Item 1. Financial Statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2019 and December 31, 2018
|
|
2019
|
|
|
|
|
|
|
(unaudited)
|
|
|
2018
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in single-family residential properties:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
14,476,461
|
|
|
$
|
13,642,461
|
|
Buildings and improvements
|
|
|
70,216,778
|
|
|
|
64,781,322
|
|
|
|
|
84,693,239
|
|
|
|
78,423,783
|
|
Accumulated depreciation
|
|
|
(7,955,740
|
)
|
|
|
(6,591,066
|
)
|
Investments in single-family residential properties, net
|
|
|
76,737,499
|
|
|
|
71,832,717
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
11,997,147
|
|
|
|
8,252,460
|
|
Restricted cash
|
|
|
1,760,758
|
|
|
|
1,179,126
|
|
Rent and other receivables
|
|
|
1,035,721
|
|
|
|
730,345
|
|
Lease origination costs, net
|
|
|
488,650
|
|
|
|
473,739
|
|
Other assets, net
|
|
|
979,167
|
|
|
|
633,135
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
92,998,942
|
|
|
$
|
83,101,522
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
2,711,376
|
|
|
$
|
1,572,713
|
|
Resident security deposits
|
|
|
912,500
|
|
|
|
825,233
|
|
Notes payable, net
|
|
|
60,449,178
|
|
|
|
50,132,147
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
64,073,054
|
|
|
|
52,530,093
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value; 25,000,000 shares authorized; No shares issued or outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $.001 par value; 100,000,000 shares authorized; 11,038,737 and 10,951,579 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
|
|
|
11,039
|
|
|
|
10,952
|
|
Additional paid-in capital
|
|
|
42,857,528
|
|
|
|
42,569,520
|
|
Accumulated deficit
|
|
|
(13,942,679
|
)
|
|
|
(12,009,043
|
)
|
|
|
|
|
|
|
|
|
|
Total Stockholders' Equity
|
|
|
28,925,888
|
|
|
|
30,571,429
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
92,998,942
|
|
|
$
|
83,101,522
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS
For the Three and Six Months Ended June
30, 2019 and 2018
|
|
Three Months
|
|
|
Three Months
|
|
|
Six Months
|
|
|
Six Months
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
2,899,554
|
|
|
$
|
2,232,786
|
|
|
$
|
5,655,285
|
|
|
$
|
4,412,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
944,450
|
|
|
|
682,431
|
|
|
|
1,866,238
|
|
|
|
1,300,594
|
|
Real estate taxes
|
|
|
433,577
|
|
|
|
369,545
|
|
|
|
870,081
|
|
|
|
732,916
|
|
Depreciation and amortization
|
|
|
784,536
|
|
|
|
514,858
|
|
|
|
1,526,066
|
|
|
|
1,033,896
|
|
General and administration
|
|
|
920,002
|
|
|
|
575,413
|
|
|
|
1,583,719
|
|
|
|
1,191,832
|
|
Noncash share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
39,375
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,082,565
|
|
|
|
2,142,247
|
|
|
|
5,885,479
|
|
|
|
4,259,238
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(183,011
|
)
|
|
|
90,539
|
|
|
|
(230,194
|
)
|
|
|
152,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty (loss) gain, net
|
|
|
-
|
|
|
|
25,758
|
|
|
|
(25,000
|
)
|
|
|
76,133
|
|
Previously deferred stock issuance costs
|
|
|
-
|
|
|
|
(674,144
|
)
|
|
|
-
|
|
|
|
(674,144
|
)
|
Other
|
|
|
36,782
|
|
|
|
7,201
|
|
|
|
67,380
|
|
|
|
14,995
|
|
Interest expense
|
|
|
(797,641
|
)
|
|
|
(435,171
|
)
|
|
|
(1,525,765
|
)
|
|
|
(835,763
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expenses), net
|
|
|
(760,859
|
)
|
|
|
(1,076,356
|
)
|
|
|
(1,483,385
|
)
|
|
|
(1,418,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(943,870
|
)
|
|
$
|
(985,817
|
)
|
|
$
|
(1,713,579
|
)
|
|
$
|
(1,265,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Basic and fully diluted)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.16
|
)
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
11,036,535
|
|
|
|
10,769,530
|
|
|
|
11,020,965
|
|
|
|
10,764,063
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
For the Three and Six Months Ended June
30, 2019 and 2018
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2019
|
|
|
11,026,948
|
|
|
$
|
11,027
|
|
|
$
|
42,818,165
|
|
|
$
|
(12,888,404
|
)
|
|
$
|
29,940,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under share-based compensation plans
|
|
|
11,789
|
|
|
|
12
|
|
|
|
39,363
|
|
|
|
-
|
|
|
|
39,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on common stock ($0.01 per share)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(110,405
|
)
|
|
|
(110,405
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(943,870
|
)
|
|
|
(943,870
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
|
11,038,737
|
|
|
$
|
11,039
|
|
|
$
|
42,857,528
|
|
|
$
|
(13,942,679
|
)
|
|
$
|
28,925,888
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018
|
|
|
10,769,530
|
|
|
$
|
10,770
|
|
|
$
|
41,841,805
|
|
|
$
|
(9,025,125
|
)
|
|
$
|
32,827,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(985,817
|
)
|
|
|
(985,817
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
10,769,530
|
|
|
$
|
10,770
|
|
|
$
|
41,841,805
|
|
|
$
|
(10,010,942
|
)
|
|
$
|
31,841,633
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2018
|
|
|
10,951,579
|
|
|
$
|
10,952
|
|
|
$
|
42,569,520
|
|
|
$
|
(12,009,043
|
)
|
|
$
|
30,571,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under share-based compensation plans
|
|
|
87,158
|
|
|
|
87
|
|
|
|
288,008
|
|
|
|
-
|
|
|
|
288,095
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions on common stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(220,057
|
)
|
|
|
(220,057
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,713,579
|
)
|
|
|
(1,713,579
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2019
|
|
|
11,038,737
|
|
|
$
|
11,039
|
|
|
$
|
42,857,528
|
|
|
$
|
(13,942,679
|
)
|
|
$
|
28,925,888
|
|
|
|
Common Stock
|
|
|
Additional
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Paid-in Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017
|
|
|
10,734,025
|
|
|
$
|
10,734
|
|
|
$
|
41,677,465
|
|
|
$
|
(8,745,003
|
)
|
|
$
|
32,943,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued under share-based compensation plans
|
|
|
35,505
|
|
|
|
36
|
|
|
|
164,340
|
|
|
|
-
|
|
|
|
164,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,265,939
|
)
|
|
|
(1,265,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2018
|
|
|
10,769,530
|
|
|
$
|
10,770
|
|
|
$
|
41,841,805
|
|
|
$
|
(10,010,942
|
)
|
|
$
|
31,841,633
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS
For the Six Months Ended June 30, 2019 and
2018
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,713,579
|
)
|
|
$
|
(1,265,939
|
)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
1,526,066
|
|
|
|
1,033,896
|
|
Noncash share-based compensation
|
|
|
39,375
|
|
|
|
-
|
|
Amortization of deferred loan fees
|
|
|
105,950
|
|
|
|
101,988
|
|
Previously deferred stock issuance costs
|
|
|
-
|
|
|
|
674,144
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Rent and other receivables
|
|
|
(305,376
|
)
|
|
|
15,848
|
|
Other assets
|
|
|
(346,032
|
)
|
|
|
(295,172
|
)
|
Accounts payable and accrued liabilities
|
|
|
1,387,382
|
|
|
|
(74,220
|
)
|
Resident security deposits
|
|
|
87,267
|
|
|
|
56,813
|
|
Net cash provided by operating activities
|
|
|
781,053
|
|
|
|
247,358
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Acquisitions of single-family residential properties
|
|
|
(5,191,608
|
)
|
|
|
(1,681,413
|
)
|
Capital improvements to single-family residential properties
|
|
|
(1,077,848
|
)
|
|
|
(1,510,195
|
)
|
Insurance proceeds received for property damages
|
|
|
-
|
|
|
|
1,390,298
|
|
Lease origination costs
|
|
|
(176,303
|
)
|
|
|
(134,817
|
)
|
Net cash used in investing activities
