UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 22, 2016

 

 

CNL GROWTH PROPERTIES, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

Maryland   000-54686   26-3859644

(State or Other Jurisdiction

of Incorporation)

 

(Commission

File Number)

 

(IRS Employer

Identification No.)

450 South Orange Avenue

Orlando, Florida 32801

(Address of Principal Executive Offices; Zip Code)

Registrant’s telephone number, including area code: (407) 650-1000

 

 

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:

 

¨ 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))

 

 

 


Item 2.01 Completion of Acquisition or Disposition of Assets

Sale of Patterson Project

As previously reported in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on June 17, 2016, the joint venture (the “Patterson Place Joint Venture”) of an operating subsidiary of CNL Growth Properties, Inc. (the “Company”) and an affiliate of The Bainbridge Companies, LLC (“Bainbridge”) entered into an agreement effective June 15, 2016 for the sale of the Patterson Place Joint Venture’s 322-unit, multifamily “Class A” garden-style three-story residential apartment community on the property known as “REALM Patterson Place Apartments” (the “Patterson Place Property”). The sale price for the Patterson Place Property was approximately $60 million.

On June 22, 2016, the Patterson Place Joint Venture completed the sale of the Patterson Place Property to Patterson Multifamily Durham, LP, an unaffiliated third party. The net cash to the Company from the sale of the Patterson Place Property is approximately $22.0 million after repayment of approximately $26.7 million of debt, closing costs, reserves, and distributions to Bainbridge in accordance with the provisions of the Patterson Place Joint Venture’s governing documents.

Also as previously reported in a Current Report on Form 8-K filed with the Commission on May 31, 2016, another joint venture of the Company entered into a purchase and sale agreement, dated May 24, 2016, with EGW Castle Hills, LP, an unaffiliated third party, for the sale of the Aura Castle Hills Property. The purchase price for the Aura Castle Hills Property is approximately $51.25 million excluding transaction costs. The Company anticipates the consummation of this sale to occur in June 2016. The net cash to the Company from the sale of the Aura Castle Hills Property is expected to be approximately $10.0 million after repayment of approximately $24.4 million of debt, closing costs, reserves, and distributions to the Company’s joint venture partner in accordance with the joint venture’s governing documents. There can be no assurance that the sale of the Aura Castle Hills Property will be completed within the contemplated time, or at all. The Aura Castle Hills Property is currently classified as real estate held for sale in the Company’s financial statements.

 

Item 9.01 Financial Statements and Exhibits.

 

(b) Pro forma financial information.

The Company’s unaudited pro forma condensed consolidated balance sheet at March 31, 2016 illustrates the estimated effects of the sale of the Patterson Place Property and the pending sale of the Aura Castle Hills Property referred to in Item 2.01 above (the “Transactions”) as if they had occurred on such date.

The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2016 and for the year ended December 31, 2015 (collectively, the “Pro Forma Periods”) include certain pro forma adjustments to illustrate the estimated effect of the Transactions as if they had occurred on the first day of each of the Pro Forma Periods.

The unaudited pro forma condensed consolidated balance sheet and statements of operations are presented for informational purposes only and do not purport to be indicative of the Company’s financial results as if the Transactions reflected herein had occurred on the first date of or been in effect during the Pro Forma Periods. Further, the unaudited pro forma condensed consolidated balance sheet and statements of operations should not be viewed as indicative of the Company’s financial results in the future; and they should be read in conjunction with the Company’s financial statements as filed with the Commission on Form 10-Q for the three months and the quarterly period ended March 31, 2016 and on Form 10-K for the year ended December 31, 2015.

 

2


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

MARCH 31, 2016

 

     Historical
March 31,

2016
    REALM
Patterson Place
Property Sold
Pro Forma
Adjustments
           Aura Castle
Hills Property
Pending Pro
Forma
Adjustments
           Pro Forma
March 31,

2016
 

ASSETS

              

Real estate assets, net:

              

Operating real estate assets, net (including VIEs $207,511,336)

   $ 213,714,473      $ —           $ —           $ 213,714,473   

Construction in process, including land (including VIEs $100,956,374)

     105,003,842        —             —             105,003,842   
  

 

 

   

 

 

      

 

 

      

 

 

 

Total real estate assets, net

     318,718,315        —             —             318,718,315   

Real estate held for sale (including VIEs $95,681,506)

     123,579,256        (36,703,383     (a)         (32,091,019     (a)         54,784,854   

Cash and cash equivalents (including VIEs $8,619,830)

