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EX-31.2 - EX-31.2 - Inland Residential Properties Trust, Inc.ck0001595627-ex312_9.htm
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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

 

 

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, 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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 October 31, 2018, there were 1,488,254 shares of the registrant’s Class A common stock, 409,687 shares of Class T common stock and 261,680 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 September 30, 2018 (unaudited) and December 31, 2017

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017 (unaudited)

 

4

 

 

 

 

 

 

 

Consolidated Statement of Equity for the nine months ended September 30, 2018 (unaudited)

 

5

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 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

 

23

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

24

 

 

 

 

 

Part II - Other Information

Item 1.

 

Legal Proceedings

 

25

 

 

 

 

 

Item 1A.

 

Risk Factors

 

25

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

30

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

31

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

31

 

 

 

 

 

Item 5.

 

Other Information

 

31

 

 

 

 

 

Item 6.

 

Exhibits

 

31

 

 

 

 

 

Signatures

 

33

 

2


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

September 30,

2018

(unaudited)

 

 

December 31,

2017

 

ASSETS

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Real estate:

 

 

 

 

 

 

 

 

Land

 

$

9,845,410

 

 

$

9,845,410

 

Building and other improvements

 

 

94,147,111

 

 

 

93,980,734

 

Total real estate

 

 

103,992,521

 

 

 

103,826,144

 

Less: accumulated depreciation

 

 

(7,160,125

)

 

 

(4,391,774

)

Net real estate

 

 

96,832,396

 

 

 

99,434,370

 

Cash and cash equivalents

 

 

4,300,307

 

 

 

7,556,763

 

Accounts and rents receivable, net

 

 

53,590

 

 

 

72,576

 

Acquired in place lease intangibles, net

 

 

177,086

 

 

 

335,674

 

Other assets

 

 

503,854

 

 

 

584,905

 

Total assets

 

$

101,867,233

 

 

$

107,984,288

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages and note payable, net

 

$

62,922,142

 

 

$

66,396,156

 

Accounts payable and accrued expenses

 

 

949,455

 

 

 

895,189

 

Distributions payable

 

 

212,720

 

 

 

213,859

 

Due to related parties

 

 

5,589,042

 

 

 

5,273,153

 

Other liabilities

 

 

212,558

 

 

 

212,105

 

Total liabilities

 

 

69,885,917

 

 

 

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, 1,487,523 shares and 1,479,155 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

1,487

 

 

 

1,479

 

Class T common stock, $.001 par value, 40,000,000 shares authorized, 409,687 shares and 404,069 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

410

 

 

 

404

 

Class T-3 common stock, $.001 par value, 40,000,000 shares authorized, 261,680 shares and 243,346 issued and outstanding as of September 30, 2018 and December 31, 2017, respectively

 

 

262

 

 

 

243

 

Additional paid in capital (net of offering costs of $4,902,004 and $4,867,250 as of September 30, 2018 and December 31, 2017, respectively)

 

 

47,804,843

 

 

 

47,049,832

 

Distributions and accumulated losses

 

 

(15,825,686

)

 

 

(12,058,132

)

Total stockholders’ equity

 

 

31,981,316

 

 

 

34,993,826

 

Total liabilities and stockholders’ equity

 

$

101,867,233

 

 

$

107,984,288

 

 

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,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

2,393,985

 

 

$

2,055,873

 

 

$

7,015,686

 

 

$

4,254,327

 

Other property income

 

 

294,237

 

 

 

229,634

 

 

 

886,536

 

 

 

474,139

 

Total income

 

 

2,688,222

 

 

 

2,285,507

 

 

 

7,902,222

 

 

 

4,728,466

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

817,687

 

 

 

722,891

 

 

 

2,481,659

 

 

 

1,419,557

 

Real estate tax expense

 

 

311,343

 

 

 

244,451

 

 

 

868,470

 

 

 

498,450

 

General and administrative expenses

 

 

330,448

 

 

 

350,982

 

 

