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EX-32.3 - EX-32.3 - Inland Residential Properties Trust, Inc.ck0001595627-ex323_11.htm
EX-32.2 - EX-32.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex322_9.htm
EX-32.1 - EX-32.1 - Inland Residential Properties Trust, Inc.ck0001595627-ex321_6.htm
EX-31.3 - EX-31.3 - Inland Residential Properties Trust, Inc.ck0001595627-ex313_10.htm
EX-31.2 - EX-31.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex312_7.htm
EX-31.1 - EX-31.1 - Inland Residential Properties Trust, Inc.ck0001595627-ex311_8.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM                 TO                

COMMISSION FILE NUMBER: 333-199129

 

Inland Residential Properties Trust, Inc.

(Exact name of registrant as specified in its charter)

 

 

Maryland

 

80-0966998

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

2901 Butterfield Road, Oak Brook, Illinois

 

60523

(Address of principal executive offices)

 

(Zip Code)

630-218-8000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 3, 2016, there were 965,995 shares of the registrant’s Class A common stock and 231,692 shares of Class T common stock outstanding.

 

 

 

 


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

TABLE OF CONTENTS

 

 

 

 

 

Page

Part I - Financial Information

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity (Deficit) for the nine months ended September 30, 2016 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

22

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

22

 

 

 

 

 

Part II - Other Information

Item 1.

 

Legal Proceedings

 

23

 

 

 

 

 

Item 1A.

 

Risk Factors

 

23

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

24

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

25

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

25

 

 

 

 

 

Item 5.

 

Other Information

 

25

 

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

Signatures

 

26

 

2


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

2016

(unaudited)

 

 

December 31,

2015

 

ASSETS

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Land

 

$

6,301,838

 

 

$

6,301,838

 

Building and other improvements

 

 

38,910,238

 

 

 

38,824,096

 

Total real estate

 

 

45,212,076

 

 

 

45,125,934

 

Less: accumulated depreciation

 

 

(1,456,916

)

 

 

(364,520

)

Net real estate

 

 

43,755,160

 

 

 

44,761,414

 

Cash and cash equivalents

 

 

2,848,985

 

 

 

5,281,172

 

Accounts and rent receivable

 

 

20,681

 

 

 

35,763

 

Acquired in place lease intangibles, net

 

 

 

 

 

343,785

 

Other assets

 

 

398,852

 

 

 

464,937

 

Total assets

 

$

47,023,678

 

 

$

50,887,071

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages payable, net

 

$

27,449,323

 

 

$

45,646,954

 

Accounts payable and accrued expenses

 

 

196,178

 

 

 

422,223

 

Distributions payable

 

 

103,354

 

 

 

23,738

 

Due to related parties

 

 

5,571,599

 

 

 

5,064,415

 

Other liabilities

 

 

56,292

 

 

 

49,655

 

Total liabilities

 

 

33,376,746

 

 

 

51,206,985

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value, 50,000,000 shares authorized, none outstanding

 

 

 

 

 

 

Class A common stock, $.001 par value, 320,000,000 shares authorized, 925,055 shares and 274,481 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

 

 

925

 

 

 

274

 

Class T common stock, $.001 par value, 80,000,000 shares authorized, 144,005 shares and 15,157 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively

 

 

144

 

 

 

15

 

Additional paid in capital (net of offering costs of $7,209,015 and $4,597,765 as of September 30, 2016 and December 31, 2015, respectively)

 

 

18,934,263

 

 

 

2,398,277

 

Distributions and accumulated losses

 

 

(5,288,400

)

 

 

(2,718,480

)

Total stockholders’ equity (deficit)

 

 

13,646,932

 

 

 

(319,914

)

Total liabilities and stockholders’ equity (deficit)

 

$

47,023,678

 

 

$

50,887,071

 

 

See accompanying notes to consolidated financial statements.