|
|
|
(6,445,759
|
)
|
|
|
(1,936,127
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
10,523,000
|
|
|
|
2,736,630
|
|
Payments of notes payable
|
|
|
-
|
|
|
|
(603,699
|
)
|
Payment of loan fees
|
|
|
(311,918
|
)
|
|
|
(65,161
|
)
|
Payment of stock issuance costs
|
|
|
-
|
|
|
|
(120,848
|
)
|
Distributions on common stock
|
|
|
(220,057
|
)
|
|
|
-
|
|
Net cash provided by financing activities
|
|
|
9,991,025
|
|
|
|
1,946,922
|
|
|
|
|
|
|
|
|
|
|
Net Increase In Cash and Restricted Cash
|
|
|
4,326,319
|
|
|
|
258,153
|
|
Cash and Restricted Cash at the Beginning of the Period
|
|
|
9,431,586
|
|
|
|
6,442,322
|
|
|
|
|
|
|
|
|
|
|
Cash and Restricted Cash at the End of the Period
|
|
$
|
13,757,905
|
|
|
$
|
6,700,475
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
1,385,188
|
|
|
$
|
720,769
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 1. ORGANIZATION AND OPERATION
Reven Housing REIT, Inc. is a Maryland
corporation (Reven Housing REIT, Inc., which along with its wholly-owned subsidiaries, are also referred to herein collectively
as the “Company”) which acquires portfolios of occupied and rented single-family residential properties located in
the United States with the objective of receiving income from rental property activity and future profits from the sale of rental
property at appreciated values.
As of June 30, 2019, the Company owned
993 single-family homes in the Houston, Jacksonville, Memphis, Birmingham, Oklahoma City, and Atlanta metropolitan areas.
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information, as contained within the Financial Accounting Standards Board (“FASB”) Accounting
Standard Codification (“ASC”), and the rules and regulations of the Securities Exchange Commission (“SEC”).
Certain information and footnote disclosures
normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto
included in the 2018 Annual Report on Form 10-K filed with the SEC on March 21, 2019. The results of operations for the period
ended June 30, 2019 are not necessarily indicative of the operating results for the full year.
Principles of Consolidation
The accompanying condensed unaudited condensed
consolidated financial statements include the accounts of Reven Housing REIT, Inc, Reven Housing REIT OP, LP, a Delaware limited
partnership which is its 100% owned operating partnership, and its wholly-owned subsidiaries, which have been formed primarily
for financing purposes. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the condensed consolidated
financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and reported amounts of
revenues and expenses for the periods presented. Accordingly, actual results could differ from those estimates.
Financial Instruments
The carrying value of the Company’s
financial instruments, as reported in the accompanying condensed consolidated balance sheets, approximates fair value due to their
short-term nature. The Company’s short-term financial instruments consist of cash, restricted cash, rents and other receivables,
escrow deposits, accounts payable and accrued liabilities, and resident security deposits.
The carrying value of the Company’s
notes payable, as reported in the accompanying condensed consolidated balance sheets, approximates fair value due to their market
interest rate and because their security and payment terms are similar to other debt instruments currently being issued.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
Investments in Single-Family Residential
Properties
The Company accounts for its investments
in single-family residential properties as asset acquisitions and records these acquisitions at their purchase price. The purchase
price is allocated between land, building, improvements and existing leases based upon their relative fair values at the date of
acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically include legal
fees, title fees, property inspection and valuation fees, as well as other closing costs.
Building improvements and buildings are
depreciated over estimated useful lives of approximately 10 to 27.5 years, respectively, using the straight-line method. Lease
origination costs are amortized over the average remaining term of the in-place leases which is generally less than one year. Maintenance
and repair costs are charged to expenses as incurred.
The Company assesses its investments in
single-family residential properties for impairment whenever events or changes in business circumstances indicate that carrying
amounts of the assets may not be fully recoverable. When such events occur, management determines whether there has been impairment
by comparing the asset’s carrying value with its fair value. Should impairment exist, the asset is written down to its estimated
fair value. The Company did not recognize any impairment losses for either the six-month periods ended June 30, 2019 or 2018.
Cash
The Company maintains its cash at quality
financial institutions. The combined account balances at one or more institutions typically exceed the federal insurance coverage
and thus there is a concentration of credit risk related to amounts on deposit in excess of available federal insurance coverage.
The Company believes that the risk is not significant, as the Company does not anticipate the financial institutions’ non-performance.
Restricted Cash
Pursuant to the terms of the note payable
referred to in Note 5, the Company is required to establish, maintain, and fund monthly specified reserve accounts. These reserve
accounts include property tax reserves, insurance reserves, and capital expenditure reserves.
Rents and Other Receivables
Rents and other receivables represent the
amount of rent receivables, security deposits and net rental funds which are held by the property managers on behalf of the Company,
net of any allowance for amounts deemed uncollectible.
Deferred Loan Fees
Costs incurred in the placement of the
Company’s notes payable are deferred and amortized using the effective interest method over the term of the loans as a component
of interest expense on the condensed consolidated statements of operations. These deferred loan fees are offset against the notes
payable in the accompanying condensed consolidated balance sheets.
Security Deposits
Security deposits represent amounts deposited
by tenants at the inception of the lease. As of June 30, 2019 and December 31, 2018, the Company had $912,500 and $825,233, respectively,
in resident security deposits. Security deposits are refundable, net of any outstanding charges and fees, upon expiration of the
underlying lease.
Revenue Recognition
Residential properties are leased to tenants
under short term rental agreements of generally one year and revenue is recognized over the lease term on a straight-line basis.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
Income Taxes
The Company is currently evaluating
whether to elect to be taxed as a real estate investment trust (“REIT”), as defined in the Internal Revenue Code, commencing
with the taxable year ended December 31, 2018. The Company has until the extended due date of its December 31, 2018 tax return
to formally make this election. Accordingly, should the Company elect REIT status, it does not expect to be subject to federal
income tax, provided that it continues to qualify as a REIT and distributions to the stockholders equal or exceed REIT taxable
income. Should the Company not elect to be taxed as a REIT, the Company will not be subject to federal income tax for periods ended
June 30, 2019 and 2018 due to significant operating losses and net operating loss carry-forwards.
