false 2020 FY 0001620393 --12-31 true true true true true true true true Loan can be pre-paid in the first 12 months of the term 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. 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. 1.00 P6M P4M P2Y P5Y P3Y 1.00 0 P1M us-gaap:AccountingStandardsUpdate201712Member us-gaap:AccountingStandardsUpdate201712Member 2014-01-31 2014-01-31 2014-01-31 2014-07-21 2014-08-20 2014-08-20 2014-09-30 2014-09-30 2014-11-05 2015-01-15 2015-02-06 2015-02-26 2015-04-15 2015-08-05 2015-10-30 2016-07-27 2016-10-11 2016-12-29 2016-12-29 2017-02-01 2017-06-30 2017-10-25 2018-08-24 2018-09-26 2018-09-26 2019-01-28 2019-01-28 2019-01-28 2019-06-07 2019-07-17 2019-07-17 2019-08-30 2019-09-10 2019-11-22 2019-11-22 2019-11-22 2020-11-02 P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P120M P120M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P84M P120M P84M P84M P84M P84M P84M P84M P24M 0001620393 2020-01-01 2020-12-31 xbrli:shares 0001620393 2021-02-22 iso4217:USD 0001620393 2020-06-30 0001620393 2020-12-31 0001620393 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember 2019-12-31 iso4217:USD xbrli:shares 0001620393 2019-01-01 2019-12-31 0001620393 2018-01-01 2018-12-31 0001620393 us-gaap:CommonStockMember 2017-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2017-12-31 0001620393 us-gaap:RetainedEarningsMember 2017-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001620393 2017-12-31 0001620393 us-gaap:RetainedEarningsMember srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2017-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2017-12-31 0001620393 us-gaap:RetainedEarningsMember srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2018-01-01 2018-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember srt:CumulativeEffectPeriodOfAdoptionAdjustmentMember 2018-01-01 2018-12-31 0001620393 us-gaap:RetainedEarningsMember 2018-01-01 2018-12-31 0001620393 us-gaap:CommonStockMember us-gaap:IPOMember 2018-01-01 2018-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember us-gaap:IPOMember 2018-01-01 2018-12-31 0001620393 us-gaap:IPOMember 2018-01-01 2018-12-31 0001620393 us-gaap:TreasuryStockCommonMember 2018-01-01 2018-12-31 0001620393 us-gaap:CommonStockMember 2018-01-01 2018-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2018-01-01 2018-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-12-31 0001620393 us-gaap:CommonStockMember 2018-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2018-12-31 0001620393 us-gaap:RetainedEarningsMember 2018-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001620393 2018-12-31 0001620393 us-gaap:RetainedEarningsMember 2019-01-01 2019-12-31 0001620393 us-gaap:CommonStockMember 2019-01-01 2019-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-01-01 2019-12-31 0001620393 us-gaap:CommonStockMember nxrt:TwoThousandNineteenAtTheMarketOfferingMember 2019-01-01 2019-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember nxrt:TwoThousandNineteenAtTheMarketOfferingMember 2019-01-01 2019-12-31 0001620393 nxrt:TwoThousandNineteenAtTheMarketOfferingMember 2019-01-01 2019-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-12-31 0001620393 us-gaap:CommonStockMember 2019-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2019-12-31 0001620393 us-gaap:RetainedEarningsMember 2019-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-12-31 0001620393 us-gaap:RetainedEarningsMember 2020-01-01 2020-12-31 0001620393 us-gaap:TreasuryStockCommonMember 2020-01-01 2020-12-31 0001620393 us-gaap:CommonStockMember 2020-01-01 2020-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2020-01-01 2020-12-31 0001620393 us-gaap:CommonStockMember nxrt:TwoThousandAndTwentyAtTheMarketOfferingMember 2020-01-01 2020-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember nxrt:TwoThousandAndTwentyAtTheMarketOfferingMember 2020-01-01 2020-12-31 0001620393 nxrt:TwoThousandAndTwentyAtTheMarketOfferingMember 2020-01-01 2020-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-01-01 2020-12-31 0001620393 us-gaap:CommonStockMember 2020-12-31 0001620393 us-gaap:AccumulatedDistributionsInExcessOfNetIncomeMember 2020-12-31 0001620393 us-gaap:RetainedEarningsMember 2020-12-31 0001620393 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2020-12-31 0001620393 us-gaap:AccountingStandardsUpdate201811Member 2020-01-01 2020-12-31 0001620393 srt:MultifamilyMember 2020-01-01 2020-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember 2020-01-01 2020-12-31 xbrli:pure 0001620393 nxrt:OperatingPartnershipMember 2020-01-01 2020-12-31 0001620393 nxrt:TRSMember 2020-01-01 2020-12-31 0001620393 nxrt:NexPointResidentialTrustOperatingPartnershipLPMember 2020-01-01 2020-12-31 0001620393 nxrt:NoncontrollingLimitedPartnerMember nxrt:BHEquityMember 2020-12-31 0001620393 nxrt:BHEquityMember 2020-01-01 2020-12-31 0001620393 srt:MaximumMember 2020-12-31 0001620393 us-gaap:AccountingStandardsUpdate201409Member 2020-12-31 0001620393 nxrt:AccountingStandardsUpdate201602And201811Member 2020-12-31 0001620393 nxrt:CalculatedUnderRevenueGuidanceInEffectBeforeTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2020-01-01 2020-12-31 0001620393 nxrt:CalculatedUnderRevenueGuidanceInEffectBeforeTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2019-01-01 2019-12-31 0001620393 nxrt:CalculatedUnderRevenueGuidanceInEffectBeforeTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2018-01-01 2018-12-31 0001620393 us-gaap:AccountingStandardsUpdate201811Member 2019-01-01 2019-12-31 0001620393 us-gaap:AccountingStandardsUpdate201811Member 2018-01-01 2018-12-31 0001620393 nxrt:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2020-01-01 2020-12-31 0001620393 nxrt:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2019-01-01 2019-12-31 0001620393 nxrt:DifferenceBetweenRevenueGuidanceInEffectBeforeAndAfterTopic842Member us-gaap:AccountingStandardsUpdate201811Member 2018-01-01 2018-12-31 0001620393 us-gaap:LandMember 2020-01-01 2020-12-31 0001620393 us-gaap:BuildingMember 2020-01-01 2020-12-31 0001620393 us-gaap:BuildingImprovementsMember 2020-01-01 2020-12-31 0001620393 nxrt:FurnitureFixturesAndEquipmentMember 2020-01-01 2020-12-31 0001620393 nxrt:IntangibleLeaseAssetsMember 2020-01-01 2020-12-31 nxrt:Property 0001620393 srt:MinimumMember 2020-01-01 2020-12-31 0001620393 us-gaap:AccountingStandardsUpdate201601Member 2020-12-31 0001620393 us-gaap:AccountingStandardsUpdate201615Member 2020-12-31 nxrt:Individual 0001620393 us-gaap:SubsequentEventMember 2021-01-29 2021-01-29 0001620393 us-gaap:SubsequentEventMember 2021-01-14 nxrt:subsidiary 0001620393 nxrt:ArborsOnForestRidgeMember nxrt:BedfordTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:CuttersPointMember nxrt:RichardsonTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:EagleCrestMember nxrt:IrvingTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:SilverbrookMember nxrt:GrandPrairieTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember nxrt:AntiochTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:WillowGroveMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:WoodbridgeMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember nxrt:TampaFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:CourtneyCoveMember nxrt:TampaFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:RadbourneLakeMember nxrt:CharlotteNorthCarolinaMember 2020-01-01 2020-12-31 0001620393 nxrt:TimberCreekMember nxrt:CharlotteNorthCarolinaMember 2020-01-01 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember nxrt:OrlandoFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:SouthpointReserveAtStoneyCreekMember nxrt:FredericksburgVirginiaMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:OrlandoFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember nxrt:MariettaGeorgiaMember 2020-01-01 2020-12-31 0001620393 nxrt:VersaillesMember nxrt:DallasTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember nxrt:WestPalmBeachFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:MaderaPointMember nxrt:MesaArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember nxrt:FortWorthTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:WestPalmBeachFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember nxrt:PhoenixArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:OldFarmMember nxrt:HoustonTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember nxrt:HoustonTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:HollisterPlaceMember nxrt:HoustonTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember nxrt:MariettaGeorgiaMember 2020-01-01 2020-12-31 0001620393 nxrt:AteraApartmentsMember nxrt:DallasTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:CedarPointeMember nxrt:AntiochTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:CrestmontReserveMember nxrt:DallasTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaVistaMember nxrt:PhoenixArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:EnclaveMember nxrt:TempeArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:HeritageMember nxrt:PhoenixArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:SummersLandingMember nxrt:FortWorthTexasMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember nxrt:OrlandoFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember nxrt:PembrokePinesFloridaMember 2020-01-01 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember nxrt:LasVegasNVMember 2020-01-01 2020-12-31 0001620393 nxrt:BloomMember nxrt:LasVegasNVMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaSolaraMember nxrt:LasVegasNVMember 2020-01-01 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember nxrt:ChandlerArizonaMember 2020-01-01 2020-12-31 0001620393 nxrt:ArborsOnForestRidgeMember nxrt:BedfordTexasMember 2020-12-31 0001620393 nxrt:CuttersPointMember nxrt:RichardsonTexasMember 2020-12-31 0001620393 nxrt:SilverbrookMember nxrt:GrandPrairieTexasMember 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember nxrt:AntiochTennesseeMember 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember nxrt:TampaFloridaMember 2020-12-31 0001620393 nxrt:CourtneyCoveMember nxrt:TampaFloridaMember 2020-12-31 0001620393 nxrt:RadbourneLakeMember nxrt:CharlotteNorthCarolinaMember 2020-12-31 0001620393 nxrt:TimberCreekMember nxrt:CharlotteNorthCarolinaMember 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember nxrt:OrlandoFloridaMember 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:OrlandoFloridaMember 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember nxrt:MariettaGeorgiaMember 2020-12-31 0001620393 nxrt:VersaillesMember nxrt:DallasTexasMember 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember nxrt:WestPalmBeachFloridaMember 2020-12-31 0001620393 nxrt:MaderaPointMember nxrt:MesaArizonaMember 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember nxrt:FortWorthTexasMember 2020-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:WestPalmBeachFloridaMember 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember nxrt:PhoenixArizonaMember 2020-12-31 0001620393 nxrt:OldFarmMember nxrt:HoustonTexasMember 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember nxrt:HoustonTexasMember 2020-12-31 0001620393 nxrt:HollisterPlaceMember nxrt:HoustonTexasMember 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember nxrt:MariettaGeorgiaMember 2020-12-31 0001620393 nxrt:AteraApartmentsMember nxrt:DallasTexasMember 2020-12-31 0001620393 nxrt:CedarPointeMember nxrt:AntiochTennesseeMember 2020-12-31 0001620393 nxrt:CrestmontReserveMember nxrt:DallasTexasMember 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember nxrt:NashvilleTennesseeMember 2020-12-31 0001620393 nxrt:BellaVistaMember nxrt:PhoenixArizonaMember 2020-12-31 0001620393 nxrt:EnclaveMember nxrt:TempeArizonaMember 2020-12-31 0001620393 nxrt:HeritageMember nxrt:PhoenixArizonaMember 2020-12-31 0001620393 nxrt:SummersLandingMember nxrt:FortWorthTexasMember 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember nxrt:NashvilleTennesseeMember 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember nxrt:OrlandoFloridaMember 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember nxrt:PembrokePinesFloridaMember 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember nxrt:NashvilleTennesseeMember 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember nxrt:LasVegasNVMember 2020-12-31 0001620393 nxrt:BloomMember nxrt:LasVegasNVMember 2020-12-31 0001620393 nxrt:BellaSolaraMember nxrt:LasVegasNVMember 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember nxrt:ChandlerArizonaMember 2020-12-31 0001620393 nxrt:ArborsOnForestRidgeMember nxrt:BedfordTexasMember 2019-12-31 0001620393 nxrt:CuttersPointMember nxrt:RichardsonTexasMember 2019-12-31 0001620393 nxrt:EagleCrestMember nxrt:IrvingTexasMember 2019-12-31 0001620393 nxrt:SilverbrookMember nxrt:GrandPrairieTexasMember 2019-12-31 0001620393 nxrt:BeechwoodTerraceMember nxrt:AntiochTennesseeMember 2019-12-31 0001620393 nxrt:WillowGroveMember nxrt:NashvilleTennesseeMember 2019-12-31 0001620393 nxrt:WoodbridgeMember nxrt:NashvilleTennesseeMember 2019-12-31 0001620393 nxrt:TheSummitAtSabalParkMember nxrt:TampaFloridaMember 2019-12-31 0001620393 nxrt:CourtneyCoveMember nxrt:TampaFloridaMember 2019-12-31 0001620393 nxrt:RadbourneLakeMember nxrt:CharlotteNorthCarolinaMember 2019-12-31 0001620393 nxrt:TimberCreekMember nxrt:CharlotteNorthCarolinaMember 2019-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember nxrt:OrlandoFloridaMember 2019-12-31 0001620393 nxrt:SouthpointReserveAtStoneyCreekMember nxrt:FredericksburgVirginiaMember 2019-12-31 0001620393 nxrt:CornerstoneMember nxrt:OrlandoFloridaMember 2019-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember nxrt:MariettaGeorgiaMember 2019-12-31 0001620393 nxrt:VersaillesMember nxrt:DallasTexasMember 2019-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember nxrt:WestPalmBeachFloridaMember 2019-12-31 0001620393 nxrt:MaderaPointMember nxrt:MesaArizonaMember 2019-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember nxrt:FortWorthTexasMember 2019-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:WestPalmBeachFloridaMember 2019-12-31 0001620393 nxrt:TheVenueOnCamelbackMember nxrt:PhoenixArizonaMember 2019-12-31 0001620393 nxrt:OldFarmMember nxrt:HoustonTexasMember 2019-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember nxrt:HoustonTexasMember 2019-12-31 0001620393 nxrt:HollisterPlaceMember nxrt:HoustonTexasMember 2019-12-31 0001620393 nxrt:RockledgeApartmentsMember nxrt:MariettaGeorgiaMember 2019-12-31 0001620393 nxrt:AteraApartmentsMember nxrt:DallasTexasMember 2019-12-31 0001620393 nxrt:CedarPointeMember nxrt:AntiochTennesseeMember 2019-12-31 0001620393 nxrt:CrestmontReserveMember nxrt:DallasTexasMember 2019-12-31 0001620393 nxrt:BrandywineOneAndTwoMember nxrt:NashvilleTennesseeMember 2019-12-31 0001620393 nxrt:BellaVistaMember nxrt:PhoenixArizonaMember 2019-12-31 0001620393 nxrt:EnclaveMember nxrt:TempeArizonaMember 2019-12-31 0001620393 nxrt:HeritageMember nxrt:PhoenixArizonaMember 2019-12-31 0001620393 nxrt:SummersLandingMember nxrt:FortWorthTexasMember 2019-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember nxrt:NashvilleTennesseeMember 2019-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember nxrt:OrlandoFloridaMember 2019-12-31 0001620393 nxrt:AvantAtPembrokePinesMember nxrt:PembrokePinesFloridaMember 2019-12-31 0001620393 nxrt:ArborsOfBrentwoodMember nxrt:NashvilleTennesseeMember 2019-12-31 0001620393 nxrt:TorreyanaApartmentsMember nxrt:LasVegasNVMember 2019-12-31 0001620393 nxrt:BloomMember nxrt:LasVegasNVMember 2019-12-31 0001620393 nxrt:BellaSolaraMember nxrt:LasVegasNVMember 2019-12-31 0001620393 srt:MultifamilyMember 2019-07-17 2019-07-17 0001620393 srt:MultifamilyMember 2020-12-31 utr:sqft 0001620393 nxrt:ArborsOnForestRidgeMember 2020-12-31 0001620393 nxrt:CuttersPointMember 2020-12-31 0001620393 nxrt:SilverbrookMember 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember 2020-12-31 0001620393 nxrt:CourtneyCoveMember 2020-12-31 0001620393 nxrt:RadbourneLakeMember 2020-12-31 0001620393 nxrt:TimberCreekMember 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember 2020-12-31 0001620393 nxrt:CornerstoneMember 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember 2020-12-31 0001620393 nxrt:VersaillesMember 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember 2020-12-31 0001620393 nxrt:MaderaPointMember 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember 2020-12-31 0001620393 nxrt:ParcFiveHundredMember 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember 2020-12-31 0001620393 nxrt:OldFarmMember 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember 2020-12-31 0001620393 nxrt:HollisterPlaceMember 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember 2020-12-31 0001620393 nxrt:AteraApartmentsMember 2020-12-31 0001620393 nxrt:CedarPointeMember 2020-12-31 0001620393 nxrt:CrestmontReserveMember 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember 2020-12-31 0001620393 nxrt:BellaVistaMember 2020-12-31 0001620393 nxrt:EnclaveMember 2020-12-31 0001620393 nxrt:HeritageMember 2020-12-31 0001620393 nxrt:SummersLandingMember 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember 2020-12-31 0001620393 nxrt:BloomMember 2020-12-31 0001620393 nxrt:BellaSolaraMember 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember 2020-12-31 0001620393 nxrt:ArborsOnForestRidgeMember 2020-01-01 2020-12-31 0001620393 nxrt:CuttersPointMember 2020-01-01 2020-12-31 0001620393 nxrt:SilverbrookMember 2020-01-01 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember 2020-01-01 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember 2020-01-01 2020-12-31 0001620393 nxrt:CourtneyCoveMember 2020-01-01 2020-12-31 0001620393 nxrt:RadbourneLakeMember 2020-01-01 2020-12-31 0001620393 nxrt:TimberCreekMember 2020-01-01 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember 2020-01-01 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember 2020-01-01 2020-12-31 0001620393 nxrt:VersaillesMember 2020-01-01 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember 2020-01-01 2020-12-31 0001620393 nxrt:MaderaPointMember 2020-01-01 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember 2020-01-01 2020-12-31 0001620393 nxrt:ParcFiveHundredMember 2020-01-01 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember 2020-01-01 2020-12-31 0001620393 nxrt:OldFarmMember 2020-01-01 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember 2020-01-01 2020-12-31 0001620393 nxrt:HollisterPlaceMember 2020-01-01 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember 2020-01-01 2020-12-31 0001620393 nxrt:AteraApartmentsMember 2020-01-01 2020-12-31 0001620393 nxrt:CedarPointeMember 2020-01-01 2020-12-31 0001620393 nxrt:CrestmontReserveMember 2020-01-01 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaVistaMember 2020-01-01 2020-12-31 0001620393 nxrt:EnclaveMember 2020-01-01 2020-12-31 0001620393 nxrt:HeritageMember 2020-01-01 2020-12-31 0001620393 nxrt:SummersLandingMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember 2020-01-01 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember 2020-01-01 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember 2020-01-01 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember 2020-01-01 2020-12-31 0001620393 nxrt:BloomMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaSolaraMember 2020-01-01 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember 2020-01-01 2020-12-31 iso4217:USD nxrt:Property 0001620393 nxrt:ArborsOnForestRidgeMember 2019-12-31 0001620393 nxrt:SilverbrookMember 2019-12-31 0001620393 nxrt:BeechwoodTerraceMember 2019-12-31 0001620393 nxrt:TheSummitAtSabalParkMember 2019-12-31 0001620393 nxrt:CourtneyCoveMember 2019-12-31 0001620393 nxrt:RadbourneLakeMember 2019-12-31 0001620393 nxrt:TimberCreekMember 2019-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember 2019-12-31 0001620393 nxrt:CornerstoneMember 2019-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember 2019-12-31 0001620393 nxrt:VersaillesMember 2019-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember 2019-12-31 0001620393 nxrt:MaderaPointMember 2019-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember 2019-12-31 0001620393 nxrt:ParcFiveHundredMember 2019-12-31 0001620393 nxrt:TheVenueOnCamelbackMember 2019-12-31 0001620393 nxrt:OldFarmMember 2019-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember 2019-12-31 0001620393 nxrt:HollisterPlaceMember 2019-12-31 0001620393 nxrt:RockledgeApartmentsMember 2019-12-31 0001620393 nxrt:AteraApartmentsMember 2019-12-31 0001620393 nxrt:CedarPointeMember 2019-12-31 0001620393 nxrt:CrestmontReserveMember 2019-12-31 0001620393 nxrt:BrandywineOneAndTwoMember 2019-12-31 0001620393 nxrt:BellaVistaMember 2019-12-31 0001620393 nxrt:EnclaveMember 2019-12-31 0001620393 nxrt:HeritageMember 2019-12-31 0001620393 nxrt:SummersLandingMember 2019-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember 2019-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember 2019-12-31 0001620393 nxrt:AvantAtPembrokePinesMember 2019-12-31 0001620393 nxrt:ArborsOfBrentwoodMember 2019-12-31 0001620393 nxrt:TorreyanaApartmentsMember 2019-12-31 0001620393 nxrt:BloomMember 2019-12-31 0001620393 nxrt:BellaSolaraMember 2019-12-31 0001620393 nxrt:ArborsOnForestRidgeMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:CuttersPointMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:SilverbrookMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:CourtneyCoveMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:RadbourneLakeMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TimberCreekMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:CornerstoneMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:VersaillesMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:MaderaPointMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:ParcFiveHundredMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:OldFarmMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:HollisterPlaceMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:AteraApartmentsMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:CedarPointeMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:CrestmontReserveMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:BellaVistaMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TheEnclaveMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TheHeritageMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:SummersLandingMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:BloomMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:BellaSolaraMember srt:MultifamilyMember 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember srt:MultifamilyMember 2020-12-31 0001620393 us-gaap:LandMember srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 us-gaap:BuildingImprovementsMember srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 nxrt:IntangibleLeaseAssetsMember srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 us-gaap:ConstructionInProgressMember srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 nxrt:FurnitureFixturesAndEquipmentMember srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 srt:MultifamilyMember nxrt:OperatingPropertiesMember 2020-12-31 0001620393 nxrt:ArborsOnForestRidgeMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:CuttersPointMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:EagleCrestMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:SilverbrookMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:BeechwoodTerraceMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TheSummitAtSabalParkMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:CourtneyCoveMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RadbourneLakeMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TimberCreekMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:CornerstoneMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:VersaillesMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:MaderaPointMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:ParcFiveHundredMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TheVenueOnCamelbackMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OldFarmMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:HollisterPlaceMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RockledgeApartmentsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:AteraApartmentsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:CedarPointeMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:CrestmontReserveMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:BrandywineOneAndTwoMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:BellaVistaMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TheEnclaveMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TheHeritageMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:SummersLandingMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:AvantAtPembrokePinesMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:ArborsOfBrentwoodMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:TorreyanaApartmentsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:BloomMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:BellaSolaraMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:SouthpointReserveAtStoneyCreekMember nxrt:RealEstatePropertiesHeldForSaleMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:WoodbridgeMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:WillowGroveMember srt:MultifamilyMember 2019-12-31 0001620393 srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember us-gaap:LandMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember us-gaap:BuildingImprovementsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember nxrt:IntangibleLeaseAssetsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember us-gaap:ConstructionInProgressMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember nxrt:FurnitureFixturesAndEquipmentMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:OperatingPropertiesMember srt:MultifamilyMember 2019-12-31 0001620393 us-gaap:LandMember srt:MultifamilyMember 2019-12-31 0001620393 us-gaap:BuildingImprovementsMember srt:MultifamilyMember 2019-12-31 0001620393 us-gaap:ConstructionInProgressMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:FurnitureFixturesAndEquipmentMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember us-gaap:LandMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember us-gaap:BuildingImprovementsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember us-gaap:ConstructionInProgressMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember nxrt:FurnitureFixturesAndEquipmentMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:RealEstatePropertiesHeldForSaleMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:IntangibleLeaseAssetsMember srt:MultifamilyMember 2019-12-31 0001620393 nxrt:IntangibleLeaseAssetsMember 2020-12-31 0001620393 nxrt:ChandlerArizonaMember nxrt:FairwaysAtSanMarcosMember 2019-01-01 2019-12-31 0001620393 nxrt:ChandlerArizonaMember nxrt:FairwaysAtSanMarcosMember 2019-12-31 0001620393 nxrt:SouthpointReserveAtStoneyCreekMember nxrt:FredericksburgMember 2020-01-01 2020-12-31 0001620393 nxrt:WillowdaleCrossingsMember nxrt:NashvilleTennesseeMember 2020-01-01 2020-12-31 0001620393 nxrt:CuttersPointMember 2019-10-20 2019-10-20 0001620393 nxrt:CuttersPointMember 2019-01-01 2019-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember 2020-06-10 2020-06-10 0001620393 nxrt:TimberCreekMember 2020-11-26 2020-11-26 0001620393 nxrt:ArborsOnForestRidgeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:CuttersPointMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:SilverbrookMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:CourtneyCoveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:VersaillesMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:MaderaPointMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:OldFarmMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TimberCreekMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:RadbourneLakeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:HollisterPlaceMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:AteraApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:CedarPointeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:CrestmontReserveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaVistaMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TheEnclaveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TheHeritageMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:SummersLandingMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:BloomMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:BellaSolaraMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-01-01 2020-12-31 0001620393 nxrt:ArborsOnForestRidgeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:CuttersPointMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:SilverbrookMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:BeechwoodTerraceMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TheSummitAtSabalParkMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:CourtneyCoveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:ThePreserveAtTerrellMillMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:VersaillesMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:SeasonsSevenZeroFourApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:MaderaPointMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:VenueAtEightSixFiveOneMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TheVenueOnCamelbackMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:OldFarmMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:StoneCreekAtOldFarmMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TimberCreekMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:RadbourneLakeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:SabalPalmAtLakeBuenaVistaMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:HollisterPlaceMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:RockledgeApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:AteraApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:CedarPointeMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:CrestmontReserveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:BrandywineOneAndTwoMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:BellaVistaMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TheEnclaveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TheHeritageMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:SummersLandingMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:ResidencesAtWestPlaceMember nxrt:DebtWithFixedInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:AvantAtPembrokePinesMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:ArborsOfBrentwoodMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:TorreyanaApartmentsMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:BloomMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:BellaSolaraMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:FairwaysAtSanMarcosMember nxrt:DebtWithFloatingInterestRateMember us-gaap:MortgagesMember 2020-12-31 0001620393 nxrt:OperatingPropertiesMember us-gaap:MortgagesMember 2020-12-31 0001620393 us-gaap:LondonInterbankOfferedRateLIBORMember 2020-12-31 0001620393 nxrt:AverageSecuredOvernightFinancingRateMember 2020-12-31 0001620393 nxrt:ThirteenthMonthThroughEightyOneMonthMember 2020-01-01 2020-12-31 0001620393 nxrt:FirstTwelveMonthsMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember us-gaap:FirstMortgageMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember us-gaap:SecondMortgageMember 2020-01-01 2020-12-31 0001620393 nxrt:CornerstoneMember nxrt:DebtWithFixedInterestRateMember us-gaap:SecondMortgageMember 2020-12-31 0001620393 nxrt:ParcFiveHundredMember nxrt:LastFourMonthsMember 2020-01-01 2020-12-31 0001620393 nxrt:ThirteenthMonthThroughEightyOneMonthMember nxrt:DebtWithFloatingInterestRateMember nxrt:CedarPointeMember 2020-01-01 2020-12-31 0001620393 nxrt:FirstTwelveMonthsMember nxrt:DebtWithFloatingInterestRateMember nxrt:CedarPointeMember 2020-01-01 2020-12-31 0001620393 nxrt:ThirteenthMonthThroughEightyOneMonthMember nxrt:DebtWithFloatingInterestRateMember nxrt:TorreyanaAndBloomAndBellaSolaraMember 2020-01-01 2020-12-31 0001620393 nxrt:FirstTwelveMonthsMember nxrt:DebtWithFloatingInterestRateMember nxrt:TorreyanaAndBloomAndBellaSolaraMember 2020-01-01 2020-12-31 0001620393 nxrt:ThirteenthMonthThroughEightyOneMonthMember nxrt:DebtWithFloatingInterestRateMember nxrt:SummersLandingMember 2020-01-01 2020-12-31 0001620393 nxrt:FirstTwelveMonthsMember nxrt:DebtWithFloatingInterestRateMember nxrt:SummersLandingMember 2020-01-01 2020-12-31 0001620393 nxrt:ResidencesAtGlenviewReserveAndWestPlaceMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember nxrt:SouthpointReserveMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember nxrt:WillowGroveMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember nxrt:WoodbridgeMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember nxrt:EagleCrestMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember 2020-12-31 0001620393 us-gaap:MortgagesMember 2019-12-31 0001620393 us-gaap:MortgagesMember nxrt:FloatingInterestRateSwapMember 2020-12-31 0001620393 us-gaap:MortgagesMember us-gaap:InterestRateSwapMember 2020-12-31 0001620393 us-gaap:MortgagesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-01-01 2020-12-31 0001620393 us-gaap:MortgagesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2020-12-31 0001620393 us-gaap:MortgagesMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-12-31 0001620393 nxrt:FreddieMacMultifamilyGreenAdvantageProgramMember 2020-01-01 2020-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:DebtWithFloatingInterestRateMember 2020-01-01 2020-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:DebtWithFloatingInterestRateMember 2020-12-31 0001620393 nxrt:CorporateCreditFacilityMember 2020-12-31 0001620393 us-gaap:LondonInterbankOfferedRateLIBORMember nxrt:CorporateCreditFacilityMember 2020-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-01-27 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember nxrt:AccordionFeatureMember srt:MaximumMember 2019-01-27 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember us-gaap:LondonInterbankOfferedRateLIBORMember 2019-01-27 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember us-gaap:LondonInterbankOfferedRateLIBORMember srt:MinimumMember 2019-01-27 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember us-gaap:LondonInterbankOfferedRateLIBORMember srt:MaximumMember 2019-01-27 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember nxrt:AccordionFeatureMember 2019-01-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember nxrt:AccordionFeatureMember 2019-06-29 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-08-27 2019-08-28 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-11-19 2019-11-20 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2020-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2019-01-01 2019-12-31 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2020-10-13 2020-10-13 0001620393 nxrt:CorporateCreditFacilityMember nxrt:TruistBankMember 2020-01-01 2020-12-31 0001620393 nxrt:SixtyMillionCreditFacilityMember nxrt:KeyBankMember 2016-12-29 0001620393 nxrt:SixtyMillionCreditFacilityMember nxrt:KeyBankMember 2018-04-27 0001620393 nxrt:SixtyMillionCreditFacilityMember nxrt:KeyBankMember 2018-04-26 2018-04-27 0001620393 nxrt:SixtyMillionCreditFacilityMember nxrt:KeyBankMember 2018-07-25 2018-07-25 0001620393 nxrt:ThirtyMillionCreditFacilityMember 2018-09-26 2018-09-26 0001620393 nxrt:SixtyMillionCreditFacilityMember 2018-09-26 0001620393 nxrt:SixtyMillionCreditFacilityMember 2018-09-26 2018-09-26 0001620393 nxrt:SixtyMillionCreditFacilityMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-09-26 2018-09-26 0001620393 nxrt:SixtyMillionCreditFacilityMember 2018-11-01 2018-11-30 0001620393 nxrt:SixtyMillionCreditFacilityMember nxrt:KeyBankMember 2018-11-01 2018-11-30 0001620393 nxrt:ThirtyMillionBridgeFacilityMember nxrt:KeyBankMember 2018-09-26 0001620393 nxrt:ThirtyMillionBridgeFacilityMember nxrt:KeyBankMember 2018-09-26 2018-09-26 0001620393 nxrt:ThirtyMillionBridgeFacilityMember nxrt:KeyBankMember us-gaap:LondonInterbankOfferedRateLIBORMember 2018-09-26 2018-09-26 0001620393 nxrt:ThirtyMillionBridgeFacilityMember nxrt:KeyBankMember 2018-11-01 2018-11-30 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2017-06-30 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2017-07-01 2017-07-31 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2017-10-01 2017-10-31 0001620393 2017-10-01 2017-10-31 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2017-10-31 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2018-02-28 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2017-06-27 2017-06-30 0001620393 us-gaap:InterestExpenseMember 2020-01-01 2020-12-31 0001620393 us-gaap:InterestExpenseMember 2019-01-01 2019-12-31 0001620393 us-gaap:InterestExpenseMember 2018-01-01 2018-12-31 0001620393 nxrt:OperatingPropertiesMember 2020-12-31 0001620393 nxrt:CreditFacilityMember 2020-12-31 0001620393 srt:MinimumMember us-gaap:InterestRateSwapMember 2020-01-01 2020-12-31 0001620393 us-gaap:InterestRateSwapMember srt:MaximumMember 2020-01-01 2020-12-31 0001620393 srt:MinimumMember nxrt:OneMonthLIBORMember us-gaap:InterestRateCapMember 2020-01-01 2020-12-31 0001620393 nxrt:OneMonthLIBORMember us-gaap:InterestRateCapMember srt:MaximumMember 2020-01-01 2020-12-31 0001620393 us-gaap:InterestRateCapMember 2020-12-31 0001620393 us-gaap:InterestRateCapMember 2020-01-01 2020-12-31 0001620393 us-gaap:DesignatedAsHedgingInstrumentMember 2020-01-01 2020-12-31 0001620393 us-gaap:DesignatedAsHedgingInstrumentMember 2019-01-01 2019-12-31 0001620393 us-gaap:DesignatedAsHedgingInstrumentMember 2018-01-01 2018-12-31 0001620393 us-gaap:InterestRateSwapMember nxrt:OneMonthLIBORMember 2020-12-31 0001620393 us-gaap:InterestRateSwapMember nxrt:OneMonthLIBORMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionOneMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwoMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThreeMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionFourMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionFiveMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionSixMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionSevenMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionEightMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionNineMember nxrt:TruistBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTenMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionElevenMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwelveMember nxrt:KeyBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThirteenMember nxrt:TruistBankMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionOneMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwoMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThreeMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionFourMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionFiveMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionSixMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionSevenMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionEightMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionNineMember nxrt:TruistBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTenMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionElevenMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwelveMember nxrt:KeyBankMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThirteenMember nxrt:TruistBankMember 2020-12-31 0001620393 nxrt:KeyBankAndTruistBankMember 2020-12-31 0001620393 nxrt:KeyBankAndTruistBankMember nxrt:OneMonthLIBORMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionOneMember nxrt:KeyBankMember us-gaap:FutureMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwoMember nxrt:KeyBankMember us-gaap:FutureMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThreeMember nxrt:KeyBankMember us-gaap:FutureMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionOneMember nxrt:KeyBankMember us-gaap:FutureMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionTwoMember nxrt:KeyBankMember us-gaap:FutureMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionThreeMember nxrt:KeyBankMember us-gaap:FutureMember 2020-12-31 0001620393 nxrt:InterestRateSwapTransactionFourMember nxrt:KeyBankMember us-gaap:FutureMember 2020-12-31 0001620393 nxrt:KeyBankMember us-gaap:FutureMember 2020-12-31 0001620393 nxrt:KeyBankAndTruistBankMember nxrt:OneMonthLIBORMember us-gaap:FutureMember 2020-12-31 nxrt:DerivativeInstrument 0001620393 us-gaap:NondesignatedMember 2020-12-31 0001620393 us-gaap:NondesignatedMember 2019-12-31 0001620393 us-gaap:NondesignatedMember 2018-12-31 0001620393 nxrt:PrepaidExpenseAndOtherAssetsMember us-gaap:InterestRateCapMember us-gaap:NondesignatedMember 2020-12-31 0001620393 nxrt:FairMarketValueOfInterestRateSwapsMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2019-12-31 0001620393 nxrt:FairMarketValueOfInterestRateSwapsMember us-gaap:InterestRateSwapMember us-gaap:DesignatedAsHedgingInstrumentMember 2020-12-31 0001620393 nxrt:InterestRateProductsMember us-gaap:InterestExpenseMember 2020-01-01 2020-12-31 0001620393 nxrt:InterestRateProductsMember us-gaap:InterestExpenseMember 2019-01-01 2019-12-31 0001620393 nxrt:InterestRateProductsMember us-gaap:InterestExpenseMember 2018-01-01 2018-12-31 0001620393 nxrt:FixedRateDebtMember 2020-12-31 0001620393 nxrt:FloatingRateDebtMember 2020-12-31 0001620393 nxrt:FixedRateDebtMember 2019-12-31 0001620393 nxrt:FloatingRateDebtMember 2019-12-31 0001620393 2018-11-13 2018-11-14 0001620393 2018-11-14 0001620393 nxrt:SixtyMillionCreditFacilityMember 2018-11-14 0001620393 nxrt:SixtyMillionCreditFacilityMember 2018-11-13 2018-11-14 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2018-11-14 0001620393 nxrt:TwoThousandSeventeenBridgeFacilityMember 2018-11-13 2018-11-14 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember 2019-01-01 2019-12-31 0001620393 nxrt:AtTheMarketOfferingMember 2020-01-01 2020-12-31 0001620393 nxrt:AtTheMarketOfferingMember 2019-01-01 2019-12-31 0001620393 2016-06-15 0001620393 2016-06-14 2016-06-15 0001620393 2018-04-30 0001620393 2018-04-29 2018-04-30 0001620393 2020-03-13 0001620393 2020-03-12 2020-03-13 0001620393 2014-09-01 2020-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember 2016-06-15 0001620393 srt:MinimumMember nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:OfficersEmployeesAndCertainKeyEmployeesOfAdviserMember 2019-01-01 2019-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:OfficersEmployeesAndCertainKeyEmployeesOfAdviserMember srt:MaximumMember 2019-01-01 2019-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember srt:DirectorMember 2019-01-01 2019-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsAndOfficersMember 2016-08-11 2016-08-11 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsAndOfficersMember 2017-03-16 2017-03-16 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsOfficersEmployeesAndCertainKeyEmployeesOfAdviserMember 2019-02-21 2019-02-21 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsOfficersEmployeesAndCertainKeyEmployeesOfAdviserMember 2018-02-14 2018-02-15 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsOfficersEmployeesAndCertainKeyEmployeesOfAdviserMember 2020-02-20 2020-02-20 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember nxrt:DirectorsOfficersEmployeesAndCertainKeyEmployeesOfAdviserMember 2020-05-11 2020-05-11 0001620393 us-gaap:RestrictedStockUnitsRSUMember 2019-12-31 0001620393 us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-12-31 0001620393 us-gaap:RestrictedStockUnitsRSUMember 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheOneMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheOneMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheOneMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheTwoMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheTwoMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheTwoMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheThreeMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheThreeMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 us-gaap:ShareBasedCompensationAwardTrancheThreeMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFourMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFourMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFourMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFiveMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFiveMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheFiveMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheSixMember nxrt:FebruaryMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheSixMember nxrt:MayMember 2020-01-01 2020-12-31 0001620393 nxrt:ShareBasedCompensationAwardTrancheSixMember 2020-01-01 2020-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember 2020-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember 2020-01-01 2020-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-12-31 0001620393 nxrt:TwoThousandSixteenLongTermIncentivePlanMember us-gaap:RestrictedStockUnitsRSUMember 2020-12-31 0001620393 nxrt:TwoThousandNineteenAtTheMarketOfferingMember us-gaap:CommonStockMember 2019-02-20 0001620393 srt:MaximumMember nxrt:TwoThousandNineteenAtTheMarketOfferingMember us-gaap:CommonStockMember 2019-02-20 2019-02-20 0001620393 nxrt:TwoThousandNineteenAtTheMarketOfferingMember 2020-01-01 2020-03-31 0001620393 nxrt:TwoThousandNineteenAtTheMarketOfferingMember 2020-01-01 2020-12-31 0001620393 srt:MaximumMember nxrt:TwoThousandNineteenAtTheMarketOfferingMember us-gaap:CommonStockMember 2020-02-27 2020-02-27 0001620393 2019-02-20 2019-02-20 0001620393 2019-02-20 0001620393 nxrt:AbbingtonHeightsMember us-gaap:CommonStockMember 2020-03-04 0001620393 srt:MaximumMember nxrt:AbbingtonHeightsMember us-gaap:CommonStockMember 2020-03-03 2020-03-04 0001620393 nxrt:AbbingtonHeightsMember 2020-01-01 2020-12-31 0001620393 2020-03-03 2020-03-04 0001620393 2020-03-04 0001620393 nxrt:BHBuyoutPortfolioMember 2017-06-30 0001620393 nxrt:BHEquityMember nxrt:BHBuyoutPortfolioMember 2017-06-30 0001620393 nxrt:BHBuyoutPortfolioMember 2017-06-29 2017-06-30 0001620393 nxrt:BHBuyoutPortfolioMember 2017-08-01 0001620393 2017-08-01 0001620393 2017-06-29 2017-06-30 0001620393 nxrt:BHManagementServicesLLCMember 2020-01-01 2020-12-31 0001620393 nxrt:BHManagementServicesLLCMember srt:MinimumMember 2020-01-01 2020-12-31 0001620393 nxrt:BHManagementServicesLLCMember srt:MaximumMember 2020-01-01 2020-12-31 iso4217:USD utr:H 0001620393 nxrt:BHManagementServicesLLCMember 2019-01-01 2019-12-31 0001620393 nxrt:BHManagementServicesLLCMember 2018-01-01 2018-12-31 0001620393 nxrt:NexPointAdvisorsMember 2020-01-01 2020-12-31 0001620393 srt:MaximumMember nxrt:NexPointAdvisorsMember 2020-01-01 2020-12-31 0001620393 nxrt:NexPointAdvisorsMember 2019-01-01 2019-12-31 0001620393 nxrt:NexPointAdvisorsMember 2018-01-01 2018-12-31 0001620393 nxrt:NexBankTitleIncMember 2020-01-01 2020-12-31 0001620393 nxrt:NexBankTitleIncMember 2019-01-01 2019-12-31 0001620393 nxrt:NexBankTitleIncMember 2018-01-01 2018-12-31 0001620393 srt:AffiliatedEntityMember 2019-01-01 2019-12-31 0001620393 srt:AffiliatedEntityMember 2018-11-13 2018-11-14 0001620393 srt:AffiliatedEntityMember 2018-11-14 0001620393 nxrt:SelfInsuranceProgramMember 2019-03-01 2019-03-01 0001620393 nxrt:SelfInsuranceProgramMember nxrt:CuttersPointMember 2019-12-01 2019-12-31 0001620393 nxrt:SelfInsuranceProgramMember nxrt:CuttersPointMember 2020-01-01 2020-03-31 0001620393 nxrt:SelfInsuranceProgramMember 2020-01-01 2020-12-31 nxrt:Claim 0001620393 nxrt:SelfInsuranceProgramMember nxrt:CuttersPointMember 2020-01-01 2020-12-31 0001620393 nxrt:SelfInsuranceProgramMember 2020-03-01 2020-03-01 0001620393 nxrt:SelfInsuranceProgramMember nxrt:VenueAtEightSixFiveOneMember 2020-01-01 2020-12-31 0001620393 nxrt:SelfInsuranceProgramMember nxrt:TimberCreekMember 2020-01-01 2020-12-31 0001620393 nxrt:SelfInsuranceProgramMember srt:ParentCompanyMember 2020-01-01 2020-12-31 0001620393 us-gaap:SubsequentEventMember 2021-02-15 0001620393 us-gaap:SubsequentEventMember 2021-02-15 2021-02-15 0001620393 us-gaap:SubsequentEventMember nxrt:OneFortyFiveThousandMillionInterestRateSwapMember nxrt:TruistBankMember 2021-02-17 0001620393 us-gaap:SubsequentEventMember nxrt:OneFortyFiveThousandMillionInterestRateSwapMember nxrt:TruistBankMember 2021-02-17 2021-02-17 0001620393 2020-01-01 2020-03-31 0001620393 2020-04-01 2020-06-30 0001620393 2020-07-01 2020-09-30 0001620393 2020-10-01 2020-12-31 0001620393 2019-01-01 2019-03-31 0001620393 2019-04-01 2019-06-30 0001620393 2019-07-01 2019-09-30 0001620393 2019-10-01 2019-12-31 0001620393 2018-01-01 2018-03-31 0001620393 2018-04-01 2018-06-30 0001620393 2018-07-01 2018-09-30 0001620393 2018-10-01 2018-12-31 0001620393 nxrt:FortWorthTexasMember nxrt:VenueAtEightSixFiveOneFkaThePlaceAtVanderbiltMember 2020-12-31 0001620393 nxrt:WestPalmBeachFloridaMember nxrt:ParcFiveHundredFkaCityViewMember 2020-12-31 0001620393 nxrt:TempeArizonaMember nxrt:TheEnclaveMember 2020-12-31 0001620393 nxrt:PhoenixArizonaMember nxrt:TheHeritageMember 2020-12-31 0001620393 nxrt:FortWorthTexasMember nxrt:VenueAtEightSixFiveOneFkaThePlaceAtVanderbiltMember 2020-01-01 2020-12-31 0001620393 nxrt:WestPalmBeachFloridaMember nxrt:ParcFiveHundredFkaCityViewMember 2020-01-01 2020-12-31 0001620393 nxrt:TempeArizonaMember nxrt:TheEnclaveMember 2020-01-01 2020-12-31 0001620393 nxrt:PhoenixArizonaMember nxrt:TheHeritageMember 2020-01-01 2020-12-31 0001620393 nxrt:GrossIntangibleLeaseAssetsMember 2020-12-31 0001620393 nxrt:BuildingsAndImprovementsAndFurnitureFixturesAndEquipmentMember 2020-12-31 0001620393 nxrt:TheColonnadeOldFarmStoneCreekAtOldFarmHollisterPlaceRockledgeApartmentsAteraApartmentsCedarPointeCrestmontReserveAndBrandywineOneAndTwoMember 2020-01-01 2020-12-31 0001620393 us-gaap:ConstructionInProgressMember 2020-12-31 0001620393 nxrt:FurnitureFixturesAndEquipmentMember 2020-12-31 0001620393 us-gaap:LeaseAgreementsMember 2020-12-31 0001620393 nxrt:ImprovementsMember 2020-01-01 2020-12-31 0001620393 us-gaap:LeaseAgreementsMember 2020-01-01 2020-12-31

