UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 20, 2014 (March 18, 2014)
| Trade Street Residential, Inc. |
| (Exact Name of Registrant as Specified in its Charter) |
| Maryland | 001-32365 | 13-4284187 | ||
| (State or Other Jurisdiction of Incorporation) | (Commission File Number) |
(IRS Employer Identification No.) |
| 19950 West Country Club Drive, Suite 800, Aventura, Florida | 33180 | |
| (Address of Principal Executive Offices) | (Zip Code) |
| (786) 248-5200 |
| (Registrant's telephone number, including area code) |
| N/A |
| (Former Name or Former Address, if Changed Since Last Report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c) |
Explanatory Note.
On March 24, 2014, Trade Street Residential, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original 8-K”) to report the acquisition of The Avenues at Craig Ranch (“Craig Ranch”) on March 18, 2014. This amendment is being filed for the sole purpose of filing the financial statements and pro forma financial information required by Item 9.01 of Form 8-K, and should be read in conjunction with the Original 8-K. Leasing for Craig Ranch commenced in July 2013. Physical occupancy at the property has increased each month since leasing commenced and, at the time of the Company’s acquisition of Craig Ranch, the property had a physical occupancy of 65.0% and was 73.4% leased. The Company expects that the revenues for Craig Ranch for the third quarter ending September 30, 2014 will significantly improve as a result of continued increases in physical occupancy. As such, the reported financial information may not necessarily be indicative of future revenues.
Cautionary Note Regarding Forward-Looking Statements
Statements in this Current Report on Form 8-K, and other statements that the Company may make, contain forward-looking statements within the meaning of the federal securities laws, including, without limitation, statements regarding the Company’s expectations with respect to continued increases in occupancy and improvements in operating results. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Certain factors that could cause actual results to differ materially from the Company’s expectations include the risks detailed under “Risk Factors” contained in the Annual Report on Form 10-K and in the other documents the Company files with the SEC. Many of these factors are beyond the Company’s ability to control or predict. Forward-looking statements are not guarantees of performance. For forward-looking statements herein, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. The Company has no duty to, and does not intend to, update or revise the forward-looking statements in this discussion after the date hereof, except as may be required by law. In light of these risks and uncertainties, you should keep in mind that any forward-looking statement made in this discussion, or elsewhere, might not occur.
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Item 9.01. Financial Statements and Exhibits.
| (a) | Financial Statements of Business Acquired | |
| Statement of Revenues and Certain Expenses for the period from July 1, 2013 (inception of operations) through December 31, 2013 (unaudited) | 4 | |
| Notes to Statement of Revenues and Certain Expenses | 5 | |
| (b) | Pro Forma Financial Information | |
| Unaudited Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2013 | 8 | |
| Unaudited Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2013 | 9 | |
| Notes to Pro Forma Condensed Consolidated Financial Statements | 10 |
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The Avenues at Craig Ranch
Statement of Revenues and Certain Expenses
For the period from July 1, 2013
(inception of operations) through December 31, 2013
(Unaudited)
| Revenues: | ||||
| Rental revenue, net | $ | 508,650 | ||
| Other property income | 30,777 | |||
| Revenues- Total | 539,427 | |||
| Certain expenses: | ||||
| Payroll and benefits | 225,371 | |||
| Real estate taxes and insurance | 114,536 | |||
| General and administrative | 53,663 | |||
| Utilities | 39,227 | |||
| Advertising and marketing | 34,382 | |||
| Repairs and maintenance | 18,605 | |||
| Other property operating expenses | 17,324 | |||
| Certain Expenses- Total | 503,108 | |||
| Revenues in excess of certain expenses | $ | 36,319 |
The accompanying notes are an integral part of this financial statement
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The Avenues at Craig Ranch
Notes to Statement of Revenues and Certain Expenses
(Unaudited)
NOTE 1. DESCRIPTION OF OPERATIONS
The accompanying statement of revenues and certain expenses includes the operations of The Avenues at Craig Ranch (the “Property”), a 334 unit multi-family rental apartment complex contained in 10 three-story apartment buildings, located in McKinney, Texas. This Property was acquired by Trade Street Residential, Inc. on March 18, 2014. The Property began leasing units in July 2013 and was approximately 43% occupied as of December 31, 2013.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying statement of revenues and certain expenses has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X promulgated under the Securities Act of 1933, as amended. This statement of revenues and certain operating expenses is not intended to be a complete presentation of the actual operations of the Property for the applicable period, as certain revenue and expenses which may not be compatible to those that will be realized and incurred in the proposed future operations of the Property have been excluded. Items excluded consist of certain one-time administrative fee revenue related to initial leasing activities. Management is not aware of any material factors related to the Property, other than discussed, that would cause the statement of revenues and certain expenses not to be indicative of future operating results.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that in certain circumstances may affect the reported revenues and certain expenses. Actual results could materially differ from these estimates.
