| Equity | NOTE 13 - EQUITY Preferred Stock The Company’s charter authorizes the Company to issue 10.0 million shares of its $ 0.01 par value preferred stock. As of June 30, 2021 and December 31, 2020 , no shares of preferred stock were issued and outstanding. Common Stock As of June 30, 2021 , the Company had an aggregate 158.0 million shares of its $ 0.01 par value common stock outstanding including 1.0 million of unvested restricted shares. In accordance with the Company’s distribution reinvestment plan (“DRP”), participants in the DRP acquire shares of common stock under the plan at a price equal to 95% of the current estimated value per share of common stock. Commencing on March 31, 2021, participants acquire shares of the Company’s common stock under the plan at a price equal to $ 8.61 per share. The following table summarizes the activity (in thousands):
Shares Gross
Shares issued through private offering 1,279,227 $ 12,737
Shares issued through primary public offering 129,923,354 1,289,845
Shares issued through stock distributions 2,406,986 —
Shares issued through distribution reinvestment plan 28,413,976 274,108
Restricted shares issued to employees 1,356,604 —
Shares issued in conjunction with the Merger 14,724,323 —
Total 178,104,470 $ 1,576,690
Shares redeemed and retired ( 20,095,284 )
Total shares issued and outstanding as of June 30, 2021 158,009,186 Convertible Stock As of December 31, 2020, REIT I had 49,935 of $ 0.01 par value convertible stock outstanding. RAI owned 30,273 shares, affiliated persons owned 18,790 shares and outside investors owned 872 shares at December 31, 2020. The convertible stock would have converted into shares of the Company’s common stock upon the occurrence of certain events. Upon the closing of the Mergers, each share of REIT I Convertible Stock converted into the right to receive $ 0.02 in cash (without interest). As of June 30, 2021 , the Company had 50,000 shares of $ 0.01 par value convertible stock outstanding which were owned by the Company and affiliated persons. The convertible stock will convert into shares of the Company’s common stock upon the occurrence of (a) the Company having paid distributions to common stockholders that in the aggregate equal 100 % of the price at which the Company originally sold the shares plus an amount sufficient to produce a 7 % cumulative, non-compounded annual return on the shares at that price; or (b) if the Company lists its common stock on a national securities exchange and, on the 31st trading day after listing, the Company’s value based on the average trading price of its common stock since the listing, plus prior distributions, combine to meet the same 7 % return threshold. Each of these two events is a “Triggering Event.” Upon a Triggering Event, the Company's convertible stock will, unless its advisory agreement has been terminated or not renewed on account of a material breach by Resource Real Estate Opportunity Advisor II, LLC, a wholly-owned subsidiary of the Company, generally be converted into a number of shares of common stock equal to 1 / 50,000 of the quotient of: (A) the lesser of (i) 15 % of the amount, if any, by which (1) the value of the Company as of the date of the event triggering the conversion plus the total distributions paid to its stockholders through such date on the then-outstanding shares of its common stock exceeds (2) the sum of the aggregate issue price of those outstanding shares plus a 7 % cumulative, non-compounded, annual return on the issue price of those outstanding shares as of the date of the event triggering the conversion, or (B) the value of the Company divided by the number of outstanding shares of common stock, in each case, as of the date of the event triggering the conversion. As of June 30, 2021 , no Triggering Event has occurred or was probable to occur. Redemption of Securities During the six months ended June 30, 2021, the Company redeemed shares of its outstanding common stock as follows:
Period Total Number of Shares Redeemed (1) Average Price Paid per Share
January 2021 136,685 $ 9.08
February 2021 — —
March 2021 169,112 $ 9.08
April 2021 — —
May 2021 — —
June 2021 148,989 $ 9.06
454,786 (1) The shares redeemed in January 2021 were repurchased from employees upon vesting of restricted stock awards in order to facilitate the payment of taxes by the employees. Amended Share Redemption Program On February 3, 2021, the Board of Directors of the Company ("the Board") adopted the Fifth Amended and Restated Share Redemption Program (the “Amended SRP”) pursuant to which, subject to significant conditions and limitations of the program, stockholders of the Company can have their shares repurchased by the Company. The Amended SRP provides that redemptions will continue to be made quarterly but in an amount not to exceed proceeds from the sale of shares in the distribution reinvestment plan in the immediately preceding calendar quarter; provided that, for any quarter in which no distribution reinvestment plan proceeds are available, the funding limitation for the quarter will be set by the Board upon ten business days’ notice to stockholders. Additional changes to the share redemption program in the Amended SRP clarify the timing of redemption procedures. The effective date of any redemption (the “Redemption Date”) will be the 15 th day (or the next business day thereafter) of the last month of the calendar quarter. Redemption requests must be received by the Company no later than the last business day of the calendar month preceding the month in which the Redemption Date