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

FORM 10-K

 

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-36663

 

NexPoint Residential Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Maryland

 

47-1881359

(State or other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

300 Crescent Court, Suite 700, Dallas, Texas

 

75201

(Address of Principal Executive Offices)

 

(Zip Code)

(972) 628-4100

(Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $0.01 per share

 

NXRT

 

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes      No  

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes      No  

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

Accelerated Filer

Non-Accelerated Filer

 

Smaller reporting company

Emerging growth company

 

 

 

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.     

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The aggregate market value of the shares of common stock of the registrant held by non-affiliates of the registrant, based upon the closing price of such shares on June 30, 2020 was approximately $736,520,000.00.

As of February 22, 2021, the registrant had 25,067,948 shares of its common stock, par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement for the registrant’s 2021 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K.

 

 

 


 

NEXPOINT RESIDENTIAL TRUST, INC.

Form 10-K

Year Ended December 31, 2020

INDEX

 

 

 

Page

Cautionary Statement Regarding Forward-Looking Statements

 

ii

 

 

 

 

 

 

PART I

 

 

 

 

Item 1.

 

Business

 

4

Item 1A.

 

Risk Factors

 

17

Item 1B.

 

Unresolved Staff Comments

 

38

Item 2.

 

Properties

 

39

Item 3.

 

Legal Proceedings

 

40

Item 4.

 

Mine Safety Disclosures

 

40

 

 

 

 

 

 

PART II

 

 

 

 

Item 5.

 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

41

Item 6.

 

Selected Financial Data

 

43

Item 7.

 

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

 

44

Item 7A.

 

Quantitative and Qualitative Disclosures About Market Risk

 

68

Item 8.

 

Financial Statements and Supplementary Data

 

69

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

69

Item 9A.

 

Controls and Procedures

 

69

Item 9B.

 

Other Information

 

70

 

 

 

 

 

 

PART III

 

 

 

 

Item 10.

 

Directors, Executive Officers and Corporate Governance

 

71

Item 11.

 

Executive Compensation

 

71

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

71

Item 13.

 

Certain Relationships and Related Transactions, and Director Independence

 

71

Item 14.

 

Principal Accountant Fees and Services

 

71

 

 

 

 

 

 

PART IV

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

72

 

 

Index to Consolidated Financial Statements

 

F-1

 

i


 

Cautionary Statement Regarding Forward-Looking Statements

This annual report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, the performance of our properties and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this annual report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:

 

unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our properties are located;

 

risks associated with the current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases;

 

risks associated with the ownership of real estate;

 

limited ability to dispose of assets because of the relative illiquidity of real estate investments;

 

our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which makes us more susceptible to adverse developments in those markets;

 

increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more conservative investment strategies;

 

potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association (“Fannie Mae”);

 

competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth;

 

competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents;

 

the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in our occupancy rates;

 

the risk that we may fail to consummate future property acquisitions;

 

failure of acquisitions to yield anticipated results;

 

risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future;

 

risks associated with selling apartment communities, which could limit our operational and financial flexibility;

 

contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire;

 

lack of or insufficient amounts of insurance;

 

the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient;

 

high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth;

 

high costs associated with the compliance with various accessibility, environmental, building and health and safety laws and regulations, such as the Americans with Disabilities Act of 1990 and the Fair Housing Act;

 

risks associated with limited warranties we may obtain when purchasing properties;

 

exposure to decreases in market rents due to our short-term leases;

ii


 

 

risks associated with operating through joint ventures and funds;

 

our dependence on information systems;

 

risks associated with breaches of our data security;

 

costs associated with being a public company, including compliance with securities laws;

 

the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting;

 

risks associated with our substantial current indebtedness and indebtedness we may incur in the future;

 

risks associated with derivatives or hedging activity;

 

loss of key personnel of NexPoint Advisors, L.P. (our “Sponsor”), NexPoint Real Estate Advisors, L.P. (“our Advisor”) and our property manager;

 

the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;

 

risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);

 

our ability to change our major policies, operations and targeted investments without stockholder consent;

 

the substantial fees and expenses we pay to our Adviser and its affiliates;

 

risks associated with any potential internalization of our management functions;

 

conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;

 

the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants;

 

failure to maintain our status as a REIT;

 

failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status;

 

compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;

 

risks associated with our ownership of interests in taxable REIT subsidiaries;

 

the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”);

 

the risk that the Internal Revenue Service (the “IRS”) may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;

 

the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;

 

risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;

 

the ability of our board of directors to revoke our REIT qualification without stockholder approval;

 

recent and potential legislative or regulatory tax changes or other actions affecting REITs;

 

risks associated with the market for our common stock and the general volatility of the capital and credit markets;

 

failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;

 

risks associated with limitations of liability for and our indemnification of our directors and officers; and

 

any other risks included under the heading “Risk Factors” in this annual report.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this annual report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

 

 

iii


 

PART I

ITEM 1. BUSINESS

General

NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014, and has elected to be taxed as a 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 December 31, 2020, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10 to our consolidated financial statements).

The Company is externally managed by the Adviser through an agreement dated March 16, 2015, as amended, and renewed on February 15, 2021 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 Board. The Adviser is wholly owned by our 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 entities through which we own the properties in the Portfolio have entered into management agreements with BH Management Services, LLC (“BH”). Pursuant to these agreements, BH operates and leases the underlying properties in the Portfolio and provides construction management services. BH has significant experience operating and leasing multifamily properties, having begun business in 1993 and currently operating and leasing approximately 99,000 multifamily units across the country. The Company pays BH a management fee of approximately 3% of the monthly gross income from each property managed, as well as construction supervision fees and certain other fees. BH is an affiliate of the noncontrolling limited partner of the OP. See Note 10 to our consolidated financial statements for additional information.

The Company may also participate with third parties in property ownership through limited liability companies (“LLCs”), funds or other types of co-ownership or acquire real estate or interests in real estate in exchange for the issuance of common stock, OP Units, preferred stock or options to purchase stock. These types of investments may permit the Company to own interests in larger assets without unduly restricting diversification, which provides flexibility in structuring the Company’s portfolio.

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.

As of December 31, 2020, the Company, through the OP and the wholly owned TRS, owned 37 properties representing 14,069 units in seven states, as further described under Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.

2020 Highlights

Key highlights and transactions completed in 2020 include the following:

 

2020 ATM Program: 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, Inc. f/k/a SunTrust Robinson Humphrey, Inc. (“Truist”, and

4


 

 

together with Jefferies, Raymond James and KeyBanc, the “2020 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time 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, Truist, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. The following table contains summary information of the 2020 ATM Program:

 

Gross proceeds

 

 

$

31,546,577

 

Common shares issued

 

 

 

718,306

 

Gross average sale price per share

 

 

$

43.92

 

 

 

 

 

 

 

Sales commissions

 

 

$

473,199

 

Offering costs

 

 

 

609,615

 

Net proceeds

 

 

 

30,463,763

 

Average price per share, net

 

 

$

42.41

 

 

 

Acquisitions: We completed one acquisition in 2020. Details of the acquisition are in the table below (dollars in thousands):

 

Property Name

 

Location

 

Date of

Acquisition

 

Purchase Price

 

 

Mortgage Debt (1)

 

 

# Units

 

 

Effective

Ownership

 

Fairways at San Marcos

 

Chandler, Arizona

 

November 2, 2020

 

$

84,480

 

 

$

46,464

 

 

 

352

 

 

 

100

%

 

(1)

For additional information regarding our debt, see Note 6 to our consolidated financial statements.

 

Dispositions: We sold four properties totaling 1,067 units in 2020. Details of the dispositions are in the table below (in thousands):

 

Property Name

 

Location

 

Date of Sale

 

Sales Price

 

 

Outstanding

Principal (1)

 

 

Net Cash Proceeds (2)

 

 

Gain on Sale

of Real Estate

 

Southpoint Reserve at Stoney Creek

 

Fredericksburg, Virginia

 

March 20, 2020

 

$

23,500

 

 

$

13,101

 

 

$

23,176

 

 

$

5,469

 

Willow Grove

 

Nashville, Tennessee

 

March 26, 2020

 

 

31,300

 

 

 

14,818

 

 

 

31,005

 

 

 

17,513

 

Woodbridge

 

Nashville, Tennessee

 

March 26, 2020

 

 

31,700

 

 

 

13,677

 

 

 

31,237

 

 

 

15,990

 

Eagle Crest

 

Irving, Texas

 

September 30, 2020

 

 

55,500

 

 

 

29,510

 

 

 

54,779

 

 

 

30,160

 

 

 

 

 

 

 

$

142,000

 

 

$

71,106

 

 

$

140,197

 

 

$

69,132

 

 

(1)

Represents the outstanding principal balance when the loan was repaid.

(2)

Represents sales price, net of closing costs.

5


 

 

Renovations: For the properties in our Portfolio as of December 31, 2020, we completed full and partial renovations on 1,679 units at an average cost of $6,011 per renovated unit. Since inception, for the properties in our Portfolio as of December 31, 2020, we have completed full and partial renovations on 5,355 units at an average cost of $7,039 per renovated unit that has been leased as of December 31, 2020. We have achieved average rent growth of 10.9%, or a $115 average monthly rental increase per unit, on all units renovated and leased as of December 31, 2020, resulting in a return on investment on capital expended for interior renovations of 22.5%.

 

Dividends: We declared dividends totaling $32.6 million, or $1.279 per share. During the fourth quarter of 2020, we increased our quarterly dividend for the fourth time since the Spin-Off to $0.34125 per share, which was an increase of $0.0288 per share, or a 9.2% increase, over our previous quarterly dividends declared in 2020. The increase in our quarterly dividend to $0.34125 per share is an increase of $0.1353 per share, or a 65.7% increase, over our quarterly dividends declared from the Spin-Off through the third quarter of 2016. Our fourth quarter dividend equates to a 3.2% annualized yield based on our closing share price of $42.31 on December 31, 2020.

 

Results of Operations and Non-GAAP Measures: We reported the following net income, net operating income (“NOI”), funds from operations (“FFO”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) for the year ended December 31, 2020 as compared to the year ended December 31, 2019 (dollars in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Net income (loss)

 

$

44,150

 

 

$

99,438

 

 

$

(55,288

)

(1)

 

-55.6

%

NOI

(2)

 

116,092

 

 

 

102,591

 

 

 

13,501

 

 

 

13.2

%

FFO attributable to common stockholders

(2)

 

57,238

 

 

 

40,718

 

 

 

16,520

 

 

 

40.6

%

Core FFO attributable to common stockholders

(2)

 

55,512

 

 

 

47,573

 

 

 

7,939

 

 

 

16.7

%

AFFO attributable to common stockholders

(2)

 

62,448

 

 

 

54,213

 

 

 

8,235

 

 

 

15.2

%

 

(1)

The change in our net income between the periods primarily relates to a decrease in gain on sales of real estate of $58.5 million and increases in total property operating expenses of $4.5 million and depreciation and amortization expense of $13.3 million, partially offset by an increase in total revenues of $23.7 million.

(2)

See Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” for a discussion regarding the non-GAAP measures of NOI, FFO, Core FFO and AFFO provided above, including reconciliations to net income in accordance with U.S. generally accepted accounting principles (“GAAP”).

 

Same Store Growth: There are 24 properties encompassing 9,074 units of apartment space in our same store pool for the years ended December 31, 2020 and 2019 (our “2019-2020 Same Store” properties). For our 2019-2020 Same Store properties, we recorded the following operating metrics for the year ended December 31, 2020 as compared to the year ended December 31, 2019:

 

Operating Metric

 

2020

 

 

2019

 

 

% Change

 

Occupancy (1)

 

 

94.2

%

 

 

94.3

%

 

 

-0.1

%

Average Effective Monthly Rent Per Unit (2)

 

$

1,047

 

 

$

1,033

 

 

 

1.4

%

Rental income (in thousands)

 

$

120,109

 

 

$

115,588

 

 

 

3.9

%

Other income (in thousands)

 

$

2,106

 

 

$

2,331

 

 

 

-9.7

%

NOI (in thousands)

 

$

68,150

 

 

$

66,054

 

 

 

3.2

%

 

(1)

Occupancy is calculated as the number of units occupied as of December 31 for the respective year, divided by the total number of units, expressed as a percentage.

(2)

Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31 for the respective year minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31 for the respective year.

 

Cash Position: At December 31, 2020, we had $57.0 million of cash on our balance sheet, of which $10.6 million was reserved for future renovations, and $21.9 million was reserved for lender-required escrows and security deposits. We believe we have adequate cash on hand, in addition to our expected cash flows from operations, to meet our near-term obligations, service our debt, pay distributions and make opportunistic acquisitions.

6


 

 

COVID-19: For information on the effects COVID-19 pandemic had on our business, see Item 1A. Risk Factors” to our consolidated financial statements included in this annual report.

Our Real Estate Portfolio

As of December 31, 2020, we owned 37 properties representing 14,069 units in seven states that were approximately 94.1% occupied with a weighted average monthly effective rent per occupied apartment unit of $1,128. For additional information regarding our Portfolio, see Item 2, “Properties” and Notes 3, 4 and 5 to our consolidated financial statements.

We evaluate our operating performance on an individual property level and view our real estate assets as one industry segment and, accordingly, our properties are aggregated into one reportable segment.

Our Business Objectives and Strategies

Our primary business objectives are to:

 

deliver stable, attractive yields and long-term capital appreciation to our stockholders;

 

acquire multifamily properties in markets with attractive job growth and household formation fundamentals primarily in the Southeastern and Southwestern United States;

 

acquire assets at discounts to replacement cost;

 

implement a value-add program to increase returns to our stockholders;

 

own assets that provide lifestyle amenities and upgraded living spaces to low and moderate income renters; and

 

recycle capital from dispositions when economic and market conditions present opportunities that we believe are in the best interest of our stockholders.

We intend to accomplish these objectives by:

 

Focusing on Acquiring Class B Properties in Our Core Markets. We will continue to seek opportunities to acquire primarily Class B multifamily properties at prices that we believe represent discounts to replacement cost, provide the potential for significant long-term value appreciation and that we expect will generate attractive yields for our stockholders. We will focus on these types of opportunities in our core markets, which we consider to be primarily major metropolitan areas in the Southeastern and Southwestern United States.

 

Focusing on Multifamily Properties with a Value-Add Component. We will continue to seek opportunities to acquire multifamily properties that have a value-add component. Due to a lack of reinvestment by many prior owners, we believe these types of properties provide us the opportunity to make relatively modest capital expenditures that result in a significant increase in rents, thereby generating NOI growth, and thus higher yields and capital appreciation for our stockholders.

 

Prudently Using Leverage to Increase Stockholder Value. We will typically finance new property acquisitions at a target leverage level of approximately 50-60% loan-to-value (outstanding principal balance to enterprise value). Given that we intend for the majority of our acquisitions to have a value-add component in the first three years of ownership, we will generally seek leverage with the optionality to refinance (such as floating rate debt). In the management team’s experience, this leverage strategy allows for the opportunity to maximize returns for our stockholders while providing maximum flexibility. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal balance to enterprise value) over time by increasing the value of our properties, refinancing properties we intend to hold longer term and strategically paying down debt with excess cash flows from operations or future equity offerings.

Our Adviser’s investment approach combines its management team’s experience with a structure that emphasizes thorough market research, local market knowledge, underwriting discipline and risk management in evaluating potential investments with a goal of maximizing long-term stockholder value and a philosophy of thoughtful capital allocation and balance sheet management.

7


 

Acquisition and Operating Strategy

We seek primarily Class B multifamily properties that are priced at a discount to replacement cost. We believe that through the implementation of our value-add program we will be able to grow the NOI of these types of properties significantly in the first three years of ownership and thus these types of acquisitions will be accretive over the long-term to our FFO, Core FFO and AFFO. As we progress through the real estate life cycle, these opportunities will become more difficult to find. However, we will continue to take a disciplined approach to acquisitions by primarily pursuing these types of opportunities. Our Adviser’s investment approach includes active management of each property acquired. Our Adviser believes that active management is critical to creating value. Prior to the purchase of a property, BH and our Adviser generally tour each property and develop a business strategy for the property. This includes a forecast of the action items to be taken and the capital needed to achieve the anticipated returns. Our Adviser reviews such property-level business strategies on an ongoing basis to anticipate changes or opportunities in the market. In an effort to keep properties in compliance with our underwriting standards and management strategies, our Adviser remains involved throughout the investment life cycle of each acquired property and actively consults with BH throughout the holding period.

