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EX-32.2 - EX-32.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex322_6.htm
EX-32.1 - EX-32.1 - Inland Residential Properties Trust, Inc.ck0001595627-ex321_7.htm
EX-31.2 - EX-31.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex312_10.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 MARCH 31, 2018

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 such 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 May 10, 2018, there were 1,486,863 shares of the registrant’s Class A common stock, 408,542 shares of Class T common stock and 260,363 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 March 31, 2018 (unaudited) and December 31, 2017

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the three months ended March 31, 2018 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (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

 

21

 

 

 

 

 

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

 

23

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

25

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

25

 

 

 

 

 

Item 5.

 

Other Information

 

25

 

 

 

 

 

Item 6.

 

Exhibits

 

25

 

 

 

 

 

Signatures

 

27

 

2


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

March 31,

2018

(unaudited)

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Land

 

$

9,845,410

 

 

$

9,845,410

 

Building and other improvements

 

 

94,041,278

 

 

 

93,980,734

 

Total real estate

 

 

103,886,688

 

 

 

103,826,144

 

Less: accumulated depreciation

 

 

(5,311,295

)

 

 

(4,391,774

)

Net real estate

 

 

98,575,393

 

 

 

99,434,370

 

Cash and cash equivalents

 

 

4,732,169

 

 

 

7,556,763

 

Accounts and rents receivable

 

 

41,406

 

 

 

72,576

 

Acquired in place lease intangibles, net

 

 

219,604

 

 

 

335,674

 

Other assets

 

 

416,205

 

 

 

584,905

 

Total assets

 

$

103,984,777

 

 

$

107,984,288

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages and note payable, net

 

$

62,906,418

 

 

$

66,396,156

 

Accounts payable and accrued expenses

 

 

948,054

 

 

 

895,189

 

Distributions payable

 

 

219,862

 

 

 

213,859

 

Due to related parties

 

 

5,408,868

 

 

 

5,273,153

 

Other liabilities

 

 

260,266

 

 

 

212,105

 

Total liabilities

 

 

69,743,468

 

 

 

72,990,462

 

 

 

 

 

 

 

 

 

 

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, 1,488,756 shares and 1,479,155 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

1,488

 

 

 

1,479

 

Class T common stock, $.001 par value, 40,000,000 shares authorized, 408,847 shares and 404,069 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

409

 

 

 

404

 

Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 259,309 shares and 243,346 issued and outstanding as of March 31, 2018 and December 31, 2017, respectively

 

 

259

 

 

 

243

 

Additional paid in capital (net of offering costs of $4,901,973 and $4,867,250 as of March 31, 2018 and December 31, 2017, respectively)

 

 

47,740,188

 

 

 

47,049,832

 

Distributions and accumulated losses

 

 

(13,501,035

)

 

 

(12,058,132

)

Total stockholders’ equity

 

 

34,241,309

 

 

 

34,993,826

 

Total liabilities and stockholders’ equity

 

$

103,984,777

 

 

$

107,984,288

 

 

See accompanying notes to consolidated financial statements.

 

 

3


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Income:

 

 

 

 

 

 

 

 

Rental income

 

$

2,312,334

 

 

$

903,512

 

Other property income

 

 

287,541

 

 

 

116,243

 

Total income

 

 

2,599,875

 

 

 

1,019,755

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Property operating expenses

 

 

830,893

 

 

 

263,910

 

Real estate tax expense

 

 

280,659

 

 

 

89,943

 

General and administrative expenses

 

 

480,600

 

 

 

303,854

 

Business management fee

 

 

158,415

 

 

 

68,692

 

Acquisition related costs

 

 

 

 

 

41,213

 

Depreciation and amortization

 

 

1,050,613

 

 

 

369,396

 

Total expenses

 

 

2,801,180

 

 

 

1,137,008

 

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(201,305

)

 

 

(117,253

)

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(611,634

)

 

 

(252,251

)

Interest and other income

 

 

6,949

 

 

 

10,398

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(805,990

)

 

$

(359,106

)

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.37

)

 

$

(0.24

)

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic

   and diluted

 

 

2,152,649

 

 

 

1,492,485

 

 

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, 2017

 

 

1,479,155

 

 

$

1,479

 

 

 

