UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2018MARCH 31, 2019
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 000-55765
Inland Residential Properties Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland |
| 80-0966998 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
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|
2901 Butterfield Road, Oak Brook, Illinois |
| 60523 |
(Address of principal executive offices) |
| (Zip Code) |
630-218-8000
(Registrant’s telephone number, including area code)code: 630-218-8000
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☒
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | None | None |
As of August 2, 2018,May 9, 2019 there were 1,489,2222,183,727 shares of the registrant’s Class A common stock 408,816 shares of Class T common stock and 261,967 shares of Class T-3 common stock outstanding.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
TABLE OF CONTENTS
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Part I - Financial Information | |||||
Item 1. |
| Financial Statements |
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Item 2. |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Part II - Other Information | |||||
Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED BALANCE SHEETSSTATEMENTS OF NET ASSETS (LIQUIDATION BASIS)
AT MARCH 31, 2019 and DECEMBER 31, 2018
(unaudited)
|
| March 31, 2019 |
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| December 31, 2018 |
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ASSETS |
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Real estate investments at fair value |
| $ | 40,000,000 |
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| $ | 87,000,000 |
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Cash |
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| 23,605,274 |
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| 14,226,863 |
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Total assets |
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| 63,605,274 |
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| 101,226,863 |
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LIABILITIES |
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Mortgages payable |
| $ | 21,930,000 |
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| $ | 49,380,000 |
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Due to related parties |
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| 5,329,775 |
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| 5,256,839 |
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Transaction costs payable |
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| 425,751 |
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| 1,245,970 |
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Liabilities for estimated costs in excess of estimated receipts during liquidation |
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| 734,498 |
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| 373,261 |
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Total liabilities |
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| 28,420,024 |
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| 56,256,070 |
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Commitments and contingencies |
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Net assets in liquidation |
| $ | 35,185,250 |
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| $ | 44,970,793 |
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See accompanying notes to consolidated financial statements.
|
| June 30, 2018 (unaudited) |
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| December 31, 2017 |
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ASSETS |
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Assets: |
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Real estate: |
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Land |
| $ | 9,845,410 |
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| $ | 9,845,410 |
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Building and other improvements |
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| 94,078,849 |
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| 93,980,734 |
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Total real estate |
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| 103,924,259 |
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| 103,826,144 |
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Less: accumulated depreciation |
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| (6,234,848 | ) |
|
| (4,391,774 | ) |
Net real estate |
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| 97,689,411 |
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| 99,434,370 |
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Cash and cash equivalents |
|
| 4,546,190 |
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| 7,556,763 |
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Accounts and rents receivable, net |
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| 57,150 |
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| 72,576 |
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Acquired in place lease intangibles, net |
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| 198,345 |
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| 335,674 |
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Other assets |
|
| 278,987 |
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| 584,905 |
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Total assets |
| $ | 102,770,083 |
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| $ | 107,984,288 |
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LIABILITIES AND EQUITY |
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Liabilities: |
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Mortgages and note payable, net |
| $ | 62,914,280 |
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| $ | 66,396,156 |
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Accounts payable and accrued expenses |
|
| 909,857 |
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| 895,189 |
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Distributions payable |
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| 212,435 |
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| 213,859 |
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Due to related parties |
|
| 5,480,370 |
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| 5,273,153 |
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Other liabilities |
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| 216,038 |
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| 212,105 |
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Total liabilities |
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| 69,732,980 |
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| 72,990,462 |
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock, $.001 par value, 50,000,000 shares authorized, none outstanding |
|
| — |
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| — |
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Class A common stock, $.001 par value, 320,000,000 shares authorized, 1,486,010 shares and 1,479,155 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
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| 1,485 |
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| 1,479 |
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Class T common stock, $.001 par value, 40,000,000 shares authorized, 408,507 shares and 404,069 shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
| 409 |
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| 404 |
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Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 260,903 shares and 243,346 issued and outstanding as of June 30, 2018 and December 31, 2017, respectively |
|
| 261 |
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| 243 |
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Additional paid in capital (net of offering costs of $4,902,004 and $4,867,250 as of June 30, 2018 and December 31, 2017, respectively) |
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| 47,714,913 |
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| 47,049,832 |
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Distributions and accumulated losses |
|
| (14,679,965 | ) |
|
| (12,058,132 | ) |
Total stockholders’ equity |
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| 33,037,103 |
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| 34,993,826 |
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Total liabilities and stockholders’ equity |
| $ | 102,770,083 |
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| $ | 107,984,288 |
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INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS (LIQUIDATION BASIS)
(unaudited)
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| Three Months Ended March 31, |
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| 2019 |
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Net Assets in Liquidation at December 31, 2018 |
| $ | 44,970,793 |
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Initial liquidating distribution |
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| (9,900,000 | ) |
Change in estimated costs to be incurred during liquidation |
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| 114,457 |
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Net Assets in Liquidation at March 31, 2019 |
| $ | 35,185,250 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (GOING CONCERN BASIS)
(unaudited)
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| Three Months Ended March 31, |
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| 2018 |
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Income: |
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Rental income |
| $ | 2,312,334 |
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Other property income |
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| 287,541 |
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Total income |
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| 2,599,875 |
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Expenses: |
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Property operating expenses |
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| 830,893 |
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Real estate tax expense |
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| 280,659 |
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General and administrative expenses |
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| 480,600 |
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Business management fee |
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| 158,415 |
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Depreciation and amortization |
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| 1,050,613 |
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Total expenses |
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| 2,801,180 |
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Operating (loss) |
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| (201,305 | ) |
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Interest expense |
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| (611,634 | ) |
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Interest and other income |
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| 6,949 |
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Net loss |
| $ | (805,990 | ) |
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Net loss per common share, basic and diluted |
| $ | (0.37 | ) |
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Weighted average number of common shares outstanding, basic and diluted |
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| 2,152,649 |
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See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENT OF EQUITY (GOING CONCERN BASIS)
(unaudited)
|
| Common Stock |
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| Additional |
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| Distributions and |
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| Class A |
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| Class T |
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| Class T-3 |
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| Paid-In |
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| Accumulated |
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| |||||||||||||||||
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Losses |
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| Total |
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Balance at December 31, 2017 |
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| 1,479,155 |
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| $ | 1,479 |
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|
| 404,069 |
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| $ | 404 |
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| 243,346 |
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| $ | 243 |
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| $ | 47,049,832 |
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| $ | (12,058,132 | ) |
| $ | 34,993,826 |
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Proceeds from the offering |
|
| — |
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| — |
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| 2,296 |
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| 2 |
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| 14,499 |
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| 15 |
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| 404,983 |
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| — |
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| 405,000 |
|
Offering costs |
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| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
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| — |
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|
| (34,724 | ) |
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| — |
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|
| (34,724 | ) |
Issuance of shares from distribution reinvestment plan |
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| 9,564 |
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| 9 |
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| 2,702 |
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| 3 |
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| 1,464 |
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|
| 1 |
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| 321,932 |
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|
| — |
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| 321,945 |
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Shares repurchased |
|
| — |
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|
| — |
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|
| (220 | ) |
|
| — |
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|
| — |
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|
| — |
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| (5,146 | ) |
|
| — |
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|
| (5,146 | ) |
Distributions declared |
|
| — |
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|
| — |
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| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
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| (636,913 | ) |
|
| (636,913 | ) |
Net loss |
|
| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
|
|
| — |
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|
| (805,990 | ) |
|
| (805,990 | ) |
Equity based compensation |
|
| 37 |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
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|
| — |
|
|
| 3,311 |
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|
| — |
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|
| 3,311 |
|
Balance at March 31, 2018 |
|
| 1,488,756 |
|
| $ | 1,488 |
|
|
| 408,847 |
|
| $ | 409 |
|
|
| 259,309 |
|
| $ | 259 |
|
| $ | 47,740,188 |
|
| $ | (13,501,035 | ) |
| $ | 34,241,309 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONSCASH FLOWS (GOING CONCERN BASIS)
(unaudited)
|
| Three Months Ended June 30, |
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| Six Months Ended June 30, |
| ||||||||||
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| 2018 |
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| 2017 |
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| 2018 |
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| 2017 |
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Income: |
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Rental income |
| $ | 2,309,367 |
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| $ | 1,294,942 |
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| $ | 4,621,701 |
