UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-K
(Mark One)
☒ |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2019
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 001-36663
NexPoint Residential Trust, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Maryland |
|
47-1881359 |
(State or other Jurisdiction of Incorporation or Organization) |
|
(I.R.S. Employer Identification No.) |
300 Crescent Court, Suite 700, Dallas, Texas |
|
75201 |
(Address of Principal Executive Offices) |
|
(Zip Code) |
(972) 628-4100
(Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
|
NXRT |
|
New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer |
☒ |
|
Accelerated Filer |
☐ |
Non-Accelerated Filer |
☐ |
|
Smaller reporting company |
☐ |
Emerging growth company |
☐ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on June 28, 2019 was approximately $774,925,308.64.
As of February 21, 2020, the registrant had 25,296,836 shares of its common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement for the registrant’s 2020 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.
NEXPOINT RESIDENTIAL TRUST, INC.
Form 10-K
Year Ended December 31, 2019
INDEX
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ii |
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Item 1. |
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4 |
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Item 1A. |
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17 |
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Item 1B. |
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36 |
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Item 2. |
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37 |
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Item 3. |
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38 |
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Item 4. |
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38 |
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Item 5. |
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39 |
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Item 6. |
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41 |
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Item 7. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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42 |
Item 7A. |
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65 |
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Item 8. |
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66 |
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
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66 |
Item 9A. |
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66 |
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Item 9B. |
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67 |
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Item 10. |
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68 |
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Item 11. |
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68 |
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Item 12. |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
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68 |
Item 13. |
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Certain Relationships and Related Transactions, and Director Independence |
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68 |
Item 14. |
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68 |
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Item 15. |
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69 |
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F-1 |
i
Cautionary Statement Regarding Forward-Looking Statements
This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, the performance of our properties and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this annual report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.
Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.
Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:
|
• |
unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our properties are located; |
|
• |
risks associated with ownership of real estate; |
|
• |
limited ability to dispose of assets because of the relative illiquidity of real estate investments; |
|
• |
our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which makes us more susceptible to adverse developments in those markets; |
|
• |
increased risks associated with our strategy of acquiring value-enhancement multifamily properties rather than more conservative investment strategies; |
|
• |
potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”); |
|
• |
competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth; |
|
• |
competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents; |
|
• |
the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in our occupancy rates; |
|
• |
the risk that we may fail to consummate future property acquisitions; |
|
• |
failure of acquisitions to yield anticipated results; |
|
• |
risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future; |
|
• |
risks associated with selling apartment communities, which could limit our operational and financial flexibility; |
|
• |
contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire; |
|
• |
lack of or insufficient amounts of insurance; |
|
• |
the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient; |
|
• |
high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth; |
|
• |
high costs associated with the compliance with various accessibility, environmental, building and health and safety laws and regulations, such as the Americans with Disabilities Act of 1990 (the “ADA”) and the Fair Housing Act (the “FHA”); |
|
• |
risks associated with limited warranties we may obtain when purchasing properties; |
|
• |
exposure to decreases in market rents due to our short-term leases; |
|
• |
risks associated with operating through joint ventures and funds; |
|
• |
our dependence on information systems; |
ii
|
• |
costs associated with being a public company, including compliance with securities laws; |
|
• |
the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting; |
|
• |
risks associated with our substantial current indebtedness and indebtedness we may incur in the future; |
|
• |
risks associated with derivatives or hedging activity; |
|
• |
the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of NexPoint Real Estate Advisors, L.P. (our “Advisor”), members of our Adviser’s management team or by NexPoint Advisors, L.P. (our “Sponsor”) or its affiliates; |
|
• |
risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below); |
|
• |
our ability to change our major policies, operations and targeted investments without stockholder consent; |
|
• |
the substantial fees and expenses we pay to our Adviser and its affiliates; |
|
• |
risks associated with any potential internalization of our management functions; |
|
• |
conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees; |
|
• |
the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants; |
|
• |
failure to maintain our status as a REIT; |
|
• |
failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status; |
|
• |
compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities; |
|
• |
risks associated with our ownership of interests in taxable REIT subsidiaries; |
|
• |
the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges (“1031 Exchanges”) in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”); |
|
• |
the risk that the Internal Revenue Service (the “IRS”) may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain; |
|
• |
the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends; |
|
• |
risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter; |
|
• |
the ability of our board of directors (the “Board”) to revoke our REIT qualification without stockholder approval; |
|
• |
recent and potential legislative or regulatory tax changes or other actions affecting REITs; |
|
• |
risks associated with the market for our common stock and the general volatility of the capital and credit markets; |
|
• |
failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels; |
|
• |
risks associated with limitations of liability for and our indemnification of our directors and officers; and |
|
• |
any other risks included under the heading “Risk Factors” in this annual report. |
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this annual report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.
iii
General
NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to be taxed as a REIT. The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of December 31, 2019, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10 to our consolidated financial statements).
The Company began operations on March 31, 2015 as a result of the transfer and contribution by NexPoint Strategic Opportunities Fund (fka NexPoint Credit Strategies Fund) (“NHF”) of all but one of the multifamily properties owned by NHF through its wholly owned subsidiary NexPoint Real Estate Opportunities, LLC (fka Freedom REIT, LLC) (“NREO”). We use the term “predecessor” to mean the carve-out business of NREO. On March 31, 2015, NHF distributed all of the outstanding shares of the Company’s common stock held by NHF to holders of NHF common shares. We refer to the distribution of our common stock by NHF as the “Spin-Off.”
The Company is externally managed by the Adviser through an agreement dated March 16, 2015, as amended, and renewed on February 17, 2020 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Board. The Adviser is wholly owned by our Sponsor. Our Sponsor is affiliated through common control with Highland Capital Management, LP. (“Highland”).
The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.
The entities through which we own the properties in the Portfolio have entered into management agreements with BH Management Services, LLC (“BH”). Pursuant to these agreements, BH operates and leases the underlying properties in the Portfolio and provides construction management services. BH has significant experience operating and leasing multifamily properties, having begun business in 1993 and currently operating and leasing approximately 86,000 multifamily units across the country. The Company pays BH a management fee of approximately 3% of the monthly gross income from each property managed, as well as construction supervision fees and certain other fees. BH is an affiliate of the noncontrolling limited partner of the OP. See Notes 10 and 11 to our consolidated financial statements for additional information.
The Company may also participate with third parties in property ownership through limited liability companies (“LLCs”), funds or other types of co-ownership or acquire real estate or interests in real estate in exchange for the issuance of common stock, OP Units, preferred stock or options to purchase stock. These types of investments may permit the Company to own interests in larger assets without unduly restricting diversification, which provides flexibility in structuring the Company’s portfolio.
The Company may allocate up to 30% of the portfolio to investments in real estate-related debt and securities with the potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may include securities of other REITs or real estate companies.
4
As of December 31, 2019, the Company, through the OP and the wholly owned TRS, owned 40 properties representing 14,724 units in eight states, as further described under Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.
2019 Highlights
Key highlights and transactions completed in 2019 include the following:
• |
2019 ATM Program: On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements (“Equity Distribution Agreements”) with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”) and SunTrust Robinson Humphrey, Inc. (“SunTrust” and together with Jefferies and Raymond James, the “Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “ATM Program”). During 2019, we issued 1,565,322 shares of common stock, par value $0.01 per share, at an average share price of $45.98 (before sales commissions and offering costs) for gross proceeds of approximately $72.0 million through the ATM Program. We used the majority of the net proceeds from the 2019 ATM Program to acquire 11 properties. The following table below contains summary information of the 2019 ATM Program: |
Gross proceeds |
|
$ |
71,973,433 |
|
Common shares issued |
|
|
1,565,322 |
|
Gross average sale price per share |
|
$ |
45.98 |
|
|
|
|
|
|
Sales commissions |
|
$ |
1,079,601 |
|
Offering costs |
|
|
1,019,778 |
|
Net proceeds |
|
|
69,874,054 |
|
Average price per share, net |
|
$ |
44.64 |
|
• |
Acquisitions: We completed 11 acquisitions in 2019. Details of the acquisitions are in the table below (dollars in thousands): |
Property Name |
|
Location |
|
Date of Acquisition |
|
Purchase Price |
|
|
Mortgage Debt (1) |
|
|
# Units |
|
|
Effective Ownership |
|
||||
Bella Vista |
|
Phoenix, Arizona |
|
January 28, 2019 |
|
$ |
48,400 |
|
|
$ |
29,040 |
|
|
|
248 |
|
|
|
100 |
% |
The Enclave |
|
Tempe, Arizona |
|
January 28, 2019 |
|
|
41,800 |
|
|
|
25,322 |
|
|
|
204 |
|
|
|
100 |
% |
The Heritage |
|
Phoenix, Arizona |
|
January 28, 2019 |
|
|
41,900 |
|
|
|
24,625 |
|
|
|
204 |
|
|
|
100 |
% |
Summers Landing |
|
Fort Worth, Texas |
|
June 7, 2019 |
|
|
19,396 |
|
|
|
10,109 |
|
|
|
196 |
|
|
|
100 |
% |
Residences at Glenview Reserve |
|
Nashville, Tennessee |
|
July 17, 2019 |
|
|
45,000 |
|
|
|
26,560 |
|
|
|
360 |
|
|
|
100 |
% |
Residences at West Place |
|
Orlando, Florida |
|
July 17, 2019 |
|
|
55,000 |
|
|
|
33,817 |
|
|
|
342 |
|
|
|
100 |
% |
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
August 30, 2019 |
|
|
322,000 |
|
|
|
177,100 |
|
|
|
1,520 |
|
|
|
100 |
% |
Arbors of Brentwood |
|
Nashville, Tennessee |
|
September 10, 2019 |
|
|
62,250 |
|
|
|
34,237 |
|
|
|
346 |
|
|
|
100 |
% |
Torreyana Apartments |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
68,000 |
|
|
|
37,400 |
|
|
|
315 |
|
|
|
100 |
% |
Bloom |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
106,500 |
|
|
|
58,850 |
|
|
|
528 |
|
|
|
100 |
% |
Bella Solara |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
66,500 |
|
|
|
36,575 |
|
|
|
320 |
|
|
|
100 |
% |
|
|
|
|
|
|
$ |
876,746 |
|
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$ |
493,635 |
|
|
|
4,583 |
|
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|
(1) |
For additional information regarding our debt, see Note 6 to our consolidated financial statements. |
5
• |
Dispositions: We sold six properties totaling 2,218 units in 2019. Details of the dispositions are in the table below (in thousands): |
Property Name |
|
Location |
|
Date of Sale |
|
Sales Price |
|
|
Outstanding Principal (1) |
|
|
Net Cash Proceeds (2) |
|
|
Gain on Sale of Real Estate |
|
||||
Edgewater at Sandy Springs |
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Atlanta, Georgia |
|
August 28, 2019 |
|
$ |
101,250 |
|
|
$ |
52,000 |
|
|
$ |
100,120 |
|
|
$ |
47,332 |
|
Abbington Heights |
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Antioch, Tennessee |
|
August 30, 2019 |
|
|
28,050 |
|
|
|
16,920 |
|
|
|
27,605 |
|
|
|
10,887 |
|
Belmont at Duck Creek |
|
Garland, Texas |
|
August 28, 2019 |
|
|
29,500 |
|
|
|
17,760 |
|
|
|
29,102 |
|
|
|
11,993 |
|
The Ashlar |
|
Dallas, Texas |
|
August 28, 2019 |
|
|
29,400 |
|
|
|
14,520 |
|
|
|
29,029 |
|
|
|
13,205 |
|
Heatherstone |
|
Dallas, Texas |
|
August 28, 2019 |
|
|
16,275 |
|
|
|
8,880 |
|
|
|
16,032 |
|
|
|
6,366 |
|
The Pointe at the Foothills |
|
Mesa, Arizona |
|
August 28, 2019 |
|
|
85,400 |
|
|
|
34,800 |
|
|
|
84,591 |
|
|
|
37,901 |
|
|
|
|
|
|
|
$ |
289,875 |
|
|
$ |
144,880 |
|
|
$ |
286,479 |
|
|
$ |
127,684 |
|
(1) |
Represents the outstanding principal balance when the loan was repaid. |
(2) |
Represents sales price, net of closing costs. |
• |
Renovations: For the properties in our Portfolio as of December 31, 2019, we completed full and partial renovations on 2,516 units at an average cost of $4,787 per renovated unit. Since inception, for the properties in our Portfolio as of December 31, 2019, we have completed full and partial renovations on 6,927 units at an average cost of $4,920 per renovated unit that has been leased as of December 31, 2019. We have achieved average rent growth of 11.0%, or a $101 average monthly rental increase per unit, on all units renovated and leased as of December 31, 2019, resulting in a return on investment on capital expended for interior renovations of 24.5%. |
• |
Dividends: We declared dividends totaling $28.2 million, or $1.138 per share. During the fourth quarter of 2019, we increased our quarterly dividend for the fourth time since the Spin-Off to $0.3125 per share, which was an increase of $0.0375 per share, or a 13.6% increase, over our previous quarterly dividends declared in 2019. The increase in our quarterly dividend to $0.3125 per share is an increase of $0.1065 per share, or a 51.7% increase, over our quarterly dividends declared from the Spin-Off through the third quarter of 2016. Our fourth quarter dividend equates to a 2.8% annualized yield based on our closing share price of $45.00 on December 31, 2019. |
• |
Results of Operations and Non-GAAP Measures: We reported the following increases in net income (loss), net operating income (“NOI”), funds from operations (“FFO”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) for the year ended December 31, 2019 as compared to the year ended December 31, 2018 (dollars in thousands): |
|
|
For the Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
$ Change |
|
|
% Change |
|
||||
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
|
$ |
101,052 |
|
(1) |
N/M |
|
|
NOI |
(2) |
|
102,591 |
|
|
|
80,175 |
|
|
|
22,416 |
|
|
|
28.0 |
% |
FFO attributable to common stockholders |
(2) |
|
40,718 |
|
|
|
32,018 |
|
|
|
8,700 |
|
|
|
27.2 |
% |
Core FFO attributable to common stockholders |
(2) |
|
47,573 |
|
|
|
35,081 |
|
|
|
12,492 |
|
|
|
35.6 |
% |
AFFO attributable to common stockholders |
(2) |
|
54,213 |
|
|
|
40,753 |
|
|
|
13,460 |
|
|
|
33.0 |
% |
(1) |
The change in our net income (loss) between the periods primarily relates to an increase in gain on sales of real estate of $114.0 million and an increase in total revenues of $34.5 million, partially offset by increases in total property operating expenses of $12.9 million and depreciation and amortization expense of $21.6 million. |
(2) |
See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding the non-GAAP measures of NOI, FFO, Core FFO and AFFO provided above, including reconciliations to net income (loss) in accordance with U.S. generally accepted accounting principles (“GAAP”). |
6
Operating Metric |
|
2019 |
|
|
2018 |
|
|
% Change |
|
|||
Occupancy (1) |
|
|
94.5 |
% |
|
|
94.8 |
% |
|
|
-0.3 |
% |
Average Effective Monthly Rent Per Unit (2) |
|
$ |
1,038 |
|
|
$ |
1,002 |
|
|
|
3.6 |
% |
Rental income (in thousands) |
|
$ |
116,313 |
|
|
$ |
110,902 |
|
|
|
4.9 |
% |
Other income (in thousands) |
|
$ |
2,324 |
|
|
$ |
2,824 |
|
|
|
-17.7 |
% |
(1) |
Occupancy is calculated as the number of units occupied as of December 31 for the respective year, divided by the total number of units, expressed as a percentage. |
(2) |
Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31 for the respective year minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31 for the respective year. |
• |
Cash Position: At December 31, 2019, we had $71.2 million of cash on our balance sheet, of which $21.9 million was reserved for future renovations, and $23.6 million was reserved for lender-required escrows and security deposits. We believe we have adequate cash on hand, in addition to our expected cash flows from operations, to meet our near-term obligations, service our debt, pay distributions and make opportunistic acquisitions. |
Our Real Estate Portfolio
As of December 31, 2019, we owned 40 properties representing 14,724 units in eight states that were approximately 94.2% occupied with a weighted average monthly effective rent per occupied apartment unit of $1,103. For additional information regarding our Portfolio, see Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.
We evaluate our operating performance on an individual property level and view our real estate assets as one industry segment and, accordingly, our properties are aggregated into one reportable segment.
Our Business Objectives and Strategies
Our primary business objectives are to:
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• |
deliver stable, attractive yields and long-term capital appreciation to our stockholders; |
|
• |
acquire multifamily properties in markets with attractive job growth and household formation fundamentals primarily in the Southeastern and Southwestern United States; |
|
• |
acquire assets at discounts to replacement cost; |
|
• |
implement a value-add program to increase returns to our stockholders; |
|
• |
own assets that provide lifestyle amenities and upgraded living spaces to low and moderate income renters; and |
|
• |
recycle capital from dispositions when economic and market conditions present opportunities that we believe are in the best interest of our stockholders. |
We intend to accomplish these objectives by:
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• |
Focusing on Acquiring Class B Properties in Our Core Markets. We will continue to seek opportunities to acquire primarily Class B multifamily properties at prices that we believe represent discounts to replacement cost, provide the potential for significant long-term value appreciation and that we expect will generate attractive yields for our stockholders. We will focus on these types of opportunities in our core markets, which we consider to be primarily major metropolitan areas in the Southeastern and Southwestern United States. |
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• |
Focusing on Multifamily Properties with a Value-Add Component. We will continue to seek opportunities to acquire multifamily properties that have a value-add component. Due to a lack of reinvestment by many prior owners, we believe these types of properties provide us the opportunity to make relatively modest capital expenditures that result in a significant increase in rents, thereby generating NOI growth, and thus higher yields and capital appreciation for our stockholders. |
7
Our Adviser’s investment approach combines its management team’s experience with a structure that emphasizes thorough market research, local market knowledge, underwriting discipline and risk management in evaluating potential investments with a goal of maximizing long-term stockholder value and a philosophy of thoughtful capital allocation and balance sheet management.
Acquisition and Operating Strategy
We seek primarily Class B multifamily properties that are priced at a discount to replacement cost. We believe that through the implementation of our value-add program we will be able to grow the NOI of these types of properties significantly in the first three years of ownership and thus these types of acquisitions will be accretive over the long-term to our FFO, Core FFO and AFFO. As we progress through the real estate life cycle, these opportunities will become more difficult to find. However, we will continue to take a disciplined approach to acquisitions by primarily pursuing these types of opportunities. Our Adviser’s investment approach includes active management of each property acquired. Our Adviser believes that active management is critical to creating value. Prior to the purchase of a property, BH and our Adviser generally tour each property and develop a business strategy for the property. This includes a forecast of the action items to be taken and the capital needed to achieve the anticipated returns. Our Adviser reviews such property-level business strategies on an ongoing basis to anticipate changes or opportunities in the market. In an effort to keep properties in compliance with our underwriting standards and management strategies, our Adviser remains involved throughout the investment life cycle of each acquired property and actively consults with BH throughout the holding period.
We may also allocate up to 30% of our Portfolio to investments in real estate-related debt, mezzanine and other loans and preferred equity and other securities in situations where the risk-return profile is more attractive than investments in common equity. This strategy would be focused on the multifamily property type and would be designed to minimize potential losses during market downturns and maximize risk adjusted total returns to our stockholders in all market cycles.
Value-Add Strategy
We will continue to implement our value-add strategy at our properties where we believe we can achieve a significant increase in rents above what would otherwise be the case with purely organic market increases. Our value-add program has three components: 1) improvement of exteriors and common areas, 2) improvement of interiors and 3) management and cost improvements.
We invest in exterior and common areas improvements at our properties in an effort to enhance asset quality, to improve “curb appeal”/market positioning, and expand or enhance our amenity offerings, all of which we believe will improve tenant retention and modestly drive rent and NOI growth. Renovations to the exteriors and common areas include structural improvements that enhance the physical condition, value and/or useful life of our properties, as well as aesthetic improvements to, among others, landscape and signage. We also seek to improve our competitive positioning by adding to, redecorating or otherwise enhancing our common areas and amenity offerings. As of December 31, 2019, with the exception of the properties we acquired in 2019, we have renovated the exteriors and common areas at a majority of the properties in our Portfolio.
We expect interior renovations, along with organic growth in rents, to be the primary drivers of rent and NOI growth at our properties. Our interior renovations include: 1) aesthetic design enhancements such as kitchen and/or bath remodeling, 2) replacement of outdated appliances, equipment and fixtures, 3) addition of washer/dryer appliances, 4) private yards and 5) smart technologies such as Bluetooth locks, networked climate control systems and USB electrical outlets. We also seek to achieve cost improvements through investment in longer-lived materials, energy conservation projects, and other strategic initiatives. For the properties in our Portfolio as of December 31, 2019, we have completed full and partial renovations on 6,927 units out of our 14,724 total units with an average monthly rental increase per unit of $101 and an average cost of $4,920 per renovated unit that has been leased as of December 31, 2019. In cases where we believe rents will grow significantly in a market organically, we will implement the value-add program more strategically in order to capture significant rent and NOI growth without expending additional capital. Additionally, to the extent we believe rents at a property are maximized regardless of the level of additional renovations, we may opt not to further renovate units at that property. As of December 31, 2019, we had reserved approximately $21.9 million for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 3,607 planned interior rehabs, eliminating the need for us to raise additional capital in order to carry out our currently planned value-add program.
8
In general, we intend to hold our multifamily properties for production of rental income for a period of at least three years from the date of acquisition. Economic and market conditions may influence us to hold our investments for different periods of time. From time to time, we may sell an asset before the end of the expected holding period, particularly if we receive a bona fide unsolicited offer with attractive terms, have an upcoming liquidity need, such as a debt maturing, are strategically exiting a certain market or sub-market or the sale of the asset would otherwise be in the best interest of our stockholders. When reviewing whether a sale is in the best interest of our stockholders, we take into consideration whether market conditions and asset positioning have maximized the value of the property to us and any potential adverse tax consequences of a sale.
Financing Strategy
We intend to use leverage in making our investments with an objective of maintaining a strong balance sheet and providing liquidity to grow our Portfolio. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal balance to enterprise value) over time by increasing the value of our properties and refinancing properties we intend to hold longer-term. However, we are not subject to any limitations on the amount of leverage we may use, and, accordingly, the amount of leverage we use may be significantly less or greater than what we currently anticipate. We are currently meeting our short-term liquidity needs through our cash and cash equivalents and cash flows from operations.
When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties and other assets for cash with the intention of obtaining a loan for a portion of the purchase price at a later time. We will refinance properties during the term of a loan only under certain circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, an existing mortgage matures, the value of the property has increased significantly and we can obtain more attractive terms through refinancing the property, or an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment.
We typically use floating rate debt with interest rate swaps and interest rate caps as opposed to using fixed rate debt. We believe this is a more sensible and flexible way to utilize leverage, while limiting our interest rate risk in our strategy as we attempt to increase the value of each property over the course of three years after acquisition through our value-add program. Fixed rate financing is typically more expensive and less flexible since there are typically high prepayment penalties, yield maintenance payments and/or defeasance penalties when refinancing the debt prior to maturity. To the extent we intend to hold a property long-term, we will reassess the use of refinancing with fixed rate debt.
Property Management Strategy
We seek to achieve long-term earnings growth through superior property management. To achieve this, we have partnered with BH to manage all of our properties as an external manager. In order to align our property manager’s interests with those of our stockholders, BH (through an affiliate) is a noncontrolling limited partner of the OP. We believe BH provides the following benefits:
|
• |
manages approximately 86,000 multifamily units in 20 states and has managed multifamily communities for 27 years; |
|
• |
brings a scale of operations we could not otherwise achieve for approximately 3% of gross income, which is the contracted amount we pay for its property management services; |
|
• |
has operations in all of our current and desired markets, allowing us greater scale when entering new markets or make investments in non-core markets without making substantial investments in management infrastructure in those markets; |
|
• |
has a construction management operation and substantial experience in renovating Class B multifamily units; |
|
• |
its scale allows it to obtain highly competitive pricing as it pertains to the costs of our value-add program, increasing our return on investment for renovations; |
|
• |
helps us source and underwrite opportunities as well as assist in due diligence of properties prior to closing; |
|
• |
assists in locating potential buyers for our properties; |
|
• |
its size, scale and experience allows it to keep costs low and maximize rents and occupancy; and |
|
• |
has proved successful in driving other revenue growth at properties it manages. |
9
The following chart shows our ownership structure.
* |
An affiliate of BH Equities, LLC is the property manager for all of our properties. |
Our Adviser
We are externally managed by our Adviser pursuant to the Advisory Agreement, by and among the OP, our Adviser, and us. Our Adviser was organized on September 5, 2014 and is an affiliate of our Sponsor. Our Adviser has contractual and fiduciary responsibilities to us and our stockholders as further described under “—Our Advisory Agreement” below. The members of our Adviser’s management team are Jim Dondero, Brian Mitts, Matt McGraner and Matthew Goetz, all of whom are employed by our Adviser or its affiliates.
Our Adviser has also entered into a shared services agreement with Highland, pursuant to which Highland or its affiliates provide research and operational support to our Adviser, including services in connection with the due diligence of actual or potential investments, the execution of investment transactions approved by our Adviser and certain back office and administrative services.
10
Below is a summary of the terms of our Advisory Agreement:
Duties of Our Adviser. Our Advisory Agreement provides that our Adviser manage our business and affairs in accordance with the policies and guidelines established by our Board and that our Adviser be under the supervision of our Board. The agreement requires our Adviser to provide us with all services necessary or appropriate to conduct our business, including the following:
|
• |
locating, presenting and recommending to us real estate investment opportunities consistent with our investment policies, acquisition and disposition strategies and objectives, including our conflicts of interest policies; |
|
• |
structuring the terms and conditions of transactions pursuant to which acquisitions and dispositions of properties will be made; |
|
• |
acquiring and disposing properties on our behalf in compliance with our investment objectives, strategies and applicable tax regulations; |
|
• |
arranging for the financing and refinancing of properties; |
|
• |
administering our bookkeeping and accounting functions; |
|
• |
serving as our consultant in connection with policy decisions to be made by our Board, managing our properties or causing our properties to be managed by another party; |
|
• |
monitoring our compliance with regulatory requirements, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, New York Stock Exchange (“NYSE”) rules and regulations of the Code to maintain our status as a REIT; |
|
• |
performing administrative services; and |
|
• |
rendering other services as our Board deems appropriate. |
Our Adviser is required to obtain the prior approval of our Board in connection with:
|
• |
any investment for which the portion of the consideration paid out of our equity equals or exceeds $50,000,000; |
|
• |
any investment that is inconsistent with the publicly disclosed investment guidelines as in effect from time to time, or, if none are then publicly disclosed, as otherwise adopted by our Board from time to time; or |
|
• |
any engagement of affiliated service providers on behalf of us or the OP, which engagement terms will be negotiated on an arm’s length basis. |
For these purposes, “equity” means the purchase price of the investment, exclusive of the proceeds of any debt financing incurred or to be incurred in connection with the relevant investment and anticipated closing and other acquisition costs.
Our Adviser will be prohibited from taking any action, in its sole judgment, or in the sole judgment of our Board, that:
|
• |
would adversely affect our qualification as a REIT under the Code, unless our Board had determined that REIT qualification is not in the best interest of us and our stockholders; |
|
• |
would subject us to regulation under the Investment Company Act of 1940 (the “1940 Act”), except to the extent that we and our Adviser have undertaken in the Advisory Agreement and our charter to comply with Section 15 of the 1940 Act in connection with the entry into, continuation of, or amendment of the Advisory Agreement or any advisory agreement; |
|
• |
is contrary to or inconsistent with our investment guidelines; or |
|
• |
would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over us or our shares of common stock, or otherwise not be permitted by our charter or bylaws. |
Advisory Fee. Our Advisory Agreement requires that we pay our Adviser an annual advisory fee of 1.00% of our Average Real Estate Assets.
“Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets (see below) before reserves for depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for capital expenditures (the value-add program).
11
In calculating the advisory fee, we categorize our Average Real Estate Assets into either “Contributed Assets” or “New Assets.” The advisory fee on Contributed Assets may not exceed $4.5 million in any calendar year. This cap is intended to limit the fees paid to our Adviser on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The advisory fee on New Assets is not subject to this limitation but is subject to the expense cap mentioned below.
“Contributed Assets” means all of the real estate assets we owned upon the completion of the Spin-Off and is not reduced for dispositions of such assets subsequent to the Spin-Off.
“New Assets” means all of the Average Real Estate Assets other than Contributed Assets. New Assets includes proceeds from the sale of a Contributed Asset that are used to purchase a new investment.
The advisory fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of shares issued to our Adviser as payment for the advisory fee will be equal to the dollar amount of the portion of such fee that is payable in shares divided by the volume-weighted average closing price of shares of our common stock for the ten trading days prior to the end of the month for which such fee will be paid, which we refer to as the fee VWAP. Our Adviser computes each installment of the advisory fee as promptly as possible after the end of the month with respect to which such installment is payable.
The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.
Administrative Fee. Our Advisory Agreement requires that we pay our Adviser an annual administrative fee of 0.20% of the Average Real Estate Assets.
In calculating the administrative fee, we categorize our Average Real Estate Assets into either Contributed Assets or New Assets. The administrative fee on Contributed Assets may not exceed $890,000 in any calendar year. This cap is intended to limit the fees paid to our Adviser on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The administrative fee on New Assets is not subject to this limitation but is subject to the expense cap described below.
The administrative fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of shares issued to our Adviser as payment for the administrative fee will be equal to the dollar amount of the portion of such fee that is payable in shares divided by the fee VWAP. Our Adviser computes each installment of the administrative fee as promptly as possible after the end of each month with respect to which such installment is payable. The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.
Reimbursement of Expenses. Our Advisory Agreement requires that we reimburse our Adviser for all of its out-of-pocket expenses in performing its services, including legal, accounting, financial, due diligence and other services performed by our Adviser that outside professionals or outside consultants would otherwise perform and also pay our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Adviser required for our operations (“Adviser Operating Expenses”). Adviser Operating Expenses do not include expenses for the advisory and administrative services provided under the Advisory Agreement. We will also reimburse our Adviser for any and all expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing fees and other documented offering expenses.
When applicable, our Adviser prepares a statement documenting all expenses incurred during each month, and delivers such statement to us within 15 business days after the end of each month. When submitted for reimbursement, such expenses are reimbursed by us no later than the 15th business day immediately following the date of delivery of such statement of expenses to us. All expenses payable by us or reimbursable to our Adviser pursuant to the agreement will not be in amounts greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s length basis. Our Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on our behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future.
Expense Cap. Reimbursement of Adviser Operating Expenses under the Advisory Agreement, advisory and administrative fees paid to our Adviser and corporate general and administrative expenses such as audit, legal, listing and Board fees and equity-based compensation expense recognized under a long-term incentive plan will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect) (the “Expense Cap”). The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets.
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Term of the Advisory Agreement. The Advisory Agreement has a one-year term. The Advisory Agreement shall continue in full force and effect so long as the Advisory Agreement is approved at least annually by our Board. On February 17, 2020, our Board, including the independent directors, unanimously approved the renewal of the Advisory Agreement with the Adviser for a one-year term.
The Advisory Agreement may be terminated at any time, without payment of any penalty to our Adviser, by vote of our Board or stockholders, or by our Adviser, in each case on not more than 60 days’ nor less than 30 days’ prior written notice to the other party. The Advisory Agreement shall automatically and immediately terminate in the event of its “assignment” (as defined in the 1940 Act).
Amendment. The Advisory Agreement may only be amended, waived, discharged or terminated in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought.
Limitations on Receiving Shares. The ability of our Adviser to receive shares of our common stock as payment for all or a portion of the advisory and administrative fees due under the terms of our Advisory Agreement will be subject to the following limitations: (1) the ownership of shares of common stock by our Adviser may not violate the ownership limitations set forth in our charter, after giving effect to any exception from such ownership limitations that our Board may grant to our Adviser or its affiliates and (2) compliance with all applicable restrictions under the U.S. federal securities laws and the NYSE rules. To the extent that payment of any fee in shares of our common stock would result in a violation of the ownership limits set forth in our charter (taking into account any applicable waiver or any restrictions imposed under the U.S. federal securities laws or NYSE rules), all or a portion of such fee payable to our Adviser will be payable in cash to the extent necessary to avoid such violation.
Registration Rights. We entered into a registration rights agreement with our Adviser with respect to any shares of our common stock that our Adviser receives as payment for any fees owed under our Advisory Agreement. These registration rights will require us to file a registration statement with respect to such shares. We agreed to pay all of the expenses relating to registering these securities. The costs associated with registering these securities will not be deducted from the compensation owed to our Adviser.
Liability and Indemnification of our Adviser. Under the Advisory Agreement, we are also required to indemnify our Adviser and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to certain of our Adviser’s acts or omissions.
Other Activities of our Adviser and its Affiliates. Our Adviser and its affiliates expect to engage in other business ventures, and as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the Advisory Agreement, our Adviser will be required to devote sufficient resources to our administration to discharge its obligations.
Potential Acquisition of our Adviser. Many REITs that are listed on a national stock exchange are considered “self-managed” or “internally managed,” since the employees of such REITs perform all significant management functions. In contrast, REITs that are not self-managed, like us, are referred to as “externally managed” and typically engage a third party, such as our Adviser, to perform management functions on its behalf. Our independent directors may determine that we should become self-managed through the acquisition of our Adviser, which we refer to as an internalization transaction. See “Risk Factors—If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.”
Our Property Manager
The entities through which we own the properties in our Portfolio have entered into management agreements with BH. Pursuant to these agreements, BH operates and leases the underlying properties in our Portfolio. In addition to property management and leasing services, BH also provides us with market research, acquisition advice, a pipeline of investment opportunities and construction management services. We utilize BH for property and construction management services and leasing, paying BH a management fee of approximately 3% of the monthly gross income from each property managed, as well as construction supervision fees and certain other fees described under “—Property Management Agreements” below.
Property Management Agreements
Under these agreements, BH operates, coordinates and supervises the ordinary and usual business and affairs pertaining to the operation, maintenance, leasing, licensing, and management of each property. The following summarizes the terms of the management agreements.
Term. The terms of the management agreements will continue until the last day of the calendar month following the second anniversary of the agreement. Upon the expiration of the original term, the agreements will automatically renew on a month-to-month basis until terminated. The agreements may be terminated at any time with 60 days written notice.
13
Proposed Management Plans. Each management agreement requires that BH prepare and submit a proposed management plan and operating budget for the marketing, operation, repair and maintenance, and renovation of the property for the year the agreement is entered into. BH must submit subsequent proposed management plans 45 days prior to the beginning of the next year.
Amounts Payable under the Management Agreements. The entities that own the properties pay BH monthly for its services. Pursuant to the management agreements, BH may pay itself out of each property’s operating account. Any sums not paid within 10 days after becoming due bear interest at the rate of 18% per annum. Compensation under the management agreements consists of the following components:
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• |
Management Fee. The management fee is approximately 3% of the monthly gross income from each property. For the purposes of calculating the management fee, “monthly gross income” is defined as all receipts of every kind and nature actually collected from the operation of the property, determined on a cash basis, including, without limitation, rental or lease payments, late charges, service charges, forfeited security deposits, proceeds of vending machine collections, resident utility payment collections, and all other forms of miscellaneous income (but excluding the collection of any insurance or condemnation awards). |
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• |
Set-Up/Inspection Fees. BH receives a one-time set-up/inspection fee per unit upon commencement of management of each property. |
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• |
Construction Supervision Fee. BH receives a construction supervision fee of 5-6% of total project costs if BH performs these services. |
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• |
Renter’s Insurance Program Fee; Other Fees. In the event that the entities that own the properties direct BH to implement a renter’s insurance program at a property, the entities pay BH a fee in connection with running such program. In consideration for any additional services other than the services required under the management agreements, the entities pay BH an hourly rate. |
Additionally, BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of the properties.
Termination. A management agreement will terminate automatically in the event that the entity that owns the property is sold or if all or substantially all of the property to which the agreement applies is otherwise disposed of. Additionally, a management agreement may be terminated if certain other events occur, including:
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• |
a default by BH or the entity that owns the property that is not cured prior to the expiration of any applicable cure periods; |
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• |
upon written notice by either party if a petition for bankruptcy, reorganization or arrangement is filed by the other party, or if any such petition shall be filed against the other party and is not dismissed within 60 days of the date of such filing, or in the event the other party shall make an assignment for the benefit of creditors, or take advantage of any insolvency statute or similar law; |
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• |
upon 15 days written notice in the event that all or substantially all of the property is destroyed by a casualty, or taken by means of eminent domain or condemnation; or |
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• |
upon 60 days written notice by either party. |
If a management agreement is terminated by the entity that owns the property for any reason, or if it is terminated by BH due to our default or due to the destruction, condemnation or taking by eminent domain of a property, the entity that owns the property will be required to pay damages to BH. Such damages will be equal to the management fee earned by BH for the calendar month immediately preceding the month in which the notice of termination is given, multiplied by the number of months and/or portions thereof remaining from the termination date until the end of the initial term or term year in which the termination occurred.
Additionally, for the month or the partial month after the date of the termination of BH’s on-site property management responsibilities, BH will be paid a close-out management fee equivalent to 50% of the last month’s full management fee.
Insurance. The entities that own the properties are required to maintain property and liability insurance for each property, and its liability insurance policy must include BH as an “Additional Insured.” BH is required to maintain, at the entities’ expense, workers’ compensation insurance covering all employees of BH employed in, on, or about each property so as to provide statutory benefits required by state and federal laws.
Assignment. BH may not assign the management agreements without the prior written consent of the entities that own the properties.
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Indemnification. The entities that own the properties are required to indemnify, defend and hold harmless BH and its agents and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of (1) BH’s performance under the management agreements, or (2) facts, occurrences, or matters first arising before the date of the management agreements. The entities that own the properties are not required to indemnify BH against damages or expenses suffered as a result of the gross negligence, willful misconduct, or fraud on the part of BH, its agents, or employees.
BH is required to indemnify, defend, and hold harmless the entities that own the properties and their agents and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of the gross negligence, willful misconduct, or fraud on the part of BH, its agents, or employees, and shall at its own cost and expense defend any action or proceeding against us arising therefrom.
Regulation
Multifamily properties are subject to various laws, ordinances and regulations, including regulations relating to common areas, such as swimming pools, activity centers, and recreational facilities. We believe that each of our properties has the necessary permits and approvals to operate its business.
Americans with Disabilities Act
The properties in our Portfolio must comply with Title III of the ADA, to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.
Fair Housing Act
The FHA, its state law counterparts and the regulations promulgated by the U.S. Department of Housing and Urban Development and various state agencies, prohibit discrimination in housing on the basis of race or color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people securing custody of children under 18) or handicap (disability) and, in some states, financial capability or other bases. A failure to comply with these laws in our operations could result in litigation, fines, penalties or other adverse claims, or could result in limitations or restrictions on our ability to operate, any of which could materially and adversely affect us. We believe that we operate our properties in substantial compliance with the FHA.
Environmental Matters
Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and clean up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of the properties in our Portfolio using the American Society for Testing and Materials Standard E 1527-05. A Phase I Environmental Site Assessment is a report that identifies potential or existing environmental contamination liabilities. Site assessments are intended to discover and evaluate information regarding the environmental condition of the assessed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey. None of the site assessments identified any known past or present contamination that we believe would have a material adverse effect on our business, assets or operations. However, the assessments are limited in scope and may have failed to identify all environmental conditions or concerns. A prior owner or operator of a property or historic operations at our properties, or operations and conditions at nearby properties, may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability. Moreover, conditions identified in environmental assessments that did not appear material at that time, may in the future result in material liability.
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Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g., asbestos and lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Such laws require that owners or operators of buildings containing hazardous materials properly manage and maintain certain hazardous materials, adequately notify or train those who may come into contact with certain hazardous materials, and undertake special precautions, including removal or other abatement, if certain hazardous materials would be disturbed during renovation or demolition of a building. In addition, the properties in our Portfolio are subject to various federal, state, and local environmental and health and safety requirements, such as state and local fire requirements.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties.
The cost of future environmental compliance may materially and adversely affect us. See “Risk Factors—We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth.”
Insurance
We carry comprehensive general liability coverage on the properties in our Portfolio, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary to reimburse us on a replacement-cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. The majority of our property policies for all U.S. operating and development communities include coverage for the perils of flood, tornado and earthquake shock with limits and deductibles customary in the industry and specific to the project. We will also obtain title insurance policies when acquiring new properties, which insure fee title to the properties in our Portfolio. We have obtained coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. These policies include limits and terms we consider commercially reasonable. There are certain losses (including, but not limited to, losses arising from environmental conditions, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for the properties in our Portfolio, we could self-insure certain portions of our insurance program and therefore, use our own funds to satisfy those limits. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice. In the opinion of our management team, the properties in our Portfolio are adequately insured.
Competition
In attracting and retaining residents to occupy the properties in our Portfolio, we compete with numerous other housing alternatives. The properties in our Portfolio compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the sub-markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location and property and quality and breadth of services and amenities. If our competitors offer leases at rental rates below current market rates, or below the rental rates that the tenants of the properties in our Portfolio pay, we may lose potential tenants and we may be pressured to reduce rental rates below those currently charged or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when the tenants’ leases expire.
The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. In addition, we compete with numerous other investors for suitable properties. This competition affects our ability to acquire properties and the price that we pay in such acquisitions.
Employees
Our Adviser conducts substantially all of our operations and provides asset management for our real estate investments. We expect we will only have accounting employees while the Advisory Agreement is in effect. As of December 31, 2019, we had three employees.
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Our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our Adviser’s telephone number is (972) 628-4100. We maintain a website at www.nexpointliving.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) available on our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Information contained on, or accessible through our website, is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or furnish to the SEC. These documents may also be found on the SEC’s website at www.sec.gov.
You should carefully consider the following risks and other information in this annual report in evaluating us and our common stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our business, financial condition or results of operations, and could, in turn, impact the trading price of our common stock.
Risks Related to Our Business and Industry
Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses and the overall market value of our assets, and impair our ability to sell, recapitalize or refinance our assets.
Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and globally may significantly affect our occupancy levels, our rental rates, rent collections, operating expenses, the market value of our properties and our ability to strategically acquire, dispose, recapitalize or refinance our multifamily properties on economically favorable terms or at all. Our ability to lease our properties at favorable rates is adversely affected by increases in supply of multifamily communities in our markets and is dependent upon overall economic conditions, which are adversely affected by, among other things, job losses and unemployment levels, a recession, personal debt levels, a downturn in the housing market, stock market volatility and uncertainty about the future. Some of our major expenses, including debt service and real estate taxes, generally do not decline when related rents decline. We expect that any declines in our occupancy levels, rental revenues and/or the values of our multifamily properties would cause us to have less cash available to pay our indebtedness, fund necessary capital expenditures and to make distributions to our stockholders, which could negatively affect our financial condition and the market value of our assets. Factors that may affect our occupancy levels, our revenues, our NOI and/or the value of our properties include the following, among others:
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downturns in global, national, regional and local economic conditions; |
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declines in the financial condition of our residents, which may make it more difficult for us to collect rents from these residents; |
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the inability or unwillingness of our residents to pay rent increases; |
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a decline in household formation; |
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a decline in employment or lack of employment growth; |
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an oversupply of, or a reduced demand for, apartment homes; |
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changes in market rental rates in our core markets; |
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our ability to renew leases or re-lease space on favorable terms; |
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the timing and costs associated with property improvements, repairs and renovations; |
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declines in mortgage interest rates, making home and condominium ownership more affordable; |
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changes in home loan lending practices, including the easing of credit underwriting standards, increasing the availability of home loans and thereby reducing demand for apartment homes; |
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government or builder incentives which enable first-time homebuyers to put little or no money down, making alternative housing options more attractive; |
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rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and |
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economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to state and local governments), utilities, insurance, compensation of on-site associates and routine maintenance. |
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We are subject to risks inherent in ownership of real estate.
Real estate cash flows and values are affected by a number of factors, including competition from other available properties and the ability to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and values are also affected by such factors as government regulations (including zoning, usage and tax laws) limitations on rent and rent increases, interest rate levels, the availability of financing, property tax rates, utility expenses, potential liability under environmental and other laws and changes in environmental and other laws.
Real estate investments are relatively illiquid and may limit our flexibility.
Equity real estate investments are relatively illiquid, which tends to limit our ability to react promptly to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. Our inability to sell our properties on favorable terms or at all could have a material adverse effect on our sources of working capital and our ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the number of multifamily properties in our Portfolio promptly in response to changes in economic or other conditions.
Our multifamily properties are concentrated in certain geographic markets, which makes us more susceptible to adverse developments in those markets.
Our most significant geographic investment concentrations are primarily in the Southeastern and Southwestern United States. We are, therefore, subject to increased exposure from economic and other competitive factors specific to markets within these geographic areas. To the extent general economic conditions worsen in one or more of these markets, or if any of these areas experience a natural disaster, the value of our Portfolio and our market rental rates could be adversely affected. As a result, our results of operations, cash flow, cash available for distribution, including cash available to pay distributions to our stockholders, and our ability to satisfy our debt obligations could be materially adversely affected.
Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies.
Our primary strategy is a value-add strategy. Therefore, for a majority of our Portfolio, we intend to execute a “value-enhancement” strategy whereby we will acquire under-managed assets in high-demand neighborhoods, invest additional capital, and reposition the properties to increase both average rental rates and resale value. Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies. The risks related to these value-enhancement investments include risks related to delays in the repositioning or improvement process, higher than expected capital improvement costs, the additional capital needed to execute our value-add program, including possible borrowings or raising additional equity necessary to fund such costs, and ultimately that the repositioning process may not result in the higher rents and occupancy rates anticipated. In addition, our value-enhancement properties may not produce revenue while undergoing capital improvements. Furthermore, we may also be unable to complete the improvements of these properties and may be forced to hold or sell these properties at a loss. For these and other reasons, we cannot assure you that we will realize growth in the value of our value-enhancement multifamily properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.
Potential reforms or changes to Freddie Mac and Fannie Mae could adversely affect our business.
As of December 31, 2019, we had approximately $1.2 billion and $15.2 million of outstanding consolidated indebtedness under our Freddie Mac and Fannie Mae mortgage loans, respectively. We rely on national and regional institutions, including Freddie Mac and Fannie Mae, to provide financing for our acquisitions and permanent financing on properties we may develop in the future. Currently, there is significant uncertainty regarding the futures of Freddie Mac and Fannie Mae. Should Freddie Mac and Fannie Mae have their mandates changed or reduced, be disbanded or reorganized by the government, privatized or otherwise discontinue providing liquidity to our sector, it could significantly reduce our access to debt capital and/or increase borrowing costs and could significantly reduce our sales of assets and/or the values realized upon sale.
Competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth.
We compete with numerous real estate companies and other owners of real estate in seeking multifamily properties for acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private equity funds, sovereign wealth funds, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties, and many of these investors will have greater sources of capital to acquire properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability and impede our growth.
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Competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents.
Our multifamily properties compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. All of our multifamily properties are located in developed areas that include other multifamily properties and/or condominiums. The number of competitive multifamily properties and/or condominiums in a particular area, and any increased affordability of owner occupied single and multifamily homes caused by declining housing prices, low mortgage interest rates and government programs to promote home ownership, could have a material adverse effect on our ability to lease our apartments and the rents we are able to obtain. In addition, single-family homes and other residential properties provide housing alternatives to residents and potential residents of our multifamily properties.
The relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in occupancy rates.
The relatively low residential mortgage interest rates currently available and government-sponsored programs to promote home ownership have resulted in a record high level on the National Association of Realtor’s Housing Affordability Index, an index used to measure whether or not a typical family could qualify for a mortgage loan on a typical home. The foregoing factors may encourage potential renters to purchase residences rather than lease them, thereby causing a decline in the occupancy rates of our properties.
We may fail to consummate future property acquisitions, and we may not be able to find suitable alternative investment opportunities.
When acquiring properties in the future, we may be subject to various closing conditions, and there can be no assurance that we can satisfy these conditions or that the acquisitions will close. If we fail to consummate future acquisitions, there can be no assurance that we will be able to find suitable alternative investment opportunities.
Acquisitions may not yield anticipated results, which could negatively affect our financial condition and results of operations.
We intend to actively acquire multifamily properties for rental operations as market conditions, including access to the debt and equity markets, dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up. We may be unable to lease-up these multifamily properties on schedule, resulting in decreases in expected rental revenues and/or lower yields as the result of lower occupancy and rental rates as well as higher than expected concessions. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position or to complete a development project. We may be unable to integrate the existing operations of newly acquired multifamily properties and over time such communities may not perform as well as existing communities or as we initially anticipated in terms of occupancy and/or rental rates. Additionally, we expect that other major real estate investors with significant capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development efforts. This competition may increase acquisition costs for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.
Variable rate debt is subject to interest rate risk, which could increase our interest expense, increase the cost to refinance and increase the cost of issuing new debt.
As of December 31, 2019, approximately $1.3 billion of our total debt outstanding bears interest at variable rates, and we may also borrow additional money at variable interest rates in the future. As of December 31, 2019, 11 interest rate swap agreements, with a combined notional amount of $975.0 million and terms expiring in 2021, 2022, 2024 and 2026, effectively fix the interest rate on $975.0 million, or 73%, of our $1.3 billion of floating rate mortgage debt outstanding. As of December 31, 2019, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $346.5 million of our floating rate mortgage debt outstanding at a weighted average rate of 5.74% for the term of the agreements, which is generally 3-4 years. Except to the extent we have arrangements in place that hedge against the risk of rising interest rates, increases in interest rates would increase our interest expense under these instruments and would increase the cost of refinancing these instruments and issuing new debt. As a result, our cash flow and our ability to service our indebtedness and to make distributions to our stockholders would be adversely affected, which could adversely affect the market price of our common stock.
We have a substantial amount of variable rate debt and interest rate swaps indexed to LIBOR. We may be adversely affected upon the transition away from LIBOR after 2021.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates Committee (“ARRC”) has proposed that the Secured Overnight Financing Rate (“SOFR”) is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks. The potential effect of any transition on our cost of capital cannot be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations and cash flows.
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We are subject to certain risks associated with selling apartment communities, which could limit our operational and financial flexibility.
We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. These conditions may limit our ability to dispose of properties and to change our portfolio promptly in order to meet our strategic objectives, which may in turn have a material adverse effect on our financial condition and the market value of our assets. We are also subject to the following risks in connection with sales of our apartment communities:
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a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as 1031 Exchanges so that any related capital gain can be deferred for federal income tax purposes. As a result, we may not have immediate access to all of the cash proceeds generated from our property sales; and |
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federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this limitation may prevent us from selling communities when market conditions are favorable. |
We may be subject to contingent or unknown liabilities related to properties or business that we have acquired or may acquire for which we may have limited or no recourse against the sellers.
The properties or businesses that we have acquired or may acquire, may be subject to unknown or contingent liabilities for which we have limited or no recourse against the sellers. Unknown liabilities might include liabilities for, among other things, cleanup or remediation of undisclosed environmental conditions, liabilities under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), claims of residents, vendors or other persons dealing with the entities prior to the acquisition of such property, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. Because many liabilities, including tax liabilities, may not be identified within the applicable contractual indemnification period, we may have no recourse against any of the owners from whom we acquire such properties for these liabilities. The existence of such liabilities could significantly and adversely affect the value of the property subject to such liability. As a result, if a liability were asserted against us based on ownership of any of such properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows.
We are subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.
There are certain types of losses (including, but not limited to, losses arising from environmental conditions, earthquakes, tornados and hurricanes, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. We carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities with limits and on terms we consider commercially reasonable. If an uninsured loss or liability were to occur, whether because of a lack of insurance coverage or a loss in excess of insured limits, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.
Our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient.
Properties being considered for potential acquisition by us are subjected to at least a Phase I or similar environmental assessment prior to closing, which generally does not involve invasive techniques such as soil or ground water sampling. A Phase II assessment is conducted if recommended in the Phase I report. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. However, such environmental assessments may not identify all potential environmental liabilities. Moreover, we may in the future discover adverse environmental conditions at our communities, including at communities we acquire in the future, which may have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and selective development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination, or if remediation costs exceed estimates. We can provide no assurance, however, that all necessary remediation actions have been or will be undertaken at our communities or that we will be indemnified, in full or at all, in the event that environmental liability arises.
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We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth.
We are subject to various federal, state and local environmental and public health laws, regulations and ordinances. Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.
We face risks relating to asbestos.
Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. ACMs may have been used in the construction of a number of the communities that we acquired and may have been used in the construction of communities we acquire in the future. We will implement an operations and maintenance program at each of the communities at which we discover ACMs. We can provide no assurance that we will not incur any material liabilities as a result of the presence of ACMs at our communities.
We face risks relating to lead-based paint.
Some of our communities may have lead-based paint and we may have to implement an operations and maintenance program at some of our communities. Communities that we acquire in the future may also have lead-based paint. We can provide no assurance that we will not incur any material liabilities as a result of the presence of lead-based paint at our communities.
We face risks relating to chemical vapors and subsurface contamination.
We are also aware that environmental agencies and third parties have, in the case of certain communities with on-site or nearby contamination, asserted claims for remediation, property damage or personal injury based on the alleged actual or potential intrusion into buildings of chemical vapors (e.g., radon) or volatile organic compounds from soils or groundwater underlying or in the vicinity of those buildings or on nearby properties. We can provide no assurance that we will not incur any material liabilities as a result of vapor intrusion at our communities.
We face risks relating to mold growth.
Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and include a lease requirement that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture when we become aware of its presence regardless of whether the resident believes or we believe a health risk is present. However, we can provide no assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage.
Compliance with various laws and regulations, including accessibility, building and health and safety laws and regulations, may be costly, may adversely affect our operations or expose us to liability.
In addition to compliance with environmental regulations, we must comply with various laws and regulations such as accessibility, building, zoning, landlord/tenant and health and safety laws and regulations, including, but not limited to, the ADA and the FHA. Some of those laws and regulations may conflict with one another or be subject to limited judicial or regulatory interpretations. Under those laws and regulations, we may be liable for, among other things, the costs of bringing our properties into compliance with the statutory and regulatory requirements. Noncompliance with certain of these laws and regulations may result in liability without regard to fault and the imposition of fines and could give rise to actions brought against us by governmental entities and/or third parties who claim to be or have been damaged as a consequence of an apartment not being in compliance with the subject laws and regulations. As part of our due diligence procedures in connection with the acquisition of a property, we typically conduct an investigation of the property’s compliance with known laws and regulatory requirements with which we must comply once we acquire a property, including a review of compliance with the ADA and local zoning regulations. Our investigations and these assessments may not have revealed, and may not with respect to future acquisitions reveal, all potential noncompliance issues or related liabilities and we can provide no assurance that our development properties have been, or that our future development projects will be, designed and built in accordance with all applicable legal requirements.
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The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We can provide no assurance that we will not incur any material liabilities as a result of noncompliance with these laws.
We may obtain only limited warranties when we acquire a property and may only have limited recourse if our due diligence did not identify any issues that may subject us to unknown liabilities or lower the value of our property, which could adversely affect our financial condition and ability to make distributions to you.
The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will survive for only a limited period after the closing. The acquisition of, or purchase of, properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, lose rental income from that property or may be subject to unknown liabilities with respect to such properties.
Short-term apartment leases expose us to the effects of declining market rent, which could adversely affect our ability to make cash distributions to our stockholders.
Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.
We may be subject to risks involved in real estate activity through joint ventures.
We may acquire properties through joint ventures when we believe circumstances warrant the use of such structures. Joint venture investments involve risks, including: the possibility that joint venture partners might refuse to make capital contributions when due; that we may be responsible to joint venture partners for indemnifiable losses; that joint venture partners might at any time have business or economic goals which are inconsistent with ours; and that joint venture partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests. In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest. Further, joint venture partners may fail to meet their obligations to the joint venture as a result of financial distress or otherwise, and we would be forced to make contributions to maintain the value of the property. To the extent joint venture partners do not meet their obligations to the joint venture or they take action inconsistent with the interests of the joint venture, we could be adversely affected.
If we acquire properties through joint ventures, we may be required to make decisions jointly with the other investors who have interests in the respective joint ventures. We might not have the same interests as the other investors in relation to these decisions or transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducements to the other investors to obtain a favorable resolution.
In addition, various restrictive provisions and third-party rights, including consent rights to certain transactions, may apply to sales or transfers of interests in joint ventures. Consequently, decisions to buy or sell interests in a property or properties relating to joint ventures may be subject to the prior consent of other investors. These restrictive provisions and third-party rights would potentially preclude us from achieving full value of the properties because of our inability to obtain the necessary consents to sell or transfer the interests.
We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect our ability to pay dividends to our stockholders.
Our business depends on the communications and information systems of our Sponsor, to which we have access through our Adviser. In addition, certain of these systems are provided to our Sponsor by third-party service providers. Any failure or interruption of such systems, including as a result of the termination of an agreement with any such third-party service provider, could cause delays or other problems in our activities. This, in turn, could have a material adverse effect on our operating results and negatively affect our ability to pay dividends to our stockholders.
Breaches of our data security could materially harm our business and reputation.
We collect and retain certain personal information provided by our tenants. While security measures to protect the confidentiality of this information are in place, we can provide no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures and/or loss of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.
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The requirements of being a public company, including compliance with the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act, may strain our resources, increase our costs and place additional demands on management, and we may be unable to comply with these requirements in a timely or cost-effective manner.
As a public company with listed equity securities, we are required to comply with new laws, regulations and requirements, certain corporate governance provisions of the Sarbanes-Oxley Act, related regulations of the SEC, including compliance with the reporting requirements of the Exchange Act and the requirements of the NYSE, with which we were not required to comply with as a private company. Complying with these statutes, regulations and requirements occupies a significant amount of time of our Board and management and requires us to incur significant costs and expenses. As a result of being a public company, we are required to:
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maintain a more comprehensive compliance function; |
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design, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; |
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comply with rules promulgated by the NYSE; |
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prepare and distribute periodic public reports in compliance with our obligations under federal securities laws; |
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maintain and review new internal policies, such as those relating to disclosure controls and procedures and insider trading; |
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involve and retain to a greater degree outside counsel and accountants in the above activities; and |
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maintain an investor relations function. |
If our profitability is adversely affected because of these additional costs, it could have a negative effect on the trading price of our common stock.
Our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting.
The design and effectiveness of our disclosure controls and procedures and internal control over financial reporting may not prevent all errors, misstatements or misrepresentations. While management will continue to review the effectiveness of our disclosure controls and procedures and internal control over financial reporting, there can be no guarantee that our internal control over financial reporting will be effective in accomplishing all control objectives all of the time. Deficiencies, including any material weakness, in our internal control over financial reporting which may occur in the future could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or otherwise materially adversely affect our business, reputation, results of operations, financial condition or liquidity.
We may incur mortgage indebtedness and other borrowings, which we have broad authority to incur, that may increase our business risks and decrease the value of your investment.
We expect that in most instances, we will acquire real properties by using either existing financing or borrowing new funds. In addition, we may incur additional mortgage and other secured debt and pledge all or some of our unpledged real properties as security for that debt to obtain funds to acquire additional real properties. We may borrow if we need funds to satisfy the REIT tax qualification requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.
If there is a shortfall between the cash flow from a property and the cash flow needed to service the related debt, then the amount available for distributions to stockholders may be reduced. In addition, incurring secured debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage and other secured debt to the entities that own our properties. When we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages or other secured debt contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected, which could result in losing our REIT status and would result in a decrease in the value of your investment.
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We have a substantial amount of indebtedness, which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.
As of December 31, 2019, there was $1.2 billion million of mortgage debt outstanding related to our Portfolio.
Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and development activities, or pay the dividends necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:
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require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes; |
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make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs; |
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force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions, discussed below in “—Risks Related to Our Structure”) or in violation of certain covenants to which we may be subject; |
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subject us to increased sensitivity to interest rate increases; |
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make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events; |
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limit our ability to withstand competitive pressures; |
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limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness; |
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reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or |
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place us at a competitive disadvantage to competitors that have relatively less debt than we have. |
If any one of these consequences were to materialize, our financial condition, results of operations, cash flow and trading price of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.
We may be unable to refinance current or future indebtedness on favorable terms, if at all.
We may not be able to refinance existing debt on terms as favorable as the terms of existing indebtedness, or at all, including as a result of increases in interest rates or a decline in the value of our Portfolio or portions thereof. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our operating cash flow will not be sufficient in all years to repay all maturing debt. As a result, certain of our other debt may default, we may be forced to postpone capital expenditures necessary for the maintenance of our properties, we may have to dispose of one or more properties on terms that would otherwise be unacceptable to us or we may be forced to allow the mortgage holder to foreclose on a property. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likely have a negative impact on our financial condition and results of operations and could adversely affect our ability to make distributions to our stockholders.
Our debt agreements include restrictive covenants, which could limit our flexibility and our ability to make distributions.
Our debt agreements, including our lines of credit, contain customary negative covenants that, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property, to reduce or change insurance coverage or to engage in material asset sales, mergers, consolidations and acquisitions. Our debt agreements require certain mandatory prepayments upon disposition of underlying collateral. Early repayments of certain debt are subject to prepayment penalties. Failure to comply with these covenants could cause a default under the agreements and result in a requirement to repay the indebtedness prior to its maturity, which could have an adverse effect on our cash flow and ability to make distributions to our stockholders. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives.
If we are required to make payments under any “bad boy” carve out guarantees that we have provided in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.
In obtaining certain non-recourse loans, we have provided our lenders with standard carve out guarantees. These guarantees are only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guarantees). Although we believe that “bad boy” carve out guarantees are not guarantees of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guarantees. In the event such a claim were made against us under a “bad boy” carve out guarantee, following foreclosure on mortgages or related loans, and such claim were successful, our business and financial results could be materially adversely affected.
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Derivatives and hedging activity could adversely affect cash flow.
In the normal course of business, we use derivatives to manage our exposure to interest rate volatility on debt instruments, including hedging for future debt issuances. At other times, we may utilize derivatives to increase our exposure to floating interest rates. However, these hedging arrangements may not have the desired beneficial impact. Hedging arrangements, which can include a number of counterparties, may expose us to additional risks, including failure of any of our counterparties to perform under these contracts, and may involve extensive costs, such as transaction fees or, if we terminate them, breakage costs. No strategy can completely insulate us from the risks associated with interest rate fluctuations.
Risks Related to Our Structure
The recent Chapter 11 bankruptcy filing by Highland Capital Management, L.P. (“Highland”) may have materially adverse consequences on our business, financial condition and results of operations.
On October 16, 2019, Highland filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the District of Delaware, or the Highland Bankruptcy. The Highland Bankruptcy stems from a potential judgment being sought against Highland relating to a financial crisis-era fund previously managed by Highland. The fund has been in liquidation since 2011. The liquidation plan, which was finalized and approved by investors and Highland in 2011, established a committee of fund investor representatives, or the Redeemer Committee, to coordinate the liquidation process. Between 2011 and 2016, Highland distributed over $1.55 billion of the approximately $1.70 billion amount to be liquidated. Then, on July 5, 2016, the Redeemer Committee filed a complaint against Highland resulting from a contract dispute over the timing of management fees and other related claims. Highland believes it acted in the interest of investors and disputes the Redeemer Committee’s claims. However, in consideration of its liquidity profile, Highland determined that it was necessary to commence the voluntary Chapter 11 proceedings. Although Highland disputes the underlying claims, entry of the judgment in its maximum potential amount could result in a judgment against Highland in an amount greater than Highland’s liquid assets. Neither our Advisor nor our Sponsor are parties to Highland’s bankruptcy filing.
The Highland Bankruptcy could create potential conflicts of interest and uncertainly related to our commercial relationship with Highland.
The implications and outcome of the Highland Bankruptcy are inherently uncertain. Certain of our directors and executive officers serve, or have previously served, in various capacities at Highland or its affiliated entities and, due to the uncertain nature of bankruptcy proceedings and the respective parties’ objectives, Highland or such directors and executive officers may encounter potential conflicts of interests with us. In addition, the treatment of relationships (including as related to contractual obligations) between associated parties in bankruptcy proceedings can be uncertain, which could harm our commercial relationship with Highland.
We depend upon key personnel of our Adviser and its affiliates and our property manager.
We are an externally managed REIT and therefore we do not have any internal management capacity and only have accounting employees. We also depend on BH for our property management and construction services. We depend to a significant degree on the diligence, skill and network of business contacts of the management team and other key personnel of our Adviser and of our property manager to achieve our investment objectives, including Messrs. Dondero, Mitts, McGraner and Goetz, all of whom may be difficult to replace. We expect that our Adviser will evaluate, negotiate, structure, close and monitor our investments in accordance with the terms of the Advisory Agreement.
We also depend upon the senior professionals of our Adviser and our property manager to maintain relationships with sources of potential investments, and we rely upon these relationships to provide us with potential investment opportunities. We cannot assure you that these individuals will continue to provide indirect investment advice to us. If these individuals, including the members of the management team of our Adviser, do not maintain their existing relationships with our Adviser, maintain existing relationships or develop new relationships with other sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom the senior professionals of our Adviser and our property manager have relationships are not obligated to provide us with investment opportunities. Therefore, we can offer no assurance that such relationships will generate investment opportunities for us.
Our Adviser relies on Highland, a registered investment adviser under common control with our Adviser, to provide investment research and operational support to our Adviser, including services in connection with research, due diligence of actual or potential investments, the execution of investment transactions approved by our Adviser and certain back office services and administrative services. If Highland does not provide such services to our Adviser, there can be no assurance that our Adviser would be able to find a substitute service provider with the same experience or on the same terms as Highland.
We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by Highland or its affiliates.
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Our primary focus in making investments generally differs from that of existing investment funds, accounts or other investment vehicles that are or have been managed by affiliates of our Adviser, members of our Adviser’s management team or sponsored by Highland or its affiliates. In addition, the previously sponsored investment programs by Highland were significantly different from us in terms of targeted assets, regulatory structure and limitations, investment strategy and objectives and investment personnel. Past performance is not a guarantee of future results, and there can be no assurance that we will achieve comparable results of those Highland affiliates. We also cannot assure you that we will replicate the historical results achieved by members of the management team, and we caution you that our investment returns could be substantially lower than the returns achieved by them in prior periods. Additionally, all or a portion of the prior results may have been achieved in particular market conditions which may never be repeated.
Our Adviser can resign on 30 days’ notice from its role as adviser, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business, and results of operations and cash flows.
The Advisory Agreement gives our Adviser the right to resign after giving not more than 60 nor less than 30 days’ written notice, whether we have found a replacement or not. If our Adviser resigns, we may not be able to find a new adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 30 to 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption and our financial condition, business and results of operations, as well as our ability to pay distributions, are likely to be adversely affected. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the experience possessed by our Adviser and its affiliates. Even if we are able to retain comparable management, the integration of such management and its lack of familiarity with our investment objectives may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.
You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.
Our Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our Board may amend or revise these and other policies without your vote. Our Board’s broad discretion in setting policies and your inability to exert control over those policies increases the uncertainty and risks you face as a stockholder.
We may change our targeted investments without stockholder consent.
We expect our portfolio of investments in commercial real estate to consist primarily of multifamily properties. Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders. Any such change could result in us making investments that are different from, and possibly riskier than, the investments described in this annual report. These policies may change over time. A change in our targeted investments or investment guidelines, which may occur without notice to you or without your consent, may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to you. We intend to disclose any changes in our investment policies in our next required periodic report, if any.
We pay substantial fees and expenses to our Adviser and its affiliates and to our property manager, which payments increase the risk that you will not earn a profit on your investment.
Pursuant to the Advisory Agreement, we pay significant fees to our Adviser and its affiliates. Those fees include advisory and administrative fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with providing services to us, including certain personnel services.
Additionally, pursuant to the management agreements we have entered into with BH, we pay significant fees to BH. These fees include property management fees, construction management and other customary property manager fees.
If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.
In the future, our Board may consider internalizing the functions performed for us by our Adviser by, among other methods, acquiring our Adviser’s assets. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. An acquisition of our Adviser could result in a dilution of your interests as a stockholder and could reduce earnings per share and FFO, Core FFO and AFFO per share. Additionally, we may not realize the perceived benefits, we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided previously by our Adviser, property manager or their affiliates. Internalization transactions, including without limitation, transactions involving the acquisition of affiliated advisers or property managers have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced
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to spend significant amounts of money defending claims that would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.
There are significant potential conflicts of interest that could affect our investment returns.
As a result of our arrangements with our Adviser, there may be times when our Adviser or its affiliates have interests that differ from those of our stockholders, giving rise to a conflict of interest.
Our directors and management team serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds managed by our Adviser or its affiliates. Similarly, our Adviser or its affiliates may have other clients with similar, different or competing investment objectives, including NexPoint Real Estate Advisors IV, L.P. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interest of us or our stockholders. For example, the management team of our Adviser has, and will continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by our Adviser or its affiliates. Our investment objectives may overlap with the investment objectives of such affiliated investment funds, accounts or other investment vehicles. As a result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with our Adviser. Our Adviser will seek to allocate investment opportunities among eligible accounts in a manner consistent with its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time.
Additionally, under the Advisory Agreement, our Adviser does not assume any responsibility to us other than to render the services called for under that agreement, and it will not be responsible for any action of our Board in following or declining to follow our Adviser’s advice or recommendations. In addition, we have agreed to indemnify our Adviser and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Advisory Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Advisory Agreement. These protections may lead our Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.
Our Adviser faces conflicts of interest relating to the fee structure under our Advisory Agreement, which could result in actions that are not necessarily in the long-term best interest of our stockholders.
Under our Advisory Agreement, our Adviser or its affiliates is entitled to fees that are structured in a manner intended to provide incentives to our Adviser to perform in our best interest and in the best interest of our stockholders. However, because our Adviser is entitled to receive substantial compensation regardless of performance, our Adviser’s interests are not wholly aligned with those of our stockholders. In that regard, our Adviser could be motivated to recommend riskier or more speculative investments that would entitle our Adviser to the highest fees. For example, because advisory and administrative fees payable to our Adviser are based on our total real estate assets, including any form of investment leverage, our Adviser may have an incentive to incur a high level of leverage or to acquire properties on less than favorable terms in order to increase the total amount of real estate assets under management. In addition, our Adviser’s ability to receive higher fees and reimbursements depends on our continued investment in real properties. Therefore, the interest of our Adviser and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock.
Our Adviser, Sponsor and their officers and employees face competing demands relating to their time, and this may cause our operating results to suffer.
Our Adviser, our Sponsor and their officers and employees and their respective affiliates are key personnel, general partners, sponsors, managers, owners and advisers of other real estate investment programs, including investment products sponsored by affiliates of our Adviser, some of which have investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.
We may compete with other entities affiliated with our Sponsor and property manager for tenants.
Neither our Sponsor and its affiliates nor BH and its affiliates is prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business venture, including ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate, including properties in the vicinity of the properties in our Portfolio. Our Sponsor and/or its affiliates and BH and its affiliates may own and/or manage properties in the same geographical areas in which we currently own and expect to acquire real estate assets. Therefore, our properties may compete for tenants with other properties owned and/or managed by our Sponsor and its affiliates and BH and its affiliates. Our Sponsor and BH may face conflicts of interest when
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evaluating tenant opportunities for our properties and other properties owned and/or managed by our Sponsor and its affiliates and BH and its affiliates, and these conflicts of interest may have a negative impact on our ability to attract and retain tenants.
Our failure to qualify as a REIT for federal income tax purposes would reduce the amount of income we have available for distribution and limit our ability to make distributions to our stockholders.
Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. The REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, future legislative, judicial or administrative changes to the federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT. We believe we have been and are organized and qualify as a REIT, and we intend to operate in a manner that will permit us to continue to qualify as a REIT. However, we cannot assure you that we have qualified as a REIT, or that we will remain qualified as a REIT in the future.
If we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of shares of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from taxation as a REIT and would not be allowed to re-elect REIT status for the four taxable years following the year in which we failed to qualify as a REIT.
The rule against re-electing REIT status following a loss of such status would also apply to us if NREO failed to qualify as a REIT for its taxable years ending on or before December 31, 2015, because we are treated as a successor to NREO for U.S. federal income tax purposes. Although NREO has represented to us that it has no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT, and covenanted in the agreement between us and our Adviser to use its reasonable best efforts to maintain its REIT status for each of NREO’s taxable years ending on or before December 31, 2015, no assurance can be given that such representation and covenant would prevent us from failing to qualify as a REIT. Although, in the event of a breach, we may be able to seek damages from NHF and NREO, there can be no assurance that such damages, if any, would appropriately compensate us.
If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.
Our OP intends to qualify as a partnership for federal income tax purposes, and intends to take that position for all income tax reporting purposes. If classified as a partnership, our OP generally will not be a taxable entity and will not incur federal income tax liability. However, our OP would be treated as a corporation for federal income tax purposes if it was a “publicly traded partnership,” unless at least 90% of its income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although our OP’s partnership units are not traded on an established securities market, because of the redemption rights of its outside limited partner, the OP’s units held by such limited partner could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and our OP may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. Our OP may not meet this qualifying income test. If our OP were to be taxed as a corporation, it would incur substantial tax liabilities, and we would then fail to qualify as a REIT for federal income tax purposes, unless we qualified for relief under certain statutory savings provisions, and our ability to raise additional capital and pay distributions to our stockholders would be impaired.
Complying with REIT requirements may force us to liquidate otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance. In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax
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consequences. As a result, we may be required to liquidate otherwise attractive investments from our Portfolio. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.
Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or to offset certain other positions, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of the 75% or 95% gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.
Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.
Even if we qualify for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, any TRS we form in the future will be subject to regular corporate federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.
Our ownership of interests in TRSs raises certain tax risks.
A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. We currently own interests in a TRS and may acquire securities in additional TRSs in the future.
We will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest” or “redetermined TRS service income.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants by a TRS of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s length negotiations. Redetermined TRS service income generally represents amounts by which the gross income of a TRS attributable to its services for or on behalf of us (other than to a tenant of ours) would be increased based on arm’s length negotiations.
Our TRS is and any TRS we acquire in the future will be subject to corporate income tax at the federal, state and local levels, (including on the gain realized from the sale of property held by it, as well as on income earned while such property is operated by the TRS). This tax obligation, if material, would diminish the amount of the proceeds from the sale or operation of such property, or other income earned through the TRS that would be distributable to our stockholders. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property or other income earned through a TRS after the effective date of any increase in such tax rates. We do not anticipate material income tax obligations in connection with our ownership of interests in TRSs.
As a REIT, the value of non-mortgage securities we may hold in our TRSs generally may not exceed 20% of the total value of our assets at the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded this limit at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude that the value of our interests in our TRSs exceeds 20% of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may, in general, be from sources other than certain real estate-related assets. Dividends paid to us from a TRS are typically considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if dividends from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year.
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The sale of certain properties could result in significant tax liabilities unless we are able to defer the taxable gain through 1031 Exchanges.
In general, we structure asset sales for possible inclusion in 1031 Exchanges. The ability to complete a 1031 Exchange depends on many factors, including, among others, identifying and acquiring suitable replacement property within limited time periods, and the ownership structure of the properties being sold and acquired. Therefore, we are not always able to sell an asset as part of a 1031 Exchange. When successful, a 1031 Exchange enables us to defer the taxable gain on the asset sold. If we cannot defer the taxable gain resulting from the sales of certain properties, our business, financial condition, results of operations and cash flow, the market price per share of our common stock and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially and adversely affected.
Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.
For so long as we qualify as a REIT, our ability to dispose of property during the first few years following its acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own or hold an interest in, directly or indirectly through any subsidiary entity, including our operating partnership, but generally excluding TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. During such time as we qualify as a REIT, we intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own or hold an interest in, directly or through any subsidiary, will be treated as a prohibited transaction, or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. No assurance can be given that any particular property that we own or hold an interest in, directly or through any subsidiary entity, including our operating partnership, but generally excluding TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.
To continue qualifying as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce your overall return.
In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. It is possible that we might not always be able to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT.
Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.
Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are treated as ordinary income. Under the Tax Cuts and Jobs Act (the “TCJA”), the rate brackets for non-corporate taxpayers’ ordinary income are adjusted, the top tax rate is reduced from 39.6% to 37%, and ordinary REIT dividends are taxed at even lower effective rates. Under the TCJA, for taxable years beginning after December 31, 2017 and before January 1, 2026, distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are taxed as ordinary income after deducting 20% of the amount of the dividend in the case of non-corporate stockholders. At the maximum ordinary income tax rate of 37% applicable for taxable years beginning after December 31, 2017 and before January 1, 2026, the maximum tax rate on ordinary REIT dividends for non-corporate stockholders is 29.6%. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. Tax rates could be changed in future legislation.
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The share ownership restrictions of the Code for REITs and the 6.2% share ownership limit in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.
In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns shares of our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help insure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of shares of our common stock.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our Board (prospectively or retroactively), for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 6.2% in value of the aggregate of the outstanding shares of our capital stock and more than 6.2% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock. Our Board may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 6.2% ownership limit would result in our failing to qualify as a REIT. Our Board granted a waiver from the ownership limits for Highland and its affiliates, and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our best interest to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to so qualify as a REIT.
These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.
The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.
Our charter provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return to our stockholders.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify or remain qualified as a REIT.
The federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax rules dealing with REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Treasury Department, which could result in statutory changes as well as frequent revisions to regulations and interpretations.
The Tax Cuts and Jobs Act, or the TCJA, significantly changed the federal income tax laws applicable to businesses and their owners, including REITs and their stockholders. Additional technical corrections or other amendments to the TCJA or administrative guidance interpreting the TCJA may be forthcoming at any time. There can be no assurance that future changes to the federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. Furthermore, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.
We cannot predict whether, when or to what extent the TCJA and any new federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding the effect of the TCJA and potential future changes to the federal tax laws on an investment in our stock.
Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon disposition of shares of our common stock.
Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends paid to a non-U.S. stockholder ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (1) the distribution is
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received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.
Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a “domestically-controlled” REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure you that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.
Risks Related to the Ownership of our Common Stock
Our common stock is listed on the NYSE and broad market fluctuations could negatively affect the market price of our stock.
