NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business
Bluerock Residential Growth
REIT, Inc. (the “Company”) was incorporated as a Maryland corporation on July 25, 2008. The Company’s objective
is to maximize long-term stockholder value by acquiring and developing well-located institutional-quality apartment properties
in knowledge economy growth markets across the United States. The Company seeks to maximize returns through investments where it
believes it can drive substantial growth in its core funds from operations and net asset value primarily through its Value-Add
and Invest-to-Own investment strategies.
As of June 30, 2019, the
Company held investments in fifty real estate properties, consisting of thirty-five consolidated operating properties and fifteen
properties through preferred equity or mezzanine loan investments. Of the property interests held through preferred equity and
mezzanine loan investments, five are under development, five are in lease-up and five properties are stabilized. The fifty properties
contain an aggregate of 15,251 units, comprised of 11,820 consolidated operating units and 3,431 units through preferred equity
and mezzanine loan investments. As of June 30, 2019, the Company’s consolidated operating properties were approximately 94%
occupied.
The Company has elected
to be treated, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes.
As a REIT, the Company generally is not subject to corporate-level income taxes. To maintain its REIT status, the Company is required,
among other requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal
Revenue Code of 1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify
as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates.
Note 2 – Basis of Presentation and Summary of Significant
Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company operates as
an umbrella partnership REIT in which Bluerock Residential Holdings, L.P. (its “Operating Partnership”), or the Operating
Partnership’s wholly-owned subsidiaries, owns substantially all the property interests acquired and investments made on the
Company’s behalf. As of June 30, 2019, limited partners other than the Company owned approximately 28.23% of the common units
of the Operating Partnership (20.48% is held by holders of limited partnership interest in the Operating Partnership (“OP
Units”) and 7.75% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”),
including 4.64% which are not vested at June 30, 2019).
Because the Company is
the sole general partner of the Operating Partnership and has unilateral control over its management and major operating decisions
(even if additional limited partners are admitted to the Operating Partnership), the accounts of the Operating Partnership are
consolidated in its consolidated financial statements.
The Company also consolidates
entities in which it controls more than 50% of the voting equity and in which control does not rest with other investors. Investments
in real estate joint ventures in which the Company has the ability to exercise significant influence, but does not have financial
or operating control, are accounted for using the equity method of accounting. These entities are reflected on the Company’s
consolidated financial statements as “Preferred equity investments and investments in unconsolidated real estate joint ventures.”
All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. The
Company will consider future investments for consolidation in accordance with the provisions required by the Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation.
In accordance with adoption
of the lease accounting update issued in July 2018, the Company reflects all income earned pursuant to tenant leases in a single
line item, “Rental and other property revenues”, in the 2019 consolidated statements of operations. See
New Accounting
Pronouncements
below. To facilitate comparability, the Company has reclassified lease and non-lease income for prior periods
to conform to the current period presentation.
Summary of Significant Accounting Policies
Preferred Equity Investments and Investments
in Unconsolidated Real Estate Joint Ventures
The Company first analyzes
an investment to determine if it is a variable interest entity (“VIE”) in accordance with Topic ASC 810 and, if so,
whether the Company is the primary beneficiary requiring consolidation. A VIE is an entity that has (i) insufficient equity
to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics
of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both
the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to
absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable
interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair
value of the VIE’s net assets. The Company continuously re-assesses at each level of the investment whether the entity is
(i) a VIE, and (ii) if the Company is the primary beneficiary of the VIE. If it was determined that an entity in which the
Company holds an interest qualified as a VIE and the Company was the primary beneficiary, the entity would be consolidated.
If, after consideration
of the VIE accounting literature, the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation
under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority
voting interest held by the Company providing control.
In assessing whether the
Company is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company
evaluates the respective rights and privileges afforded each member or partner (collectively referred to as “member”).
The Company’s member would not be deemed to control the entity if any of the other members have either (i) substantive kickout
rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without
cause or (ii) has substantive participating rights in the entity. Substantive participating rights (whether granted by contract
or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be
made in the ordinary course of business.
If it has been determined
that the Company does not have control but does have the ability to exercise significant influence over the entity, the Company
accounts for these unconsolidated investments under the equity method of accounting. The equity method of accounting requires
these investments to be initially recorded at cost and subsequently increased (decreased) for the Company’s share of net
income (loss), including eliminations for the Company’s share of intercompany transactions, and increased (decreased) for
contributions (distributions). The Company’s proportionate share of the results of operations of these investments is reflected
in the Company’s earnings or losses.
Fair Value Measurements
For financial assets and
liabilities recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would expect to receive
to sell an asset, or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date under
current market conditions. In the absence of such data, fair value is estimated using internal information consistent with what
market participants would use in a hypothetical transaction.
In determining fair value,
observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s
market assumptions; preference is given to observable inputs. In accordance with accounting principles generally accepted in the
Unites States of America (“GAAP”) and as defined in ASC Topic 820, “Fair Value Measurement”, these two
types of inputs create the following fair value hierarchy:
|
|
·
|
Level 1: Quoted prices for
identical instruments in active markets
|
|
|
·
|
Level 2: Quoted prices for
similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and
model-derived valuations whose inputs are observable or whose significant value drivers are observable
|
|
|
·
|
Level 3: Significant inputs
to the valuation model are unobservable
|
If the inputs used to
measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level
input that is significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine
fair value. In the absence of quoted market prices, the Company uses independent sources and data to determine fair value.
Financial Instrument Fair Value Disclosures
As of June 30, 2019 and
December 31, 2018, the carrying values of cash and cash equivalents, accounts receivable, due to and due from affiliates, accounts
payable, accrued liabilities, and distributions payable approximate their fair value based on their highly-liquid nature and/or
short-term maturities. The carrying values of notes receivable from related parties approximate fair value because stated interest
rate terms are consistent with interest rate terms on new deals with similar leverage and risk profiles. The fair values of notes
receivable are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in
their respective valuations.
Derivative Financial Instruments
The estimated fair values
of derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis
on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period
to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair value of interest
rate caps is determined using the market-standard methodology of discounting the future expected cash receipts which would occur
if floating interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected
receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and
volatilities. The inputs used in the valuation of interest rate caps fall within Level 2 of the fair value hierarchy.
Interim Financial Information
The accompanying unaudited
consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial reporting, and
the instructions to Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, the financial statements for interim reporting
do not include all the information and notes or disclosures required by GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.
Operating results for interim periods should not be considered indicative of the operating results for a full year.
The balance sheet at December
31, 2018 has been derived from the audited financial statements at that date but does not include all the information and disclosures
required by GAAP for complete financial statements. It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in our audited consolidated financial statements for the year
ended December 31, 2018 contained in the Annual Report on Form 10-K as filed with the Securities and Exchange Commission (“SEC”)
on February 27, 2019.
Use of Estimates
The preparation of the
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Other than the adoption
of new accounting pronouncements as described below, there have been no significant changes to the Company’s accounting policies
since it filed its audited consolidated financial statements in its Annual Report on Form 10-K for the year ended December 31,
2018.
New Accounting Pronouncements
In June 2016, the FASB
issued ASU No. 2016-13 “Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13
will require more timely recognition of credit losses associated with financial assets. While current GAAP includes multiple credit
impairment objectives for instruments, the previous objectives generally delayed recognition of the full amount of credit losses
until the loss was probable of occurring. The amendments in ASU 2016-13, whose scope is asset-based and not restricted to financial
institutions, eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current
estimate of all expected credit losses. The amendments in ASU 2016-13 broaden the information that the Company must consider in
developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information
incorporates more timely information in the estimate of expected credit loss that will be more useful to users of the financial
statements. In November 2018, the FASB issued ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments-Credit
Losses” (“ASU 2018-19”). ASU 2018-19 clarifies that operating lease receivables are excluded from the scope of
ASU 2016-13 and instead, impairment of operating lease receivables is to be accounted for under ASC 842. ASU 2016-13 is effective
for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently
evaluating the guidance and the impact this standard may have on the Company’s consolidated financial statements.
In February 2016, the
FASB issued ASU No. 2016-02 “Leases (Topic 842)” (“ASU 2016-02”). Under ASU 2016-02, an entity will be
required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing
arrangements. ASU 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees
and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the
financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, ASU
2016-02 is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting
period, with early adoption permitted. The Company adopted ASU 2016-02 as of January 1, 2019 and elected the package of practical
expedients provided by the standard which includes: (i) an entity need not reassess whether any expired or existing contract is
a lease or contains a lease, (ii) an entity need not reassess the lease classification of any expired or existing leases, and (iii)
and entity need not reassess initial direct costs for any existing leases. The adoption of ASU 2016-02 did not have a material
impact to the Company’s consolidated financial statements. In July 2018, the FASB issued ASU No. 2018-11, “Leases (Topic
842): Targeted Improvements” (“ASU 2018-11”). ASU 2018-11 provides lessors with a practical expedient to not
separate lease and non-lease components if both: (i) the timing and pattern of revenue recognition for the non-lease component
and the related lease component are the same, and (ii) the combined single lease component would be classified as an operating
lease. The Company adopted the practical expedient as of January 1, 2019 to account for lease and non-lease components as a single
component in lease contracts where the Company is the lessor.
Lessor Accounting
The Company’s current
portfolio is focused predominately on apartment properties whereby the Company generates rental revenue by leasing apartments to
residents in its communities. As lease revenues for apartments fall under the scope of Topic 842, such lease revenues are classified
as operating leases with straight-line recognition over the terms of the relevant lease agreement and inclusion within rental revenue.
Resident leases are generally for one-year or month-to-month terms and are renewable by mutual agreement between the Company and
the resident. Non-lease components of the Company’s apartment leases are combined with the related lease component and accounted
for as a single lease component under Topic 842. The balances of net real estate investments and related depreciation on the Company’s
consolidated financial statements relate to assets for which the Company is the lessor.
Lessee Accounting
The Company determines
if an arrangement is a lease at inception. The Company is currently engaged in operating lease agreements that primarily relate
to certain equipment leases. The Company determined that the lessee operating lease commitments have no material impact on its
consolidated financial statements with the adoption of Topic 842. The Company will continue to assess any modification of existing
lease agreements and execution of any new lease agreements for the potential requirement of recording a right-of-use-asset or liability
in the future.
In August 2018, the FASB
issued ASU No. 2018-15 "Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)" (“ASU
2018-15”). ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that
is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software
(and hosting arrangements that include an internal-use software license). ASU 2018-15 is effective for annual periods (including
interim periods within those periods) beginning after December 15, 2019, though early adoption, including adoption in interim periods,
is permissible. The Company has elected early adoption and there has been no material impact to the Company’s consolidated
financial statements upon its adoption of ASU 2018-15.
