldwill result in increased costs and risks and may hinder our operating results and ability to make distributions.
•We may incur significant debt in certain circumstances. Our use of leverage increases the risk of an investment in us.your investment. Loans we obtain may be collateralized by some or all of our investments, which will put those investments at risk of forfeiture if we are unable to pay our debts. Principal and interest payments on these loans reduce the amount of money that would otherwise be available for other purposes.
•Volatility in the debt markets could affect our ability to obtain financing for investments or other activities related to real estate assets and the diversification or value of our portfolio, potentially reducing cash available for distribution to our stockholders or our ability to make investments. In addition, if any of the loans we obtain have variable interest rates, volatility in the debt markets could negatively impact such loans.
•There are limits on the ownership and transferability of our shares.
•If we fail to continue to qualify as a REIT it would adversely affectand no relief provisions apply, our operationsNAV and our ability to make distributionscash available for distribution to our stockholders because we will be subject to United States federal income tax at regular corporate rates with no ability to deduct distributions made to our stockholders.could materially decrease.
Additional risks related to our business are discussed under the heading “Risk Factors” in our
Registration StatementAnnual Report on
Form S-11 (File No. 333-215272) and associated supplements.10-K. In light of the significant uncertainties inherent in these forward lookingforward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our objectives and plans, which we consider to be reasonable, will be achieved. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth above, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic.
Overview
Cottonwood Communities, Inc. invests primarily in multifamily apartment communities and multifamily real estate-related assets throughout the United States. We seek to invest at least 65% of our assets in stabilized multifamily apartment communities and up to 35% in mortgage loans, preferred equity investments, mezzanine loans or equity investments in property or land which will be developed into a multifamily apartment community (including, by way of example, an existing multifamily apartment community that may require redevelopment capital for strategic repositioning within its market). Although this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego what we believe to be a good investment because it does not precisely fit our expected portfolio composition. With the CRII Merger recently consummated, we expect our board of directors to revisit our targeted portfolio allocation given the asset profile of the combined company.
Our investment objectives are to:
•preserve, protect and return invested capital;
•pay stable cash distributions to stockholders;
•realize capital appreciationWe have registered $750.0 million in the valueshares of our investments over the long term; and
•provide a real estate investment alternative with lower expected volatility relative to public real estate companies whose securities trade daily on acommon stock exchange.
On August 13, 2018, we commenced a best-effortsin an initial public offering (the "Offering") that consists, consisting of $750,000,000$675.0 million in shares of common stock made up of $675,000,000offered in shares through our primary offering and $75,000,000$75.0 million in shares of common stock through theour distribution reinvestment plan (the "DRP Program"Offering”). The Offering commenced in August 2018 and was suspended starting in December 2020 while we pursued the mergers as described below. Prior to the suspension, two classes of
common were available to purchase in the Offering: Class A and Class TX (previously designated Class T) at a purchase price of $10.00 per share (with discounts available to certain categories of purchasers in the primary offering) in both offerings. Effective October 15, 2019, we commenced offering two classes of our common stock: Class A and Class T. Thepurchasers). These share classes have a different selling commission structure; however, these offering-related expenses are beingunderwriting compensation structures, which compensation our advisor paid byon our advisor. We are offeringbehalf. When we resume the Offering, we expect to sell any combinationoffer three new classes of Class A and Class Tshares of common stock in the Offering, with a dollar value upprimary offering, newly designated Class T, Class D and Class I, and all five classes in the DRP Offering. Underwriting compensation for the new classes will be paid by investors through an adjustment to the maximumpurchase price or borne by us.
On August 12, 2021, we filed a registration statement to register $1.0 billion in shares of common stock in a follow-on offering, amount.consisting of $900.0 million in shares of common stock offered in a primary offering and $100.0 million in shares of common stock through the DRP Offering.
On November 8, 2019, we launched a best-efforts private placement offering pursuant toexempt from registration under the Securities Act for which we are offeringinitially offered a maximum of $50,000,000$50.0 million in shares of Series 2019 Preferred Stock to accredited investors at a purchase price of $10.00 per share (the "Private Offering"). Offering-related expenses in the Private Offering are paid by us.from offering proceeds. On March 23, 2021, our board of directors approved an increase in the size of the offering to $100.0 million.
We operate under the direction of our board of directors. Our external advisor, CC Advisors III, LLC ("CCA III"), through its team of real estate professionals selects our investments and manages our business, subject to the direction and oversight of our board of directors. Our advisor is an affiliate of our sponsor. In addition, we employ 342 individuals, including our Chief Legal Officer, Chief Operating Officer, and Chief Accounting Officer, with 271 employees serving as “site” employees at our properties and the remaining being corporate-level employees supporting our operations. Our employees are responsible for performing various operational services for us, including property management, legal, accounting, property development oversight and certain services relating to construction management, shareholder relations, human resources, renter insurance and information technology.
We elected to be taxed as a REIT beginning with our taxable year ended December 31, 2019. We utilize an UPREIT organizational structure to hold all or substantially all of our assets through the Operating Partnership. Our Operating Partnership was Cottonwood Communities O.P., LP ("CCOP") prior to the CRII Merger and is Cottonwood Residential O.P., LP ("CROP") after the CRII Merger, described below. We are the sole member of the sole general partner of the Operating Partnership.Partnership and own general partner interests in the Operating Partnership alongside third party limited partners.
As of SeptemberJune 30, 2020,2021, we have raised gross proceeds of $20,561,909$63.7 million from the sale of Series 2019 Preferred Stock in the Private Offering and $115,461,306approximately $122.0 million from the sale of our common stock in the Offering, including the DRP Offering. We have primarily used the net proceeds to make investments in real estate related assets as further described below under Our Investments.
COVID-19 PandemicMerger with Cottonwood Residential II, Inc. and Multifamily Real Estate OutlookCottonwood Residential O.P., LP
The COVID-19 pandemic has severely impacted global economic activityOn May 7, 2021, we completed our merger with Cottonwood Residential II, Inc. ("CRII") (the "CRII Company Merger"), and caused significant volatilitythe merger of CCOP with and negative pressure in financial markets. The United States has reactedinto CROP (the “CROP Merger,” and together with various containmentthe CRII Company Merger, the "CRII Merger") through a stock-for-stock and mitigation efforts including quarantines, mandated business and school closures and travel restrictions. As a result, the COVID-19 pandemic is negatively impacting the real estate industry. The fluidity of the COVID-19 pandemic continues to preclude any prediction asunit-for-unit transaction provided for pursuant to the ultimate adverse impact the pandemic may have on our business, financial condition, resultsAgreement and Plan of operationsMerger dated January 26, 2021 by and cash flows.among us, CCOP, Cottonwood Communities GP Subsidiary, LLC ("Merger Sub"), CRII and CROP.
SomeAt the effective time of the CRII Merger, each issued and outstanding share of CRII’s common stock (the “CRII Common Stock”) converted into 2.015 shares of shares of our tenants have suffered difficulties with their personal financial situationsClass A common stock, each issued and outstanding share of Series 2016 preferred stock of CRII converted into one share of our newly designated Series 2016 preferred stock, and each issued and outstanding share of Series 2017 preferred stock of CRII converted into one share of our newly designated Series 2017 preferred stock.
At the effective time of the CROP Merger, each participating partnership unit of CROP (i.e., all CROP partnership units other than preferred units) issued and outstanding immediately prior to the CROP Merger split into 2.015 participating partnership units of CROP (the “CROP Unit Split”), whereupon (i) each issued and outstanding Series 2019 preferred unit of CCOP ("CCOP Series 2019 Preferred Stock") converted into one Series 2019 preferred unit of CROP, the terms of which mirrored the CCOP Series 2019 Preferred Stock, (ii) each issued and outstanding LTIP Unit of CCOP (the “CCOP LTIP Units”) was converted into the right to receive one LTIP Unit of CROP, the terms and conditions of which mirrored the CCOP LTIP Units, (iii) each issued and outstanding Special LTIP Unit of CCOP (the “CCOP Special LTIP Units”) converted into the right to receive one Special LTIP Unit of CROP, the terms and conditions of which mirrored the CCOP Special LTIP Units,
and (iv) except as set forth above, each issued and outstanding general partner unit of CCOP and CCOP Common Unit converted into the right to receive one common limited partner unit of CROP (“CROP Common Unit”). After giving effect to the CROP Unit Split, each CROP Common Unit, general partner unit and LTIP unit issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding, and each CROP preferred unit issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding and continues to be held by the general partner, Merger Sub.
Upon consummation of the CRII Merger, the separate existence of CRII and CCOP ceased. The CRII Merger was intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.
Further, as a result of job loss or reduced incomethe CRII Merger, we acquired CRII’s affiliate property manager and its employees, which currently manage approximately 13,000 units in stabilized assets, including approximately 7,300 for Cottonwood affiliates (including us), and a small percent341 unit development project in the lease up stage. In addition, we acquired the personnel who have historically performed certain administrative and other services for us on behalf of CCA III, including legal, accounting, property development oversight and certain services relating to construction management, shareholder relations, human resources, renter insurance and information technology. As a result, we directly employ the individuals that perform the foregoing administrative services as well as property management services. CCA III continues to manage our operations as our external advisor pursuant to an amended and restated advisory agreement.