We have listed shares of our common stock on the NYSE under the symbol “NXRT.” The price of NXRT common stock may fluctuate significantly. Further, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could affect our stock price or result in fluctuations in the price or trading volume of our common stock include:
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actual or anticipated variations in our quarterly operating results; |
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changes in our operations or earnings estimates or publication of research reports about us or the real estate industry; |
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changes in market valuations of similar companies; |
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increases in market interest rates that lead purchasers of our shares to demand a higher yield; |
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adverse market reaction to any increased indebtedness we incur in the future; |
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additions or departures of key management personnel; |
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actions by institutional stockholders; |
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speculation in the press or investment community; |
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the realization of any of the other risk factors presented in this annual report; |
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the extent of investor interest in our securities; |
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the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies; |
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our underlying asset value; |
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investor confidence in the stock and bond markets, generally; |
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changes in tax laws; |
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future equity issuances; |
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failure to meet income estimates; |
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failure to meet and maintain REIT qualifications; and |
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general market and economic conditions. |
In the past, class-action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common stock.
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The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.
The form, timing and/or amount of dividend distributions will be declared at the discretion of our Board and will depend on actual cash flows from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as our Board may consider relevant. Our Board may modify our dividend policy from time to time at its discretion.
We may be unable to make distributions at expected levels, which could result in a decrease in the market price of our common stock.
If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital, borrow to provide funds for such distributions, reduce the amount of such distributions, or issue stock dividends. To the extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. If cash available for distribution generated by our assets is less than we expect, our inability to make the expected distributions could result in a decrease in the market price of our common stock. In addition, if we make stock dividends in lieu of cash distributions, it may have a dilutive effect on the holdings of our stockholders.
All distributions are made at the discretion of our Board and are based upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations, applicable law and such other matters as our Board may deem relevant from time to time. We may not be able to make distributions in the future, and our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the market price of our common stock.
Our charter permits the Board to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could otherwise result in a premium price to our stockholders.
Our Board may classify or reclassify any unissued shares of common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our Board could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.
Future issuances of debt securities and equity securities may negatively affect the market price of shares of our common stock and, in the case of equity securities, may be dilutive to existing stockholders and could reduce the overall value of your investment.
In the future, we may issue debt or equity securities or incur other financial obligations, including stock dividends and shares that may be issued in exchange for common units and equity plan shares/units. Upon liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. We are not required to offer any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including common units and convertible preferred units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of shares of our common stock. Any convertible preferred units would have, and any series or class of our preferred stock would likely have, a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.
Existing stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 600 million shares of capital stock, of which 500 million shares are designated as common stock and 100 million shares are designated as preferred stock. Our Board may increase the number of authorized shares of capital stock without stockholder approval. Our Board may elect to (1) sell additional shares in future public offerings; (2) issue equity interests in private offerings; (3) issue shares of our common stock under a long-term incentive plan to our directors, officers and other key employees (and those of our Adviser or its affiliates and our subsidiaries), our non-employee directors, and potentially certain non-employees who perform employee-type functions; (4) issue shares to our Adviser, its successors or assigns, in payment of an outstanding fee obligation or as consideration in a related-party transaction; or (5) issue shares of our common stock to sellers of properties we acquire in connection with an exchange of OP Units. To the extent we issue additional equity interests, your percentage ownership interest in us will be diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, existing stockholders may also experience a dilution in the book value of their investment in us.
Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.
Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the company’s best interest and with the care that an ordinarily prudent person
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in a like position would use under similar circumstances. As permitted by the Maryland General Corporation Law (the “MGCL”), our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:
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actual receipt of an improper benefit or profit in money, property or services; or |
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a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated. |
In addition, our charter authorizes us, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law. We have entered into indemnification agreements with our directors and executive officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. Accordingly, in the event that actions taken by any of our directors or officers are immune or exculpated from, or indemnified against, liability but which impede our performance, our stockholders’ ability to recover damages from that director or officer will be limited.
Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control.
Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stockholders or otherwise be in their best interest, including the following:
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Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify, and elect to be taxed, as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we elect to be taxed as a REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than 6.2% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or 6.2% in value of the aggregate of the outstanding shares of all classes or series of our stock. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules under the Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 6.2% of our outstanding shares of common stock or the outstanding shares of all classes or series of our stock by an individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Our charter also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our common stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void. These ownership limits may prevent a third party from acquiring control of us if our Board does not grant an exemption from the ownership limits, even if our stockholders believe the change in control is in their best interest. Our Board granted a waiver from the ownership limits applicable to holders of our common stock to Highland and its affiliates and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT. |
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Our Board Has the Power to Cause Us to Issue Additional Shares of Our Stock without Stockholder Approval. Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our Board may, without stockholder approval, amend our charter to increase the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our Board may establish a series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in the best interest of our stockholders. |
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Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.
Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:
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“business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and |
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“control share” provisions that provide that holders of “control shares” of us (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares. |
Pursuant to the Maryland Business Combination Act, our Board by resolution exempted from the provisions of the Maryland Business Combination Act all business combinations (1) between our Adviser, Highland or their respective affiliates and us and (2) between any other person and us, provided that such business combination is first approved by our Board (including a majority of our directors who are not affiliates or associates of such person). Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. There can be no assurance that these exemptions or resolutions will not be amended or eliminated at any time in the future.
Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which are not currently provided for in our charter or bylaws.
Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect our business and the market price of our common stock.
Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing our ability to raise capital.
Additionally, as we are no longer an emerging growth company, as defined by the JOBS Act, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain effective disclosure controls and procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.
Potential indemnification liabilities pursuant to the Separation and Distribution Agreement could materially adversely affect us.
The 2015 Separation and Distribution Agreement between us and NHF provided for, among other things, the principal corporate transactions required to affect the separation, certain conditions to the Spin-Off and provisions governing the relationship between us and NHF with respect to and resulting from the Spin-Off.
Among other things, the Separation and Distribution Agreement also provided for indemnification obligations designed to make us financially responsible for substantially all liabilities that may exist relating to or arising out of our business. If we are required to
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indemnify NHF under the circumstances set forth in the Separation and Distribution Agreement, we may be subject to substantial liabilities.
In connection with our separation from NHF, NHF will indemnify us for certain liabilities. However, there can be no assurance that these indemnities will be sufficient to insure us against the full amount of such liabilities, or that NHF’s ability to satisfy its indemnification obligation will not be impaired in the future.
Pursuant to the Separation and Distribution Agreement, NHF has agreed to indemnify us for certain liabilities, including certain tax liabilities. However, third parties could seek to hold us responsible for any of the liabilities that NHF has agreed to retain, and there can be no assurance that NHF will be able to fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from NHF any amounts for which we are held liable, we may be temporarily required to bear these losses while seeking recovery from NHF.
Item 1B. Unresolved Staff Comments
None.
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As of December 31, 2019, our Portfolio consisted of 40 properties representing 14,724 units in eight states. The following table provides a summary of the properties in our Portfolio as of December 31, 2019:
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As of December 31, 2019 |
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Properties by State |
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Number of Units |
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Date Acquired |
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Average Effective Monthly Rent Per Unit (1) |
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% Occupied (2) |
|
|
Number of Units Rehabbed (3) |
|
|
Rehab Expenditures per Unit (4) |
|
||||||
2018-2019 Same Store Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbors on Forest Ridge |
|
Bedford, Texas |
|
|
210 |
|
|
1/31/2014 |
|
$ |
12,805 |
|
|
$ |
894 |
|
|
|
95.7 |
% |
|
|
244 |
|
|
$ |
8,579 |
|
Eagle Crest |
|
Irving, Texas |
|
|
447 |
|
|
1/31/2014 |
|
|
27,325 |
|
|
|
969 |
|
|
|
96.6 |
% |
|
|
152 |
|
|
|
6,177 |
|
Silverbrook |
|
Grand Prairie, Texas |
|
|
642 |
|
|
1/31/2014 |
|
|
30,400 |
|
|
|
870 |
|
|
|
95.5 |
% |
|
|
633 |
|
|
|
7,081 |
|
Versailles |
|
Dallas, Texas |
|
|
388 |
|
|
2/26/2015 |
|
|
26,165 |
|
|
|
923 |
|
|
|
93.0 |
% |
|
|
453 |
|
|
|
12,266 |
|
Venue at 8651 |
|
Fort Worth, Texas |
|
|
333 |
|
|
10/30/2015 |
|
|
19,250 |
|
|
|
924 |
|
|
|
96.1 |
% |
|
|
383 |
|
|
|
11,524 |
|
Old Farm |
|
Houston, Texas |
|
|
734 |
|
|
12/29/2016 |
|
|
84,721 |
|
|
|
1,162 |
|
|
|
92.8 |
% |
|
|
— |
|
|
|
— |
|
Stone Creek at Old Farm |
|
Houston, Texas |
|
|
190 |
|
|
12/29/2016 |
|
|
23,332 |
|
|
|
1,194 |
|
|
|
95.8 |
% |
|
|
— |
|
|
|
— |
|
Hollister Place |
|
Houston, Texas |
|
|
260 |
|
|
2/1/2017 |
|
|
24,500 |
|
|
|
995 |
|
|
|
93.1 |
% |
|
|
367 |
|
|
|
11,953 |
|
Atera Apartments |
|
Dallas, Texas |
|
|
380 |
|
|
10/25/2017 |
|
|
59,200 |
|
|
|
1,256 |
|
|
|
93.4 |
% |
|
|
185 |
|
|
|
19,141 |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Summit at Sabal Park |
|
Tampa, Florida |
|
|
252 |
|
|
8/20/2014 |
|
|
19,050 |
|
|
|
1,010 |
|
|
|
97.2 |
% |
|
|
315 |
|
|
|
5,691 |
|
Courtney Cove |
|
Tampa, Florida |
|
|
324 |
|
|
8/20/2014 |
|
|
18,950 |
|
|
|
927 |
|
|
|
94.8 |
% |
|
|
158 |
|
|
|
— |
|
Sabal Palm at Lake Buena Vista |
|
Orlando, Florida |
|
|
400 |
|
|
11/5/2014 |
|
|
49,500 |
|
|
|
1,270 |
|
|
|
93.8 |
% |
|
|
234 |
|
|
|
— |
|
Cornerstone |
|
Orlando, Florida |
|
|
430 |
|
|
1/15/2015 |
|
|
31,550 |
|
|
|
1,053 |
|
|
|
95.6 |
% |
|
|
291 |
|
|
|
155,900 |
|
Seasons 704 Apartments |
|
West Palm Beach, Florida |
|
|
222 |
|
|
4/15/2015 |
|
|
21,000 |
|
|
|
1,155 |
|
|
|
94.6 |
% |
|
|
154 |
|
|
|
— |
|
Parc500 |
|
West Palm Beach, Florida |
|
|
217 |
|
|
7/27/2016 |
|
|
22,421 |
|
|
|
1,304 |
|
|
|
93.1 |
% |
|
|
138 |
|
|
|
— |
|
Georgia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Preserve at Terrell Mill |
|
Marietta, Georgia |
|
|
752 |
|
|
2/6/2015 |
|
|
58,000 |
|
|
|
969 |
|
|
|
94.9 |
% |
|
|
485 |
|
|
|
— |
|
Rockledge Apartments |
|
Marietta, Georgia |
|
|
708 |
|
|
6/30/2017 |
|
|
113,500 |
|
|
|
1,260 |
|
|
|
95.3 |
% |
|
|
449 |
|
|
|
11,133 |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beechwood Terrace |
|
Antioch, Tennessee |
|
|
300 |
|
|
7/21/2014 |
|
|
21,400 |
|
|
|
937 |
|
|
|
91.3 |
% |
|
|
309 |
|
|
|
10,520 |
|
Willow Grove |
|
Nashville, Tennessee |
|
|
244 |
|
|
7/21/2014 |
|
|
13,750 |
|
|
|
1,002 |
|
|
|
97.5 |
% |
|
|
174 |
|
|
|
31,482 |
|
Woodbridge |
|
Nashville, Tennessee |
|
|
220 |
|
|
7/21/2014 |
|
|
16,000 |
|
|
|
1,061 |
|
|
|
91.8 |
% |
|
|
188 |
|
|
|
8,633 |
|
Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Madera Point |
|
Mesa, Arizona |
|
|
256 |
|
|
8/5/2015 |
|
|
22,525 |
|
|
|
924 |
|
|
|
96.1 |
% |
|
|
197 |
|
|
|
64,552 |
|
The Venue on Camelback |
|
Phoenix, Arizona |
|
|
415 |
|
|
10/11/2016 |
|
|
44,600 |
|
|
|
777 |
|
|
|
94.2 |
% |
|
|
108 |
|
|
|
— |
|
North Carolina |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radbourne Lake |
|
Charlotte, North Carolina |
|
|
225 |
|
|
9/30/2014 |
|
|
24,250 |
|
|
|
1,118 |
|
|
|
90.7 |
% |
|
|
297 |
|
|
|
55,936 |
|
Timber Creek |
|
Charlotte, North Carolina |
|
|
352 |
|
|
9/30/2014 |
|
|
22,750 |
|
|
|
916 |
|
|
|
94.9 |
% |
|
|
224 |
|
|
|
19,634 |
|
Virginia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint Reserve at Stoney Creek |
(5) |
Fredericksburg, Virginia |
|
|
156 |
|
|
12/18/2014 |
|
|
17,000 |
|
|
|
1,152 |
|
|
|
92.3 |
% |
|
|
63 |
|
|
|
— |
|
Total 2018-2019 Same Store Properties |
|
|
|
|
9,057 |
|
|
|
|
$ |
823,944 |
|
|
$ |
1,038 |
|
|
|
94.5 |
% |
|
|
6,201 |
|
|
$ |
18,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Same Store Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crestmont Reserve |
|
Dallas, Texas |
|
|
242 |
|
|
9/26/2018 |
|
|
24,680 |
|
|
|
902 |
|
|
|
94.2 |
% |
|
|
105 |
|
|
|
3,075 |
|
Cutter's Point |
(6) |
Richardson, Texas |
|
|
— |
|
|
1/31/2014 |
|
|
15,845 |
|
|
|
— |
|
|
|
0.0 |
% |
|
|
— |
|
|
|
— |
|
Summers Landing |
|
Fort Worth, Texas |
|
|
196 |
|
|
6/7/2019 |
|
|
19,396 |
|
|
|
920 |
|
|
|
91.8 |
% |
|
|
35 |
|
|
|
2,177 |
|
Nevada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bella Solara |
|
Las Vegas, Nevada |
|
|
320 |
|
|
11/22/2019 |
|
|
66,500 |
|
|
|
1,136 |
|
|
|
91.9 |
% |
|
|
— |
|
|
|
— |
|
Bloom |
|
Las Vegas, Nevada |
|
|
528 |
|
|
11/22/2019 |
|
|
106,500 |
|
|
|
1,105 |
|
|
|
90.9 |
% |
|
|
— |
|
|
|
— |
|
Torreyana Apartments |
|
Las Vegas, Nevada |
|
|
315 |
|
|
11/22/2019 |
|
|
68,000 |
|
|
|
1,171 |
|
|
|
95.6 |
% |
|
|
— |
|
|
|
— |
|
Tennessee |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arbors of Brentwood |
|
Nashville, Tennessee |
|
|
346 |
|
|
9/10/2019 |
|
|
62,250 |
|
|
|
1,192 |
|
|
|
96.2 |
% |
|
|
47 |
|
|
|
738 |
|
Cedar Pointe |
|
Antioch, Tennessee |
|
|
210 |
|
|
8/24/2018 |
|
|
26,500 |
|
|
|
1,066 |
|
|
|
91.4 |
% |
|
|
96 |
|
|
|
3,746 |
|
Brandywine I & II |
|
Nashville, Tennessee |
|
|
632 |
|
|
9/26/2018 |
|
|
79,800 |
|
|
|
978 |
|
|
|
93.7 |
% |
|
|
89 |
|
|
|
345,848 |
|
Residences at Glenview Reserve |
|
Nashville, Tennessee |
|
|
360 |
|
|
7/17/2019 |
|
|
45,000 |
|
|
|
977 |
|
|
|
94.4 |
% |
|
|
9 |
|
|
|
— |
|
Arizona |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bella Vista |
|
Phoenix, Arizona |
|
|
248 |
|
|
1/28/2019 |
|
|
48,400 |
|
|
|
1,265 |
|
|
|
97.2 |
% |
|
|
33 |
|
|
|
— |
|
The Enclave |
|
Tempe, Arizona |
|
|
204 |
|
|
1/28/2019 |
|
|
41,800 |
|
|
|
1,295 |
|
|
|
93.6 |
% |
|
|
26 |
|
|
|
— |
|
The Heritage |
|
Phoenix, Arizona |
|
|
204 |
|
|
1/28/2019 |
|
|
41,900 |
|
|
|
1,265 |
|
|
|
96.6 |
% |
|
|
31 |
|
|
|
— |
|
Florida |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
|
1,520 |
|
|
8/30/2019 |
|
|
322,000 |
|
|
|
1,498 |
|
|
|
93.7 |
% |
|
|
5 |
|
|
|
— |
|
Residences at West Place |
|
Orlando, Florida |
|
|
342 |
|
|
7/17/2019 |
|
|
55,000 |
|
|
|
1,211 |
|
|
|
92.7 |
% |
|
|
34 |
|
|
|
— |
|
Total Non-Same Store Properties |
|
|
|
|
5,667 |
|
|
|
|
$ |
1,023,571 |
|
|
$ |
1,209 |
|
|
|
93.7 |
% |
|
|
510 |
|
|
$ |
13,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
14,724 |
|
|
|
|
$ |
1,847,515 |
|
|
$ |
1,103 |
|
|
|
94.2 |
% |
|
|
6,711 |
|
|
$ |
17,533 |
|
(1) |
Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31, 2019 minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31, 2019. |
(2) |
Percent occupied is calculated as the number of units occupied as of December 31, 2019, divided by the total number of units, expressed as a percentage. |
(3) |
Inclusive of all full and partial interior upgrades completed. |
37
(4) |
Inclusive of all full and partial interior upgrades completed and leased as of December 31, 2019. |
(5) |
Property was classified as held for sale as of December 31, 2019. |
(6) |
Cutter’s Point incurred significant tornado damage on October 20, 2019 which resulted in the property ceasing operations in order to start reconstruction. (see Note 5). |
For additional information regarding our Portfolio, see Notes 3, 4, 5 and 6 to our consolidated financial statements.
From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.
Item 4. Mine Safety Disclosures
Not applicable.
38
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Stockholder Information
On February 21, 2020, we had 25,296,836 shares of common stock outstanding held by a total of approximately 996 record holders. The number of record holders is based on the records of American Stock Transfer & Trust Company, LLC, who serves as our transfer agent. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.
Market Information
Our common stock trades on the NYSE under the ticker symbol “NXRT.”
39
On April 1, 2015, our common stock commenced trading on the NYSE. The following graph compares the cumulative total stockholder return on our common shares for the measurement period commencing March 31, 2015 and ending December 31, 2019 with the cumulative total returns of the Russell 3000 Index, the MSCI U.S. REIT Index (^RMZ), the Standard & Poor’s U.S. REIT Index and the National Association of Real Estate Investment Trusts (NAREIT) Equity REIT Index. The following graph assumes an investment of $100 on the initial day of the relevant measurement period and that all dividends were reinvested.
40
Item 6. Selected Financial Data
The following table summarizes selected financial data about the Company. The following selected financial data information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the notes thereto, included elsewhere herein. The selected financial data presented below has been derived from our audited consolidated financial statements (in thousands, except per share amounts):
|
|
As of December 31, |
|
|||||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||||
Balance Sheet Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net real estate investments (1) |
|
$ |
1,781,810 |
|
|
$ |
1,087,542 |
|
|
$ |
991,156 |
|
|
$ |
963,037 |
|
|
$ |
902,882 |
|
Total assets |
|
|
1,865,989 |
|
|
|
1,161,210 |
|
|
|
1,055,375 |
|
|
|
1,035,397 |
|
|
|
970,060 |
|
Mortgage debt, net (1) |
|
|
1,186,547 |
|
|
|
838,020 |
|
|
|
754,405 |
|
|
|
423,138 |
|
|
|
676,324 |
|
Credit and bridge facilities, net |
|
|
216,501 |
|
|
|
— |
|
|
|
38,419 |
|
|
|
340,366 |
|
|
|
28,805 |
|
Total debt, net (1) |
|
|
1,403,048 |
|
|
|
838,020 |
|
|
|
792,824 |
|
|
|
763,504 |
|
|
|
705,129 |
|
Total liabilities |
|
|
1,436,453 |
|
|
|
862,615 |
|
|
|
813,796 |
|
|
|
779,295 |
|
|
|
721,122 |
|
Redeemable noncontrolling interests in the Operating Partnership |
|
|
3,295 |
|
|
|
2,567 |
|
|
|
2,135 |
|
|
|
— |
|
|
|
— |
|
Noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,558 |
|
|
|
27,390 |
|
Stockholders' equity |
|
|
426,241 |
|
|
|
296,028 |
|
|
|
239,444 |
|
|
|
231,544 |
|
|
|
221,548 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, |
|
|||||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015 (2) |
|
|||||
Operating Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
181,066 |
|
|
$ |
146,597 |
|
|
$ |
144,235 |
|
|
$ |
132,848 |
|
|
$ |
117,658 |
|
Net income (loss) |
|
|
99,438 |
|
|
|
(1,614 |
) |
|
|
56,359 |
|
|
|
25,888 |
|
|
|
(10,992 |
) |
Net income (loss) attributable to common stockholders |
|
|
99,140 |
|
|
|
(1,609 |
) |
|
|
53,374 |
|
|
|
21,882 |
|
|
|
(10,832 |
) |
Earnings (loss) per weighted average common share - basic |
|
|
4.11 |
|
|
|
(0.08 |
) |
|
|
2.53 |
|
|
|
1.03 |
|
|
|
(0.51 |
) |
Earnings (loss) per weighted average common share - diluted |
|
|
4.03 |
|
|
|
(0.08 |
) |
|
|
2.49 |
|
|
|
1.03 |
|
|
|
(0.51 |
) |
Weighted average common shares outstanding - basic |
|
|
24,116 |
|
|
|
21,189 |
|
|
|
21,057 |
|
|
|
21,232 |
|
|
|
21,294 |
|
Weighted average common shares outstanding - diluted |
|
|
24,593 |
|
|
|
21,667 |
|
|
|
21,399 |
|
|
|
21,314 |
|
|
|
21,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities |
|
$ |
51,366 |
|
|
$ |
41,743 |
|
|
$ |
37,506 |
|
|
$ |
33,776 |
|
|
$ |
34,514 |
|
Cash flows provided by (used in) investing activities |
|
|
(553,129 |
) |
|
|
(136,954 |
) |
|
|
2,324 |
|
|
|
(51,904 |
) |
|
|
(283,000 |
) |
Cash flows provided by (used in) financing activities |
|
|
529,816 |
|
|
|
95,092 |
|
|
|
(51,843 |
) |
|
|
10,294 |
|
|
|
251,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
1.138 |
|
|
$ |
1.025 |
|
|
$ |
0.910 |
|
|
$ |
0.838 |
|
|
$ |
0.618 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO attributable to common stockholders (3) |
|
$ |
40,718 |
|
|
$ |
32,018 |
|
|
$ |
25,051 |
|
|
$ |
31,016 |
|
|
$ |
25,639 |
|
FFO per share - basic |
|
|
1.69 |
|
|
|
1.51 |
|
|
|
1.19 |
|
|
|
1.46 |
|
|
|
1.20 |
|
FFO per share - diluted |
|
|
1.66 |
|
|
|
1.48 |
|
|
|
1.17 |
|
|
|
1.46 |
|
|
|
1.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core FFO attributable to common stockholders (3) |
|
$ |
47,573 |
|
|
$ |
35,081 |
|
|
$ |
30,147 |
|
|
$ |
31,485 |
|
|
$ |
28,944 |
|
Core FFO per share - basic |
|
|
1.97 |
|
|
|
1.66 |
|
|
|
1.43 |
|
|
|
1.48 |
|
|
|
1.36 |
|
Core FFO per share - diluted |
|
|
1.93 |
|
|
|
1.62 |
|
|
|
1.41 |
|
|
|
1.48 |
|
|
|
1.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFO attributable to common stockholders (3) |
|
$ |
54,213 |
|
|
$ |
40,753 |
|
|
$ |
34,772 |
|
|
$ |
33,593 |
|
|
$ |
29,933 |
|
AFFO per share - basic |
|
|
2.25 |
|
|
|
1.92 |
|
|
|
1.65 |
|
|
|
1.58 |
|
|
|
1.41 |
|
AFFO per share - diluted |
|
|
2.20 |
|
|
|
1.88 |
|
|
|
1.62 |
|
|
|
1.58 |
|
|
|
1.41 |
|
(1) |
Includes amounts classified as held for sale, where applicable. |
(2) |
We began operations on March 31, 2015, as described above, and therefore we had no operating activities or earnings (loss) per share before March 31, 2015. However, for purposes of the consolidated statements of operations and comprehensive income, we have presented basic and diluted earnings (loss), FFO, Core FFO and AFFO per share as if the operating activities of our predecessor were those of us and assuming the shares outstanding at the date of the Spin-Off were outstanding for all periods prior to the Spin-Off. |
(3) |
FFO, Core FFO and AFFO are non-GAAP measures. For definitions of these non-GAAP measures, as well an explanation of why we believe these measures are useful and reconciliations to the most directly comparable GAAP financial measures, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below. |
41
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this annual report. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this annual report. Our management believes the assumptions underlying the Company’s financial statements and accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.
Overview
As of December 31, 2019, our Portfolio consisted of 40 multifamily properties primarily located in the Southeastern and Southwestern United States encompassing 14,724 units of apartment space that was approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $1,103. Substantially all of our business is conducted through the OP. We own the Portfolio through the OP and our TRS. The OP owns approximately 99.9% of the Portfolio; our TRS owns approximately 0.1% of the Portfolio. The OP GP is the sole general partner of the OP. As of December 31, 2019, there were 23,819,402 OP Units outstanding, of which 23,746,169, or 99.7%, were owned by us and 73,233, or 0.3%, were owned by an unaffiliated limited partner (see Note 10 to our consolidated financial statements).
We are primarily focused on directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United States. We generate revenue primarily by leasing our multifamily properties. We intend to employ targeted management and a value-add program at a majority of our properties in an attempt to improve rental rates and the NOI at our properties and achieve long-term capital appreciation for our stockholders. We are externally managed by the Adviser through the Advisory Agreement, by and among the OP, the Adviser and us. The Advisory Agreement was renewed on February 17, 2020 for a one-year term. The Adviser is wholly owned by NexPoint Advisors, L.P.
We began operations on March 31, 2015 as a result of the transfer and contribution by NHF of all but one of the multifamily properties owned by NHF through its wholly owned subsidiary NREO in exchange for 100% of its outstanding common stock. We use the term “predecessor” to mean the carve-out business of NREO, which owned all or a majority interest in the multifamily properties transferred or contributed to us by NHF through NREO. On March 31, 2015, NHF distributed all of the outstanding shares of our common stock held by NHF to holders of NHF common shares. We refer to the distribution of our common stock by NHF as the “Spin-Off.” Substantially all of our operations were conducted by our predecessor prior to March 31, 2015. With the exception of a nominal amount of initial cash funded at inception, we did not own any assets prior to March 31, 2015. Our predecessor included all of the properties in our Portfolio that were held indirectly by NREO prior to the Spin-Off. Our predecessor was determined in accordance with the rules and regulations of the SEC. References throughout this report to the “Company,” “we,” or “our,” include the activity of the predecessor defined above.
On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements (“Equity Distribution Agreements”) with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”) and SunTrust Robinson Humphrey, Inc. (“SunTrust” and together with Jefferies and Raymond James, the “Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “ATM Program”). Sales of shares of common stock under the ATM Program, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act of 1933, as amended, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the ATM Program. During the three months ended December 31, 2019, the Company issued 445,835 shares of common stock at an average price of $47.82 per share, for gross proceeds of approximately $21.3 million and paid approximately $0.3 million in fees to the Sales Agents. During the year ended December 31, 2019, the Company issued 1,565,322 shares of common stock at an average price of $45.98 per share, for gross proceeds of approximately $72.0 million. The Company paid approximately $1.1 million in fees to the Sales Agents with respect to such sales and incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. The ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the ATM Program reach $100,000,000 (see Note 8 to our consolidated financial statements).
42
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years ended December 31, 2019, 2018 and 2017.
Components of Our Revenues and Expenses
Revenues
Rental income. Our earnings are primarily attributable to the rental revenue from our multifamily properties. We anticipate that the leases we enter into for our multifamily properties will typically be for one year or less on average. Also included are utility reimbursements, late fees, pet fees, and other rental fees charged to tenants.
Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, application fees, laundry fees, cable TV income, and other miscellaneous fees charged to tenants.
Expenses
Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs.
Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each property.
Property management fees. Property management fees include fees paid to BH, our property manager, or other third party management companies for managing each property (see Note 10 to our consolidated financial statements).
Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 11 to our consolidated financial statements).
Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of director fees, equity-based compensation expense, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the advisory and administrative fees paid to our Adviser (including advisory and administrative fees on properties defined in the Advisory Agreement as New Assets) will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect), calculated in accordance with the Advisory Agreement, or the Expense Cap. The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive certain advisory and administrative fees otherwise due. If advisory and administrative fees are waived in a period, the waived fees for that period are considered to be waived permanently and the Adviser may not be reimbursed in the future.
Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property.
Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases.
Other Income and Expense
Interest expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs and the related impact of interest rate derivatives used to manage our interest rate risk.
43
Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment.
Casualty losses. Casualty losses include expenses resulting from damages from an unexpected and unusual event such as a natural disaster. Expenses can include additional payments on insurance premiums, impairment recognized on a property, and other abnormal expenses arising from the related event.
Miscellaneous income. Miscellaneous income includes proceeds received from insurance for business interruption involving the loss of rental income at a property that has temporarily suspended operations due to an unexpected and unusual event.
Gain on sales of real estate. Gain on sales of real estate includes the gain recognized upon sales of properties. Gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties.
Results of Operations for the Years Ended December 31, 2019, 2018 and 2017
The year ended December 31, 2019 as compared to the year ended December 31, 2018
The following table sets forth a summary of our operating results for the years ended December 31, 2019 and 2018 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
$ Change |
|
|||
Total revenues |
|
$ |
181,066 |
|
|
$ |
146,597 |
|
|
$ |
34,469 |
|
Total expenses |
|
|
(166,157 |
) |
|
|
(129,805 |
) |
|
|
(36,352 |
) |
Operating income before gain on sales of real estate |
|
|
14,909 |
|
|
|
16,792 |
|
|
|
(1,883 |
) |
Gain on sales of real estate |
|
|
127,684 |
|
|
|
13,742 |
|
|
|
113,942 |
|
Operating income |
|
|
142,593 |
|
|
|
30,534 |
|
|
|
112,059 |
|
Interest expense |
|
|
(37,385 |
) |
|
|
(28,572 |
) |
|
|
(8,813 |
) |
Loss on extinguishment of debt and modification costs |
|
|
(2,869 |
) |
|
|
(3,576 |
) |
|
|
707 |
|
Casualty losses (1) |
|
|
(3,488 |
) |
|
|
— |
|
|
|
(3,488 |
) |
Miscellaneous income |
|
|
587 |
|
|
|
— |
|
|
|
587 |
|
Net income (loss) |
|
|
99,438 |
|
|
|
(1,614 |
) |
|
|
101,052 |
|
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
298 |
|
|
|
(5 |
) |
|
|
303 |
|
Net income (loss) attributable to common stockholders |
|
$ |
99,140 |
|
|
$ |
(1,609 |
) |
|
$ |
100,749 |
|
(1) |
Casualty losses for the year ended December 31, 2019 are related to tornado damage incurred at Cutter’s Point on October 20, 2019 (see Note 5). |
The change in our net income (loss) for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily relates to an increase in gain on sales of real estate and an increase in total revenues, and was partially offset by increases in total property operating expenses and depreciation and amortization expense. The change in our net income (loss) between the periods was also due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions (we acquired three properties in the third quarter of 2018, and disposed of one property in the first quarter of 2018; we purchased three properties in the first quarter of 2019, one property in the second quarter of 2019, four properties in the third quarter of 2019, three properties in the fourth quarter of 2019, and disposed of six properties in the third quarter of 2019).
Revenues
Rental income was $177.2 million for the year ended December 31, 2019 compared to $143.2 million for the year ended December 31, 2018, which was an increase of approximately $34.0 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above, and a 12.0% increase in the weighted average monthly effective rent per occupied apartment unit in our Portfolio to $1,103 as of December 31, 2019 from $985 as of December 31, 2018, primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.
44
Other income. Other income was $3.9 million for the year ended December 31, 2019 compared to $3.4 million for the year ended December 31, 2018, which was an increase of approximately $0.5 million. The increase between the periods was primarily due to a $0.6 million increase in in cable TV income.
Expenses
Property operating expenses. Property operating expenses were $42.7 million for the year ended December 31, 2019 compared to $35.8 million for the year ended December 31, 2018, which was an increase of approximately $6.9 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above. The increase between periods was also due to a $3.1 million, or 16.5%, increase in payroll expenses.
Real estate taxes and insurance. Real estate taxes and insurance costs were $25.1 million for the year ended December 31, 2019 compared to $20.7 million for the year ended December 31, 2018, which was an increase of approximately $4.4 million. The increase between the periods was primarily due to a $3.8 million, or 21%, increase in property taxes. Property taxes incurred in the first year of ownership may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the taxing authority in subsequent years, increasing the cost of real estate taxes.
Property management fees. Property management fees were $5.4 million for the year ended December 31, 2019 compared to $4.4 million for the year ended December 31, 2018, which was an increase of approximately $1.0 million. The increase between the periods was primarily due to an increase in total revenues, which the fee is primarily based on.
Advisory and administrative fees. Advisory and administrative fees remained flat at $7.5 million for the years ended December 31, 2019 and 2018. The amount incurred during the years ended December 31, 2019 and 2018 represents the maximum fee allowed on properties defined as Contributed Assets under the Advisory Agreement plus $2.1 million and $2.1 million, respectively, of advisory and administrative fees incurred on certain properties defined as New Assets. For the year ended December 31, 2019, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the 19 properties we acquired subsequent to October 2016, which totaled approximately $9.1 million and are considered to be permanently waived. For the year ended December 31, 2018, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties we acquired subsequent to October 2016, which totaled approximately $4.1 million and are considered to be permanently waived for the period. The advisory and administrative fees waived by our Adviser for the years ended December 31, 2019 and 2018 are considered to be permanently waived for the periods. Our Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be classified as New Assets.
Corporate general and administrative expenses. Corporate general and administrative expenses were $9.6 million for the year ended December 31, 2019 compared to $7.8 million for the year ended December 31, 2018, which was an increase of approximately $1.8 million. The increase between the periods was primarily due to approximately $5.1 million of equity-based compensation expense recognized during the year ended December 31, 2019 related to the grants of restricted stock units to our directors, officers, employees and certain key employees of our Adviser pursuant to our long-term incentive plan (the “2016 LTIP”), compared to $4.2 million of equity-based compensation expense recognized during the year ended December 31, 2018 (see Note 8 to our consolidated financial statements). Subject to the Expense Cap, corporate general and administrative expenses may increase in future periods as we acquire additional properties.
Property general and administrative expenses. Property general and administrative expenses were $6.8 million for the year ended December 31, 2019 compared to $6.1 million for the year ended December 31, 2018, which was an increase of approximately $0.7 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above.
Depreciation and amortization. Depreciation and amortization costs were $69.1 million for the year ended December 31, 2019 compared to $47.5 million for the year ended December 31, 2018, which was an increase of approximately $21.6 million. The increase between the periods was primarily due to the amortization of intangible lease assets of $12.7 million related to 14 properties for the year ended December 31, 2019 compared to $2.5 million related to four properties for the year ended December 31, 2018, which was an increase of approximately $10.3 million. The amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property.
45
Interest expense. Interest expense was $37.4 million for the year ended December 31, 2019 compared to $28.6 million for the year ended December 31, 2018, which was an increase of approximately $8.8 million. The increase between the periods was primarily due to an increase in interest on debt of approximately $10.9 million, partially offset by a decrease in interest rate swap expense of $2.2 million. The following table details the various costs included in interest expense for the years ended December 31, 2019 and 2018 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
$ Change |
|
|||
Interest on debt |
|
$ |
41,744 |
|
|
$ |
30,870 |
|
|
$ |
10,874 |
|
Amortization of deferred financing costs |
|
|
2,083 |
|
|
|
1,650 |
|
|
|
433 |
|
Interest rate swaps |
|
|
(6,472 |
) |
|
|
(4,224 |
) |
|
|
(2,248 |
) |
Interest rate caps expense |
|
|
30 |
|
|
|
276 |
|
|
|
(246 |
) |
Total |
|
$ |
37,385 |
|
|
$ |
28,572 |
|
|
$ |
8,813 |
|
Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $2.9 million for the year ended December 31, 2019 compared to $3.6 million for the year ended December 31, 2018, which was a decrease of approximately $0.7 million. The decrease between periods was primarily due to a decrease in debt modification and other extinguishment costs of $0.5 million. The following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended December 31, 2019 and 2018 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
$ Change |
|
|||
Prepayment penalties and defeasance costs |
|
$ |
1,449 |
|
|
$ |
1,706 |
|
|
$ |
(257 |
) |
Write-off of deferred financing costs |
|
|
1,419 |
|
|
|
1,412 |
|
|
|
7 |
|
Write-off of fair market value adjustment of assumed debt |
|
|
— |
|
|
|
(27 |
) |
|
|
27 |
|
Debt modification and other extinguishment costs |
|
|
1 |
|
|
|
485 |
|
|
|
(484 |
) |
Total |
|
$ |
2,869 |
|
|
$ |
3,576 |
|
|
$ |
(707 |
) |
Casualty losses. Casualty losses were $3.5 million for the year ended December 31, 2019; there were no casualty losses for the year ended December 31, 2018. This is related to significant damages sustained at Cutter’s Point due to a tornado hitting the property (see Note 5).
Miscellaneous income. Miscellaneous income was $0.6 million for the year ended December 31, 2019; there was no miscellaneous income for the year ended December 31, 2018. This is related to business interruption proceeds received from insurance for lost rents at Cutter’s Point (see Note 5).
Gain on sales of real estate. Gain on sales of real estate was $127.7 million for the year ended December 31, 2019 compared to $13.7 million for the year ended December 31, 2018, which was an increase of approximately $114.0 million. During the year ended December 31, 2019, we sold six properties; during the year ended December 31, 2018, we sold one property.
46
The year ended December 31, 2018 as compared to the year ended December 31, 2017
The following table sets forth a summary of our operating results for the years ended December 31, 2018 and 2017 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|||
Total revenues |
|
$ |
146,597 |
|
|
$ |
144,235 |
|
|
$ |
2,362 |
|
Total expenses |
|
|
(129,805 |
) |
|
|
(130,946 |
) |
|
|
1,141 |
|
Operating income |
|
|
16,792 |
|
|
|
13,289 |
|
|
|
3,503 |
|
Interest expense |
|
|
(28,572 |
) |
|
|
(29,576 |
) |
|
|
1,004 |
|
Loss on extinguishment of debt and modification costs |
|
|
(3,576 |
) |
|
|
(5,719 |
) |
|
|
2,143 |
|
Gain on sales of real estate |
|
|
13,742 |
|
|
|
78,365 |
|
|
|
(64,623 |
) |
Net income (loss) |
|
|
(1,614 |
) |
|
|
56,359 |
|
|
|
(57,973 |
) |
Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
2,836 |
|
|
|
(2,836 |
) |
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
(5 |
) |
|
|
149 |
|
|
|
(154 |
) |
Net income (loss) attributable to common stockholders |
|
$ |
(1,609 |
) |
|
$ |
53,374 |
|
|
$ |
(54,983 |
) |
The change in our net income (loss) for the year ended December 31, 2018 as compared to the year ended December 31, 2017 primarily relates to a decrease in gain on sales of real estate, and was partially offset by an increase in total revenues and decreases in total property operating expenses, depreciation and amortization expense and loss on extinguishment of debt and modification costs. The change in our net income (loss) between the periods was also due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions (we acquired one property in the first quarter of 2017, one property in the second quarter of 2017, one property in the fourth quarter of 2017 and three properties in the third quarter of 2018; we sold four properties in the second quarter of 2017, five properties in the third quarter of 2017 and one property in the first quarter of 2018).
Revenues
Rental income. Rental income was $143.2 million for the year ended December 31, 2018 compared to $140.9 million for the year ended December 31, 2017, which was an increase of approximately $2.3 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions, as described above, and a 3.9% increase in the weighted average monthly effective rent per occupied apartment unit in our Portfolio to $985 as of December 31, 2018 from $948 as of December 31, 2017, primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located. The increase between the periods was also due to an increase in the occupancy rate of our Portfolio of 0.8% to 94.6% as of December 31, 2018 from 93.8% as of December 31, 2017.
Other income. Other income was $3.4 million for the year ended December 31, 2018 and remained flat at $3.4 million for the year ended December 31, 2017.
Expenses
Property operating expenses. Property operating expenses were $35.8 million for the year ended December 31, 2018 compared to $38.9 million for the year ended December 31, 2017, which was a decrease of approximately $3.1 million. The decrease between the periods was primarily due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions, as described above. The decrease between the periods was also due to a $1.5 million, or 13.5%, decrease in utility costs and a $0.8 million, or 4.8%, decrease in labor costs.
Real estate taxes and insurance. Real estate taxes and insurance costs were $20.7 million for the year ended December 31, 2018 compared to $19.2 million for the year ended December 31, 2017, which was an increase of approximately $1.5 million. The increase between the periods was primarily due to a $1.5 million, or 9.4%, increase in property taxes. Property taxes incurred in the first year of ownership may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the taxing authority in subsequent years, increasing the cost of real estate taxes.
Property management fees. Property management fees were $4.4 million for the year ended December 31, 2018 compared to $4.3 million for the year ended December 31, 2017, which was an increase of approximately $0.1 million. The increase between the periods was primarily due to an increase in total revenues, which the fee is primarily based on.
47
Advisory and administrative fees. Advisory and administrative fees were $7.5 million for the year ended December 31, 2018 compared to $7.4 million for the year ended December 31, 2017, which was an increase of approximately $0.1 million. The amount incurred during the years ended December 31, 2018 and 2017 represents the maximum fee allowed on properties defined as Contributed Assets under the Advisory Agreement plus approximately $2.1 million and $2.0 million, respectively, of advisory and administrative fees incurred on certain properties defined as New Assets. For the year ended December 31, 2018, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties we acquired subsequent to October 2016, which totaled approximately $4.1 million. For the year ended December 31, 2017, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the five properties we acquired subsequent to October 2016, which totaled approximately $2.4 million. The advisory and administrative fees waived by our Adviser for the years ended December 31, 2018 and 2017 are considered to be permanently waived for the periods. Our Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be classified as New Assets.
Corporate general and administrative expenses. Corporate general and administrative expenses were $7.8 million for the year ended December 31, 2018 compared to $6.3 million for the year ended December 31, 2017, which was an increase of approximately $1.5 million. The increase between the periods was primarily due to approximately $4.2 million of equity-based compensation expense recognized during the year ended December 31, 2018 related to the grants of restricted stock units to our directors, officers, employees and certain key employees of our Adviser pursuant to our 2016 LTIP, compared to $3.1 million of equity-based compensation expense recognized during the year ended December 31, 2017 (see Note 8 to our consolidated financial statements). Subject to the Expense Cap, corporate general and administrative expenses may increase in future periods as we acquire additional properties.
Property general and administrative expenses. Property general and administrative expenses were $6.1 million for the year ended December 31, 2018 compared to $6.2 million for the year ended December 31, 2017, which was a decrease of approximately $0.1 million. The decrease between the periods was primarily due to our acquisition and disposition activity in 2017 and 2018 and the timing of the transactions, as described above.
Depreciation and amortization. Depreciation and amortization costs were $47.5 million for the year ended December 31, 2018 compared to $48.8 million for the year ended December 31, 2017, which was a decrease of approximately $1.3 million. The decrease between the periods was primarily due to the amortization of intangible lease assets of $2.5 million related to four properties for the year ended December 31, 2018 compared to $8.9 million related to seven properties for the year ended December 31, 2017, which was a decrease of approximately $6.4 million. The decrease between the periods was partially offset by a $5.1 million increase in depreciation expense, primarily due to our acquisition activity in 2017 and 2018 and the timing of the transactions, as described above. The amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property.
Other Income and Expense
Interest expense. Interest expense was $28.6 million for the year ended December 31, 2018 compared to $29.6 million for the year ended December 31, 2017, which was a decrease of approximately $1.0 million. The decrease between the periods was primarily due to an increase in gain recognized related to the effective portion of changes in fair value of our interest rate swap derivatives designated as cash flow hedges of approximately $5.3 million (see “Debt, Derivatives and Hedging Activity – Interest Rate Swap Agreements” below). The decrease between the periods was partially offset by an increase in interest on debt of approximately $4.6 million. The following table details the various costs included in interest expense for the years ended December 31, 2018 and 2017 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|||
Interest on debt |
|
$ |
30,870 |
|
|
$ |
26,268 |
|
|
$ |
4,602 |
|
Amortization of deferred financing costs |
|
|
1,650 |
|
|
|
1,995 |
|
|
|
(345 |
) |
Interest rate swaps - effective portion |
|
|
(4,224 |
) |
|
|
1,113 |
|
|
|
(5,337 |
) |
Interest rate swaps - ineffective portion |
(1) |
|
— |
|
|
|
(309 |
) |
|
|
309 |
|
Interest rate caps expense |
|
|
276 |
|
|
|
509 |
|
|
|
(233 |
) |
Total |
|
$ |
28,572 |
|
|
$ |
29,576 |
|
|
$ |
(1,004 |
) |
(1) |
Prior to our adoption of ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”) on January 1, 2018, the ineffective portion of changes in the fair value of our derivatives designated as cash flow hedges was recognized directly in net income (loss) as interest expense. The adoption of ASU 2017-12 eliminates the separate measurement of effectiveness and ineffectiveness, and all changes in the fair value of derivatives that are designated as cash flow hedges are recorded directly in other comprehensive income (“OCI”). See Notes 2 and 7 to our consolidated financial statements for additional information. |
48
Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $3.6 million for the year ended December 31, 2018 compared to $5.7 million for the year ended December 31, 2017, which was a decrease of approximately $2.1 million. The decrease between the periods was primarily due to decreases in debt modification and other extinguishment costs of approximately $1.5 million and prepayment penalties and defeasance costs of approximately $1.0 million. The following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended December 31, 2018 and 2017 (in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|||||
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|||
Prepayment penalties and defeasance costs |
|
$ |
1,706 |
|
|
$ |
2,701 |
|
|
$ |
(995 |
) |
Write-off of deferred financing costs |
|
|
1,412 |
|
|
|
1,003 |
|
|
|
409 |
|
Write-off of fair market value adjustment of assumed debt |
|
|
(27 |
) |
|
|
— |
|
|
|
(27 |
) |
Debt modification and other extinguishment costs |
|
|
485 |
|
|
|
2,015 |
|
|
|
(1,530 |
) |
Total |
|
$ |
3,576 |
|
|
$ |
5,719 |
|
|
$ |
(2,143 |
) |
Gain on sales of real estate. Gain on sales of real estate was $13.7 million for the year ended December 31, 2018 compared to $78.4 million for the year ended December 31, 2017, which was a decrease of approximately $64.7 million. During the year ended December 31, 2018, we sold one property; during the year ended December 31, 2017, we sold nine properties.
Non-GAAP Measurements
Net Operating Income and Same Store Net Operating Income
NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is not affected by (1) the cost of funds, (2) acquisition costs, (3) advisory and administrative fees, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP and gains or losses on extinguishment of debt and modification costs, (5) corporate general and administrative expenses, (6) other gains and losses that are specific to us, (7) casualty-related expenses/(recoveries) and casualty losses, (8) property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees and (9) miscellaneous income.
The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Acquisition costs and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Extinguishment of debt and modification costs are excluded because renegotiations of terms in existing loans are rare. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Casualty-related expenses and recoveries are excluded because they do not reflect continuing operating costs of the property owner. Casualty losses are excluded because of the infrequent and unusual nature of the sustained damages. Miscellaneous income is excluded because of the infrequent and usual nature of the gains. Entity level general and administrative expenses incurred at the properties are eliminated as they are specific to the way in which we have chosen to hold our properties and are the result of our ownership structuring. Also, expenses that are incurred upon acquisition of a property do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.
However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, loss on extinguishment of debt and modification costs, acquisition costs, casualty losses, miscellaneous income, certain fees to affiliates such as advisory and administrative fees, depreciation and amortization expense, gains or losses from the sale of properties, and other gains and losses as determined under GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.
49
NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.
We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods.
Net Operating Income for Our 2018-2019 Same Store and Non-Same Store Properties for the Years Ended December 31, 2019 and 2018
There are 25 properties encompassing 9,057 units of apartment space in our same store pool for the years ended December 31, 2019 and 2018 (our “2018-2019 Same Store” properties). Our 2018-2019 Same Store properties exclude the following 15 properties in our Portfolio as of December 31, 2019: Cedar Pointe, Crestmont Reserve, Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara and Cutter’s Point, which has suspended operations to undergo reconstruction due to damages sustained (see Note 5).
The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2019 and 2018 for our 2018-2019 Same Store and Non-Same Store properties (dollars in thousands):
|
|
For the Year Ended December 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2019 |
|
|
2018 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
116,313 |
|
|
$ |
110,902 |
|
|
$ |
5,411 |
|
|
|
4.9 |
% |
Other income |
|
|
2,324 |
|
|
|
2,824 |
|
|
|
(500 |
) |
|
|
-17.7 |
% |
Same Store revenues |
|
|
118,637 |
|
|
|
113,726 |
|
|
|
4,911 |
|
|
|
4.3 |
% |
Non-Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
|
60,849 |
|
|
|
32,256 |
|
|
|
28,593 |
|
|
|
88.6 |
% |
Other income |
|
|
1,580 |
|
|
|
615 |
|
|
|
965 |
|
|
|
156.9 |
% |
Non-Same Store revenues |
|
|
62,429 |
|
|
|
32,871 |
|
|
|
29,558 |
|
|
|
89.9 |
% |
Total revenues |
|
|
181,066 |
|
|
|
146,597 |
|
|
|
34,469 |
|
|
|
23.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses (1) |
|
|
28,255 |
|
|
|
27,676 |
|
|
|
579 |
|
|
|
2.1 |
% |
Real estate taxes and insurance |
|
|
17,317 |
|
|
|
17,127 |
|
|
|
190 |
|
|
|
1.1 |
% |
Property management fees (2) |
|
|
3,543 |
|
|
|
3,391 |
|
|
|
152 |
|
|
|
4.5 |
% |
Property general and administrative expenses (3) |
|
|
3,561 |
|
|
|
3,737 |
|
|
|
(176 |
) |
|
|
-4.7 |
% |
Same Store operating expenses |
|
|
52,676 |
|
|
|
51,931 |
|
|
|
745 |
|
|
|
1.4 |
% |
Non-Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses (4) |
|
|
14,471 |
|
|
|
8,811 |
|
|
|
5,660 |
|
|
|
64.2 |
% |
Real estate taxes and insurance |
|
|
7,796 |
|
|
|
3,586 |
|
|
|
4,210 |
|
|
|
117.4 |
% |
Property management fees (2) |
|
|
1,845 |
|
|
|
991 |
|
|
|
854 |
|
|
|
86.2 |
% |
Property general and administrative expenses (5) |
|
|
1,687 |
|
|
|
1,103 |
|
|
|
584 |
|
|
|
52.9 |
% |
Non-Same Store operating expenses |
|
|
25,799 |
|
|
|
14,491 |
|
|
|
11,308 |
|
|
|
78.0 |
% |
Total operating expenses |
|
|
78,475 |
|
|
|
66,422 |
|
|
|
12,053 |
|
|
|
18.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
65,961 |
|
|
|
61,795 |
|
|
|
4,166 |
|
|
|
6.7 |
% |
Non-Same Store |
|
|
36,630 |
|
|
|
18,380 |
|
|
|
18,250 |
|
|
|
99.3 |
% |
Total NOI |
|
$ |
102,591 |
|
|
$ |
80,175 |
|
|
$ |
22,416 |
|
|
|
28.0 |
% |
(1) |
For the years ended December 31, 2019 and 2018, excludes approximately $48,000 and $752,000, respectively, of casualty-related recoveries. |
50
(2) |
Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP. |
(3) |
For the years ended December 31, 2019 and 2018, excludes approximately $769,000 and $843,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees. |
(4) |
For the years ended December 31, 2019 and 2018, excludes approximately $14,000 and $89,000, respectively, of casualty-related expenses. |
(5) |
For the years ended December 31, 2019 and 2018, excludes approximately $748,000 and $451,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees. |
See reconciliation of net income (loss) to NOI below under “NOI and 2018-2019 Same Store NOI for the Years Ended December 31, 2019 and 2018.”
2018-2019 Same Store Results of Operations for the Years Ended December 31, 2019 and 2018
As of December 31, 2019, our 2018-2019 Same Store properties were approximately 94.5% leased with a weighted average monthly effective rent per occupied apartment unit of $1,038. As of December 31, 2018, our 2018-2019 Same Store properties were approximately 94.8% leased with a weighted average monthly effective rent per occupied apartment unit of $1,002. For our 2018-2019 Same Store properties, we recorded the following operating results for the year ended December 31, 2019 as compared to the year ended December 31, 2018:
Revenues
Rental income. Rental income was $116.3 million for the year ended December 31, 2019 compared to $110.9 million for the year ended December 31, 2018, which was an increase of approximately $5.4 million, or 4.9%. The majority of the increase is related to a 3.6% increase in the weighted average monthly effective rent per occupied apartment unit to $1,038 as of December 31, 2019 from $1,002 as of December 31, 2018.
Other income. Other income was $2.3 million for the year ended December 31, 2019 compared to $2.8 million for the year ended December 31, 2018, which was a decrease of approximately $0.5 million, or 17.7%. The majority of the decrease is related to a $0.5 million decrease in non-refundable fees.
Expenses
Property operating expenses. Property operating expenses were $28.3 million for the year ended December 31, 2019 compared to $27.7 million for the year ended December 31, 2018, which was an increase of approximately $0.6 million, or 2.1%. The majority of the increase is related to a $0.6 million, or 6.7%, increase in repairs and maintenance costs.
Real estate taxes and insurance. Real estate taxes and insurance costs were $17.3 million for the year ended December 31, 2019 compared to $17.1 million for the year ended December 31, 2018, which was an increase of approximately $0.2 million, or 1.1%. The majority of the increase is related to a $0.5 million, or 3.4%, increase in property taxes, partially offset by a $0.3 million, or 13.1%, decrease in insurance expense.
Property management fees. Property management fees were $3.5 million for the year ended December 31, 2019 compared to $3.4 million for the year ended December 31, 2018, which was an increase of approximately $0.1 million, or 4.5%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.
Property general and administrative expenses. Property general and administrative expenses were $3.6 million for the year ended December 31, 2019 compared to $3.7 million for the year ended December 31, 2018, which was a decrease of approximately $0.1 million, or 4.7%. The majority of the decrease is related to a $0.1 million, or 9.5%, decrease in marketing costs.
Net Operating Income for Our 2017-2019 Same Store and Non-Same Store Properties for the Years Ended December 31, 2019, 2018 and 2017
There are 22 properties encompassing 7,709 units of apartment space in our same store pool for the years ended December 31, 2019, 2018 and 2017 (our “2017-2019 Same Store” properties). Our 2017-2019 Same Store properties exclude the following 18 properties in our Portfolio as of December 31, 2019: Hollister Place, Rockledge Apartments, Atera Apartments, Cedar Pointe, Crestmont Reserve, Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara and Cutter’s Point, which has suspended operations to undergo reconstruction due to damages sustained (see Note 5).
51
The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2019, 2018 and 2017 for our 2017-2019 Same Store and Non-Same Store properties (dollars in thousands):
|
|
For the Year Ended December 31, |
|
|
2019 compared to 2018 |
|
|
2018 compared to 2017 |
|
|||||||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
|
$ Change |
|
|
% Change |
|
|||||||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
96,703 |
|
|
$ |
92,141 |
|
|
$ |
88,167 |
|
|
$ |
4,562 |
|
|
|
5.0 |
% |
|
$ |
3,974 |
|
|
|
4.5 |
% |
Other income |
|
|
2,003 |
|
|
|
2,469 |
|
|
|
2,257 |
|
|
|
(466 |
) |
|
|
-18.9 |
% |
|
|
212 |
|
|
|
9.4 |
% |
Same Store revenues |
|
|
98,706 |
|
|
|
94,610 |
|
|
|
90,424 |
|
|
|
4,096 |
|
|
|
4.3 |
% |
|
|
4,186 |
|
|
|
4.6 |
% |
Non-Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
|
80,459 |
|
|
|
51,017 |
|
|
|
52,715 |
|
|
|
29,442 |
|
|
|
57.7 |
% |
|
|
(1,698 |
) |
|
|
-3.2 |
% |
Other income |
|
|
1,901 |
|
|
|
970 |
|
|
|
1,096 |
|
|
|
931 |
|
|
|
96.0 |
% |
|
|
(126 |
) |
|
|
-11.5 |
% |
Non-Same Store revenues |
|
|
82,360 |
|
|
|
51,987 |
|
|
|
53,811 |
|
|
|
30,373 |
|
|
|
58.4 |
% |
|
|
(1,824 |
) |
|
|
-3.4 |
% |
Total revenues |
|
|
181,066 |
|
|
|
146,597 |
|
|
|
144,235 |
|
|
|
34,469 |
|
|
|
23.5 |
% |
|
|
2,362 |
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses (1) |
|
|
24,162 |
|
|
|
23,573 |
|
|
|
23,878 |
|
|
|
589 |
|
|
|
2.5 |
% |
|
|
(305 |
) |
|
|
-1.3 |
% |
Real estate taxes and insurance |
|
|
13,564 |
|
|
|
13,145 |
|
|
|
12,505 |
|
|
|
419 |
|
|
|
3.2 |
% |
|
|
640 |
|
|
|
5.1 |
% |
Property management fees (2) |
|
|
2,970 |
|
|
|
2,840 |
|
|
|
2,720 |
|
|
|
130 |
|
|
|
4.6 |
% |
|
|
120 |
|
|
|
4.4 |
% |
Property general and administrative expenses (3) |
|
|
3,023 |
|
|
|
3,162 |
|
|
|
3,117 |
|
|
|
(139 |
) |
|
|
-4.4 |
% |
|
|
45 |
|
|
|
1.4 |
% |
Same Store operating expenses |
|
|
43,719 |
|
|
|
42,720 |
|
|
|
42,220 |
|
|
|
999 |
|
|
|
2.3 |
% |
|
|
500 |
|
|
|
1.2 |
% |
Non-Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses (4) |
|
|
18,564 |
|
|
|
12,914 |
|
|
|
15,259 |
|
|
|
5,650 |
|
|
|
43.8 |
% |
|
|
(2,345 |
) |
|
|
-15.4 |
% |
Real estate taxes and insurance |
|
|
11,549 |
|
|
|
7,568 |
|
|
|
6,656 |
|
|
|
3,981 |
|
|
|
52.6 |
% |
|
|
912 |
|
|
|
13.7 |
% |
Property management fees (2) |
|
|
2,418 |
|
|
|
1,542 |
|
|
|
1,610 |
|
|
|
876 |
|
|
|
56.8 |
% |
|
|
(68 |
) |
|
|
-4.2 |
% |
Property general and administrative expenses (5) |
|
|
2,225 |
|
|
|
1,678 |
|
|
|
1,912 |
|
|
|
547 |
|
|
|
32.6 |
% |
|
|
(234 |
) |
|
|
-12.2 |
% |
Non-Same Store operating expenses |
|
|
34,756 |
|
|
|
23,702 |
|
|
|
25,437 |
|
|
|
11,054 |
|
|
|
46.6 |
% |
|
|
(1,735 |
) |
|
|
-6.8 |
% |
Total operating expenses |
|
|
78,475 |
|
|
|
66,422 |
|
|
|
67,657 |
|
|
|
12,053 |
|
|
|
18.1 |
% |
|
|
(1,235 |
) |
|
|
-1.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOI |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same Store |
|
|
54,987 |
|
|
|
51,890 |
|
|
|
48,204 |
|
|
|
3,097 |
|
|
|
6.0 |
% |
|
|
3,686 |
|
|
|
7.6 |
% |
Non-Same Store |
|
|
47,604 |
|
|
|
28,285 |
|
|
|
28,374 |
|
|
|
19,319 |
|
|
|
68.3 |
% |
|
|
(89 |
) |
|
|
-0.3 |
% |
Total NOI |
|
$ |
102,591 |
|
|
$ |
80,175 |
|
|
$ |
76,578 |
|
|
$ |
22,416 |
|
|
|
28.0 |
% |
|
$ |
3,597 |
|
|
|
4.7 |
% |
(1) |
For the years ended December 31, 2019, 2018 and 2017, excludes approximately $72,000, $743,000 and $338,000, respectively, of casualty-related recoveries. |
(2) |
Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP. |
(3) |
For the years ended December 31, 2019, 2018 and 2017, excludes approximately $658,000, $742,000 and $750,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees. |
(4) |
For the years ended December 31, 2019, 2018 and 2017, excludes approximately $38,000, $80,000 and $51,000, respectively, of casualty-related expenses. |
(5) |
For the years ended December 31, 2019, 2018 and 2017, excludes approximately $859,000, $552,000 and $380,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees. |
See reconciliation of net income (loss) to NOI below under “NOI and 2017-2019 Same Store NOI for the Years Ended December 31, 2019, 2018 and 2017.”
2017-2019 Same Store Results of Operations for the Years Ended December 31, 2019 and 2018
As of December 31, 2019, our 2017-2019 Same Store properties were approximately 94.5% leased with a weighted average monthly effective rent per occupied apartment unit of $1,008. As of December 31, 2018, our 2017-2019 Same Store properties were approximately 94.7% leased with a weighted average monthly effective rent per occupied apartment unit of $974. For our 2017-2019 Same Store properties, we recorded the following operating results for the year ended December 31, 2019 as compared to the year ended December 31, 2018:
52
Rental income. Rental income was $96.7 million for the year ended December 31, 2019 compared to $92.1 million for the year ended December 31, 2018, which was an increase of approximately $4.6 million, or 5.0%. The majority of the increase is related to a 3.5% increase in the weighted average monthly effective rent per occupied apartment unit to $1,008 as of December 31, 2019 from $974 as of December 31, 2018, partially offset by a 0.2% decrease in occupancy.
Other income. Other income was $2.0 million for the year ended December 31, 2019 compared to $2.5 million for the year ended December 31, 2018, which was a decrease of approximately $0.5 million, or 18.9%. The majority of the decrease is related to a $0.5 million decrease in non-refundable fees.
Expenses
Property operating expenses. Property operating expenses were $24.2 million for the year ended December 31, 2019 compared to $23.6 million for the year ended December 31, 2018, which was an increase of approximately $0.6 million, or 2.5%. The majority of the increase is related to increases in repairs and maintenance costs of $0.6 million.
Real estate taxes and insurance. Real estate taxes and insurance costs were $13.6 million for the year ended December 31, 2019 compared to $13.1 million for the year ended December 31, 2018, which was an increase of approximately $0.5 million, or 3.2%. The majority of the increase is related to a $0.7 million, or 6.3%, increase in property taxes.
Property management fees. Property management fees were $3.0 million for the year ended December 31, 2019 compared to $2.8 million for the year ended December 31, 2018, which was an increase of approximately $0.2 million, or 4.6%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.
Property general and administrative expenses. Property general and administrative expenses were $3.0 million for the year ended December 31, 2019 compared to $3.2 million for the year ended December 31, 2018, which was a decrease of approximately $0.2 million, or 4.4%. The majority of the decrease is related to a $0.1 million decrease in marketing expenses.
2017-2019 Same Store Results of Operations for the Years Ended December 31, 2018 and 2017
As of December 31, 2018, our 2017-2019 Same Store properties were approximately 94.7% leased with a weighted average monthly effective rent per occupied apartment unit of $974. As of December 31, 2017, our 2017-2019 Same Store properties were approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $931. For our 2017-2019 Same Store properties, we recorded the following operating results for the year end December 31, 2018 as compared to the year ended December 31, 2017:
Revenues
Rental income. Rental income was $92.1 million for the year ended December 31, 2018 compared to $88.2 million for the year ended December 31, 2017, which was an increase of approximately $3.9 million, or 4.5%. The majority of the increase is related to a 4.6% increase in the weighted average monthly effective rent per occupied apartment unit to $974 as of December 31, 2018 from $931 as of December 31, 2017, as well as a 0.5% increase in occupancy.
Other income. Other income was $2.5 million for the year ended December 31, 2018 compared to $2.3 million for the year ended December 31, 2017, which was an increase of approximately $0.2 million, or 9.4%. The majority of the increase is related to a $0.5 million increase in non-refundable fees.
Expenses
Property operating expenses. Property operating expenses were $23.6 million for the year ended December 31, 2018 compared to $23.9 million for the year ended December 31, 2017, which was a decrease of approximately $0.3 million, or 1.3%. The majority of the decrease is related to a $0.6 million, or 9.4%, decrease in utilities costs.
Real estate taxes and insurance. Real estate taxes and insurance costs were $13.1 million for the year ended December 31, 2018 compared to $12.5 million for the year ended December 31, 2017, which was an increase of approximately $0.6 million, or 5.1%. The majority of the increase is related to a $0.5 million, or 4.6%, increase in property taxes.
Property management fees. Property management fees were $2.8 million for the year ended December 31, 2018 compared to $2.7 million for the year ended December 31, 2017, which was an increase of approximately $0.1 million, or 4.4%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.
Property general and administrative expenses. Property general and administrative expenses were $3.2 million for the year ended December 31, 2018 compared to $3.1 million for the year ended December 31, 2017, which was an increase of approximately $0.1 million, or 1.4%.
53
NOI and 2018-2019 Same Store NOI for the Years Ended December 31, 2019 and 2018
The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2018-2019 Same Store NOI for the years ended December 31, 2019 and 2018 to net income (loss), the most directly comparable GAAP financial measure (in thousands):
|
|
For the Year Ended December 31, |
|
|||||
|
|
2019 |
|
|
2018 |
|
||
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
Adjustments to reconcile net income (loss) to NOI: |
|
|
|
|
|
|
|
|
Advisory and administrative fees |
|
|
7,500 |
|
|
|
7,474 |
|
Corporate general and administrative expenses |
|
|
9,613 |
|
|
|
7,808 |
|
Casualty-related recoveries |
(1) |
|
(34 |
) |
|
|
(663 |
) |
Casualty losses |
|
|
3,488 |
|
|
|
— |
|
Miscellaneous income |
|
|
(587 |
) |
|
|
— |
|
Property general and administrative expenses |
(2) |
|
1,517 |
|
|
|
1,294 |
|
Depreciation and amortization |
|
|
69,086 |
|
|
|
47,470 |
|
Interest expense |
|
|
37,385 |
|
|
|
28,572 |
|
Loss on extinguishment of debt and modification costs |
|
|
2,869 |
|
|
|
3,576 |
|
Gain on sales of real estate |
|
|
(127,684 |
) |
|
|
(13,742 |
) |
NOI |
|
$ |
102,591 |
|
|
$ |
80,175 |
|
Less Non-Same Store |
|
|
|
|
|
|
|
|
Revenues |
|
|
(62,429 |
) |
|
|
(32,871 |
) |
Operating expenses |
|
|
25,799 |
|
|
|
14,491 |
|
Same Store NOI |
|
$ |
65,961 |
|
|
$ |
61,795 |
|
(1) |
Adjustment to net income (loss) to exclude certain property operating expenses that are casualty-related expenses/(recoveries). |
(2) |
Adjustment to net income (loss) to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees. |
NOI and 2017-2019 Same Store NOI for the Years Ended December 31, 2019, 2018 and 2017
The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2017-2019 Same Store NOI for the years ended December 31, 2019, 2018 and 2017 to net income (loss), the most directly comparable GAAP financial measure (in thousands):
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
|
$ |
56,359 |
|
Adjustments to reconcile net income (loss) to NOI: |
|
|
|
|
|
|
|
|
|
|
|
|
Advisory and administrative fees |
|
|
7,500 |
|
|
|
7,474 |
|
|
|
7,419 |
|
Corporate general and administrative expenses |
|
|
9,613 |
|
|
|
7,808 |
|
|
|
6,275 |
|
Casualty-related recoveries |
(1) |
|
(34 |
) |
|
|
(663 |
) |
|
|
(287 |
) |
Casualty losses |
|
|
3,488 |
|
|
|
— |
|
|
|
— |
|
Miscellaneous income |
|
|
(587 |
) |
|
|
— |
|
|
|
— |
|
Property general and administrative expenses |
(2) |
|
1,517 |
|
|
|
1,294 |
|
|
|
1,130 |
|
Depreciation and amortization |
|
|
69,086 |
|
|
|
47,470 |
|
|
|
48,752 |
|
Interest expense |
|
|
37,385 |
|
|
|
28,572 |
|
|
|
29,576 |
|
Loss on extinguishment of debt and modification costs |
|
|
2,869 |
|
|
|
3,576 |
|
|
|
5,719 |
|
Gain on sales of real estate |
|
|
(127,684 |
) |
|
|
(13,742 |
) |
|
|
(78,365 |
) |
NOI |
|
$ |
102,591 |
|
|
$ |
80,175 |
|
|
$ |
76,578 |
|
Less Non-Same Store |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
(82,360 |
) |
|
|
(51,987 |
) |
|
|
(53,811 |
) |
Operating expenses |
|
|
34,756 |
|
|
|
23,702 |
|
|
|
25,437 |
|
Same Store NOI |
|
$ |
54,987 |
|
|
$ |
51,890 |
|
|
$ |
48,204 |
|
(1) |
Adjustment to net income (loss) to exclude certain property operating expenses that are casualty-related expenses/(recoveries). |
54
FFO, Core FFO and AFFO
We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.
Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization and impairment charges. We compute FFO attributable to common stockholders in accordance with NAREIT’s definition. Our presentation differs slightly in that we begin with net income (loss) before adjusting for amounts attributable to redeemable noncontrolling interests in the OP and we show the combined amounts attributable to such noncontrolling interests as an adjustment to arrive at FFO attributable to common stockholders.
Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our portfolio. Core FFO adjusts FFO to remove items such as losses on extinguishment of debt and modification costs (including prepayment penalties and defeasance costs incurred on the early repayment of debt, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment), casualty-related expenses and recoveries, casualty losses, changes in fair value on derivative instruments- ineffective portion, the amortization of deferred financing costs incurred in connection with obtaining short-term debt financing, and the noncontrolling interests (as described above) related to these items. We believe Core FFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.
AFFO makes certain adjustments to Core FFO in order to arrive at a more refined measure of the operating performance of our portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts Core FFO to remove items such as equity-based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and the noncontrolling interests (as described above) related to these items. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.
The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core FFO and AFFO allocable to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in the table below. As such, the assumed conversion of these units would have no net impact on the determination of diluted FFO, Core FFO and AFFO per share. See Note 9 to our consolidated financial statements for additional information.
We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently than we do.
55
The following table reconciles our calculations of FFO, Core FFO and AFFO to net income (loss), the most directly comparable GAAP financial measure, for the years ended December 31, 2019, 2018 and 2017 (in thousands, except per share amounts):
` |
|
For the Year Ended December 31, |
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
|
$ |
56,359 |
|
Depreciation and amortization |
|
|
69,086 |
|
|
|
47,470 |
|
|
|
48,752 |
|
Gain on sales of real estate |
|
|
(127,684 |
) |
|
|
(13,742 |
) |
|
|
(78,365 |
) |
Adjustment for noncontrolling interests |
|
|
(122 |
) |
|
|
(96 |
) |
|
|
(1,695 |
) |
FFO attributable to common stockholders |
|
|
40,718 |
|
|
|
32,018 |
|
|
|
25,051 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO per share - basic |
|
$ |
1.69 |
|
|
$ |
1.51 |
|
|
$ |
1.19 |
|
FFO per share - diluted |
|
$ |
1.66 |
|
|
$ |
1.48 |
|
|
$ |
1.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt and modification costs |
|
|
2,869 |
|
|
|
3,576 |
|
|
|
5,719 |
|
Casualty-related recoveries |
|
|
(34 |
) |
|
|
(663 |
) |
|
|
(287 |
) |
Casualty losses |
|
|
3,488 |
|
|
|
— |
|
|
|
— |
|
Change in fair value on derivative instruments - ineffective portion |
|
|
— |
|
|
|
— |
|
|
|
(309 |
) |
Amortization of deferred financing costs - acquisition term notes |
|
|
553 |
|
|
|
159 |
|
|
|
403 |
|
Adjustment for noncontrolling interests |
|
|
(21 |
) |
|
|
(9 |
) |
|
|
(430 |
) |
Core FFO attributable to common stockholders |
|
|
47,573 |
|
|
|
35,081 |
|
|
|
30,147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core FFO per share - basic |
|
$ |
1.97 |
|
|
$ |
1.66 |
|
|
$ |
1.43 |
|
Core FFO per share - diluted |
|
$ |
1.93 |
|
|
$ |
1.62 |
|
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred financing costs - long term debt |
|
|
1,530 |
|
|
|
1,491 |
|
|
|
1,592 |
|
Equity-based compensation expense |
|
|
5,130 |
|
|
|
4,198 |
|
|
|
3,109 |
|
Adjustment for noncontrolling interests |
|
|
(20 |
) |
|
|
(17 |
) |
|
|
(76 |
) |
AFFO attributable to common stockholders |
|
|
54,213 |
|
|
|
40,753 |
|
|
|
34,772 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFO per share - basic |
|
$ |
2.25 |
|
|
$ |
1.92 |
|
|
$ |
1.65 |
|
AFFO per share - diluted |
|
$ |
2.20 |
|
|
$ |
1.88 |
|
|
$ |
1.62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
|
24,116 |
|
|
|
21,189 |
|
|
|
21,057 |
|
Weighted average common shares outstanding - diluted |
|
|
24,593 |
|
|
|
21,667 |
|
|
|
21,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
1.138 |
|
|
$ |
1.025 |
|
|
$ |
0.910 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FFO Coverage - diluted |
(1) |
1.46x |
|
|
1.44x |
|
|
1.29x |
|
|||
Core FFO Coverage - diluted |
(1) |
1.70x |
|
|
1.58x |
|
|
1.55x |
|
|||
AFFO Coverage - diluted |
(1) |
1.94x |
|
|
1.84x |
|
|
1.79x |
|
(1) |
Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period. |
The year ended December 31, 2019 as compared to the year ended December 31, 2018
FFO was $40.7 million for the year ended December 31, 2019 compared to $32.0 million for the year ended December 31, 2018, which was an increase of approximately $8.7 million. The change in our FFO between the periods primarily relates to an increase in total revenues of $34.5 million, partially offset by an increase in total property operating expenses of $12.9 million, interest expense of $8.8 million and corporate general and administrative expenses of $1.8 million and adjustments for amounts attributable to noncontrolling interests.
56
Core FFO was $47.6 million for the year ended December 31, 2019 compared to $35.1 million for the year ended December 31, 2018, which was an increase of approximately $12.5 million. The change in our Core FFO between the periods primarily relates to an increase in FFO and an increase in casualty losses of $3.5 million, partially offset by a decrease in loss on extinguishment of debt and modification costs of $0.7 million and adjustments for amounts attributable to noncontrolling interests.
AFFO was $54.2 million for the year ended December 31, 2019 compared to $40.8 million for the year ended December 31, 2018, which was an increase of approximately $13.4 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-based compensation expense of $0.9 million.
The year ended December 31, 2018 as compared to the year ended December 31, 2017
FFO was $32.0 million for the year ended December 31, 2018 compared to $25.1 million for the year ended December 31, 2017, which was an increase of approximately $6.9 million. The change in our FFO between the periods primarily relates to an increase in total revenues of $2.4 million and decreases in total property operating expenses of $1.4 million, interest expense of $1.0 million and loss on extinguishment of debt and modification costs of $2.1 million, partially offset by an increase in corporate general and administrative expenses of $1.5 million and adjustments for amounts attributable to noncontrolling interests.
Core FFO was $35.1 million for the year ended December 31, 2018 compared to $30.1 million for the year ended December 31, 2017, which was an increase of approximately $5.0 million. The change in our Core FFO between the periods primarily relates to an increase in FFO, partially offset by a decrease in loss on extinguishment of debt and modification costs of $2.1 million and adjustments for amounts attributable to noncontrolling interests.
AFFO was $40.8 million for the year ended December 31, 2018 compared to $34.8 million for the year ended December 31, 2017, which was an increase of approximately $6.0 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-based compensation expense of $1.1 million.
Liquidity and Capital Resources
Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures directly associated with our multifamily properties, including:
|
• |
capital expenditures to continue our value-add program and to improve the quality and performance of our multifamily properties; |
|
• |
interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below); |
|
• |
recurring maintenance necessary to maintain our multifamily properties; |
|
• |
distributions necessary to qualify for taxation as a REIT; |
|
• |
advisory and administrative fees payable to our Adviser; |
|
• |
general and administrative expenses; |
|
• |
reimbursements to our Adviser; and |
|
• |
property management fees payable to BH. |
We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances. As of December 31, 2019, we had approximately $21.9 million of renovation value-add reserves for our planned capital expenditures to implement our value-add program. Renovation value-add reserves are not required to be held in escrow by a third party. We may reallocate these funds, at our discretion, to pursue other investment opportunities or meet our short-term liquidity requirements. Additionally, we had $7.0 million of unused capacity on the Corporate Credit Facility as of December 31, 2019
Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional multifamily properties, renovations and other capital expenditures to improve our multifamily properties and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, and property dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The success of our business strategy will depend, in part, on our ability to access these various capital sources.
57
In addition to our value-add program, our multifamily properties will require periodic capital expenditures and renovation to remain competitive. Also, acquisitions, redevelopments, or expansions of our multifamily properties will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.
We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following December 31, 2019.
Cash Flows
The following table presents selected data from our consolidated statements of cash flows for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Net cash provided by operating activities |
|
$ |
51,366 |
|
|
$ |
41,743 |
|
|
$ |
37,506 |
|
Net cash provided by (used in) investing activities |
|
|
(553,129 |
) |
|
|
(135,248 |
) |
|
|
5,025 |
|
Net cash provided by (used in) financing activities |
|
|
529,816 |
|
|
|
93,386 |
|
|
|
(54,544 |
) |
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
28,053 |
|
|
|
(119 |
) |
|
|
(12,013 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
43,129 |
|
|
|
43,248 |
|
|
|
55,261 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
71,182 |
|
|
$ |
43,129 |
|
|
$ |
43,248 |
|
The year ended December 31, 2019 as compared to the year ended December 31, 2018
Cash flows from operating activities. During the year ended December 31, 2019, net cash provided by operating activities was $51.4 million compared to net cash provided by operating activities of $41.7 million for the year ended December 31, 2018. The change in cash flows from operating activities was mainly due to an increase in total revenues, partially offset by an increase in total property operating expenses.