 

 

3


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

905,464

 

 

$

10,441

 

 

$

2,665,759

 

 

$

10,441

 

Other property income

 

 

87,204

 

 

 

 

 

 

263,928

 

 

 

 

Total income

 

 

992,668

 

 

 

10,441

 

 

 

2,929,687

 

 

 

10,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

299,274

 

 

 

1,510

 

 

 

900,845

 

 

 

1,510

 

Real estate tax expense

 

 

90,283

 

 

 

 

 

 

264,836

 

 

 

 

General and administrative expenses

 

 

201,349

 

 

 

143,703

 

 

 

802,033

 

 

 

408,901

 

Business management fee

 

 

68,665

 

 

 

22,864

 

 

 

205,850

 

 

 

22,864

 

Acquisition related costs

 

 

 

 

 

1,207,188

 

 

 

 

 

 

1,207,188

 

Depreciation and amortization

 

 

378,531

 

 

 

 

 

 

1,451,356

 

 

 

 

Total expenses

 

 

1,038,102

 

 

 

1,375,265

 

 

 

3,624,920

 

 

 

1,640,463

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(45,434

)

 

 

(1,364,824

)

 

 

(695,233

)

 

 

(1,630,022

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(322,478

)

 

 

 

 

 

(1,121,542

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(367,912

)

 

$

(1,364,824

)

 

$

(1,816,775

)

 

$

(1,630,022

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.39

)

 

$

(43.30

)

 

$

(2.65

)

 

$

(102.35

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic

   and diluted

 

 

942,839

 

 

 

31,520

 

 

 

685,934

 

 

 

15,926

 

 

See accompanying notes to consolidated financial statements.

 

 

4


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENT OF EQUITY (DEFICIT)

(unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Distributions

and

 

 

 

 

 

 

 

Class A

 

 

Class T

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Losses

 

 

Total

 

Balance at January 1, 2016

 

 

274,481

 

 

$

274

 

 

 

15,157

 

 

$

15

 

 

$

2,398,277

 

 

$

(2,718,480

)

 

$

(319,914

)

Proceeds from the offering

 

 

636,293

 

 

 

636

 

 

 

127,441

 

 

 

128

 

 

 

18,741,138

 

 

 

 

 

 

18,741,902

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,611,250

)

 

 

 

 

 

(2,611,250

)

Discount on shares to related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19,356

 

 

 

 

 

 

19,356

 

Issuance of shares from distribution reinvestment plan

 

 

9,808

 

 

 

10

 

 

 

1,013

 

 

 

1

 

 

 

256,039

 

 

 

 

 

 

256,050

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(633,357

)

 

 

(633,357

)

Stock dividends issued

 

 

4,418

 

 

 

5

 

 

 

394

 

 

 

 

 

 

119,783

 

 

 

(119,788

)

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,816,775

)

 

 

(1,816,775

)

Equity based compensation

 

 

55

 

 

 

 

 

 

 

 

 

 

 

 

10,920

 

 

 

 

 

 

10,920

 

Balance at September 30, 2016

 

 

925,055

 

 

$

925

 

 

 

144,005

 

 

$

144

 

 

$

18,934,263

 

 

$

(5,288,400

)

 

$

13,646,932

 

 

See accompanying notes to consolidated financial statements.

 

 

5


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,816,775

)

 

$

(1,630,022

)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,451,356

 

 

 

 

Amortization of debt issuance costs

 

 

102,698

 

 

 

 

Amortization of equity based compensation

 

 

10,920

 

 

 

 

Discount on shares issued to related parties

 

 

19,356

 

 

 

8,065

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

(74,984

)

 

 

(20,924

)

Accounts and rents receivable

 

 

15,082

 

 

 

 

Due to related parties

 

 

227,083

 

 

 

704,154

 

Other liabilities

 

 

6,637

 

 

 

18,072

 

Other assets

 

 

66,086

 

 

 

(79,313

)

Net cash flows provided by (used in) operating activities

 

 

7,459

 

 

 

(999,968

)

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate

 

 

 

 

 

(45,986,910

)

Capital expenditures

 

 

(101,318

)

 

 

 

Net cash flows used in investing activities

 

 

(101,318

)