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| $ | 2,198,454 |
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Other property income |
|
| 304,758 |
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| 128,262 |
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|
| 592,299 |
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|
| 244,505 |
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Total income |
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| 2,614,125 |
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|
| 1,423,204 |
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|
| 5,214,000 |
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|
| 2,442,959 |
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Expenses: |
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Property operating expenses |
|
| 833,079 |
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| 432,756 |
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| 1,663,972 |
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|
| 696,666 |
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Real estate tax expense |
|
| 276,468 |
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| 164,056 |
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|
| 557,127 |
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| 253,999 |
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General and administrative expenses |
|
| 325,518 |
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|
| 390,663 |
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|
| 806,118 |
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|
| 694,517 |
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Business management fee |
|
| 158,563 |
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|
| 91,763 |
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|
| 316,978 |
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|
| 160,455 |
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Acquisition related costs |
|
| — |
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|
| 30,266 |
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|
| — |
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|
| 71,479 |
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Depreciation and amortization |
|
| 952,763 |
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|
| 609,311 |
|
|
| 2,003,376 |
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|
| 978,707 |
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Total expenses |
|
| 2,546,391 |
|
|
| 1,718,815 |
|
|
| 5,347,571 |
|
|
| 2,855,823 |
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
| 67,734 |
|
|
| (295,611 | ) |
|
| (133,571 | ) |
|
| (412,864 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense |
|
| (607,066 | ) |
|
| (423,299 | ) |
|
| (1,218,700 | ) |
|
| (675,550 | ) |
Interest and other income |
|
| 5,390 |
|
|
| 14,116 |
|
|
| 12,339 |
|
|
| 24,514 |
|
|
|
|
|
|
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|
|
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|
|
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Net loss |
| $ | (533,942 | ) |
| $ | (704,794 | ) |
| $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
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Net loss per common share, basic and diluted |
| $ | (0.25 | ) |
| $ | (0.42 | ) |
| $ | (0.62 | ) |
| $ | (0.67 | ) |
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|
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|
Weighted average number of common shares outstanding, basic and diluted |
|
| 2,156,997 |
|
|
| 1,696,801 |
|
|
| 2,154,835 |
|
|
| 1,595,207 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENT OF EQUITY
(unaudited)
|
| Common Stock |
|
| Additional |
|
| Distributions and |
|
|
|
|
| |||||||||||||||||||||||
|
| Class A |
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| Class T |
|
| Class T-3 |
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| Paid-In |
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| Accumulated |
|
|
|
|
| |||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Losses |
|
| Total |
| |||||||||
Balance at December 31, 2017 |
|
| 1,479,155 |
|
| $ | 1,479 |
|
|
| 404,069 |
|
| $ | 404 |
|
|
| 243,346 |
|
| $ | 243 |
|
| $ | 47,049,832 |
|
| $ | (12,058,132 | ) |
| $ | 34,993,826 |
|
Proceeds from the offering |
|
| — |
|
|
| — |
|
|
| 2,296 |
|
|
| 2 |
|
|
| 14,499 |
|
|
| 15 |
|
|
| 404,983 |
|
|
| — |
|
|
| 405,000 |
|
Offering costs |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (34,754 | ) |
|
| — |
|
|
| (34,754 | ) |
Issuance of shares from distribution reinvestment plan |
|
| 19,359 |
|
|
| 19 |
|
|
| 5,271 |
|
|
| 5 |
|
|
| 3,058 |
|
|
| 3 |
|
|
| 648,680 |
|
|
| — |
|
|
| 648,707 |
|
Shares repurchased |
|
| (12,906 | ) |
|
| (13 | ) |
|
| (3,129 | ) |
|
| (2 | ) |
|
| — |
|
|
| — |
|
|
| (359,846 | ) |
|
| — |
|
|
| (359,861 | ) |
Distributions declared |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,281,901 | ) |
|
| (1,281,901 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,339,932 | ) |
|
| (1,339,932 | ) |
Equity based compensation |
|
| 402 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,018 |
|
|
| — |
|
|
| 6,018 |
|
Balance at June 30, 2018 |
|
| 1,486,010 |
|
| $ | 1,485 |
|
|
| 408,507 |
|
| $ | 409 |
|
|
| 260,903 |
|
| $ | 261 |
|
| $ | 47,714,913 |
|
| $ | (14,679,965 | ) |
| $ | 33,037,103 |
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
|
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
| $ | (805,990 | ) |
|
Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| 2,003,376 |
|
|
| 978,707 |
|
|
| 1,050,613 |
|
|
Amortization of debt issuance costs |
|
| 18,124 |
|
|
| 5,950 |
|
|
| 10,262 |
|
|
Amortization of equity based compensation |
|
| 6,018 |
|
|
| 5,139 |
|
|
| 3,311 |
|
|
Discount on shares issued to related parties |
|
| — |
|
|
| 24,530 |
| |||||
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
| 320,713 |
|
|
| 238,845 |
|
|
| 270,204 |
|
|
Accounts and rents receivable |
|
| 15,426 |
|
|
| (28,076 | ) |
|
| 31,170 |
|
|
Due to related parties |
|
| 310,959 |
|
|
| 219,235 |
|
|
| 197,204 |
|
|
Other liabilities |
|
| 3,933 |
|
|
| 133,126 |
|
|
| 48,161 |
|
|
Other assets |
|
| 128,504 |
|
|
| (8,551 | ) |
|
| 79,993 |
|
|
Net cash flows provided by operating activities |
|
| 1,467,121 |
|
|
| 505,005 |
|
|
| 884,928 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of real estate |
|
| — |
|
|
| (22,936,173 | ) | |||||
Capital expenditures |
|
| (121,088 | ) |
|
| (20,166 | ) |
|
| (75,566 | ) |
|
Net cash flows used in investing activities |
|
| (121,088 | ) |
|
| (22,956,339 | ) |
|
| (75,566 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of note payable |
|
| (3,500,000 | ) |
|
| — |
|
|
| (3,500,000 | ) |
|
Proceeds from mortgage and note payable |
|
| — |
|
|
| 23,000,000 |
| |||||
Proceeds from offering |
|
| 405,000 |
|
|
| 9,632,568 |
|
|
| 405,000 |
|
|
Payment of debt issuance costs |
|
| — |
|
|
| (57,726 | ) | |||||
Distributions paid |
|
| (634,616 | ) |
|
| (430,053 | ) |
|
| (308,964 | ) |
|
Shares repurchased |
|
| (359,861 | ) |
|
| — |
|
|
| (5,146 | ) |
|
Payment of offering costs |
|
| (267,129 | ) |
|
| (1,563,568 | ) |
|
| (224,846 | ) |
|
Net cash flows provided by (used in) financing activities |
|
| (4,356,606 | ) |
|
| 30,581,221 |
|
|
| (3,633,956 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
| $ | (3,010,573 | ) |
| $ | 8,129,887 |
| |||||
Net decrease in cash and cash equivalents |
| $ | (2,824,594 | ) |
| ||||||||
Cash and cash equivalents, at beginning of the period |
|
| 7,556,763 |
|
|
| 9,038,642 |
|
|
| 7,556,763 |
|
|
Cash and cash equivalents, at end of period |
| $ | 4,546,190 |
|
| $ | 17,168,529 |
|
| $ | 4,732,169 |
|
|
See accompanying notes to consolidated financial statements.
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS) (continued)
(unaudited)
|
| Six Months Ended June 30, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
In conjunction with the purchase of real estate, the Company acquired assets and assumed liabilities as follows: |
|
|
|
|
|
|
|
|
Land |
| $ | — |
|
| $ | 1,492,382 |
|
Building and other improvements |
|
| — |
|
|
| 20,643,086 |
|
Furniture, fixtures and equipment |
|
| — |
|
|
| 339,645 |
|
Acquired in place lease intangibles |
|
| — |
|
|
| 645,035 |
|
Assumed assets and liabilities, net |
|
| — |
|
|
| (183,975 | ) |
Purchase of real estate |
| $ | — |
|
| $ | 22,936,173 |
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 1,223,960 |
|
| $ | 675,606 |
|
|
|
|
|
|
|
|
|
|
Distributions payable |
| $ | 212,435 |
|
| $ | 176,259 |
|
|
|
|
|
|
|
|
|
|
Accrued offering costs payable |
| $ | 490,105 |
|
| $ | 756,106 |
|
|
|
|
|
|
|
|
|
|
Stock dividends issued |
| $ | — |
|
| $ | 553,986 |
|
|
|
|
|
|
|
|
|
|
Common stock issued through distribution reinvestment plan |
| $ | 648,707 |
|
| $ | 479,079 |
|
|
| Three Months Ended March 31, |
|
| |
|
| 2018 |
|
| |
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 622,446 |
|
|
|
|
|
|
|
|
Distributions payable |
| $ | 219,862 |
|
|
|
|
|
|
|
|
Accrued offering costs payable |
| $ | 532,357 |
|
|
|
|
|
|
|
|
Common stock issued through distribution reinvestment plan |
| $ | 321,945 |
|
|
See accompanying notes to consolidated financial statements.
78
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2018March 31, 2019
(unaudited)
The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited consolidated financial statements of Inland Residential Properties Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2017,2018, which are included in the Company’s 20172018 Annual Report on Form 10-K/A,10-K, as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report.
NOTE 1 - ORGANIZATION
The Company was formed on December 19, 2013 to primarily acquire and manage a portfolio of multi-family properties located primarily in the top 100 United States metropolitan statistical areas, which generally contain populations greater than 500,000 people. The Company entered into a business management agreement (as amended, the “Business Management Agreement”) with Inland Residential Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), to be the Business Manager to the Company. Substantially all of the Company’s business is conducted through Inland Residential Operating Partnership, L.P. the (“operating partnership”), of which the Company is the sole general partner. The Company elected to be taxed as a real estate investment trust for U.S. federal income tax purposes under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with the tax year ended December 31, 2015.
On September 17, 2018, the Company’s board of directors approved the sale of all or substantially all of the Company’s assets, the Company’s liquidation and the Company’s dissolution pursuant to a plan of liquidation (the “Plan of Liquidation”), subject to the approval of the Company’s stockholders. The Company’s stockholders approved the Plan of Liquidation on December 18, 2018. The approval of the Plan of Liquidation by the Company’s stockholders caused the Company’s basis of accounting to change from the going-concern basis (the “Going-Concern Basis”) to the liquidation basis of accounting (the “Liquidation Basis of Accounting”).
On March 29, 2019, the Company sold to an unaffiliated third party “The Retreat at Market Square,” located in Frederick, Maryland, for a sale price of $47,000,000. At June 30, 2018,the closing, the Company received net proceeds of $18,758,218 representing the sale price of $47,000,000, net of closing costs, commissions, and certain prorations and adjustments, and the full repayment of $27,450,000 in mortgage debt that encumbered the property.
At March 31, 2019, the Company owned real estate consisting of threeone multi-family communitiescommunity totaling 623332 residential units. The properties consistproperty consists of 677,142376,968 square feet of residential and 10,609 square feet of retail gross leasable area. During the sixthree months ended June 30, 2018,March 31, 2019, the properties’ weightedproperty’s average daily occupancy for residential was 94.2%92.3% and at June 30, 2018, 605March 31, 2019, 307 units, or 97.1%96.4% of the total residential units were leased. At June 30, 2018, 100%While pursuing liquidation pursuant to the Plan of Liquidation, the Company intends to continue to manage its remaining real estate property.
The Plan of Liquidation
Pursuant to the plan, the Company expects to sell or otherwise dispose of all or substantially all of its properties and assets (including any assets held by the operating partnership and its and the Company’s subsidiaries). Following the completion of the retail units were occupied.sale or transfer of all of its assets in accordance with the Plan of Liquidation, the Company will pay or provide for its liabilities and expenses, distribute the remaining proceeds of the liquidation of its assets to its stockholders, wind up its operations and dissolve.
Pursuant to the Plan of Liquidation, on January 25, 2019, the Company paid an initial liquidating distribution of $4.53 per share of the Company’s Class A common stock, $.001 par value per share (“Class A Share”), to stockholders of record as of the close of business on January 25, 2019 (the “Initial Liquidating Distribution”). For information on the Company’s payment of the Second Liquidating Distribution (defined in Note 12 below), see Note 12, “Subsequent Events — Second Liquidating Distribution.”
The Company’s common stock is currently registered under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The Company may, after filing its articles of dissolution, seek relief from the Securities and Exchange Commission (the “SEC”) from the reporting requirements under the Exchange Act. The Company anticipates that, if relief is granted, the Company would continue to file current reports on Form 8-K to disclose material events relating to its liquidation and dissolution, along with any other reports that the SEC might require, but would discontinue filing Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.
9
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2017,2018, as filed with the Securities and Exchange CommissionSEC on March 21, 2018,29, 2019, under the heading “NoteNote 2 - Summary– “Summary of Significant Accounting Policies.” There has been no change to the Company’s significant accounting policies during the sixthree months ended June 30, 2018March 31, 2019 except as noted below.
General
The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.
Basis of Presentation
Recently AdoptedPre Plan of Liquidation
All financial results and disclosures for the three months ended March 31, 2018, which was completed prior to the Company adopting the Liquidation Basis of Accounting, Pronouncements
In November 2016,are presented on a Going-Concern Basis, which contemplated the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statementrealization of Cash Flows (Topic 230): Restricted Cash. The new update will require that amounts described as restricted cashassets and restricted cash equivalents be includedliabilities in beginningthe normal course of business. As a result, the consolidated statement of operations, the consolidated statement of equity and ending-of-period reconciliation of cash shown on the consolidated statement of cash flows.flows for the three months ended March 31, 2018 are presented on a Going-Concern Basis. For a discussion of significant accounting polices applicable to the going concern financial statements, see the Company’s 2018 Annual Report on Form 10-K.
Post Plan of Liquidation
As a result of the approval of the Plan of Liquidation by the Company’s stockholders, the Company has adopted the Liquidation Basis of Accounting as of December 18, 2018 and for the subsequent periods in accordance with U.S. GAAP. The amendment was effectiveconsolidated statements of net assets, presented as of March 31, 2019 and December 31, 2018, and the consolidated statement of changes in net assets, presented for fiscal years beginning afterthe three months ended March 31, 2019, are presented using the Liquidation Basis of Accounting.
The consolidated statements of net assets presents the estimated amount of net assets that the Company expects to be available for distribution at the end of its Plan of Liquidation. Accordingly, as of March 31, 2019 and December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. At June 30,31, 2018 the Company does not have restrictedCompany’s net assets are presented at estimated net realizable value, or liquidation value, which represents the estimated amount of cash in its consolidated balance sheets and therefore, the new guidance has had no impact to its consolidated financial statements or related disclosures.
On January 1, 2018,that the Company adopted Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, which requiresexpects to collect on disposal of assets as it carries out the Plan of Liquidation. The liquidation value of the Company’s assets is presented on an entity to recognizeundiscounted basis. Liabilities are carried at their contractual amounts due or estimated settlement amounts.
The consolidated statement of changes in net assets reflects changes in net assets in liquidation for the amount of revenue to whichthree months ended March 31, 2019, as further described below.