Cash flows from investing activities. During the year ended December 31, 2019, net cash used in investing activities was $553.1 million compared to net cash used in investing activities of $135.2 million for the year ended December 31, 2018. The change in cash flows from investing activities was mainly due to an increase in acquisitions, partially offset by an increase in dispositions. We sold six properties for net proceeds of approximately $286.5 million and acquired 11 properties for a combined purchase price of approximately $876.7 million during the period in 2019; we sold one property for net proceeds of approximately $29.6 million and acquired three properties for a combined purchase price of approximately $131.0 million during 2018.
Cash flows from financing activities. During the year ended December 31, 2019, net cash provided by financing activities was $529.8 million compared to net cash provided by financing activities of $93.4 million for the year ended December 31, 2018. The change in cash flows from financing activities was mainly due to a net increase in debt of approximately $450.6 million between the periods.
The year ended December 31, 2018 as compared to the year ended December 31, 2017
Cash flows from operating activities. During the year ended December 31, 2018, net cash provided by operating activities was $41.7 million compared to net cash provided by operating activities of $37.5 million for the year ended December 31, 2017. The change in cash flows from operating activities was mainly due to an increase in total revenues, decreases in total property operating expenses and changes in operating assets and liabilities.
Cash flows from investing activities. During the year ended December 31, 2018, net cash used in investing activities was $135.2 million compared to net cash provided by investing activities of $5.0 million for the year ended December 31, 2017. The change in cash flows from investing activities was mainly due to a decrease in net proceeds from sales of real estate. We sold one property for net proceeds of approximately $29.6 million during the period in 2018; we sold nine properties for net proceeds of approximately $224.4 million during the period in 2017. The change in cash flows from investing activities was partially offset by the acquisition of three properties for a combined purchase price of approximately $131.0 million during the period in 2018 compared to the acquisition of three properties for a combined purchase price of approximately $197.2 million during the period in 2017.
58
Cash flows from financing activities. During the year ended December 31, 2018, net cash provided by financing activities was $93.4 million compared to net cash used in financing activities of $54.5 million for the year ended December 31, 2017. The change in cash flows from financing activities was mainly due to receiving net proceeds of approximately $84.8 million from our common stock offering in 2018 and a net increase in debt of approximately $14.1 million between the periods, partially offset by increases in common stock repurchases of approximately $7.2 million and common stock dividends paid of approximately $3.0 million between the periods and the purchase of 100% of the joint venture interests in our Portfolio owned by BH Equities, LLC and its affiliates (collectively, “BH Equity”) (the “BH Buyout”) for $51.7 million during the period in 2017 (see Note 10 to our consolidated financial statements).
Debt, Derivatives and Hedging Activity
Mortgage Debt
As of December 31, 2019, our subsidiaries had aggregate mortgage debt outstanding to third parties of approximately $1.2 billion at a weighted average interest rate of 3.34% and an adjusted weighted average interest rate of 3.06%. For purposes of calculating the adjusted weighted average interest rate of our mortgage debt outstanding, we have included the weighted average fixed rate of 1.4147% for one-month LIBOR on our combined $975.0 million notional amount of interest rate swap agreements, which effectively fix the interest rate on $975.0 million of our floating rate mortgage debt. See Notes 6 and 7 to our consolidated financial statements for additional information.
We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements generally have a term of four to five years and effectively establish a fixed interest rate on debt on the underlying notional amounts. The interest rate swap agreements involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2019, interest rate swap agreements effectively covered $975.0 million, or 87%, of our $1.1 billion of floating rate mortgage debt outstanding.
The interest rate cap agreements generally have a term of three to four years, cover the outstanding principal amount of the underlying debt and are generally required by our lenders. Under the interest rate cap agreements, we pay a fixed fee in exchange for the counterparty to pay any interest above a maximum rate. As of December 31, 2019, interest rate cap agreements covered $346.5 million of our $1.1 billion of floating rate mortgage debt outstanding. These interest rate cap agreements effectively cap one-month LIBOR on $346.5 million of our floating rate mortgage debt at a weighted average rate of 5.74%.
We intend to invest in additional multifamily properties as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of common stock or other securities or property dispositions.
Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.
Furthermore, following the completion of our value-add and capital expenditures programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.
Corporate Credit Facility
On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with SunTrust Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term, has one 12-month extension at the option of the Company, and the Company has the right to request an increase in the facility amount up to $150 million (the “Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75 million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional financing through the Accordion Feature (see “Deferred Financing Costs” below). On August 23, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $25 million, resulting in aggregate commitments of $150 million as of September 30,
59
2019. In conjunction with the increase in the facility, the Company incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs. As of December 31, 2019, there was $218.0 million in aggregate principal outstanding on the Corporate Credit Facility.
The Corporate Credit Facility is a non-recourse obligation and contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the document evidencing the loan, defaults in payments under any other security instrument, and bankruptcy or other insolvency events. As of December 31, 2019, the Company believes it is compliant with all provisions.
Interest Rate Swap Agreements
In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into 10 interest rate swap transactions with KeyBank and one with SunTrust (the “Counterparties”) with a combined notional amount of $975.0 million. As of December 31, 2019, the interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to $975.0 million of our floating rate mortgage debt outstanding with a weighted average fixed rate of 1.4147%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.4147%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. For purposes of hedge accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, we have designated these interest rate swaps as cash flow hedges of interest rate risk. See Notes 6 and 7 to our consolidated financial statements for additional information.
The following table contains summary information regarding our outstanding interest rate swaps (dollars in thousands):
Effective Date |
|
Termination Date |
|
Counterparty |
|
Notional |
|
|
Fixed Rate (1) |
|
|
||
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
$ |
100,000 |
|
|
|
1.1055 |
% |
|
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.0210 |
% |
|
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
0.9000 |
% |
|
September 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
0.9560 |
% |
|
April 1, 2017 |
|
April 1, 2022 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.9570 |
% |
|
May 1, 2017 |
|
April 1, 2022 |
|
KeyBank |
|
|
50,000 |
|
|
|
1.9610 |
% |
|
July 1, 2017 |
|
July 1, 2022 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.7820 |
% |
|
June 1, 2019 |
|
June 1, 2024 |
|
KeyBank |
|
|
50,000 |
|
|
|
2.0020 |
% |
|
June 1, 2019 |
|
June 1, 2024 |
|
SunTrust |
|
|
50,000 |
|
|
|
2.0020 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.4620 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
125,000 |
|
|
|
1.3020 |
% |
|
|
|
|
|
|
|
$ |
975,000 |
|
|
|
1.4147 |
% |
(2) |
(1) |
The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2019, one-month LIBOR was 1.7625%. |
(2) |
Represents the weighted average fixed rate of the interest rate swaps. |
60
The following table summarizes our contractual obligations and commitments as of December 31, 2019 for the next five calendar years subsequent to December 31, 2019. We used one-month LIBOR as of December 31, 2019 to calculate interest expense due by period on our floating rate debt and net interest expense due by period on our interest rate swaps.
|
|
|
Payments Due by Period (in thousands) |
|
|||||||||||||||||||||||||
|
|
|
Total |
|
|
2020 |
|
|
2021 |
|
|
2022 |
|
|
2023 |
|
|
2024 |
|
|
Thereafter |
|
|||||||
Operating Properties Mortgage Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
|
|
$ |
1,151,867 |
|
|
$ |
744 |
|
|
$ |
872 |
|
|
$ |
1,367 |
|
|
$ |
21,155 |
|
|
$ |
424,558 |
|
|
$ |
703,171 |
|
Interest expense |
(1) |
|
|
209,545 |
|
|
|
35,561 |
|
|
|
37,244 |
|
|
|
38,249 |
|
|
|
37,392 |
|
|
|
30,154 |
|
|
|
30,945 |
|
Total |
|
|
$ |
1,361,412 |
|
|
$ |
36,305 |
|
|
$ |
38,116 |
|
|
$ |
39,616 |
|
|
$ |
58,547 |
|
|
$ |
454,712 |
|
|
$ |
734,116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Property Mortgage Debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
|
|
$ |
41,661 |
|
|
$ |
262 |
|
|
$ |
281 |
|
|
$ |
12,622 |
|
|
$ |
— |
|
|
$ |
28,496 |
|
|
$ |
— |
|
Interest expense |
|
|
|
5,619 |
|
|
|
1,539 |
|
|
|
1,524 |
|
|
|
1,023 |
|
|
|
1,023 |
|
|
|
510 |
|
|
|
— |
|
Total |
|
|
$ |
47,280 |
|
|
$ |
1,801 |
|
|
$ |
1,805 |
|
|
$ |
13,645 |
|
|
$ |
1,023 |
|
|
$ |
29,006 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Facility |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
|
|
$ |
218,000 |
|
|
$ |
— |
|
|
$ |
218,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Interest expense |
|
|
|
9,570 |
|
|
|
8,913 |
|
|
|
657 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
$ |
227,570 |
|
|
$ |
8,913 |
|
|
$ |
218,657 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations and commitments |
|
|
$ |
1,636,262 |
|
|
$ |
47,019 |
|
|
$ |
258,578 |
|
|
$ |
53,261 |
|
|
$ |
59,570 |
|
|
$ |
483,718 |
|
|
$ |
734,116 |
|
(1) |
Interest expense obligations includes the impact of expected settlements on interest rate swaps which have been entered into in order to fix the interest rate on the hedged portion of our floating rate debt obligations. As of December 31, 2019, we had entered into 11 interest rate swap transactions with a combined notional amount of $975.0 million. We have allocated the total impact of expected settlements on the $975.0 million notional amount of interest rate swaps to ‘Operating Properties Mortgage Debt.’ We used one-month LIBOR as of December 31, 2019 to determine our expected settlements through the terms of the interest rate swaps. |
Capital Expenditures and Value-Add Program
We anticipate incurring average annual repairs and maintenance expense of $575 to $725 per apartment unit in connection with the ongoing operations of our business. These expenditures are expensed as incurred. In addition, we reserve, on average, approximately $250 to $350 per apartment unit for non-recurring capital expenditures and/or lender required replacement reserves. When incurred, these expenditures are either capitalized or expensed, in accordance with GAAP, depending on the type of the expenditure. Although we will continuously monitor the adequacy of this average, we believe these figures to be sufficient to maintain the properties at a high level in the markets in which we operate. A majority of the properties in our Portfolio were underwritten and acquired with the premise that we would invest $4,000 to $10,000 per unit in the first 36 months of ownership, in an effort to add value to the asset’s exterior and interiors. In most cases, we reserved cash at closing to fund these planned capital expenditures and value-add improvements. As of December 31, 2019, we had approximately $21.9 million of renovation value-add reserves for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 3,607 planned interior rehabs. The following table sets forth a summary of our capital expenditures related to our value-add program for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
For the Year Ended December 31, |
|
|||||||||
Rehab Expenditures |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Interior |
(1) |
$ |
12,044 |
|
|
$ |
8,559 |
|
|
$ |
8,393 |
|
Exterior and common area |
|
|
11,242 |
|
|
|
9,133 |
|
|
|
7,621 |
|
Total rehab expenditures |
|
$ |
23,286 |
|
|
$ |
17,692 |
|
|
$ |
16,014 |
|
(1) |
Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the years ended December 31, 2019, 2018 and 2017, we completed full and partial interior rehabs on 2,516, 1,432 and 1,588 units, respectively. |
61
Freddie Mac Multifamily Green Advantage
In order to obtain more favorable pricing on our mortgage debt financing with Freddie Mac, we have decided to participate in Freddie Mac’s new Multifamily Green Advantage program (the “Green Program”). In the second quarter of 2017, we escrowed approximately $4.2 million to finance smarter, greener property improvements at 18 of our properties. In connection with the three acquisitions and seven refinancings we completed in 2018, we escrowed approximately $1.2 million related to the Green Program. Since the start of the Green Program, we have spent approximately $6.2 million on green improvements and completed 34 Green Programs. As of December 31, 2019, the Company has completed its Green Program improvements on all but two properties. We will complete the green improvements on these properties during 2020. We expect to reduce water/sewer costs at each property where the Green Program is implemented by at least 15% through the replacement of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, we are not implementing this on acquisitions going forward.
Income Taxes
We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years ended December 31, 2019, 2018 and 2017.
If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.
We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time.
We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2019. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2018, 2017 and 2016 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income.
Dividends
We intend to make regular quarterly dividend payments to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.
62
We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our fourth quarterly dividend of 2019 of $0.3125 per share on October 28, 2019, which was paid on December 31, 2019 and funded out of cash flows from operations.
Off-Balance Sheet Arrangements
As of December 31, 2019 and 2018, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies and Estimates
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of recent accounting pronouncements and our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this annual report.
Purchase Price Allocation
Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets based on relative fair value in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (see Note 7 to our consolidated financial statements), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.
Impairment
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, we will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment.
63
Recent Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”), which clarifies hedge accounting requirements, improves disclosure of hedging arrangements, and better aligns risk management activities and financial reporting for hedging relationships. We early adopted ASU 2017-12 on January 1, 2018, on a modified retrospective basis. For cash flow hedges existing as of the date of adoption, we eliminated the separate measurement of ineffectiveness by means of a cumulative-effect adjustment to accumulated OCI with a corresponding adjustment to the opening balance of accumulated earnings less dividends on January 1, 2018. The cumulative-effect adjustment, which eliminated the cumulative ineffectiveness that was previously reported in interest expense, resulted in an increase to OCI of approximately $1.4 million, with a corresponding decrease to accumulated earnings less dividends.
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which changes certain recognition, measurement, presentation, and disclosure requirements for financial instruments. The ASU requires all equity investments, except those accounted for under the equity method of accounting or resulting in consolidation, to be measured at fair value with changes in fair value recognized in net income. The ASU also simplifies the impairment assessment for equity investments without readily determinable fair values, amends the presentation requirements for changes in the fair value of financial liabilities, requires presentation of financial instruments by measurement category and form of financial asset, and eliminates the requirement to disclose the methods and significant assumptions used in estimating the fair value of financial instruments. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. We will implement the provisions of ASU 2016-01 as of January 1, 2019. The adoption of ASU 2016-01 did not have a material impact on our consolidated financial statements as we do not, nor do we expect to, have a material amount of financial assets or financial liabilities that would be subject to the provisions of ASU 2016-01.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Entities are required to use a modified retrospective approach when transitioning to the ASU for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements. As lessors, substantially all of the Company’s agreements have a term of 12 months or less. For lessors, accounting for leases under the new standard is substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs.
In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate 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 elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases (“ASC 842”), effective January 1, 2019, and elected the transition option that the ASU provides which permits entities to not recast the comparative periods presented when transitioning to the standard.
In May 2014, the FASB issued ASC 606 as ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASC 606 was originally effective for public entities for annual reporting periods beginning after December 15, 2016; however, in August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASC 606. As a result, ASC 606 is effective for annual periods beginning after December 15, 2018. ASC 606 is required to be adopted retrospectively by (1) restating prior periods or (2) by recognizing the cumulative effect of applying ASC 606 at the date of initial application (the “modified retrospective method”). The Company implemented the provisions of ASU 2014-09 as of January 1, 2019, using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In August 2018, the SEC adopted SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”), which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements or GAAP. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity in interim periods. Under the SEC Release, registrants will be required to disclose in interim periods on Form 10-Q the changes in each caption of stockholders’ equity and noncontrolling interests for the current and comparative year-to-date periods, with subtotals for each interim period and the amount of dividends per share for each class of shares. The amendments require registrants,
64
including smaller reporting companies, to provide information as prescribed by Rule 3-04 of Regulation S-X. Therefore, the interim disclosures of changes in stockholders’ equity, including dividends per share amounts, may be given in a note to the financial statements or in a separate financial statement. Under Rule 3-04, the interim disclosures of the changes in stockholders’ equity should be in the form of a reconciliation of the beginning balance to the ending balance for each period for which an income statement is required to be filed, with all significant reconciling items described by appropriate captions. The reconciliation should also reflect any adjustments to the balance at the beginning of the earliest period presented for items retroactively applied to periods prior to that period. We adopted the provisions of the SEC Release on September 30, 2018, on a retrospective basis.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU 2016-15) which amends classification of cash payments for debt prepayment or debt extinguishment costs. Amendments to Topic 230 made by ASU 2016-15 require that any debt prepayment or debt extinguishment costs are classified as cash flows from financing activities. Debt extinguishment costs include third-party costs, premiums paid and other fees paid to creditors that are directly related to the debt prepayment or extinguishment. The Company adopted the provisions of ASU 2016-15 as of January 1, 2019 on a retrospective basis.
Inflation
The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate. The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities. Should inflation return, due to the short-term nature of our leases, we do not believe our results will be materially affected.
Inflation may also affect the overall cost of debt, as the implied cost of capital increases. Currently, interest rates are less than historical averages. However, the Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges, which to date have included interest rate cap and interest rate swap agreements.
REIT Tax Election
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the years ended December 31, 2019, 2018 and 2017. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the adverse effect on the value of assets and liabilities that results from a change in market conditions. Our primary market risk exposure is interest rate risk with respect to our indebtedness and counterparty credit risk with respect to our interest rate derivatives. In order to minimize counterparty credit risk, we enter into and expect to enter into hedging arrangements only with major financial institutions that have high credit ratings. As of December 31, 2019, we had total indebtedness of $1.4 billion at a weighted average interest rate of 3.41%, of which $1.3 billion was debt with a floating interest rate. The interest rate swap agreements we have entered into effectively fix the interest rate on $975.0 million, or 87%, of our $1.1 billion of floating rate mortgage debt outstanding (see below). As of December 31, 2019, the adjusted weighted average interest rate of our total indebtedness was 3.15%. For purposes of calculating the adjusted weighted average interest rate of the total indebtedness, we have included the weighted average fixed rate of 1.4147% for one-month LIBOR on the $975.0 million notional amount of interest rate swap agreements that we have entered into as of December 31, 2019, which effectively fix the interest rate on $975.0 million of our floating rate mortgage debt outstanding.
An increase in interest rates could make the financing of any acquisition by us costlier. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. We may manage, or hedge, interest rate risks related to our borrowings by means of interest rate cap and interest rate swap agreements. As of December 31, 2019, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $346.5 million of our floating rate mortgage debt at a weighted average rate of 5.74% for the term of the agreements, which is generally 3 to 4 years. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and floating rates for our indebtedness.
65
In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into 11 interest rate swap transactions with the Counterparties with a combined notional amount of $975.0 million. The interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.4147%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.4147%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. We have designated these interest rate swaps as cash flow hedges of interest rate risk.
Until our interest rates reach the caps provided by our interest rate cap agreements, each quarter point change in LIBOR would result in an approximate increase to annual interest expense costs on our floating rate indebtedness, reduced by any payments due from the Counterparties under the terms of the interest rate swap agreements we had entered into as of December 31, 2019, of the amounts illustrated in the table below for our indebtedness as of December 31, 2019 (dollars in thousands):
Change in Interest Rates |
|
Annual Increase to Interest Expense |
|
|
0.25% |
|
$ |
910 |
|
0.50% |
|
|
1,820 |
|
0.75% |
|
|
2,730 |
|
1.00% |
|
|
3,640 |
|
There is no assurance that we would realize such expense as such changes in interest rates could alter our liability positions or strategies in response to such changes.
We may also be exposed to credit risk in the derivative financial instruments we use. Credit risk is the failure of the counterparty to perform under the terms of the derivative financial instruments. If the fair value of a derivative financial instrument is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative financial instrument is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative financial instruments by entering into transactions with major financial institutions that have high credit ratings.
In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The ARRC has proposed that SOFR is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks.
Item 8. Financial Statements and Supplementary Data
The information required by this Item 8 is included in our consolidated financial statements and the notes thereto beginning on page F-1 in this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of December 31, 2019, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2019, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
66
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our President and our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our President and Chief Financial Officer, has conducted an assessment regarding the effectiveness of our internal control over financial reporting as of December 31, 2019, based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the criteria described above, management has concluded that our internal control over financial reporting was effective as of December 31, 2019.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2019, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Attestation Report of the Independent Registered Public Accounting Firm
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.
None.
67
Item 10. Directors, Executive Officers and Corporate Governance
The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 11. Executive Compensation
The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.
68
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this Report:
1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on page F-1 of this Report.
2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on page S-1 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto.
3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index.
69
Exhibit Number |
|
Description |
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|
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1.1 |
|
|
|
|
|
1.2 |
|
|
|
|
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2.1 |
|
|
|
|
|
3.1 |
|
|
|
|
|
3.2 |
|
|
|
|
|
4.1* |
|
|
|
|
|
10.1 |
|
|
|
|
|
10.2 |
|
|
|
|
|
10.3 |
|
|
|
|
|
10.4 |
|
|
|
|
|
10.5 |
|
|
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|
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10.6 |
|
|
|
|
|
10.7 |
|
|
|
|
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10.8 |
|
|
|
|
|
10.9 |
|
|
|
|
|
10.10 |
|
|
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10.11 |
|
|
|
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|
10.12 |
|
70
|
|
|
10.13 |
|
|
|
|
|
10.14 |
|
|
|
|
|
10.15
10.16* |
|
|
|
|
|
21.1* |
|
|
|
|
|
23.1* |
|
|
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
31.2* |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
32.1+ |
|
|
|
|
|
101.INS* |
|
XBRL Instance Document |
|
|
|
101.SCH* |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL* |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF* |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB* |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE* |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* |
Filed herewith. |
+ |
Furnished herewith. |
71
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
NEXPOINT RESIDENTIAL TRUST, INC. |
|
|
|
|
|
|
|
|
/s/ Jim Dondero |
February 21, 2020 |
|
Jim Dondero |
|
|
President and Principal Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ Jim Dondero |
|
President and Director |
|
February 21, 2020 |
Jim Dondero |
|
(Principal Executive Officer) |
|
|
|
|
|
|
|
/s/ Brian Mitts |
|
Chief Financial Officer and Director |
|
February 21, 2020 |
Brian Mitts |
|
(Principal Financial Officer and Principal Accounting Officer) |
|
|
|
|
|
|
|
/s/ Edward Constantino |
|
Director |
|
February 21, 2020 |
Edward Constantino |
|
|
|
|
|
|
|
|
|
/s/ Dr. Arthur Laffer |
|
Director |
|
February 21, 2020 |
Dr. Arthur Laffer |
|
|
|
|
|
|
|
|
|
/s/ Scott Kavanaugh |
|
Director |
|
February 21, 2020 |
Scott Kavanaugh |
|
|
|
|
72
|
|
Page |
Financial Statements |
|
|
|
|
|
NexPoint Residential Trust, Inc.—Consolidated Financial Statements |
|
|
|
|
|
|
F-2 |
|
|
|
|
Consolidated Balance Sheets as of December 31, 2019 and 2018 |
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
Consolidated Statements of Equity for the Years Ended December 31, 2019, 2018 and 2017 |
|
F-7 |
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017 |
|
F-8 |
|
|
|
|
F-10 |
|
|
|
|
Financial Statements Schedules |
|
|
|
|
|
|
S-1 |
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of NexPoint Residential Trust, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three‑year period ended December 31, 2019, and the related notes and financial statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2020 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases and Accounting Standards Update 2018-11, Leases – Targeted Improvements.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Assessment of the relative fair value allocation in an asset acquisition
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company acquired real estate properties recorded as asset acquisitions during the year ended December 31, 2019. The purchase price in an asset acquisition is allocated to the assets acquired and liabilities assumed using their relative fair values.
We identified the assessment of the relative fair value allocation in an asset acquisition, specifically the land, building, improvements, and furniture, fixtures, and equipment as a critical audit matter. There is a high degree of subjective auditor judgment in evaluating the results of procedures over the relevance of comparable land sales and replacement cost of the building, improvements, and furniture, fixtures, and equipment used by the Company to determine the fair value of these assets.
F-2
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s asset acquisition allocation process, including controls to identify and select publicly available and comparable land sales and replacement costs of the building, improvements, and furniture, fixtures, and equipment. We involved valuation professionals with specialized skills and knowledge, who assisted in the following procedures for the Company’s asset acquisitions:
|
• |
compared the consideration paid by the Company to acquire the property to comparable market transactions based on the price per apartment unit acquired; |
|
• |
compared the Company’s estimated fair value of land to independently developed estimates based on publicly available and comparable land sales; and |
|
• |
compared the cost inputs used in the Company’s replacement cost analysis of building and improvements and furniture, fixtures, and equipment to market data, such as data included in the industry recognized guides used for developing replacement, reproduction, and insurable value costs. |
Evaluation of real estate investments for impairment
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company had $1.8 billion in real estate investments as of December 31, 2019. The Company tests the recoverability of its real estate investments whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable. The Company evaluates the recoverability of such real estate investments based on estimated future cash flows and the estimated liquidation value of such real estate investments, and provide for impairment if such estimated undiscounted cash flows are insufficient to recover the carrying amount of the real estate investment.
We identified the evaluation of real estate investments for impairment as a critical audit matter. Identifying events or changes in circumstances that indicate the carrying value of a real estate investment may not be recoverable involves a high degree of subjective auditor judgment. In addition, evaluating how identified events or changes in circumstances impact the expected period the Company will hold the rental property, net operating income, and estimated capitalization rate for each respective property requires subjective auditor judgment.
The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’s process to identify and evaluate events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including controls over determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment. We compared the estimated undiscounted cash flows of each real estate investment to its carrying value to assess the sensitivity to changes in assumptions on the recoverability of each property. We performed independent evaluations considering third-party market reports for (1) indications of a decrease in the fair value of similar real estate investments and (2) decreases in current and projected operating performance of the real estate investments of the Company. We inquired of Company officials and inspected documents, such as meeting minutes of the board directors, to identify Company strategies that might indicate it was more-likely-than not that a property will be sold before the end of the expected period the Company planned to hold the property.
/s/ KPMG LLP
We have served as the Company’s auditor since 2014.
Dallas, Texas
February 21, 2020
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited NexPoint Residential Trust, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and related financial statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements), and our report dated February 21, 2020 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Dallas, Texas
February 21, 2020
F-4
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
(in thousands, except share and per share amounts)
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Operating Real Estate Investments |
|
|
|
|
|
|
|
|
Land |
|
$ |
317,886 |
|
|
$ |
202,347 |
|
Buildings and improvements |
|
|
1,472,319 |
|
|
|
935,604 |
|
Intangible lease assets |
|
|
12,414 |
|
|
|
3,049 |
|
Construction in progress |
|
|
4,375 |
|
|
|
1,881 |
|
Furniture, fixtures, and equipment |
|
|
81,038 |
|
|
|
61,456 |
|
Total Gross Operating Real Estate Investments |
|
|
1,888,032 |
|
|
|
1,204,337 |
|
Accumulated depreciation and amortization |
|
|
(152,552 |
) |
|
|
(134,124 |
) |
Total Net Operating Real Estate Investments |
|
|
1,735,480 |
|
|
|
1,070,213 |
|
Real estate held for sale, net of accumulated depreciation of $7,859 and $897, respectively |
|
|
46,330 |
|
|
|
17,329 |
|
Total Net Real Estate Investments |
|
|
1,781,810 |
|
|
|
1,087,542 |
|
Cash and cash equivalents |
|
|
25,671 |
|
|
|
19,864 |
|
Restricted cash |
|
|
45,511 |
|
|
|
23,265 |
|
Accounts receivable |
|
|
6,285 |
|
|
|
3,340 |
|
Prepaid and other assets |
|
|
2,336 |
|
|
|
9,058 |
|
Fair market value of interest rate swaps |
|
|
4,376 |
|
|
|
18,141 |
|
TOTAL ASSETS |
|
$ |
1,865,989 |
|
|
$ |
1,161,210 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Mortgages payable, net |
|
$ |
1,145,371 |
|
|
$ |
824,702 |
|
Mortgages payable held for sale, net |
|
|
41,176 |
|
|
|
13,318 |
|
Credit facility, net |
|
|
216,501 |
|
|
|
— |
|
Accounts payable and other accrued liabilities |
|
|
11,971 |
|
|
|
5,765 |
|
Accrued real estate taxes payable |
|
|
12,206 |
|
|
|
12,607 |
|
Accrued interest payable |
|
|
3,691 |
|
|
|
2,852 |
|
Security deposit liability |
|
|
2,977 |
|
|
|
1,889 |
|
Prepaid rents |
|
|
1,658 |
|
|
|
1,482 |
|
Fair market value of interest rate swaps |
|
|
902 |
|
|
|
— |
|
Total Liabilities |
|
|
1,436,453 |
|
|
|
862,615 |
|
|
|
|
|
|
|
|
|
|
Redeemable noncontrolling interests in the Operating Partnership |
|
|
3,295 |
|
|
|
2,567 |
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value: 500,000,000 shares authorized; 25,245,740 and 23,499,635 shares issued and outstanding, respectively |
|
|
251 |
|
|
|
234 |
|
Additional paid-in capital |
|
|
359,748 |
|
|
|
285,511 |
|
Accumulated earnings (loss) less dividends |
|
|
63,776 |
|
|
|
(6,764 |
) |
Accumulated other comprehensive income |
|
|
2,466 |
|
|
|
17,047 |
|
Total Stockholders' Equity |
|
|
426,241 |
|
|
|
296,028 |
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
|
$ |
1,865,989 |
|
|
$ |
1,161,210 |
|
See Notes to Consolidated Financial Statements
F-5
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(in thousands, except per share amounts)
|
|
For the Year Ended December 31, |
|
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
|||
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
177,162 |
|
|
$ |
143,158 |
|
|
$ |
140,882 |
|
|
Other income |
|
|
3,904 |
|
|
|
3,439 |
|
|
|
3,353 |
|
|
Total revenues |
|
|
181,066 |
|
|
|
146,597 |
|
|
|
144,235 |
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses |
|
|
42,692 |
|
|
|
35,824 |
|
|
|
38,850 |
|
|
Real estate taxes and insurance |
|
|
25,113 |
|
|
|
20,713 |
|
|
|
19,161 |
|
|
Property management fees (1) |
|
|
5,388 |
|
|
|
4,382 |
|
|
|
4,330 |
|
|
Advisory and administrative fees (2) |
|
|
7,500 |
|
|
|
7,474 |
|
|
|
7,419 |
|
|
Corporate general and administrative expenses |
|
|
9,613 |
|
|
|
7,808 |
|
|
|
6,275 |
|
|
Property general and administrative expenses |
|
|
6,765 |
|
|
|
6,134 |
|
|
|
6,159 |
|
|
Depreciation and amortization |
|
|
69,086 |
|
|
|
47,470 |
|
|
|
48,752 |
|
|
Total expenses |
|
|
166,157 |
|
|
|
129,805 |
|
|
|
130,946 |
|
|
Operating income before gain on sales of real estate |
|
|
14,909 |
|
|
|
16,792 |
|
|
|
13,289 |
|
|
Gain on sales of real estate |
|
|
127,684 |
|
|
|
13,742 |
|
|
|
78,365 |
|
|
Operating income |
|
|
142,593 |
|
|
|
30,534 |
|
|
|
91,654 |
|
|
Interest expense |
|
|
(37,385 |
) |
|
|
(28,572 |
) |
|
|
(29,576 |
) |
|
Loss on extinguishment of debt and modification costs |
|
|
(2,869 |
) |
|
|
(3,576 |
) |
|
|
(5,719 |
) |
|
Casualty losses (3) |
|
|
(3,488 |
) |
|
|
— |
|
|
|
— |
|
|
Miscellaneous income |
|
|
587 |
|
|
|
— |
|
|
|
— |
|
|
Net income (loss) |
|
|
99,438 |
|
|
|
(1,614 |
) |
|
|
56,359 |
|
|
Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
2,836 |
|
|
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
298 |
|
|
|
(5 |
) |
|
|
149 |
|
|
Net income (loss) attributable to common stockholders |
|
$ |
99,140 |
|
|
$ |
(1,609 |
) |
|
$ |
53,374 |
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on interest rate derivatives |
|
|
(14,625 |
) |
|
|
1,931 |
|
|
|
4,568 |
|
|
Total comprehensive income |
|
|
84,813 |
|
|
|
317 |
|
|
|
60,927 |
|
|
Comprehensive income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
2,720 |
|
|
Comprehensive income attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
254 |
|
|
|
1 |
|
|
|
166 |
|
|
Comprehensive income attributable to common stockholders |
|
$ |
84,559 |
|
|
$ |
316 |
|
|
$ |
58,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic |
|
|
24,116 |
|
|
|
21,189 |
|
|
|
21,057 |
|
|
Weighted average common shares outstanding - diluted |
|
|
24,593 |
|
|
|
21,667 |
|
|
|
21,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share - basic |
|
$ |
4.11 |
|
|
$ |
(0.08 |
) |
|
$ |
2.53 |
|
|
Earnings (loss) per share - diluted |
|
$ |
4.03 |
|
|
$ |
(0.08 |
) |
|
$ |
2.49 |
|
|
(1) |
Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership (see Notes 10 and 11). |
(2) |
Fees incurred to the Adviser (see Note 11). |
(3) |
Casualty losses for the year ended December 31, 2019 are related to tornado damage incurred at Cutter’s Point (see Note 5). |
See Notes to Consolidated Financial Statements
F-6
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(dollars in thousands)
|
|
Preferred Stock |
|
|
Common Stock |
|
|
Additional |
|
|
Accumulated Earnings (Loss) |
|
|
Accumulated Other |
|
|
Common Stock Held in |
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Number of Shares |
|
|
Par Value |
|
|
Number of Shares |
|
|
Par Value |
|
|
Paid-in Capital |
|
|
Less Dividends |
|
|
Comprehensive Income (Loss) |
|
|
Treasury at Cost |
|
|
Noncontrolling Interests |
|
|
Total |
|
||||||||||
Balances, January 1, 2017 |
|
|
— |
|
|
$ |
— |
|
|
|
21,293,825 |
|
|
$ |
213 |
|
|
$ |
241,450 |
|
|
$ |
(14,584 |
) |
|
$ |
9,052 |
|
|
$ |
(4,587 |
) |
|
$ |
24,558 |
|
|
$ |
256,102 |
|
Net income attributable to common stockholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53,374 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53,374 |
|
Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,836 |
|
|
|
2,836 |
|
Contributions by noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
38 |
|
|
|
38 |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,789 |
) |
|
|
(4,789 |
) |
Purchase of noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(31,313 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,527 |
) |
|
|
(53,840 |
) |
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,435 |
) |
|
|
— |
|
|
|
(2,435 |
) |
Retirement of common stock held in treasury |
|
|
— |
|
|
|
— |
|
|
|
(354,517 |
) |
|
|
(4 |
) |
|
|
(7,018 |
) |
|
|
— |
|
|
|
— |
|
|
|
7,022 |
|
|
|
— |
|
|
|
— |
|
Vesting of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
110,257 |
|
|
|
1 |
|
|
|
3,108 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,109 |
|
Common stock dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,502 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,502 |
) |
Other comprehensive income (loss) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,667 |
|
|
|
— |
|
|
|
(116 |
) |
|
|
4,551 |
|
Balances, December 31, 2017 |
|
|
— |
|
|
$ |
— |
|
|
|
21,049,565 |
|
|
$ |
210 |
|
|
$ |
206,227 |
|
|
$ |
19,288 |
|
|
$ |
13,719 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
239,444 |
|
Cumulative effect upon adoption of ASU 2017-12 (see Note 2) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,403 |
) |
|
|
1,403 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net loss attributable to common stockholders |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
(1,609 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,609 |
) |
Issuance of common shares through public offering |
|
|
— |
|
|
|
— |
|
|
|
2,702,500 |
|
|
|
27 |
|
|
|
84,755 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
84,782 |
|
Repurchase of common stock |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,672 |
) |
|
|
— |
|
|
|
(9,672 |
) |
Retirement of common stock held in treasury |
|
|
— |
|
|
|
— |
|
|
|
(382,941 |
) |
|
|
(4 |
) |
|
|
(9,668 |
) |
|
|
— |
|
|
|
— |
|
|
|
9,672 |
|
|
|
— |
|
|
|
— |
|
Vesting of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
130,511 |
|
|
|
1 |
|
|
|
4,197 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,198 |
|
Common stock dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,601 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(22,601 |
) |
Other comprehensive income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,925 |
|
|
|
— |
|
|
|
— |
|
|
|
1,925 |
|
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(439 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(439 |
) |
Balances, December 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
|
23,499,635 |
|
|
$ |
234 |
|
|
$ |
285,511 |
|
|
$ |
(6,764 |
) |
|
$ |
17,047 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
296,028 |
|
Net income attributable to common stockholders |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99,140 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
99,140 |
|
Vesting of stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
180,783 |
|
|
|
1 |
|
|
|
4,379 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
4,380 |
|
Issuance of common shares through at-the-market offering |
|
|
— |
|
|
|
— |
|
|
|
1,565,322 |
|
|
|
16 |
|
|
|
69,858 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
69,874 |
|
Common stock dividends declared |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28,219 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(28,219 |
) |
Other comprehensive loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(14,581 |
) |
|
|
— |
|
|
|
— |
|
|
|
(14,581 |
) |
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(381 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(381 |
) |
Balances, December 31, 2019 |
|
|
— |
|
|
$ |
— |
|
|
|
25,245,740 |
|
|
$ |
251 |
|
|
$ |
359,748 |
|
|
$ |
63,776 |
|
|
$ |
2,466 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
426,241 |
|
See Notes to Consolidated Financial Statements
F-7
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
|
$ |
56,359 |
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sales of real estate |
|
|
(127,684 |
) |
|
|
(13,742 |
) |
|
|
(78,365 |
) |
Depreciation and amortization |
|
|
69,086 |
|
|
|
47,470 |
|
|
|
48,752 |
|
Amortization/write-off of deferred financing costs |
|
|
3,502 |
|
|
|
3,062 |
|
|
|
2,998 |
|
Change in fair value on derivative instruments included in interest expense |
|
|
(6,442 |
) |
|
|
(3,948 |
) |
|
|
1,311 |
|
Net cash received (paid) on derivative settlements |
|
|
6,842 |
|
|
|
3,832 |
|
|
|
(921 |
) |
Amortization/write-off of fair market value adjustment of assumed debt |
|
|
(148 |
) |
|
|
(169 |
) |
|
|
(206 |
) |
Vesting of stock-based compensation |
|
|
5,130 |
|
|
|
4,198 |
|
|
|
3,109 |
|
Casualty losses |
|
|
3,488 |
|
|
|
— |
|
|
|
— |
|
Changes in operating assets and liabilities, net of effects of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
|
Operating assets |
|
|
(350 |
) |
|
|
209 |
|
|
|
1,150 |
|
Operating liabilities |
|
|
(1,496 |
) |
|
|
2,445 |
|
|
|
3,319 |
|
Net cash provided by operating activities |
|
|
51,366 |
|
|
|
41,743 |
|
|
|
37,506 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from sales of real estate |
|
|
286,479 |
|
|
|
29,553 |
|
|
|
224,416 |
|
Prepaid acquisition costs |
|
|
— |
|
|
|
(7,653 |
) |
|
|
— |
|
Insurance premiums paid for casualty losses |
|
|
(600 |
) |
|
|
— |
|
|
|
— |
|
Insurance proceeds from casualty losses |
|
|
2,500 |
|
|
|
— |
|
|
|
— |
|
Additions to real estate investments |
|
|
(44,159 |
) |
|
|
(26,775 |
) |
|
|
(21,742 |
) |
Acquisitions of real estate investments |
|
|
(797,349 |
) |
|
|
(130,373 |
) |
|
|
(197,649 |
) |
Net cash provided by (used in) investing activities |
|
|
(553,129 |
) |
|
|
(135,248 |
) |
|
|
5,025 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage proceeds received |
|
|
423,149 |
|
|
|
232,252 |
|
|
|
613,213 |
|
Mortgage payments |
|
|
(145,821 |
) |
|
|
(148,942 |
) |
|
|
(276,235 |
) |
Credit facilities proceeds received |
|
|
255,000 |
|
|
|
55,000 |
|
|
|
25,000 |
|
Credit facilities payments |
|
|
(37,000 |
) |
|
|
(85,000 |
) |
|
|
(310,000 |
) |
Bridge facility proceeds received |
|
|
— |
|
|
|
30,000 |
|
|
|
65,875 |
|
Bridge facility payments |
|
|
— |
|
|
|
(38,597 |
) |
|
|
(87,278 |
) |
Deferred financing costs paid |
|
|
(5,120 |
) |
|
|
(2,410 |
) |
|
|
(4,047 |
) |
Interest rate cap fees paid |
|
|
(20 |
) |
|
|
(56 |
) |
|
|
(18 |
) |
Prepayment penalties on extinguished debt |
|
|
(1,449 |
) |
|
|
(1,706 |
) |
|
|
(2,701 |
) |
Proceeds from the issuance of common shares through public offering, net of offering costs |
|
|
— |
|
|
|
84,782 |
|
|
|
— |
|
Proceeds from the issuance of common shares through at-the-market offering, net of offering costs |
|
|
69,874 |
|
|
|
— |
|
|
|
— |
|
Payments for taxes related to net share settlement of stock-based compensation |
|
|
(751 |
) |
|
|
— |
|
|
|
— |
|
Repurchase of common stock |
|
|
— |
|
|
|
(9,672 |
) |
|
|
(2,435 |
) |
Dividends paid to common stockholders |
|
|
(28,046 |
) |
|
|
(22,265 |
) |
|
|
(19,258 |
) |
Distributions to redeemable noncontrolling interests in the Operating Partnership |
|
|
— |
|
|
|
— |
|
|
|
(69 |
) |
Contributions from noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
38 |
|
Distributions to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
(4,789 |
) |
Purchase of noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
(51,840 |
) |
Net cash provided by (used in) financing activities |
|
|
529,816 |
|
|
|
93,386 |
|
|
|
(54,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
28,053 |
|
|
|
(119 |
) |
|
|
(12,013 |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
43,129 |
|
|
|
43,248 |
|
|
|
55,261 |
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
71,182 |
|
|
$ |
43,129 |
|
|
$ |
43,248 |
|
See Notes to Consolidated Financial Statements
F-8
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
41,053 |
|
|
$ |
30,261 |
|
|
$ |
25,467 |
|
Supplemental Disclosure of Noncash Activities |
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of operating partnership units for purchase of noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
Capitalized construction costs included in accounts payable and other accrued liabilities |
|
|
3,776 |
|
|
|
1,715 |
|
|
|
2,263 |
|
Change in fair value on derivative instruments designated as hedges |
|
|
(14,625 |
) |
|
|
1,931 |
|
|
|
4,568 |
|
Other assets acquired from acquisitions |
|
|
758 |
|
|
|
76 |
|
|
|
325 |
|
Liabilities assumed from acquisitions |
|
|
6,608 |
|
|
|
1,382 |
|
|
|
849 |
|
Fair market value adjustment of assumed debt |
|
|
980 |
|
|
|
— |
|
|
|
— |
|
Assumed debt on acquisitions |
|
|
70,486 |
|
|
|
— |
|
|
|
— |
|
Write-off of assets due to casualty losses |
|
|
7,838 |
|
|
|
— |
|
|
|
— |
|
Write-off of fully amortized in-place leases |
|
|
8,181 |
|
|
|
1,340 |
|
|
|
9,093 |
|
Write-off of deferred financing costs |
|
|
1,419 |
|
|
|
1,412 |
|
|
|
1,003 |
|
Increase in dividends payable upon vesting of restricted stock units |
|
|
173 |
|
|
|
336 |
|
|
|
244 |
|
See Notes to Consolidated Financial Statements
F-9
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to be taxed as a real estate investment trust (“REIT”). The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of December 31, 2019, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10).
The Company began operations on March 31, 2015 as a result of the transfer and contribution by NexPoint Strategic Opportunities Fund (fka NexPoint Credit Strategies Fund) (“NHF”) of all but one of the multifamily properties owned by NHF through its wholly owned subsidiary NexPoint Real Estate Opportunities, LLC (fka Freedom REIT, LLC) (“NREO”). We use the term “predecessor” to mean the carve-out business of NREO. On March 31, 2015, NHF distributed all of the outstanding shares of the Company’s common stock held by NHF to holders of NHF common shares. We refer to the distribution of our common stock by NHF as the “Spin-Off.”
The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated March 16, 2015, as amended, and renewed on February 17, 2020 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s board of directors (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P., which is an affiliate of NexPoint Advisors, L.P.
The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.
The Company may also participate with third parties in property ownership through limited liability companies (“LLCs”), funds or other types of co-ownership or acquire real estate or interests in real estate in exchange for the issuance of common stock, OP Units, preferred stock or options to purchase stock. These types of investments may permit the Company to own interests in larger assets without unduly restricting diversification, which provides flexibility in structuring the Company’s portfolio.
The Company may allocate up to 30% of the Portfolio to investments in real estate-related debt and securities with the potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may include securities of other REITs or real estate companies.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. There have been no significant changes to the Company’s significant accounting policies during the year ended December 31, 2019.
F-10
The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. The consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries.
Revenue Recognition
The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the related terms of the leases. Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, and pets, administrative, application and other fees and are recognized when earned. In May 2014, the FASB issued ASC 606 as ASU 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASC 606 was originally effective for public entities for annual reporting periods beginning after December 15, 2016; however, in August 2015, the FASB issued ASU 2015-14 to defer the effective date of ASC 606. As a result, ASC 606 is effective for annual periods beginning after December 15, 2018. ASC 606 is required to be adopted retrospectively by (1) restating prior periods or (2) by recognizing the cumulative effect of applying ASC 606 at the date of initial application (the “modified retrospective method”). The Company implemented the provisions of ASU 2014-09 as of January 1, 2019, using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Entities are required to use a modified retrospective approach when transitioning to the ASU for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements. As lessors, substantially all of the Company’s agreements have a term of 12 months or less. For lessors, accounting for leases under the new standard is substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs.
In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate 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 elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases (“ASC 842”), effective January 1, 2019, and elected the transition option that the ASU provides which permits entities to not recast the comparative periods presented when transitioning to the standard. The Company implemented changes to its business processes and controls related to accounting for and the presentation and disclosure of leases in the consolidated statements of operations and began presenting all rentals and reimbursements from tenants as a single line item within rental income on the consolidated statements of operations and comprehensive income. The table below outlines the components of rental income and its other components which were previously classified as other income for the years ended December 31, 2019, 2018 and 2017:
|
|
For the Year Ended December 31, |
|
|||||||||
Lease Income Type |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Rental income |
|
$ |
158,167 |
|
|
$ |
127,964 |
|
|
$ |
125,024 |
|
Utility reimbursements (1) |
|
|
10,906 |
|
|
|
9,835 |
|
|
|
10,514 |
|
Late fees (1) |
|
|
1,622 |
|
|
|
1,443 |
|
|
|
1,597 |
|
Pet fees (1) |
|
|
816 |
|
|
|
618 |
|
|
|
582 |
|
Other fees (1) |
|
|
5,651 |
|
|
|
3,298 |
|
|
|
3,165 |
|
Total rental income |
|
$ |
177,162 |
|
|
$ |
143,158 |
|
|
$ |
140,882 |
|
(1) |
Previously classified as other income prior to December 31, 2019. |
F-11
The table below quantifies the effects on rental and other income for the years ended December 31, 2019, 2018 and 2017 from the adoption ASC 842:
|
|
For the Year Ended December 31, |
|
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
|||
Prior to adoption of ASC 842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
158,167 |
|
|
$ |
127,964 |
|
|
$ |
125,023 |
|
|
Other income |
|
|
22,899 |
|
|
|
18,633 |
|
|
|
19,212 |
|
|
Total revenue |
|
$ |
181,066 |
|
|
$ |
146,597 |
|
|
$ |
144,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post adoption of ASC 842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income |
|
$ |
177,162 |
|
|
$ |
143,158 |
|
|
$ |
140,882 |
|
|
Other income |
|
|
3,904 |
|
|
|
3,439 |
|
|
|
3,353 |
|
|
Total revenue |
|
$ |
181,066 |
|
|
$ |
146,597 |
|
|
$ |
144,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Differences resulting in ASC 842 adoption |
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income difference |
|
$ |
18,995 |
|
|
$ |
15,194 |
|
|
$ |
15,859 |
|
|
Other income difference |
|
|
(18,995 |
) |
|
|
(15,194 |
) |
|
|
(15,859 |
) |
|
Total revenue difference |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
Certain revenue streams such as service provider income and damage recoveries did not qualify for the practical expedient and therefore remained in other income and were subjected to ASU 2014-09.
Purchase Price Allocation
Upon acquisition of a property, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets in accordance with FASB ASC 805, Business Combinations (“ASC 805”). Acquisition costs are capitalized in accordance with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) (see Note 7), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such assets, appraisals, property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property, did not have to incur to obtain the residents. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.
Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:
Land |
|
Not depreciated |
Buildings |
|
30 years |
Improvements |
|
15 years |
Furniture, fixtures, and equipment |
|
3 years |
Intangible lease assets |
|
6 months |
Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above.
Impairment
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period
F-12
the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment.
Held for Sale
The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP. At that time, the Company presents the net real estate assets and the net debt associated with the real estate held for sale separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of December 31, 2019, there are three properties that are classified as held for sale. Approximately $0.2 million of other assets and approximately $1.0 million of other liabilities related to the held for sale assets are included on the consolidated balance sheet.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and expects to continue to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. As a REIT, the Company will be subject to federal income tax on its undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions it pays with respect to any calendar year are less than the sum of (1) 85% of its ordinary income, (2) 95% of its capital gain net income and (3) 100% of its undistributed income from prior years. The Company intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRS for the years ended December 31, 2019, 2018 and 2017.
If the Company fails to meet these requirements, it could be subject to federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. As of December 31, 2019, the Company believes it is in compliance with all applicable REIT requirements.
The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no examinations in progress and none are expected at this time.
The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2019. The Company and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2018, 2017 and 2016 tax years remain open to examination by tax jurisdictions to which the Company and its subsidiaries are subject. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its consolidated statements of operations and comprehensive income.
F-13
Accounting Pronouncements Adopted in the Current Year
In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which changes certain recognition, measurement, presentation, and disclosure requirements for financial instruments. The ASU requires all equity investments, except those accounted for under the equity method of accounting or resulting in consolidation, to be measured at fair value with changes in fair value recognized in net income. The ASU also simplifies the impairment assessment for equity investments without readily determinable fair values, amends the presentation requirements for changes in the fair value of financial liabilities, requires presentation of financial instruments by measurement category and form of financial asset, and eliminates the requirement to disclose the methods and significant assumptions used in estimating the fair value of financial instruments. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. The Company implemented the provisions of ASU 2016-01 as of January 1, 2019, and it did not have a material impact on the Company’s consolidated financial statements as the Company does not, nor does it expect to, have a material amount of financial assets or financial liabilities that would be subject to the provisions of ASU 2016-01.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU 2016-15) which amends classification of cash payments for debt prepayment or debt extinguishment costs. Amendments to Topic 230 made by ASU 2016-15 require that any debt prepayment or debt extinguishment costs are classified as cash flows from financing activities. Debt extinguishment costs include third-party costs, premiums paid and other fees paid to creditors that are directly related to the debt prepayment or extinguishment. The Company adopted the provisions of ASU 2016-15 as of January 1, 2019 on a retrospective basis.
Recent Accounting Pronouncements
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815) (“ASU 2017-12”), which clarifies hedge accounting requirements, improves disclosure of hedging arrangements, and better aligns risk management activities and financial reporting for hedging relationships. The Company early adopted ASU 2017-12 on January 1, 2018, on a modified retrospective basis. For cash flow hedges existing as of the date of adoption, the Company eliminated the separate measurement of ineffectiveness by means of a cumulative-effect adjustment to accumulated other comprehensive income (“OCI”) with a corresponding adjustment to the opening balance of accumulated earnings less dividends on January 1, 2018. The cumulative-effect adjustment, which eliminated the cumulative ineffectiveness that was previously reported in interest expense, resulted in an increase to OCI of approximately $1.4 million, with a corresponding decrease to accumulated earnings less dividends.
In August 2018, the SEC adopted SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”), which amends certain disclosure requirements that were redundant, duplicative, overlapping or superseded by other SEC disclosure requirements or GAAP. The amendments generally eliminated or otherwise reduced certain disclosure requirements of various SEC rules and regulations. However, in some cases, the amendments require additional information to be disclosed, including changes in stockholders’ equity in interim periods. Under the SEC Release, registrants will be required to disclose in interim periods on Form 10-Q the changes in each caption of stockholders’ equity and noncontrolling interests for the current and comparative year-to-date periods, with subtotals for each interim period and the amount of dividends per share for each class of shares. The amendments require registrants, including smaller reporting companies, to provide information as prescribed by Rule 3-04 of Regulation S-X. Therefore, the interim disclosures of changes in stockholders’ equity, including dividends per share amounts, may be given in a note to the financial statements or in a separate financial statement. Under Rule 3-04, the interim disclosures of the changes in stockholders’ equity should be in the form of a reconciliation of the beginning balance to the ending balance for each period for which an income statement is required to be filed, with all significant reconciling items described by appropriate captions. The reconciliation should also reflect any adjustments to the balance at the beginning of the earliest period presented for items retroactively applied to periods prior to that period. The Company adopted the provisions of the SEC Release on September 30, 2018, on a retrospective basis.
Reclassifications
Certain reclassifications have been made to conform the prior period consolidated financial statements and notes to the current period presentation due to the adoption of the new accounting standards.
3. Investments in Subsidiaries
The Company conducts its operations through the OP, which owns the properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. In connection with its indirect equity investments in the properties acquired, the Company, through the OP and the TRS, directly or indirectly holds 100% of the membership interests in SPEs that directly own the properties. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be
F-14
used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company.
Additionally, the Company has in the past and may in the future enter into purchase and sale transactions structured as reverse like-kind exchanges (“1031 Exchanges”) under Section 1031 of the Code. For a reverse 1031 Exchange in which the Company purchases a new property prior to selling the property to be matched in the like-kind exchange (the Company refers to the new property being acquired in the 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by an Exchange Accommodation Titleholder (“EAT”) engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange are completed. The Company, through a wholly owned subsidiary, enters into a master lease agreement with the EAT whereby the EAT leases the acquired property and all other rights acquired in connection with the acquisition to the Company. The term of the master lease agreement is the earlier of the completion of the reverse 1031 Exchange or 180 days from the date that the property was acquired. The EAT is classified as a VIE as it does not have sufficient equity investment at risk to finance its activities without additional subordinated financial support. The Company consolidates the EAT as its primary beneficiary because it has the ability to control the activities that most significantly impact the EAT’s economic performance and the Company retains all of the legal and economic benefits and obligations related to the Parked Assets prior to completion of the 1031 Exchange. As such, the Parked Assets are included in the Company’s consolidated financial statements as VIEs until legal title is transferred to the Company upon either completion of the 1031 Exchange or termination of the master lease agreement, at which time they will be consolidated as wholly owned subsidiaries.
F-15
As of December 31, 2019, the Company, through the OP and the wholly owned TRS, owned 40 properties through single-asset LLCs. The following table represents the Company’s ownership in each property by virtue of its 100% ownership of the single-asset LLCs that directly own the title to each property as of December 31, 2019 and 2018:
|
|
|
|
|
|
Effective Ownership Percentage at December 31, |
|
|
|||||
Property Name |
|
Location |
|
Year Acquired |
|
2019 |
|
|
2018 |
|
|
||
Arbors on Forest Ridge |
|
Bedford, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Cutter's Point |
|
Richardson, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Eagle Crest |
|
Irving, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Silverbrook |
|
Grand Prairie, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Edgewater at Sandy Springs |
|
Atlanta, Georgia |
|
2014 |
|
|
— |
|
(1) |
|
100 |
% |
|
Beechwood Terrace |
|
Antioch, Tennessee |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Willow Grove |
(2) |
Nashville, Tennessee |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Woodbridge |
(2) |
Nashville, Tennessee |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Abbington Heights |
|
Antioch, Tennessee |
|
2014 |
|
|
— |
|
(1) |
|
100 |
% |
|
The Summit at Sabal Park |
|
Tampa, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Courtney Cove |
|
Tampa, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Radbourne Lake |
|
Charlotte, North Carolina |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Timber Creek |
|
Charlotte, North Carolina |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Belmont at Duck Creek |
|
Garland, Texas |
|
2014 |
|
|
— |
|
(1) |
|
100 |
% |
|
Sabal Palm at Lake Buena Vista |
|
Orlando, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Southpoint Reserve at Stoney Creek |
(2) |
Fredericksburg, Virginia |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
|
Cornerstone |
|
Orlando, Florida |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
The Ashlar |
|
Dallas, Texas |
|
2015 |
|
|
— |
|
(1) |
|
100 |
% |
|
Heatherstone |
|
Dallas, Texas |
|
2015 |
|
|
— |
|
(1) |
|
100 |
% |
|
The Preserve at Terrell Mill |
|
Marietta, Georgia |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
Versailles |
|
Dallas, Texas |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
Seasons 704 Apartments |
|
West Palm Beach, Florida |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
Madera Point |
|
Mesa, Arizona |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
The Pointe at the Foothills |
|
Mesa, Arizona |
|
2015 |
|
|
— |
|
(1) |
|
100 |
% |
|
Venue at 8651 |
|
Fort Worth, Texas |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
|
Parc500 |
|
West Palm Beach, Florida |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
|
The Venue on Camelback |
(3) |
Phoenix, Arizona |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
|
Old Farm |
|
Houston, Texas |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
|
Stone Creek at Old Farm |
|
Houston, Texas |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
|
Hollister Place |
|
Houston, Texas |
|
2017 |
|
|
100 |
% |
|
|
100 |
% |
|
Rockledge Apartments |
|
Marietta, Georgia |
|
2017 |
|
|
100 |
% |
|
|
100 |
% |
|
Atera Apartments |
|
Dallas, Texas |
|
2017 |
|
|
100 |
% |
|
|
100 |
% |
|
Cedar Pointe |
(4) |
Antioch, Tennessee |
|
2018 |
|
|
100 |
% |
|
|
100 |
% |
|
Crestmont Reserve |
|
Dallas, Texas |
|
2018 |
|
|
100 |
% |
|
|
100 |
% |
|
Brandywine I & II |
|
Nashville, Tennessee |
|
2018 |
|
|
100 |
% |
|
|
100 |
% |
|
Bella Vista |
(5) |
Phoenix, Arizona |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
The Enclave |
(5) |
Tempe, Arizona |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
The Heritage |
(5) |
Phoenix, Arizona |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Summers Landing |
|
Fort Worth, Texas |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Residences at Glenview Reserve |
(6) |
Nashville, Tennessee |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Residences at West Place |
(6) |
Orlando, Florida |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Arbors of Brentwood |
|
Nashville, Tennessee |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Torreyana Apartments |
(7) |
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Bloom |
(7) |
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
Bella Solara |
(7) |
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
— |
|
(8) |
(1) |
Property was sold in 2019. |
(2) |
Property was classified as held for sale as of December 31, 2019. |
F-16
(4) |
The EAT that directly owned Cedar Pointe was consolidated as a VIE at December 31, 2018. The master lease agreement with the EAT that directly owned Cedar Pointe terminated on February 20, 2019, at which time legal title to Cedar Pointe transferred to the Company. Upon the transfer of title, the entity that directly owned Cedar Pointe was no longer considered a VIE. |
(5) |
The EAT that directly owned Bella Vista, The Enclave and The Heritage was consolidated as a VIE at March 31, 2019. The master lease agreement with the EAT that directly owned these properties terminated on July 27, 2019, at which time legal title transferred to the Company. Upon the transfer of title, the EAT that directly owned these properties was no longer considered a VIE. |
(7) |
The EAT that directly owned Torreyana, Bloom and Bella Solara was consolidated as a VIE at December 31, 2019 giving the Company an effective 100% ownership interest. Legal title will transfer to the Company upon completion of the reverse 1031 Exchange or May 21, 2020, whichever comes first. Upon the transfer of title, the EAT that directly owned these properties will no longer be considered a VIE. |
(8) |
Properties were acquired in 2019; therefore, no ownership as of December 31, 2018. |
F-17
4. Real Estate Investments Statistics
As of December 31, 2019, the Company was invested in a total of 40 multifamily properties, as listed below:
|
|
|
|
|
|
|
|
|
|
|
|
Average Effective Monthly Rent Per Unit as of December 31,*(1) |
|
|
% Occupied as of December 31,*(2) |
|
|
||||||||||
Property Name |
|
Rentable Square Footage (in thousands)* |
|
|
Number of Units* |
|
|
Date Acquired |
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
|
||||||
Arbors on Forest Ridge |
|
|
155 |
|
|
210 |
|
|
1/31/2014 |
|
$ |
894 |
|
|
$ |
870 |
|
|
|
95.7 |
% |
|
|
95.2 |
% |
|
|
Cutter's Point |
(3) |
|
198 |
|
|
196 |
|
|
1/31/2014 |
|
|
— |
|
|
|
1,109 |
|
|
|
— |
|
|
|
95.4 |
% |
|
|
Eagle Crest |
|
|
396 |
|
|
447 |
|
|
1/31/2014 |
|
|
969 |
|
|
|
922 |
|
|
|
96.6 |
% |
|
|
94.9 |
% |
|
|
Silverbrook |
|
|
526 |
|
|
642 |
|
|
1/31/2014 |
|
|
870 |
|
|
|
835 |
|
|
|
95.5 |
% |
|
|
94.9 |
% |
|
|
Beechwood Terrace |
|
|
272 |
|
|
300 |
|
|
7/21/2014 |
|
|
937 |
|
|
|
933 |
|
|
|
91.3 |
% |
|
|
93.7 |
% |
|
|
Willow Grove |
(4) |
|
229 |
|
|
244 |
|
|
7/21/2014 |
|
|
1,002 |
|
|
|
960 |
|
|
|
97.5 |
% |
|
|
95.1 |
% |
|
|
Woodbridge |
(4) |
|
247 |
|
|
220 |
|
|
7/21/2014 |
|
|
1,061 |
|
|
|
1,028 |
|
|
|
91.8 |
% |
|
|
94.1 |
% |
|
|
The Summit at Sabal Park |
|
|
205 |
|
|
252 |
|
|
8/20/2014 |
|
|
1,010 |
|
|
|
955 |
|
|
|
97.2 |
% |
|
|
94.4 |
% |
|
|
Courtney Cove |
|
|
225 |
|
|
324 |
|
|
8/20/2014 |
|
|
927 |
|
|
|
895 |
|
|
|
94.8 |
% |
|
|
95.7 |
% |
|
|
Radbourne Lake |
|
|
247 |
|
|
225 |
|
|
9/30/2014 |
|
|
1,118 |
|
|
|
1,082 |
|
|
|
90.7 |
% |
|
|
96.0 |
% |
|
|
Timber Creek |
|
|
248 |
|
|
352 |
|
|
9/30/2014 |
|
|
916 |
|
|
|
847 |
|
|
|
94.9 |
% |
|
|
92.6 |
% |
|
|
Sabal Palm at Lake Buena Vista |
|
|
371 |
|
|
400 |
|
|
11/5/2014 |
|
|
1,270 |
|
|
|
1,255 |
|
|
|
93.8 |
% |
|
|
96.5 |
% |
|
|
Southpoint Reserve at Stoney Creek |
(4) |
|
116 |
|
|
156 |
|
|
12/18/2014 |
|
|
1,152 |
|
|
|
1,093 |
|
|
|
92.3 |
% |
|
|
98.1 |
% |
|
|
Cornerstone |
|
|
318 |
|
|
430 |
|
|
1/15/2015 |
|
|
1,053 |
|
|
|
1,007 |
|
|
|
95.6 |
% |
|
|
94.2 |
% |
|
|
The Preserve at Terrell Mill |
|
|
692 |
|
|
752 |
|
|
2/6/2015 |
|
|
969 |
|
|
|
921 |
|
|
|
94.9 |
% |
|
|
94.8 |
% |
|
|
Versailles |
|
|
301 |
|
|
388 |
|
|
2/26/2015 |
|
|
923 |
|
|
|
884 |
|
|
|
93.0 |
% |
|
|
96.4 |
% |
|
|
Seasons 704 Apartments |
|
|
217 |
|
|
222 |
|
|
4/15/2015 |
|
|
1,155 |
|
|
|
1,130 |
|
|
|
94.6 |
% |
|
|
96.8 |
% |
|
|
Madera Point |
|
|
193 |
|
|
256 |
|
|
8/5/2015 |
|
|
924 |
|
|
|
866 |
|
|
|
96.1 |
% |
|
|
94.5 |
% |
|
|
Venue at 8651 |
|
|
289 |
|
|
333 |
|
|
10/30/2015 |
|
|
924 |
|
|
|
875 |
|
|
|
96.1 |
% |
|
|
92.8 |
% |
|
|
Parc500 |
|
|
266 |
|
|
217 |
|
|
7/27/2016 |
|
|
1,304 |
|
|
|
1,254 |
|
|
|
93.1 |
% |
|
|
94.9 |
% |
|
|
The Venue on Camelback |
|
|
256 |
|
|
415 |
|
|
10/11/2016 |
|
|
777 |
|
|
|
719 |
|
|
|
94.2 |
% |
|
|
93.3 |
% |
|
|
Old Farm |
|
|
697 |
|
|
734 |
|
|
12/29/2016 |
|
|
1,162 |
|
|
|
1,176 |
|
|
|
92.8 |
% |
|
|
92.9 |
% |
|
|
Stone Creek at Old Farm |
|
|
186 |
|
|
190 |
|
|
12/29/2016 |
|
|
1,194 |
|
|
|
1,173 |
|
|
|
95.8 |
% |
|
|
96.8 |
% |
|
|
Hollister Place |
|
|
246 |
|
|
260 |
|
|
2/1/2017 |
|
|
995 |
|
|
|
984 |
|
|
|
93.1 |
% |
|
|
93.5 |
% |
|
|
Rockledge Apartments |
|
|
802 |
|
|
708 |
|
|
6/30/2017 |
|
|
1,260 |
|
|
|
1,186 |
|
|
|
95.3 |
% |
|
|
94.6 |
% |
|
|
Atera Apartments |
|
|
334 |
|
|
380 |
|
|
10/25/2017 |
|
|
1,256 |
|
|
|
1,232 |
|
|
|
93.4 |
% |
|
|
97.4 |
% |
|
|
Cedar Pointe |
|
|
224 |
|
|
210 |
|
|
8/24/2018 |
|
|
1,066 |
|
|
|
1,051 |
|
|
|
91.4 |
% |
|
|
95.7 |
% |
|
|
Crestmont Reserve |
|
|
199 |
|
|
242 |
|
|
9/26/2018 |
|
|
902 |
|
|
|
914 |
|
|
|
94.2 |
% |
|
|
94.6 |
% |
|
|
Brandywine I & II |
|
|
414 |
|
|
632 |
|
|
9/26/2018 |
|
|
978 |
|
|
|
957 |
|
|
|
93.7 |
% |
|
|
93.8 |
% |
|
|
Bella Vista |
|
|
243 |
|
|
248 |
|
|
1/28/2019 |
|
|
1,265 |
|
|
|
— |
|
(5) |
|
97.2 |
% |
|
|
— |
|
(5) |
|
The Enclave |
|
|
194 |
|
|
204 |
|
|
1/28/2019 |
|
|
1,295 |
|
|
|
— |
|
(5) |
|
93.6 |
% |
|
|
— |
|
(5) |
|
The Heritage |
|
|
199 |
|
|
204 |
|
|
1/28/2019 |
|
|
1,265 |
|
|
|
— |
|
(5) |
|
96.6 |
% |
|
|
— |
|
(5) |
|
Summers Landing |
|
|
139 |
|
|
196 |
|
|
6/7/2019 |
|
|
920 |
|
|
|
— |
|
(5) |
|
91.8 |
% |
|
|
— |
|
(5) |
|
Residences at Glenview Reserve |
|
|
344 |
|
|
360 |
|
|
7/17/2019 |
|
|
977 |
|
|
|
— |
|
(5) |
|
94.4 |
% |
|
|
— |
|
(5) |
|
Residences at West Place |
|
|
345 |
|
|
342 |
|
|
7/17/2019 |
|
|
1,211 |
|
|
|
— |
|
(5) |
|
92.7 |
% |
|
|
— |
|
(5) |
|
Avant at Pembroke Pines |
|
|
1,442 |
|
|
1520 |
|
|
8/30/2019 |
|
|
1,498 |
|
|
|
— |
|
(5) |
|
93.7 |
% |
|
|
— |
|
(5) |
|
Arbors of Brentwood |
|
|
325 |
|
|
346 |
|
|
9/10/2019 |
|
|
1,192 |
|
|
|
— |
|
(5) |
|
96.2 |
% |
|
|
— |
|
(5) |
|
Torreyana Apartments |
|
|
309 |
|
|
315 |
|
|
11/22/2019 |
|
|
1,171 |
|
|
|
— |
|
(5) |
|
95.6 |
% |
|
|
— |
|
(5) |
|
Bloom |
|
|
498 |
|
|
528 |
|
|
11/22/2019 |
|
|
1,105 |
|
|
|
— |
|
(5) |
|
90.9 |
% |
|
|
— |
|
(5) |
|
Bella Solara |
|
|
271 |
|
|
320 |
|
|
11/22/2019 |
|
|
1,136 |
|
|
|
— |
|
(5) |
|
91.9 |
% |
|
|
— |
|
(5) |
|
|
|
|
13,378 |
|
|
|
14,920 |
|
(6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Information is unaudited. |
(2) |
Percent occupied is calculated as the number of units occupied as of December 31, 2019 and 2018, divided by the total number of units, expressed as a percentage. |
F-18
(3) |
Cutter’s Point incurred significant tornado damage on October 20, 2019 which resulted in the property ceasing operations in order to start reconstruction (see Note 5). |
(5) |
Properties were acquired in 2019. |
(6) |
Represents total units owned by the Company as of December 31, 2019 inclusive of Cutter’s Point. Cutter’s Point is currently undergoing repairs after being struck by a tornado as discussed in Note 5, and as such, has been excluded from all other portfolio metrics such as occupancy percentage and weighted average rent per unit, etc. Total units exclusive of Cutter’s Point are 14,724 as of December 31, 2019. |
5. Real Estate Investments
As of December 31, 2019, the major components of the Company’s investments in multifamily properties were as follows (in thousands):
Operating Properties |
|
|
Land |
|
|
Buildings and Improvements |
|
|
Intangible Lease Assets |
|
|
Construction in Progress |
|
|
Furniture, Fixtures and Equipment |
|
|
Totals |
|
||||||
Arbors on Forest Ridge |
|
|
$ |
2,330 |
|
|
$ |
11,585 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,520 |
|
|
$ |
15,435 |
|
Cutter's Point |
|
|
|
3,330 |
|
|
|
2,563 |
|
|
|
— |
|
|
|
2,648 |
|
|
|
1,878 |
|
|
|
10,419 |
|
Eagle Crest |
|
|
|
5,450 |
|
|
|
23,830 |
|
|
|
— |
|
|
|
— |
|
|
|
1,832 |
|
|
|
31,112 |
|
Silverbrook |
|
|
|
4,860 |
|
|
|
27,091 |
|
|
|
— |
|
|
|
— |
|
|
|
4,630 |
|
|
|
36,581 |
|
Beechwood Terrace |
|
|
|
1,390 |
|
|
|
22,000 |
|
|
|
— |
|
|
|
70 |
|
|
|
2,535 |
|
|
|
25,995 |
|
The Summit at Sabal Park |
|
|
|
5,770 |
|
|
|
13,600 |
|
|
|
— |
|
|
|
— |
|
|
|
1,598 |
|
|
|
20,968 |
|
Courtney Cove |
|
|
|
5,880 |
|
|
|
13,413 |
|
|
|
— |
|
|
|
2 |
|
|
|
1,982 |
|
|
|
21,277 |
|
Radbourne Lake |
|
|
|
2,440 |
|
|
|
22,465 |
|
|
|
— |
|
|
|
— |
|
|
|
1,997 |
|
|
|
26,902 |
|
Timber Creek |
|
|
|
11,260 |
|
|
|
13,993 |
|
|
|
— |
|
|
|
— |
|
|
|
2,939 |
|
|
|
28,192 |
|
Sabal Palm at Lake Buena Vista |
|
|
|
7,580 |
|
|
|
41,841 |
|
|
|
— |
|
|
|
492 |
|
|
|
2,108 |
|
|
|
52,021 |
|
Cornerstone |
|
|
|
1,500 |
|
|
|
30,653 |
|
|
|
— |
|
|
|
— |
|
|
|
2,977 |
|
|
|
35,130 |
|
The Preserve at Terrell Mill |
|
|
|
10,170 |
|
|
|
49,216 |
|
|
|
— |
|
|
|
8 |
|
|
|
6,183 |
|
|
|
65,577 |
|
Versailles |
|
|
|
6,720 |
|
|
|
21,688 |
|
|
|
— |
|
|
|
8 |
|
|
|
3,736 |
|
|
|
32,152 |
|
Seasons 704 Apartments |
|
|
|
7,480 |
|
|
|
14,336 |
|
|
|
— |
|
|
|
— |
|
|
|
1,482 |
|
|
|
23,298 |
|
Madera Point |
|
|
|
4,920 |
|
|
|
17,615 |
|
|
|
— |
|
|
|
— |
|
|
|
2,042 |
|
|
|
24,577 |
|
Venue at 8651 |
|
|
|
2,350 |
|
|
|
18,192 |
|
|
|
— |
|
|
|
21 |
|
|
|
3,330 |
|
|
|
23,893 |
|
Parc500 |
|
|
|
3,860 |
|
|
|
20,821 |
|
|
|
— |
|
|
|
193 |
|
|
|
3,202 |
|
|
|
28,076 |
|
The Venue on Camelback |
|
|
|
8,340 |
|
|
|
37,992 |
|
|
|
— |
|
|
|
— |
|
|
|
2,086 |
|
|
|
48,418 |
|
Old Farm |
|
|
|
11,078 |
|
|
|
70,670 |
|
|
|
— |
|
|
|
40 |
|
|
|
2,950 |
|
|
|
84,738 |
|
Stone Creek at Old Farm |
|
|
|
3,493 |
|
|
|
19,436 |
|
|
|
— |
|
|
|
1 |
|
|
|
716 |
|
|
|
23,646 |
|
Hollister Place |
|
|
|
2,782 |
|
|
|
21,788 |
|
|
|
— |
|
|
|
— |
|
|
|
2,159 |
|
|
|
26,729 |
|
Rockledge Apartments |
|
|
|
17,451 |
|
|
|
96,108 |
|
|
|
— |
|
|
|
134 |
|
|
|
4,759 |
|
|
|
118,452 |
|
Atera Apartments |
|
|
|
22,371 |
|
|
|
37,442 |
|
|
|
— |
|
|
|
8 |
|
|
|
2,044 |
|
|
|
61,865 |
|
Cedar Pointe |
|
|
|
2,372 |
|
|
|
24,193 |
|
|
|
— |
|
|
|
24 |
|
|
|
1,268 |
|
|
|
27,857 |
|
Crestmont Reserve |
|
|
|
4,124 |
|
|
|
20,613 |
|
|
|
— |
|
|
|
— |
|
|
|
1,272 |
|
|
|
26,009 |
|
Brandywine I & II |
|
|
|
6,237 |
|
|
|
73,004 |
|
|
|
— |
|
|
|
58 |
|
|
|
3,148 |
|
|
|
82,447 |
|
Bella Vista |
|
|
|
10,942 |
|
|
|
36,690 |
|
|
|
— |
|
|
|
— |
|
|
|
1,500 |
|
|
|
49,132 |
|
The Enclave |
|
|
|
11,046 |
|
|
|
30,224 |
|
|
|
— |
|
|
|
24 |
|
|
|
1,176 |
|
|
|
42,470 |
|
The Heritage |
|
|
|
6,835 |
|
|
|
34,580 |
|
|
|
— |
|
|
|
— |
|
|
|
1,246 |
|
|
|
42,661 |
|
Summers Landing |
|
|
|
1,798 |
|
|
|
16,958 |
|
|
|
— |
|
|
|
35 |
|
|
|
528 |
|
|
|
19,319 |
|
Residences at Glenview Reserve |
|
|
|
3,367 |
|
|
|
40,202 |
|
|
|
— |
|
|
|
11 |
|
|
|
837 |
|
|
|
44,417 |
|
Residences at West Place |
|
|
|
3,345 |
|
|
|
50,884 |
|
|
|
— |
|
|
|
244 |
|
|
|
810 |
|
|
|
55,283 |
|
Avant at Pembroke Pines |
|
|
|
48,436 |
|
|
|
266,103 |
|
|
|
6,989 |
|
|
|
217 |
|
|
|
5,376 |
|
|
|
327,121 |
|
Arbors of Brentwood |
|
|
|
6,346 |
|
|
|
54,995 |
|
|
|
1,215 |
|
|
|
137 |
|
|
|
779 |
|
|
|
63,472 |
|
Torreyana Apartments |
|
|
|
23,823 |
|
|
|
42,721 |
|
|
|
1,201 |
|
|
|
— |
|
|
|
655 |
|
|
|
68,400 |
|
Bloom |
|
|
|
23,805 |
|
|
|
80,365 |
|
|
|
1,851 |
|
|
|
— |
|
|
|
1,095 |
|
|
|
107,116 |
|
Bella Solara |
|
|
|
12,605 |
|
|
|
52,449 |
|
|
|
1,158 |
|
|
|
— |
|
|
|
663 |
|
|
|
66,875 |
|
|
|
|
|
317,886 |
|
|
|
1,472,319 |
|
|
|
12,414 |
|
|
|
4,375 |
|
|
|
81,038 |
|
|
|
1,888,032 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(105,335 |
) |
|
|
(6,171 |
) |
|
|
— |
|
|
|
(41,046 |
) |
|
|
(152,552 |
) |
Total Operating Properties |
|
|
$ |
317,886 |
|
|
$ |
1,366,984 |
|
|
$ |
6,243 |
|
|
$ |
4,375 |
|
|
$ |
39,992 |
|
|
$ |
1,735,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Property |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint Reserve at Stoney Creek |
|
|
|
6,120 |
|
|
|
11,502 |
|
|
|
— |
|
|
|
1 |
|
|
|
968 |
|
|
|
18,591 |
|
Woodbridge |
|
|
|
3,650 |
|
|
|
13,296 |
|
|
|
— |
|
|
|
— |
|
|
|
1,934 |
|
|
|
18,880 |
|
Willow Grove |
|
|
|
3,940 |
|
|
|
10,946 |
|
|
|
— |
|
|
|
— |
|
|
|
1,832 |
|
|
|
16,718 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(5,390 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,469 |
) |
|
|
(7,859 |
) |
Total Held For Sale Property |
|
|
$ |
13,710 |
|
|
$ |
30,354 |
|
|
$ |
— |
|
|
$ |
1 |
|
|
$ |
2,265 |
|
|
$ |
46,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
331,596 |
|
|
$ |
1,397,338 |
|
|
$ |
6,243 |
|
|
$ |
4,376 |
|
|
$ |
42,257 |
|
|
$ |
1,781,810 |
|
F-19
As of December 31, 2018, the major components of the Company’s investments in multifamily properties were as follows (in thousands):
Operating Properties |
|
|
Land |
|
|
Buildings and Improvements |
|
|
Intangible Lease Assets |
|
|
Construction in Progress |
|
|
Furniture, Fixtures and Equipment |
|
|
Totals |
|
||||||
Arbors on Forest Ridge |
|
|
$ |
2,330 |
|
|
$ |
11,319 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,047 |
|
|
$ |
14,696 |
|
Cutter's Point |
|
|
|
3,330 |
|
|
|
13,347 |
|
|
|
— |
|
|
|
— |
|
|
|
1,320 |
|
|
|
17,997 |
|
Eagle Crest |
|
|
|
5,450 |
|
|
|
22,969 |
|
|
|
— |
|
|
|
— |
|
|
|
1,563 |
|
|
|
29,982 |
|
Silverbrook |
|
|
|
4,860 |
|
|
|
26,485 |
|
|
|
— |
|
|
|
60 |
|
|
|
3,230 |
|
|
|
34,635 |
|
Edgewater at Sandy Springs |
|
|
|
14,290 |
|
|
|
44,186 |
|
|
|
— |
|
|
|
349 |
|
|
|
5,083 |
|
|
|
63,908 |
|
Beechwood Terrace |
|
|
|
1,390 |
|
|
|
21,123 |
|
|
|
— |
|
|
|
31 |
|
|
|
1,670 |
|
|
|
24,214 |
|
Willow Grove |
|
|
|
3,940 |
|
|
|
10,829 |
|
|
|
— |
|
|
|
— |
|
|
|
1,231 |
|
|
|
16,000 |
|
Woodbridge |
|
|
|
3,650 |
|
|
|
13,125 |
|
|
|
— |
|
|
|
— |
|
|
|
1,536 |
|
|
|
18,311 |
|
Abbington Heights |
|
|
|
1,770 |
|
|
|
17,140 |
|
|
|
— |
|
|
|
— |
|
|
|
1,539 |
|
|
|
20,449 |
|
The Summit at Sabal Park |
|
|
|
5,770 |
|
|
|
13,447 |
|
|
|
— |
|
|
|
43 |
|
|
|
1,347 |
|
|
|
20,607 |
|
Courtney Cove |
|
|
|
5,880 |
|
|
|
13,170 |
|
|
|
— |
|
|
|
— |
|
|
|
1,268 |
|
|
|
20,318 |
|
Radbourne Lake |
|
|
|
2,440 |
|
|
|
22,138 |
|
|
|
— |
|
|
|
72 |
|
|
|
1,536 |
|
|
|
26,186 |
|
Timber Creek |
|
|
|
11,260 |
|
|
|
13,582 |
|
|
|
— |
|
|
|
— |
|
|
|
1,556 |
|
|
|
26,398 |
|
Belmont at Duck Creek |
|
|
|
1,910 |
|
|
|
17,397 |
|
|
|
— |
|
|
|
— |
|
|
|
1,471 |
|
|
|
20,778 |
|
Sabal Palm at Lake Buena Vista |
|
|
|
7,580 |
|
|
|
41,336 |
|
|
|
— |
|
|
|
— |
|
|
|
1,280 |
|
|
|
50,196 |
|
Cornerstone |
|
|
|
1,500 |
|
|
|
30,513 |
|
|
|
— |
|
|
|
— |
|
|
|
1,885 |
|
|
|
33,898 |
|
The Preserve at Terrell Mill |
|
|
|
10,170 |
|
|
|
49,091 |
|
|
|
— |
|
|
|
57 |
|
|
|
4,843 |
|
|
|
64,161 |
|
The Ashlar |
|
|
|
4,090 |
|
|
|
12,845 |
|
|
|
— |
|
|
|
— |
|
|
|
2,017 |
|
|
|
18,952 |
|
Heatherstone |
|
|
|
2,320 |
|
|
|
8,132 |
|
|
|
— |
|
|
|
— |
|
|
|
1,199 |
|
|
|
11,651 |
|
Versailles |
|
|
|
6,720 |
|
|
|
21,513 |
|
|
|
— |
|
|
|
— |
|
|
|
3,033 |
|
|
|
31,266 |
|
Seasons 704 Apartments |
|
|
|
7,480 |
|
|
|
14,223 |
|
|
|
— |
|
|
|
— |
|
|
|
1,288 |
|
|
|
22,991 |
|
Madera Point |
|
|
|
4,920 |
|
|
|
17,570 |
|
|
|
— |
|
|
|
— |
|
|
|
1,431 |
|
|
|
23,921 |
|
The Pointe at the Foothills |
|
|
|
4,840 |
|
|
|
46,998 |
|
|
|
— |
|
|
|
— |
|
|
|
2,078 |
|
|
|
53,916 |
|
Venue at 8651 |
|
|
|
2,350 |
|
|
|
18,084 |
|
|
|
— |
|
|
|
— |
|
|
|
2,499 |
|
|
|
22,933 |
|
Parc500 |
|
|
|
3,860 |
|
|
|
20,692 |
|
|
|
— |
|
|
|
37 |
|
|
|
2,600 |
|
|
|
27,189 |
|
The Colonnade |
|
|
|
8,340 |
|
|
|
37,086 |
|
|
|
— |
|
|
|
567 |
|
|
|
1,604 |
|
|
|
47,597 |
|
Old Farm |
|
|
|
11,078 |
|
|
|
70,471 |
|
|
|
— |
|
|
|
— |
|
|
|
1,800 |
|
|
|
83,349 |
|
Stone Creek at Old Farm |
|
|
|
3,493 |
|
|
|
19,394 |
|
|
|
— |
|
|
|
— |
|
|
|
467 |
|
|
|
23,354 |
|
Hollister Place |
|
|
|
2,782 |
|
|
|
21,389 |
|
|
|
— |
|
|
|
135 |
|
|
|
1,410 |
|
|
|
25,716 |
|
Rockledge Apartments |
|
|
|
17,451 |
|
|
|
95,484 |
|
|
|
— |
|
|
|
428 |
|
|
|
3,314 |
|
|
|
116,677 |
|
Atera Apartments |
|
|
|
22,371 |
|
|
|
36,563 |
|
|
|
— |
|
|
|
86 |
|
|
|
1,151 |
|
|
|
60,171 |
|
Cedar Pointe |
(1) |
|
|
2,371 |
|
|
|
23,458 |
|
|
|
600 |
|
|
|
16 |
|
|
|
441 |
|
|
|
26,886 |
|
Crestmont Reserve |
|
|
|
4,124 |
|
|
|
19,544 |
|
|
|
687 |
|
|
|
— |
|
|
|
504 |
|
|
|
24,859 |
|
Brandywine I & II |
|
|
|
6,237 |
|
|
|
70,961 |
|
|
|
1,762 |
|
|
|
— |
|
|
|
1,215 |
|
|
|
80,175 |
|
|
|
|
|
202,347 |
|
|
|
935,604 |
|
|
|
3,049 |
|
|
|
1,881 |
|
|
|
61,456 |
|
|
|
1,204,337 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(95,364 |
) |
|
|
(1,625 |
) |
|
|
— |
|
|
|
(37,135 |
) |
|
|
(134,124 |
) |
Total Operating Properties |
|
|
$ |
202,347 |
|
|
$ |
840,240 |
|
|
$ |
1,424 |
|
|
$ |
1,881 |
|
|
$ |
24,321 |
|
|
$ |
1,070,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southpoint Reserve at Stoney Creek |
|
|
|
6,120 |
|
|
|
11,319 |
|
|
|
— |
|
|
|
— |
|
|
|
787 |
|
|
|
18,226 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(736 |
) |
|
|
— |
|
|
|
— |
|
|
|
(161 |
) |
|
|
(897 |
) |
Total Held For Sale Properties |
|
|
$ |
6,120 |
|
|
$ |
10,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
626 |
|
|
$ |
17,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
208,467 |
|
|
$ |
850,823 |
|
|
$ |
1,424 |
|
|
$ |
1,881 |
|
|
$ |
24,947 |
|
|
$ |
1,087,542 |
|
(1) |
The EAT that directly owned Cedar Pointe was consolidated as a VIE at December 31, 2018. The master lease agreement with the EAT that directly owned Cedar Pointe terminated on February 20, 2019, at which time legal title to Cedar Pointe transferred to the Company. Upon the transfer of title, the entity that directly owned Cedar Pointe was no longer considered a VIE. |
Depreciation expense was $56.4 million, $45.0 million and $39.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.