 

 

(45,986,910

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of mortgage payable

 

 

(18,300,000

)

 

 

 

Proceeds from mortgage payable

 

 

 

 

 

45,750,000

 

Proceeds from offering

 

 

18,741,902

 

 

 

2,357,800

 

Payment of debt issuance costs

 

 

(329

)

 

 

(22,556

)

Distributions paid

 

 

(297,691

)

 

 

 

Payment of offering costs

 

 

(2,482,210

)

 

 

(2,291,290

)

Advances from sponsor

 

 

 

 

 

2,650,000

 

Net cash flows (used in) provided by financing activities

 

 

(2,338,328

)

 

 

48,443,954

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

$

(2,432,187

)

 

$

1,457,076

 

Cash and cash equivalents, at beginning of the period

 

 

5,281,172

 

 

 

232,635

 

Cash and cash equivalents, at end of period

 

$

2,848,985

 

 

$

1,689,711

 

 

 

See accompanying notes to consolidated financial statements.

 

6


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2016

 

 

2015

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

In conjunction with the purchase of investment property, the Company acquired assets

   and assumed liabilities as follows:

 

 

 

 

 

 

 

 

Land

 

 

 

 

 

6,301,838

 

Building and improvements

 

 

 

 

 

37,591,342

 

Furniture, fixtures and equipment

 

 

 

 

 

1,232,754

 

Acquired in place lease intangibles

 

 

 

 

 

601,623

 

Acquired assets, net

 

 

 

 

 

259,353

 

Purchase of real estate

 

$

 

 

$

45,986,910

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,028,884

 

 

$

 

 

 

 

 

 

 

 

 

 

Distributions payable

 

$

103,354

 

 

$

 

 

 

 

 

 

 

 

 

 

Accrued offering costs payable

 

$

461,312

 

 

$

186,447

 

 

 

 

 

 

 

 

 

 

Stock dividends issued

 

$

119,788

 

 

$

 

 

 

 

 

 

 

 

 

 

Common stock issued through distribution reinvestment plan

 

$

256,050

 

 

$

 

 

See accompanying notes to consolidated financial statements.

 

 

 

7


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2016

(unaudited)

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Readers of this Quarterly Report should refer to the audited consolidated financial statements of Inland Residential Properties Trust, Inc. (which may be referred to herein as the “Company,” “we,” “us,” or “our”) for the year ended December 31, 2015, which are included in the Company’s 2015 Annual Report as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report. In the opinion of management, all adjustments (consisting of normal recurring accruals) necessary for the fair presentation have been included in this Quarterly Report.

NOTE 1 - ORGANIZATION

The Company was formed on December 19, 2013 to acquire and manage a portfolio of multi-family properties located primarily in the top 100 United States metropolitan statistical areas, which generally contain populations greater than 500,000 people. The Company entered into a business management agreement (the “Business Management Agreement”) with Inland Residential Business Manager & Advisor, Inc. (the “Business Manager”), an indirect wholly owned subsidiary of Inland Real Estate Investment Corporation (the “Sponsor”), to be the Business Manager to the Company. Substantially all of the Company’s business is conducted through Inland Residential Operating Partnership, L.P. (the “operating partnership”), of which the Company is the sole general partner.

The Company has elected to be taxed as a real estate investment trust for U.S. federal income tax purposes (“REIT”) under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with the tax year ended December 31, 2015. Because the Company qualifies for taxation as a REIT, it generally will not be subject to U.S. federal income tax on its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to the extent that it annually distributes all of its REIT taxable income to stockholders and complies with other requirements as a REIT. If the Company fails to qualify as a REIT in any taxable year, without the benefit of certain relief provisions, it will be subject to U.S. federal (including any applicable alternative minimum tax) and state income tax on its taxable income at regular corporate rates. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income, property or net worth, respectively, and to U.S. federal income and excise taxes on its undistributed income.