CMRI Merger and CMRII Merger
On January 26, 2021, we entered into separate agreements to acquire each of Cottonwood Multifamily REIT I, Inc. ("CMRI") ("CMRI Merger"), and Cottonwood Multifamily REIT II, Inc. ("CMRII") ("CMRII Merger"). These mergers are stock-for-stock transactions whereby CMRI and CMRII will be merged into a wholly owned subsidiary of us. Each merger is intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the multifamily tenants atInternal Revenue Code of 1986, as amended. The CMRI and CMRII Mergers were completed on July 15, 2021.
Net Asset Value
Our board of directors, including a majority of our stabilized multifamily apartment communities have sought rent deferrals. Not all tenant requestsindependent directors, has adopted valuation procedures, as amended from time to time, that contain a comprehensive set of methodologies to be used in connection with the calculation of our net asset value ("NAV"). Pursuant to these valuation procedures, we computed a June 30, 2021 NAV per share for our outstanding Class A and Class TX shares of $11.7865. We had no outstanding Class T, Class D or Class I shares as of June 30, 2021. Until we sell shares of these classes, we will ultimately result in rent deferralsdeem the NAV per share of these classes to be the NAV per share of our Class A and rent deferrals to date have not had a significant impactClass TX shares.
We expect that generally, within 15 calendar days after the last calendar day of each month, we will determine and disclose our NAV per share for each share class as of the last calendar day of the prior month. This NAV will be posted when available on our operations. To date,website at cottonwoodcommunities.com and in prospectus supplements or a Current Report on Form 8-K filed with the impactSecurities and Exchange Commission (the “SEC”).
Please see our Current Report on Form 8-K/A, filed with the SEC on June 8, 2021 and available on the SEC’s website at www.sec.gov, for a more detailed description of COVID-19our valuation procedures, including important disclosures regarding real property valuations, debt-related asset valuations and property management business valuations provided by Altus Group U.S. Inc. (the “Independent Valuation Advisor”). All parties engaged by us in the calculation of our NAV, including our advisor, are subject to the oversight of our board of directors. As described in our valuation procedures, each real property is appraised by a third-party appraiser (the “Third-Party Appraisal Firm”) at least once per calendar year and reviewed by our advisor and the Independent Valuation Advisor. Additionally, the real property assets not appraised by the Third-Party Appraisal Firm in a given calendar month will be appraised for such calendar month by our Independent Valuation Advisor, and such appraisals are reviewed by our advisor.
CROP has certain classes or series of OP Units that are each economically equivalent to a corresponding class of shares. Accordingly, on our stabilized multifamily apartment communities has been minimal. Asthe last day of each month, for such classes or series of OP Units, the NAV per OP Unit equals the NAV per share of the endcorresponding class. To the extent CROP has classes of October 2020, we had received tenant payments equalunits that do not correspond to 93.8%a class of our shares, such units will be valued in a manner consistent with our valuation procedures. The NAV of CROP on the last day of each month equals the sum of the monthly tenant charges billed forNAVs of each fully-diluted outstanding OP Unit on such day. In calculating the three months ended September 30, 2020. Collectionsfully-diluted outstanding OP Units we include all outstanding vested LTIP Units, unvested time-based LTIP Units and rent relief requests to date may notthose performance-based LTIP Units that would be indicativeearned based on the internal rate of collectionsreturn as of such day.
or requests
Our total NAV in any future period. Our resultsthe following table includes the NAV of operations have also been partially impactedour Class A and Class TX common stockholders, as a resultwell as the partnership interests of waiving late fees andCROP held by parties other than us. The following table sets forth the suspensioncomponents of evictions at our properties. In addition, although the development projects in which we have invested are currently proceeding on schedule,NAV as a result of shutdowns, quarantines or actual viral health issues, construction and completion of the development projects in which we have invested may be delayed or may incur additional costs which would have an adverse impact on our income from real estate note and investment returns. June 30, 2021 (in thousands except share data):
| | | | | |
Components of NAV* | As of 6/30/2021 |
Investments in Multifamily Operating Properties | $ | 1,237,497 |
Investments in Multifamily Development Properties | 144,410 |
Investments in Real-estate Related Structured Investments | 48,292 |
Operating Company, Land and Other Net Current Assets | 53,981 |
Cash and Cash Equivalents | 8,799 |
Secured Real Estate Financing | (712,187) |
Subordinated Unsecured Notes | (48,643) |
Preferred Equity | (207,176) |
Accrued Performance Participation Allocation | (6,455) |
NAV | $ | 518,519 |
Fully-diluted Shares/Units Outstanding | 43,992,506 |
| |
* Presented as adjusted for the Company's economic ownership percentage in each asset. |
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations, the personal financial positionfollowing table provides a breakdown of our tenants,total NAV and the development projects in which we have invested remains uncertain and cannot be predicted with confidence and will depend on the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. However, notwithstanding the challenging economic circumstances createdNAV per share/unit by the COVID-19 pandemic, we believe our focus on multifamily assets and the quality of the assets in our portfolio makes us better positioned relative to other classes of real estate to withstand many of the adverse impacts of the COVID-19 pandemic as housing is a basic need, rather than a discretionary expense. Further, we believe that factors impacting the prime United States renter demographic such as delayed major life decisions, increased levels of student debt and tight credit standards in the single-family home mortgage market continue to support the value proposition for owning multifamily apartment communities and related investments. We note that our stabilized multifamily apartment communities on a combined basis averaged higher than 90% occupancyclass as of SeptemberJune 30, 2020. Further, we have no debt maturing until March 20232021 (in thousands, except share and are conservatively leveraged on our stabilized multifamily apartment communities with a total secured debt-to-total assets ratio of 41.2%.per share data):
| | | | | | | | | | | |
| Class |
| A | TX | OP(1) |
As of June 30, 2021 | | | |
Monthly NAV | $ | 149,039 | | $ | 206 | | $ | 369,273 | |
Fully-diluted Outstanding Shares/Units | 12,644,840 | | 17,518 | | 31,330,148 | |
NAV per Fully-diluted Share/Unit | $ | 11.7865 | | $ | 11.7865 | | $ | 11.7865 | |
| | | |
(1) Includes the partnership interests of CROP held by High Traverse Holdings, an entity beneficially owned by Daniel Shaeffer, Chad Christensen, Gregg Christensen and Eric Marlin and other CROP interests, including LTIP Units as described above, held by parties other than us. |
Our InvestmentsSet forth below are the weighted averages of the key assumptions that were used by the Independent Valuation Advisor in the discounted cash flow methodology used in the June 30, 2021, valuations of our real property assets, based on property types.
At September 30, 2020, we had the following investments in multifamily apartment communities: | | | | | | | | | | | |
| Discount Rate | | Exit Capitalization Rate |
Operating Assets | 6.21% | | 4.82% |
Development Assets | 6.90% | | 4.65% |
| | | |
* Presented as adjusted for the Company's economic ownership percentage in each asset, weighted by gross value. |
| | | | | | | | | | | | | | |
Investment Type | Multifamily Community Name | Status | Location | Units |
Wholly-Owned | Cottonwood West Palm | Stabilized community | West Palm Beach, FL | 245 |
Wholly-Owned | Cottonwood One Upland | Stabilized community | Greater Boston, MA | 262 |
B Note | Dolce Twin Creeks, Phase II | Development project | Allen, TX | 366 |
Preferred Equity | Lector85 | Development project | Ybor City, FL | 254 |
Preferred Equity | Vernon Boulevard | Development project | Queens, NY | 534 |
We have also entered into an agreement to potentially provide a preferred equity investment forA change in these assumptions would impact the 2980 Huron Project, a multifamily development in Denver, Colorado.
Investment Activity
On March 19, 2020, we acquired Cottonwood One Upland for $103,600,000, excluding closing costs. We fundedcalculation of the purchase with an initial draw of $50,000,000 from our $67,600,000 credit facility and proceeds from our offerings. Cottonwood One Upland was constructed in 2016 and encompasses 303,840 rentable square feet. Amenities include a swimming pool, clubhouse, outdoor amphitheater, and a dog park.
During the three and nine months ended September 30, 2020, we issued approximately $1,488,000 and $4,942,000, respectively,value of our $10,000,000 B note commitment withoperating and development assets. For example, assuming all other factors remain unchanged, the developer of Dolce Twin Creeks, Phase II, bringing the total amount issued to approximately $6,736,000.
During the three months ended March 31, 2020, we issued approximately $5,211,000 to our joint venture with Milhaus, LLC for the development of Lector85, a 254-unit multifamily project in Ybor City, Florida. This constituted the remaining amount of our $9,900,000 commitment and as such, no additional funding was required subsequent to March 31, 2020.