Revenue recognition
The Property is leased under operating leases with terms of generally one year or less. Rental revenues from residential leases, which may include periods of free rent and/or scheduled increases of rental rates over the term of the lease, are recognized on the straight-line basis.
Under the terms of the residential leases, residents are obliged to reimburse the Property for water and sewer, where the Property is the primary obligor to the local utility. These reimbursements are included in other property income in the accompanying statement of revenues and certain expenses. The reimbursements for the period ended December 31, 2013 were approximately $3,100.
During the period ended December 31, 2013, the Property recognized approximately $11,500 of administrative and application fee income related to its initial leasing activities. These amounts are also included in other property income in the accompanying statement of revenues and certain expenses.
Operating expenses
Operating expenses represent the direct expenses of operating the Property and consist primarily of payroll and benefits, real estate taxes and other operating expenses that are expected to continue in the proposed future operations of the Property.
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The Avenues at Craig Ranch
Notes to Statement of Revenues and Certain Expenses (Continued)
(Unaudited)
NOTE 3. COMMITMENTS AND CONTINGENCIES
The Property is a party to various contracts with third parties for certain services and maintenance. Some of these contracts may span more than one year in duration. The total amount of these commitments has not been determined.
The Property is not presently involved in any material litigation, nor, to Management’s knowledge is any material litigation threatened against the Property, other than routine litigation arising in the ordinary course of business such as disputes with tenants. The Property believes that the costs and related liabilities, if any, which may result from such actions will not materially affect the Property’s operating results.
NOTE 4. SUBSEQUENT EVENTS
Property management has evaluated events and transactions for potential recognition or disclosure through May 20, 2014, the date this interim financial information was available to be issued. Management has determined that there are no subsequent events or transactions to report.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial statements have been prepared to provide pro forma information with regard to the acquisition of The Avenues at Craig Ranch (“Craig Ranch”), which Trade Street Residential, Inc. (“the Company”), through Trade Street Operating Partnership, L.P., its majority-owned subsidiary, acquired from an unrelated party on March 18, 2014.
The unaudited pro forma condensed consolidated balance sheet for the Company and Craig Ranch is presented as if the acquisition had occurred as of December 31, 2013.
The unaudited pro forma condensed consolidated statement of operations for the Company and Craig Ranch for the twelve months ended December 31, 2013 give effect to the Company’s acquisition of Craig Ranch, as if it had occurred on the first day of the earliest period presented. The pro forma adjustments column presented on the pro forma consolidated statement of operations for the year ended December 31, 2013 includes the financial information for Craig Ranch for the period from July 1, 2013 (inception of operations) through December 31, 2013.
The unaudited pro forma condensed consolidated financial statements have been prepared by the Company’s management based upon the historical financial statements of the Company and subsidiaries and those of Craig Ranch. These pro forma consolidated financial statements may not be indicative of the results that actually would have occurred had the acquisition been in effect on the dates indicated or which may be obtained in the future operations.
This unaudited pro forma consolidated financial information is presented for informational purposes only and does not purport to be indicative of the Company’s financial results as if the transactions reflected herein had occurred on the date or been in effect during the period indicated. This pro forma consolidated financial information should not be viewed as indicative of the Company’s financial results in the future and should be read in conjunction with the Company’s financial statements for the year ended December 31, 2013 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2014.
