NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Description of Business
NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to be taxed as a real estate investment trust (“REIT”). The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns approximately 99.9% of the Portfolio; the TRS owns approximately 0.1% of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of March 31, 2023, there were 26,055,458 common units in the OP (“OP Units”) outstanding, of which 25,951,154, or 99.6%, were owned by the Company and 104,304, or 0.4%, were owned by a noncontrolling limited partner (see Note 9).
The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated March 16, 2015, as amended, and renewed on February 22, 2023 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s board of directors (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor”).
The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.
The Company may allocate up to 30% of the Portfolio to investments in real estate-related debt and securities with the potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may include securities of other REITs or real estate companies.
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying unaudited consolidated financial statements are presented in accordance with U.S. generally accepted accounting principles (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2023.
The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.
In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of March 31, 2023 and December 31, 2022 and results of operations for the three months ended March 31, 2023 and 2022 have been included. Such adjustments are normal and recurring in nature. The unaudited information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2022 and notes thereto included in its Annual Report on Form 10-K filed with the SEC on February 24, 2023.
6
Principles of Consolidation
The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries.
Revenue Recognition
The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the related terms of the leases. The Company records an allowance to reflect revenue that may not be collectable. This is recorded through a provision for bad debt which is included in rental income in the accompanying consolidated statements of operations and comprehensive income (loss). Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, and pets, and administrative, application and other fees and are recognized when earned.
Purchase Price Allocation
Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.
The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) (see Note 6), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property, did not have to incur to obtain the residents. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.
Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:
Land |
|
Not depreciated |
Buildings |
|
30 years |
Improvements |
|
15 years |
Furniture, fixtures, and equipment |
|
3 years |
Intangible lease assets |
|
6 months |
Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above.
7
Impairment
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment. As of March 31, 2023, the Company has not recorded any impairment on its real estate assets.
Held for Sale
The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP. At that time, the Company presents the net real estate assets and the net debt associated with the real estate held for sale separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of March 31, 2023, there are two properties classified as held for sale. In addition to the net real estate and mortgages payable held for sale, the consolidated balance sheet also includes approximately $0.5 million of accounts receivable and prepaid and other assets, and approximately $1.8 million of accounts payable, real estate taxes payable, security deposits, prepaid rents, and other accrued liabilities.
Income Taxes
The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and expects to continue to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of its “REIT taxable income,” as defined by the Code, to its stockholders. As a REIT, the Company will be subject to federal income tax on its undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions it pays with respect to any calendar year are less than the sum of (1) 85% of its ordinary income, (2) 95% of its capital gain net income and (3) 100% of its undistributed income from prior years. The Company intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRS for the three months ended March 31, 2023 and 2022.
If the Company fails to meet these requirements, it could be subject to federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. As of March 31, 2023, the Company believes it is in compliance with all applicable REIT requirements.
The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no examinations in progress and none are expected at this time.
The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.
The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of March 31, 2023. The Company and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2022, 2021 and 2020 tax years remain open to examination by tax jurisdictions to which the Company and its subsidiaries are subject. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its consolidated statements of operations and comprehensive income (loss).
8
Recent Accounting Pronouncements
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. The Company has taken the ASC 848 elections needed to allow for the hedged forecasted transactions to transition while not discontinuing the associated hedge accounting designations. Application of these hedged accounting expedients preserves the presentation of derivatives consistent with past presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur. In December 2022, the FASB issued ASU 2022-06, Deferral of the Sunset Date of Topic 848 ("ASU 2022-06") which was issued to defer the sunset date of Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform to December 31, 2024. ASU 2022-06 is effective immediately for all companies.
3. Investments in Subsidiaries
The Company conducts its operations through the OP, which owns properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. The Company controls and consolidates the OP as a VIE. In connection with its indirect equity investments in the properties acquired, the Company, through the OP and the TRS, directly or indirectly holds 100% of the membership interests in SPEs that directly own the properties. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company.
Additionally, the Company has in the past and may in the future enter into purchase and sale transactions structured as reverse like-kind exchanges (“1031 Exchanges”) under Section 1031 of the Code. For a reverse 1031 Exchange in which the Company purchases a new property prior to selling the property to be matched in the like-kind exchange (the Company refers to the new property being acquired in the 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by an Exchange Accommodation Titleholder (“EAT”) engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange are completed. The Company, through a wholly owned subsidiary, enters into a master lease agreement with the EAT whereby the EAT leases the acquired property and all other rights acquired in connection with the acquisition to the Company. The term of the master lease agreement is the earlier of the completion of the reverse 1031 Exchange or 180 days from the date that the property was acquired. The EAT is classified as a VIE as it does not have sufficient equity investment at risk to finance its activities without additional subordinated financial support. The Company consolidates the EAT as its primary beneficiary because it has the ability to control the activities that most significantly impact the EAT’s economic performance and the Company retains all of the legal and economic benefits and obligations related to the Parked Assets prior to completion of the 1031 Exchange. As such, the Parked Assets are included in the Company’s consolidated financial statements as VIEs until legal title and control is transferred to the Company upon either completion of the 1031 Exchange or termination of the master lease agreement, at which time they will be consolidated as wholly owned subsidiaries.