At September 30, 2016, the Company owned one 194,732 square foot 206 unit multi-family community. During the nine months ended September 30, 2016, the property’s daily average occupancy was 93.7% and at September 30, 2016, 198, or 96.1% residential units were leased.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Disclosures discussing all significant accounting policies are set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, as filed with the Securities and Exchange Commission on March 29, 2016, under the heading “Note 2 - Summary of Significant Accounting Policies.” There has been no change to the Company’s significant accounting policies during the nine months ended September 30, 2016, except as noted below.

 

Distribution and Stockholder Servicing Fee

The Company pays a distribution and stockholder servicing fee equal to 1.0% per annum of the purchase price per share (or, once reported, the amount of the Company’s estimated value per share) for each Class T Share sold in its Offering (as defined below). The aggregate amount of underwriting compensation for the Class A Shares and Class T Shares, including the distribution and stockholder servicing fee for the Class T Shares, cannot exceed the Financial Industry Regulatory Authority’s 10% cap on underwriting compensation. The fee is not paid at the time of purchase. The Company accounts for the fee as a charge to equity at the time each Class T Share is sold in its Offering and records a corresponding payable in due to related parties. The distribution and stockholder servicing fee is payable monthly in arrears, as it becomes contractually due. At September 30, 2016, the unpaid fee equals $171,444.

8


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

General

The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP and require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Certain amounts in the prior period consolidated financial statements have been reclassified to conform with the current year presentation.

In April 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The Company adopted ASU No. 2015-03 for the nine months ended September 30, 2016. As of September 30, 2016 and December 31, 2015, the unamortized debt issuance costs were $677 and $103,046, respectively. These unamortized debt issuance costs are now classified within mortgages payable, net on the Company’s consolidated balance sheets. The Company applied ASU No. 2015-03 retrospectively to all prior periods presented.

 

Recent Accounting Pronouncements

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230). The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The issues addressed in the new guidance include the cash flow classification of: debt prepayment and debt extinguishment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investments, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. The standard will be effective for fiscal years beginning after December 15, 2017. The Company does not believe that ASU No. 2016-15 will have a material impact on its consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use (ROU) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU No. 2016-02 supersedes the previous leases standard, Leases (Topic 840). The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is currently evaluating the impact of its pending adoption of the new standard on the Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This standard provides a single comprehensive model to use in accounting for revenue arising from contracts with customers and gains and losses arising from transfers of non-financial assets including sales of property, plant, and equipment, real estate, and intangible assets. ASU No. 2014-09 supersedes most current revenue recognition guidance, including industry-specific guidance. In August 2015, the FASB issued ASU No. 2015-14, which deferred the effective date of ASU No. 2014-09 one year to annual reporting periods beginning after December 15, 2017 for public entities. ASU No. 2015-14 permits public entities to adopt ASU No. 2014-09 early, but not before the original effective date of annual periods beginning after December 15, 2016. ASU No. 2014-09 may be applied either retrospectively or as a cumulative effect adjustment as of the date of adoption. The Company has begun to evaluate each of the revenue streams under the new model. The Company is currently evaluating the application of this ASU and its effect on its financial position and results of operations.

 

9


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

NOTE 3 – EQUITY

 

The Company is authorized to sell up to $1,000,000,000 of shares of common stock which consist of Class A common stock, $.001 par value per share (“Class A Shares”), at a price of $25.00 per share and Class T common stock, $.001 par value per share (“Class T Shares”), at a price of $23.95 per share, in any combination, in an initial “reasonable best efforts” offering (the “Offering”) which commenced on February 17, 2015. The Company is also authorized to issue up to $190,000,000 of Class A and Class T Shares at a per share price of $23.75 and $22.81, respectively, pursuant to the Company’s distribution reinvestment plan (as amended, “DRP”).  Excluding DRP proceeds, the Company generated gross proceeds of $15,689,685 from sales of its Class A Shares and $3,052,216 from sales of its Class T Shares during the nine months ended September 30, 2016. As of September 30, 2016, the Company had 925,055 Class A Shares outstanding and 144,005 Class T Shares outstanding.