On July 24, 2020, we and a publicly-traded multifamily REIT (the “Preferred Co-Investor”) made a preferred equity investment in an entity that is developing a three-building multifamily apartment communitychanges listed below would result in the Astoria neighborhood of Queens, New York (the “Project”). Our preferred contribution was $15,000,000 (the “Vernon Boulevard Investment”). The Preferred Co-Investor contributed $40,000,000. In connection withfollowing effects on our investment, we entered a joint venture agreement with the Preferred Co-Investor as well as an entity owned by a New York-based real estateoperating and development investment and management firm (the “Developer”) and a foreign fund. The Developer contributed approximately $62,000,000 in common equity and is the manager of the joint venture.asset values:
| | | | | | | | | | | |
Sensitivities | Change | Operating Asset Values | Development Asset Values |
Discount Rate | 0.25% decrease | 2.1% | 2.6% |
| 0.25% increase | (2.0)% | (2.4)% |
Exit Capitalization Rate | 0.25% decrease | 3.8% | 5.0% |
| 0.25% increase | (3.3)% | (4.4)% |
| | | |
* Presented as adjusted for the Company's economic ownership percentage in each asset. |
PursuantThe following table reconciles stockholders’ equity and CROP partners’ capital per our condensed consolidated balance sheet to the terms of the joint venture agreement, the Vernon Boulevard Investment has a preferred return of 13% per annum and receives a profit participation upon a liquidity event, pari passu alongside the preferred equity contribution from the Preferred Co-Investor. Decisions of the members require approval of a majority in interest of the preferred equity holders and a majority in interest of the common holders. The Vernon Boulevard Investment has an expected redemption of July 2025 and is senior to the common equity. Additional funding for the Project will come from a $225,000,000 construction loan. The total development cost is estimated to be $342,000,000.our NAV (in thousands):
| | | | | |
| June 30, 2021 |
Stockholders’ equity | $ | 94,515 | |
Non-controlling interests attributable to limited partners | 348,604 | |
Total partners' capital of CROP under U.S. GAAP | 443,119 | |
Adjustments at share: | |
Preferred offering costs | (5,609) | |
Goodwill | (439) | |
Deferred tax liabilities | 3,602 | |
Accumulated depreciation and amortization | 22,108 | |
Accumulated depreciation and amortization associated with unconsolidated real estate entities | 2,643 | |
Unrealized promote | 17,012 | |
Unrealized net real estate and debt appreciation | 36,083 | |
NAV | $ | 518,519 | |
The Project is located on a 2.5 acre waterfront sitefollowing details the adjustments to reconcile GAAP stockholders’ equity and is expectedCROP partners' capital per our condensed consolidated balance sheet to have 534 units with approximately 500 net rentable square feet of retail space. The Project will feature a central courtyard/green space and rooftop amenities including a 3,962-square-foot pool deck, outdoor barbecues and lounge areas. Indoor amenities will include a golf room, a music room, an arcade and party room, coworking spaces, and a communal lounge with unobstructed views of the East River and Manhattan skyline. The Project is located within a few blocks of the Astoria Ferry station and less than a mile from the nearest subway station. Construction has commenced on the Project with the majority of the foundation work already complete. The first units are scheduled for delivery in the second quarter of 2022.our NAV:
Results–Our preferred stock is accounted for as a liability with associated issuance costs deferred and amortized under GAAP. These issuance costs are excluded for purposes of Operationsdetermining our NAV.
–We recorded goodwill for the difference between the transaction price of the CRII Merger and the fair value of identifiable assets acquired, liabilities assumed, and non-controlling interests. Goodwill was not included for purposes of determining our NAV.
–We recorded deferred tax liabilities for the tax effects on the difference in the value of certain assets recorded with the CRII Merger and their underlying tax basis. These deferred tax liabilities were excluded for purposes of determining our NAV.
–We depreciate our investments in real estate and amortize certain other assets and liabilities in accordance with GAAP. Such depreciation and amortization is not recorded for purposes of determining our NAV.
–Accumulated depreciation and amortization associated with our investments in unconsolidated real estate entities is also not recorded for purposes of determining our NAV.
–We manage properties on behalf of third parties and under certain agreements have contractual rights to receive promotional interests subject to minimum return hurdles. We do not recognize promotes under GAAP until a liquidation transaction is probable, but do include the fair value of promotes, using a hypothetical liquidation valuation method, for purposes of determining our NAV.
–Our investments in real estate are presented under historical cost in our GAAP consolidated financial statements. Additionally, our mortgage notes, revolving credit facility and construction loans ("Debt") are presented at their carrying value in our consolidated GAAP financial statements. As such, any increases or decreases in the fair market value of our investments in real estate or our Debt are not included in our GAAP results. For purposes of determining our NAV, our investments in real estate and our Debt are recorded at fair value.
We commencedCOVID-19 Pandemic
One of the most significant risks and uncertainties facing the real estate operations on May 30, 2019 withindustry generally continues to be the acquisition of Cottonwood West Palm and, as a result, we have omitted a comparisoneffect of the periods forongoing public health crisis of the nine months ended September 30, 2020 as we do not believe this comparison is meaningful. Our results of operations fornovel coronavirus disease (COVID-19) pandemic. During the three months ended SeptemberJune 30, 20202021, we did not experience significant disruptions in our operations from the COVID-19 pandemic; however, we continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including how the pandemic will impact our tenants and 2019 are as follows:multifamily communities.
| | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 |
Revenues | | | |
Rental and other property revenues | $ | 3,054,823 | | | $ | 1,180,972 | |
Real estate note investment interest | 171,746 | | | 16,699 | |
Total revenues | 3,226,569 | | | 1,197,671 | |
Expenses | | | |
Property operations expense | 1,358,507 | | | 661,181 | |
Reimbursable operating expenses to related parties | 263,915 | | | 148,906 | |
Asset management fee to related party | 811,233 | | | 296,126 | |
Depreciation and amortization | 2,295,445 | | | 1,270,577 | |
General and administrative expenses | 1,534,590 | | | 210,700 | |
Total operating expenses | 6,263,690 | | | 2,587,490 | |
Other (expense) income | | | |
Equity in earnings of unconsolidated real estate entities | 708,067 | | | — | |
Interest income | 6,887 | | | 137,543 | |
Interest expense | (1,045,464) | | | (388,186) | |
Total other expense | (330,510) | | | (250,643) | |
Total expenses before asset management fee waiver | (6,594,200) | | | (2,838,133) | |
Asset management fee waived by Advisor | 48,543 | | | 310,484 | |
Net expenses after asset management fee waiver | (6,545,657) | | | (2,527,649) | |
Net loss | $ | (3,319,088) | | | $ | (1,329,978) | |
| | | |
Weighted-average shares outstanding | 11,225,384 | | | 6,091,617 | |
Net loss per common share - basic and diluted | $ | (0.30) | | | $ | (0.22) | |
We incurred net losses of $3,319,088 and $1,329,978 for the three months ended September 30, 2020 and 2019, respectively. The change was primarily driven by additional operating activity and asset management fees resulting from the acquisition of One Upland in March 2020. General and administrative expenses for the three months ended September 30, 2020 also increased compared to the same period in the prior year primarily due to non-recurring legal and financial advisor costs in
connection withOur Investments
Information regarding our evaluationinvestments as of a strategic transaction. These increasesJune 30, 2021 is as follows:
Stabilized Properties ($ in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Property Name | Location | Number of Units | Average Unit Size (Sq Ft) | Purchase Date | Purchase Date Property Value | Mortgage Debt Outstanding (1) | Physical Occupancy Rate | Percentage Owned by CROP |
3800 Main | Houston, TX | 319 | | 831 | | May 2021 | $ | 58,100 | | $ | 36,177 | | 96.24% | 50.00% |
Alpha Mill (3) | Charlotte, NC | 267 | | 830 | | May 2021 | 69,500 | | 36,265 | | 97.38% | 10.00% |
Cason Estates | Murfreesboro, TN | 262 | | 1,078 | | May 2021 | 51,400 | | 33,594 | | 96.95% | 100.00% |
Cottonwood | Salt Lake City, UT | 264 | | 834 | | May 2021 | 47,300 | | 21,645 | | 96.59% | 100.00% |
Cottonwood Bayview | St. Petersburg, FL | 309 | | 805 | | May 2021 | 95,900 | | 47,686 | | 98.71% | 71.00% |
Cottonwood One Upland | Boston, MA | 262 | | 1,160 | | March 2020 | 103,600 | | 24,000 | | 97.71% | 100.00% |
Cottonwood Reserve | Charlotte, NC | 352 | | 1,021 | | May 2021 | 77,500 | | 38,552 | | 96.02% | 91.14% |
Cottonwood Ridgeview | Plano, TX | 322 | | 1,156 | | May 2021 | 70,000 | | 30,098 | | 95.65% | 90.45% |
Cottonwood West Palm | West Palm Beach, FL | 245 | | 1,122 | | May 2019 | 66,900 | | 35,995 | | 96.33% | 100.00% |
Cottonwood Westside (3) | Atlanta, GA | 197 | | 860 | | May 2021 | 47,900 | | 25,655 | | 92.39% | 10.00% |
Enclave on Golden Triangle | Keller, TX | 273 | | 1,048 | | May 2021 | 51,600 | | 34,000 | | 98.17% | 98.93% |