Note 3 – Sale of Real Estate Asset
and Held for Sale Properties
Sale of Wesley Village II
On March 1, 2019, the Company
closed on the sale of an undeveloped parcel of land known as Wesley Village II located in Charlotte, North Carolina. The parcel
was sold for approximately $1.0 million, subject to certain prorations and adjustments typical in such real estate transactions.
After deduction for closing costs and fees, the sale of the parcel generated net proceeds of approximately $1.0 million, resulting
in a gain on sale of approximately $0.7 million.
Held for sale
The Company has entered
into three separate purchase and sales agreements, and three separate amendments thereto, for the sale of ARIUM Palms, Leigh House,
Preston View, Sorrel and Sovereign (the “Topaz Portfolio”) at an amount more than their carrying values and has classified
the properties as held for sale as of June 30, 2019. Please refer to Note 15 for further information.
Note 4 – Investments in Real Estate
As of June 30, 2019,
the Company held investments in thirty-five consolidated operating properties and fifteen development properties through preferred
equity or mezzanine loan investments. The following tables provide summary information regarding the Company’s consolidated
operating properties and preferred equity and mezzanine loan investments, which are either consolidated or accounted for under
the equity method of accounting.
Consolidated Operating Properties
|
Multifamily Community Name
|
|
Location
|
|
Number of
Units
|
|
|
Date Built /
Renovated
(1)
|
|
|
Ownership
Interest
|
|
|
ARIUM at Palmer Ranch
|
|
Sarasota, FL
|
|
|
320
|
|
|
|
2016
|
|
|
|
100.0
|
%
|
|
ARIUM Glenridge
|
|
Atlanta, GA
|
|
|
480
|
|
|
|
1990
|
|
|
|
90.0
|
%
|
|
ARIUM Grandewood
|
|
Orlando, FL
|
|
|
306
|
|
|
|
2005
|
|
|
|
100.0
|
%
|
|
ARIUM Gulfshore
|
|
Naples, FL
|
|
|
368
|
|
|
|
2016
|
|
|
|
100.0
|
%
|
|
ARIUM Hunter’s Creek
|
|
Orlando, FL
|
|
|
532
|
|
|
|
1999
|
|
|
|
100.0
|
%
|
|
ARIUM Metrowest
|
|
Orlando, FL
|
|
|
510
|
|
|
|
2001
|
|
|
|
100.0
|
%
|
|
ARIUM Palms
|
|
Orlando, FL
|
|
|
252
|
|
|
|
2008
|
|
|
|
100.0
|
%
|
|
ARIUM Pine Lakes
|
|
Port St. Lucie, FL
|
|
|
320
|
|
|
|
2003
|
|
|
|
100.0
|
%
|
|
ARIUM Westside
|
|
Atlanta, GA
|
|
|
336
|
|
|
|
2008
|
|
|
|
90.0
|
%
|
|
Ashford Belmar
|
|
Lakewood, CO
|
|
|
512
|
|
|
|
1988/1993
|
|
|
|
85.0
|
%
|
|
Ashton Reserve
|
|
Charlotte, NC
|
|
|
473
|
|
|
|
2015
|
|
|
|
100.0
|
%
|
|
Citrus Tower
|
|
Orlando, FL
|
|
|
336
|
|
|
|
2006
|
|
|
|
96.8
|
%
|
|
Element
|
|
Las Vegas, NV
|
|
|
200
|
|
|
|
1995
|
|
|
|
100.0
|
%
|
|
Enders Place at Baldwin Park
|
|
Orlando, FL
|
|
|
220
|
|
|
|
2003
|
|
|
|
92.0
|
%
|
|
James at South First
|
|
Austin, TX
|
|
|
250
|
|
|
|
2016
|
|
|
|
90.0
|
%
|
|
Marquis at Crown Ridge
|
|
San Antonio, TX
|
|
|
352
|
|
|
|
2009
|
|
|
|
90.0
|
%
|
|
Marquis at Stone Oak
|
|
San Antonio, TX
|
|
|
335
|
|
|
|
2007
|
|
|
|
90.0
|
%
|
|
Marquis at The Cascades
|
|
Tyler, TX
|
|
|
582
|
|
|
|
2009
|
|
|
|
90.0
|
%
|
|
Marquis at TPC
|
|
San Antonio, TX
|
|
|
139
|
|
|
|
2008
|
|
|
|
90.0
|
%
|
|
Outlook at Greystone
|
|
Birmingham, AL
|
|
|
300
|
|
|
|
2007
|
|
|
|
100.0
|
%
|
|
Park & Kingston
|
|
Charlotte, NC
|
|
|
168
|
|
|
|
2015
|
|
|
|
100.0
|
%
|
|
Plantation Park
|
|
Lake Jackson, TX
|
|
|
238
|
|
|
|
2016
|
|
|
|
80.0
|
%
|
|
Preston View
|
|
Morrisville, NC
|
|
|
382
|
|
|
|
2000
|
|
|
|
100.0
|
%
|
|
Providence Trail
|
|
Mount Juliet, TN
|
|
|
334
|
|
|
|
2007
|
|
|
|
100.0
|
%
|
|
Roswell City Walk
|
|
Roswell, GA
|
|
|
320
|
|
|
|
2015
|
|
|
|
98.0
|
%
|
|
Sands Parc
|
|
Daytona Beach, FL
|
|
|
264
|
|
|
|
2017
|
|
|
|
100.0
|
%
|
|
Sorrel
|
|
Frisco, TX
|
|
|
352
|
|
|
|
2015
|
|
|
|
100.0
|
%
|
|
Sovereign
|
|
Fort Worth, TX
|
|
|
322
|
|
|
|
2015
|
|
|
|
100.0
|
%
|
|
The Brodie
|
|
Austin, TX
|
|
|
324
|
|
|
|
2001
|
|
|
|
92.5
|
%
|
|
The Links at Plum Creek
|
|
Castle Rock, CO
|
|
|
264
|
|
|
|
2000
|
|
|
|
88.0
|
%
|
|
The Mills
|
|
Greenville, SC
|
|
|
304
|
|
|
|
2013
|
|
|
|
100.0
|
%
|
|
The Preserve at Henderson Beach
|
|
Destin, FL
|
|
|
340
|
|
|
|
2009
|
|
|
|
100.0
|
%
|
|
Veranda at Centerfield
|
|
Houston, TX
|
|
|
400
|
|
|
|
1999
|
|
|
|
93.0
|
%
|
|
Villages of Cypress Creek
|
|
Houston, TX
|
|
|
384
|
|
|
|
2001
|
|
|
|
80.0
|
%
|
|
Wesley Village
|
|
Charlotte, NC
|
|
|
301
|
|
|
|
2010
|
|
|
|
100.0
|
%
|
|
Total
|
|
|
|
|
11,820
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents date of last significant renovation
or year built if there were no renovations.
|
Depreciation expense was
$15.8 million and $13.0 million, and $31.6 million and $25.1 million for the three and six months ended June 30, 2019 and 2018,
respectively.
Intangibles related to
the Company’s consolidated investments in real estate consist of the value of in-place leases. In-place leases are amortized
over the remaining term of the in-place leases, which is approximately six months. Amortization expense related to the in-place
leases was $0.4 million and $1.8 million, and $1.9 million and $5.4 million for the three and six months ended June 30, 2019 and
2018, respectively.
Preferred Equity and Mezzanine Loan Investments
|
Multifamily Community Name
|
|
Location
|
|
Actual /
Planned
Number of Units
|
|
|
Actual /
Estimated
Initial
Occupancy
|
|
Actual /
Estimated
Construction
Completion
|
|
Whetstone Apartments
|
|
Durham, NC
|
|
|
204
|
|
|
3Q 2014
|
|
3Q 2015
|
|
Alexan CityCentre
|
|
Houston, TX
|
|
|
340
|
|
|
2Q 2017
|
|
4Q 2017
|
|
Helios
|
|
Atlanta, GA
|
|
|
282
|
|
|
2Q 2017
|
|
4Q 2017
|
|
Alexan Southside Place
|
|
Houston, TX
|
|
|
270
|
|
|
4Q 2017
|
|
1Q 2018
|
|
Leigh House
|
|
Raleigh, NC
|
|
|
245
|
|
|
3Q 2017
|
|
3Q 2018
|
|
Vickers Historic Roswell
|
|
Roswell, GA
|
|
|
79
|
|
|
2Q 2018
|
|
3Q 2018
|
|
Domain at The One Forty
|
|
Garland, TX
|
|
|
299
|
|
|
2Q 2018
|
|
4Q 2018
|
|
Arlo
|
|
Charlotte, NC
|
|
|
286
|
|
|
2Q 2018
|
|
1Q 2019
|
|
Novel Perimeter
|
|
Atlanta, GA
|
|
|
320
|
|
|
3Q 2018
|
|
1Q 2019
|
|
Cade Boca Raton
|
|
Boca Raton, FL
|
|
|
90
|
|
|
4Q 2018
|
|
2Q 2019
|
|
Flagler Village
|
|
Fort Lauderdale, FL
|
|
|
385
|
|
|
2Q 2020
|
|
3Q 2020
|
|
North Creek Apartments
|
|
Leander, TX
|
|
|
259
|
|
|
2Q 2020
|
|
4Q 2020
|
|
Riverside Apartments
|
|
Austin, TX
|
|
|
222
|
|
|
4Q 2020
|
|
1Q 2021
|
|
Wayforth at Concord
|
|
Concord, NC
|
|
|
150
|
|
|
2Q 2020
|
|
3Q 2021
|
|
The Park at Chapel Hill
|
|
Chapel Hill, NC
|
|
|
*
|
|
|
*
|
|
*
|
|
Total
|
|
|
|
|
3,431
|
|
|
|
|
|
* The development is in the planning phase; project specifications are in process.
Note 5 – Acquisition of Real Estate
The following describes
the Company’s significant acquisition activity and related new financing during the six months ended June 30, 2019 (dollars
in thousands):
|
Property
|
|
Location
|
|
Date
|
|
|
Interest
|
|
|
Price
|
|
|
Mortgage
|
|
|
Element
|
|
Las Vegas, NV
|
|
|
June 27, 2019
|
|
|
|
100.0
|
%
|
|
$
|
41,750
|
|
|
$
|
29,260
|
|
|
Providence Trail
|
|
Mount Juliet, TN
|
|
|
June 27, 2019
|
|
|
|
100.0
|
%
|
|
|
68,500
|
|
|
|
47,950
|
|
Purchase Price Allocation
The real estate acquisitions
above have been accounted for as asset acquisitions. The purchase prices were allocated to the acquired assets based on their estimated
fair values at the dates of acquisition.
