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EX-32.3 - EX-32.3 - Inland Residential Properties Trust, Inc.ck0001595627-ex323_9.htm
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EX-32.1 - EX-32.1 - Inland Residential Properties Trust, Inc.ck0001595627-ex321_10.htm
EX-31.3 - EX-31.3 - Inland Residential Properties Trust, Inc.ck0001595627-ex313_11.htm
EX-31.2 - EX-31.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex312_6.htm
EX-31.1 - EX-31.1 - Inland Residential Properties Trust, Inc.ck0001595627-ex311_7.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 JUNE 30, 2017

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: 000-55765

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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 August 1, 2017, there were 1,378,383 shares of the registrant’s Class A common stock, 391,506 shares of Class T common stock and 85,377 shares of Class T-3 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 June 30, 2017 (unaudited) and December 31, 2016

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the six months ended June 30, 2017 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016 (unaudited)

 

6

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

 

8

 

 

 

 

 

Item 2.

 

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

 

18

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

25

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

25

 

 

 

 

 

Part II - Other Information

Item 1.

 

Legal Proceedings

 

26

 

 

 

 

 

Item 1A.

 

Risk Factors

 

26

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

26

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

28

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

28

 

 

 

 

 

Item 5.

 

Other Information

 

28

 

 

 

 

 

Item 6.

 

Exhibits

 

28

 

 

 

 

 

Signatures

 

29

 

2


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

June 30,

2017

(unaudited)

 

 

December 31,

2016

 

ASSETS

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Land

 

$

7,794,219

 

 

$

6,301,838

 

Building and other improvements

 

 

59,885,396

 

 

 

38,889,177

 

Total real estate

 

 

67,679,615

 

 

 

45,191,015

 

Less: accumulated depreciation

 

 

(2,682,959

)

 

 

(1,822,971

)

Net real estate

 

 

64,996,656

 

 

 

43,368,044

 

Cash and cash equivalents

 

 

17,168,529

 

 

 

9,038,642

 

Accounts and rents receivable

 

 

26,628

 

 

 

17,961

 

Acquired in place lease intangibles, net

 

 

532,994

 

 

 

 

Other assets

 

 

289,259

 

 

 

458,316

 

Total assets

 

$

83,014,066

 

 

$

52,882,963

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages and note payable, net

 

$

50,395,683

 

 

$

27,447,459

 

Accounts payable and accrued expenses

 

 

427,425

 

 

 

232,736

 

Distributions payable

 

 

176,259

 

 

 

137,207

 

Due to related parties

 

 

6,116,366

 

 

 

5,684,753

 

Other liabilities

 

 

233,532

 

 

 

67,287

 

Total liabilities

 

 

57,349,265

 

 

 

33,569,442

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

Class A common stock, $.001 par value, 320,000,000 shares authorized, 1,354,006 shares and 1,098,858 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively

 

 

1,354

 

 

 

1,099

 

Class T common stock, $.001 par value, 40,000,000 shares authorized, 388,824 shares and 284,283 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively

 

 

388

 

 

 

284

 

Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 79,362 shares and none issued and outstanding as of June 30, 2017 and December 31, 2016, respectively

 

 

79

 

 

 

 

Additional paid in capital (net of offering costs of $10,046,720 and $8,268,768 as of June 30, 2017 and December 31, 2016, respectively)

 

 

34,456,882

 

 

 

25,539,970

 

Distributions and accumulated losses

 

 

(8,793,902

)

 

 

(6,227,832

)

Total stockholders’ equity

 

 

25,664,801

 

 

 

19,313,521

 

Total liabilities and stockholders’ equity

 

$

83,014,066

 

 

$

52,882,963

 

 

See accompanying notes to consolidated financial statements.