falls. Payment for shares redeemed will be made no later than five business days after the Redemption Date. In addition, the Amended SRP clarifies that stockholders eligible to have their shares repurchased by the Company include those who purchased their shares from REIT I or REIT III in their respective initial public offering and distribution reinvestment plans and do not include those stockholders who acquired their shares for value from another stockholder. The Amended SRP also removes any reference to the Former Advisor and its affiliates as the Company is now self-managed. The share redemption program remains partially suspended and, until the Board determines otherwise, the Company will continue to only consider redemption requests submitted in connection with a stockholder’s death, qualifying disability, or confinement to a long-term care facility (each as described in the Amended SRP and collectively, “Special Redemptions”). While the share redemption program is partially suspended, the Company will only accept requests for Special Redemptions and all other requests will not be honored or retained, but will be cancelled with the ability to resubmit when, if ever, the share redemption program is fully resumed. Distributions Paid to Common Stockholders For the six months ended June 30, 2021 , the Company paid common stockholders aggregate distributions of $ 22.1 million including $ 5.2 million of distributions reinvested in shares of common stock through the Company's distribution reinvestment plan and $ 16.9 million of distributions paid in cash as follows (in thousands, except per share data):
Record Date Per Common Distribution Date Net Cash Distribution Distributions Reinvested in Shares of Common Stock Total Aggregate Distribution
March 30, 2021 $ 0.07 March 31, 2021 $ 8,539 $ 2,490 $ 11,029
June 29, 2021 0.07 June 30, 2021 8,365 2,674 11,039
$ 0.14 $ 16,904 $ 5,164 $ 22,068 Share-Based Compensation On September 8, 2020, the board of directors of REIT I adopted the Resource Real Estate Opportunity REIT, Inc. 2020 Long-Term Incentive Plan (the “2020 LTIP”). At the effective time of the REIT I Merger, the Company assumed the 2020 LTIP as amended to replace all references to REIT I to the Company. The purpose of the 2020 LTIP is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain, and reward certain eligible persons performing services for the Company and by motivating such persons to contribute to the growth and profitability of the Company. The 2020 LTIP allows for grants to the Company’s employees, consultants, and directors of stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights, restricted stock units, performance shares, performance units, cash-based awards, and other stock-based awards. The maximum aggregate number of shares of common stock of the Company that may be issued pursuant to awards granted under the 2020 LTIP is 3.5 million shares. In conjunction with the Self-Management Transaction in September 2020, officers and certain employees of REIT I were granted awards of restricted stock of REIT I pursuant to the 2020 LTIP in the aggregate amount of 645,526 shares. Upon the REIT I Merger, these grants converted to 790,272 shares of the Company. The fair value of the shares granted as converted upon the REIT I Merger were estimated to be $ 9.08 per share. Of the awards granted, 779,102 shares of restricted stock are performance-based awards and vested 40 %, or 311,641 shares, upon the completion of the REIT I Merger; and 60 % will vest upon the completion of an initial public offering or a future liquidity event. The remaining 11,170 shares of restricted stock granted are time-based awards and will vest ratably over a three-year period. The Company recorded compensation expense in the six months ended June 30, 2021 related to these awards of approximately $ 3.4 million. Dividends on the performance-based awards of restricted stock will not be paid but will be accrued over the vesting period. The accrual at June 30, 2021 was approximately $ 84,000 and was included in Accounts payable and accrued expenses on the consolidated balance sheets. On February 17, 2021, the Compensation Committee (the “Committee”) of the Board of the Company approved performance-based long-term equity incentive awards pursuant to the 2020 LTIP. The awards were granted effective February 17, 2021 (the grant date), and the number of shares of the Company’s common stock (the “Common Stock”) underlying the awards (that is, the number of shares corresponding to the dollar amounts described below) were determined based on the most recently approved estimated value per share of the Common Stock of $ 9.08 as approved by the Board on March 19, 2020. After the actual amount of the performance-based award is determined (or earned), the earned shares will be fully vested and generally transferable. Dividends will be deemed to have accrued on all of the earned shares during the measuring period until the determination date. Such accrued dividends on earned shares will be paid to the awardee on the determination date. Thereafter, the awardee is entitled to receive dividends as declared and paid on the earned shares. The awardee will be entitled to vote the shares from the grant date. The awards were designed to align the executive officers’ interests with those of the Company’s stockholders and are a significant component of overall executive officer compensation. Employees were awarded 404,306 shares of three-year vesting restricted stock and the Company’s non-employee directors were awarded 28,632 shares of one-year vesting restricted stock during the six months ended June 30, 2021. The following table presents the changes in unvested restricted stock for the six months ended June 30, 2021:
Performance Based Awards Weighted Average Grant Date Fair Value Time-Based Service Awards Weighted Average Grant Date Fair Value Total Awards
Unvested restricted shares, beginning of period 779,102 11,170 790,272
Granted 135,045 $ 9.08 432,938 $ 9.08 567,983
Forfeited — ( 1,651 ) ( 1,651 )
Vested ( 311,641 ) — ( 311,641 )
Unvested restricted shares, end of period 602,506 442,457 1,044,963 Noncontrolling Interests Noncontrolling interests represent limited partnership interests in the Operating Partnership, or OP Units, in which the Company is the general partner. General partnership units and limited partnership units of the Operating Partnership were issued as part of the initial capitalization of the Operating Partnership. OP Units were issued as part of the Self-Management Transaction in September 2020. The holders of OP Common Units, including PM Contributor and Advisor Contributor (together the “Contributors”), have the right to cause their operating partnership units to be redeemed by the OP or purchased by the Company for cash. In either event, the cash amount to be paid will be equal to the cash value of the number of the Company’s shares that would be issuable if the OP Common Units were exchanged for shares of the Company’s common stock based on the conversion ratio set forth in Amended and Restated Operating Partnership Agreement. Alternatively, at the Company’s sole discretion, the Company may elect to purchase the OP Common Units by issuing shares of the Company’s common stock for the OP Common Units exchanged based on the conversion ratio set forth in Amended and Restated Operating Partnership Agreement. The conversion ratio is initially one to one, but may be adjusted based on certain events including: (i) if the Company declares or pays a distribution on its outstanding shares in shares of the Company’s common stock, (ii) if the Company subdivides its outstanding shares of common stock, or (iii) if the Company combines its outstanding shares of common stock into a smaller number of shares of common stock. These exchange rights may not be exercised, however, if and to the extent that the delivery of shares upon exercise would (1) result in any person owning shares of the Company’s common stock in excess of the Company’s aggregate stock ownership limit, (2) result in the Company’s shares of common stock being owned by fewer than 100 persons, (3) cause the OP to be “closely held” within the meaning of Section 856(h) of the Code, (4) it would cause the Company to own, directly or constructively, 9.9 % or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Code, (5) cause the Company to violate the Securities Act of 1933, as amended (the “Securities Act”), (6) it would require the Company to register shares of its common stock pursuant to the Securities Act, or (7) if the Company believes that the OP will be treated as a “publicly traded partnership” under Section 7704 of the Code, or if the Company no longer qualifies as a REIT. In general, holders of OP Common Units may exercise their exchange rights at any time after one year following the date of issuance of their OP Common Units; however, the Contributors may not exercise their exchange rights with respect to the OP I Common Units they hold until such OP Common Units have been outstanding for at least two years. A holder of OP Common Units may not deliver more than two exchange notices each calendar year and may not exercise an exchange right for less than 1,000 OP Common Units, unless such limited partner holds less than 1,000 units, in which case, such limited partner must exercise its exchange right for all of its OP Common Units. With respect to distribution rights and rights upon liquidation, distribution or winding up of the OP, the OP Preferred Units rank senior to all classes and series of OP Common Units and any other class or series of OP Preferred Units. Each OP Preferred Unit is entitled to a 7.00 % per annum preferred priority return on the stated value of each OP Preferred Unit commencing on the date of issuance and ending on the fifth anniversary of the date of issuance, and thereafter a 10.00 % per annum preferred priority return on the stated value of each OP Preferred Unit (the “Priority Return”), as well as, with respect to such distribution period, the amount of distributions a holder of such OP Preferred Unit would be entitled to receive if such OP Preferred Units were treated as part of a single class of units with the Common Units with the right to participate in distributions pari passu with the Common Units (the “Preferred Return”). In addition, upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the OP, the holders of OP Preferred Units are entitled to be paid out of the assets of the OP legally available for distribution, after payment or provision for the OP’s debts and other liabilities, a liquidation preference equal to the stated value per unit plus any accrued but unpaid Priority Return and any accrued but unpaid Preferred Return. Such liquidation preference shall be paid before the OP may pay any liquidating distributions to any holders of OP Common Units. Except as described below, the OP Preferred Units are not redeemable by the OP prior to the first anniversary of the date of issuance. Following such date, the holders of OP Preferred Units may elect to have up to 25 % of the number of OP Preferred Units originally issued to such holder