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)
Registrants 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 Ventures 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 Ventures 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 Companys joint venture partner in accordance with the joint ventures 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 Companys financial statements.
Item 9.01 | Financial Statements and Exhibits. |
(b) | Pro forma financial information. |
The Companys 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 Companys 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 Companys financial results in the future; and they should be read in conjunction with the Companys 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 |
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ASSETS |
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Real estate assets, net: |
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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 | ||||||||||||||||||||
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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 | ||||||||||||||||||||
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Total assets |
$ | 464,198,992 | $ | (3,878,025 | ) | $ | (5,919,616 | ) | $ | 454,401,351 | ||||||||||||||
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LIABILITIES AND EQUITY |
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Liabilities: |
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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 | ||||||||||||||||||||
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Total Liabilities |
318,568,182 | (26,642,193 | ) | (24,462,553 | ) | 267,463,436 | ||||||||||||||||||
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Commitments and contingencies |
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Equity: |
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Stockholders equity: |
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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 | ) | ||||||||||||||||||
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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 | ||||||||||||||||||
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Total Equity |
145,630,810 | 22,764,168 | 18,542,937 | 186,937,915 | ||||||||||||||||||||
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Total Liabilities and Equity |
$ | 464,198,992 | $ | (3,878,025 | ) | $ | (5,919,616 | ) | $ | 454,401,351 | ||||||||||||||
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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 |
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Revenues: |
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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 | ||||||||||
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Total revenues |
8,688,075 | (1,158,804 | ) | (1,147,653 | ) | 6,381,618 | ||||||||||
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Expenses: |
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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 | ||||||||||
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Total expenses |
8,732,235 | (737,756 | ) | (661,972 | ) | 7,332,507 | ||||||||||
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Operating loss |
(44,160 | ) | (421,048 | ) | (485,681 | ) | (950,889 | ) | ||||||||
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Other income (expense): |
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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 | ) | ||||||||
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Total other income (expense) |
(1,577,760 | ) | 194,570 | 171,191 | (1,211,999 | ) | ||||||||||
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Income tax expense |
(116,654 | ) | | 5,417 | (111,237 | ) | ||||||||||
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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 | ||||||||||||
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Net loss from continuing operations attributable to common stockholders |
$ | (1,604,519 | ) | $ | (198,657 | ) | $ | (160,336 | ) | $ | (1,963,512 | ) | ||||
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Net loss per share of common stock (basic and diluted) from continuing operations |
$ | (0.07 | ) | $ | (0.09 | ) | ||||||||||
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Weighted average number of shares of common stock outstanding (basic and diluted) |
22,526,171 | 22,526,171 | ||||||||||||||
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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 |
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Revenues: |
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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 | ||||||||||
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Total revenues |
32,947,081 | (3,497,135 | ) | (4,489,841 | ) | 24,960,105 | ||||||||||
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Expenses: |
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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 | ||||||||||
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Total expenses |
33,734,112 | (3,618,130 | ) | (3,074,894 | ) | 27,041,088 | ||||||||||
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Operating income (loss) |
(787,031 | ) | 120,995 | (1,414,947 | ) | (2,080,983 | ) | |||||||||
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Other income (expense): |
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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 | ) | ||||||||||
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Total other income (expense) |
(5,230,581 | ) | 699,243 | 588,508 | (3,942,830 | ) | ||||||||||
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Income tax expense |
(89,192 | ) | | 27,674 | (61,518 | ) | ||||||||||
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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 | ||||||||||||
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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 | ) | |||||||||
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Net income (loss) from continuing attributable to common stockholders |
$ | 17,805,448 | $ | 753,023 | $ | (418,742 | ) | $ | 18,139,729 | |||||||
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Net income per share of common stock (basic and diluted) from continuing operations |
$ | 0.79 | $ | 0.81 | ||||||||||||
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Weighted average number of shares of common stock outstanding (basic and diluted) |
22,526,171 | 22,526,171 | ||||||||||||||
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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 Companys 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 Companys 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 managements 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 Companys 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 Companys 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 Companys 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 |
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Sale Price |
$ | 60,000,000 | $ | 51,250,000 | ||||
Closing and transaction costs |
(519,162 | ) | (575,314 | ) | ||||
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Net sales proceeds |
59,480,838 | 50,674,686 | ||||||
Net book value |
(36,703,383 | ) | (32,091,019 | ) | ||||
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Gain on sale |
$ | 22,777,455 | $ | 18,583,667 | ||||
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(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 Companys 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 Companys 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