The following table summarizes
the assets acquired at the acquisition date for acquisitions made during the six months ended June 30, 2019 (amounts in thousands):
|
|
|
Purchase
Price
Allocation
|
|
|
Land
|
|
$
|
13,418
|
|
|
Building
|
|
|
74,898
|
|
|
Building improvements
|
|
|
2,936
|
|
|
Land improvements
|
|
|
16,693
|
|
|
Furniture and fixtures
|
|
|
1,908
|
|
|
In-place leases
|
|
|
1,709
|
|
|
Total assets acquired
|
|
$
|
111,562
|
|
Acquisition of Additional Interests in Properties
In addition to the property
acquisitions discussed above, the Company also acquired the noncontrolling partner’s interest in the following properties
(dollars in thousands):
|
Property
|
|
Date
|
|
|
Amount
|
|
|
Previous Interest
|
|
|
New Interest
|
|
|
ARIUM Pine Lakes
|
|
January 29, 2019
|
|
|
$
|
7,769
|
|
|
|
85.0
|
%
|
|
|
100.0
|
%
|
|
Sorrel
|
|
June 25, 2019
|
|
|
|
738
|
|
|
|
95.0
|
%
|
|
|
100.0
|
%
|
|
Sovereign
|
|
June 25, 2019
|
|
|
|
1,204
|
|
|
|
95.0
|
%
|
|
|
100.0
|
%
|
Note 6 – Notes and Interest Receivable due from Related
Parties
Following is a summary of the notes and accrued
interest receivable due from related parties as of June 30, 2019 and December 31, 2018 (amounts in thousands):
|
Property
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Arlo
|
|
$
|
24,883
|
|
|
$
|
24,893
|
|
|
Cade Boca Raton
|
|
|
12,894
|
|
|
|
11,854
|
|
|
Domain at The One Forty
|
|
|
22,370
|
|
|
|
20,536
|
|
|
Flagler Village
|
|
|
75,409
|
|
|
|
75,436
|
|
|
Novel Perimeter
|
|
|
20,859
|
|
|
|
20,867
|
|
|
The Park at Chapel Hill
|
|
|
8,570
|
|
|
|
—
|
|
|
Vickers Historic Roswell
|
|
|
10,783
|
|
|
|
10,498
|
|
|
Total
|
|
$
|
175,768
|
|
|
$
|
164,084
|
|
Following is a summary of the interest income
from related parties for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Property
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Arlo
|
|
$
|
919
|
|
|
$
|
919
|
|
|
$
|
1,828
|
|
|
$
|
1,829
|
|
|
Cade Boca Raton
|
|
|
467
|
|
|
|
420
|
|
|
|
904
|
|
|
|
835
|
|
|
Domain at The One Forty
|
|
|
805
|
|
|
|
758
|
|
|
|
1,557
|
|
|
|
1,508
|
|
|
Flagler Village
|
|
|
2,400
|
|
|
|
2,400
|
|
|
|
4,773
|
|
|
|
4,395
|
|
|
Novel Perimeter
|
|
|
771
|
|
|
|
771
|
|
|
|
1,533
|
|
|
|
1,533
|
|
|
The Park at Chapel Hill
|
|
|
212
|
|
|
|
—
|
|
|
|
368
|
|
|
|
—
|
|
|
Vickers Historic Roswell
|
|
|
399
|
|
|
|
367
|
|
|
|
786
|
|
|
|
730
|
|
|
Total
|
|
$
|
5,973
|
|
|
$
|
5,635
|
|
|
$
|
11,749
|
|
|
$
|
10,830
|
|
The occupancy percentages
of the Company’s related party properties at June 30, 2019 and December 31, 2018 are as follows:
|
Property
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Arlo
|
|
|
81
|
%
|
|
|
37
|
%
|
|
Cade Boca Raton
|
|
|
66
|
%
|
|
|
8
|
%
|
|
Domain at The One Forty
|
|
|
68
|
%
|
|
|
34
|
%
|
|
Flagler Village
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Novel Perimeter
|
|
|
52
|
%
|
|
|
22
|
%
|
|
The Park at Chapel Hill
|
|
|
(2
|
)
|
|
|
—
|
|
|
Vickers Historic Roswell
|
|
|
66
|
%
|
|
|
41
|
%
|
|
|
(1)
|
The development has
not commenced lease-up.
|
|
|
(2)
|
The development is in
the planning phase; project specifications are in process.
|
Cade Boca Raton Mezzanine Financing
On March 11, 2019, the
Company, through BRG Boca, LLC, increased its mezzanine loan commitment to BR Boca JV Member, LLC (“BR Boca JV Member”)
to $14.0 million, of which $12.7 million has been funded as of June 30, 2019. The increase in the mezzanine loan will provide funding
for additional capital calls, including amounts to be contributed on behalf of Bluerock Special Opportunity + Income Fund II, LLC
(“Fund II”). In exchange for increasing the mezzanine loan,
the
Company received an additional 2.5 basis point discount purchase option and has the right to exercise an option to purchase, at
the greater of a 30.0 basis point discount to fair market value or 15% internal rate of return for Fund II, up to a 100% common
membership interest in BR Boca JV Member.
The loan matures on the earliest to occur of: (i) the latest to occur of (a) March
11, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the date of
sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final payment
of principal becomes due. The loan can be prepaid without penalty.
On June 26, 2019, the
Cade Boca Raton property owner, which is owned by an entity in which the Company owns an indirect interest, extended its construction
loan made by an unaffiliated party such that the extended maturity date is December 31, 2019, changed from the original maturity
date of June 29, 2019. The loan’s two one-year extension options remain, subject to certain conditions including a debt service
coverage, stabilized occupancy and payment of an extension fee. As the loan matures at year-end, the Cade Boca Raton property owner
is engaged in discussions to refinance or replace the loan.
Domain at The One Forty Mezzanine Financing
On
March 11, 2019, the Company, through BRG Domain Phase 1, LLC, (i) increased its mezzanine loan commitment to BR Member Domain Phase
1, LLC (“BR Domain 1 JV Member”) to $24.5 million, of which $22.1 million has been funded as of June 30, 2019, and
(ii) entered into an amended operating agreement for BR Domain 1 JV Member with Fund II, which admits BRG Domain Phase 1 Profit
Share, LLC (“BRG Domain 1 PS”), a wholly-owned subsidiary of the Company, as an additional member of BR Domain 1 JV
Member. As part of the amended agreement, the Company agreed to (i) terminate its option to purchase up to a 100% common membership
interest in BR Domain 1 JV Member, and (ii) reduce the current fixed rate of 15.0% per annum of the mezzanine loan as follows:
(a) 5.5% per annum effective January 1, 2020 through the end of the calendar year 2020, (b) 4.0% per annum for the calendar year
2021, and (c) 3.0% per annum for the calendar year 2022 and thereafter. In exchange, Fund II agreed to grant BRG Domain 1 PS a
50% participation in any profits achieved in a sale after repayment of the mezzanine loan and the Company and Fund II each receive
full return of their respective capital contributions.
The loan matures on the earliest to occur of: (i) the latest to occur
of (a) March 11, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii)
the date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the
final payment of principal becomes due. The loan can be prepaid without penalty.
The Park at Chapel Hill Financing
On January 23, 2019, the
Company, through BRG Chapel Hill Lender, LLC (“BRG Chapel Hill Lender”), an indirect subsidiary, provided a $7.8 million
senior loan (the “BRG Chapel Hill Loan”) to BR Chapel Hill, LLC (“BR Chapel Hill”). BR Chapel Hill JV,
LLC (“BR Chapel Hill JV”) owns a 100.0% interest in BR Chapel Hill and is a joint venture with common interests held
by Bluerock Special Opportunity + Income Fund, LLC (“Fund I”), Fund II, and BR Chapel Hill Investment, LLC, all managed
by affiliates of the former Manager. The BRG Chapel Hill Loan is secured by BR Chapel Hill’s fee simple interest in the Chapel
Hill property. The BRG Chapel Hill Loan matures on January 23, 2021 and bears interest at a fixed rate of 10.0%. Regular monthly
payments are interest-only during the initial term. The BRG Chapel Hill Loan can be prepaid without penalty.
In conjunction with the
BRG Chapel Hill Loan, on January 23, 2019, the Company, through BRG Chapel Hill Lender, provided a $0.8 million mezzanine loan
to BR Chapel Hill JV, which is secured by the Chapel Hill property. The loan bears interest at a fixed rate of 10.0% per annum
and matures on the earliest to occur of: (i) the latest to occur of (a) January 23, 2021 and (b) the applicable maturity date under
any extension granted under any construction financing, or (ii) the date of sale or transfer of property, or (iii) such earlier
date, by declaration of acceleration or otherwise, on which the final payment of principal becomes due. The loan can be prepaid
without penalty.
Vickers Historic Roswell Mezzanine Financing
On February 26, 2019,
the Company, through BRG Vickers Roswell, LLC, increased its mezzanine loan commitment to BR Vickers Roswell JV Member, LLC (“BR
Vickers JV Member”) to $11.8 million, of which $10.7 million has been funded as of June 30, 2019. The increase in the mezzanine
loan will provide funding for additional capital calls, including amounts to be contributed on behalf of Bluerock Special Opportunity
+ Income Fund III, LLC (“Fund III”). In exchange for increasing the mezzanine loan,
the
Company received an additional 5.0 basis point discount purchase option and has the right to exercise an option to purchase, at
the greater of a 17.5 basis point discount to fair market value or 15% internal rate of return for Fund III, up to a 100% common
membership interest in BR Vickers JV Member.
The loan matures on the earliest to occur of: (i) the latest to occur of (a)
February 26, 2022 and (b) the applicable maturity date under any extension granted under any construction financing, or (ii) the
date of sale or transfer of property, or (iii) such earlier date, by declaration of acceleration or otherwise, on which the final
payment of principal becomes due. The loan can be prepaid without penalty.
Note 7 – Preferred Equity Investments
and Investments in Unconsolidated Real Estate Joint Ventures
The carrying amount of
the Company’s preferred equity investments and investments in unconsolidated real estate joint ventures as of June 30, 2019
and December 31, 2018 is summarized in the table below (amounts in thousands):
|
Property
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
|
|
|
|
|
|
|
|
Alexan CityCentre
|
|
$
|
12,788
|
|
|
$
|
11,205
|
|
|
Alexan Southside Place
|
|
|
24,041
|
|
|
|
22,801
|
|
|
Arlo
|
|
|
14
|
|
|
|
14
|
|
|
Cade Boca Raton
|
|
|
7
|
|
|
|
7
|
|
|
Domain at The One Forty
|
|
|
13
|
|
|
|
12
|
|
|
Flagler Village
|
|
|
44
|
|
|
|
44
|
|
|
Helios
|
|
|
19,189
|
|
|
|
19,189
|
|
|
Leigh House
|
|
|
14,174
|
|
|
|
13,319
|
|
|
North Creek Apartments
|
|
|
10,210
|
|
|
|
5,892
|
|
|
Novel Perimeter
|
|
|
12
|
|
|
|
12
|
|
|
Riverside Apartments
|
|
|
7,274
|
|
|
|
3,600
|
|
|
Vickers Historic Roswell
|
|
|
6
|
|
|
|
6
|
|
|
Wayforth at Concord
|
|
|
—
|
|
|
|
—
|
|
|
Whetstone Apartments
|
|
|
12,932
|
|
|
|
12,932
|
|
|
Total
|
|
$
|
100,704
|
|
|
$
|
89,033
|
|
As of June 30, 2019, the
Company, through wholly-owned subsidiaries of the Operating Partnership, had outstanding equity investments in fourteen joint ventures,
each of which was created to develop a multifamily property.