We may also allocate up to 30% of our Portfolio to investments in real estate-related debt, mezzanine and other loans and preferred equity and other securities in situations where the risk-return profile is more attractive than investments in common equity. This strategy would be focused on the multifamily property type and would be designed to minimize potential losses during market downturns and maximize risk adjusted total returns to our stockholders in all market cycles.

Value-Add Strategy

We will continue to implement our value-add strategy at our properties where we believe we can achieve a significant increase in rents above what would otherwise be the case with purely organic market increases. Our value-add program has three components: 1) improvement of exteriors and common areas, 2) improvement of interiors and 3) management and cost improvements.

We invest in exterior and common areas improvements at our properties in an effort to enhance asset quality, to improve “curb appeal”/market positioning, and expand or enhance our amenity offerings, all of which we believe will improve tenant retention and modestly drive rent and NOI growth. Renovations to the exteriors and common areas include structural improvements that enhance the physical condition, value and/or useful life of our properties, as well as aesthetic improvements to, among others, landscape and signage. We also seek to improve our competitive positioning by adding to, redecorating or otherwise enhancing our common areas and amenity offerings. As of December 31, 2020, with the exception of the properties we acquired in 2020, we have renovated the exteriors and common areas at a majority of the properties in our Portfolio.

We expect interior renovations, along with organic growth in rents, to be the primary drivers of rent and NOI growth at our properties. Our interior renovations include: 1) aesthetic design enhancements such as kitchen and/or bath remodeling, 2) replacement of outdated appliances, equipment and fixtures, 3) addition of washer/dryer appliances, 4) private yards and 5) smart technologies such as Bluetooth locks, networked climate control systems and USB electrical outlets. We also seek to achieve cost improvements through investment in longer-lived materials, energy conservation projects, and other strategic initiatives. Since inception, for the properties in our Portfolio as of December 31, 2020, we have completed full and partial renovations on 5,355 units out of our 14,069 total units with an average monthly rental increase per unit of $126 and an average cost of $7,039 per renovated unit that has been leased as of December 31, 2020. In cases where we believe rents will grow significantly in a market organically, we will implement the value-add program more strategically in order to capture significant rent and NOI growth without expending additional capital. Additionally, to the extent we believe rents at a property are maximized regardless of the level of additional renovations, we may opt not to further renovate units at that property. As of December 31, 2020, we had reserved approximately $10.6 million for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 1,205 planned interior rehabs, eliminating the need for us to raise additional capital in order to carry out our currently planned value-add program.

Disposition Strategy

In general, we intend to hold our multifamily properties for production of rental income for a period of at least three years from the date of acquisition. Economic and market conditions may influence us to hold our investments for different periods of time. From time to time, we may sell an asset before the end of the expected holding period, particularly if we receive a bona fide unsolicited offer with attractive terms, have an upcoming liquidity need, such as a debt maturing, are strategically exiting a certain market or sub-market or the sale of the asset would otherwise be in the best interest of our stockholders. When reviewing whether a sale is in the best interest of our stockholders, we take into consideration whether market conditions and asset positioning have maximized the value of the property to us and any potential adverse tax consequences of a sale.

8


 

Financing Strategy

We intend to use leverage in making our investments with an objective of maintaining a strong balance sheet and providing liquidity to grow our Portfolio. We are currently targeting to reduce our leverage to 40-45% loan-to-value (outstanding principal balance to enterprise value) over time by increasing the value of our properties and refinancing properties we intend to hold longer-term. However, we are not subject to any limitations on the amount of leverage we may use, and, accordingly, the amount of leverage we use may be significantly less or greater than what we currently anticipate. We are currently meeting our short-term liquidity needs through our cash and cash equivalents and cash flows from operations.

When interest rates are high or financing is otherwise unavailable on a timely basis, we may purchase certain properties and other assets for cash with the intention of obtaining a loan for a portion of the purchase price at a later time. We will refinance properties during the term of a loan only under certain circumstances, such as when a decline in interest rates makes it beneficial to prepay an existing mortgage, an existing mortgage matures, the value of the property has increased significantly and we can obtain more attractive terms through refinancing the property, or an attractive investment becomes available and the proceeds from the refinancing can be used to purchase such investment.

We typically use floating rate debt with interest rate swaps and interest rate caps as opposed to using fixed rate debt. We believe this is a more sensible and flexible way to utilize leverage, while limiting our interest rate risk in our strategy as we attempt to increase the value of each property over the course of three years after acquisition through our value-add program. Fixed rate financing is typically more expensive and less flexible since there are typically high prepayment penalties, yield maintenance payments and/or defeasance penalties when refinancing the debt prior to maturity. To the extent we intend to hold a property long-term, we will reassess the use of refinancing with fixed rate debt.

Property Management Strategy

We seek to achieve long-term earnings growth through superior property management. To achieve this, we have partnered with BH to manage all of our properties as an external manager. In order to align our property manager’s interests with those of our stockholders, BH (through an affiliate) is a noncontrolling limited partner of the OP. We believe BH provides the following benefits:

 

manages approximately 99,000 multifamily units in 25 states and has managed multifamily communities for 28 years;

 

brings a scale of operations we could not otherwise achieve for approximately 3% of gross income, which is the contracted amount we pay for its property management services;

 

has operations in all of our current and desired markets, allowing us greater scale when entering new markets or make investments in non-core markets without making substantial investments in management infrastructure in those markets;

 

has a construction management operation and substantial experience in renovating Class B multifamily units;

 

its scale allows it to obtain highly competitive pricing as it pertains to the costs of our value-add program, increasing our return on investment for renovations;

 

helps us source and underwrite opportunities as well as assist in due diligence of properties prior to closing;

 

assists in locating potential buyers for our properties;

 

its size, scale and experience allows it to keep costs low and maximize rents and occupancy; and

 

has proved successful in driving other revenue growth at properties it manages.

9


 

Our Structure

The following chart shows our ownership structure.

 

 

*

An affiliate of BH Equities, LLC is the property manager for all of our properties.

Our Adviser

We are externally managed by our Adviser pursuant to the Advisory Agreement, by and among the OP, our Adviser, and us. Our Adviser was organized on September 5, 2014 and is an affiliate of our Sponsor. Our Adviser has contractual and fiduciary responsibilities to us and our stockholders as further described under “Our Advisory Agreement” below. The members of our Adviser’s management team are Jim Dondero, Brian Mitts, Matt McGraner and Matthew Goetz, all of whom are employed by our Adviser or its affiliates.

Our Advisory Agreement

Below is a summary of the terms of our Advisory Agreement:

Duties of Our Adviser. Our Advisory Agreement provides that our Adviser manage our business and affairs in accordance with the policies and guidelines established by our Board and that our Adviser be under the supervision of our Board. The agreement requires our Adviser to provide us with all services necessary or appropriate to conduct our business, including the following:

 

locating, presenting and recommending to us real estate investment opportunities consistent with our investment policies, acquisition and disposition strategies and objectives, including our conflicts of interest policies;

 

structuring the terms and conditions of transactions pursuant to which acquisitions and dispositions of properties will be made;

10


 

 

acquiring and disposing properties on our behalf in compliance with our investment objectives, strategies and applicable tax regulations;

 

arranging for the financing and refinancing of properties;

 

administering our bookkeeping and accounting functions;

 

serving as our consultant in connection with policy decisions to be made by our Board, managing our properties or causing our properties to be managed by another party;

 

monitoring our compliance with regulatory requirements, including the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations promulgated thereunder, New York Stock Exchange (“NYSE”) rules and regulations of the Code to maintain our status as a REIT;

 

performing administrative services; and

 

rendering other services as our Board deems appropriate.

Our Adviser is required to obtain the prior approval of our Board in connection with:

 

any investment for which the portion of the consideration paid out of our equity equals or exceeds $50,000,000;

 

any investment that is inconsistent with the publicly disclosed investment guidelines as in effect from time to time, or, if none are then publicly disclosed, as otherwise adopted by our Board from time to time; or

 

any engagement of affiliated service providers on behalf of us or the OP, which engagement terms will be negotiated on an arm’s length basis.

For these purposes, “equity” means the purchase price of the investment, exclusive of the proceeds of any debt financing incurred or to be incurred in connection with the relevant investment and anticipated closing and other acquisition costs.

Our Adviser will be prohibited from taking any action, in its sole judgment, or in the sole judgment of our Board, that:

 

would adversely affect our qualification as a REIT under the Code, unless our Board had determined that REIT qualification is not in the best interest of us and our stockholders;

 

would subject us to regulation under the Investment Company Act of 1940 (the “1940 Act”), except to the extent that we and our Adviser have undertaken in the Advisory Agreement and our charter to comply with Section 15 of the 1940 Act in connection with the entry into, continuation of, or amendment of the Advisory Agreement or any advisory agreement;

 

is contrary to or inconsistent with our investment guidelines; or

 

would violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over us or our shares of common stock, or otherwise not be permitted by our charter or bylaws.

Advisory Fee. Our Advisory Agreement requires that we pay our Adviser an annual advisory fee of 1.00% of our Average Real Estate Assets.

“Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets (see below) 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).

In calculating the advisory fee, we categorize our Average Real Estate Assets into either “Contributed Assets” or “New Assets.” The advisory fee on Contributed Assets may not exceed $4.5 million in any calendar year. This cap is intended to limit the fees paid to our Adviser on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The advisory fee on New Assets is not subject to this limitation but is subject to the expense cap mentioned below.

“Contributed Assets” means all of the real estate assets we owned upon the completion of the Spin-Off and is not reduced for dispositions of such assets subsequent to the Spin-Off.

“New Assets” means all of the Average Real Estate Assets other than Contributed Assets. New Assets includes proceeds from the sale of a Contributed Asset that are used to purchase a new investment.

11


 

The advisory fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of shares issued to our Adviser as payment for the advisory fee will be equal to the dollar amount of the portion of such fee that is payable in shares divided by the volume-weighted average closing price of shares of our common stock for the ten trading days prior to the end of the month for which such fee will be paid, which we refer to as the fee VWAP. Our Adviser computes each installment of the advisory fee as promptly as possible after the end of the month with respect to which such installment is payable.

The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.

Administrative Fee. Our Advisory Agreement requires that we pay our Adviser an annual administrative fee of 0.20% of the Average Real Estate Assets.

In calculating the administrative fee, we categorize our Average Real Estate Assets into either Contributed Assets or New Assets. The administrative fee on Contributed Assets may not exceed $890,000 in any calendar year. This cap is intended to limit the fees paid to our Adviser on the Contributed Assets following the Spin-Off to the fees that would have been paid by NHF to its adviser had the Spin-Off not occurred. The administrative fee on New Assets is not subject to this limitation but is subject to the expense cap described below.

The administrative fee is payable monthly in arrears in cash, unless our Adviser elects, in its sole discretion, to receive all or a portion of such fee in shares of our common stock, subject to the limitations set forth below under “—Limitations on Receiving Shares.” The number of shares issued to our Adviser as payment for the administrative fee will be equal to the dollar amount of the portion of such fee that is payable in shares divided by the fee VWAP. Our Adviser computes each installment of the administrative fee as promptly as possible after the end of each month with respect to which such installment is payable. The accrued fees are payable monthly as promptly as possible after the end of each month during which the Advisory Agreement is in effect. A copy of the computations made by our Adviser to calculate such installment is delivered to our Board for informational purposes only.

Reimbursement of Expenses. Our Advisory Agreement requires that we reimburse our Adviser for all of its out-of-pocket expenses in performing its services, including legal, accounting, financial, due diligence and other services performed by our Adviser that outside professionals or outside consultants would otherwise perform and also pay our pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Adviser required for our operations (“Adviser Operating Expenses”). Adviser Operating Expenses do not include expenses for the advisory and administrative services provided under the Advisory Agreement. We will also reimburse our Adviser for any and 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.

When applicable, our Adviser prepares a statement documenting all expenses incurred during each month, and delivers such statement to us within 15 business days after the end of each month. When submitted for reimbursement, such expenses are reimbursed by us no later than the 15th business day immediately following the date of delivery of such statement of expenses to us. All expenses payable by us or reimbursable to our Adviser pursuant to the agreement will not be in amounts greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm’s length basis. Our Adviser may, at its discretion and at any time, waive its right to reimbursement for eligible out-of-pocket expenses paid on our behalf. Once waived, these expenses are considered permanently waived and become non-recoupable in the future.

Expense Cap. Reimbursement of Adviser Operating Expenses under the Advisory Agreement, advisory and administrative fees paid to our Adviser and corporate general and administrative expenses such as audit, legal, listing and Board fees and equity-based compensation expense recognized under a long-term incentive plan 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 by us of expenses related to securities offerings paid by our Adviser. 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 our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets.

12


 

Term of the Advisory Agreement. The Advisory Agreement has a one-year term. The Advisory Agreement shall continue in full force and effect so long as the Advisory Agreement is approved at least annually by our Board. On February 15, 2021, our Board, including the independent directors, unanimously approved the renewal of the Advisory Agreement with the Adviser for a one-year term.

The Advisory Agreement may be terminated at any time, without payment of any penalty to our Adviser, by vote of our Board or stockholders, or by our Adviser, in each case on not more than 60 days’ nor less than 30 days’ prior written notice to the other party. The Advisory Agreement shall automatically and immediately terminate in the event of its “assignment” (as defined in the 1940 Act).

Amendment. The Advisory Agreement may only be amended, waived, discharged or terminated in writing signed by the party against which enforcement of the amendment, waiver, discharge or termination is sought.

Limitations on Receiving Shares. The ability of our Adviser to receive shares of our common stock as payment for all or a portion of the advisory and administrative fees due under the terms of our Advisory Agreement will be subject to the following limitations: (1) the ownership of shares of common stock by our Adviser may not violate the ownership limitations set forth in our charter, after giving effect to any exception from such ownership limitations that our Board may grant to our Adviser or its affiliates and (2) compliance with all applicable restrictions under the U.S. federal securities laws and the NYSE rules. To the extent that payment of any fee in shares of our common stock would result in a violation of the ownership limits set forth in our charter (taking into account any applicable waiver or any restrictions imposed under the U.S. federal securities laws or NYSE rules), all or a portion of such fee payable to our Adviser will be payable in cash to the extent necessary to avoid such violation.

Registration Rights. We entered into a registration rights agreement with our Adviser with respect to any shares of our common stock that our Adviser receives as payment for any fees owed under our Advisory Agreement. These registration rights will require us to file a registration statement with respect to such shares. We agreed to pay all of the expenses relating to registering these securities. The costs associated with registering these securities will not be deducted from the compensation owed to our Adviser.

Liability and Indemnification of our Adviser. Under the Advisory Agreement, we are also required to indemnify our Adviser and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding with respect to certain of our Adviser’s acts or omissions.

Other Activities of our Adviser and its Affiliates. Our Adviser and its affiliates expect to engage in other business ventures, and as a result, their resources will not be dedicated exclusively to our business. However, pursuant to the Advisory Agreement, our Adviser will be required to devote sufficient resources to our administration to discharge its obligations.

Potential Acquisition of our Adviser. Many REITs that are listed on a national stock exchange are considered “self-managed” or “internally managed,” since the employees of such REITs perform all significant management functions. In contrast, REITs that are not self-managed, like us, are referred to as “externally managed” and typically engage a third party, such as our Adviser, to perform management functions on its behalf. Our independent directors may determine that we should become self-managed through the acquisition of our Adviser, which we refer to as an internalization transaction. See “Risk Factors—If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.”

Our Property Manager

The entities through which we own the properties in our Portfolio have entered into management agreements with BH. Pursuant to these agreements, BH operates and leases the underlying properties in our Portfolio. In addition to property management and leasing services, BH also provides us with market research, acquisition advice, a pipeline of investment opportunities and construction management services. We utilize BH for property and construction management services and leasing, paying BH a management fee of approximately 3% of the monthly gross income from each property managed, as well as construction supervision fees and certain other fees described under “Property Management Agreements” below.

Property Management Agreements

Under these agreements, BH operates, coordinates and supervises the ordinary and usual business and affairs pertaining to the operation, maintenance, leasing, licensing, and management of each property. The following summarizes the terms of the management agreements.

Term. The terms of the management agreements will continue until the last day of the calendar month following the second anniversary of the agreement. Upon the expiration of the original term, the agreements will automatically renew on a month-to-month basis until terminated. The agreements may be terminated at any time with 60 days written notice.

13


 

Proposed Management Plans. Each management agreement requires that BH prepare and submit a proposed management plan and operating budget for the marketing, operation, repair and maintenance, and renovation of the property for the year the agreement is entered into. BH must submit subsequent proposed management plans 45 days prior to the beginning of the next year.

Amounts Payable under the Management Agreements. The entities that own the properties pay BH monthly for its services. Pursuant to the management agreements, BH may pay itself out of each property’s operating account. Any sums not paid within 10 days after becoming due bear interest at the rate of 18% per annum. Compensation under the management agreements consists of the following components:

 

Management Fee. The management fee is approximately 3% of the monthly gross income from each property. For the purposes of calculating the management fee, “monthly gross income” is defined as all receipts of every kind and nature actually collected from the operation of the property, determined on a cash basis, including, without limitation, rental or lease payments, late charges, service charges, forfeited security deposits, proceeds of vending machine collections, resident utility payment collections, and all other forms of miscellaneous income (but excluding the collection of any insurance or condemnation awards).

 

Set-Up/Inspection Fees. BH receives a one-time set-up/inspection fee per unit upon commencement of management of each property.

 

Construction Supervision Fee. BH receives a construction supervision fee of 5-6% of total project costs if BH performs these services.

 

Renter’s Insurance Program Fee; Other Fees. In the event that the entities that own the properties direct BH to implement a renter’s insurance program at a property, the entities pay BH a fee in connection with running such program. In consideration for any additional services other than the services required under the management agreements, the entities pay BH an hourly rate.

Additionally, 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.

Termination. A management agreement will terminate automatically in the event that the entity that owns the property is sold or if all or substantially all of the property to which the agreement applies is otherwise disposed of. Additionally, a management agreement may be terminated if certain other events occur, including:

 

a default by BH or the entity that owns the property that is not cured prior to the expiration of any applicable cure periods;

 

upon written notice by either party if a petition for bankruptcy, reorganization or arrangement is filed by the other party, or if any such petition shall be filed against the other party and is not dismissed within 60 days of the date of such filing, or in the event the other party shall make an assignment for the benefit of creditors, or take advantage of any insolvency statute or similar law;

 

upon 15 days written notice in the event that all or substantially all of the property is destroyed by a casualty, or taken by means of eminent domain or condemnation; or

 

upon 60 days written notice by either party.

If a management agreement is terminated by the entity that owns the property for any reason, or if it is terminated by BH due to our default or due to the destruction, condemnation or taking by eminent domain of a property, the entity that owns the property will be required to pay damages to BH. Such damages will be equal to the management fee earned by BH for the calendar month immediately preceding the month in which the notice of termination is given, multiplied by the number of months and/or portions thereof remaining from the termination date until the end of the initial term or term year in which the termination occurred.

Additionally, for the month or the partial month after the date of the termination of BH’s on-site property management responsibilities, BH will be paid a close-out management fee equivalent to 50% of the last month’s full management fee.

Insurance. The entities that own the properties are required to maintain property and liability insurance for each property, and its liability insurance policy must include BH as an “Additional Insured.” BH is required to maintain, at the entities’ expense, workers’ compensation insurance covering all employees of BH employed in, on, or about each property so as to provide statutory benefits required by state and federal laws.

Assignment. BH may not assign the management agreements without the prior written consent of the entities that own the properties.

14


 

Indemnification. The entities that own the properties are required to indemnify, defend and hold harmless BH and its agents and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of (1) BH’s performance under the management agreements, or (2) facts, occurrences, or matters first arising before the date of the management agreements. The entities that own the properties are not required to indemnify BH against damages or expenses suffered as a result of the gross negligence, willful misconduct, or fraud on the part of BH, its agents, or employees.

BH is required to indemnify, defend, and hold harmless the entities that own the properties and their agents and employees from and against all claims, liabilities, losses, damages, and/or expenses arising out of the gross negligence, willful misconduct, or fraud on the part of BH, its agents, or employees, and shall at its own cost and expense defend any action or proceeding against us arising therefrom.

Regulation

Multifamily properties are subject to various laws, ordinances and regulations, including regulations relating to common areas, such as swimming pools, activity centers, and recreational facilities. We believe that each of our properties has the necessary permits and approvals to operate its business.

Americans with Disabilities Act

The properties in our Portfolio must comply with Title III of the Americans with Disability Act of 1990 (the “ADA”), to the extent that such properties are “public accommodations” as defined by the ADA. The ADA may require removal of structural barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. We believe that our properties are in substantial compliance with the ADA and that we will not be required to make substantial capital expenditures to address the requirements of the ADA. However, noncompliance with the ADA could result in imposition of fines or an award of damages to private litigants. The obligation to make readily accessible accommodations is an ongoing one, and we will continue to assess our properties and make alterations as appropriate in this respect.

Fair Housing Act

The Fair Housing Act (the “FHA”), its state law counterparts and the regulations promulgated by the U.S. Department of Housing and Urban Development and various state agencies, prohibit discrimination in housing on the basis of race or color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women and people securing custody of children under 18) or handicap (disability) and, in some states, financial capability or other bases. A failure to comply with these laws in our operations could result in litigation, fines, penalties or other adverse claims, or could result in limitations or restrictions on our ability to operate, any of which could materially and adversely affect us. We believe that we operate our properties in substantial compliance with the FHA.

Environmental Matters

Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under, or migrating from such property, including costs to investigate and clean up such contamination and liability for natural resources. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of such contamination, and the liability may be joint and several. These liabilities could be substantial and the cost of any required remediation, removal, fines, or other costs could exceed the value of the property and/or our aggregate assets. In addition, the presence of contamination or the failure to remediate contamination at our properties may expose us to third-party liability for costs of remediation and/or personal or property damage or materially adversely affect our ability to sell, lease or develop our properties or to borrow using the properties as collateral. In addition, environmental laws may create liens on contaminated sites in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures.

Independent environmental consultants have conducted Phase I Environmental Site Assessments at all of the properties in our Portfolio using the American Society for Testing and Materials Standard E 1527-05. A Phase I Environmental Site Assessment is a report that identifies potential or existing environmental contamination liabilities. Site assessments are intended to discover and evaluate information regarding the environmental condition of the assessed property and surrounding properties. These assessments do not generally include soil samplings, subsurface investigations or an asbestos survey. None of the site assessments identified any known past or present contamination that we believe would have a material adverse effect on our business, assets or operations. However, the assessments are limited in scope and may have failed to identify all environmental conditions or concerns. A prior owner or operator of a property or historic operations at our properties, or operations and conditions at nearby properties, may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability. Moreover, conditions identified in environmental assessments that did not appear material at that time, may in the future result in material liability.

15


 

Environmental laws also govern the presence, maintenance and removal of hazardous materials in building materials (e.g., asbestos and lead), and may impose fines and penalties for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Such laws require that owners or operators of buildings containing hazardous materials properly manage and maintain certain hazardous materials, adequately notify or train those who may come into contact with certain hazardous materials, and undertake special precautions, including removal or other abatement, if certain hazardous materials would be disturbed during renovation or demolition of a building. In addition, the properties in our Portfolio are subject to various federal, state, and local environmental and health and safety requirements, such as state and local fire requirements.

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants or others if property damage or personal injury occurs. We are not presently aware of any material adverse indoor air quality issues at our properties.

The cost of future environmental compliance may materially and adversely affect us. See “Risk Factors—We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth.”

Insurance

We carry comprehensive general liability coverage on the properties in our Portfolio, with limits of liability customary within the industry to insure against liability claims and related defense costs. Similarly, we are insured against the risk of direct physical damage in amounts necessary to reimburse us on a replacement-cost basis for costs incurred to repair or rebuild each property, including loss of rental income during the reconstruction period. The majority of our property policies for all U.S. operating and development communities include coverage for the perils of flood, tornado and earthquake shock with limits and deductibles customary in the industry and specific to the project. We will also obtain title insurance policies when acquiring new properties, which insure fee title to the properties in our Portfolio. We have obtained coverage for losses incurred in connection with both domestic and foreign terrorist-related activities. These policies include limits and terms we consider commercially reasonable. There are certain losses (including, but not limited to, losses arising from environmental conditions, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. In addition, for the properties in our Portfolio, we could self-insure certain portions of our insurance program and therefore, use our own funds to satisfy those limits. We believe the policy specifications and insured limits are adequate given the relative risk of loss, the cost of the coverage and industry practice. In the opinion of our management team, the properties in our Portfolio are adequately insured.

Competition

In attracting and retaining residents to occupy the properties in our Portfolio, we compete with numerous other housing alternatives. The properties in our Portfolio compete directly with other rental apartments as well as condominiums and single-family homes that are available for rent or purchase in the sub-markets in which our properties are located. Principal factors of competition include rent or price charged, attractiveness of the location and property and quality and breadth of services and amenities. If our competitors offer leases at rental rates below current market rates, or below the rental rates that the tenants of the properties in our Portfolio pay, we may lose potential tenants and we may be pressured to reduce rental rates below those currently charged or to offer more substantial rent abatements, tenant improvements, early termination rights or below-market renewal options in order to retain tenants when the tenants’ leases expire.

The number of competitive properties relative to demand in a particular area has a material effect on our ability to lease apartment units at our properties and on the rents we charge. In addition, we compete with numerous other investors for suitable properties. This competition affects our ability to acquire properties and the price that we pay in such acquisitions.

 

Human Capital Disclosure

As of December 31, 2020, we had three employees. We endeavor to maintain workplaces that are free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification

16


 

or expression or any other status protected by applicable law. The basis for recruitment, hiring, development, and training, compensation and advancement is qualifications performance, skills and experience. Our employees are fairly compensated, without regard to gender, race and ethnicity, and routinely recognized for outstanding performance.

Our Adviser conducts substantially all of our operations and provides asset management for our real estate investments. We expect we will only have accounting employees while the Advisory Agreement is in effect.

Corporate Information

Our Adviser’s offices are located at 300 Crescent Court, Suite 700, Dallas, Texas 75201. Our Adviser’s telephone number is (972) 628-4100. We maintain a website at nxrt.nexpoint.com. We make our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) available on our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC. Information contained on, or accessible through our website, is not incorporated by reference into and does not constitute a part of this annual report or any other report or documents we file with or furnish to the SEC. These documents may also be found on the SEC’s website at www.sec.gov.

Item 1A. Risk Factors

You should carefully consider the following risks and other information in this annual report in evaluating us and our capital stock. Any of the following risks, as well as additional risks and uncertainties not currently known to us or that we currently deem immaterial, could materially and adversely affect our business, financial condition or results of operations, and could, in turn, impact the trading price of our capital stock.

 

Summary Risk Factors

The following is a summary of some of the risks and uncertainties that could materially adversely affect our business, financial condition and results of operations. You should read this summary together with the more detailed description of each risk factor contained below.

 

unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our properties are located;

 

risks associated with the current COVID-19 pandemic and the future outbreak of other highly infection or contagious diseases;

 

risks associated with the ownership of real estate;

 

limited ability to dispose of assets because of the relative illiquidity of real estate investments;

 

our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which makes us more susceptible to adverse developments in those markets;

 

increased risks associated with our strategy of acquiring value enhancement multifamily properties rather than more conservative investment strategies;

 

risks associated with operating through joint ventures and funds;

 

our dependence on information systems;

 

risks associated with breaches of our data security;

 

costs associated with being a public company, including compliance with securities laws;

 

the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting;

 

risks associated with our substantial current indebtedness and indebtedness we may incur in the future;

 

risks associated with derivatives or hedging activity;

 

loss of key personnel of our Sponsor, our Adviser and our property manager;

 

the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;

 

risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);

 

our ability to change our major policies, operations and targeted investments without stockholder consent;

17


 

 

the substantial fees and expenses we pay to our Adviser and its affiliates;

 

risks associated with any potential internalization of our management functions;

 

conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;

 

the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants;

 

failure to maintain our status as a REIT;

 

failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status;

 

compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;

 

risks associated with our ownership of interests in taxable REIT subsidiaries;

 

the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Code

 

the risk that the Internal Revenue Service may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;

 

the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;

 

risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;

 

the ability of our board of directors to revoke our REIT qualification without stockholder approval;

 

recent and potential legislative or regulatory tax changes or other actions affecting REITs;

 

risks associated with the market for our common stock and the general volatility of the capital and credit markets;

 

failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels; and

 

risks associated with limitations of liability for and our indemnification of our directors and officers.

Risks Related to Our Business and Industry

The current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.

 

The COVID-19 pandemic has had, and other pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has evolved rapidly and, as cases of COVID-19 were identified in additional countries, many countries, including the United States, reacted by instituting quarantines, manding business and school closures and restricting travel.

 

As a result of the recent spikes in COVID-19 cases in the United States, certain states and cities, including where we own properties and operate our businesses, have reinstituted quarantines, restrictions on travel, “shelter in place” rules, restrictions on the types of businesses that may continue to operate, and/or restrictions if the current trend continues and cannot predict when such restrictions will expire. As a result, the COVID-19 pandemic has negatively impacted, and will likely continue to negatively impact, almost every industry directly or indirectly, which may adversely impact the ability of our tenants, many of whom may be restricted in their ability to work, to pay their rest as and when due. In addition, our property manager may be limited in its ability to properly maintain our properties.

The COVID-19 pandemic, and other future pandemics, could also materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance due to, among other factors:

 

reduced economic activity may cause certain of our tenants to be unable to meet their rent obligations to us in full, or at all, or to otherwise seek modifications of such obligations;

18


 

 

reduced economic activity could result in a prolonged recession, which could negatively impact our prospects for leasing additional apartment units and/or renewing leases with existing tenants;

 

difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis, or at all;

 

the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our Corporate Credit Facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to request further increase to our Corporate Credit Facility and pay dividends, among other things;

 

weaker economic conditions due to the COVID-19 pandemic could require us to recognize future impairment losses;

 

a general decline in business activity and demand for real estate transactions could adversely affect our ability to sell or purchase properties;

 

a change in housing trends, including tenants seeking properties with yards or larger outdoor spaces;

 

the potential negative impact on the health of the employees of our Adviser and our property manager, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption; and

 

the timing of the development and distribution of an effective vaccine or treatments for COVID-19.

 

 

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business. Currently, many of our Adviser’s employees are working remotely. An extended period of remote work arrangements could introduce operational risk, including, but not limited to, cybersecurity risks, impair our ability to manage our business and negatively impact our internal controls over financial reporting. In addition, as of December 31, 2020, 173 residents were on payment plans due to the COVID-19 crisis for a total of approximately $0.1 million in rent.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including additional actions taken to contain COVID-19 or treat its impact, among others. The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance. Moreover, many risk factors set forth in our Annual Report should be interpreted as heightened risks as a result of the impact of the COVID-19 pandemic.

 

Unfavorable market and economic conditions in the United States and globally and in the specific markets or submarkets where our properties are located could adversely affect occupancy levels, rental rates, rent collections, operating expenses and the overall market value of our assets, and impair our ability to sell, recapitalize or refinance our assets.