 

 

3


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

1,294,942

 

 

$

917,059

 

 

$

2,198,454

 

 

$

1,760,295

 

Other property income

 

 

128,262

 

 

 

88,713

 

 

 

244,505

 

 

 

176,724

 

Total income

 

 

1,423,204

 

 

 

1,005,772

 

 

 

2,442,959

 

 

 

1,937,019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

432,756

 

 

 

313,838

 

 

 

696,666

 

 

 

601,571

 

Real estate tax expense

 

 

164,056

 

 

 

87,528

 

 

 

253,999

 

 

 

174,553

 

General and administrative expenses

 

 

390,663

 

 

 

320,173

 

 

 

694,517

 

 

 

600,684

 

Business management fee

 

 

91,763

 

 

 

68,594

 

 

 

160,455

 

 

 

137,185

 

Acquisition related costs

 

 

30,266

 

 

 

 

 

 

71,479

 

 

 

 

Depreciation and amortization

 

 

609,311

 

 

 

450,466

 

 

 

978,707

 

 

 

1,072,825

 

Total expenses

 

 

1,718,815

 

 

 

1,240,599

 

 

 

2,855,823

 

 

 

2,586,818

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(295,611

)

 

 

(234,827

)

 

 

(412,864

)

 

 

(649,799

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(423,299

)

 

 

(372,037

)

 

 

(675,550

)

 

 

(799,064

)

Interest and other income

 

 

14,116

 

 

 

 

 

 

24,514

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(704,794

)

 

$

(606,864

)

 

$

(1,063,900

)

 

$

(1,448,863

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.42

)

 

$

(0.88

)

 

$

(0.67

)

 

$

(2.61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic

   and diluted

 

 

1,696,801

 

 

 

687,355

 

 

 

1,595,207

 

 

 

556,070

 

 

See accompanying notes to consolidated financial statements.

 

 

4


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENT OF EQUITY

(unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Distributions

and

 

 

 

 

 

 

 

Class A

 

 

Class T

 

 

Class T-3

 

 

Paid-In

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Losses

 

 

Total

 

Balance at December 31, 2016

 

 

1,098,858

 

 

$

1,099

 

 

 

284,283

 

 

$

284

 

 

 

 

 

$

 

 

$

25,539,970

 

 

$

(6,227,832

)

 

$

19,313,521

 

Proceeds from the offering

 

 

221,971

 

 

 

222

 

 

 

95,366

 

 

 

95

 

 

 

78,786

 

 

 

79

 

 

 

9,632,172

 

 

 

 

 

 

9,632,568

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,777,952

)

 

 

 

 

 

(1,777,952

)

Discount on shares to related parties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,530

 

 

 

 

 

 

24,530

 

Issuance of shares from distribution reinvestment plan

 

 

15,874

 

 

 

16

 

 

 

4,349

 

 

 

4

 

 

 

126

 

 

 

 

 

 

479,059

 

 

 

 

 

 

479,079

 

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(948,184

)

 

 

(948,184

)

Stock dividends issued

 

 

17,120

 

 

 

17

 

 

 

4,826

 

 

 

5

 

 

 

450

 

 

 

 

 

 

553,964

 

 

 

(553,986

)

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,063,900

)

 

 

(1,063,900

)

Equity based compensation

 

 

183

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,139

 

 

 

 

 

 

5,139

 

Balance at June 30, 2017

 

 

1,354,006

 

 

$

1,354

 

 

 

388,824

 

 

$

388

 

 

 

79,362

 

 

$

79

 

 

$

34,456,882

 

 

$

(8,793,902

)

 

$

25,664,801

 

See accompanying notes to consolidated financial statements.