 

1,136,566

 

 

 

1,045,499

 

Business management fee

 

 

158,631

 

 

 

158,154

 

 

 

475,609

 

 

 

318,609

 

Acquisition related costs

 

 

 

 

 

16,484

 

 

 

 

 

 

87,963

 

Depreciation and amortization

 

 

958,104

 

 

 

1,153,501

 

 

 

2,961,480

 

 

 

2,132,208

 

Total expenses

 

 

2,576,213

 

 

 

2,646,463

 

 

 

7,923,784

 

 

 

5,502,286

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

 

112,009

 

 

 

(360,956

)

 

 

(21,562

)

 

 

(773,820

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(610,791

)

 

 

(677,534

)

 

 

(1,829,491

)

 

 

(1,353,084

)

Interest and other income

 

 

5,654

 

 

 

6,393

 

 

 

17,993

 

 

 

30,907

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(493,128

)

 

$

(1,032,097

)

 

$

(1,833,060

)

 

$

(2,095,997

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.23

)

 

$

(0.55

)

 

$

(0.85

)

 

$

(1.24

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding, basic

   and diluted

 

 

2,158,972

 

 

 

1,885,318

 

 

 

2,156,229

 

 

 

1,692,974

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(34,754

)

 

 

 

 

 

(34,754

)

Issuance of shares from distribution reinvestment plan

 

 

28,894

 

 

 

29

 

 

 

7,855

 

 

 

7

 

 

 

4,664

 

 

 

5

 

 

 

970,074

 

 

 

 

 

 

970,115

 

Shares repurchased

 

 

(20,928

)

 

 

(21

)

 

 

(4,533

)

 

 

(3

)

 

 

(829

)

 

 

(1

)

 

 

(592,908

)

 

 

 

 

 

(592,933

)

Distributions declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,934,494

)

 

 

(1,934,494

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,833,060

)

 

 

(1,833,060

)

Equity based compensation

 

 

402

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,616

 

 

 

 

 

 

7,616

 

Balance at September 30, 2018

 

 

1,487,523

 

 

$

1,487

 

 

 

409,687

 

 

$

410

 

 

 

261,680

 

 

$

262

 

 

$

47,804,843

 

 

$

(15,825,686

)

 

$

31,981,316

 

See accompanying notes to consolidated financial statements.

 

 

5


 

INLAND RESIDENTIAL PROPERTIES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(1,833,060

)

 

$

(2,095,997

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

2,961,480

 

 

 

2,132,208

 

Amortization of debt issuance costs

 

 

25,986

 

 

 

18,888

 

Amortization of equity based compensation

 

 

7,616

 

 

 

8,889

 

Discount on shares issued to related parties

 

 

 

 

 

24,530

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

18,523

 

 

 

295,328

 

Accounts and rents receivable

 

 

18,986

 

 

 

(44,929

)

Due to related parties

 

 

456,799

 

 

 

410,670

 

Other liabilities

 

 

453

 

 

 

36,332

 

Other assets

 

 

245,427

 

 

 

93,182

 

Net cash flows provided by operating activities

 

 

1,902,210

 

 

 

879,101

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of real estate

 

 

 

 

 

(59,288,960

)

Capital expenditures

 

 

(200,918

)

 

 

(60,328

)

Net cash flows used in investing activities

 

 

(200,918

)

 

 

(59,349,288

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment of note payable

 

 

(3,500,000

)

 

 

(2,200,000

)

Proceeds from mortgage and note payable

 

 

 

 

 

44,930,000

 

Proceeds from offering

 

 

405,000

 

 

 

12,966,455

 

Payment of debt issuance costs

 

 

 

 

 

(293,300

)

Distributions paid

 

 

(965,518

)

 

 

(686,715

)

Shares repurchased

 

 

(592,933

)

 

 

(80,815

)

Payment of offering costs

 

 

(304,297

)

 

 

(2,078,895

)

Net cash flows provided by (used in) financing activities

 