 

For the nine months ended September 30, 2016, the Company declared cash distributions of $633,357, paid cash distributions of $297,691 and issued stock dividends of 4,812 shares to stockholders.

    

The Company provides the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders.

 

Distribution Reinvestment Plan

 

The Company provides stockholders with the option to purchase additional shares from the Company by automatically reinvesting cash distributions through the DRP, subject to certain share ownership restrictions. For participants in the DRP, cash distributions paid on Class A Shares and Class T Shares, as applicable, are used to purchase Class A Shares and Class T Shares, respectively. Such purchases under the DRP are not subject to selling commissions, dealer manager fees, distribution and stockholder servicing fees or reimbursement of issuer costs in connection with shares of common stock issued through the DRP and are made initially at a price of $23.75 and $22.81 per Class A Share and Class T Share, respectively. The price is subject to change after the earlier of (1) the change of the public offering price in a public “reasonable best efforts” offering of the Company’s Class A Shares from $25.00 per Class A Share or Class T Shares from $23.95 per Class T Share, as applicable, if there is a change, and (2) termination of all “reasonable best efforts” public offerings of the Company’s Class A Shares or Class T Shares, as applicable.

 

Distributions reinvested through the DRP were $256,050 for the nine months ended September 30, 2016. There were no distributions paid during the nine months ended September 30, 2015.

 

Share Repurchase Program

 

Under the share repurchase program (as amended, the “SRP”), the Company is authorized, in its discretion, to purchase shares from stockholders who have held their shares for at least one year, if requested. Subject to funds being available, the Company will limit the number of shares repurchased during any calendar year to 5% of the number of shares of common stock outstanding on December 31st of the previous calendar year. Funding for the SRP comes from proceeds that the Company receives from the DRP. In the case of repurchases made upon the death of a stockholder or qualifying disability, as defined in the SRP, neither the one year holding period, the limit regarding funds available from the DRP nor the 5% limit applies. The SRP will immediately terminate if the Company’s shares become listed for trading on a national securities exchange. In addition, the Company’s board of directors, in its sole direction, may, at any time, amend, suspend or terminate the SRP.

 

There were no repurchases through the SRP for the nine months ended September 30, 2016 and 2015.

 

 

NOTE 4 - ACQUISITIONS

2016 Acquisitions

 

During the nine months ended September 30, 2016, the Company did not acquire any real estate properties.

 

Pro Forma Disclosures

10


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

The following condensed pro forma consolidated financial statements for the three and nine months ended September 30, 2015 include pro forma adjustments related to the acquisition and financing during 2015. The 2015 acquisition is presented assuming the acquisition occurred on January 1, 2014.

    

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

 

2015

 

 

 

2015

 

Pro forma total income

 

 

$

942,920

 

 

 

$

2,631,014

 

Pro forma net loss

 

 

$

(1,685,660

)

 

 

$

(2,679,865

)

Loss per share (a)

 

 

$

(1.58

)

 

 

$

(2.51

)

 

(a)

Based on number of common shares outstanding as of September 30, 2016

 

 

NOTE 5 – MORTGAGES PAYABLE

 

As of September 30, 2016, the Company’s mortgage loan is secured by a first mortgage on the property. For the nine months ended September 30, 2016, the Company paid down $18,300,000, and achieved a 60% loan to value, as defined in the mortgage loan agreement. Effective September 30, 2016, the Company exercised its option to extend the maturity date for an additional seven year period to September 30, 2023.  The loan extension requires monthly payments of interest only for the next five years and thereafter, requires monthly payments of principal and interest based upon a 30-year amortization until maturity. The interest rate on the loan was modified which lowered the fixed interest rate from 3.95% to 3.64% per annum. The loan modification releases the Sponsor, and substitutes the Company as the guarantor.  As the substitute guarantor, the Company agreed to guarantee the payment of (a) all real estate taxes on the property which accrue or become due during the term of the loan, (b) all costs and expenses (as defined in the guaranty agreement) and (c) any and all losses, damages, costs or expenses of the lender, which arise in consequence of certain events specified in the guaranty agreement.