The Company accrues costs and income that it expects to be entitledincur and earn through the end of liquidation to the extent it has a reasonable basis for estimation. These amounts are classified as a liability for estimated costs in excess of estimated receipts during liquidation on the consolidated statements of net assets. The Company currently estimates that it will have costs in excess of estimated receipts during the liquidation. These amounts can vary significantly due to, among other things, the timing and estimates for the transfer of promised goods or services to customers. The Company selectedamounts associated with discharging known and contingent liabilities and the modified retrospective transition method which would include a cumulative effect of applying the standard on January 1, 2018. As the Company has reviewed its revenue streams and has concluded its previous recognition of revenue is in compliancecosts associated with the new standard, no cumulative effect adjustment is required. Common areawinding up of operations. These costs are estimated and are anticipated to be paid out over the liquidation period. See Note 4 — “Net Assets in Liquidation” for further discussion.
810
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
maintenance reimbursements that may be impacted will not be addressed until the Company's adoption of ASU No. 2016-02, Leases (Topic 842) considering its revisions to accounting for common area maintenance.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. On July 30, 2018 the FASB issued ASU No. 2018-11, Targeted Improvements, Leases (Topic 842), which would provide lessors with a practical expedient, by class of underlying assets, to not separate non-lease components from the related lease components and, instead, to account for those components as a single lease component, if certain criteria are met. ASU No. 2018-11 also provides companies with an additional (and optional) transition method to adopt the new leases standard. Under this new transition method, an entity initially applies the new leases standard at the adoption date and recognizes a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. Both ASU No. 2016-02 and ASU No 2018-11 are effective for the Company on January 1, 2019, with early adoption permitted. The Company is continuing to evaluate this guidance and the impact on its consolidated financial statements. The Company expects to utilize the practical expedients in the amendment as part of its adoption of ASU No. 2016-02.
NOTE 3 – EQUITY
The Company commenced an offering of shares of Class A common stock, $.001 par value per share (“Class A Shares”)Shares and shares of Class T common stock, $.001 par value per share (“Class T Shares”) on February 17, 2015 (the “Offering”) and, effective February 2, 2017, the Company reallocated certain of the remaining shares offered in the Offering to offer shares of Class T-3 common stock, $.001 par value per share (“Class T-3 Shares”). The Company ceased accepting subscription agreements dated after December 31, 2017 and terminated the Offering on January 3, 2018. Excluding the distribution reinvestment plan (as amended, the “DRP”), the Company issued 1,401,711 Class A Shares, 390,230 Class T Shares and 255,666 Class T-3 Shares generating gross proceeds of approximately $50 million from the Offering. AsOn January 23, 2019, all of June 30, 2018, the Company had 1,486,010, 408,507 and 260,903 Class A Shares,Company’s outstanding Class T Shares and Class T-3 Shares outstanding, respectively.automatically converted to Class A Shares. As of March 31, 2019, the Company had 2,183,727 Class A Shares outstanding.
On February 2, 2018,Historically, the Company’s board of directors determined an estimated per share net asset value (“Estimated Per Share NAV”) for each class of its common stock. The Company intends to publish an updated estimated value of its shares on at least an annual basis.
The Company providesprovided the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders. On September 17, 2018, in contemplation of the Plan of Liquidation, which was still pending at that time, the Company’s board of directors determined to terminate the Company’s DRP and share repurchase program (“SRP”).
Distribution Reinvestment Plan
ThePrior to September 17, 2018, which was prior to the transition to the Liquidation Basis of Accounting, the Company providesprovided stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. For participants in the DRP, cash distributions paid on Class A Shares, Class T Shares and Class T-3 Shares, as applicable, arewere used to purchase Class A Shares, Class T Shares and Class T-3 Shares, respectively. Such purchases under the DRP arewere not subject to selling commissions, dealer manager fees, distribution and stockholder servicing fees or reimbursement of issuer costs in connection with shares of common stock issued through the DRP. UnderThe price per share for shares of common stock purchased under the DRP beginningwere made initially at a price of $23.75, $22.81 and $22.81 per Class A Share, Class T Share and Class T-3 Share, respectively, until February 5, 2018 when the Company reported estimated per share net asset values of its common stock. Beginning with the February 2018 distribution paymentpayments made to stockholders in March 2018 until the Company announces new estimated per share net asset values, distributions may be reinvested forterminated the DRP in September 2018, shares of common stock purchased under the DRP were at the applicable Estimated Pera price equal to $23.15 per Class A Share, NAV.
9
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
$24.32 per Class T Share and $23.55 per Class T-3 Share.
Distributions reinvested through the DRP were $648,707 and $479,079$321,945 for the sixthree months ended June 30, 2018 and 2017, respectively.March 31, 2018.
Share Repurchase Program
UnderPrior to September 17, 2018, which was prior to the share repurchase program (as amended,transition to the “SRP”),Liquidation Basis of Accounting, under the SRP, the Company iswas authorized, in its discretion, to purchase shares from stockholders who purchased their shares from the Company or received their shares through a non-cash transfer and who havehad held their shares for at least one year, if requested. Subject to funds being available, the Company limitslimited the number of shares repurchased during any calendar year to 5% of the number of shares of common stock outstanding on December 31st of the previous calendar year. Funding for the SRP iswas limited to the proceeds that the Company receivesreceived from the DRP during the same period. In the case of repurchases made upon the death of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole direction, may, at any time, amend, suspend or terminate the SRP.applied.
Repurchases through the SRP were $359,861$5,146 during the sixthree months ended June 30,March 31, 2018. There were no repurchases through the SRP during the six months ended June 30, 2017.
NOTE 4 – ACQUISITIONSNET ASSETS IN LIQUIDATION
DuringNet assets in liquidation decreased by $9,785,543 during the sixthree months ended June 30, 2018,March 31, 2019 to $35,185,250. The changes were due to the Initial Liquidating Distribution of $9,900,000 and a $114,457 reduction in estimated costs to be incurred during liquidation. Net assets in liquidation includes projections of costs and expenses to be incurred during the period required to complete the Plan of Liquidation. There is inherent uncertainty with these estimates, and they could change materially based on changes in the underlying assumptions of the projected cash flows. The amount of net cash proceeds available for distribution pursuant to the Plan of Liquidation depends on a variety of factors, including, but not limited to, the amount required to pay both existing liabilities and obligations as well as any contingent liabilities and the cost of operating the Company didthrough the date of its final dissolution. The net
11
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
assets in liquidation value is based on certain assumptions and estimates and may not acquire any real estate properties.reflect the amount that our stockholders will receive in the Plan of Liquidation.
NOTE 5 – ACQUIRED INTANGIBLE ASSETS
The following table summarizes the Company’s identified intangible assets and liabilities as of June 30, 2018 and December 31, 2017:
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||
Intangible assets: |
|
|
|
|
|
|
|
|
Acquired in place lease value |
| $ | 592,511 |
|
| $ | 592,511 |
|
Accumulated amortization |
|
| (394,166 | ) |
|
| (256,837 | ) |
Acquired lease intangibles, net |
| $ | 198,345 |
|
| $ | 335,674 |
|
As of June 30, 2018, the weighted average amortization period for acquired in place lease intangibles is 3.6 years.
The portion of the purchase price allocated to acquired in place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.
Amortization pertaining to acquired in place lease value is summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
|
| |||||||||||
Amortization recorded as amortization expense: |
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| |||||
Acquired in place lease value |
| $ | 21,259 |
|
| $ | 112,041 |
|
| $ | 137,329 |
|
| $ | 112,041 |
|
| $ | 116,070 |
|
|
10
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Estimated amortization of the respective intangible lease assets and liabilities as of June 30, 2018 for each of the five succeeding years and thereafter is as follows:
|
| Acquired In-Place Leases |
|
| |
2018 (remainder of year) |
| $ | 42,518 |
|
|
2019 |
|
| 85,035 |
|
|
2020 |
|
| 48,976 |
|
|
2021 |
|
| 21,816 |
|
|
2022 |
|
| — |
|
|
Thereafter |
|
| — |
|
|
Total |
| $ | 198,345 |
|
|
NOTE 6 – MORTGAGES AND NOTE PAYABLE, NET
As of June 30, 2018March 31, 2019 and December 31, 2017,2018, the Company had the following mortgages and note payable:
|
|
|
|
|
|
|
| June 30, 2018 |
|
| December 31, 2017 |
| ||||||||||
Type of Debt |
| Maturity Date |
| Interest Rate per Annum |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
| |||||
Mortgages Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Retreat at Market Square |
| September 30, 2023 |
|
| 3.64 | % |
| $ | 27,450,000 |
|
|
|
|
|
| $ | 27,450,000 |
|
|
|
|
|
Commons at Town Center |
| May 3, 2024 |
|
| 3.69 | % |
|
| 13,800,000 |
|
|
|
|
|
|
| 13,800,000 |
|
|
|
|
|
Verandas at Mitylene |
| August 1, 2027 |
|
| 3.88 | % |
|
| 21,930,000 |
|
|
|
|
|
|
| 21,930,000 |
|
|
|
|
|
Total Mortgages |
|
|
|
|
|
|
| $ | 63,180,000 |
|
|
| 3.73 | % |
| $ | 63,180,000 |
|
|
| 3.73 | % |
Note Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commons at Town Center |
|
|
|
|
|
|
|
| — |
|
|
|
|
|
|
| 3,500,000 |
|
|
| 5.40 | % |
Total debt before debt issuance costs |
|
|
|
|
|
|
| $ | 63,180,000 |
|
|
| 3.73 | % |
| $ | 66,680,000 |
|
|
| 3.82 | % |
Unamortized debt issuance costs |
|
|
|
|
|
|
|
| (265,720 | ) |
|
|
|
|
|
| (283,844 | ) |
|
|
|
|
Total debt |
|
|
|
|
|
|
| $ | 62,914,280 |
|
|
|
|
|
| $ | 66,396,156 |
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
Type of Debt |
| Maturity Date |
| Interest Rate per Annum |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
|
| Principal Amount |
|
| Weighted Average Interest Rate |
| |||||
Mortgages Payable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Retreat at Market Square |
| September 30, 2023 (1) |
|
| 3.64 | % |
| $ | — |
|
|
|
|
|
| $ | 27,450,000 |
|
|
|
|
|
Verandas at Mitylene |
| August 1, 2027 |
|
| 3.88 | % |
|
| 21,930,000 |
|
|
|
|
|
|
| 21,930,000 |
|
|
|
|
|
Total debt |
|
|
|
|
|
|
| $ | 21,930,000 |
|
|
| 3.88 | % |
| $ | 49,380,000 |
|
|
| 3.75 | % |
(1) | The mortgage was paid in full in connection with the sale of the property on March 29, 2019. |
The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs. The carrying value of the Company’s debt excluding unamortized debt issuance costs was $63,180,000$21,930,000 and $66,680,000$49,380,000 as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively, and its estimated fair value was $60,953,330$21,930,000 and $65,281,610$49,380,000 as of June 30, 2018March 31, 2019 and December 31, 2017,2018, respectively.
Mortgages
The mortgage loans requireloan requires compliance with certain covenants such as debt service ratios, investment restrictions and distribution limitations. As of June 30, 2018,March 31, 2019, the Company is in compliance with all financial covenants related to its mortgage loans.
The scheduled principal payments and maturities on the Company’s mortgages are as follows:
11
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| June 30, 2018 |
| ||||||||||
Scheduled Principal Payments and Maturities by Year: |
| Scheduled Principal Payments |
|
| Maturities of Mortgages |
|
| Total |
| |||
2018 (remainder of year) |
| $ | — |
|
| $ | — |
|
| $ | — |
|
2019 |
|
| — |
|
|
| — |
|
|
| — |
|
2020 |
|
| — |
|
|
| — |
|
|
| — |
|
2021 |
|
| 124,063 |
|
|
| — |
|
|
| 124,063 |
|
2022 |
|
| 505,081 |
|
|
| — |
|
|
| 505,081 |
|
Thereafter |
|
| 348,125 |
|
|
| 62,202,731 |
|
|
| 62,550,856 |
|
Total |
| $ | 977,269 |
|
| $ | 62,202,731 |
|
| $ | 63,180,000 |
|
The weighted average years to maturity for the Company’s debt is 6.72 years.