Qualification and taxation as a
REIT depends upon the Company’s ability to meet the various qualification tests imposed under the Internal Revenue Code related
to the percentage of income that are earned from specified sources, the percentage of assets that fall within specified categories,
the diversity of capital stock ownership, and the percentage of earnings that are distributed. Accordingly, no assurance can be
given that the Company will be organized or be able to operate in a manner to qualify or remain qualified as a REIT. If the Company
fails to qualify as a REIT in any taxable year, it will be subject to federal and state income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate tax rates, and the Company may be ineligible to qualify as a REIT for four
subsequent tax years. Even if the Company qualifies as a REIT, it may be subject to certain state or local income taxes.
Incentive Compensation Plan
During 2012, the Company established the
2012 Incentive Compensation Plan, which was subsequently amended and restated in December 2013 (“2012 Plan”). The 2012
Plan allows for the grant of options and other awards representing up to 1,650,000 shares of the Company’s common stock.
Such awards may be granted to officers, directors, employees, consultants and other persons who provide services to the Company
or any related entity. Under the 2012 Plan, options may be granted at an exercise price greater than or equal to the market value
at the date of the grant, for owners of 10% or more of the voting shares, at an exercise price of not less than 110% of the market
value. Awards are exercisable over a period of time as determined by a committee designated by the Board of Directors, but in no
event, longer than ten years.
During January 2019, 75,369 shares were
issued to officers, directors and employees in settlement of a portion of their accrued compensation for the year ended December
31, 2018. In April 2019, an additional 11,789 shares were issued to certain directors as payment for accrued 2019 compensation.
A total of 628,940 shares have been issued under the 2012 plan as of June 30, 2019.
Net Loss Per Share
Net loss per share is computed by dividing
the net loss by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable
upon the conversion of the Company's preferred stock (if any) are not included in the computation if the effect would be anti-dilutive
and would increase earnings or decrease loss per share.
Segment Reporting
The Company has determined that it has
one reportable segment with activities related to leasing and operating single-family homes as rental properties. The Company's
properties are geographically dispersed, and management evaluates operating performance at the market level and while each market
and its properties are unique, the aggregate market portfolios have similar economic interests and operating performance.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 2. BASIS OF PRESENTATION AND SIGNIFICANT
ACCOUNTING POLICIES (continued)
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, which outlines a new, single comprehensive model for entities to
use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. The new model will require revenue recognition to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration a company expects to receive in exchange for those goods or services.
The standard can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date
of adoption. In July 2015, the FASB issued ASU 2015-14,
Revenue from Contracts with Customers (Topic 606): Deferral of
the Effective Date
, which delays the effective date of ASU 2014-09 by one year. In March 2016, the FASB issued ASU 2016-08,
Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus
Net)
, which is intended to improve the operability and understandability of the implementation guidance on principal versus
agent considerations. ASU 2014-09, ASU 2015-14 and ASU 2016-08 are herein collectively referred to as the "New Revenue Recognition
Standards". The New Revenue Recognition Standards are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017. Early adoption is permitted but not before annual periods beginning after December 15,
2016. The Company has adopted the New Revenue Recognition Standards effective as of January 1, 2018, and has applied the modified
retrospective method. The Company has evaluated its revenue streams and, as they are primarily related to leasing activities which
are scoped out of the New Revenue Recognition Standards, has determined that the adoption of such standards does not have a material
impact on the consolidated financial statements and thus there is no cumulative adjustment upon adoption. The Company evaluated
its real estate sales contracts through December 31, 2018 and determined they qualified as sales to noncustomers.
In February 2016, the FASB issued ASU 2016-02,
Leases
, a new lease standard which sets out the principles for the recognition, measurement, presentation and disclosure
of leases for both parties to a contract (i.e. lessees and lessors). Under ASU 2016-02, lessor accounting is substantially similar
to the past model but aligned with certain changes to the lessee model and ASU 2014-09. The new standard requires lessors to account
for leases using an approach that is substantially equivalent to past guidance for sales-type leases, direct financing leases and
operating leases. The Company’s rental revenue is primarily generated from short-term operating leases. The new standard
requires lessees to apply a dual approach, classifying leases as either finance or operating based on the principle of whether
or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether
the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A
lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months
regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to previous guidance.
The new standard had an impact on the Company’s consolidated financial statements as the Company has an operating office
lease arrangement for which it is the lessee. The new standard was adopted by the Company beginning on January 1, 2019 using the
modified retrospective approach. In accordance with this standard the Company has recorded a right-of-use asset and a corresponding
other liability of approximately $165,000 as of June 30, 2019 relating to its operating office lease arrangement for which it is
the lessee.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 3. INVESTMENTS IN SINGLE-FAMILY
RESIDENTIAL PROPERTIES
The following table summarizes the Company’s
investments in single-family residential properties. The homes are generally leased to individual tenants under leases with terms
of one year or less.
|
|
|
|
|
|
|
|
|
|
|
Investments in
|
|
|
|
|
|
|
|
|
|
|
|
|
Single-Family
|
|
|
|
Number
|
|
|
|
|
|
Buildings and
|
|
|
Residential
|
|
|
|
of Homes
|
|
|
Land
|
|
|
Improvements
|
|
|
Properties, Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2018
|
|
|
965
|
|
|
$
|
13,642,461
|
|
|
$
|
64,781,322
|
|
|
$
|
78,423,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and improvements during 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
28
|
|
|
|
834,000
|
|
|
|
4,357,608
|
|
|
|
5,191,608
|
|
Improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
1,077,848
|
|
|
|
1,077,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at June 30, 2019
|
|
|
993
|
|
|
$
|
14,476,461
|
|
|
$
|
70,216,778
|
|
|
$
|
84,693,239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,955,740
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in single-family rental properties, net at June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,737,499
|
|
NOTE 4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At June 30, 2019 and December 31, 2018,
accounts payable and accrued liabilities consisted of the following:
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
213,328
|
|
|
$
|
76,523
|
|
Property insurance payable
|
|
|
753,793
|
|
|
|
-
|
|
Real estate taxes payable
|
|
|
879,364
|
|
|
|
781,182
|
|
Accrued compensation, board fees and other
|
|
|
455,550
|
|
|
|
505,365
|
|
Interest payable
|
|
|
244,270
|
|
|
|
209,643
|
|
Operating lease obligation
|
|
|
165,071
|
|
|
|
-
|
|
|
|
$
|
2,711,376
|
|
|
$
|
1,572,713
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 5. NOTES PAYABLE
On February 11, 2019, the Company through
a wholly-owned subsidiary, entered into a loan agreement with Arbor Agency Lending, LLC, an approved seller/servicer for Federal
Home Loan Mortgage Corporation (Freddie Mac). The loan agreement provides for a loan to the Company in the original principal amount
of $10,523,000. The loan is a seven-year, interest-only payable loan with principal due and payable at its seven-year maturity,
and accruing interest at a fixed rate of 4.72% per annum. The loan is secured by 143 of the Company’s single-family homes.