404,069

 

 

$

404

 

 

 

243,346

 

 

$

243

 

 

$

47,049,832

 

 

$

(12,058,132

)

 

$

34,993,826

 

Proceeds from the offering

 

 

 

 

 

 

 

 

2,296

 

 

 

2

 

 

 

14,499

 

 

 

15

 

 

 

404,983

 

 

 

 

 

 

405,000

 

Offering costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,724

)

 

 

 

 

 

(34,724

)

Issuance of shares from distribution reinvestment plan

 

 

9,564

 

 

 

9

 

 

 

2,702

 

 

 

3

 

 

 

1,464

 

 

 

1

 

 

 

321,932

 

 

 

 

 

 

321,945

 

Shares repurchased

 

 

 

 

 

 

 

 

 

(220

)

 

 

 

 

 

 

 

 

 

 

 

(5,146

)

 

 

 

 

 

(5,146

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(636,913

)

 

 

(636,913

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(805,990

)

 

 

(805,990

)

Equity based compensation

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,311

 

 

 

 

 

 

3,311

 

Balance at March 31, 2018

 

 

1,488,756

 

 

$

1,488

 

 

 

408,847

 

 

$

409

 

 

 

259,309

 

 

$

259

 

 

$

47,740,188

 

 

$

(13,501,035

)

 

$

34,241,309

 

See accompanying notes to consolidated financial statements.

 

 

5


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(805,990

)

 

$

(359,106

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,050,613

 

 

 

369,396

 

Amortization of debt issuance costs

 

 

10,262

 

 

 

98

 

Amortization of equity based compensation

 

 

3,311

 

 

 

2,361

 

Discount on shares issued to related parties

 

 

 

 

 

23,556

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

270,204

 

 

 

14,726

 

Accounts and rents receivable

 

 

31,170

 

 

 

(18,330

)

Due to related parties

 

 

197,204

 

 

 

131,053

 

Other liabilities

 

 

48,161

 

 

 

(16,034

)

Other assets

 

 

79,993

 

 

 

81,881

 

Net cash flows provided by operating activities

 

 

884,928

 

 

 

229,601

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(75,566

)

 

 

(4,828

)

Net cash flows used in investing activities

 

 

(75,566

)

 

 

(4,828

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of mortgage and note payable

 

 

(3,500,000

)

 

 

 

Proceeds from offering

 

 

405,000

 

 

 

4,302,638

 

Distributions paid

 

 

(308,964

)

 

 

(201,635

)

Shares repurchased

 

 

(5,146

)

 

 

 

Payment of offering costs

 

 

(224,846

)

 

 

(580,342

)

Net cash flows provided by (used in) financing activities

 

 

(3,633,956

)

 

 

3,520,661

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(2,824,594

)

 

$

3,745,434

 

Cash and cash equivalents, at beginning of the period

 

 

7,556,763

 

 

 

9,038,642

 

Cash and cash equivalents, at end of period

 

$

4,732,169

 

 

$

12,784,076

 

 

See accompanying notes to consolidated financial statements.

 

6


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)

(unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

622,446

 

 

$

249,796

 

 

 

 

 

 

 

 

 

 

Distributions payable

 

$

219,862

 

 

$

157,510

 

 

 

 

 

 

 

 

 

 

Accrued offering costs payable

 

$

532,357

 

 

$

751,467

 

 

 

 

 

 

 

 

 

 

Stock dividends issued

 

$

 

 

$

90,026

 

 

 

 

 

 

 

 

 

 

Common stock issued through distribution reinvestment plan

 

$

321,945

 

 

$

219,275

 

 

See accompanying notes to consolidated financial statements.

 

 

 

7


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2018

(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, 2017, which are included in the Company’s 2017 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., 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 under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, beginning with the tax year ended December 31, 2015.

At March 31, 2018, the Company owned real estate consisting of three multi-family communities totaling 623 units.  The properties consist of 677,142 square feet of residential and 10,609 square feet of retail gross leasable area. During the three months ended March 31, 2018, the properties’ weighted average daily occupancy for residential was 93.4% and at March 31, 2018, 596 units, or 95.7% of the total residential units were leased. At March 31, 2018, 100% of the retail units were occupied.