 

The Company is in compliance with all financial covenants related to its mortgage payable.

The mortgage payable, unamortized debt issuance costs and the interest rates were as follows:

 

 

 

 

September 30, 2016

 

 

December 31, 2015

 

Mortgages

 

Principal

Amount

 

 

Interest

Rate

 

 

Principal

Amount

 

 

Interest

Rate

 

Mortgage payable

 

$

27,450,000

 

 

 

3.64

%

 

$

45,750,000

 

 

 

3.95

%

Unamortized debt issuance costs

 

 

(677

)

 

 

 

 

 

 

(103,046

)

 

 

 

 

Total debt

 

$

27,449,323

 

 

 

 

 

 

$

45,646,954

 

 

 

 

 

 

 

 

 

NOTE 6 – EQUITY-BASED COMPENSATION

The Company grants non-vested restricted shares that entitle the holder to receive one Class A Share for each restricted share when it vests. Restricted shares were issued to non-employee directors as compensation in accordance with the Company’s Employee and Director Incentive Restricted Share Plan (the “RSP”).

Under the RSP, restricted shares generally vest over a one to three year vesting period from the date of the grant based on the specific terms of the grant.  The grant-date value of the restricted shares is amortized over the vesting period representing the requisite service period.  At vesting, any restrictions on the shares lapse.  Compensation expense associated with the director restricted shares was $4,844 and $10,920 for the three and nine months ended September 30, 2016, respectively, and is included in general and

11


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

administrative expenses in the accompanying consolidated financial statements. As of September 30, 2016, the Company had $19,392 of unrecognized compensation cost related to the unvested restricted share awards. The weighted average remaining period that compensation expense related to non-vested restricted shares will be recognized is 1.66 years. A summary of the status of the restricted shares is presented below:

 

 

 

 

Shares

 

 

Weighted

Average

Grant Date

Fair Value

 

 

Aggregate

Intrinsic

Value

 

Outstanding at January 1, 2016

 

 

822

 

 

$

18,750

 

 

$

18,750

 

Granted

 

 

658

 

 

 

15,000

 

 

 

15,000

 

Vested

 

 

(55

)

 

 

(1,250

)

 

 

 

Forfeited

 

 

 

 

 

 

 

 

 

Outstanding at September 30, 2016

 

 

1,425

 

 

$

32,500

 

 

$

33,750

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

NOTE 7 – SEGMENT REPORTING

The Company has one reportable segment as defined by U.S. GAAP, multi-family real estate, for the three and nine months ended September 30, 2016.

 

 

NOTE 8 – TRANSACTIONS WITH RELATED PARTIES

The Sponsor invested $200,000 by purchasing 8,000 shares of common stock which were subsequently converted into 8,000 Class A Shares. On September 9, 2015, the Company sold 87,680.842 Class A Shares to the Sponsor for an aggregate purchase price of $2,000,000, or $22.81 per share.

Since inception, the Sponsor has advanced $2,950,000 in cash to the Company, which is included in due to related parties on the accompanying consolidated balance sheets, to partially fund formation, offering and organization costs.

 

12


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

The following table summarizes the Company’s related party transactions for the three and nine months ended September 30, 2016 and 2015. Certain compensation and fees payable to the Business Manager for services provided to the Company are limited to maximum amounts.

 

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Amount Unpaid as of

 

 

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

September 30, 2016

 

 

December 31, 2015

 

General and administrative reimbursements

 

(a)

 

$

57,023

 

 

$

61,168

 

 

$

314,819

 

 

$

147,548

 

 

$

100,288

 

 

$

95,239

 

Affiliate share purchase discounts

 

(b)

 

 

4,814

 

 

 

8,065

 

 

 

19,356

 

 

 

8,065

 

 

 

 

 

 

 

Total general and administrative expenses

 

 

 

$

61,837

 

 

$

69,233

 

 

$

334,175

 

 

$

155,613

 

 

$

100,288

 

 

$

95,239

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs

 

(c)

 

$

 

 

$

719,148

 

 

$

 

 