Amortization expense related to the Company’s intangible lease assets was $12.7 million, $2.5 million and $8.9 for the years ended December 31, 2019, 2018 and 2017, respectively. Amortization expense related to the Company’s intangible lease assets for all acquisitions completed through December 31, 2019 is expected to be $6.2 million in 2020. Due to the six-month useful life attributable to intangible lease assets, the value of intangible lease assets on any acquisition prior to June 30, 2019 has been fully amortized and the assets and related accumulated amortization have been written off as of December 31, 2019.
F-20
The Company acquired 11 properties during the year ended December 31, 2019, as detailed in the table below (dollars in thousands). The Company acquired three properties for a combined purchase price of approximately $131.0 million during the year ended December 31, 2018. See Notes 3, 4 and 6 for additional information.
Property Name |
|
Location |
|
Date of Acquisition |
|
Purchase Price |
|
|
Mortgage Debt (1) |
|
|
# Units |
|
|
Effective Ownership |
|
||||
Bella Vista |
|
Phoenix, Arizona |
|
January 28, 2019 |
|
$ |
48,400 |
|
|
$ |
29,040 |
|
|
|
248 |
|
|
|
100 |
% |
The Enclave |
|
Tempe, Arizona |
|
January 28, 2019 |
|
|
41,800 |
|
|
|
25,322 |
|
|
|
204 |
|
|
|
100 |
% |
The Heritage |
|
Phoenix, Arizona |
|
January 28, 2019 |
|
|
41,900 |
|
|
|
24,625 |
|
|
|
204 |
|
|
|
100 |
% |
Summers Landing |
|
Fort Worth, Texas |
|
June 7, 2019 |
|
|
19,396 |
|
|
|
10,109 |
|
|
|
196 |
|
|
|
100 |
% |
Residences at Glenview Reserve |
|
Nashville, Tennessee |
|
July 17, 2019 |
|
|
45,000 |
|
|
|
26,560 |
|
|
|
360 |
|
|
|
100 |
% |
Residences at West Place |
|
Orlando, Florida |
|
July 17, 2019 |
|
|
55,000 |
|
|
|
33,817 |
|
|
|
342 |
|
|
|
100 |
% |
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
August 30, 2019 |
|
|
322,000 |
|
|
|
177,100 |
|
|
|
1,520 |
|
|
|
100 |
% |
Arbors of Brentwood |
|
Nashville, Tennessee |
|
September 10, 2019 |
|
|
62,250 |
|
|
|
34,237 |
|
|
|
346 |
|
|
|
100 |
% |
Torreyana Apartments |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
68,000 |
|
|
|
37,400 |
|
|
|
315 |
|
|
|
100 |
% |
Bloom |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
106,500 |
|
|
|
58,850 |
|
|
|
528 |
|
|
|
100 |
% |
Bella Solara |
|
Las Vegas, Nevada |
|
November 22, 2019 |
|
|
66,500 |
|
|
|
36,575 |
|
|
|
320 |
|
|
|
100 |
% |
|
|
|
|
|
|
$ |
876,746 |
|
|
$ |
493,635 |
|
|
|
4,583 |
|
|
|
|
|
(1) |
For additional information regarding the Company’s debt, see Note 6. |
Dispositions
The Company sold six properties during the year ended December 31, 2019, as detailed in the table below (in thousands). The Company sold one property for approximately $30.0 million during the year ended December 31, 2018.
Property Name |
|
Location |
|
Date of Sale |
|
Sales Price |
|
|
Net Cash Proceeds (1) |
|
|
Gain on Sale of Real Estate |
|
|||
Edgewater at Sandy Springs |
|
Atlanta, Georgia |
|
August 28, 2019 |
|
$ |
101,250 |
|
|
$ |
100,120 |
|
|
$ |
47,332 |
|
Abbington Heights |
|
Antioch, Tennessee |
|
August 30, 2019 |
|
|
28,050 |
|
|
|
27,605 |
|
|
|
10,887 |
|
Belmont at Duck Creek |
|
Garland, Texas |
|
August 28, 2019 |
|
|
29,500 |
|
|
|
29,102 |
|
|
|
11,993 |
|
The Ashlar |
|
Dallas, Texas |
|
August 28, 2019 |
|
|
29,400 |
|
|
|
29,029 |
|
|
|
13,205 |
|
Heatherstone |
|
Dallas, Texas |
|
August 28, 2019 |
|
|
16,275 |
|
|
|
16,032 |
|
|
|
6,366 |
|
The Pointe at the Foothills |
|
Mesa, Arizona |
|
August 28, 2019 |
|
|
85,400 |
|
|
|
84,591 |
|
|
|
37,901 |
|
|
|
|
|
|
|
$ |
289,875 |
|
|
$ |
286,479 |
|
|
$ |
127,684 |
|
(1) |
Represents sales price, net of closing costs. |
F-21
Cutter’s Point Casualty Losses
On October 20, 2019, as a result of a tornado, the Cutter’s Point property suffered significant property damage. The damage incurred rendered the Property inoperable; therefore, the Company has ceased operations at the property as it is under reconstruction. In relation to this event, the Company wrote down the carrying value of Cutter’s Point by approximately $7.8 million, and, in accordance with ASC 610 Other Income, the Company recognized approximately $3.5 million in casualty losses on the consolidated statement of operations and comprehensive income during the year ended December 31, 2019. Also, the Company filed a business interruption insurance claim and recognized approximately $0.6 million for the lost rent, which is included in miscellaneous income on the consolidated statement of operations and comprehensive income for the year ended December 31, 2019. Lost rental income is insured and the Company expects any operating losses resulting from the damage to be immaterial while the property undergoes reconstruction. Starting November 1, 2019, the Company began capitalizing insurance expense, real estate taxes, interest expense and debt issuance costs to construction in progress and stopped depreciation due to Cutter’s Point being under development. As of December 31, 2019, approximately $0.2 million of these costs have been capitalized. As of December 31, 2019, Cutter’s Point was excluded from the portfolio’s total unit count and all same store pools due to the property temporarily ceasing operations while it under goes reconstruction which is estimated to be completed in 2021.
6. Debt
Mortgage Debt
The following table contains summary information concerning the mortgage debt of the Company as of December 31, 2019 (dollars in thousands):
Operating Properties |
|
Type |
|
Term (months) |
|
|
Outstanding Principal (1) |
|
|
Interest Rate (2) |
|
|
Maturity Date |
|||
Arbors on Forest Ridge |
(3) |
Floating |
|
|
84 |
|
|
$ |
13,130 |
|
|
3.44% |
|
|
7/1/2024 |
|
Cutter's Point |
(3) |
Floating |
|
|
84 |
|
|
|
16,640 |
|
|
3.44% |
|
|
7/1/2024 |
|
Eagle Crest |
(3) |
Floating |
|
|
84 |
|
|
|
29,510 |
|
|
3.44% |
|
|
7/1/2024 |
|
Silverbrook |
(3) |
Floating |
|
|
84 |
|
|
|
30,590 |
|
|
3.44% |
|
|
7/1/2024 |
|
Beechwood Terrace |
(3) |
Floating |
|
|
84 |
|
|
|
23,365 |
|
|
3.20% |
|
|
9/1/2025 |
|
The Summit at Sabal Park |
(3) |
Floating |
|
|
84 |
|
|
|
13,560 |
|
|
3.38% |
|
|
7/1/2024 |
|
Courtney Cove |
(3) |
Floating |
|
|
84 |
|
|
|
13,680 |
|
|
3.38% |
|
|
7/1/2024 |
|
The Preserve at Terrell Mill |
(3) |
Floating |
|
|
84 |
|
|
|
42,480 |
|
|
3.38% |
|
|
7/1/2024 |
|
Versailles |
(3) |
Floating |
|
|
84 |
|
|
|
23,880 |
|
|
3.38% |
|
|
7/1/2024 |
|
Seasons 704 Apartments |
(3) |
Floating |
|
|
84 |
|
|
|
17,460 |
|
|
3.38% |
|
|
7/1/2024 |
|
Madera Point |
(3) |
Floating |
|
|
84 |
|
|
|
15,150 |
|
|
3.38% |
|
|
7/1/2024 |
|
Venue at 8651 |
(3) |
Floating |
|
|
84 |
|
|
|
13,734 |
|
|
3.54% |
|
|
7/1/2024 |
|
The Venue on Camelback |
(3) |
Floating |
|
|
84 |
|
|
|
28,093 |
|
|
3.44% |
|
|
7/1/2024 |
|
Old Farm |
(3) |
Floating |
|
|
84 |
|
|
|
52,886 |
|
|
3.44% |
|
|
7/1/2024 |
|
Stone Creek at Old Farm |
(3) |
Floating |
|
|
84 |
|
|
|
15,274 |
|
|
3.44% |
|
|
7/1/2024 |
|
Timber Creek |
(3) |
Floating |
|
|
84 |
|
|
|
24,100 |
|
|
3.02% |
|
|
10/1/2025 |
|
Radbourne Lake |
(3) |
Floating |
|
|
84 |
|
|
|
20,000 |
|
|
3.05% |
|
|
10/1/2025 |
|
Sabal Palm at Lake Buena Vista |
(3) |
Floating |
|
|
84 |
|
|
|
42,100 |
|
|
3.06% |
|
|
9/1/2025 |
|
Cornerstone |
(4) |
Fixed |
|
|
120 |
|
|
|
21,772 |
|
|
4.24% |
|
|
3/1/2023 |
|
Parc500 |
(5) |
Fixed |
|
|
120 |
|
|
|
15,221 |
|
|
4.49% |
|
|
8/1/2025 |
|
Hollister Place |
(3) |
Floating |
|
|
84 |
|
|
|
14,811 |
|
|
3.10% |
|
|
10/1/2025 |
|
Rockledge Apartments |
(3) |
Floating |
|
|
84 |
|
|
|
68,100 |
|
|
3.33% |
|
|
7/1/2024 |
|
Atera Apartments |
(3) |
Floating |
|
|
84 |
|
|
|
29,500 |
|
|
3.24% |
|
|
11/1/2024 |
|
Cedar Pointe |
(6) |
Floating |
|
|
84 |
|
|
|
17,300 |
|
|
3.11% |
|
|
9/1/2025 |
|
Crestmont Reserve |
(3) |
Floating |
|
|
84 |
|
|
|
12,061 |
|
|
2.94% |
|
|
10/1/2025 |
|
Brandywine I & II |
(3) |
Floating |
|
|
84 |
|
|
|
43,835 |
|
|
2.94% |
|
|
10/1/2025 |
|
Bella Vista |
(7) |
Floating |
|
|
84 |
|
|
|
29,040 |
|
|
3.08% |
|
|
2/1/2026 |
|
The Enclave |
(7) |
Floating |
|
|
84 |
|
|
|
25,322 |
|
|
3.08% |
|
|
2/1/2026 |
|
The Heritage |
(7) |
Floating |
|
|
84 |
|
|
|
24,625 |
|
|
3.08% |
|
|
2/1/2026 |
|
Summers Landing |
(8) |
Floating |
|
|
84 |
|
|
|
10,109 |
|
|
2.94% |
|
|
10/1/2025 |
|
Residences at Glenview Reserve |
(9) |
Floating |
|
|
84 |
|
|
|
26,560 |
|
|
3.20% |
|
|
10/1/2025 |
|
Residences at West Place |
(9) |
Fixed |
|
|
120 |
|
|
|
33,817 |
|
|
4.24% |
|
|
10/1/2028 |
|
Avant at Pembroke Pines |
(3) |
Floating |
|
|
84 |
|
|
|
177,100 |
|
|
3.19% |
|
|
9/1/2026 |
|
Arbors of Brentwood |
(3) |
Floating |
|
|
84 |
|
|
|
34,237 |
|
|
3.19% |
|
|
10/1/2026 |
|
Torreyana Apartments |
(10) |
Floating |
|
|
84 |
|
|
|
37,400 |
|
|
3.46% |
|
|
12/1/2026 |
|
Bloom |
(10) |
Floating |
|
|
84 |
|
|
|
58,850 |
|
|
3.46% |
|
|
12/1/2026 |
|
Bella Solara |
(10) |
Floating |
|
|
84 |
|
|
|
36,575 |
|
|
3.46% |
|
|
12/1/2026 |
|
|
|
|
|
|
|
|
|
$ |
1,151,867 |
|
|
|
|
|
|
|
Fair market value adjustment |
|
|
|
|
|
|
|
|
1,463 |
|
(11) |
|
|
|
|
|
Deferred financing costs, net of accumulated amortization of $2,494 |
|
|
|
|
|
|
|
|
(7,959 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,145,371 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
(1) |
Mortgage debt that is non-recourse to the Company and encumbers the multifamily properties. |
(2) |
Interest rate is based on one-month LIBOR plus an applicable margin, except for fixed rate mortgage debt. One-month LIBOR as of December 31, 2019 was 1.7625%. |
(3) |
Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(4) |
Debt in the amount of $18.0 million was assumed upon acquisition of this property and recorded at approximated fair value. The assumed debt carries a 4.09% fixed rate, was originally issued in March 2013, and had a term of 120 months with an initial 24 months of interest only. At the time of acquisition, the principal balance of the first mortgage remained unchanged and had a remaining term of 98 months with 2 months of interest only. The first mortgage is pre-payable and subject to yield maintenance from the 13th month through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. Concurrently with the acquisition of the property, the Company placed a supplemental second mortgage on the property with a principal amount of approximately $5.8 million, a fixed rate of 4.70%, and with a maturity date that is the same time as the first mortgage. The supplemental second mortgage is pre-payable and subject to yield maintenance from the date of issuance through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. As of December 31, 2019, the total indebtedness secured by the property had a blended interest rate of 4.24%. |
(5) |
Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan is open to pre-payment in the last four months of the term. |
(6) |
Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(7) |
Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(8) |
Debt was assumed upon acquisition of this property and recorded at approximated fair value. It can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(9) |
Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan can be prepaid at the greater of par plus 1.00% of the unpaid principal balance or the product obtained by multiplying the present value of the principal being prepaid by the excess of the monthly fixed interest rate of the loan over a daily discount rate. The loan is open to pre-payment in the last three months of the term. |
(10) |
Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(11) |
The Company reflected a valuation adjustment on its fixed rate debt for Parc500 and Residences at West Place to adjust it to fair market value on their respective dates of acquisition for the difference between the fair value and the assumed principal amount of debt. The difference is amortized into interest expense over the remaining terms of the mortgages. |
During the year ended December 31, 2019, the Company sold six properties and repaid the related mortgage loans that encumbered the properties, as detailed in the table below (in thousands):
Property Name |
|
Date of Sale |
|
Type |
|
Outstanding Principal (1) |
|
|
Edgewater at Sandy Springs |
|
August 28, 2019 |
|
Floating |
|
$ |
52,000 |
|
Abbington Heights |
|
August 30, 2019 |
|
Floating |
|
|
16,920 |
|
Belmont at Duck Creek |
|
August 28, 2019 |
|
Floating |
|
|
17,760 |
|
The Ashlar |
|
August 28, 2019 |
|
Floating |
|
|
14,520 |
|
Heatherstone |
|
August 28, 2019 |
|
Floating |
|
|
8,880 |
|
The Pointe at the Foothills |
|
August 28, 2019 |
|
Floating |
|
|
34,800 |
|
|
|
|
|
|
|
$ |
144,880 |
|
F-23
The weighted average interest rate of the Company’s mortgage indebtedness was 3.34% as of December 31, 2019 and 4.07% as of December 31, 2018. The decrease between the periods is primarily related to a decrease in one-month LIBOR of approximately 74 basis points to 1.7625% as of December 31, 2019 from 2.5027% as of December 31, 2018. As of December 31, 2019, the adjusted weighted average interest rate of the Company’s mortgage indebtedness was 3.06%. For purposes of calculating the adjusted weighted average interest rate of the outstanding mortgage indebtedness, the Company has included the weighted average fixed rate of 1.4147% for one-month LIBOR on its combined $975.0 million notional amount of interest rate swap agreements, which effectively fix the interest rate on $975.0 million of the Company’s floating rate mortgage indebtedness (see Note 7).
Each of the Company’s mortgages is a non-recourse obligation subject to customary provisions. The loan agreements contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of December 31, 2019, the Company believes it is in compliance with all provisions.
Freddie Mac Multifamily Green Advantage. In order to obtain more favorable pricing on the Company’s mortgage debt financing with Freddie Mac, the Company has decided to participate in Freddie Mac’s new Multifamily Green Advantage program (the “Green Program”). In the second quarter of 2017, the Company escrowed approximately $4.2 million to finance smarter, greener property improvements at 18 of its properties. In connection with the three acquisitions and seven refinancings the Company completed in 2018, the Company escrowed approximately $1.2 million related to the Green Program. As of December 31, 2019, the Company has completed its Green Program improvements on all but two properties. Due to changes in Freddie Mac’s requirements to participate in the Green Program, we are not implementing this on acquisitions going forward.
Credit Facility
The following table contains summary information concerning the Company’s credit facility as of December 31, 2019 (dollars in thousands):
|
|
Type |
|
Term (months) |
|
|
Outstanding Principal |
|
|
Interest Rate (1) |
|
|
Maturity Date |
|||
Corporate Credit Facility |
|
Floating |
|
|
24 |
|
|
$ |
41,700 |
|
|
3.69% |
|
|
1/28/2021 |
|
Corporate Credit Facility |
|
Floating |
|
|
24 |
|
|
|
19,000 |
|
|
3.74% |
|
|
1/28/2021 |
|
Corporate Credit Facility |
|
Floating |
|
|
24 |
|
|
|
111,000 |
|
|
3.76% |
|
|
1/28/2021 |
|
Corporate Credit Facility |
|
Floating |
|
|
24 |
|
|
|
46,300 |
|
|
3.80% |
|
|
1/28/2021 |
|
Deferred financing costs, net of accumulated amortization of $553 |
|
|
|
|
|
|
|
|
(1,499 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
216,501 |
|
|
|
|
|
|
|
(1) |
Interest rate is based on one-month LIBOR plus an applicable margin. One-month LIBOR as of December 31, 2019 was 1.7625%. |
Corporate Credit Facility. On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with SunTrust Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term, that can be extended 12-months at the option of the Company for a minimal fee provided that the Company is not in default. The Company meets the conditions and expects to meet them going forward. The Company has the right to request an increase in the facility amount up to $150 million (the “Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75 million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional financing through the Accordion Feature (see “Deferred Financing Costs” below). On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $25 million, resulting in incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs.
$60 Million Credit Facility. On December 29, 2016, the Company, through the OP, entered into a $30.0 million credit facility (the “$30 Million Credit Facility”) with KeyBank National Association (“KeyBank”). On April 27, 2018, the Company, through the OP, amended the $30 Million Credit Facility to temporarily increase the loan commitment by $5.0 million (the “Temporary Increase”) and immediately drew $5.0 million. The $5.0 million drawn under the Temporary Increase was repaid in full on July 25, 2018. The Company accounted for the Temporary Increase as an extinguishment of a debt instrument. As such, the Company wrote-off the
F-24
unamortized deferred financing costs of approximately $0.1 million as of April 27, 2018, which is recorded in loss on extinguishment of debt and modification costs on the accompanying consolidated statements of operations and comprehensive income.
On September 26, 2018, the Company, through the OP, repaid the $30.0 million outstanding under the $30 Million Credit Facility and amended the loan agreement, extending the maturity date to September 26, 2020 and increasing the loan commitment to $60.0 million (the “$60 Million Credit Facility”). The Company accounted for the refinancing as an extinguishment of a debt instrument. The Company, through the OP, immediately drew $50.0 million to fund a portion of the purchase price of Brandywine I & II and Crestmont Reserve.
The $60 Million Credit Facility was a full-term, interest-only facility with a 24-month term and was guaranteed by the Company. Interest accrued on the $60 Million Credit Facility at an interest rate of one-month LIBOR plus 2.00%. In November 2018, the Company, through the OP, used net proceeds from the 2018 Offering (as defined below) (see Note 8) to repay the $50.0 million outstanding under the $60 Million Credit Facility, which retired the credit facility. In connection with the repayment, the Company, through the OP, received a commitment fee rebate of approximately $0.8 million from KeyBank, which was previously capitalized as a deferred financing cost on the Company’s consolidated balance sheet as of September 30, 2018.
$30 Million Bridge Facility. On September 26, 2018, the Company, through the OP, entered into a $30.0 million bridge facility (the “$30 Million Bridge Facility”) with KeyBank and immediately drew $30.0 million to fund a portion of the purchase price of Brandywine I & II and Crestmont Reserve. The $30 Million Bridge Facility was a full-term, interest-only facility with a six-month term and was guaranteed by the Company. Interest accrued on the $30 Million Bridge Facility at an interest rate of one-month LIBOR plus 2.00%. In November 2018, the Company, through the OP, used net proceeds from the 2018 Offering to repay the $30.0 million outstanding under the $30 Million Bridge Facility, which retired the bridge facility. In connection with the repayment, the Company, through the OP, received a commitment fee rebate of approximately $0.3 million from KeyBank, which was previously capitalized as a deferred financing cost on the Company’s consolidated balance sheet as of September 30, 2018.
2017 Bridge Facility. On June 30, 2017, the Company, through the OP, entered into a $65.9 million bridge facility (the “2017 Bridge Facility”) with KeyBank. The 2017 Bridge Facility was a full-term, interest-only facility with an initial four-month term and was guaranteed by the Company. Interest accrued on the 2017 Bridge Facility at an interest rate of one-month LIBOR plus 3.75%. In July 2017, the Company used proceeds from the sale of Regatta Bay to pay down $11.3 million on the 2017 Bridge Facility. In October 2017, the Company used proceeds from the sale of four properties to pay down approximately $46.0 million on the 2017 Bridge Facility, bringing the outstanding balance to approximately $8.6 million, and also extended the maturity date to March 31, 2018. In February 2018, the Company used proceeds from the sale of Timberglen to pay the remaining $8.6 million outstanding on the 2017 Bridge Facility, which retired the bridge facility.
Deferred Financing Costs
The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheets. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs (see “Loss on Extinguishment of Debt and Modification Costs” below). For the years ended December 31, 2019, 2018 and 2017, the Company wrote-off deferred financing costs of approximately $1.4 million, $1.4 million and $1.0 million, respectively, which is included in loss on extinguishment of debt and modification costs on the consolidated statements of operations and comprehensive income. For the years ended December 31, 2019, 2018 and 2017, amortization of deferred financing costs of approximately $2.1 million, $1.7 million and $2.0 million, respectively, is included in interest expense on the consolidated statements of operations and comprehensive income.
Loss on Extinguishment of Debt and Modification Costs
Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs incurred on the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment.
F-25
The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to December 31, 2019 are as follows (in thousands):
|
|
Operating Properties |
|
|
Held For Sale Property |
|
|
Credit Facility |
|
Total |
|
||||
2020 |
|
$ |
744 |
|
|
$ |
262 |
|
|
$ |
— |
|
$ |
1,006 |
|
2021 |
|
|
872 |
|
|
|
281 |
|
|
|
218,000 |
|
|
219,153 |
|
2022 |
|
|
1,367 |
|
|
|
12,622 |
|
|
|
— |
|
|
13,989 |
|
2023 |
|
|
21,155 |
|
|
|
— |
|
|
|
— |
|
|
21,155 |
|
2024 |
|
|
424,558 |
|
|
|
28,496 |
|
|
|
— |
|
|
453,054 |
|
Thereafter |
|
|
703,171 |
|
|
|
— |
|
|
|
— |
|
|
703,171 |
|
Total |
|
$ |
1,151,867 |
|
|
$ |
41,661 |
|
|
$ |
218,000 |
|
$ |
1,411,528 |
|
7. Fair Value of Derivatives and Financial Instruments
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):
|
• |
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. |
|
• |
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. |
|
• |
Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. |
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for investments and derivative financial instruments are fair and consistent as of the measurement date.
Derivative Financial Instruments and Hedging Activities
The Company is exposed to certain risks 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 debt funding and the use of derivative financial instruments. Specifically, the Company may enter 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. In order to minimize counterparty credit risk, the Company enters into and expects to enter into hedging arrangements only with major financial institutions that have high credit ratings.
F-26
The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined 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 implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable 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. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of December 31, 2019, 2018 and 2017 were classified as Level 2 of the fair value hierarchy.
The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate debt. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The interest rate swaps have terms ranging from four to five years. 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 interest rate caps have terms ranging from three to four years. During the years ended December 31, 2019, 2018 and 2017, interest rate cap derivatives were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt. The interest rate cap agreements the Company has entered into effectively cap one-month LIBOR on $346.5 million of the Company’s floating rate mortgage indebtedness at a weighted average rate of 5.74%.
The changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded in OCI and are subsequently reclassified into net income (loss) in the period that the hedged forecasted transaction affects earnings. Amounts reported in OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s floating rate debt. Prior to the Company’s adoption of ASU 2017-12 on January 1, 2018, the ineffective portion of changes in the fair value of the Company’s derivatives designated as cash flow hedges was recognized directly in net income (loss) as interest expense. The adoption of ASU 2017-12 eliminates the separate measurement of effectiveness and ineffectiveness, and all changes in the fair value of derivatives that are designated as cash flow hedges are recorded directly in OCI. Therefore, during the years ended December 31, 2019 and 2018, the Company recorded no gain or loss related to the ineffective portion of changes in the fair value of its derivatives designated as cash flow hedges. During the year ended December 31, 2017, the Company recorded approximately $0.3 million of gain related to the ineffective portion of changes in the fair value of its derivatives designated as cash flow hedges, which is recorded as a decrease to interest expense on the accompanying consolidated statements of operations and comprehensive income.
In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), the Company, through the OP, has entered into 10 interest rate swap transactions with KeyBank and one with SunTrust (the “Counterparties”) with a combined notional amount of $975.0 million. The interest rate swaps the Company has entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.4147%. The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.
F-27
As of December 31, 2019, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Effective Date |
|
Termination Date |
|
Counterparty |
|
Notional |
|
|
Fixed Rate (1) |
|
|
||
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
$ |
100,000 |
|
|
|
1.1055 |
% |
|
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.0210 |
% |
|
July 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
0.9000 |
% |
|
September 1, 2016 |
|
June 1, 2021 |
|
KeyBank |
|
|
100,000 |
|
|
|
0.9560 |
% |
|
April 1, 2017 |
|
April 1, 2022 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.9570 |
% |
|
May 1, 2017 |
|
April 1, 2022 |
|
KeyBank |
|
|
50,000 |
|
|
|
1.9610 |
% |
|
July 1, 2017 |
|
July 1, 2022 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.7820 |
% |
|
June 1, 2019 |
|
June 1, 2024 |
|
KeyBank |
|
|
50,000 |
|
|
|
2.0020 |
% |
|
June 1, 2019 |
|
June 1, 2024 |
|
SunTrust |
|
|
50,000 |
|
|
|
2.0020 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.4620 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
125,000 |
|
|
|
1.3020 |
% |
|
|
|
|
|
|
|
$ |
975,000 |
|
|
|
1.4147 |
% |
(2) |
(1) |
The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2019, one-month LIBOR was 1.7625%. |
(2) |
Represents the weighted average fixed rate of the interest rate swaps. |
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives and Hedging, or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in net income (loss) as interest expense.
As of December 31, 2019, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):
Product |
|
Number of Instruments |
|
|
Notional |
|
||
Interest rate caps |
|
|
15 |
|
|
$ |
346,542 |
|
As of December 31, 2018, the Company had 12 interest rate cap derivatives, with a notional amount of $255.2 million, which were not designated as hedges in qualifying hedging relationships. As of December 31, 2017, the Company had 16 interest rate cap derivatives, with a notional amount of $273.5 million, which were not designated as hedges in qualifying hedging relationships.
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 December 31, 2019 and 2018 (in thousands):
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
||||||||||
|
|
Balance Sheet Location |
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Fair market value of interest rate swaps |
|
$ |
7,298 |
|
|
$ |
18,141 |
|
|
$ |
3,824 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps |
|
Prepaid and other assets |
|
|
— |
|
|
|
10 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
|
$ |
7,298 |
|
|
$ |
18,151 |
|
|
$ |
3,824 |
|
|
$ |
— |
|
F-28
The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
Amount of gain (loss) recognized in OCI |
|
|
Location of gain (loss) reclassified from accumulated |
|
Amount of gain (loss) reclassified from OCI into income |
|
|
Location of gain (loss) recognized |
|
Amount of gain (loss) recognized in income |
|
|||||||||||||||||||||||||||
|
|
2019 |
|
|
2018 (1) |
|
|
2017 (1) |
|
|
OCI into income |
|
2019 |
|
|
2018 (1) |
|
|
2017 (1) |
|
|
in income |
|
2019 |
|
|
2018 *(2) |
|
|
2017 *(2)(3) |
|
|||||||||
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate products |
|
$ |
(8,153 |
) |
|
$ |
5,928 |
|
|
$ |
2,967 |
|
|
Interest expense |
|
$ |
6,472 |
|
|
$ |
3,997 |
|
|
$ |
(1,416 |
) |
|
Interest expense |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
124 |
|
* |
Includes amounts excluded from effectiveness testing. |
(1) |
Represents the effective portion of changes in fair value. |
(2) |
Represents the ineffective portion of changes in fair value. |
(3) |
Includes approximately $185,000 of loss reclassified from OCI for missed forecasted transactions due to hedged forecasted transactions being no longer probable. |
|
|
|
|
|
|
|
|
Location of gain (loss) |
|
Amount of gain (loss) recognized in income |
|
|
|||||||||
|
|
|
|
|
|
|
|
recognized in income |
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
|||
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate products |
|
|
|
|
|
|
|
Interest expense |
|
$ |
(30 |
) |
|
$ |
(49 |
) |
|
$ |
(19 |
) |
|
Other Financial Instruments Carried at Fair Value
Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP (see Note 10). The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the OP are classified as Level 2 if they are adjusted to their redemption value.
Financial Instruments Not Carried at Fair Value
At December 31, 2019 and 2018, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid assets, accounts payable and other accrued liabilities, accrued real estate taxes payable, accrued interest payable, security deposits and prepaid rent approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.
Long-term indebtedness is carried at amounts that reasonably approximate their fair value. In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 inputs.
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. There can be no assurance that the estimates discussed herein, using Level 3 inputs, are indicative of the amounts the Company could realize on disposition of the real estate asset. For the year ended December 31, 2019, the Company noted there was no impairment, but incurred a casualty loss that resulted in a net write down of approximately $7.8 million
F-29
on Cutter’s Point (see Note 5). The Company did not record any write downs related to real estate assets for the years ended December 31, 2018 and 2017.
8. Stockholders’ Equity
Common Stock
On March 15, 2017, the Company filed a registration statement on Form S-3 (the “Registration Statement”), registering an indeterminate aggregate principal amount and number of securities of each identified class of securities therein up to a proposed aggregate offering price of $200,000,000, which may be offered from time to time in unspecified numbers and at indeterminate prices, as may be issued upon conversion, redemption, repurchase, exchange or exercise of any securities registered thereunder, including under any applicable anti-dilution provisions. The Registration Statement also covers an indeterminate number of securities that may become issuable as a result of stock splits, stock dividends or similar transactions relating to the securities registered thereunder.
On November 14, 2018, the Company issued 2,702,500 shares of common stock, par value $0.01 per share, at a public offering price of $33.00 per share (before underwriters’ discounts and offering costs) for gross proceeds of approximately $89.2 million (the “2018 Offering”). The common stock was offered and sold pursuant to a prospectus supplement, dated November 14, 2018, and a base prospectus, dated April 24, 2017, relating to the Registration Statement. The Company contributed the net proceeds from the 2018 Offering to the OP in exchange for 2,702,500 OP Units, and the OP in turn used a majority of the net proceeds to repay the $50.0 million outstanding under the $60 Million Credit Facility and the $30.0 million outstanding under the $30 Million Bridge Facility.
During the year ended December 31, 2019, the Company issued 180,783 shares of common stock pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below) and 1,565,322 pursuant to its at-the-market offering (see “At-the-Market Offering” below).
As of December 31, 2019, the Company had 25,245,740 shares of common stock, par value $0.01 per share, issued and outstanding.
Share Repurchase Program
On June 15, 2016, the Board authorized the Company to repurchase up to $30.0 million of its common stock, par value $0.01 per share, during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, the Board increased the Share Repurchase Program to up to $40.0 million and extended it by an additional two years to June 15, 2020. The Company may utilize various methods to effect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value per share. Repurchases under this program may be discontinued at any time.
Treasury Stock
From time to time, in accordance with the Company’s share repurchase program, the Company may repurchase shares of its common stock in the open market. Until any such shares are retired, the cost of the shares is included in common stock held in treasury at cost on the consolidated balance sheet. The number of shares of common stock classified as treasury shares reduces the number of shares of the Company’s common stock outstanding and, accordingly, are considered in the weighted average number of shares outstanding during the period. During the years ended December 31, 2019 and 2018, the Company retired no shares of its common stock held in treasury. As of December 31, 2019 and 2018, the Company had no shares of common stock held in treasury.
Long Term Incentive Plan
On June 15, 2016, the Company’s stockholders approved a long-term incentive plan (the “2016 LTIP”) and the Company filed a registration statement on Form S-8 registering 2,100,000 shares of common stock, par value $0.01 per share, which the Company may issue pursuant to the 2016 LTIP. The 2016 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock or factors that may influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), the Company’s non-employee directors, and potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.
F-30
Restricted Stock Units. Under the 2016 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries) and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for directors. Beginning on the date of grant, restricted stock units earn dividends that are payable in cash on the vesting date. On August 11, 2016, pursuant to the 2016 LTIP, the Company granted 209,797 restricted stock units to its directors and officers. On March 16, 2017, pursuant to the 2016 LTIP, the Company granted 219,802 restricted stock units to its directors and officers. On February 15, 2018, pursuant to the 2016 LTIP, the Company granted 275,795 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 21, 2019, pursuant to the 2016 LTIP, the Company granted 186,662 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of December 31, 2019:
|
|
2019 |
|
|||||
|
|
Number of Units |
|
|
Weighted Average Grant Date Fair Value |
|
||
Outstanding January 1, |
|
|
464,626 |
|
|
$ |
22.80 |
|
Granted |
|
|
186,662 |
|
|
|
37.50 |
|
Vested |
|
|
(197,863 |
) |
(1) |
|
23.10 |
|
Forfeited |
|
|
(6,386 |
) |
|
|
— |
|
Outstanding December 31, |
|
|
447,039 |
|
(2) |
$ |
29.13 |
|
(1) |
Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 180,783 shares being issued as shown on the Consolidated Statement of Stockholders’ Equity. |
(2) |
108,613 restricted stock units vest in February 2020, 69,530 vest in March 2020, 99,564 vest in February 2021, 99,563 vest in February 2022, 34,883 vest in February 2023 and 34,886 vest in February 2024. |
As of December 31, 2019, the Company had issued 421,551 shares of common stock under the 2016 LTIP. For the years ended December 31, 2019, 2018 and 2017, the Company recognized approximately $5.1 million, $4.2 million and $3.1 million, respectively, of equity-based compensation expense related to grants of restricted stock units, which is included in corporate general and administrative expenses on the consolidated statements of operations and comprehensive income. As of December 31, 2019, the Company had recognized a liability of approximately $0.8 million related to dividends earned on restricted stock units that are payable in cash upon vesting.
At-the-Market Offering
On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”) and SunTrust Robinson Humphrey, Inc. (together with Raymond James and Jefferies, the “Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “ATM Program”). Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the ATM Program. During the year ended December 31, 2019, the Company issued 1,565,322 shares of common stock at an average price of $45.98 per share for gross proceeds of approximately $72.0 million. The Company paid approximately $1.1 million in fees to the Sales Agents with respect to such sales and incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. The ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the ATM Program reach $100,000,000. The following table contains summary information of the ATM Program:
Gross proceeds |
|
$ |
71,973,433 |
|
Common shares sold |
|
|
1,565,322 |
|
Gross average sale price per share |
|
$ |
45.98 |
|
|
|
|
|
|
Sales commissions |
|
$ |
1,079,601 |
|
Offering costs |
|
|
1,019,778 |
|
Net proceeds |
|
|
69,874,054 |
|
Average price per share, net |
|
$ |
44.64 |
|
F-31
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s common stock outstanding, which is adjusted for shares classified as treasury shares during the period and excludes any unvested restricted stock units issued pursuant to the 2016 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effect of the assumed vesting of restricted stock units. During periods of net loss, the assumed vesting of restricted stock units is anti-dilutive and is not included in the calculation of earnings (loss) per share.
The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted earnings (loss) per share, as they are exchangeable for common stock on a one-for-one basis. The income (loss) allocable to such units is allocated on this same basis and reflected as net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership in the accompanying consolidated statements of operations and comprehensive income. As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings (loss) per share. See Note 10 for additional information.
The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):
|
|
For the Year Ended December 31, |
|
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
|||
Numerator for earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
99,438 |
|
|
$ |
(1,614 |
) |
|
$ |
56,359 |
|
|
Net income attributable to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
2,836 |
|
|
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
298 |
|
|
|
(5 |
) |
|
|
149 |
|
|
Net income (loss) attributable to common stockholders |
|
$ |
99,140 |
|
|
$ |
(1,609 |
) |
|
$ |
53,374 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for earnings (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
24,116 |
|
|
|
21,189 |
|
|
|
21,057 |
|
|
Denominator for basic earnings (loss) per share |
|
|
24,116 |
|
|
|
21,189 |
|
|
|
21,057 |
|
|
Weighted average unvested restricted stock units |
|
|
477 |
|
|
|
478 |
|
|
|
342 |
|
|
Denominator for diluted earnings (loss) per share |
|
|
24,593 |
|
|
|
21,667 |
|
|
|
21,399 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per weighted average common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
4.11 |
|
|
$ |
(0.08 |
) |
|
$ |
2.53 |
|
|
Diluted |
|
$ |
4.03 |
|
|
$ |
(0.08 |
) |
|
$ |
2.49 |
|
|
10. Noncontrolling Interests
Redeemable Noncontrolling Interests in the OP
Interests in the OP held by limited partners are represented by OP Units. Net income (loss) is allocated to holders of OP Units based upon net income (loss) attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the terms of the partnership agreement of the OP. Each time the OP distributes cash to the Company, outside limited partners of the OP receive their pro-rata share of the distribution. Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP.
On June 30, 2017, the Company and the OP entered into a contribution agreement (the “Contribution Agreement”) with BH Equities, LLC and its affiliates (collectively, “BH Equity”), whereby the Company purchased 100% of the joint venture interests in the Portfolio owned by BH Equity, representing approximately 8.4% ownership in the Portfolio (the “BH Buyout”), for total consideration of approximately $51.7 million (the “Purchase Amount”). The Purchase Amount consisted of approximately $49.7 million in cash that was paid on June 30, 2017 and 73,233 OP Units (initially valued at $2.0 million) that were issued on August 1, 2017. The number of OP Units issued was calculated by dividing $2.0 million by the midpoint of the range of the Company’s net asset value as publicly disclosed in connection with the Company’s release of its second quarter of 2017 earnings results, which was $27.31 per share.
In connection with the issuance of OP Units to BH Equity on August 1, 2017, the Company and the OP amended the partnership agreement of the OP (the “Amendment”). Pursuant to the Amendment, limited partners holding OP Units have the right to cause the OP to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement
F-32
of the OP), provided that such OP Units have been outstanding for at least one year. The Company, through the OP GP, as the general partner of the OP may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (one share of common stock of the Company for each OP Unit), as defined in the partnership agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as determined in the Company’s sole discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities Act of 1933, as amended. Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports the OP Units at the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet date.
The following table sets forth the redeemable noncontrolling interests in the OP for the year ended December 31, 2019 (in thousands):
Redeemable noncontrolling interests in the OP, December 31, 2018 |
|
$ |
2,567 |
|
Net income attributable to redeemable noncontrolling interests in the OP |
|
|
298 |
|
Other comprehensive loss attributable to redeemable noncontrolling interests in the OP |
|
|
(44 |
) |
Contributions from redeemable noncontrolling interests in the OP |
|
|
140 |
|
Distributions to redeemable noncontrolling interests in the OP |
|
|
(47 |
) |
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP |
|
|
381 |
|
Redeemable noncontrolling interests in the OP, December 31, 2019 |
|
$ |
3,295 |
|
Noncontrolling Interests
Noncontrolling interests have in the past and may in the future be comprised of joint venture partners’ interests in joint ventures the Company consolidates. When applicable, the Company reports its joint venture partners’ interests in its consolidated joint ventures and other subsidiary interests held by third parties as noncontrolling interests. The Company records these noncontrolling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investment’s net income or loss, equity contributions, return of capital, and distributions. Generally, these noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the noncontrolling interest holder based on its economic ownership percentage.
On June 30, 2017, in connection with the BH Buyout, the Company purchased 100% of the outstanding noncontrolling interests in its joint ventures for approximately $51.7 million. On June 30, 2017, prior to the BH Buyout, the carrying value of such noncontrolling interests was approximately $20.5 million. On June 30, 2017, the Company eliminated the carrying value of such noncontrolling interests on its consolidated balance sheet. The remaining $31.2 million of the Purchase Amount resulted in a reduction to additional paid-in capital on the Company’s consolidated balance sheet.
F-33
Fees and Reimbursements to BH and its Affiliates
The Company has entered into management agreements with BH Management Services, LLC (“BH”), the Company’s property manager and an independently owned third party, who manages the Company’s properties and supervises the implementation of the Company’s value-add program. BH is an affiliate of BH Equity, who was a noncontrolling interest member of the Company’s joint ventures prior to the BH Buyout on June 30, 2017. Through BH Equity’s noncontrolling interests in such joint ventures, BH Equity was deemed to be a related party. With the completion of the BH Buyout, BH Equity is no longer deemed to be a related party. BH Equity became a noncontrolling limited partner of the OP upon execution of the Amendment. BH and its affiliates do not have common ownership in any joint venture with the Adviser; there is also no common ownership between BH and its affiliates and the Adviser.
The property management fee paid to BH is approximately 3% of the monthly gross income from each property managed. Currently, BH manages all of the Company’s properties. Additionally, the Company may pay BH certain other fees, including: (1) a fee of $15-25 per unit for the one-time setup and inspection of properties, (2) a construction supervision fee of 5-6% of total project costs, which is capitalized, (3) acquisition fees and due diligence costs reimbursements, and (4) other owner approved fees at $55 per hour. BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of the properties. The following is a summary of fees that the properties incurred to BH and its affiliates, as well as reimbursements paid to BH from the properties for various operating expenses, for the years ended December 31, 2019, 2018 and 2017 (in thousands):
|
|
|
For the Year Ended December 31, |
|
|
|||||||||
|
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|
|||
Fees incurred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management fees |
(1) |
|
$ |
5,363 |
|
|
$ |
4,382 |
|
|
$ |
4,330 |
|
|
Construction supervision fees |
(2) |
|
|
1,549 |
|
|
|
974 |
|
|
|
869 |
|
|
Design fees |
(2) |
|
|
255 |
|
|
|
102 |
|
|
|
— |
|
|
Acquisition fees |
(3) |
|
|
1,465 |
|
|
|
348 |
|
|
|
675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payroll and benefits |
(4) |
|
|
18,148 |
|
|
|
14,100 |
|
|
|
15,344 |
|
|
Other reimbursements |
(5) |
|
|
3,286 |
|
|
|
2,200 |
|
|
|
1,982 |
|
|
(1) |
Included in property management fees on the consolidated statements of operations and comprehensive income. |
(2) |
Capitalized on the consolidated balance sheets and reflected in buildings and improvements. |
(3) |
Includes due diligence costs. Acquisition fees are capitalized to real estate assets on the consolidated balance sheets. |
(4) |
Included in property operating expenses on the consolidated statements of operations and comprehensive income. |
(5) |
Includes property operating expenses such as repairs and maintenance costs and certain property general and administrative expenses, which are included on the consolidated statements of operations and comprehensive income. |
11. Related Party Transactions
Asset Management Fee
Until the BH Buyout on June 30, 2017, in accordance with the operating agreement of each entity that owns the properties, the Company earned an asset management fee for services provided in connection with monitoring the operations of the properties. The asset management fee was equal to 0.5% per annum of the aggregate effective gross income of the properties, as defined in each of the operating agreements. For the year ended December 31, 2017, the properties incurred asset management fees to the Company of approximately $0.4 million. Since the fees were paid to the Company (and not the Adviser) by consolidated properties, they have been eliminated in consolidation. However, because the Company’s previous joint venture partners owned a portion of each of a majority of the properties in the Portfolio, prior to the Company’s purchase of 100% of their joint venture interests, they absorbed their pro rata share of the asset management fee. This amount is reflected on the consolidated statements of operations and comprehensive income in the net income attributable to noncontrolling interests.
Advisory and Administrative Fee
In accordance with the Advisory Agreement, the Company pays the Adviser an advisory fee equal to 1.00% of the Average Real Estate Assets (as defined below). The duties performed by the Company’s Adviser under the terms of the Advisory Agreement include, but are not limited to: providing daily management for the Company, selecting and working with third party service providers, managing the Company’s properties or overseeing the third party property manager, formulating an investment strategy for the Company and selecting suitable properties and investments, managing the Company’s outstanding debt and its interest rate exposure through derivative instruments, determining when to sell assets, and managing the value-add program or overseeing a third party vendor that implements the value-add program. “Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets before reserves for depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for
F-34
capital expenditures (the value-add program). The advisory fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the advisory fee in shares of common stock, subject to certain limitations.
In accordance with the Advisory Agreement, the Company also pays the Adviser an administrative fee equal to 0.20% of the Average Real Estate Assets. The administrative fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the administrative fee in shares of common stock, subject to certain limitations.
The advisory and administrative fees paid to the Adviser on the Contributed Assets (as defined below) are subject to an annual cap of approximately $5.4 million (the “Contributed Assets Cap”) (see “Expense Cap” below).
Pursuant to the terms of the Advisory Agreement, the Company will reimburse the Adviser for all documented Operating Expenses and Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and due diligence services performed by the Adviser that outside professionals or outside consultants would otherwise perform, the Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Adviser required for the Company’s operations, and compensation expenses under the 2016 LTIP. Operating Expenses do not include expenses for the advisory and administrative services described in the Advisory Agreement. Certain Operating Expenses, such as the Company’s ratable share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses incurred by the Adviser or its affiliates that relate to the operations of the Company, may be billed monthly to the Company under a shared services agreement. “Offering Expenses” include all expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing fees and other documented offering expenses. For the years ended December 31, 2019, 2018 and 2017, the Adviser did not bill any Operating Expenses or Offering Expenses to the Company and any such expenses the Adviser incurred during the periods are considered to be permanently waived.
Expense Cap
Pursuant to the terms of the Advisory Agreement, expenses paid or incurred by the Company for advisory and administrative fees payable to the Adviser and Operating Expenses will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect) (the “Expense Cap”). The Expense Cap does not limit the reimbursement of expenses related to Offering Expenses. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation or other events outside the Company’s ordinary course of business or any out-of-pocket acquisitions or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Also, advisory and administrative fees are further limited on Contributed Assets to approximately $5.4 million in any calendar year. Contributed Assets refers to all Real Estate Assets contributed to the Company as part of the Spin-Off. The Contributed Assets Cap is not reduced for dispositions of such assets subsequent to the Spin-Off. Advisory and administrative fees on New Assets are not subject to the above limitation and are based on an annual rate of 1.2% on Average Real Estate Assets, but are subject to the Expense Cap. New Assets are all Real Estate Assets that are not Contributed Assets.
For the years ended December 31, 2019, 2018 and 2017, the Company incurred advisory and administrative fees of $7.5 million, $7.5 million and $7.4 million, respectively. The amount paid for the years ended December 31, 2019, 2018 and 2017 represents the maximum fee allowed on Contributed Assets under the Advisory Agreement plus approximately $2.1 million, $2.1 million and $2.0 million, respectively, of advisory and administrative fees incurred on New Assets.
For the year ended December 31, 2019, the Adviser elected to voluntarily waive the advisory and administrative fees incurred on properties acquired subsequent to October 2016 (19 properties waived from January through August and 17 properties waived from September through December), which totaled approximately $9.1 million. For the year ended December 31, 2018, the Adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties acquired subsequent to October 2016, which totaled approximately $4.1 million. For the year ended December 31, 2017, the Adviser elected to voluntarily waive the advisory and administrative fees incurred on the five properties acquired subsequent to October 2016, which totaled approximately $2.4 million. The advisory and administrative fees waived by the Adviser for the years ended December 31, 2019, 2018 and 2017 are considered to be permanently waived for the periods. The Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion.
F-35
Other Related Party Transactions
The Company has in the past, and may in the future, utilize the services of affiliated parties. For the years ended December 31, 2019, 2018 and 2017, the Company paid approximately $0.3 million, $0.3 million and $1.2 million, respectively, to NexBank Title, Inc. (“NexBank Title”). NexBank Title is an affiliate of the Adviser through common beneficial ownership. NexBank Title provides title insurance and work related to providing title insurance on properties related to acquisitions, dispositions and refinancing transactions. These amounts are either capitalized as real estate assets or deferred financing costs, expensed as loss on extinguishment of debt and modification costs, or expensed as selling costs when determining gain (loss) on sales of real estate, depending on the appropriate accounting as determined for each specific transaction.
In the normal course of business, the Company may purchase properties from affiliates of the Adviser. During the year ended December 31, 2019, the Company purchased Residences at Glenview Reserve and Residences at West Place from an affiliate of the Adviser for approximately $100.0 million (see Note 5 to our consolidated financial statements for additional details related to acquisitions during the period). The Company’s Audit Committee authorized, approved and ratified the acquisition of these properties.
On November 14, 2018, as part of the 2018 Offering, affiliates of the Adviser purchased 207,971 shares from the underwriters. The shares were purchased on the same terms as other investors at a public offering price of $33.00 per share. However, no underwriters’ discount applied to the purchase of such shares.
12. Commitments and Contingencies
Commitments
In the normal course of business, the Company enters into various rehabilitation construction related purchase commitments with parties that provide these goods and services. In the event the Company were to terminate rehabilitation construction services prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase orders with such parties. As of December 31, 2019, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.
Contingencies
In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.
The Company is not aware of any material environmental liability with respect to the properties that could have a material adverse effect on the Company’s business, assets, or results of operations. However, there can be no assurance that such a material environmental liability does not exist. The existence of any such material environmental liability could have an adverse effect on the Company’s results of operations and cash flows.
13. Subsequent Events
Dividends Declared
On February 17, 2020, the Company’s board of directors declared a quarterly dividend of $0.3125 per share, payable on March 31, 2020 to stockholders of record on March 16, 2020.
Dispositions
On January 23, 2020 the Company, through the OP, entered into a purchase and sale agreement with a large real estate investment firm (the “Buyer”) for the sale of the following proprieties. Closing of the disposition is subject to Buyer due diligence and customary closing conditions. The sales of the properties are expected to close on or before March 31, 2020.
Property Name (1) |
|
Location |
|
Sales Price |
|
|
Debt Outstanding (2) |
|
|
Real Estate Carrying Value, net (2) |
|
|
|||
Woodbridge |
|
Nashville, Tennessee |
|
$ |
31,700 |
|
|
$ |
13,677 |
|
|
$ |
15,183 |
|
|
Willow Grove |
|
Nashville, Tennessee |
|
|
31,300 |
|
|
|
14,818 |
|
|
|
13,453 |
|
|
|
|
|
|
$ |
63,000 |
|
|
$ |
28,495 |
|
|
$ |
28,636 |
|
|
(1) |
Properties were classified as held for sale as of December 31, 2019. |
(2) |
As of December 31, 2019. |
F-36
$92.5 Million Swap
On January 16, 2020, NexPoint Residential Trust, Inc. (the “Company”), through its operating partnership, NexPoint Residential Trust Operating Partnership, L.P., entered into an interest rate swap transaction with KeyBank National Association (the “Swap”). The Company entered into the Swap to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness). The Swap has an effective date of January 16, 2020 and a termination date of January 1, 2027. Beginning on February 1, 2020, the Company will be required to make monthly fixed rate payments of 1.798% calculated on a notional amount of $92.5 million, while the counterparty will be obligated to make monthly floating rate payments based on one-month LIBOR to the Company referencing the same notional amount.
14. Quarterly Results (unaudited)
Presented below is a summary of the unaudited quarterly consolidated financial information for the years ended December 31, 2019, 2018 and 2017 (in thousands, except per share amounts):
|
|
2019 Quarters Ended |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
Total revenues |
|
$ |
41,491 |
|
|
$ |
43,066 |
|
|
$ |
46,833 |
|
|
$ |
49,676 |
|
Net income (loss) |
|
|
(4,373 |
) |
|
|
(1,987 |
) |
|
|
119,104 |
|
|
|
(13,306 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders |
|
|
(4,360 |
) |
|
|
(1,981 |
) |
|
|
118,747 |
|
|
|
(13,266 |
) |
Earnings (loss) per share - basic |
(1) |
|
(0.19 |
) |
|
|
(0.08 |
) |
|
|
4.93 |
|
|
|
(0.53 |
) |
Earnings (loss) per share - diluted |
(1) |
|
(0.19 |
) |
|
|
(0.08 |
) |
|
|
4.84 |
|
|
|
(0.53 |
) |
(1) |
Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the loss per share amount calculated for the year ended December 31, 2019. |
|
|
2018 Quarters Ended |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
Total revenues |
|
$ |
35,057 |
|
|
$ |
35,655 |
|
|
$ |
36,495 |
|
|
$ |
39,390 |
|
Net income (loss) |
|
|
10,094 |
|
|
|
(1,666 |
) |
|
|
(5,260 |
) |
|
|
(4,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders |
|
|
10,064 |
|
|
|
(1,661 |
) |
|
|
(5,245 |
) |
|
|
(4,767 |
) |
Earnings (loss) per share - basic |
(1) |
|
0.48 |
|
|
|
(0.08 |
) |
|
|
(0.25 |
) |
|
|
(0.21 |
) |
Earnings (loss) per share - diluted |
(1) |
|
0.47 |
|
|
|
(0.08 |
) |
|
|
(0.25 |
) |
|
|
(0.21 |
) |
(1) |
Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the earnings per share amount calculated for the year ended December 31, 2018. |
|
|
2017 Quarters Ended |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
Total revenues |
|
$ |
36,991 |
|
|
$ |
35,234 |
|
|
$ |
37,097 |
|
|
$ |
34,913 |
|
Net income |
|
|
(3,304 |
) |
|
|
9,930 |
|
|
|
54,076 |
|
|
|
(4,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders |
|
|
(3,616 |
) |
|
|
7,406 |
|
|
|
53,914 |
|
|
|
(4,330 |
) |
Earnings (loss) per share - basic |
(1) |
|
(0.17 |
) |
|
|
0.35 |
|
|
|
2.56 |
|
|
|
(0.21 |
) |
Earnings (loss) per share - diluted |
(1) |
|
(0.17 |
) |
|
|
0.34 |
|
|
|
2.53 |
|
|
|
(0.21 |
) |
(1) |
Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the earnings per share amount calculated for the year ended December 31, 2017. |
F-37
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2019
(in thousands)
|
|
|
|
|
|
|
|
Initial Cost to Company |
|
|
Costs Capitalized |
|
|
Gross Amount Carried at December 31, 2019 |
|
|
Accumulated |
|
|
|
||||||||||||||||||||
Property Name |
|
Location |
|
Encumbrances (1) |
|
|
Land |
|
|
Buildings and Improvements (2) |
|
|
Total |
|
|
Subsequent to Acquisition |
|
|
Land |
|
|
Buildings and Improvements (3) |
|
|
Total (4) |
|
|
Depreciation and Amortization (5) (6) |
|
|
Date Acquired |
|||||||||
Arbors on Forest Ridge |
|
Bedford, Texas |
|
$ |
13,130 |
|
|
$ |
2,330 |
|
|
$ |
10,475 |
|
|
$ |
12,805 |
|
|
$ |
2,942 |
|
|
$ |
2,330 |
|
|
$ |
13,105 |
|
|
$ |
15,435 |
|
|
$ |
(3,472 |
) |
|
1/31/2014 |
Cutter's Point |
|
Richardson, Texas |
|
|
16,640 |
|
|
|
3,330 |
|
|
|
12,515 |
|
|
|
15,845 |
|
|
|
(5,074 |
) |
|
|
3,330 |
|
|
|
7,089 |
|
|
|
10,419 |
|
|
|
(1,086 |
) |
|
1/31/2014 |
Eagle Crest |
|
Irving, Texas |
|
|
29,510 |
|
|
|
5,450 |
|
|
|
21,875 |
|
|
|
27,325 |
|
|
|
4,441 |
|
|
|
5,450 |
|
|
|
25,662 |
|
|
|
31,112 |
|
|
|
(6,031 |
) |
|
1/31/2014 |
Silverbrook |
|
Grand Prairie, Texas |
|
|
30,590 |
|
|
|
4,860 |
|
|
|
25,540 |
|
|
|
30,400 |
|
|
|
6,974 |
|
|
|
4,860 |
|
|
|
31,721 |
|
|
|
36,581 |
|
|
|
(8,507 |
) |
|
1/31/2014 |
Beechwood Terrace |
|
Antioch, Tennessee |
|
|
23,365 |
|
|
|
1,390 |
|
|
|
20,010 |
|
|
|
21,400 |
|
|
|
5,004 |
|
|
|
1,390 |
|
|
|
24,605 |
|
|
|
25,995 |
|
|
|
(5,620 |
) |
|
7/21/2014 |
Willow Grove |
|
Nashville, Tennessee |
|
|
14,818 |
|
|
|
3,940 |
|
|
|
9,810 |
|
|
|
13,750 |
|
|
|
3,266 |
|
|
|
3,940 |
|
|
|
12,778 |
|
|
|
16,718 |
|
|
|
(3,265 |
) |
|
7/21/2014 |
Woodbridge |
|
Nashville, Tennessee |
|
|
13,677 |
|
|
|
3,650 |
|
|
|
12,350 |
|
|
|
16,000 |
|
|
|
3,214 |
|
|
|
3,650 |
|
|
|
15,230 |
|
|
|
18,880 |
|
|
|
(3,697 |
) |
|
7/21/2014 |
The Summit at Sabal Park |
|
Tampa, Florida |
|
|
13,560 |
|
|
|
5,770 |
|
|
|
13,280 |
|
|
|
19,050 |
|
|
|
2,322 |
|
|
|
5,770 |
|
|
|
15,198 |
|
|
|
20,968 |
|
|
|
(3,941 |
) |
|
8/20/2014 |
Courtney Cove |
|
Tampa, Florida |
|
|
13,680 |
|
|
|
5,880 |
|
|
|
13,070 |
|
|
|
18,950 |
|
|
|
2,758 |
|
|
|
5,880 |
|
|
|
15,397 |
|
|
|
21,277 |
|
|
|
(3,777 |
) |
|
8/20/2014 |
Radbourne Lake |
|
Charlotte, North Carolina |
|
|
20,000 |
|
|
|
2,440 |
|
|
|
21,810 |
|
|
|
24,250 |
|
|
|
3,304 |
|
|
|
2,440 |
|
|
|
24,462 |
|
|
|
26,902 |
|
|
|
(5,578 |
) |
|
9/30/2014 |
Timber Creek |
|
Charlotte, North Carolina |
|
|
24,100 |
|
|
|
11,260 |
|
|
|
11,490 |
|
|
|
22,750 |
|
|
|
6,241 |
|
|
|
11,260 |
|
|
|
16,932 |
|
|
|
28,192 |
|
|
|
(4,428 |
) |
|
9/30/2014 |
Sabal Palm at Lake Buena Vista |
|
Orlando, Florida |
|
|
42,100 |
|
|
|
7,580 |
|
|
|
41,920 |
|
|
|
49,500 |
|
|
|
3,908 |
|
|
|
7,580 |
|
|
|
44,441 |
|
|
|
52,021 |
|
|
|
(8,606 |
) |
|
11/5/2014 |
Southpoint Reserve at Stoney Creek |
|
Fredericksburg, Virginia |
|
|
13,166 |
|
|
|
6,120 |
|
|
|
10,880 |
|
|
|
17,000 |
|
|
|
2,083 |
|
|
|
6,120 |
|
|
|
12,471 |
|
|
|
18,591 |
|
|
|
(897 |
) |
|
12/18/2014 |
Cornerstone |
|
Orlando, Florida |
|
|
21,772 |
|
|
|
1,500 |
|
|
|
30,050 |
|
|
|
31,550 |
|
|
|
4,474 |
|
|
|
1,500 |
|
|
|
33,630 |
|
|
|
35,130 |
|
|
|
(7,086 |
) |
|
1/15/2015 |
The Preserve at Terrell Mill |
|
Marietta, Georgia |
|
|
42,480 |
|
|
|
10,170 |
|
|
|
47,830 |
|
|
|
58,000 |
|
|
|
9,391 |
|
|
|
10,170 |
|
|
|
55,407 |
|
|
|
65,577 |
|
|
|
(13,129 |
) |
|
2/6/2015 |
Versailles |
|
Dallas, Texas |
|
|
23,880 |
|
|
|
6,720 |
|
|
|
19,445 |
|
|
|
26,165 |
|
|
|
6,568 |
|
|
|
6,720 |
|
|
|
25,432 |
|
|
|
32,152 |
|
|
|
(6,152 |
) |
|
2/26/2015 |
Seasons 704 Apartments |
|
West Palm Beach, Florida |
|
|
17,460 |
|
|
|
7,480 |
|
|
|
13,520 |
|
|
|
21,000 |
|
|
|
2,699 |
|
|
|
7,480 |
|
|
|
15,818 |
|
|
|
23,298 |
|
|
|
(3,636 |
) |
|
4/15/2015 |
Madera Point |
|
Mesa, Arizona |
|
|
15,150 |
|
|
|
4,920 |
|
|
|
17,605 |
|
|
|
22,525 |
|
|
|
2,681 |
|
|
|
4,920 |
|
|
|
19,657 |
|
|
|
24,577 |
|
|
|
(4,077 |
) |
|
8/5/2015 |
Venue at 8651 |
|
Fort Worth, Texas |
|
|
13,734 |
|
|
|
2,350 |
|
|
|
16,900 |
|
|
|
19,250 |
|
|
|
5,154 |
|
|
|
2,350 |
|
|
|
21,543 |
|
|
|
23,893 |
|
|
|
(4,811 |
) |
|
10/30/2015 |
Parc500 |
|
West Palm Beach, Florida |
|
|
15,221 |
|
|
|
3,860 |
|
|
|
19,424 |
|
|
|
23,284 |
|
|
|
5,283 |
|
|
|
3,860 |
|
|
|
24,216 |
|
|
|
28,076 |
|
|
|
(4,375 |
) |
|
7/27/2016 |
The Venue on Camelback |
|
Phoenix, Arizona |
|
|
28,093 |
|
|
|
8,340 |
|
|
|
36,520 |
|
|
|
44,860 |
|
|
|
4,281 |
|
|
|
8,340 |
|
|
|
40,078 |
|
|
|
48,418 |
|
|
|
(5,532 |
) |
|
10/11/2016 |
Old Farm |
|
Houston, Texas |
|
|
52,886 |
|
|
|
11,078 |
|
|
|
73,986 |
|
|
|
85,064 |
|
|
|
3,028 |
|
|
|
11,078 |
|
|
|
73,660 |
|
|
|
84,738 |
|
|
|
(9,002 |
) |
|
12/29/2016 |
Stone Creek at Old Farm |
|
Houston, Texas |
|
|
15,274 |
|
|
|
3,493 |
|
|
|
19,937 |
|
|
|
23,430 |
|
|
|
788 |
|
|
|
3,493 |
|
|
|
20,153 |
|
|
|
23,646 |
|
|
|
(2,444 |
) |
|
12/29/2016 |
Hollister Place |
|
Houston, Texas |
|
|
14,811 |
|
|
|
2,782 |
|
|
|
21,902 |
|
|
|
24,684 |
|
|
|
2,977 |
|
|
|
2,782 |
|
|
|
23,947 |
|
|
|
26,729 |
|
|
|
(3,217 |
) |
|
2/1/2017 |
Rockledge Apartments |
|
Marietta, Georgia |
|
|
68,100 |
|
|
|
17,451 |
|
|
|
96,577 |
|
|
|
114,028 |
|
|
|
7,445 |
|
|
|
17,451 |
|
|
|
101,001 |
|
|
|
118,452 |
|
|
|
(10,798 |
) |
|
6/30/2017 |
Atera Apartments |
|
Dallas, Texas |
|
|
29,500 |
|
|
|
22,371 |
|
|
|
37,090 |
|
|
|
59,461 |
|
|
|
3,744 |
|
|
|
22,371 |
|
|
|
39,494 |
|
|
|
61,865 |
|
|
|
(3,682 |
) |
|
10/25/2017 |
Cedar Pointe |
|
Antioch, Tennessee |
|
|
17,300 |
|
|
|
2,371 |
|
|
|
24,410 |
|
|
|
26,781 |
|
|
|
1,075 |
|
|
|
2,371 |
|
|
|
25,485 |
|
|
|
27,856 |
|
|
|
(1,415 |
) |
|
8/24/2018 |
Crestmont Reserve |
|
Dallas, Texas |
|
|
12,061 |
|
|
|
4,124 |
|
|
|
20,667 |
|
|
|
24,791 |
|
|
|
1,218 |
|
|
|
4,124 |
|
|
|
21,885 |
|
|
|
26,009 |
|
|
|
(1,171 |
) |
|
9/26/2018 |
Brandywine I & II |
|
Nashville, Tennessee |
|
|
43,835 |
|
|
|
6,237 |
|
|
|
73,870 |
|
|
|
80,107 |
|
|
|
2,340 |
|
|
|
6,237 |
|
|
|
76,210 |
|
|
|
82,447 |
|
|
|
(3,867 |
) |
|
9/26/2018 |
S-1
|
Phoenix, Arizona |
|
|
29,040 |
|
|
|
10,942 |
|
|
|
37,661 |
|
|
|
48,603 |
|
|
|
529 |
|
|
|
10,942 |
|
|
|
38,190 |
|
|
|
49,132 |
|
|
|
(1,477 |
) |
|
1/28/2019 |
|
The Enclave |
|
Tempe, Arizona |
|
|
25,322 |
|
|
|
11,046 |
|
|
|
30,933 |
|
|
|
41,979 |
|
|
|
491 |
|
|
|
11,046 |
|
|
|
31,424 |
|
|
|
42,470 |
|
|
|
(1,209 |
) |
|
1/28/2019 |
The Heritage |
|
Phoenix, Arizona |
|
|
24,625 |
|
|
|
6,835 |
|
|
|
35,244 |
|
|
|
42,079 |
|
|
|
582 |
|
|
|
6,835 |
|
|
|
35,826 |
|
|
|
42,661 |
|
|
|
(1,338 |
) |
|
1/28/2019 |
Summers Landing |
|
Fort Worth, Texas |
|
|
10,109 |
|
|
|
1,798 |
|
|
|
17,628 |
|
|
|
19,426 |
|
|
|
(107 |
) |
|
|
1,798 |
|
|
|
17,521 |
|
|
|
19,319 |
|
|
|
(423 |
) |
|
6/7/2019 |
Residences at Glenview Reserve |
|
Nashville, Tennessee |
|
|
26,560 |
|
|
|
3,367 |
|
|
|
41,652 |
|
|
|
45,019 |
|
|
|
(602 |
) |
|
|
3,367 |
|
|
|
41,050 |
|
|
|
44,417 |
|
|
|
(824 |
) |
|
7/17/2019 |
Residences at West Place |
|
Orlando, Florida |
|
|
33,817 |
|
|
|
3,345 |
|
|
|
52,657 |
|
|
|
56,002 |
|
|
|
(719 |
) |
|
|
3,345 |
|
|
|
51,938 |
|
|
|
55,283 |
|
|
|
(967 |
) |
|
7/17/2019 |
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
|
177,100 |
|
|
|
48,436 |
|
|
|
275,671 |
|
|
|
324,107 |
|
|
|
3,015 |
|
|
|
48,437 |
|
|
|
278,685 |
|
|
|
327,122 |
|
|
|
(8,076 |
) |
|
8/30/2019 |
Arbors of Brentwood |
|
Nashville, Tennessee |
|
|
34,237 |
|
|
|
6,346 |
|
|
|
56,409 |
|
|
|
62,755 |
|
|
|
717 |
|
|
|
6,346 |
|
|
|
57,126 |
|
|
|
63,472 |
|
|
|
(1,523 |
) |
|
9/10/2019 |
Torreyana Apartments |
|
Las Vegas, Nevada |
|
|
37,400 |
|
|
|
23,823 |
|
|
|
44,560 |
|
|
|
68,383 |
|
|
|
17 |
|
|
|
23,823 |
|
|
|
44,577 |
|
|
|
68,400 |
|
|
|
(342 |
) |
|
11/22/2019 |
Bloom |
|
Las Vegas, Nevada |
|
|
58,850 |
|
|
|
23,805 |
|
|
|
83,288 |
|
|
|
107,093 |
|
|
|
23 |
|
|
|
23,805 |
|
|
|
83,311 |
|
|
|
107,116 |
|
|
|
(571 |
) |
|
11/22/2019 |
Bella Solara |
|
Las Vegas, Nevada |
|
|
36,575 |
|
|
|
12,605 |
|
|
|
54,262 |
|
|
|
66,867 |
|
|
|
8 |
|
|
|
12,605 |
|
|
|
54,270 |
|
|
|
66,875 |
|
|
|
(362 |
) |
|
11/22/2019 |
|
|
|
|
$ |
1,193,528 |
|
|
$ |
331,595 |
|
|
$ |
1,524,723 |
|
|
$ |
1,856,318 |
|
|
$ |
108,483 |
|
|
$ |
331,596 |
|
|
$ |
1,610,625 |
|
|
$ |
1,942,221 |
|
|
$ |
(160,411 |
) |
|
|
(1) |
Encumbrances includes mortgage debt. |
(2) |
Includes gross intangible lease assets of approximately $29.6 million and buildings, improvements and furniture, fixtures and equipment of approximately $1.5 billion, which includes total acquisition costs of approximately $7.0 million incurred on the acquisitions of The Colonnade, Old Farm, Stone Creek at Old Farm, Hollister Place, Rockledge Apartments, Atera Apartments, Cedar Pointe, Crestmont Reserve, Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, and Bella Solara and a fair market value adjustment, a premium of approximately $0.9 million, related to the assumption of debt in connection with the acquisition of Parc500. |
(3) |
Includes gross intangible lease assets of approximately $12.4 million, construction in progress of approximately $4.4 million, and furniture, fixtures and equipment of approximately $85.8 million. |
(4) |
The aggregate cost, net of accumulated depreciation, for Federal income tax purposes as of December 31, 2019 was approximately $1.8 billion (unaudited). |
(5) |
Includes accumulated amortization of intangible lease assets of approximately $6.2 million. |
(6) |
Depreciation and amortization are computed on a straight-line basis over the estimated useful lives. The estimated useful life to compute depreciation for buildings is 30 years, for improvements is 15 years, and for furniture, fixtures and equipment is three years. The estimated useful life to compute amortization for intangible lease assets is six months. |
S-2
NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2019
A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):
|
|
For the Year Ended December 31, |
|
|||||||||
|
|
2019 |
|
|
2018 |
|
|
2017 |
|
|||
Real Estate: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
1,222,563 |
|
|
$ |
1,082,805 |
|
|
$ |
1,029,349 |
|
Additions: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate acquired |
|
|
882,313 |
|
|
|
131,679 |
|
|
|
198,173 |
|
Improvements |
|
|
47,739 |
|
|
|
28,809 |
|
|
|
25,748 |
|
Deductions: |
|
|
|
|
|
|
|
|
|
|
|
|
Real estate sold |
|
|
(191,203 |
) |
|
|
(18,311 |
) |
|
|
(160,250 |
) |
Write-off of fully amortized assets and other |
|
|
(19,191 |
) |
|
|
(2,419 |
) |
|
|
(10,215 |
) |
Balance, end of year |
|
$ |
1,942,221 |
|
|
$ |
1,222,563 |
|
|
$ |
1,082,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Depreciation and Amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
135,021 |
|
|
$ |
91,649 |
|
|
$ |
66,312 |
|
Depreciation expense |
|
|
56,360 |
|
|
|
45,002 |
|
|
|
39,812 |
|
Amortization expense |
|
|
12,726 |
|
|
|
2,468 |
|
|
|
8,940 |
|
Accumulated depreciation on sales |
|
|
(32,408 |
) |
|
|
(2,500 |
) |
|
|
(14,199 |
) |
Write-off of fully amortized assets and other |
|
|
(11,288 |
) |
|
|
(1,598 |
) |
|
|
(9,216 |
) |
Balance, end of year |
|
$ |
160,411 |
|
|
$ |
135,021 |
|
|
$ |
91,649 |
|
S-3
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
The following description summarizes the material provisions of the common stock registered pursuant to Section 12 of the Securities Exchange Act of 1934. This description is not complete and is subject to, and is qualified in its entirety by reference to our charter and our bylaws and applicable provisions of the Maryland General Corporation Law the (“MGCL”).