 

(4,957,748

)

 

 

52,556,730

 

 

 

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

$

(3,256,456

)

 

$

(5,913,457

)

Cash and cash equivalents, at beginning of the period

 

 

7,556,763

 

 

 

9,038,642

 

Cash and cash equivalents, at end of period

 

$

4,300,307

 

 

$

3,125,185

 

 

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,

 

 

 

2018

 

 

2017

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

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

   and assumed liabilities as follows:

 

 

 

 

 

 

 

 

Land

 

$

 

 

$

3,543,573

 

Building and other improvements

 

 

 

 

 

53,188,092

 

Furniture, fixtures and equipment

 

 

 

 

 

1,767,003

 

Acquired in place lease intangibles

 

 

 

 

 

1,194,134

 

Assumed assets and liabilities, net

 

 

 

 

 

(403,842

)

Purchase of real estate

 

$

 

 

$

59,288,960

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,826,888

 

 

$

1,406,141

 

 

 

 

 

 

 

 

 

 

Distributions payable

 

$

212,720

 

 

$

190,834

 

 

 

 

 

 

 

 

 

 

Accrued offering costs payable

 

$

452,937

 

 

$

732,675

 

 

 

 

 

 

 

 

 

 

Stock dividends issued

 

$

 

 

$

553,875

 

 

 

 

 

 

 

 

 

 

Common stock issued through distribution reinvestment plan

 

$

970,115

 

 

$

777,150

 

 

See accompanying notes to consolidated financial statements.

 

 

 

7


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 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 on Form 10-K/A, 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 September 30, 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 nine months ended September 30, 2018, the properties’ weighted average daily occupancy for residential was 92.1% and at September 30, 2018, 594 units, or 95.3% of the total residential units were leased. At September 30, 2018, 100% of the retail units were occupied.

On September 17, 2018, the Company’s board of directors approved the sale of all or substantially all of the Company’s assets, the Company’s liquidation and the Company’s dissolution pursuant to a plan of liquidation (the “Plan of Liquidation”), subject to the approval of the Company’s stockholders.

 

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 nine months ended September 30, 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 requires that amounts described as restricted cash and restricted cash equivalents be included in the beginning and ending-of-period reconciliation of cash shown on the consolidated 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 September 30, 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

8


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

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 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. On July 30, 2018 the FASB issued ASU No. 2018-11, Targeted Improvements, Leases (Topic 842), 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. The Company expects to utilize the practical expedients in the amendment as part of its adoption of ASU No. 2016-02. ASU No. 2018-11 also provides companies with the option of using the effective date as their initial application or using the beginning of the earliest comparative period presented in the financial statements as its date of initial application. The Company expects to adopt the new standard on January 1, 2019 and use the effective date as its date of initial application date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption, if any. The Company is continuing to evaluate this guidance and the impact on its consolidated financial statements.

 

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. Excluding the distribution reinvestment plan (as amended, the “DRP”), the Company issued 1,401,711 Class A Shares, 390,230 Class T Shares and 255,666 Class T-3 Shares generating gross proceeds of approximately $50 million from the Offering. As of September 30, 2018, the Company had 1,487,523, 409,687 and 261,680 Class A Shares, Class T Shares and Class T-3 Shares outstanding, respectively.

 

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.

 

Historically, the Company provided the following programs to facilitate additional investment in the Company’s shares and to provide limited liquidity for stockholders. In contemplation of the Plan of Liquidation, on September 17, 2018, the Company’s board of directors determined to terminate the Company’s DRP and share repurchase program (“SRP”).

 

Distribution Reinvestment Plan

 

The Company provided 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, were used to purchase Class A Shares, Class T Shares and Class T-3 Shares, respectively. Such purchases under the DRP were 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. Under the DRP, distributions were reinvested for shares of common stock at the applicable Estimated Per Share NAV.

9


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Distributions reinvested through the DRP were $970,115 and $777,150 for the nine months ended September 30, 2018 and 2017, respectively.