Unfavorable market conditions in the areas in which we operate and unfavorable economic conditions in the United States and globally may significantly affect our occupancy levels, our rental rates, rent collections, operating expenses, the market value of our properties and our ability to strategically acquire, dispose, recapitalize or refinance our multifamily properties on economically favorable terms or at all. Our ability to lease our properties at favorable rates is adversely affected by increases in supply of multifamily communities in our markets and is dependent upon overall economic conditions, which are adversely affected by, among other things, the COVID-19 pandemic job losses and unemployment levels, a recession, personal debt levels, a downturn in the housing market, stock market volatility and uncertainty about the future. Some of our major expenses, including debt service and real estate taxes, generally do not decline when related rents decline. We expect that any declines in our occupancy levels, rental revenues and/or the values of our multifamily properties would cause us to have less cash available to pay our indebtedness, fund necessary capital expenditures and to make distributions to our stockholders, which could negatively affect our financial condition and the market value of our assets. Factors that may affect our occupancy levels, our revenues, our NOI and/or the value of our properties include the following, among others:

 

the COVID-19 pandemic and the effectiveness of actions taken, or actions that may be taken, by governmental authorities to contain the outbreak or treat its impact of COVID-19;

 

downturns in global, national, regional and local economic conditions;

 

declines in the financial condition of our residents, which may make it more difficult for us to collect rents from these residents;

 

the inability or unwillingness of our residents to pay rent increases;

 

a decline in household formation;

 

a decline in employment or lack of employment growth;

19


 

 

an oversupply of, or a reduced demand for, apartment homes;

 

changes in market rental rates in our core markets;

 

our ability to renew leases or re-lease space on favorable terms;

 

the timing and costs associated with property improvements, repairs and renovations;

 

declines in mortgage interest rates, making home and condominium ownership more affordable;

 

changes in home loan lending practices, including the easing of credit underwriting standards, increasing the availability of home loans and thereby reducing demand for apartment homes;

 

government or builder incentives which enable first-time homebuyers to put little or no money down, making alternative housing options more attractive;

 

rent control or rent stabilization laws, or other laws regulating housing, that could prevent us from raising rents to offset increases in operating costs; and

 

economic conditions that could cause an increase in our operating expenses, such as increases in property taxes (particularly as a result of increased local, state and national government budget deficits and debt and potentially reduced federal aid to state and local governments), utilities, insurance, compensation of on-site associates and routine maintenance.

We are subject to risks inherent in ownership of real estate.

Real estate cash flows and values are affected by a number of factors, including competition from other available properties and the ability to provide adequate property maintenance and insurance and to control operating costs. Real estate cash flows and values are also affected by such factors as government regulations (including zoning, usage and tax laws) limitations on rent and rent increases, interest rate levels, the availability of financing, property tax rates, utility expenses, potential liability under environmental and other laws and changes in environmental and other laws.

Real estate investments are relatively illiquid and may limit our flexibility.

Equity real estate investments are relatively illiquid, which tends to limit our ability to react promptly to changes in economic or other market conditions. Our ability to dispose of assets in the future will depend on prevailing economic and market conditions. Our inability to sell our properties on favorable terms or at all could have a material adverse effect on our sources of working capital and our ability to satisfy our debt obligations. In addition, real estate can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the number of multifamily properties in our Portfolio promptly in response to changes in economic or other conditions.

Our multifamily properties are concentrated in certain geographic markets, which makes us more susceptible to adverse developments in those markets.

Our most significant geographic investment concentrations are primarily in the Southeastern and Southwestern United States. We are, therefore, subject to increased exposure from economic and other competitive factors specific to markets within these geographic areas. To the extent general economic conditions worsen in one or more of these markets, or if any of these areas experience a natural disaster, the value of our Portfolio and our market rental rates could be adversely affected. As a result, our results of operations, cash flow, cash available for distribution, including cash available to pay distributions to our stockholders, and our ability to satisfy our debt obligations could be materially adversely affected.

Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies.

Our primary strategy is a value-add strategy. Therefore, for a majority of our Portfolio, we intend to execute a “value-enhancement” strategy whereby we will acquire under-managed assets in high-demand neighborhoods, invest additional capital, and reposition the properties to increase both average rental rates and resale value. Our strategy for acquiring value-enhancement multifamily properties involves greater risks than more conservative investment strategies. The risks related to these value-enhancement investments include risks related to delays in the repositioning or improvement process, higher than expected capital improvement costs, the additional capital needed to execute our value-add program, including possible borrowings or raising additional equity necessary to fund such costs, and ultimately that the repositioning process may not result in the higher rents and occupancy rates anticipated. In addition, our value-enhancement properties may not produce revenue while undergoing capital improvements. Furthermore, we may also be unable to complete the improvements of these properties and may be forced to hold or sell these properties at a loss. For these and other reasons, we cannot assure you that we will realize growth in the value of our value-enhancement multifamily properties, and as a result, our ability to make distributions to our stockholders could be adversely affected.

20


 

Potential reforms or changes to Freddie Mac and Fannie Mae could adversely affect our business.

As of December 31, 2020, we had approximately $1.2 billion and $15.0 million of outstanding consolidated indebtedness under our Freddie Mac and Fannie Mae mortgage loans, respectively. We rely on national and regional institutions, including Freddie Mac and Fannie Mae, to provide financing for our acquisitions and permanent financing on properties we may develop in the future. Currently, there is significant uncertainty regarding the futures of Freddie Mac and Fannie Mae. Should Freddie Mac and Fannie Mae have their mandates changed or reduced, be disbanded or reorganized by the government, privatized or otherwise discontinue providing liquidity to our sector, it could significantly reduce our access to debt capital and/or increase borrowing costs and could significantly reduce our sales of assets and/or the values realized upon sale.

Competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth.

We compete with numerous real estate companies and other owners of real estate in seeking multifamily properties for acquisition and pursuing buyers for dispositions. We expect that other real estate investors, including insurance companies, private equity funds, sovereign wealth funds, pension funds, other REITs and other well-capitalized investors, will compete with us to acquire existing properties and to develop new properties, and many of these investors will have greater sources of capital to acquire properties. This competition could increase prices for properties of the type we would likely pursue and adversely affect our profitability and impede our growth.

Competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents.

Our multifamily properties compete with other housing alternatives to attract residents, including other rental apartments, condominiums and single-family homes that are available for rent, as well as new and existing condominiums and single-family homes for sale. All of our multifamily properties are located in developed areas that include other multifamily properties and/or condominiums. The number of competitive multifamily properties and/or condominiums in a particular area, and any increased affordability of owner occupied single and multifamily homes caused by declining housing prices, low mortgage interest rates and government programs to promote home ownership, could have a material adverse effect on our ability to lease our apartments and the rents we are able to obtain. In addition, single-family homes and other residential properties provide housing alternatives to residents and potential residents of our multifamily properties.

The relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in occupancy rates.

The relatively low residential mortgage interest rates currently available and government-sponsored programs to promote home ownership have resulted in a record high level on the National Association of Realtor’s Housing Affordability Index, an index used to measure whether or not a typical family could qualify for a mortgage loan on a typical home. The foregoing factors may encourage potential renters to purchase residences rather than lease them, thereby causing a decline in the occupancy rates of our properties.

We may fail to consummate future property acquisitions, and we may not be able to find suitable alternative investment opportunities.

When acquiring properties in the future, we may be subject to various closing conditions, and there can be no assurance that we can satisfy these conditions or that the acquisitions will close. If we fail to consummate future acquisitions, there can be no assurance that we will be able to find suitable alternative investment opportunities.

Acquisitions may not yield anticipated results, which could negatively affect our financial condition and results of operations.

We intend to actively acquire multifamily properties for rental operations as market conditions, including access to the debt and equity markets, dictate. We may also acquire multifamily properties that are unoccupied or in the early stages of lease-up. We may be unable to lease-up these multifamily properties on schedule, resulting in decreases in expected rental revenues and/or lower yields as the result of lower occupancy and rental rates as well as higher than expected concessions. We may underestimate the costs necessary to bring an acquired property up to standards established for its intended market position or to complete a development project. We may be unable to integrate the existing operations of newly acquired multifamily properties and over time such communities may not perform as well as existing communities or as we initially anticipated in terms of occupancy and/or rental rates. Additionally, we expect that other major real estate investors with significant capital will compete with us for attractive investment opportunities or may also develop properties in markets where we focus our development efforts. This competition may increase acquisition costs for multifamily properties. We may not be in a position or have the opportunity in the future to make suitable property acquisitions on favorable terms.

21


 

We are subject to certain risks associated with selling apartment communities, which could limit our operational and financial flexibility.

We periodically dispose of apartment communities that no longer meet our strategic objectives, but adverse market conditions may make it difficult to sell apartment communities like the ones we own. We cannot predict whether we will be able to sell any property for the price or on the terms we set, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Furthermore, we may be required to expend funds to correct defects or to make improvements before a property can be sold. These conditions may limit our ability to dispose of properties and to change our portfolio promptly in order to meet our strategic objectives, which may in turn have a material adverse effect on our financial condition and the market value of our assets. We are also subject to the following risks in connection with sales of our apartment communities:

 

a significant portion of the proceeds from our overall property sales may be held by intermediaries in order for some sales to qualify as an exchange under Section 1031 of the Code (“1031 Exchanges”) so that any related capital gain can be deferred for U.S. federal income tax purposes. As a result, we may not have immediate access to all of the cash proceeds generated from our property sales; and

 

U.S. federal tax laws limit our ability to profit on the sale of communities that we have owned for less than two years, and this limitation may prevent us from selling communities when market conditions are favorable.

We may be subject to contingent or unknown liabilities related to properties or business that we have acquired or may acquire for which we may have limited or no recourse against the sellers.

The properties or businesses that we have acquired or may acquire, may be subject to unknown or contingent liabilities for which we have limited or no recourse against the sellers. Unknown liabilities might include liabilities for, among other things, cleanup or remediation of undisclosed environmental conditions, liabilities under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), claims of residents, vendors or other persons dealing with the entities prior to the acquisition of such property, tax liabilities, and accrued but unpaid liabilities whether incurred in the ordinary course of business or otherwise. Because many liabilities, including tax liabilities, may not be identified within the applicable contractual indemnification period, we may have no recourse against any of the owners from whom we acquire such properties for these liabilities. The existence of such liabilities could significantly and adversely affect the value of the property subject to such liability. As a result, if a liability were asserted against us based on ownership of any of such properties, then we might have to pay substantial sums to settle it, which could adversely affect our cash flows.

We are subject to losses that are either uninsurable, not economically insurable or that are in excess of our insurance coverage.

There are certain types of losses (including, but not limited to, losses arising from environmental conditions, earthquakes, tornados and hurricanes, acts of war or certain kinds of terrorist attacks) that are not insured, in full or in part, because they are either uninsurable or the cost of insurance makes it, in our belief, economically impractical to maintain such coverage. We carry commercial general liability insurance, property insurance and terrorism insurance with respect to our communities with limits and on terms we consider commercially reasonable. If an uninsured loss or liability were to occur, whether because of a lack of insurance coverage or a loss in excess of insured limits, we could lose our capital invested in a community, as well as the anticipated future revenues from such community. We would also continue to be obligated to repay any mortgage indebtedness or other obligations related to the community. If an uninsured liability to a third party were to occur, we would incur the cost of defense and settlement with, or court ordered damages to, that third party. A significant uninsured property or liability loss could materially and adversely affect our business and our financial condition and results of operations.

Compliance with various laws and regulations, including accessibility, building and health and safety laws and regulations, may be costly, may adversely affect our operations or expose us to liability.

In addition to compliance with environmental regulations, we must comply with various laws and regulations such as accessibility, building, zoning, landlord/tenant and health and safety laws and regulations, including, but not limited to, the ADA and the FHA. Some of those laws and regulations may conflict with one another or be subject to limited judicial or regulatory interpretations. Under those laws and regulations, we may be liable for, among other things, the costs of bringing our properties into compliance with the statutory and regulatory requirements. Noncompliance with certain of these laws and regulations may result in liability without regard to fault and the imposition of fines and could give rise to actions brought against us by governmental entities and/or third parties who claim to be or have been damaged as a consequence of an apartment not being in compliance with the subject laws and regulations. As part of our due diligence procedures in connection with the acquisition of a property, we typically conduct an investigation of the property’s compliance with known laws and regulatory requirements with which we must comply once we acquire a property, including a review of compliance with the ADA and local zoning regulations. Our investigations and these assessments may not have revealed, and may not with respect to future acquisitions reveal, all potential noncompliance issues or related liabilities and we can provide no assurance that our development properties have been, or that our future development projects will be, designed and built in accordance with all applicable legal requirements.

22


 

The development, construction and operation of our communities are subject to regulations and permitting under various federal, state and local laws, regulations and ordinances, which regulate matters including wetlands protection, storm water runoff and wastewater discharge. Noncompliance with such laws and regulations may subject us to fines and penalties. We can provide no assurance that we will not incur any material liabilities as a result of noncompliance with these laws.

We may obtain only limited warranties when we acquire a property and may only have limited recourse if our due diligence did not identify any issues that may subject us to unknown liabilities or lower the value of our property, which could adversely affect our financial condition and ability to make distributions to you.

The seller of a property often sells the property in its “as is” condition on a “where is” basis and “with all faults,” without any warranties of merchantability or fitness for a particular use or purpose. In addition, purchase agreements may contain only limited warranties, representations and indemnifications that will survive for only a limited period after the closing. The acquisition of, or purchase of, properties with limited warranties increases the risk that we may lose some or all of our invested capital in the property, lose rental income from that property or may be subject to unknown liabilities with respect to such properties.

Short-term apartment leases expose us to the effects of declining market rent, which could adversely affect our ability to make cash distributions to our stockholders.

Substantially all of our apartment leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

We may be subject to risks involved in real estate activity through joint ventures.

We may acquire properties through joint ventures when we believe circumstances warrant the use of such structures. Joint venture investments involve risks, including: the possibility that joint venture partners might refuse to make capital contributions when due; that we may be responsible to joint venture partners for indemnifiable losses; that joint venture partners might at any time have business or economic goals which are inconsistent with ours; and that joint venture partners may be in a position to take action or withhold consent contrary to our recommendations, instructions or requests. In some instances, joint venture partners may have competing interests in our markets that could create conflicts of interest. Further, joint venture partners may fail to meet their obligations to the joint venture as a result of financial distress or otherwise, and we would be forced to make contributions to maintain the value of the property. To the extent joint venture partners do not meet their obligations to the joint venture or they take action inconsistent with the interests of the joint venture, we could be adversely affected.

If we acquire properties through joint ventures, we may be required to make decisions jointly with the other investors who have interests in the respective joint ventures. We might not have the same interests as the other investors in relation to these decisions or transactions. Accordingly, we might not be able to favorably resolve any of these issues, or we might have to provide financial or other inducements to the other investors to obtain a favorable resolution.

In addition, various restrictive provisions and third-party rights, including consent rights to certain transactions, may apply to sales or transfers of interests in joint ventures. Consequently, decisions to buy or sell interests in a property or properties relating to joint ventures may be subject to the prior consent of other investors. These restrictive provisions and third-party rights would potentially preclude us from achieving full value of the properties because of our inability to obtain the necessary consents to sell or transfer the interests.

Risks Related to Health and the Environment

Our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient.

Properties being considered for potential acquisition by us are subjected to at least a Phase I or similar environmental assessment prior to closing, which generally does not involve invasive techniques such as soil or ground water sampling. A Phase II assessment is conducted if recommended in the Phase I report. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. However, such environmental assessments may not identify all potential environmental liabilities. Moreover, we may in the future discover adverse environmental conditions at our communities, including at communities we acquire in the future, which may have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and selective development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination, or if remediation costs exceed estimates. We can provide no assurance, however, that all necessary remediation actions have been or will be undertaken at our communities or that we will be indemnified, in full or at all, in the event that environmental liability arises.

23


 

We may face high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth.

We are subject to various federal, state and local environmental and public health laws, regulations and ordinances. Under various federal, state and local environmental and public health laws, regulations and ordinances, we may be required, regardless of knowledge or responsibility, to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas) and may be held liable under these laws or common law to a governmental entity or to third parties for property, personal injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These damages and costs may be substantial and may exceed any insurance coverage we have for such events. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.

We face risks relating to asbestos.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”) when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. ACMs may have been used in the construction of a number of the communities that we acquired and may have been used in the construction of communities we acquire in the future. We will implement an operations and maintenance program at each of the communities at which we discover ACMs. We can provide no assurance that we will not incur any material liabilities as a result of the presence of ACMs at our communities.

We face risks relating to lead-based paint.

Some of our communities may have lead-based paint and we may have to implement an operations and maintenance program at some of our communities. Communities that we acquire in the future may also have lead-based paint. We can provide no assurance that we will not incur any material liabilities as a result of the presence of lead-based paint at our communities.

We face risks relating to chemical vapors and subsurface contamination.

We are also aware that environmental agencies and third parties have, in the case of certain communities with on-site or nearby contamination, asserted claims for remediation, property damage or personal injury based on the alleged actual or potential intrusion into buildings of chemical vapors (e.g., radon) or volatile organic compounds from soils or groundwater underlying or in the vicinity of those buildings or on nearby properties. We can provide no assurance that we will not incur any material liabilities as a result of vapor intrusion at our communities.

We face risks relating to mold growth.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may in some instances lead to adverse health effects, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and include a lease requirement that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture when we become aware of its presence regardless of whether the resident believes or we believe a health risk is present. However, we can provide no assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities that may exceed any applicable insurance coverage.

Risks Related to Indebtedness

Variable rate debt is subject to interest rate risk, which could increase our interest expense, increase the cost to refinance and increase the cost of issuing new debt.

As of December 31, 2020, approximately $1.3 billion of our total debt outstanding bears interest at variable rates, and we may also borrow additional money at variable interest rates in the future. As of December 31, 2020, thirteen interest rate swap agreements, with a combined notional amount of $1.2 billion and terms expiring in 2021, 2022, 2024 and 2026, effectively fix the interest rate on $1.2 billion, or 91%, of our $1.3 billion of floating rate debt outstanding. As of December 31, 2020, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $393.0 million of our floating rate mortgage debt outstanding at a weighted average rate of 5.16% for the term of the agreements, which is generally 3-4 years. Except to the extent we have arrangements in place that hedge against the risk of rising interest rates, increases in interest rates would increase our interest expense under these instruments and would increase the cost of refinancing these instruments and issuing new debt. As a result, our cash flow and our ability to service our indebtedness and to make distributions to our stockholders would be adversely affected, which could adversely affect the market price of our common stock.

24


 

Changes to, or the elimination of, LIBOR may adversely affect interest expense related to our loans and investments.

In a speech on July 27, 2017, Andrew Bailey, the Chief Executive of the Financial Conduct Authority of the U.K., or the FCA, announced the FCA’s intention to cease sustaining LIBOR after 2021. The FCA has statutory powers to require panel banks to contribute to LIBOR where necessary. The FCA has decided not to ask, or to require, that panel banks continue to submit contributions to LIBOR beyond the end of 2021. The FCA has indicated that it expects that the current panel banks will voluntarily sustain LIBOR until the end of 2021. The FCA’s intention is that after 2021, it will no longer be necessary for the FCA to ask, or to require, banks to submit contributions to LIBOR. The FCA does not intend to sustain LIBOR through using its influence or legal powers beyond that date. It is possible that the ICE Benchmark Administration Limited (formerly NYSE Euronext Rate Administration Limited) and the panel banks could continue to produce LIBOR on the current basis after 2021, if they are willing and able to do so, but we cannot make assurances that LIBOR will survive in its current form, or at all. The ICE Benchmark Administration Limited also recently announced that it will consult on its intention to extend the publication of LIBOR to June 30, 2023. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S.-dollar LIBOR with the Secured Overnight Financing Rate, or SOFR, a new index calculated by short-term repurchase agreements, backed by Treasury securities. Although there have been a few issuances utilizing SOFR or the Sterling Over Night Index Average, an alternative reference rate that is based on transactions, it is unknown whether these alternative reference rates will attain market acceptance as replacements for LIBOR.

 

Approximately 90.0% of our portfolio as of December 31, 2020 pays interest at a variable rate that is tied to LIBOR. If LIBOR is no longer available, our loan documents generally allow us to choose a new index based upon comparable information. However, if LIBOR is no longer available, we may need to renegotiate some of our agreements to determine a replacement index or rate of interest. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined and any changes to benchmark interest rates could increase our financing costs, which could impact our results of operations, cash flows and the market value of our investments. In addition, the elimination of LIBOR and/or changes to another index could result in mismatches with the interest rate of investments that we are financing.

We may incur mortgage indebtedness and other borrowings, which we have broad authority to incur, that may increase our business risks and decrease the value of your investment.

We expect that in most instances, we will acquire real properties by using either existing financing or borrowing new funds. In addition, we may incur additional mortgage and other secured debt and pledge all or some of our unpledged real properties as security for that debt to obtain funds to acquire additional real properties. We may borrow if we need funds to satisfy the REIT tax qualification requirement that we generally distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We also may borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification as a REIT.

If there is a shortfall between the cash flow from a property and the cash flow needed to service the related debt, then the amount available for distributions to stockholders may be reduced. In addition, incurring secured debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For U.S. federal income tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds. In such event, we may be unable to pay the amount of distributions required in order to maintain our REIT status. We may give full or partial guarantees to lenders of mortgage and other secured debt to the entities that own our properties. When we provide a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages or other secured debt contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected, which could result in losing our REIT status and would result in a decrease in the value of your investment.

We have a substantial amount of indebtedness, which may limit our financial and operating activities and may adversely affect our ability to incur additional debt to fund future needs.

As of December 31, 2020, there was $1.2 billion million of mortgage debt outstanding related to our Portfolio.

25


 

Payments of principal and interest on borrowings may leave us with insufficient cash resources to operate our properties, fully implement our capital expenditure, acquisition and development activities, or pay the dividends necessary to maintain our REIT qualification. Our level of debt and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following:

 

require us to dedicate a substantial portion of cash flow from operations to the payment of principal, and interest on, indebtedness, thereby reducing the funds available for other purposes;

 

make it more difficult for us to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to meet operational needs;

 

force us to dispose of one or more of our properties, possibly on unfavorable terms (including the possible application of the 100% tax on income from prohibited transactions, discussed below in “—Risks Related to Our Structure”) or in violation of certain covenants to which we may be subject;

 

subject us to increased sensitivity to interest rate increases;

 

make us more vulnerable to economic downturns, adverse industry conditions or catastrophic external events;

 

limit our ability to withstand competitive pressures;

 

limit our ability to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

 

reduce our flexibility in planning for or responding to changing business, industry and economic conditions; and/or

 

place us at a competitive disadvantage to competitors that have relatively less debt than we have.

If any one of these consequences were to materialize, our financial condition, results of operations, cash flow and trading price of our common stock could be adversely affected. Furthermore, foreclosures could create taxable income without accompanying cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code.

We may be unable to refinance current or future indebtedness on favorable terms, if at all.

We may not be able to refinance existing debt on terms as favorable as the terms of existing indebtedness, or at all, including as a result of increases in interest rates or a decline in the value of our Portfolio or portions thereof. If principal payments due at maturity cannot be refinanced, extended or paid with proceeds of other capital transactions, such as new equity capital, our operating cash flow will not be sufficient in all years to repay all maturing debt. As a result, certain of our other debt may default, we may be forced to postpone capital expenditures necessary for the maintenance of our properties, we may have to dispose of one or more properties on terms that would otherwise be unacceptable to us or we may be forced to allow the mortgage holder to foreclose on a property. Foreclosure on mortgaged properties or an inability to refinance existing indebtedness would likely have a negative impact on our financial condition and results of operations and could adversely affect our ability to make distributions to our stockholders.

Our debt agreements include restrictive covenants, which could limit our flexibility and our ability to make distributions.

Our debt agreements, including our lines of credit, contain customary negative covenants that, among other things, limit our ability, without the prior consent of the lender, to further mortgage the property, to reduce or change insurance coverage or to engage in material asset sales, mergers, consolidations and acquisitions. Our debt agreements require certain mandatory prepayments upon disposition of underlying collateral. Early repayments of certain debt are subject to prepayment penalties. Failure to comply with these covenants could cause a default under the agreements and result in a requirement to repay the indebtedness prior to its maturity, which could have an adverse effect on our cash flow and ability to make distributions to our stockholders. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations would decrease our operating flexibility and our ability to achieve our operating objectives.

If we are required to make payments under any “bad boy” carve out guarantees that we have provided in connection with certain mortgages and related loans, our business and financial results could be materially adversely affected.

In obtaining certain non-recourse loans, we have provided our lenders with standard carve out guarantees. These guarantees are only applicable if and when the borrower directly, or indirectly through an agreement with an affiliate, joint venture partner or other third party, voluntarily files a bankruptcy or similar liquidation or reorganization action or takes other actions that are fraudulent or improper (commonly referred to as “bad boy” guarantees). Although we believe that “bad boy” carve out guarantees are not guarantees of payment in the event of foreclosure or other actions of the foreclosing lender that are beyond the borrower’s control, some lenders in the real estate industry have recently sought to make claims for payment under such guarantees. In the event such a claim were made against us under a “bad boy” carve out guarantee, following foreclosure on mortgages or related loans, and such claim were successful, our business and financial results could be materially adversely affected.

26


 

Derivatives and hedging activity could adversely affect cash flow.

In the normal course of business, we use derivatives to manage our exposure to interest rate volatility on debt instruments, including hedging for future debt issuances. At other times, we may utilize derivatives to increase our exposure to floating interest rates. However, these hedging arrangements may not have the desired beneficial impact. Hedging arrangements, which can include a number of counterparties, may expose us to additional risks, including failure of any of our counterparties to perform under these contracts, and may involve extensive costs, such as transaction fees or, if we terminate them, breakage costs. No strategy can completely insulate us from the risks associated with interest rate fluctuations.

Risks Related to Our Structure

The recent Chapter 11 bankruptcy filing by Highland Capital Management, L.P. (“Highland”) may have materially adverse consequences on our business, financial condition and results of operations.

 

On October 16, 2019, Highland, a former affiliate of our Sponsor, filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the District of Delaware, or the Highland Bankruptcy, which was subsequently transferred to the United States Bankruptcy Court for the Northern District of Texas (the “Bankruptcy Court”). Highland filed for Chapter 11 bankruptcy protection on October 16, 2019. On January 9, 2020, the Bankruptcy Court approved a change of control of Highland, which involved the resignation of James Dondero as the sole director of, and the appointment of an independent board to, Highland’s general partner. On September 21, 2020, Highland filed a plan of reorganization and disclosure statement with the Bankruptcy Court, which was subsequently amended (the “Fifth Amended Plan of Reorganization”). On October 9, 2020, Mr. Dondero resigned as an employee of Highland and as portfolio manager for all Highland-advised funds. As a result of these changes, our Sponsor is no longer under common control with Highland. On February 8, 2021, the Bankruptcy Court announced its intent to confirm Highlands’s Fifth Amended Plan of Reorganization.  The Bankruptcy Court instructed Highland’s counsel to prepare a written order, which has not yet been circulated or presented to the Bankruptcy Court for entry.  Once the written order is entered, it is automatically stayed for 14 days and will become a final order unless an appeal is filed within that 14-day period. While neither our Sponsor nor our Adviser were parties to the bankruptcy filing, the Highland Bankruptcy could expose our Sponsor, our Adviser, our affiliates, our management and/or us to negative publicity, which might adversely affect our reputation and/or investor confidence in us, and/or future capital raising activities. In addition, the Highland Bankruptcy may be both time consuming and disruptive to our operations and cause significant diversion of management attention and resources which may materially and adversely affect our business, financial condition and results of operations. Further, the Highland Bankruptcy has and may continue to expose our Sponsor, our Advisor and our affiliates to claims arising out of our former relationship with Highland that could have an adverse effect on our business, financial condition and results of operations.

 

Further, under the Fifth Amended Plan of Reorganization, Highland was expected to continue to provide certain back office and administrative services, including services under a Shared Services Agreement to our Sponsor. Under this Agreement, our Adviser would have been able to utilize employees from Highland in connection with various services such as human resources, accounting, tax, valuation, information technology services, office space, employees, compliance and legal. However, under the Fifth Amended Plan of Reorganization and subsequent agreements between Highland and our Sponsor, the Shared Services Agreement with our Sponsor is expected to terminate on February 19, 2020. Our Sponsor and Adviser expect to be able to provide or outsource the services it was receiving under the Shared Services Agreement with Highland. However, there can be no assurances that our Sponsor and Adviser will be able to provide the same level of services or upon the same terms that they received under the Shares Services Agreement. Further, any delays in obtaining these services could have an adverse effect on our business, financial condition, and results of operation.

 

The Highland Bankruptcy could create potential conflicts of interest and uncertainty related to our commercial relationship with Highland.

 

Our Adviser and/or its general partner, limited partners, officers, affiliates and employees provide investment advice to other parties and manage other accounts and private investment vehicles similar to the Company. Our Adviser has historically been affiliated through common control with Highland, an SEC-registered investment adviser that filed for Chapter 11 bankruptcy protection on October 16, 2019. On January 9, 2020, the Bankruptcy Court approved a change of control of Highland, which involved the resignation of James Dondero as the sole director of, and the appointment of an independent board to, Highland’s general partner. On October 9, 2020, Mr. Dondero resigned as an employee of Highland and as portfolio manager for all Highland-advised funds.

 

As a result of these changes, our Sponsor and Advisor are no longer under common control with Highland or a related person of Highland. Mr. Dondero continues to be a portfolio manager for our Adviser. Under the Fifth Amended Plan of Reorganization, Highland intends to terminate the Shared Services Agreement with our Sponsor. However, based upon on-going discussions with Highland, our Sponsor and Adviser expect to be able to continue to receive these services through a transfer of personnel, equipment and facilities from Highland either to our Sponsor or to a third-party service provider. Employees of Highland providing services to our Sponsor or Adviser could face conflicts arising from, for example, Highland and our Sponsor or Adviser acting separately with

27


 

respect to investment determinations on assets commonly held by clients respectively of Highland and our Sponsor or Adviser, although any such persons will not have sole investment discretion with respect to any determinations made by our Sponsor or Adviser for its clients. If the Highland employees are transferred to another employer, they may have similar conflicts of interests as do the current Highland employees.

We depend upon key personnel of our Adviser and its affiliates and our property manager.

We are an externally managed REIT and therefore we do not have any internal management capacity and only have accounting employees. We also depend on BH for our property management and construction services. We depend to a significant degree on the diligence, skill and network of business contacts of the management team and other key personnel of our Adviser and of our property manager to achieve our investment objectives, including Messrs. Dondero, Mitts, McGraner, Goetz and Sauter, all of whom may be difficult to replace. We expect that our Adviser will evaluate, negotiate, structure, close and monitor our investments in accordance with the terms of the Advisory Agreement.

We also depend upon the senior professionals of our Adviser and our property manager to maintain relationships with sources of potential investments, and we rely upon these relationships to provide us with potential investment opportunities. We cannot assure you that these individuals will continue to provide indirect investment advice to us. If these individuals, including the members of the management team of our Adviser, do not maintain their existing relationships with our Adviser, maintain existing relationships or develop new relationships with other sources of investment opportunities, we may not be able to grow our investment portfolio. In addition, individuals with whom the senior professionals of our Adviser and our property manager have relationships are not obligated to provide us with investment opportunities. Therefore, we can offer no assurance that such relationships will generate investment opportunities for us.

We may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by Highland or its affiliates.

Our primary focus in making investments generally differs from that of existing investment funds, accounts or other investment vehicles that are or have been managed by affiliates of our Adviser, members of our Adviser’s management team or sponsored by our former affiliate Highland or its affiliates. In addition, the previously sponsored investment programs by Highland were significantly different from us in terms of targeted assets, regulatory structure and limitations, investment strategy and objectives and investment personnel. Past performance is not a guarantee of future results, and there can be no assurance that we will achieve comparable results of those Highland affiliates. We also cannot assure you that we will replicate the historical results achieved by members of the management team, and we caution you that our investment returns could be substantially lower than the returns achieved by them in prior periods. Additionally, all or a portion of the prior results may have been achieved in particular market conditions which may never be repeated.