Fox Point | Salt Lake City, UT | 398 | | 841 | | May 2021 | 79,400 | | 46,000 | | 97.49% | 52.75% |
Heights at Meridian (4) | Durham, NC | 339 | | 997 | | May 2021 | 79,900 | | 33,750 | | 95.58% | 10.00% |
Melrose (6) | Nashville, TN | 220 | | 951 | | May 2021 | 67,400 | | 47,100 | | 95.00% | 100.00% |
Melrose Phase II | Nashville, TN | 139 | | 675 | | May 2021 | 40,350 | | 21,500 | | 94.20% | 24.88% |
Parc Westborough (5) | Boston, MA | 249 | | 1,008 | | May 2021 | 74,000 | | 38,010 | | 97.99% | 35.65% |
Pavilions | Albuquerque, NM | 240 | | 1,162 | | May 2021 | 61,100 | | 37,350 | | 98.33% | 96.35% |
Raveneaux | Houston, TX | 382 | | 1,065 | | May 2021 | 57,500 | | 26,675 | | 97.12% | 96.97% |
Regatta | Houston, TX | 490 | | 862 | | May 2021 | 48,100 | | 35,367 | | 94.68% | 100.00% |
Retreat at Peachtree City | Peachtree City, GA | 312 | | 980 | | May 2021 | 72,500 | | 48,719 | | 95.51% | 100.00% |
Scott Mountain | Portland, OR | 262 | | 927 | | May 2021 | 70,700 | | 48,373 | | 97.71% | 95.80% |
Stonebriar of Frisco | Frisco, TX | 306 | | 963 | | May 2021 | 59,200 | | 36,400 | | 97.71% | 84.19% |
Summer Park | Buford, GA | 358 | | 1,064 | | May 2021 | 75,500 | | 44,620 | | 98.04% | 98.68% |
The Marq Highland Park (3)(6) | Tampa, FL | 239 | | 999 | | May 2021 | 65,700 | | 32,260 | | 99.16% | 10.00% |
Toscana at Valley Ridge | Lewisville, TX | 288 | | 738 | | May 2021 | 47,700 | | 30,700 | | 96.53% | 58.60% |
Total / Weighted-Average | | 7,294 | | 962 | | | $ | 1,638,750 | | $ | 890,491 | | 96.72% | |
| | | | | | | | |
(1) Mortgage debt outstanding is shown as if CROP owned 100% of the property. |
(3) At June 30, 2021, CMRI owned the remaining 90% interest in the property. The property became wholly owned by CROP when the CMRI Merger closed on July 15, 2021. |
(4) At June 30, 2021, CMRII owned the remaining 90% interest in the property. The property became wholly owned by CROP when the CMRII Merger closed on July 15, 2021. |
(5) At June 30, 2021, CMRII owned the remaining 64.35% interest in the property. The property became wholly owned by CROP when the CMRII Merger closed on July 15, 2021. |
(6) Excludes the commercial data in units count and physical occupancy. |
Development Properties ($ in thousands)
| | | | | | | | | | | | | | | | | | | | | | | |
Property Name | Location | Units to be Built | Average Unit Size (Sq Ft) | Purchase Date | Estimated Completion Date | Investment Amount | Percentage Owned by CROP |
Cottonwood on Broadway | Salt Lake City, UT | 254 | 817 | May 2021 | 2Q2022 | $ | 5,769 | | 18.84% (1) |
Park Avenue | Salt Lake City, UT | 234 | 714 | May 2021 | 4Q2021 | 5,708 | | 23.31%(1) |
Sugarmont | Salt Lake City, UT | 341 | 904 | May 2021 | 3Q2021 | 66,959 | | 99.00%(3) |
Cottonwood on Highland (2) | Millcreek, UT | 250 | 757 | May 2021 | 4Q2022 | 8,546 | | 35.55% |
Total | | 1,079 | | | | $ | 86,982 | | |
| | | | | | | |
(1) Cottonwood Multifamily Opportunity Fund, Inc., a fund sponsored by a subsidiary of CROP, indirectly owns a majority of the remaining interest. |
(2) Intended to qualify as a qualified opportunity zone investment. Excludes the commercial data in unit count. |
(3) The one percent interest not owned by us has limited rights, including the right to control on behalf of the joint venture the prosecution and resolution of all litigation, claims, or causes of action that the joint venture has or may have against certain third parties associated with the design and construction of Sugarmont, as well as the obligation to defend any crossclaims resulting from these actions. |
Structured Investments ($ in thousands)
| | | | | | | | | | | | | | | | | | | | |
Property Name | Location | Investment Type | Date of Initial Investment | Number of Units | Funding Commitment | Amount Funded to Date |
Lector85 | Ybor City, FL | Preferred Equity | August 2019 | 254 | $ | 9,900 | | $ | 9,900 | |
Vernon Boulevard | Queens, NY | Preferred Equity | July 2020 | 534 | 15,000 | | 15,000 | |
Riverfront | West Sacramento, CA | Preferred Equity | November 2020 | 285 | 15,092 | | 13,444 | |
Integra Peaks at Damonte | Reno, NV | Mezzanine Loan | June 2021 | 300 | 13,000 | | 5,189 | |
Total | | | | 1,373 | $ | 52,992 | | $ | 43,533 | |
Land Held for Development ($ in thousands)
| | | | | | | | | | | | | | |
Property Name | Location | Purchase Date | Investment Amount | Percentage Owned by CROP |
Block C (1) | Salt Lake City, UT | May 2021 | $ | 1,946 | | 37.40% |
Jasper | Salt Lake City, UT | June 2021 | 2,367 | | 100.00% |
Total | | | $ | 4,313 | | |
| | | | |
(1) Cottonwood Multifamily Opportunity Fund, Inc., a fund sponsored by a subsidiary of CROP, indirectly owns a majority of the remaining interest. |
Results of Operations
Our results of operations for the three and six months ended June 30, 2021 and 2020 are as follows (in thousands, except share and per share data):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Revenues | | | | | | | |
Rental and other property revenues | $ | 16,843 | | | $ | 3,011 | | | $ | 20,015 | | | $ | 4,551 | |
Property management revenues | 2,121 | | | — | | | 2,121 | | | — | |
Other revenues | 277 | | | 118 | | | 523 | | | 189 | |
Total revenues | 19,241 | | | 3,129 | | | 22,659 | | | 4,740 | |
Operating expenses | | | | | | | |
Property operations expense | 6,804 | | | 1,268 | | | 8,152 | | | 1,924 | |
Property management expense | 2,552 | | | — | | | 2,552 | | | — | |
Reimbursable operating expenses | 74 | | | 233 | | | 331 | | | 469 | |
Asset management fee | 1,442 | | | 681 | | | 2,328 | | | 1,130 | |
Performance participation allocation | 6,455 | | | — | | | 6,455 | | | — | |
Depreciation and amortization | 14,482 | | | 2,490 | | | 15,820 | | | 3,334 | |
General and administrative expenses | 2,190 | | | 550 | | | 4,438 | | | 780 | |
Total operating expenses | 33,999 | | | 5,222 | | | 40,076 | | | 7,637 | |
Loss from operations | (14,758) | | | (2,093) | | | (17,417) | | | (2,897) | |
Equity in earnings (losses) of unconsolidated real estate entities | (652) | | | 325 | | | 299 | | | 565 | |
Interest income | 136 | | | 5 | | | 137 | | | 190 | |
Interest expense | (5,824) | | | (897) | | | (7,154) | | | (1,435) | |
Other (expense) income | (302) | | | 12 | | | (275) | | | 140 | |
Net loss | (21,400) | | | (2,648) | | | (24,410) | | | (3,437) | |
Net loss attributable to noncontrolling interests: | | | | | | | |
Limited partners | 12,783 | | | — | | | 12,783 | | | — | |
Partially owned entities | 2,613 | | | — | | | 2,613 | | | — | |
Net loss attributable to common stockholders | $ | (6,004) | | | $ | (2,648) | | | $ | (9,014) | | | $ | (3,437) | |
| | | | | | | |
Weighted-average common shares outstanding | 12,492,221 | | | 10,520,556 | | | 12,362,973 | | | 10,001,922 | |
Net loss per common share - basic and diluted | $ | (0.48) | | | $ | (0.25) | | | $ | (0.73) | | | $ | (0.34) | |
Comparison of the Three Months Ended June 30, 2021 and 2020
We incurred net losses were partially offsetof $21.4 million and $2.6 million for the three months ended June 30, 2021 and 2020, respectively. The change was primarily driven by $708,067the CRII Merger, which closed on May 7, 2021. The results from the quarter include property operations for the CRII portfolio after the merger date as well as results from CRII's affiliate property management business and the performance participation allocation. As part of equitythe merger, we acquired the personnel who have historically performed certain administrative and other services for us. Now we directly employ the individuals that perform these services as well as property management services. Investing activity throughout 2020 as well as the CRII Merger in earnings relatedthe second quarter of 2021 increased gross assets, driving the increase in asset management fees and depreciation and amortization. General and administrative expenses also increased primarily due to our Vernon Boulevardnon-recurring legal, financial advisor, and Lector85 investmentsother costs associated with the CRII Merger, the CMRI Merger and the CMRII Merger. Interest expense increased due to mortgage interest on the assets acquired through the CRII Merger as well as other corporate debt acquired through the merger.
Comparison of the Six Months Ended June 30, 2021 and 2020
We incurred net losses of $24.4 million and $3.4 million for the six months ended June 30, 2021 and 2020, respectively. The change was primarily driven by the CRII Merger, which were fundedclosed on May 7, 2021. The results from the most recent quarter include property operations for the CRII portfolio after Septemberthe merger date as well as results from CRII's affiliate property management business and the performance participation allocation. As part of the merger, we acquired the personnel who have historically performed certain administrative and other services for us. Now we directly employ the individuals that perform these services as well as property management services. The change was also impacted by six months of activity from Cottonwood One Upland in the six months ended June 30, 2019.2021 period, compared to just over three months of activity during
the prior year equivalent period, as Cottonwood One Upland was acquired March 19, 2020. Investing activity throughout 2020 as well as the CRII Merger in the second quarter of 2021 increased gross assets, driving the increase in asset management fees and depreciation and amortization. General and administrative expenses also increased primarily due to non-recurring legal, financial advisor, and other costs associated with the CRII Merger, the CMRI Merger and the CMRII Merger. Interest expense increased due to mortgage interest on the assets acquired through the CRII Merger as well as other corporate debt acquired through the merger.