Authorized Stock
Our authorized stock consists of 500,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of preferred stock, par value $0.01 per share. As of December 31, 2019, 25,245,740 shares of our common stock were issued and outstanding and no shares of our preferred stock were outstanding. All the outstanding shares of our common stock are fully paid and nonassessable. Under Maryland law, our stockholders generally are not liable for our debts or obligations solely as a result of their status as stockholders.
Common Stock
Subject to the preferential rights, if any, of holders of any other class or series of our stock and the provisions of our charter that restrict transfer and ownership of our stock, the holders of shares of our common stock generally are entitled to receive dividends and other distributions on such shares of stock when, as and if authorized by the Board and declared by us out of assets legally available for distribution to our stockholders. The holders of shares of our common stock are also entitled to share ratably in our net assets legally available for distribution to stockholders in the event of our liquidation, dissolution or winding up, after payment of or adequate provision for all of our known debts and liabilities.
Subject to the rights of any other class or series of our stock and the provisions of our charter that restrict transfer and ownership of our stock, each outstanding share of our common stock entitles the holder thereof to one vote on all matters submitted to a vote of the stockholders, including the election of directors. Under our charter there is no cumulative voting in the election of directors. Our bylaws require that each director be elected by a plurality of votes cast with respect to such director. However, pursuant to our majority voting policy, any director nominee who receives a greater number of votes “withheld” than votes “for” such nominee in an uncontested election is expected to tender his or her resignation to the Board promptly following the certification of the election results.
Holders of shares of our common stock generally have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities. Subject to the provisions of our charter that restrict transfer and ownership of our stock, all shares of our common stock have equal dividend, liquidation and other rights.
Power to Increase or Decrease Authorized Shares of Stock, Reclassify Our Unissued Shares and Issue Additional Shares of Common and Preferred Stock
The Board has the power, without stockholder approval, to amend our charter to increase or decrease the aggregate number of authorized shares of stock or the number of authorized shares of stock of any class or series, to authorize us to issue additional authorized but unissued shares of common stock or preferred stock and to classify and reclassify any unissued shares of our common stock or preferred stock into other classes or series of stock, including one or more classes or series of common stock or preferred stock that have priority with respect to voting rights, dividends or upon liquidation over shares of our common stock. Prior to the issuance of shares of each new class or series, the Board is required by the MGCL and our charter to set, subject to the provisions of our charter regarding restrictions on transfer and ownership of stock, the terms, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption for each class or series of stock.
Restrictions on Transfer and Ownership of NXRT Stock
In order for us to qualify as a REIT under the Code, shares of our stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to qualify as a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of our stock may be owned, directly, indirectly, or constructively, by five or fewer individuals (as defined in the Code to include certain entities such as private foundations) during the last half of a taxable year (other than the first year for which an election to be a REIT has been made). To qualify as a REIT, we must satisfy certain other requirements as well.
Our charter contains restrictions on the ownership and transfer of our stock. The relevant sections of our charter provide that, subject to the exceptions described below, no person or entity may own, or be deemed to own, beneficially or by virtue of the applicable constructive ownership provisions of the Code, more than 6.2%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock (the “common stock ownership limit”) or 6.2% in value of the outstanding shares of all classes or series of our stock (the “aggregate stock ownership limit”). We refer to the common stock ownership limit and the aggregate stock ownership limit collectively as the “ownership limits.” We refer to the person or entity that, but for operation of the ownership limits or another restriction on ownership and transfer of our stock as described below, would beneficially own or constructively own shares of our stock in violation of such limits or restrictions and, if appropriate in the context, a person or entity that would have been the record owner of such shares of our stock as a “prohibited owner.”
The constructive ownership rules under the Code are complex and may cause shares of stock owned beneficially or constructively by a group of related individuals and/or entities to be owned beneficially or constructively by one individual or entity. As a result, the acquisition of less than 6.2%, in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or less than 6.2% in value of the outstanding shares of all classes and series of our stock (or the acquisition by an individual or entity of an interest in an entity that owns, beneficially or constructively, shares of our stock), could, nevertheless, cause that individual or entity, or another individual or entity, to own beneficially or constructively shares of our stock in excess of the ownership limits.
The Board, in its sole discretion, may exempt, prospectively or retroactively, a particular stockholder from the ownership limits or establish a different limit on ownership (the “excepted holder limit”) if the Board determines that:
Our charter provides that any violation or attempted violation of any such representations or undertakings will result in such stockholder’s shares of stock being automatically transferred to a charitable trust. As a condition of granting the waiver or establishing the excepted holder limit, the Board may require an opinion of counsel or a ruling from the IRS, in either case in form and substance satisfactory to the Board, in its sole discretion, in order to determine or ensure our status as a REIT and such representations and undertakings from the person requesting the exception as the Board may require in its sole discretion to make the determinations above. The Board may impose such conditions or restrictions as it deems appropriate in connection with granting such a waiver or establishing an excepted holder limit. The Board has granted waivers from the ownership limits applicable to holders of our common stock to certain existing stockholders, including to Highland and its affiliates, and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT.
In connection with granting a waiver of the ownership limits or creating an excepted holder limit or at any other time, the Board may from time to time increase or decrease the common stock ownership limit, the aggregate stock ownership limit or both, for all other persons, unless, after giving effect to such increase, five or fewer individuals could beneficially own, in the aggregate, more than 49.9% in value of our outstanding stock or we would otherwise fail to qualify as a REIT. A reduced ownership limit will not apply to any person or entity whose percentage ownership of our common stock or our stock of all classes and series, as applicable, is, at the effective time of such reduction, in excess of such decreased ownership limit until such time as such person’s or entity’s percentage ownership of our common stock or our stock of all classes and series, as applicable, equals or falls below the decreased ownership limit, but any further acquisition of shares of our common stock or stock of all other classes or series, as applicable, will violate the decreased ownership limit.
Our charter further prohibits:
Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of shares of our stock that will or may violate the ownership limits or any of the other restrictions on ownership and transfer of our stock described above, or who would have owned shares of our stock transferred to the trust as described below, must immediately give notice to us of such event or, in the case of an attempted or proposed transaction, give us at least 15 days’ prior written notice and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing restrictions on ownership and transfer of our stock will not apply if the Board determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT or that compliance with the restrictions and limits on ownership and transfer of our stock described above is no longer required in order for us to qualify as a REIT.
If any transfer of shares of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons, our charter provides that the transfer will be null and void and the intended transferee will acquire no rights in the shares. In addition, if any purported transfer of shares of our stock or any other event would otherwise result in any person violating the ownership limits or an excepted holder limit established by the Board, or in our being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to qualify as a REIT or as a “domestically controlled qualified investment entity” within the meaning of Section 897(h) of the Code, then our charter provides the number of shares (rounded up to the nearest whole share) that would cause the violation will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable organizations selected by us, and the intended transferee or other prohibited owner will acquire no rights in the shares. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in a transfer to the trust. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable ownership limits or our being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or our otherwise failing to qualify as a REIT or as a “domestically controlled qualified investment entity,” then our charter provides that the transfer of the shares will be null and void and the intended transferee will acquire no rights in such shares.
Shares of our stock held in the trust will be issued and outstanding shares. Our charter provides that the prohibited owner will not benefit economically from ownership of any shares of our stock held in the trust and will have no rights to distributions and no rights to vote or other rights attributable to the shares of our stock held in the trust. The trustee of the trust will exercise all voting rights and receive all distributions with respect to shares held in the trust
for the exclusive benefit of the charitable beneficiary of the trust. Any distribution made before we discover that the shares have been transferred to a trust as described above must be repaid by the recipient to the trustee upon demand by us. Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee will have the authority to rescind as void any vote cast by a prohibited owner before our discovery that the shares have been transferred to the trust and to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary of the trust. However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
Shares of our stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (a) the price paid by the prohibited owner for the shares (or, in the case of a devise or gift, the market price at the time of such devise or gift) and (b) the market price on the date we accept, or our designee, accepts such offer. We may reduce the amount so payable to the trustee by the amount of any distribution that we made to the prohibited owner before we discovered that the shares had been automatically transferred to the trust and that are then owed by the prohibited owner to the trustee as described above, and we may pay the amount of any such reduction to the trustee for distribution to the charitable beneficiary. We have the right to accept such offer until the trustee has sold the shares of our stock held in the trust as discussed below. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates, and the trustee must distribute the net proceeds of the sale to the prohibited owner and must distribute any distributions held by the trustee with respect to such shares to the charitable beneficiary.
If we do not buy the shares, the trustee must, within 20 days of receiving notice from us of the transfer of shares to the trust, sell the shares to a person or entity designated by the trustee who could own the shares without violating the ownership limits or the other restrictions on ownership and transfer of our stock. After the sale of the shares, the interest of the charitable beneficiary in the shares transferred to the trust will terminate and the trustee must distribute to the prohibited owner an amount equal to the lesser of (a) the price paid by the prohibited owner for the shares (or, if the prohibited owner did not give value for the shares in connection with the event causing the shares to be held in the trust (for example, in the case of a gift, devise or other such transaction), the market price of the shares on the day of the event causing the shares to be held in the trust) and (b) the sales proceeds (net of any commissions and other expenses of sale) received by the trust for the shares. The trustee may reduce the amount payable to the prohibited owner by the amount of any distribution that we paid to the prohibited owner before we discovered that the shares had been automatically transferred to the trust and that are then owed by the prohibited owner to the trustee as described above. Any net sales proceeds in excess of the amount payable to the prohibited owner must be paid immediately to the charitable beneficiary, together with any distributions thereon. In addition, if, prior to the discovery by us that shares of stock have been transferred to a trust, such shares of stock are sold by a prohibited owner, then such shares will be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for, or in respect of, such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount will be paid to the trustee upon demand. Our charter provides that the prohibited owner has no rights in the shares held by the trustee.
In addition, if the Board determines in good faith that a transfer or other event has occurred that would violate the restrictions on ownership and transfer of our stock described above, the Board may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of our stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.
Every owner of 5% or more (or such lower percentage as required by the Code or the regulations promulgated thereunder) of our stock, within 30 days after the end of each taxable year, must give us written notice stating the stockholder’s name and address, the number of shares of each class and series of our stock that the stockholder beneficially owns and a description of the manner in which the shares are held. Each such owner must provide to us in writing such additional information as we may request in order to determine the effect, if any, of the stockholder’s beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits. In addition, any person or entity that is a beneficial owner or constructive owner of shares of our stock and any person or entity (including the stockholder of record) who is holding shares of our stock for a beneficial owner or constructive owner must, on request, provide to us such information as we may request in good faith in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance and to ensure compliance with the ownership limits.
Any certificates representing shares of our stock will bear a legend referring to the restrictions on ownership and transfer of our stock described above.
These restrictions on ownership and transfer of our stock took effect upon consummation of our spin-off from NHF and will not apply if the Board determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT or that compliance is no longer required in order for us to qualify as a REIT.
The restrictions on ownership and transfer of our stock described above could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interests of our stockholders.
Listing
Our common stock is listed on the New York Stock Exchange under the symbol “NXRT.”
Exhibit 10.16
REVOLVING CREDIT AGREEMENT
dated as of January 28, 2019
among
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., as Borrower
THE LENDERS FROM TIME TO TIME PARTY HERETO
and
SUNTRUST BANK, as Administrative Agent
SUNTRUST ROBINSON HUMPHREY, INC.
as Lead Arranger and Book Runner
Page
ARTICLE I
DEFINITIONS; CONSTRUCTION1
|
Section 1.1. |
Definitions1 |
|
|
Section 1.2. |
Classifications of Loans and Borrowings22 |
|
|
Section 1.3. |
Accounting Terms and Determination22 |
|
|
Section 1.4. |
Terms Generally22 |
|
ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENTS22
|
Section 2.1. |
General Description of Facilities22 |
|
|
Section 2.2. |
Revolving Loans22 |
|
|
Section 2.3. |
Procedure for Revolving Borrowings23 |
|
|
Section 2.4. |
Swingline Commitment23 |
|
|
Section 2.5. |
Term Loan Commitments23 |
|
|
Section 2.6. |
Funding of Borrowings23 |
|
|
Section 2.7. |
Interest Elections24 |
|
|
Section 2.8. |
Optional Reduction and Termination of Commitments24 |
|
|
Section 2.9. |
Repayment of Loans25 |
|
|
Section 2.10. |
Evidence of Indebtedness25 |
|
|
Section 2.11. |
Optional Prepayments25 |
|
|
Section 2.12. |
Mandatory Prepayments25 |
|
|
Section 2.13. |
Interest on Loans26 |
|
|
Section 2.14. |
Fees27 |
|
|
Section 2.15. |
Computation of Interest and Fees27 |
|
|
Section 2.16. |
Inability to Determine Interest Rates27 |
|
|
Section 2.17. |
Illegality28 |
|
|
Section 2.18. |
Increased Costs28 |
|
|
Section 2.19. |
Funding Indemnity29 |
|
|
Section 2.20. |
Taxes30 |
|
|
Section 2.21. |
Payments Generally; Pro Rata Treatment; Sharing of Set-offs33 |
|
|
Section 2.22. |
Extension of Maturity Date34 |
|
|
Section 2.23. |
Increase of Commitments; Additional Lenders34 |
|
|
Section 2.24. |
Mitigation of Obligations36 |
|
|
Section 2.25. |
Replacement of Lenders36 |
|
|
Section 2.26. |
Defaulting Lenders and Potential Defaulting Lenders36 |
|
ARTICLE III
CONDITIONS PRECEDENT TO LOANS AND LETTERS OF CREDIT38
|
Section 3.1. |
Conditions to Effectiveness38 |
|
|
Section 3.2. |
Conditions to Each Credit Event40 |
|
|
Section 3.3. |
Delivery of Documents40 |
|
ARTICLE IV
REPRESENTATIONS AND WARRANTIES40
|
Section 4.1. |
Existence; Power40 |
|
|
Section 4.2. |
Organizational Power; Authorization40 |
|
|
Section 4.3. |
Governmental Approvals; No Conflicts40 |
|
|
Section 4.4. |
Financial Statements41 |
|
|
Section 4.5. |
Litigation and Environmental Matters41 |
|
|
Section 4.6. |
Compliance with Laws and Agreements41 |
|
|
Section 4.7. |
Litigation and Environmental Matters42 |
|
|
Section 4.8. |
Compliance with Laws and Agreements43 |
|
|
Section 4.9. |
Investment Company Act.43 |
|
|
Section 4.10. |
Taxes43 |
|
|
Section 4.11. |
ERISA43 |
|
|
Section 4.12. |
Disclosure43 |
|
|
Section 4.13. |
Solvency43 |
|
|
Section 4.14. |
Margin Regulations44 |
|
|
Section 4.15. |
Subsidiaries; REIT Qualification44 |
|
|
Section 4.16. |
Labor Relations44 |
|
|
Section 4.17. |
Sanctions and Anti-Corruption Laws44 |
|
|
Section 4.18. |
EEA Financial Institutions44 |
|
ARTICLE V
AFFIRMATIVE COVENANTS44
|
Section 5.1. |
Financial Statements and Other Information44 |
|
|
Section 5.2. |
Financial Tests45 |
|
|
Section 5.3. |
Notices of Material Events46 |
|
|
Section 5.4. |
Existence; Conduct of Business46 |
|
|
Section 5.5. |
Payment of Obligations47 |
|
|
Section 5.6. |
Maintenance of Properties; Insurance47 |
|
|
Section 5.7. |
Books and Records47 |
|
|
Section 5.8. |
Compliance with Laws.47 |
|
|
Section 5.9. |
Use of Proceeds47 |
|
|
Section 5.10. |
Fiscal Year47 |
|
|
Section 5.11. |
Environmental Matters48 |
|
|
Section 5.12. |
Collateral Requirement48 |
|
|
Section 5.13. |
Further Assurances49 |
|
|
Section 5.14. |
Bank Accounts49 |
|
|
Section 5.15. |
Parent Covenants49 |
|
|
Section 5.16. |
Pledge of Interests49 |
|
|
Section 5.17. |
Permanent Financing49 |
|
|
Section 5.18. |
Keepwell49 |
|
ii
ARTICLE VI
FINANCIAL COVENANTS50
ARTICLE VII
NEGATIVE COVENANTS50
|
Section 7.1. |
Liens50 |
|
|
Section 7.2. |
Fundamental Changes50 |
|
|
Section 7.3. |
Investments, Loans, Advances and Acquisitions50 |
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Section 7.4. |
Hedging Transactions51 |
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Section 7.5. |
Restricted Payments51 |
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Section 7.6. |
Transactions with Affiliates51 |
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Section 7.7. |
Parent Negative Covenants51 |
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Section 7.8. |
Restrictive Agreements51 |
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Section 7.9. |
Indebtedness52 |
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Section 7.10. |
Fees52 |
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Section 7.11. |
Amendment to Organizational Documents52 |
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Section 7.12. |
Sanctions and Anti-Corruption Laws52 |
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ARTICLE VIII
EVENTS OF DEFAULT52
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Section 8.1. |
Events of Default52 |
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Section 8.2. |
Application of Proceeds from Collateral54 |
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ARTICLE IX
THE ADMINISTRATIVE AGENT55
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Section 9.1. |
Appointment of the Administrative Agent55 |
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Section 9.2. |
Nature of Duties of the Administrative Agent55 |
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Section 9.3. |
Lack of Reliance on the Administrative Agent56 |
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Section 9.4. |
Certain Rights of the Administrative Agent56 |
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Section 9.5. |
Reliance by the Administrative Agent56 |
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Section 9.6. |
The Administrative Agent in its Individual Capacity57 |
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Section 9.7. |
Successor Administrative Agent57 |
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Section 9.8. |
Withholding Tax57 |
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Section 9.9. |
The Administrative Agent May File Proofs of Claim57 |
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Section 9.10. |
Authorization to Execute Other Loan Documents58 |
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Section 9.11. |
Collateral and Guaranty Matters58 |
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Section 9.12. |
Documentation Agent; Syndication Agent.58 |
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Section 9.13. |
Right to Realize on Collateral and Enforce Guarantee58 |
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Section 9.14. |
Secured Bank Product Obligations and Hedging Obligations59 |
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ARTICLE X
MISCELLANEOUS59
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Section 10.1. |
Notices59 |
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Section 10.2. |
Waiver; Amendments62 |
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Section 10.3. |
Expenses; Indemnification63 |
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Section 10.4. |
Successors and Assigns64 |
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iii
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Section 10.6. |
WAIVER OF JURY TRIAL68 |
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Section 10.7. |
Right of Set-off68 |
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Section 10.8. |
Counterparts; Integration68 |
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Section 10.9. |
Survival68 |
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Section 10.10. |
Severability69 |
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Section 10.11. |
Confidentiality69 |
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Section 10.12. |
Interest Rate Limitation69 |
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Section 10.13. |
Waiver of Effect of Corporate Seal69 |
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Section 10.14. |
Patriot Act70 |
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Section 10.15. |
No Advisory or Fiduciary Responsibility70 |
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Section 10.16. |
Location of Closing70 |
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Section 10.17. |
Acknowledgement and Consent to Bail-In of EEA Financial Institutions70 |
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Section 10.18. |
Certain ERISA Matters71 |
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iv
Schedules
Schedule I-Applicable Margin and Applicable Percentage
Schedule II-Commitment Amounts
Schedule III-Mortgaged Properties
Schedule IV-Litigation Disclosure
Schedule V-Subsidiaries; Ownership of Mortgaged Properties
Exhibits
Exhibit A- Form of Assignment and Assumption
Exhibit B-Form of Compliance Certificate
Exhibit C-Form of Guaranty
Exhibit D-Form of Perfection Certificate
Exhibit E-Form of Notice of Borrowing
Exhibit F-Form of Notice of Conversion/Continuation
Exhibits G (1-4) -Tax Certificates
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THIS REVOLVING CREDIT AGREEMENT (this “Agreement”) is made and entered into as of January 28, 2019, by and among NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the “Borrower”), the several banks and other financial institutions and lenders from time to time party hereto (the “Lenders”), and SUNTRUST BANK, in its capacity as administrative agent for the Lenders (the “Administrative Agent” or “Agent”).
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders establish a $75,000,000.00 revolving credit facility (subject to increase as set forth herein) in favor of the Borrower for the purposes set forth herein;
WHEREAS, subject to the terms and conditions of this Agreement, the Lenders, to the extent of their respective Commitments as defined herein, are willing severally to establish the requested revolving credit facility in favor of the Borrower;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the Borrower, the Lenders, and the Administrative Agent agree as follows:
ARTICLE I
DEFINITIONS; CONSTRUCTION
Section 1.1.Definitions. In addition to the other terms defined herein, the following terms used herein shall have the meanings herein specified (to be equally applicable to both the singular and plural forms of the terms defined):
“Additional Lender” shall have the meaning set forth in Section 2.23.
“Adjusted EBITDA” means (a) EBITDA for the most recently ended calendar quarter, annualized, less (b) the Capital Expenditure Reserve.
“Adjusted LIBO Rate” shall mean, with respect to each Interest Period for a Eurodollar Loan, (i) the rate per annum equal to the London interbank offered rate for deposits in U.S. Dollars appearing on Reuters screen page LIBOR 01 (or on any successor or substitute page of such service or any successor to such service, or such other commercially available source providing such quotations as may be designated by the Administrative Agent from time to time) at approximately 11:00 A.M. (London time) two (2) Business Days prior to the first day of such Interest Period, with a maturity comparable to such Interest Period (provided that if such rate is less than zero, such rate shall be deemed to be zero), divided by (ii) a percentage equal to 1.00% minus the then stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves and without benefit of credits for proration, exceptions or offsets that may be available from time to time) expressed as a decimal (rounded upward to the next 1/100th of 1%) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D); provided that if the rate referred to in clause (i) above is not available at any such time for any reason, then the rate referred to in clause (i) shall instead be the interest rate per annum, as determined by the Administrative Agent, to be the arithmetic average of the rates per annum at which deposits in U. S. Dollars in an amount equal to the amount of such Eurodollar Loan are offered by major banks in the London interbank market to the Administrative Agent at approximately 11:00 A.M. (London time), two (2) Business Days prior to the first day of such Interest Period. For purposes of this Agreement, the Adjusted LIBO Rate will not be less than zero percent (0%).
“Administrative Agent” shall mean SunTrust Bank, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
“Administrative Questionnaire” shall mean, with respect to each Lender, an administrative questionnaire in the form provided by the Administrative Agent and submitted to the Administrative Agent duly completed by such Lender.
“Affiliate” shall mean, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls, is Controlled by, or is under common Control with, the specified Person. For the purposes of this definition, “Control” shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ability to exercise voting power, by control or otherwise. The terms “Controlling” and “Controlled” have meanings correlative thereto.
“Aggregate Revolving Commitment Amount” shall mean the aggregate principal amount of the Aggregate Revolving Commitments from time to time. On the Closing Date, the Aggregate Revolving Commitment Amount is $75,000,000.00.
“Aggregate Revolving Commitments” shall mean, collectively, all Revolving Commitments of all Lenders at any time outstanding.
“Anti-Corruption Laws” shall mean all laws, rules and regulations of any jurisdiction applicable to the Borrower and its Subsidiaries concerning or relating to bribery or corruption.
“Anti-Money Laundering Laws” means all Legal Requirements related to the financing of terrorism or money laundering, including without limitation, any applicable provision of the Patriot Act and The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311-5330 and 12U.S.C. §§ 1818(s), 1820(b) and 1951-1959).
“Applicable Lending Office” shall mean, for each Lender and for each Type of Loan, the “Lending Office” of such Lender (or an Affiliate of such Lender) designated for such Type of Loan in the Administrative Questionnaire submitted by such Lender or such other office of such Lender (or such Affiliate of such Lender) as such Lender may from time to time specify to the Administrative Agent and the Borrower as the office by which its Loans of such Type are to be made and maintained.
“Applicable Margin” shall mean, as of any date, with respect to interest on all Revolving Loans outstanding on such date, the percentage per annum determined by reference to the applicable Leverage Ratio in effect on such date as set forth on Schedule I; provided that a change in the Applicable Margin resulting from a change in the Leverage Ratio shall be effective on the second Business Day after which the Borrower delivers each of the financial statements required by Section 5.1(a) and (b) and the Compliance Certificate required by Section 5.1(c); provided, further, that if at any time the Borrower shall have failed to deliver such financial statements and such Compliance Certificate when so required, the Applicable Margin shall be at Level III as set forth on Schedule I until such time as such financial statements and Compliance Certificate are delivered, at which time the Applicable Margin shall be determined as provided above. Notwithstanding the foregoing, the Applicable Margin from the Closing Date until the date by which the financial statements and Compliance Certificate for the Fiscal Quarter ending March 31, 2019 are required to be delivered shall be at Level II as set forth on Schedule I. In the event that any financial statement or Compliance Certificate delivered hereunder is shown to be inaccurate (regardless of whether this Agreement or the Commitments are in effect when such inaccuracy is discovered), and such inaccuracy, if corrected, would have led to the application of a higher Applicable Margin based upon the pricing grid set forth on Schedule I (the “Accurate Applicable Margin”) for any period that such financial statement or Compliance Certificate covered, then (i) the Borrower shall immediately deliver to the Administrative Agent a correct financial statement or Compliance Certificate, as the case may be, for such period, (ii) the Applicable Margin shall be adjusted such that after giving effect to the corrected financial statement or Compliance Certificate, as the case may be, the Applicable Margin shall be reset to the Accurate Applicable Margin based upon the pricing grid set forth on Schedule I for such period and (iii) the Borrower shall immediately pay to the Administrative Agent, for the account of the Lenders, the accrued additional interest owing as a result of such Accurate Applicable Margin for such period. The provisions of this definition shall not limit the rights of the Administrative Agent and the Lenders with respect to Section 2.13(c) or Article VIII.
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“Appraisal” (whether one or more) means a written appraisal of the Mortgaged Properties by an MAI appraiser satisfactory to the Administrative Agent. Each Appraisal must comply with all Legal Requirements and, unless specifically provided to the contrary in this Agreement, must be in form and substance reasonably satisfactory to the Administrative Agent.
“Approved Fund” shall mean any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Arranger” shall mean SunTrust Robinson Humphrey, Inc., in its capacity as lead arranger and bookrunner.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.4(b)) and accepted by the Administrative Agent, in substantially the form of Exhibit A attached hereto or any other form approved by the Administrative Agent.
“Availability Period” means the period from the Closing Date to but excluding the Maturity Date.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable EEA Resolution Authority in respect of any liability of an EEA Financial Institution.
“Bail-In Legislation” means, with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule.
“Bank Product Obligations” mean, collectively, all obligations and other liabilities of any Credit Party to any Bank Product Provider arising with respect to any Bank Products.
“Bank Product Provider” means any Person that, at the time it provides any Bank Product to any Credit Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Bank Product Provider is SunTrust Bank and its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Bank Product, (y) the maximum dollar amount of obligations arising thereunder (the “Bank Product Amount”) and (z) the methodology to be used by such parties in determining the obligations under such Bank Product from time to time. In no event shall any Bank Product Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Bank Products except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Bank Product Provider and in no event shall the approval of any such person in its capacity as Bank Product Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent. The Bank Product Amount may be changed from time to time upon written notice to the Administrative Agent by the applicable Bank Product Provider. No Bank Product Amount may be established at any time that a Default or Event of Default exists.
“Bank Products” means any of the following services provided to any Credit Party by any Bank Product Provider: (a) any treasury or other cash management services, including deposit accounts, automated clearing house (ACH) origination and other funds transfer, depository (including cash vault and check deposit), zero balance accounts and sweeps, return items processing, controlled disbursement accounts, positive pay, lockboxes and lockbox accounts, account reconciliation and information reporting, payables outsourcing, payroll processing, trade finance services, investment accounts and securities accounts, and (b) card services, including credit cards (including purchasing cards and commercial cards), prepaid cards, including payroll, stored value and gift cards, merchant services processing, and debit card services.
“Base Rate” means for any day a rate per annum equal to the highest of (i) the rate of interest which the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time (the “Prime Rate”), (ii) the Federal Funds Rate, as in effect from time to time, plus 0.50%,(iii) the Adjusted LIBO Rate determined on a daily basis for an Interest Period of one (1) month, plus 1.00% (any changes in such rates to be
3
effective as of the date of any change in such rate), and (iv) zero percent (0.00%). The Administrative Agent’s prime lending rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. The Administrative Agent may make commercial loans or other loans at rates of interest at, above, or below the Administrative Agent’s prime lending rate. Any change in the Base Rate due to a change in the Prime Rate, the Federal Funds Rate, or the Adjusted LIBO Rate will be effective from and including the effective date of such change in the Prime Rate, the Federal Funds Rate, or the Adjusted LIBO Rate.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Borrower” shall have the meaning set forth in the introductory paragraph hereof.
“Business Day” shall mean any day other than (i) a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia or New York are authorized or required by law to close and (ii) if such day relates to a Borrowing of, a payment or prepayment of principal or interest on, a conversion of or into, or an Interest Period for, a Eurodollar Loan or a notice with respect to any of the foregoing, any such day that is also a day on which dealings in Dollar deposits are not conducted by and between banks in the London interbank market.
“Capital Expenditure Reserve” means, on an annual basis, an amount equal to $250 per unit with respect to each Real Property owned by the Parent, Borrower, or any Subsidiary.
“Capital Lease Obligations” of any Person means the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP.
“Capital Stock” shall mean all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common stock, preferred stock or any other “equity security” (as such term is defined in Rule 3a11‑1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Exchange Act).
“Capitalization Rate” means (a) for calculations hereunder through and including the calendar quarter/year ending December 31, 2021, 5.75%; and (b) for all calculations thereafter, 6.00%.
“Change in Control” means (a) the acquisition of ownership, directly or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than thirty percent (30%) of the aggregate ordinary voting power represented by the issued and outstanding capital stock of the Parent; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of the Parent by Persons who were neither (i) nominated by the board of directors of the Parent nor (ii) appointed by directors so nominated; (c) the acquisition of direct or indirect Control of the Parent by any Person or group; (d) the failure of the Borrower to own, directly or indirectly, free and clear of any Liens except those granted in favor of the Agent, at least 90% of the ownership interests in each Collateral Subsidiary; or (e) the replacement, removal or resignation of NexPoint Real Estate Advisors, L.P. as advisor to the Parent, unless replaced with an Affiliate thereof.
“Change in Law” shall mean the occurrence, after the date of this Agreement, of any of the following: (i) the adoption or taking effect of any law, rule, regulation or treaty, (ii) any change in any law, rule, regulation or treaty, or in the administration, interpretation, implementation or application thereof by any Governmental Authority, or (iii) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) of any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for
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International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Closing Date” shall mean the date on which the conditions precedent set forth in Section 3.1 and Section 3.2 have been satisfied or waived in accordance with Section 10.2.
“Code” shall mean the Internal Revenue Code of 1986, as amended and in effect from time to time.
“Collateral” shall mean all tangible and intangible property, real and personal, of any Credit Party that is or purports to be the subject of a Lien to the Administrative Agent to secure the whole or any part of the Obligations or any Guarantee thereof, and shall include, without limitation, all casualty insurance proceeds and condemnation awards with respect to any of the foregoing.
“Collateral Documents” shall mean, collectively, the Guaranty, the Pledge Agreement, the Economic Interest Pledge Agreement, the Equity Proceeds Pledge Agreement, the Perfection Certificate, and all other instruments and agreements now or hereafter securing or perfecting the Liens securing the whole or any part of the Obligations or any Guarantee thereof, the Financing Statements, and all other documents, instruments, agreements and certificates executed and delivered by any Credit Party to the Administrative Agent and the Lenders in connection with the foregoing.
“Collateral Subsidiary” means each Subsidiary of the Borrower which owns a direct or indirect interest in a Mortgaged Property.
“Commodity Exchange Act” shall mean the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended and in effect from time to time, and any successor statute.
“Compliance Certificate” shall mean a certificate from a Responsible Officer of the Parent in the form of, and containing the certifications set forth in, the certificate attached hereto as Exhibit B.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Contractual Obligation” of any Person shall mean any provision of any security issued by such Person or of any agreement, instrument or undertaking under which such Person is obligated or by which it or any of the property in which it has an interest is bound.
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise, which includes the customary powers of a managing member of any limited liability company, any general partner of any limited partnership, or any board of directors of a corporation. “Controlling” and “Controlled” have meanings correlative thereto.
“Core Funds from Operations” means, for any period, Guarantor’s net income (or loss) (after payment of all cash dividends payable on any preferred stock) determined on a consolidated basis for the Borrower, Guarantor, and their Wholly-Owned Subsidiaries for such period, excluding gains or losses from extraordinary items, impairment and other non-cash charges, acquisition fees and related expenses, plus real estate depreciation and amortization. Core Funds from Operations shall be adjusted for (i) the Borrower’s Equity Percentage of its Unconsolidated Affiliates to reflect funds from operations on the same basis, (ii) the amortization of intangibles associated with the amortization of above or below market rents, pursuant to ASC 805 (formerly FASB 141) and (iii) calculation of interest expense in accordance with FBS APB 14-1.
“Credit Party” means Borrower, Parent, and each other Guarantor.
5
“Debt Yield” means, as of any date of determination, the ratio (expressed as a percentage) of (i) Net Operating Income from all Real Property of the Borrower and its Subsidiaries for the most recently ended calendar quarter, annualized to (ii) all Indebtedness of the Borrower and the Guarantor (without duplication) as of such date.
“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” shall mean any condition or event that, with the giving of notice or the lapse of time or both, would constitute an Event of Default.
“Default Interest” shall have the meaning set forth in Section 2.13(c).
“Defaulting Lender” shall mean, subject to Section 2.26(c), any Lender that (a) has failed to (i) fund all or any portion of its Loans within two (2) Business Days of the date such Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two (2) Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s good faith determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three (3) Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-in Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.26(b)) upon delivery of written notice of such determination to the Borrower and each Lender.
“Designated Jurisdiction” means any country, region, or territory to the extent that such country, region, or territory itself, or its government, is the subject or target of any Sanction.
“Development Assets” means (a) ground up construction projects; and (b) redevelopment projects that result in the complete cessation of operations at the applicable property.
“Dollar(s)” and the sign “$” shall mean lawful money of the United States.
“Domestic Subsidiary” shall mean each Subsidiary of the Borrower that is organized under the laws of the United States or any state or district thereof.
“EBITDA” means an amount derived from (a) net income, plus (b) to the extent included in the determination of net income, depreciation, amortization, interest expense and income taxes, plus (c) asset
6
management, acquisition and other fees and expenses, plus or minus (d) to the extent included in the determination of net income, any extraordinary losses or gains, such as those resulting from sales of payment of Indebtedness, plus (e) to the extent not capitalized, the amount of non-recurring expenses, fees, costs and charges incurred in connection with the Loan, plus (f) self-administration or internalization fees and expenses, plus (g) to the extent not capitalized, the amount of all non-recurring expenses, fees, costs and charges incurred with any acquisition, issuance of debt or equity, asset disposition or investment permitted hereunder, or any proposed or actual amendment, modification or refinancing of any Indebtedness, in each case, as determined for Borrower, Guarantor, and their Wholly-Owned Subsidiaries on a consolidated basis, and including (without duplication) the Equity Percentage of EBITDA for the Borrower’s Unconsolidated Affiliates.
“Economic Interests Pledge” means that certain Pledge and Security Agreement (Economic Interests), dated as of the date hereof, by and among the Borrower, certain of its Subsidiaries, and the Administrative Agent.
“EEA Financial Institution” shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clause (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” shall mean any of the member states of the European Union, Iceland, Liechtenstein and Norway.
“EEA Resolution Authority” shall mean any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Eligible Assignee” shall mean any Person that meets the requirements to be an assignee under Section 10.4 (subject to such consents, if any, as may be required under Section 10.4(b)(iii)).
“Environmental Claim” means any notice of violation, action, claim, Environmental Lien, demand, abatement or other order or direction (conditional or otherwise) by any Governmental Authority or any other Person for personal injury (including sickness, disease or death), tangible or intangible property damage, damage to the environment, nuisance, pollution, contamination or other adverse effects on the environment, or for fines, penalties or restriction, resulting from or based upon (i) the existence, or the continuation of the existence, of a Release (including, without limitation, sudden or non-sudden accidental or non-accidental Releases) of, or exposure to, any Hazardous Material, or other Release in, into or onto the environment (including, without limitation, the air, soil, surface water or groundwater) at, in, by, from or related to any property owned, operated or leased by the Borrower or any of its Subsidiaries or any activities or operations thereof; (ii) the environmental aspects of the transportation, storage, treatment or disposal of Hazardous Materials in connection with any property owned, operated or leased by the Borrower or any of its Subsidiaries or their operations or facilities; or (iii) the violation, or alleged violation, of any Environmental Laws or Environmental Permits of or from any Governmental Authority relating to environmental matters connected with any property owned, leased or operated by the Borrower or any of its Subsidiaries.
“Environmental Laws” means all applicable laws, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material or to health and safety matters and includes (without limitation) the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), 42 U.S.C. § 9601 et m., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et m., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. § 136 et m., the Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et seq., the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq., the Clean Air Act, 42 U.S.C. §7401 et seq., the Clean Water Act, 33 U.S.C. § 1251 et m., the Occupational Safety and Health Act, 29 U.S.C. § 651 et m., (to the extent the same relates to any Hazardous Materials), and the Oil Pollution Act of 1990, 33 U.S.C. § 2701 et seq., as
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such laws have been amended or supplemented, and the regulations promulgated pursuant thereto, and all analogous state and local statutes.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower or any Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) exposure to any Hazardous Materials in violation of any Environmental Law, (c) the Release or threatened Release of any Hazardous Materials into the environment in violation of any Environmental Law or (d) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Environmental Lien” means any lien in favor of any Governmental Authority arising under any Environmental Law.
“Environmental Permit” means any permit required under any applicable Environmental Law or under any and all supporting documents associated therewith.
“Equity Interests” means, with respect to any Person, all of the shares, partnership or membership interests, economic and other rights, participations or other equivalents (however designated) of Capital Stock of such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of Capital Stock of such Person, all of the securities convertible into or exchangeable for shares of Capital Stock of such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, membership or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“Equity Offering” means, any issuance and/or sale after the effective Date by Parent, Borrower, any Guarantor or any of their Subsidiaries of any Equity Interests or equity securities of such Person, including, without limitation, (a) any new preferred securities, and (b) any conversion of equity interests or securities of any Subsidiary of Borrower into equity interests in the Borrower.
“Equity Percentage” means the aggregate ownership percentage of Borrower in each Unconsolidated Affiliate, which shall be calculated as the greater of (a) Borrower’s nominal capital ownership interest in the Unconsolidated Affiliate as set forth in the Unconsolidated Affiliate’s organizational documents, and (b) Borrower’s economic ownership interest in the Unconsolidated Affiliate, reflecting Borrower’s share of income and expenses of the Unconsolidated Affiliate.
“Equity Proceeds Pledge” shall mean the Pledge and Security Agreement (Equity Issuance Proceeds) dated as of even date herewith related to any equity issuance proceeds of the Parent or Borrower granted by the Parent and Borrower to the Administrative Agent, together with all other instruments, agreements and written obligations executed and/or delivered by any of the Credit Parties in connection therewith.
“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and the regulations promulgated and rulings issued thereunder.
“ERISA Affiliate” shall mean any person that for purposes of Title I or Title IV of ERISA or Section 412 of the Code would be deemed at any relevant time to be a “single employer” or otherwise aggregated with the Borrower or any of its Subsidiaries under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.
“ERISA Event” shall mean (i) any “reportable event” as defined in Section 4043 of ERISA with respect to a Plan (other than an event as to which the PBGC has waived under subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043 the requirement of Section 4043(a) of ERISA that it be notified of such event); (ii) any failure to make a required contribution to any Plan that would result in the imposition of a lien or other encumbrance or the provision of security under Section 430 of the Code or Section 303 or 4068 of ERISA, or the arising of such a lien or encumbrance, there being or arising any “unpaid minimum required contribution” or “accumulated funding deficiency” (as defined or otherwise set forth in Section 4971 of the Code or Part 3 of Subtitle B of Title 1 of ERISA), whether or not waived, or any filing of any request for or receipt of a minimum funding waiver
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under Section 412 of the Code or Section 303 of ERISA with respect to any Plan or Multiemployer Plan, or that such filing may be made, or any determination that any Plan is, or is expected to be, in at-risk status under Title IV of ERISA; (iii) any incurrence by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any liability under Title IV of ERISA with respect to any Plan or Multiemployer Plan (other than for premiums due and not delinquent under Section 4007 of ERISA); (iv) any institution of proceedings, or the occurrence of an event or condition which would reasonably be expected to constitute grounds for the institution of proceedings by the PBGC, under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan; (v) any incurrence by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan, or the receipt by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any notice that a Multiemployer Plan is in endangered or critical status under Section 305 of ERISA; (vi) any receipt by the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any notice, or any receipt by any Multiemployer Plan from the Borrower, any of its Subsidiaries or any of their respective ERISA Affiliates of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; (vii) engaging in a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA; or (viii) any filing of a notice of intent to terminate any Plan if such termination would require material additional contributions in order to be considered a standard termination within the meaning of Section 4041(b) of ERISA, any filing under Section 4041(c) of ERISA of a notice of intent to terminate any Plan, or the termination of any Plan under Section 4041(c) of ERISA.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor Person), as in effect from time to time.
“Eurodollar”, when used in reference to any Loan or Borrowing, refers to whether such Loan, or the Loans comprising such Borrowing, bears interest at a rate determined by reference to the Adjusted LIBO Rate.
“Event of Default” shall have the meaning set forth in Section 8.1.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended and in effect from time to time.
“Excluded Swap Obligation” shall mean, with respect to any Guarantor, any Swap Obligation if, and to the extent that, all or a portion of the Guarantee of such Guarantor of, or the grant by such Guarantor of a security interest to secure, such Swap Obligation (or any Guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time the Guarantee of such Guarantor becomes effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which such Guarantee or security interest is or becomes illegal.
“Excluded Taxes” shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 2.25) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.20, amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to such Recipient’s failure to comply with Section 2.20 and (d) any U.S. federal withholding Taxes imposed under FATCA.
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“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“Federal Funds Rate” shall mean, for any day, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with member banks of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the next succeeding Business Day or, if such rate is not so published for any Business Day, the Federal Funds Rate for such day shall be the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day on such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by the Administrative Agent. For purposes of this Agreement the Federal Funds Rate shall not be less than zero percent (0%).
“Fee Letter” shall mean that certain fee letter, dated as of January 11, 2019, executed by SunTrust Robinson Humphrey, Inc. and SunTrust Bank and accepted by the Borrower.
“Financing Statements” means all such Uniform Commercial Code financing statements as the Administrative Agent shall require, duly authorized by the Borrower or Guarantor, to give notice of and to perfect or continue perfection of the Lenders’ security interest in all Collateral.
“Fiscal Quarter” shall mean any fiscal quarter of the Borrower.
“Fiscal Year” shall mean any fiscal year of the Borrower.
“Fixed Charge Coverage Ratio” means the ratio of (a) Adjusted EBITDA for the immediately preceding calendar quarter of Parent and its Subsidiaries to (b) the sum of (i) all principal due and payable and actually paid on Indebtedness (other than amounts paid in connection with balloon maturities), including the Equity Percentage for such amounts for the Borrower’s Unconsolidated Affiliates, plus (ii) all Interest Expense, plus (iii) the aggregate amount of all cash dividends payable on any preferred stock for the immediately preceding calendar quarter, in each case, for the Parent and its Subsidiaries.
“Flood Insurance Laws” shall mean, collectively, (i) the National Flood Insurance Reform Act of 1994 (which comprehensively revised the National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973), as now or hereafter in effect or any successor statute thereto, (ii) the Flood Insurance Reform Act of 2004, as now or hereafter in effect or any successor statute thereto and (iii) the Biggert –Waters Flood Insurance Reform Act of 2012, as now or hereafter in effect or any successor statute thereto.
“Foreign Lender” shall mean (a) if the Borrower is a U.S. Person, a Lender that is not a U.S. Person, and (b) if the Borrower is not a U.S. Person, a Lender that is resident or organized under the laws of a jurisdiction other than that in which the Borrower is resident for tax purposes.
“Foreign Person” shall mean any Person that is not a U.S. Person.
“Foreign Subsidiary” shall mean each Subsidiary of the Borrower that is organized under the laws of a jurisdiction other than one of the fifty states of the United States or the District of Columbia.
“GAAP” shall mean generally accepted accounting principles in the United States applied on a consistent basis and subject to the terms of Section 1.3.
“Governmental Authority” shall mean the government of the United States or any other nation, or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
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“Guarantee” of or by any Person (the “guarantor”) shall mean any obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the “primary obligor”) in any manner, whether directly or indirectly and including any obligation, direct or indirect, of the guarantor (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (ii) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (iv) as an account party in respect of any letter of credit or letter of guaranty issued in support of such Indebtedness or obligation; provided that the term “Guarantee” shall not include endorsements for collection or deposit in the ordinary course of business. The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee is made or, if not so stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder) as determined by such Person in good faith. The term “Guarantee” used as a verb has a corresponding meaning.
“Guarantor” means the Parent and any other Person who from time to time has executed a Guaranty as required by the terms of this Agreement.
“Guaranty” means, collectively, the guaranties provided by Guarantor in the form of Exhibit C attached hereto, or such other form as may be agreed upon by the parties.
“Hazardous Materials” shall mean l explosive or radioactive substances or wastes and hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and other substances or wastes of any nature regulated pursuant to any Environmental Law.
“Hedging Obligations” of any Person shall mean any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired under (i) any and all Hedging Transactions, (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any Hedging Transactions and (iii) any and all renewals, extensions and modifications of any Hedging Transactions and any and all substitutions for any Hedging Transactions.
“Hedge Termination Value” shall mean, in respect of any one or more Hedging Transactions, after taking into account the effect of any legally enforceable netting agreement relating to such Hedging Transactions, (a) for any date on or after the date such Hedging Transactions have been closed out and termination value(s) determined in accordance therewith, such termination value(s) and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedging Transactions, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedging Transactions (which may include a Lender or any Affiliate of a Lender).
“Hedging Transaction” of any Person shall mean (a) any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into by such Person that is a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, spot transaction, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
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“Increasing Lender” shall have the meaning set forth in Section 2.23.
“Incremental Commitment” shall have the meaning set forth in Section 2.23.
“Indebtedness” of any Person shall mean, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of business; provided that, for purposes of Section 8.1(g), trade payables overdue by more than 120 days shall be included in this definition except to the extent that any of such trade payables are being disputed in good faith and by appropriate measures), (iv) all obligations of such Person under any conditional sale or other title retention agreement(s) relating to property acquired by such Person, (v) all Capital Lease Obligations of such Person, (vi) all obligations, contingent or otherwise, of such Person in respect of letters of credit, acceptances or similar extensions of credit, (vii) all Guarantees of such Person of the type of Indebtedness described in clauses (i) through (vi) above, (viii) all Indebtedness of a third party secured by any Lien on property owned by such Person, whether or not such Indebtedness has been assumed by such Person, (ix) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (x) all Off-Balance Sheet Liabilities and (xi) all net Hedging Obligations. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company or the foreign equivalent thereof) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date. The amount of Indebtedness of any Person for purposes of clause (viii) that is expressly made nonrecourse or limited-recourse (limited solely to the assets securing such Indebtedness) to such Person shall be deemed to be equal to the lesser of (x) the aggregate unpaid amount of such Indebtedness and (y) the fair market value of the property encumbered thereby as determined by such Person in good faith.
“Indemnified Taxes” shall mean (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Information Memorandum” shall mean any Confidential Information Memorandum relating to the Borrower and the transactions contemplated by this Agreement and the other Loan Documents prepared in connection with the syndication of any of the Revolving Commitments.
“Initial Maturity Date” means January 28, 2021.
“Interest Coverage Ratio” means the ratio of Adjusted EBITDA for the subject testing period to Interest Expense.
“Interest Expense” means, with respect to any Person, all paid, accrued or capitalized interest expense on such Person’s Indebtedness (whether direct, indirect or contingent, and including, without limitation, interest on all convertible debt), and including (without duplication) the Equity Percentage of Interest Expense for the Borrower’s Unconsolidated Affiliates.
“Interest Period” shall mean with respect to any Eurodollar Borrowing, a period of one or three months; provided that:
(i) the initial Interest Period for such Borrowing shall commence on the date of such Borrowing (including the date of any conversion from a Borrowing of another Type), and each Interest Period occurring thereafter in respect of such Borrowing shall commence on the day on which the next preceding Interest Period expires;
(ii)if any Interest Period would otherwise end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such Business Day falls in another calendar month, in which case such Interest Period would end on the immediately preceding Business Day;
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(iii)any Interest Period which begins on the last Business Day of a calendar month or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period shall end on the last Business Day of such calendar month; and
(iv)no Interest Period may extend beyond the Maturity Date.
“IRS” shall mean the United States Internal Revenue Service.
“Legal Requirement” means any law, statute, ordinance, decree, requirement, order, judgment, rule, regulation (or interpretation of any of the foregoing) of, and the terms of any license or permit issued by, any Governmental Authority.
“Lender-Related Hedge Provider” means any Person that, at the time it enters into a Hedging Transaction with any Credit Party, (i) is a Lender or an Affiliate of a Lender and (ii) except when the Lender-Related Hedge Provider is SunTrust Bank or any of its Affiliates, has provided prior written notice to the Administrative Agent which has been acknowledged by the Borrower of (x) the existence of such Hedging Transaction and (y) the methodology to be used by such parties in determining the obligations under such Hedging Transaction from time to time. In no event shall any Lender-Related Hedge Provider acting in such capacity be deemed a Lender for purposes hereof to the extent of and as to Hedging Obligations except that each reference to the term “Lender” in Article IX and Section 10.3(b) shall be deemed to include such Lender-Related Hedge Provider. In no event shall the approval of any such Person in its capacity as Lender-Related Hedge Provider be required in connection with the release or termination of any security interest or Lien of the Administrative Agent.
“Lenders” shall have the meaning set forth in the introductory paragraph hereof and shall include, where appropriate, each Increasing Lender and each Additional Lender that joins this Agreement pursuant to Section 2.23.
“Lien” means, with respect to an asset, (a) any mortgage, deed of trust, lien (statutory or other), pledge, hypothecation, negative pledge, collateral assignment, encumbrance, deposit arrangement, charge or security interest in, on or of such asset; (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset; (c) the filing under the Uniform Commercial Code or comparable law of any jurisdiction of any financing statement naming the owner of the asset to which such Lien relates as debtor; (d) any other preferential arrangement of any kind or nature whatsoever intended to assure payment of any Indebtedness or other obligation; and (e) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities, including any dividend reinvestment or redemption plans.
“Liquidity” means the sum of unencumbered and unrestricted cash and cash equivalents of the Parent, excluding any debt service, capital improvement or other similar reserve funds held under or required by any loan documents entered in to by the Parent or any Subsidiary plus unencumbered and unrestricted marketable securities reasonably acceptable to Administrative Agent.
“Loan Documents” shall mean, collectively, this Agreement, the Collateral Documents, the Fee Letter, all Notices of Borrowing, all Notices of Conversion/Continuation, all Compliance Certificates, any promissory notes issued hereunder and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.
“Loans” shall mean all Revolving Loans, and shall include, where appropriate, any loan made pursuant to Section 2.23.
“Management Company” means BH Management Services, LLC, an Iowa limited liability company.
“Mandatory Prepayment” has the meaning set forth in Section 2.12(a).
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“Material Adverse Effect” means a material adverse effect on (a) the business, assets, operations, or financial condition of (i) the Parent, the Borrower and its Subsidiaries taken as a whole, (b) the ability of any of the Credit Parties to perform their obligations under the Loan Documents or (c) the rights of or benefits available to the Administrative Agent or the Lenders under the Loan Documents; provided, however, that none of the following shall constitute, or shall be considered in determining whether there has occurred, and no event, circumstance, change or effect resulting from or arising out of any of the following shall constitute, a Material Adverse Effect: (A) changes in the national or world economy or financial markets as a whole or changes in general economic conditions that affect the industries in which the Parent, the Borrower, and its Subsidiaries conduct their business, so long as such changes or conditions do not adversely affect the Parent, the Borrower, and its Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (B) any change in applicable Law, rule or regulation or GAAP or interpretation thereof after the date hereof, so long as such changes do not adversely affect the Parent, the Borrower, and its Subsidiaries, taken as a whole, in a materially disproportionate manner relative to other similarly situated participants in the industries or markets in which they operate; (C) the failure, in and of itself, of the Parent or the Borrower to meet any published or internally prepared estimates of revenues, earnings or other financial projections, performance measures or operating statistics; (D) a decline in the price, or a change in the trading volume, of the Parent; and (E) compliance with the terms of, and taking any action required by, this Agreement, or taking or not taking any actions at the request of, or with the consent of, the Administrative Agent.
“Material Contract” means any contract or other arrangement (other than Loan Documents), whether written or oral, to which any Credit Party is a party as to which the breach, nonperformance, cancellation or failure to renew by any party thereto could reasonably be expected to have a Material Adverse Effect.
“Maturity Date” means the earlier of (i) the Initial Maturity Date, as such date may be extended as to the Extended Maturity Date provided in Section 2.22, and (ii) the date on which the Loans shall become due and payable pursuant to the terms hereof.
“Mortgaged Property” means all Real Properties from time to time granted as security under the Senior Loan.
“Multiemployer Plan” shall mean any “multiemployer plan” as defined in Section 4001(a)(3) of ERISA, which is contributed to by (or to which there is or may be an obligation to contribute of) the Borrower, any of its Subsidiaries or an ERISA Affiliate, and each such plan for the five-year period immediately following the latest date on which the Borrower, any of its Subsidiaries or an ERISA Affiliate contributed to or had an obligation to contribute to such plan.
“Net Operating Income” means, for any income producing Real Property and for a given period, the difference between (a) any rentals, proceeds and other income received from such property during the determination period, less (b) an amount equal to all costs and expenses (excluding Interest Expense, depreciation and amortization expense, and any expenditures that are capitalized in accordance with GAAP) incurred as a result of, or in connection with, or properly allocated to, the operation or leasing of such Real Property during the determination period (other than asset management fees); provided, that the calculation of such costs and expenses shall be adjusted for any annual costs or expenses related to taxes, insurance premiums, and other one-time annual expenses. Net Operating Income shall be calculated based on the most recently ended calendar quarter, annualized, with the exception of taxes, insurance premiums and other one-time annual expenses, which may be based on the most recently ended twelve-month period. If the Real Property has not been owned by the Borrower or a subsidiary for a full calendar quarter, the annualized Net Operating Income shall be calculated based upon the historical data provided by the Borrower, subject to adjustment by the Administrative Agent in its reasonable discretion and thereafter until such Real Property has been owned by the Borrower or its subsidiaries for the entirety of a calendar quarter, Net Operating Income shall be grossed up for such ownership period. Net Operating Income shall be calculated on a consolidated basis for the Borrower and its Wholly-Owned Subsidiaries and including (without duplication) the Equity Percentage of Net Operating Income for the Borrower’s Unconsolidated Affiliates but adjusted for non-cash operating items and other non-cash items.
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“Non-Consenting Lender” means any Lender that does not approve any consent, waiver or amendment that (i) requires the approval of all or all affected Lenders in accordance with the terms of Section 2.25 and (ii) has been approved by the Required Lenders.
“Non-Defaulting Lender” shall mean, at any time, a Lender that is not a Defaulting Lender.
“Non-U.S. Plan” shall mean any plan, fund (including, without limitation, any superannuation fund) or other similar program established, contributed to (regardless of whether through direct contributions or through employee withholding) or maintained outside the United States by the Borrower or one or more of its Subsidiaries primarily for the benefit of employees of the Borrower or such Subsidiaries residing outside the United States, which plan, fund or other similar program provides, or results in, retirement income, a deferral of income in contemplation of retirement, or payments to be made upon termination of employment, and which plan is not subject to ERISA or the Code.
“Notice of Borrowing” shall have the meaning set forth in Section 2.3.
“Notice of Conversion/Continuation” shall have the meaning set forth in Section 2.7(b).
“Obligations” shall mean (a) all amounts owing by the Credit Parties to the Administrative Agent, any Lender, or the Arranger pursuant to or in connection with this Agreement or any other Loan Document or otherwise with respect to any Loan including, without limitation, all principal, interest (including any interest accruing after the filing of any petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding), reimbursement obligations, fees, expenses, indemnification and reimbursement payments, costs and expenses (including all fees and expenses of counsel to the Administrative Agent and any Lender incurred pursuant to this Agreement or any other Loan Document), whether direct or indirect, absolute or contingent, liquidated or unliquidated, now existing or hereafter arising hereunder or thereunder, (b) all Hedging Obligations owed by any Credit Party to any Lender-Related Hedge Provider, and (c) all Bank Product Obligations, together with all renewals, extensions, modifications or refinancings of any of the foregoing; provided, however, that with respect to any Guarantor, the Obligations shall not include any Excluded Swap Obligations.
“OFAC” shall mean the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Off-Balance Sheet Liabilities” of any Person shall mean (i) any repurchase obligation or liability of such Person with respect to accounts or notes receivable sold by such Person, (ii) any liability of such Person under any sale and leaseback transactions that do not create a liability on the balance sheet of such Person, (iii) any Synthetic Lease Obligation or (iv) any obligation arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the balance sheet of such Person.
“Other Connection Taxes” shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 2.25).
“Parent” means NexPoint Residential Trust, Inc., a Maryland corporation.
“Parent Company” shall mean, with respect to a Lender, the “bank holding company” as defined in Regulation Y, if any, of such Lender, and/or any Person owning, beneficially or of record, directly or indirectly, a majority of the shares of such Lender.
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“Participant” shall have the meaning set forth in Section 10.4(d).
“Participant Register” shall have the meaning set forth in Section 10.4(d).
“Payment Office” shall mean the office of the Administrative Agent located at 303 Peachtree Street, N.E., Atlanta, Georgia 30308, or such other location as to which the Administrative Agent shall have given written notice to the Borrower and the Lenders.
“Payout Ratio” means the ratio of cash dividends or distributions to common equity holders of the Parent paid or payable for the applicable period to Core Funds from Operations.
“PBGC” shall mean the U.S. Pension Benefit Guaranty Corporation referred to and defined in ERISA, and any successor entity performing similar functions.
“Perfection Certificate” shall mean a certificate of the Borrower in the form attached hereto as Exhibit D.
“Permitted Encumbrances” means:
(a)Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.5;
(b)pledges and deposits made in the ordinary course of business in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations;
(c)deposits to secure the performance of bids, trade contracts, purchase, construction or sales contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business;
(d)the Title Instruments, Liens and other matters described in the Title Insurance Policy;
(e)uniform commercial code protective filings with respect to personal property leased to the Borrower or any Subsidiary;
(f)landlords’ liens for rent not yet due and payable; and
(g)liens arising under the Senior Loan; provided that the term “Permitted Encumbrances” shall not include any Lien securing Indebtedness other than the Senior Loan.
“Permitted Investments” means:
(a)direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof;
(b)investments in commercial paper maturing within 270 days from the date of acquisition thereof and having an investment grade credit rating on the date of acquisition;
(c)investments in certificates of deposit, banker’s acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000;
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(d)fully collateralized repurchase agreements with a term of not more than 90 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and
(e)investments of a Borrower in Subsidiaries and Unconsolidated Affiliates made in accordance with this Agreement.
“Person” shall mean any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” shall mean any “employee benefit plan” as defined in Section 3 of ERISA (other than a Multiemployer Plan) maintained or contributed to by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate has or may have an obligation to contribute, and each such plan that is subject to Title IV of ERISA for the five-year period immediately following the latest date on which the Borrower or any ERISA Affiliate maintained, contributed to or had an obligation to contribute to (or is deemed under Section 4069 of ERISA to have maintained or contributed to or to have had an obligation to contribute to, or otherwise to have liability with respect to) such plan.
“Platform” means Debt Domain, Intralinks, Syndtrak or a substantially similar electronic transmission system.
“Pledge Agreement” means those certain Equity Interests Pledge and Security Agreements executed by the Borrower in favor of Administrative Agent pledging Borrower’s interest in the Pledged Interests.
“Pledged Interests” means, collectively, the ownership (or in the reasonable discretion of the Administrative Agent, the economic) interests now or hereafter pledged by Borrower and each Collateral Subsidiary and the economic interest, including rights to receive cash and other distributions from each other Subsidiary of the Borrower hereunder and subject to the liens and security interests of the Loan Documents, or intended so to be.
“Pro Rata Share” shall mean (i) with respect to any Class of Commitment or Loan of any Lender at any time, a percentage, the numerator of which shall be such Lender’s Commitment of such Class (or if such Commitment has been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure), and the denominator of which shall be the sum of all Commitments of such Class of all Lenders (or if such Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders) and (ii) with respect to all Classes of Commitments and Loans of any Lender at any time, the numerator of which shall be the sum of such Lender’s Revolving Commitment (or if such Revolving Commitment has been terminated or expired or the Loans have been declared to be due and payable, such Lender’s Revolving Credit Exposure) and the denominator of which shall be the sum of all Lenders’ Revolving Commitments (or if such Revolving Commitments have been terminated or expired or the Loans have been declared to be due and payable, all Revolving Credit Exposure of all Lenders funded under such Commitments).
“Real Property” means, collectively, all interest in any land and improvements located thereon (including direct financing leases of land and improvements owned by a Credit Party or any of Borrower’s Subsidiaries), together with all equipment, furniture, materials, supplies and personal property now or hereafter located at or used in connection with the land and all appurtenances, additions, improvements, renewals, substitutions and replacements thereof now or hereafter acquired by a Credit Party or any of Borrower’s Subsidiaries.
“Recipient” shall mean, as applicable, (a) the Administrative Agent, and (b) any Lender.
“Regulation D” shall mean Regulation D of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.
“Regulation T” shall mean Regulation T of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.
“Regulation U” shall mean Regulation U of the Board of Governors of the Federal
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“Regulation X” shall mean Regulation X of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.
“Regulation Y” shall mean Regulation Y of the Board of Governors of the Federal Reserve System, as the same may be in effect from time to time, and any successor regulations.
“Related Parties” shall mean, with respect to any Person, such Person’s Affiliates and the managers, administrators, trustees, partners, directors, officers, employees, agents, advisors or other representatives of such Person and such Person’s Affiliates.
“Release” shall mean any release, spill, emission, leaking, dumping, injection, pouring, deposit, disposal, discharge, dispersal, leaching or migration into the environment (including ambient air, surface water, groundwater, land surface or subsurface strata) or within any building, structure, facility or fixture.
“Required Lenders” means, as of any date of determination, at least two (2) Lenders having more than 66 2/3% of the Commitments or, if the Commitments of each Lender to make Loans have been terminated pursuant to Article VIII, at least two (2) Lenders holding in the aggregate at least 66 2/3% of the aggregate Obligations; provided that the Commitment of, and the portion of the Obligations held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders; provided further that, at any time when there are two (2) or fewer Lenders, Required Lenders shall mean all Lenders that are not Defaulting Lenders.
“Responsible Officer” shall mean (x) with respect to certifying compliance with the financial covenants set forth in Section 5.2, the chief financial officer or the treasurer of the Parent and (y) with respect to all other provisions, any of the president, the chief executive officer, the chief operating officer, the chief financial officer, the treasurer or a vice president of the Parent, Borrower, or such other representative of the Borrower as may be designated in writing by any one of the foregoing with the consent of the Administrative Agent.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any ownership interests in the Parent, Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such ownership interests in the Parent or Borrower or any option, warrant or other right to acquire any such shares of capital stock of the Parent or the Borrower.
“Revolving Commitment” shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans to the Borrower in an aggregate principal amount not exceeding the amount set forth with respect to such Lender on Schedule II, as such schedule may be amended pursuant to Section 2.23, or, in the case of a Person becoming a Lender after the Closing Date, the amount of the assigned “Revolving Commitment” as provided in the Assignment and Acceptance executed by such Person as an assignee, or the joinder executed by such Person, in each case as such commitment may subsequently be increased or decreased pursuant to the terms hereof.
“Revolving Credit Exposure” shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender’s Revolving Loans.
“Revolving Loan” shall mean a loan made by a Lender to the Borrower under its Revolving Commitment, which may either be a Base Rate Loan or a Eurodollar Loan.
“Sanctioned Country” shall mean, at any time, a country, region or territory that is, or whose government is, the subject or target of any Sanctions; including, without limitation, Crimea, Cuba, Iran, North Korea, Sudan and Syria.
“Sanctioned Person” shall mean, at any time, (a) any Person that is the subject or target of any Sanctions, (b) any Person located, organized, operating or resident in a Sanctioned Country or (c) any Person owned or controlled by any such Person.
“Sanctions” shall mean economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC or the U.S.
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Department of State, (b) the United Nations Security Council, the European Union or Her Majesty’s Treasury of the United Kingdom or (c) any other relevant sanctions authority.
“Screen Rate” shall mean the rate specified in clause (i) of the definition of Adjusted LIBO Rate.
“Senior Credit Agreement” means, collectively, each of those certain Loan Agreements, set forth on Schedule III hereof with respect to the Mortgaged Properties.
“Senior Loan” means each loan made pursuant to a Senior Credit Agreement.
“Senior Loan Documents” means each Senior Credit Agreement and all other instruments, agreements and written obligations executed and delivered in connection with the transactions contemplated by a Senior Credit Agreement.
“Secured Parties” shall mean the Administrative Agent, the Lenders, the Lender-Related Hedge Providers and the Bank Product Providers.
“Solvent” shall mean, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including subordinated and contingent liabilities, of such Person; (b) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts and liabilities, including subordinated and contingent liabilities as they become absolute and matured; (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan liabilities) at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that would reasonably be expected to become an actual or matured liability.
“Subsidiary” means, with respect to Borrower, Guarantor, Parent or any Credit Party, as applicable (the “parent”), at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent’s consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held by parent, or (b) that is, as of such date, otherwise Controlled, by the parent or one or more subsidiaries of the parent.
“Swap Obligation” shall mean, with respect to any Guarantor, any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Synthetic Lease” shall mean a lease transaction under which the parties intend that (i) the lease will be treated as an “operating lease” by the lessee pursuant to Accounting Standards Codification Sections 840-10 and 840-20, as amended, and (ii) the lessee will be entitled to various tax and other benefits ordinarily available to owners (as opposed to lessees) of like property.
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“Synthetic Lease Obligations” shall mean, with respect to any Person, the sum of (i) all remaining rental obligations of such Person as lessee under Synthetic Leases which are attributable to principal and, without duplication, (ii) all rental and purchase price payment obligations of such Person under such Synthetic Leases assuming such Person exercises the option to purchase the lease property at the end of the lease term.
“Tangible Net Worth” shall mean total assets (without deduction for accumulated depreciation and accumulated amortization of lease intangibles) less (1) all intangible assets and (2) all liabilities (including contingent and indirect liabilities), all determined in accordance with GAAP. The term “intangible assets” shall include, without limitation, (i) deferred charges such as straight-line rents and other non-cash items, and (ii) the aggregate of all amounts appearing on the assets side of any such balance sheet for franchises, licenses, permits, patents, patent applications, copyrights, trademarks, trade names, goodwill, treasury stock, experimental or organizational expenses and other like intangibles (other than amounts related to the purchase price of real property which are allocated to lease intangibles). The term “liabilities” shall include, without limitation, (i) Indebtedness secured by Liens on property of the Person with respect to which Tangible Net Worth is being computed whether or not such Person is liable for the payment thereof, (ii) deferred liabilities, and (iii) Capital Lease Obligations. Tangible Net Worth shall be calculated on a consolidated basis Borrower, Guarantor, and their Wholly-Owned Subsidiaries and including the Borrower’s Equity Percentage of Tangible Net Worth of the Borrower’s Unconsolidated Affiliates.
“Taxes” shall mean any and all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees, or charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“Title Instruments” means true and correct copies of all instruments of record in the Office of the County Clerk, the Real Property Records or of any other Governmental Authority affecting title to all or any part of the Mortgaged Properties, including but not limited to those (if any) which impose restrictive covenants, easements, rights-of-way or other encumbrances on all or any part of the Mortgaged Properties.
“Title Insurance Policy” means, collectively, the policies of title issued in favor of the respective Collateral Subsidiary by a title insurance company satisfactory to each lender under a Senior Credit Agreement and insuring that title to each Mortgaged Property is vested in such Collateral Subsidiary, free and clear of any Lien, objection, exception or requirement, subject only to the Permitted Encumbrances.
“Total Asset Value” means the sum of (without duplication) (a) the aggregate Value of all of Borrower’s, Guarantor’s and their Subsidiaries’ Real Property, plus (b) the amount of any unencumbered cash and cash equivalents, excluding tenant security and other restricted deposits of the Borrower and its Subsidiaries, plus (c) the amount of restricted cash reserves available for funding planned real property capital improvements. For any non-wholly owned Real Properties, Total Asset Value shall be adjusted for Borrower’s, Guarantor’s and Subsidiaries’ Equity Percentage thereof.
“Total Leverage Ratio” means the ratio (expressed as a percentage) of (a) the Indebtedness of Borrower and the Indebtedness of the Guarantor (without duplication) to (b) Total Asset Value.
“Type”, when used in reference to a Loan or a Borrowing, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing, is determined by reference to the Adjusted LIBO Rate or the Base Rate.
“Unconsolidated Affiliate” means, without duplication, in respect of any Person, any other Person (other than a Person whose stock is traded on a national trading exchange) in whom such Person holds, directly or indirectly, an investment consisting of a voting equity or ownership interest, which investment is accounted for in the financial statements of such Person on an equity basis of accounting.
“Unfunded Pension Liability” of any Plan shall mean the amount, if any, by which the value of the accumulated plan benefits under the Plan, determined on a plan termination basis in accordance with actuarial assumptions at such time consistent with those prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions).
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“Unhedged Variable Rate Debt” means any Indebtedness or portion thereof which is not subject to a Hedging Transaction.
“Unused Fee” shall have the meaning set forth in Section 2.14(b).
“Unused Fee Rate” means, for any calendar quarter: (a) to the extent the average daily unused amount of the Aggregate Revolving Commitments for the such calendar quarter is greater than 50.0% of the Aggregate Revolving Commitments for such days, 0.25% per annum; and (b) to the extent the average daily unused amount of the Aggregate Revolving Commitments for the such calendar quarter is less than 50.0% of the Aggregate Revolving Commitments for such days, 0.15% per annum.
“Uniform Commercial Code” or “UCC” shall mean the Uniform Commercial Code as in effect from time to time in the State of New York.
“United States” or “U.S.” shall mean the United States of America.
“U.S. Borrower” shall mean any Borrower that is a U.S. Person.
“U.S. Person” shall mean any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” shall have the meaning set forth in Section 2.20(e)(ii).
“Value” means the sum of the following:
(a) |
for Real Property owned by the Borrower or any applicable Subsidiary for a period of less than six (6) calendar quarters, the greater of (i) the cost-basis book value of such Real Property; and (ii) an amount equal to (A) the aggregate Net Operating Income attributable thereto for the most recently ended calendar quarter, annualized, divided by (B) the Capitalization Rate; provided, that once a Real Property’s Value has been determined using subclause (ii) above, all future determinations of Value for such Real Property shall be performed pursuant to such subclause (ii); plus |
(b) |
for all other Real Property (i) the aggregate Net Operating Income attributable thereto for the most recently ended calendar quarter, annualized, divided by (ii) the Capitalization Rate. |
“Wholly-Owned” means, with respect to a Subsidiary of a Person, a Subsidiary of such Person all of the outstanding Equity Interests of which (other than (x) director’s qualifying shares and (y) shares issued to foreign nationals to the extent required by applicable law) are owned by such Person and/or by one or more wholly owned Subsidiaries of such Person. In determining whether a Subsidiary of a Person is a Wholly-Owned Subsidiary, all preferred shareholders of a Subsidiary that is organized as a real estate investment trust shall be disregarded.
“Withdrawal Liability” shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
“Withholding Agent” shall mean the Borrower, any other Credit Party or the Administrative Agent, as applicable.
Section 1.2.Classifications of Loans and Borrowings. For purposes of this Agreement, Loans may be classified and referred to by Type (e.g. “Eurodollar Loan” or “Base Rate Loan”). Borrowings also may be classified and referred to by Type (e.g. “Revolving Eurodollar Borrowing”).
Section 1.3.Accounting Terms and Determination. Unless otherwise defined or specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with GAAP as in effect from time to time, applied on a basis consistent with the most recent audited consolidated financial statement
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of the Borrower delivered pursuant to Section 5.1(a); provided that if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Section 5.2 to eliminate the effect of any change in GAAP on the operation of such covenant (or if the Administrative Agent notifies the Borrower that the Required Lenders wish to amend Section 5.2 for such purpose), then the Borrower’s compliance with such covenant shall be determined on the basis of GAAP in effect immediately before the relevant change in GAAP became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Lenders. Notwithstanding any other provision contained herein, all terms of an accounting or financial nature used herein shall be construed, and all computations of amounts and ratios referred to herein shall be made, without giving effect to any election under Accounting Standards Codification Section 825-10 (or any other Financial Accounting Standard having a similar result or effect) to value any Indebtedness or other liabilities of any Credit Party or any Subsidiary of any Credit Party at “fair value”, as defined therein.
Section 1.4.Terms Generally. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”. The word “will” shall be construed to have the same meaning and effect as the word “shall”. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the word “to” means “to but excluding”. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as it was originally executed or as it may from time to time be amended, restated, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (c) the words “hereof”, “herein” and “hereunder” and words of similar import shall be construed to refer to this Agreement as a whole and not to any particular provision hereof, (d) all references to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles, Sections, Exhibits and Schedules to this Agreement, (e) all references to a specific time shall be construed to refer to the time in the city and state of the Administrative Agent’s principal office, unless otherwise indicated and (f) any definition of or reference to any law shall include all statutory and regulatory provisions consolidating, amending, or interpreting any such law and any reference to or definition of any law or regulation, unless otherwise specified, shall refer to such law or regulation as amended, modified or supplemented from time to time.
ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENTS
Section 2.1.Establishment of Revolving Credit Facility. Subject to and upon the terms and conditions herein set forth, the Lenders hereby establish in favor of the Borrower a revolving credit facility pursuant to which each Lender severally agrees (to the extent of such Lender’s Revolving Commitment) to make Revolving Loans to the Borrower in accordance with Section 2.2.
Section 2.2.Revolving Loans. Subject to the terms and conditions set forth herein, each Lender severally agrees to make Revolving Loans, ratably in proportion to its Pro Rata Share of the Aggregate Revolving Commitments, to the Borrower, from time to time during the Availability Period, in an aggregate principal amount outstanding at any time that will not result in (a) such Lender’s Revolving Credit Exposure exceeding such Lender’s Revolving Commitment or (b) the aggregate Revolving Credit Exposures of all Lenders exceeding the Aggregate Revolving Commitment Amount. During the Availability Period, the Borrower shall be entitled to borrow, prepay and reborrow Revolving Loans in accordance with the terms and conditions of this Agreement; provided that the Borrower may not borrow or reborrow should there exist a Default or Event of Default.
Section 2.3.Procedure for Borrowings. The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing, substantially in the form of Exhibit E attached hereto (a “Notice of Borrowing”), (x) prior to 11:00 a.m. one (1) Business Day prior to the requested date of each Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to the requested date of each Eurodollar Borrowing. Each Notice of Borrowing shall be irrevocable and shall specify (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Revolving Loan comprising such Borrowing and (iv) in the case of a Eurodollar Borrowing, the duration of
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the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower may request. The aggregate principal amount of each Borrowing shall not be less than $1,000,000 or a larger multiple of $100,000; provided that Base Rate Loans made pursuant to Section 2.4 or Section 2.22(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed six (6). Promptly following the receipt of a Notice of Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.