9
As of March 31, 2023, the Company, through the OP and the wholly owned TRS, owned 40 properties through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100% ownership of the SPEs that directly own the title to each property as of March 31, 2023 and December 31, 2022:
|
|
|
|
|
|
Effective Ownership Percentage at |
|
Property Name |
|
Location |
|
Year Acquired |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
Arbors on Forest Ridge |
|
Bedford, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Cutter's Point |
|
Richardson, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Silverbrook |
|
Grand Prairie, Texas |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
The Summit at Sabal Park |
|
Tampa, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Courtney Cove |
|
Tampa, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Radbourne Lake |
|
Charlotte, North Carolina |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Timber Creek |
|
Charlotte, North Carolina |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Sabal Palm at Lake Buena Vista |
|
Orlando, Florida |
|
2014 |
|
|
100 |
% |
|
|
100 |
% |
Cornerstone |
|
Orlando, Florida |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
The Preserve at Terrell Mill |
|
Marietta, Georgia |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
Versailles |
|
Dallas, Texas |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
Seasons 704 Apartments |
|
West Palm Beach, Florida |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
Madera Point |
|
Mesa, Arizona |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
Venue at 8651 |
|
Fort Worth, Texas |
|
2015 |
|
|
100 |
% |
|
|
100 |
% |
Parc500 |
|
West Palm Beach, Florida |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
The Venue on Camelback |
|
Phoenix, Arizona |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
Old Farm |
(1) |
Houston, Texas |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
Stone Creek at Old Farm |
(1) |
Houston, Texas |
|
2016 |
|
|
100 |
% |
|
|
100 |
% |
Rockledge Apartments |
|
Marietta, Georgia |
|
2017 |
|
|
100 |
% |
|
|
100 |
% |
Atera Apartments |
|
Dallas, Texas |
|
2017 |
|
|
100 |
% |
|
|
100 |
% |
Crestmont Reserve |
|
Dallas, Texas |
|
2018 |
|
|
100 |
% |
|
|
100 |
% |
Brandywine I & II |
|
Nashville, Tennessee |
|
2018 |
|
|
100 |
% |
|
|
100 |
% |
Bella Vista |
|
Phoenix, Arizona |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
The Enclave |
|
Tempe, Arizona |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
The Heritage |
|
Phoenix, Arizona |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Summers Landing |
|
Fort Worth, Texas |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Residences at Glenview Reserve |
|
Nashville, Tennessee |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Residences at West Place |
|
Orlando, Florida |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Avant at Pembroke Pines |
|
Pembroke Pines, Florida |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Arbors of Brentwood |
|
Nashville, Tennessee |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Torreyana Apartments |
|
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Bloom |
|
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Bella Solara |
|
Las Vegas, Nevada |
|
2019 |
|
|
100 |
% |
|
|
100 |
% |
Fairways at San Marcos |
|
Chandler, Arizona |
|
2020 |
|
|
100 |
% |
|
|
100 |
% |
The Verandas at Lake Norman |
|
Charlotte, North Carolina |
|
2021 |
|
|
100 |
% |
|
|
100 |
% |
Creekside at Matthews |
|
Charlotte, North Carolina |
|
2021 |
|
|
100 |
% |
|
|
100 |
% |
Six Forks Station |
|
Raleigh, North Carolina |
|
2021 |
|
|
100 |
% |
|
|
100 |
% |
High House at Cary |
|
Cary, North Carolina |
|
2021 |
|
|
100 |
% |
|
|
100 |
% |
The Adair |
|
Sandy Springs, Georgia |
|
2022 |
|
|
100 |
% |
|
|
100 |
% |
Estates on Maryland |
|
Phoenix, Arizona |
|
2022 |
|
|
100 |
% |
|
|
100 |
% |
(1) |
Properties classified as held for sale as of March 31, 2023. |
10
4. Real Estate Investments
As of March 31, 2023, the major components of the Company’s investments in multifamily properties were as follows (in thousands):
Operating Properties |
|
|
Land |
|
|
Buildings and
Improvements |
|
|
Construction in
Progress |
|
|
Furniture,
Fixtures and
Equipment |
|
|
Totals |
|
Arbors on Forest Ridge |
|
|
$ |
2,330 |
|
|
$ |
11,815 |
|
|
$ |
13 |
|
|
$ |
2,057 |
|
|
$ |
16,215 |
|
Cutter's Point |
|
|
|
3,330 |
|
|
|
13,196 |
|
|
|
— |
|
|
|
7,783 |
|
|
|
24,309 |
|
Silverbrook |
|
|
|
4,860 |
|
|
|
25,959 |
|
|
|
2,832 |
|
|
|
6,298 |
|
|
|
39,949 |
|
The Summit at Sabal Park |
|
|
|
5,770 |
|
|
|
14,304 |
|
|
|
— |
|
|
|
2,408 |
|
|
|
22,482 |
|
Courtney Cove |
|
|
|
5,880 |
|
|
|
15,024 |
|
|
|
— |
|
|
|
2,966 |
|
|
|
23,870 |
|
Radbourne Lake |
|
|
|
2,440 |
|
|
|
23,060 |
|
|
|
4 |
|
|
|
3,504 |
|
|
|
29,008 |
|
Timber Creek |
|
|
|
11,260 |
|
|
|
13,523 |
|
|
|
2,830 |
|
|
|
4,408 |
|
|
|
32,021 |
|
Sabal Palm at Lake Buena Vista |
|
|
|
7,558 |
|
|
|
44,135 |
|
|
|
413 |
|
|
|
3,986 |
|
|
|
56,092 |
|
Cornerstone |
|
|
|
1,500 |
|
|
|
31,042 |
|
|
|
133 |
|
|
|
4,637 |
|
|
|
37,312 |
|
The Preserve at Terrell Mill |
|
|
|
10,170 |
|
|
|
53,601 |
|
|
|
41 |
|
|
|
12,176 |
|
|
|
75,988 |
|
Versailles |
|
|
|
6,720 |
|
|
|
21,630 |
|
|
|
317 |
|
|
|
4,758 |
|
|
|
33,425 |
|
Seasons 704 Apartments |
|
|
|
7,480 |
|
|
|
15,063 |
|
|
|
22 |
|
|
|
3,280 |
|
|
|
25,845 |
|
Madera Point |
|
|
|
4,920 |
|
|
|
18,303 |
|
|
|
— |
|
|
|
3,272 |
|
|
|
26,495 |
|
Venue at 8651 |
|
|
|
2,350 |
|
|
|
18,115 |
|
|
|
1,401 |
|
|
|
4,500 |
|
|
|
26,366 |
|
Parc500 |
|
|
|
3,860 |
|
|
|
21,366 |
|
|
|
4 |
|
|
|
5,026 |
|
|
|
30,256 |
|
The Venue on Camelback |
|
|
|
8,340 |
|
|
|
38,965 |
|
|
|
— |
|
|
|
4,476 |
|
|
|
51,781 |
|
Rockledge Apartments |
|
|
|
17,451 |
|
|
|
97,660 |
|
|
|
1,155 |
|
|
|
8,653 |
|
|
|
124,919 |
|
Atera Apartments |
|
|
|
22,371 |
|
|
|
38,963 |
|
|
|
9 |
|
|
|
3,016 |
|
|
|
64,359 |
|
Crestmont Reserve |
|
|
|
4,124 |
|
|
|
20,791 |
|
|
|
15 |
|
|
|
2,067 |
|
|
|
26,997 |
|
Brandywine I & II |
|
|
|
6,237 |
|
|
|
74,008 |
|
|
|
— |
|
|
|
7,728 |
|
|
|
87,973 |
|
Bella Vista |
|
|
|
10,942 |
|
|
|
37,502 |
|
|
|
22 |
|
|
|
3,523 |
|
|
|
51,989 |
|
The Enclave |
|
|
|
11,046 |
|
|
|
30,865 |
|
|
|
— |
|
|
|
3,169 |
|
|
|
45,080 |
|
The Heritage |
|
|
|
6,835 |
|
|
|
35,299 |
|
|
|
— |
|
|
|
3,203 |
|
|
|
45,337 |
|
Summers Landing |
|
|
|
1,798 |
|
|
|
18,694 |
|
|
|
— |
|
|
|
1,162 |
|
|
|
21,654 |
|
Residences at Glenview Reserve |
|
|
|
3,367 |
|
|
|
42,640 |
|
|
|
2 |
|
|
|
4,215 |
|
|
|
50,224 |
|
Residences at West Place |
|
|
|
3,345 |
|
|
|
52,703 |
|
|
|
571 |
|
|
|
3,507 |
|
|
|
60,126 |
|
Avant at Pembroke Pines |
|
|
|
48,436 |
|
|
|
279,594 |
|
|
|
2,021 |
|
|
|
16,708 |
|
|
|
346,759 |
|
Arbors of Brentwood |
|
|
|
6,346 |
|
|
|
54,289 |
|
|
|
38 |
|
|
|
3,390 |
|
|
|
64,063 |
|
Torreyana Apartments |
|
|
|
23,824 |
|
|
|
43,881 |
|
|
|
— |
|
|
|
2,102 |
|
|
|
69,807 |
|
Bloom |
|
|
|
23,805 |
|
|
|
82,920 |
|
|
|
30 |
|
|
|
4,770 |
|
|
|
111,525 |
|
Bella Solara |
|
|
|
12,605 |
|
|
|
52,379 |
|
|
|
155 |
|
|
|
2,849 |
|
|
|
67,988 |
|
Fairways at San Marcos |
|
|
|
10,993 |
|
|
|
73,056 |
|
|
|
— |
|
|
|
3,541 |
|
|
|
87,590 |
|
The Verandas at Lake Norman |
|
|
|
9,510 |
|
|
|
53,165 |
|
|
|
— |
|
|
|
1,938 |
|
|
|
64,613 |
|
Creekside at Matthews |
|
|
|
11,514 |
|
|
|
45,795 |
|
|
|
78 |
|
|
|
2,318 |
|
|
|
59,705 |
|
Six Forks Station |
|
|
|
11,357 |
|
|
|
61,287 |
|
|
|
791 |
|
|
|
2,551 |
|
|
|
75,986 |
|
High House at Cary |
|
|
|
23,809 |
|
|
|
68,026 |
|
|
|
18 |
|
|
|
2,113 |
|
|
|
93,966 |
|
The Adair |
|
|
|
8,361 |
|
|
|
57,032 |
|
|
|
154 |
|
|
|
2,027 |
|
|
|
67,574 |
|
Estates on Maryland |
|
|
|
11,573 |
|
|
|
65,146 |
|
|
|
105 |
|
|
|
1,963 |
|
|
|
78,787 |
|
|
|
|
|
378,417 |
|
|
|
1,764,796 |
|
|
|
13,174 |
|
|
|
162,048 |
|
|
|
2,318,435 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(261,041 |
) |
|
|
— |
|
|
|
(111,337 |
) |
|
|
(372,378 |
) |
Total Operating Properties |
|
|
$ |
378,417 |
|
|
$ |
1,503,755 |
|
|
$ |
13,174 |
|
|
$ |
50,711 |
|
|
$ |
1,946,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Farm |
|
|
$ |
11,078 |
|
|
$ |
71,360 |
|
|