Note Payable
The Company paid in full the outstanding balance of its note payable and accrued interest in January 2018.
loan.
NOTE 7 – DISTRIBUTIONS
The Company currently paysIn light of the Plan of Liquidation, the Company’s board of directors ceased declaring and paying regular distributions based on dailyto the Company’s stockholders following the distributions to stockholders of record dates, payable in arrearswith respect to each day during the following month. month of October 2018. From January 1, 2018 through February 28, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002768493 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. From March 1 through March 31, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758488 per Class T Share and $0.003323017 per Class T-3 Share, based on a 365-day period. From April 1, 2018 through June 30, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758356 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. The Company issued 22,396 in stock dividends during the six months ended June 30, 2017. The table below presents the distributions paid and declared for the three and six months ended June 30, 2018 and 2017.
|
| Three Months Ended |
|
| Six Months Ended |
| ||||||||||
|
| June 30, |
|
| June 30, |
| ||||||||||
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
| ||||
Distributions paid |
| $ | 652,414 |
|
| $ | 488,222 |
|
| $ | 1,283,323 |
|
| $ | 909,132 |
|
Distributions declared |
| $ | 644,988 |
|
| $ | 506,971 |
|
| $ | 1,281,901 |
|
| $ | 948,184 |
|
12
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 8 – EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted EPS. As a result of a net loss for the three and six months ended June 30,March 31, 2018, 735 and 699640 shares respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss for the three and six months ended June 30, 2017, 811 and 761 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. The Company does not apply the two-class method for calculating EPS as its share classes only differ on the timing of its payment of distribution and stockholder servicing fees.
NOTE 9 – EQUITY-BASED COMPENSATION
In accordance with the Company’s Employee and Director Incentive Restricted Share Plan (the “RSP”), restricted shares are issued to non-employee directors as compensation.
Under the RSP, restricted shares generally vest over a one to three year vesting period from the date of the grant based on the specific terms of the grant. The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period. At vesting, any restrictions on the shares lapse. The number of shares that may be issued under the RSP is limited to 5% of
12
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited) outstanding shares.
At March 31, 2019, there were no unvested restricted shares. Upon the approval of the Plan of Liquidation by the Company’s stockholders on December 18, 2018, all 1,791 outstanding shares.restricted shares held by the Company’s non-employee directors vested immediately and the unamortized balance was expensed. Prior to the transition to Liquidation Basis of Accounting, the grant-date value of the restricted shares was amortized over the vesting period representing the requisite service period. Compensation expense associated with the director restricted shares is included in general and administrative expenses in the accompanying consolidated financial statements. Compensation expense under the RSP was $2,707 and $6,018$3,311 for the three and six months ended June 30, 2018, respectively. Compensation expense under the RSP was $2,778 and $5,139 for the three and six months ended June 30, 2017, respectively. As of June 30, 2018, the Company had $6,875 of unrecognized compensation expense related to the unvested restricted share awards. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.35 years. A summary of the status of the restricted shares is presented below:March 31, 2018.
|
| Shares |
|
| Weighted Average Grant Date Fair Value |
|
| Aggregate Intrinsic Value |
| |||
Outstanding at December 31, 2017 |
|
| 1,133 |
|
| $ | 25,834 |
|
| $ | 25,834 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
Vested |
|
| (402 | ) |
|
| (9,166 | ) |
|
| (9,166 | ) |
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding at June 30, 2018 |
|
| 731 |
|
| $ | 16,668 |
|
| $ | 16,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 10 – SEGMENT REPORTING
The Company has one reportable segment, multi-family real estate, as defined by U.S. GAAP for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018.
13
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
NOTE 11 – TRANSACTIONS WITH RELATED PARTIES
The following table summarizes the Company’s related party transactions for the three and six months ended June 30, 2018March 31, 2019 and 2017.2018. The Sponsor and its affiliates will not require repayment of acquisition related costs (fee), certain offering costs, mortgage financing fee and Sponsor non-interest bearing advances until subsequent to 12 months from the issuance of this report.report or upon liquidation if earlier.
|
|
|
| Three Months Ended March 31, |
|
| Amount Unpaid as of |
| ||||||||||||||||||||||||||||||||||||
|
|
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Amount Unpaid as of |
|
|
|
| Liquidation Basis |
|
| Going Concern Basis |
|
|
|
|
|
|
|
|
| |||||||||||||||||
|
|
|
| 2018 |
|
| 2017 |
|
| 2018 |
|
| 2017 |
|
| June 30, 2018 |
|
| December 31, 2017 |
|
|
|
| 2019 |
|
| 2018 |
|
| March 31, 2019 |
|
| December 31, 2018 |
| ||||||||||
General and administrative reimbursements |
| (a) |
| $ | 89,839 |
|
| $ | 119,724 |
|
| $ | 256,665 |
|
| $ | 210,031 |
|
| $ | 96,312 |
|
| $ | 98,863 |
|
| (a) |
| $ | 102,026 |
|
| $ | 166,826 |
|
| $ | 69,029 |
|
| $ | 97,041 |
|
Affiliate share purchase discounts |
| (b) |
|
| — |
|
|
| 974 |
|
|
| — |
|
|
| 24,530 |
|
|
| — |
|
|
| — |
| ||||||||||||||||||
Total general and administrative costs |
|
|
| $ | 89,839 |
|
| $ | 120,698 |
|
| $ | 256,665 |
|
| $ | 234,561 |
|
| $ | 96,312 |
|
| $ | 98,863 |
| ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs |
| (c) |
|
| — |
|
| $ | 123,418 |
|
| $ | — |
|
| $ | 158,276 |
|
| $ | 686,250 |
|
| $ | 686,250 |
|
| (b) |
|
| — |
|
| $ | — |
|
| $ | 686,250 |
|
| $ | 686,250 |
|
Offering costs |
| (d) |
|
| — |
|
| $ | 712,154 |
|
| $ | 20,151 |
|
| $ | 1,110,183 |
|
| $ | 1,501,524 |
|
| $ | 1,609,242 |
|
| (c) |
|
| — |
|
| $ | 20,151 |
|
| $ | 1,011,419 |
|
| $ | 1,011,419 |
|
Reimbursement of offering costs |
| (e) |
|
| — |
|
| $ | — |
|
| $ | 3,976 |
|
| $ | — |
|
| $ | 432,228 |
|
| $ | 428,252 |
|
| (d) |
|
| — |
|
| $ | 3,976 |
|
| $ | 432,228 |
|
| $ | 432,228 |
|
Business management fee |
| (f) |
| $ | 158,563 |
|
| $ | 91,763 |
|
| $ | 316,978 |
|
| $ | 160,455 |
|
| $ | 659,815 |
|
| $ | 342,837 |
|
| (e) |
| $ | 100,948 |
|
| $ | 158,415 |
|
| $ | 1,066,474 |
|
| $ | 965,526 |
|
Mortgage financing fee |
| (g) |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 114,375 |
|
| $ | 114,375 |
|
| (f) |
|
| — |
|
| $ | — |
|
| $ | 114,375 |
|
| $ | 114,375 |
|
Sponsor non-interest bearing advances |
| (h) |
|
| — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 1,950,000 |
|
| $ | 1,950,000 |
|
| (g) |
|
| — |
|
| $ | — |
|
| $ | 1,950,000 |
|
| $ | 1,950,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property management fee |
|
|
| $ | 100,449 |
|
| $ | 61,409 |
|
| $ | 204,896 |
|
| $ | 100,554 |
|
| $ | — |
|
| $ | — |
|
|
|
| $ | 79,767 |
|
| $ | 104,447 |
|
| $ | — |
|
| $ | — |
|
Property operating expenses |
|
|
|
| 219,769 |
|
|
| 129,715 |
|
|
| 439,217 |
|
|
| 223,135 |
|
|
| 39,866 |
|
|
| 43,334 |
|
|
|
|
| 144,370 |
|
|
| 219,448 |
|
|
| — |
|
|
| — |
|
Total property operating expenses |
| (i) |
| $ | 320,218 |
|
| $ | 191,124 |
|
| $ | 644,113 |
|
| $ | 323,689 |
|
| $ | 39,866 |
|
| $ | 43,334 |
|
| (h) |
| $ | 224,137 |
|
| $ | 323,895 |
|
| $ | — |
|
| $ | — |
|
(a) | The Business Manager and its affiliates are entitled to reimbursement for certain general and administrative expenses incurred relating to the Company’s administration. Such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Unpaid amounts are included in due to related parties in the accompanying consolidated |
13
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| Prior to August 8, 2016 under the Business Management Agreement, the Company was required to pay the Business Manager or its affiliates an acquisition fee equal to 1.5% of the “contract purchase price,” as defined in that agreement, of each property and real estate-related asset acquired. The Business Management Agreement was amended to, among other things, delete the obligation to pay acquisition fees, real estate sales commissions and mortgage financing fees payable to the Business Manager by the Company with respect to transactions occurring on or after August 8, 2016. The Business Manager and its affiliates continue to be reimbursed for acquisition related costs of the Business Manager and its affiliates relating to the Company’s acquisition of properties and real estate assets, regardless of whether the Company acquires the properties or real estate assets, subject to the limits provided in the amended agreement. There were no related party acquisition costs incurred during the |
14
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
as a charge to equity at the time each Class T Share or Class T-3 Share was sold in the Offering and recorded a corresponding payable in due to related |
(d) | Organization and offering expenses, excluding selling commissions and dealer manager fees (“other organization and offering expenses”), could not exceed 2.0% of the gross Offering proceeds (the “maximum expense cap”). To the extent that other organization and offering expenses exceeded the maximum expense cap, the excess expenses were required to be paid by the Business Manager with no recourse to the Company. Other organization and offering expenses exceeded the maximum expense cap. Total offering costs were $10,972,727, of which $7,070,590 were other organization and offering expenses subject to the maximum expense cap. These expenses |
|
|
| The Company pays the Business Manager an annual business management fee equal to 0.6% of its “average invested assets,” payable quarterly in an amount equal to 0.15% of the Company’s average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities or consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts as of March 31, 2019 and December 31, 2018 are included in due to related parties in the |
14
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
| This amount represents non-interest bearing advances made by the Sponsor which the Company intends to repay. Unpaid amounts are included in due to related parties in the accompanying consolidated |
| The Company pays Inland Residential Real Estate Services LLC (the “Real Estate Manager”) a monthly property management fee of up to 4% of the gross income from any property managed directly by the Real Estate Manager or its affiliates. The Real Estate Manager may reduce, in its sole discretion, the amount of the management fee payable in connection with a particular property, subject to these limits. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses, benefits and severance payments for persons performing services, including without limitation acquisition due diligence services, for the Real Estate Manager and its affiliates (excluding the executive officers of the Real Estate Manager and the Company’s executive officers). |
15
INLAND RESIDENTIAL PROPERTIES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
Cash distributionsSecond Liquidating Distribution
The Company’s boardOn April 2, 2019, the Company declared the Second Liquidating Distribution of directors declared cash distributions payable$8.59 per Class A Share to stockholders of record as of Class A, Class T and Class T-3 Shares each day beginning on the close of business Julyon April 2, 2019. The Second Liquidating Distribution was paid on April 11, 2019 from the net proceeds of the sale of “The Retreat at Market Square.”
Upon the payment of the Second Liquidating Distribution on April 11, 2019, the previously Estimated Per Share NAV as of February 1, 2018 through2019 was reduced to reflect payment of the closeSecond Liquidating Distribution of business October 31, 2018. Through that date distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758356 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. Distributions were paid monthly in arrears as follows.$8.59.