We expect our results of operations in future periods will continue to fluctuate as we continue to deploy capital in strategic real estate investments. We are in the acquisition phase of our life cycle, and the results of our operations will be impacted by the timing of our acquisitions and the equity raised through our offerings. In addition, our results of operations have been significantly impacted in 2021 due to the significance of the CRII Merger to our portfolio. Accordingly, our operating results for the three and six months ended June 30, 2021 and 2020 are not directly comparable, nor are our results of operations for the three and six months ended June 30, 2021 indicative of those expected in future periods. We believe that our revenues, operating expenses and interest expense will continue to increase in future periods as a result of continued growth in our portfolio and as a result of the effect of anticipated future acquisitions of multifamily apartment communities and investments in multifamily real estate-related assets. Changes in occupancy, fluctuations due to changes in the variable interest rate on our JP Morgan Credit Facilityfloating rate mortgages and our variable rate revolving credit facility and impacts of the COVID-19 pandemic as discussed above could also affect our operating results
As of September 30, 2020, West Palm was occupied at a rate of 91.8% and One Upland was occupied at a rate of 93.9%.results.
Funds from Operations
Funds from operations, or FFO, is a measure of the operating performance of a REIT and of our company. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss (computed in accordance with GAAP), excluding gains or losses from sales of depreciable properties, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for our share of unconsolidated partnerships and joint ventures.
Our management also uses Core FFO as a measure of our operating performance. Core FFO is further adjusted from FFO for the following items included in the determination of GAAP net income: amortization of issuance costs associated with real estate note investments in real-estate related loans and debt, accretion of discounts on preferred stock, the performance participation allocation, acquisition fees and expenses, and amortization of above or below intangible lease assets and liabilities. Our calculation of Core FFO may differ from the methodology used for calculating Core FFO by other REITs and, accordingly, our Core FFO may not be comparable. We believe these measures are useful to investors because they facilitate an understanding of our operating performance after adjusting for non-cash expenses and other items not indicative of ongoing operating performance.
Neither FFO nor Core FFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO and Core FFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor Core FFO should be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
The following table presents the calculation of FFO and Core FFO:
| | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | Three Months Ended September 30, 2019 |
Net loss | $ | (3,319,088) | | | $ | (1,329,978) | |
Adjustments: | | | |
Real estate-related depreciation and amortization | 2,295,445 | | | 1,270,577 | |
FFO | (1,023,643) | | | (59,401) | |
Adjustments: | | | |
Amortization of real estate note investment issuance costs | 12,218 | | | — | |
Accretion of discount on preferred stock | 133,597 | | | — | |
Amortization of debt issuance costs | 58,637 | | | 26,677 | |
Acquisition fees and expenses | 1,187,131 | | | 11,852 | |
Accretion of below market leases | (22,310) | | | — | |
Core FFO | $ | 345,630 | | | $ | (20,872) | |
| | | |
FFO per share - basic and diluted | $ | (0.09) | | | $ | (0.01) | |
Core FFO per share - basic and diluted | $ | 0.03 | | | $ | 0.00 | |
Weighted average shares outstanding | 11,225,384 | | | 6,091,617 | |
FFO (in thousands, except share and per share data):
17 | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net loss attributable to common stockholders | $ | (6,004) | | | $ | (2,648) | | | $ | (9,014) | | | $ | (3,437) | |
Adjustments to arrive at FFO: | | | | | | | |
Real estate related depreciation and amortization | 14,043 | | | 2,490 | | | 15,382 | | | 3,334 | |
Depreciation and amortization from unconsolidated real estate entities | 2,643 | | | — | | | 2,643 | | | — | |
Loss allocated to noncontrolling interests - limited partners | (12,783) | | | — | | | (12,783) | | | — | |
Amount attributable to above from noncontrolling interests - partially owned entities | (3,695) | | | — | | | (3,695) | | | — | |
Funds from operations attributable to common stockholders and unit holders | (5,796) | | | (158) | | | (7,467) | | | (103) | |
Adjustments: | | | | | | | |
Amortization of intangible assets | 438 | | | — | | | 438 | | | — | |
Amortization of investments in real-estate related loan issuance costs | 41 | | | 12 | | | 54 | | | 24 | |
Accretion of discount on preferred stock | 448 | | | 95 | | | 726 | | | 137 | |
Amortization of mortgage note premium/discount | (98) | | | 59 | | | (39) | | | 96 | |
Performance participation allocation | 6,455 | | | — | | | 6,455 | | | — | |
Acquisition fees and expenses (1) | 1,037 | | | 294 | | | 2,746 | | | 354 | |
Accretion of below market leases | (218) | | | (31) | | | (218) | | | (31) | |
Amount attributable to above from unconsolidated real estate entities | 472 | | | — | | | 472 | | | — | |
Other non-recurring adjustments | 326 | | | — | | | 326 | | | — | |
Amount attributable to above from noncontrolling interests - partially owned entities | (95) | | | — | | | (95) | | | — | |
Core funds from operations attributable to common stockholders and unit holders | $ | 3,010 | | | $ | 271 | | | $ | 3,398 | | | $ | 477 | |
| | | | | | | |
FFO per common share and unit - basic and diluted | $ | (0.18) | | | $ | (0.02) | | | $ | (0.34) | | | $ | (0.01) | |
Core FFO per common share and unit - basic and diluted | $ | 0.10 | | | $ | 0.03 | | | $ | 0.15 | | | $ | 0.05 | |
Weighted-average common shares and units outstanding | 31,471,725 | | | 10,520,556 | | | 21,942,268 | | | 10,001,922 | |
| | | | | | | |
(1) Acquisition fees and expenses during the three and six months ended June 30, 2021 and 2020 included costs associated with the CRII Merger, the CMRI Merger, and the CMRII Merger. |
See “Results of ContentsOperations” above for further detail.
Policies Regarding Operating Expenses
Commencing with the quarter ended March 31, 2020, ourOur advisor must reimburse us the amount by which our aggregate total operating expenses for the four fiscal quarters then ended exceed the greater of 2% of our average invested assets or 25% of our net income, unless the conflicts committee has determined that such excess expenses were justified based on unusual and non-recurring factors. For the four consecutive quarters ended June 30, 2021, our total operating expenses exceeded the charter limitation.
Our conflicts committee determined that the relationship of our total operating expenses and its net assets was justified for the four fiscal quarters ended SeptemberJune 30, 20202021 given the costs of operating a public company, and the early stage of our operations, and the costs of the CRII Merger, the CMRI Merger and the CMRII Merger. Accordingly, the conflicts committee approved total operating expenses in excess of the operating expense reimbursement obligation in the thirdsecond quarter of 2020.2021.
Liquidity and Capital Resources
Our principal demands for funds during the short and long-term are and will be for the acquisition of multifamily apartment communities and investments in multifamily real estate-related assets; operating expenses, including the management fee we pay to our advisor and the performance participation allocation, capital expenditures and general and administrative expenses; payments under debt obligations; redemptionsrepurchases of common and preferred stock; and payments of distributions to stockholders. We will obtain the capital required to purchase multifamily apartment communities and make investments in multifamily real estate-related assets and conduct our operations from the proceeds of the Private Offering, the Offering, from our credit facilities, other secured or unsecured financings from banks and other lenders, and from any undistributed funds from our operations, all of which may be adversely effectedaffected by the impact COVID-19.
We intend to strengthen our capital and liquidity positions by continuing to focus on our core fundamentals at the property level. Factors which could increase or decrease our future liquidity include but are not limited to operating performance of the properties owned by our joint ventures, including the impact of COVID-19 pandemic as discussed above.on the properties owned by the joint ventures, volatility in interest rates, and the satisfaction of REIT dividend requirements.
At SeptemberJune 30, 2020,2021, we hadhave $213.5 million of fixed rate debt including our Berkadia Credit Facility and $545.6 million of variable rate debt, including our JP Morgan Revolving Credit Facility and including $80.8 million of variable rate debt related to construction loans; $440.8 million, or 80.8% of our variable rate debt is accompanied by interest rate cap hedging instruments as required by the lenders. In addition, CROP has issued unsecured promissory notes in several private placement offerings, in an aggregate amount of $48.6 million at June 30, 2021.
Regarding credit facilities, at June 30, 2021, we have the Berkadia Credit Facility, secured by Cottonwood West Palm, and the JP Morgan Revolving Credit Facility, secured by Cottonwood One Upland, for which we have advances of $35,995,000approximately $36.0 million and $48,500,000,$24.0 million, respectively. There is no limit on the amount that we can draw on the Berkadia Credit Facility so long as we maintain the loan-to-value ratio and other requirements as set forth in the loan documents. We may obtain advances secured against One Upland up to $67,600,000$67.6 million on the JP Morgan Revolving Credit Facility, as well as finance other future acquisitions up to $125,000,000.$125.0 million in total revolving debt capacity. We can draw upon or pay down these credit facilitiesthe JP Morgan Revolving Credit Facility at our discretion, subject to loan-to-value requirements, debt service coverage ratios and other covenants and restrictions as set forth in the loan documents.