     19,565,299        59,480,838        (a)         50,674,686        (a)      
       (26,655,480     (b)         (24,503,283     (b)         78,562,060   

Restricted cash (including VIEs $635,654)

     1,060,973        —             —             1,060,973   

Other assets (including VIEs $874,964)

     1,275,149        —             —             1,275,149   
  

 

 

   

 

 

      

 

 

      

 

 

 

Total assets

   $ 464,198,992      $ (3,878,025      $ (5,919,616      $ 454,401,351   
  

 

 

   

 

 

      

 

 

      

 

 

 

LIABILITIES AND EQUITY

              

Liabilities:

              

Mortgages and construction notes payable (including VIEs $264,894,436)

   $ 292,646,650      $ (26,581,090     (b)       $ (24,438,192     (b)      
       13,287        (b)         40,730        (b)       $ 241,681,385   

Accrued development costs (including VIEs $18,573,164)

     18,573,164        —             —             18,573,164   

Due to related parties

     1,671,793        —             —             1,671,793   

Accounts payable and other accrued expenses (including VIEs $4,265,103)

     4,942,328        (74,390     (b)         (65,091     (b)         4,802,847   

Other liabilities (including VIEs $637,766)

     734,247        —             —             734,247   
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Liabilities

     318,568,182        (26,642,193        (24,462,553        267,463,436   
  

 

 

   

 

 

      

 

 

      

 

 

 

Commitments and contingencies

              

Equity:

              

Stockholders equity:

              

Preferred stock, $.01 par value per share, authorized and unissued 200,000,000 shares

     —          —             —             —     

Common stock, $0.01 par value per share, 1,120,000,000 shares authorized; 22,702,363 issued and 22,526,171 outstanding

     225,262        —             —             225,262   

Capital in excess of par value

     170,792,081        —             —             170,792,081   

Accumulated earnings

     17,290,706        15,644,813        (a)         7,093,321        (a)      
       (11,958     (b)         (21,994     (b)         39,994,888   

Accumulated cash distributions

     (67,578,518     —             —             (67,578,518
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Stockholders’ Equity

     120,729,531        15,632,855           7,071,327           143,433,713   

Noncontrolling interest

     24,901,279        7,132,642        (a)         11,490,346        (a)      
       (1,329     (b)         (18,736     (b)         43,504,202   
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Equity

     145,630,810        22,764,168           18,542,937           186,937,915   
  

 

 

   

 

 

      

 

 

      

 

 

 

Total Liabilities and Equity

   $ 464,198,992      $ (3,878,025      $ (5,919,616      $ 454,401,351   
  

 

 

   

 

 

      

 

 

      

 

 

 

The abbreviation VIEs above means Variable Interest Entities.

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

3


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2016

 

     Historical
March 31,

2016
    REALM
Patterson Place
Property Sold
Pro Forma
Adjustments (a)
    Aura Castle
Hills Property
Pending Pro
Forma
Adjustments (a)
    Pro Forma
March 31,
2016
 

Revenues:

        

Rental income from operating leases

   $ 8,064,713      $ (1,059,941   $ (1,054,587   $ 5,950,185   

Other property revenue

     623,362        (98,863     (93,066     431,433   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     8,688,075        (1,158,804     (1,147,653     6,381,618   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Property operating expenses

     4,395,400        (360,723     (493,150     3,541,527   

General and administrative

     1,214,343        (5,928     (6,588     1,201,827   

Asset management fees, net of amounts capitalized

     654,145        (83,918 )(b)      (44,595 )(b)      525,632   

Property management fees

     413,828        (35,303     (33,800     344,725   

Depreciation

     2,054,519        (251,884     (83,839     1,718,796   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     8,732,235        (737,756     (661,972     7,332,507   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating loss

     (44,160     (421,048     (485,681     (950,889
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Interest and other income

     (10,741     —          —          (10,741

Interest expense and loan cost amortization, net of amounts capitalized

     (1,567,019     194,570 (c)      171,191 (c)      (1,201,258
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (1,577,760     194,570        171,191        (1,211,999
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     (116,654     —          5,417        (111,237
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (1,738,574     (226,478     (309,073     (2,274,125

Net loss from continuing operations attributable to noncontrolling interests

     134,055        27,821        148,737        310,613   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss from continuing operations attributable to common stockholders

   $ (1,604,519   $ (198,657   $ (160,336   $ (1,963,512
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share of common stock (basic and diluted) from continuing operations

   $ (0.07       $ (0.09
  

 

 

       

 

 

 

Weighted average number of shares of common stock outstanding (basic and diluted)