Section 2.4.[Intentionally Omitted].
Section 2.5.[Intentionally Omitted].
Section 2.6.Funding of Borrowings.
(a)Each Lender will make available each Loan to be made by it hereunder on the proposed date thereof by wire transfer in immediately available funds by 11:00 a.m. to the Administrative Agent at the Payment Office. The Administrative Agent will make such Loans available to the Borrower by promptly crediting the amounts that it receives, in like funds by the close of business on such proposed date, to an account maintained by the Borrower with the Administrative Agent or, at the Borrower’s option, by effecting a wire transfer of such amounts to an account designated by the Borrower to the Administrative Agent.
(b)Unless the Administrative Agent shall have been notified by any Lender prior to 5:00 p.m. one (1) Business Day prior to the date of a Borrowing in which such Lender is to participate that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on such date, and the Administrative Agent, in reliance on such assumption, may make available to the Borrower on such date a corresponding amount. If such corresponding amount is not in fact made available to the Administrative Agent by such Lender on the date of such Borrowing, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest (x) at the Federal Funds Rate until the second Business Day after such demand and (y) at the Base Rate at all times thereafter. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent’s demand therefor, the Administrative Agent shall promptly notify the Borrower, and the Borrower shall pay such corresponding amount to the Administrative Agent together with interest at the rate specified for such Borrowing within fifteen (15) Business Days of Borrower’s receipt of notice from Administrative Agent. Nothing in this subsection shall be deemed to relieve any Lender from its obligation to fund its Pro Rata Share of any Borrowing hereunder or to prejudice any rights which the Borrower may have against any Lender as a result of any default by such Lender hereunder.
(c)All Borrowings shall be made by the Lenders on the basis of their respective Pro Rata Shares. No Lender shall be responsible for any default by any other Lender in its obligations hereunder, and each Lender shall be obligated to make its Loans provided to be made by it hereunder, regardless of the failure of any other Lender to make its Loans hereunder.
Section 2.7.Interest Elections.
(a)Each Borrowing initially shall be of the Type specified in the applicable Notice of Borrowing. Thereafter, the Borrower may elect to convert such Borrowing into a different Type or to continue such Borrowing, all as provided in this Section. The Borrower may elect different options with respect to different portions of the affected Borrowing, in which case each such portion shall be allocated ratably among the Lenders holding Loans comprising such Borrowing, and the Loans comprising each such portion shall be considered a separate Borrowing.
(b)To make an election pursuant to this Section, the Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing that is to be converted or continued, as the case may be, substantially in the form of Exhibit F attached hereto (a “Notice of Conversion/Continuation”) (x) prior to 10:00 a.m. one (1) Business Day prior to the requested date of a conversion into a Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to a continuation of or conversion
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into a Eurodollar Borrowing. Each such Notice of Conversion/Continuation shall be irrevocable and shall specify (i) the Borrowing to which such Notice of Conversion/Continuation applies and, if different options are being elected with respect to different portions thereof, the portions thereof that are to be allocated to each resulting Borrowing (in which case the information to be specified pursuant to clauses (iii) and (iv) shall be specified for each resulting Borrowing), (ii) the effective date of the election made pursuant to such Notice of Conversion/Continuation, which shall be a Business Day, (iii) whether the resulting Borrowing is to be a Base Rate Borrowing or a Eurodollar Borrowing, and (iv) if the resulting Borrowing is to be a Eurodollar Borrowing, the Interest Period applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of “Interest Period”. If any such Notice of Conversion/Continuation requests a Eurodollar Borrowing but does not specify an Interest Period, the Borrower shall be deemed to have selected an Interest Period of one month. The principal amount of any resulting Borrowing shall satisfy the minimum borrowing amount for Eurodollar Borrowings and Base Rate Borrowings set forth in Section 2.3.
(c)If, on the expiration of any Interest Period in respect of any Eurodollar Borrowing, the Borrower shall have failed to deliver a Notice of Conversion/Continuation, then, unless such Borrowing is repaid as provided herein, the Borrower shall be deemed to have elected to convert such Borrowing to a Base Rate Borrowing. No Borrowing may be converted into, or continued as, a Eurodollar Borrowing if a Default or an Event of Default exists, unless the Administrative Agent and each of the Lenders shall have otherwise consented in writing. No conversion of any Eurodollar Loan shall be permitted except on the last day of the Interest Period in respect thereof.
(d)Upon receipt of any Notice of Conversion/Continuation, the Administrative Agent shall promptly notify each Lender of the details thereof and of such Lender’s portion of each resulting Borrowing.
Section 2.8.Optional Reduction and Termination of Commitments.
(a)Unless previously terminated, all Revolving Commitments shall terminate on the Maturity Date.
(b)Upon at least three (3) Business Days’ prior written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent (which notice shall be irrevocable), the Borrower may reduce the Aggregate Revolving Commitments in part or terminate the Aggregate Revolving Commitments in whole; provided that (i) any partial reduction shall apply to reduce proportionately and permanently the Revolving Commitment of each Lender, (ii) any partial reduction pursuant to this Section shall be in an amount of at least $5,000,000 and any larger multiple of $1,000,000, and (iii) no such reduction shall be permitted which would reduce the Aggregate Revolving Commitment Amount to an amount less than the aggregate outstanding Revolving Credit Exposure of all Lenders.
(c)With the written approval of the Administrative Agent, the Borrower may terminate (on a non-ratable basis) the unused amount of the Revolving Commitment of a Defaulting Lender, and in such event the provisions of Section 2.26 will apply to all amounts thereafter paid by the Borrower for the account of any such Defaulting Lender under this Agreement (whether on account of principal, interest, fees, indemnity or other amounts); provided that such termination will not be deemed to be a waiver or release of any claim that the Borrower, the Administrative Agent or any other Lender may have against such Defaulting Lender.
Section 2.9.Repayment of Loans. The outstanding principal amount of all Revolving Loans shall be due and payable (together with accrued and unpaid interest thereon) on the Maturity Date.
Section 2.10.Evidence of Indebtedness.
(a)Each Lender shall maintain in accordance with its usual practice appropriate records evidencing the Indebtedness of the Borrower to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable thereon and paid to such Lender from time to time under this Agreement. The Administrative Agent shall maintain appropriate records in which shall be recorded (i) the Revolving Commitment of each Lender, (ii) the amount of each Loan made hereunder by each Lender, the Type thereof and, in the case of each Eurodollar Loan, the Interest Period applicable thereto, (iii) the date of any continuation of any Loan pursuant to Section 2.7, (iv) the date of any conversion of all or a portion of any Loan to
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another Type pursuant to Section 2.7, (v) the date and amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder in respect of the Loans and (vi) both the date and amount of any sum received by the Administrative Agent hereunder from the Borrower in respect of the Loans and each Lender’s Pro Rata Share thereof. The entries made in such records shall be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided that the failure or delay of any Lender or the Administrative Agent in maintaining or making entries into any such record or any error therein shall not in any manner affect the obligation of the Borrower to repay the Loans (both principal and unpaid accrued interest) of such Lender in accordance with the terms of this Agreement.
(b)This Agreement evidences the obligation of the Borrower to repay the Loans and is being executed as a “noteless” credit agreement. However, at the request of any Lender at any time, the Borrower agrees that it will prepare, execute and deliver to such Lender a promissory note payable to the order of such Lender (or, if requested by such Lender, to such Lender and its registered assigns) and in a form approved by the Administrative Agent. Thereafter, the Loans evidenced by such promissory note and interest thereon shall at all times (including after assignment permitted hereunder) be represented by one or more promissory notes in such form payable to the order of the payee named therein (or, if such promissory note is a registered note, to such payee and its registered assigns).
Section 2.11.Optional Prepayments. The Borrower shall have the right at any time and from time to time to prepay any Borrowing, in whole or in part, without premium or penalty, by giving written notice (or telephonic notice promptly confirmed in writing) to the Administrative Agent no later than (i) in the case of any prepayment of any Eurodollar Borrowing, 11:00 a.m. not less than three (3) Business Days prior to the date of such prepayment, and (ii) in the case of any prepayment of any Base Rate Borrowing, not less than one (1) Business Day prior to the date of such prepayment. Each such notice shall be irrevocable and shall specify the proposed date of such prepayment and the principal amount of each Borrowing or portion thereof to be prepaid. Upon receipt of any such notice, the Administrative Agent shall promptly notify each affected Lender of the contents thereof and of such Lender’s Pro Rata Share of any such prepayment. If such notice is given, the aggregate amount specified in such notice shall be due and payable on the date designated in such notice, together with accrued interest to such date on the amount so prepaid in accordance with Section 2.13(d); provided that if a Eurodollar Borrowing is prepaid on a date other than the last day of an Interest Period applicable thereto, the Borrower shall also pay all amounts required pursuant to Section 2.19. Each partial prepayment of any Loan shall be in an amount that would be permitted in the case of an advance of a Borrowing of the same Type pursuant to Section 2.2. Each prepayment of a Borrowing shall be applied ratably to the Loans comprising such Borrowing.
Section 2.12.Mandatory Prepayments.
(a)The Borrower shall prepay the Loans (a “Mandatory Prepayment”) in an amount equal to one hundred percent (100%) of the net proceeds payable to Borrower or Guarantor (i) generated by equity issuances by the Parent or the Borrower, and (ii) payable to the Borrower, Guarantor or any Subsidiary (after payment of usual and customary closing costs and expenses and repayment of any Indebtedness secured by such Real Property) generated by the sale, finance, refinance or other recapitalization of any Real Property owned directly or indirectly by Parent, including, without limitation, any net proceeds thereof to be redeployed into the acquisition of one or more real properties to complete a 1031 exchange transaction; provided, however, that the applicable Credit Party shall, during the term of this Agreement or in connection with any sale, financing, refinancing, or recapitalization of any such Real Property, be permitted to retain the proceeds referenced in subclause (ii) above to the extent the Borrower provides the Administrative Agent with a Compliance Certificate including pro forma calculations of the financial covenants set forth in Section 5.2 hereof taking into account such transaction and showing that the Borrower will be in compliance with the terms and conditions of this Agreement in the event such proceeds are used for the Borrower’s general corporate purposes in lieu of being applied as a mandatory prepayment as otherwise required above.
(b)Without limiting the foregoing, if the Revolving Loan is not repaid in full on or before ninety (90) days prior to the then applicable Maturity Date, the Borrower shall, by such date, present a written plan to the Administrative Agent outlining its intended method for generating funds to repay the Revolving Loan in full by the Maturity Date, which plan shall be subject to the reasonable approval of the Administrative Agent. If the Administrative Agent reasonably determines that the sources reflected in the approved plan evidence a shortfall in
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available proceeds anticipated to be available to repay the Revolving Loan in full on the Maturity Date, the Borrower shall, within ten (10) Business Days of such notice from Administrative Agent and on the first Business Day of each calendar month thereafter, make a monthly principal payment in an amount as reasonably determined by the Administrative Agent equal to one third of such total shortfall per month.
(c)Any prepayments made by the Borrower pursuant to this Section shall be applied as follows: first, to the Administrative Agent’s fees and reimbursable expenses then due and payable pursuant to any of the Loan Documents; and second, to the principal balance of the Revolving Loans, until the same shall have been paid in full, pro rata to the Lenders based on their respective Revolving Commitments. The Revolving Commitments of the Lenders shall not be permanently reduced by the amount of any prepayments made pursuant to the above, unless an Event of Default has occurred and is continuing and the Required Revolving Lenders so request.
(d)If at any time the aggregate Revolving Credit Exposure of all Lenders exceeds the Aggregate Revolving Commitment Amount, as reduced pursuant to Section 2.8 or otherwise, the Borrower shall immediately repay the Revolving Loans in an amount equal to such excess, together with all accrued and unpaid interest on such excess amount and any amounts due under Section 2.19. Each prepayment shall be applied as follows: first, to the Base Rate Loans to the full extent thereof; and second, to the Eurodollar Loans to the full extent thereof.
Section 2.13.Interest on Loans.
(a)The Borrower shall pay interest on (i) each Base Rate Loan at the Base Rate plus the Applicable Margin in effect from time to time and (ii) each Eurodollar Loan at the Adjusted LIBO Rate for the applicable Interest Period in effect for such Loan plus the Applicable Margin in effect from time to time.
(b)[intentionally omitted].
(c)Notwithstanding subsections (a) and (b) of this Section, at the option of the Required Lenders if an Event of Default has occurred and is continuing, and automatically after acceleration, the Borrower shall pay interest (“Default Interest”) with respect to all Eurodollar Loans at the rate per annum equal to 400 basis points above the otherwise applicable interest rate for such Eurodollar Loans for the then-current Interest Period until the last day of such Interest Period, and thereafter, and with respect to all Base Rate Loans and all other Obligations hereunder (other than Loans), at the rate per annum equal to 200 basis points above the otherwise applicable interest rate for Base Rate Loans.
(d)Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Accrued interest on all outstanding Loans shall be payable monthly in arrears on the first (1st) day of each calendar month and on the Maturity Date or the Maturity Date, as the case may be. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand.
(e)The Administrative Agent shall determine each interest rate applicable to the Loans hereunder and shall promptly notify the Borrower and the Lenders of such rate in writing (or by telephone, promptly confirmed in writing). Any such determination shall be conclusive and binding for all purposes, absent manifest error.
(a)The Borrower shall pay to the Administrative Agent and its affiliates on the Closing Date and from time to time all fees in the Fee Letter that are due and payable on such dates.
(b)The Borrower agrees to pay to the Administrative Agent, for the account of each Lender, an unused fee (the “Unused Fee”), which shall accrue during the period from and including the date of this Agreement to, but excluding, date on which such Commitment terminates, at the applicable Unused Fee Rate multiplied by the average daily unused amount of the Commitment of such Lender under the Revolving Loans. Unused Fees accrued through and including the last day of March, June, September and December of each year shall be
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payable on the first Business Day of the month following the end of the applicable quarter. All Unused Fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day) and shall be based on the then existing Commitments of the Lenders.
(c)All fees payable hereunder shall be paid on the dates due in immediately available funds. Fees paid shall not be refundable under any circumstances.
Section 2.15.Computation of Interest and Fees.
Interest hereunder based on the Administrative Agent’s prime lending rate shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and all fees hereunder shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). Each determination by the Administrative Agent of an interest rate or fee hereunder shall be made in good faith and, except for manifest error, shall be final, conclusive and binding for all purposes.
Section 2.16.Inability to Determine Interest Rates.
(a)If, prior to the commencement of any Interest Period for any Eurodollar Borrowing:
(i)the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower absent manifest error) that, by reason of circumstances affecting the relevant interbank market, adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate (including, without limitation, because the Screen Rate is not available or published on a current basis) for such Interest Period, or
(ii)the Administrative Agent shall have received notice from the Required Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Loans for such Interest Period,
then the Administrative Agent shall give written notice thereof (or telephonic notice, promptly confirmed in writing) to the Borrower and to the Lenders as soon as practicable thereafter. Until the Administrative Agent shall notify the Borrower and the Lenders that the circumstances giving rise to such notice no longer exist, (i) the obligations of the Lenders to make Eurodollar Revolving Loans or to continue or convert outstanding Loans as or into Eurodollar Loans shall be suspended and (ii) all such affected Loans shall be converted into Base Rate Loans on the last day of the then current Interest Period applicable thereto unless the Borrower prepays such Loans in accordance with this Agreement. Unless the Borrower notifies the Administrative Agent at least one (1) Business Day before the date of any Eurodollar Borrowing for which a Notice Borrowing has previously been given that it elects not to borrow, continue or convert to a Eurodollar Borrowing on such date, then such Borrowing shall be made as, continued as or converted into a Base Rate Borrowing.
(b)If at any time the Administrative Agent determines (which determination shall be conclusive absent manifest error) that (i) the circumstances set forth in clause (a)(i) above have arisen and such circumstances are unlikely to be temporary or (ii) the circumstances set forth in clause (a)(i) above have not arisen but the supervisor for the administrator of the Screen Rate or a Governmental Authority having jurisdiction over the Administrative Agent has made a public statement identifying a specific date after which the Screen Rate shall no longer be used for determining interest rates for loans, then the Administrative Agent and the Borrower shall endeavor to establish an alternate rate of interest to the Screen Rate that gives due consideration to the then prevailing market convention for determining a rate of interest for syndicated loans in the United States at such time, and shall enter into an amendment to this Agreement to reflect such alternate rate of interest and such other related changes to this Agreement as may be applicable (but for the avoidance of doubt, such related changes shall not include a reduction of the Applicable Margin). Notwithstanding anything to the contrary in Section 10.2, such amendment shall become effective without any further action or consent of any other party to this Agreement so long as the Administrative Agent shall not have received, within five (5) Business Days of the date notice of such alternate rate of interest is provided to the Lenders, a written notice from the Required Lenders stating that such Required Lenders object to such
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amendment. Until an alternate rate of interest shall be determined in accordance with this clause (b) (but, in the case of the circumstances described in clause (ii) of the first sentence of this Section 2.16(b), only to the extent the Screen Rate for the applicable currency and/or such Interest Period is not available or published at such time on a current basis), (x) any Notice of Conversion/Continuation that requests the conversion of any Borrowing to, or continuation of any Borrowing as, a Eurodollar Borrowing shall be ineffective, and (y) if any Notice of Borrowing requests a Eurodollar Borrowing, such Borrowing shall be made as a Base Rate Borrowing; provided, that, if such alternate rate of interest shall be less than zero, such rate shall be deemed to be zero for the purposes of this Agreement.
Section 2.17.Illegality. If any Change in Law shall make it unlawful or impossible for any Lender to perform any of its obligations hereunder or to make, maintain or fund any Eurodollar Loan and such Lender shall so notify the Administrative Agent, the Administrative Agent shall promptly give notice thereof to the Borrower and the other Lenders, whereupon until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such suspension no longer exist, the obligation of such Lender to make Eurodollar Revolving Loans, or to continue or convert outstanding Loans as or into Eurodollar Loans, shall be suspended. In the case of the making of a Eurodollar Borrowing, such Lender’s Revolving Loan shall be made as a Base Rate Loan as part of the same Borrowing for the same Interest Period and, if the affected Eurodollar Loan is then outstanding, such Loan shall be converted to a Base Rate Loan either (i) on the last day of the then current Interest Period applicable to such Eurodollar Loan if such Lender may lawfully continue to maintain such Loan to such date or (ii) immediately if such Lender shall determine that it may not lawfully continue to maintain such Eurodollar Loan to such date. Notwithstanding the foregoing, the affected Lender shall, prior to giving such notice to the Administrative Agent, use reasonable efforts to designate a different Applicable Lending Office if such designation would avoid the need for giving such notice and if such designation would not otherwise be disadvantageous to such Lender in the good faith exercise of its discretion.
(a)If any Change in Law shall:
(i)impose, modify or deem applicable any reserve, special deposit or similar requirement that is not otherwise included in the determination of the Adjusted LIBO Rate hereunder against assets of, deposits with or for the account of, or credit extended by, any Lender (except any such reserve requirement reflected in the Adjusted LIBO Rate); or
(ii)subject any Recipient to any Taxes (other than (A) Indemnified Taxes and (B) Taxes described in clauses (iii) through (v) of the definition of Excluded Taxes; or
(iii)impose on any Lender or the eurodollar interbank market any other condition affecting this Agreement or any Eurodollar Loans made by such Lender or any participation therein;
and the result of any of the foregoing is to increase the cost to such Lender of making, converting into, continuing or maintaining a Eurodollar Loan or to increase the cost to such Lender or to reduce the amount received or receivable by such Lender hereunder (whether of principal, interest or any other amount), then, from time to time, such Lender may provide the Borrower (with a copy thereof to the Administrative Agent) with written notice and demand with respect to such increased costs or reduced amounts, and within five (5) Business Days after receipt of such notice and demand, the Borrower shall pay to such Lender such additional amounts as will compensate such Lender for any such increased costs incurred or reduction suffered.
(b)If any Lender shall have determined that any Change in Law regarding capital or liquidity ratios or requirements has or would have the effect of reducing the rate of return on such Lender’s capital (or on the capital of the Parent Company of such Lender) as a consequence of its obligations hereunder to a level below that which such Lender or such Parent Company could have achieved but for such Change in Law (taking into consideration such Lender’s policies or the policies of such Parent Company with respect to capital adequacy and liquidity), then, from time to time, such Lender may provide the Borrower (with a copy thereof to the Administrative Agent) with written notice and demand with respect to such reduced amounts, and within five (5) Business Days after
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receipt of such notice and demand the Borrower shall pay to such Lender such additional amounts as will compensate such Lender or such Parent Company for any such reduction suffered.
(c)A certificate of such Lender setting forth the amount or amounts necessary to compensate such Lender or the Parent Company of such Lender specified in subsection (a) or (b) of this Section shall be delivered to the Borrower (with a copy to the Administrative Agent) and shall be conclusive, absent manifest error.
(d)Failure or delay on the part of any Lender to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender under this Section for any increased costs or reductions incurred more than six (6) months prior to the date that such Lender notifies the Borrower of such increased costs or reductions and of such Lender’s intention to claim compensation therefor; provided, further, that if the Change in Law giving rise to such increased costs or reductions is retroactive, then such six-month period shall be extended to include the period of such retroactive effect.
Section 2.19.Funding Indemnity. In the event of (a) the payment of any principal of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto (including as a result of an Event of Default), (b) the conversion or continuation of a Eurodollar Loan other than on the last day of the Interest Period applicable thereto, or (c) the failure by the Borrower to borrow, prepay, convert or continue any Eurodollar Loan on the date specified in any applicable notice (regardless of whether such notice is withdrawn or revoked), then, in any such event, the Borrower shall compensate each Lender, within ten (10) Business Days after written demand from such Lender, for any loss, cost or expense attributable to such event. In the case of a Eurodollar Loan, such loss, cost or expense shall be deemed to include an amount determined by such Lender to be the excess, if any, of (A) the amount of interest that would have accrued on the principal amount of such Eurodollar Loan if such event had not occurred at the Adjusted LIBO Rate applicable to such Eurodollar Loan for the period from the date of such event to the last day of the then current Interest Period therefor (or, in the case of a failure to borrow, convert or continue, for the period that would have been the Interest Period for such Eurodollar Loan) over (B) the amount of interest that would accrue on the principal amount of such Eurodollar Loan for the same period if the Adjusted LIBO Rate were set on the date such Eurodollar Loan was prepaid or converted or the date on which the Borrower failed to borrow, convert or continue such Eurodollar Loan. A certificate as to any additional amount payable under this Section submitted to the Borrower by any Lender (with a copy to the Administrative Agent) shall be conclusive, absent manifest error.
(a)Defined Terms. For purposes of this Section 2.20, the term “applicable law” includes FATCA.
(b)Payments Free of Taxes. Any and all payments by or on account of any obligation of any Credit Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section) the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made.
(c)Payment of Other Taxes by the Borrower. The Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d)Indemnification by the Borrower. The Borrower shall indemnify each Recipient, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or
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required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.
(e)Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within 10 days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.4(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f)Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower or any other Credit Party to a Governmental Authority pursuant to this Section 2.20, the Borrower or other Credit Party shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.
(g)Status of Lenders.
(i)Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 2.20(g)(ii)(A), (ii)(B) and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii)Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Borrower,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
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(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(i) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(ii) executed originals of IRS Form W-8ECI;
(iii) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or
(iv) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN or IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of
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FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 2.20 (including by the payment of additional amounts pursuant to this Section 2.20), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all reasonable third-party out-of-pocket expenses (including Taxes) of such indemnified party actually incurred and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it reasonably deems confidential) to the indemnifying party or any other Person.
(i)Survival. Each party’s obligations under this Section 2.20 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
Section 2.21.Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a)The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest, or fees, or of amounts payable under Section 2.18, 2.19 or 2.20, or otherwise) prior to 12:00 noon on the date when due, in immediately available funds, free and clear of any defenses, rights of set-off, counterclaim, or withholding or deduction of taxes. Any amounts received after such time on any date may, in the discretion of the Administrative Agent, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Administrative Agent at the Payment Office, except except that payments pursuant to Sections 2.18, 2.19, 2.20 and 10.3 shall be made directly to the Persons entitled thereto. The Administrative Agent shall distribute any such payments received by it for the account of any other Person to the appropriate recipient promptly following receipt thereof. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be made payable for the period of such extension. All payments hereunder shall be made in Dollars.
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(b)If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied as follows: first, to all fees and reimbursable expenses of the Administrative Agent then due and payable pursuant to any of the Loan Documents; second, to all reimbursable expenses of the Lenders then due and payable pursuant to any of the Loan Documents, pro rata to the Lenders based on their respective pro rata shares of such fees and expenses; third, to all interest and fees then due and payable hereunder, pro rata to the Lenders based on their respective pro rata shares of such interest and fees; and fourth, to all principal of the Loans then due and payable hereunder, pro rata to the parties entitled thereto based on their respective pro rata shares of such principal.
(c)If any Lender shall, by exercising any right of set-off or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Loans that would result in such Lender receiving payment of a greater proportion of the aggregate amount of its Revolving Credit Exposure than the proportion received by any other Lender with respect to its Revolving Credit Exposure, then the Lender receiving such greater proportion shall purchase (for cash at face value) participations in the Revolving Credit Exposure of other Lenders to the extent necessary so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Revolving Credit Exposure; provided that (i) if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest, and (ii) the provisions of this subsection shall not be construed to apply to any payment made by the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Revolving Credit Exposure to any assignee or participant, other than to the Borrower or any Subsidiary or Affiliate thereof (as to which the provisions of this subsection shall apply). The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrower rights of set-off and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
(d)Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount or amounts due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
Section 2.22.Extension of Maturity Date . The Borrower shall have the right and option to extend the Maturity Date for a single one-year term, to January 28, 2022 (the “Extended Maturity Date”), upon satisfaction of the following conditions precedent, which must be satisfied prior to the effectiveness of any extension of the Initial Maturity Date:
(a)Extension Request. The Borrower shall deliver written notice of such request (the “Extension Request”) to the Agent not later than the date which is thirty (30) days prior to the Initial Maturity Date.
(b)Payment of Extension Fee. The Borrower shall pay to the Agent for the pro rata accounts of the Lenders in accordance with their respective Revolving Loan Commitments an extension fee in an amount equal to 0.25% of the full Revolving Loan Commitments on the Initial Maturity Date, which fee shall, when paid, be fully earned and nonrefundable under any circumstances.
(c)No Default. On the date the Extension Request is given and the effective date of such extension there shall exist no Default or Event of Default.
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Section 2.23.Increase of Commitments; Additional Lenders.
(a)From time to time after the Closing Date and in accordance with this Section, the Borrower and one or more Increasing Lenders or Additional Lenders (each as defined below) may enter into an agreement to increase the aggregate Revolving Commitments hereunder (each such increase, an “Incremental Commitment”) so long as the following conditions are satisfied:
(i)the aggregate principal amount of all such Incremental Commitments made from time to time pursuant to this Section shall not result in the aggregate Revolving Commitments hereunder exceeding $140,000,000.00 (the principal amount of each such Incremental Commitment, the “Incremental Commitment Amount”);
(ii)the Borrower shall execute and deliver such documents and instruments and take such other actions as may be reasonably required by the Administrative Agent in connection with and at the time of any such proposed increase;
(iii)at the time of and immediately after giving effect to any such proposed increase, no Default or Event of Default shall exist, all representations and warranties of each Credit Party set forth in the Loan Documents shall be true and correct in all material respects;
(iv)any Incremental Commitments provided pursuant to this Section shall be secured by the same collateral securing the pre-existing Revolving Commitments, terminate as of the Maturity Date and otherwise be subject to the same terms, conditions, and pricing as the pre-existing Revolving Commitments; provided, that (A) any commitment or upfront fees related thereto and payable to any applicable Increasing Lender or Additional Lender shall be as may be agreed to between the Borrower and any such party; and (B) any arrangement fees related thereto and payable to Arranger shall be as may be agreed to between Borrower and Arranger in connection with such Incremental Commitments (and the effectiveness of any such Incremental Commitments shall be conditioned upon the Arranger’s approval of such arrangement fees);
(v)the Borrower and its Subsidiaries shall be in pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all such Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance;
(vi)the Borrower may not request and receive more than two (2) incremental increases in the Revolving Commitments (with all increases in such commitments entered into as of the same day being deemed a single increase) and each such incremental increase shall be in an aggregate amount of not less than $20,000,000.
(b)The Borrower shall provide at least 30 days’ written notice to the Administrative Agent (who shall promptly provide a copy of such notice to each Lender) of any proposal to establish an Incremental Commitment. The Borrower may also, but is not required to, specify any fees offered to those Lenders (the “Increasing Lenders”) that agree to increase the principal amount of their Revolving Commitments, which fees may be variable based upon the amount by which any such Lender is willing to increase the principal amount of its Revolving Commitment. Each Increasing Lender shall as soon as practicable, and in any case within 15 days following receipt of such notice, specify in a written notice to the Borrower and the Administrative Agent the amount of such proposed Incremental Commitment that it is willing to provide. No Lender (or any successor thereto) shall have any obligation, express or implied, to offer to increase the aggregate principal amount of its Revolving Commitment, and any decision by a Lender to increase its Revolving Commitment shall be made in its sole discretion independently from any other Lender. Only the consent of each Increasing Lender shall be required for an increase in the aggregate principal amount of the Revolving Commitments pursuant to this Section. No Lender which declines to increase the principal amount of its Revolving Commitment may be replaced with respect to its existing Revolving Commitment as a result thereof without such Lender’s consent. If any Lender shall fail to notify the Borrower and the Administrative Agent in writing
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about whether it will increase its Revolving Commitment within 15 days after receipt of such notice, such Lender shall be deemed to have declined to increase its Revolving Commitment. The Borrower may accept some or all of the offered amounts or designate new lenders that are acceptable to the Administrative Agent (such approval not to be unreasonably withheld) as additional Lenders hereunder in accordance with this Section (the “Additional Lenders”), which Additional Lenders may assume all or a portion of such Incremental Commitment. The Borrower and the Administrative Agent shall have discretion jointly to adjust the allocation of such Incremental Commitments among the Increasing Lenders and the Additional Lenders.
(c)Subject to subsections (a) and (b) of this Section, any increase requested by the Borrower shall be effective upon delivery to the Administrative Agent of each of the following documents:
(i)an originally executed copy of an instrument of joinder, in form and substance reasonably acceptable to the Administrative Agent, executed by the Borrower, by each Additional Lender and by each Increasing Lender, setting forth the new Revolving Commitments of such Lenders and setting forth the agreement of each Additional Lender to become a party to this Agreement and to be bound by all of the terms and provisions hereof;
(ii)such evidence of appropriate corporate authorization on the part of the Borrower with respect to such Incremental Commitment and such opinions of counsel for the Borrower with respect to such Incremental Commitment as the Administrative Agent may reasonably request;
(iii)a certificate of the Borrower signed by a Responsible Officer, in form and substance reasonably acceptable to the Administrative Agent, certifying that each of the conditions in subsection (a) of this Section has been satisfied;
(iv)to the extent requested by any Additional Lender or any Increasing Lender, executed promissory notes evidencing such Incremental Commitments, issued by the Borrower in accordance with Section 2.10; and
(v)any other certificates or documents that the Administrative Agent shall reasonably request, in form and substance reasonably satisfactory to the Administrative Agent.
Upon the effectiveness of any such Incremental Commitment, the Commitments and Pro Rata Share of each Lender will be adjusted to give effect to the Incremental Commitments, and Schedule II shall automatically be deemed amended accordingly.
(d)If the Borrower incurs Incremental Commitments under this Section, the Borrower shall, after such time, repay and incur Revolving Loans ratably as between the Incremental Commitments and the Revolving Commitments outstanding immediately prior to such incurrence. Notwithstanding anything to the contrary in Section 10.2, the Administrative Agent is expressly permitted to amend the Loan Documents to the extent necessary to give effect to any increase pursuant to this Section and mechanical changes necessary or advisable in connection therewith (including amendments to implement the requirements in the preceding two sentences, amendments to ensure pro rata allocations of Eurodollar Loans and Base Rate Loans between Loans incurred pursuant to this Section and Loans outstanding immediately prior to any such incurrence).
Section 2.24.Mitigation of Obligations. Each Lender will notify Borrower of any event occurring after the Closing Date that will entitle such Person to compensation pursuant to Section 2.18 or Section 2.20, as the case may be, as promptly as practicable after it obtains knowledge thereof and determines to request such compensation, provided that such Person shall not be liable for any costs, fees, expenses, or additional interest due to the failure to provide such notice. If any Lender requests compensation under Section 2.18, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.20, then such Lender shall use reasonable efforts to avoid or minimize the amounts payable, including, without limitation, the designation of a different lending office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the sole judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable under Section 2.18 or
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Section 2.20, as the case may be, in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable and documented costs and expenses incurred by any Lender in connection with such designation or assignment.
Section 2.25.Replacement of Lenders. If (a) any Lender requests compensation under Section 2.18, or if the Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 2.20, (b) any Lender is a Defaulting Lender, or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.2(b), the consent of Required Lenders shall have been obtained but the consent of one or more of such other Lenders (each a “Non‑Consenting Lender”) whose consent is required shall not have been obtained, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions set forth in Section 10.4(b)), all of its interests, rights (other than its existing rights to payments pursuant to Section 2.18 or 2.20, as applicable) and obligations under this Agreement to an assignee that shall assume such obligations (which assignee may be another Lender) (a “Replacement Lender”); provided that (i) the Borrower shall have received the prior written consent of the Administrative Agent, which consent shall not be unreasonably withheld, (ii) such Lender shall have received payment of an amount equal to the outstanding principal amount of all Loans owed to it, accrued interest thereon, accrued fees and all other amounts payable to it hereunder from the assignee (in the case of such outstanding principal and accrued interest) and from the Borrower (in the case of all other amounts), (iii) in the case of a claim for compensation under Section 2.18 or payments required to be made pursuant to Section 2.20, such assignment will result in a reduction in such compensation or payments, and (iv) in the case of a Non‑Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such terminated Lender was a Non‑Consenting Lender. A Lender shall not be required to make any such assignment and delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Section 2.26.Defaulting Lenders .
(a)[Intentionally Omitted].
(b)Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable law:
(i)Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and in Section 10.2.
(ii)Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 10.7 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; and
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sixth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Loans in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Loans were made at a time when the conditions set forth in Section 3.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of such Defaulting Lender until such time as all Loans are held by the Lenders pro rata in accordance with the Commitments under the applicable Facility without giving effect to sub-section (iv) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section 2.26(b)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii)No Defaulting Lender shall be entitled to receive any Unused Fee pursuant to Section 2.14(b) for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(c)Defaulting Lender Cure. If the Borrower and the Administrative Agent, agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, that Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans to be held pro rata by the Lenders in accordance with the applicable Commitments (without giving effect to Section 2.26(b)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
ARTICLE III
CONDITIONS PRECEDENT TO LOANS
Section 3.1.Conditions to Effectiveness. The obligations of the Lenders to make Loans hereunder shall not become effective until the date on which each of the following conditions is satisfied:
(a)The Administrative Agent shall have received payment of all fees, expenses and other amounts due and payable on or prior to the Closing Date, including, without limitation, reimbursement or payment of all out-of-pocket expenses of the Administrative Agent, the Arranger and their Affiliates (including reasonable fees, charges and disbursements of counsel to the Administrative Agent) required to be reimbursed or paid by the Borrower hereunder, under any other Loan Document and under any agreement with the Administrative Agent or the Arranger.
(b)The Administrative Agent (or its counsel) shall have received the following, each to be in form and substance reasonably satisfactory to the Administrative Agent:
(i)a counterpart of this Agreement signed by or on behalf of each party hereto or written evidence satisfactory to the Administrative Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement;
(ii)a certificate of the Secretary or Assistant Secretary of each Credit Party in a form acceptable to Administrative Agent, attaching and certifying copies of its bylaws, or partnership agreement or limited liability company agreement, and of the resolutions of its board of directors or other equivalent governing body, or comparable organizational documents and
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authorizations, authorizing the execution, delivery and performance of the Loan Documents to which it is a party and certifying the name, title and true signature of each officer of such Credit Party executing the Loan Documents to which it is a party;
(iii)certified copies of the articles or certificate of incorporation, certificate of organization or limited partnership, or other registered organizational documents of each Credit Party, together with certificates of good standing or existence, as may be available from the Secretary of State of the jurisdiction of organization of such Credit Party and each other jurisdiction where such Credit Party is required to be qualified to do business as a foreign corporation;
(iv)a favorable written opinion of counsel to the Credit Parties, addressed to the Administrative Agent and each of the Lenders, and covering such matters relating to the Credit Parties, the Loan Documents and the transactions contemplated therein as the Administrative Agent shall reasonably request (which opinions will expressly permit reliance by permitted successors and assigns of the Administrative Agent and the Lenders);
(v)a certificate in a form reasonably acceptable to Administrative Agent, dated the Closing Date and signed by a Responsible Officer, certifying that after giving effect to the funding of any initial Borrowing, (x) no Default or Event of Default exists, (y) all representations and warranties of each Credit Party set forth in the Loan Documents are true and correct in all material respects and (z) since the date of the financial statements of the Borrower described in Section 4.4, there shall have been no change which has had or could reasonably be expected to have a Material Adverse Effect;
(vi)a duly executed Notice of Borrowing for any initial Borrowing;
(vii)a duly executed funds disbursement agreement, together with a report setting forth the sources and uses of the proceeds hereof;
(viii)copies of any consents, approvals, authorizations, registrations and filings and orders required or advisable to be made or obtained under any Legal Requirements, or by any Contractual Obligation of any Credit Party, in connection with the execution, delivery, performance, validity and enforceability of the Loan Documents or any of the transactions contemplated thereby;
(ix)copies of (A) the internally prepared quarterly financial statements of the Parent and its Subsidiaries on a consolidated basis for the Fiscal Quarter ended September 30, 2018, and (B) the audited consolidated financial statements for the Parent and its Subsidiaries for the Fiscal Year ended 2017;
(x)a duly completed and executed Compliance Certificate signed by a Responsible Officer of Parent, including pro forma calculations of the financial covenants set forth in Section 5.2 hereof as of the Closing Date, and calculated as if any initial Borrowing had been funded as of the first day of the relevant period for testing compliance (and setting forth in reasonable detail such calculations);
(xi)a certificate, dated the Closing Date and signed by the chief financial officer of each Credit Party, confirming that each Credit Party is Solvent before and after giving effect to the funding of any initial Borrowing and the consummation of the transactions contemplated to occur on the Closing Date;
(xii)executed counterparts of each of the other Loan Documents, together with (A) copies of favorable UCC, tax, judgment and fixture lien search reports in all necessary or appropriate jurisdictions and under all legal and trade names of the Credit Parties, as requested by the Administrative Agent, indicating that there are no prior Liens on any of the Collateral other than
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Permitted Encumbrances and Liens to be released on the Closing Date, (B) a Perfection Certificate, duly completed and executed by the Borrower, (C) original certificates evidencing all issued and outstanding shares of Capital Stock of all Subsidiaries owned directly by any Credit Party (or, if the pledge of all of the voting Capital Stock of any Foreign Subsidiary would result in materially adverse tax consequences, limited to 65% of the issued and outstanding voting Capital Stock of such Foreign Subsidiary and 100% of the issued and outstanding non-voting Capital Stock of such Foreign Subsidiary, as applicable) and (D) stock or membership interest powers or other appropriate instruments of transfer executed in blank;
(xiii)written confirmation of the termination of the credit facilities previously advanced in favor of Borrower by KeyBank National Association, as agent, and the other lenders party thereto;
(xiv)all documentation and other information required by bank regulatory authorities or reasonably requested by the Administrative Agent or any Lender under or in respect of applicable “know your customer” and anti-money laundering Legal Requirements including the Patriot Act and, if Borrower qualifies as a “legal entity customer” under the Beneficial Ownership Regulation, a Beneficial Ownership Certification in relation to Borrower; and
(xv)all such other documents and materials required by the closing checklist related to this Agreement and prepared by counsel for the Administrative Agent.
Without limiting the generality of the provisions of this Section, for purposes of determining compliance with the conditions specified in this Section, the Administrative Agent and each Lender that has signed this Agreement shall be deemed to have consented to, approved of, accepted or been satisfied with each document or other matter required thereunder to be consented to, approved by or acceptable or satisfactory to Administrative Agent or Lenders for purposes of the closing and initial funding of the Loans unless the Borrower shall have received notice from the Administrative Agent (and the Administrative Agent shall have received notice from such Lender) prior to the proposed Closing Date specifying its objection thereto; provided, however, that such deemed consent, approval, acceptance, or satisfaction shall not in any manner limit the effectiveness of or act as a waiver of any of the representations, warranties, or covenants of the Borrower set forth herein or in any manner limit, restrict, or waive required compliance by Borrower with same.
Section 3.2.Conditions to Each Credit Event. The obligation of each Lender to make a Loan on the occasion of any Borrowing is subject to Section 2.26(c) and the satisfaction of the following conditions:
(a)at the time of and immediately after giving effect to such Borrowing, no Default or Event of Default shall exist;
(b)at the time of and immediately after giving effect to such Borrowing, all representations and warranties of each Credit Party set forth in the Loan Documents shall be true and correct in all material respects (other than those representations and warranties that are expressly qualified by a Material Adverse Effect or other materiality, in which case such representations and warranties shall be true and correct in all respects);
(c)the Borrower shall have delivered the required Notice of Borrowing; and
(d)the Administrative Agent shall have received such other documents, certificates, information or legal opinions as the Administrative Agent or the Required Lenders may reasonably request, all in form and substance reasonably satisfactory to the Administrative Agent or the Required Lenders.
Each Borrowing shall be deemed to constitute a representation and warranty by the Borrower on the date thereof as to the matters specified in subsections (a), (b) and (c) of this Section.
Section 3.3.Delivery of Documents. All of the Loan Documents, certificates, legal opinions and other documents and papers referred to in this Article, unless otherwise specified, shall be delivered to the
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Administrative Agent for the account of each of the Lenders and in sufficient counterparts or copies for each of the Lenders and shall be in form and substance satisfactory in all respects to the Administrative Agent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Administrative Agent and each Lender as follows:
Section 4.1.Existence; Power. Each Credit Party and each of its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required.
Section 4.2.Organizational Power; Authorization. The Transactions are within the corporate, partnership or limited liability company powers (as applicable) of the respective Credit Parties and their Subsidiaries and have been duly authorized by all necessary corporate, partnership or limited liability company action. This Agreement and the Loan Documents have been duly executed and delivered by each Credit Party which is a party thereto and constitute the legal, valid and binding obligation of each such Person, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
Section 4.3.Governmental Approvals; No Conflicts. The Transactions (a) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect or which shall be completed at the appropriate time for such filings under applicable securities laws, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of any Credit Party or any Collateral Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Credit Party or any Collateral Subsidiary or its assets, or give rise to a right thereunder to require any payment to be made by any Credit Party or any of the Borrower’s Subsidiaries, and (d) will not result in the creation or imposition of any Lien on any asset of any Credit Party or any Collateral Subsidiary, except pursuant to the Pledge Agreement, the Equity Proceeds Pledge and the Senior Loan.
Section 4.4.Financial Condition; No Material Adverse Change.
(d)The Borrower has heretofore furnished to the Lenders audited financial statements as of and for the annual fiscal period ended December 31, 2017 and management-prepared financial statements as of and for the quarterly fiscal period ended September 30, 2018. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of the Borrower and its consolidated Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments.
(e)Since December 31, 2017, no event has occurred which would reasonably be expected to have a Material Adverse Effect.
(a)Each of the Borrower and its Subsidiaries has title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes, or Liens permitted under Section 7.1. All leases that individually or in the aggregate are material to the business or operations of the Borrower and its Subsidiaries are valid and subsisting and are in full force.
(b)To each Credit Party’s actual knowledge, all franchises, licenses, authorizations, rights of use, governmental approvals and permits (including all certificates of occupancy and building permits)
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required to have been issued by Governmental Authority to enable all Real Property owned or leased by Borrower or any of its Subsidiaries to be operated as then being operated have been lawfully issued and are in full force and effect, other than those which the failure to obtain in the aggregate would not be reasonably expected to have a Material Adverse Effect. To each Credit Party’s actual knowledge, no Credit Party or any Subsidiary thereof is in violation of the terms or conditions of any such franchises, licenses, authorizations, rights of use, governmental approvals and permits, which violation would reasonably be expected to have a Material Adverse Effect.
(c)None of the Credit Parties has received any notice or has any actual knowledge of any pending, threatened or contemplated condemnation proceeding affecting the Mortgaged Properties or any part thereof, or any proposed termination or impairment of any parking (except as contemplated in any approved expansion approved by Administrative Agent) at the Mortgaged Properties or of any sale or other disposition of the Mortgaged Properties or any part thereof in lieu of condemnation, which in the aggregate, are reasonably likely to have a Material Adverse Effect.
(d)The properties of the Borrower and its Subsidiaries are insured with financially sound and reputable insurance companies which are not Affiliates of the Borrower, in such amounts with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or any applicable Subsidiary operates. The Borrower and/or its Subsidiaries maintain all insurance required under applicable Flood Insurance Laws to be maintained with respect to the Real Properties.
Section 4.6.Intellectual Property. To the actual knowledge of each Credit Party, such Credit Party and its Subsidiaries owns, or is licensed to use, all patents and other intellectual property material to its business, and the use thereof by such Credit Party or such Subsidiary does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. To the actual knowledge of each Credit Party, there are no material slogans or other advertising devices, projects, processes, methods, substances, parts or components, or other material now employed, or now contemplated to be employed, by any Credit Party or any Subsidiary of any Credit Party, with respect to the operation of any Real Property, and no claim or litigation regarding any slogan or advertising device, project, process, method, substance, part or component or other material employed, or now contemplated to be employed by any Credit Party or any Subsidiary of any Credit Party, is pending or threatened, the outcome of which could reasonably be expected to have a Material Adverse Effect.
Section 4.7.Litigation and Environmental Matters.
(a)To the actual knowledge of the Borrower, except as set forth in Schedule IV attached hereto, there are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, threatened against or affecting any Credit Party or any of the Borrower’s Subsidiaries (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect or (ii) that involve this Agreement or the Transactions.
(b)Except with respect to any matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect:
(i)to the actual knowledge of the Credit Parties, all Real Property leased or owned by Borrower or any of its Subsidiaries is free from contamination by any Hazardous Material, except to the extent such contamination would not reasonably be expected to cause a Material Adverse Effect;
(ii)to the actual knowledge of the Credit Parties, the operations of Borrower and its Subsidiaries, and the operations at the Real Property leased or owned by Borrower or any of its Subsidiaries are in compliance with all applicable Environmental Laws, except to the extent such noncompliance would not reasonably be expected to cause a Material Adverse Effect;
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(iii)neither the Borrower nor any of its Subsidiaries have known liabilities with respect to Hazardous Materials and, to the knowledge of each Credit Party, no facts or circumstances exist which would reasonably be expected to give rise to liabilities with respect to Hazardous Materials, in either case, except to the extent such liabilities would not reasonably be expected to have a Material Adverse Effect;
(iv)to Borrower’s actual knowledge, (A) the Borrower and its Subsidiaries and all Real Property owned or leased by Borrower or its Subsidiaries have all Environmental Permits necessary for the operations at such Real Property and are in compliance with such Environmental Permits; (B) there are no legal proceedings pending nor, to the knowledge of any Credit Party, threatened to revoke, or alleging the violation of, such Environmental Permits; and (C) none of the Credit Parties have received any notice from any source to the effect that there is lacking any Environmental Permit required in connection with the current use or operation of any such properties, in each case, except to the extent the nonobtainment or loss of an Environmental Permit would not reasonably be expected to have a Material Adverse Effect;
(v)to the actual knowledge of each Credit Party, none of the Credit Parties are subject to any pending legal proceeding alleging the violation of any Environmental Law nor are any such proceedings threatened, in either case, except to the extent any such proceedings would not reasonably be expected to have a Material Adverse Effect;
(vi)to the actual knowledge of each Credit Party, none of the operations of the Borrower or any of its Subsidiaries or, of any owner of premises currently leased by Borrower or any of its Subsidiaries or of any tenant of premises currently leased from Borrower or any of its Subsidiaries, involve the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Part 261.3 (in effect as of the date of this Agreement) or any state, local, territorial or foreign equivalent, in violation of Environmental Laws; and
(vii)to the knowledge of the Credit Parties, there is not now (except, in all cases, to the extent the existence thereof would not reasonably be expected to have a Material Adverse Effect), on, in or under any Real Property leased or owned by Borrower or any of its Subsidiaries (A) any underground storage tanks or surface tanks, dikes or impoundments (other than for surface water); (B) any friable asbestos-containing materials; (C) any polychlorinated biphenyls; or (D) any radioactive substances other than naturally occurring radioactive material.
Section 4.8.Compliance with Laws and Agreements. Each of the Credit Parties and their Subsidiaries is in material compliance with all Legal Requirements (including all Environmental Laws) applicable to it or its property and all indentures, agreements and other instruments binding upon it or to its knowledge, its property, except where the failure to do so, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing.
Section 4.9.Investment Company Act. Neither the Borrower nor any of its Subsidiaries is (a) an “investment company” or is “controlled” by an “investment company”, as such terms are defined in, or subject to regulation under, the Investment Company Act of 1940, as amended and in effect from time to time, (b) a “holding company” as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, or (c) otherwise subject to any other regulatory scheme limiting its ability to incur debt or requiring any approval or consent from, or registration or filing with, any Governmental Authority in connection therewith.
Section 4.10.Taxes. Each Credit Party and each of the Borrower’s Subsidiaries has timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Person has set aside on its books adequate reserves or (b) to the extent that the failure to do so would not reasonably be expected to result in a Material Adverse Effect.
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Section 4.11.ERISA. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, would reasonably be expected to result in a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries have any Plans as of the date hereof. As to any future Plan the present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) will not exceed the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) will not exceed the fair market value of the assets of all such underfunded Plans.
Section 4.12.Disclosure. To the actual knowledge of the Borrower, the Borrower has disclosed or made available to the Lenders all agreements, instruments and corporate or other restrictions to which it, any other Credit Party, or any of its Subsidiaries is subject, and all other matters known to it, that, in the aggregate, would reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information furnished by or on behalf of the Borrower to the Administrative Agent or any Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
Section 4.13.Solvency. As of the Closing Date and after giving effect to the transactions contemplated by this Agreement and the other Loan Documents (including any contribution rights under the Guaranty), including all Loans made or to be made hereunder, the Borrower is not insolvent on a balance sheet basis such that the sum of such Person’s assets exceeds the sum of such Person’s liabilities, the Borrower is able to pay its debts as they become due, and the Borrower has sufficient capital to carry on its business.
Section 4.14.Margin Regulations. None of the proceeds of any of the Loans will be used, directly or indirectly, for “purchasing” or “carrying” any “margin stock” within the respective meanings of each of such terms under Regulation U or for any purpose that violates the provisions of Regulation T, Regulation U or Regulation X. Neither the Borrower nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying “margin stock”.
Section 4.15.Subsidiaries; REIT Qualification. As of the Closing Date, no Person owns any Equity Interests in the Mortgaged Properties except as set forth on Schedule V attached hereto. The Borrower qualifies as a “qualified REIT subsidiary” under Section 856 of the Code. The Parent is a Maryland corporation duly organized pursuant to articles of incorporation filed with the Maryland Department of Assessments and Taxation and is in good standing under the laws of Maryland. The Parent conducts its business in a manner which enables it to qualify as a real estate investment trust under, and to be entitled to the benefits of, §856 of the Code, and has elected to be treated as and will be entitled to the benefits of a real estate investment trust thereunder.
Section 4.16.Labor Relations. There are no strikes, lockouts or other material labor disputes or grievances against the Borrower or any of its Subsidiaries, or, to the Borrower’s knowledge, threatened against or affecting the Borrower or any of its Subsidiaries, and no significant unfair labor practice charges or grievances are pending against the Borrower or any of its Subsidiaries, or, to the Borrower’s knowledge, threatened against any of them before any Governmental Authority. All payments due from the Borrower or any of its Subsidiaries pursuant to the provisions of any collective bargaining agreement have been paid or accrued as a liability on the books of the Borrower or any such Subsidiary, except where the failure to do so could not reasonably be expected to have a Material Adverse Effect.
Section 4.17.Sanctions and Anti-Corruption Laws. None of the Credit Parties, any of the other Subsidiaries, or any other Affiliate thereof is (or will be) (a) a Sanctioned Person, (b) located, organized or resident in a Designated Jurisdiction, (c) to the best of Borrower’s knowledge, without any independent inquiry, is or has been (within the previous five (5) years) engaged in any transaction with any Sanctioned Person or any Person who is located, organized or resident in any Designated Jurisdiction to the extent that such transactions would violate Sanctions, or (d) has violated any Anti-Money Laundering Law in any material respect. Each Credit Party and its
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Subsidiaries, and to the knowledge of the Credit Parties, each director, officer, employee, agent and Affiliate of the Credit Parties and each such Subsidiary, is in compliance with the Anti-Corruption Laws in all material respects. The Credit Parties have implemented and maintain in effect policies and procedures designed to promote and achieve compliance with the Anti-Corruption Laws and applicable Sanctions.
Section 4.18.EEA Financial Institutions. No Credit Party is an EEA Financial Institution.
ARTICLE V
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and all Loans have been paid in full, the Borrower covenants and agrees with the Lenders that:
Section 5.1.Financial Statements and Other Information. The Borrower will deliver to the Administrative Agent and each Lender:
(a)within 120 days after the end of each Fiscal Year, the Parent’s audited consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such Fiscal Year, together with all notes thereto, setting forth in each case in comparative form the figures for the previous Fiscal Year, all reported on by KPMG or other independent public accountants of recognized national standing (without a “going concern” or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Parent and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied;
(b)within 60 days after the end of each Fiscal Quarter, the Parent’s consolidated balance sheet and related statements of operations, stockholders’ equity and cash flows as of the end of and for such Fiscal Quarter and the then elapsed portion of the Fiscal Year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous Fiscal Year and including supporting notes and schedules, all certified by a Responsible Officer as presenting fairly in all material respects the financial condition and results of operations of the Parent on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes;
(c)concurrently with any delivery of financial statements under clause (a) or (b) above, a Compliance Certificate of a Responsible Officer of the Parent;
(d)promptly after the same become publicly available for Forms 10-K and 10-Q described below, and upon written request for items other than Forms 10-K and 10-Q described below, copies of all periodic and other reports, proxy statements and other materials filed by the Parent, the Borrower or any Subsidiary with the Securities and Exchange Commission (including registration statements and reports on Form 10-K, 10-Q and 8-K (or their equivalents)), or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by the Parent or the Borrower to its shareholders generally, as the case may be;
(e)promptly following any request therefor (but no more often than once per Fiscal Quarter), such other information regarding the operations, business affairs and financial condition of any Credit Party or any Subsidiary of the Borrower, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may reasonably request; and
(f)promptly following any request therefor, any information and documentation reasonably requested by the Administrative Agent or any Lender for purposes of compliance with applicable “know your customer” requirements under the PATRIOT Act or other applicable anti-money laundering laws.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers will make available to the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower
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Materials”) by posting the Borrower Materials on the Platform and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC”, the Borrower shall be deemed to have authorized the Administrative Agent, the Arrangers, and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute confidential information, they shall be treated as set forth in Section10.12); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information”; and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information”.
Section 5.2.Financial Tests. The Parent shall have and maintain at all times, on a consolidated basis in accordance with GAAP, tested as of the close of each calendar quarter:
(a)A Total Leverage Ratio not to exceed sixty-five percent (65%);
(b)A minimum Fixed Charge Coverage Ratio of not less than 1.60:1.00;
(c)Tangible Net Worth at all times of not less than the sum of (i) $184,000,000.00, plus (ii) 90% of the net proceeds of all equity issuances of the Parent raised after the Closing Date;
(d)A maximum Payout Ratio of ninety percent (90%) commencing for the quarter ending December 31, 2018;
(e)A minimum Interest Coverage Ratio of not less than 1.85:1.00;
(f)The aggregate Unhedged Variable Rate Debt of the Borrower and its Subsidiaries shall not exceed thirty percent (30%) of Total Asset Value; and
(g)A minimum Liquidity of $5,000,000.00 at all times.
(h)A minimum Debt Yield of 8.00% at all times commencing with the quarter ending on June 30, 2019.
(i)A minimum amount of cash designated as restricted capital expenditures reserves equal to not less than the Capital Expenditure Reserve.
Section 5.3.Notices of Material Events. The Borrower will furnish to the Administrative Agent and each Lender written notice of the following promptly after it becomes aware of same (unless specific time is set forth below):
(a)the occurrence of any Default under this Agreement or any default or event of default under a Senior Loan Document;
(b)within fifteen (15) Business Days after the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Credit Party or any Affiliate thereof that, if adversely determined, would reasonably be expected to result in a Material Adverse Effect;
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(c)within fifteen (15) Business Days after the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $10,000,000.00; and
(d)any other development that results in, or would reasonably be expected to result in, a Material Adverse Effect.
Each notice delivered under this Section shall be accompanied by a statement of a Responsible Officer of Borrower setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
At the Administrative Agent’s option, after the happening of any of the events listed in clauses (a), (b) or (d) above which would reasonably be expected to result in a Material Adverse Effect on any of the Mortgaged Properties, the Administrative Agent may obtain, or cause the Borrower to obtain, an updated Appraisal for the Mortgaged Properties giving rise to such events, all at the Borrower’s expense.
Section 5.4.Existence; Conduct of Business. The Borrower will, and will cause Parent and each of its Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit any merger, consolidation, liquidation or dissolution permitted under this Agreement and shall not apply to the real estate investment trust status of the Parent until such time as the Parent has made its initial election to be treated as a real estate investment trust under the Code. The Borrower must at all times be a wholly owned Subsidiary of Parent. The Borrower may not be organized under the laws of a jurisdiction other than the United States of America, any State thereof or the District of Columbia.
Section 5.5.Payment of Obligations. The Borrower will, and will cause Parent and each of its Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, would result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (c) the failure to make payment pending such contest would not reasonably be expected to result in a Material Adverse Effect. The Borrower will, and will cause each of its Subsidiaries to, comply with all of its obligations and liabilities (as applicable) under the Senior Loan Documents.
Section 5.6.Maintenance of Properties; Insurance.
(a)The Borrower will, and will cause Parent and each of its Subsidiaries to, (i) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (ii) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are reasonable and customary for similarly situated Properties (including, without limitation, all insurance required under applicable Flood Insurance Laws to be maintained with respect to the Real Properties).
(b)The Borrower will pay and discharge, or cause to be paid and discharged, all taxes, assessments, maintenance charges, permit fees, impact fees, development fees, capital repair charges, utility reservations and standby fees and all other similar impositions of every kind and character charged, levied, assessed or imposed against any interest in any of the Mortgaged Property owned by it or any of its Subsidiaries, as they become payable and before they become delinquent. The Borrower shall furnish receipts evidencing proof of such payment to the Administrative Agent promptly after payment and before delinquency.
Section 5.7.Books and Records. The Borrower will, and will cause Parent and each of its Subsidiaries to (a) keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities; and (b) permit any representatives designated by the Administrative Agent or any Lender, upon reasonable prior notice and subject to rights of tenants, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and
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condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested.
Section 5.8.Compliance with Laws. The Borrower will, and will cause Parent and each of its Subsidiaries to, comply with all laws, rules, regulations and requirements of any Governmental Authority applicable to its business and properties, including, without limitation, all Environmental Laws, ERISA and OSHA, except where the failure to do so, either individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. The Borrower will maintain in effect and enforce policies and procedures designed to promote and achieve compliance by the Borrower, its Subsidiaries and their respective directors, officers, employees and agents with applicable Anti-Corruption Laws and applicable Sanctions.
Section 5.9.Use of Proceeds. The proceeds of the Revolving Loans will be used solely to (i) fund a portion of the cost to consummate real estate acquisitions and related investments made by Borrower and its Subsidiaries and for general corporate purposes, and (ii) be distributed to the Parent to fund the cost of the acquisition of shares of capital stock of the Parent purchased from unrelated third-party investors, provided at no time shall the amount of the Revolving Loans advanced for such purpose exceed $10,000,000.00. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that would violate any rule or regulation of the Board of Governors of the Federal Reserve System, including Regulation T, Regulation U or Regulation X.
Section 5.10.Fiscal Year.. Borrower shall maintain as its fiscal year the twelve (12) month period ending on December 31 of each year.
Section 5.11.Environmental Matters. Borrower shall comply and shall cause each of its Subsidiaries and each Real Property owned or leased by such parties to comply in all material respects with all applicable Environmental Laws currently or hereafter in effect, except to the extent noncompliance would not reasonably be expected to have a Material Adverse Effect.
Section 5.12.Collateral Requirement.
(a)General Requirement. Until repayment in full of all outstanding Loans and termination of all Revolving Commitments, the Obligations shall be secured by a perfected first priority lien and security interest to be held by the Administrative Agent for the benefit of the Lenders, pursuant to the terms of the Collateral Documents, in (i) the Equity Interests of each Collateral Subsidiary; provided that the Borrower shall not, pursuant to this subclause (i), be required to pledge any portion of such Equity Interests to the extent (and only to the extent) that such a grant of a security interest is prohibited by, or under the terms thereof, may give rise to a default, breach, right of recoupment, buyout, repurchase, purchase option, right of first refusal or similar rights (whether effective with the pledge or any related exercise of rights thereunder), claim, defense or remedy, or directly or indirectly results in the termination of or requires any consent not obtained under, the Senior Loans; provided further that, to the extent such pledge of any portion of such Equity Interests is restricted as set forth in the previous proviso, the Borrower shall, to the extent permitted under any such debt instruments, pledge to the Administrative Agent, pursuant to documentation reasonably acceptable to the Administrative Agent, all of the economic interests and rights to receive dividends or distributions in respect of the Equity Interests of such Collateral Subsidiary; and (ii) the proceeds of all Equity Offerings and any other capital events with respect to any Credit Party and any of their Subsidiaries. No later than twenty (20) Business Days after the end of each fiscal quarter, the Borrower shall pledge to the Agent such portion of the Equity Interests or economic interests in any Subsidiaries that were formed or acquired during the immediately preceding fiscal quarter as is required to be pledged pursuant to clause (ii) of the immediately preceding sentence, in each case, pursuant to documentation reasonably acceptable to the Administrative Agent and shall execute such documents and take such action as the Administrative Agent shall reasonably require in order to perfect its security interest in such additional Equity Interests or economic interests, as applicable.
(b)Release of Certain Collateral Subsidiaries. Provided no Default or Event of Default shall have occurred hereunder and be continuing (or would exist immediately after giving effect to the transactions contemplated by this Section 5.12(b), including any paydown of the Loans in connection with the transactions contemplated by this Section 5.12(b)), the Administrative Agent shall release the Equity Interests in the Point @ Foothills real property located in the Phoenix, Arizona MSA, the Ashlar real property located in the Dallas, Texas MSA, the Heatherstone real property located in the Dallas, Texas MSA, the Belmont at Duck Creek real
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property located in the Dallas, Texas MSA, and/or the Southpoint Reserve real property, located in Fredericksburg, Virginia or Washington, D.C. MSA from the lien or security title of the Collateral Documents encumbering the same upon the request of Borrowers in connection with a sale of such Real Property, subject to and upon the following terms and conditions:
(i)The Borrower shall have provided the Administrative Agent with written notice of its intention to remove any specified Collateral at least five (5) Business Days (or such shorter period as the Administrative Agent may agree) prior to the requested release (which notice may be revoked by Borrowers at any time);
(ii)Borrower shall submit to the Administrative Agent with such request an executed Compliance Certificate adjusted in the best good faith estimate of Borrower solely to give effect to the proposed release and demonstrating that no Default or Event of Default with respect to the covenants referred to therein shall exist after giving effect to such release and if the Borrower would not be in compliance, then any reduction in the outstanding amount of the Loans in connection with such release;
(iii)Borrower shall pay all reasonable costs and expenses of the Administrative Agent in connection with such release, including without limitation, reasonable attorney’s fees; and
(iv)without limiting or affecting any other provision hereof, any release of a Collateral will not cause the Borrower to be in violation of the covenants set forth in Section 5.2.
(c)Release of Collateral. Upon the refinancing or repayment of the Loans in full and termination of all Revolving Commitments, then the Administrative Agent shall release the Collateral from the lien and security interest of the Collateral Documents.
Section 5.13.Further Assurances. At any time upon the request of the Administrative Agent, Borrower will, promptly and at its expense, execute, acknowledge and deliver such further documents and perform such other acts and things as the Administrative Agent may reasonably request to evidence the Loans made hereunder and interest thereon in accordance with the terms of this Agreement.
Section 5.14.Bank Accounts. Subject to the terms of the Senior Loan Documents, the Credit Parties shall maintain (and cause each Subsidiary thereof to maintain) all property, operating and depository accounts and all corporate accounts, with SunTrust Bank. The Credit Parties shall also utilize SunTrust Bank (and cause each Subsidiary thereof to utilize SunTrust Bank) for all cash management services.
Section 5.15.Parent Covenants. The Parent will:
(a)own, directly or indirectly, all of the general partner interests in the Borrower and at least ninety percent (90%) of the limited partnership interests in the Borrower, free and clear of all Liens;
(b)maintain management and control of Borrower;
(c)conduct substantially all of its operations through Borrower and/or one or more of Borrower’s Subsidiaries;
(d)comply with all Legal Requirements to maintain, and, will at all times elect, qualify as and maintain, its status as a real estate investment trust under Section 856(c)(i) of the Code; and
(e)subject to the terms of the Loan Documents, promptly contribute to Borrower the net proceeds of any stock sales or debt offerings.
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Section 5.16.Pledge of Interests. If a Borrower or any of its Subsidiaries acquires any Real Property or any direct or indirect beneficial interest in any entity which owns Real Property and in connection with the acquisition of such Real Property grants any mortgage interest under the Senior Loan, Administrative Agent shall be granted a Pledged Interest therein, subject to such limitations as may be imposed under the Senior Loan.
Section 5.17.Permanent Financing. Borrower agrees that it shall use all reasonable efforts to utilize SunTrust Bank to place permanent debt (e.g. CMBS, Fannie/Freddie, life company placements) with respect to all Real Property acquired, in whole or in part, with proceeds from the Loans; provided, that Borrower may utilize other providers of permanent debt in the case of such provider acting as broker on the purchase and sale of the Real Property in question.
Section 5.18.Keepwell. Each Borrower that is a Qualified ECP Party at the time that the Agreement becomes effective with respect to any Hedging Obligation, hereby jointly and severally, absolutely, unconditionally and irrevocably undertakes to provide such funds or other support as may be needed from time to time by each other Borrower that is not then an “eligible contract participant” under the Commodity Exchange Act (a “Specified Party”) to honor all of its obligations under the Agreement in respect of Hedging Obligations (but, in each case, only up to the maximum amount of such liability that can be hereby incurred without rendering such Qualified ECP Party’s obligations and undertakings under this Section 5.16 voidable under applicable law relating to fraudulent conveyance or fraudulent transfer, and not for any greater amount). The obligations and undertakings of each Qualified ECP Party under this Section 5.16 shall remain in full force and effect until the Loans have been repaid in full. Each Qualified ECP Party intends this Section 5.16 to constitute, and this Section shall be deemed to constitute, a guarantee of the obligations of, and a “keepwell, support, or other agreement” for the benefit of, each Specified Party for all purposes of the Commodity Exchange Act.
ARTICLE VI
[INTENTIONALLY OMITTED]
ARTICLE VII
NEGATIVE COVENANTS
Until the Commitments have expired or been terminated and all Loans have been paid in full, the Borrower covenants and agrees with the Lenders that:
Section 7.1.Liens. Neither the Parent nor the Borrower will create, incur, assume or permit to exist any Lien on the Collateral or the Mortgaged Properties, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except solely with respect to the Mortgaged Properties, Permitted Encumbrances.
Section 7.2.Fundamental Changes. The Parent and the Borrower will not, and will not permit any Collateral Subsidiary to:
(a)merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of the assets of the Borrower or all or substantially all of the stock of its Subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve;
(b)sell, transfer, lease or otherwise dispose of any of its assets to the extent such transaction would result in a breach of Section 5.2 or, with respect to the sale of any Real Property, the Equity Interests in which constitute Collateral, unless the Borrower shall pledge to the Administrative Agent additional or substitute Collateral that is acceptable to the Lenders; or
(c)engage to any material extent in any business other than the ownership of interest in entities that own, develop, operate and manage the Properties and businesses reasonably related thereto, except as allowed by Section 7.3.
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Section 7.3.Investments, Loans, Advances and Acquisitions. The Parent and the Borrower will not purchase, hold or acquire (including pursuant to any merger with any Person that was not a wholly owned Subsidiary prior to such merger) any capital stock, evidences of indebtedness (subject to Section 7.9 below) or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except:
(a)Permitted Investments; and
(b)Investments (directly or indirectly) in Real Properties, provided that:
(i)Investments in unimproved land shall not exceed 5% of Total Asset Value;
(ii)Investments in Development Assets shall not exceed 10% of Total Asset Value;
(iii)Investments in joint ventures in which Parent, Borrower, or any of its Subsidiaries fails to hold a 90% ownership interest shall not exceed 5% of Total Asset Value; and
(iv)Investments in Real Properties other than multifamily properties shall not to exceed 10% of Total Asset Value.
Provided further that the aggregate Investment described in Section 7.3(b) (i), (ii), (iii) and (iv) above shall not exceed 20% of Total Asset Value. To the extent that any of the terms of subsection (b) are not satisfied, Total Asset Value shall be reduced by any overage amount.
Section 7.4.Hedging Transactions. The Borrower will not, and will not permit any of its Subsidiaries to, enter into any Hedging Transaction, other than Hedging Transactions entered into in the ordinary course of business to hedge or mitigate risks to which any Subsidiary of the Borrower is exposed in the conduct of its business or the management of its liabilities.
Section 7.5.Restricted Payments. The Parent will not, and will not permit any of its Subsidiaries to, declare or make, or agree to pay or make, directly or indirectly, during any calendar quarter, any Restricted Payment, except that any of the following Restricted Payments are permitted: (a) Restricted Payments by the Parent required to comply with Section 5.15(d), (b) provided no Default is then in existence, Restricted Payments made by the Parent to its equity holders, including in connection with the existing redemption and dividend reinvestment plans, not to exceed the Payout Ratio set forth in Section 5.2(d), (c) provided no Default is then in existence, Restricted Payments made by the Parent to its equity holders, to repurchase their capital stock or equity interest, subject to the limitation on Loan advances set forth in Section 5.9, and (d) Restricted Payments declared and paid ratably by Subsidiaries to Borrower and/or Parent with respect to their capital stock or equity interest.
Section 7.6.Transactions with Affiliates. The Borrower will not, and will not permit any of its Subsidiaries to, sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than would be obtained on an arm’s-length basis from unrelated third parties, (b) transactions between or among the Borrower and its wholly owned Subsidiaries not involving any other Affiliate, (c) transactions related to the closing of and ongoing activities necessary to implement the loan obligations and requirements of this Agreement, and (d) any Restricted Payment permitted by Section 7.5.
Section 7.7.Parent Negative Covenants. The Parent will not (a) own any property other than (i) the ownership interests of Borrower and (ii) other assets with no more than $10,000,000.00 in value; (b) give or
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allow any Lien on the ownership interests of Borrower; (c) engage to any material extent in any business other than the ownership, development, operation and management residential properties.
Section 7.8.Restrictive Agreements. Neither the Borrower nor Parent will, and will not permit any of its Subsidiaries to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of the Borrower or any Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to the Borrower or any other Subsidiary or to Guarantee Indebtedness of the Borrower or any other Subsidiary; provided that the restrictions contained in this Section 7.8 shall not apply to (i) restrictions and conditions imposed by law or by this Agreement or as otherwise approved by the Administrative Agent, (ii) customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iii) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness or Liens permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness, or ownership interests in the obligors with respect to such Indebtedness, and (iv) solely with respect to clause (a), provisions in leases restricting the assignment thereof.
Section 7.9.Indebtedness. Neither the Parent, the Borrower nor any Collateral Subsidiary shall, without the prior written consent of the Required Lenders, create, incur, assume, guarantee or be or remain liable, contingently or otherwise with respect to any Indebtedness on a recourse basis, except: (a) Indebtedness under this Agreement; (b) Indebtedness of a Collateral Subsidiary as of date hereof under the Senior Loan Documents; (c) Indebtedness under any Hedging Obligations, (d) Indebtedness whose recourse is solely for so-called “bad-boy” acts, including without limitation, (i) failure to account for a tenant’s security deposits, if any, for rent or any other payment collected by a borrower from a tenant under the lease, all in accordance with the provisions of any applicable loan documents, (ii) fraud or a material misrepresentation made by a Borrower or any Guarantor, or the holders of beneficial or ownership interests in Borrower or any Guarantor, in connection with the financing evidenced by the applicable loan documents; (iii) any attempt by a Borrower or any Guarantor to divert or otherwise cause to be diverted any amounts payable to the applicable lender in accordance with the applicable loan documents; (iv) the misappropriation or misapplication of any insurance proceeds or condemnation awards relating to any Real Property; (v) voluntary or involuntary bankruptcy by a Borrower or any Guarantor; (vi) any environmental matter(s) affecting any Real Property; (vii) failure to deliver statements, schedules, reports, or books and records in accordance with the provisions of any applicable loan documents; (viii) failure to pay any deferred amounts in accordance with the provisions of any applicable loan documents; (ix) any material waste of any Real Property; (x) the failure to comply with any single purpose entity requirements in accordance with the provisions of any applicable loan documents; and (xi) the occurrence of any transfer of any interest in violation of the provisions of any applicable loan documents; and (e) Indebtedness for trade payables and operating expenses incurred in the ordinary course of business.
Section 7.10.Fees. Provided that no Default or Event of Default shall be in existence, each Credit Party may pay all management, property and other asset fees then due and payable. At any time that any Default or Event of Default exists under this Agreement or any other Loan Document, then in any of such event(s), no Credit Party or any Subsidiary may pay any management, property, asset or similar fees to any other Credit Party or to any Subsidiary or Affiliate, including, without limitation, to the Management Company; provided that any such fees may accrue during the continuance of any such Default or Event of Default and be payable at such time as no Default or Event of Default is continuing hereunder. All such parties shall execute subordination agreements in form and substance acceptable to the Administrative Agent with respect to such fees. Notwithstanding the foregoing, Credit Parties and their Subsidiaries may pay at all times any due and payable fees to third party property managers.
Section 7.11.Amendment to Organizational Documents. Without the prior written consent of Administrative Agent, which consent shall not be unreasonably withheld, conditioned or delayed, no Borrower will amend, modify or waive any rights under its certificate of incorporation, bylaws or other organizational documents in any manner, except: (a) modifications necessary to clarify existing provisions of such organizational documents; (b)
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modifications which would not have a Material Adverse Effect, and (c) modifications in connection with mergers, consolidations, investments and other transactions not otherwise prohibited by the other provisions of this Agreement.
Section 7.12.Sanctions and Anti-Corruption Laws. No Borrower shall permit the proceeds of any Loan: (a) to be lent, contributed or otherwise made available to fund any activity or business in any Designated Jurisdiction; (b) to fund any activity or business of any Sanctioned Person or any Person located, organized, formed, incorporated or residing in any Designated Jurisdiction or who is the subject of any Sanctions; (c) in any other manner that will result in any material violation by any Person (including any Lender or Administrative Agent) of any Sanctions; or (d) to be used in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws.
ARTICLE VIII
EVENTS OF DEFAULT
Section 8.1.Events of Default. If any of the following events (each, an “Event of Default”) shall occur:
(a)the Borrower shall fail to pay any principal of the Loans when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise, and such failure (other than the payment due on the Maturity Date, for which there shall be no grace period) shall continue unremedied for a period of over three (3) Business Days;
(b)the Borrower shall fail to pay any interest on the Loans or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under any Loan Documents, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of over three (3) Business Days (such three Business Day period commencing after written notice from the Administrative Agent as to any such failure);
(c)any representation or warranty made or deemed made by or on behalf of any Credit Party in or in connection with any Loan Document or any amendment or modification thereof or waiver thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made;
(d)the Borrower shall fail to observe or perform any covenant, condition or agreement contained in Article V or VII other than Sections 5.4, 5.5, 5.6, 5.7(a), 5.8, and 5.11;
(e)any Credit Party shall fail to observe or perform any covenant, condition or agreement contained in any Loan Document (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of over 30 days after notice thereof from the Administrative Agent to the Borrower (which notice will be given at the request of any Lender) and if such default is not cureable within thirty (30) days and the Credit Party is diligently pursuing cure of same, the cure period may be extended for thirty (30) days (for a total of 60 days after the original notice from the Administrative Agent) upon written request from the Borrower to the Administrative Agent;
(f)an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Credit Party or any Collateral Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Credit Party or any Collateral Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered;
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(g)any Credit Party or any Subsidiary of the Borrower shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Person or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;
(h)any Credit Party or any Collateral Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due;
(i)one or more judgments for the payment of money in an aggregate amount in excess of $10,000,000 shall be rendered against any Credit Party, any Subsidiary of the Borrower or any combination thereof and the same shall remain undischarged for a period of sixty (60) consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of such Person to enforce any such judgment;
(j)an ERISA Event shall have occurred that, in the opinion of the Required Lenders, when taken together with all other ERISA Events that have occurred, would reasonably be expected to result in liability of the Borrower and its Subsidiaries in an aggregate amount exceeding $10,000,000;
(k)the Guaranty of the Loan by the Guarantor shall for any reason terminate or cease to be in full force and effect;
(l)any Credit Party shall default under any agreement and such default would reasonably be expected to result in a Material Adverse Effect;
(m)any Credit Party shall (or shall attempt to) disavow, revoke or terminate any Loan Document to which it is a party or shall otherwise challenge or contest in any action, suit or proceeding in any court or before any Governmental Authority the validity or enforceability of any Loan Document;
(n)any provision of any Loan Document with respect to the Collateral shall for any reason cease to be valid and binding on, enforceable against, any Credit Party resulting in a Material Adverse Effect, or any lien created under any Loan Document ceases to be a valid and perfected first priority lien in any of the Collateral purported to be covered thereby;
(o)a Change in Control shall occur;
(p)(i) Any Borrower or Guarantor defaults under any recourse Indebtedness, or (ii) any Subsidiaries of Parent or Borrower defaults under any non-recourse Indebtedness in an aggregate amount equal to or greater than $75,000,000 at any time (such $75,000,000 calculated based on the Equity Percentage of Indebtedness for the Borrower’s Unconsolidated Affiliates); or
(q)An Event of Default occurs under any of the Senior Loan Documents or any other debt securing the Mortgaged Properties;
then, and in every such event (other than an event described in clause (f) or (g) of this Article), and at any time thereafter during the continuance of such event, the Administrative Agent may, and at the request of the Required Lenders shall, by notice to the Borrower, take some or all of the following actions, at the same or different times: (i) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all reasonable fees and other obligations of the Borrower accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower, and (ii) exercise any
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other rights or remedies provided under this Agreement or any other Loan Document, or any other right or remedy available by law or equity; and in case of any event described in clause (f) or (g) of this Article, the principal of the Loans then outstanding, together with accrued interest thereon and all reasonable fees and other obligations of the Borrower accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower.