Proceeds of approximately $2.9 million were utilized to purchase 12 homes in Oklahoma City, Oklahoma. Additionally, the Company
received approximately $7.4 million of loan proceeds, net of transaction fees and the purchase of homes noted above, which the
Company intends to use for future acquisitions of single-family homes and for working capital purposes.
A summary of the Company’s notes
payable as of June 30, 2019 and December 31, 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
|
Interest
Rate
(Fixed)
|
|
|
Maturity Date
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reven Housing Funding 1, LLC
|
|
$
|
51,362,000
|
|
|
$
|
51,362,000
|
|
|
|
4.74
|
%
|
|
October, 2025
|
Reven Housing Funding 2, LLC
|
|
|
10,523,000
|
|
|
|
-
|
|
|
|
4.72
|
%
|
|
March, 2026
|
|
|
|
61,885,000
|
|
|
|
51,362,000
|
|
|
|
|
|
|
|
Less deferred loan fees, net
|
|
|
(1,435,822
|
)
|
|
|
(1,229,853
|
)
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
60,449,178
|
|
|
$
|
50,132,147
|
|
|
|
|
|
|
|
Costs incurred in the placement of the
Company’s debt are deferred and amortized using the effective interest method over the term of the loans as a component of
interest expense on the condensed consolidated statements of operations. The amount of unamortized fees are deducted from the remaining
principal amount owed on the corresponding notes payable. Unamortized deferred loan costs and fees totaled $1,435,822 and $1,229,853
as of June 30, 2019 and December 31, 2018, respectively.
During the three months ended June 30,
2019 and 2018, the Company incurred $797,641 and $435,171, respectively, of interest expense related to the notes payable, which
includes $56,688 and $50,994, respectively, of amortization of deferred loan fees. During the six months ended June 30, 2019 and
2018, the Company incurred $1,525,765 and $835,763, respectively, of interest expense related to the notes payable, which includes
$105,950 and $101,988, respectively, of amortization of deferred loan fees.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 6. STOCKHOLDERS’ EQUITY AND STOCK COMPENSATION
On October 16, 2014, the Company issued
425,000 shares of the Company’s common stock under the 2012 Plan to certain officers and consultants of the Company. The
shares issued are subject to restrictions and future vesting conditions based on the Company reaching certain future milestones.
During the year ended December 31, 2016, 106,250 of these shares became vested upon the achievement of certain milestones related
to our public offering of common stock mentioned above. None of the remaining 318,750 shares were vested as of the issuance date.
Compensation expense will be recognized in the applicable future periods on these unvested shares should the applicable milestones
be achieved in accordance with the vesting schedule. There is no assurance that these milestones will in fact be achieved and that
the shares will in fact vest in the future.
During January 2019, the Company issued
75,369 shares of the Company’s common stock under the 2012 Plan to certain directors, officers, and consultants of the Company
as payment for accrued 2018 compensation. During April 2019, the Company issued 11,789 shares of the Company’s common stock
under the 2012 Plan to certain directors as payment for accrued 2019 compensation totaling $39,375.
Distributions
In January 2019, the Company declared a
distribution of $0.01 per share on the Company’s common shares. The distribution was made on February 15, 2019 to shareholders
of record as of January 25, 2019 and totaled $109,652. In April 2019, the Company declared a distribution of $0.01 per share on
the Company’s common shares. The distribution was made on May 15, 2019 to shareholders of record as of April 26, 2019 and
totaled $110,405.
NOTE 7. INCOME TAXES
The Company is currently evaluating
whether to elect to be taxed as a real estate investment trust (“REIT”), as defined in the Internal Revenue Code, commencing
with the taxable year ended December 31, 2018. The Company has until the extended due date of its December 31, 2018 tax return
to formally make this election. Accordingly, should the Company elect REIT status, it does not expect to be subject to federal
income tax, provided that it continues to qualify as a REIT and distributions to the stockholders equal or exceed REIT taxable
income. Should the Company not elect to be taxed as a REIT, the Company will not be subject to federal income tax for periods ended
June 30, 2019 and 2018 due to significant operating losses and net operating loss carry-forwards.
Realization of deferred tax assets is dependent
upon sufficient future taxable income during the period that deductible temporary differences and expected carry-forwards are available
to reduce taxable income. The Company records a valuation allowance when, in the opinion of management, it is more likely than
not, that the Company will not realize some or all deferred tax assets. As the achievement of required future taxable income is
uncertain, the Company recorded a valuation allowance equal to the deferred tax asset at June 30, 2019 and December 31, 2018. At
December 31, 2017 the Company had federal and state net operating loss carry-forwards of approximately $5,350,000. The federal
and state tax loss carry-forwards will begin to expire in 2032, unless previously utilized.
Pursuant to Internal Revenue Code Section
382, use of the Company’s net operating loss carry-forwards may be limited if a cumulative change in ownership of more than
50% occurs within a three-year period. Management believes that such an ownership change had occurred but has not yet performed
a study of the limitations on the net operating losses.
NOTE 8. RELATED PARTY TRANSACTIONS
Reven Capital, LLC, which is wholly-owned
by Chad M. Carpenter, a shareholder of the Company and its Chief Executive Officer, currently subleases office space from the Company
on a month to month basis for a monthly rental of $500. For each of the three months ended June 30, 2019 and 2018, the Company
received income from Reven Capital, LLC of $1,500, respectively. For each of the six months ended June 30, 2019 and 2018, the Company
received income from Reven Capital, LLC of $3,000, respectively.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
June 30, 2019 and 2018
NOTE 9. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory
The Company is subject to potential liability
under laws and government regulations and various claims and legal actions arising in the ordinary course of the Company’s
business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can
be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established
for those claims. Based on information currently available, management is not aware of any legal or regulatory claims that would
have a material effect on the Company’s condensed consolidated financial statements and, therefore, no accrual has been recorded
as of the periods ended June 30, 2019 and December 31, 2018.
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with the information appearing elsewhere in
this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018. This discussion
and analysis contains forward-looking statements based upon our current expectations that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors,
including those set further under Part I. Item 1A. “Risk Factors” in our most recent Annual Report on Form 10-K as
updated by our other periodic reporting.
Overview
We are an internally
managed Maryland corporation that engages in the acquisition, ownership and operation of portfolios of leased single-family homes
in the United States. We operate our portfolio properties as single-family rentals, or SFRs, and we generate most of our revenue
from rental income from the existing tenants of the SFRs we have acquired. We are currently evaluating whether to elect to be taxed
as a real estate investment trust (“REIT”), commencing with the taxable year ended December 31, 2018. We have until
the extended due date of our December 31, 2018 tax return to formerly make this election. Accordingly, should we elect REIT status,
we do not expect to be subject to federal income tax, provided that we continue to qualify as a REIT and distributions to the stockholders
equal or exceed REIT taxable income. Should we not elect to be taxed as a REIT, we still would not be subject to federal income
tax for periods ended June 30, 2019 and prior due to significant operating losses and net operating loss carry-forwards.