 

 

5


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,063,900

)

 

$

(1,448,863

)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

978,707

 

 

 

1,072,825

 

Amortization of debt issuance costs

 

 

5,950

 

 

 

68,465

 

Amortization of equity based compensation

 

 

5,139

 

 

 

6,076

 

Discount on shares issued to related parties

 

 

24,530

 

 

 

14,542

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

238,845

 

 

 

(75,732

)

Accounts and rents receivable

 

 

(28,076

)

 

 

11,326

 

Due to related parties

 

 

219,235

 

 

 

193,098

 

Other liabilities

 

 

133,126

 

 

 

(21,122

)

Other assets

 

 

(8,551

)

 

 

279,964

 

Net cash flows provided by operating activities

 

 

505,005

 

 

 

100,579

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate

 

 

(22,936,173

)

 

 

 

Capital expenditures

 

 

(20,166

)

 

 

(4,300

)

Net cash flows used in investing activities

 

 

(22,956,339

)

 

 

(4,300

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of mortgage

 

 

 

 

 

(15,363,817

)

Proceeds from mortgages and note payable

 

 

23,000,000

 

 

 

 

Proceeds from offering

 

 

9,632,568

 

 

 

12,881,557

 

Payment of debt issuance costs

 

 

(57,726

)

 

 

(329

)

Distributions paid

 

 

(430,053

)

 

 

(171,301

)

Payment of offering costs

 

 

(1,563,568

)

 

 

(1,705,396

)

Net cash flows provided by (used in) financing activities

 

 

30,581,221

 

 

 

(4,359,286

)

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

$

8,129,887

 

 

$

(4,263,007

)

Cash and cash equivalents, at beginning of the period

 

 

9,038,642

 

 

 

5,281,172

 

Cash and cash equivalents, at end of period

 

$

17,168,529

 

 

$

1,018,165

 

 

See accompanying notes to consolidated financial statements.

 

6


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2017

 

 

2016

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

In conjunction with the purchase of real estate, the Company acquired assets

   and assumed liabilities as follows:

 

 

 

 

 

 

 

 

Land

 

$

1,492,382

 

 

$

 

Building and other improvements

 

 

20,643,086

 

 

 

 

Furniture, fixtures and equipment

 

 

339,645

 

 

 

 

Acquired in place lease intangibles

 

 

645,035

 

 

 

 

Assumed assets and liabilities, net

 

 

(183,975

)

 

 

 

Purchase of real estate

 

$

22,936,173

 

 

$

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

675,606

 

 

$

737,305

 

 

 

 

 

 

 

 

 

 

Distributions payable

 

$

176,259

 

 

$

77,632

 

 

 

 

 

 

 

 

 

 

Accrued offering costs payable

 

$

756,106

 

 

$

532,231

 

 

 

 

 

 

 

 

 

 

Stock dividends issued

 

$

553,986

 

 

$

63,970

 

 

 

 

 

 

 

 

 

 

Common stock issued through distribution reinvestment plan

 

$

479,079

 

 

$

117,326

 

 

See accompanying notes to consolidated financial statements.

 

 

 

7


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2017

(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, 2016, which are included in the Company’s 2016 Annual Report as certain footnote disclosures contained in such audited consolidated financial statements have been omitted from this Quarterly Report.

NOTE 1 - ORGANIZATION

The Company was formed on December 19, 2013 to primarily 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 (as amended, 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 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.

At June 30, 2017, the Company owned real estate consisting of two multi-family communities totaling 291 units.  The properties consist of 300,174 square feet of residential and 10,609 square feet of retail gross leasable area. During the six months ended June 30, 2017, the properties’ weighted average daily occupancy for residential was 95.5% and at June 30, 2017, 284 units, or 97.6% of the total 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, 2016, as filed with the Securities and Exchange Commission on March 17, 2017, under the heading “Note 2 - Summary of Significant Accounting Policies.” There has been no change to the Company’s significant accounting policies during the six months ended June 30, 2017.

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. In the opinion of management, all adjustments necessary for a fair statement, in all material respects, of the financial position and results of operations for the periods are presented. Actual results could differ from those estimates. The results of operations for the interim periods are not necessarily indicative of the results for the entire year.