Distribution Month |
| Month Distribution Paid |
| Gross Amount of Distribution Paid |
|
| Distribution Reinvested through DRP |
|
| Shares Issued |
|
| Net Cash Distribution |
| ||||
June 2018 |
| July 2018 |
| $ | 212,435 |
|
| $ | 105,150 |
|
|
| 4,491 |
|
| $ | 107,285 |
|
July 2018 |
| August 2018 |
| $ | 219,959 |
|
| $ | 107,884 |
|
|
| 4,607 |
|
| $ | 112,075 |
|
15
16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Words such as “may,” “could,” “should,” “expect,” “intend,” “plan,” “goal,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “variables,” “potential,” “continue,” “expand,” “maintain,” “create,” “strategies,” “likely,” “will,” “would” and variations of these terms and similar expressions, or the negative of these terms or similar expressions, are intended to identify forward-looking statements.
These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of the management of Inland Residential Properties Trust, Inc. (which we refer to herein as the “Company,” “we,” “our” or “us”) based on their knowledge and understanding of the business and industry, the economy and other future conditions. These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements. Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under “Risk Factors” in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K/A10-K for the year ended December 31, 2017,2018, as filed with the Securities and Exchange Commission (the “SEC”) on March 21, 2018,29, 2019, and factors described below:
There is no established public trading market for our shares which are, and our stockholders may notwill continue to be, able to sell their shares under our share repurchase program (as amended, the “SRP”) and, if our stockholders are able to sell their shares under the SRP, they may not be able to recover the amount of their investment in our shares;illiquid;
We cannot guarantee thatOur board of directors may terminate or delay implementation of the sale of all or substantially all of our assets, our liquidation and our dissolution pursuant to a liquidity event will occur;plan of liquidation approved by our stockholders on December 18, 2018 (the “Plan of Liquidation”);
Historically,Although we have not consistently generated sufficient cash flow from operations to pay distributions, and, therefore, we have paid distributions from the net proceedsanticipate selling all of our “reasonable best efforts” offering (the “Offering”)assets and distribution reinvestment plan (as amended,completing our liquidation within sixmonths after the “DRP”), and may continue to pay distributions from other sources includingDecember 18, 2018 stockholder approval of the proceedsPlan of our DRP, which reducesLiquidation, we cannot guarantee the amount or exact timing of cash we ultimately have to invest in assets, negatively impacting the value of our stockholders’ investment and is dilutiveany additional liquidating distributions to our stockholders;
Because our portfolio only consists of three properties,one property, our fixed operating expenses constitute a greater percentage of our gross income and, as a result, may make it more difficult to generate sufficient income to provide for a full return of invested capital to stockholders;
We have incurred net losses on a U.S. generally accepted accounting principles (“U.S. GAAP”) basis for the three and six months ended June 30, 2018 and 2017 and for the year ended December 31, 2017;
Our charter generally limits the total amount we may borrow to 300% of our net assets, equivalent to 75% of the costs of our assets;
Market disruptions mayDisruptions in the financial markets and uncertain economic conditions could adversely impact many aspectsaffect the value of our operating resultsremaining real estate property and operating condition;the amount of any additional liquidating distributions we pay to our stockholders;
We do not have employees and instead rely on Inland Residential Business Manager & Advisor, Inc. or our “Business Manager” and Inland Residential Real Estate Services LLC or our “Real Estate Manager” to manage our business and assets;
Persons performing services for our Business Manager and our Real Estate Manager are employed by Inland Real Estate Investment Corporation (our “Sponsor”) or its affiliates and face competing demands for their time and service;
We do not have arm’s-length agreements with our Business Manager, Real Estate Manager or other affiliates of our Sponsor;
Our Sponsor may face a conflict of interest in allocating personnel and resources between its affiliates, our Business Manager and our Real Estate Manager;
We pay fees, which may be significant, to our Business Manager, Real Estate Manager and other affiliates of our Sponsor;
Our properties may compete with the properties owned by other programs sponsored by our Sponsor or Inland Private Capital Corporation for, among other things, tenants;
There are limits on the ownership and transferability of our shares; and
If we fail to continue to qualify as a real estate investment trust, our operations and distributions to stockholders will be adversely affected.
Forward-looking statements in this Quarterly Report on Form 10-Q reflect our management’s view only as of the date of this Quarterly Report, and may ultimately prove to be incorrect or false. We undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results except as required by applicable law. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.
The following discussion and analysis relates to the three and six months ended June 30,March 31, 2019 and 2018 and 2017 and as of June 30, 2018March 31, 2019 and December 31, 2017.2018. You should read the following discussion and analysis along with our consolidated financial statements and the related notes included in this report.
Overview
We are an externally managed Maryland corporation formed in December 2013 to primarily acquire and manage a portfolio of multi-family properties located primarily in the top 100 United States metropolitan statistical areas, which generally contain populations greater than 500,000 people. Our real estate portfolio consists of “stabilized” Class A multi-family properties. We are managed by our Business Manager. Substantially all of our business is conducted through Inland Residential Operating Partnership, L.P., of which we are the sole general partner. We elected to be taxed as a real estate investment trust under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with our taxable year ended December 31, 2015.
We commenced our Offering“reasonable best efforts” offering (the “Offering”) of shares of Class A common stock, $.001 par value per share (“Class A Shares”) and shares of Class T Sharescommon stock, $.001 par value per share (“Class T Shares”) on February 17, 2015 and, effective February 2, 2017, we reallocated certain of the remaining shares being offered in our Offering to offer shares of Class T-3 Shares.common stock, $.001 par value per share (“Class T-3 Shares”). We ceased accepting subscriptions agreements dated after December 31, 2017 and terminated the Offering on January 3, 2018. Excluding the DRP,distribution reinvestment plan (as amended, the “DRP”), the Company issued 1,401,711 Class A Shares, 390,230 Class T Shares and 255,666 Class T-3 Shares generating gross proceeds of approximately $50 million from the Offering.
Plan of Liquidation
On September 17, 2018, our board of directors approved the Plan of Liquidation, subject to the approval of our stockholders. On December 18, 2018, our stockholders approved the Plan of Liquidation. As a result of our stockholders’ approval of the Plan of Liquidation, we adopted the liquidation basis of accounting (the “Liquidation Basis of Accounting”) as of December 18, 2018.
Pursuant to the plan, we expect to, among other things:
sell or otherwise dispose of all or substantially all of our assets (including, without limitation, any assets held by the operating partnership and its and our subsidiaries) in exchange for cash or other assets that may be conveniently liquidated or distributed;
pay or provide for our liabilities and expenses, which may include establishing a reserve fund to pay contingent or unknown liabilities;
distribute our current cash and the remaining proceeds of the liquidation to stockholders after paying or providing for our liabilities and expenses, and take all necessary or advisable actions to wind up our affairs; and
wind up our operations and dissolve the Company, all in accordance with the Plan of Liquidation.
We anticipate selling all of our assets and completing our liquidation within six months after the December 18, 2018 stockholder approval of the Plan of Liquidation. While pursuing our liquidation pursuant to the Plan of Liquidation, we intend to continue to manage our remaining real estate property. We have paid two liquidating distributions to our stockholders during the liquidation process as described further below and expect to pay the final liquidating distribution after we sell our remaining real estate property, pay all of our known liabilities and provide for unknown or contingent liabilities.
However, we can give no assurance regarding the timing of the sale of our remaining real estate property in connection with the implementation of the Plan of Liquidation, the sale price we will receive for the property, and the amount or timing of any additional liquidating distributions we pay to our stockholders. If we cannot sell our remaining real estate property and pay our debts within twenty-four months from December 18, 2018, we intend to transfer and assign our remaining assets and liabilities to a liquidating trust and distribute beneficial interests in the liquidating trust to our stockholders equivalent to each stockholder’s ownership interests in the Company at that time.
In light of the Plan of Liquidation, our board of directors ceased declaring and paying regular distributions to our stockholders following the distributions to stockholders of record with respect to each day during the month of October 2018. On January 23, 2019, all of our outstanding Class T Shares and Class T-3 Shares automatically converted to Class A Shares. On January 25, 2019, we paid an initial liquidating distribution of $4.53 per Class A Share to our stockholders of record as of the close of business on January 25, 2019 (the “Initial Liquidating Distribution”). On April 11, 2019, we paid a second liquidating distribution of $8.59 per Class A Share to our stockholders of record as of the close of business on April 2, 2019 (the “Second Liquidating Distribution”). The Initial Liquidating Distribution was funded from the net proceeds of the sale of our first property, “The Commons at Town Center,” and the Second Liquidating Distribution was funded from the net proceeds of the sale of our second property, “The Retreat at Market Square.”
On February 5, 2018, the Company reported2019, our board of directors unanimously approved an estimated per share net asset value for each class of its common stockClass A Shares (the “Estimated Per Share NAV”) as of February 1, 2019 equal to $23.15, $24.32 and $23.55$16.06 per Class A Share. The Estimated Per Share NAV as of February 1, 2019 represented an estimate, prepared by the Business Manager, of the total cash that may be available to distribute to our stockholders in one or more liquidating distributions pursuant to the Plan of Liquidation equal to approximately $20.59 per Class A Share, reduced by the Initial Liquidating Distribution. Upon the payment of the Second Liquidating Distribution on April 11, 2019, the Estimated Per Share NAV as of February 1, 2019 of $16.06 was reduced to $7.47, reflecting payment of the Second Liquidating Distribution of $8.59. There can be no guarantee as to the exact amount of net liquidation proceeds that ultimately will be available for distribution to our stockholders pursuant to the Plan of Liquidation. This amount may vary from the Estimated Per Share NAV and the net assets in liquidation value per Class TA Share. See “Item 1A. Risk Factors - Both the Estimated Per Share NAV and net assets in liquidation value per Class T-3A Share respectively.
Our fixed operating expenses, including property operatingare based on certain assumptions and estimates and may not reflect the amount that our stockholders will receive.” During the course of liquidating and dissolving, we may incur unanticipated expenses and expenses relatedliabilities all of which are likely to operating as a public reporting company, relativereduce the cash available for any additional liquidating distribution to our gross income is disproportionately large duestockholders.
Historically, we provided the DRP and a share repurchase program (“SRP”) to facilitate additional investment in our shares and to provide limited liquidity for stockholders. On September 17, 2018, in contemplation of the Plan of Liquidation, which was still pending at that time, the Company’s board of directors determined to terminate the DRP and SRP.
Sales Pursuant to the sizePlan of our portfolio. As a result, during prior periods, operating income did not generate sufficient cash flowLiquidation
The Commons at Town Center – property sale – On December 20, 2018, we sold to fully cover distribution payments. However, during the most recent six month period ended June 30, 2018, distribution payments were coveredan unaffiliated third party “The Commons at Town Center,” located in full from operating cash flow. We continue to review alternative strategies that could produce positive cash flow or generate a liquidity event. These strategies could includeVernon Hills, Illinois, for a sale price of our assets.$24.6 million. At the closing, we received net proceeds of approximately $9.9 million representing the sale price of $24.6 million, net of closing costs, commissions, and certain prorations and adjustments, and the full repayment of $13.8 million in mortgage debt that encumbered the property.
Select Property Information
AsThe Retreat at Market Square – property sale – On March 29, 2019, we sold to an unaffiliated third party “The Retreat at Market Square,” located in Frederick, Maryland, for a sale price of June 30,$47.0 million. At the closing, we received net proceeds of approximately $18.8 million representing the sale price of $47.0 million, net of closing costs, commissions, and certain prorations and adjustments, and the full repayment of approximately $27.5 million in mortgage debt that encumbered the property.
