Inland Residential Properties Trust Inactive
Filed: 7 Oct 15, 12:00am
Filed pursuant to Rule 424(b)(3)
Registration No. 333-199129
SUPPLEMENT NO. 8
DATED OCTOBER 6, 2015
TO THE PROSPECTUS DATED FEBRUARY 17, 2015
OF INLAND RESIDENTIAL PROPERTIES TRUST, INC.
This Supplement No. 8 supplements, and should be read in conjunction with, the prospectus of Inland Residential Properties Trust, Inc., dated February 17, 2015, as previously supplemented by Supplement No. 1 dated March 13, 2015, Supplement No. 2 dated May 22, 2015, Supplement No. 3 dated June 8, 2015, Supplement No. 4 dated August 25, 2015, Supplement No. 5 dated September 3, 2015, Supplement No. 6 dated September 9, 2015 and Supplement No. 7 dated September 14, 2015. Unless otherwise defined in this Supplement No. 8, capitalized terms used herein have the same meanings as set forth in the prospectus, as supplemented.
Our Portfolio of Real Estate Assets
Investments in Real Properties
This discussion updates the section of the prospectus captioned “Our Portfolio of Real Estate Assets” on page S-1 of Supplement No. 4.
On September 30, 2015, we, through a wholly owned subsidiary, acquired a fee simple interest in the following property from The Haven at Market Square, LLC, an unaffiliated third party (dollar amounts stated in millions, except for per unit amounts):
| Property Name | Date Acquired | Total Number of Units | Total Square Feet | Approx. Purchase Price Paid at Closing | Cap Rate (1) | Approx. Annualized Base Rent (2) | Weighted Average Annualized Base Rent per Unit (2) | Weighted Average Remain- ing Lease Term in Years (3) | Financial Occu- pancy (4) | Physical Occu- pancy (5) | Competing Residential Properties (6) |
The Retreat at Market Square – Frederick, MD | 9/30/2015 | 206 | 194,732 | $45.8 | 5.9% | $3.7 | $19,598 | 0.5 | 95.2% | 95.2% | 3,5 |
| (1) | We determine capitalization rate, or “cap rate,” by dividing the property’s annualized net operating income (“NOI”), existing at the date of acquisition, by the contract purchase price of the property paid at the date of acquisition. NOI consists of, for these purposes, rental income reduced by reduced by operating expenses and existing vacancies. |
| (2) | Annualized base rent is calculated by annualizing the current, in-place monthly base rent for leases, including any tenant concessions, such as rent abatement or allowances that may have been granted. Annualized base rent is as of the date of acquisition. |
| (3) | This represents the weighted average remaining lease term as of the date of acquisition. |
| (4) | As used herein, Financial Occupancy is defined as the percentage of total units for which a tenant is obligated to pay rent under the terms of its lease agreement, regardless of the actual use by that tenant of the units being leased. Financial Occupancy is as of the date of acquisition. |
| (5) | Physical Occupancy is as of the date of acquisition. |
| (6) | Number of competing apartment complexes located within approximately three and five miles of the property, respectively. |
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Our Debt Obligations
On the date indicated below, we, through our wholly owned subsidiary, obtained the following loan that is secured by a first priority mortgage on the noted property (dollar amounts stated in millions):
| Property Name | Date of Financing | Approximate Outstanding Principal Balance (1) | Approximate Amount Due and Payable at Maturity (2) | Interest per Annum (%) | Maturity Date |
| The Retreat at Market Square – Frederick, MD | 9/30/2015 | $45.8 | $45.8 | 3.95%(3) | 9/30/2016(3) |
| (1) | Our debt obligations are as of the date of financing. |
| (2) | Amount assumes that no unscheduled principal payments are made in advance of the maturity date. |
| (3) | Subject to certain conditions, we have a one-time option to extend the maturity date for an additional seven year period to September 30, 2023. If extended, the mortgage loan would bear interest at a fixed rate equal to 3.79%. |
Description of Real Estate Assets
This discussion updates the section of the prospectus captioned “Description of Real Estate Assets,” which begins on page S-2 of Supplement No. 4.
Recent Acquisitions
The Retreat at Market Square.On September 30, 2015, IRESI Frederick Market Square, L.L.C. (the “Retreat Subsidiary”), our wholly owned subsidiary, acquired a fee simple interest in a 194,732 square foot 206-unit apartment community known as The Retreat at Market Square (formerly known as The Haven at Market Square), located at 300 Cormorant Place, Frederick, Maryland, for approximately $45.8 million in cash, plus closing costs. We funded the purchase through a mortgage loan secured by the property, in an aggregate principal amount equal to approximately $45.8 million. The terms of this loan are described below under “— Financing Transactions.” We expect to pay our business manager an acquisition fee equal to 1.5% of the contract purchase price, or approximately $0.7 million.