$ |
98 |
|
|
$ |
4,849 |
|
|
$ |
87,385 |
|
Stone Creek at Old Farm |
|
|
|
3,493 |
|
|
|
19,793 |
|
|
|
13 |
|
|
|
1,181 |
|
|
|
24,480 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(17,339 |
) |
|
|
— |
|
|
|
(4,678 |
) |
|
|
(22,017 |
) |
Total Held For Sale Properties |
|
|
$ |
14,571 |
|
|
$ |
73,814 |
|
|
$ |
111 |
|
|
$ |
1,352 |
|
|
$ |
89,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
392,988 |
|
|
$ |
1,577,569 |
|
|
$ |
13,285 |
|
|
$ |
52,063 |
|
|
$ |
2,035,905 |
|
11
As of December 31, 2022, the major components of the Company’s investments in multifamily properties were as follows (in thousands):
Operating Properties |
|
|
Land |
|
|
Buildings and
Improvements |
|
|
Construction in
Progress |
|
|
Furniture,
Fixtures and
Equipment |
|
|
Totals |
|
Arbors on Forest Ridge |
|
|
$ |
2,330 |
|
|
$ |
11,809 |
|
|
$ |
2 |
|
|
$ |
2,029 |
|
|
$ |
16,170 |
|
Cutter's Point |
|
|
|
3,330 |
|
|
|
13,147 |
|
|
|
— |
|
|
|
7,562 |
|
|
|
24,039 |
|
Silverbrook |
|
|
|
4,860 |
|
|
|
25,927 |
|
|
|
1,962 |
|
|
|
6,201 |
|
|
|
38,950 |
|
The Summit at Sabal Park |
|
|
|
5,770 |
|
|
|
13,990 |
|
|
|
38 |
|
|
|
2,326 |
|
|
|
22,124 |
|
Courtney Cove |
|
|
|
5,880 |
|
|
|
14,920 |
|
|
|
— |
|
|
|
2,883 |
|
|
|
23,683 |
|
Radbourne Lake |
|
|
|
2,440 |
|
|
|
23,040 |
|
|
|
— |
|
|
|
3,237 |
|
|
|
28,717 |
|
Timber Creek |
|
|
|
11,260 |
|
|
|
13,504 |
|
|
|
2,823 |
|
|
|
4,337 |
|
|
|
31,924 |
|
Sabal Palm at Lake Buena Vista |
|
|
|
7,580 |
|
|
|
42,809 |
|
|
|
314 |
|
|
|
3,776 |
|
|
|
54,479 |
|
Cornerstone |
|
|
|
1,500 |
|
|
|
31,014 |
|
|
|
146 |
|
|
|
4,440 |
|
|
|
37,100 |
|
The Preserve at Terrell Mill |
|
|
|
10,170 |
|
|
|
53,429 |
|
|
|
— |
|
|
|
11,177 |
|
|
|
74,776 |
|
Versailles |
|
|
|
6,720 |
|
|
|
21,594 |
|
|
|
124 |
|
|
|
4,618 |
|
|
|
33,056 |
|
Seasons 704 Apartments |
|
|
|
7,480 |
|
|
|
15,042 |
|
|
|
9 |
|
|
|
3,095 |
|
|
|
25,626 |
|
Madera Point |
|
|
|
4,920 |
|
|
|
18,294 |
|
|
|
— |
|
|
|
3,174 |
|
|
|
26,388 |
|
Venue at 8651 |
|
|
|
2,350 |
|
|
|
17,977 |
|
|
|
1,036 |
|
|
|
4,394 |
|
|
|
25,757 |
|
Parc500 |
|
|
|
3,860 |
|
|
|
21,352 |
|
|
|
4 |
|
|
|
4,893 |
|
|
|
30,109 |
|
The Venue on Camelback |
|
|
|
8,340 |
|
|
|
38,860 |
|
|
|
27 |
|
|
|
4,277 |
|
|
|
51,504 |
|
Rockledge Apartments |
|
|
|
17,451 |
|
|
|
96,896 |
|
|
|
912 |
|
|
|
8,241 |
|
|
|
123,500 |
|
Atera Apartments |
|
|
|
22,371 |
|
|
|
38,942 |
|
|
|
— |
|
|
|
2,956 |
|
|
|
64,269 |
|
Crestmont Reserve |
|
|
|
4,124 |
|
|
|
21,105 |
|
|
|
6 |
|
|
|
1,954 |
|
|
|
27,189 |
|
Brandywine I & II |
|
|
|
6,237 |
|
|
|
73,920 |
|
|
|
— |
|
|
|
7,156 |
|
|
|
87,313 |
|
Bella Vista |
|
|
|
10,942 |
|
|
|
37,493 |
|
|
|
8 |
|
|
|
3,416 |
|
|
|
51,859 |
|
The Enclave |
|
|
|
11,046 |
|
|
|
30,777 |
|
|
|
16 |
|
|
|
3,037 |
|
|
|
44,876 |
|
The Heritage |
|
|
|
6,835 |
|
|
|
35,286 |
|
|
|
— |
|
|
|
3,166 |
|
|
|
45,287 |
|
Summers Landing |
|
|
|
1,798 |
|
|
|
18,669 |
|
|
|
— |
|
|
|
1,124 |
|
|
|
21,591 |
|
Residences at Glenview Reserve |
|
|
|
3,367 |
|
|
|
42,563 |
|
|
|
— |
|
|
|
3,867 |
|
|
|
49,797 |
|
Residences at West Place |
|
|
|
3,345 |
|
|
|
52,712 |
|
|
|
12 |
|
|
|
3,195 |
|
|
|
59,264 |
|
Avant at Pembroke Pines |
|
|
|
48,436 |
|
|
|
278,736 |
|
|
|
2,139 |
|
|
|
15,780 |
|
|
|
345,091 |
|
Arbors of Brentwood |
|
|
|
6,346 |
|
|
|
54,239 |
|
|
|
121 |
|
|
|
3,126 |
|
|
|
63,832 |
|
Torreyana Apartments |
|
|
|
23,824 |
|
|
|
43,861 |
|
|
|
— |
|
|
|
1,965 |
|
|
|
69,650 |
|
Bloom |
|
|
|
23,803 |
|
|
|
82,802 |
|
|
|
37 |
|
|
|
4,226 |
|
|
|
110,868 |
|
Bella Solara |
|
|
|
12,605 |
|
|
|
52,351 |
|
|
|
— |
|
|
|
2,687 |
|
|
|
67,643 |
|
Fairways at San Marcos |
|
|
|
10,993 |
|
|
|
73,007 |
|
|
|
— |
|
|
|
3,397 |
|
|
|
87,397 |
|
The Verandas at Lake Norman |
|
|
|
9,510 |
|
|
|
53,061 |
|
|
|
25 |
|
|
|
1,726 |
|
|
|
64,322 |
|
Creekside at Matthews |
|
|
|
11,515 |
|
|
|
45,779 |
|
|
|
78 |
|
|
|
2,133 |
|
|
|
59,505 |
|
Six Forks Station |
|
|
|
11,357 |
|
|
|
62,816 |
|
|
|
116 |
|
|
|
2,111 |
|
|
|
76,400 |
|
High House at Cary |
|
|
|
23,809 |
|
|
|
67,855 |
|
|
|
52 |
|
|
|
1,789 |
|
|
|
93,505 |
|
The Adair |
|
|
|
8,361 |
|
|
|
56,163 |
|
|
|
525 |
|
|
|
1,453 |
|
|
|
66,502 |
|
Estates on Maryland |
|
|
|
11,573 |
|
|
|
65,041 |
|
|
|
90 |
|
|
|
1,605 |
|
|
|
78,309 |
|
|
|
|
|
378,438 |
|
|
|
1,760,782 |
|
|
|
10,622 |
|
|
|
152,529 |
|
|
|
2,302,371 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(245,093 |
) |
|
|
— |
|
|
|
(104,183 |
) |
|
|
(349,276 |
) |
Total Operating Properties |
|
|
$ |
378,438 |
|
|
$ |
1,515,689 |
|
|
$ |
10,622 |
|
|
$ |
48,346 |
|
|
$ |
1,953,095 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Farm |
|
|
$ |
11,078 |
|
|
$ |
71,305 |
|
|
$ |
12 |
|
|
$ |
4,686 |
|
|
$ |
87,081 |
|
Stone Creek at Old Farm |
|
|
|
3,493 |
|
|
|
19,772 |
|
|
|
3 |
|
|
|
1,125 |
|
|
|
24,393 |
|
Accumulated depreciation and amortization |
|
|
|
— |
|
|
|
(17,339 |
) |
|
|
— |
|
|
|
(4,678 |
) |
|
|
(22,017 |
) |
Total Held For Sale Properties |
|
|
$ |
14,571 |
|
|
$ |
73,738 |
|
|
$ |
15 |
|
|
$ |
1,133 |
|
|
$ |
89,457 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
393,009 |
|
|
$ |
1,589,427 |
|
|
$ |
10,637 |
|
|
$ |
49,479 |
|
|
$ |
2,042,552 |
|
12
Depreciation expense was $23.3 million and $22.6 million for the three months ended March 31, 2023 and 2022, respectively.
Amortization expense related to the Company’s intangible lease assets was $0.0 million and $1.1 million for the three months ended March 31, 2023 and 2022, respectively. Due to the six-month useful life attributable to intangible lease assets, the value of intangible lease assets on any acquisition prior to September 30, 2022 has been fully amortized and the assets and related accumulated amortization have been written off as of March 31, 2023.
Acquisitions
There were no acquisitions of real estate during the three months ended March 31, 2023 and 2022.
Dispositions
There were no dispositions of real estate during the three months ended March 31, 2023 and 2022.
Casualty Losses
As of March 31, 2022, seven of the Company’s properties, Silverbrook, Venue at 8651, Bloom, Old Farm, Timber Creek, The Preserve at Terrell Mill and Six Forks, suffered significant property damage as a result of fires and flooding.
As of March 31, 2023, nine of the Company’s properties, Silverbrook, Versailles, Parc500, Rockledge Apartments, Summers Landing, Avant at Pembroke Pines, Arbors of Brentwood, Bella Solara, and Six Forks Station, suffered significant property damages as a result of fires and water damage. As of March 31, 2023, 107 units were excluded from the Portfolio’s total unit count. Business interruption proceeds for lost rent are included in miscellaneous income in the consolidated statements of operations and comprehensive income (loss) in relation to these events. Cash flows from business interruption are included on the Company’s consolidated statements of cash flows as operating activities. Certain casualty proceeds from insurance are recorded in casualty gains (loss) on the consolidated statements of operations and comprehensive income (loss) in relation to these events. Events that are considered to be small, standard and not extraordinary are recorded through property operating expense. Insurance proceeds received from casualty losses are recognized on the Company’s consolidated statements of cash flows as investing activities. The Company differentiates proceeds received from business interruption and casualty gains/(losses) in accounting for the transactions. Business interruption proceeds are specifically insurance proceeds to recoup lost rents due to a qualifying event(s) (i.e., fires, floods, storms, water damage, etc.) as determined by the insurance policy. Casualty gains/(losses) are distinctly attributable to damage and subsequent write down of the property (loss), and the recoupment of funds from the insurance policy, as it relates to the damage. Such proceeds received from the damage to the property are accounted for as a gain to the Company, and potentially offset losses attributable to net write off of damaged assets. For the quarter ended March 31, 2023, the Company recognized $0.8 million in casualty loss and $0.4 million in business interruption income on the consolidated statement of operations and comprehensive income (loss).