Our Adviser can resign on 30 days’ notice from its role as adviser, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business, and results of operations and cash flows.

The Advisory Agreement gives our Adviser the right to resign after giving not more than 60 nor less than 30 days’ written notice, whether we have found a replacement or not. If our Adviser resigns, we may not be able to find a new adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 30 to 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption and our financial condition, business and results of operations, as well as our ability to pay distributions, are likely to be adversely affected. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the experience possessed by our Adviser and its affiliates. Even if we are able to retain comparable management, the integration of such management and its lack of familiarity with our investment objectives may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.

You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.

Our Board determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our Board may amend or revise these and other policies without your vote. Our Board’s broad discretion in setting policies and your inability to exert control over those policies increases the uncertainty and risks you face as a stockholder.

28


 

We may change our targeted investments without stockholder consent.

We expect our portfolio of investments in commercial real estate to consist primarily of multifamily properties. Though this is our current target portfolio, we may make adjustments to our target portfolio based on real estate market conditions and investment opportunities, and we may change our targeted investments and investment guidelines at any time without the consent of our stockholders. Any such change could result in us making investments that are different from, and possibly riskier than, the investments described in this annual report. These policies may change over time. A change in our targeted investments or investment guidelines, which may occur without notice to you or without your consent, may increase our exposure to interest rate risk, default risk and real estate market fluctuations, all of which could adversely affect the value of our common stock and our ability to make distributions to you. We intend to disclose any changes in our investment policies in our next required periodic report, if any.

We pay substantial fees and expenses to our Adviser and its affiliates and to our property manager, which payments increase the risk that you will not earn a profit on your investment.

Pursuant to the Advisory Agreement, we pay significant fees to our Adviser and its affiliates. Those fees include advisory and administrative fees and obligations to reimburse our Adviser and its affiliates for expenses they incur in connection with providing services to us, including certain personnel services.

Additionally, pursuant to the management agreements we have entered into with BH, we pay significant fees to BH. These fees include property management fees, construction management and other customary property manager fees.

If we internalize our management functions, the percentage of our outstanding common stock owned by our other stockholders could be reduced, and we could incur other significant costs associated with being self-managed.

In the future, our Board may consider internalizing the functions performed for us by our Adviser by, among other methods, acquiring our Adviser’s assets. The method by which we could internalize these functions could take many forms. There is no assurance that internalizing our management functions will be beneficial to us and our stockholders. An acquisition of our Adviser could result in a dilution of your interests as a stockholder and could reduce earnings per share and FFO, Core FFO and AFFO per share. Additionally, we may not realize the perceived benefits, we may not be able to properly integrate a new staff of managers and employees or we may not be able to effectively replicate the services provided previously by our Adviser, property manager or their affiliates. Internalization transactions, including without limitation, transactions involving the acquisition of affiliated advisers or property managers have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims that would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions. All of these factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions.

There are significant potential conflicts of interest that could affect our investment returns.

As a result of our arrangements with our Adviser, there may be times when our Adviser or its affiliates have interests that differ from those of our stockholders, giving rise to a conflict of interest.

Our directors and management team serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do, or of investment funds managed by our Adviser or its affiliates. Similarly, our Adviser or its affiliates may have other clients with similar, different or competing investment objectives, including NexPoint Real Estate Finance, Inc. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interest of us or our stockholders. For example, the management team of our Adviser has, and will continue to have, management responsibilities for other investment funds, accounts or other investment vehicles managed or sponsored by our Adviser or its affiliates. Our investment objectives may overlap with the investment objectives of such affiliated investment funds, accounts or other investment vehicles. As a result, those individuals may face conflicts in the allocation of investment opportunities among us and other investment funds or accounts advised by or affiliated with our Adviser. Our Adviser will seek to allocate investment opportunities among eligible accounts in a manner consistent with its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term or over time.

Additionally, under the Advisory Agreement, our Adviser does not assume any responsibility to us other than to render the services called for under that agreement, and it will not be responsible for any action of our Board in following or declining to follow our Adviser’s advice or recommendations. In addition, we have agreed to indemnify our Adviser and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Advisory Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Advisory Agreement. These protections may lead our Adviser to act in a riskier manner when acting on our behalf than it would when acting for its own account.

29


 

Our Adviser faces conflicts of interest relating to the fee structure under our Advisory Agreement, which could result in actions that are not necessarily in the long-term best interest of our stockholders.

Under our Advisory Agreement, our Adviser or its affiliates is entitled to fees that are structured in a manner intended to provide incentives to our Adviser to perform in our best interest and in the best interest of our stockholders. However, because our Adviser is entitled to receive substantial compensation regardless of performance, our Adviser’s interests are not wholly aligned with those of our stockholders. In that regard, our Adviser could be motivated to recommend riskier or more speculative investments that would entitle our Adviser to the highest fees. For example, because advisory and administrative fees payable to our Adviser are based on our total real estate assets, including any form of investment leverage, our Adviser may have an incentive to incur a high level of leverage or to acquire properties on less than favorable terms in order to increase the total amount of real estate assets under management. In addition, our Adviser’s ability to receive higher fees and reimbursements depends on our continued investment in real properties. Therefore, the interest of our Adviser and its affiliates in receiving fees may conflict with the interest of our stockholders in earning income on their investment in our common stock.

Our Adviser, Sponsor and their officers and employees face competing demands relating to their time, and this may cause our operating results to suffer.

Our Adviser, our Sponsor and their officers and employees and their respective affiliates are key personnel, general partners, sponsors, managers, owners and advisers of other real estate investment programs, including investment products sponsored by affiliates of our Adviser, some of which have investment objectives and legal and financial obligations similar to ours and may have other business interests as well. Because these persons have competing demands on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. If this occurs, the returns on our investments may suffer.

We may compete with other entities affiliated with our Sponsor and property manager for tenants.

Neither our Sponsor and its affiliates nor BH and its affiliates is prohibited from engaging, directly or indirectly, in any other business or from possessing interests in any other business venture, including ventures involved in the acquisition, development, ownership, management, leasing or sale of real estate, including properties in the vicinity of the properties in our Portfolio. Our Sponsor and/or its affiliates and BH and its affiliates may own and/or manage properties in the same geographical areas in which we currently own and expect to acquire real estate assets. Therefore, our properties may compete for tenants with other properties owned and/or managed by our Sponsor and its affiliates and BH and its affiliates. Our Sponsor and BH may face conflicts of interest when evaluating tenant opportunities for our properties and other properties owned and/or managed by our Sponsor and its affiliates and BH and its affiliates, and these conflicts of interest may have a negative impact on our ability to attract and retain tenants.

Risks Related to Legal, Regulatory, Tax and Accounting

Our failure to qualify as a REIT for U.S federal income tax purposes would reduce the amount of income we have available for distribution and limit our ability to make distributions to our stockholders.

Our qualification as a REIT depends upon our ability to meet requirements regarding our organization and ownership, distributions of our income, the nature and diversification of our income and assets and other tests imposed by the Code. The REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Furthermore, future legislative, judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT. We believe we have been and are organized and qualify as a REIT, and we intend to operate in a manner that will permit us to continue to qualify as a REIT. However, we cannot assure you that we have qualified as a REIT, or that we will remain qualified as a REIT in the future.

If we were to fail to qualify as a REIT for any taxable year, we would be subject to U.S. federal income tax on our taxable income at regular corporate rates, and dividends paid to our stockholders would not be deductible by us in computing our taxable income. Any resulting corporate tax liability could be substantial and would reduce the amount of cash available for distribution to our stockholders, which in turn could have an adverse impact on the value of shares of our common stock. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from taxation as a REIT and would not be allowed to re-elect REIT status for the four taxable years following the year in which we failed to qualify as a REIT.

The rule against re-electing REIT status following a loss of such status would also apply to us if NREO failed to qualify as a REIT for its taxable years ending on or before December 31, 2015, because we are treated as a successor to NREO for U.S. federal income tax purposes. Although NREO has represented to us that it has no knowledge of any fact or circumstance that would cause us to fail to qualify as a REIT, and covenanted in the agreement between us and our Adviser to use its reasonable best efforts to maintain its REIT status for each of NREO’s taxable years ending on or before December 31, 2015, no assurance can be given that such representation and covenant would prevent us from failing to qualify as a REIT. Although, in the event of a breach, we may be able to seek damages from NHF and NREO, there can be no assurance that such damages, if any, would appropriately compensate us.

30


 

If our operating partnership failed to qualify as a partnership or is not otherwise disregarded for U.S. federal income tax purposes, we would cease to qualify as a REIT.

Our OP intends to qualify as a partnership for U.S. federal income tax purposes, and intends to take that position for all income tax reporting purposes. If classified as a partnership, our OP generally will not be a taxable entity and will not incur any U.S. federal income tax liability. However, our OP would be treated as a corporation for U.S. federal income tax purposes if it was a “publicly traded partnership,” unless at least 90% of its income was qualifying income as defined in the Code. A “publicly traded partnership” is a partnership whose partnership interests are traded on an established securities market or are readily tradable on a secondary market (or the substantial equivalent thereof). Although our OP’s partnership units are not traded on an established securities market, because of the redemption rights of its outside limited partner, the OP’s units held by such limited partner could be viewed as readily tradable on a secondary market (or the substantial equivalent thereof), and our OP may not qualify for one of the “safe harbors” under the applicable tax regulations. Qualifying income for the 90% test generally includes passive income, such as real property rents, dividends and interest. The income requirements applicable to REITs and the definition of qualifying income for purposes of this 90% test are similar in most respects. Our OP may not meet this qualifying income test. If our OP were to be taxed as a corporation, it would incur substantial tax liabilities, and we would then fail to qualify as a REIT for U.S. federal income tax purposes, unless we qualified for relief under certain statutory savings provisions, and our ability to raise additional capital and pay distributions to our stockholders would be impaired.

Complying with REIT requirements may force us to liquidate otherwise attractive investments.

To qualify as a REIT, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of our capital stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.  In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by securities of one or more TRSs. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments from our Portfolio. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets or to offset certain other positions, if properly identified under applicable Treasury Regulations, does not constitute “gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of the 75% or 95% gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because our TRSs would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a TRS generally will not provide any tax benefit, except for being carried forward against future taxable income of such TRS.

Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flows.

Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a foreclosure, and state or local income, property and transfer taxes. In addition, any TRS we form in the future will be subject to regular corporate U.S. federal, state and local taxes. Any of these taxes would decrease cash available for distributions to stockholders.

31


 

Our ownership of interests in TRSs raises certain tax risks.

A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. We currently own interests in a TRS and may acquire securities in additional TRSs in the future.

We will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions,” “excess interest” or “redetermined TRS service income.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants by a TRS of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s-length negotiations. Redetermined TRS service income generally represents amounts by which the gross income of a TRS attributable to its services for or on behalf of us (other than to a tenant of ours) would be increased based on arm’s length negotiations.

Our TRS is and any TRS we acquire in the future will be subject to corporate income tax at the U.S. federal, state and local levels, (including on the gain realized from the sale of property held by it, as well as on income earned while such property is operated by the TRS). This tax obligation, if material, would diminish the amount of the proceeds from the sale or operation of such property, or other income earned through the TRS that would be distributable to our stockholders. U.S. federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property or other income earned through a TRS after the effective date of any increase in such tax rates. We do not anticipate material income tax obligations in connection with our ownership of interests in TRSs.

As a REIT, the value of our interests in our TRSs generally may not exceed 20% of the total value of our total assets at the end of any calendar quarter. If the IRS were to determine that the value of our interests in all of our TRSs exceeded this limit at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interest to own a substantial number of our properties through one or more TRSs, then it is possible that the IRS may conclude that the value of our interests in our TRSs exceeds 20% of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may, in general, be from sources other than certain real estate-related assets. Dividends paid to us from a TRS are typically considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if dividends from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year.

The sale of certain properties could result in significant tax liabilities unless we are able to defer the taxable gain through 1031 Exchanges.

In general, we structure asset sales for possible inclusion in 1031 Exchanges. The ability to complete a 1031 Exchange depends on many factors, including, among others, identifying and acquiring suitable replacement property within limited time periods, and the ownership structure of the properties being sold and acquired. Therefore, we are not always able to sell an asset as part of a 1031 Exchange. When successful, a 1031 Exchange enables us to defer the taxable gain on the asset sold. If we cannot defer the taxable gain resulting from the sales of certain properties, our business, financial condition, results of operations and cash flow, the market price per share of our common stock and our ability to satisfy our debt service obligations and make distributions to our stockholders could be materially and adversely affected.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

For so long as we qualify as a REIT, our ability to dispose of property during the first few years following its acquisition may be restricted to a substantial extent as a result of our REIT qualification. Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own or hold an interest in, directly or indirectly through any subsidiary entity, including our operating partnership, but generally excluding TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. During such time as we qualify as a REIT, we intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur corporate rate income taxes with respect to any income or gain recognized by it), (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own or hold an interest in, directly or through any subsidiary, will be treated as a prohibited transaction, or (3) structuring certain dispositions of our properties to comply with the requirements of the prohibited transaction safe harbor available under the Code for properties that, among other requirements, have been held for at least two years. No assurance can be

32


 

given that any particular property that we own or hold an interest in, directly or through any subsidiary entity, including our operating partnership, but generally excluding TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

To continue qualifying as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce your overall return.

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income (which does not equal net income as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. It is possible that we might not always be able to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

Currently, the maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for this reduced rate. Distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are treated as ordinary income. For taxable years beginning before January 1, 2026, distributions from REITs that are treated as dividends but are not designated as qualified dividends or capital gain dividends are taxed as ordinary income after deducting 20% of the amount of the dividend in the case of non-corporate stockholders. To qualify for this deduction, the U.S. stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property. At the maximum ordinary income tax rate of 37% applicable for taxable years beginning before January 1, 2026, the maximum tax rate on ordinary REIT dividends for non-corporate stockholders is 29.6%. Although this does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock. In addition, certain U.S. stockholders may be subject to a 3.8% Medicare tax on dividends payable by REITs. Tax rates could be changed in future legislation.

The share ownership restrictions of the Code for REITs and the 6.2% share ownership limit in our charter may inhibit market activity in shares of our stock and restrict our business combination opportunities.

In order to qualify as a REIT, five or fewer individuals, as defined in the Code, may not own, actually or constructively, more than 50% in value of our issued and outstanding shares of stock at any time during the last half of each taxable year, other than the first year for which a REIT election is made. Attribution rules in the Code determine if any individual or entity actually or constructively owns shares of our common stock under this requirement. Additionally, at least 100 persons must beneficially own shares of our common stock during at least 335 days of a taxable year for each taxable year, other than the first year for which a REIT election is made. To help ensure that we meet these tests, among other purposes, our charter restricts the acquisition and ownership of shares of our common stock.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT while we so qualify. Unless exempted by our Board (prospectively or retroactively), for so long as we qualify as a REIT, our charter prohibits, among other limitations on ownership and transfer of shares of our stock, any person from beneficially or constructively owning (applying certain attribution rules under the Code) more than 6.2% in value of the aggregate of the outstanding shares of our capital stock and more than 6.2% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock. Our Board may not grant an exemption from these restrictions to any proposed transferee whose ownership in excess of the 6.2% ownership limit would result in our failing to qualify as a REIT. Our Board granted a waiver from the ownership limits for Jim Dondero and certain of his affiliates, and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT. These restrictions on transferability and ownership will not apply, however, if our Board determines that it is no longer in our best interest to qualify as a REIT or that compliance with the restrictions is no longer required in order for us to so qualify as a REIT.

These ownership limits could delay or prevent a transaction or a change in control that might involve a premium price for our common stock or otherwise be in the best interest of the stockholders.

33


 

The ability of the Board to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.

Our charter provides that our Board may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to be a REIT, we will not be allowed a deduction for dividends paid to stockholders in computing our taxable income and will be subject to U.S. federal income tax at regular corporate rates and state and local taxes, which may have adverse consequences on our total return to our stockholders.

New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to qualify or remain qualified as a REIT.

The U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us. The U.S. federal income tax rules dealing with REITs are constantly under review by persons involved in the legislative process, the IRS and the U.S. Department of the Treasury, which could result in statutory changes as well as frequent revisions to regulations and interpretations.

There can be no assurance that future changes to the U.S. federal income tax laws or regulatory changes will not be proposed or enacted that could impact our business and financial results. Furthermore, the REIT rules are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury, which may result in revisions to regulations and interpretations in addition to statutory changes. If enacted, certain of such changes could have an adverse impact on our business and financial results.

We cannot predict whether, when or to what extent any new U.S. federal tax laws, regulations, interpretations or rulings will impact the real estate investment industry or REITs. Prospective investors are urged to consult their tax advisors regarding potential future changes to the U.S. federal tax laws on an investment in our stock.

Foreign investors may be subject to U.S. federal withholding tax and may be subject to U.S. federal income tax on distributions received from us and upon disposition of shares of our common stock.

Subject to certain exceptions, distributions received from us will be treated as dividends of ordinary income to the extent of our current or accumulated earnings and profits. Such dividends paid to a non-U.S. stockholder ordinarily will be subject to U.S. withholding tax at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the distributions are treated as “effectively connected” with the conduct by the non-U.S. stockholder of a U.S. trade or business. Pursuant to the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”), capital gain distributions attributable to sales or exchanges of “U.S. real property interests” (“USRPIs”), generally will be taxed to a non-U.S. stockholder as if such gain were effectively connected with a U.S. trade or business. However, a capital gain dividend will not be treated as effectively connected income if (1) the distribution is received with respect to a class of stock that is regularly traded on an established securities market located in the United States and (2) the non-U.S. stockholder does not own more than 10% of the class of our stock at any time during the one-year period ending on the date the distribution is received.

Gain recognized by a non-U.S. stockholder upon the sale or exchange of our common stock generally will not be subject to U.S. federal income taxation unless such stock constitutes a USRPI under FIRPTA. Our common stock will not constitute a USRPI so long as we are a “domestically-controlled” REIT. A REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year period ending on the date of disposition or, if shorter, during the entire period of the REIT’s existence. We cannot assure you that we will qualify as a “domestically controlled” REIT. If we were to fail to so qualify, gain realized by foreign investors on a sale of shares of our stock would be subject to FIRPTA tax, unless the shares of our stock were traded on an established securities market and the foreign investor did not at any time during a specified testing period directly or indirectly own more than 10% of the value of our outstanding common stock.

Risks Related to the Ownership of our Common Stock

Our common stock is listed on the NYSE and broad market fluctuations could negatively affect the market price of our stock.

We have listed shares of our common stock on the NYSE under the symbol “NXRT.” The price of NXRT common stock may fluctuate significantly. Further, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could affect our stock price or result in fluctuations in the price or trading volume of our common stock include:

 

actual or anticipated variations in our quarterly operating results;

 

changes in our operations or earnings estimates or publication of research reports about us or the real estate industry;

34


 

 

changes in market valuations of similar companies;

 

increases in market interest rates that lead purchasers of our shares to demand a higher yield;

 

adverse market reaction to any increased indebtedness we incur in the future;

 

additions or departures of key management personnel;

 

actions by institutional stockholders;

 

speculation in the press or investment community;

 

the realization of any of the other risk factors presented in this annual report;

 

the extent of investor interest in our securities;

 

the general reputation of REITs and the attractiveness of our equity securities in comparison to other equity securities, including securities issued by other real estate-based companies;

 

our underlying asset value;

 

investor confidence in the stock and bond markets, generally;

 

changes in tax laws;

 

future equity issuances;

 

failure to meet income estimates;

 

failure to meet and maintain REIT qualifications; and

 

general market and economic conditions, including as a result of the COVID-19 pandemic.

In the past, class-action litigation has often been instituted against companies following periods of volatility in the price of their common stock. This type of litigation could result in substantial costs and divert our management’s attention and resources, which could have an adverse effect on our financial condition, results of operations, cash flow and trading price of our common stock.

The form, timing and/or amount of dividend distributions in future periods may vary and be impacted by economic and other considerations.

The form, timing and/or amount of dividend distributions will be declared at the discretion of our Board and will depend on actual cash flows from operations, our financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and other factors as our Board may consider relevant. Our Board may modify our dividend policy from time to time at its discretion.

We may be unable to make distributions at expected levels, which could result in a decrease in the market price of our common stock.

If sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital, borrow to provide funds for such distributions, reduce the amount of such distributions, or issue stock dividends. To the extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. If cash available for distribution generated by our assets is less than we expect, our inability to make the expected distributions could result in a decrease in the market price of our common stock. In addition, if we make stock dividends in lieu of cash distributions, it may have a dilutive effect on the holdings of our stockholders.

All distributions are made at the discretion of our Board and are based upon, among other factors, our historical and projected results of operations, financial condition, cash flows and liquidity, maintenance of our REIT qualification and other tax considerations, capital expenditure and other expense obligations, debt covenants, contractual prohibitions or other limitations, applicable law and such other matters as our Board may deem relevant from time to time. We may not be able to make distributions in the future, and our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the market price of our common stock.

Our charter permits the Board to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring us in a manner that could otherwise result in a premium price to our stockholders.

Our Board may classify or reclassify any unissued shares of common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Thus, our Board could authorize the issuance of preferred stock with terms and conditions that could

35


 

have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price to holders of our common stock.

Future issuances of debt securities and equity securities may negatively affect the market price of shares of our common stock and, in the case of equity securities, may be dilutive to existing stockholders and could reduce the overall value of your investment.

In the future, we may issue debt or equity securities or incur other financial obligations, including stock dividends and shares that may be issued in exchange for common units and equity plan shares/units. Upon liquidation, holders of our debt securities and other loans and preferred stock will receive a distribution of our available assets before common stockholders. We are not required to offer any such additional debt or equity securities to existing stockholders on a preemptive basis. Therefore, additional common stock issuances, directly or through convertible or exchangeable securities (including common units and convertible preferred units), warrants or options, will dilute the holdings of our existing common stockholders and such issuances or the perception of such issuances may reduce the market price of shares of our common stock. Any convertible preferred units would have, and any series or class of our preferred stock would likely have, a preference on distribution payments, periodically or upon liquidation, which could eliminate or otherwise limit our ability to make distributions to common stockholders.

Existing stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 600 million shares of capital stock, of which 500 million shares are designated as common stock and 100 million shares are designated as preferred stock. Our Board may increase the number of authorized shares of capital stock without stockholder approval. Our Board may elect to (1) sell additional shares in future public offerings; (2) issue equity interests in private offerings; (3) issue shares of our common stock under a long-term incentive plan to our directors, officers and other key employees (and those of our Adviser or its affiliates and our subsidiaries), our non-employee directors, and potentially certain non-employees who perform employee-type functions; (4) issue shares to our Adviser, its successors or assigns, in payment of an outstanding fee obligation or as consideration in a related-party transaction; or (5) issue shares of our common stock to sellers of properties we acquire in connection with an exchange of OP Units. To the extent we issue additional equity interests, your percentage ownership interest in us will be diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, existing stockholders may also experience a dilution in the book value of their investment in us.

Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

Maryland law provides that a director has no liability in the capacity as a director if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in the company’s best interest and with the care that an ordinarily prudent person in a like position would use under similar circumstances. As permitted by the Maryland General Corporation Law (the “MGCL”), our charter limits the liability of our directors and officers to us and our stockholders for money damages, except for liability resulting from:

 

actual receipt of an improper benefit or profit in money, property or services; or

 

a final judgment based upon a finding of active and deliberate dishonesty by the director or officer that was material to the cause of action adjudicated.

In addition, our charter authorizes us, and our bylaws require us, to indemnify our directors and officers for actions taken by them in those capacities and to pay or reimburse their reasonable expenses in advance of final disposition of a proceeding to the maximum extent permitted by Maryland law. We have entered into indemnification agreements with our directors and executive officers. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. Accordingly, in the event that actions taken by any of our directors or officers are immune or exculpated from, or indemnified against, liability but which impede our performance, our stockholders’ ability to recover damages from that director or officer will be limited.

Our charter and bylaws contain provisions that may delay, defer or prevent an acquisition of our common stock or a change in control.

Our charter and bylaws contain a number of provisions, the exercise or existence of which could delay, defer or prevent a transaction or a change in control that might involve a premium price for our stockholders or otherwise be in their best interest, including the following: 

 

Our Charter Contains Restrictions on the Ownership and Transfer of Our Stock. In order for us to qualify, and elect to be taxed, as a REIT, no more than 50% of the value of outstanding shares of our stock may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year other than the first year for which we elect to be taxed as a REIT. Subject to certain exceptions, our charter prohibits any stockholder from owning beneficially or constructively more than 6.2% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock, or 6.2% in value of the aggregate of the outstanding shares of all classes or series of our stock. We refer to these restrictions collectively as the “ownership limits.” The constructive ownership rules

36


 

 

under the Code are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 6.2% of our outstanding shares of common stock or the outstanding shares of all classes or series of our stock by an individual or entity could cause that individual or entity or another individual or entity to own constructively in excess of the relevant ownership limits. Our charter also prohibits any person from owning shares of our stock that would result in our being “closely held” under Section 856(h) of the Code or otherwise cause us to fail to qualify as a REIT. Any attempt to own or transfer shares of our common stock or of any of our other capital stock in violation of these restrictions may result in the shares being automatically transferred to a charitable trust or may be void. These ownership limits may prevent a third party from acquiring control of us if our Board does not grant an exemption from the ownership limits, even if our stockholders believe the change in control is in their best interest. Our Board granted a waiver from the ownership limits applicable to holders of our common stock to Jim Dondero and certain of his affiliates and may grant additional waivers in the future. These waivers will be subject to certain initial and ongoing conditions designed to protect our status as a REIT.

 

Our Board Has the Power to Cause Us to Issue Additional Shares of Our Stock without Stockholder Approval. Our charter authorizes us to issue additional authorized but unissued shares of common or preferred stock. In addition, our Board may, without stockholder approval, amend our charter to increase the aggregate number of shares of our common stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our Board may establish a series of shares of common or preferred stock that could delay or prevent a transaction or a change in control that might involve a premium price for our shares of common stock or otherwise be in the best interest of our stockholders.

Certain provisions of Maryland law may limit the ability of a third party to acquire control of us.

Certain provisions of the MGCL may have the effect of inhibiting a third party from acquiring us or of impeding a change of control under circumstances that otherwise could provide our common stockholders with the opportunity to realize a premium over the then-prevailing market price of such shares, including:

 

“business combination” provisions that, subject to limitations, prohibit certain business combinations between an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding shares of voting stock or an affiliate or associate of the corporation who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding stock of the corporation) or an affiliate of any interested stockholder and us for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations; and

 

“control share” provisions that provide that holders of “control shares” of us (defined as voting shares of stock that, if aggregated with all other shares of stock owned or controlled by the acquirer, would entitle the acquirer to exercise one of three increasing ranges of voting power in electing directors) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of issued and outstanding “control shares”) have no voting rights except to the extent approved by our stockholders by the affirmative vote of at least two-thirds of all of the votes entitled to be cast on the matter, excluding all interested shares.

Pursuant to the Maryland Business Combination Act, our Board by resolution exempted from the provisions of the Maryland Business Combination Act all business combinations (1) between our Adviser, Jim Dondero and certain of his affiliates or their respective affiliates and us and (2) between any other person and us, provided that such business combination is first approved by our Board (including a majority of our directors who are not affiliates or associates of such person). Our bylaws contain a provision exempting from the Maryland Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. There can be no assurance that these exemptions or resolutions will not be amended or eliminated at any time in the future.

Additionally, Title 3, Subtitle 8 of the MGCL permits our Board, without stockholder approval and regardless of what is currently provided in our charter or bylaws, to implement certain takeover defenses, such as a classified board, some of which are not currently provided for in our charter or bylaws.

 

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could materially and adversely affect our business and the market price of our common stock.

 

Under the Sarbanes-Oxley Act, we must maintain effective disclosure controls and procedures and internal control over financial reporting, which require significant resources and management oversight. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our business, or changes in applicable accounting rules. We cannot assure you that our internal control over financial reporting will be effective in the future or that a material weakness will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. Matters impacting our internal controls may cause us to be unable to report our financial data on a timely basis, or may cause us to restate previously issued financial data, and thereby subject us to adverse regulatory consequences, including sanctions or investigations by the SEC, or violations of applicable stock exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements is also likely to

37


 

suffer if we or our independent registered public accounting firm reports a material weakness in our internal control over financial reporting. This could materially adversely affect us by, for example, leading to a decline in the market price for our common stock and impairing our ability to raise capital.

 

Additionally, our independent registered public accounting firm is required pursuant to Section 404(b) of the Sarbanes-Oxley Act to attest to the effectiveness of our internal control over financial reporting on an annual basis. If we cannot maintain effective procedures or internal control over financial reporting, or our independent registered public accounting firm cannot provide an unqualified attestation report on the effectiveness of our internal control over financial reporting, investor confidence and, in turn, the market price of our common stock could decline.

 

General Risks

 

We depend on information systems, and systems failures could significantly disrupt our business, which may, in turn, negatively affect our ability to pay dividends to our stockholders.

Our business depends on the communications and information systems of our Sponsor, to which we have access through our Adviser. In addition, certain of these systems are provided to our Sponsor by third-party service providers. To protect confidential customer, vendor, financial and employee information, we employ information security measures that secure our information systems from cybersecurity attacks or breaches. Even with these measures, we may be subject to unauthorized access of digital data with the intent to misappropriate information, corrupt data or cause operational disruptions. If a failure of our safeguarding measures were to occur or if we use software that contains an unknown vulnerability or that is subject to an attack, it could have a negative impact to our business and result in business interruptions, remediation costs and/or legal claims. This, in turn, could have a material adverse effect on our operating results and negatively affect our ability to pay dividends to our stockholders.

Breaches of our data security could materially harm our business and reputation.

We collect and retain certain personal information provided by our tenants. While security measures to protect the confidentiality of this information are in place, we can provide no assurance that we will be able to prevent unauthorized access to this information. Any breach of our data security measures and/or loss of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.

Item 1B. Unresolved Staff Comments

None.