 

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/A for the year ended December 31, 2017, as filed with the Securities and Exchange Commission on March 21, 2018, under the heading “Note 2 - Summary of Significant Accounting Policies.” There has been no change to the Company’s significant accounting policies during the three months ended March 31, 2018 except as noted below.

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.

 

Recently Adopted 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 was effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. At March 31, 2018, the Company does not have restricted cash in its consolidated balance sheets and therefore, the new guidance has had no impact to its consolidated financial statements or related disclosures.

On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) 606, 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 Company selected the modified retrospective transition method which would include a cumulative effect of applying the standard on January 1, 2018. As the Company has reviewed its revenue streams and has concluded its previous recognition of revenue is in compliance with the new standard, no cumulative effect adjustment is required. Common area

8


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

maintenance reimbursements that may be impacted will not be addressed until the Company's adoption of ASU No. 2016-02, Leases (Topic 842) considering its revisions to accounting for common area maintenance.

Recently Issued Accounting Pronouncements

 

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. The FASB also issued an Exposure Draft on January 5, 2018 proposing to amend ASU 2016-02, which would provide lessors with a practical expedient, by class of underlying assets, to not separate non-lease components from the related lease components and, instead, to account for those components as a single lease component, if certain criteria are met. ASU 2016-02 and the related Exposure Draft are not effective for the Company until January 1, 2019, with early adoption permitted. The Company is continuing to evaluate this guidance and the impact on its consolidated financial statements. The Company expects to utilize the practical expedients proposed in the Exposure Draft as part of its adoption of ASU 2016-02.

 

NOTE 3 – EQUITY

 

The Company commenced an offering of shares of Class A common stock, $.001 par value per share (“Class A Shares”) and shares of Class T common stock, $.001 par value per share (“Class T Shares”) on February 17, 2015 (the “Offering”) and, effective February 2, 2017, the Company reallocated certain of the remaining shares offered in the Offering to offer shares of Class T-3 common stock, $.001 par value per share (“Class T-3 Shares”). The Company ceased accepting subscription agreements dated after December 31, 2017 and terminated the Offering on January 3, 2018.

 

On February 2, 2018, the Company’s board of directors determined an estimated per share net asset value (“Estimated Per Share NAV”) for each class of its common stock. The Company intends to publish an updated estimated value of its shares on at least an annual basis.

 

Excluding proceeds from the Company’s distribution reinvestment plan (as amended, the “DRP”), the Company generated gross proceeds of $0, $55,000 and $350,000 from sales of its Class A Shares, Class T Shares and Class T-3 Shares, respectively, during the three months ended March 31, 2018. As of March 31, 2018, the Company had 1,488,756, 408,847 and 259,309 Class A Shares, Class T Shares and Class T-3 Shares outstanding, respectively.

 

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. The price per share for shares of common stock purchased under the DRP were 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, until February 5, 2018 when the Company reported estimated per share net asset values of its common stock.  Accordingly, under the DRP, beginning with the February 2018 distribution payment made to stockholders in March 2018 until the Company announces new estimated per share net asset values, distributions may be reinvested for shares of common stock at the Estimated Per Share NAV for each class of its common stock.

9


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Distributions reinvested through the DRP were $321,945 and $219,275 for the three months ended March 31, 2018 and 2017, 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 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.

 

Repurchases through the SRP were $5,146 during the three months ended March 31, 2018. There were no repurchases through the SRP during the three months ended March 31, 2017.

 

 

NOTE 4 – ACQUISITIONS

 

During the three months ended March 31, 2018, the Company did not acquire any real estate properties.

 

 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS

The following table summarizes the Company’s identified intangible assets and liabilities as of March 31, 2018 and December 31, 2017:

 

 

March 31, 2018

 

 

December 31, 2017

 

Intangible assets:

 

 

 

 

 

 

 

 

Acquired in place lease value

 

$

592,511

 

 

$

592,511

 

Accumulated amortization

 

 

(372,907

)

 

 

(256,837

)

Acquired lease intangibles, net

 

$

219,604

 

 

$

335,674

 

As of March 31, 2018, the weighted average amortization period for acquired in place lease intangibles is 3.6 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 March 31,

 

Amortization recorded as amortization expense:

 

2018

 

 

2017

 

Acquired in place lease value

 