 

Recent Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The new update will require that amounts described as restricted cash and restricted cash equivalents be included in beginning and ending-of-period reconciliation of cash shown on the statement of cash flows. The amendment is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not believe that ASU No. 2016-18 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

8


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

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 documenting the accounting implications, principles for recognition and measurement and presentation and disclosure requirements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective, although it will not affect the accounting for rental related revenues. The new standard is effective for the Company on January 1, 2018. Early adoption is permitted but not prior to the original effective date of January 1, 2017. The standard permits the use of either the retrospective or cumulative effect transition method. The Company has completed a preliminary review of this standard to identify and document specific areas that will be affected by its adoption. Once ASU No. 2016-02 becomes effective, the new revenue standard will apply to certain executory costs and other non-lease components even though the revenue for such activities are not separately stipulated in the tenant’s lease. Revenue from these items are recognized on a straight-line basis under current lease guidance and subsequently, will be recognized as the related services are delivered. The Company intends to implement the standard retrospectively with the cumulative effect (if any) recognized in retained earnings at the date of initial application.

 

 

NOTE 3 – EQUITY

 

The Company is authorized to sell up to $1,000,000,000 of shares of common stock consisting of Class A common stock, $.001 par value per share (“Class A Shares”), at a price of $25.00 per share, Class T common stock, $.001 par value per share (“Class T Shares”), at a price of $23.95 per share, and Class T-3 common stock, $.001 par value per share (“Class T-3 Shares” and, together with the Class A Shares and the Class T Shares, the “Shares”), at a price of $24.14 per share, in any combination, in an initial “reasonable best efforts” offering (the “Offering”). The Company is also authorized to issue up to $190,000,000 of Class A, Class T and Class T-3 Shares at a per share price of $23.75, $22.81 and $22.81, respectively, pursuant to the Company’s distribution reinvestment plan (as amended, the “DRP”).  The Company commenced its Offering of Class A Shares and Class T Shares on February 17, 2015 and, effective February 2, 2017, the Company reallocated certain of the remaining shares offered in the Offering to offer Class T-3 Shares.  

 

Excluding DRP proceeds, the Company generated gross proceeds of $5,446,659, $2,284,009 and $1,901,900 from sales of its Class A Shares, Class T Shares and Class T-3 Shares, respectively, during the six months ended June 30, 2017. As of June 30, 2017, the Company had 1,354,006, 388,824 and 79,362 Class A Shares, Class T Shares and Class T-3 Shares outstanding, respectively.

 

For the six months ended June 30, 2017, the Company declared cash distributions of $948,184, paid total distributions of $909,132 and issued stock dividends of 22,396 shares to stockholders.

9


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

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, Class T Shares and Class T-3 Shares, as applicable, are used to purchase Class A Shares, Class T Shares and Class T-3 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, $22.81 and $22.81 per Class A Share, Class T Share and Class T-3
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, Class T Shares from $23.95 per Class T Share or Class T-3 Shares from $24.14 per Class T-3 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, Class T Shares or Class T-3 Shares, as applicable.

 

Distributions reinvested through the DRP were $479,079 and $117,326 for the six months ended June 30, 2017 and 2016, respectively.

 

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 purchased their shares from the Company or received their shares through a non-cash transfer and who have held their shares for at least one year, if requested. Subject to funds being available, the Company limits the number of shares repurchased during any calendar year to no more than 5% of the number of shares of common stock outstanding on December 31st of the previous calendar year. Funding for the SRP is limited to the proceeds that the Company receives from the DRP during the same period. 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 six months ended June 30, 2017.

 

 

NOTE 4 – ACQUISITIONS

 

During the six months ended June 30, 2017, the property below was acquired through IRESI Vernon Hills Commons, L.L.C., the Company’s indirect wholly-owned subsidiary (the “Commons Subsidiary”), and financed by entering into, through the Commons Subsidiary, a seven-year mortgage loan for $13,800,000 and an eight-month mezzanine loan for $9,200,000 (the “Mezzanine Loan”).