38


 

Item 2. Properties

As of December 31, 2020, our Portfolio consisted of 37 properties representing 14,069 units in seven states. The following table provides a summary of the properties in our Portfolio as of December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2020

 

Properties by State

 

Location

 

Number

of Units

 

 

Date

Acquired

 

Purchase

Price

(in thousands)

 

 

Average Effective

Monthly Rent

Per Unit (1)

 

 

% Occupied

(2)

 

 

Number of

Units

Rehabbed (3)

 

 

Rehab

Expenditures

per Unit (4)

 

2019-2020 Same Store Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arbors on Forest Ridge

 

Bedford, Texas

 

 

210

 

 

1/31/2014

 

$

12,805

 

 

$

917

 

 

 

94.3

%

 

 

263

 

 

$

2,751

 

Silverbrook

 

Grand Prairie, Texas

 

 

642

 

 

1/31/2014

 

 

30,400

 

 

 

926

 

 

 

94.9

%

 

 

702

 

 

 

2,648

 

Versailles

 

Dallas, Texas

 

 

388

 

 

2/26/2015

 

 

26,165

 

 

 

925

 

 

 

94.3

%

 

 

455

 

 

 

3,930

 

Venue at 8651

 

Fort Worth, Texas

 

 

333

 

 

10/30/2015

 

 

19,250

 

 

 

933

 

 

 

93.4

%

 

 

403

 

 

 

4,333

 

Old Farm

 

Houston, Texas

 

 

734

 

 

12/29/2016

 

 

84,721

 

 

 

1,133

 

 

 

92.1

%

 

 

 

 

 

 

Stone Creek at Old Farm

 

Houston, Texas

 

 

190

 

 

12/29/2016

 

 

23,332

 

 

 

1,194

 

 

 

92.1

%

 

 

 

 

 

 

Hollister Place

 

Houston, Texas

 

 

260

 

 

2/1/2017

 

 

24,500

 

 

 

1,007

 

 

 

91.2

%

 

 

428

 

 

 

3,961

 

Atera Apartments

 

Dallas, Texas

 

 

380

 

 

10/25/2017

 

 

59,200

 

 

 

1,247

 

 

 

92.1

%

 

 

206

 

 

 

3,217

 

Crestmont Reserve

 

Dallas, Texas

 

 

242

 

 

9/26/2018

 

 

24,680

 

 

 

895

 

 

 

98.8

%

 

 

129

 

 

 

2,448

 

Florida

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Summit at Sabal Park

 

Tampa, Florida

 

 

252

 

 

8/20/2014

 

 

19,050

 

 

 

1,033

 

 

 

96.0

%

 

 

348

 

 

 

3,300

 

Courtney Cove

 

Tampa, Florida

 

 

324

 

 

8/20/2014

 

 

18,950

 

 

 

946

 

 

 

93.5

%

 

 

180

 

 

 

4,815

 

Sabal Palm at Lake Buena Vista

 

Orlando, Florida

 

 

400

 

 

11/5/2014

 

 

49,500

 

 

 

1,259

 

 

 

95.0

%

 

 

256

 

 

 

601

 

Cornerstone

 

Orlando, Florida

 

 

430

 

 

1/15/2015

 

 

31,550

 

 

 

1,056

 

 

 

91.2

%

 

 

324

 

 

 

5,312

 

Seasons 704 Apartments

 

West Palm Beach, Florida

 

 

222

 

 

4/15/2015

 

 

21,000

 

 

 

1,209

 

 

 

98.6

%

 

 

170

 

 

 

5,738

 

Parc500

 

West Palm Beach, Florida

 

 

217

 

 

7/27/2016

 

 

22,421

 

 

 

1,340

 

 

 

97.7

%

 

 

168

 

 

 

14,953

 

Georgia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Preserve at Terrell Mill

 

Marietta, Georgia

 

 

752

 

 

2/6/2015

 

 

58,000

 

 

 

1,006

 

 

 

95.5

%

 

 

540

 

 

 

9,644

 

Rockledge Apartments

 

Marietta, Georgia

 

 

708

 

 

6/30/2017

 

 

113,500

 

 

 

1,261

 

 

 

95.5

%

 

 

661

 

 

 

4,603

 

Tennessee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beechwood Terrace

 

Antioch, Tennessee

 

 

300

 

 

7/21/2014

 

 

21,400

 

 

 

947

 

 

 

95.7

%

 

 

361

 

 

 

3,559

 

Cedar Pointe

 

Antioch, Tennessee

 

 

210

 

 

8/24/2018

 

 

26,500

 

 

 

1,075

 

 

 

96.2

%

 

 

150

 

 

 

3,364

 

Brandywine I & II

 

Nashville, Tennessee

 

 

632

 

 

9/26/2018

 

 

79,800

 

 

 

960

 

 

 

94.3

%

 

 

176

 

 

 

9,427

 

Arizona

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Madera Point

 

Mesa, Arizona

 

 

256

 

 

8/5/2015

 

 

22,525

 

 

 

980

 

 

 

93.8

%

 

 

226

 

 

 

3,961

 

The Venue on Camelback

 

Phoenix, Arizona

 

 

415

 

 

10/11/2016

 

 

44,600

 

 

 

821

 

 

 

93.7

%

 

 

146

 

 

 

11,153

 

North Carolina

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Radbourne Lake

 

Charlotte, North Carolina

 

 

225

 

 

9/30/2014

 

 

24,250

 

 

 

1,137

 

 

 

89.8

%

 

 

315

 

 

 

905

 

Timber Creek

 

Charlotte, North Carolina

 

 

352

 

 

9/30/2014

 

 

22,750

 

 

 

949

 

 

 

93.5

%

 

 

282

 

 

 

5,511

 

Total 2019-2020 Same Store Properties

 

 

 

 

9,074

 

 

 

 

$

880,849

 

 

$

1,047

 

 

 

94.2

%

 

 

6,889

 

 

$

4,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Same Store Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Texas

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cutter's Point

(5)

Richardson, Texas

 

 

196

 

 

1/31/2014

 

 

15,845

 

 

 

1,112

 

 

 

95.0

%

 

 

218

 

 

 

3,776

 

Summers Landing

 

Fort Worth, Texas

 

 

196

 

 

6/7/2019

 

 

19,396

 

 

 

941

 

 

 

95.9

%

 

 

60

 

 

 

3,306

 

Nevada

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bella Solara

 

Las Vegas, Nevada

 

 

320

 

 

11/22/2019

 

 

66,500

 

 

 

1,128

 

 

 

91.6

%

 

 

36

 

 

 

12,320

 

Bloom

 

Las Vegas, Nevada

 

 

528

 

 

11/22/2019

 

 

106,500

 

 

 

1,120

 

 

 

94.1

%

 

 

25

 

 

 

13,798

 

Torreyana Apartments

 

Las Vegas, Nevada

 

 

315

 

 

11/22/2019

 

 

68,000

 

 

 

1,184

 

 

 

93.0

%

 

 

9

 

 

 

12,063

 

Tennessee

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Arbors of Brentwood

 

Nashville, Tennessee

 

 

346

 

 

9/10/2019

 

 

62,250

 

 

 

1,194

 

 

 

91.3

%

 

 

171

 

 

 

2,291

 

Residences at Glenview Reserve

 

Nashville, Tennessee

 

 

360

 

 

7/17/2019

 

 

45,000

 

 

 

993

 

 

 

92.8

%

 

 

56

 

 

 

11,224

 

Arizona

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bella Vista

 

Phoenix, Arizona

 

 

248

 

 

1/28/2019

 

 

48,400

 

 

 

1,320

 

 

 

95.6

%

 

 

77

 

 

 

12,089

 

The Enclave

 

Tempe, Arizona

 

 

204

 

 

1/28/2019

 

 

41,800

 

 

 

1,355

 

 

 

97.5

%

 

 

74

 

 

 

10,559

 

The Heritage

 

Phoenix, Arizona

 

 

204

 

 

1/28/2019

 

 

41,900

 

 

 

1,298

 

 

 

94.1

%

 

 

75

 

 

 

11,223

 

Fairways at San Marcos

 

Chandler, Arizona

 

 

352

 

 

11/2/2020

 

 

84,480

 

 

 

1,232

 

 

 

96.0

%

 

 

 

 

 

 

Florida

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Avant at Pembroke Pines

 

Pembroke Pines, Florida

 

 

1,520

 

 

8/30/2019

 

 

322,000

 

 

 

1,515

 

 

 

94.4

%

 

 

147

 

 

 

14,593

 

Residences at West Place

 

Orlando, Florida

 

 

342

 

 

7/17/2019

 

 

55,000

 

 

 

1,214

 

 

 

90.1

%

 

 

57

 

 

 

6,842

 

Total Non-Same Store Properties

 

 

 

 

5,131

 

 

 

 

$

977,071

 

 

$

1,276

 

 

 

93.8

%

 

 

1,005

 

 

$

8,559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

14,205

 

 

 

 

$

1,857,920

 

 

$

1,128

 

 

 

94.1

%

 

 

7,894

 

 

$

4,963

 

 

(1)

Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31, 2020 minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31, 2020.

(2)

Percent occupied is calculated as the number of units occupied as of December 31, 2020, divided by the total number of units, expressed as a percentage.

(3)

Inclusive of all full and partial interior upgrades completed.

(4)

Inclusive of all full and partial interior upgrades completed and leased as of December 31, 2020.

39


 

(5)

Cutter’s Point suffered significant damage from a tornado on October 20, 2019 which necessitated a temporary halt to operation of all 196 units. Upon completion of Phase I of the rebuild efforts, the Company returned 60 units to service in 2020; there are 57 units occupied out of the 60 available as of December 31, 2020. The remaining 136 units are currently being rebuilt as part of Phase II of the rebuild with an expected return to service in 2021. (see Note 5).

For additional information regarding our Portfolio, see Notes 3, 4, 5 and 6 to our consolidated financial statements.

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 4. Mine Safety Disclosures

Not applicable.

 

40


 

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Stockholder Information

On February 22, 2021, we had 25,067,948 shares of common stock outstanding held by a total of approximately 948 record holders. The number of record holders is based on the records of American Stock Transfer & Trust Company, LLC, who serves as our transfer agent. The number of holders does not include individuals or entities who beneficially own shares but whose shares are held of record by a broker or clearing agency, but does include each such broker or clearing agency as one record holder.

Market Information

Our common stock trades on the NYSE under the ticker symbol “NXRT.”

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

On June 15, 2016, we announced that our Board authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $30.0 million during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, our 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, our Board further increased the Share Repurchase Program from $40.0 million to up to $100.0 million and extended it to March 12, 2023. During the year ended December 31, 2020, the Company repurchased 1,644,697 shares of its common stock. Since the inception of the Share Repurchase Program through December 31, 2020, the Company had repurchased 2,382,155 shares of its common stock, par value $0.01 per share, at a total cost of approximately $61.2 million, or $25.70 per share as shown in the table below:

 

Period

 

Total Number

of Shares Purchased

 

 

Average Price

Paid Per Share

 

 

Total Number of Shares

Purchased as Part of

Publicly Announced

Plans or Programs

 

 

Approximate Dollar Value

of Shares that may yet be

Purchased under the

Plans or Programs (in

millions)

 

Beginning Total

 

 

2,382,155

 

 

$

25.70

 

 

 

2,382,155

 

 

$

38.8

 

October 1 – October 31

 

 

 

 

 

 

 

 

 

 

 

38.8

 

November 1 – November 30

 

 

 

 

 

 

 

 

 

 

 

38.8

 

December 1 – December 31

 

 

 

 

 

 

 

 

 

 

 

38.8

 

Total as of December 31, 2020

 

 

2,382,155

 

 

$

25.70

 

 

 

2,382,155

 

 

$

38.8

 

 

41


 

PERFORMANCE GRAPH

On April 1, 2015, our common stock commenced trading on the NYSE. The following graph compares the cumulative total stockholder return on our common shares for the measurement period commencing December 31, 2015 and ending December 31, 2020 with the cumulative total returns of the Russell 3000 Index, the MSCI U.S. REIT Index (^RMZ) and the Standard & Poor’s U.S. REIT Index. The following graph assumes an investment of $100 on the initial day of the relevant measurement period and that all dividends were reinvested.

 

 

 


42


 

Item 6. Selected Financial Data

The following table summarizes selected financial data about the Company. The following selected financial data information should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the notes thereto, included elsewhere herein. The selected financial data presented below has been derived from our audited consolidated financial statements (in thousands, except per share amounts):

 

 

 

As of December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Balance Sheet Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net real estate investments (1)

 

$

1,760,749

 

 

$

1,781,810

 

 

$

1,087,542

 

 

$

991,156

 

 

$

963,037

 

Total assets

 

 

1,829,214

 

 

 

1,865,989

 

 

 

1,161,210

 

 

 

1,055,375

 

 

 

1,035,397

 

Mortgage debt, net (1)

 

 

1,162,855

 

 

 

1,186,547

 

 

 

838,020

 

 

 

754,405

 

 

 

423,138

 

Credit and bridge facilities, net

 

 

182,323

 

 

 

216,501

 

 

 

 

 

 

38,419

 

 

 

340,366

 

Total debt, net (1)

 

 

1,345,178

 

 

 

1,403,048

 

 

 

838,020

 

 

 

792,824

 

 

 

763,504

 

Total liabilities

 

 

1,418,189

 

 

 

1,436,453

 

 

 

862,615

 

 

 

813,796

 

 

 

779,295

 

Redeemable noncontrolling interests in the Operating Partnership

 

 

3,098

 

 

 

3,295

 

 

 

2,567

 

 

 

2,135

 

 

 

 

Noncontrolling interests

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24,558

 

Stockholders' equity

 

 

407,927

 

 

 

426,241

 

 

 

296,028

 

 

 

239,444

 

 

 

231,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

 

2017

 

 

2016

 

Operating Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

204,800

 

 

$

181,066

 

 

$

146,597

 

 

$

144,235

 

 

$

132,848

 

Net income (loss)

 

 

44,150

 

 

 

99,438

 

 

 

(1,614

)

 

 

56,359

 

 

 

25,888

 

Net income (loss) attributable to common stockholders

 

 

44,018

 

 

 

99,140

 

 

 

(1,609

)

 

 

53,374

 

 

 

21,882

 

Earnings (loss) per weighted average common share - basic

 

 

1.78

 

 

 

4.11

 

 

 

(0.08

)

 

 

2.53

 

 

 

1.03

 

Earnings (loss) per weighted average common share - diluted

 

 

1.74

 

 

 

4.03

 

 

 

(0.08

)

 

 

2.49

 

 

 

1.03

 

Weighted average common shares outstanding - basic

 

 

24,715

 

 

 

24,116

 

 

 

21,189

 

 

 

21,057

 

 

 

21,232

 

Weighted average common shares outstanding - diluted

 

 

25,234

 

 

 

24,593

 

 

 

21,667

 

 

 

21,399

 

 

 

21,314

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flow Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows provided by operating activities

 

$

57,226

 

 

$

51,366

 

 

$

41,743

 

 

$

37,506

 

 

$

33,776

 

Cash flows provided by (used in) investing activities

 

 

11,503

 

 

 

(553,129

)

 

 

(136,954

)

 

 

2,324

 

 

 

(51,904

)

Cash flows provided by (used in) financing activities

 

 

(82,896

)

 

 

529,816

 

 

 

95,092

 

 

 

(51,843

)

 

 

10,294

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Data

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

1.279

 

 

$

1.138

 

 

$

1.025

 

 

$

0.910

 

 

$

0.838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO attributable to common stockholders (2)

 

$

57,238

 

 

$

40,718

 

 

$

32,018

 

 

$

25,051

 

 

$

31,016

 

FFO per share - basic

 

 

2.32

 

 

 

1.69

 

 

 

1.51

 

 

 

1.19

 

 

 

1.46

 

FFO per share - diluted

 

 

2.27

 

 

 

1.66

 

 

 

1.48

 

 

 

1.17

 

 

 

1.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core FFO attributable to common stockholders (2)

 

$

55,512

 

 

$

47,573

 

 

$

35,081

 

 

$

30,147

 

 

$

31,485

 

Core FFO per share - basic

 

 

2.25

 

 

 

1.97

 

 

 

1.66

 

 

 

1.43

 

 

 

1.48

 

Core FFO per share - diluted

 

 

2.20

 

 

 

1.93

 

 

 

1.62

 

 

 

1.41

 

 

 

1.48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFFO attributable to common stockholders (2)

 

$

62,448

 

 

$

54,213

 

 

$

40,753

 

 

$

34,772

 

 

$

33,593

 

AFFO per share - basic

 

 

2.53

 

 

 

2.25

 

 

 

1.92

 

 

 

1.65

 

 

 

1.58

 

AFFO per share - diluted

 

 

2.47

 

 

 

2.20

 

 

 

1.88

 

 

 

1.62

 

 

 

1.58

 

 

(1)

Includes amounts classified as held for sale, where applicable.

(2)

FFO, Core FFO and AFFO are non-GAAP measures. For definitions of these non-GAAP measures, as well an explanation of why we believe these measures are useful and reconciliations to the most directly comparable GAAP financial measures, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

43


 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this annual report. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors” in this annual report. Our management believes the assumptions underlying the Company’s financial statements and accompanying notes are reasonable. However, the Company’s financial statements and accompanying notes may not be an indication of our financial condition and results of operations in the future.

Overview

As of December 31, 2020, our Portfolio consisted of 37 multifamily properties primarily located in the Southeastern and Southwestern United States encompassing 14,069 units of apartment space that was approximately 94.1% leased with a weighted average monthly effective rent per occupied apartment unit of $1,128. Substantially all of our business is conducted through the OP. We own the Portfolio through the OP and our TRS. The OP owns approximately 99.9% of the Portfolio; our TRS owns approximately 0.1% of the Portfolio. The OP GP is the sole general partner of the OP. As of December 31, 2020, there were 23,819,402 OP Units outstanding, of which 23,746,169, or 99.7%, were owned by us and 73,233, or 0.3%, were owned by an unaffiliated limited partner (see Note 10 to our consolidated financial statements).

We are primarily focused on 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. We generate revenue primarily by leasing our multifamily properties. We intend to employ targeted management and a value-add program at a majority of our properties in an attempt to improve rental rates and the NOI at our properties and achieve long-term capital appreciation for our stockholders. We are externally managed by the Adviser through the Advisory Agreement, by and among the OP, the Adviser and us. The Advisory Agreement was renewed on February 15, 2021 for a one-year term. The Adviser is wholly owned by NexPoint Advisors, L.P.

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc and Truist, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000.  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, Raymond James, Truist, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. The 2020 ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the 2020 ATM Program reach $225,000,000 (see Note 8 to our consolidated financial statements).

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we 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. We had no significant taxes associated with our TRS for the years ended December 31, 2020, 2019 and 2018.

For information on the effects the COVID-19 pandemic had on our business, see  Note 13 “Subsequent Events—COVID-19” to our consolidated financial statements included in this annual report.

44


 

Components of Our Revenues and Expenses

Revenues

Rental income. Our earnings are primarily attributable to the rental revenue from our multifamily properties. We anticipate that the leases we enter into for our multifamily properties will typically be for one year or less on average. Also included are utility reimbursements, late fees, pet fees, and other rental fees charged to tenants.

Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, application fees, laundry fees, cable TV income, and other miscellaneous fees charged to tenants.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs.

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each property.

Property management fees. Property management fees include fees paid to BH, our property manager, or other third party management companies for managing each property (see Note 10 to our consolidated financial statements).

Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 11 to our consolidated financial statements).

Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of director fees, equity-based compensation expense, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the advisory and administrative fees paid to our Adviser (including advisory and administrative fees on properties defined in the Advisory Agreement as New Assets) will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect), calculated in accordance with the Advisory Agreement, or the Expense Cap. The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. 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 our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive certain advisory and administrative fees otherwise due.  If advisory and administrative fees are waived in a period, the waived fees for that period are considered to be waived permanently and the Adviser may not be reimbursed in the future.

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases.

Other Income and Expense

Interest expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs and the related impact of interest rate derivatives used to manage our interest rate risk.

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to 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.

Casualty losses. Casualty losses include expenses resulting from damages from an unexpected and unusual event such as a natural disaster. Expenses can include additional payments on insurance premiums, impairment recognized on a property, and other abnormal expenses arising from the related event.  

45


 

Miscellaneous income. Miscellaneous income includes proceeds received from insurance for business interruption involving the loss of rental income at a property that has temporarily suspended operations due to an unexpected and unusual event.

Gain on sales of real estate. Gain on sales of real estate includes the gain recognized upon sales of properties. Gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties.

Results of Operations for the Years Ended December 31, 2020, 2019 and 2018

The year ended December 31, 2020 as compared to the year ended December 31, 2019

The following table sets forth a summary of our operating results for the years ended December 31, 2020 and 2019 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

Total revenues

 

$

204,800

 

 

$

181,066

 

 

$

23,734

 

Total expenses

 

 

(191,236

)

 

 

(166,157

)

 

 

(25,079

)

Operating income before gain on sales of real estate

 

 

13,564

 

 

 

14,909

 

 

 

(1,345

)

Gain on sales of real estate

 

 

69,151

 

 

 

127,684

 

 

 

(58,533

)

Operating income

 

 

82,715

 

 

 

142,593

 

 

 

(59,878

)

Interest expense

 

 

(44,753

)

 

 

(37,385

)

 

 

(7,368

)

Loss on extinguishment of debt and modification costs

 

 

(1,470

)

 

 

(2,869

)

 

 

1,399

 

Casualty gains (losses)

 

 

5,886

 

 

 

(3,488

)

 

 

9,374

 

Miscellaneous income

 

 

1,772

 

 

 

587

 

 

 

1,185

 

Net income

 

 

44,150

 

 

 

99,438

 

 

 

(55,288

)

Net income attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

132

 

 

 

298

 

 

 

(166

)

Net income attributable to common stockholders

 

$

44,018

 

 

$

99,140

 

 

$

(55,122

)

 

The change in our net income between the periods primarily relates to a decrease in gain on sales of real estate of $58.5 million and increases in total property operating expenses of $4.5 million and depreciation and amortization expense of $13.3 million, partially offset by an increase in total revenues of $23.7 million. The change in our net income between the periods was also due to our acquisition and disposition activity in 2019 and 2020 and the timing of the transactions (we purchased three properties in the first quarter of 2019, one property in the second quarter of 2019, four properties in the third quarter of 2019, three properties in the fourth quarter of 2019, and disposed of six properties in the third quarter of 2019; we disposed of three properties in the first quarter of 2020, one property in the third quarter of 2020, and purchased one property in the fourth quarter of 2020).

Revenues

Rental income was $199.2 million for the year ended December 31, 2020 compared to $177.2 million for the year ended December 31, 2019, which was an increase of approximately $22.0 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2019 and 2020 and the timing of the transactions, as described above, and a 2.3% increase in the weighted average monthly effective rent per occupied apartment unit in our Portfolio to $1,128 as of December 31, 2020 from $1,103 as of December 31, 2019, primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.

Other income. Other income was $5.6 million for the year ended December 31, 2020 compared to $3.9 million for the year ended December 31, 2019, which was an increase of approximately $1.7 million. The increase between the periods was primarily due to a $1.9 million increase in cable TV income partially offset by a $0.1 million decrease in application fees.

Expenses

Property operating expenses. Property operating expenses were $47.2 million for the year ended December 31, 2020 compared to $42.7 million for the year ended December 31, 2019, which was an increase of approximately $4.5 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2019 and 2020 and the timing of the transactions, as described above. The increase between periods was also due to a $0.8 million, or 4.0%, increase in payroll expenses.

46


 

Real estate taxes and insurance. Real estate taxes and insurance costs were $31.7 million for the year ended December 31, 2020 compared to $25.1 million for the year ended December 31, 2019, which was an increase of approximately $6.6 million. The increase between the periods was primarily due to a $5.1 million, or 23.1%, increase in property taxes. The increase between the periods was also due to our acquisition and disposition activity in 2019 and 2020 and the timing of the transactions, as described above. Property taxes incurred in the first year of ownership may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the taxing authority in subsequent years, increasing the cost of real estate taxes.

Property management fees. Property management fees were $6.0 million for the year ended December 31, 2020 compared to $5.4 million for the year ended December 31, 2019, which was an increase of approximately $0.6 million. The increase between the periods was primarily due to an increase in total revenues, which the fee is primarily based on.

Advisory and administrative fees. Advisory and administrative fees were $7.7 million for the year ended December 31, 2020 compared to $7.5 million for the year ended December 31, 2019, which was an increase of approximately $0.2 million. For the year ended December 31, 2020, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the properties we acquired subsequent to October 2016, excluding Hollister Place, Stone Creek at Old Farm and The Heritage, which totaled approximately $15.4 million and are considered to be permanently waived. For the year ended December 31, 2019, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the properties we acquired subsequent to October 2016, excluding Hollister Place and Stone Creek at Old Farm, which totaled approximately $9.1 million and are considered to be permanently waived for the period. The advisory and administrative fees waived by our Adviser for the years ended December 31, 2020 and 2019 are considered to be permanently waived for the periods. Our 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. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and administrative expenses were $10.0 million for the year ended December 31, 2020 compared to $9.6 million for the year ended December 31, 2019, which was an increase of approximately $0.4 million. The increase was primarily due to an increase in stock compensation expense of $0.4 million.

Property general and administrative expenses. Property general and administrative expenses were $6.2 million for the year ended December 31, 2020 compared to $6.8 million for the year ended December 31, 2019, which was a decrease of approximately $0.6 million. The decrease between the periods was primarily due to decreases in eviction fees of $0.2 million.

Depreciation and amortization. Depreciation and amortization costs were $82.4 million for the year ended December 31, 2020 compared to $69.1 million for the year ended December 31, 2019, which was an increase of approximately $13.3 million. The increase between the periods was primarily due to an increase of depreciation expense of $19.2 million, partially offset by the amortization of intangible lease assets of $6.8 million related to six properties for the year ended December 31, 2020 compared to $12.7 million related to fourteen properties for the year ended December 31, 2019, which was a decrease of approximately $5.9 million.

Other Income and Expense

Interest expense. Interest expense was $44.8 million for the year ended December 31, 2020 compared to $37.4 million for the year ended December 31, 2019, which was an increase of approximately $7.4 million. The increase between the periods was primarily due to an increase in interest rate swap expense of approximately $15.8 million, partially offset by a decrease in interest on debt of $9.2 million. The following table details the various costs included in interest expense for the years ended December 31, 2020 and 2019 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

Interest on debt

 

$

32,546

 

 

$

41,744

 

 

$

(9,198

)

Amortization of deferred financing costs

 

 

2,837

 

 

 

2,083

 

 

 

754

 

Interest rate swaps

 

 

9,337

 

 

 

(6,472

)

 

 

15,809

 

Interest rate caps expense

 

 

33

 

 

 

30

 

 

 

3

 

Total

 

$

44,753

 

 

$

37,385

 

 

$

7,368

 

 

47


 

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $1.5 million for the year ended December 31, 2020 compared to $2.9 million for the year ended December 31, 2019, which was a decrease of approximately $1.4 million. The decrease between periods was primarily due to a decrease in prepayment penalties and defeasance costs of $0.7 million and a decrease in write-offs of deferred financing costs of $0.7 million. The following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended December 31, 2020 and 2019 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

Prepayment penalties and defeasance costs

 

$

711

 

 

$

1,449

 

 

$

(738

)

Write-off of deferred financing costs

 

 

756

 

 

 

1,419

 

 

 

(663

)

Write-off of fair market value adjustment of assumed debt

 

 

 

 

 

 

 

 

 

Debt modification and other extinguishment costs

 

 

3

 

 

 

1

 

 

 

2

 

Total

 

$

1,470

 

 

$

2,869

 

 

$

(1,399

)

 

Casualty gains (losses). Casualty gains were $5.9 million for the year ended December 31, 2020 compared to casualty losses of $3.5 million for the year ended December 31, 2019. The increase between periods was primarily due to significant damages sustained at Cutter’s Point, Venue 8651, and Timber Creek (see Note 5 to our consolidated financial statements).

 

Miscellaneous income. Miscellaneous income was $1.8 million for the year ended December 31, 2020 compared to $0.6 million for the year ended December 31, 2019, which was an increase of approximately $1.2 million. The increase between the periods was primarily due to business interruption proceeds received from insurance for lost rents at Cutter’s Point and Venue 8651 (see Note 5 to our consolidated financial statements).

 

Gain on sales of real estate. Gain on sales of real estate was $69.2 million for the year ended December 31, 2020 compared to $127.7 million for the year ended December 31, 2019, which was a decrease of approximately $58.5 million. During the year ended December 31, 2020, we sold four properties; during the year ended December 31, 2019, we sold six properties.

The year ended December 31, 2019 as compared to the year ended December 31, 2018

The following table sets forth a summary of our operating results for the years ended December 31, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

Total revenues

 

$

181,066

 

 

$

146,597

 

 

$

34,469

 

Total expenses

 

 

(166,157

)

 

 

(129,805

)

 

 

(36,352

)

Operating income

 

 

14,909

 

 

 

16,792

 

 

 

(1,883

)

Interest expense

 

 

(37,385

)

 

 

(28,572

)

 

 

(8,813

)

Loss on extinguishment of debt and modification costs

 

 

(2,869

)

 

 

(3,576

)

 

 

707

 

Gain on sales of real estate

 

 

127,684

 

 

 

13,742

 

 

 

113,942

 

Casualty losses

 

 

(3,488

)

 

 

 

 

 

(3,488

)

Miscellaneous income

 

 

587

 

 

 

 

 

 

587

 

Net income (loss)

 

 

99,438

 

 

 

(1,614

)

 

 

101,052

 

Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

298

 

 

 

(5

)

 

 

303

 

Net income (loss) attributable to common stockholders

 

$

99,140

 

 

$

(1,609

)

 

$

100,749

 

 

The change in our net income (loss) for the year ended December 31, 2019 as compared to the year ended December 31, 2018 primarily relates to an increase in gain on sales of real estate and an increase in total revenues, and was partially offset by increases in total property operating expenses and depreciation and amortization expense. The change in our net income (loss) between the periods was also due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions (we acquired three properties in the third quarter of 2018, and disposed of one property in the first quarter of 2018; we purchased three properties in the first quarter of 2019, one property in the second quarter of 2019, four properties in the third quarter of 2019, three properties in the fourth quarter of 2019, and disposed of six properties in the third quarter of 2019).

48


 

Revenues

Rental income was $177.2 million for the year ended December 31, 2019 compared to $143.2 million for the year ended December 31, 2018, which was an increase of approximately $34.0 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above, and a 12.0% increase in the weighted average monthly effective rent per occupied apartment unit in our Portfolio to $1,103 as of December 31, 2019 from $985 as of December 31, 2018, primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.

Other income. Other income was $3.9 million for the year ended December 31, 2019 compared to $3.4 million for the year ended December 31, 2018, which was an increase of approximately $0.5 million. The increase between the periods was primarily due to a $0.6 million increase in cable TV income.

Expenses

Property operating expenses. Property operating expenses were $42.7 million for the year ended December 31, 2019 compared to $35.8 million for the year ended December 31, 2018, which was an increase of approximately $6.9 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above. The increase between periods was also due to a $3.1 million, or 16.5%, increase in payroll expenses.

Real estate taxes and insurance. Real estate taxes and insurance costs were $25.1 million for the year ended December 31, 2019 compared to $20.7 million for the year ended December 31, 2018, which was an increase of approximately $4.4 million. The increase between the periods was primarily due to a $3.8 million, or 21.0%, increase in property taxes. Property taxes incurred in the first year of ownership may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the taxing authority in subsequent years, increasing the cost of real estate taxes.

Property management fees. Property management fees were $5.4 million for the year ended December 31, 2019 compared to $4.4 million for the year ended December 31, 2018, which was an increase of approximately $1.0 million. The increase between the periods was primarily due to an increase in total revenues, which the fee is primarily based on.

Advisory and administrative fees. Advisory and administrative fees remained flat at $7.5 million for the years ended December 31, 2019 and 2018. The amount incurred during the years ended December 31, 2019 and 2018 represents the maximum fee allowed on properties defined as Contributed Assets under the Advisory Agreement plus $2.1 million and $2.1 million, respectively, of advisory and administrative fees incurred on certain properties defined as New Assets. For the year ended December 31, 2019, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the nineteen properties we acquired subsequent to October 2016, which totaled approximately $9.1 million and are considered to be permanently waived. For the year ended December 31, 2018, our Adviser elected to voluntarily waive the advisory and administrative fees incurred on the eight properties we acquired subsequent to October 2016, which totaled approximately $4.1 million and are considered to be permanently waived for the period. The advisory and administrative fees waived by our Adviser for the years ended December 31, 2019 and 2018 are considered to be permanently waived for the periods. Our 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. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and administrative expenses were $9.6 million for the year ended December 31, 2019 compared to $7.8 million for the year ended December 31, 2018, which was an increase of approximately $1.8 million. The increase between the periods was primarily due to approximately $5.1 million of equity-based compensation expense recognized during the year ended December 31, 2019 related to the grants of restricted stock units to our directors, officers, employees and certain key employees of our Adviser pursuant to our long-term incentive plan (the “2016 LTIP”), compared to $4.2 million of equity-based compensation expense recognized during the year ended December 31, 2018 (see Note 8 to our consolidated financial statements). Subject to the Expense Cap, corporate general and administrative expenses may increase in future periods as we acquire additional properties.