Eight of the fourteen
equity investments, Alexan CityCentre, Alexan Southside Place, Helios, Leigh House, North Creek Apartments, Riverside Apartments,
Wayforth at Concord and Whetstone Apartments, are preferred equity investments, generate a stated preferred return on outstanding
capital contributions, and the Company is not allocated any of the income or loss in the joint ventures. The joint venture is the
controlling member in an entity whose purpose is to develop a multifamily property.
The preferred returns
on the Company’s unconsolidated real estate joint ventures for the three and six months ended June 30, 2019 and 2018 are
summarized below (amounts in thousands):
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
Property
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Alexan CityCentre
|
|
$
|
497
|
|
|
$
|
402
|
|
|
$
|
982
|
|
|
$
|
785
|
|
|
Alexan Southside Place
|
|
|
390
|
|
|
|
885
|
|
|
|
773
|
|
|
|
1,687
|
|
|
Helios
|
|
|
335
|
|
|
|
644
|
|
|
|
666
|
|
|
|
1,249
|
|
|
Leigh House
|
|
|
558
|
|
|
|
462
|
|
|
|
1,082
|
|
|
|
903
|
|
|
North Creek Apartments
|
|
|
288
|
|
|
|
—
|
|
|
|
510
|
|
|
|
—
|
|
|
Riverside Apartments
|
|
|
191
|
|
|
|
—
|
|
|
|
304
|
|
|
|
—
|
|
|
Wayforth at Concord
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Whetstone Apartments
|
|
|
233
|
|
|
|
233
|
|
|
|
464
|
|
|
|
464
|
|
|
Preferred returns on unconsolidated joint ventures
|
|
$
|
2,492
|
|
|
$
|
2,626
|
|
|
$
|
4,781
|
|
|
$
|
5,088
|
|
The occupancy percentages of the Company’s
unconsolidated real estate joint ventures at June 30, 2019 and December 31, 2018 are as follows:
|
Property
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Alexan CityCentre
|
|
|
93
|
%
|
|
|
93
|
%
|
|
Alexan Southside Place
|
|
|
98
|
%
|
|
|
85
|
%
|
|
Helios
|
|
|
94
|
%
|
|
|
90
|
%
|
|
Leigh House
|
|
|
93
|
%
|
|
|
90
|
%
|
|
North Creek Apartments
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Riverside Apartments
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Wayforth at Concord
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
Whetstone Apartments
|
|
|
96
|
%
|
|
|
97
|
%
|
|
|
(1)
|
The development has not commenced lease-up.
|
Summary combined financial information for
the Company’s investments in unconsolidated real estate joint ventures as of June 30, 2019 and December 31, 2018 and for
the three and six months ended June 30, 2019 and 2018, is as follows (amounts in thousands):
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
Real estate, net of depreciation
|
|
$
|
620,236
|
|
|
$
|
577,624
|
|
|
Other assets
|
|
|
52,312
|
|
|
|
45,324
|
|
|
Total assets
|
|
$
|
672,548
|
|
|
$
|
622,948
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgages payable
|
|
$
|
523,392
|
|
|
$
|
480,903
|
|
|
Other liabilities
|
|
|
37,632
|
|
|
|
21,250
|
|
|
Total liabilities
|
|
$
|
561,024
|
|
|
$
|
502,153
|
|
|
Members’ equity
|
|
|
111,524
|
|
|
|
120,795
|
|
|
Total liabilities and members’ equity
|
|
$
|
672,548
|
|
|
$
|
622,948
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Operating Statement:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental revenues
|
|
$
|
8,924
|
|
|
$
|
4,217
|
|
|
$
|
16,724
|
|
|
$
|
7,591
|
|
|
Operating expenses
|
|
|
(5,494
|
)
|
|
|
(3,461
|
)
|
|
|
(10,628
|
)
|
|
|
(6,247
|
)
|
|
Income before debt service and depreciation and amortization
|
|
|
3,430
|
|
|
|
756
|
|
|
|
6,096
|
|
|
|
1,344
|
|
|
Interest expense, net
|
|
|
(8,243
|
)
|
|
|
(1,808
|
)
|
|
|
(15,476
|
)
|
|
|
(3,359
|
)
|
|
Depreciation and amortization
|
|
|
(4,146
|
)
|
|
|
(2,194
|
)
|
|
|
(8,133
|
)
|
|
|
(4,130
|
)
|
|
Net loss
|
|
$
|
(8,959
|
)
|
|
$
|
(3,246
|
)
|
|
$
|
(17,513
|
)
|
|
$
|
(6,145
|
)
|
Alexan CityCentre Refinance
On April 26, 2019, the
Alexan CityCentre owner, which is owned by an entity in which the Company owns an indirect interest, (i) entered into a $46.0 million
senior mortgage loan, (ii) entered into a $11.5 million mezzanine loan with an unaffiliated party, and (iii) used the proceeds
from the senior loan and mezzanine loan to pay off the previous construction loan of $55.1 million. The senior loan and mezzanine
loan both provide for earnout advances of $2.0 million and $0.5 million, respectively, for total loan commitments of $48.0 million
and $12.0 million, respectively. The earnout advances are subject to a minimum debt yield and certain other conditions. The loans
bear interest at a floating basis of the greater of LIBOR plus 1.50% or 3.99% on the senior loan, and the greater of LIBOR plus
6.00% or 8.49% on the mezzanine loan. The senior loan and mezzanine loan both: (i) have regular monthly payments that are interest-only
during the initial term, (ii) have initial maturity dates of May 9, 2022, (iii) contain two one-year extension options, and (iv)
can be prepaid in whole prior to maturity provided the lender receives a stated spread maintenance premium.
Alexan Southside Place Interests / Refinance
Alexan Southside Place is
developed upon a tract of land ground leased from Prokop Industries BH, L.P., a Texas limited partnership, by BR Bellaire BLVD,
LLC (“BR Bellaire BLVD”), as tenant under an 85-year ground lease. BR Bellaire BLVD adopted ASU No. 2016-02 as of January
1, 2019, and as such, has recorded a right-of-use asset and lease liability of $17.1 million as of June 30, 2019.
On April 12, 2019, the
Alexan Southside Place owner, which is owned by an entity in which the Company owns an indirect interest, (i) entered into a $26.4
million senior mortgage loan, (ii) entered into a $6.6 million mezzanine loan with an unaffiliated party, and (iii) used the proceeds
from the senior loan and mezzanine loan to pay off the previous construction loan of $31.8 million. The senior loan and mezzanine
loan both provide for earnout advances of $2.4 million and $0.6 million, respectively, for total loan commitments of $28.8 million
and $7.2 million, respectively. The earnout advances are subject to a minimum debt yield and certain other conditions. The loans
bear interest at a floating basis of the greater of LIBOR plus 1.50% or 3.99% on the senior loan, and the greater of LIBOR plus
6.00% or 8.49% on the mezzanine loan. The senior loan and mezzanine loan both: (i) have regular monthly payments that are interest-only
during the initial term, (ii) have initial maturity dates of May 9, 2022, (iii) contain two one-year extension options, and (iv)
can be prepaid in whole prior to maturity provided the lender receives a stated spread maintenance premium.
Leigh House Interests
The Company had the right,
in its sole discretion, to convert its preferred membership interest into a common membership interest for a period of six months
from the date upon which 70% of the units in Leigh House had been leased and occupied. The six-month period during which the Company
had the right to convert commenced on August 9, 2018, the date on which Leigh House achieved 70% leased and occupied units. The
Company did not elect to convert into a common membership and its option to convert expired on February 9, 2019.
Whetstone Interests
Effective April 1, 2017,
Whetstone Apartments ceased paying its preferred return on a current basis. The preferred return is being accrued, except for a
$0.1 million payment received in March 2019. The accrued preferred return of $2.5 million and $2.2 million as of June 30, 2019
and December 31, 2018, respectively, is included in due from affiliates in the consolidated balance sheets. The Company has evaluated
the preferred equity investment and accrued preferred return and determined that the investment is fully recoverable.
Note 8 — Revolving credit facilities
The outstanding balances on the revolving credit facilities as of
June 30, 2019 and December 31, 2018 are as follows (amounts in thousands):
|
Revolving Credit Facilities
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Senior Credit Facility
|
|
$
|
68,800
|
|
|
$
|
67,709
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended Junior Credit Facility
|
|
|
|
|
|
|
|
|
|
Revolver loan
|
|
|
21,000
|
|
|
|
14,500
|
|
|
Term loan
|
|
|
11,500
|
|
|
|
—
|
|
|
Total Amended Junior Credit Facility
|
|
|
32,500
|
|
|
|
14,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Credit Facilities
|
|
$
|
101,300
|
|
|
$
|
82,209
|
|
Senior Credit Facility
On October 4, 2017, the
Company, through its Operating Partnership, entered into a credit agreement (the “Senior Credit Facility”) with KeyBank
National Association (“KeyBank”) and a syndicate of other lenders. The Senior Credit Facility provides for a loan commitment
amount of $75 million, which commitment contains an accordion feature to a maximum commitment of up to $175 million.
The Senior Credit Facility
matures on October 4, 2020 and contains a one-year extension option, subject to certain conditions and the payment of an extension
fee. Borrowings under the Senior Credit Facility bear interest, at the Company’s option, at LIBOR plus 1.80% to 2.45%, or
the base rate plus 0.80% to 1.45%, depending on the Company’s leverage ratio. The weighted average interest rate was 4.76%
at June 30, 2019. The Company pays an unused fee at an annual rate of 0.20% to 0.25% of the unused portion of the Senior Credit
Facility, depending on the amount of borrowings outstanding. The Senior Credit Facility contains certain financial and operating
covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, and minimum tangible net
worth. At June 30, 2019, the Company was in compliance with all covenants under the Senior Credit Facility. The Company has guaranteed
the obligations under the Senior Credit Facility and provided certain properties as collateral.
Amended Junior Credit Facility
On March 20, 2018, the Company,
through a subsidiary of its Operating Partnership, entered into a credit agreement (the “Junior Credit Facility”) with
KeyBank and other lenders. The Junior Credit Facility provided for a maximum loan commitment amount of $50 million.