     22,526,171            22,526,171   
  

 

 

       

 

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

4


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2015

 

     Historical
December 31,
2015
    REALM
Patterson Place
Property Sold
Pro Forma
Adjustments (a)
    Aura Castle
Hills Property
Pending Pro
Forma
Adjustments (a)
    Pro Forma
December 31,
2015
 

Revenues:

        

Rental income from operating leases

   $ 30,473,600      $ (3,206,605   $ (4,101,054   $ 23,165,941   

Other property revenue

     2,473,481        (290,530     (388,787     1,794,164   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     32,947,081        (3,497,135     (4,489,841     24,960,105   
  

 

 

   

 

 

   

 

 

   

 

 

 

Expenses:

        

Property operating expenses

     16,462,866        (1,628,452     (1,748,233     13,086,181   

General and administrative

     3,210,332        (5,617     (6,926     3,197,789   

Asset management fees, net of amounts capitalized

     2,348,250        (335,289 )(b)      (178,438 )(b)      1,834,523   

Property management fees

     1,262,453        (122,735     (129,426     1,010,292   

Acquisition fees and expenses, net of amounts capitalized

     16,462        —          —          16,462   

Depreciation

     10,433,749        (1,526,037     (1,011,871     7,895,841   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     33,734,112        (3,618,130     (3,074,894     27,041,088   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     (787,031     120,995        (1,414,947     (2,080,983
  

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

        

Fair value adjustments and other income (expense)

     (16,476     2        —          (16,474

Interest expense and loan cost amortization, net of amounts capitalized

     (5,127,058     699,241 (c)      588,508 (c)      (3,839,309

Loss on extinguishment of debt

     (87,047     —          —          (87,047
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

     (5,230,581     699,243        588,508        (3,942,830
  

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense

     (89,192     —          27,674        (61,518
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss before gains on sale of real estate and easement

     (6,106,804     820,238        (798,765     (6,085,331

Gain on sale of real estate, net of tax of $1,224,844

     61,208,195        —          —          61,208,195   

Gain on easement

     603,400        —          —          603,400   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing operations

     55,704,791        820,238        (798,765     55,726,264   

Net (income) loss from continuing operations attributable to noncontrolling interests

     (37,899,343     (67,215     380,023        (37,586,535
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) from continuing attributable to common stockholders

   $ 17,805,448      $ 753,023      $ (418,742   $ 18,139,729   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income per share of common stock (basic and diluted) from continuing operations

   $ 0.79          $ 0.81   
  

 

 

       

 

 

 

Weighted average number of shares of common stock outstanding (basic and diluted)

     22,526,171            22,526,171   
  

 

 

       

 

 

 

See accompanying notes to unaudited pro forma condensed consolidated financial statements.

 

5


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

The accompanying unaudited pro forma condensed consolidated balance sheet of the Company is presented as if the disposition of the Patterson Place Property and the pending disposition of the Aura Castle Hills Property described in Note 2. “Pro Forma Transactions” had occurred as of March 31, 2016. The accompanying unaudited pro forma condensed consolidated statements of operations of the Company are presented for the three months ended March 31, 2016 and for the year ended December 31, 2015 (the “Pro Forma Periods”), and include certain pro forma adjustments to illustrate the estimated effect of the Company’s dispositions, described in Note 2. “Pro Forma Transactions”, as if they had occurred as of the first day of the Pro Forma Periods. The amounts included in the historical columns represent the Company’s historical balance sheet and operating results for the respective Pro Forma Periods presented.

The accompanying unaudited pro forma condensed consolidated financial statements have been prepared in accordance with Article 11 of Regulation S-X and do not include all of the information and note disclosures required by generally accepted accounting principles of the United States (“GAAP”). Pro forma financial information is intended to provide information about the continuing impact of a transaction by showing how a specific transaction or group of transactions might have affected historical financial statements. Pro forma financial information illustrates only the isolated and objectively measurable (based on historically determined amounts) effects of a particular transaction, and excludes effects based on judgmental estimates of how historical management practices and operating decisions may or may not have changed as a result of the transaction. Therefore, pro forma financial information does not include information about the possible or expected impact of current actions taken by management in response to the pro forma transaction, as if management’s actions were carried out in previous reporting periods.

This unaudited pro forma condensed consolidated financial information is presented for informational purposes only and does not purport to be indicative of the Company’s financial results or financial position as if the transactions reflected herein had occurred, or been in effect during the Pro Forma Periods. In addition, this unaudited pro forma condensed consolidated financial information should not be viewed as indicative of the Company’s expected financial results for future periods.