 

Share Repurchase Program

 

Under the SRP, the Company was 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 held their shares for at least one year, if requested. Subject to funds being available, the Company limited 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 was limited to the proceeds that the Company received 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 applied.

 

Repurchases through the SRP were $592,933 and $80,815 during the nine months ended September 30, 2018 and 2017, respectively.

 

 

NOTE 4 – ACQUISITIONS

 

During the nine months ended September 30, 2018, the Company did not acquire any real estate properties. During the nine months ended September 30, 2017, the Company acquired two real estate properties with a total purchase price of $105,527,172.

 

 

NOTE 5 – ACQUIRED INTANGIBLE ASSETS

The following table summarizes the Company’s identified intangible assets as of September 30, 2018 and December 31, 2017:

 

 

September 30, 2018

 

 

December 31, 2017

 

Intangible assets:

 

 

 

 

 

 

 

 

Acquired in place lease value

 

$

592,511

 

 

$

592,511

 

Accumulated amortization

 

 

(415,425

)

 

 

(256,837

)

Acquired lease intangibles, net

 

$

177,086

 

 

$

335,674

 

As of September 30, 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 September 30,

 

 

Nine Months Ended                                    September 30,

 

Amortization recorded as amortization expense:

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Acquired in place lease value

 

$

21,259

 

 

$

351,094

 

 

$

158,588

 

 

$

463,135

 

10


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

 

Estimated amortization of the respective intangible lease assets as of September 30, 2018 for each of the five succeeding years and thereafter is as follows:  

 

 

Acquired

In-Place

Leases

 

 

2018 (remainder of year)

 

$

21,259

 

 

2019

 

 

85,035

 

 

2020

 

 

48,976

 

 

2021

 

 

21,816

 

 

2022

 

 

 

 

Thereafter

 

 

 

 

Total

 

$

177,086

 

 

 

 

 

NOTE 6 – MORTGAGES AND NOTE PAYABLE, NET

As of September 30, 2018 and December 31, 2017, the Company had the following mortgages and note payable:

 

 

 

 

 

 

 

 

 

September 30, 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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

(257,858

)

 

 

 

 

 

 

(283,844

)

 

 

 

 

Total debt

 

 

 

 

 

 

 

$

62,922,142

 

 

 

 

 

 

$

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 September 30, 2018 and December 31, 2017, respectively, and its estimated fair value was $60,865,220 and $65,281,610 as of September 30, 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 September 30, 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)

 

 

 

September 30, 2018

 

Scheduled Principal Payments and Maturities by Year:

 

Scheduled

Principal

Payments

 

 

Maturities of Mortgages

 

 

Total

 

2018 (remainder of 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 6.47 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 has paid 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. From April 1, 2018 through September 30, 2018, distributions were declared in a daily amount equal to $0.003424658 per Class A Share, $0.002758356 per Class T Share and $0.003306849 per Class T-3 Share, based on a 365-day period. The Company issued 22,384 in stock dividends during the nine months ended September 30, 2017. The table below presents the distributions paid and declared for the three and nine months ended September 30, 2018 and 2017.

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Distributions paid

 

$

652,310

 

 

$

554,733

 

 

$

1,935,633

 

 

$

1,463,865

 

Distributions declared

 

$

652,593

 

 

$

569,307

 

 

$

1,934,494

 

 

$

1,517,491

 

 

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 nine months ended September 30, 2018, 464 and 734 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 nine months ended September 30, 2017, 479 and 843 shares, respectively, 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. 100% of any then unvested restricted shares would become fully vested upon the Company’s consummation of the Plan of

12


INLAND RESIDENTIAL PROPERTIES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

 

Liquidation. 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 $1,597 and $7,616 for the three and nine months ended September 30, 2018, respectively. Compensation expense under the RSP was $3,750 and $8,889 for the three and nine months ended September 30, 2017, respectively. As of September 30, 2018, the Company had $5,278 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 1.18 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