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TRADE STREET RESIDENTIAL INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2013
(unaudited, in thousands)
| Completed Acquisition | ||||||||||||
| Historical | Craig Ranch | Pro Forma Consolidated | ||||||||||
| (A) | (B) | |||||||||||
| ASSETS: | ||||||||||||
| Real estate: | ||||||||||||
| Land and improvements | $ | 58,560 | $ | 6,654 | $ | 65,214 | ||||||
| Buildings and improvements | 272,849 | 33,317 | 306,166 | |||||||||
| Furniture, fixtures, and equipment | 9,016 | 1,673 | 10,689 | |||||||||
| 340,425 | 41,644 | 382,069 | ||||||||||
| Less accumulated depreciation | (14,369 | ) | - | (14,369 | ) | |||||||
| Net investment in operating properties | 326,056 | 41,644 | 367,700 | |||||||||
| Land held for future development | 31,963 | - | 31,963 | |||||||||
| Net real estate assets | 358,019 | 41,644 | 399,663 | |||||||||
| Other assets: | ||||||||||||
| Investment in unconsolidated joint venture | 2,421 | - | 2,421 | |||||||||
| Cash and cash equivalents | 9,037 | (21,438 | ) | (12,401 | )(C) | |||||||
| Restricted cash and lender reserves | 3,203 | - | 3,203 | |||||||||
| Deferred financing costs | 3,022 | 263 | 3,285 | |||||||||
| Intangible asset, net | 1,571 | 731 | 2,302 | |||||||||
| Due from related parties | 803 | - | 803 | |||||||||
| Prepaid expenses and other assets | 9,560 | - | 9,560 | |||||||||
| 29,617 | (20,444 | ) | 9,173 | |||||||||
| TOTAL ASSETS | $ | 387,636 | $ | 21,200 | $ | 408,836 | ||||||
| LIABILITIES: | ||||||||||||
| Indebtedness | $ | 249,584 | $ | 21,200 | $ | 270,784 | ||||||
| Accrued interest payable | 840 | - | 840 | |||||||||
| Accounts payable and accrued expenses | 6,119 | - | 6,119 | |||||||||
| Dividends payable | 1,247 | - | 1,247 | |||||||||
| Due to related parties | 120 | - | 120 | |||||||||
| Security deposits and deferred rent | 1,029 | - | 1,029 | |||||||||
| Acquisition consideration payable in preferred stock | 294 | - | 294 | |||||||||
| TOTAL LIABILITIES | 259,233 | 21,200 | 280,433 | |||||||||
| Commitments & contingencies | ||||||||||||
| STOCKHOLDERS' EQUITY: | ||||||||||||
| Class A preferred stock | 3 | - | 3 | |||||||||
| Common stock | 115 | - | 115 | |||||||||
| Additional paid-in capital | 162,681 | - | 162,681 | |||||||||
| Accumulated deficit | (52,053 | ) | - | (52,053 | ) | |||||||
| TOTAL STOCKHOLDERS' EQUITY - TRADE STREET RESIDENTIAL, INC. | 110,746 | - | 110,746 | |||||||||
| Noncontrolling interests | 17,657 | - | 17,657 | |||||||||
| TOTAL STOCKHOLDERS' EQUITY | 128,403 | - | 128,403 | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 387,636 | $ | 21,200 | $ | 408,836 | ||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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TRADE STREET RESIDENTIAL INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2013
(unaudited, in thousands, except for per share amounts)
| Completed Acquisition | ||||||||||||
| Historical | Craig Ranch | Pro Forma Consolidated | ||||||||||
| (D) | (E) | |||||||||||
| Property Revenue | ||||||||||||
| Rental revenue | $ | 26,261 | $ | 508 | $ | 26,769 | ||||||
| Other property revenues | 2,696 | 31 | 2,727 | |||||||||
| Total property revenues | 28,957 | 539 | 29,496 | |||||||||
| Property Expenses | ||||||||||||
| Property operations | 9,243 | 388 | 9,631 | |||||||||
| Real estate taxes and insurance | 3,942 | 115 | 4,057 | |||||||||
| Total property expenses | 13,185 | 503 | 13,688 | |||||||||
| Other expenses | ||||||||||||
| General and administrative | 8,683 | - | 8,683 | |||||||||
| Interest expense | 8,947 | 419 | (F) | 9,366 | ||||||||
| Depreciation and amortization | 11,918 | 1,255 | (G) | 13,173 | ||||||||
| Development and pursuit costs | 180 | - | 180 | |||||||||
| Acquisition costs | 919 | - | 919 | |||||||||
| Asset impairment losses | 12,419 | - | 12,419 | |||||||||
| Amortization of deferred financing costs | 1,443 | - | 1,443 | |||||||||
| Loss on early extinguishment of debt | 1,146 | - | 1,146 | |||||||||
| Total other expenses | 45,655 | 1,674 | 47,329 | |||||||||
| Other income | 88 | - | 88 | |||||||||