The Junior Credit Facility
had a maturity date of March 20, 2019. Borrowings under the Junior Credit Facility bore interest, at the Company’s option,
at LIBOR plus 4.0%, or the base rate plus 3.0%. The Company paid an unused fee at an annual rate of 0.35% to 0.40% of the unused
portion of the Junior Credit Facility, depending on the amount of borrowings outstanding.
On December 21, 2018, the
Company, through a subsidiary of its Operating Partnership, entered into an amended and restated, in its entirety, Junior Credit
Facility (the “Amended Junior Credit Facility”). The Amended Junior Credit Facility provides for a revolving loan facility
and a term loan facility with maximum commitment amounts of $50 million and $25 million, respectively. The revolving loan facility
matures on December 21, 2019, with borrowings thereunder bearing interest, at the Company’s option, at LIBOR plus 3.5%, or
the base rate plus 2.5%. The weighted average interest rate of the revolving loan facility was 5.92% at June 30, 2019. The Company
pays an unused fee at an annual rate of 0.35% to 0.40% of the unused portion of the revolving loan facility, depending on the amount
of borrowings outstanding. The term loan facility matures on September 30, 2019 or sooner based on certain events, with borrowings
thereunder bearing interest, at the Company’s option, at LIBOR plus 3.5%, or the base rate plus 2.5%. The interest rate of
the term loan facility was 5.94% at June 30, 2019. The Amended Junior Credit Facility contains certain financial and operating
covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, minimum tangible net worth
and minimum equity raise and collateral values. As it matures in 2019, the Company is engaged in discussions to amend and extend
the Amended Junior Credit Facility.
At June 30, 2019, the Company
was in compliance with all covenants under the Amended Junior Credit Facility. The Company has guaranteed the obligations under
the Amended Junior Credit Facility and has pledged certain assets as collateral.
The availability of borrowings
under the revolving credit facilities at June 30, 2019 is based on the collateral and compliance with various ratios related to
those assets and was approximately $29.9 million.
Note 9 – Mortgages Payable
The following table summarizes
certain information as of June 30, 2019 and December 31, 2018, with respect to the Company’s senior mortgage indebtedness
(amounts in thousands):
|
|
|
Outstanding
Principal
|
|
|
As
of June 30, 2019
|
|
Property
|
|
June
30,
2019
|
|
|
December
31,
2018
|
|
|
Interest
Rate
|
|
|
Interest-only
through
date
|
|
Maturity
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARIUM at Palmer Ranch
|
|
$
|
41,348
|
|
|
$
|
41,348
|
|
|
|
4.41
|
%
|
|
May 2020
|
|
May 1, 2025
|
|
ARIUM Grandewood
(1)
|
|
|
19,713
|
|
|
|
19,713
|
|
|
|
4.35
|
%
|
|
July 2020
|
|
July 1, 2025
|
|
ARIUM Hunter’s Creek
|
|
|
72,294
|
|
|
|
72,294
|
|
|
|
3.65
|
%
|
|
November 2019
|
|
November 1, 2024
|
|
ARIUM Metrowest
|
|
|
64,559
|
|
|
|
64,559
|
|
|
|
4.43
|
%
|
|
May 2021
|
|
May 1, 2025
|
|
ARIUM Pine Lakes
|
|
|
26,950
|
|
|
|
26,950
|
|
|
|
3.95
|
%
|
|
Interest-only
|
|
November 1, 2023
|
|
ARIUM Westside
|
|
|
52,150
|
|
|
|
52,150
|
|
|
|
3.68
|
%
|
|
August 2021
|
|
August 1, 2023
|
|
Ashford Belmar
|
|
|
100,675
|
|
|
|
100,675
|
|
|
|
4.53
|
%
|
|
December 2022
|
|
December 1, 2025
|
|
Ashton Reserve I
|
|
|
30,607
|
|
|
|
30,878
|
|
|
|
4.67
|
%
|
|
(2)
|
|
December 1, 2025
|
|
Citrus Tower
|
|
|
41,438
|
|
|
|
41,438
|
|
|
|
4.07
|
%
|
|
October 2019
|
|
October 1, 2024
|
|
Element
|
|
|
29,260
|
|
|
|
—
|
|
|
|
3.63
|
%
|
|
July 2022
|
|
July 1, 2026
|
|
Enders Place at Baldwin Park
(3)
|
|
|
23,581
|
|
|
|
23,822
|
|
|
|
4.30
|
%
|
|
(2)
|
|
November 1, 2022
|
|
James on South First
|
|
|
26,323
|
|
|
|
26,500
|
|
|
|
4.35
|
%
|
|
(2)
|
|
January 1, 2024
|
|
Outlook at Greystone
|
|
|
22,105
|
|
|
|
22,105
|
|
|
|
4.30
|
%
|
|
June 2021
|
|
June 1, 2025
|
|
Park & Kingston
(4)
|
|
|
18,432
|
|
|
|
18,432
|
|
|
|
3.41
|
%
|
|
Interest-only
|
|
April 1, 2020
|
|
Plantation Park
|
|
|
26,625
|
|
|
|
26,625
|
|
|
|
4.64
|
%
|
|
July 2024
|
|
July 1, 2028
|
|
Providence Trail
|
|
|
47,950
|
|
|
|
—
|
|
|
|
3.54
|
%
|
|
July 2021
|
|
July 1, 2026
|
|
Roswell City Walk
|
|
|
51,000
|
|
|
|
51,000
|
|
|
|
3.63
|
%
|
|
December 2019
|
|
December 1, 2026
|
|
Sovereign
|
|
|
—
|
|
|
|
28,227
|
|
|
|
|
|
|
|
|
|
|
The Brodie
|
|
|
34,513
|
|
|
|
34,825
|
|
|
|
3.71
|
%
|
|
(2)
|
|
December 1, 2023
|
|
The Links at Plum Creek
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
4.31
|
%
|
|
April 2020
|
|
October 1, 2025
|
|
The Mills
|
|
|
26,050
|
|
|
|
26,298
|
|
|
|
4.21
|
%
|
|
(2)
|
|
January 1, 2025
|
|
The Preserve at Henderson Beach
|
|
|
35,235
|
|
|
|
35,602
|
|
|
|
4.65
|
%
|
|
(2)
|
|
January 5, 2023
|
|
Villages of Cypress Creek
|
|
|
26,200
|
|
|
|
26,200
|
|
|
|
3.23
|
%
|
|
October 2020
|
|
October 1, 2022
(5)
|
|
Wesley Village
|
|
|
40,438
|
|
|
|
40,545
|
|
|
|
4.25
|
%
|
|
(2)
|
|
April 1, 2024
|
|
Total Fixed Rate
|
|
|
897,446
|
|
|
|
850,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating Rate
(6)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARIUM Glenridge
|
|
|
49,500
|
|
|
|
49,500
|
|
|
|
3.76
|
%
|
|
September 2021
|
|
September 1, 2025
|
|
ARIUM Grandewood
(1)
|
|
|
19,672
|
|
|
|
19,672
|
|
|
|
3.83
|
%
|
|
July 2020
|
|
July 1, 2025
|
|
ARIUM Palms
|
|
|
—
|
|
|
|
30,320
|
|
|
|
|
|
|
|
|
|
|
Ashton Reserve II
|
|
|
15,213
|
|
|
|
15,213
|
|
|
|
3.93
|
%
|
|
August 2022
|
|
August 1, 2025
|
|
Marquis at Crown Ridge
|
|
|
28,342
|
|
|
|
28,634
|
|
|
|
4.04
|
%
|
|
(2)
|
|
June 1, 2024
(7)
|
|
Marquis at Stone Oak
|
|
|
42,326
|
|
|
|
42,725
|
|
|
|
4.04
|
%
|
|
(2)
|
|
June 1, 2024
(7)
|
|
Marquis at The Cascades I
|
|
|
32,592
|
|
|
|
32,899
|
|
|
|
4.04
|
%
|
|
(2)
|
|
June 1, 2024
(7)
|
|
Marquis at The Cascades II
|
|
|
22,745
|
|
|
|
22,960
|
|
|
|
4.04
|
%
|
|
(2)
|
|
June 1, 2024
(7)
|
|
Marquis at TPC
|
|
|
16,647
|
|
|
|
16,826
|
|
|
|
4.04
|
%
|
|
(2)
|
|
June 1, 2024
(7)
|
|
Preston View
|
|
|
—
|
|
|
|
41,657
|
|
|
|
|
|
|
|
|
|
|
Sorrel
|
|
|
—
|
|
|
|
38,684
|
|
|
|
|
|
|
|
|
|
|
Veranda at Centerfield
|
|
|
26,100
|
|
|
|
26,100
|
|
|
|
3.69
|
%
|
|
July 2021
|
|
July 26, 2023
(5)
|
|
Total Floating Rate
|
|
|
253,137
|
|
|
|
365,190
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,150,583
|
|
|
|
1,215,376
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustments
|
|
|
1,987
|
|
|
|
2,204
|
|
|
|
|
|
|
|
|
|
|
Deferred financing costs,
net
|
|
|
(9,935
|
)
|
|
|
(11,444
|
)
|
|
|
|
|
|
|
|
|
|
Total continuing operations
|
|
$
|
1,142,635
|
|
|
$
|
1,206,136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held for Sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ARIUM Palms
(6)
|
|
|
30,320
|
|
|
|
—
|
|
|
|
3.83
|
%
|
|
September 2020
|
|
September 1, 2025
|
|
Preston View
(6)
|
|
|
41,657
|
|
|
|
—
|
|
|
|
3.93
|
%
|
|
August 2022
|
|
August 1, 2025
|
|
Sorrel
(6)
|
|
|
38,684
|
|
|
|
—
|
|
|
|
4.72
|
%
|
|
November 2019
|
|
May 1, 2023
|
|
Sovereign
|
|
|
27,939
|
|
|
|
—
|
|
|
|
3.46
|
%
|
|
(2)
|
|
November 10, 2022
|
|
Deferred financing costs,
net
|
|
|
(1,206
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total held for sale
|
|
|
137,394
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total mortgages payable
|
|
$
|
1,280,029
|
|
|
$
|
1,206,136
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
ARIUM Grandewood has a fixed
rate loan and a floating rate loan.
|
|
|
(2)
|
The loan requires monthly
payments of principal and interest.
|
|
|
(3)
|
The principal balance includes
a $16.0 million loan at a fixed rate of 3.97% and a $7.6 million supplemental loan at a fixed rate of 5.01%.
|
|
|
(4)
|
The principal balance includes
a $15.3 million loan at a fixed rate of 3.21% and a $3.2 million supplemental loan at a fixed rate of 4.34%.
|
|
|
(5)
|
The loan has two one-year
extension options subject to certain conditions.
|
|
|
(6)
|
All the Company’s floating
rate mortgages bear interest at one-month LIBOR + margin. In June 2019, one-month LIBOR in effect was 2.43%. LIBOR rate is subject
to a rate cap. Please refer to Note 11 for further information.
|
|
|
(7)
|
The loan can be extended,
subject to certain conditions, in connection with an election to convert to a fixed interest rate loan.
|
Deferred financing costs
Costs incurred in obtaining long-term financing
are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which
approximates the effective interest method.