The Verandas at Mitylene – contract for sale – On December 21, 2018, we owned three communitiesentered into a contract to sell to an unaffiliated third party “The Verandas at Mitylene,” located in three states consistingMontgomery, Alabama, for a sale price of 623 residential units. In addition, we own ground level retail space totaling 10,609 square feet at one property. We ownapproximately $40.5 million minus the principal amount outstanding on an approximately $21.9 million mortgage loan to be assumed by the buyer, closing costs, commissions, and lease retail space at our properties when we believecertain prorations and adjustments. Sale of the retail space will increaseproperty is subject to conditions contained in the attractivenessagreement, as amended on January 23, 2019 and February 19, 2019, including the lender’s approval of our communities and add conveniencethe buyer’s assumption of the mortgage loan. On April 9, 2019, the buyer exercised its right under the agreement to our residents. The table below presents informationextend the loan assumption period until May 12, 2019. On May 9, 2019, the buyer exercised the second loan extension for eachan additional thirty days. If the buyer does not receive loan assumption approval by the end of our communities as of June 30, 2018.the second extension period, either party may terminate the agreement.
Community | Location |
| Total Number of Residential Units |
|
| Average Rental Rate per Residential Unit (a) |
|
| 2018 Residential Average Daily Occupancy |
|
| Leased Residential Units |
|
| Purchase Price |
|
| Debt Balance |
|
| Interest Rate |
| ||||||||
The Retreat at Market Square | Frederick, MD |
|
| 206 |
|
| $ | 1,601 |
|
|
| 94.8 | % |
|
| 198 |
|
| $ | 45,727,557 |
|
| $ | 27,450,000 |
|
|
| 3.64 | % | |
Commons at Town Center | Vernon Hills, IL |
|
| 85 |
|
|
| 1,919 |
|
|
| 94.8 | % |
|
| 85 |
|
|
| 23,148,049 |
|
|
| 13,800,000 |
|
|
| 3.69 | % | |
Verandas at Mitylene | Montgomery, AL |
|
| 332 |
|
|
| 941 |
|
|
| 93.5 | % |
|
| 322 |
|
|
| 36,651,566 |
|
|
| 21,930,000 |
|
|
| 3.88 | % | |
| Total |
|
| 623 |
|
| $ | 1,296 |
|
|
|
|
|
|
| 605 |
|
| $ | 105,527,172 |
|
| $ | 63,180,000 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our communities include garden-style apartments generally defined as properties with multiple one to three story buildings in landscaped settings and mid-rise apartments situated in more urban settings. The following table sets forth a summary of our communities by building type as of June 30, 2018.
Liquidity and Capital Resources
General
As of June 30, 2018, and December 31, 2017, we had total debt outstanding excluding unamortized debt issuance costs of approximately $63.2 million and $66.7 million, respectively, which bore interest at a weighted average interest rate of 3.73% per annum. As of June 30, 2018, and December 31, 2017, our borrowings were 60% and 63%, respectively, of the purchase price of our investment properties. As of June 30, 2018, the weighted average years to maturity for our mortgages was approximately 6.72 years. We do not anticipate significant capital expenditures to our properties in 2018. At June 30, 2018 and December 31, 2017 our cash and cash equivalent balance was $4.5 million and $7.6 million, respectively. Our primary uses and sources of cash are as follows:
Uses |
| Sources | ||||||||
Short-term liquidity and capital needs such as: |
| • | Cash receipts from our | |||||||
• | Interest & principal payments on mortgage |
| • | Proceeds from the | ||||||
• | Property operating expenses |
|
| |||||||
|
|
|
|
|
|
|
| |||
• |
| |||||||||
• | Final liquidating distribution to stockholders |
|
|
| ||||||
• | Non-transaction based fees payable to our Business Manager and Real Estate Manager |
|
|
|
|
|
| |||
• |
| |||||||||
| ||||||||||
|
| |||||||||
| Capital expenditures |
|
|
|
|
|
| |||
• |
|
|
|
|
|
|
| |||
• | Payment to Sponsor and its affiliates of deferred advances and fees |
|
|
|
|
|
|
We intend to use our cash on hand, proceeds from the sale of our remaining real estate property and cash flow from operations generated by our remaining real estate property as our primary sources of liquidity during liquidation. Cash Flow Analysisflows from operations from our remaining real estate property is primarily dependent upon the occupancy level of the property, the rental rates on our leases, the collectability of rent and how well we manage our expenditures. As of March 31, 2019, we owned one real estate property, which was 96.4% occupied and which is under contract to sell. We anticipate completing the sale of this property during the second quarter of 2019. However, we can give no assurance regarding the timing of the sale of our remaining real estate property in connection with the implementation of the Plan of Liquidation, the sale price we will receive for the property, and the amount or timing of any additional liquidating distributions we pay to our stockholders. We believe that potential net proceeds from the sale of our remaining real estate property, cash flow from operations and cash on hand will be sufficient to meet our liquidity needs during our liquidation. Following the completion of the sale or transfer of all of our assets in accordance with the Plan of Liquidation, we will pay or provide for our liabilities and expenses, distribute the remaining proceeds of the liquidation of our assets to our stockholders, wind up our operations and dissolve.
|
| Six Months Ended June 30, |
|
| Change |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| |||
Net cash flows provided by operating activities |
| $ | 1,467,121 |
|
| $ | 505,005 |
|
| $ | 962,116 |
|
Net cash flows used in investing activities |
| $ | (121,088 | ) |
| $ | (22,956,339 | ) |
| $ | 22,835,251 |
|
Net cash flows (used in) provided by financing activities |
| $ | (4,356,606 | ) |
| $ | 30,581,221 |
|
| $ | (34,937,827 | ) |
During the three months ended March 31, 2019, we sold one real estate property. On March 29, 2019, we completed the sale of “The Retreat at Market Square.” At the closing, we received net proceeds of approximately $18.8 million representing the sale price of $47.0 million, net of closing costs, commissions, and certain prorations and adjustments, and the full repayment of approximately $27.5 million in mortgage debt that encumbered the property.
As of March 31, 2019, our total debt outstanding, excluding unamortized debt issuance costs, of approximately $21.9 million consisted of one mortgage loan which bore interest at 3.88% per annum.
On April 11, 2019, we paid the Second Liquidating Distribution in an aggregate amount of $18.8 million. The Second Liquidating Distribution was funded from the net proceeds of the sale of “The Retreat at Market Square.”
The DRP and SRP were terminated on September 17, 2018 in contemplation of the Plan of Liquidation, which was still pending at that time.
Cash Flows for the Three Months Ended March 31, 2018
Operating activities
Cash provided by operating activities increased $1.0 millionwas $884,928 for the sixthree months ended June 30,March 31, 2018 compared to the six months ended June 30, 2017 primarily due tofrom cash generated from property operations from our acquisitions, timing of payments including real estate taxes and cash receipts.operations.
Investing activities
|
| Six Months Ended June 30, |
|
| Change |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| |||
Purchase of real estate |
| $ | — |
|
| $ | (22,936,173 | ) |
| $ | 22,936,173 |
|
Capital expenditures |
| $ | (121,088 | ) |
| $ | (20,166 | ) |
| $ | (100,922 | ) |
Net cash flows used in investing activities |
| $ | (121,088 | ) |
| $ | (22,956,339 | ) |
| $ | 22,835,251 |
|
We have not acquired any propertiesCash used in investing activities of $75,566 for the three months ended March 31, 2018 and do not presently intendrelated to acquire additional properties unless we are able to access additional sources of capital.improvements at certain properties.
Financing activities
|
| Six Months Ended June 30, |
|
| Change |
| ||||||
|
| 2018 |
|
| 2017 |
|
| 2018 vs. 2017 |
| |||
Proceeds from offering net of offering costs |
| $ | 137,871 |
|
| $ | 8,069,000 |
|
| $ | (7,931,129 | ) |
Distributions paid |
|
| (634,616 | ) |
|
| (430,053 | ) |
|
| (204,563 | ) |
Shares repurchased |
|
| (359,861 | ) |
|
| — |
|
|
| (359,861 | ) |
Total changes related to debt |
|
| (3,500,000 | ) |
|
| 22,942,274 |
|
|
| (26,442,274 | ) |
Net cash (used in) provided by financing activities |
| $ | (4,356,606 | ) |
| $ | 30,581,221 |
|
| $ | (34,937,827 | ) |
For the six months ended June 30, 2018, cashCash used byin financing activities was $4.4 million and$3,633,956 for the sixthree months ended June 30, 2017, cash provided by financing activities was $30.6 million. The decrease in cash was primarily because we obtained a mortgage loan and a mezzanine loan in an aggregate amount of $22.9 million to finance our acquisitions in 2017.March 31, 2018. During the sixthree months ended June 30,March 31, 2018, we paid off our note payable in an aggregate amount of $3.5 million. During the six months ended June 30, 2018 and 2017, we generated proceeds from the sale of our shares, net of offering costs paid, of approximately $0.1 million and $8.1 million, respectively. Proceeds from our offering decreased during$180,154. During the sixthree months ended June 30, 2018 compared to the six months ended June 30, 2017 as we terminated our offering on January 3, 2018. During the six months ended June 30,March 31, 2018, we paid approximately $1.3 millionoff our note payable in an aggregate amount of $3,500,000. During the three months ended March 31, 2018, we paid $308,964 in distributions net of $0.6 million reinvested in the DRP. During the six months ended June 30, 2017, we paid $0.9 million distributions net of $0.5 million reinvested in the DRP. Weand repurchased $0.4 million$5,146 of shares in 2018.
As a result of our stockholders’ approval of the Plan of Liquidation and our adoption of Liquidation Basis of Accounting as of December 18, 2018, the results of operations for the current year period are not comparable to the prior year period.
Changes in Net Assets in Liquidation for the Three Months Ended March 31, 2019
Net assets in liquidation decreased by $9,785,543 during the three months ended March 31, 2019 to $35,185,250. The changes were due to the Initial Liquidating Distribution of $9,900,000 and a $114,457 reduction in estimated costs to be incurred during liquidation. Net assets in liquidation includes projections of costs and expenses to be incurred during the period required to complete the Plan of Liquidation. There is inherent uncertainty with these estimates, and they could change materially based on changes in the underlying assumptions of the projected cash flows. The amount of net cash proceeds available for distribution pursuant to the Plan of Liquidation depends on a variety of factors, including, but not limited to, the amount required to pay both existing liabilities and obligations as well as any contingent liabilities and the cost of operating the Company through the date of its final dissolution. The net assets in liquidation value is based on certain assumptions and estimates and may not reflect the amount that our stockholders will receive in the Plan of Liquidation.
Distributions
A summary of the cash distributions declared and paid, and cash flows provided by operations for the sixthree months ended June 30,March 31, 2018:
|
| Three Months Ended March 31, |
|
| |
|
| 2018 |
|
| |
|
|
|
|
|
|
Total cash distributions declared |
| $ | 636,913 |
|
|
|
|
|
|
|
|
Total cash distributions paid |
| $ | 630,909 |
|
|
Cash distributions paid |
|
| 308,964 |
|
|
Distributions reinvested via DRP |
|
| 321,945 |
|
|
|
|
|
|
|
|
Cash flows provided by operations |
| $ | 884,928 |
|
|
Net offering proceeds |
| $ | 180,154 |
|
|
Subsequent to our payment of the October 2018 monthly distribution on November 1, 2018, we ceased paying regular monthly distributions. We do not expect to pay regular distributions during the liquidation process. On January 25, 2019, we paid an Initial Liquidating Distribution payable to stockholders in the amount of $9.9 million, or $4.53 per Class A Share. The Initial Liquidating Distribution was funded from the net proceeds of the sale of “The Commons at Town Center.” On April 11, 2019, we paid the Second Liquidating Distribution payable to stockholders in the amount of $18.8 million, or $8.59 per Class A Share. The Second Liquidating Distribution was funded from the net proceeds of the sale of “The Retreat at Market Square.”