We must also redeem the Series 2019 Preferred Stock for cash at a redemption price per share equal to $10.00 plus any accrued and unpaid dividends, to the extent there are funds legally available, on December 31, 2023. This date may be extended by two one-year extension options. In addition, we must also redeem the Series 2016 Preferred Stock and Series 2017 Preferred Stock issued in the CRII Merger for cash at a redemption price equal to $10.00 per share plus any accrued and unpaid dividends to the extent there are any funds legally available, on their respective redemption dates. The initial redemption date was January 31, 2021 for the Series 2016 Preferred Stock and it was extended to January 31, 2022 and may be extended for an additional one year. The redemption date for the Series 2017 Preferred Stock is January 31, 2022 and may be extended by two one-year extension options.
In addition to making investments in accordance with our investment objectives, we expect to use our capital resources to pay offering costs in connection with the Private Offering and the Offering upon its resumption, as well as make certain payments to our advisor and our affiliated property manager pursuant to the terms of our advisory and property management agreements.agreement.
We elected to be taxed as a REIT under the Internal Revenue Code beginning with our taxable year ended December 31, 2019. To maintain our qualification as a REIT, we will be required to make aggregate annual distributions to our stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends-paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash:
| | | | | | | | | | | | | | |
| | Nine Months Ended September 30, |
| | 2020 | | 2019 |
Net cash provided by operating activities | | $ | 175,357 | | | $ | 192,451 | |
Net cash used in investing activities | | (79,053,573) | | | (32,364,478) | |
Net cash provided by financing activities | | 39,192,488 | | | 65,502,776 | |
Net (decrease) increase in cash and cash equivalents and restricted cash | | $ | (39,685,728) | | | $ | 33,330,749 | |
cash (in thousands):
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| | 2021 | | 2020 |
Net cash provided by operating activities | | $ | 5,807 | | | $ | 540 | |
Net cash provided by (used in) investing activities | | 21,550 | | | (62,459) | |
Net cash provided by financing activities | | 25,293 | | | 36,935 | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | $ | 52,650 | | | $ | (24,984) | |
Net cash flows provided by operating activities were $5.8 million during the six months ended June 30, 2021, as a result of the CRII Merger which resulted in increased tenant receipts and property management fees. This is also due to income from structured investments, an increase in accounts payable and accrued liabilities offset by operating expenses, and payment of Preferred Stock interest. Cash flows provided by operating activities for the same period in 2020 were $175,357 during the nine months ended September 30, 2020,$540,000, primarily as a result of tenant receipts and interest income received on the Dolce B-Note, the Lector85 Investment, and interest received for cash on deposit
combined with the deferral of payment on accounts payable, accrued expenses,related party payables and other liabilities. Cash flows provided by operating activities during the nine months ended September 30, 2019 were $192,451, primarily as a result of four months of real estate income since the acquisition of Cottonwood West Palm combined with the deferral of payment on accounts payable, accrued expenses, and other liabilities.
Cash flows provided by in investing activities were $21.6 million during the six months ended June 30, 2021, primarily due to the cash acquired in connection with the CRII Merger, repayment on the Dolce B-Notes, offset by funding of preferred equity at Riverfront, draws on the Integra Peaks mezzanine loan, capital improvements and development activities. Cash flows used in investing activities were $79,053,573 during$62.5 million for the nine months ended September 30,same period in 2020 due to our purchase of Cottonwood One Upland, draws on the Vernon Boulevard Investment,Dolce B-Note, draws on the Lector85 Investment, and the Dolce B-Note, as well as cash invested in capital improvements. Cash flows used in investing activities were $32,364,478 during the nine months ended September 30, 2019, primarily due to our purchase of Cottonwood West Palm and draws on the Dolce B-Note.
Cash flows provided by financing activities were $39,192,488$25.3 million during the ninesix months ended SeptemberJune 30, 2021, as a result of net proceeds we received from the issuance of Series 2019 Preferred Stock, proceeds from construction loans offset partially by distributions paid to both common stockholders and noncontrolling interest holders and net repayments made on our JP Morgan Revolving Credit Facility. Cash flows provided by financing activities were $36.9 million for the same period in 2020, driven mainly by the net proceeds we received from the issuance of our common stock and our Series 2019 Preferred Stock offset partially by distributions paid to common stockholders andas well as net repayments made onadvances from our JP Morgan Revolving Credit Facility. Cash flows provided by financing activities were $65,502,776 during the nine months ended September 30, 2019, due to the net proceeds we received from the issuance of our common stock, which wereFacility, offset partially by distributions paid to common stockholders.
Distributions
Distributions declared,The following table shows distributions paid and cash flow used inprovided by (used in) operating activities were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Distributions Paid(3) | |
Three Months Ended | Distributions Declared(1) | Distributions Declared Per Share(1)(2) | Cash | Reinvested (DRP) | Total | Cash Provided By (Used In) Operating Activities |
March 31, 2020 | $ | 1,183,119 | | 0.11648918 | | $ | 888,805 | | $ | 237,326 | | $ | 1,126,131 | | $ | 571,878 | |
June 30, 2020 | 1,309,923 | | 0.12054900 | | 1,017,593 | | 274,570 | | 1,292,163 | | (32,296) | |
September 30, 2020 | 1,412,921 | | 0.12205853 | | 1,090,610 | | 293,235 | | 1,383,845 | | (364,225) | |
Total | $ | 3,905,963 | | | $ | 2,997,008 | | $ | 805,131 | | $ | 3,802,139 | | $ | 175,357 | |
during the six months ended June 30, 2021 and the year ended December 31, 2020 (in thousands):
| | | | | | | | | | | |
| Six Months Ended June 30, | | Year Ended December 31, 2020 |
Distributions paid in cash - common stockholders | $ | 3,049 | | | $ | 4,145 | |
Distributions paid in cash to noncontrolling interests - limited partners | 2,156 | | | — | |
Distributions of DRP (reinvested) | — | | | 1,107 | |
Total distributions (1) | $ | 5,205 | | | $ | 5,252 | |
| | | |
Source of distributions (2) | | | |
Paid from cash flows provided by operations | $ | 5,205 | | | $ | 572 | |
Paid from offering proceeds | — | | | 3,573 | |
Offering proceeds from issuance of common stock pursuant to the DRP | — | | | 1,107 | |
Total sources | $ | 5,205 | | | $ | 5,252 | |
| | | |
Net cash provided by (used in) operating activities (2) | $ | 5,807 | | | $ | (2,816) | |
| | | |
(1) Distributions are paid on a monthly basis. In general, distributions for all record dates of a given month are paid on or about the fifth business day of the following month. |
(2) The allocation of total sources are calculated on a quarterly basis. Generally, for purposes of determining the source of our distributions paid, we assume first that we use positive cash flow from operating activities from the relevant or prior quarter to fund distribution payments. As such, amounts reflected above as distributions paid from cash flows provided by operations may be from a prior quarter which had positive cash flow from operations. |
(1) Distributions for the periods from January 1, 2020 through September 30, 2020 were based on daily record dates and were calculated at a rate of $0.00136612 per share per day.(2) Assumes share was issued and outstanding each day during the period presented.
(3) Distributions are paid on a monthly basis. In general, distributions for all record dates of a given month are paid on or about the fifth business day of the following month.
For the threesix months ended SeptemberJune 30, 2020,2021, distributions declared to common stockholders and limited partners were approximately $3.1 million and $2.3 million, respectively. For the six months ended June 30, 2021, we paid aggregate distributions to common stockholders and limited partners of $1,383,845, including $1,090,610 distributionsapproximately $3.0 million and $2.2 million, all paid in cash and $293,235 of distributions reinvested throughdue to our distribution reinvestment plan.plan being suspended. For the ninesix months ended SeptemberJune 30, 2020, we paid aggregate distributions of $3,802,139, including $2,997,008 distributions paid in cash and $805,131 of distributions reinvested through2021, our distribution reinvestment plan. Our net loss for the nine months ended September 30, 2020 was $6,756,268.approximately $24.4 million. Cash flows provided by operating activities for the ninesix months ended SeptemberJune 30, 20202021 was $175,357. Weapproximately $5.8 million. For the six months ended June 30, 2021, we funded our total common share distributions paid which includes net cash distributions and distributions reinvested by shareholders, with $571,878 prior period cash provided by operating activities and $3,230,261 of offering proceeds.activities. Generally, for purposes of determining the source of our distributions paid, we assume first that we use cash flow from operating activities from the relevant or prior periods to fund distribution payments. To the extent that we pay distributions from sources other than our cash flow from operating activities, we will have less funds available for the acquisition of real estate investments, the overall return to our stockholders may be reduced and subsequent investors will experience dilution. In addition, to the extent distributions exceed cash flow from operating activities, a stockholder's basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gain.
Critical Accounting Policies
Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the period ending December 31, 20192020 for discussions of our critical accounting policies. As of SeptemberJune 30, 2020,2021, our critical accounting policies have not changed from those describedpolicy over investments in that report.real estate, specifically with regards to the acquisition of real estate, continues to be considered critical. With the consummation of the CRII Merger, we also consider our accounting policy for business combinations under ASC 805 to be critical. See Note 2 of the condensed consolidated financial statements in this Part I of this report for information regarding this policy.