 

2017 Acquisitions

Date

Acquired

 

Property Name

 

Location

 

Total

Number of Residential

Units

 

Square

Footage (a)

 

 

Purchase

Price (b)

 

2nd Quarter

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5/3/2017

 

Commons at Town Center

 

Vernon Hills, IL

 

85

 

 

105,442

 

 

$

23,000,000

 

 

(a)

Does not include five units comprising 10,609 square feet of extended first floor retail space.

 

(b)

Total purchase price of property.

 

The acquisition of the Commons at Town Center was accounted for as an asset acquisition. For the six months ended June 30, 2017, the Company incurred $230,000 of total acquisition costs and fees, $158,521 of which were capitalized as the acquisition of net real

10


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

estate in the accompanying consolidated balance sheets and $71,479 of such costs are included in acquisition related costs in the accompanying consolidated statements of operations.  

 

For the property acquired during the six months ended June 30, 2017, the Company recorded revenue of $415,948 and property net income of $179,907.

The following table presents certain additional information regarding the Company’s acquisition during the six months ended June 30, 2017. The amounts recognized for major assets acquired as of the acquisition date are as follows:

 

 

 

2017

 

 

Land

 

$

1,492,382

 

 

Building and other improvements

 

 

20,643,086

 

 

Furniture, fixtures and equipment

 

 

339,645

 

 

Acquired in place lease intangibles

 

 

645,035

 

 

Assumed assets and liabilities, net

 

 

(183,975

)

 

Total

 

$

22,936,173

 

 

 

 

 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS

The following table summarizes the Company’s identified intangible assets and liabilities as of June 30, 2017 and December 31, 2016:

 

 

June 30, 2017

 

 

December 31, 2016

 

Intangible assets:

 

 

 

 

 

 

 

 

Acquired in place lease value

 

$

645,035

 

 

$

 

Accumulated amortization

 

 

(112,041

)

 

 

 

Acquired lease intangibles, net

 

$

532,994

 

 

$

 

As of June 30, 2017, the weighted average amortization period for acquired in place lease intangibles is 1.9 years.

The portion of the purchase price allocated to acquired in place lease value is amortized on a straight-line basis over the acquired leases’ weighted average remaining term.

Amortization pertaining to acquired in place lease value is summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

Amortization recorded as amortization expense:

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Acquired in place lease value

 

$

112,041

 

 

$

 

 

$

112,041

 

 

$

 

11


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Estimated amortization of the respective intangible lease assets and liabilities as of June 30, 2017 for each of the five succeeding years and thereafter is as follows:  

 

 

Acquired

In-Place

Leases

 

 

2017 (remainder of year)

 

$

288,836

 

 

2018

 

 

88,331

 

 

2019

 

 

85,035

 

 

2020

 

 

48,976

 

 

2021

 

 

21,816

 

 

Thereafter

 

 

 

 

Total

 

$

532,994

 

 

 

 

 

 

NOTE 6 – MORTGAGES AND NOTE PAYABLE, NET

 

As of June 30, 2017 and December 31, 2016, the Company had the following mortgages and note payable:

 

 

 

June 30, 2017

 

 

December 31, 2016

 

Type of Debt

 

Principal

Amount

 

 

Weighted Average           Interest

Rate

 

 

Principal

Amount

 

 

Weighted Average                       Interest

Rate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgages

 

$

41,250,000

 

 

 

3.66

%

 

$

27,450,000

 

 

 

3.64

%

Note payable

 

 

9,200,000

 

 

 

5.40

%

 

 

 

 

 

 

Total debt before debt issuance costs

 

$

50,450,000

 

 

 

3.97

%

 

$

27,450,000

 

 

 

3.64

%

Unamortized debt issuance costs

 

 

(54,317

)

 

 

 

 

 

 

(2,541

)

 

 

 

 

Total debt

 

$

50,395,683

 

 

 

 

 

 

$

27,447,459

 

 

 

 

 

 

The Company estimates the fair value of its total debt by discounting the future cash flows of each instrument at rates currently offered for similar debt instruments of comparable maturities by the Company’s lenders using Level 3 inputs.  The carrying value of the Company’s debt excluding unamortized debt issuance costs was $50,450,000 and $27,450,000 as of June 30, 2017 and December 31, 2016, respectively, and its estimated fair value was $49,123,831 and $26,957,385 as of June 30, 2017 and December 31, 2016, respectively.