As of June 30, 2019,
we have invested an aggregate of approximately $84.7 million and own a total of 993 homes, of which 263 homes are in the Houston,
Texas metropolitan area, 252 homes are in the Jacksonville, Florida metropolitan area, 159 homes are in the Memphis, Tennessee
metropolitan area, 144 homes are in the Birmingham, Alabama metropolitan area, 128 homes are in the Oklahoma City, Oklahoma metropolitan
area, and 47 homes are in the Atlanta, Georgia metropolitan area.
We intend to expand
our acquisitions to other select markets in the United States that fit our investment criteria as we continue to evaluate new investment
opportunities in different markets. As of June 30, 2019, our portfolio properties were 94.1% occupied. Our portfolio properties
have been acquired from available cash and with the proceeds from secured loan transactions pursuant to which we had an outstanding
principal amount owed of $61,885,000 as of June 30, 2019. Our loan transactions are secured by first priority liens and related
rents on our homes.
Our principal objective
is to generate cash flow and distribute resulting profits to our stockholders in the form of distributions, while gaining home
price appreciation, or HPA, at the same time through the ownership of our portfolio properties. With this objective in mind, we
have developed our primary business strategy of acquiring portfolios of stabilized or leased SFRs. We believe the execution of
this strategy will allow us to generate immediate and steady cash flow from the rental income from the SFRs that we acquire while
potentially gaining significant HPA over time. While our goal is to grow our company and generate available cash flow from the
rental income of our SFRs that will allow us to pay all of our operating costs for the operation of our portfolio properties and
distribute profits to our stockholders in the form of quarterly dividends, there can be no assurance we will be able to do so.
In January 2019, we
declared a distribution of $0.01 per share on our common shares. The distribution was made on February 15, 2019 to shareholders
of record as of January 25, 2019 and totaled $109,652. On April 17, 2019, we declared a distribution of $0.01 per share on our
common shares. The distribution was made on May 15, 2019 to shareholders of record as of April 26, 2019 in the amount of $110,405.
We have not declared any additional distributions as of the date of this report.
We plan to continue
to acquire and manage single-family homes with a focus on long term earnings growth and appreciation in asset value. Our ability
to identify and acquire single-family properties that meet our investment criteria will be affected by home prices in our markets,
the inventory of properties available through our acquisition channels, competition for our target assets, our capital available
for investment, and the cost of that capital. We believe the housing market environment in our markets remains attractive for single-family
property acquisitions and rentals. Pricing for housing in certain markets remains attractive and demand for housing is growing.
At the same time, we continue to face relatively steady competition for new properties and residents from local operators and institutional
managers. Housing prices across our markets have appreciated over the past year. Despite these gains, we believe housing in certain
of our markets continues to provide attractive acquisition opportunities and remains inexpensive relative to replacement cost and
affordability metrics.
We anticipate continued
strong rental demand for single-family homes. While new building activity has begun to increase, it remains below historical averages
and we believe substantial under-investment in residential housing over the past years will create upward pressure on home prices
and rents as demand exceeds supply.
Property Portfolio
The following tables
represent our investment in the homes as of June 30, 2019:
Total Portfolio of Single-Family
Homes — Summary Statistics
|
(as
of June 30, 2019)
|
Market
|
|
No. of
Homes
|
|
|
Aggregate
Investment
|
|
|
Average
Investment
per Home
|
|
|
Properties
Leased
|
|
|
Properties
Vacant
|
|
|
Portfolio
Occupancy
Rate
|
|
|
Average Age
(years)
|
|
|
Average Size
(sq. ft.)
|
|
|
Average
Monthly
Rent
|
|
|
Average
Remaining
Lease Term
(Months)
|
|
Atlanta,
Georgia
|
|
|
47
|
|
|
|
3,562,616
|
|
|
|
75,800
|
|
|
|
43
|
|
|
|
4
|
|
|
|
91.5
|
%
|
|
|
31
|
|
|
|
1,453
|
|
|
|
947
|
|
|
|
6.2
|
|
Birmingham,
Alabama
|
|
|
144
|
|
|
|
10,196,493
|
|
|
|
70,809
|
|
|
|
127
|
|
|
|
17
|
|
|
|
88.2
|
%
|
|
|
58
|
|
|
|
1,302
|
|
|
|
835
|
|
|
|
2.8
|
|
Houston,
Texas
|
|
|
263
|
|
|
|
22,833,305
|
|
|
|
86,819
|
|
|
|
254
|
|
|
|
9
|
|
|
|
96.6
|
%
|
|
|
50
|
|
|
|
1,452
|
|
|
|
1,181
|
|
|
|
5.4
|
|
Jacksonville,
Florida
|
|
|
252
|
|
|
|
18,629,005
|
|
|
|
73,925
|
|
|
|
241
|
|
|
|
11
|
|
|
|
95.6
|
%
|
|
|
56
|
|
|
|
1,289
|
|
|
|
971
|
|
|
|
6.4
|
|
Memphis,
Tennessee
|
|
|
159
|
|
|
|
13,822,007
|
|
|
|
86,931
|
|
|
|
151
|
|
|
|
8
|
|
|
|
95.0
|
%
|
|
|
42
|
|
|
|
1,576
|
|
|
|
1,010
|
|
|
|
9.2
|
|
Oklahoma City,
Oklahoma
|
|
|
128
|
|
|
|
15,649,813
|
|
|
|
122,264
|
|
|
|
118
|
|
|
|
10
|
|
|
|
92.2
|
%
|
|
|
41
|
|
|
|
1,510
|
|
|
|
1,161
|
|
|
|
3.6
|
|
Totals
|
|
|
993
|
|
|
$
|
84,693,239
|
|
|
$
|
85,290
|
|
|
|
934
|
|
|
|
59
|
|
|
|
94.1
|
%
|
|
|
49
|
|
|
|
1,416
|
|
|
$
|
1,036
|
|
|
|
5.7
|
|
Results of Operations
Three Months
Ended June 30, 2019 Compared to Three Months Ended June 30, 2018
The following table
sets forth a comparison of the results of operations for the three months ended June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
2,899,554
|
|
|
$
|
2,232,786
|
|
|
$
|
666,768
|
|
|
|
29.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
944,450
|
|
|
|
682,431
|
|
|
|
262,019
|
|
|
|
38.4
|
%
|
Real estate taxes
|
|
|
433,577
|
|
|
|
369,545
|
|
|
|
64,032
|
|
|
|
17.3
|
%
|
Depreciation and amortization
|
|
|
784,536
|
|
|
|
514,858
|
|
|
|
269,678
|
|
|
|
52.4
|
%
|
General and administration
|
|
|
920,002
|
|
|
|
575,413
|
|
|
|
344,589
|
|
|
|
59.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,082,565
|
|
|
|
2,142,247
|
|
|
|
940,318
|
|
|
|
43.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(183,011
|
)
|
|
|
90,539
|
|
|
|
(273,550
|
)
|
|
|
302.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty (loss) gain, net
|
|
|
-
|
|
|
|
25,758
|
|
|
|
(25,758
|
)
|
|
|
-100.0
|
%
|
Previously deferred stock issuance costs
|
|
|
-
|
|
|
|
(674,144
|
)
|
|
|
674,144
|
|
|
|
-100.0
|
%
|
Other
|
|
|
36,782
|
|
|
|
7,201
|
|
|
|
29,581
|
|
|
|
410.8
|
%
|
Interest expense
|
|
|
(797,641
|
)
|
|
|
(435,171
|
)
|
|
|
(362,470
|
)
|
|
|
83.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(760,859
|
)
|
|
|
(1,076,356
|
)
|
|
|
315,497
|
|
|
|
29.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(943,870
|
)
|
|
$
|
(985,817
|
)
|
|
$
|
41,947
|
|
|
|
4.3
|
%
|
For the three months
ended June 30, 2019, we had total rental income of $2,899,554 compared to total rental income of $2,232,786 for the three months
ended June 30, 2018. The increase is due primarily to an increase in the number of homes owned during the 2019 period when compared
to the number of homes owned during the three months ended June 30, 2018. As of June 30, 2019, we owned 993 homes; at June 30,
2018, we owned 826 homes.