redeemed by the OP each year for the following four years. Such redemption right shall be suspended at such time as the Company applies to list its shares of common stock on a national securities exchange, and shall terminate at such time as the national securities exchange approves the Company’s common stock for listing. Upon the occurrence of a listing of the Company common stock on a national securities exchange, a change of control of the Company, or the second anniversary of the date of issuance, the OP may at its option redeem for cash all or a portion of the then-outstanding OP Preferred Units. The redemption price to be paid in respect of a redemption of one OP Preferred Unit shall be an amount of cash equal to the stated value of such OP Preferred Unit, plus the value as of such date of one share of the Company’s common stock (as may be adjusted), plus any accrued but unpaid Priority Return and any accrued but unpaid Preferred Return (the “Redemption Price”). In the event that the redemption right described above is terminated in connection with a listing of the shares of the Company’s common stock on a national securities exchange, beginning 180 days after the date of such listing, the holders of OP Preferred Units shall have the right to require the Company to purchase the OP Preferred Units in exchange for a number of listed shares of the Company’s common stock determined by dividing (i) the number of OP Preferred Units multiplied by the Redemption Price as of the date of the exchange by (ii) the volume-weighted average price of such listed shares over the 30-day period prior to the date of the exchange. The OP Preferred Units generally will not have any voting rights; however, unless (i) fewer than 12.5 % of the number of OP Preferred Units originally issued remain outstanding, (ii) the holders of a majority of the then-outstanding OP Preferred Units consent, or (iii) an additional class or series of OP Preferred Units is being issued in connection with the full redemption of the OP Preferred Units, the OP shall not issue any class or series of OP Preferred Units with distribution rights and rights upon liquidation, distribution or winding up of the OP senior to the OP Preferred Units. Investor Rights Agreement On September 8, 2020, the Company, the OP, C-III and RAI entered into an investor rights agreement (the “Investor Rights Agreement”). Pursuant to the Investor Rights Agreement, C-III and RAI (or any successor holder) has the right (i) with respect to Common Units of the OP, after September 8, 2022, and (ii) with respect to OP Preferred Units, after 180 days from the date the Company lists its common stock on a national securities exchange (the “Lock-Up Expiration”), to request the Company to register for resale under the Securities Act of 1933, as amended, all or part, but not less than 50%, of the shares of the Company’s common stock issued or issuable to such holder. The Company will use commercially reasonable efforts to file a registration statement on Form S-3 within 30 days of such request and within 60 days of such request in the case of a registration statement on Form S-11 or such other appropriate form. The Company will cause such registration statement to become effective as soon as reasonably practicable thereafter. The Investor Rights Agreement also grants C-III and RAI (or any successor holder) certain “piggyback” registration rights after the Lock-Up Expiration. In addition, the Investor Rights Agreement grants C-III and RAI (or any successor holder) the right, together, to designate one individual to be included on the slate of directors to be voted on by the stockholders of the Company (the “Investor Nominee”). Until C-III and RAI beneficially own, in the aggregate, less than 12.5 % of the OP Preferred Units issued by the OP in connection with the Contribution Agreement, C-III and RAI, together, shall have the right to designate the Investor Nominee, subject to approval of the Company’s board of directors, or any committee of the Company’s board of directors authorized to approve board of directors nominees. The parties to the Investor Rights Agreement acknowledged and agreed that the term of the Investor Nominee designated pursuant to the Investor Rights Agreement is intended to automatically expire immediately on the date on which PM Contributor and Advisor Contributor, together, own less than 12.5 % of OP Preferred Units and that the board of directors of the Company may take actions deemed necessary and appropriate to implement such intention. For the six months ended June 30, 2021, noncontrolling interests were approximately 5.15 % of weighted average shares outstanding (assuming OP units were converted to common stock). The Company has evaluated the terms of the limited partnership interests in the Operating Partnership and as a result, has classified limited partnership interests issued in the Self-Management Transaction as noncontrolling interests, which are presented as a component of permanent equity. The Company evaluates individual noncontrolling interests for the ability to recognize the noncontrolling interest as permanent equity on the consolidated balance sheets at the time such interests are issued and on a continual basis. Any noncontrolling interest that fails to qualify as permanent equity are reclassified as temporary equity and adjusted to the greater of (a) the carrying amount or (b) its redemption value as of the end of the period in which the determination is made. No reclassifications occurred during the three and six months ended June 30, 2021. |