As a result of our stockholders’ approval of the Plan of Liquidation and 2017 isour adoption of Liquidation Basis of Accounting as follows:
|
| Six Months Ended June 30, |
| |||||
|
| 2018 |
|
| 2017 |
| ||
|
|
|
|
|
|
|
|
|
Total cash distributions declared (1) |
| $ | 1,281,901 |
|
| $ | 948,184 |
|
|
|
|
|
|
|
|
|
|
Total cash distributions paid (2) |
| $ | 1,283,323 |
|
| $ | 909,132 |
|
Cash distributions paid |
|
| 634,616 |
|
|
| 430,053 |
|
Distributions reinvested via DRP |
|
| 648,707 |
|
|
| 479,079 |
|
|
|
|
|
|
|
|
|
|
Cash flow provided by operations |
| $ | 1,467,121 |
|
| $ | 505,005 |
|
Net offering proceeds (3) |
| $ | 137,871 |
|
| $ | 8,069,000 |
|
|
|
|
|
|
|
Results of operations
The following discussion is based on our consolidated financial statements for the three and six months ended June 30, 2018 and 2017.
This section describes and compares our results of operations for the three and six months ended June 30, 2018 and 2017. We generate almost all of our net operating income from property operations. In ordercurrent year period are not comparable to evaluate our overall portfolio, management analyzes the net operating income of our property that we have owned and operated for both periods presented, in their entirety, referred to herein as “same store” properties. By evaluating the property net operating income of our “same store” properties, management is able to
monitor the operations of our existing properties for comparable periods to measure the performance of our current portfolio and determine the effects of our new acquisitions on net income.
prior year period.
Comparison of the three months ended June 30, 2018 and 2017
A total of one multi-family property was acquired on or before April 1, 2017 and represents our “same store” property during the three months ended June 30, 2018 and 2017. “Non-same store,” as reflected in the table below, consists of properties acquired after April 1, 2017. For the three months ended June 30, 2018, two properties constituted non-same store properties, and for the three months ended June 30, 2017 one property was considered a non-same store property. The following table presents property net operating income broken out between same store and non-same store, prior to amortization of intangibles, interest, and depreciation and amortization for the three months ended June 30, 2018 and 2017, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.
| Total |
|
| Same Store |
|
| Non-Same Store |
| |||||||||||||||||||||||||||
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
|
| Three Months Ended June 30, |
| |||||||||||||||||||||||||||
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
| |||||||||
Rental income | $ | 2,309,367 |
|
| $ | 1,294,942 |
|
| $ | 1,014,425 |
|
| $ | 916,715 |
|
| $ | 927,333 |
|
| $ | (10,618 | ) |
| $ | 1,392,652 |
|
| $ | 367,609 |
|
| $ | 1,025,043 |
|
Other property income |
| 304,758 |
|
|
| 128,262 |
|
|
| 176,496 |
|
|
| 111,314 |
|
|
| 79,923 |
|
|
| 31,391 |
|
|
| 193,444 |
|
|
| 48,339 |
|
| $ | 145,105 |
|
Total income | $ | 2,614,125 |
|
| $ | 1,423,204 |
|
| $ | 1,190,921 |
|
| $ | 1,028,029 |
|
| $ | 1,007,256 |
|
| $ | 20,773 |
|
| $ | 1,586,096 |
|
| $ | 415,948 |
|
| $ | 1,170,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses | $ | 833,079 |
|
| $ | 432,756 |
|
| $ | 400,323 |
|
| $ | 306,881 |
|
| $ | 322,629 |
|
| $ | (15,748 | ) |
| $ | 526,198 |
|
|
| 110,127 |
|
| $ | 416,071 |
|
Real estate tax expense |
| 276,468 |
|
|
| 164,056 |
|
|
| 112,412 |
|
|
| 89,656 |
|
|
| 87,596 |
|
|
| 2,060 |
|
|
| 186,812 |
|
|
| 76,460 |
|
|
| 110,352 |
|
Total property operating expenses | $ | 1,109,547 |
|
| $ | 596,812 |
|
| $ | 512,735 |
|
| $ | 396,537 |
|
| $ | 410,225 |
|
| $ | (13,688 | ) |
| $ | 713,010 |
|
| $ | 186,587 |
|
| $ | 526,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income | $ | 1,504,578 |
|
| $ | 826,392 |
|
| $ | 678,186 |
|
| $ | 631,492 |
|
| $ | 597,031 |
|
| $ | 34,461 |
|
| $ | 873,086 |
|
| $ | 229,361 |
|
| $ | 643,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| (325,518 | ) |
|
| (390,663 | ) |
|
| 65,145 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs |
| — |
|
|
| (30,266 | ) |
|
| 30,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business management fee |
| (158,563 | ) |
|
| (91,763 | ) |
|
| (66,800 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| (952,763 | ) |
|
| (609,311 | ) |
|
| (343,452 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (607,066 | ) |
|
| (423,299 | ) |
|
| (183,767 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
| 5,390 |
|
|
| 14,116 |
|
|
| (8,726 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (533,942 | ) |
| $ | (704,794 | ) |
| $ | 170,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss. Net loss was $533,942 and $704,794 for the three months ended June 30, 2018 and 2017, respectively.
Total property net operating income. On a “same store” basis, comparing the results of operations of our investment property owned during the three months ended June 30, 2018, with the results of the same investment property owned during the three months ended June 30, 2017, property net operating income increased $34,461. The increase is due to decreased property operating expenses and increased other property income.
“Non-same store” total property net operating income increased $643,725 during 2018 as compared to 2017. The increase is a result of acquiring two additional properties after April 1, 2017.
General and Administrative expenses. General and administrative expenses decreased $65,145 in 2018 compared to 2017. This decrease is primarily due to a decrease in legal fees.
Acquisition related costs. Acquisition related expenses decreased $30,266 in 2018 compared to 2017. The decrease is attributed to no acquisition related activity in 2018.
Business management fee. Business management fees increased $66,800 in 2018 compared to 2017. The increase is due to the acquisition of two additional properties which increased assets under management.
Depreciation and Amortization. Depreciation and amortization increased $343,452 in 2018 compared to 2017. The increase is due to acquisitions after April 1, 2017.
Interest Expense. Interest expense increased $183,767 in 2018 compared to 2017. The increase is due to borrowings to fund acquisitions in 2017. The average debt balance increased approximately $20,400,000 in 2018 compared to 2017.
Interest and other income. Interest and other income decreased $8,726. The decrease is primarily due to lower interest earned as a result of lower cash balances in 2018 compared to 2017.
Comparison of the six months ended June 30, 2018 and 2017
A total of one multi-family property was acquired on or before January 1, 2017 and represents our “same store” property during the six months ended June 30, 2018 and 2017. “Non-same store,” as reflected in the table below, consists of properties acquired after January 1, 2017. For the six months ended June 30, 2018, two properties constituted non-same store properties, and for the six months ended June 30, 2017 one property was considered a non-same store property. The following table presents property net operating income broken out between same store and non-same store, prior to amortization of intangibles, interest, and depreciation and amortization for the six months ended June 30, 2018 and 2017, along with a reconciliation to net loss, calculated in accordance with U.S. GAAP.
| Total |
|
| Same Store |
|
| Non-Same Store |
| |||||||||||||||||||||||||||
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||||||||
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
|
| 2018 |
|
| 2017 |
|
| Change |
| |||||||||
Rental income | $ | 4,621,701 |
|
| $ | 2,198,454 |
|
| $ | 2,423,247 |
|
| $ | 1,832,485 |
|
| $ | 1,830,845 |
|
| $ | 1,640 |
|
| $ | 2,789,216 |
|
| $ | 367,609 |
|
| $ | 2,421,607 |
|
Other property income |
| 592,299 |
|
|
| 244,505 |
|
|
| 347,794 |
|
|
| 211,947 |
|
|
| 196,166 |
|
|
| 15,781 |
|
|
| 380,352 |
|
|
| 48,339 |
|
|
| 332,013 |
|
Total income | $ | 5,214,000 |
|
| $ | 2,442,959 |
|
| $ | 2,771,041 |
|
| $ | 2,044,432 |
|
| $ | 2,027,011 |
|
| $ | 17,421 |
|
| $ | 3,169,568 |
|
| $ | 415,948 |
|
| $ | 2,753,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating expenses | $ | 1,663,972 |
|
| $ | 696,666 |
|
| $ | 967,306 |
|
| $ | 604,674 |
|
| $ | 586,539 |
|
| $ | 18,135 |
|
| $ | 1,059,298 |
|
|
| 110,127 |
|
| $ | 949,171 |
|
Real estate tax expense |
| 557,127 |
|
|
| 253,999 |
|
|
| 303,128 |
|
|
| 180,051 |
|
|
| 177,539 |
|
|
| 2,512 |
|
|
| 377,076 |
|
|
| 76,460 |
|
|
| 300,616 |
|
Total property operating expenses | $ | 2,221,099 |
|
| $ | 950,665 |
|
| $ | 1,270,434 |
|
| $ | 784,725 |
|
| $ | 764,078 |
|
| $ | 20,647 |
|
| $ | 1,436,374 |
|
| $ | 186,587 |
|
| $ | 1,249,787 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property net operating income | $ | 2,992,901 |
|
| $ | 1,492,294 |
|
| $ | 1,500,607 |
|
| $ | 1,259,707 |
|
| $ | 1,262,933 |
|
| $ | (3,226 | ) |
| $ | 1,733,194 |
|
| $ | 229,361 |
|
| $ | 1,503,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
| (806,118 | ) |
|
| (694,517 | ) |
|
| (111,601 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition related costs |
| — |
|
|
| (71,479 | ) |
|
| 71,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business management fee |
| (316,978 | ) |
|
| (160,455 | ) |
|
| (156,523 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| (2,003,376 | ) |
|
| (978,707 | ) |
|
| (1,024,669 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (1,218,700 | ) |
|
| (675,550 | ) |
|
| (543,150 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other income |
| 12,339 |
|
|
| 24,514 |
|
|
| (12,175 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (1,339,932 | ) |
| $ | (1,063,900 | ) |
| $ | (276,032 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss. Net loss was $1,339,932 and $1,063,900 for the six months ended June 30, 2018 and 2017, respectively.
Total property net operating income. On a “same store” basis, comparing the results of operations of our investment property owned during the six months ended June 30, 2018, with the results of the same investment property owned during the six months
ended June 30, 2017, property net operating income decreased $3,226. The decrease is primarily due to increased property operating expenses.
“Non-same store” total property net operating income increased $1,503,833 during 2018 as compared to 2017. The increase is a result of acquiring two additional properties after January 1, 2017.
General and Administrative expenses. General and administrative expenses increased $111,601 in 2018 compared to 2017. This increase is primarily due to growth in our portfolio and valuation related costs.
Acquisition related costs. Acquisition related expenses decreased $71,479 in 2018 compared to 2017. The decrease is attributed to no acquisition related activity in 2018.
Business management fee. Business management fees increased $156,523 in 2018 compared to 2017. The increase is due to the acquisition of two additional properties in mid 2017 which increased assets under management.
Depreciation and Amortization. Depreciation and amortization increased $1,024,669 in 2018 compared to 2017. The increase is due to acquisitions during 2017.
Interest Expense. Interest expense increased $543,150 in 2018 compared to 2017. The increase is due to borrowings to fund acquisitions in 2017. The average debt balance increased approximately $28,650,000 in 2018 compared to 2017.
Interest and other income. Interest and other income decreased $12,175. The decrease is primarily due to lower interest earned as a result of lower cash balances in 2018 compared to 2017.
Critical Accounting Policies
Disclosures discussing all significant accounting policies are set forth in our Annual Report on Form 10-K/A10-K for the year ended December 31, 2017,2018, as filed with the Securities and Exchange CommissionSEC on March 21, 2018,29, 2019, under the heading “Critical Accounting Policies”. There have been no changes to our critical accounting policies during the sixthree months ended June 30, 2018.March 31, 2019.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Subsequent Events
For information related to subsequent events, reference is made to Note 12 – “Subsequent Events” which is included in our June 30, 2018March 31, 2019 Notes to Consolidated Financial Statements in Item 1.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We may be exposedQuantitative and qualitative disclosures about market risk have been omitted as permitted under rules applicable to interest rate changes primarily as a result of long-term debt used to purchase properties or other real estate assets, maintain liquidity and fund capital expenditures or operations. As of June 30, 2018, we had outstanding debt of approximately $63.2 million, excluding mortgage premium and unamortized debt issuance costs, bearing interest rates ranging from 3.64% to 3.88% per annum. The weighted average interest rate was 3.73%. As of June 30, 2018, the weighted average years to maturity for our mortgages was approximately 6.72 years.