As of June 30, 2019,
934, or 94.1%, of our 993 homes were occupied. During the three months ended June 30, 2019, we had 67 home leases turnover, which
represented approximately 6.7 % of our end of the quarter portfolio. As of June 30, 2018, 771, or 93.3%, of our 826 homes were
occupied. During the quarter ended June 30, 2018, we had 64 home leases turnover, which represented approximately 7.7% of our end
of the quarter portfolio.
For the three months
ended June 30, 2019, we had property operating and maintenance expenses of $944,450 compared to $682,431 for the corresponding
prior year period. Property operating and maintenance expenses consist of insurance, property management fees paid to third parties,
repairs and maintenance costs, home owner association fees, and other miscellaneous property costs. Real estate taxes for the three
months ended June 30, 2019 were $433,577 compared to $369,545 for the three months ended June 30, 2018. The increase in property
operating and maintenance expenses from 2018 to 2019 reflects the corresponding increase in our inventory of single-family homes
along with higher than normal increases in our repairs, maintenance activity along with increased insurance costs under our package
policy when compared to the prior period. The increase in real estate taxes from 2018 to 2019 is based primarily on an increase
in our inventory of single-family homes.
Depreciation and amortization
on our home investments increased to $784,536 for the three months ended June 30, 2019 compared to $514,858 in 2018, reflecting
the corresponding increase in our inventory of single-family homes.
General and administrative
expenses for the three months ended June 30, 2019 totaled $920,002 compared to general and administrative expenses of $575,413
for the corresponding prior year period. General and administrative expenses consist of personnel costs, outside director fees,
occupancy fees, public company filing fees, legal, accounting, and other general expenses. The increase in our general and administrative
expenses is due primarily to increases in personnel costs and increases in professional fees due to work performed regarding our
evaluation of future strategic alternatives in 2019 when compared to 2018.
We incurred total operating
expenses of $3,082,565 for the three months ended June 30, 2019 resulting in operating loss for the three months ended June 30,
2019 of $183,011, compared to total operating expenses of $2,142,247 for the three months ended June 30, 2018 and a corresponding
operating income of $90,539 for the three months ended June 30, 2018.
During the three months
ended June 30, 2018 we had net casualty gains of $25,578. We had no casualty gains or losses during the three months ended June
30, 2019. During the quarter ended June 30, 2018 we expensed $674,144 of previously deferred stock issuance costs relating to a
discontinued capital raise; there was not a corresponding charge during the three months ended June 30, 2019. Other income was
$36,782 for the three months ended June 30, 2019 as compared to other income of $7,201 for the three months ended June 30, 2018.
Interest expense on our notes payable was $797,641 for the three months ended June 30, 2019 compared to $435,171 for the three
months ended June 30, 2018. The increase in interest expense is primarily due to higher note payable balances for the three months
ended June 30, 2019 when compared to the corresponding period in 2018. This resulted in net other expense of $760,859 for the three
months ended June 30, 2019 compared to a net other expense of $1,076,536 for the three months ended June 30, 2018.
Net loss for the three
months ended June 30, 2019 was $943,870. The net loss for the three months ended June 30, 2018 was $985,817. The weighted average
number of shares outstanding for the three months ended June 30, 2019 increased marginally to 11,036,535 from 10,769,530 for the
three months ended June 30, 2018 resulting in a net loss per share of $0.09 for the three months ended June 30, 2019. The resulting
net loss was also $0.09 per share for the three months ended June 30, 2018.
Six Months Ended
June 30, 2019 Compared to Six Months Ended June 30, 2018
The following table
sets forth a comparison of the results of operations for the six months ended June 30, 2019 and 2018:
|
|
|
|
|
|
|
|
$
|
|
|
%
|
|
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
5,655,285
|
|
|
$
|
4,412,078
|
|
|
$
|
1,243,207
|
|
|
|
28.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
1,866,238
|
|
|
|
1,300,594
|
|
|
|
565,644
|
|
|
|
43.5
|
%
|
Real estate taxes
|
|
|
870,081
|
|
|
|
732,916
|
|
|
|
137,165
|
|
|
|
18.7
|
%
|
Depreciation and amortization
|
|
|
1,526,066
|
|
|
|
1,033,896
|
|
|
|
492,170
|
|
|
|
47.6
|
%
|
General and administration
|
|
|
1,583,719
|
|
|
|
1,191,832
|
|
|
|
391,887
|
|
|
|
32.9
|
%
|
Noncash share-based compensation
|
|
|
39,375
|
|
|
|
-
|
|
|
|
39,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
5,885,479
|
|
|
|
4,259,238
|
|
|
|
1,626,241
|
|
|
|
38.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
(230,194
|
)
|
|
|
152,840
|
|
|
|
(383,034
|
)
|
|
|
250.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Casualty (loss) gain, net
|
|
|
(25,000
|
)
|
|
|
76,133
|
|
|
|
(101,133
|
)
|
|
|
-132.8
|
%
|
Previously deferred stock issuance costs
|
|
|
-
|
|
|
|
(674,144
|
)
|
|
|
674,144
|
|
|
|
|
|
Other
|
|
|
67,380
|
|
|
|
14,995
|
|
|
|
52,385
|
|
|
|
349.3
|
%
|
Interest expense
|
|
|
(1,525,765
|
)
|
|
|
(835,763
|
)
|
|
|
(690,002
|
)
|
|
|
82.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(1,483,385
|
)
|
|
|
(1,418,779
|
)
|
|
|
(64,606
|
)
|
|
|
-4.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,713,579
|
)
|
|
$
|
(1,265,939
|
)
|
|
$
|
(447,640
|
)
|
|
|
-35.4
|
%
|
For the six months
ended June 30, 2019, we had total rental income of $5,655,285 compared to total rental income of $4,412,078 for the six months
ended June 30, 2018. The increase in total rental and other income is due primarily to the increase in rental homes owned for the
2019 time period as compared to 2018.