Subsequent Events
StatusCompletion of the Private Offering
As of November 10, 2020, we had sold 2,620,480 shares of Series 2019 Preferred Stock for aggregate gross offering proceeds of $26,088,409. In connection with the sale of these shares in the Private Offering, the Company paid aggregate selling commissions of $1,704,428CMRI Merger and placement fees of $506,930.CMRII Merger
StatusOn July 15, 2021, we completed the CMRI Merger and the CMRII Merger, each through a stock-for-stock transaction as described in Note 1 to our condensed consolidated financial statements included in Part I of this report. At the effective time of the Offering
AsCMRI Merger, each issued and outstanding share of November 10, 2020, we had sold 11,799,847CMRI’s common stock converted into 1.175 shares of our Class A common stock. At the effective time of the CMRII Merger, each issued and outstanding share of CMRII’s common stock converted into 1.072 shares of our Class A common stock. We issued 10,995,210 shares of our Class A common stock upon the closing of the mergers. Each asset held by CMRI and 17,516 sharesCMRII was owned through joint ventures with CROP. As a result of the consummation of the CMRI Merger and the CMRII Merger our Class T common stockownership interest in the Offeringproperties held through joint ventures with CROP increased to 100%.
Pro forma revenues and earnings have not been presented as the initial accounting for aggregate gross offering proceedsthe transaction is incomplete as of $117,566,430. Includedthe date the consolidated financial statements are issued. We are in these amounts were 140,781the process of assessing the fair value of the acquired tangible assets, liabilities assumed and any applicable intangible assets and liabilities for this business combination.
Distribution Reinvestment Plan
On August 10, 2021, our board of directors adopted and amended and restated distribution reinvestment plan. The per share purchase price for shares of common stock soldpurchased pursuant to the DRP Programdistribution reinvestment plan will be equal to the transaction price for aggregate gross offering proceedssuch shares in effect on the distribution date. Shares will generally be sold at the prior month’s NAV per share of $1,407,811.the class of share being purchased (which will be our most recently disclosed NAV per share at such time). We may offer shares at a price that we believe reflects the NAV per share of such stock more appropriately than the prior month’s NAV per share (including by updating a previously disclosed transaction price) where we believe there has been a material change (positive or negative) to our NAV per share since the end of the prior month. However, our board of directors may determine, in its sole discretion, to designate certain distributions as ineligible for reinvestment through the distribution reinvestment plan, without notice to participants, without suspending the plan and without affecting the future operation of the plan with respect to participants.
Dividends Paid - Series 2019 Preferred StockSixth Amended and Restated CROP Partnership Agreement
SubsequentAt the effective time of the CMRI Merger and the CMRII Merger, we, through our wholly owned subsidiary, the sole general partner of CROP, entered the Sixth Amended and Restated Limited Partnership Agreement of CROP (the “Sixth OP Agreement”) by and among Merger Sub, CCA III, the special limited partner and the Limited Partners set forth on Exhibit A thereto. The Sixth OP Agreement amends the previous operating partnership agreement to September 30, 2020reflect the mergers of the operating partnerships of CMRI and through the date of this report, we paid $190,539 of dividends to holders of record of Series 2019 Preferred Stock at an effective annual rate of 5.5% on the $10.00 purchase price, assuming distributions are paid every day for a yearCMRII into CROP at the daily distribution rate.effective time of the mergers.
Dividends Declared - Series 20192016 Preferred Stock
On November 11, 2020,August 10, 2021, our board of directors declared cash distributions at a daily distribution rate of $0.00150273$0.00191781 to holders of record of our Series 2016 Preferred Stock for December 2020each day in the months of September, October and November 2021. The daily distribution rate is equal to 7.0% annually on the $10.00 purchase price.
Dividends Declared - Series 2017 Preferred Stock
On August 10, 2021, our board of directors declared cash distributions at a daily distribution rate of $0.00150685$0.00205479 to holders of record of our Series 2017 Preferred Stock for Januaryeach day in the months of September, October and FebruaryNovember 2021. The daily distribution rate is equal to 7.5% annually on the $10.00 purchase price.
Dividends Declared - Series 2019 Preferred Stock
On August 10, 2021, our board of directors declared cash distributions at a daily distribution rate of $0.00150685, or 5.5% annually on the $10.00 purchase price, to holders of record of our Series 2019 Preferred Stock for each day in the months of December 2020, January 2021September, October and FebruaryNovember 2021.
Distributions Paid - Common Stock
Subsequent to September 30, 2020 and through the date of this report, we paid $962,567 of distributions to our common stockholders at an effective annual rate of 5% on the $10.00 purchase price, assuming distributions are paid every day for a year at the daily distribution rate.
Distributions Declared - Common Stock
OurOn August 10, 2010, our board of directors has authorized cash distributions ondeclared a gross distribution for the outstanding sharesmonth of September of $0.04333333, or $0.52 annually, for each class of our common stock basedto holders of record on daily record dates as follows:
| | | | | | | | | | | | | | |
Authorization Date | Period | Daily Distribution Amount | Annualized Rate (1) | Expected Payment |
October 25, 2020 | November 1, 2020 – November 30, 2020 | $0.00136612 | 5% | December 2020 |
November 11, 2020 | December 1, 2020 – December 31, 2020 | $0.00136612 | 5% | January 2021 |
November 11, 2020 | January 1, 2021 – January 31, 2021 | $0.00136986 | 5% | February 2021 |
November 11, 2020 | February 1, 2021 – February 28, 2021 | $0.00136986 | 5% | March 2021 |
(1) Annualized rate is based on the $10.00 purchase price and assumes distributions are paid every day for a year at the daily distribution amount. |
HoldersSeptember 25, 2021, to be paid in October.. Each class of our common stock may choosewill receive the same aggregate gross distribution per share. The net distribution varies for each class based on applicable distribution fees, which are deducted from the monthly distribution per share and paid directly to receive cash distributions or purchase additional shares.the applicable distributor.
Distributions Declared - CROP Units
20As the sole member of the sole general partner of CROP, we declared distributions on Common Limited OP Units and Preferred OP Units to correspond to the distributions declared on our common stock and preferred stock.
Folllow-On Offering
On August 12, 2021, we filed a registration statement to register $1.0 billion in shares of common stock in a follow-on offering, consisting of $900.0 million in shares of common stock offered in a primary offering and $100.0 million in shares of common stock through the DRP Offering.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Quantitative and qualitative disclosures about market risk have been omitted as permitted under rules applicable to smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chief Executive Officer and Chief Financial Officer, we evaluated 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 SeptemberJune 30, 2020.2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of SeptemberJune 30, 2020,2021, our disclosure controls and procedures were effective.
Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20202021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be involved in various claims and legal actions arising in the ordinary course of business. As of SeptemberJune 30, 2020,2021, we were not involved in any material legal proceedings.
Item 1A. Risk Factors
We have omitted risk factors from this Quarterly Report on Form 10-Q pursuant to rules applicable to smaller reporting companies. See the prospectus for the Offering, as amended to date for risk factors which materially affect our business, financial condition or results of operations.None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
Information about the Private Offering and sales of the Series 2019 Preferred Stock in the Private Offering during the period covered by this Report has been previously furnished under Item 3.02 in Current Reports on Form 8-K as filed with the SEC.
Use of Proceeds
On August 13, 2018,We have registered $750.0 million in shares of common stock in an initial public offering (the "Offering"), consisting of $675.0 million of shares of common stock offered in our Registration Statement on Form S-11 (File No. 333-215272), covering ourprimary offering of up to $750,000,000and $75.0 million in shares of common stock through a primary offering of $675,000,000 and aour distribution reinvestment plan ("DRP"(the "DRP Offering”) offering. The Offering commenced in August 2018 and is currently suspended as of $75,000,000, was declared effective underDecember 2020. Prior to the Act. We commenced our initial public offering on August 13, 2018 upon retaining Orchard Securities, LLC as the dealer managersuspension, two classes of our offering. Initially we were offering unclassified shares of our common stock were available to purchase in the primary offeringOffering: Class A and Class TX (previously designated Class T) at a purchase price of $10.00 per share (with discounts available to certain categories of purchasers) and unclassified. These shares ofhad different underwriting compensation structures that our common stock inadvisor paid on our behalf. When we resume the DRP Offering at $10.00 per share, all without any upfront costs or expenses chargedwe expect to the investor. Effective October 15, 2019, pursuant to a post-effective amendment to our Registration Statement on Form S-11 filed October 9, 2019, we commenced offering twooffer three new classes of shares of common stock: Class A and Class T, both at $10.00 per share (with discounts available to certain categories of purchasers of our Class A shares). The share classes have a different selling commission structure; however, any offering-related expenses are being paid by our advisor without reimbursement by us. We are offering to sell any combination of our Class A and Class T common stock with a dollar value up to the maximum offering amount. We reserve the right to reallocate shares betweenin the primary offering, newly designated Class T, Class D and Class I, and all five classes in the DRP Offering. We expect our primary offeringUnderwriting compensation for the new classes will be paid by investors through an adjustment to last until August 13, 2021 (unless extended as permitted by applicable securities laws). We may sell shares under the DRP Offering beyond the terminationpurchase price of the primary offering until we have sold all the shares under the plan.or borne by us.