13
5. Debt
Mortgage Debt
The following table contains summary information concerning the mortgage debt of the Company as of March 31, 2023 (dollars in thousands):
Operating Properties |
|
Type |
|
Term (months) |
|
|
Outstanding
Principal (1) |
|
|
Interest Rate (2) |
|
|
Maturity Date |
Arbors on Forest Ridge |
(3) |
Floating |
|
|
120 |
|
|
$ |
19,184 |
|
|
6.18% |
|
|
12/1/2032 |
Cutter's Point |
(3) |
Floating |
|
|
120 |
|
|
|
21,524 |
|
|
6.18% |
|
|
12/1/2032 |
Silverbrook |
(3) |
Floating |
|
|
120 |
|
|
|
46,088 |
|
|
6.18% |
|
|
12/1/2032 |
The Summit at Sabal Park |
(3) |
Floating |
|
|
120 |
|
|
|
30,826 |
|
|
6.18% |
|
|
12/1/2032 |
Courtney Cove |
(3) |
Floating |
|
|
120 |
|
|
|
36,146 |
|
|
6.18% |
|
|
12/1/2032 |
The Preserve at Terrell Mill |
(3) |
Floating |
|
|
120 |
|
|
|
71,098 |
|
|
6.18% |
|
|
12/1/2032 |
Versailles |
(3) |
Floating |
|
|
120 |
|
|
|
40,247 |
|
|
6.18% |
|
|
12/1/2032 |
Seasons 704 Apartments |
(3) |
Floating |
|
|
120 |
|
|
|
33,132 |
|
|
6.18% |
|
|
12/1/2032 |
Madera Point |
(3) |
Floating |
|
|
120 |
|
|
|
34,457 |
|
|
6.18% |
|
|
12/1/2032 |
Venue at 8651 |
(3) |
Floating |
|
|
120 |
|
|
|
18,690 |
|
|
6.18% |
|
|
12/1/2032 |
The Venue on Camelback |
(4) |
Floating |
|
|
120 |
|
|
|
42,788 |
|
|
6.81% |
|
|
2/1/2033 |
Timber Creek |
(4) |
Floating |
|
|
84 |
|
|
|
24,100 |
|
|
6.12% |
|
|
10/1/2025 |
Radbourne Lake |
(4) |
Floating |
|
|
84 |
|
|
|
20,000 |
|
|
6.15% |
|
|
10/1/2025 |
Sabal Palm at Lake Buena Vista |
(4) |
Floating |
|
|
84 |
|
|
|
42,100 |
|
|
6.16% |
|
|
9/1/2025 |
Cornerstone |
(3) |
Floating |
|
|
120 |
|
|
|
46,804 |
|
|
6.72% |
|
|
12/1/2032 |
Parc500 |
(3) |
Floating |
|
|
120 |
|
|
|
29,416 |
|
|
6.18% |
|
|
12/1/2032 |
Rockledge Apartments |
(3) |
Floating |
|
|
120 |
|
|
|
93,129 |
|
|
6.18% |
|
|
12/1/2032 |
Atera Apartments |
(3) |
Floating |
|
|
120 |
|
|
|
46,198 |
|
|
6.18% |
|
|
12/1/2032 |
Crestmont Reserve |
(4) |
Floating |
|
|
84 |
|
|
|
12,061 |
|
|
6.04% |
|
|
10/1/2025 |
Brandywine I & II |
(4) |
Floating |
|
|
84 |
|
|
|
43,835 |
|
|
6.04% |
|
|
10/1/2025 |
Bella Vista |
(4) |
Floating |
|
|
84 |
|
|
|
29,040 |
|
|
6.18% |
|
|
2/1/2026 |
The Enclave |
(4) |
Floating |
|
|
84 |
|
|
|
25,322 |
|
|
6.18% |
|
|
2/1/2026 |
The Heritage |
(4) |
Floating |
|
|
84 |
|
|
|
24,625 |
|
|
6.18% |
|
|
2/1/2026 |
Summers Landing |
(5) |
Floating |
|
|
84 |
|
|
|
10,109 |
|
|
6.04% |
|
|
10/1/2025 |
Residences at Glenview Reserve |
(6) |
Floating |
|
|
84 |
|
|
|
25,785 |
|
|
6.30% |
|
|
10/1/2025 |
Residences at West Place |
(6) |
Fixed |
|
|
120 |
|
|
|
33,817 |
|
|
4.24% |
|
|
10/1/2028 |
Avant at Pembroke Pines |
(4) |
Floating |
|
|
84 |
|
|
|
177,100 |
|
|
6.29% |
|
|
9/1/2026 |
Arbors of Brentwood |
(4) |
Floating |
|
|
84 |
|
|
|
34,237 |
|
|
6.29% |
|
|
10/1/2026 |
Torreyana Apartments |
(3) |
Floating |
|
|
120 |
|
|
|
50,580 |
|
|
6.18% |
|
|
12/1/2032 |
Bloom |
(3) |
Floating |
|
|
120 |
|
|
|
59,830 |
|
|
6.18% |
|
|
12/1/2032 |
Bella Solara |
(3) |
Floating |
|
|
120 |
|
|
|
40,328 |
|
|
6.18% |
|
|
12/1/2032 |
Fairways at San Marcos |
(3) |
Floating |
|
|
120 |
|
|
|
60,228 |
|
|
6.18% |
|
|
12/1/2032 |
The Verandas at Lake Norman |
(7) |
Floating |
|
|
84 |
|
|
|
34,925 |
|
|
6.48% |
|
|
7/1/2028 |
Creekside at Matthews |
(3) |
Floating |
|
|
120 |
|
|
|
29,648 |
|
|
6.18% |
|
|
12/1/2032 |
Six Forks Station |
(8) |
Floating |
|
|
120 |
|
|
|
41,180 |
|
|
6.35% |
|
|
10/1/2031 |
High House at Cary |
(7) |
Floating |
|
|
84 |
|
|
|
46,625 |
|
|
6.64% |
|
|
1/1/2029 |
The Adair |
(4) |
Floating |
|
|
84 |
|
|
|
35,115 |
|
|
6.60% |
|
|
4/1/2029 |
Estates on Maryland |
(4) |
Floating |
|
|
84 |
|
|
|
43,157 |
|
|
6.60% |
|
|
4/1/2029 |
|
|
|
|
|
|
|
|
$ |
1,553,474 |
|
|
|
|
|
|
|
Fair market value adjustment |
|
|
|
|
|
|
|
|
583 |
|
(9) |
|
|
|
|
|
Deferred financing costs, net of accumulated amortization of $2,936 |
|
|
|
|
|
|
|
|
(12,526 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,541,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Held For Sale Properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Old Farm |
(4) |
Floating |
|
84 |
|
|
$ |
52,886 |
|
|
6.54% |
|
|
7/1/2024 |
Stone Creek at Old Farm |
(4) |
Floating |
|
84 |
|
|
|
15,274 |
|
|
6.54% |
|
|
7/1/2024 |
|
|
|
|
|
|
|
|
$ |
68,160 |
|
|
|
|
|
|
|
Deferred financing costs, net of accumulated amortization of $553 |
|
|
|
|
|
|
|
|
(120 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
68,040 |
|
|
|
|
|
|
|
(1) |
Mortgage debt that is non-recourse to the Company and encumbers the multifamily properties. |
(2) |
Interest rate is based on a reference rate plus an applicable margin, except for fixed rate mortgage debt. References rates used in our Portfolio include one-month LIBOR and 30-Day Average Secured Overnight Financing Rate (“SOFR”). As of March 31, 2023, one-month LIBOR was 4.858% and SOFR was 4.630%. |
14
(3) |
Loan can be pre-paid in the first 24 months of the term in certain circumstances at par plus 5.00%. Starting in the 25th month of the term through the 117th month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(4) |
Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(5) |
Debt was assumed upon acquisition of this property and recorded at approximated fair value. It can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00%. Starting in the 13th month of the term through the 81st month of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last three months of the term. |
(6) |
Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan can be prepaid at the greater of par plus 1.00% of the unpaid principal balance or the product obtained by multiplying the present value of the principal being prepaid by the excess of the monthly fixed interest rate of the loan over a daily discount rate. The loan is open to pre-payment in the last three months of the term. |
(7) |
Loan can be pre-paid in the first 24 months of the term in certain circumstances at par plus 5.00%. Starting in the 25th month of the term through the 36th month of the term, the loan can be pre-paid at par plus 2% of the unpaid principal balance. Starting in the 37th month of the term, the loan can be pre-paid at par plus 1% of the unpaid principal balance. The loan is open to pre-payment in the last three months of the term. |
(8) |
Loan can be pre-paid in the first 24 months of the term in certain circumstances at par plus 5.00%. Starting in the 25th month of the term through the 116th of the term, the loan can be pre-paid at par plus 1.00% of the unpaid principal balance and at par during the last four months of the term. |
(9) |
The Company reflected a valuation adjustment on its fixed rate debt for Residences at West Place to adjust it to fair market value on their respective dates of acquisition for the difference between the fair value and the assumed principal amount of debt. The difference is amortized into interest expense over the remaining terms of the mortgages. |
The weighted average interest rate of the Company’s mortgage indebtedness was 6.24% as of March 31, 2023 and 5.71% as of December 31, 2022. The increase between the periods is primarily related to an increase in one-month LIBOR of approximately 47 basis points to 4.858% as of March 31, 2023 from 4.39200% as of December 31, 2022, and an increase in 30-Day Average SOFR of approximately 57 basis points to 4.630% as of March 31, 2023, from 4.062% as of December 31, 2022. As of March 31, 2023, the Company had approximately $536 million, $1,051 million, and $34 million of LIBOR, SOFR, and fixed rate debt. As of March 31, 2023, the adjusted weighted average interest rate of the Company’s mortgage indebtedness was 3.51%. For purposes of calculating the adjusted weighted average interest rate of the outstanding mortgage indebtedness, the Company has included the weighted average fixed rate of 1.0682% for one-month LIBOR on its combined $1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.2 billion of the Company’s floating rate mortgage debt (see Note 6).