For the six months
ended June 30, 2019, we had property operating and maintenance expenses of $1,866,238 compared to $1,300,594 for the six months
ended June 30, 2018. Real estate taxes for the six months ended June 30, 2019 were $870,081 compared to $732,916 for the six months
ended June 30, 2018. The increase in property operating and maintenance expenses from 2018 to 2019 reflects the corresponding increase
in our inventory of single-family homes along with higher than normal increases in our repairs, maintenance activity along with
increased insurance costs under our package policy when compared to the prior period. The increase in real estate taxes from 2018
to 2019 is based primarily on an increase in our inventory of single-family homes.
Depreciation and amortization
increased to $1,526,066 during the six months ended June 30, 2019 compared to $1,033,896 during the six months ended June 30, 2018,
reflecting the corresponding increase in our number of single family homes owned.
General and administrative
expenses for the six months ended June 30, 2019 totaled $1,583,719 compared to $1,191,832 for the prior year period. The increase
in our general and administrative expenses is due primarily to increases in personnel costs and increases in professional fees
due to work performed regarding our evaluation of future strategic alternatives in 2019 when compared to 2018.
We had net casualty
losses of $25,000 during the six months ended June 30, 2019, compared to net casualty gains of $76,133 during the six months ended
June 30, 2018. During the six months ended June 30, 2018 we expensed $674,144 of previously deferred stock issuance costs relating
to a discontinued capital raise; there was not a corresponding charge during the six months ended June 30, 2019. Other income was
$67,380 for the six months ended June 30, 2019 as compared to other income of $14,995 for the six months ended June 30, 2018. Interest
expense on our notes payable was $1,525,765 for the six months ended June 30, 2019 compared to $835,763 for the six months ended
June 30, 2018. The increase is primarily due to higher note payable balances for the six months ended June 30, 2019 when compared
to the corresponding period in 2018. This resulted in net other expense of $1,483,385 for the six months ended June 30, 2019 compared
to a net other expense of $1,418,779 for the six months ended June 30, 2018.
Net loss for the six
months ended June 30, 2019 was $1,713,579. The net loss for the six months ended June 30, 2018 was $1,265,939. The weighted average
number of shares outstanding for the six months ended June 30, 2019 increased to 11,020,965 from 10,764,063 for the six months
ended June 30, 2018, resulting in a net loss per share of $0.16 for the six months ended June 30, 2019 and a net loss per share
of $0.12 for the six months ended June 30, 2018.
Liquidity and Capital Resources
Liquidity is a measure
of our ability to meet potential cash requirements, fund and maintain our assets and operations, make interest payments and fund
other general business needs. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other
factors that are beyond our control. Our near-term liquidity requirements consist primarily of acquiring properties, funding our
operations, and making interest payments.
Our liquidity and capital
resources as of June 30, 2019 consisted primarily of cash of $11,997,147. We believe our current liquidity and the expected cash
flows from operations will be sufficient to fund the present level of our operations through the 12 months following the date of
this report. However, our future acquisition activity will depend primarily on our ability to raise funds from the further issuance
of shares of our common stock or units of our operating partnership combined with new loan transactions secured by our current
and future home inventories. In order to purchase additional single-family homes, we intend to opportunistically utilize the capital
markets to raise additional capital, including through the issuance of debt and equity securities, but there can be no assurance
that we will be able to access adequate liquidity sources on favorable terms, or at all.
Credit Facilities
On February 11, 2019,
we entered into a loan agreement with Arbor Agency Lending, LLC, an approved seller/servicer for Federal Home Loan Mortgage Corporation
(Freddie Mac), which provides for a loan to us in the original principal amount of $10,523,000. The loan is a seven-year, interest-only
payable loan with principal due and payable at its seven-year maturity, and accruing interest at a fixed rate of 4.72% per annum.
The loan is secured by 143 of our single-family homes. Proceeds of approximately $2.9 million were utilized to purchase 12 homes
in Oklahoma City, Oklahoma. Additionally, as a result of the loan, we received approximately $7.4 million of loan proceeds,
net of transaction fees and the purchase of homes noted above.
On September 28, 2018,
we refinanced our entire single-family home portfolio at that time by entering into a $51,362,000 loan with Arbor Agency Lending,
LLC, on behalf of the Federal Home Loan Mortgage Corporation (Freddie Mac). The loan is a seven-year, monthly interest-only payable
loan accruing interest at 4.74% per annum, with principal due and payable at its maturity on October 1, 2025. The loan is secured
by 824 of our currently owned single-family homes and we also guaranteed approximately $12.8 million of the loan balance. Proceeds
of approximately $33 million were utilized to pay off and replace our eight previously outstanding notes. We received approximately
$17 million of proceeds from the refinancing, net of transaction fees, prepayment fees, and loan payoffs, which was been primarily
used for the acquisitions of single-family homes and for working capital purposes
A summary of our notes
payable as of June 30, 2019 and December 31, 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
|
Interest
Rate (Fixed)
|
|
|
Maturity Date
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reven Housing Funding 1, LLC
|
|
$
|
51,362,000
|
|
|
$
|
51,362,000
|
|
|
|
4.74
|
%
|
|
October, 2025
|
Reven Housing Funding 2, LLC
|
|
|
10,523,000
|
|
|
|
-
|
|
|
|
4.72
|
%
|
|
March, 2026
|
|
|
|
61,885,000
|
|
|
|
51,362,000
|
|
|
|
|
|
|
|
Less deferred loan fees, net
|
|
|
(1,435,822
|
)
|
|
|
(1,229,853
|
)
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
60,449,178
|
|
|
$
|
50,132,147
|
|
|
|
|
|
|
|
Cash Flows
The following table
summarizes our cash flows for the six months ended June 30, 2019 and 2018.
|
|
2019
|
|
|
2018
|
|
|
Change
|
|
Net cash provided by operating activities
|
|
$
|
781,053
|
|
|
$
|
247,358
|
|
|
$
|
533,695
|
|
Net cash used in investing activities
|
|
|
(6,445,759
|
)
|
|
|
(1,936,127
|
)
|
|
|
(4,509,632
|
)
|
Net cash provided by financing activities
|
|
|
9,991,025
|
|
|
|
1,946,922
|
|
|
|
8,044,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in cash and restricted cash
|
|
$
|
4,326,319
|
|
|
$
|
258,153
|
|
|
$
|
4,068,166
|
|
Operating Activities
We had net cash provided
by operating activities of $781,053 for the six months ended June 30, 2019. This resulted from a net loss of $1,713,579, adding
back depreciation and amortization of $1,526,066, noncash share-based compensation of $39,375, amortization of deferred loan fees
of $105,950, and then increasing the amount by the net change in operating assets and liabilities of $823,241.