$

719,148

 

 

$

686,250

 

 

$

690,485

 

Offering costs

 

(d)

 

$

622,450

 

 

$

25,278

 

 

$

1,897,066

 

 

$

145,958

 

 

$

1,402,963

 

 

$

1,104,314

 

Business management fee

 

(e)

 

$

68,665

 

 

$

22,864

 

 

$

205,850

 

 

$

22,864

 

 

$

297,305

 

 

$

91,455

 

Mortgage financing fee

 

(f)

 

$

 

 

$

114,375

 

 

$

 

 

$

114,375

 

 

$

114,375

 

 

$

114,375

 

Sponsor non-interest bearing advances

 

(g)

 

$

 

 

$

450,000

 

 

$

 

 

$

2,650,000

 

 

$

2,950,000

 

 

$

2,950,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Real estate management fee

 

 

 

$

40,987

 

 

$

 

 

$

117,715

 

 

$

 

 

$

 

 

$

 

Property operating expenses

 

 

 

 

85,357

 

 

 

 

 

 

254,347

 

 

 

 

 

 

20,418

 

 

 

18,547

 

Total property operating expenses

 

(h)

 

$

126,344

 

 

$

 

 

$

372,062

 

 

$

 

 

$

20,418

 

 

$

18,547

 

 

(a)

The Business Manager and its affiliates are entitled to reimbursement for certain general and administrative expenses incurred relating to the Company’s administration. Such costs are included in general and administrative expenses in the accompanying consolidated statements of operations. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.

 

(b)

The Company established a discount stock purchase policy for affiliates and affiliates of the Business Manager that enable them to purchase shares of common stock at $22.81 per share. The Company sold 8,838 shares and 3,683 shares to affiliates during the nine months ended September 30, 2016 and 2015, respectively.

(c)

Prior to August 8, 2016 under the Business Management Agreement, the Company was required to pay the Business Manager or its affiliates an acquisition fee equal to 1.5% of the “contract purchase price,” as defined in that agreement, of each property and real estate-related asset acquired.   The Business Management Agreement was amended to, among other things, delete the obligation to pay acquisition fees, real estate sales commissions and mortgage financing fees payable to the Business Manager by the Company with respect to future transactions. The Business Manager and its affiliates continue to be reimbursed for acquisition and transaction related costs of the Business Manager and its affiliates relating to the Company’s acquisition of properties and real estate assets, regardless of whether the Company acquires the properties or real estate assets, subject to the limits provided in the amended agreement.  When such costs are incurred, they are included in acquisition related costs in the accompanying consolidated statements of operations.  Acquisition fees earned prior to August 8, 2016, which have been previously accrued for and are owed to the Business Manager, are expected to be paid in the future and are included in due to related parties in the accompanying consolidated balance sheets.  

 

(d)

The Company reimburses the Sponsor and its affiliates for costs and other expenses of the Offering.  Offering costs are offset against the stockholders’ equity accounts. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets. An affiliate of the Business Manager also receives selling commissions equal to 6.0% of the sale price for each Class A Share sold and 2.0% of the sale price for each Class T Share sold and a dealer manager fee equal to 2.75% of the sale price for each share sold, the majority of which is re-allowed (paid) to third party soliciting dealers. The Company does not pay selling commissions or the dealer manager fee in connection with shares issued through the DRP and pays no or reduced selling commissions and dealer manager fees in connection with certain special sales. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets. The Company pays a distribution and stockholder servicing fee equal to 1.0% per annum of the purchase price per share (or, once reported, the amount of the Company’s estimated value per share) for each Class T Share sold in the Offering. The fee is not paid at the time of purchase. The Company accounts for the total fee as a charge to equity at the time each Class T Share is sold in the Offering and records a

13


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

corresponding payable in due to related parties. The distribution and stockholder servicing fee is payable monthly in arrears as it becomes contractually due. At September 30, 2016, the unpaid fee equals $171,444.