 

2. Pro Forma Transactions

On June 15, 2016, the Patterson Place Joint Venture entered into a purchase and sale agreement with Patterson Multifamily Durham, LP, an unaffiliated third party, for the sale of the Patterson Place Property. The purchase price for the Patterson Place Property is $60.0 million excluding transaction costs.

On June 22, 2016, the Patterson Place Joint Venture completed the sale of the Patterson Place Property.

On May 24, 2016, the Aura Castle Hills Joint Venture entered into a purchase and sale agreement with EGW Castle Hills, LP, an unaffiliated third party, for the sale of the Aura Castle Hills Property. The purchase price for the Aura Castle Hills Property is approximately $51.25 million excluding transaction costs. The Aura Castle Hills Joint Venture anticipates the consummation of the sale to occur in June 2016.

There can be no assurance that the conditions to the sale of the Aura Castle Hills Property will be satisfied or waived on terms satisfactory to the parties or that the sale of the property will ultimately be completed.

 

6


CNL GROWTH PROPERTIES, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3. Adjustments to Unaudited Pro Forma Condensed Consolidated Balance Sheet

The adjustments to the Unaudited Pro Forma Condensed Consolidated Balance Sheet represent adjustments needed to the Company’s historical balance sheet as if the completed disposition of the Patterson Place Property and the pending sale of the Aura Castle Hills Property occurred as of March 31, 2016.

 

  (a) These adjustments reflect the net sales proceeds received from the completed disposition of the Patterson Place Property and the pending disposition of the Aura Castle Hills Property and the elimination of the related account balances as if the sales were consummated as of March 31, 2016. Accumulated earnings has been increased to reflect the receipt of net cash proceeds and removal of assets and liabilities related to the sales, as follows:

 

     REALM Patterson
Place Sold
     Aura Castle
Hills Pending
 

Sale Price

   $ 60,000,000       $ 51,250,000   

Closing and transaction costs

     (519,162      (575,314
  

 

 

    

 

 

 

Net sales proceeds

     59,480,838         50,674,686   

Net book value

     (36,703,383      (32,091,019
  

 

 

    

 

 

 

Gain on sale

   $ 22,777,455       $ 18,583,667   
  

 

 

    

 

 

 

 

  (b) These adjustments reflect the use of a portion of the net cash proceeds received from the completed sale of the Patterson Place Property and the pending sale of the Aura Castle Hills Property to pay down existing indebtedness, including accrued interest, and to eliminate loan costs and other assets related to the existing indebtedness.

 

4. Adjustments to Unaudited Pro Forma Condensed Consolidated Statement of Operations

The adjustments to the unaudited pro forma condensed consolidated statement of operations represent adjustments needed to the Company’s historical results to remove the historical operating results of the completed sale of the Patterson Place Property and the pending sale of the Aura Castle Hills Property as if they had occurred on the first day of the Pro Forma Period presented.

 

  (a) Except as described in (b) and (c) below, these amounts represent the elimination of the operations on the completed sale of the Patterson Place Property and the pending sale of the Aura Castle Hills Property from the historical amounts for the three months ended March 31, 2016 and for the year ended December 31, 2015, to give effect to the completed sale of the Patterson Place Property and the pending sale of the Aura Castle Hills Property as if the sales occurred on the first day of the first Pro Forma Period presented. The Patterson Place and Aura Castle Hills Properties were classified in continuing operations because the proposed dispositions of these two properties would neither cause a strategic shift in the Company, nor are they considered to have a major impact on the Company’s business. Therefore, they do not qualify as discontinued operations under ASU 2014-08.

 

  (b) Amount includes the elimination of asset management fee expenses, calculated at 0.08334% monthly on the invested assets value of the Patterson Place and Aura Castle Hills Properties for the three months ended March 31, 2016 and for the year ended December 31, 2015. These fees were historically paid by the Company to its advisor and would not have been incurred subsequent to the disposition of these assets.

 

  (c) Represents the elimination of interest expense and loan cost amortization to reflect the use of net cash proceeds from the completed sale of the Patterson Place Property, and the pending sale of the Aura Castle Hills Property, to retire indebtedness that was collateralized the Patterson Place and Aura Castle Hills Properties as if the sales occurred on the first day of the first Pro Forma Period presented.

 

7


SIGNATURES

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.

 

Date: June 28, 2016      

CNL GROWTH PROPERTIES, INC.

a Maryland corporation

    By:   /s/ Tammy J. Tipton
     

Tammy J. Tipton

Chief Financial Officer

 

8