$

116,070

 

 

$

 

10


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Estimated amortization of the respective intangible lease assets and liabilities as of March 31, 2018 for each of the five succeeding years and thereafter is as follows:  

 

 

Acquired

In-Place

Leases

 

 

2018 (remainder of year)

 

$

63,777

 

 

2019

 

 

85,035

 

 

2020

 

 

48,976

 

 

2021

 

 

21,816

 

 

2022

 

 

 

 

Thereafter

 

 

 

 

Total

 

$

219,604

 

 

 

 

 

NOTE 6 – MORTGAGES AND NOTE PAYABLE, NET

As of March 31, 2018 and December 31, 2017, the Company had the following mortgages and note payable:

 

 

 

 

 

 

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Type of Debt

 

Maturity Date

 

Interest Rate per Annum

 

 

Principal

Amount

 

 

Weighted Average

Interest Rate

 

 

Principal

Amount

 

 

Weighted Average

Interest Rate

 

Mortgages Payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Retreat at Market Square

 

September 30, 2023

 

 

3.64

%

 

$

27,450,000

 

 

 

 

 

 

$

27,450,000

 

 

 

 

 

Commons at Town Center

 

May 3, 2024

 

 

3.69

%

 

 

13,800,000

 

 

 

 

 

 

 

13,800,000

 

 

 

 

 

Verandas at Mitylene

 

August 1, 2027

 

 

3.88

%

 

 

21,930,000

 

 

 

 

 

 

 

21,930,000

 

 

 

 

 

Total Mortgages

 

 

 

 

 

 

 

$

63,180,000

 

 

 

3.73

%

 

$

63,180,000

 

 

 

3.73

%

Note Payable:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commons at Town Center

 

January 3, 2019

 

 

5.40

%

 

 

 

 

 

5.40

%

 

 

3,500,000

 

 

 

5.40

%

Total debt before debt issuance costs

 

 

 

 

 

 

 

$

63,180,000

 

 

 

3.73

%

 

$

66,680,000

 

 

 

3.82

%

Unamortized debt issuance costs

 

 

 

 

 

 

 

 

(273,582

)

 

 

 

 

 

 

(283,844

)

 

 

 

 

Total debt

 

 

 

 

 

 

 

$

62,906,418

 

 

 

 

 

 

$

66,396,156

 

 

 

 

 

 

 

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 $63,180,000 and $66,680,000 as of March 31, 2018 and December 31, 2017, respectively, and its estimated fair value was $61,352,255 and $65,281,610 as of March 31, 2018 and December 31, 2017, respectively.

 

Mortgages

 

The mortgage loans require compliance with certain covenants such as debt service ratios, investment restrictions and distribution limitations.  As of March 31, 2018, the Company is in compliance with all financial covenants related to its mortgage loans.

The scheduled principal payments and maturities on the Company’s mortgages are as follows:

11


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

 

March 31, 2018

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled

Principal

Payments

 

 

Maturities of Mortgages

 

 

Total

 

2018 (remainder of the year)

 

$

 

 

$

 

 

$

 

2019

 

 

 

 

 

 

 

 

 

2020

 

 

 

 

 

 

 

 

 

2021

 

 

124,063

 

 

 

 

 

 

124,063

 

2022

 

 

505,081

 

 

 

 

 

 

505,081

 

Thereafter

 

 

348,125

 

 

 

62,202,731

 

 

 

62,550,856

 

Total

 

$

977,269

 

 

$

62,202,731

 

 

$

63,180,000

 

The weighted average years to maturity for the Company’s debt is 6.97 years.

Note Payable

The Company paid in full the outstanding balance of its note payable and accrued interest in January 2018.

 

NOTE 7 – DISTRIBUTIONS

 

The Company currently pays distributions based on daily record dates, payable in arrears the following month.     From January 1, 2018 through February 28, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002768493 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. From March 1 through March 31, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758488 per Class T Share and $0.003323017 per Class T-3 Share, based on a 365-day period. The Company issued 3,649 in stock dividends during the three months ended March 31, 2017. The table below presents the distributions paid and declared for the three months ended March 31, 2018 and 2017.