Each of the Company’s mortgages is a non-recourse obligation subject to customary provisions. The loan agreements contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of March 31, 2023, the Company believes it is in compliance with all provisions.
Credit Facility
The following table contains summary information concerning the Company’s credit facility as of March 31, 2023 (dollars in thousands):
|
|
Type |
|
Term (months) |
|
|
Outstanding
Principal |
|
|
Interest Rate (1) |
|
|
Maturity Date |
Corporate Credit Facility |
|
Floating |
|
|
36 |
|
|
$ |
57,000 |
|
|
6.88% |
|
|
6/30/2025 |
Deferred financing costs, net of accumulated amortization of $1,426 |
|
|
|
|
|
|
|
|
(1,581 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
55,419 |
|
|
|
|
|
|
|
(1) |
Interest rate is based on Term SOFR plus an applicable margin. Term SOFR as of March 31, 2023 was 4.630%. |
15
On October 24, 2022, the Company exercised its option to extend the Corporate Credit Facility with respect to the revolving commitments for a single one-year term resulting in a maturity date of June 30, 2025. The Company may borrow up to $350.0 million under the Corporate Credit Facility. During the three months ended March 31, 2023, the Company paid down $17.5 million on the Corporate Credit Facility. As of March 31, 2023, there was $57.0 million in aggregate principal outstanding under the Corporate Credit Facility.
Advances under the Corporate Credit Facility accrue interest at a per annum rate equal to, at the Company’s election, either Term SOFR plus a margin of 1.90% to 2.40%, depending on the Company’s total leverage ratio, and a benchmark replacement adjustment of 0.1%, or a base rate determined according to the highest of (a) the prime rate, (b) the federal funds rate plus 0.50%, (c) Term SOFR plus 1.0% or (d) 0.0% plus a margin of 0.90% to 1.40%, depending on the Company’s total leverage ratio. An unused commitment fee at a rate of 0.15% or 0.25%, depending on the outstanding aggregate revolving commitments, applies to unutilized borrowing capacity under the Corporate Credit Facility. Amounts owing under the Corporate Credit Facility may be prepaid at any time without premium or penalty. The Corporate Credit Facility is guaranteed by the Company and the obligations under the Corporate Credit Facility are, subject to some exceptions, secured by a continuing security interest in substantially all of the assets of the Company. The Company is in compliance with all of the covenants required in its Corporate Credit Facility.
Deferred Financing Costs
The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheets. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs (see “Loss on Extinguishment of Debt and Modification Costs” below). For the three months ended March 31, 2023 and 2022, amortization of deferred financing costs of approximately $0.8 million and $0.6 million, respectively, is included in interest expense on the consolidated statements of operations and comprehensive income (loss).
Gain (loss) on Extinguishment of Debt and Modification Costs
Gain (loss) on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs incurred on the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment. During the three months ended March 31, 2023 the Company completed a refinance of The Venue on Camelback and incurred a loss on extinguishment of approximately $0.3 million.
Schedule of Debt Maturities
The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to March 31, 2023 are as follows (in thousands):
|
|
Operating
Properties |
|
|
Held For Sale
Property |
|
|
Credit Facility |
|
Total |
|
2023 |
|
$ |
226 |
|
|
$ |
— |
|
|
$ |
— |
|
$ |
226 |
|
2024 |
|
|
391 |
|
|
|
68,160 |
|
|
|
— |
|
|
68,551 |
|
2025 |
|
|
177,373 |
|
|
|
— |
|
|
|
57,000 |
|
|
234,373 |
|
2026 |
|
|
290,324 |
|
|
|
— |
|
|
|
— |
|
|
290,324 |
|
2027 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
Thereafter |
|
|
1,085,160 |
|
|
|
— |
|
|
|
— |
|
|
1,085,160 |
|
Total |
|
$ |
1,553,474 |
|
|
$ |
68,160 |
|
|
$ |
57,000 |
|
$ |
1,678,634 |
|
6. Fair Value of Derivatives and Financial Instruments
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):
|
• |
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. |
|
• |
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals. |
16
|
• |
Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. |
The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for investments and derivative financial instruments are fair and consistent as of the measurement date.
Derivative Financial Instruments and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. In order to minimize counterparty credit risk, the Company enters into and expects to enter into hedging arrangements only with major financial institutions that have high credit ratings.
The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of March 31, 2023 and December 31, 2022 were classified as Level 2 of the fair value hierarchy.
The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate debt. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The interest rate swaps have terms ranging from four to five years. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The interest rate caps have terms ranging from three to four years. During the three months ended March 31, 2023 and 2022, interest rate cap derivatives were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt.
17
The interest rate cap agreements the Company has entered into effectively cap one-month LIBOR on $1.4 billion of the Company’s floating rate mortgage indebtedness at a weighted average rate of 5.82% as of March 31, 2023.
In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), the Company, through the OP, has entered into six interest rate swap transactions with KeyBank National Association (“KeyBank”) and four with Truist Bank with a combined notional amount of $1.2 billion. The interest rate swaps the Company has entered into effectively replace the floating interest rate with respect to that amount with a weighted average fixed rate of 1.0682%. The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.
As of March 31, 2023, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk (dollars in thousands):
Effective Date |
|
Termination Date |
|
Counterparty |
|
Notional Amount |
|
|
Fixed Rate (1) |
|
|
June 1, 2019 |
|
June 1, 2024 |
|
KeyBank |
|
$ |
50,000 |
|
|
|
2.0020 |
% |
|
June 1, 2019 |
|
June 1, 2024 |
|
Truist |
|
|
50,000 |
|
|
|
2.0020 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
100,000 |
|
|
|
1.4620 |
% |
|
September 1, 2019 |
|
September 1, 2026 |
|
KeyBank |
|
|
125,000 |
|
|
|
1.3020 |
% |
|
January 3, 2020 |
|
September 1, 2026 |
|
KeyBank |
|
|
92,500 |
|
|
|
1.6090 |
% |
|
March 4, 2020 |
|
June 1, 2026 |
|
Truist |
|
|
100,000 |
|
|
|
0.8200 |
% |
|
June 1, 2021 |
|
September 1, 2026 |
|
KeyBank |
|
|
200,000 |
|
|
|
0.8450 |
% |
|
June 1, 2021 |
|
September 1, 2026 |
|
KeyBank |
|
|
200,000 |
|
|
|
0.9530 |
% |
|
March 1, 2022 |
|
March 1, 2025 |
|
Truist |
|
|
145,000 |
|
|
|
0.5730 |
% |
|
March 1, 2022 |
|
March 1, 2025 |
|
Truist |
|
|
105,000 |
|
|
|
0.6140 |
% |
|
|
|
|
|
|
|
$ |
1,167,500 |
|
|
|
1.0682 |
% |
(2) |
(1) |
The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2023, one-month LIBOR was 4.858%. |
(2) |
Represents the weighted average fixed rate of the interest rate swaps. |
As of March 31, 2023, the Company had the following outstanding interest rate swaps that was designated as cash flow hedges of interest rate risk with future effective dates (dollars in thousands):
Effective Date |
|
Termination Date |
|
Counterparty |
|
Notional Amount |
|
|
Fixed Rate (1) |
|
|
September 1, 2026 |
|
January 1, 2027 |
|
KeyBank |
|
$ |
92,500 |
|
|
|
1.7980 |
% |
|
(1) |
The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2023, one-month LIBOR was 4.858%. |
(2) |
Represents the weighted average fixed rate of the interest rate swaps. |
Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives and Hedging, or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in net income (loss) as interest expense.