Property general and administrative expenses. Property general and administrative expenses were $6.8 million for the year ended December 31, 2019 compared to $6.1 million for the year ended December 31, 2018, which was an increase of approximately $0.7 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2018 and 2019 and the timing of the transactions, as described above.

Depreciation and amortization. Depreciation and amortization costs were $69.1 million for the year ended December 31, 2019 compared to $47.5 million for the year ended December 31, 2018, which was an increase of approximately $21.6 million. The increase between the periods was primarily due to the amortization of intangible lease assets of $12.7 million related to fourteen

49


 

properties for the year ended December 31, 2019 compared to $2.5 million related to four properties for the year ended December 31, 2018, which was an increase of approximately $10.3 million. The amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the initial year of operations for each property.

Other Income and Expense

Interest expense. Interest expense was $37.4 million for the year ended December 31, 2019 compared to $28.6 million for the year ended December 31, 2018, which was an increase of approximately $8.8 million. The increase between the periods was primarily due to an increase in interest on debt of approximately $10.9 million, partially offset by a decrease in interest rate swap expense of $2.2 million. The following table details the various costs included in interest expense for the years ended December 31, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

Interest on debt

 

$

41,744

 

 

$

30,870

 

 

$

10,874

 

Amortization of deferred financing costs

 

 

2,083

 

 

 

1,650

 

 

 

433

 

Interest rate swaps - effective portion

 

 

(6,472

)

 

 

(4,224

)

 

 

(2,248

)

Interest rate caps expense

 

 

30

 

 

 

276

 

 

 

(246

)

Total

 

$

37,385

 

 

$

28,572

 

 

$

8,813

 

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs was $2.9 million for the year ended December 31, 2019 compared to $3.6 million for the year ended December 31, 2018, which was a decrease of approximately $0.7 million. The decrease between periods was primarily due to a decrease in debt modification and other extinguishment costs of $0.5 million. The following table details the various costs included in loss on extinguishment of debt and modification costs for the years ended December 31, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

Prepayment penalties and defeasance costs

 

$

1,449

 

 

$

1,706

 

 

$

(257

)

Write-off of deferred financing costs

 

 

1,419

 

 

 

1,412

 

 

 

7

 

Write-off of fair market value adjustment of assumed debt

 

 

 

 

 

(27

)

 

 

27

 

Debt modification and other extinguishment costs

 

 

1

 

 

 

485

 

 

 

(484

)

Total

 

$

2,869

 

 

$

3,576

 

 

$

(707

)

 

Casualty losses. Casualty losses were $3.5 million for the year ended December 31, 2019; there were no casualty losses for the year ended December 31, 2018. This is related to significant damages sustained at Cutter’s Point due to a tornado hitting the property (see Note 5 to our consolidated financial statements).

 

Miscellaneous income. Miscellaneous income was $0.6 million for the year ended December 31, 2019; there was no miscellaneous income for the year ended December 31, 2018. This is related to business interruption proceeds received from insurance for lost rents at Cutter’s Point (see Note 5 to our consolidated financial statements).

 

Gain on sales of real estate. Gain on sales of real estate was $127.7 million for the year ended December 31, 2019 compared to $13.7 million for the year ended December 31, 2018, which was an increase of approximately $114.0 million. During the year ended December 31, 2019, we sold six properties; during the year ended December 31, 2018, we sold one property.

Non-GAAP Measurements

Net Operating Income and Same Store Net Operating Income

NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties as NOI is not affected by (1) the cost of funds, (2) acquisition costs, (3) advisory and administrative fees, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (5) corporate general and administrative expenses, (6) other gains and losses that are specific to us, (7) casualty-related expenses/(recoveries) and gains or losses, (8) miscellaneous income derived from recognition of lost rents covered by insurance, (9) pandemic expenses and (10) property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

50


 

The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Acquisition costs and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Casualty-related expenses and recoveries and gains and losses are excluded because they do not reflect continuing operating costs of the property owner. Miscellaneous income is eliminated as the income is derived from recognition of lost rents covered by insurance. Corporate level general and administrative expenses are eliminated because they do not reflect the operating activity performed at the properties. Entity level general and administrative expenses incurred at the properties and pandemic expenses are eliminated as they are specific to the way in which we have chosen to hold our properties and are the result of our ownership structuring. Also, expenses that are incurred upon acquisition of a property do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, loss on extinguishment of debt and modification costs, acquisition costs, certain fees to affiliates such as advisory and administrative fees, depreciation and amortization expense and gains or losses from the sale of properties, pandemic expenses, and other gains and losses as determined under GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods.

Net Operating Income for Our 2019-2020 Same Store and Non-Same Store Properties for the Years Ended December 31, 2020 and 2019

There are 24 properties encompassing 9,074 units of apartment space in our same store pool for the years ended December 31, 2020 and 2019 (our “2019-2020 Same Store” properties). Our 2019-2020 Same Store properties exclude the following 13 properties in our Portfolio as of December 31, 2020: Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara, Fairways at San Marcos and Cutter’s Point.

51


 

The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2020 and 2019 for our 2019-2020 Same Store and Non-Same Store properties (dollars in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

$ Change

 

 

% Change

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

120,109

 

 

$

115,588

 

 

$

4,521

 

 

 

3.9

%

Other income

 

 

2,106

 

 

 

2,331

 

 

 

(225

)

 

 

-9.7

%

Same Store revenues

 

 

122,215

 

 

 

117,919

 

 

 

4,296

 

 

 

3.6

%

Non-Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

 

79,128

 

 

 

61,574

 

 

 

17,554

 

 

 

28.5

%

Other income

 

 

3,457

 

 

 

1,573

 

 

 

1,884

 

 

 

119.8

%

Non-Same Store revenues

 

 

82,585

 

 

 

63,147

 

 

 

19,438

 

 

 

30.8

%

Total revenues

 

 

204,800

 

 

 

181,066

 

 

 

23,734

 

 

 

13.1

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses (1)

 

 

27,910

 

 

 

27,484

 

 

 

426

 

 

 

1.5

%

Real estate taxes and insurance

 

 

19,301

 

 

 

17,331

 

 

 

1,970

 

 

 

11.4

%

Property management fees (2)

 

 

3,629

 

 

 

3,518

 

 

 

111

 

 

 

3.2

%

Property general and administrative expenses (3)

 

 

3,225

 

 

 

3,532

 

 

 

(307

)

 

 

-8.7

%

Same Store operating expenses

 

 

54,065

 

 

 

51,865

 

 

 

2,200

 

 

 

4.2

%

Non-Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses (4)

 

 

17,991

 

 

 

15,242

 

 

 

2,749

 

 

 

18.0

%

Real estate taxes and insurance

 

 

12,408

 

 

 

7,782

 

 

 

4,626

 

 

 

59.4

%

Property management fees (2)

 

 

2,342

 

 

 

1,870

 

 

 

472

 

 

 

25.2

%

Property general and administrative expenses (5)

 

 

1,902

 

 

 

1,716

 

 

 

186

 

 

 

10.8

%

Non-Same Store operating expenses

 

 

34,643

 

 

 

26,610

 

 

 

8,033

 

 

 

30.2

%

Total operating expenses

 

 

88,708

 

 

 

78,475

 

 

 

10,233

 

 

 

13.0

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

68,150

 

 

 

66,054

 

 

 

2,096

 

 

 

3.2

%

Non-Same Store

 

 

47,942

 

 

 

36,537

 

 

 

11,405

 

 

 

31.2

%

Total NOI

 

$

116,092

 

 

$

102,591

 

 

$

13,501

 

 

 

13.2

%

 

(1)

For the years ended December 31, 2020 and 2019, excludes approximately $555,000 and $53,000, respectively, of casualty-related recoveries.

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.

(3)

For the years ended December 31, 2020 and 2019, excludes approximately $495,000 and $883,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

(4)

For the years ended December 31, 2020 and 2019, excludes approximately $344,000 and $19,000, respectively, of casualty-related expenses.

(5)

For the years ended December 31, 2020 and 2019, excludes approximately $617,000 and $634,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

See reconciliation of net income (loss) to NOI below under “NOI and 2019-2020 Same Store NOI for the Years Ended December 31, 2020 and 2019.”

2019-2020 Same Store Results of Operations for the Years Ended December 31, 2020 and 2019

As of December 31, 2020, our 2019-2020 Same Store properties were approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $1,047. As of December 31, 2019, our 2019-2020 Same Store properties were approximately 94.3% leased with a weighted average monthly effective rent per occupied apartment unit of $1,033. For our 2019-2020 Same Store properties, we recorded the following operating results for the year ended December 31, 2020 as compared to the year ended December 31, 2019:

52


 

Revenues

Rental income. Rental income was $120.1 million for the year ended December 31, 2020 compared to $115.6 million for the year ended December 31, 2019, which was an increase of approximately $4.5 million, or 3.9%. The majority of the increase is related to a 1.4% increase in the weighted average monthly effective rent per occupied apartment unit to $1,047 as of December 31, 2020 from $1,033 as of December 31, 2019.

Other income. Other income was $2.1 million for the year ended December 31, 2020 compared to $2.3 million for the year ended December 31, 2019, which was a decrease of approximately $0.2 million, or 9.7%. The majority of the decrease is related to a $0.1 million decrease in miscellaneous income.

Expenses

Property operating expenses. Property operating expenses were $27.9 million for the year ended December 31, 2020 compared to $27.5 million for the year ended December 31, 2019, which was an increase of approximately $0.4 million, or 1.5%. The majority of the increase is related to a $0.2 million, or 1.4%, increase in payroll expenses.

Real estate taxes and insurance. Real estate taxes and insurance costs were $19.3 million for the year ended December 31, 2020 compared to $17.3 million for the year ended December 31, 2019, which was an increase of approximately $2.0 million, or 11.4%. The majority of the increase is related to a $1.7 million, or 11.1%, increase in property taxes and a $0.3 million, or 13.7%, increase in insurance expense.

Property management fees. Property management fees were $3.6 million for the year ended December 31, 2020 compared to $3.5 million for the year ended December 31, 2019, which was an increase of approximately $0.1 million, or 3.2%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $3.2 million for the year ended December 31, 2020 compared to $3.5 million for the year ended December 31, 2019, which was a decrease of approximately $0.3 million, or 8.7%. The majority of the decrease is related to a $0.2 million, or 17.6%, decrease in marketing costs.

Net Operating Income for Our 2018-2020 Same Store and Non-Same Store Properties for the Years Ended December 31, 2020, 2019 and 2018

 

There are 21 properties encompassing 7,990 units of apartment space in our same store pool for the years ended December 31, 2020, 2019 and 2018 (our “2018-2020 Same Store” properties). Our 2018-2020 Same Store properties exclude the following 16 properties in our Portfolio as of December 31, 2020: Cedar Pointe, Crestmont Reserve, Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara. Fairways at San Marcos and Cutter’s Point.

53


 

The following table reflects the revenues, property operating expenses and NOI for the years ended December 31, 2020, 2019 and 2018 for our 2018-2020 Same Store and Non-Same Store properties (dollars in thousands):

 

 

 

For the Year Ended December 31,

 

 

2020 compared to 2019

 

 

2020 compared to 2018

 

 

 

2020

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

$ Change

 

 

% Change

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

106,490

 

 

$

102,554

 

 

$

98,013

 

 

$

3,936

 

 

 

3.8

%

 

$

8,477

 

 

 

8.6

%

Other income

 

 

1,952

 

 

 

2,145

 

 

 

2,576

 

 

 

(193

)

 

 

-9.0

%

 

 

(624

)

 

 

-24.2

%

Same Store revenues

 

 

108,442

 

 

 

104,699

 

 

 

100,589

 

 

 

3,743

 

 

 

3.6

%

 

 

7,853

 

 

 

7.8

%

Non-Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

 

92,747

 

 

 

74,608

 

 

 

45,145

 

 

 

18,139

 

 

 

24.3

%

 

 

47,602

 

 

 

105.4

%

Other income

 

 

3,611

 

 

 

1,759

 

 

 

863

 

 

 

1,852

 

 

 

105.3

%

 

 

2,748

 

 

 

318.4

%

Non-Same Store revenues

 

 

96,358

 

 

 

76,367

 

 

 

46,008

 

 

 

19,991

 

 

 

26.2

%

 

 

50,350

 

 

 

109.4

%

Total revenues

 

 

204,800

 

 

 

181,066

 

 

 

146,597

 

 

 

23,734

 

 

 

13.1

%

 

 

58,203

 

 

 

39.7

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses (1)

 

 

24,817

 

 

 

24,462

 

 

 

24,059

 

 

 

355

 

 

 

1.5

%

 

 

758

 

 

 

3.2

%

Real estate taxes and insurance

 

 

17,467

 

 

 

15,876

 

 

 

15,832

 

 

 

1,591

 

 

 

10.0

%

 

 

1,635

 

 

 

10.3

%

Property management fees (2)

 

 

3,219

 

 

 

3,122

 

 

 

3,000

 

 

 

97

 

 

 

3.1

%

 

 

219

 

 

 

7.3

%

Property general and administrative expenses (3)

 

 

2,841

 

 

 

3,119

 

 

 

3,295

 

 

 

(278

)

 

 

-8.9

%

 

 

(454

)

 

 

-13.8

%

Same Store operating expenses

 

 

48,344

 

 

 

46,579

 

 

 

46,186

 

 

 

1,765

 

 

 

3.8

%

 

 

2,158

 

 

 

4.7

%

Non-Same Store

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses (4)

 

 

21,084

 

 

 

18,264

 

 

 

12,428

 

 

 

2,820

 

 

 

15.4

%

 

 

8,656

 

 

 

69.6

%

Real estate taxes and insurance

 

 

14,242

 

 

 

9,237

 

 

 

4,881

 

 

 

5,005

 

 

 

54.2

%

 

 

9,361

 

 

 

191.8

%

Property management fees (2)

 

 

2,752

 

 

 

2,266

 

 

 

1,382

 

 

 

486

 

 

 

21.4

%

 

 

1,370

 

 

 

99.1

%

Property general and administrative expenses (5)

 

 

2,286

 

 

 

2,129

 

 

 

1,545

 

 

 

157

 

 

 

7.4

%

 

 

741

 

 

 

48.0

%

Non-Same Store operating expenses

 

 

40,364

 

 

 

31,896

 

 

 

20,236

 

 

 

8,468

 

 

 

26.5

%

 

 

20,128

 

 

 

99.5

%

Total operating expenses

 

 

88,708

 

 

 

78,475

 

 

 

66,422

 

 

 

10,233

 

 

 

13.0

%

 

 

22,286

 

 

 

33.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOI

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Same Store

 

 

60,098

 

 

 

58,120

 

 

 

54,403

 

 

 

1,978

 

 

 

3.4

%

 

 

5,695

 

 

 

10.5

%

Non-Same Store

 

 

55,994

 

 

 

44,471

 

 

 

25,772

 

 

 

11,523

 

 

 

25.9

%

 

 

30,222

 

 

 

117.3

%

Total NOI

 

$

116,092

 

 

$

102,591

 

 

$

80,175

 

 

$

13,501

 

 

 

13.2

%

 

$

35,917

 

 

 

44.8

%

 

(1)

For the years ended December 31, 2020, 2019 and 2018, excludes approximately $(609,000), $(58,000) and $95,000, respectively, of casualty-related expenses/(recoveries).

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.

(3)

For the years ended December 31, 2020, 2019 and 2018, excludes approximately $472,000, $578,000 and $698,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

(4)

For the years ended December 31, 2020, 2019 and 2018, excludes approximately $1,910,000, $23,000 and $(758,000), respectively, of casualty-related expenses/(recoveries).

(5)

For the years ended December 31, 2020, 2019 and 2018, excludes approximately $640,000, $939,000 and $596,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

See reconciliation of net income (loss) to NOI below under “NOI and 2018-2020 Same Store NOI for the Years Ended December 31, 2020, 2019 and 2018.”

54


 

2018-2020 Same Store Results of Operations for the Years Ended December 31, 2020 and 2019

As of December 31, 2020, our 2018-2020 Same Store properties were approximately 94.0% leased with a weighted average monthly effective rent per occupied apartment unit of $1,058. As of December 31, 2019, our 2018-2020 Same Store properties were approximately 94.4% leased with a weighted average monthly effective rent per occupied apartment unit of $1,040. For our 2018-2020 Same Store properties, we recorded the following operating results for the year ended December 31, 2020 as compared to the year ended December 31, 2019:

Revenues

Rental income. Rental income was $106.5 million for the year ended December 31, 2020 compared to $102.6 million for the year ended December 31, 2019, which was an increase of approximately $3.9 million, or 3.8%. The majority of the increase is related to a 1.7% increase in the weighted average monthly effective rent per occupied apartment unit to $1,058 as of December 31, 2020 from $1,040 as of December 31, 2019, partially offset by a 0.4% decrease in occupancy.

Other income. Other income was $2.0 million for the year ended December 31, 2020 compared to $2.1 million for the year ended December 31, 2019, which was a decrease of approximately $0.2 million, or 9.0%. The majority of the decrease is related to a $0.1 million decrease in miscellaneous income.

Expenses

Property operating expenses. Property operating expenses were $24.8 million for the year ended December 31, 2020 compared to $24.5 million for the year ended December 31, 2019, which was an increase of approximately $0.3 million, or 1.5%. The majority of the increase is related to an increase in payroll costs of $0.2 million.

Real estate taxes and insurance. Real estate taxes and insurance costs were $17.5 million for the year ended December 31, 2020 compared to $15.9 million for the year ended December 31, 2019, which was an increase of approximately $1.6 million, or 10.0%. The majority of the increase is related to a $1.3 million, or 9.6%, increase in property taxes.

Property management fees. Property management fees were $3.2 million for the year ended December 31, 2020 compared to $3.1 million for the year ended December 31, 2019, which was an increase of approximately $0.1 million, or 3.1%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $2.8 million for the year ended December 31, 2020 compared to $3.1 million for the year ended December 31, 2019, which was a decrease of approximately $0.3 million, or 8.9%. The majority of the decrease is related to a $0.2 million decrease in marketing expenses.

2018-2020 Same Store Results of Operations for the Years Ended December 31, 2020 and 2018

As of December 31, 2020, our 2018-2020 Same Store properties were approximately 94.0% leased with a weighted average monthly effective rent per occupied apartment unit of $1,058. As of December 31, 2018, our 2018-2020 Same Store properties were approximately 94.7% leased with a weighted average monthly effective rent per occupied apartment unit of $1,005. For our 2018-2020 Same Store properties, we recorded the following operating results for the year end December 31, 2020 as compared to the year ended December 31, 2018:

Revenues

Rental income. Rental income was $106.5 million for the year ended December 31, 2020 compared to $98.0 million for the year ended December 31, 2018, which was an increase of approximately $8.5 million, or 8.6%. The majority of the increase is related to a 5.3% increase in the weighted average monthly effective rent per occupied apartment unit to $1,058 as of December 31, 2020 from $1,005 as of December 31, 2018, partially offset by a 0.7% decrease in occupancy.

Other income. Other income was $2.0 million for the year ended December 31, 2020 compared to $2.6 million for the year ended December 31, 2018, which was a decrease of approximately $0.6 million, or 24.2%. The majority of the decrease is related to a $0.4 million decrease in non-refundable fees.

Expenses

Property operating expenses. Property operating expenses were $24.8 million for the year ended December 31, 2020 compared to $24.1 million for the year ended December 31, 2018, which was an increase of approximately $0.7 million, or 3.2%. The majority of the increase is related to a $0.6 million, or 5.9%, increase in payroll expenses.

55


 

Real estate taxes and insurance. Real estate taxes and insurance costs were $17.5 million for the year ended December 31, 2020 compared to $15.8 million for the year ended December 31, 2018, which was an increase of approximately $1.7 million, or 10.3%. The majority of the increase is related to a $1.7 million, or 12.2%, increase in property taxes.

Property management fees. Property management fees were $3.2 million for the year ended December 31, 2020 to $3.0 million for the year ended December 31, 2018, which was an increase of approximately $0.2 million, or 7.3%. The majority of the increase is related to an increase in total revenues, which the fee is primarily based on.

Property general and administrative expenses. Property general and administrative expenses were $2.8 million for the year ended December 31, 2020 compared to $3.3 million for the year ended December 31, 2018, which was a decrease of approximately $0.5 million, or 13.8%. The majority of the decrease is related to a $0.3 million, or 26.8%, decrease in marketing expenses.

NOI and 2019-2020 Same Store NOI for the Years Ended December 31, 2020 and 2019

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2019-2020 Same Store NOI for the years ended December 31, 2020 and 2019 to net income, the most directly comparable GAAP financial measure (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

44,150

 

 

$

99,438

 

Adjustments to reconcile net income to NOI:

 

 

 

 

 

 

 

 

Advisory and administrative fees

 

 

7,670

 

 

 

7,500

 

Corporate general and administrative expenses

 

 

10,035

 

 

 

9,613

 

Casualty-related expenses/(recoveries)

(1)

 

790

 

 

 

(34

)

Casualty losses (gains)

 

 

(5,886

)

 

 

3,488

 

Miscellaneous income

 

 

(1,772

)

 

 

(587

)

Pandemic expense

(2)

 

510

 

 

 

 

Property general and administrative expenses

(3)

 

1,112

 

 

 

1,517

 

Depreciation and amortization

 

 

82,411

 

 

 

69,086

 

Interest expense

 

 

44,753

 

 

 

37,385

 

Loss on extinguishment of debt and modification costs

 

 

1,470

 

 

 

2,869

 

Gain on sales of real estate

 

 

(69,151

)

 

 

(127,684

)

NOI

 

$

116,092

 

 

$

102,591

 

Less Non-Same Store

 

 

 

 

 

 

 

 

Revenues

 

 

(82,585

)

 

 

(63,147

)

Operating expenses

 

 

34,643

 

 

 

26,610

 

Same Store NOI

 

$

68,150

 

 

$

66,054

 

 

(1)

Adjustment to net income to exclude certain property operating expenses that are casualty-related expenses/(recoveries).

(2)

Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.

(3)

Adjustment to net income to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

56


 

NOI and 2018-2020 Same Store NOI for the Years Ended December 31, 2020, 2019 and 2018

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our 2018-2020 Same Store NOI for the years ended December 31, 2020, 2019 and 2018 to net income (loss), the most directly comparable GAAP financial measure (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net income (loss)

 

$

44,150

 

 

$

99,438

 

 

$

(1,614

)

Adjustments to reconcile net income to NOI:

 

 

 

 

 

 

 

 

 

 

 

 

Advisory and administrative fees

 

 

7,670

 

 

 

7,500

 

 

 

7,474

 

Corporate general and administrative expenses

 

 

10,035

 

 

 

9,613

 

 

 

7,808

 

Casualty-related expenses/(recoveries)

(1)

 

790

 

 

 

(34

)

 

 

(663

)

Casualty losses (gains)

 

 

(5,886

)

 

 

3,488

 

 

 

 

Miscellaneous income

 

 

(1,772

)

 

 

(587

)

 

 

 

Pandemic expense

(2)

 

510

 

 

 

 

 

 

 

Property general and administrative expenses

(3)

 

1,112

 

 

 

1,517

 

 

 

1,294

 

Depreciation and amortization

 

 

82,411

 

 

 

69,086

 

 

 

47,470

 

Interest expense

 

 

44,753

 

 

 

37,385

 

 

 

28,572

 

Loss on extinguishment of debt and modification costs

 

 

1,470

 

 

 

2,869

 

 

 

3,576

 

Gain on sales of real estate

 

 

(69,151

)

 

 

(127,684

)

 

 

(13,742

)

NOI

 

$

116,092

 

 

$

102,591

 

 

$

80,175

 

Less Non-Same Store

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

 

(96,358

)

 

 

(76,367

)

 

 

(46,008

)

Operating expenses

 

 

40,364

 

 

 

31,896

 

 

 

20,236

 

Same Store NOI

 

$

60,098

 

 

$

58,120

 

 

$

54,403

 

 

(1)

Adjustment to net income (loss) to exclude certain property operating expenses that are casualty-related expenses/(recoveries).

(2)

Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.

(3)

Adjustment to net income (loss) to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax.

FFO, Core FFO and AFFO

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO attributable to common stockholders in accordance with NAREIT’s definition. Our presentation differs slightly in that we begin with net income (loss) before adjusting for amounts attributable to noncontrolling interests and we show the combined amounts attributable to such noncontrolling interests as an adjustment to arrive at FFO attributable to common stockholders.

Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our portfolio. Core FFO adjusts FFO to remove items such as acquisition expenses, losses on extinguishment of debt and modification costs (including prepayment penalties and defeasance costs incurred on the early repayment of debt, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to 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), casualty-related expenses and recoveries and gains or losses, pandemic expenses, the amortization of deferred financing costs incurred in connection with obtaining short-term debt financing, and the noncontrolling

57


 

interests (as described above) related to these items. We believe Core FFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

AFFO makes certain adjustments to Core FFO in order to arrive at a more refined measure of the operating performance of our portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts Core FFO to remove items such as equity-based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and the noncontrolling interests (as described above) related to these items. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core FFO and AFFO allocable to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in the table below. As such, the assumed conversion of these units would have no net impact on the determination of diluted FFO, Core FFO and AFFO per share. See Note 10 to our consolidated financial statements for additional information.

We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently than we do.

58


 

The following table reconciles our calculations of FFO, Core FFO and AFFO to net income (loss), the most directly comparable GAAP financial measure, for the years ended December 31, 2020, 2019 and 2018 (in thousands, except per share amounts):

 

`

 

For the Year Ended December 31,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

% Change 2020 - 2019

 

 

% Change 2020 - 2018

 

Net income (loss)

 

$

44,150

 

 

$

99,438

 

 

$

(1,614

)

 

 

-55.6

%

 

N/M

 

Depreciation and amortization

 

 

82,411

 

 

 

69,086

 

 

 

47,470

 

 

 

19.3

%

 

 

73.6

%

Gain on sales of real estate

 

 

(69,151

)

 

 

(127,684

)

 

 

(13,742

)

 

 

-45.8

%

 

 

403.2

%

Adjustment for noncontrolling interests

 

 

(172

)

 

 

(122

)

 

 

(96

)

 

 

41.0

%

 

 

79.2

%

FFO attributable to common stockholders

 

 

57,238

 

 

 

40,718

 

 

 

32,018

 

 

 

40.6

%

 

 

78.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO per share - basic

 

$

2.32

 

 

$

1.69

 

 

$

1.51

 

 

 

37.0

%

 

 

53.4

%

FFO per share - diluted

 

$

2.27

 

 

$

1.66

 

 

$

1.48

 

 

 

37.0

%

 

 

53.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on extinguishment of debt and modification costs

 

 

1,470

 

 

 

2,869

 

 

 

3,576

 

 

 

-58.9

%

 

 

-58.9

%

Casualty-related expenses/(recoveries)

 

 

790

 

 

 

(34

)

 

 

(663

)

 

N/M

 

 

 

-219.1

%

Casualty losses (gains)

 

 

(5,886

)

 

 

3,488

 

 

 

 

 

N/M

 

 

N/M

 

Pandemic expense

(1)

 

510

 

 

 

 

 

 

 

 

N/M

 

 

N/M

 

Amortization of deferred financing costs - acquisition term notes

 

 

1,384

 

 

 

553

 

 

 

159

 

 

 

150.3

%

 

 

770.4

%

Adjustment for noncontrolling interests

 

 

6

 

 

 

(21

)

 

 

(9

)

 

 

-128.6

%

 

 

-166.7

%

Core FFO attributable to common stockholders

 

 

55,512

 

 

 

47,573

 

 

 

35,081

 

 

 

16.7

%

 

 

58.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Core FFO per share - basic

 

$

2.25

 

 

$

1.97

 

 

$

1.66

 

 

 

13.9

%

 

 

35.7

%

Core FFO per share - diluted

 

$

2.20

 

 

$

1.93

 

 

$

1.62

 

 

 

13.7

%

 

 

35.9

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of deferred financing costs - long term debt

 

 

1,453

 

 

 

1,530

 

 

 

1,491

 

 

 

-5.0

%

 

 

-2.5

%

Equity-based compensation expense

 

 

5,504

 

 

 

5,130

 

 

 

4,198

 

 

 

7.3

%

 

 

31.1

%

Adjustment for noncontrolling interests

 

 

(21

)

 

 

(20

)

 

 

(17

)

 

 

5.0

%

 

 

23.5

%

AFFO attributable to common stockholders

 

 

62,448

 

 

 

54,213

 

 

 

40,753

 

 

 

15.2

%

 

 

53.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AFFO per share - basic

 

$

2.53

 

 

$

2.25

 

 

$

1.92

 

 

 

12.4

%

 

 

31.4

%

AFFO per share - diluted

 

$

2.47

 

 

$

2.20

 

 

$

1.88

 

 

 

12.3

%

 

 

31.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

24,715

 

 

 

24,116

 

 

 

21,189

 

 

 

2.5

%

 

 

16.6

%

Weighted average common shares outstanding - diluted

 

 

25,234

 

 

 

24,593

 

 

 

21,667

 

 

 

2.6

%

 

 

16.5

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per common share

 

$

1.279

 

 

$

1.138

 

 

$

1.025

 

 

 

12.4

%

 

 

24.8

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FFO Coverage - diluted

(2)

1.77x

 

 

1.46x

 

 

1.44x

 

 

 

21.9

%

 

 

23.0

%

Core FFO Coverage - diluted

(2)

1.72x

 

 

1.70x

 

 

1.58x

 

 

 

1.2

%

 

 

8.9

%

AFFO Coverage - diluted

(2)

1.94x

 

 

1.94x

 

 

1.84x

 

 

 

-0.1

%

 

 

5.5

%

 

(1)

Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.

(2)

Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

The year ended December 31, 2020 as compared to the year ended December 31, 2019

FFO was $57.2 million for the year ended December 31, 2020 compared to $40.7 million for the year ended December 31, 2019, which was an increase of approximately $16.5 million. The change in our FFO between the periods primarily relates to an increase in total revenues of $23.7 million, partially offset by an increase in total property operating expenses of $11.2 million, interest

59


 

expense of $7.4 million, real estate taxes and insurance expenses of $6.6 million and adjustments for amounts attributable to noncontrolling interests.

Core FFO was $55.5 million for the year ended December 31, 2020 compared to $47.6 million for the year ended December 31, 2019, which was an increase of approximately $7.9 million. The change in our Core FFO between the periods primarily relates to an increase in FFO and an increase in amortization of deferred financing costs for acquisition term notes of $0.8 million, partially offset by an increase in casualty gains of $9.4 million and a decrease in loss on extinguishment of debt and modification costs of $1.4 million.

AFFO was $62.4 million for the year ended December 31, 2020 compared to $54.2 million for the year ended December 31, 2019, which was an increase of approximately $8.2 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-based compensation expense of $0.4 million.