We had net cash provided
by operating activities of $247,358 for the six months ended June 30, 2018. This resulted from a net loss of $1,265,939, adding
back depreciation and amortization of $1,033,896, amortization of deferred loan fees of $101,988, cancelled offering costs of $674,144,
and then decreasing the amount by the net change in operating assets and liabilities of $296,731.
Investing Activities
During the six months
ended June 30, 2019, we invested $5,191,608 in new homes, $1,077,848 in capital improvements for our homes, and $176,303 in lease
origination costs for a total of $6,445,759 of net cash used in investing activities.
During the six months
ended June 30, 2018, we invested $1,681,413 in new homes, $1,510,195 in capital improvements for our homes (of which approximately
$987,000 were for hurricane renovation costs), and $134,817 in lease origination costs. We received $1,390,298 of insurance proceeds
for property damages, for a total of $1,936,127 of net cash used in investing activities.
Financing Activities
During the six months
ended June 30, 2019, we had net cash provided by financing activities of $9,991,025 derived from $10,523,000 of proceeds from a
note payable, less $311,918 of loan fees, less distributions on common stock of $220,057.
During the six months
ended June 30, 2018, we had net cash provided by financing activities of $1,946,922 derived from $2,736,630 of proceeds from a
note payable, less $603,699 of notes payable principal payments, less $65,161 of loan fees, and the payment of $120,848 of deferred
offering costs.
Our future acquisition
activity relies primarily on our ability to raise funds from the further issuance of common shares combined with new loan transactions
secured by our current and future home inventories. We remain focused on acquiring new capital. We believe our current cash balance
combined with our estimated future net rental revenue is sufficient to fund our operating activities through the 12 months following
the date of this report.
Off Balance Sheet Arrangements
None.
Net Operating Income
We define net operating
income (or NOI) as total revenue less property operating and maintenance and real estate taxes. NOI is a non-GAAP measurement that
excludes acquisition costs, depreciation and amortization, general and administration, legal and accounting, and interest expenses.
We consider NOI to
be a meaningful financial measure when considered with the financial statements determined in accordance with GAAP. We believe
NOI is helpful to investors in understanding the amount of income after operating expenses which is generated in a given period.
The following is a
reconciliation of our NOI to net loss as determined in accordance with GAAP for the three and six months ended June 30, 2019 and
2018.
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(943,870
|
)
|
|
$
|
(985,817
|
)
|
|
$
|
(1,713,579
|
)
|
|
$
|
(1,265,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
784,536
|
|
|
|
514,858
|
|
|
|
1,526,066
|
|
|
|
1,033,896
|
|
General and administration
|
|
|
920,002
|
|
|
|
575,413
|
|
|
|
1,583,719
|
|
|
|
1,191,832
|
|
Noncash share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
39,375
|
|
|
|
-
|
|
Other expenses, net
|
|
|
760,859
|
|
|
|
1,076,356
|
|
|
|
1,483,385
|
|
|
|
1,418,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income (NOI)
|
|
$
|
1,521,527
|
|
|
$
|
1,180,810
|
|
|
$
|
2,918,966
|
|
|
$
|
2,378,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income as a percentage of total revenue
|
|
|
52.5
|
%
|
|
|
52.9
|
%
|
|
|
51.6
|
%
|
|
|
53.9
|
%
|
NOI should not be considered
an alternative to net loss or net cash flows from operating activities, as determined in accordance with GAAP, as indications of
our performance or as measures of liquidity. Nor is NOI necessarily indicative of cash available to fund future cash needs or distributions
to shareholders. In addition, although we use NOI for comparability in assessing our performance against other REITs, not all REITs
compute the same non-GAAP measure of NOI. Accordingly, our basis for computing this non-GAAP measure may not be comparable with
that of other REITs. This is due in part to the differences in property operating and maintenance expenses incurred by, and real
estate taxes applicable to, different companies and the significant effect these items have on NOI.
Funds From Operations and Core Funds
From Operations
Funds From Operations
(or FFO) is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance
with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance
by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other
depreciable assets. The National Association of Real Estate Investment Trusts (or NAREIT) defines FFO as net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of, and impairment losses recognized with respect to, depreciable
property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments
for unconsolidated partnerships and joint ventures are calculated on the same basis to determine FFO.
Core Funds From Operations
(or Core FFO) is a non-GAAP financial measure that we use as a supplemental measure of our performance. We believe that Core FFO
is further helpful to investors as it provides a more consistent measurement of our performance across reporting periods by removing
the impact of certain items that are not comparable from period to period. We adjust FFO for expensed acquisition fees and costs,
share-based compensation, non-cash interest expense related to amortization of deferred financing costs, casualty gains and losses,
and certain other non-comparable costs to arrive at Core FFO.
FFO and Core FFO should
not be considered alternatives to net income (loss) or net cash flows from operating activities, as determined in accordance with
GAAP, as indications of our performance or as measures of liquidity. These non-GAAP measures are not necessarily indicative of
cash available to fund future cash needs. In addition, although we use these non-GAAP measures for comparability in assessing our
performance against other REITs, not all REITs compute the same non-GAAP measures. Accordingly, there can be no assurance that
our basis for computing these non-GAAP measures is comparable with that of other REITs. This is due in part to the differences
in capitalization policies used by different companies and the significant effect these capitalization policies have on FFO and
Core FFO. Real estate costs which are accounted for as capital improvements are added to the carrying value of the property and
depreciated over time, whereas real estate costs that are expenses are accounted for as a current period expense. This affects
FFO and Core FFO because costs that are accounted for as expenses reduce FFO and Core FFO. Conversely, real estate costs associated
with assets that are capitalized and then subsequently depreciated are added back to net income to calculate FFO and Core FFO.
The following table
sets forth a reconciliation of our net loss as determined in accordance with GAAP and our calculations of FFO and Core FFO for
the three and six months ended June 30, 2019 and 2018:
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(943,870
|
)
|
|
$
|
(985,817
|
)
|
|
$
|
(1,713,579
|
)
|
|
$
|
(1,265,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back depreciation and amortization
|
|
|
784,536
|
|
|
|
514,858
|
|
|
|
1,526,066
|
|
|
|
1,033,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds used in operations
|
|
$
|
(159,334
|
)
|
|
$
|
(470,959
|
)
|
|
$
|
(187,513
|
)
|
|
$
|
(232,043
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back noncash share-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
39,375
|
|
|
|
-
|
|
Add back noncash amortization of deferred loan fees
|
|
|
56,688
|
|
|
|
50,994
|
|
|
|
105,950
|
|
|
|
101,988
|
|
Less net casualty gain; add net casualty loss
|
|
|
-
|
|
|
|
(25,758
|
)
|
|
|
25,000
|
|
|
|
(76,133
|
)
|
Add back previously deferred stock issuance costs
|
|
|
-
|
|
|
|
674,144
|
|
|
|
-
|
|
|
|
674,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core funds (used in) from operations
|
|
$
|
(102,646
|
)
|
|
$
|
228,421
|
|
|
$
|
(17,188
|
)
|
|
$
|
467,956
|
|