18
As of March 31, 2023, the Company had the following outstanding interest rate caps outstanding that are not designated as cash flow hedges of interest rate risk (dollars in thousands):
Properties |
|
Type |
|
Notional |
|
|
Strike Rate |
|
Sabal Palm at Lake Buena Vista |
|
Floating |
|
$ |
42,100 |
|
|
|
6.20 |
% |
Residences at Glenview Reserve |
|
Floating |
|
|
25,977 |
|
|
|
4.81 |
% |
Timber Creek |
|
Floating |
|
|
24,100 |
|
|
|
4.99 |
% |
Brandywine I & II |
|
Floating |
|
|
43,835 |
|
|
|
6.82 |
% |
Radbourne Lake |
|
Floating |
|
|
20,000 |
|
|
|
6.46 |
% |
Summers Landing |
|
Floating |
|
|
10,109 |
|
|
|
6.07 |
% |
Crestmont Reserve |
|
Floating |
|
|
12,061 |
|
|
|
6.82 |
% |
Fairways at San Marcos |
|
Floating |
|
|
46,464 |
|
|
|
3.37 |
% |
The Verandas at Lake Norman |
|
Floating |
|
|
34,925 |
|
|
|
3.40 |
% |
Creekside at Matthews |
|
Floating |
|
|
31,900 |
|
|
|
4.40 |
% |
Six Forks Station |
|
Floating |
|
|
41,180 |
|
|
|
4.00 |
% |
High House at Cary |
|
Floating |
|
|
46,625 |
|
|
|
2.74 |
% |
Estates on Maryland |
|
Floating |
|
|
43,157 |
|
|
|
3.91 |
% |
The Adair |
|
Floating |
|
|
35,115 |
|
|
|
3.91 |
% |
Rockledge Apartments |
|
Floating |
|
|
93,129 |
|
|
|
6.45 |
% |
The Preserve at Terrell Mill |
|
Floating |
|
|
71,098 |
|
|
|
6.45 |
% |
Fairways at San Marcos |
|
Floating |
|
|
60,228 |
|
|
|
6.70 |
% |
Bloom |
|
Floating |
|
|
59,830 |
|
|
|
6.70 |
% |
Atera Apartments |
|
Floating |
|
|
46,198 |
|
|
|
6.45 |
% |
Silverbrook |
|
Floating |
|
|
46,088 |
|
|
|
6.45 |
% |
Torreyana Apartments |
|
Floating |
|
|
50,580 |
|
|
|
6.70 |
% |
Cornerstone |
|
Floating |
|
|
46,804 |
|
|
|
6.66 |
% |
Versailles |
|
Floating |
|
|
40,247 |
|
|
|
6.45 |
% |
Bella Solara |
|
Floating |
|
|
40,328 |
|
|
|
6.70 |
% |
Courtney Cove |
|
Floating |
|
|
36,146 |
|
|
|
6.70 |
% |
Madera Point |
|
Floating |
|
|
34,457 |
|
|
|
6.70 |
% |
Creekside at Matthews |
|
Floating |
|
|
29,648 |
|
|
|
6.45 |
% |
Parc500 |
|
Floating |
|
|
29,416 |
|
|
|
6.45 |
% |
Seasons 704 Apartments |
|
Floating |
|
|
33,132 |
|
|
|
6.70 |
% |
The Summit at Sabal Park |
|
Floating |
|
|
30,826 |
|
|
|
6.70 |
% |
Cutter's Point |
|
Floating |
|
|
21,524 |
|
|
|
6.45 |
% |
Venue at 8651 |
|
Floating |
|
|
18,690 |
|
|
|
6.45 |
% |
The Heritage |
|
Floating |
|
|
24,625 |
|
|
|
5.18 |
% |
The Enclave |
|
Floating |
|
|
25,322 |
|
|
|
5.18 |
% |
Bella Vista |
|
Floating |
|
|
29,040 |
|
|
|
5.18 |
% |
Arbors on Forest Ridge |
|
Floating |
|
|
19,184 |
|
|
|
6.70 |
% |
Venue on Camelback |
|
Floating |
|
|
42,788 |
|
|
|
6.07 |
% |
|
|
|
|
$ |
1,386,876 |
|
|
|
5.82 |
% |
The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2023 and December 31, 2022 (in thousands):
|
|
|
|
Asset Derivatives |
|
|
Liability Derivatives |
|
|
|
Balance Sheet Location |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
Fair market value of interest rate swaps |
|
$ |
86,234 |
|
|
$ |
103,440 |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate caps |
|
Prepaid and other assets |
|
|
6,408 |
|
|
|
7,634 |
|
|
|
— |
|
|
|
— |
|
Total |
|
|
|
$ |
92,642 |
|
|
$ |
111,074 |
|
|
$ |
— |
|
|
$ |
— |
|
19
The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Amount of gain (loss)
recognized in OCI |
|
|
Location of gain
(loss) reclassified
from accumulated |
|
Amount of gain (loss)
reclassified from
OCI into income |
|
|
|
2023 |
|
|
2022 |
|
|
OCI into income |
|
2023 |
|
|
2022 |
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate products |
|
$ |
(7,061 |
) |
|
$ |
51,017 |
|
|
Interest expense |
|
$ |
10,145 |
|
|
$ |
(3,562 |
) |
|
|
|
|
|
|
Location of gain
(loss) |
|
Amount of gain (loss)
recognized in income |
|
|
|
|
|
|
|
recognized in
income |
|
2023 |
|
|
2022 |
|
Derivatives not designated as hedging instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate products |
|
|
|
|
|
Interest expense |
|
$ |
(970 |
) |
|
$ |
1,184 |
|
Other Financial Instruments Carried at Fair Value
Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP (see Note 9). The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the OP are classified as Level 2 if they are adjusted to their redemption value.
Financial Instruments Not Carried at Fair Value
At March 31, 2023 and December 31, 2022, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other assets, excluding interest rate caps, accounts payable and other accrued liabilities, accrued real estate taxes payable, accrued interest payable, security deposits and prepaid rent approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.
Long-term indebtedness is carried at amounts that reasonably approximate their fair value. In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 inputs.
The table below presents the carrying value (outstanding principal balance) and estimated fair value of our debt at March 31, 2023 and December 31, 2022 (in thousands):
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
Carrying Value |
|
|
Estimated
Fair Value |
|
|
Carrying Value |
|
|
Estimated
Fair Value |
|
Fixed rate debt |
|
$ |
33,817 |
|
|
$ |
32,131 |
|
|
$ |
33,817 |
|
|
$ |
31,857 |
|
Floating rate debt (1) |
|
$ |
1,644,817 |
|
|
$ |
1,453,785 |
|
|
$ |
1,647,711 |
|
|
$ |
1,506,741 |
|
(1) |
Includes balances outstanding under our Corporate Credit Facility. |
Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. There can be no assurance that the estimates discussed herein, using Level 3 inputs, are indicative of the amounts the Company could realize on disposition of the real estate asset. For the three months ended March 31, 2023 and 2022, the Company did not record any impairment charges related to real estate assets.
20
7. Stockholders’ Equity
Common Stock
During the three months ended March 31, 2023, the Company issued 108,404 shares of common stock pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below).
As of March 31, 2023, the Company had 25,657,723 shares of common stock, par value $0.01 per share, issued and outstanding.
Share Repurchase Program
On June 15, 2016, the Board authorized the Company to repurchase up to $30.0 million of its common stock, par value $0.01 per share, during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, the Board increased the Share Repurchase Program from $30.0 million to up to $40.0 million and extended it by an additional two years to June 15, 2020. On March 13, 2020, the Board further increased the Share Repurchase Program from $40.0 million to up to $100.0 million and extended it to March 12, 2023. On October 24, 2022, the Board authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $100.0 million during a two-year period that will expire on October 24, 2024. This authorization replaced the Board prior authorization. The Company may utilize various methods to affect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value per share. Repurchases under this program may be discontinued at any time.
During the three months ended March 31, 2023 and 2022, the Company did not repurchase any shares of its common stock. Since the inception of the Share Repurchase Program through March 31, 2023, the Company had repurchased 2,550,628 shares of its common stock, par value $0.01 per share, at a total cost of approximately $72.3 million, or $28.36 per share.
Treasury Shares
From time to time, in accordance with the Company’s Share Repurchase Program, the Company may repurchase shares of its common stock in the open market. Until any such shares are retired, the cost of the shares is included in common stock held in treasury at cost on the consolidated balance sheet. The number of shares of common stock classified as treasury shares reduces the number of shares of the Company’s common stock outstanding and, accordingly, are considered in the weighted average number of shares outstanding during the period. During the three months ended March 31, 2023 and 2022, the Company retired no shares of its common stock held in treasury. As of March 31, 2023, the Company did not have any shares of common stock held in treasury.
Long Term Incentive Plan
On June 15, 2016, the Company’s stockholders approved a long-term incentive plan (the “2016 LTIP”) and the Company filed a registration statement on Form S-8 registering 2,100,000 shares of common stock, par value $0.01 per share, which the Company may issue pursuant to the 2016 LTIP. The 2016 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock or factors that may influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), the Company’s non-employee directors, and potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.