| Income from unconsolidated joint venture | 67 | - | 67 | |||||||||
| Gain on bargain purchase | 6,900 | - | 6,900 | |||||||||
| Loss from continuing operations | (22,828 | ) | (1,638 | ) | (24,466 | ) | ||||||
| Loss allocated to noncontrolling interest holders | 2,462 | - | 2,462 | |||||||||
| Dividends declared and accreted on preferred stock and units | (940 | ) | - | (940 | ) | |||||||
| Dividends to restricted stockholders | (52 | ) | - | (52 | ) | |||||||
| Extinguishment of equity securities | 11,716 | - | 11,716 | |||||||||
| Adjustments attributable to participating securities | (2,241 | ) | - | (2,241 | ) | |||||||
| Net loss attributable to common stockholders | $ | (11,883 | ) | $ | (1,638 | ) | $ | (13,521 | ) | |||
| Loss per common share – basic and diluted | $ | (1.36 | ) | $ | (1.54 | ) | ||||||
| Weighted average number of shares - basic and diluted | 8,762 | 8,762 | ||||||||||
See accompanying notes to unaudited pro forma condensed consolidated financial statements.
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TRADE STREET RESIDENTIAL, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BALANCE SHEET
| A. | Reflects the historical condensed consolidated balance sheet of Trade Street Residential, Inc. (the “Company”) as of December 31, 2013. |
| B. | On March 18, 2014, the Company, through its operating partnership, Trade Street Operating Partnership (“the “Operating Partnership”), completed the acquisition of The Avenues of Craig Ranch (“Craig Ranch”). The acquisition consideration of $42.4 million was paid with cash of $21.2 million from the Company’s rights offering to its existing stockholders and certain related transactions (the “Offering”) and proceeds from a new mortgage loan in the amount of $21.2 million. The mortgage has a 7-year term and a fixed interest rate of 3.78% with monthly payments of interest only for the term of the loan. The costs of the acquired tangible and intangible assets were allocated as follows based on estimates of their fair value in accordance with Accounting Standards Codification Topic 805, Business Combinations. |
| (in thousands) | ||||
| Land | $ | 3,444 | ||
| Site improvements | 3,210 | |||
| Building | 33,317 | |||
| Furniture fixtures and equipment | 1,673 | |||
| In-place leases | 731 | |||
| Net assets acquired | $ | 42,375 | ||
In conjunction with obtaining the mortgage loan, the Company recorded deferred loan costs of $0.3 million, which will be amortized using the straight line method over the life of the loan.
| C. | Does not reflect the Offering, pursuant to which the Company issued 24,881,517 shares of its common stock at a subscription rights offering price of $6.33 per share. The Company received approximately $147.5 million in total net proceeds from the offering after deducting offering expenses paid by the Company. The Company used $21.2 million of the net proceeds of the Offering to fund the cash portion of the purchase price of Craig Ranch. |
STATEMENT OF OPERATIONS
| D. | Reflects the historical condensed consolidated statement of operations of the Company for the year ended December 31, 2013. |
| E. | Reflects the historical operations of Craig Ranch for the period from July 1, 2013 (inception of operations) through December 31, 2013. |
| F. | Represents the depreciation of the buildings (over 50 years), site improvements (over 15 years), furniture and fixtures (over 10 years) and in-place leases (over six months) based on the purchase price allocation in accordance with ASC 805, assuming the acquisition of Craig Ranch took place on July 1, 2013 (inception of operations). |
| G. | Represents interest expense on the mortgage loan at 3.78%, assuming the acquisition of Craig Ranch took place on July 1, 2013 (inception of operations). |
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SIGNATURE
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 hereunto duly authorized.
| Trade Street Residential, Inc. | ||
| Date: May 20, 2014 | By: | /s/ Richard H. Ross |
| Richard H. Ross | ||
| Chief Executive Officer and Chief Financial Officer | ||
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