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

Distributions paid

 

$

308,964

 

 

$

201,635

 

Distributions declared

 

$

636,913

 

 

$

441,213

 

 

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 months ended March 31, 2018, 640 shares were excluded from the computation of diluted EPS, because they would have been antidilutive. As a result of a net loss for the three months ended March 31, 2017, 371 shares were excluded from the computation of diluted EPS, because they would have been antidilutive. The Company does not apply the two-class method for calculating EPS as its share classes only differ on the timing of its payment of distribution and stockholder servicing fees.

 

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.

 

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

12


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

expenses in the accompanying consolidated financial statements. Compensation expense under the RSP was $3,311 and $2,361 for the three months ended March 31, 2018 and 2017, respectively. As of March 31, 2018, the Company had $9,583 of unrecognized compensation expense related to the unvested restricted share awards. The weighted average remaining period that compensation expense related to unvested restricted shares will be recognized is 1.4 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, 2017

 

 

1,133

 

 

$

25,834

 

 

$

25,834

 

Granted

 

 

 

 

 

 

 

 

 

Vested

 

 

(37

)

 

 

(834

)

 

 

(834

)

Forfeited

 

 

 

 

 

 

 

 

 

Outstanding at March 31, 2018

 

 

1,096

 

 

$

25,000

 

 

$

25,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE 10 – SEGMENT REPORTING

The Company has one reportable segment, multi-family real estate, as defined by U.S. GAAP for the three months ended March 31, 2018 and 2017.

 

 

NOTE 11 – TRANSACTIONS WITH RELATED PARTIES

The following table summarizes the Company’s related party transactions for the three months ended March 31, 2018 and 2017. The Sponsor and its affiliates will not require repayment of acquisition related costs (fee), certain offering costs, mortgage financing fee and Sponsor non-interest bearing advances until subsequent to 12 months from the issuance of this report.

 

 

 

 

 

Three Months Ended

March 31,

 

 

Amount Unpaid as of

 

 

 

 

 

2018

 

 

2017

 

 

March 31, 2018

 

 

December 31, 2017

 

General and administrative reimbursements

 

(a)

 

$

166,826

 

 

$

90,307

 

 

$

158,411

 

 

$

98,863

 

Affiliate share purchase discounts

 

(b)

 

 

 

 

 

23,556

 

 

 

 

 

 

 

Total general and administrative costs

 

 

 

$

166,826

 

 

$

113,863

 

 

$

158,411

 

 

$

98,863

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acquisition related costs

 

(c)

 

$

 

 

$

34,858

 

 

$

686,250

 

 

$

686,250

 

Offering costs

 

(d)

 

$

20,151

 

 

$

398,029

 

 

$

1,543,776

 

 

$

1,609,242

 

Reimbursement of offering costs

 

(e)

 

$

3,976

 

 

$

 

 

$

432,228

 

 

$

428,252

 

Business management fee

 

(f)

 

$

158,415

 

 

$

68,692

 

 

$

501,252

 

 

$

342,837

 

Mortgage financing fee

 

(g)

 

$

 

 

$

 

 

$

114,375

 

 

$

114,375

 

Sponsor non-interest bearing advances

 

(h)

 

$

 

 

$

 

 

$

1,950,000

 

 

$

1,950,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management fee

 

 

 

$

104,447

 

 

$

39,145

 

 

$

 

 

$

 

Property operating expenses

 

 

 

 

219,448

 

 

 

93,420

 

 

 

22,576

 

 

 

43,334

 

Total property operating expenses

 

(i)

 

$

323,895

 

 

$

132,565

 

 

$

22,576

 

 

$

43,334

 

 

(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.

 

13


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

(b)

The Company established a discount stock purchase policy for affiliates and affiliates of the Business Manager that enable them to purchase Class A Shares at $22.81 per share. The Company did not sell shares to affiliates during the three months ended March 31, 2018. The Company sold 10,756 Class A Shares to affiliates during the three months ended March 31, 2017.

(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 transactions occurring on or after August 8, 2016. The Business Manager and its affiliates continue to be reimbursed for acquisition 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.  There were no related party acquisition costs incurred during the three months ended March 31, 2018. For the three months ended March 31, 2017, of the $34,858 related party acquisition costs, $16,887 were capitalized in the accompanying consolidated balance sheets and $17,971 of such costs 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.