As of June 30, 2018 and December 31, 2017, we did not have any variable rate debt. As of June 30, 2018, our fixed-rate debt consisted of secured mortgage financings with a carrying value of $63.2 million and a fair value of $61.0 million. As of December 31, 2017, our fixed-rate debt consisted of secured mortgage financings and a note payable with a carrying value of $66.7 million and a fair value of $65.3 million. Changes in interest rates do not affect interest expense incurred on our fixed-rate debt until their maturity or earlier repayment, but interest rates do affect the fair value of our fixed-rate debt obligations. If market interest rates were to increase by 1% (100 basis points), the fair value of our fixed-rate debt would decrease by $3.4 million at June 30, 2018. If market interest rates were to decrease by 1% (100 basis points), the fair value of our fixed-rate debt would increase by $3.6 million at June 30, 2018.smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Our management has evaluated, with the participation of our principal executive and principal financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the principal executive and principal financial officers have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) or Rule 15d-15(f)) during the three months ended June 30, 2018March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
We are not a party to, and none of our properties are subject to, any material pending legal proceedings.
The following risk factors supplement the risk factors set forth in our Annual Report on Form 10-K/A10-K for the year ended December 31, 2017.2018.
We have incurred net losses on a U.S. GAAP basis forcannot determine at this time the six months ended June 30, 2018 and 2017.amount or timing of any further liquidating distributions to our stockholders.
We havepaid the Initial Liquidating Distribution of $4.53 per Class A Share in January 2019 and the Second Liquidating Distribution of $8.59 per Class A Share in April 2019. We anticipate paying an additional liquidating distribution or distributions in the future, but we cannot determine at this time when we will be able to pay, or the amount of, any further liquidating distributions. The ultimate amount that we will distribute to stockholders in the liquidation will depend upon the actual amount of our liabilities, the actual proceeds from the sale of our properties, the actual fees and expenses incurred net losses on a U.S. GAAP basis forin connection with the six months ended June 30, 2018 and 2017sale of $1.3 million and $1.1 million, respectively. Our losses can be attributed,our properties, the actual expenses incurred in part,the administration of our properties prior to property operating, interest,disposition, the actual general and administrative expenses and non-cash charges for depreciation and amortization. We may incur net losses inof the future, which could have a material adverse impact on our financial condition, operations, cash flow, andCompany, our ability to servicecontinue to meet the requirements necessary to retain our indebtednessstatus as a REIT throughout the period of the liquidation process, our ability to avoid entity-level U.S. federal income and payexcise taxes throughout the period of the liquidation process and other factors. If our liabilities (including, without limitation, tax liabilities and compliance costs) are greater than we currently expect or if the sales price of our remaining property is less than we expect, distributions to stockholders will be reduced.
While we have previously provided estimates about the timing and amount of liquidating distributions that we will make, these estimates are based on multiple assumptions, one or more of which may prove to be incorrect, and the actual amount of liquidating distributions we pay to our stockholders. Westockholders may be more or less than these estimates. No assurance can be given regarding the actual amount our stockholders will receive in liquidating distributions pursuant to the Plan of Liquidation or when they will be paid.
Both the Estimated Per Share NAV and net assets in liquidation value per Class A Share are based on certain assumptions and estimates and may not reflect the amount that our stockholders will receive.
The Estimated Per Share NAV as of April 11, 2019 of $7.47 per Class A Share (which reflects the payment of the Second Liquidating Distribution of $8.59 per Class A Share) are based on certain assumptions and estimates. There can be no guarantee as to the exact amount of net liquidation proceeds that ultimately will be available for distribution to our stockholders pursuant to the Plan of Liquidation. This amount may vary from the Estimated Per Share NAV and the net assets in liquidation included in the accompanying consolidated financial statements. Moreover, neither the Estimated Per Share NAV nor the net assets in liquidation value per Class A Share represents: (i) the price at which our shares would trade on a national securities exchange, (ii) the amount per share a stockholder would obtain if he, she or it tried to sell his, her or its shares, (iii) the amount per share stockholders would receive if we liquidated our assets and distributed the proceeds after paying all our expenses and liabilities or (iv) the price a third party would pay to acquire our Company. There is also no assurance that the methodology used to estimate our value per share will be acceptable to broker dealers for customer account purposes or to the Financial Industry Regulatory Authority, Inc. or that it will satisfy the applicable annual valuation requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code with respect to employee benefit plans subject to allERISA and other retirement plans or accounts subject to Section 4975 of the business risksInternal Revenue Code.
These estimates of what a stockholder may ultimately receive in total from our liquidation are based on assumptions that may not be accurate or complete and uncertainties associated with any business. Asinclude, among other things, estimates and assumptions as to the actual amount of June 30, 2018, we had acquired three multi-family communities. We cannot assure our stockholders that, intime it will take to complete the future,implementation of the Plan of Liquidation and whether we will be profitable or that we will realize growth in the value of our assets.
Our fixed operating expenses constitute a greater percentage of our gross income due to the size of our portfolio and, as a result, may make it more difficult to generate sufficient incomerequired to provide for any unknown and outstanding liabilities or expenses, which may include the establishment of a full returnreserve fund or transferring assets to a liquidating trust to pay contingent liabilities and ongoing expenses in an amount to be determined as information concerning such contingencies and expenses becomes available. We will continue to incur liabilities and expenses from operations prior to the dissolution of invested capitalthe Company. Our estimates regarding our expense levels may be inaccurate. Any unexpected claims, liabilities or expenses that arise, or any claims, liabilities or expenses that exceed our estimates, will reduce the amount of cash available for distribution to stockholders.
Our fixed operating expenses, including property operating expenses and expenses related to operating as a public reporting company, relative to our gross income is disproportionately large due to the size of our portfolio. As a result, the Company historically has been unable to cover its distribution payments to stockholders from operating cash flows, although the Company did fund distributions during the most recent six month period ended June 30, 2018 from operating cash flows. A smaller portfolio increases the likelihood that any single property’s performance would materially affect our overall investment performance and the value of our stockholders’ investment.
Item 2. Unregistered Sales of EquityEquity Securities and Use of Proceeds
Recent Sales of Unregistered Equity Securities
During the period covered by this quarterly report, we did not sell any equity securities that were not registered under the Securities Act.
Share Repurchase Program
The SRP is designed to provide eligible stockholders with limited, interim liquidity by enabling them to sell shares back to us. The terms under which we may repurchase shares may differ between repurchases upon the death or “qualifying disability” of a stockholder or “Exceptional Repurchases” and all other repurchases or “Ordinary Repurchases.”
In the case of Ordinary Repurchases, we may repurchase shares beneficially owned by a stockholder continuously for at least one year and who purchased their shares from us or received their shares through a non-cash transfer, if requested, if we choose to repurchase them. However,On September 17, 2018, in the event a stockholder is having all of his or her shares repurchased, our board may waive the one-year holding requirement for shares purchased under our DRP. We may make Ordinary Repurchases only if we have sufficient funds available to complete the repurchase. In any given calendar month, we are authorized to use only the proceeds from our DRP during that month to make Ordinary Repurchases; provided that, if we have excess funds during any particular month, we may, but are not obligated to, carry those excess funds to the subsequent calendar month for the purpose of making Ordinary Repurchases. Subject to funds being available, in the case of Ordinary Repurchases, we limit the number of shares repurchased during any calendar year to no more than 5%contemplation of the numberPlan of Class A Shares, Class T Shares and Class T-3 Shares outstanding on December 31st of the previous calendar year. In the eventLiquidation which was still pending at that we determine not to repurchase all of the shares presented during any month, including as a result of having insufficient funds or satisfying the 5% limit, to the extent we decide to repurchase shares, shares will be repurchased on a pro rata basis up to the limits described above. Any stockholder whose Ordinary Repurchase request has been partially accepted in a particular calendar month will have the remainder of his or her request included with all new repurchase requests we have received in the immediately following calendar month, unless he or she chooses to withdraw that request.
Prior to our initial valuation date, the repurchase price for Ordinary Repurchases was equal to $21.60 per Class A Share, $21.61 per Class T Share and $21.61 per Class T-3 Share. After the initial valuation date, the repurchase price is equal to 96.0% of the most recent applicable estimated value per share reported by us. Accordingly, until we announce new estimated per share net asset values, the repurchase price for Ordinary Repurchases is $22.22 per Class A Share, $23.35 per Class T Share and $22.61 per Class T-3 Share, beginning with the February 28, 2018 repurchase date.
Prior to our initial valuation date, the repurchase price for Exceptional Repurchases was equal to $22.50 per Class A Share, $22.51 per Class T Share and $22.51 per Class T-3 Share. After the initial valuation date, the repurchase price is equal to 100.0% of the most recent applicable estimated value per share reported by us. Accordingly, until we announce new estimated per share net asset values, the repurchase price for Exceptional Repurchases is $23.15 per Class A Share, $24.32 per Class T Share and $23.55 per Class T-3 Share, beginning with the February 28, 2018 repurchase date. Exceptional Repurchases are not subject to a one-year holding period, or the 5% repurchase limit discussed above, and may be repurchased with funds from any source.
The SRP will immediately terminate if our shares become listed for trading on a national securities exchange. In addition,time, our board of directors in its sole discretion, may, at any time, amend, suspend or terminateapproved the SRP. During the three months ended June 30, 2018, we repurchased 12,906 Class A Shares, 2,909 Class T Shares and no Class T-3 Shares undertermination of the SRP.
Period |
| Total Shares Requested to be Repurchased |
|
| Total Number of Shares Repurchased |
|
| Average Price Paid per Share |
|
| Amount of Shares Repurchased |
|
| Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs(1) |
|
| Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs |
| ||||||
April 2018 |
|
| 11,552 |
|
|
| 11,552 |
|
| $ | 22.42 |
|
| $ | 258,934 |
|
|
| 11,552 |
|
|
| 94,556 |
|
May 2018 |
|
| 4,263 |
|
|
| 4,263 |
|
| $ | 22.46 |
|
| $ | 95,781 |
|
|
| 4,263 |
|
|
| 90,293 |
|
June 2018 |
|
| — |
|
|
| — |
|
| $ | — |
|
| $ | — |
|
|
| — |
|
|
| 90,293 |
|
Total |
|
| 15,815 |
|
|
| 15,815 |
|
| $ | 22.43 |
|
| $ | 354,715 |
|
|
| 15,815 |
|
|
|
|
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Not Applicable.
The representations, warranties and covenants made by us in any agreement filed as an exhibit to this Form 10-Q are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties or covenants to, or with, you. Moreover, these representations, warranties and covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto and are incorporated herein by reference.
Exhibit No. |
| Description |
|
|
|
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | ||
10.1 | ||
10.2 | ||
10.3 | ||
|
|
|
31.1 |
| |
|
|
|
31.2 |
| |
|
|
|
32.1 |
| |
|
|
|
32.2 |
| |
|
|
|
101 |
| The following financial information from our Quarterly Report on Form 10-Q for the period ended |
|
|
|
|
|
|
* | Filed herewith. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INLAND RESIDENTIAL PROPERTIES TRUST, INC. | ||
|
|
|
|
| /s/ Mitchell A. Sabshon |
By: |
| Mitchell A. Sabshon |
|
| President and Chief Executive Officer |
Date: |
|
|
|
|
|
|
| /s/ Catherine L. Lynch |
By: |
| Catherine L. Lynch |
|
| Chief Financial Officer and Treasurer (Principal Financial Officer) |
Date: |
|
|
2726