Section 8.2.Application of Proceeds from Collateral. All proceeds from each sale of, or other realization upon, all or any part of the Collateral by any Secured Party after an Event of Default arises shall be applied as follows:
(a)first, to the reimbursable expenses of the Administrative Agent incurred in connection with such sale or other realization upon the Collateral, until the same shall have been paid in full;
(b)second, to the fees and other reimbursable expenses of the Administrative Agent then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;
(c)third, to all reimbursable expenses, if any, of the Lenders then due and payable pursuant to any of the Loan Documents, until the same shall have been paid in full;
(d)fourth, to the fees and interest then due and payable under the terms of this Agreement, until the same shall have been paid in full;
(e)fifth, to the aggregate outstanding principal amount of the Loans, the Bank Product Obligations and the Net Mark-to-Market Exposure of the Hedging Obligations that constitute Obligations, until the same shall have been paid in full, allocated pro rata among the Secured Parties based on their respective pro rata shares of the aggregate amount of such Loans, Bank Product Obligations and Hedge Termination Value of such Hedging Obligations; and
(f)sixth, to the extent any proceeds remain, to the Borrower or as otherwise provided by a court of competent jurisdiction.
All amounts allocated pursuant to the foregoing clauses third through fifth to the Lenders as a result of amounts owed to the Lenders under the Loan Documents shall be allocated among, and distributed to, the Lenders pro rata based on their respective Pro Rata Shares.
Notwithstanding the foregoing, (a) no amount received from any Guarantor (including any proceeds of any sale of, or other realization upon, all or any part of the Collateral owned by such Guarantor) shall be applied to any Excluded Swap Obligation of such Guarantor and (b) Bank Product Obligations and Hedging Obligations shall be excluded from the application described above if the Administrative Agent has not received written notice thereof, together with such supporting documentation as the Administrative Agent may request, from the Bank Product Provider or the Lender-Related Hedge Provider, as the case may be. Each Bank Product Provider or Lender-Related Hedge Provider that has given the notice contemplated by the preceding sentence shall, by such notice, be deemed to have acknowledged and accepted the appointment of the Administrative Agent pursuant to the terms of Article IX hereof for itself and its Affiliates as if a “Lender” party hereto.
ARTICLE IX
THE ADMINISTRATIVE AGENT
Section 9.1.Appointment of the Administrative Agent.
(a)Each Lender irrevocably appoints SunTrust Bank as the Administrative Agent and authorizes it to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent under this Agreement and the other Loan Documents, together with all such actions and powers that are reasonably incidental thereto. The Administrative Agent may perform any of its duties hereunder or under the other
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Loan Documents by or through any one or more sub-agents or attorneys-in-fact appointed by the Administrative Agent. The Administrative Agent and any such sub-agent or attorney-in-fact may perform any and all of its duties and exercise its rights and powers through their respective Related Parties. The exculpatory provisions set forth in this Article shall apply to any such sub-agent, attorney-in-fact or Related Party and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as the Administrative Agent.
(b)It is understood and agreed that the use of the term “agent” herein or in any other Loan Document (or any similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead such term is used as a matter of market custom and is intended to create or reflect only an administrative relationship between contracting parties.
Section 9.2.Nature of Duties of the Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth in this Agreement and the other Loan Documents. Without limiting the generality of the foregoing, (a) the Administrative Agent shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or an Event of Default has occurred and is continuing, (b) the Administrative Agent shall not have any duty to take any discretionary action or exercise any discretionary powers, except those discretionary rights and powers expressly contemplated by the Loan Documents that the Administrative Agent is required to exercise in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and (c) except as expressly set forth in the Loan Documents, the Administrative Agent shall not have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Subsidiaries that is communicated to or obtained by the Administrative Agent or any of its Affiliates in any capacity. The Administrative Agent shall not be liable for any action taken or not taken by it, its sub-agents or its attorneys-in-fact with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary under the circumstances as provided in Section 10.2) or in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final non-appealable judgment. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents or attorneys-in-fact except to the extent that a court of competent jurisdiction determines in a final and nonappelable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents. The Administrative Agent shall not be deemed to have knowledge of any Default or Event of Default unless and until written notice thereof (which notice shall include an express reference to such event being a “Default” or “Event of Default” hereunder) is given to the Administrative Agent by the Borrower or any Lender, and the Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with any Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements, or other terms and conditions set forth in any Loan Document, (iv) the validity, enforceability, effectiveness or genuineness of any Loan Document or any other agreement, instrument or document, or (v) the satisfaction of any condition set forth in Article III or elsewhere in any Loan Document, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent. The Administrative Agent may consult with legal counsel (including counsel for the Borrower) concerning all matters pertaining to such duties.
Section 9.3.Lack of Reliance on the Administrative Agent. Each of the Lenders acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each of the Lenders also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, continue to make its own decisions in taking or not taking any action under or based on this Agreement, any related agreement or any document furnished hereunder or thereunder.
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Section 9.4.Certain Rights of the Administrative Agent. If the Administrative Agent shall request instructions from the Required Lenders with respect to any action or actions (including the failure to act) in connection with this Agreement, the Administrative Agent shall be entitled to refrain from such act or taking such act unless and until it shall have received instructions from such Lenders, and the Administrative Agent shall not incur liability to any Person by reason of so refraining. Without limiting the foregoing, no Lender shall have any right of action whatsoever against the Administrative Agent as a result of the Administrative Agent acting or refraining from acting hereunder in accordance with the instructions of the Required Lenders where required by the terms of this Agreement.
Section 9.5.Reliance by the Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, posting or other distribution) believed by it to be genuine and to have been signed, sent or made by the proper Person. The Administrative Agent may also rely upon any statement made to it orally or by telephone and believed by it to be made by the proper Person and shall not incur any liability for relying thereon. The Administrative Agent may consult with legal counsel (including counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or not taken by it in accordance with the advice of such counsel, accountants or experts.
Section 9.6.The Administrative Agent in its Individual Capacity. The bank serving as the Administrative Agent shall have the same rights and powers under this Agreement and any other Loan Document in its capacity as a Lender as any other Lender and may exercise or refrain from exercising the same as though it were not the Administrative Agent; and the terms “Lenders”, “Required Lenders”, “Required Revolving Lenders”, or any similar terms shall, unless the context clearly otherwise indicates, include the Administrative Agent in its individual capacity. The bank acting as the Administrative Agent and its Affiliates may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or Affiliate of the Borrower as if it were not the Administrative Agent hereunder.
Section 9.7.Successor Administrative Agent.
(a)The Administrative Agent may resign at any time by giving notice thereof to the Lenders and the Borrower. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent, subject to approval by the Borrower provided that no Default or Event of Default shall exist at such time. If no successor Administrative Agent shall have been so appointed, and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a commercial bank organized under the laws of the United States or any state thereof or a bank which maintains an office in the United States.
(b)Upon the acceptance of its appointment as the Administrative Agent hereunder by a successor, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under this Agreement and the other Loan Documents. If, within 45 days after written notice is given of the retiring Administrative Agent’s resignation under this Section, no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent’s resignation shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time as the Required Lenders appoint a successor Administrative Agent as provided above. After any retiring Administrative Agent’s resignation hereunder, the provisions of this Article shall continue in effect for the benefit of such retiring Administrative Agent and its representatives and agents in respect of any actions taken or not taken by any of them while it was serving as the Administrative Agent.
. To the extent required by any applicable law, the Administrative Agent may withhold from any interest payment to any Lender an amount equivalent to any applicable withholding tax. If the Internal Revenue Service or any authority of the United States or any other
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jurisdiction asserts a claim that the Administrative Agent did not properly withhold tax from amounts paid to or for the account of any Lender (because the appropriate form was not delivered or was not properly executed, or because such Lender failed to notify the Administrative Agent of a change in circumstances that rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason), such Lender shall indemnify the Administrative Agent (to the extent that the Administrative Agent has not already been reimbursed by the Borrower and without limiting the obligation of the Borrower to do so) fully for all amounts paid, directly or indirectly, by the Administrative Agent as tax or otherwise, including penalties and interest, together with all expenses incurred, including legal expenses, allocated staff costs and any out of pocket expenses.
Section 9.9.The Administrative Agent May File Proofs of Claim.
(a)In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to any Credit Party, the Administrative Agent (irrespective of whether the principal of any Loan or any Revolving Credit Exposure shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise:
(i)to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans or Revolving Credit Exposure and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and its agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 10.3) allowed in such judicial proceeding; and
(ii)to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same.
(b)Any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 10.3.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
Section 9.10.Authorization to Execute Other Loan Documents. Each Lender hereby authorizes the Administrative Agent to execute on behalf of all Lenders all Loan Documents (including, without limitation, the Collateral Documents and any subordination agreements) other than this Agreement.
Section 9.11.Collateral and Guaranty Matters. The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion:
(a)to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (ii) if approved, authorized or ratified in writing in accordance with Section 10.2; and
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(b)to release any Credit Party from its obligations under the applicable Collateral Documents if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder or is otherwise entitled, pursuant to the terms hereof, to such release.
Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release its interest in particular types or items of property, or to release any Credit Party from its obligations under the applicable Collateral Documents pursuant to this Section. In each case as specified in this Section, the Administrative Agent is authorized, at the Borrower’s expense, to execute and deliver to the applicable Credit Party such documents as such Credit Party may reasonably request to evidence the release of such item of Collateral from the Liens granted under the applicable Collateral Documents, or to release such Credit Party from its obligations under the applicable Collateral Documents, in each case in accordance with the terms of the Loan Documents and this Section.
Section 9.12.Documentation Agent; Syndication Agent. Each Lender hereby designates Raymond James Financial, Inc. as Documentation Agent and agrees that the Documentation Agent shall have no duties or obligations under any Loan Documents to any Lender or any Credit Party.
Section 9.13.Right to Realize on Collateral and Enforce Guarantee.
Anything contained in any of the Loan Documents to the contrary notwithstanding, the Borrower, the Administrative Agent and each Lender hereby agree that (a) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Collateral Documents, it being understood and agreed that all powers, rights and remedies hereunder and under the Collateral Documents may be exercised solely by the Administrative Agent, and (b) in the event of a foreclosure by the Administrative Agent on any of the Collateral pursuant to a public or private sale or other disposition, the Administrative Agent or any Lender may be the purchaser or licensor of any or all of such Collateral at any such sale or other disposition and the Administrative Agent, as agent for and representative of the Lenders (but not any Lender or Lenders in its or their respective individual capacities unless the Required Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by the Administrative Agent at such sale or other disposition.
Section 9.14.Secured Bank Product Obligations and Hedging Obligations. No Bank Product Provider or Lender-Related Hedge Provider that obtains the benefits of Section 8.2, the Collateral Documents or any Collateral by virtue of the provisions hereof or of any other Loan Document shall have any right to notice of any action or to consent to, direct or object to any action hereunder or under any other Loan Document or otherwise in respect of the Collateral (including the release or impairment of any Collateral) other than in its capacity as a Lender and, in such case, only to the extent expressly provided in the Loan Documents. Notwithstanding any other provision of this Article to the contrary, the Administrative Agent shall not be required to verify the payment of, or that other satisfactory arrangements have been made with respect to, Bank Product Obligations and Hedging Obligations unless the Administrative Agent has received written notice of such Obligations, together with such supporting documentation as the Administrative Agent may request, from the applicable Bank Product Provider or Lender-Related Hedge Provider, as the case may be.
(a)Written Notices.
(i)Except in the case of notices and other communications expressly permitted to be given by telephone, all notices and other communications to any party herein to be effective shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows:
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300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com)
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
With a copy to:Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
To the Administrative Agent:SunTrust Bank
303 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attention: Karen Weich
Telephone No. (404) 813-9293
With copies to:SunTrust Bank Legal Department - CRE
303 Peachtree Street, N.E., Suite 3600
Mail Code GA-ATL-0643
Atlanta, Georgia 30308
To any other Lender:the address set forth in the Administrative Questionnaire or the Assignment and Acceptance executed by such Lender
Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto.
(ii)Any agreement of the Administrative Agent or any Lender herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Borrower. The Administrative Agent and each Lender shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Borrower to give such notice and the Administrative Agent and the Lenders shall not have any liability to the Borrower or other Person on account of any action taken or not taken by the Administrative Agent or any Lender in reliance upon such telephonic or facsimile notice. The obligation of the Borrower to repay the Loans and all other Obligations hereunder shall not be affected in any way or to any extent by any failure of the Administrative Agent or any Lender to receive written confirmation of any telephonic or facsimile notice or the receipt by the Administrative Agent or any Lender of a confirmation which is at variance with the terms understood by the Administrative Agent and such Lender to be contained in any such telephonic or facsimile notice.
(b)Electronic Communications.
(i)Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e‑mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent; provided that the foregoing shall not apply to notices to any Lender if such Lender has notified the Administrative Agent that it is incapable of receiving, or is unwilling to receive, notices by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other
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communications to it hereunder by electronic communications pursuant to procedures approved by it; provided that approval of such procedures may be limited to particular notices or communications.
(ii)Unless the Administrative Agent otherwise prescribes, (A) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement) and (B) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (A) of notification that such notice or communication is available and identifying the website address therefor; provided that, in the case of clauses (A) and (B) above, if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next Business Day for the recipient.
(iii)The Borrower agrees that the Administrative Agent may, but shall not be obligated to, make Communications (as defined below) available to the Lenders by posting the Communications on Debt Domain, Intralinks, Syndtrak, ClearPar or a substantially similar electronic system.
(iv)THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” NEITHER THE ADMINISTRATIVE AGENT NOR ANY OF ITS RELATED PARTIES WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS IN THE COMMUNICATIONS (AS DEFINED BELOW) AND FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY THE ADMINISTRATIVE AGENT OR ANY OF ITS RELATED PARTIES IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties have any liability to any Credit Party or any of their respective Subsidiaries, any Lender, or any other Person or entity for losses, claims, damages, liabilities or expenses of any kind, including, without limitation, direct or indirect, special, incidental or consequential damages, losses or expenses, whether or not based on strict liability (whether in tort, contract or otherwise), arising out of any Credit Party’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of the Administrative Agent or such Related Party; provided , however, that in no event shall the Administrative Agent or any Related Party have any liability to any Credit Party or any of their respective Subsidiaries, any Lender, or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages) arising out of any Credit Party’s or the Administrative Agent’s transmission of Communications. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of any Credit Party pursuant to any Loan Document or the transactions contemplated therein which is distributed by the Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through the Platform.
(c)Telephonic Notices. Unless otherwise expressly provided herein, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier or electronic mail as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
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(i)if to Borrower or the Administrative Agent to the address, telecopier number, electronic mail address or telephone number specified for such Person in Section 10.1 above or to such other address, telecopier number, electronic mail address or telephone number as shall be designated by such party in a notice to the other parties hereto delivered in accordance with the terms hereof; and
(ii)if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.
(d)All such notices and other communications sent to any party hereto in accordance with the provisions of this Agreement or made upon the earlier to occur of (i) actual receipt by the relevant party hereto and (ii) (A) if delivered by hand or by courier, when signed for by or on behalf of the relevant party hereto; (B) if delivered by mail, four (4) Business Days after deposit in the mails, postage prepaid; (C) if delivered by facsimile, when sent and receipt has been confirmed by telephone; and (D) if delivered by electronic mail, to the extent provided in clause (b) above and effective as provided in such clause; provided that notices and other communications to the Administrative Agent pursuant to Article II shall not be effective until actually received by such Person. In no event shall a voice mail message be effective as a notice, communication or confirmation hereunder.
(e)Loan Documents may be transmitted and/or signed by facsimile or other electronic communication. The effectiveness of any such documents and signatures shall, subject to applicable Law, have the same force and effect as manually signed originals and shall be binding on all Credit Parties, the Agents and the Lenders.
Section 10.2.Waiver; Amendments.
(a)No failure or delay by the Administrative Agent or any Lender in exercising any right or power hereunder or under any other Loan Document, and no course of dealing between the Borrower and the Administrative Agent or any Lender, shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, preclude any other or further exercise thereof or the exercise of any other right or power hereunder or thereunder. The rights and remedies of the Administrative Agent and the Lenders hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies provided by law. No waiver of any provision of this Agreement or of any other Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by subsection (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default or Event of Default, regardless of whether the Administrative Agent or any Lender may have had notice or knowledge of such Default or Event of Default at the time.
(b)No amendment or waiver of any provision of this Agreement or of the other Loan Documents (other than the Fee Letter), nor consent to any departure by the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Borrower and the Required Lenders, or the Borrower and the Administrative Agent with the consent of the Required Lenders, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that, subject to Section 2.16(b), in addition to the consent of the Required Lenders, no amendment, waiver or consent shall:
(i)increase the Commitment of any Lender without the written consent of such Lender;
(ii)reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees or other amounts payable hereunder, without the written consent of each Lender affected thereby;
(iii)postpone the date fixed for any payment of any principal of, or interest on, any Loan or any fees or other amounts hereunder or reduce the amount of, waive or excuse any
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such payment, or postpone the scheduled date for the termination or reduction of any Commitment, without the written consent of each Lender affected thereby;
(iv)(A) change Section 2.21(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby, without the written consent of each Lender or (B) change Section 8.2 in a manner that would alter the pro rata sharing of payments or the order of application required thereby without the written consent of each Lender;
(v)change any of the provisions of this subsection (b) or the definition of “Required Lenders” or “Required Revolving Lenders” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, without the consent of each Lender;
(vi)release all or substantially all of the guarantors, or limit the liability of such guarantors, under any guaranty agreement guaranteeing any of the Obligations, without the written consent of each Lender; or
(vii)release all or substantially all collateral (if any) securing any of the Obligations, without the written consent of each Lender;
provided, further, that no such amendment, waiver or consent shall amend, modify or otherwise affect the rights, duties or obligations of the Administrative Agent without the prior written consent of such Person.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended, and amounts payable to such Lender hereunder may not be permanently reduced, without the consent of such Lender (other than reductions in fees and interest in which such reduction does not disproportionately affect such Lender). Notwithstanding anything contained herein to the contrary, this Agreement may be amended and restated without the consent of any Lender (but with the consent of the Borrower and the Administrative Agent) if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated (but such Lender shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3), such Lender shall have no other commitment or other obligation hereunder and such Lender shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement.
Notwithstanding anything to the contrary herein, the Administrative Agent may, with the consent of the Borrower only, amend, modify or supplement any Loan Document to cure any obvious ambiguity, omission, mistake, defect or inconsistency.
Section 10.3.Expenses; Indemnification.
(a)The Borrower shall pay (i) all reasonable, out-of-pocket costs and expenses of the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, in connection with the syndication of the credit facilities provided for herein, the preparation and administration of the Loan Documents and any amendments, modifications or waivers thereof (whether or not the transactions contemplated in this Agreement or any other Loan Document shall be consummated), including the reasonable fees, charges and disbursements of counsel for the Administrative Agent and its Affiliates, and (ii) all reasonable out-of-pocket costs and expenses (including, without limitation, the reasonable fees, charges and disbursements of outside counsel) incurred by the Administrative Agent or any Lender in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.
(b)The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an
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“Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrower or any other Credit Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Credit Party, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from (x) the gross negligence or willful misconduct of such Indemnitee or (y) a claim brought by the Borrower or any other Credit Party against an Indemnitee for a material breach of such Indemnitee’s obligations hereunder or under any other Loan Document.
(c)The Borrower shall pay, and hold the Administrative Agent and each of the Lenders harmless from and against, any and all present and future stamp, documentary, and other similar taxes with respect to this Agreement and any other Loan Documents, any collateral described therein or any payments due thereunder, and save the Administrative Agent and each Lender harmless from and against any and all liabilities with respect to or resulting from any delay or omission to pay such taxes.
(d)To the extent that the Borrower fails to pay any amount required to be paid to the Administrative Agent under subsection (a), (b) or (c) hereof, each Lender severally agrees to pay to the Administrative Agent such Lender’s pro rata share (in accordance with its respective Revolving Commitment (or Revolving Credit Exposure, as applicable) determined as of the time that the unreimbursed expense or indemnity payment is sought) of such unpaid amount; provided that the unreimbursed expense or indemnified payment, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent in its capacity as such.
(e)To the extent permitted by applicable law, the Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to actual or direct damages) arising out of, in connection with or as a result of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated therein, any Loan or the use of proceeds thereof; provided that nothing in this clause (e) shall relieve the Borrower of any obligation it may have to indemnify any Indemnitee against special, indirect, consequential or punitive damages asserted against such Indemnitee by a third party.
(f)All amounts due under this Section shall be payable promptly after written demand therefor.
Section 10.4.Successors and Assigns.
(a)The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that the Borrower may not assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender, and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of subsection (b) of this Section, (ii) by way of participation in accordance with the provisions of subsection (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of subsection (f) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated
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hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b)Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitments, Loans and other Revolving Credit Exposure at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i)Minimum Amounts.
(A)in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitments, Loans and other Revolving Credit Exposure at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B)in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans and Revolving Credit Exposure outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans and Revolving Credit Exposure of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Acceptance, as of the Trade Date) shall not be less than $5,000,000 with respect to Revolving Loans and in minimum increments of $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed).
(ii)Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans, other Revolving Credit Exposure or the Commitments assigned.
(iii)Required Consents. No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:
(A)the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of such Lender or an Approved Fund of such Lender; and
(B)the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required.
(iv)Assignment and Acceptance. The parties to each assignment shall deliver to the Administrative Agent (A) a duly executed Assignment and Acceptance, (B) a processing and recordation fee of $3,500, (C) an Administrative Questionnaire unless the assignee is already a Lender and (D) the documents required under Section 2.20(e).
(v)No Assignment to the certain Persons. No such assignment shall be made to (A) the Borrower or any of the Borrower’s Affiliates or Subsidiaries, except to the extent expressly approved by the Administrative Agent (in its discretion) in writing and subject to such terms and conditions as may be imposed by the Administrative Agent in connection with same, or (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).
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(vi)No Assignment to Natural Persons. No such assignment shall be made to a natural person.
(vii)Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent and each other Lender hereunder (and interest accrued thereon). Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 2.18, 2.19, 2.20 and 10.3 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that, except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from such Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection (d) of this Section. If the consent of the Borrower to an assignment is required hereunder (including a consent to an assignment which does not meet the minimum assignment thresholds specified above), the Borrower shall be deemed to have given its consent unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after notice thereof has actually been delivered by the assigning Lender (through the Administrative Agent) to the Borrower.
(c)The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices in Atlanta, Georgia a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amount of the Loans and Revolving Credit Exposure owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). Information contained in the Register with respect to any Lender shall be available for inspection by such Lender at any reasonable time and from time to time upon reasonable prior notice; information contained in the Register shall also be available for inspection by the Borrower at any reasonable time and from time to time upon reasonable prior notice. In establishing and maintaining the Register, the Administrative Agent shall serve as the Borrower’s agent solely for tax purposes and solely with respect to the actions described in this Section, and the Borrower hereby agrees that, to the extent SunTrust Bank serves in such capacity, SunTrust Bank and its officers, directors, employees, agents, sub-agents and affiliates shall constitute “Indemnitees”.
(d)Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person, the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the
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Administrative Agent, and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver with respect to the following to the extent affecting such Participant: (i) increase the Commitment of such Lender; (ii) reduce the principal amount of any Loan or reduce the rate of interest thereon, or reduce any fees payable hereunder; (iii) postpone the date fixed for any payment of any principal of, or interest on, any Loan or any fees hereunder or reduce the amount of, waive or excuse any such payment, or postpone the scheduled date for the termination or reduction of any Commitment; (iv) change Section 2.21(b) or (c) in a manner that would alter the pro rata sharing of payments required thereby; (v) change any of the provisions of Section 10.2(b) or the definition of “Required Lenders” or “Required Revolving Lenders” or any other provision hereof specifying the number or percentage of Lenders which are required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder; (vi) release all or substantially all of the guarantors, or limit the liability of such guarantors, under any guaranty agreement guaranteeing any of the Obligations; or (vii) release all or substantially all collateral (if any) securing any of the Obligations. Subject to subsection (e) of this Section, the Borrower agrees that each Participant shall be entitled to the benefits of Sections 2.18, 2.19, and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection (b) of this Section; provided that such Participant agrees to be subject to Section 2.24 as though it were a Lender. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.7 as though it were a Lender; provided that such Participant agrees to be subject to Section 2.21 as though it were a Lender.
Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register in the United States on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”). The entries in the Participant Register shall be conclusive, absent manifest error, and such Lender shall treat each person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. The Borrower and the Administrative Agent shall have inspection rights to such Participant Register (upon reasonable prior notice to the applicable Lender) solely for purposes of demonstrating that such Loans or other obligations under the Loan Documents are in “registered form” for purposes of the Code. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e)A Participant shall not be entitled to receive any greater payment under Sections 2.18 and 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant shall not be entitled to the benefits of Section 2.20 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 2.20(e) and (f) as though it were a Lender.
(f)Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of such Lender, including, without limitation, any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
Section 10.5.Governing Law; Jurisdiction; Consent to Service of Process.
(a)This Agreement and the other Loan Documents and any claims, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be construed in accordance with and be governed by the law (without giving effect to the conflict of law principles thereof) of the State of New York.
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(b)The Borrower hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the state and federal courts in Atlanta, Georgia and New York, New York, and of any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document or the transactions contemplated hereby or thereby, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such courts or, to the extent permitted by applicable law, such appellate court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or any other Loan Document shall affect any right that the Administrative Agent or any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.
(c)The Borrower irrevocably and unconditionally waives any objection which it may now or hereafter have to the laying of venue of any such suit, action or proceeding described in subsection (b) of this Section and brought in any court referred to in subsection (b) of this Section. Each of the parties hereto irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d)Each party to this Agreement irrevocably consents to the service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement or in any other Loan Document will affect the right of any party hereto to serve process in any other manner permitted by law.
Section 10.6.WAIVER OF JURY TRIAL. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 10.7.Right of Set-off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, each Lender shall have the right, at any time or from time to time upon the occurrence and during the continuance of an Event of Default, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent permitted by applicable law, to set off and apply against all deposits (general or special, time or demand, provisional or final) of the Borrower at any time held or other obligations at any time owing by such Lender to or for the credit or the account of the Borrower against any and all Obligations held by such Lender, irrespective of whether such Lender shall have made demand hereunder and although such Obligations may be unmatured; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.26(b) and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. Each Lender agrees promptly to notify the Administrative Agent and the Borrower after any such set-off and any application made by such Lender; provided that the failure to give such notice shall not affect the validity of such set-off and application. Each Lender agrees to apply all amounts collected from any such set-off to the Obligations before applying such amounts to any other Indebtedness or other obligations owed by the Borrower and any of its Subsidiaries to such Lender.
Section 10.8.Counterparts; Integration. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. This Agreement, the Fee Letter, the other Loan Documents,
67
and any separate letter agreements relating to any fees payable to the Administrative Agent and its Affiliates constitute the entire agreement among the parties hereto and thereto and their affiliates regarding the subject matters hereof and thereof and supersede all prior agreements and understandings, oral or written, regarding such subject matters. Delivery of an executed counterpart to this Agreement or any other Loan Document by facsimile transmission or by electronic mail in pdf format shall be as effective as delivery of a manually executed counterpart hereof.
Section 10.9.Survival. All covenants, agreements, representations and warranties made by the Borrower herein and in the certificates, reports, notices or other instruments delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the other parties hereto and, except as expressly provided in this Agreement, shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of any Loans, regardless of any investigation made by any such other party or on its behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan and so long as the Commitments have not expired or terminated. The provisions of Sections 2.18, 2.19, 2.20, and 10.3 and Article IX shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Commitments, or the termination of this Agreement or any provision hereof.
Section 10.10.Severability. Any provision of this Agreement or any other Loan Document held to be illegal, invalid or unenforceable in any jurisdiction, shall, as to such jurisdiction, be ineffective to the extent of such illegality, invalidity or unenforceability without affecting the legality, validity or enforceability of the remaining provisions hereof or thereof; and the illegality, invalidity or unenforceability of a particular provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 10.11.Confidentiality. Each of the Administrative Agent and the Lenders agrees to, in good faith, to maintain the confidentiality of any information relating to the Borrower or any of its Subsidiaries or any of their respective businesses, to the extent designated in writing as confidential and provided to it by the Borrower or any of its Subsidiaries, other than any such information that is available to the Administrative Agent or any Lender on a non-confidential basis prior to disclosure by the Borrower or any of its Subsidiaries, except that such information may be disclosed (i) to any Related Party of the Administrative Agent or any such Lender including, without limitation, accountants, legal counsel and other advisors, (ii) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (iii) to the extent requested by any regulatory agency or authority purporting to have jurisdiction over it (including any self-regulatory authority such as the National Association of Insurance Commissioners), (iv) to the extent that such information becomes publicly available other than as a result of a breach of this Section, or which becomes available to the Administrative Agent, any Lender or any Related Party of any of the foregoing on a non-confidential basis from a source other than the Borrower or any of its Subsidiaries, (v) in connection with the exercise of any remedy hereunder or under any other Loan Documents or any suit, action or proceeding relating to this Agreement or any other Loan Documents or the enforcement of rights hereunder or thereunder, (vi) subject to execution by such Person of an agreement containing provisions substantially the same as those of this Section, to (A) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this Agreement, or (B) any actual or prospective party (or its Related Parties) to any swap or derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (vii) to any rating agency, (viii) to the CUSIP Service Bureau or any similar organization, or (ix) with the consent of the Borrower. Any Person required to maintain the confidentiality of any information as provided for in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such information as such Person would accord its own confidential information. In the event of any conflict between the terms of this Section and those of any other Contractual Obligation entered into with any Credit Party (whether or not a Loan Document), the terms of this Section shall govern.
Section 10.12.Interest Rate Limitation. Notwithstanding anything herein to the contrary, if at any time the interest rate applicable to any Loan, together with all fees, charges and other amounts which may be treated as interest on such Loan under applicable law (collectively, the “Charges”), shall exceed the maximum lawful rate of interest (the “Maximum Rate”) which may be contracted for, charged, taken, received or reserved by a Lender holding such Loan in accordance with applicable law, the rate of interest payable in respect of such Loan hereunder, together with all Charges payable in respect thereof, shall be limited to the Maximum Rate and, to the extent lawful, the interest
68
and Charges that would have been payable in respect of such Loan but were not payable as a result of the operation of this Section shall be cumulated and the interest and Charges payable to such Lender in respect of other Loans or periods shall be increased (but not above the Maximum Rate therefor) until such cumulated amount, together with interest thereon at the Federal Funds Rate to the date of repayment (to the extent permitted by applicable law), shall have been received by such Lender.
Section 10.13.Waiver of Effect of Corporate Seal. The Borrower represents and warrants that neither it nor any other Credit Party is required to affix its corporate seal to this Agreement or any other Loan Document pursuant to any Legal Requirements, agrees that this Agreement is delivered by the Borrower under seal and waives any shortening of the statute of limitations that may result from not affixing the corporate seal to this Agreement or such other Loan Documents.
Section 10.14.Patriot Act. The Administrative Agent and each Lender hereby notifies the Credit Parties that, (a) pursuant to the requirements of the Patriot Act, it is required to obtain, verify and record information that identifies each Credit Party, which information includes the name and address of such Credit Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify such Credit Party in accordance with the Patriot Act, and (b) pursuant to the Beneficial Ownership Regulation, it is required to obtain a Beneficial Ownership Certificate.
Section 10.15.No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), the Borrower and each other Credit Party acknowledges and agrees and acknowledges its Affiliates’ understanding that (i) (A) the services regarding this Agreement provided by the Administrative Agent and/or the Lenders are arm’s-length commercial transactions between the Borrower, each other Credit Party and their respective Affiliates, on the one hand, and the Administrative Agent and the Lenders, on the other hand, (B) each of the Borrower and the other Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate, and (C) the Borrower and each other Credit Party is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) each of the Administrative Agent and the Lenders is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, any other Credit Party or any of their respective Affiliates, or any other Person, and (B) neither the Administrative Agent nor any Lender has any obligation to the Borrower, any other Credit Party or any of their Affiliates with respect to the transaction contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent, the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the other Credit Parties and their respective Affiliates, and each of the Administrative Agent and the Lenders has no obligation to disclose any of such interests to the Borrower, any other Credit Party or any of their respective Affiliates. To the fullest extent permitted by law, each of the Borrower and the other Credit Parties hereby waives and releases any claims that it may have against the Administrative Agent or any Lender with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
Section 10.16.Location of Closing. All parties agree that the closing of the transactions contemplated by this Agreement has occurred in New York.
Section 10.17.Acknowledgement and Consent to Bail-In of EEA Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any EEA Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the write-down and conversion powers of an EEA Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a)the application of any Write-Down and Conversion Powers by an EEA Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an EEA Financial Institution; and
69
(b)the effects of any Bail-in Action on any such liability, including, if applicable (i) a reduction in full or in part or cancellation of any such liability, (ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such EEA Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of any EEA Resolution Authority.
Section 10.18.Certain ERISA Matters.
(a)Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arranger, and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that at least one of the following is and will be true:
(i)such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Benefit Plans in connection with the Loans or the Commitments,
(ii)the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement,
(iii)(A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Loans, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement, or
(iv)such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b)In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Arranger, and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower or any other Credit Party, that:
(i)none of the Administrative Agent, the Arranger, or any of their respective Affiliates is a fiduciary with respect to the assets of such Lender (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related to hereto or thereto),
70
(ii)the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement is independent (within the meaning of 29 CFR § 2510.3-21) and is a bank, an insurance carrier, an investment adviser, a broker-dealer or other person that holds, or has under management or control, total assets of at least $50 million, in each case as described in 29 CFR § 2510.3-21(c)(1)(i)(A)-(E),
(iii)the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement is capable of evaluating investment risks independently, both in general and with regard to particular transactions and investment strategies (including in respect of the Obligations),
(iv)the Person making the investment decision on behalf of such Lender with respect to the entrance into, participation in, administration of and performance of the Loans, the Commitments, and this Agreement is a fiduciary under ERISA or the Code, or both, with respect to the Loans, the Commitments, and this Agreement and is responsible for exercising independent judgment in evaluating the transactions hereunder, and
(v)no fee or other compensation is being paid directly to the Administrative Agent, the Arranger or any their respective Affiliates for investment advice (as opposed to other services) in connection with the Loans, the Commitments, or this Agreement.
(c)The Administrative Agent and the Arranger hereby inform the Lenders that each such Person is not undertaking to provide impartial investment advice, or to give advice in a fiduciary capacity, in connection with the transactions contemplated hereby, and that such Person has a financial interest in the transactions contemplated hereby in that such Person or an Affiliate thereof (i) may receive interest or other payments with respect to the Loans, the Commitments, and this Agreement, (ii) may recognize a gain if it extended the Loans or the Commitments for an amount less than the amount being paid for an interest in the Loans or the Commitments by such Lender or (iii) may receive fees or other payments in connection with the transactions contemplated hereby, the Loan Documents or otherwise, including structuring fees, commitment fees, arrangement fees, facility fees, upfront fees, underwriting fees, ticking fees, agency fees, administrative agent or collateral agent fees, utilization fees, minimum usage fees, letter of credit fees, fronting fees, deal-away or alternate transaction fees, amendment fees, processing fees, term out premiums, banker’s acceptance fees, breakage or other early termination fees or fees similar to the foregoing.
[Remainder of page intentionally blank; signature pages follow.]
71
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written.
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
|
By: |
NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC, a Delaware limited liability company, its General Partner |
|
By: |
NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation, its Sole Member |
|
By: |
_/s/ Matt McGraner____________ |
|
Name: |
Matt McGraner________________ |
|
Title: |
Authorized Signatory___________ |
[Signatures Continue on the Following Page]
SUNTRUST BANK, as Administrative Agent,
By: _/s/ Ryan Almond________________________
Name:Ryan Almond___________________________
Title:Director________________________________
LENDERS:
SUNTRUST BANK
By: _/s/ Ryan Almond ________________________
Name:Ryan Almond____________________________
Title:Director ________________________________
[Signatures Continue on the Following Page]
RAYMOND JAMES BANK, N.A.
By: _/s/ Ted A. Long_________________________
Name:Ted A. Long____________________________
Title: Senior Vice President_____________________
[Signatures Continue on the Following Page]
The Parent, as Guarantor, hereby joins in the execution of this Agreement to evidence its agreement to the provisions of Sections 5.1, 5.2, 5.15, 7.5 and 7.7 of this Agreement.
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation
By: _/s/ Matt McGraner________________________
Name: Matt McGraner_________________________
Title: Authorized Signatory_____________________
Applicable Margin
Level |
Total Leverage
|
Applicable Margin for Eurodollar Loans |
Applicable Margin for
|
I |
<55% |
2.00% |
1.00% |
II |
>55% and <60% |
2.25% |
1.25% |
III |
>60% |
2.50% |
1.50% |
SCHEDULE II
Commitment Amounts
Lender |
Revolving
|
SunTrust Bank |
$55,000,000.00 |
Raymond James Bank, N.A. |
$20,000,000.00 |
|
|
|
|
|
|
Mortgage Lender
|
|
FRBH Arbors, LLC |
Freddie Mac |
FRBH CP, LLC |
Freddie Mac |
FRBH Eaglecrest, LLC |
Freddie Mac |
FRBH Silverbrook, LLC |
Freddie Mac |
FRBH Edgewater Owner, LLC |
Freddie Mac |
FRBH Beechwood, LLC |
Freddie Mac |
FRBH Abbington, LLC |
Freddie Mac |
FRBH Willow Grove, LLC |
Freddie Mac |
FRBH Woodbridge, LLC |
Freddie Mac |
FRBH Duck Creek, LLC |
Freddie Mac |
FRBH Sabal Park, LLC |
Freddie Mac |
FRBH Courtney Cove, LLC |
Freddie Mac |
HRTBH Timber Creek, LLC |
Freddie Mac |
NXRTBH Radbourne Lake, LLC |
Freddie Mac |
NXRTBH Sabal Palms, LLC |
Freddie Mac |
NXRTBH Steeplechase, LLC |
Freddie Mac |
NXRTBH Cornerstone Owner, LLC |
Freddie Mac |
NXRTBH Barrington Mill Owner, LLC |
Freddie Mac |
NXRTBH Dana Point, LLC |
Freddie Mac |
NXRTBH Heatherstone, LLC |
Freddie Mac |
NXRTBH Versailles, LLC |
Freddie Mac |
NXRTBH Bayberry, LLC |
Freddie Mac |
NXRTBH Madera, LLC |
Freddie Mac |
NXRTBH Foothill, LLC |
Freddie Mac |
NXRTBH Vanderbilt, LLC |
Freddie Mac |
NXRTBH CityView, LLC |
Fannie Mae |
NXRTBH Colonnade, LLC |
Freddie Mac |
NXRTBH Hollister, LLC |
Freddie Mac |
NXRTBH Old Farm, LLC |
Freddie Mac |
NXRTBH Old Farm II, LLC |
Freddie Mac |
NXRTBH Stone Creek, LLC |
Freddie Mac |
NXRTBH Rockledge, LLC |
Freddie Mac |
NXRTBH Atera I, LLC |
Freddie Mac |
NXRTBH Atera II, LLC |
Freddie Mac |
NXRT Cedar Pointe, LLC |
Freddie Mac |
Pear Ridge Partners, LLC |
Freddie Mac |
SOF Brandywine I Owner, L.P. |
Freddie Mac |
SOF Brandywine II Owner, L.P. |
Freddie Mac |
Litigation Disclosures
None.
Subsidiaries; Ownership of Mortgaged Properties
[see following page]
Issuer |
% Owned* |
% Pledged |
|
FRBH Arbors, LLC
|
100% |
50% |
|
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
FRBH Edgewater JV, LLC |
FRBH Edgewater Owner, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Abbington, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
Freedom Duck Creek, LLC |
FRBH Duck Creek, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Dana Point, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Heatherstone, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
NXRTBH AZ2, LLC
|
NXRTBH Foothill, LLC
|
100% |
50% |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH CityView, LLC
|
100% |
50% |
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
Issuer |
% Owned* |
% Pledged |
|
NXRTBH Old Farm II, LLC
|
100% |
50% |
|
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Atera I, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Atera II, LLC
|
100% |
50% |
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
In certain instances, the Borrower owns a de minimis direct or indirect interest in the Issuers or Pledgors listed above through a taxable REIT subsidiary (“TRS”) in order to maintain a pre-existing tax partnership for IRS purposes, which is not reflected on the above-listed schedule. In each case, the interest owned through the TRS is 1% or less.
VIA E-MAIL
November 19, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Borrower has previously requested and obtained the Subject Increases in the Revolving Commitments, as referenced in the June 2019 Letter Agreement and the September 2019 Letter Agreement. As a result of the application and effectiveness of the November 2019 Modification, the Borrower is, as of the date hereof, entitled to request up to $75,000,000.00 in additional Incremental Commitments pursuant to Section 2.23 of the Credit Agreement.
Borrower has notified the Agent and Lenders of its intention to request the November 2019 Modification pursuant to the terms of Section 2.23 of the Credit Agreement. This Letter Agreement constitutes Borrower’s written request for the November 2019 Increase and Borrower’s requested date for the effectiveness of the November 2019 Incremental Commitments is November 19, 2019 (the “Requested Increase Date”). The Agent hereby acknowledges receipt of the request for the November 2019 Increase.
Each of SunTrust Bank and KeyBank National Association, both current Lenders under the Credit Agreement, have, in connection with Borrower’s request for the November 2019 Incremental Commitments and subject to the terms and conditions set forth in this Letter Agreement and Section 2.23(b) of the Credit Agreement, agreed to provide Incremental Commitments thereunder in amounts equal to $37,500,000.00 each (collectively, the full amount of the requested November 2019 Incremental Commitments).
As a result of the Incremental Commitments set forth above, Schedule II attached to the Credit Agreement shall be automatically modified to read as provided on Exhibit A attached hereto.
The effectiveness of the November 2019 Incremental Commitments as of the Requested Increase Date is subject to the following conditions precedent:
|
(b) |
evidence of appropriate corporate authorization on the part of the Borrower with respect to such November 2019 Incremental Commitments in form and substance acceptable to the Agent; |
|
(c) |
a certificate of the Borrower signed by a Responsible Officer, in form and substance reasonably acceptable to the Agent (i) certifying that each of the conditions in Section 2.23(a) has been satisfied (except as expressly waived in this Letter Agreement), (ii) providing calculations showing pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all November 2019 Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance, (iii) certifying as to no existing Defaults or Events of Default under the Credit Agreement; and |
|
(d) |
payment by Borrower to Agent, SunTrust Bank, and KeyBank National Association of the arranger and/or commitment fees separately agreed to between Borrower and such parties. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
(a) except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect;
(b) nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents;
(c)this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents;
(d)the clarification that, to the extent the Borrower obtains, directly or indirectly, an ownership interest in one or more of the parcels of real property described on Exhibit B attached hereto, that such real property shall constitute “Mortgaged Properties” under the Credit Agreement (the “New Mortgaged Properties”), any Subsidiaries of the Borrower owning such New Mortgaged Properties shall constitute Collateral Subsidiaries under the Credit Agreement (the “New Collateral Subsidiaries”), and that, promptly following the obtaining of any such ownership interest (and, in any case, within three (3) Business Days following same), the Borrower and such New Collateral Subsidiaries shall enter into such documents and agreements as may be required by the Administrative Agent to document the addition of the New Mortgaged Properties as Mortgaged Properties under the Credit Agreement and, as necessary, joining the New Collateral Subsidiaries as pledgors under the relevant Collateral Documents; and
(e)except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any further Incremental Commitment or any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith.
In consideration of the modifications set forth in this Letter Agreement, Borrower and Guarantors, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever,
including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, SunTrust Bank, and KeyBank National Association with respect to the November 2019 Incremental Commitments and the Borrower, Guarantor, SunTrust Bank, and KeyBank National Association are willing to acknowledge, consent and agree to the terms set forth herein with respect to the November 2019 Incremental Commitments and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP, keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The November 2019 Incremental Commitments of SunTrust Bank and KeyBank National Association shall each be deemed effective as of the Requested Increase Date to the extent the all of the conditions precedent noted above are satisfied on or prior thereto. To the extent such conditions precedent are not satisfied as of such date, this Letter Agreement shall be of no further force or effect except to the extent extended or otherwise agreed to by the Agent, SunTrust Bank, KeyBank National Association, Borrower, and each Guarantor.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent
By: /s/ Ryan Almond
Name: Ryan Almond
Title:Director
The undersigned hereby accept, and acknowledge the terms and conditions set forth above in this Letter Agreement with respect to the November 2019 Incremental Commitments:
SUNTRUST BANK, as a Lender
By: /s/ Ryan Almond
Name:Ryan Almond
Title:Director
KEYBANK NATIONAL ASSOCIATION, as a Lender
By: /s/ Christopher T. Neil
Name:Christopher T. Neil
Title:Senior Banker
The undersigned hereby request, accept, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the November 2019 Incremental Commitments:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner____________
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
GUARANTORS:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner____________
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
REVISED SCHEDULE II OF CREDIT AGREEMENT
Commitment Amounts
SunTrust Bank |
$ 102,500,000 |
45.5555555556% |
Key Bank |
$ 62,500,000 |
27.7777777778% |
Raymond James |
$ 30,000,000 |
13.3333333333% |
Chemical Bank |
$ 15,000,000 |
6.6666666667% |
Synovus Bank |
$ 15,000,000 |
6.6666666667% |
Total |
$ 225,000,000 |
100.0000000000% |
NEW MORTGAGED PROPERTIES
New Mortgage Borrower / Collateral Subsidiary |
New Mortgaged Property |
New Mortgage Lender
|
NXRT Bloom, LLC |
7075 W. GOWAN ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Torreyana, LLC |
5155 S. TORREY PINES DRIVE, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Bella Solara, LLC |
7101 SMOKE RANCH ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
November 20, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Re: |
Letter Agreement (the “Letter Agreement”) concerning that certain Revolving Credit Agreement dated as of January 28, 2019 (the “Original Credit Agreement”) among NexPoint Residential Trust Operating Partnership, L.P. (the “Borrower”), the financial institutions party thereto, as lenders (the “Lenders”), and SunTrust Bank, as Administrative Agent (the “Agent”), as the same has been previously modified or supplemented by that certain letter agreement dated as of June 28, 2019 (the “June 2019 Letter Agreement”), that certain August 2019 Modification of Loan Documents dated as of August 28, 2019 (the “August 2019 Modification”), that certain letter agreement dated as of September 4, 2019 (the “September 2019 Letter Agreement”), that certain November 2019 Modification of Loan Documents dated as of November 18, 2019 (the “November 2019 Modification”), and that certain letter agreement dated as of November 19, 2019 concerning the effectiveness of certain Incremental Commitments (the “November 2019 Incremental Commitments Letter Agreement”; collectively, with the November 2019 Modification, the September 2019 Letter Agreement, the August 2019 Modification, the June 2019 Letter Agreement, and the Original Credit Agreement, as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), and the addition of certain Mortgaged Properties and Collateral Subsidiaries under the Credit Agreement and Loan Documents. |
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Effective as of November 20, 2019, Borrower has acquired an ownership interest in the real properties described on Exhibit A attached hereto (the “New Mortgaged Properties”). The New Mortgaged Properties are owned by the respective Subsidiaries of the Borrower described on such Exhibit A (the “New Collateral Subsidiaries”) and are subject to the terms of those certain loan agreements or other financing arrangements also described on such Exhibit A (collectively, the “New Senior Credit Agreements”).
The Borrower and each of the New Collateral Subsidiaries hereby acknowledge and agree that: (a) the New Mortgaged Properties constitute Mortgaged Properties, as such term is used in the Credit Agreement; (b) each of the New Collateral Subsidiaries constitute Collateral Subsidiaries, as such term is used in the Credit Agreement; and (c) that the New Senior Credit Agreements constitute Senior Credit Agreements under the Credit Agreement and the loans and indebtedness evidenced thereby constitute Senior Loans under the Credit Agreement. In furtherance of the foregoing, the undersigned parties hereby agree as follows (collectively, the “Subject Modifications, Agreements, and Joinders”):
|
(a) |
Schedule III attached to the Credit Agreement is hereby deleted in its entirety and replaced with the document attached hereto as Exhibit B; |
|
(b) |
Schedule V attached to the Credit Agreement is hereby deleted in its entirety and replaced with the document attached hereto as Exhibit C; |
|
(d) |
each of the New Pledgors, by its execution hereof, hereby: (i) is joined as a party to the Pledge Agreement with the same force and effect as if originally named therein as a “Pledgor” thereunder; (ii) confirms its acceptance of, and consents to, all representations and warranties, covenants, and other terms and provisions of the Pledge Agreement; and (iii) represents and warrants that each of the representations and warranties contained in the Pledge Agreement is true and correct on and as the date hereof as if made on and as of such date, except to the extent any such representation or warranty (including any such representation or warranty contained in the Credit Agreement) was expressly made as of an earlier date, in which case such representation or warranty was true and correct as of such earlier date; and (iv) agrees that until receipt of written notice from the Agent that the Pledge Agreement has been terminated, it shall (and shall, as applicable, cause each party that is a new Issuer under the Pledge Agreement (each, a “New Issuer” to): (A) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, pay to the Agent all amounts then due and thereafter as they become due to the applicable Pledgor with respect to the “Collateral” under the Pledge Agreement; (B) upon the receipt of notice from the Agent that the Agent (or any successor or assign of the Agent) has become a member or limited partner (as the case may be) as the result of the exercise by the Agent of the Agent’s rights and remedies under the Pledge Agreement, admit and recognize the Agent (or any such successor and assign of the Agent) as a member or limited partner (as provided for the organizational documents of each Issuer), with the full right to exercise all of the rights of a member, general partner or a limited partner as the case may be; and (C) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, to the extent provided in the Pledge Agreement, comply with the instructions of the Agent in connection with the exercise of the Agent’s rights and remedies as set forth in the Pledge Agreement, without any further consent from any Borrower or any other Person; |
|
(e) |
each New Issuer, by its execution hereof, hereby (i) agrees that such Issuer has no knowledge of any Lien or other security interest in the Pledged Interest (other than the Agent’s) that has not been terminated on or prior to the date hereof and the registered pledgee of the Pledged Interests on the books of such Issuer is SunTrust Bank, as Agent, and there is no other pledge currently registered on the books and records of such Issuer with respect to the Pledged Interests under Pledge Agreement; and (ii) agrees that until receipt of written notice from the Agent that the Pledge Agreement has been terminated, it shall: (A) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, pay to the Agent all amounts then due and thereafter as they become due to the applicable Pledgor with respect to the “Collateral” under the Pledge Agreement; (B) upon the receipt of notice from the Agent that the Agent (or any successor or assign of the Agent) has become a member or limited partner (as the case may be) as the result of the exercise by the Agent of the Agent’s rights and remedies under the Pledge Agreement, admit and recognize the Agent (or any such successor and assign of the Agent) as a member or limited partner (as provided for the organizational documents of each Issuer), with the full right to exercise all of the rights of a member, general partner or a limited partner as the case may be; and (C) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, to the extent provided in the Pledge Agreement, comply with the instructions of the Agent in connection with the exercise of the Agent’s rights and remedies as set forth in the Pledge Agreement, without any further consent from any Borrower or any other Person; and |
|
(f) |
Schedules I and II to the Pledge Agreement are hereby deleted in their entirety and replaced with the documents attached hereto as Exhibits D and E, respectively. |
The effectiveness of this Letter Agreement and the Subject Modifications, Agreements, and Joinders set forth herein is subject to the following conditions precedent:
|
(b) |
evidence of appropriate corporate authorization on the part of the Borrower, Guarantor, and New Pledgors with respect to this Letter Agreement and the Subject Modifications, Agreements, and Joinders in form and substance acceptable to the Agent; and |
|
(c) |
payment by Borrower to Agent of the costs and expenses of Agent incurred in connection with the negotiation, preparation, and final documentation of this Letter Agreement and matters related to the Subject Modifications, Agreements, and Joinders. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
|
(a) |
except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect; |
|
(b) |
nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents; |
|
(c) |
this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents; and |
|
(d) |
except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith. |
In consideration of the Subject Modifications, Agreements, and Joinders documented and provided herein, Borrower and Guarantor, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, Agent, and New Pledgors with respect to the Subject Modifications, Agreements, and Joinders and such parties are willing to acknowledge, consent and agree to the terms set forth herein with respect to the Subject Modifications, Agreements, and Joinders and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP,
keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The Subject Modifications, Agreements, and Joinders shall be deemed effective as of the date of this Letter Agreement upon the satisfaction of all conditions precedent referenced herein.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent
By: /s/ Ryan Almond
Name:Ryan Almond
Title:Director
The undersigned hereby request, accept, agree to, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the Subject Modifications, Agreements, and Joinders:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
GUARANTOR:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
NXRT PEMBROKE OWNER, LLC,
a Delaware limited liability company
By:NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, its Sole Member
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
NXRT BRENTWOOD OWNER, LLC,
a Delaware limited liability company
By:NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, its Sole Member
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
NXRT PEMBROKE, LLC,
a Delaware limited liability company
By:NXRT PEMBROKE OWNER, LLC,
a Delaware limited liability company
By:NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, its Sole Member
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
NXRT BRENTWOOD, LLC,
a Delaware limited liability company
NXRT BRENTWOOD OWNER, LLC,
a Delaware limited liability company
By:NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership, its Sole Member
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Executive Vice President and Chief Investment Officer
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
EXHIBIT A
NEW MORTGAGED PROPERTIES, COLLATERAL SUBSIDIARIES,
AND SENIOR CREDIT AGREEMENTS
New Mortgage Borrower / Collateral Subsidiary |
New Mortgaged Property |
New Mortgage Lender
|
NXRT Bloom, LLC |
7075 W. GOWAN ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Torreyana, LLC |
5155 S. TORREY PINES DRIVE, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Bella Solara, LLC |
7101 SMOKE RANCH ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
SCHEDULE III TO CREDIT AGREEMENT
Mortgaged Properties
Mortgage Borrower |
Mortgage Lender
|
FRBH Arbors, LLC |
Freddie Mac |
FRBH CP, LLC |
Freddie Mac |
FRBH Eaglecrest, LLC |
Freddie Mac |
FRBH Silverbrook, LLC |
Freddie Mac |
FRBH Beechwood, LLC |
Freddie Mac |
FRBH Willow Grove, LLC |
Freddie Mac |
FRBH Woodbridge, LLC |
Freddie Mac |
FRBH Sabal Park, LLC |
Freddie Mac |
FRBH Courtney Cove, LLC |
Freddie Mac |
HRTBH Timber Creek, LLC |
Freddie Mac |
NXRTBH Radbourne Lake, LLC |
Freddie Mac |
NXRTBH Sabal Palms, LLC |
Freddie Mac |
NXRTBH Steeplechase, LLC |
Freddie Mac |
NXRTBH Cornerstone Owner, LLC |
Freddie Mac |
NXRTBH Barrington Mill Owner, LLC |
Freddie Mac |
NXRTBH Versailles, LLC |
Freddie Mac |
NXRTBH Bayberry, LLC |
Freddie Mac |
NXRTBH Madera, LLC |
Freddie Mac |
NXRTBH Vanderbilt, LLC |
Freddie Mac |
NXRTBH CityView, LLC |
Fannie Mae |
NXRTBH Colonnade, LLC |
Freddie Mac |
NXRTBH Hollister, LLC |
Freddie Mac |
NXRTBH Old Farm, LLC |
Freddie Mac |
NXRTBH Stone Creek, LLC |
Freddie Mac |
NXRTBH Rockledge, LLC |
Freddie Mac |
NXRTBH Atera I, LLC |
Freddie Mac |
NXRTBH Atera II, LLC |
Freddie Mac |
NXRT Cedar Pointe, LLC |
Freddie Mac |
Pear Ridge Partners, LLC |
Freddie Mac |
SOF Brandywine I Owner, L.P. |
Freddie Mac |
SOF Brandywine II Owner, L.P. |
Freddie Mac |
NXRT Pembroke, LLC |
Freddie Mac |
NXRT Brentwood, LLC |
Freddie Mac |
NXRT Bloom, LLC |
Freddie Mac |
NXRT Bella Solara, LLC |
Freddie Mac |
NXRT Torreyana, LLC |
Freddie Mac |
SCHEDULE V TO CREDIT AGREEMENT
Pledgor |
Issuer |
% Owned* |
% Pledged |
FRBH C1 Residential, LLC |
FRBH Arbors, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH CityView, LLC
|
100% |
50% |
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
Pledgor |
Issuer |
% Owned* |
% Pledged |
NXRTBH Atera I, LLC
|
100% |
50% |
|
HRTBH North Atlanta, LLC |
NXRTBH Atera II, LLC
|
100% |
50% |
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
NXRT Pembroke Owner, LLC |
NXRT Pembroke, LLC |
100% |
49.9% |
NXRT Brentwood Owner, LLC |
NXRT Brentwood, LLC |
100% |
49.9% |
RTT Bloom, LLC |
NXRT Bloom, LLC |
100% |
49.9% |
RTT Bella Solara, LLC |
NXRT Bella Solara, LLC |
100% |
49.9% |
RTT Torreyana, LLC |
NXRT Torreyana, LLC |
100% |
49.9% |
In certain instances, the Borrower owns a de minimis direct or indirect interest in the Issuers or Pledgors listed above through a taxable REIT subsidiary (“TRS”) in order to maintain a pre-existing tax partnership for IRS purposes, which is not reflected on the above-listed schedule. In each case, the interest owned through the TRS is 1% or less.
SCHEDULE I TO PLEDGE AGREEMENT
Pledgor |
Issuer |
Number/
|
Number/
|
Certificate
|
FRBH C1 Residential, LLC |
FRBH Arbors, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
N/A |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
N/A |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
N/A |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
N/A |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
N/A |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
N/A |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
N/A |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
N/A |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
N/A |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
N/A |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
N/A |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
N/A |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
N/A |
NXRTBH CityView, LLC
|
100% |
50% |
N/A |
|
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
N/A |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
N/A |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Atera I, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Atera II, LLC
|
100% |
50% |
N/A |
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
N/A |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
N/A |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
N/A |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
N/A |
NXRT Pembroke Owner, LLC |
NXRT Pembroke, LLC |
100% |
49.9% |
N/A |
NXRT Brentwood Owner, LLC |
NXRT Brentwood, LLC |
100% |
49.9% |
N/A |
RTT Bloom, LLC |
NXRT Bloom, LLC
|
100% |
49.9% |
N/A |
RTT Bella Solara, LLC |
NXRT Bella Solara, LLC |
100% |
49.9% |
N/A |
RTT Torreyana, LLC |
NXRT Torreyana, LLC |
100% |
49.9% |
N/A |
SCHEDULE II TO PLEDGE AGREEMENT
1. |
UCC-1 filings to be filed in the name of each Pledgor with the Secretary of State of the State of Delaware describing the Collateral as set forth herein. |
2. |
Delivery to the Agent of the Certificates issued to the Pledgors as set forth in Schedule I hereto and representing 100% of the Equity Interests in each such Issuer pledged hereunder, together with an undated instrument of transfer or assignment covering such certificate duly executed in blank by the applicable Pledgor. |
NOVEMBER 2019 MODIFICATION OF LOAN DOCUMENTS
THIS NOVEMBER 2019 MODIFICATION OF LOAN DOCUMENTS (this “Agreement” or “Modification”) is made effective as of November 18, 2019 (the “Effective Date”), by and among NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership (the "Borrower"), NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation (the "Guarantor"), each of the undersigned in their capacities as “Pledgors” under any one or more of the Pledge Agreement, the Economic Interest Pledge Agreement, and the Equity Proceeds Pledge Agreement (each, as defined in the Credit Agreement referenced below), SUNTRUST BANK, a Georgia banking corporation, as administrative agent (in such capacity, and together with any successor Administrative Agent under the Credit Agreement (as hereinafter defined), the “Administrative Agent”), and the Lenders party to the Credit Agreement as of the date hereof.
RECITALS:
A.Reference is hereby made to that certain Revolving Credit Agreement dated as of January 28, 2019 by and among Borrower, Administrative Agent, and the Lenders party thereto (the “Original Credit Agreement”), as supplemented by that certain letter agreement dated as of June 28, 2019 concerning the exercise of the accordion feature set forth in Section 2.23 of the Original Credit Agreement (the “July 2019 Letter Agreement”), as modified by that certain August 2019 Modification of Loan Documents dated as of August 28, 2019 (the “August 2019 Modification”), and as supplemented by that certain letter agreement dated as of September 4, 2019 concerning the Borrower’s request to further exercise the accordion feature set forth in Section 2.23 of the Original Credit Agreement (the “September 2019 Letter Agreement”; collectively, with the Original Credit Agreement, the July 2019 Letter Agreement, and the August 2019 Modification, as the same may have been otherwise amended, restated, supplemented or otherwise modified prior to the date hereof and as modified hereby, the “Credit Agreement”) pursuant to which the Lenders have previously extended financing to the Borrower in the form of the Revolving Loans referenced therein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
B.Guarantor has previously guaranteed the obligations of Borrower under and in connection with the Credit Agreement pursuant to the terms of that certain Guaranty Agreement dated as of January 28, 2019, as modified by the August 2019 Modification (collectively, as the same may have been otherwise amended, restated, supplemented or otherwise modified prior to the date hereof and as modified hereby, the “Guaranty”).
C.The Borrower’s obligations under the Credit Agreement have been further secured by the Pledge Agreement, the Economic Interest Pledge Agreement, and the Equity Proceeds Pledge Agreement, each as referenced in the Credit Agreement, and executed and delivered by the respective Pledgors.
D.The July 2019 Letter Agreement provided for the increase, pursuant to Section 2.23 of the Credit Agreement, of the aggregate Revolving Commitments under the Credit Agreement to an aggregate amount of $125,000,000.00, the August 2019 Modification provided for the increase of the amount by which the Revolving Commitments could be increased pursuant to Section 2.23 of the Credit Agreement to an aggregate amount of $150,000,000.00, and, pursuant to the terms of the September 2019 Letter Agreement, Borrower has subsequently requested and received additional Revolving Commitments under the Credit Agreement such that the aggregate amount thereof is, as of the date of this Agreement, $150,000,000.00 (such that the accordion has been fully utilized pursuant to Section 2.23 of the Credit Agreement as in existence prior to the effectiveness of this Agreement).
E.Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders wish to modify certain terms and provisions of the Loan Documents as set forth or required herein for the purposes of, among other things, providing for an additional $75,000,000.00 increase in the amount by which the Revolving Commitments can be increased pursuant to Section 2.23 of the Credit Agreement. The Administrative Agent and Lenders are willing to agree to such modifications subject to the satisfaction of certain conditions precedent as set forth herein and subject to Borrower, Guarantor, and Pledgors making the representations and assurances hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, the mutual representations and covenants contained in this Modification and other good consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Guarantor (as applicable), Pledgors (as applicable), Administrative Agent, and the Lenders do hereby agree as follows:
1.Recitals; Terms. The Recitals set forth above are true and correct and are made a part hereof. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
2.Credit Agreement. The Credit Agreement is hereby modified in the following respects:
|
(a)The definitions of the terms “Adjusted LIBO Rate” and “Loan Documents” set forth in Section 1.1 of the Credit Agreement are hereby deleted in their entirety and replaced with the following: |
|
comparable to such Interest Period (provided that if such rate is less than zero, such rate shall be deemed to be zero), divided by (ii) a percentage equal to 1.00% minus the then stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves and without benefit of credits for proration, exceptions or offsets that may be available from time to time) expressed as a decimal (rounded upward to the next 1/100th of 1%) applicable to any member bank of the Federal Reserve System in respect of Eurocurrency liabilities as defined in Regulation D (or any successor category of liabilities under Regulation D); provided that (A) the rate referred to in clause (i) above shall not be subject to the rounding convention referenced in clause (ii) above; and (B) if the rate referred to in clause (i) above is not available at any such time for any reason, then the rate referred to in clause (i) shall instead be the interest rate per annum, as determined by the Administrative Agent, to be the arithmetic average of the rates per annum at which deposits in U. S. Dollars in an amount equal to the amount of such Eurodollar Loan are offered by major banks in the London interbank market to the Administrative Agent at approximately 11:00 A.M. (London time), two (2) Business Days prior to the first day of such Interest Period. For purposes of this Agreement, the Adjusted LIBO Rate will not be less than zero percent (0%). |
(b)The following defined terms are hereby included in the definitions contained in Section 1.1 of the Credit Agreement in their respective proper alphabetical order:
““November 2019 Incremental Commitments Letter” shall mean, to the extent the same is, at any time executed and delivered by the parties thereto, a letter agreement in the from attached to the November 2019 Modification as Exhibit E thereto and to be entered into among the Administrative Agent, SunTrust Bank, KeyBank National Association, the Borrower, and the Guarantors.”
““November 2019 Modification” shall mean that certain November 2019 Modification of Loan Documents among the Borrower, Guarantors, Lenders, and Administrative Agent dated as of November 18, 2019.”
““September 2019 Letter Agreement” shall mean that certain letter agreement dated as of September 4, 2019 among the Borrower, Guarantors, Lenders, and Administrative Agent and documentation executed and delivered in connection therewith.”
(c)The text of Section 2.3 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“The Borrower shall give the Administrative Agent written notice (or telephonic notice promptly confirmed in writing) of each Borrowing, substantially in the form of Exhibit E attached hereto (a “Notice of Borrowing”), (x) prior to 11:00 a.m. one (1) Business Day prior to the requested date of each Base Rate Borrowing and (y) prior to 11:00 a.m. three (3) Business Days prior to the requested date of each Eurodollar Borrowing; provided, however, that with respect to any Borrowing of funds related to the Incremental Commitments of SunTrust Bank and KeyBank National Association in connection with the November 2019 Incremental Commitment Letter, such period may, in the discretion of the Administrative Agent, be reduced or waived. Each Notice of Borrowing shall be irrevocable and shall specify (i) the aggregate principal amount of such Borrowing, (ii) the date of such Borrowing (which shall be a Business Day), (iii) the Type of such Revolving Loan comprising such Borrowing and (iv) in the case of a Eurodollar Borrowing, the duration of the initial Interest Period applicable thereto (subject to the provisions of the definition of Interest Period). Each Borrowing shall consist entirely of Base Rate Loans or Eurodollar Loans, as the Borrower may
request. The aggregate principal amount of each Borrowing shall not be less than $1,000,000 or a larger multiple of $100,000; provided that Base Rate Loans made pursuant to Section 2.4 or Section 2.22(d) may be made in lesser amounts as provided therein. At no time shall the total number of Eurodollar Borrowings outstanding at any time exceed six (6). Promptly following the receipt of a Notice of Borrowing in accordance herewith, the Administrative Agent shall advise each Lender of the details thereof and the amount of such Lender’s Revolving Loan to be made as part of the requested Borrowing.”
(d)The text of Section 2.13(d) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“Interest on the principal amount of all Loans shall accrue from and including the date such Loans are made to but excluding the date of any repayment thereof. Accrued interest on outstanding (a) Base Rate Loans shall be payable monthly in arrears on the first (1st) day of each calendar month and on the Maturity Date (b) with respect to any Eurodollar Loan, the last day of the Interest Period applicable to the Borrowing of which such Loan is a part or the Maturity Date, as the case may be. Interest on any Loan which is converted into a Loan of another Type or which is repaid or prepaid shall be payable on the date of such conversion or on the date of any such repayment or prepayment (on the amount repaid or prepaid) thereof. All Default Interest shall be payable on demand”
(e)Clause (a)(i) of Section 2.23 of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
(a)“(i)the aggregate principal amount of all such Incremental Commitments made from time to time pursuant to this Section shall not result in the aggregate Revolving Commitments hereunder exceeding $225,000,000.00 (the principal amount of each such Incremental Commitment, the “Incremental Commitment Amount”); provided, that the parties hereto acknowledge and agree that (A) the initial aggregate amount of Revolving Commitments permitted pursuant to this provision was $125,000,000.00; (B) pursuant to the terms of the June 2019 Letter Agreement, the Revolving Commitments were, effective as of June 28, 2019, actually increased to such $125,000,000.00 amount through the effectiveness of the Incremental Commitments referenced therein; (C) effective as of August 28, 2019, pursuant to the terms of the August 2019 Modification, the aggregate amount of Revolving Commitments permitted hereunder was increased to $150,000,000.00; (D) pursuant to the September 2019 Letter Agreement, the Revolving Commitments were, effective as of September 4, 2019, actually increased to such $150,000,000.00 amount through the effectiveness of the Incremental Commitments referenced therein; (E) effective as of November 18, 2019, pursuant to the terms of the November 2019 Modification, the aggregate amount of Revolving Commitments permitted hereunder was increased to the $225,000,000.00 amount referenced above and the remaining potential increase in the Revolving Commitments available pursuant to this Section 2.23 is $75,000,000.00;”
|
(f)The first sentence of Section 2.23(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: “The Borrower shall provide at least five (5) days’ written notice to the Administrative Agent (who shall promptly provide a copy of such notice to each Lender) of any proposal to establish an Incremental Commitment; provided, however, that the parties hereto hereby agree that, with respect to the proposed Incremental Commitments of SunTrust Bank and KeyBank National Association to be entered into pursuant to the terms of the proposed letter agreement attached to the November 2019 Modification as Exhibit E, such notice period may, in the discretion of the Administrative Agent, be reduced to one (1) day.” |
|
In furtherance of the foregoing, each of the parties hereto hereby consents and agrees to the terms and conditions set forth in the proposed letter agreement attached hereto as Exhibit E. After giving effect thereto, the remaining potential increase in the Revolving Commitments available pursuant to Section 2.23 shall be $0. |
3.Loan Documents Generally. Each of the Loan Documents is hereby further amended in the following respects (to the extent the amendments set forth above have not already addressed such matters):
(a)Each reference contained in the Loan Documents to such Loan Document or any other Loan Document (as applicable), is hereby deemed to be a reference to each such document as amended and modified by this Modification (as applicable).
(b)This Modification shall be deemed to be included as a “Loan Document” in any and all references to the “Loan Documents” contained in any of the Loan Documents existing as of the date hereof or which are executed following the date hereof.
4.Conditions Precedent. The effectiveness of the proposed modification of the Loan Documents set forth herein is conditioned upon the Administrative Agent’s receipt of the following documents, materials, confirmations and/or payments, each of which shall be in a form and substance satisfactory to the Administrative Agent:
(a)two (2) duly executed original counterparts from Borrower, Guarantor, each Pledgor, each Lender, and Administrative Agent of this Modification (together with all required acknowledgements by such parties);
(b)payment by Borrower of (i) a work fee equal to $5,000 per Lender that approves and executes this Modification on or prior to November 18, 2019; (ii) all outstanding fees and expenses of the Administrative Agent and the Administrative Agent’s counsel incurred in connection with the preparation, review, execution and delivery of this Modification, the documents executed in connection herewith, all other amendments, restatements, supplements or negotiations related to the Loan Documents or the Loans; and (iii) all other fees, expenses or other amounts payable by Borrower related to the Credit Agreement and/or the Loan Documents which are due and payable on the date hereof pursuant to the terms of any Loan Document;
(c)a certificate of “no change” from each of the Borrower and Guarantor certifying that such entity’s: (i) certificate of existence/good standing; and (ii) organizational documents have not been amended since the date of the closing of the Credit Agreement;
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(d)a current Certificate of Existence/Good Standing for each of the Borrower and the Guarantor issued by the jurisdiction in which such entity is organized and, with respect to the Borrower, a certified copy of a currently-effective authorization to transact business in each applicable state in which such authorization is required for the ownership and operation of the properties secured by the Security Instrument; |
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(e)resolutions from each of the Borrower, the Guarantor, and each Pledgor authorizing and approving the modification of the Loan Documents and the other matters set forth herein; |
(f)a legal opinion from counsel to the Borrower, Guarantor, and each Pledgor opining to the due authorization, execution, and effectiveness of this Modification; and
(g)such other and further items, information or materials as the Administrative Agent shall reasonably require.
5.Representations, Warranties and Acknowledgments of Borrower. As an inducement to the Administrative Agent and Lenders to enter into this Agreement, Borrower represents, warrants, covenants and
acknowledges as follows (it being acknowledged by all parties that each such representation, warranty, covenant and acknowledgment relates to material matters upon which Administrative Agent and Lenders have relied):
(a)Title to all collateral (including all real and personal property) in which Administrative Agent was given a lien or security interest pursuant to the Loan Documents is vested in Borrower or the applicable Pledgor subject only to those matters specifically approved in writing by Administrative Agent or expressly permitted in the applicable Loan Document(s). No additional lien interests have been granted by Borrower or any Pledgor for any such collateral since the execution of the original Loan Documents.
(b)There are no defenses, offsets or counterclaims or other claims, legal or equitable, available to Borrower, the Guarantor, any Pledgor, or any other person or entity with respect to this Modification, the Loan Documents, or any other instrument, document and/or agreement described herein or therein, as modified and amended hereby, or with respect to the obligation of the Borrower to repay the Loans or other Obligations, as the case may be.
(c)Each of Borrower, Guarantor, and each Pledgor is a duly organized and validly existing entity under and with respect to the laws of its state of organization. Each of Borrower, Guarantor, and each Pledgor has the right and power and has obtained all authorizations necessary to execute and deliver this Modification and all other documents required to be delivered as conditions precedent to the effectiveness hereof and to perform their respective obligations hereunder and under the other Loan Documents (as applicable) in accordance with their respective terms. This Modification has been duly executed and delivered by a duly authorized officer of Borrower, Guarantor, and each Pledgor. This Modification and each of the other Loan Documents (in each case as amended hereby, if applicable), is a legal, valid and binding obligation of Borrower, the Guarantor, and each Pledgor (in each case, to the extent they are a party thereto), enforceable against the Borrower, Guarantor, and/or each Pledgor (as applicable) in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations contained herein or therein may be limited by equitable principles generally.
(d)There are no actions, suits or proceedings pending or threatened against or affecting Borrower, Guarantor, and/or any Pledgor which, if adversely determined, could affect Borrower’s, Guarantor’s, or any such Pledgor’s ability to perform its obligations under the Loan Documents or challenge the validity of or enforceability of, or ability of Borrower, Guarantor, and/or any such Pledgor to fulfill each of its obligations under this Modification, any of the other Loan Documents, or any of the other instruments, documents or agreements described herein, as modified and amended hereby, or the priority of any lien thereof, in any court, at law or in equity, or before any administrative agencies or other governmental authority.
(e)Borrower further represents and warrants that the ownership structure of each of the Borrower, the Guarantor, and each of the Pledgors has not been changed and each of Borrower’s, Guarantor’s, and each Pledgor’s organizational documents have not been modified or amended, in each case since the initial closing of the Credit Agreement, or have not been so changed or amended except to the extent of such amendments as have been provided to Administrative Agent in writing.
(f)Following the execution and delivery of this Modification, no Event of Default or Default exists under the Loan Documents as of the date hereof and, as of the date hereof, all of the covenants, representations and warranties made by the Borrower, Guarantor, and each Pledgor and contained in any of the Loan Documents are true and correct as of the date of this Modification (except to the extent any such representations or warranties expressly refer to an earlier date).
6.Reaffirmation of Collateral Document Obligations; Receipt of Modification. The Borrower, Guarantor, and each Pledgor each hereby acknowledges receipt of a copy of this Modification and agrees that (a) each of the Collateral Documents shall continue in full force and effect in favor of the Administrative Agent and for the benefit of the Secured Parties with respect to the obligations guaranteed or secured thereby (as modified hereby), and (b) each of the Collateral Documents, as modified hereby, is hereby ratified and confirmed in all respects.
7.Future Delivery and Execution of Documents. Each of Borrower, Guarantor, and/or each Pledgor (as applicable) will execute such additional documents as are reasonably requested by the Administrative Agent to reflect the terms and conditions of this Modification, and will cause to be delivered such additional certificates, legal opinions and other documents as are reasonably required by the Administrative Agent.
8.Release. In consideration of the modifications set forth in this Modification, Borrower, Guarantor, and each Pledgor each hereby releases and holds harmless the Administrative Agent and each of the Lenders and their respective officers, employees and agents, from and against any claim, action, suit, demand, cost, expense or liability of any kind relating to the making of the extension of credit under the Credit Agreement, the administration of same or any business communications and dealings between or among the Borrower and/or Guarantor (or either of them), on one hand, and the Administrative Agent and any Lender, on the other, concerning the Credit Agreement, the extensions of credit thereunder, or any of the Loan Documents and arising on or prior to the date hereof.
9.Defaults Under the Credit Agreement. The failure of Borrower, Guarantor, and/or any Pledgor to perform any of their respective obligations under this Modification or any of the other Loan Documents (following any applicable notice and cure periods) or the falsity of any representation or warranty made herein or the failure of Borrower, Guarantor, and/or Pledgors to advise Administrative Agent that a representation or warranty made herein is no longer true shall, at the option of the Administrative Agent and Lenders, after expiration of any applicable cure period, constitute an Event of Default under the Credit Agreement.
10.Effectiveness. The Loan Documents and the terms and provisions thereof, as modified and amended hereby, and the liens and security interests created thereby shall constitute and remain in full force and effect as of the execution thereof. All of the terms of the Loan Documents, except to the extent modified herein or amended and restated in connection herewith, shall remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein. Section headings in this Modification are included herein for convenience of reference only and shall not constitute a part of this Modification for any other purpose.
11.Savings Clause. If any provision of any of this Modification or of any Loan Document, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
12.No Novation. Borrower, Guarantor, and each Pledgor each intend for the amendments to the Loan Documents to evidence an amendment to the terms of the existing indebtedness or obligations of Borrower, Guarantor, and/or Pledgors (as and to the extent applicable) to the Administrative Agent and Lenders and do not intend for such amendments to constitute a novation in any manner whatsoever.