21
Restricted Stock Units
Under the 2016 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries) and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for directors. Beginning on the date of grant, restricted stock units earn dividends that are payable in cash on the vesting date. On February 21, 2019, pursuant to the 2016 LTIP, the Company granted 186,662 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 20, 2020, pursuant to the 2016 LTIP, the Company granted 168,183 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On May 11, 2020, pursuant to the 2016 LTIP, the Company granted 116,852 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 18, 2021, pursuant to the 2016 LTIP, the Company granted 204,663 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 17, 2022, pursuant to the 2016 LTIP, the Company granted 142,159 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On March 28, 2023, pursuant to the 2016 LTIP, the Company granted 260,709 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of March 31, 2023:
|
|
2023 |
|
|
|
Number of Units |
|
|
Weighted Average
Grant Date Fair Value |
|
Outstanding January 1, |
|
|
527,926 |
|
|
$ |
52.66 |
|
Granted |
|
|
260,709 |
|
|
|
39.64 |
|
Vested |
|
|
(138,932 |
) |
(1) |
|
52.75 |
|
Forfeited |
|
|
(213 |
) |
|
|
83.88 |
|
Outstanding March 31, |
|
|
649,490 |
|
|
$ |
47.41 |
|
(1) |
Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 108,404 shares being issued as shown on the Consolidated Statement of Stockholders’ Equity. |
The following table contains information regarding the vesting of restricted stock units under the 2016 LTIP for the next five calendar years subsequent to March 31, 2023:
|
|
Shares Vesting |
|
|
|
February |
|
|
March |
|
|
May |
|
|
Total |
|
2023 |
|
|
— |
|
(1) |
|
— |
|
|
|
21,879 |
|
|
|
21,879 |
|
2024 |
|
|
132,526 |
|
|
|
63,329 |
|
|
|
21,877 |
|
|
|
217,732 |
|
2025 |
|
|
97,635 |
|
|
|
49,349 |
|
|
|
21,877 |
|
|
|
168,861 |
|
2026 |
|
|
65,939 |
|
|
|
49,348 |
|
|
|
— |
|
|
|
115,287 |
|
2027 |
|
|
27,048 |
|
|
|
49,348 |
|
|
|
— |
|
|
|
76,396 |
|
2028 |
|
|
— |
|
|
|
49,335 |
|
|
|
— |
|
|
|
49,335 |
|
Total |
|
|
323,148 |
|
|
|
260,709 |
|
|
|
65,633 |
|
|
|
649,490 |
|
(1) |
Shares vested prior to March 31, 2023. |
As of March 31, 2023, the Company had issued 965,614 shares of common stock under the 2016 LTIP. For the three months ended March 31, 2023 and 2022, the Company recognized approximately $2.0 million and $1.9 million, respectively, of equity-based compensation expense related to grants of restricted stock units. As of March 31, 2023, the Company had recognized a liability of approximately $1.4 million related to dividends earned on restricted stock units that are payable in cash upon vesting.
22
At-the-Market Offering
On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”), KeyBanc Capital Markets Inc. (“KeyBanc”) and Truist Securities (f/k/a SunTrust Robinson Humphrey, Inc., “SunTrust,” and together with Jefferies, Raymond James and KeyBanc, the “ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time when an effective registration statement is available shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000 (the “2020 ATM Program”). Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc and Raymond James, or their respective affiliates, through the 2020 ATM Program. During the three months ended March 31, 2022, the Company issued 52,091 shares of common stock at an average price of $83.16 per share for gross proceeds of $4.3 million under the ATM Program. The Company paid approximately $0.1 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.1 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the three months ended March 31, 2023, no shares were issued under the 2020 ATM Program. The following table contains summary information of the 2020 ATM Program since its inception:
Gross proceeds |
|
|
$ |
62,310,967 |
|
Common shares issued |
|
|
|
1,120,910 |
|
Gross average sale price per share |
|
|
$ |
55.59 |
|
|
|
|
|
|
|
Sales commissions |
|
|
$ |
934,665 |
|
Offering costs |
|
|
|
1,353,015 |
|
Net proceeds |
|
|
|
60,023,287 |
|
Average price per share, net |
|
|
$ |
53.55 |
|
8. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s common stock outstanding, which excludes any unvested restricted stock units issued pursuant to the 2016 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effect of the assumed vesting of restricted stock units. During periods of net loss, the assumed vesting of restricted stock units is anti-dilutive and is not included in the calculation of earnings (loss) per share.
The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted loss per share, as they are exchangeable for common stock on a one-for-one basis. The loss allocable to such units is allocated on this same basis and reflected as net loss attributable to redeemable noncontrolling interests in the OP in the accompanying consolidated statements of operations and comprehensive income (loss). As such, the assumed conversion of these units would have no net impact on the determination of diluted loss per share. See Note 9 for additional information.
23
The following table sets forth the computation of basic and diluted loss per share for the periods presented (in thousands, except per share amounts):
|
|
For the Three Months Ended March 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
Numerator for loss per share: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,898 |
) |
|
$ |
(4,667 |
) |
|
Net loss attributable to redeemable noncontrolling interests in the Operating Partnership |
|
|
(15 |
) |
|
|
(14 |
) |
|
Net loss attributable to common stockholders |
|
$ |
(3,883 |
) |
|
$ |
(4,653 |
) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for loss per share: |
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
25,599 |
|
|
|
25,620 |
|
|
Denominator for basic loss per share |
|
|
25,599 |
|
|
|
25,620 |
|
|
Weighted average unvested restricted stock units |
|
|
476 |
|
|
|
573 |
|
|
Denominator for diluted earnings per share |
(1) |
|
25,599 |
|
|
|
25,620 |
|
|
|
|
|
|
|
|
|
|
|
|
Loss per weighted average common share: |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.15 |
) |
|
$ |
(0.18 |
) |
|
Diluted |
|
$ |
(0.15 |
) |
|
$ |
(0.18 |
) |
|
|
|
|
|
|
|
|
|
|
|
(1) |
If the Company sustains a net loss for the period presented, unvested restricted stock units are not included in the diluted earnings per share calculation. |
9. Noncontrolling Interests
Redeemable Noncontrolling Interests in the OP
Interests in the OP held by limited partners are represented by OP Units. Net income (loss) is allocated to holders of OP Units based upon net income (loss) attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the terms of the partnership agreement of the OP. Each time the OP distributes cash to the Company, outside limited partners of the OP receive their pro-rata share of the distribution. Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP.
On April 1, 2022, the Company acquired The Adair and Estates on Maryland, from investors in a Delaware Statutory Trust managed by an entity affiliated with the Adviser, for total consideration of $143.4 million (the “Purchase Price”). The Purchase Price consisted of 31,071 OP Units (valued at $2.9 million) that were issued in connection with the acquisition and approximately $70.7 million in cash and debt. The fair value of the OP Units was determined based on the April 1, 2022 share price of NXRT as the OP units are convertible to common stock on a one to one basis.
On June 30, 2017, the Company and the OP entered into a contribution agreement with BH Equities, LLC and its affiliates (collectively, “BH Equity”), whereby the Company purchased 100% of the joint venture interests in the Portfolio owned by BH Equity, representing approximately 8.4% ownership in the Portfolio (the “BH Buyout”), for total consideration of approximately $51.7 million (the “Purchase Amount”). The Purchase Amount consisted of approximately $49.7 million in cash that was paid on June 30, 2017 and 73,233 OP Units (initially valued at $2.0 million) that were issued on August 1, 2017. The number of OP Units issued was calculated by dividing $2.0 million by the midpoint of the range of the Company’s net asset value as publicly disclosed in connection with the Company’s release of its second quarter of 2017 earnings results, which was $27.31 per share.
In connection with the issuance of OP Units to BH Equity on August 1, 2017, the Company and the OP amended the partnership agreement of the OP (the “Amendment”). Pursuant to the Amendment, limited partners holding OP Units have the right to cause the OP to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the OP), provided that such OP Units have been outstanding for at least one year. The Company, through the OP GP, as the general partner of the OP may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (one share of common stock of the Company for each OP Unit), as defined in the partnership agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as determined in the Company’s sole
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discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities Act. Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports the OP Units at the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet date.
The following table sets forth the redeemable noncontrolling interests in the OP for the three months ended March 31, 2023 (in thousands):
Redeemable noncontrolling interests in the OP, December 31, 2022 |
|
$ |
5,631 |
|
Net loss attributable to redeemable noncontrolling interests in the OP |
|
|
(15 |
) |
Other comprehensive loss attributable to redeemable noncontrolling interests in the OP |
|
|
(65 |
) |
Distributions to redeemable noncontrolling interests in the OP |
|
|
(49 |
) |
Issuance of operating partnership units for purchase of noncontrolling interests |
|
|
415 |
|
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP |
|
|
141 |
|
Redeemable noncontrolling interests in the OP, March 31, 2023 |
|
$ |
6,058 |
|
Fees and Reimbursements to BH and its Affiliates
The Company has entered into management agreements with BH Management Services, LLC (“BH”), the Company’s property manager and an independently owned third party, who manages the Company’s properties and supervises the implementation of the Company’s value-add program. BH is an affiliate of BH Equity, who was a noncontrolling interest member of the Company’s joint ventures prior to the BH Buyout on June 30, 2017. Through BH Equity’s noncontrolling interests in such joint ventures, BH Equity was deemed to be a related party. With the completion of the BH Buyout, BH Equity is no longer deemed to be a related party. BH Equity became a noncontrolling limited partner of the OP upon execution of the Amendment. BH and its affiliates do not have common ownership in any joint venture with the Adviser; there is also no common ownership between BH and its affiliates and the Adviser.