Loss on Extinguishment of Debt and Modification Costs
Upon repayment of or in conjunction with a
material change (i.e. a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement,
the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt
that was extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that
are not capitalized are also included in loss on extinguishment of debt and debt modification costs on the consolidated statements
of operations.
Master Credit Facility with Fannie Mae
On April 30, 2018, the
Company, through certain subsidiaries of the Operating Partnership, entered into a Master Credit Facility Agreement (the “Fannie
Facility”), which was issued through Fannie Mae’s Multifamily Delegated Underwriting and Servicing Program. The Fannie
Facility includes certain restrictive covenants, including indebtedness, liens, investments, mergers and asset sales, and distributions.
The Fannie Facility also contains events of default, including payment defaults, covenant defaults, bankruptcy events, and change
of control events. Each note under the Fannie Facility is cross-defaulted and cross-collateralized and the Company has guaranteed
the obligations under the Fannie Facility. As of June 30, 2019, the mortgage loans secured by ARIUM Grandewood, ARIUM Metrowest,
Ashton Reserve II, Outlook at Greystone and Preston View were issued under the Fannie Facility.
The Company may request
future fixed rate advances or floating rate advances under the Fannie Facility either by borrowing against the value of the mortgaged
properties (based on the valuation methodology established in the Fannie Facility) or adding eligible properties to the collateral
pool, subject to customary conditions, including satisfaction of minimum debt service coverage and maximum loan-to-value tests.
The proceeds of any future advances made under the Fannie Facility may be used, among other things, for the acquisition and refinancing
of additional properties to be identified in the future.
Debt maturities
As of June 30, 2019, contractual principal
payments for the five subsequent years and thereafter are as follows (amounts in thousands):
|
Year
|
|
Total
|
|
|
2019 (July 1–December 31)
|
|
$
|
3,960
|
|
|
2020
|
|
|
30,739
|
|
|
2021
|
|
|
16,241
|
|
|
2022
|
|
|
92,556
|
|
|
2023
|
|
|
222,696
|
|
|
Thereafter
|
|
|
922,991
|
|
|
|
|
$
|
1,289,183
|
|
|
Add: Unamortized fair value debt adjustment
|
|
|
1,987
|
|
|
Subtract: Deferred financing costs, net
|
|
|
(11,141
|
)
|
|
Total
|
|
$
|
1,280,029
|
|
The net book value of real estate assets providing
collateral for these above borrowings, including the Senior Credit Facility, Amended Junior Credit Facility and Fannie Facility,
was $1,781.5 million as of June 30, 2019.
The mortgage loans encumbering
the Company’s properties are generally nonrecourse, subject to certain exceptions for which the Company would be liable for
any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or
a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower
that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or
indirectly, and certain environmental liabilities. In addition, upon the occurrence of certain events, such as fraud
or filing of a bankruptcy petition by the borrower, the Company or our joint ventures would be liable for the entire outstanding
balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses. The mortgage loans
generally have a period where a prepayment fee or yield maintenance would be required.
Note 10 – Fair Value of Financial Instruments
As
of June 30, 2019 and December 31, 2018, based on the discounted amount of future cash flows using rates currently available to
the Company for similar liabilities, the fair value of the Company’s mortgages payable is estimated at $1,305.2 million and
$1,205.0 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $1,291.2
million and $1,217.6 million, respectively. The fair value of mortgages payable is estimated based on the Company’s
current interest rates (Level 3 inputs, as defined in ASC Topic 820, “Fair Value Measurement”) for similar types of
borrowing arrangements.
Note 11 –
Derivative Financial Instruments
Risk Management
Objective of Using Derivatives
The
Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages
its exposures to a wide variety of business and operational risks through management of its core business activities. The Company
manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration
of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative
financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known
and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments
are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally
related to the Company’s borrowings.
The
Company’s objectives in using interest rate derivative financial instruments are to add stability to interest expense and
to manage the Company’s exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest
rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts
from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The
Company has not designated any of the interest rate derivatives as hedges. Although these derivative financial instruments were
not designated or did not qualify for hedge accounting, the Company believes the derivative financial instruments are effective
economic hedges against increases in interest rates. The Company does not use derivative financial instruments for trading or speculative
purposes.
As
of June 30, 2019, the Company had interest rate caps which effectively limit the Company’s exposure to interest rate risk
by providing a ceiling on the underlying floating interest rate for $413.8 million of the Company’s floating rate debt.
The
table below presents the fair value of the Company’s derivative financial instruments as well as their classification on
the consolidated balance sheets as of June 30, 2019 and December 31, 2018 (amounts in thousands):
Derivatives not designated as hedging
instruments under ASC 815-20
|
|
Balance Sheet Location
|
|
Fair values of derivative
instruments
|
|
|
|
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Interest rate caps
|
|
Accounts receivable, prepaids and other assets
|
|
$
|
231
|
|
|
$
|
2,596
|
|
The
table below presents the effect of Company's derivative financial instruments as well as their classification on the consolidated
statements of operations for the three and six months ended June 30, 2019 and 2018 (amounts in thousands):
Derivatives not designated
as hedging instruments
under ASC 815-20
|
|
Location of Gain or (Loss)
Recognized in Income
|
|
The Effect of Derivative Instruments
on the Statements of Operations
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Interest rate caps
|
|
Interest Expense
|
|
$
|
(677
|
)
|
|
$
|
—
|
|
|
$
|
(2,365
|
)
|
|
$
|
—
|
|
Note 12 – Related Party Transactions
Administrative Services Agreement
In October 2017, the Company
entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Bluerock Real Estate,
LLC and its affiliate, Bluerock Real Estate Holdings, LLC (together “BRE”). Pursuant to the Administrative Services
Agreement, BRE provides the Company with certain human resources, investor relations, marketing, legal and other administrative
services (the “Services”) that facilitate a smooth transition in the Company’s management of its operations,
enable the Company to benefit from operational efficiencies created by access to such services, and give the Company time to develop
such services in-house or to hire other third-party service providers for such services. The Services are provided on an at-cost
basis, generally allocated based on the use of such Services for the benefit of the Company’s business, and are invoiced
on a quarterly basis. In addition, the Administrative Services Agreement permits, from time to time, certain employees of the Company
to provide or cause to be provided services to BRE, on an at-cost basis, generally allocated based on the use of such services
for the benefit of the business of BRE, and otherwise subject to the terms of the Services provided by BRE to the Company under
the Administrative Services Agreement. Payment by the Company of invoices and other amounts payable under the Administrative Services
Agreement will be made in cash or, in the sole discretion of the Company’s board of directors (the “Board”),
in the form of fully-vested LTIP Units.
The initial term of the
Administrative Services Agreement was one year from the date of execution, subject to the Company’s right to renew for successive
one-year terms upon sixty (60) days written notice prior to expiration. The initial term of the Administrative Services Agreement
expired on October 31, 2018. On August 6, 2018, the Company delivered written notice to BRE of the Company’s intention to
renew the Administrative Services Agreement for an additional one-year term, to expire on October 31, 2019. The Administrative
Services Agreement will automatically terminate (i) upon termination by the Company of all Services, or (ii) in the event of non-renewal
by the Company. Any Company party will also be able to terminate the Administrative Services Agreement with respect to any individual
Service upon written notice to the applicable BRE entity, in which case the specified Service will discontinue as of the date stated
in such notice, which date must be at least ninety (90) days from the date of such notice. Further, either BRE entity may terminate
the Administrative Services Agreement at any time upon the occurrence of a “Change of Control Event” (as defined therein)
upon at least one hundred eighty (180) days prior written notice to the Company.
Pursuant to the Administrative
Services Agreement, BRE is responsible for the payment of all employee benefits and any other direct and indirect compensation
for the employees of BRE (or their affiliates or permitted subcontractors) assigned to perform the Services, as well as such employees’
worker’s compensation insurance, employment taxes, and other applicable employer liabilities relating to such employees.
Recorded as part of general
and administrative expenses, operating expense reimbursements of $0.4 million and $0.6 million were expensed during the three months
ended June 30, 2019 and 2018, respectively. Operating expense reimbursements of $0.7 million and $1.1 million were expensed during
the six months ended June 30, 2019 and 2018, respectively.
Pursuant to the terms
of the Administrative Services Agreement, summarized below are the related party amounts payable to BRE as of June 30, 2019 and
December 31, 2018 (amounts in thousands):
|
|
|
June 30,
2019
|
|
|
December 31,
2018
|
|
|
Amounts Payable to BRE under the Administrative Services Agreement, net
|
|
|
|
|
|
|
|
|
|
Operating and direct expense reimbursements
|
|
$
|
691
|
|
|
$
|
568
|
|
|
Offering expense reimbursements
|
|
|
82
|
|
|
|
158
|
|
|
Total amounts payable to BRE
|
|
$
|
773
|
|
|
$
|
726
|
|
As of June 30, 2019 and
December 31, 2018, the Company had $3.5 million and $2.9 million, respectively, in receivables due from related parties other than
from BRE, primarily for accrued preferred returns on unconsolidated real estate investments for the most recent month.
Selling Commissions and Dealer Manager Fees
In conjunction with the
offering of the Series B Preferred Stock, the Company engaged a related party as dealer manager, and pays up to 10% of the gross
offering proceeds from the offering as selling commissions and dealer manager fees. The dealer manager re-allows the substantial
majority of the selling commissions and dealer manager fees to participating broker-dealers and incurs costs in excess of the 10%,
which costs are borne by the dealer manager without reimbursement by the Company. For the six months ended June 30, 2019 and 2018,
the Company has incurred $6.7 million and $3.5 million in selling commissions and discounts, respectively, and $2.9 million and
$1.5 million in dealer manager fees and discounts, respectively. In addition, BRE was reimbursed for offering costs in conjunction
with the Series B Preferred Offering of $0.5 million and $0.6 million during the six months ended June 30, 2019 and 2018, respectively.
The selling commissions, dealer manager fees, discounts and reimbursements for offering costs were recorded as a reduction to the
proceeds of the offering.
Preferred Equity Investments and Investments in Unconsolidated
Real Estate Joint Ventures
The Company invests with
related parties in various joint ventures in which the Company owns either preferred or common interests. Please refer to Note
7 and the Company’s Form 10-K for the year ended December 31, 2018 for further information.
Notes and interest receivable from related parties
The Company provides mezzanine loans to related
parties in conjunction with the developments of multifamily communities. Please refer to Notes 6 and 7 and the Company’s
Form 10-K for the year ended December 31, 2018 for further information.