 

(e)

The Company pays the Business Manager an annual business management fee equal to 0.6% of its “average invested assets.” The fee is payable quarterly in an amount equal to 0.15% of the Company’s average invested assets as of the last day of the immediately preceding quarter. “Average invested assets” means, for any period, the average of the aggregate book value of the Company’s assets, including all intangibles and goodwill, invested, directly or indirectly, in equity interests in, and loans secured by, properties, as well as amounts invested in securities or consolidated and unconsolidated joint ventures or other partnerships, before reserves for amortization and depreciation or bad debts, impairments or other similar non-cash reserves, computed by taking the average of these values at the end of each month during the relevant calendar quarter. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.

 

(f)

Prior to August 8, 2016 under the Business Management Agreement, the Company was required to pay the Business Manager or its affiliates a mortgage financing fee equal to 0.25% of the amount available or borrowed under the financing or the assumed debt if the Business Manager or its affiliates provides services in connection with the origination or refinancing of any debt that the Company obtains and uses to finance properties or other assets, or that is assumed, directly or indirectly, in connection with the acquisition of properties or other assets. The Business Management Agreement was amended to, among other things, delete the obligation to pay acquisition fees, real estate sales commissions and mortgage financing fees payable to the Business Manager by the Company with respect to future transactions. Mortgage financing fees earned prior to August 8, 2016, which have been previously accrued for and are owed to the Business Manager, are expected to be paid in the future and are included in due to related parties in the accompanying consolidated balance sheets.

 

(g)

This amount represents non-interest bearing advances made by the Sponsor which the Company intends to repay. Unpaid amounts are included in due to related parties in the accompanying consolidated balance sheets.   

 

(h)

The Company pays Inland Residential Real Estate Services, LLC (the “Real Estate Manager”) a monthly property management fee of up to 4% of the gross income from any property managed directly by the Real Estate Manager or its affiliates. The Real Estate Manager may reduce, in its sole discretion, the amount of the management fee payable in connection with a particular property, subject to these limits. The Company also reimburses the Real Estate Manager and its affiliates for property-level expenses that they pay or incur on the Company’s behalf, including the salaries, bonuses, benefits and severance payments for persons performing services, including without limitation acquisition due diligence services, for the Real Estate Manager and its affiliates (excluding the executive officers of the Real Estate Manager and the Company’s executive officers).

      

 

NOTE 9 – SUBSEQUENT EVENTS

On October 27, 2016, the Company entered into an amendment to the Business Management Agreement with the Business Manager to remove the provision of subordinated management performance interests to the Business Manager via Class M Units in the Company’s operating partnership based on the annual “additional total return” generated each year on the Class A Shares and Class T Shares. In addition, the limited partnership agreement of the Company’s operating partnership was amended and restated to completely eliminate Class M Units. As of October 27, 2016, no class M units had been issued to the Business Manager by the Company’s operating partnership.

On November 7, 2016, the Company entered into an amendment to the dealer manager agreement with Inland Securities Corporation, the Company’s dealer manager, to allow Inland Securities Corporation to reallow a portion of the dealer manager fee to participating soliciting dealers.

On November 7, 2016, the Company’s board of directors approved an extension of the termination date of the Company’s “reasonable best efforts” offering from February 17, 2017 to February 16, 2018.

Cash distributions

 

The Company’s board of directors declared cash distributions payable to stockholders of record each day beginning on the close of business October 1, 2016 through March 31, 2017.  Distributions declared for 2016 are in an amount equal to $0.003415301 per day

14


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

per Class A Share and $0.002760929 per day per Class T Share, based on a 366-day period.  Distributions declared for 2017 will be in an amount equal to $0.003424658 per day per Class A Share and $0.002768493 per day per Class T Share, based on a 365-day period. Distributions were paid monthly in arrears as follows:

 

Distribution Month

 

Month

Distribution Paid

 

Gross Amount

of Distribution

Paid

 

 

Distribution Reinvested

through DRP

 

 

Shares

Issued

 

 

Net Cash Distribution

 

September 2016

 

October 2016

 

$

103,354

 

 

$

56,250

 

 

 

2,381