 

Mortgages

 

The mortgage loans require compliance with certain covenants such as debt service ratios, investment restrictions and distribution limitations.  As of June 30, 2017, the Company is in compliance with all financial covenants related to its mortgage loans.

Note Payable

The Mezzanine Loan has customary affirmative, negative and financial covenants, agreements, representations, warranties and borrowing conditions including various customary events of default. The Sponsor has agreed to guarantee the obligations or liabilities of the Commons Subsidiary to lender under the Mezzanine Loan. The Company has not paid, and will not pay, any fees or other consideration to the Sponsor for this guarantee. As of June 30, 2017, the Company is in compliance with all financial covenants related to the Mezzanine Loan.

As of June 30, 2017, scheduled principal payments and maturities on the Company’s mortgages and note payable were as follows:

12


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

 

June 30, 2017

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled

Principal

Payments

 

 

Maturities of Mortgages

 

 

Maturity of Note Payable

 

 

Total

 

2017 (remainder of the year)

 

$

 

 

$

 

 

$

 

 

$

 

2018

 

 

 

 

 

 

 

 

9,200,000

 

 

 

9,200,000

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

 

124,063

 

 

 

 

 

 

 

 

 

124,063

 

Thereafter

 

 

853,206

 

 

 

40,272,731

 

 

 

 

 

 

41,125,937

 

Total

 

$

977,269

 

 

$

40,272,731

 

 

$

9,200,000

 

 

$

50,450,000

 

 

NOTE 7 – DISTRIBUTIONS

 

The Company currently pays distributions based on daily record dates, payable in arrears the following month, equal to a daily amount of $0.003424658 per Class A Share, $0.002768493 per Class T Share and $0.003306849 per Class T-3 Share, based upon a 365-day year. The Company issued 22,396 in stock dividends during the six months ended June 30, 2017. The table below presents the distributions paid and declared for the three and six months ended June 30, 2017 and 2016.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Distributions paid

 

$

488,222

 

 

$

100,997

 

 

$

909,132

 

 

$

171,301

 

Distributions declared

 

$

506,971

 

 

$

211,247

 

 

$

948,184

 

 

$

342,522

 

 

NOTE 8 – EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period (the “common shares”). Diluted EPS is computed by dividing net income (loss) by the common shares plus common share equivalents. The Company excludes antidilutive restricted shares from the calculation of weighted-average shares for diluted EPS.  As a result of a net loss for the three and six months ended June 30, 2017, 811 and 761 shares, respectively, were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss for the three and six months ended June 30, 2016, 518 and 234 shares, respectively were excluded from the computation of diluted EPS, because they would have been antidilutive.

 

NOTE 9 – EQUITY-BASED COMPENSATION

In accordance with the Company’s Employee and Director Incentive Restricted Share Plan (the “RSP”), restricted shares are issued to non-employee directors as compensation.

 

13


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

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. The number of shares that may be issued under the RSP is limited to 5% of outstanding shares. Compensation expense associated with the director restricted shares is included in general and administrative expenses in the accompanying consolidated financial statements. Compensation expense under the RSP was $2,778 and $5,139 for the three and six months ended June 30, 2017, respectively. Compensation under the RSP was $3,316 and $6,076 for the three and six months ended June 30, 2016, respectively. As of June 30, 2017, the Company had $20,116 of unrecognized compensation cost related to the unvested restricted share awards. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.76 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 December 31, 2016