Note 13 – Stockholders’ Equity and Redeemable Preferred
Stock
Net Loss Per Common Share
Basic net loss per common
share is computed by dividing net loss attributable to common stockholders, less dividends on restricted stock and LTIP Units expected
to vest, by the weighted average number of common shares outstanding for the period. Diluted net loss per common share is
computed by dividing net loss attributable to common stockholders by the sum of the weighted average number of common shares outstanding
and any potential dilutive shares for the period. Net loss attributable to common stockholders is computed by adjusting net
loss for the non-forfeitable dividends paid on restricted stock and non-vested LTIP Units.
The Company considers
the requirements of the two-class method when preparing earnings per share. The Company has two classes of common stock outstanding:
Class A common stock, $0.01 par value per share, and Class C common stock, $0.01 par value per share. Earnings per share is not
affected by the two-class method because the Company’s Class A and C common stock participate in dividends on a one-for-one
basis.
The following table reconciles the components
of basic and diluted net loss per common share (amounts in thousands, except share and per share amounts):
|
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
Net loss attributable to common stockholders
|
|
$
|
(10,990
|
)
|
|
$
|
(10,212
|
)
|
|
$
|
(23,083
|
)
|
|
$
|
(19,638
|
)
|
|
Dividends on LTIP Units expected to vest
|
|
|
(250
|
)
|
|
|
(172
|
)
|
|
|
(485
|
)
|
|
|
(344
|
)
|
|
Basic net loss attributable to common stockholders
|
|
$
|
(11,240
|
)
|
|
$
|
(10,384
|
)
|
|
$
|
(23,568
|
)
|
|
$
|
(19,982
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
(1)
|
|
|
22,430,619
|
|
|
|
23,800,770
|
|
|
|
22,775,203
|
|
|
|
23,971,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential dilutive shares
(2)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Weighted average common shares outstanding and potential dilutive shares
(1)
|
|
|
22,430,619
|
|
|
|
23,800,770
|
|
|
|
22,775,203
|
|
|
|
23,971,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share, basic
|
|
$
|
(0.50
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(0.83
|
)
|
|
Net loss per common share, diluted
|
|
$
|
(0.50
|
)
|
|
$
|
(0.44
|
)
|
|
$
|
(1.03
|
)
|
|
$
|
(0.83
|
)
|
The effect of the conversion
of OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Class A common
stock on a one-for-one basis. The income allocable to such OP Units is allocated on this same basis and reflected as noncontrolling
interests in the accompanying consolidated financial statements. As such, the assumed conversion of these OP Units would have no
net impact on the determination of diluted earnings per share.
|
|
(1)
|
Amounts relate to shares
of the Company’s Class A and Class C common stock outstanding.
|
|
|
(2)
|
For the three and six months
ended June 30, 2019, the following are excluded from the diluted shares calculations as the effect is antidilutive: a) warrants
outstanding from issuances in conjunction with the Company’s Series B Preferred Stock offerings that are potentially exercisable
for 125,274 and 49,970 shares of Class A common stock, respectively, and b) potential vesting of restricted stock grants to employees
for 11,944 and 8,726 shares of Class A common stock, respectively. Excludes no shares for the three and six months ended June
30, 2018.
|
Series B Redeemable Preferred Stock Offering
The Company issued 95,092
shares of Series B Preferred Stock under a continuous registered offering with net proceeds of approximately $85.6 million after
commissions, discounts and dealer manager fees of approximately $9.5 million during the six months ended June 30, 2019. As of June
30, 2019, the Company has sold 403,370 shares of Series B Preferred Stock and 403,370 Warrants to purchase 8,067,400 shares of
Class A common stock for net proceeds of approximately $363.0 million after commissions, discounts and fees. During the six months
ended June 30, 2019, 1,513 Series B Preferred shares were redeemed through the issuance of 131,542 Class A common shares and 86
Series B Preferred shares were redeemed for $80,450 in cash.
At-the-Market Offerings
On August 8, 2016, the Company,
its Operating Partnership and its former Manager entered into an At Market Issuance Sales Agreement (the “Original Sales
Agreement”) with FBR Capital Markets & Co. (“FBR”). Pursuant to the Original Sales Agreement, FBR acted as
distribution agent with respect to the offering and sale of up to $100,000,000 in shares of Class A common stock in “at the
market offerings” as defined in Rule 415 under the Securities Act, including without limitation sales made directly on or
through the NYSE American, or on any other existing trading market for Class A common stock or through a market maker (the “Original
Class A Common Stock ATM Offering”). The Company did not commence any sales through the Original Class A Common Stock ATM
Offering before it expired on January 29, 2019.
Class A Common Stock Repurchase Program
In February 2018, the
Company authorized a stock repurchase plan to purchase up to $25 million of the Company’s outstanding shares of Class A common
stock over a period of one year pursuant to a stock repurchase plan. In December 2018, the Company renewed its stock repurchase
plan for a period of one year. The repurchase plan can be discontinued at any time. The extent to which the Company repurchases
shares of its Class A common stock, and the timing of any such purchases, depends on a variety of factors including general business
and market conditions and other corporate considerations. The Company purchased 1,255,445 shares of Class A common stock during
the six months ended June 30, 2019 for a total purchase price of $13.4 million.
The following table is
a summary of the Class A common stock repurchase activity during the six months ended June 30, 2019:
|
Period
|
|
Total Number
of Shares
Purchased
|
|
|
Weighted
Average Price
Paid Per Share
|
|
|
Cumulative Number of
Shares Purchased as
Part of the Publicly
Announced Plan
|
|
|
Maximum Dollar Value
of Shares that May Yet
Be Purchased Under
the Plan
|
|
|
First quarter 2019
|
|
|
505,797
|
|
|
$
|
10.01
|
|
|
|
1,560,854
|
|
|
$
|
10,919,065
|
|
|
Second quarter 2019
|
|
|
749,648
|
|
|
|
11.13
|
|
|
|
2,310,502
|
|
|
|
2,578,184
|
|
|
Total
|
|
|
1,255,445
|
|
|
$
|
10.68
|
|
|
|
|
|
|
|
|
|
Operating Partnership and Long-Term Incentive
Plan Units
As of June 30, 2019, limited
partners other than the Company owned approximately 28.23% of the common units of the Operating Partnership (6,384,512 OP Units,
or 20.48%, is held by OP Unit holders, and 2,414,160 LTIP Units, or 7.75%, is held by LTIP Unit holders, including 4.64% which
are not vested at June 30, 2019). Subject to certain restrictions set forth in the Operating Partnership’s Partnership Agreement,
OP Units are exchangeable for Class A common stock on a one-for-one basis, or, at the Company’s election, redeemable for
cash. LTIP Units may be convertible into OP Units under certain conditions and then may be settled in shares of the Company’s
Class A common stock, or, at the Company’s election, cash.
Equity Incentive Plans
LTIP Unit Grants
On January 1, 2018, the
Company granted certain equity grants of LTIP Units of the Company’s Operating Partnership to various executive officers
under the Second Amended 2014 Incentive Plans pursuant to the executive officers’ employment and service agreements as time-based
LTIP Units and performance-based LTIP Units. All such grants of LTIP Units require continuous employment for vesting. Due to a
limitation on the number of LTIP Units available for issuance under the Second Amended 2014 Incentive Plans, the long-term performance
awards were, in aggregate, approximately 81,000 LTIP Units
(the “Shortfall
LTIP Units”)
lower than those to which the recipients were entitled pursuant to the terms of their respective employment
and service agreements, with the Company planning to issue the remaining LTIP Units at such time as such LTIP Units became available
under the Incentive Plans. The time-based LTIP Units were comprised of 770,854 LTIP Units that vest over approximately five years
and 160,192 LTIP Units that vest over approximately three years. The performance-based LTIP Units were comprised of 125,165 LTIP
Units (the “Initial Long-Term Performance Award”), which are subject to a three-year performance period, and will vest
immediately upon successful achievement of performance-based conditions. Performance criteria are primarily based on a mixture
of objective internal achievement goals and relative performance against its industry peers, with a minimum, threshold, and maximum
performance standard for performance criteria. After the determination of the achievement of the performance criteria, any performance-based
LTIP Units that were awarded but do not vest will be canceled.
In addition, on January
1, 2018, the Company granted 6,263 LTIP Units under the Second Amended 2014 Incentive Plans to each independent member of the Board
in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance and the
Company recognized expense
of $0.2 million immediately based on the fair
value at the date of grant
.
On September 28, 2018, the
Company’s stockholders approved the amendment and restatement of each of the Second Amended 2014 Individuals Plan (the “Third
Amended 2014 Individuals Plan”) and the Second Amended 2014 Entities Plan (the “Third Amended 2014 Entities Plan”,
and together with the Third Amended 2014 Individuals Plan, the “Third Amended 2014 Incentive Plans,” and together with
the Second Amended 2014 Incentive Plans, the “Incentive Plans”). The Third Amended 2014 Incentive Plans, which superseded
and replaced in their entirety the Second Amended 2014 Incentive Plans, allow for the issuance of up to an aggregate of 2,250,000
additional shares of Class A common stock. The Third Amended 2014 Incentive Plans provide for the grant of options to purchase
shares of the Company’s common stock, stock awards, stock appreciation rights, performance units, incentive awards and other
equity-based awards.
On October 4, 2018, the
Company granted an aggregate of 80,798 Shortfall LTIP Units to the executive officers pursuant to their employment and service
agreements. The Shortfall LTIP Units vest over a period of three years from the date of grant of each Initial Long-Term Performance
Award, followed by immediate vesting based on successful achievement of the performance conditions.
In addition, on October
4, 2018, the Company granted 3,165 LTIP Units pursuant to the Third Amended 2014 Incentive Plans to the newly appointed independent
member of the Board in payment of the prorated portion of her annual retainer. Such LTIP Units were fully vested upon issuance
and the Company recognized expense of $0.03 million immediately based on the fair value at the date of grant.
On January 1, 2019, the
Company granted certain equity grants of LTIP Units to various executive officers under the Third Amended 2014 Incentive Plans
pursuant to the executive officers’ employment and service agreements as time-based LTIP Units and performance-based LTIP
Units. All such LTIP Unit grants require continuous employment for vesting. The time-based LTIP Units were comprised of 196,023
LTIP Units that vest over approximately three years. The performance-based LTIP Units were comprised of 294,031 LTIP Units, which
are subject to a three-year performance period and will vest immediately upon successful achievement of performance-based conditions.
On April 1, 2019, the Company appointed a new executive officer. On June 25, 2019, the Company, under the Third Amended 2014 Incentive
Plans pursuant to the executive officer’s employment agreement, granted certain equity grants of LTIP Units as time-based
LTIP Units and performance-based LTIP Units to the executive officer. The time-based LTIP Units were comprised of 10,518 LTIP Units
and have a similar vesting period to those granted to the other executive officers. The performance-based LTIP Units were comprised
of 15,776 LTIP Units, which are subject to a similar performance period to those granted to the other executive officers and will
vest immediately upon successful achievement of performance-based conditions.