As of SeptemberJune 30, 2020,2021, we had sold 11,589,56112,246,078 and 17,51217,518 shares of Class A and Class TTX (formerly Class T) common stock, respectively, in the Offering for aggregate gross offering proceeds of approximately $115,461,000,$122.0 million, including 120,673150,797 combined shares of Class A or Class TTX common stock in the DRP Offering for aggregate gross offering proceeds of $1,206,734.approximately $1.5 million.
As of September 30, 2020, organizationPrior to the entry into the amended and offering costs of approximately $13,341,000 have been incurred by our advisor in connection with the Offering. Our advisor is obligated to payrestated advisory agreement on May 7, 2021, all organization and offering costs in connection with the Offering, with the exception of costs incurred in connection with restructuring the Offering following the CRII Merger, were the obligation of our advisor. We did not incur any liability for or reimburse our advisor for any organizational and offering costs through May 7, 2021, the date of the CRII Merger. As of June 30, 2021, our advisor had incurred approximately $14.1 million in organizational and offering costs from the issuance of our Class A and Class TX common stock. Following the execution of the amended and restated advisory agreement, organizational and offering costs for the Offering, with the exception of the deferred selling commission on our behalf.the Class TX shares, are paid by investors through an adjustment to the purchase price or borne by us.
Proceeds from the Offering have been and will be used to invest directly or indirectly in multifamily apartment communities and multifamily real estate-related assets, including potential development projects, located throughout the United States. As of SeptemberJune 30, 2020,2021, we had used the proceeds from the Offering, the Private Offering, and debt financing to invest approximately $202,795,000$210.4 million in our multifamily apartment community investments.
Share Repurchase Program
Information regarding the shares available for repurchase under our share repurchase program and the price at which we repurchase shares is found in Note 1112 to our condensed consolidated financial statements in Part I of this report.
As of September 30, 2020, we redeemed 31,307 and 0 shares of Class A and Class T common stock, respectively, in the Offering pursuant to our share redemption program for $268,613, which was an average repurchase price of $8.58. During
the nine months ended September 30, 2020, we fulfilled all redemption requests eligible for redemption under our share repurchase program and received in good order. We funded redemptions under our share repurchase program with the proceeds from our distribution reinvestment plan.
The total amount of aggregate repurchased shares will be limited to 5% of the weighted average number of shares of common stock outstanding during the prior calendar year. In addition, during any calendar year, we may redeem only the number of shares that we could purchase with the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year. Following the redemptions during the nine months ended September 30, 2020, we have $132,990 available for redemption of shares eligible for redemption for the remainder of 2020.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not applicable
Item 5. Other Information
NoneAmended and Restated Distribution Reinvestment Plan
On August 10, 2021, our board of directors adopted an amended and restated distribution reinvestment plan. Our distribution reinvestment plan allows stockholders to have their cash distributions attributable to the class of shares owned automatically reinvested in additional shares of the same class. The per share purchase price for shares purchased pursuant to the distribution reinvestment plan will be equal to the transaction price for such shares in effect on the distribution date. Shares will generally be sold at the prior month’s NAV per share of the class of share being purchased (which will be our most recently disclosed NAV per share at such time). Although the price paid for shares of our common stock pursuant to our distribution reinvestment plan will generally be based on the prior month’s NAV per share, the NAV per share of such stock as of the date on which the shares purchased is settled may be significantly different. We may offer shares at a price that we believe reflects the NAV per share of such stock more appropriately than the prior month’s NAV per share (including by updating a previously disclosed transaction price) where we believe there has been a material change (positive or negative) to our NAV per share since the end of the prior month. However, our board of directors may determine, in its sole discretion, to designate certain distributions as ineligible for reinvestment through the distribution reinvestment plan, without notice to participants, without suspending the plan and without affecting the future operation of the plan with respect to participants.
Stockholders do not pay selling commissions or a dealer manager fees with respect to shares purchased pursuant to the distribution reinvestment plan. However, the ongoing distribution fees with respect to Class T and Class D shares are allocated on a class-specific basis and borne by all shares of such class, including shares issued under the distribution reinvestment plan with respect to such share classes. These class-specific fees may differ for each class, even when the NAV per share for each class is the same. Each class of shares may have a different NAV per share due to the allocation of distribution fees. We normally expect that the allocation of ongoing distribution fees on a class-specific basis will result in different amounts of distributions being paid to each of our share classes. However, if no distributions are authorized for a certain period, or if they are authorized in an amount less than the allocation of class-specific fees with respect to such period, then pursuant to our valuation guidelines, the class-specific fee allocations may lower the net asset value of our shares subject to a class specific expense.
Shares acquired under the distribution reinvestment plan entitle the participant to the same rights and will be treated in the same manner as shares of that class purchased in the primary offering.
Participants may terminate their participation in the distribution reinvestment plan at any time by delivering a written notice to us. Such notice must be received by us at least ten days prior to a distribution date in order for a participant’s termination to be effective for such distribution date. If we repurchase a portion of a participant’s shares, the participant’s participation in the distribution reinvestment plan with respect to the participant’s shares that were not repurchased will not be terminated unless the participant requests such termination pursuant to the distribution reinvestment plan. Our board of directors may amend, suspend or terminate the distribution reinvestment plan for any reason at any time upon ten days’ notice to participants. We may provide notice by including such information (a) in a Current Report on Form 8-K or in our annual or quarterly reports, all publicly filed with the SEC or (b) in a separate mailing to the participants. A stockholder’s participation in the plan will be terminated to the extent that a reinvestment of such stockholder’s distributions in our shares would cause the percentage ownership or other limitations contained in our charter to be violated.
Multiple Class Plan
On August 10, 2021, our board of directors adopted a multiple class plan to set forth the method by which distributions among classes of common stock shall be determined relative to each other. Under our multiple class plan, distributions are made on all classes of our common stock at the same time. The per share amount of distributions on Class T, Class D, Class I, Class A and Class TX will not be identical because of class-specific distribution fees that will be deducted from the gross distributions for certain classes. We use the record share method of determining the per share amount of distributions on each class of shares, although our board of directors may choose other methods. The record share method is one of several
distribution calculation methods for multiple-class funds recommended, but not required, by the American Institute of Certified Public Accountants (AICPA). Under this method, the amount to be distributed on shares of our common stock is increased by the sum of all class-specific fees accrued for such period. Such amount is divided by the number of shares of our common stock outstanding on the record date. Such per share amount is reduced for each class of common stock by the per share amount of any class-specific fees allocable to such class.
Articles Supplementary
On August 11, 2021, we filed with the State Department of Assessments and Taxation of the State of Maryland (“SDAT”) articles supplementary to our Articles of Amendment and Restatement that provided for: (i) reclassifying the existing 275,000,000 shares of Class D common stock as unclassified and unissued shares of common stock; (ii) reclassifying and designating 275,000,000 shares of our authorized common stock as shares of Class D common stock; (iii) reclassifying the existing 275,000,000 shares of Class T common stock as unclassified and unissued shares of common stock; (ii) reclassifying and designating 275,000,000 shares of our authorized common stock as shares of Class T common stock (the “Articles Supplementary”). The Articles Supplementary were filed to amend the amount of Total Account-Level Underwriting Compensation (as defined in the Articles Supplementary) which would trigger the conversion of the Class D common stock and the Class T common stock in a stockholder’s account into Class I common stock to 8.0% or 8.5%, respectively, or with respect to both classes, a lower limit as set forth in any applicable agreement. All other terms of the Class D common stock and Class T common stock are as previously disclosed and remain unchanged by the filing of the Articles Supplementary. The Articles Supplementary were effective upon filing.
The description of the Articles Supplementary in this report does not purport to be complete and is qualified in its entirety by reference to the full text of the Articles Supplementary, which are filed as Exhibit 3.13 hereto, and are incorporated by reference herein.
Item 6. Exhibits
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Exhibit Number | Exhibit Description |
2.1 | Agreement and Plan of Merger, dated as of January 26, 2021, by and among the Company, Cottonwood Communities O.P., LP, Cottonwood Communities GP Subsidiary, LLC, Cottonwood Residential O.P., LP and Cottonwood Residential II, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed February 1, 2021 |
2.2 | Agreement and Plan of Merger, dated as of January 26, 2021, by and among the Company, Cottonwood Communities O.P, LP, Cottonwood Communities GP Subsidiary, LLC, Cottonwood Multifamily REIT I O.P., LP and Cottonwood Multifamily REIT I, Inc., incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed February 1, 2021 |
2.3 | Agreement and Plan of Merger, dated as of January 26, 2021, by and among the Company, Cottonwood Communities O.P., LP, Cottonwood Communities GP Subsidiary, LLC, Cottonwood Multifamily REIT II O.P., LP and Cottonwood Multifamily REIT II, Inc., incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed February 1, 2021 |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
3.5 | |
3.6 | |
4.13.7 | |
3.8 | |
3.9 | |
3.10 | |
3.11 | |
3.12 | |
3.13 | |
4.24.1 | |
4.2 | |
4.3 | |
10.1 | |
10.2 | |
| | | | | |
10.3 | |
10.4 | |
10.5 | |
10.6 | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
99.1 | |
101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
*Filed herewith
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | |
| COTTONWOOD COMMUNITIES, INC. |
| | |
| By: | /s/ Enzio CassinisDaniel Shaeffer |
| | Enzio Cassinis,Daniel Shaeffer, Chief Executive Officer |
| | |
| By: | /s/ Adam Larson |
| | Adam Larson, Chief Financial Officer |
Dated: November 13, 2020August 16, 2021