13.Counterparts. This Modification may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Modification to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile or PDF by any of the parties hereto of an executed counterpart of this Modification shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
14.Fees and Expenses. The Borrower hereby agrees that all fees, expenses and costs incurred by the Administrative Agent or its counsel in reviewing, negotiating, preparing and granting the amendment set forth herein shall, to the extent not paid or invoiced as of the date hereof, be paid by it upon demand as fees, costs and expenses incurred in connection with the Credit Agreement.
15.Amendments; Use of Terms. This Modification may not be supplemented, changed, waived, discharged, terminated, modified or amended except in written form executed by all parties hereto. Wherever in this Modification any word or combination of words (including defined terms) connotes number or gender, such word or combination of words shall be deemed of such number (singular or plural) and such gender (masculine, neuter or
feminine) as the context and circumstances may require. This Modification shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal and legal representatives, successors and assigns.
16.Final Agreement. This Modification represents the final agreement between the parties and supersedes all previous negotiations, discussions and agreements, contemporaneous or subsequent, between the parties, and no parol evidence of any prior or other agreement shall be permitted to contradict or vary their terms. There are no promises, terms, conditions or obligations other than those contained in this Modification. There are no unwritten oral agreements between the parties.
17.Binding Effect. This Modification shall become effective as of the date set forth above upon satisfaction or waiver of all of the conditions set forth in Section 4 hereof and execution and delivery of this Modification by the Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders. Thereafter this Modification shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns.
18.New Mortgaged Property Letter Agreement. The parties hereto acknowledge and agree that it is the intention of the Borrower to acquire (directly or indirectly) the real properties described on Exhibit C attached hereto and that such properties shall constitute Mortgaged Properties under the Credit Agreement (the “New Mortgaged Properties”). The Borrower agrees that it shall promptly following such acquisition (and, in any case, within three (3) Business Days following same): (a) execute and deliver a letter agreement in the form attached hereto as Exhibit D and shall cause the Guarantor and the “New Pledgors” named therein to execute and deliver such letter agreement (the “New MP Letter Agreement”); and (b) cause all conditions precedent to the New MP Letter Agreement to be fully satisfied in connection with the execution and delivery thereof (including, without limitation, the joinders to the Equity Interests Pledge Agreement required therein). The Lenders hereby acknowledge and consent to the terms and conditions set forth in the New MP Letter Agreement and hereby agree that the Agent shall be authorized to execute and deliver the New MP Letter Agreement on behalf of the Agent and Lenders.
19.Governing Law and Jurisdiction. This Modification and all matters relating thereto shall be governed by and construed and interpreted in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders have executed this Modification under seal on the date first above written.
BORROWER/PLEDGOR:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC, a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation, its Sole Member
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Authorized Signatory
GUARANTOR/PLEDGOR:
NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Authorized Signatory
ADDITIONAL PLEDGORS:
FRBH C1 RESIDENTIAL, LLC
FRBH NASHVILLE RESIDENTIAL, LLC
FREEDOM DUCK CREEK, LLC
FRBH JAX-TPA, LLC
HRT TIMBER CREEK, LLC
NXRT RADBOURNE LAKE, LLC
NXRT SABAL PALM, LLC
NXRT STEEPLECHASE, LLC
NXRTBH CORNERSTONE, LLC
NXRTBH BARRINGTON MILL, LLC
NXRTBH NORTH DALLAS 3, LLC
NXRT BAYBERRY, LLC
NXRTBH AZ2, LLC
NXRT VANDERBILT, LLC
BH WILLOWDALE MANAGER, LLC
FRBH REGATTA BAY, LLC
NXRTBH MCMILLAN, LLC
FREEDOM MIRAMAR APARTMENTS, LLC
HRTBH NORTH ATLANTA, LLC
NXRT CRESTMONT, LLC
NXRT BRANDYWINE LP, LLC,
a Delaware limited liability company
By:/s/ Matt McGraner
Name:Matt McGraner
Title:Authorized Signatory
ADMINISTRATIVE AGENT:
SUNTRUST BANK, as Administrative Agent,
By: ___/s/ Ryan Almond______________________
Name:Ryan Almond
Title:Director
LENDERS:
SUNTRUST BANK
By: ___/s/ Ryan Almond______________________
Name:Ryan Almond
Title:Director
RAYMOND JAMES BANK, N.A.
By: ___/s/ Ted A. Long_______________________
Name:Ted A. Long
Title: Senior Vice President
SYNOVUS BANK
By: ___/s/ David W. Bowman__________________
Name:David W. Bowman
Title: Director
EXHIBIT A
SCHEDULE III TO CREDIT AGREEMENT
Mortgaged Properties
Mortgage Borrower |
Mortgage Lender
|
FRBH Arbors, LLC |
Freddie Mac |
FRBH CP, LLC |
Freddie Mac |
FRBH Eaglecrest, LLC |
Freddie Mac |
FRBH Silverbrook, LLC |
Freddie Mac |
FRBH Beechwood, LLC |
Freddie Mac |
FRBH Willow Grove, LLC |
Freddie Mac |
FRBH Woodbridge, LLC |
Freddie Mac |
FRBH Sabal Park, LLC |
Freddie Mac |
FRBH Courtney Cove, LLC |
Freddie Mac |
HRTBH Timber Creek, LLC |
Freddie Mac |
NXRTBH Radbourne Lake, LLC |
Freddie Mac |
NXRTBH Sabal Palms, LLC |
Freddie Mac |
NXRTBH Steeplechase, LLC |
Freddie Mac |
NXRTBH Cornerstone Owner, LLC |
Freddie Mac |
NXRTBH Barrington Mill Owner, LLC |
Freddie Mac |
NXRTBH Versailles, LLC |
Freddie Mac |
NXRTBH Bayberry, LLC |
Freddie Mac |
NXRTBH Madera, LLC |
Freddie Mac |
NXRTBH Vanderbilt, LLC |
Freddie Mac |
NXRTBH CityView, LLC |
Fannie Mae |
NXRTBH Colonnade, LLC |
Freddie Mac |
NXRTBH Hollister, LLC |
Freddie Mac |
NXRTBH Old Farm, LLC |
Freddie Mac |
NXRTBH Stone Creek, LLC |
Freddie Mac |
NXRTBH Rockledge, LLC |
Freddie Mac |
NXRTBH Atera I, LLC |
Freddie Mac |
NXRTBH Atera II, LLC |
Freddie Mac |
NXRT Cedar Pointe, LLC |
Freddie Mac |
Pear Ridge Partners, LLC |
Freddie Mac |
SOF Brandywine I Owner, L.P. |
Freddie Mac |
SOF Brandywine II Owner, L.P. |
Freddie Mac |
EXHIBIT B
SCHEDULE V TO CREDIT AGREEMENT
Pledgor |
Issuer |
% Owned* |
% Pledged |
FRBH C1 Residential, LLC |
FRBH Arbors, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH CityView, LLC
|
100% |
50% |
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Atera I, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Atera II, LLC
|
100% |
50% |
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
In certain instances, the Borrower owns a de minimis direct or indirect interest in the Issuers or Pledgors listed above through a taxable REIT subsidiary (“TRS”) in order to maintain a pre-existing tax partnership for IRS purposes, which is not reflected on the above-listed schedule. In each case, the interest owned through the TRS is 1% or less.
EXHIBIT C
NEW MORTGAGED PROPERTIES
EXHIBIT D
NEW MP LETTER AGREEMENT
[see attached]
VIA E-MAIL
November 19, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Re: |
Letter Agreement (the “Letter Agreement”) concerning that certain Revolving Credit Agreement dated as of January 28, 2019 (the “Original Credit Agreement”) among NexPoint Residential Trust Operating Partnership, L.P. (the “Borrower”), the financial institutions party thereto, as lenders (the “Lenders”), and SunTrust Bank, as Administrative Agent (the “Agent”), as the same has been previously modified or supplemented by that certain letter agreement dated as of June 28, 2019 (the “June 2019 Letter Agreement”), that certain August 2019 Modification of Loan Documents dated as of August 28, 2019 (the “August 2019 Modification”), that certain letter agreement dated as of September 4, 2019 (the “September 2019 Letter Agreement”), that certain November 2019 Modification of Loan Documents dated as of November 19, 2019 (the “November 2019 Modification”), and that certain letter agreement dated as of November 19, 2019 concerning the effectiveness of certain Incremental Commitments (the “November 2019 Incremental Commitments Letter Agreement”; collectively, with the November 2019 Modification, the September 2019 Letter Agreement, the August 2019 Modification, the June 2019 Letter Agreement, and the Original Credit Agreement, as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), and the addition of certain Mortgaged Properties and Collateral Subsidiaries under the Credit Agreement and Loan Documents. |
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Effective as of November 19, 2019, Borrower has acquired an ownership interest in the real properties described on Exhibit A attached hereto (the “New Mortgaged Properties”). The New Mortgaged Properties are owned by the respective Subsidiaries of the Borrower described on such Exhibit A (the “New Collateral Subsidiaries”) and are subject to the terms of those certain loan agreements or other financing arrangements also described on such Exhibit A (collectively, the “New Senior Credit Agreements”).
The Borrower and each of the New Collateral Subsidiaries hereby acknowledge and agree that: (a) the New Mortgaged Properties constitute Mortgaged Properties, as such term is used in the Credit Agreement; (b) each of the New Collateral Subsidiaries constitute Collateral Subsidiaries, as such term is used in the Credit Agreement; and (c) that the New Senior Credit Agreements constitute Senior Credit Agreements under the Credit Agreement and the loans and indebtedness evidenced thereby constitute Senior Loans under the Credit Agreement. In furtherance of the foregoing, the undersigned parties hereby agree as follows (collectively, the “Subject Modifications, Agreements, and Joinders”):
|
(a) |
Schedule III attached to the Credit Agreement is hereby deleted in its entirety and replaced with the document attached hereto as Exhibit B; |
|
(b) |
Schedule V attached to the Credit Agreement is hereby deleted in its entirety and replaced with the document attached hereto as Exhibit C; |
|
(c) |
each of the parties owning equity interests in the New Collateral Subsidiaries (the “New Pledgors”) shall, concurrently with the execution and delivery of this Letter Agreement, execute a joinder in the form attached as Exhibit B to the Equity Interests Pledge Agreement documenting their joinder to the Equity Interests Pledge Agreement; |
|
(d) |
each of the New Pledgors, by its execution hereof, hereby: (i) is joined as a party to the Pledge Agreement with the same force and effect as if originally named therein as a “Pledgor” thereunder; (ii) confirms its acceptance of, and consents to, all representations and warranties, covenants, and other terms and provisions of the Pledge Agreement; and (iii) represents and warrants that each of the representations and warranties contained in the Pledge Agreement is true and correct on and as the date hereof as if made on and as of such date, except to the extent any such representation or warranty (including any such representation or warranty contained in the Credit Agreement) was expressly made as of an earlier date, in which case such representation or warranty was true and correct as of such earlier date; and (iv) agrees that until receipt of written notice from the Agent that the Pledge Agreement has been terminated, it shall (and shall, as applicable, cause each party that is a new Issuer under the Pledge Agreement (each, a “New Issuer” to): (A) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, pay to the Agent all amounts then due and thereafter as they become due to the applicable Pledgor with respect to the “Collateral” under the Pledge Agreement; (B) upon the receipt of notice from the Agent that the Agent (or any successor or assign of the Agent) has become a member or limited partner (as the case may be) as the result of the exercise by the Agent of the Agent’s rights and remedies under the Pledge Agreement, admit and recognize the Agent (or any such successor and assign of the Agent) as a member or limited partner (as provided for the organizational documents of each Issuer), with the full right to exercise all of the rights of a member, general partner or a limited partner as the case may be; and (C) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, to the extent provided in the Pledge Agreement, comply with the instructions of the Agent in connection with the exercise of the Agent’s rights and remedies as set forth in the Pledge Agreement, without any further consent from any Borrower or any other Person; |
|
(e) |
each New Issuer, by its execution hereof, hereby (i) agrees that such Issuer has no knowledge of any Lien or other security interest in the Pledged Interest (other than the Agent’s) that has not been terminated on or prior to the date hereof and the registered pledgee of the Pledged Interests on the books of such Issuer is SunTrust Bank, as Agent, and there is no other pledge currently registered on the books and records of such Issuer with respect to the Pledged Interests under Pledge Agreement; and (ii) agrees that until receipt of written notice from the Agent that the Pledge Agreement has been terminated, it shall: (A) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, pay to the Agent all amounts then due and thereafter as they become due to the applicable Pledgor with respect to the “Collateral” under the Pledge Agreement; (B) upon the receipt of notice from the Agent that the Agent (or any successor or assign of the Agent) has become a member or limited partner (as the case may be) as the result of the exercise by the Agent of the Agent’s rights and remedies under the Pledge Agreement, admit and recognize the Agent (or any such successor and assign of the Agent) as a member or limited partner (as provided for the organizational documents of each Issuer), with the full right to exercise all of the rights of a member, general partner or a limited partner as the case may be; and (C) upon receipt of notice from the Agent that an Event of Default as defined in the Pledge Agreement has occurred and is continuing, to the extent provided in the Pledge Agreement, comply with the instructions of the Agent in connection with the exercise of the Agent’s rights and remedies as set forth in the Pledge Agreement, without any further consent from any Borrower or any other Person; and |
|
(f) |
Schedules I and II to the Pledge Agreement are hereby deleted in their entirety and replaced with the documents attached hereto as Exhibits D and E, respectively. |
The effectiveness of this Letter Agreement and the Subject Modifications, Agreements, and Joinders set forth herein is subject to the following conditions precedent:
|
(a) |
the receipt by Agent of originally-executed counterparts to this Letter Agreement from the Borrower, the Guarantor (for purposes of acknowledging and consenting to the terms of this Letter Agreement and the Subject Modifications, Agreements, and Joinders), the Agent (on behalf of the Lenders, as authorized pursuant to the terms of the November 2019 Modification), and the New Pledgors; |
|
(b) |
evidence of appropriate corporate authorization on the part of the Borrower, Guarantor, and New Pledgors with respect to this Letter Agreement and the Subject Modifications, Agreements, and Joinders in form and substance acceptable to the Agent; and |
|
(c) |
payment by Borrower to Agent of the costs and expenses of Agent incurred in connection with the negotiation, preparation, and final documentation of this Letter Agreement and matters related to the Subject Modifications, Agreements, and Joinders. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
|
(a) |
except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect; |
|
(b) |
nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents; |
|
(c) |
this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents; and |
|
(d) |
except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith. |
In consideration of the Subject Modifications, Agreements, and Joinders documented and provided herein, Borrower and Guarantor, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, Agent, and New Pledgors with respect to the Subject Modifications, Agreements, and Joinders and such parties are willing to acknowledge, consent and agree to the terms set forth herein with respect to the Subject Modifications, Agreements,
and Joinders and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP, keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The Subject Modifications, Agreements, and Joinders shall be deemed effective as of the date of this Letter Agreement upon the satisfaction of all conditions precedent referenced herein.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent
By: /s/ Ryan Almond
Name: Ryan Almond
Title: Director
The undersigned hereby request, accept, agree to, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the Subject Modifications, Agreements, and Joinders:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:_/s/ Brian Mitts_____________
Name:Brian Mitts_________________
Title:Chief Financial Officer_______
GUARANTOR:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:_/s/ Brian Mitts_____________
Name:Brian Mitts_________________
Title:Chief Financial Officer_______
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
EXHIBIT A
NEW MORTGAGED PROPERTIES, COLLATERAL SUBSIDIARIES,
AND SENIOR CREDIT AGREEMENTS
New Mortgage Borrower / Collateral Subsidiary |
New Mortgaged Property |
New Mortgage Lender
|
NXRT Bloom, LLC |
7075 W. GOWAN ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Torreyana, LLC |
5155 S. TORREY PINES DRIVE, LAS VEGAS, NEVADA |
Freddie Mac |
NXRT Bella Solara, LLC |
7101 SMOKE RANCH ROAD, LAS VEGAS, NEVADA |
Freddie Mac |
EXHIBIT B
SCHEDULE III TO CREDIT AGREEMENT
Mortgaged Properties
Mortgage Borrower |
Mortgage Lender
|
FRBH Arbors, LLC |
Freddie Mac |
FRBH CP, LLC |
Freddie Mac |
FRBH Eaglecrest, LLC |
Freddie Mac |
FRBH Silverbrook, LLC |
Freddie Mac |
FRBH Beechwood, LLC |
Freddie Mac |
FRBH Willow Grove, LLC |
Freddie Mac |
FRBH Woodbridge, LLC |
Freddie Mac |
FRBH Sabal Park, LLC |
Freddie Mac |
FRBH Courtney Cove, LLC |
Freddie Mac |
HRTBH Timber Creek, LLC |
Freddie Mac |
NXRTBH Radbourne Lake, LLC |
Freddie Mac |
NXRTBH Sabal Palms, LLC |
Freddie Mac |
NXRTBH Steeplechase, LLC |
Freddie Mac |
NXRTBH Cornerstone Owner, LLC |
Freddie Mac |
NXRTBH Barrington Mill Owner, LLC |
Freddie Mac |
NXRTBH Versailles, LLC |
Freddie Mac |
NXRTBH Bayberry, LLC |
Freddie Mac |
NXRTBH Madera, LLC |
Freddie Mac |
NXRTBH Vanderbilt, LLC |
Freddie Mac |
NXRTBH CityView, LLC |
Fannie Mae |
NXRTBH Colonnade, LLC |
Freddie Mac |
NXRTBH Hollister, LLC |
Freddie Mac |
NXRTBH Old Farm, LLC |
Freddie Mac |
NXRTBH Stone Creek, LLC |
Freddie Mac |
NXRTBH Rockledge, LLC |
Freddie Mac |
NXRTBH Atera I, LLC |
Freddie Mac |
NXRTBH Atera II, LLC |
Freddie Mac |
NXRT Cedar Pointe, LLC |
Freddie Mac |
Pear Ridge Partners, LLC |
Freddie Mac |
SOF Brandywine I Owner, L.P. |
Freddie Mac |
SOF Brandywine II Owner, L.P. |
Freddie Mac |
NXRT Pembroke, LLC |
Freddie Mac |
NXRT Brentwood, LLC |
Freddie Mac |
NXRT Bloom, LLC |
Freddie Mac |
NXRT Bella Solara, LLC |
Freddie Mac |
NXRT Torreyana, LLC |
Freddie Mac |
EXHIBIT C
SCHEDULE V TO CREDIT AGREEMENT
Pledgor |
Issuer |
% Owned* |
% Pledged |
FRBH C1 Residential, LLC |
FRBH Arbors, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH CityView, LLC
|
100% |
50% |
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
HRTBH North Atlanta, LLC |
NXRTBH Atera I, LLC
|
100% |
50% |
Pledgor |
Issuer |
% Owned* |
% Pledged |
NXRTBH Atera II, LLC
|
100% |
50% |
|
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
NXRT Pembroke Owner, LLC |
NXRT Pembroke, LLC |
100% |
49.9% |
NXRT Brentwood Owner, LLC |
NXRT Brentwood, LLC |
100% |
49.9% |
RTT Bloom, LLC |
NXRT Bloom, LLC |
100% |
49.9% |
RTT Bella Solara, LLC |
NXRT Bella Solara, LLC |
100% |
49.9% |
RTT Torreyana, LLC |
NXRT Torreyana, LLC |
100% |
49.9% |
In certain instances, the Borrower owns a de minimis direct or indirect interest in the Issuers or Pledgors listed above through a taxable REIT subsidiary (“TRS”) in order to maintain a pre-existing tax partnership for IRS purposes, which is not reflected on the above-listed schedule. In each case, the interest owned through the TRS is 1% or less.
EXHIBIT D
SCHEDULE I TO PLEDGE AGREEMENT
Pledgor |
Issuer |
Number/
|
Number/
|
Certificate
|
FRBH C1 Residential, LLC |
FRBH Arbors, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH CP, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH Eaglecrest, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
FRBH Silverbrook, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Beechwood, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Willow Grove, LLC
|
100% |
50% |
N/A |
FRBH Nashville Residential, LLC |
FRBH Woodbridge, LLC
|
100% |
50% |
N/A |
FRBH JAX-TPA, LLC |
FRBH Sabal Park, LLC
|
100% |
50% |
N/A |
FRBH JAX-TPA, LLC |
FRBH Courtney Cove, LLC
|
100% |
50% |
N/A |
HRT Timber Creek, LLC |
HRTBH Timber Creek, LLC
|
100% |
50% |
N/A |
NXRT Radbourne Lake, LLC |
NXRTBH Radbourne Lake, LLC
|
100% |
50% |
N/A |
NXRT Sabal Palm, LLC |
NXRTBH Sabal Palms, LLC
|
100% |
50% |
N/A |
NXRT Steeplechase, LLC |
NXRTBH Steeplechase, LLC
|
100% |
50% |
N/A |
NXRTBH Cornerstone, LLC |
NXRTBH Cornerstone Owner, LLC
|
100% |
50% |
N/A |
NXRTBH Barrington Mill, LLC |
NXRTBH Barrington Mill Owner, LLC
|
100% |
50% |
N/A |
NXRTBH North Dallas 3, LLC |
NXRTBH Versailles, LLC
|
100% |
50% |
N/A |
NXRT Bayberry, LLC |
NXRTBH Bayberry, LLC
|
100% |
50% |
N/A |
NXRTBH AZ2, LLC
|
NXRTBH Madera, LLC
|
100% |
50% |
N/A |
NXRT Vanderbilt, LLC |
NXRTBH Vanderbilt, LLC
|
100% |
50% |
N/A |
Pledgor |
Issuer |
Number/
|
Number/
|
Certificate
|
NXRTBH CityView, LLC
|
100% |
50% |
N/A |
|
BH Willowdale Manager, LLC |
NXRTBH Colonnade, LLC
|
100% |
50% |
N/A |
FRBH Regatta Bay, LLC |
NXRTBH Hollister, LLC
|
100% |
50% |
N/A |
NXRTBH McMillan, LLC |
NXRTBH Old Farm, LLC
|
100% |
50% |
N/A |
FRBH C1 Residential, LLC |
NXRTBH Stone Creek, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Rockledge, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Atera I, LLC
|
100% |
50% |
N/A |
HRTBH North Atlanta, LLC |
NXRTBH Atera II, LLC
|
100% |
50% |
N/A |
NexPoint Residential Trust Operating Partnership, L.P. |
NXRT Cedar Pointe, LLC
|
100% |
50% |
N/A |
NXRT Crestmont, LLC |
Pear Ridge Partners, LLC
|
100% |
50% |
N/A |
NXRT Brandywine LP, LLC |
SOF Brandywine I Owner, L.P.
|
100% |
50% |
N/A |
NXRT Brandywine LP, LLC |
SOF Brandywine II Owner, L.P.
|
100% |
50% |
N/A |
NXRT Pembroke Owner, LLC |
NXRT Pembroke, LLC |
100% |
49.9% |
N/A |
NXRT Brentwood Owner, LLC |
NXRT Brentwood, LLC |
100% |
49.9% |
N/A |
RTT Bloom, LLC |
NXRT Bloom, LLC
|
100% |
49.9% |
N/A |
RTT Bella Solara, LLC |
NXRT Bella Solara, LLC |
100% |
49.9% |
N/A |
RTT Torreyana, LLC |
NXRT Torreyana, LLC |
100% |
49.9% |
N/A |
SCHEDULE II TO PLEDGE AGREEMENT
1. |
UCC-1 filings to be filed in the name of each Pledgor with the Secretary of State of the State of Delaware describing the Collateral as set forth herein. |
2. |
Delivery to the Agent of the Certificates issued to the Pledgors as set forth in Schedule I hereto and representing 100% of the Equity Interests in each such Issuer pledged hereunder, together with an undated instrument of transfer or assignment covering such certificate duly executed in blank by the applicable Pledgor. |
EXHIBIT E
INCREMENTAL COMMITMENTS LETTER AGREEMENT
[see attached]
VIA E-MAIL
November 20, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Re: |
Letter Agreement (the “Letter Agreement”) concerning that certain Revolving Credit Agreement dated as of January 28, 2019 (the “Original Credit Agreement”) among NexPoint Residential Trust Operating Partnership, L.P. (the “Borrower”), the financial institutions party thereto, as lenders (the “Lenders”), and SunTrust Bank, as Administrative Agent (the “Agent”), as the same has been previously modified or supplemented by that certain letter agreement dated as of June 28, 2019 (the “June 2019 Letter Agreement”), that certain August 2019 Modification of Loan Documents dated as of August 28, 2019 (the “August 2019 Modification”), that certain letter agreement dated as of September 4, 2019 (the “September 2019 Letter Agreement”), and that certain November 2019 Modification of Loan Documents dated as of November 20, 2019 (the “November 2019 Modification”; collectively, with the September 2019 Letter Agreement, the August 2019 Modification, the June 2019 Letter Agreement, and the Original Credit Agreement, as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), and the Borrowers’ request for Incremental Commitments (as defined therein; and in addition to those obtained in connection with prior requests) in an aggregate amount equal to $75,000,000.00 (the “November 2019 Incremental Commitments”) pursuant to Section 2.23 thereof (the “November 2019 Increase”). |
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Borrower has previously requested and obtained the Subject Increases in the Revolving Commitments, as referenced in the June 2019 Letter Agreement and the September 2019 Letter Agreement. As a result of the application and effectiveness of the November 2019 Modification, the Borrower is, as of the date hereof, entitled to request up to $75,000,000.00 in additional Incremental Commitments pursuant to Section 2.23 of the Credit Agreement.
Borrower has notified the Agent and Lenders of its intention to request the November 2019 Modification pursuant to the terms of Section 2.23 of the Credit Agreement. This Letter Agreement constitutes Borrower’s written request for the November 2019 Increase and Borrower’s requested date for the effectiveness of the November 2019 Incremental Commitments is November 20, 2019 (the “Requested Increase Date”). The Agent hereby acknowledges receipt of the request for the November 2019 Increase.
Each of SunTrust Bank and KeyBank National Association, both current Lenders under the Credit Agreement, have, in connection with Borrower’s request for the November 2019 Incremental Commitments and subject to the terms and conditions set forth in this Letter Agreement and Section 2.23(b) of the Credit Agreement, agreed to provide Incremental Commitments thereunder in amounts equal to $37,500,000.00 each (collectively, the full amount of the requested November 2019 Incremental Commitments).
As a result of the Incremental Commitments set forth above, Schedule II attached to the Credit Agreement shall be automatically modified to read as provided on Exhibit A attached hereto.
The effectiveness of the November 2019 Incremental Commitments as of the Requested Increase Date is subject to the following conditions precedent:
|
(a) |
the receipt by Agent of originally-executed counterparts to this Letter Agreement from the Borrower, the Guarantor (for purposes of acknowledging and consenting to the terms of this Letter Agreement and the November 2019 Incremental Commitments), and each of SunTrust Bank and KeyBank National Association; |
|
(b) |
evidence of appropriate corporate authorization on the part of the Borrower with respect to such November 2019 Incremental Commitments in form and substance acceptable to the Agent; |
|
(c) |
a certificate of the Borrower signed by a Responsible Officer, in form and substance reasonably acceptable to the Agent (i) certifying that each of the conditions in Section 2.23(a) has been satisfied (except as expressly waived in this Letter Agreement), (ii) providing calculations showing pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all November 2019 Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance, (iii) certifying as to no existing Defaults or Events of Default under the Credit Agreement; and |
|
(d) |
payment by Borrower to Agent, SunTrust Bank, and KeyBank National Association of the arranger and/or commitment fees separately agreed to between Borrower and such parties. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
(a) except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect;
(b) nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents;
(c)this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents;
(d)the clarification that, to the extent the Borrower obtains, directly or indirectly, an ownership interest in one or more of the parcels of real property described on Exhibit B attached hereto, that such real property shall constitute “Mortgaged Properties” under the Credit Agreement (the “New Mortgaged Properties”), any Subsidiaries of the Borrower owning such New Mortgaged Properties shall constitute Collateral Subsidiaries under the Credit Agreement (the “New Collateral Subsidiaries”), and that, promptly following the obtaining of any such ownership interest (and, in any case, within three (3) Business Days following same), the Borrower and such New Collateral Subsidiaries shall enter into such documents and agreements as may be required by the Administrative Agent to document the addition of the New Mortgaged
Properties as Mortgaged Properties under the Credit Agreement and, as necessary, joining the New Collateral Subsidiaries as pledgors under the relevant Collateral Documents; and
(e)except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any further Incremental Commitment or any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith.
In consideration of the modifications set forth in this Letter Agreement, Borrower and Guarantors, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, SunTrust Bank, and KeyBank National Association with respect to the November 2019 Incremental Commitments and the Borrower, Guarantor, SunTrust Bank, and KeyBank National Association are willing to acknowledge, consent and agree to the terms set forth herein with respect to the November 2019 Incremental Commitments and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP, keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The November 2019 Incremental Commitments of SunTrust Bank and KeyBank National Association shall each be deemed effective as of the Requested Increase Date to the extent the all of the conditions precedent noted above are satisfied on or prior thereto. To the extent such conditions precedent are not satisfied as of such date, this Letter Agreement shall be of no further force or effect except to the extent extended or otherwise agreed to by the Agent, SunTrust Bank, KeyBank National Association, Borrower, and each Guarantor.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent
By: /s/ Ryan Almond
Name: Ryan Almond
Title: Director
The undersigned hereby accept, and acknowledge the terms and conditions set forth above in this Letter Agreement with respect to the November 2019 Incremental Commitments:
SUNTRUST BANK, as a Lender
By: /s/ Ryan Almond
Name: Ryan Almond
Title: Director
KEYBANK NATIONAL ASSOCIATION, as a Lender
By:
Name:
Title:
The undersigned hereby request, accept, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the November 2019 Incremental Commitments:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
GUARANTORS:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
REVISED SCHEDULE II OF CREDIT AGREEMENT
Commitment Amounts
SunTrust Bank |
$ 102,500,000 |
45.5555555556% |
Key Bank |
$ 62,500,000 |
27.7777777778% |
Raymond James |
$ 30,000,000 |
13.3333333333% |
Chemical Bank |
$ 15,000,000 |
6.6666666667% |
Synovus Bank |
$ 15,000,000 |
6.6666666667% |
Total |
$ 225,000,000 |
100.0000000000% |
NEW MORTGAGED PROPERTIES
September 4, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Re: |
Letter Agreement (the “Letter Agreement”) concerning that certain Revolving Credit Agreement dated as of January 28, 2019 (the “Original Credit Agreement”) among NexPoint Residential Trust Operating Partnership, L.P. (the “Borrower”), the financial institutions party thereto, as lenders (the “Lenders”), and SunTrust Bank, as Administrative Agent (the “Agent”), as the same has been previously modified or supplemented by that certain letter agreement dated as of June 28, 2019 (the “June 2019 Letter Agreement”) and that certain August 2019 Modification of Loan Documents (the “August 2019 Modification”; collectively, with the June 2019 Letter Agreement and the Original Credit Agreement, as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), and the Borrowers’ request for Incremental Commitments (as defined therein; and in addition to those obtained in connection with the June 2019 Letter Agreement) in an aggregate amount equal to $25,000,000.00 (the “September 2019 Incremental Commitments”) pursuant to Section 2.23 thereof (the “September 2019 Increase”). |
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Borrower has previously requested and obtained the Subject Increase in the Revolving Commitments, as referenced in the June 2019 Letter Agreement. As a result of the application and effectiveness of the August 2019 Modification, the Borrower is, as of the date hereof, entitled to request up to $25,000,000.00 in additional Incremental Commitments pursuant to Section 2.23 of the Credit Agreement.
Borrower has notified the Agent and Lenders of its intention to request the September 2019 Increase pursuant to the terms of Section 2.23 of the Credit Agreement. This Letter Agreement constitutes Borrower’s written request for the September 2019 Increase and Borrower’s requested date for the effectiveness of the September 2019 Incremental Commitments is September 10, 2019 (the “Requested Increase Date”). The Agent hereby acknowledges receipt of the request for the September 2019 Increase.
KeyBank National Association (the “New Lender”), in connection with Borrower’s request for the September 2019 Incremental Commitments and subject to the terms and conditions set forth in this Letter Agreement and Section 2.23(b) of the Credit Agreement, has agreed to be an Additional Lender under the Credit Agreement and to provide Incremental Commitments thereunder in an amount equal to $25,000,000.00 (the full amount of the requested September 2019 Incremental Commitments) pursuant to the terms of a Lender Joinder Agreement executed and delivered in connection with this Letter Agreement.
As a result of the Incremental Commitments set forth above, Schedule II attached to the Credit Agreement shall be automatically modified to read as provided on Exhibit A attached hereto.
The effectiveness of the September 2019 Incremental Commitments as of the Requested Increase Date is subject to the following conditions precedent:
|
(b) |
the receipt by Agent of an originally-executed Lender Joinder Agreement dated as of the date of this Letter Agreement and otherwise in form and substance satisfactory to the Agent; |
|
(c) |
the receipt by Agent of an originally executed Note dated as of the date of this Letter Agreement and payable to New Lender; |
|
(d) |
evidence of appropriate corporate authorization on the part of the Borrower with respect to such September 2019 Incremental Commitments in form and substance acceptable to the Agent; |
|
(e) |
a certificate of the Borrower signed by a Responsible Officer, in form and substance reasonably acceptable to the Agent (i) certifying that each of the conditions in Section 2.23(a) has been satisfied (except as expressly waived in this Letter Agreement), (ii) providing calculations showing pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all September 2019 Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance, (iii) certifying as to no existing Defaults or Events of Default under the Credit Agreement; and |
|
(f) |
payment by Borrower to Agent and New Lender of the arranger and commitment fees separately agreed to between Borrower and the Agent and/or New Lender. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
(a) except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect;
(b) nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents;
(c)this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents; and
(d)except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any further Incremental Commitment or any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith.
In consideration of the modifications set forth in this Letter Agreement, Borrower and Guarantors, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent
relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, and New Lender with respect to the September 2019 Incremental Commitments and the Borrower, Guarantor, and New Lender are willing to acknowledge, consent and agree to the terms set forth herein with respect to the September 2019 Incremental Commitments and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP, keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The September 2019 Incremental Commitments of the New Lender shall each be deemed effective as of the Requested Increase Date to the extent the all of the conditions precedent noted above are satisfied on or prior thereto. To the extent such conditions precedent are not satisfied as of such date, this Letter Agreement shall be of no further force or effect except to the extent extended or otherwise agreed to by the Agent, New Lender, Borrower, and each Guarantor.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent and as a Lender
By: /s/ Ryan Almond
Name: Ryan Almond
Title:Director
The undersigned hereby accept, and acknowledge the terms and conditions set forth above in this Letter Agreement with respect to the September 2019 Incremental Commitments:
KEYBANK NATIONAL ASSOCIATION, as New Lender
By: /s/ Christopher T. Neil
Name: Christopher T. Neil
Title: Senior Banker
The undersigned hereby request, accept, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the September 2019 Incremental Commitments:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
GUARANTORS:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
REVISED SCHEDULE II OF CREDIT AGREEMENT
Commitment Amounts
Lender |
Revolving
|
% of Total |
SunTrust Bank |
$80,000,000 |
53.333333333% |
Raymond James Bank, N.A. |
$30,000,000 |
20.000000000% |
Synovus Bank |
$15,000,000 |
10.000000000% |
KeyBank National Association |
$25,000,000.00 |
16.666666667% |
September 4, 2019
c/o NexPoint Residential Trust, Inc.
300 Crescent Court, Suite 700
Dallas, Texas 75201
Attention: Matt McGraner
Telephone No. (972) 419-6229
Email: mmcgraner@highlandcapital.com
and:
Attention: Brian Mitts, Chief Financial Officer
Telephone No. (972) 419-2556
Email: bmitts@nexpointadvisors.com)
Re: |
Letter Agreement (the “Letter Agreement”) concerning that certain Revolving Credit Agreement dated as of January 28, 2019 (the “Original Credit Agreement”) among NexPoint Residential Trust Operating Partnership, L.P. (the “Borrower”), the financial institutions party thereto, as lenders (the “Lenders”), and SunTrust Bank, as Administrative Agent (the “Agent”), as the same has been previously modified or supplemented by that certain letter agreement dated as of June 28, 2019 (the “June 2019 Letter Agreement”) and that certain August 2019 Modification of Loan Documents (the “August 2019 Modification”; collectively, with the June 2019 Letter Agreement and the Original Credit Agreement, as amended, supplemented or otherwise modified from time to time, the “Credit Agreement”), and the Borrowers’ request for Incremental Commitments (as defined therein; and in addition to those obtained in connection with the June 2019 Letter Agreement) in an aggregate amount equal to $25,000,000.00 (the “September 2019 Incremental Commitments”) pursuant to Section 2.23 thereof (the “September 2019 Increase”). |
Gentlemen:
Reference is hereby made to the above-captioned Credit Agreement. Capitalized terms used herein and not otherwise defined shall have the meanings assigned to such terms in the Credit Agreement.
Borrower has previously requested and obtained the Subject Increase in the Revolving Commitments, as referenced in the June 2019 Letter Agreement. As a result of the application and effectiveness of the August 2019 Modification, the Borrower is, as of the date hereof, entitled to request up to $25,000,000.00 in additional Incremental Commitments pursuant to Section 2.23 of the Credit Agreement.
Borrower has notified the Agent and Lenders of its intention to request the September 2019 Increase pursuant to the terms of Section 2.23 of the Credit Agreement. This Letter Agreement constitutes Borrower’s written request for the September 2019 Increase and Borrower’s requested date for the effectiveness of the September 2019 Incremental Commitments is September 10, 2019 (the “Requested Increase Date”). The Agent hereby acknowledges receipt of the request for the September 2019 Increase.
KeyBank National Association (the “New Lender”), in connection with Borrower’s request for the September 2019 Incremental Commitments and subject to the terms and conditions set forth in this Letter Agreement and Section 2.23(b) of the Credit Agreement, has agreed to be an Additional Lender under the Credit Agreement and to provide Incremental Commitments thereunder in an amount equal to $25,000,000.00 (the full amount of the requested September 2019 Incremental Commitments) pursuant to the terms of a Lender Joinder Agreement executed and delivered in connection with this Letter Agreement.
As a result of the Incremental Commitments set forth above, Schedule II attached to the Credit Agreement shall be automatically modified to read as provided on Exhibit A attached hereto.
The effectiveness of the September 2019 Incremental Commitments as of the Requested Increase Date is subject to the following conditions precedent:
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(b) |
the receipt by Agent of an originally-executed Lender Joinder Agreement dated as of the date of this Letter Agreement and otherwise in form and substance satisfactory to the Agent; |
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(c) |
the receipt by Agent of an originally executed Note dated as of the date of this Letter Agreement and payable to New Lender; |
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(d) |
evidence of appropriate corporate authorization on the part of the Borrower with respect to such September 2019 Incremental Commitments in form and substance acceptable to the Agent; |
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(e) |
a certificate of the Borrower signed by a Responsible Officer, in form and substance reasonably acceptable to the Agent (i) certifying that each of the conditions in Section 2.23(a) has been satisfied (except as expressly waived in this Letter Agreement), (ii) providing calculations showing pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all September 2019 Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance, (iii) certifying as to no existing Defaults or Events of Default under the Credit Agreement; and |
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(f) |
payment by Borrower to Agent and New Lender of the arranger and commitment fees separately agreed to between Borrower and the Agent and/or New Lender. |
This Letter Agreement is further conditioned upon and subject to each of the following terms and conditions:
(a) except as specifically modified hereby, each of the terms and conditions of the Credit Agreement and Loan Documents are hereby ratified and confirmed and shall remain in force and effect;
(b) nothing herein shall in any way prejudice, impair or affect the rights and remedies of the Agent or Lenders under the Credit Agreement and/or the other Loan Documents;
(c)this Letter Agreement does not operate to waive any Default or defined Event of Default, whether now existing or hereafter arising, under the Credit Agreement or the other Loan Documents and, except as expressly stated herein, nothing contained herein does or is intended to constitute a waiver, or the creation of any agreement or commitment to provide any waiver in the future, of any Event of Default or potential Default or of the Secured Parties’ rights or remedies under the Credit Agreement and/or other Loan Documents; and
(d)except as specifically provided herein and subject to the relevant conditions precedent provided herein, nothing contained herein does or is intended to constitute an agreement or commitment by Agent or any Lender to provide any further Incremental Commitment or any release, amendment, supplement, extension, or other modification with respect to the Credit Agreement, the other Loan Documents, or the collateral held in connection therewith.
In consideration of the modifications set forth in this Letter Agreement, Borrower and Guarantors, for themselves and for each of their respective heirs, personal representatives, successors and assigns, each hereby releases and holds harmless each Secured Party and their respective officers, employees and agents, from any and all claims, counterclaims, demands, damages, debts, suits, liabilities, actions and causes of action of any nature whatsoever, including, without limitation, all claims, demands, and causes of action for contribution and indemnity, whether arising at law or in equity, whether known or unknown, whether liability be direct or indirect, liquidated or unliquidated, whether absolute or contingent, foreseen or unforeseen, and whether or not heretofore asserted, in each case to the extent relating to any of the Loan Documents, the making of the Loans, the administration of the Loans or any of the Loan Documents, or any business communications and/or dealings between Borrower and/or Guarantors, on one hand, and the Secured Parties, on the other, concerning the Loans or any of the Loan Documents (in each case to the extent
relating to events, conditions or circumstances arising on or prior to the date hereof). Further, Borrower agrees to hold each Secured Party harmless and indemnify each Secured Party and their respective successors and assigns from any and all claims or causes of action arising in connection with this Letter Agreement or the Loans.
To the extent this Letter Agreement accurately reflects the requests of the Borrower, Guarantor, and New Lender with respect to the September 2019 Incremental Commitments and the Borrower, Guarantor, and New Lender are willing to acknowledge, consent and agree to the terms set forth herein with respect to the September 2019 Incremental Commitments and otherwise accept and agree to the conditions set forth in this Letter Agreement, please (a) cause each of them to execute two (2) originals of this Letter Agreement to acknowledge such acceptance and agreement, (b) send a pdf of one of the execution pages counsel for the Agent (Keith Mrochek at Troutman Sanders, LLP, keith.mrochek@troutman.com), and (c) send the original signature pages via overnight courier to Mr. Mrochek at c/o Troutman Sanders, LLP, 301 South College Street, Suite 3400, Charlotte, NC 28202, 704-998-4059 (office phone).
The September 2019 Incremental Commitments of the New Lender shall each be deemed effective as of the Requested Increase Date to the extent the all of the conditions precedent noted above are satisfied on or prior thereto. To the extent such conditions precedent are not satisfied as of such date, this Letter Agreement shall be of no further force or effect except to the extent extended or otherwise agreed to by the Agent, New Lender, Borrower, and each Guarantor.
Each of the undersigned hereby represents and warrants that he/she is duly authorized to execute and deliver this Letter Agreement to the parties hereto on behalf of the party for whom he/she has executed this Letter Agreement.
This Letter Agreement may be executed in counterparts which, taken together, shall constitute an original. Delivery of an executed counterpart of this Letter Agreement by email, telecopier, or facsimile shall be effective as delivery of a manually executed counterpart thereof. This letter shall be governed by, and construed in accordance with, the laws of the State of New York. This Letter Agreement is subject to dispute resolution as provided in the Loan Agreement.
Should you have any questions concerning the foregoing, please do not hesitate to contact us.
[remainder of page left intentionally blank – signature pages to follow]
Sincerely,
SUNTRUST BANK, as Agent and as a Lender
By: /s/ Ryan Almond
Name: Ryan Almond
Title:Director
The undersigned hereby accept, and acknowledge the terms and conditions set forth above in this Letter Agreement with respect to the September 2019 Incremental Commitments:
KEYBANK NATIONAL ASSOCIATION, as New Lender
By: /s/ Christopher T. Neil
Name:Christopher T. Neil
Title:Senior Banker
The undersigned hereby request, accept, and acknowledge (each, as applicable) the terms and conditions set forth above in this Letter Agreement with respect to the September 2019 Incremental Commitments:
BORROWER:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P.,
a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC,
a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
GUARANTORS:
NEXPOINT RESIDENTIAL TRUST, INC.,
a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
cc:
Wick Phillips Gould & Martin, LLP
3131 McKinney, Suite 100
Dallas, Texas 75204
Attention: D.C. Sauter
Telephone No. (214) 740-4043
Email: dcsauter@wickphillips.com)
REVISED SCHEDULE II OF CREDIT AGREEMENT
Commitment Amounts
Lender |
Revolving
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% of Total |
SunTrust Bank |
$80,000,000 |
53.333333333% |
Raymond James Bank, N.A. |
$30,000,000 |
20.000000000% |
Synovus Bank |
$15,000,000 |
10.000000000% |
KeyBank National Association |
$25,000,000.00 |
16.666666667% |
AUGUST 2019 MODIFICATION OF LOAN DOCUMENTS
THIS AUGUST 2019 MODIFICATION OF LOAN DOCUMENTS (this “Agreement” or “Modification”) is made effective as of August 28, 2019 (the “Effective Date”), by and among NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership ("Borrower"), NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation ("Guarantor"), each of the undersigned in their capacities as “Pledgors” under any one or more of the Pledge Agreement, the Economic Interest Pledge Agreement, and the Equity Proceeds Pledge Agreement (each, as defined in the Credit Agreement referenced below), SUNTRUST BANK, a Georgia banking corporation, as administrative agent (in such capacity, and together with any successor Administrative Agent under the Credit Agreement (as hereinafter defined), the “Administrative Agent”), and the Lenders party to the Credit Agreement as of the date hereof.
RECITALS:
A.Reference is hereby made to that certain Revolving Credit Agreement dated as of January 28, 2019 by and among Borrower, Administrative Agent, and the Lenders party thereto (the “Original Credit Agreement”), as supplemented by that certain letter agreement dated as of June 28, 2019 concerning the exercise of the accordion feature set forth in Section 2.23 of the Original Credit Agreement (the “July 2019 Letter Agreement”; collectively, with the Original Credit Agreement, as the same may have been otherwise amended, restated, supplemented or otherwise modified prior to the date hereof and as modified hereby, the “Credit Agreement”) pursuant to which the Lenders have previously extended financing to the Borrower in the form of the Revolving Loans referenced therein. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
B.Guarantor has previously guaranteed the obligations of Borrower under and in connection with the Credit Agreement pursuant to the terms of that certain Guaranty Agreement dated as of January 28, 2019 (as the same may have been otherwise amended, restated, supplemented or otherwise modified prior to the date hereof and as modified hereby, the “Guaranty”).
C.The Borrower’s obligations under the Credit Agreement have been further secured by the Pledge Agreement, the Economic Interest Pledge Agreement, and the Equity Proceeds Pledge Agreement, each as referenced in the Credit Agreement, and executed and delivered by the respective Pledgors.
D.The July 2019 Letter Agreement provided for the increase, pursuant to Section 2.23 of the Credit Agreement, of the aggregate Revolving Commitments under the Credit Agreement to an aggregate amount of $125,000,000.00.
E.Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders wish to modify certain terms and provisions of the Loan Documents as set forth or required herein for the purposes of, among other things, providing for an increase in the amount by which the Revolving Commitments can be increased pursuant to Section 2.23 of the Credit Agreement, clarifying or updating certain provisions contained in the Credit Agreement relating to financial covenant calculations, and revising language in the Guaranty and certain of the other Collateral Documents to clarify the obligations secured thereby. The Administrative Agent and Lenders are willing to agree to such modifications subject to the satisfaction of certain conditions precedent as set forth herein and subject to Borrower, Guarantor, and Pledgors making the representations and assurances hereinafter set forth.
NOW, THEREFORE, in consideration of the recitals, the mutual representations and covenants contained in this Modification and other good consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower, Guarantor (as applicable), Pledgors (as applicable), Administrative Agent, and the Lenders do hereby agree as follows:
1.Recitals; Terms. The Recitals set forth above are true and correct and are made a part hereof. Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement.
2.Credit Agreement. The Credit Agreement is hereby modified in the following respects:
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(a)The definitions of “Adjusted EBITDA” and “Loan Documents” set forth in Section 1.1 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: |
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““Adjusted EBITDA” means (a) EBITDA for the most recently ended calendar quarter, annualized, less (b) the Net Required Capex Reserve.” |
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““Loan Documents” shall mean, collectively, this Agreement, the Collateral Documents, the Fee Letter, all Notices of Borrowing, all Notices of Conversion/Continuation, all Compliance Certificates, the June 2019 Letter Agreement, the August 2019 Modification, any promissory notes issued hereunder and any and all other instruments, agreements, documents and writings executed in connection with any of the foregoing.” |
(b)The following defined terms are hereby included in the definitions contained in Section 1.1 of the Credit Agreement in their respective proper alphabetical order:
““August 2019 Modification” shall mean that certain August 2019 Modification of Loan Documents among the Borrower, Guarantors, Lenders, and Administrative Agent dated as of August 28, 2019.”
““June 2019 Letter Agreement” shall mean that certain letter agreement dated as of June 28, 2019 among the Borrower, Guarantors, Lenders, and Administrative Agent and documentation executed and delivered in connection therewith.”
““Net Required Capex Reserve” means, as of any date of determination, an amount, not less than zero ($0.00) equal to (a) the Capital Expenditure Reserve, less (b) the amount of capital expenditure reserves already held on the Borrower’s balance sheet in the form of cash or cash equivalents.”
(c)Clauses (a) and (b) of Section 2.23 of the Credit Agreement are hereby deleted in their entirety and replaced with the following:
(a)“(a)From time to time after the Closing Date and in accordance with this Section, the Borrower and one or more Increasing Lenders or Additional Lenders (each as defined below) may enter into an agreement to increase the aggregate Revolving Commitments hereunder (each such increase, an “Incremental Commitment”) so long as the following conditions are satisfied:
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(i) |
(i)the aggregate principal amount of all such Incremental Commitments made from time to time pursuant to this Section shall not result in the aggregate Revolving Commitments hereunder exceeding $150,000,000.00 (the principal amount of each such Incremental Commitment, the “Incremental Commitment Amount”); provided, that the parties hereto acknowledge and agree that, pursuant to the terms of the June 2019 Letter Agreement, the Revolving Commitments have been, effective as of June 28, 2019, previously increased through the effectiveness of Incremental Commitments from the initial $75,000,000.00 provided by the Lenders as of the Closing Date to $125,000,000.00 and that, effective as of and following June 28, 2019, the remaining potential increase in the Revolving Commitments available pursuant to this Section 2.23 is $25,000,000.00; |
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(ii) |
(ii)the Borrower shall execute and deliver such documents and instruments and take such other actions as may be reasonably required by the Administrative Agent in connection with and at the time of any such proposed increase; |
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(iii) |
(iii)at the time of and immediately after giving effect to any such proposed increase, no Default or Event of Default shall exist, all representations and warranties of each Credit Party set forth in the Loan Documents shall be true and correct in all material respects; |
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(iv) |
(iv)any Incremental Commitments provided pursuant to this Section shall be secured by the same collateral securing the pre-existing Revolving |
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Commitments, terminate as of the Maturity Date and otherwise be subject to the same terms, conditions, and pricing as the pre-existing Revolving Commitments; provided, that (A) any commitment or upfront fees related thereto and payable to any applicable Increasing Lender or Additional Lender shall be as may be agreed to between the Borrower and any such party; and (B) any arrangement fees related thereto and payable to Arranger shall be as may be agreed to between Borrower and Arranger in connection with such Incremental Commitments (and the effectiveness of any such Incremental Commitments shall be conditioned upon the Arranger’s approval of such arrangement fees); |
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(v) |
(v)the Borrower and its Subsidiaries shall be in pro forma compliance with each of the financial covenants set forth in Section 5.2 as of the most recently ended Fiscal Quarter for which financial statements are required to have been delivered, and calculated as if all such Incremental Commitments had been established (and fully funded) as of the first day of the relevant period for testing compliance; |
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(vi) |
(vi)the Borrower may not request and receive more than two (2) incremental increases in the Revolving Commitments (with all increases in such commitments entered into as of the same day being deemed a single increase) and each such incremental increase shall be in an aggregate amount of not less than $20,000,000. |
(b)The Borrower shall provide at least 5 days’ written notice to the Administrative Agent (who shall promptly provide a copy of such notice to each Lender) of any proposal to establish an Incremental Commitment. The Borrower may also, but is not required to, specify any fees offered to those Lenders (the “Increasing Lenders”) that agree to increase the principal amount of their Revolving Commitments, which fees may be variable based upon the amount by which any such Lender is willing to increase the principal amount of its Revolving Commitment. Each Increasing Lender shall as soon as practicable, specify in a written notice to the Borrower and the Administrative Agent the amount of such proposed Incremental Commitment that it is willing to provide. No Lender (or any successor thereto) shall have any obligation, express or implied, to offer to increase the aggregate principal amount of its Revolving Commitment, and any decision by a Lender to increase its Revolving Commitment shall be made in its sole discretion independently from any other Lender. Only the consent of each Increasing Lender shall be required for an increase in the aggregate principal amount of the Revolving Commitments pursuant to this Section. No Lender which declines to increase the principal amount of its Revolving Commitment may be replaced with respect to its existing Revolving Commitment as a result thereof without such Lender’s consent. If any Lender shall fail to notify the Borrower and the Administrative Agent in writing about whether it will increase its Revolving Commitment prior to the date on which the Borrower and Administrative Agent have selected allocations for any Incremental Commitments, such Lender shall be deemed to have declined to increase its Revolving Commitment. The Borrower may accept some or all of the offered amounts or designate new lenders that are acceptable to the Administrative Agent (such approval not to be unreasonably withheld) as additional Lenders hereunder in accordance with this Section (the “Additional Lenders”), which Additional Lenders may assume all or a portion of such Incremental Commitment. The Borrower and the Administrative Agent shall have discretion jointly to adjust the allocation of such Incremental Commitments among the Increasing Lenders and the Additional Lenders.”
(d)Section 5.2(c) of the Credit Agreement is hereby deleted in its entirety and replaced with the following:
“(c)Tangible Net Worth at all times of not less than the sum of (i) $375,000,000.00, plus (ii) 90% of the net proceeds of all equity issuances of the Parent raised after the Closing Date;”
3.Pledge Agreement. Each document constituting part of the Pledge Agreement is hereby amended in the following respects:
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(a)The text of Section 1 of each document constituting part of the Pledge Agreement is hereby deleted in its entirety and replaced with the following: |
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“Grant of Pledge. As security for the punctual payment and performance in full when due of the Obligations (including, without limitation, all Hedging Obligations owed by Borrower, Guarantor, or any other Credit Party referenced in the Credit Agreement to any Lender-Related Hedge Provider, and all Bank Product Obligations), each Pledgor does hereby grant, and pledge a continuing lien on, and security interest in, all of its right, title, and interest in and to the Collateral.” |
4.Economic Interest Pledge Agreement. The Economic Interest Pledge Agreement is hereby amended in the following respects:
(a)The text of Section 3 of the Economic Interest Pledge Agreement is hereby deleted in its entirety and replaced with the following:
“Security for Obligations. This Agreement secures, and the Collateral is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand, or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. § 362(a)), of the Obligations, including, without limitation, all Hedging Obligations owed by Borrower, Guarantor, or any other Credit Party referenced in the Credit Agreement to any Lender-Related Hedge Provider, and all Bank Product Obligations (all such obligations of Pledgor, being referred to herein, singly and collectively, as the “Secured Obligations”).”
5.Equity Proceeds Pledge Agreement. The Equity Proceeds Pledge Agreement is hereby amended in the following respects:
(a)The definition of the term “Obligations” contained in Section 2 of the Equity Proceeds Pledge Agreement is hereby deleted in its entirety and replaced with the following:
““Obligations” shall mean all obligations, indebtedness, and liabilities of each Pledgor and Borrower to Agent or any Lender, whether now existing or hereafter arising, direct or indirect, absolute or contingent, under any one or more of this Agreement and the other Loan Documents, including all of the “Obligations” referenced in the Credit Agreement (which include, without limitation, all Hedging Obligations owed by Borrower, Pledgor, or any other Credit Party referenced in the Credit Agreement to any Lender-Related Hedge Provider, and all Bank Product Obligations).”
6.Guaranty. The Guaranty is hereby amended in the following respects:
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(a)The text of Section 1 of the Guaranty is hereby deleted in its entirety and replaced with the following: |
Obligations owed by Borrower, Guarantor, or any other Credit Party referenced in the Credit Agreement to any Lender-Related Hedge Provider, (c) all Bank Product Obligations, together with all renewals, extensions, modifications or refinancings of any of the foregoing, and (d) all expenses, including, without limitation, reasonable attorneys’ fees and disbursements, that are incurred by the Lenders or the Agent in the enforcement of any of the foregoing or any obligation of Guarantor hereunder. Notwithstanding anything in this Guaranty to the contrary, the obligations guaranteed under this Guaranty shall not include any Excluded Swap Obligations (as hereinafter defined). Guarantor further agrees that the Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension or renewal of any Obligation.” |
7.Loan Documents Generally. Each of the Loan Documents is hereby further amended in the following respects (to the extent the amendments set forth above have not already addressed such matters):
(a)Each reference contained in the Loan Documents to such Loan Document or any other Loan Document (as applicable), is hereby deemed to be a reference to each such document as amended and modified by this Modification (as applicable).
(b)This Modification shall be deemed to be included as a “Loan Document” in any and all references to the “Loan Documents” contained in any of the Loan Documents existing as of the date hereof or which are executed following the date hereof.
8.Conditions Precedent. The effectiveness of the proposed modification of the Loan Documents set forth herein is conditioned upon the Administrative Agent’s receipt of the following documents, materials, confirmations and/or payments, each of which shall be in a form and substance satisfactory to the Administrative Agent:
(a)two (2) duly executed original counterparts from Borrower, Guarantor, each Pledgor, each Lender, and Administrative Agent of this Modification (together with all required acknowledgements by such parties);
(b)payment by Borrower of (i) all outstanding fees and expenses of the Administrative Agent and the Administrative Agent’s counsel incurred in connection with the preparation, review, execution and delivery of this Modification, the documents executed in connection herewith, all other amendments, restatements, supplements or negotiations related to the Loan Documents or the Loans; and (ii) all other fees, expenses or other amounts payable by Borrower related to the Credit Agreement and/or the Loan Documents which are due and payable on the date hereof pursuant to the terms of any Loan Document;
(c)a certificate of “no change” from each of the Borrower and Guarantor certifying that such entity’s: (i) certificate of existence/good standing; and (ii) organizational documents have not been amended since the date of the closing of the Credit Agreement;
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(d)a current Certificate of Existence/Good Standing for each of the Borrower and the Guarantor issued by the jurisdiction in which such entity is organized and, with respect to the Borrower, a certified copy of a currently-effective authorization to transact business in each applicable state in which such authorization is required for the ownership and operation of the properties secured by the Security Instrument; |
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(e)resolutions from each of the Borrower, the Guarantor, and each Pledgor authorizing and approving the modification of the Loan Documents and the other matters set forth herein; |
(f)a legal opinion from counsel to the Borrower, Guarantor, and each Pledgor opining to the due authorization, execution, and effectiveness of this Modification; and
(g)such other and further items, information or materials as the Administrative Agent shall reasonably require.
9.Representations, Warranties and Acknowledgments of Borrower. As an inducement to the Administrative Agent and Lenders to enter into this Agreement, Borrower represents, warrants, covenants and acknowledges as follows (it being acknowledged by all parties that each such representation, warranty, covenant and acknowledgment relates to material matters upon which Administrative Agent and Lenders have relied):
(a)Title to all collateral (including all real and personal property) in which Administrative Agent was given a lien or security interest pursuant to the Loan Documents is vested in Borrower or the applicable Pledgor subject only to those matters specifically approved in writing by Administrative Agent or expressly permitted in the applicable Loan Document(s). No additional lien interests have been granted by Borrower or any Pledgor for any such collateral since the execution of the original Loan Documents.
(b)There are no defenses, offsets or counterclaims or other claims, legal or equitable, available to Borrower, the Guarantor, any Pledgor, or any other person or entity with respect to this Modification, the Loan Documents, or any other instrument, document and/or agreement described herein or therein, as modified and amended hereby, or with respect to the obligation of the Borrower to repay the Loans or other Obligations, as the case may be.
(c)Each of Borrower, Guarantor, and each Pledgor is a duly organized and validly existing entity under and with respect to the laws of its state of organization. Each of Borrower, Guarantor, and each Pledgor has the right and power and has obtained all authorizations necessary to execute and deliver this Modification and all other documents required to be delivered as conditions precedent to the effectiveness hereof and to perform their respective obligations hereunder and under the other Loan Documents (as applicable) in accordance with their respective terms. This Modification has been duly executed and delivered by a duly authorized officer of Borrower, Guarantor, and each Pledgor. This Modification and each of the other Loan Documents (in each case as amended hereby, if applicable), is a legal, valid and binding obligation of Borrower, the Guarantor, and each Pledgor (in each case, to the extent they are a party thereto), enforceable against the Borrower, Guarantor, and/or each Pledgor (as applicable) in accordance with their respective terms, except as the same may be limited by bankruptcy, insolvency, and other similar laws affecting the rights of creditors generally and the availability of equitable remedies for the enforcement of certain obligations contained herein or therein may be limited by equitable principles generally.
(d)There are no actions, suits or proceedings pending or threatened against or affecting Borrower, Guarantor, and/or any Pledgor which, if adversely determined, could affect Borrower’s, Guarantor’s, or any such Pledgor’s ability to perform its obligations under the Loan Documents or challenge the validity of or enforceability of, or ability of Borrower, Guarantor, and/or any such Pledgor to fulfill each of its obligations under this Modification, any of the other Loan Documents, or any of the other instruments, documents or agreements described herein, as modified and amended hereby, or the priority of any lien thereof, in any court, at law or in equity, or before any administrative agencies or other governmental authority.
(e)Borrower further represents and warrants that the ownership structure of each of the Borrower, the Guarantor, and each of the Pledgors has not been changed and each of Borrower’s, Guarantor’s, and each Pledgor’s organizational documents have not been modified or amended, in each case since the initial closing of the Credit Agreement, or have not been so changed or amended except to the extent of such amendments as have been provided to Administrative Agent in writing.
(f)Following the execution and delivery of this Modification, no Event of Default or Default exists under the Loan Documents as of the date hereof and, as of the date hereof, all of the covenants, representations and warranties made by the Borrower, Guarantor, and each Pledgor and contained in any of the Loan Documents are true and correct as of the date of this Modification (except to the extent any such representations or warranties expressly refer to an earlier date).
10.Reaffirmation of Collateral Document Obligations; Receipt of Modification. The Borrower, Guarantor, and each Pledgor each hereby acknowledges receipt of a copy of this Modification and agrees that (a) each of the Collateral Documents shall continue in full force and effect in favor of the Administrative Agent and for the
benefit of the Secured Parties with respect to the obligations guaranteed or secured thereby (as modified hereby), and (b) each of the Collateral Documents, as modified hereby, is hereby ratified and confirmed in all respects.
11.Future Delivery and Execution of Documents. Each of Borrower, Guarantor, and/or each Pledgor (as applicable) will execute such additional documents as are reasonably requested by the Administrative Agent to reflect the terms and conditions of this Modification, and will cause to be delivered such additional certificates, legal opinions and other documents as are reasonably required by the Administrative Agent.
12.Release. In consideration of the modifications set forth in this Modification, Borrower, Guarantor, and each Pledgor each hereby releases and holds harmless the Administrative Agent and each of the Lenders and their respective officers, employees and agents, from and against any claim, action, suit, demand, cost, expense or liability of any kind relating to the making of the extension of credit under the Credit Agreement, the administration of same or any business communications and dealings between or among the Borrower and/or Guarantor (or either of them), on one hand, and the Administrative Agent and any Lender, on the other, concerning the Credit Agreement, the extensions of credit thereunder, or any of the Loan Documents and arising on or prior to the date hereof.
13.Defaults Under the Credit Agreement. The failure of Borrower, Guarantor, and/or any Pledgor to perform any of their respective obligations under this Modification or any of the other Loan Documents (following any applicable notice and cure periods) or the falsity of any representation or warranty made herein or the failure of Borrower, Guarantor, and/or Pledgors to advise Administrative Agent that a representation or warranty made herein is no longer true shall, at the option of the Administrative Agent and Lenders, after expiration of any applicable cure period, constitute an Event of Default under the Credit Agreement.
14.Effectiveness. The Loan Documents and the terms and provisions thereof, as modified and amended hereby, and the liens and security interests created thereby shall constitute and remain in full force and effect as of the execution thereof. All of the terms of the Loan Documents, except to the extent modified herein or amended and restated in connection herewith, shall remain in full force and effect. The amendments contained herein shall be deemed to have prospective application only, unless otherwise specifically stated herein. Section headings in this Modification are included herein for convenience of reference only and shall not constitute a part of this Modification for any other purpose.
15.Savings Clause. If any provision of any of this Modification or of any Loan Document, as amended hereby, is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.
16.No Novation. Borrower, Guarantor, and each Pledgor each intend for the amendments to the Loan Documents to evidence an amendment to the terms of the existing indebtedness or obligations of Borrower, Guarantor, and/or Pledgors (as and to the extent applicable) to the Administrative Agent and Lenders and do not intend for such amendments to constitute a novation in any manner whatsoever.
17.Counterparts. This Modification may be executed in any number of counterparts, each of which when so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Modification to produce or account for more than one such counterpart for each of the parties hereto. Delivery by facsimile or PDF by any of the parties hereto of an executed counterpart of this Modification shall be as effective as an original executed counterpart hereof and shall be deemed a representation that an original executed counterpart hereof will be delivered. Each counterpart hereof shall be deemed to be an original and shall be binding upon all parties, their successors and assigns.
18.Fees and Expenses. The Borrower hereby agrees that all fees, expenses and costs incurred by the Administrative Agent or its counsel in reviewing, negotiating, preparing and granting the amendment set forth herein shall, to the extent not paid or invoiced as of the date hereof, be paid by it upon demand as fees, costs and expenses incurred in connection with the Credit Agreement.
19.Amendments; Use of Terms. This Modification may not be supplemented, changed, waived, discharged, terminated, modified or amended except in written form executed by all parties hereto. Wherever in this
Modification any word or combination of words (including defined terms) connotes number or gender, such word or combination of words shall be deemed of such number (singular or plural) and such gender (masculine, neuter or feminine) as the context and circumstances may require. This Modification shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, personal and legal representatives, successors and assigns.
20.Final Agreement. This Modification represents the final agreement between the parties and supersedes all previous negotiations, discussions and agreements, contemporaneous or subsequent, between the parties, and no parol evidence of any prior or other agreement shall be permitted to contradict or vary their terms. There are no promises, terms, conditions or obligations other than those contained in this Modification. There are no unwritten oral agreements between the parties.
21.Binding Effect. This Modification shall become effective as of the date set forth above upon satisfaction or waiver of all of the conditions set forth in Section 8 hereof and execution and delivery of this Modification by the Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders. Thereafter this Modification shall be binding upon and inure to the benefit of the parties hereto, and their respective successors and assigns.
22.Governing Law and Jurisdiction. This Modification and all matters relating thereto shall be governed by and construed and interpreted in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, Borrower, Guarantor, Pledgors, Administrative Agent, and the Lenders have executed this Modification under seal on the date first above written.
BORROWER/PLEDGOR:
NEXPOINT RESIDENTIAL TRUST OPERATING PARTNERSHIP, L.P., a Delaware limited partnership
By:NEXPOINT RESIDENTIAL TRUST, OPERATING PARTNERSHIP GP, LLC, a Delaware limited liability company, its General Partner
By:NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation, its Sole Member
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
GUARANTOR/PLEDGOR:
NEXPOINT RESIDENTIAL TRUST, INC., a Maryland corporation
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
ADDITIONAL PLEDGORS:
FRBH C1 RESIDENTIAL, LLC
FRBH EDGEWATER JV, LLC
FRBH NASHVILLE RESIDENTIAL, LLC
FREEDOM DUCK CREEK, LLC
FRBH JAX-TPA, LLC
HRT TIMBER CREEK, LLC
NXRT RADBOURNE LAKE, LLC
NXRT SABAL PALM, LLC
NXRT STEEPLECHASE, LLC
NXRTBH CORNERSTONE, LLC
NXRTBH BARRINGTON MILL, LLC
NXRTBH NORTH DALLAS 3, LLC
NXRT BAYBERRY, LLC
NXRTBH AZ2, LLC
NXRT VANDERBILT, LLC
BH WILLOWDALE MANAGER, LLC
FRBH REGATTA BAY, LLC
NXRTBH MCMILLAN, LLC
FREEDOM MIRAMAR APARTMENTS, LLC
HRTBH NORTH ATLANTA, LLC
NXRT CRESTMONT, LLC
NXRT BRANDYWINE LP, LLC,
a Delaware limited liability company
By:__/s/ Matt McGraner_______________________________
Name:__Matt McGraner_________________________________
Title:Executive Vice President and Chief Investment Officer____
ADMINISTRATIVE AGENT:
SUNTRUST BANK, as Administrative Agent,
By: _______________________________________
Name:Ryan Almond
Title:Director
LENDERS:
SUNTRUST BANK
By: _______________________________________
Name:Ryan Almond
Title:Director
RAYMOND JAMES BANK, N.A.
By: _______________________________________
Name:Ted A. Long
Title: Senior Vice President
SYNOVUS BANK
By: __/s/ David W. Bowman___________________
Name:David W. Bowman
Title: Director
Exhibit 21.1
The Company has the following subsidiaries:
Entity |
|
Jurisdiction |
BH Willowdale Manager, LLC |
|
Delaware |
C-1 Arbors, Inc. |
|
Delaware |
C-1 Cutter's Point, Inc. |
|
Delaware |
C-1 Eaglecrest, Inc. |
|
Delaware |
C-1 Silverbrook, Inc. |
|
Delaware |
FRBH Abbington SM, Inc. |
|
Delaware |
FRBH Abbington, LLC |
|
Delaware |
FRBH Arbors, LLC |
|
Delaware |
FRBH Beechwood SM, Inc. |
|
Delaware |
FRBH Beechwood, LLC |
|
Delaware |
FRBH C1 Residential, LLC |
|
Delaware |
FRBH Courtney Cove SM, Inc. |
|
Delaware |
FRBH Courtney Cove, LLC |
|
Delaware |
FRBH CP, LLC |
|
Delaware |
FRBH Duck Creek, LLC |
|
Delaware |
FRBH Eaglecrest, LLC |
|
Delaware |
FRBH Edgewater JV, LLC |
|
Delaware |
FRBH Edgewater Owner, LLC |
|
Delaware |
FRBH Edgewater SM, Inc. |
|
Delaware |
FRBH JAX-TPA, LLC |
|
Delaware |
FRBH Nashville Residential, LLC |
|
Delaware |
FRBH Regatta Bay, LLC |
|
Delaware |
FRBH Sabal Park SM, Inc. |
|
Delaware |
FRBH Sabal Park, LLC |
|
Delaware |
FRBH Silverbrook, LLC |
|
Delaware |
FRBH Timberglen, LLC |
|
Delaware |
FRBH Willow Grove SM, Inc. |
|
Delaware |
FRBH Willow Grove, LLC |
|
Delaware |
FRBH Woodbridge SM, Inc. |
|
Delaware |
FRBH Woodbridge, LLC |
|
Delaware |
Freedom C1 Residential, LLC |
|
Delaware |
Freedom Duck Creek, LLC |
|
Delaware |
Freedom Edgewater, LLC |
|
Delaware |
Freedom JAX-TPA Residential, LLC |
|
Delaware |
Freedom Miramar Apartments, LLC |
|
Delaware |
Freedom Willowdale, LLC |
|
Delaware |
HRT North Atlanta, LLC |
|
Delaware |
HRT Timber Creek, LLC |
|
Delaware |
HRTBH North Atlanta, LLC |
|
Delaware |
HRTBH Timber Creek, LLC Landmark at West Place, LLC LAT Briley Parkway, LLC |
|
Delaware Delaware Delaware |
NexPoint Residential Trust Operating Partnership GP, LLC |
|
Delaware |
NexPoint Residential Trust Operating Partnership, L.P. |
|
Delaware |
NXRT Abbington, LLC |
|
Delaware |
NXRT Atera II, LLC |
|
Delaware |
NXRT Atera, LLC |
|
Delaware |
NXRT AZ2, LLC |
|
Delaware |
NXRT Barrington Mill, LLC |
|
Delaware |
NXRT Bayberry, LLC NXRT Bella Solara, LLC |
|
Delaware Delaware |
NXRT Bloom, LLC NXRT Bloom Owner, LLC |
|
Delaware Delaware Delaware |
NXRT Brandywine GP I, LLC |
|
Delaware |
NXRT Brandywine GP II, LLC |
|
Delaware |
NXRT Brandywine LP, LLC NXRT Brentwood, LLC NXRT Brentwood Owner, LLC |
|
Delaware Delaware Delaware |
NXRT Cedar Pointe Tenant, LLC |
|
Texas |
NXRT Cedar Pointe, LLC |
|
Delaware |
NXRT Cityview, LLC |
|
Delaware |
NXRT Cornerstone, LLC |
|
Delaware |
NXRT Crestmont, LLC |
|
Delaware |
NXRT Enclave, LLC NXRT Glenview, LLC |
|
Delaware Delaware |
NXRT H2 TRS, LLC |
|
Delaware |
NXRT Heritage, LLC |
|
Delaware |
NXRT Hollister TRS, LLC |
|
Delaware |
NXRT Hollister, LLC |
|
Delaware |
NXRT Nashville Residential, LLC |
|
Delaware |
NXRT North Dallas 3, LLC |
|
Delaware |
NXRT Old Farm, LLC NXRT Pembroke, LLC NXRT Pembroke Owner, LLC |
|
Delaware Delaware Delaware |
NXRT PHX 3, LLC |
|
Delaware |
NXRT Radbourne Lake, LLC |
|
Delaware |
NXRT Rockledge, LLC |
|
Delaware |
NXRT Sabal Palms, LLC |
|
Delaware |
NXRT SM, Inc. |
|
Delaware |
NXRT Steeplechase, LLC |
|
Delaware |
NXRT Stone Creek, LLC |
|
Delaware |
NXRT Summers Landing GP, LLC |
|
Delaware |
NXRT Summers Landing LP, LLC NXRT Torreyana, LLC NXRT Torreyana Owner, LLC |
|
Delaware Delaware Delaware |
NXRT Vanderbilt, LLC NXRT West Place, LLC |
|
Delaware Delaware |
NXRTBH AZ2, LLC |
|
Delaware |
NXRTBH Barrington Mill Owner, LLC |
|
Delaware |
NXRTBH Barrington Mill SM, Inc. |
|
Delaware |
NXRTBH Barrington Mill, LLC |
|
Delaware |
NXRTBH Bayberry, LLC |
|
Delaware |
NXRTBH Cityview, LLC |
|
Delaware |
NXRTBH Colonnade, LLC |
|
Delaware |
NXRTBH Cornerstone Owner, LLC |
|
Delaware |
NXRTBH Cornerstone SM, Inc. |
|
Delaware |
NXRTBH Cornerstone, LLC |
|
Delaware |
NXRTBH Dana Point SM, Inc. |
|
Delaware |
NXRTBH Dana Point, LLC |
|
Delaware |
NXRTBH Foothill SM, Inc. |
|
Delaware |
NXRTBH Foothill, LLC |
|
Delaware |
NXRTBH Heatherstone SM, Inc. |
|
Delaware |
NXRTBH Heatherstone, LLC |
|
Delaware |
NXRTBH Hollister Tenant, LLC |
|
Texas |
NXRTBH Hollister, LLC |
|
Delaware |
NXRTBH Madera SM, Inc. |
|
Delaware |
NXRTBH Madera, LLC |
|
Delaware |
|
Delaware |
|
NXRTBH North Dallas 3, LLC |
|
Delaware |
NXRTBH Old Farm II, LLC |
|
Delaware |
NXRTBH Old Farm Tenant, LLC |
|
Delaware |
NXRTBH Old Farm, LLC |
|
Delaware |
NXRTBH Radbourne Lake, LLC |
|
Delaware |
NXRTBH Rockledge, LLC |
|
Delaware |
NXRTBH Sabal Palms, LLC |
|
Delaware |
NXRTBH Steeplechase, LLC |
|
Delaware |
NXRTBH Stone Creek, LLC |
|
Delaware |
NXRTBH Vanderbilt, LLC |
|
Delaware |
NXRTBH Versailles SM, Inc. |
|
Delaware |
NXRTBH Versailles, LLC |
|
Delaware |
Pear Ridge Partners, LLC |
|
Delaware |
RTT Hollister, LLC |
|
Texas |
RTT Rockledge, LLC |
|
Texas |
SOF Brandywine I Owner, L.P. |
|
Delaware |
SOF Brandywine II Owner, L.P. |
|
Delaware |
SOF-X GS Owner, L.P. |
|
Delaware |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:
We consent to the incorporation by reference in the registration statement (No. 333-216697) on Form S-3 and in the registration statement (No. 333-212052) on Form S-8 of NexPoint Residential Trust, Inc. of our report dated February 21, 2020, with respect to the consolidated balance sheets of NexPoint Residential Trust, Inc. and subsidiaries as of December 31, 2019 and 2018, and the related consolidated statements of operations and comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes and the related financial statement schedule which report appears in this December 31, 2019 annual report on Form 10-K of NexPoint Residential Trust, Inc., and to the reference to our firm under the heading of “Experts” in the prospectus.
Our report with respect to the consolidated financial statements and financial statement schedule of NexPoint Residential Trust, Inc. makes reference to NexPoint Residential Trust, Inc. changing its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases and Accounting Standards Update No. 2018-11, Leases – Targeted Improvements.
/s/ KPMG LLP
Dallas, Texas
February 21, 2020
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Jim Dondero, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of NexPoint Residential Trust, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 21, 2020
|
|
/s/ Jim Dondero |
|
|
Jim Dondero |
|
|
President |
|
|
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Brian Mitts, certify that:
1. |
I have reviewed this Annual Report on Form 10-K of NexPoint Residential Trust, Inc.; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: February 21, 2020
|
|
/s/ Brian Mitts |
|
|
Brian Mitts |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of NexPoint Residential Trust, Inc. (the “Company”) for the fiscal year ending December 31, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Jim Dondero, President of the Company, and Brian Mitts, Chief Financial Officer of the Company, each certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:
1. |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: February 21, 2020 |
|
/s/ Jim Dondero |
|
|
Jim Dondero President (Principal Executive Officer) |
|
|
|
Dated: February 21 2020 |
|
/s/ Brian Mitts |
|
|
Brian Mitts Chief Financial Officer (Principal Financial Officer) |