The Company recognizes
compensation expense ratably over the requisite service periods for the time-based LTIP Units based on the fair value at the date
of grant; thus, the Company recognized compensation expense of approximately $0.9 million and $1.2 million, and $1.8 million and
$2.3 million, during the three and six months ended June 30, 2019 and 2018, respectively. The Company recognizes compensation expense
based on the fair value at the date of grant and the probability of achievement of performance criteria over the performance period
for the performance-based LTIP Units; thus, the Company recognized approximately $0.4 million and $0.1 million, and $0.8 million
and $0.2 million, during the three and six months ended June 30, 2019 and 2018, respectively.
In addition, on January
1, 2019, the Company granted 6,836 LTIP Units pursuant to the Third Amended 2014 Incentive Plans to each independent member of
the Board in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance
and the Company recognized expense of $0.2 million immediately based on the fair value at the date of grant.
As of June 30, 2019, there
was $8.4 million of total unrecognized compensation cost related to unvested LTIP Units granted under the Incentive Plans. The
remaining cost is expected to be recognized over a period of 2.6 years.
Restricted Stock Grants
On April 1, 2019, the
Company provided restricted stock grants (“RSGs”) to employees under the Incentive Plans. The RSGs vest in three equal
consecutive one-year tranches from the date of grant. The RSGs were comprised of 90,694 shares of Class A common stock with a fair
value of $10.65 per RSG and a total fair value of $1.0 million. The compensation cost of approximately $0.1 million has been recognized
for the six months ended June 30, 2019. The remaining compensation cost is expected to be recognized over the remaining 2.75 years.
Distributions
|
Declaration Date
|
|
Payable to stockholders
of record as of
|
|
|
Amount
|
|
|
Date Paid or Payable
|
|
Class A Common Stock
|
|
|
|
|
|
|
|
|
|
December 7, 2018
|
|
December 24, 2018
|
|
|
$
|
0.162500
|
|
|
January 4, 2019
|
|
March 8, 2019
|
|
March 25, 2019
|
|
|
$
|
0.162500
|
|
|
April 5, 2019
|
|
June 7, 2019
|
|
June 25, 2019
|
|
|
$
|
0.162500
|
|
|
July 5, 2019
|
|
Class C Common Stock
|
|
|
|
|
|
|
|
|
|
|
December 7, 2018
|
|
December 24, 2018
|
|
|
$
|
0.162500
|
|
|
January 4, 2019
|
|
March 8, 2019
|
|
March 25, 2019
|
|
|
$
|
0.162500
|
|
|
April 5, 2019
|
|
June 7, 2019
|
|
June 25, 2019
|
|
|
$
|
0.162500
|
|
|
July 5, 2019
|
|
Series A Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
December 7, 2018
|
|
December 24, 2018
|
|
|
$
|
0.515625
|
|
|
January 4, 2019
|
|
March 8, 2019
|
|
March 25, 2019
|
|
|
$
|
0.515625
|
|
|
April 5, 2019
|
|
June 7, 2019
|
|
June 25, 2019
|
|
|
$
|
0.515625
|
|
|
July 5, 2019
|
|
Series B Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
October 12, 2018
|
|
December 24, 2018
|
|
|
$
|
5.00
|
|
|
January 4, 2019
|
|
January 11, 2019
|
|
January 25, 2019
|
|
|
$
|
5.00
|
|
|
February 5, 2019
|
|
January 11, 2019
|
|
February 25, 2019
|
|
|
$
|
5.00
|
|
|
March 5, 2019
|
|
January 11, 2019
|
|
March 25, 2019
|
|
|
$
|
5.00
|
|
|
April 5, 2019
|
|
April 12, 2019
|
|
April 25, 2019
|
|
|
$
|
5.00
|
|
|
May 3, 2019
|
|
April 12, 2019
|
|
May 24, 2019
|
|
|
$
|
5.00
|
|
|
June 5, 2019
|
|
April 12, 2019
|
|
June 25, 2019
|
|
|
$
|
5.00
|
|
|
July 5, 2019
|
|
Series C Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
December 7, 2018
|
|
December 24, 2018
|
|
|
$
|
0.4765625
|
|
|
January 4, 2019
|
|
March 8, 2019
|
|
March 25, 2019
|
|
|
$
|
0.4765625
|
|
|
April 5, 2019
|
|
June 7, 2019
|
|
June 25, 2019
|
|
|
$
|
0.4765625
|
|
|
July 5, 2019
|
|
Series D Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
December 7, 2018
|
|
December 24, 2018
|
|
|
$
|
0.4453125
|
|
|
January 4, 2019
|
|
March 8, 2019
|
|
March 25, 2019
|
|
|
$
|
0.4453125
|
|
|
April 5, 2019
|
|
June 7, 2019
|
|
June 25, 2019
|
|
|
$
|
0.4453125
|
|
|
July 5, 2019
|
A portion of each dividend
may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends
or at this rate. Holders of OP Units and LTIP Units are entitled to receive "distribution equivalents" at the same time
as dividends are paid to holders of the Company's Class A common stock.
The Company has a dividend
reinvestment plan that allows for participating stockholders to have their Class A common stock dividend distributions automatically
invested in additional Class A common shares based on the average price of the Class A common shares on the investment date. The
Company plans to issue Class A common shares to cover shares required for investment.
Distributions declared
and paid for the six months ended June 30, 2019 were as follows (amounts in thousands):
|
|
|
Distributions
|
|
|
2019
|
|
Declared
|
|
|
Paid
|
|
|
First Quarter
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3,727
|
|
|
$
|
3,820
|
|
|
Class C Common Stock
|
|
|
12
|
|
|
|
12
|
|
|
Series A Preferred Stock
|
|
|
2,950
|
|
|
|
2,950
|
|
|
Series B Preferred Stock
|
|
|
5,058
|
|
|
|
4,842
|
|
|
Series C Preferred Stock
|
|
|
1,107
|
|
|
|
1,107
|
|
|
Series D Preferred Stock
|
|
|
1,269
|
|
|
|
1,269
|
|
|
OP Units
|
|
|
1,038
|
|
|
|
1,038
|
|
|
LTIP Units
|
|
|
383
|
|
|
|
262
|
|
|
Total first quarter 2019
|
|
$
|
15,544
|
|
|
$
|
15,300
|
|
|
Second Quarter
|
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
$
|
3,623
|
|
|
$
|
3,726
|
|
|
Class C Common Stock
|
|
|
12
|
|
|
|
12
|
|
|
Series A Preferred Stock
|
|
|
2,950
|
|
|
|
2,950
|
|
|
Series B Preferred Stock
|
|
|
5,693
|
|
|
|
5,443
|
|
|
Series C Preferred Stock
|
|
|
1,107
|
|
|
|
1,107
|
|
|
Series D Preferred Stock
|
|
|
1,269
|
|
|
|
1,269
|
|
|
OP Units
|
|
|
1,038
|
|
|
|
1,058
|
|
|
LTIP Units
|
|
|
392
|
|
|
|
309
|
|
|
Total second quarter 2019
|
|
$
|
16,084
|
|
|
$
|
15,874
|
|
|
Total
|
|
$
|
31,628
|
|
|
$
|
31,174
|
|
Note 14 – Commitments and Contingencies
The Company is subject
to various legal actions and claims arising in the ordinary course of business. Although the outcome of any legal matter cannot
be predicted with certainty, management does not believe that any of these legal proceedings or matters will have a material adverse
effect on the consolidated financial position or results of operations or liquidity of the Company.
Note 15 – Subsequent Events
Declaration of Dividends
|
Declaration Date
|
|
Payable to stockholders
of record as of
|
|
|
Amount
|
|
|
Payable Date
|
|
Series B Preferred Stock
|
|
|
|
|
|
|
|
|
|
July 12, 2019
|
|
|
July 25, 2019
|
|
|
$
|
5.00
|
|
|
August 5, 2019
|
|
July 12, 2019
|
|
|
August 23, 2019
|
|
|
$
|
5.00
|
|
|
September 5, 2019
|
|
July 12, 2019
|
|
|
September 25, 2019
|
|
|
$
|
5.00
|
|
|
October 4, 2019
|
Holders of OP and LTIP
Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of the Company's
Class A common stock. A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that
the Company will continue to declare dividends or at this rate.
Distributions Paid
The following distributions
were declared and/or paid to the Company's stockholders, as well as holders of OP and LTIP Units, subsequent to June 30, 2019 (amounts
in thousands):
|
Shares
|
|
Declaration
Date
|
|
Record Date
|
|
Date Paid
|
|
Distributions
per Share
|
|
|
Total
Distribution
|
|
|
Class A Common Stock
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.162500
|
|
|
$
|
3,623
|
|
|
Class C Common Stock
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.162500
|
|
|
$
|
12
|
|
|
Series A Preferred Stock
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.515625
|
|
|
$
|
2,950
|
|
|
Series B Preferred Stock
|
|
April 12, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
5.000000
|
|
|
$
|
1,998
|
|
|
Series C Preferred Stock
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.4765625
|
|
|
$
|
1,107
|
|
|
Series D Preferred Stock
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.4453125
|
|
|
$
|
1,269
|
|
|
OP Units
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.162500
|
|
|
$
|
1,017
|
|
|
LTIP Units
|
|
June 7, 2019
|
|
June 25, 2019
|
|
July 5, 2019
|
|
$
|
0.162500
|
|
|
$
|
317
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series B Preferred Stock
|
|
July 12, 2019
|
|
July 25, 2019
|
|
August 5, 2019
|
|
$
|
5.000000
|
|
|
$
|
2,055
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,348
|
|
Sale of the Topaz Portfolio
On July 15, 2019, the
Company, through subsidiaries of the Operating Partnership, closed on the sale of four of the five properties in the Topaz Portfolio
pursuant to the terms and conditions of two separate purchase and sales agreements for approximately $226.9 million. The sale of
the fifth property in the Topaz Portfolio, ARIUM Palms, is expected to close in August 2019.
Acquisition of Denim
On July 24, 2019, the
Company, through subsidiaries of its Operating Partnership, acquired a 100.0% interest in a 645-unit apartment community located
in Scottsdale, Arizona, known as Denim for approximately $141.3 million. The purchase price of $141.3 million was funded, in part,
with a $91.6 million senior mortgage loan secured by the Denim property.
Acquisition of The Sanctuary
On July 31, 2019, the
Company, through subsidiaries of its Operating Partnership, acquired a 100.0% interest in a 320-unit apartment community located
in Las Vegas, Nevada, known as The Sanctuary (“Sanctuary”) for approximately $51.8 million. The purchase price of $51.8
million was funded, in part, with a $33.7 million senior mortgage loan secured by the Sanctuary property.