The property was constructed in 2014. As of September 30, 2015, no tenant occupied 10% or more of the rentable square footage.
As of September 30, 2015, the property was 95.2% occupied, with 196 residential units leased. The following table sets forth certain information with respect to the expiration of leases in place at the property as of September 30, 2015:
Year Ending December 31(1) | Number of Leases Expiring | Approx. Gross Leasable Area of Expiring Leases (Sq. Ft.) | Total Annual Base Rental Income of Expiring Leases ($) | % of Total Annual Base Rental Income Represented by Expiring Leases(2) |
| 2015 | 48 | 45,209 | 889,500 | 24% |
| 2016 | 148 | 140,483 | 2,791,020 | 76% |
| (1) All of the current leases expire in either 2015 or 2016. | ||||
| (2) This percentage assumes that expiring leases are not renewed in each subsequent year. | ||||
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The table below sets forth certain historical information with respect to the occupancy rate at the property, expressed as a percentage of total gross leasable area, and the average effective annual base rent per unit.
Year Ending December 31(1) | Occupancy Rate as of December 31 | Average Effective Annual Rental Per Unit ($) |
| 2014 | 81.6% | $18,530 |
| (1) The first year of occupancy was 2014. | ||
We believe that the property is suitable for its intended purpose and adequately covered by insurance. We do not intend to make significant renovations or improvements in the foreseeable future. As of September 30, 2015, there were three and five competitive apartment complexes located within approximately three and five miles of the property, respectively. As of September 30, 2015, within a five mile radius of the property the population was over 106,000 and the average household income within the same radius was over $89,900 per year. The Retreat at Market Square is part of the residential portion of Market Square at Frederick, within twenty minutes of the I-270 Corridor and situated equidistant from Washington, DC and Baltimore, and competes with at least eight other apartment complexes in its submarket for tenants.
Real estate taxes assessed for the most recent fiscal year were approximately $351,000. The amount of real estate taxes assessed was equal to the property’s assessed value multiplied by an average tax rate of 1.78%. We will calculate depreciation expense for federal income tax purposes by using the straight-line method. For federal income tax purposes, we depreciate buildings and improvements based upon estimated useful lives of 40 years and furniture, fixtures, equipment and site improvements for 5 to 20 years.
Financing Transactions
The Retreat at Market Square.On September 30, 2015, we, through the Retreat Subsidiary, entered into a loan with Parkway Bank and Trust Company for approximately $45.8 million. The loan is secured by a first mortgage on The Retreat at Market Square.
The loan bears interest at a fixed rate equal to 3.95% per annum. The maturity date on the loan is September 30, 2016. The loan requires monthly payments of interest only until the maturity date, on which date the outstanding principal balance of the loan plus all accrued and unpaid interest will be due. Subject to satisfying certain conditions, as set forth in the loan documents, the Retreat Subsidiary may prepay the loan in whole or in part, at any time, without premium or penalty. Provided no principal payments were made during the term of the loan, approximately $45.8 million would be due and payable at the maturity date. We expect to pay our business manager a mortgage financing fee equal to 0.25% of the amount borrowed, or approximately $114,000.
Provided no event of default has occurred and is continuing, the Retreat Subsidiary has a one-time option to extend the maturity date for an additional seven year period to September 30, 2023, subject to (i) an appraisal of The Retreat at Market Square showing a loan-to-value ratio not to exceed 60% and (ii) the lender’s verification of a minimum debt coverage ratio of 2.45. In accordance with the terms of the option, the loan would then require monthly payments of interest only during years one through five and monthly payments of principal and interest based upon a 30-year amortization schedule during years six and seven. The mortgage loan would bear interest at a fixed rate equal to 3.79%.
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The loan documents contain customary affirmative, negative and financial covenants, agreements, representations, warranties and borrowing conditions, all as set forth in the loan documents. The loan documents also contain various customary events of default. If an event of default occurs under the loan, the lender may declare the entire loan to be immediately due and payable and foreclose the deed of trust securing the loan immediately or at any time after such event of default occurs. In the event of a default, the Retreat Subsidiary will be required to pay a default interest rate equal to 3% per annum above the interest rate.
During the initial one-year term of the loan, IREIC, our sponsor, has agreed to guarantee the payment of (i) all real estate taxes on The Retreat at Market Square which accrue or become due during the term of the loan, (ii) all Costs and Expenses (as defined in the guaranty agreement), and (iii) any and all losses, damages, costs or expenses of the lender, which arise in consequence of certain events specified in the guaranty agreement, provided that the guaranteed obligation will be limited to the payment of $9,150,000, plus enforcement costs. We have not paid, and will not pay, any fees or other consideration to IREIC for this guarantee. The Retreat Subsidiary and IREIC have also entered into an environmental indemnity agreement in favor of the lender.
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