The property management fee paid to BH is approximately 3% of the monthly gross income from each property managed. Currently, BH manages all of the Company’s properties. Additionally, the Company may pay BH certain other fees, including: (1) a fee of $15-25 per unit for the one-time setup and inspection of properties, (2) a construction supervision fee of 5-6% of total project costs, which is capitalized, (3) acquisition fees and due diligence costs reimbursements, and (4) other owner approved fees at $55 per hour. BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of the properties. The following is a summary of fees that the properties incurred to BH and its affiliates, as well as reimbursements paid to BH from the properties for various operating expenses, for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
For the Three Months Ended March 31, |
|
|
|
|
2023 |
|
|
2022 |
|
|
Fees incurred |
|
|
|
|
|
|
|
|
|
Property management fees |
(1) |
$ |
2,019 |
|
|
$ |
1,750 |
|
|
Construction supervision fees |
(2) |
|
651 |
|
|
|
325 |
|
|
Design fees |
(2) |
|
11 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
Reimbursements |
|
|
|
|
|
|
|
|
|
Payroll and benefits |
(3) |
|
5,451 |
|
|
|
5,164 |
|
|
Other reimbursements |
(4) |
|
1,353 |
|
|
|
1,028 |
|
|
(1) |
Included in property management fees on the consolidated statements of operations and comprehensive income (loss). |
(2) |
Capitalized on the consolidated balance sheets and reflected in buildings and improvements. |
(3) |
Included in property operating expenses on the consolidated statements of operations and comprehensive income (loss). |
(4) |
Includes property operating expenses such as repairs and maintenance costs and certain property general and administrative expenses, which are included on the consolidated statements of operations and comprehensive income (loss). |
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10. Related Party Transactions
Advisory and Administrative Fee
In accordance with the Advisory Agreement, the Company pays the Adviser an advisory fee equal to 1.00% of the Average Real Estate Assets (as defined below). The duties performed by the Company’s Adviser under the terms of the Advisory Agreement include, but are not limited to: providing daily management for the Company, selecting and working with third party service providers, managing the Company’s properties or overseeing the third party property manager, formulating an investment strategy for the Company and selecting suitable properties and investments, managing the Company’s outstanding debt and its interest rate exposure through derivative instruments, determining when to sell assets, and managing the value-add program or overseeing a third party vendor that implements the value-add program. “Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets before reserves for depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for capital expenditures (the value-add program). The advisory fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the advisory fee in shares of common stock, subject to certain limitations.
In accordance with the Advisory Agreement, the Company also pays the Adviser an administrative fee equal to 0.20% of the Average Real Estate Assets. The administrative fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the administrative fee in shares of common stock, subject to certain limitations.
The advisory and administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement) are subject to an annual cap of approximately $5.4 million (the “Contributed Assets Cap”) (see “Expense Cap” below).
Pursuant to the terms of the Advisory Agreement, the Company will reimburse the Adviser for all documented Operating Expenses and Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and due diligence services performed by the Adviser that outside professionals or outside consultants would otherwise perform, the Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Adviser required for the Company’s operations, and compensation expenses under the 2016 LTIP. Operating Expenses do not include expenses for the advisory and administrative services described in the Advisory Agreement. Certain Operating Expenses, such as the Company’s ratable share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses incurred by the Adviser or its affiliates that relate to the operations of the Company, may be billed monthly to the Company under a shared services agreement. “Offering Expenses” include all expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing fees and other documented offering expenses. For the three months ended March 31, 2023 and 2022, the Adviser did not bill any Operating Expenses or Offering Expenses to the Company and any such expenses the Adviser incurred during the periods are considered to be permanently waived.
Expense Cap
Pursuant to the terms of the Advisory Agreement, expenses paid or incurred by the Company for operating expenses and advisory and administrative fees payable to the Adviser and Operating Expenses will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect (the “Expense Cap”)). The Expense Cap does not limit the reimbursement of expenses related to Offering Expenses. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation or other events outside the Company’s ordinary course of business or any out-of-pocket acquisitions or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Also, advisory and administrative fees are further limited on Contributed Assets to approximately $5.4 million in any calendar year. Contributed Assets refers to all Real Estate Assets contributed to the Company as part of its spin-off. The Contributed Assets Cap is not reduced for dispositions of such assets subsequent to its spin-off. Advisory and administrative fees on New Assets are not subject to the above limitation and are based on an annual rate of 1.2% on Average Real Estate Assets, but are subject to the Expense Cap. New Assets are all Real Estate Assets that are not Contributed Assets.
For the three months ended March 31, 2023 and 2022, the Company incurred advisory and administrative fees of $1.9 million and $1.8 million, respectively.
For the three months ended March 31, 2023 and 2022, the Adviser elected to voluntarily waive the advisory and administrative fees of approximately $5.3 million and $4.9 million, respectively. The advisory and administrative fees waived by the Adviser are considered to be permanently waived for the periods. The Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion.
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Other Related Party Transactions
The Company has in the past, and may in the future, utilize the services of affiliated parties. For the three months ended March 31, 2023 and 2022, the Company did not pay any fees to NexBank Title, Inc. (“NexBank Title”). NexBank Title is an affiliate of the Adviser through common beneficial ownership. NexBank Title provides title insurance and work related to providing title insurance on properties related to acquisitions, dispositions and refinancing transactions. These amounts are either capitalized as real estate assets or deferred financing costs, expensed as loss on extinguishment of debt and modification costs, or expensed as selling costs when determining gain (loss) on sales of real estate, depending on the appropriate accounting as determined for each specific transaction. The Company holds multiple operating accounts at NexBank Capital, Inc. (“NexBank”), an affiliate of the Adviser through common beneficial ownership.
NexBank is an affiliate of the Adviser through common beneficial ownership.
On July 30, 2021, three of our property-owning subsidiaries entered into agreements with NLMF Holdco, LLC, an entity under common control with our Adviser and in which we own a 10% equity interest. As of March 31, 2023, the Company has funded approximately $0.3 million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated balance sheet of the Company. For the three months ended March 31, 2023, the Company incurred expenses of $0.1 million for fiber internet service which is included in property operating expenses on the consolidated statement of operations and comprehensive income (loss). Additionally, on July 30, 2021, we entered into agreements with NLMF Leaseco, LLC, which is controlled by Matt McGraner, one of our officers. We expect that these actions will provide faster, more reliable and lower cost internet to our residents.
11. Commitments and Contingencies
Commitments
In the normal course of business, the Company enters into various rehabilitation construction related purchase commitments with parties that provide these goods and services. In the event the Company were to terminate rehabilitation construction services prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase orders with such parties. As of March 31, 2023, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.
The Company’s agreement with NLMF Holdco, LLC may result in additional funding requirements to cover future project costs. The maximum exposure of potential commitments is expected to be no more than $4.0 million. As of March 31, 2023, the Company has funded approximately $0.3 million to NLMF Holdco, LLC which is included in prepaid and other assets on the consolidated balance sheet of the Company.
Contingencies
In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.
Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. As of March 31, 2023, the Company was not aware of any environmental liabilities. There can be no assurance that material environmental liabilities do not exist.
Self-Insurance Program
On March 1, 2021, the Adviser entered into a self-insurance policy resulting in an aggregate amount of $2,468,750 (the “2021 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $1.6 million being allocated to the Company. As of December 31, 2021, all of the $1.6 million of the 2021 Aggregate Amount allocated to the Company has been prepaid. For the period from March 1, 2021 to February 28, 2022, the Company incurred claims related to its entire allocated 2021 Aggregate Amount at Old Farm and Silverbrook.
On March 1, 2022, the Adviser entered into a new policy resulting in a new aggregate amount of $2,497,500 (the “2022 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $1.8 million being allocated to the Company. From March 1, 2022 to March 31, 2023, the Company incurred claims at Six Forks Station, Parc500, Hollister Place, Versailles, Timber Creek, Venue at 8651, The Preserve at Terrell Mill, High House at Cary and Arbors of Brentwood. As of March 31, 2023, all of the 2022 Aggregate Amount allocated to the Company has been funded (see Note 4 to our consolidated financial statements).
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12. Subsequent Events
Dividends Declared
On April 24, 2023, the Company’s Board declared a quarterly dividend of $0.42 per share, payable on June 30, 2023 to stockholders of record on June 15, 2023.
2023 Insurance Renewal
On April 1, 2023, the Company renewed its property, casualty, and environmental insurance. The property insurance has an aggregate of $5,500,000 (the “2023 Aggregate Amount”) which is allocated across properties covered by the policy.
28