The year ended December 31, 2020 as compared to the year ended December 31, 2018

FFO was $57.2 million for the year ended December 31, 2020 compared to $32.0 million for the year ended December 31, 2018, which was an increase of approximately $25.2 million. The change in our FFO between the periods primarily relates to an increase in total revenues of $58.2 million, partially offset by an increase in total property operating expenses of $11.4 million, interest expense of $16.2 million, and corporate general and administrative expenses of $2.2 million.

Core FFO was $55.5 million for the year ended December 31, 2020 compared to $35.1 million for the year ended December 31, 2018, which was an increase of approximately $20.4 million. The change in our Core FFO between the periods primarily relates to an increase in FFO and an increase in amortization of deferred financing costs for acquisition term notes of $1.2 million, partially offset by an increase in casualty gains of $5.9 million.

AFFO was $62.4 million for the year ended December 31, 2020 compared to $40.8 million for the year ended December 31, 2018, which was an increase of approximately $21.6 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-based compensation expense of $1.3 million.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures directly associated with our multifamily properties, including:

 

capital expenditures to continue our value-add program and to improve the quality and performance of our multifamily properties;

 

interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below);

 

recurring maintenance necessary to maintain our multifamily properties;

 

distributions necessary to qualify for taxation as a REIT;

 

acquisitions of additional properties;

 

advisory and administrative fees payable to our Adviser;

 

general and administrative expenses;

 

reimbursements to our Adviser; and

 

property management fees payable to BH.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances. As of December 31, 2020, we had approximately $10.6 million of renovation value-add reserves for our planned capital expenditures to implement our value-add program. Renovation value-add reserves are not required to be held in escrow by a third party. We may reallocate these funds, at our discretion, to pursue other investment opportunities or meet our short-term liquidity requirements. Additionally, we had $42.0 million of unused capacity on the Corporate Credit Facility as of December 31, 2020.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional multifamily properties, renovations and other capital expenditures to improve our multifamily properties and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, and property dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a

60


 

result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The Company continues to monitor the impact on COVID-19 and its impact on future rent collections, valuation of real estate investments, impact on cash flow and ability to refinance or repay debt. The success of our business strategy will depend, in part, on our ability to access these various capital sources.

In addition to our value-add program, our multifamily properties will require periodic capital expenditures and renovation to remain competitive. Also, acquisitions, redevelopments, or expansions of our multifamily properties will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.

On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James and Truist (collectively, the “2019 ATM Sales Agents”), pursuant to which the Company could issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “2019 ATM Program”).  Sales of shares of common stock, if any, could 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 could enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the 2019 ATM Program. During the year ended December 31, 2019, the Company issued 1,565,322 shares of common stock at an average price of $45.98 per share for gross proceeds of approximately $72.0 million.  The Company paid approximately $1.1 million in fees to the 2019 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the year ended December 31, 2020, the Company issued 560,000 shares of common stock at an average price of $50.00 per share for gross proceeds of $28.0 million under the 2019 ATM Program. The Company paid approximately $0.4 million in fees to the 2019 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.4 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached aggregate sales of $100,000,000 and therefore expired.

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc and Truist, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000.  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, Raymond James, Truist, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital.  The 2020 ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the 2020 ATM Program reach $225,000,000 (see Note 8 to our consolidated financial statements).

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following December 31, 2020.

61


 

Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the years ended December 31, 2020, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Net cash provided by operating activities

 

$

57,226

 

 

$

51,366

 

 

$

41,743

 

Net cash provided by (used in) investing activities

 

 

11,503

 

 

 

(553,129

)

 

 

(135,248

)

Net cash provided by (used in) financing activities

 

 

(82,896

)

 

 

529,816

 

 

 

93,386

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(14,167

)

 

 

28,053

 

 

 

(119

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

71,182

 

 

 

43,129

 

 

 

43,248

 

Cash, cash equivalents and restricted cash, end of period

 

$

57,015

 

 

$

71,182

 

 

$

43,129

 

 

The year ended December 31, 2020 as compared to the year ended December 31, 2019

Cash flows from operating activities. During the year ended December 31, 2020, net cash provided by operating activities was $57.2 million compared to net cash provided by operating activities of $51.4 million for the year ended December 31, 2019.

Cash flows from investing activities. During the year ended December 31, 2020, net cash provided by investing activities was $11.5 million compared to net cash used in investing activities of $553.1 million for the year ended December 31, 2019. The change in cash flows from investing activities was mainly due to our acquisition and disposition activity in 2020 and 2019 and the timing of the transactions.

Cash flows from financing activities. During the year ended December 31, 2020, net cash used in financing activities was $82.9 million compared to net cash provided by financing activities of $529.8 million for the year ended December 31, 2019. The change in cash flows from financing activities was mainly due to a net decrease in debt of approximately $555.8 million between the periods.

The year ended December 31, 2019 as compared to the year ended December 31, 2018

Cash flows from operating activities. During the year ended December 31, 2019, net cash provided by operating activities was $51.4 million compared to net cash provided by operating activities of $41.7 million for the year ended December 31, 2018. The change in cash flows from operating activities was mainly due to an increase in total revenues, partially offset by an increase in total property operating expenses.

Cash flows from investing activities. During the year ended December 31, 2019, net cash used in investing activities was $553.1 million compared to net cash used in investing activities of $135.2 million for the year ended December 31, 2018. The change in cash flows from investing activities was mainly due to an increase in acquisitions, partially offset by an increase in dispositions. We sold six properties for net proceeds of approximately $286.5 million and acquired eleven properties for a combined purchase price of approximately $876.7 million during the period in 2019; we sold one property for net proceeds of approximately $29.6 million and acquired three properties for a combined purchase price of approximately $131.0 million during 2018.

Cash flows from financing activities. During the year ended December 31, 2019, net cash provided by financing activities was $529.8 million compared to net cash provided by financing activities of $93.4 million for the year ended December 31, 2018. The change in cash flows from financing activities was mainly due to a net increase in debt of approximately $450.6 million between the periods.

Debt, Derivatives and Hedging Activity

Mortgage Debt

As of December 31, 2020, our subsidiaries had aggregate mortgage debt outstanding to third parties of approximately $1.2 billion at a weighted average interest rate of 1.83% and an adjusted weighted average interest rate of 3.06%. For purposes of calculating the adjusted weighted average interest rate of our mortgage debt outstanding, we have included the weighted average fixed rate of 1.3792% for one-month LIBOR on our combined $1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.1 billion of our floating rate mortgage debt. See Notes 6 and 7 to our consolidated financial statements for additional information.

62


 

We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements generally have a term of four to five years and effectively establish a fixed interest rate on debt on the underlying notional amounts. The interest rate swap agreements involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2020, interest rate swap agreements effectively covered 100% of our $1.1 billion of floating rate mortgage debt outstanding.

The interest rate cap agreements generally have a term of three to four years, cover the outstanding principal amount of the underlying debt and are generally required by our lenders. Under the interest rate cap agreements, we pay a fixed fee in exchange for the counterparty to pay any interest above a maximum rate. As of December 31, 2020, interest rate cap agreements covered $393.0 million of our $1.1 billion of floating rate mortgage debt outstanding. These interest rate cap agreements effectively cap one-month LIBOR on $393.0 million of our floating rate mortgage debt at a weighted average rate of 5.16%.

We intend to invest in additional multifamily properties as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of common stock or other securities or property dispositions.

Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our value-add and capital expenditures programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.

Corporate Credit Facility

On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with Truist Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term, has one 12-month extension at the option of the Company, and the Company has the right to request an increase in the facility amount up to $150 million (the “Accordion Feature”).  The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75 million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional financing through the Accordion Feature (see Note 6 for additional information related to our deferred financing costs). On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $25 million, resulting in aggregate commitments of $150 million as of September 30, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs. As of December 31, 2020, there was $183.0 million in aggregate principal outstanding on the Corporate Credit Facility. On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022. There are currently no more extension options available under the existing agreement.

On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022 (the “Maturity Date”), which falls within one year of February 19, 2021. During 2020, the Company repaid $35.0 million in principal on the Corporate Credit Facility and had sufficient cash flow to fund operations as well as close on a new acquisition (Fairways at San Marcos) in the fourth quarter of 2020.  Management recognizes that finding an alternative source of funding is necessary to repay the facility by the Maturity Date. Management is evaluating multiple options to fund the repayment of the $183.0 million principal balance outstanding, including recasting the Corporate Credit Facility, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof.  Management believes that there is sufficient time before the Maturity Date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

63


 

The Corporate Credit Facility is a non-recourse obligation and contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the document evidencing the loan, defaults in payments under any other security instrument, and bankruptcy or other insolvency events. As of December 31, 2020, the Company believes it is compliant with all provisions.

Interest Rate Swap Agreements

In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into eleven interest rate swap transactions with KeyBank and two with Truist Bank (collectively the “Counterparties”) with a combined notional amount of $1.2 billion which are effective as of December 31, 2020. As of December 31, 2020, the interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to $1.1 billion of our floating rate mortgage debt outstanding with a weighted average fixed rate of 1.3792%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.3792%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. For purposes of hedge accounting under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, we have designated these interest rate swaps as cash flow hedges of interest rate risk. See Notes 6 and 7 to our consolidated financial statements for additional information.

The following table contains summary information regarding our outstanding interest rate swaps (dollars in thousands):

 

Effective Date

 

Termination Date

 

Counterparty

 

Notional

 

 

Fixed Rate (1)

 

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

$

100,000

 

 

 

1.1055

%

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

1.0210

%

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

0.9000

%

 

September 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

0.9560

%

 

April 1, 2017

 

April 1, 2022

 

KeyBank

 

 

100,000

 

 

 

1.9570

%

 

May 1, 2017

 

April 1, 2022

 

KeyBank

 

 

50,000

 

 

 

1.9610

%

 

July 1, 2017

 

July 1, 2022

 

KeyBank

 

 

100,000

 

 

 

1.7820

%

 

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

%

 

 

 

 

 

 

 

$

1,167,500

 

 

 

1.3792

%

(2)

 

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2020, one-month LIBOR was 0.14388%.

(2)

Represents the weighted average fixed rate of the interest rate swaps.

The following table contains summary information regarding our forward interest rate swaps (dollars in thousands):

Effective Date

 

Termination Date

 

Counterparty

 

Notional Amount

 

 

Fixed Rate (1)

 

 

June 1, 2021

 

September 1, 2026

 

KeyBank

 

$

200,000

 

 

 

0.8450

%

 

June 1, 2021

 

September 1, 2026

 

KeyBank

 

 

200,000

 

 

 

0.9530

%

 

September 1, 2026

 

January 1, 2027

 

KeyBank

 

 

92,500

 

 

 

1.7980

%

 

 

 

 

 

 

 

$

492,500

 

 

 

1.0678

%

(2)

 

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2020, one-month LIBOR was 0.14388%.

(2)

Represents the weighted average fixed rate of the interest rate swaps.

64


 

Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of December 31, 2020 for the next five calendar years subsequent to December 31, 2020. We used one-month LIBOR as of December 31, 2020 to calculate interest expense due by period on our floating rate debt and net interest expense due by period on our interest rate swaps.

 

 

 

 

Payments Due by Period (in thousands)

 

 

 

 

Total

 

 

2021

 

 

2022

 

 

2023

 

 

2024

 

 

2025

 

 

Thereafter

 

Operating Properties Mortgage Debt

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payments

 

 

$

1,168,078

 

 

$

896

 

 

$

1,509

 

 

$

21,293

 

 

$

395,168

 

 

$

245,780

 

 

$

503,432

 

Interest expense

(1)

 

 

155,861

 

 

 

34,200

 

 

 

29,946

 

 

 

28,656

 

 

 

25,558

 

 

 

20,769

 

 

 

16,732

 

Total

 

 

$

1,323,939

 

 

$

35,096

 

 

$

31,455

 

 

$

49,949

 

 

$

420,726

 

 

$

266,549

 

 

$

520,164

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Credit Facility

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Principal payments

 

 

$

183,000

 

 

$

 

 

$

183,000

 

 

$

 

 

$

 

 

$

 

 

$

 

Interest expense

 

 

 

4,782

 

 

 

4,453

 

 

 

329

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

187,782

 

 

$

4,453

 

 

$

183,329

 

 

$

 

 

$

 

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total contractual obligations and commitments

 

 

$

1,511,721

 

 

$

39,549

 

 

$

214,784

 

 

$

49,949

 

 

$

420,726

 

 

$

266,549

 

 

$

520,164

 

 

(1)

Interest expense obligations includes the impact of expected settlements on interest rate swaps which have been entered into in order to fix the interest rate on the hedged portion of our floating rate debt obligations. As of December 31, 2020, we had entered into thirteen interest rate swap transactions with a combined notional amount of $1.2 billion. We have allocated the total impact of expected settlements on the $1.2 billion notional amount of interest rate swaps to “Operating Properties Mortgage Debt.” We used one-month LIBOR as of December 31, 2020 to determine our expected settlements through the terms of the interest rate swaps.

Capital Expenditures and Value-Add Program

We anticipate incurring average annual repairs and maintenance expense of $575 to $725 per apartment unit in connection with the ongoing operations of our business. These expenditures are expensed as incurred. In addition, we reserve, on average, approximately $250 to $350 per apartment unit for non-recurring capital expenditures and/or lender required replacement reserves. When incurred, these expenditures are either capitalized or expensed, in accordance with GAAP, depending on the type of the expenditure. Although we will continuously monitor the adequacy of this average, we believe these figures to be sufficient to maintain the properties at a high level in the markets in which we operate. A majority of the properties in our Portfolio were underwritten and acquired with the premise that we would invest $4,000 to $10,000 per unit in the first 36 months of ownership, in an effort to add value to the asset’s exterior and interiors. In many cases, we reserve cash at the closing of each acquisition to fund these planned capital expenditures and value-add improvements. As of December 31, 2020, we had approximately $10.6 million of renovation value-add reserves for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 1,205 planned interior rehabs. The following table sets forth a summary of our capital expenditures related to our value-add program for the years ended December 31, 2020, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

Rehab Expenditures

 

2020

 

 

2019

 

 

2018

 

Interior

(1)

$

10,093

 

 

$

12,044

 

 

$

8,559

 

Exterior and common area

 

 

20,447

 

 

 

11,242

 

 

 

9,133

 

Total rehab expenditures

 

$

30,540

 

 

$

23,286

 

 

$

17,692

 

 

(1)

Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the years ended December 31, 2020, 2019 and 2018, we completed full and partial interior rehabs on 1,679, 2,516 and 1,432 units, respectively.

65


 

Freddie Mac Multifamily Green Advantage Program

In order to obtain more favorable pricing on our mortgage debt financing with Freddie Mac, the Company decided to participate in Freddie Mac’s Multifamily Green Advantage program (the “Green Program”). As of December 31, 2020, the Company has completed its Green Program improvements on all but one property. We will complete the green improvements on this property during 2021. We expect to reduce water/sewer costs at each property where the Green Program is implemented by at least 15% through the replacement of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, we are not implementing this on acquisitions going forward.

Income Taxes

We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. 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. We had no significant taxes associated with our TRS for the years ended December 31, 2020, 2019 and 2018.

If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our 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. Our 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. We have no examinations in progress and none are expected at this time.

We recognize our tax positions and evaluate them using a two-step process. First, we determine 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, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

We had no material unrecognized tax benefit or expense, accrued interest or penalties as of December 31, 2020. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2019, 2018 and 2017 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss).

Dividends

We intend to make regular quarterly dividend payments to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

66


 

We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our fourth quarterly dividend of 2020 of $0.34125 per share on October 26, 2020, which was paid on December 31, 2020 and funded out of cash flows from operations.

Off-Balance Sheet Arrangements

As of December 31, 2020 and 2019, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of recent accounting pronouncements and our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this annual report.

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 based on relative fair value 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 (see Note 7 to our consolidated financial statements), 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. 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.

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, we 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.

67


 

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate. The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities. Should inflation return, due to the short-term nature of our leases, we do not believe our results will be materially affected.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. Currently, interest rates are less than historical averages. However, the Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges, which to date have included interest rate cap and interest rate swap agreements.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. 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. We had no significant taxes associated with our TRS for the years ended December 31, 2020, 2019 and 2018. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the adverse effect on the value of assets and liabilities that results from a change in market conditions. Our primary market risk exposure is interest rate risk with respect to our indebtedness and counterparty credit risk with respect to our interest rate derivatives. In order to minimize counterparty credit risk, we enter into and expect to enter into hedging arrangements only with major financial institutions that have high credit ratings. As of December 31, 2020, we had total indebtedness of $1.4 billion at a weighted average interest rate of 1.94%, of which $1.3 billion was debt with a floating interest rate. The interest rate swap agreements we have entered into effectively fix the interest rate on 100% of our $1.1 billion of floating rate mortgage debt outstanding (see below). As of December 31, 2020, the adjusted weighted average interest rate of our total indebtedness was 3.06%. For purposes of calculating the adjusted weighted average interest rate of the total indebtedness, we have included the weighted average fixed rate of 1.3792% for one-month LIBOR on the $1.2 billion notional amount of interest rate swap agreements that we have entered into as of December 31, 2020, which effectively fix the interest rate on $ 1.1 billion of our floating rate mortgage debt outstanding.

An increase in interest rates could make the financing of any acquisition by us costlier. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. We may manage, or hedge, interest rate risks related to our borrowings by means of interest rate cap and interest rate swap agreements. As of December 31, 2020, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $393.0 million of our floating rate mortgage debt at a weighted average rate of 5.16% for the term of the agreements, which is generally 3 to 4 years. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and floating rates for our indebtedness.

In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into thirteen interest rate swap transactions with the Counterparties with a combined notional amount of $1.2 billion. The interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.3792%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.3792%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. We have designated these interest rate swaps as cash flow hedges of interest rate risk.

68


 

Until our interest rates reach the caps provided by our interest rate cap agreements, each quarter point change in LIBOR would result in an approximate increase to annual interest expense costs on our floating rate indebtedness, reduced by any payments due from the Counterparties under the terms of the interest rate swap agreements we had entered into as of December 31, 2020, of the amounts illustrated in the table below for our indebtedness as of December 31, 2020 (dollars in thousands):

 

Change in Interest Rates

 

Annual Increase to Interest Expense

 

0.25%

 

$

280

 

0.50%

 

 

560

 

0.75%

 

 

840

 

1.00%

 

 

1,120

 

 

There is no assurance that we would realize such expense as such changes in interest rates could alter our liability positions or strategies in response to such changes.

We may also be exposed to credit risk in the derivative financial instruments we use. Credit risk is the failure of the counterparty to perform under the terms of the derivative financial instruments. If the fair value of a derivative financial instrument is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative financial instrument is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative financial instruments by entering into transactions with major financial institutions that have high credit ratings.

In July 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The ARRC has proposed that SOFR is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks.

 

Item 8. Financial Statements and Supplementary Data

The information required by this Item 8 is included in our consolidated financial statements and the notes thereto beginning on page F-1 in this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of December 31, 2020, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) and for our assessment of the effectiveness of internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our President and our Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

69


 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our management, including our President and Chief Financial Officer, has conducted an assessment regarding the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the framework established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment under the criteria described above, management has concluded that our internal control over financial reporting was effective as of December 31, 2020.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of the Independent Registered Public Accounting Firm

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which is included herein.

Item 9B. Other Information

On February 15, 2021, our Board approved an amendment to the Bylaws by adopting the Amended and Restated Bylaws of the Company (as amended and restated, the “Amended Bylaws”). The amendment to the Bylaws reflected in Article XV of the Amended Bylaws provides that the Company’s stockholders may alter, amend or repeal the Amended Bylaws by the affirmative vote of a majority of the votes entitled to be cast on the matter and without any action by the Board. The foregoing summary of the Amended Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Amended Bylaws, a copy of which is attached hereto as Exhibit 3.2 and is incorporated by reference herein.

70


 

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information required in response to this Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 11. Executive Compensation

The information required in response to this Item 11 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required in response to this Item 12 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

The information required in response to this Item 13 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

Our Board has determined that Mr. Constantino’s simultaneous service on the audit committees of more than two other public companies (NXRT, NHF and Patriot Bank N.A.) would not impair his ability to effectively serve on our audit committee. Our Board also determined that Mr. Constantino’s service on the other companies’ audit committees did not hinder his ability to serve on our audit committee as he is currently retired and not serving in an executive officer capacity for another company.

Item 14. Principal Accountant Fees and Services

The information required in response to this Item 14 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A promulgated under the Exchange Act not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K.

71


 

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report:

1. Financial Statements. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on page F-1 of this Report.

2. Financial Statement Schedules. See Index to Consolidated Financial Statements and Schedules of NexPoint Residential Trust, Inc. on page S-43 of this Report. All other schedules are omitted because they are not required, are inapplicable, or the required information is included in the financial statements or notes thereto.

3. Exhibits. The exhibits filed with this Report are set forth in the Exhibit Index.

72


 

EXHIBIT INDEX

 

Exhibit Number

 

Description

 

 

 

    1.1

 

Form of Equity Distribution Agreement (incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 10, 2020)

 

 

 

    1.2

 

Form of Master Forward Sale Agreement (incorporated by reference to Exhibit 1.2 to the Company’s Current Report on Form 8-K filed with the SEC on February 18, 2020)

 

 

 

    2.1

 

Separation and Distribution Agreement (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form 10 filed with the SEC on March 12, 2015)

 

 

 

    3.1

 

Articles of Amendment and Restatement of NexPoint Residential Trust, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on 8-K filed with the SEC on June 15, 2016)

 

 

 

    3.2*

 

Amended and Restated Bylaws of NexPoint Residential Trust, Inc.

 

 

 

    4.1*

 

Description of the Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934

 

 

 

  10.1

 

Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, filed with the SEC on August 1, 2017)

 

 

 

  10.2

 

First Amendment to Amended and Restated Limited Partnership Agreement of NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 19, 2019)

 

 

 

  10.3

 

Advisory Agreement by and among NexPoint Residential Trust, Inc., NexPoint Residential Trust Operating Partnership, L.P. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 15, 2015)

 

 

 

  10.4

 

Amendment to Advisory Agreement, dated June 15, 2016, by and among the Company, NexPoint Residential Trust Operating Partnership, L.P. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the SEC on June 15, 2016)

 

 

 

  10.5

 

Registration Rights Agreement by and between NexPoint Residential Trust, Inc. and NexPoint Real Estate Advisors, L.P. (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on May 15, 2015)

 

 

 

  10.6

 

Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.4 to the Company’s Registration Statement on Form 10 filed with the SEC on January 9, 2015)

 

 

 

  10.7

 

NexPoint Residential Trust, Inc. 2016 Long Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on 8-K filed with the SEC on June 15, 2016)

 

 

 

  10.8

 

Confirmation of swap transaction, dated May 18, 2016, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the SEC on May 19, 2016)

 

 

 

  10.9

 

Confirmation of swap transaction, dated June 13, 2016, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the SEC on June 17, 2016)

 

 

 

  10.10

 

Confirmation of swap transaction, dated June 30, 2016, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the SEC on July 1, 2016)

 

 

 

  10.11

 

Confirmation of swap transaction, dated August 12, 2016, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on 8-K filed with the SEC on August 16, 2016)

 

 

 

  10.12

 

Confirmation of swap transaction, dated March 27, 2017, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on March 28, 2017)

73


 

 

 

 

  10.13

 

Confirmation of swap transaction, dated June 14, 2017, from KeyBank National Association to NexPoint Residential Trust Operating Partnership, L.P. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on June 15, 2017)

 

 

 

  10.14

 

Form of Restricted Stock Units Agreement (Officers) for award agreements entered into prior to February 15, 2021 (incorporated by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 15, 2017)

 

 

 

  10.15*

 

Form of Restricted Stock Units Agreement for award agreements entered into on or after February 15, 2021

 

 

 

  10.16

 

Form of Restricted Stock Units Agreement (Directors) (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, filed with the SEC on March 15, 2017)

 

 

 

  10.17

 

Revolving Credit Agreement by and among NexPoint Residential Trust Operating Partnership, L.P., as Borrower, the Lenders from time to time party thereto, and SunTrust Bank, a Georgia banking corporation, as Administrative Agent, dated as of January 28, 2019, as amended (incorporated by reference to Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 21, 2020)

 

 

 

  21.1*

 

List of Subsidiaries of NexPoint Residential Trust, Inc.

 

 

 

  23.1*

 

Consent of KPMG LLP

 

 

 

  31.1*

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  31.2*

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

  32.1+

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

 

 

 

101.INS*

 

Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)

 

 

 

101.SCH*

 

Inline XBRL Taxonomy Extension Schema

 

 

 

101.CAL*

 

Inline XBRL Taxonomy Extension Calculation Linkbase

 

 

 

101.DEF*

 

Inline XBRL Taxonomy Extension Definition Linkbase

 

 

 

101.LAB*

 

Inline XBRL Taxonomy Extension Label Linkbase

 

 

 

101.PRE*

 

104*

 

Inline XBRL Taxonomy Extension Presentation Linkbase

 

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

*

Filed herewith.

+

Furnished herewith.

 

74


 

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

NEXPOINT RESIDENTIAL TRUST, INC.

 

 

 

 

 

 

 

 

/s/ Jim Dondero

February 22, 2021

 

Jim Dondero

 

 

President and Principal Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

  

Title

 

Date

 

 

 

 

 

/s/ Jim Dondero

 

President and Director

 

February 22, 2021

Jim Dondero

 

(Principal Executive Officer)

 

 

 

 

 

 

 

/s/ Brian Mitts

  

Chief Financial Officer and Director

 

February 22, 2021

Brian Mitts

 

(Principal Financial Officer and Principal Accounting Officer)

 

 

 

 

 

 

 

/s/ Edward Constantino

  

Director

 

February 22, 2021

Edward Constantino

 

 

 

 

 

 

 

 

 

/s/ Dr. Arthur Laffer

  

Director

 

February 22, 2021

Dr. Arthur Laffer

 

 

 

 

 

 

 

 

 

/s/ Scott Kavanaugh

  

Director

 

February 22, 2021

Scott Kavanaugh

 

 

 

 

 

 

 

 

 

/s/ Catherine Wood

  

Director

     

February 22, 2021

Catherine Wood

 

 

 

 

 

 

 

 

 

75


 

INDEX TO FINANCIAL STATEMENTS

 

 

 

Page

Financial Statements

 

 

 

 

 

NexPoint Residential Trust, Inc.—Consolidated Financial Statements

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

F-2

 

 

 

Consolidated Balance Sheets as of December 31, 2020 and 2019

 

F-6

 

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2020, 2019 and 2018

 

F-7

 

 

 

Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2020, 2019 and 2018

 

F-8

 

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2020, 2019 and 2018

 

F-9

 

 

 

Notes to Consolidated Financial Statements

 

F-11

 

 

 

Financial Statements Schedules

 

 

 

 

 

Schedule III—Real Estate and Accumulated Depreciation

 

S-1

 

 

 

F-1


 

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of NexPoint Residential Trust, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes and financial statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 22, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases and Accounting Standards Update 2018-11, Leases – Targeted Improvements.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

F-2


 

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Assessment of the relative fair value allocation in an asset acquisition

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company acquired a real estate property recorded as an asset acquisition during the year ended December 31, 2020. The purchase price in an asset acquisition is allocated to the assets acquired and liabilities assumed using their relative fair values.

We identified the assessment of the relative fair value allocation in an asset acquisition, specifically the land, buildings, improvements, and furniture, fixtures, and equipment as a critical audit matter. There is a high degree of subjective auditor judgment in evaluating the results of procedures over the relevance of comparable land sales and replacement cost of the buildings, improvements, and furniture, fixtures, and equipment used by the Company to determine the fair value of these assets.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s asset acquisition allocation process, including controls to identify and select publicly available and comparable land sales and replacement costs of the buildings, improvements, and furniture, fixtures, and equipment. We involved valuation professionals with specialized skills and knowledge, who assisted in the following procedures for the Company’s asset acquisition:

 

compared the consideration paid by the Company to acquire the property to comparable market transactions based on the price per apartment unit acquired

 

compared the Company’s estimated fair value of land to independently developed estimates based on publicly available and comparable land sales

 

compared the cost inputs used in the Company’s replacement cost analysis of buildings, improvements and furniture, fixtures, and equipment to market data, such as data included in industry recognized guides used for developing replacement, reproduction, and insurable value costs.

 

Evaluation of real estate investments for impairment

As discussed in Note 2 to the consolidated financial statements, the Company evaluates the recoverability of its real estate investments whenever events or changes in circumstances indicate that the carrying amount of a property may not be recoverable. The Company evaluates the recoverability of such real estate investments based on estimated undiscounted future cash flows and the estimated liquidation value of such real estate investments based on the expected period the Company will hold the rental property, and provide for impairment if such estimated undiscounted cash flows, inclusive of the estimated liquidation value, are insufficient to recover the carrying amount of the real estate investment. As disclosed in Note 5 to the consolidated financial statements, the Company had $1.8 billion in real estate investments as of December 31, 2020.

We identified the evaluation of real estate investments for impairment as a critical audit matter. Identifying events or changes in circumstances that indicate the carrying value of a real estate investment may not be recoverable involves a high degree of subjective auditor judgment. In addition, evaluating how identified events or changes in circumstances impact the expected period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective property requires subjective auditor judgment.

F-3


 

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to identify and evaluate events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including controls over determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment. We compared the estimated undiscounted cash flows, inclusive of the estimated liquidation value, based on the expected period the Company will hold the rental property, of each real estate investment to its carrying value and assessed the sensitivity to changes in assumptions on the recoverability of each property. We performed independent evaluations considering third-party market reports for (1) indications of a decrease in the fair value of similar real estate investments and (2) decreases in current and projected operating performance of the real estate investments of the Company. We inquired of Company officials and inspected documents, such as meeting minutes of the board of directors, to identify Company strategies that might indicate it was more-likely-than not that a property will be sold before the end of the expected period the Company planned to hold the property.

 

/s/ KPMG LLP

 

We have served as the Company’s auditor since 2014.

Dallas, Texas
February 22, 2021


F-4


 

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
NexPoint Residential Trust, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited NexPoint Residential Trust, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.  

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement Schedule III Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements), and our report dated February 22, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

 

Dallas, Texas
February 22, 2021

 

F-5


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

 

 

 

December 31, 2020

 

 

December 31, 2019

 

ASSETS

 

 

 

 

 

 

 

 

Operating Real Estate Investments

 

 

 

 

 

 

 

 

Land

 

$

323,429

 

 

$

317,886

 

Buildings and improvements

 

 

1,544,115

 

 

 

1,472,319

 

Intangible lease assets

 

 

1,675

 

 

 

12,414

 

Construction in progress

 

 

10,796

 

 

 

4,375

 

Furniture, fixtures, and equipment

 

 

96,228

 

 

 

81,038

 

Total Gross Operating Real Estate Investments

 

 

1,976,243

 

 

 

1,888,032

 

Accumulated depreciation and amortization

 

 

(215,494

)

 

 

(152,552

)

Total Net Operating Real Estate Investments

 

 

1,760,749

 

 

 

1,735,480

 

Real estate held for sale, net of accumulated depreciation of $0 and $7,859, respectively

 

 

 

 

 

46,330

 

Total Net Real Estate Investments

 

 

1,760,749

 

 

 

1,781,810

 

Cash and cash equivalents

 

 

24,457

 

 

 

25,671

 

Restricted cash

 

 

32,558

 

 

 

45,511

 

Accounts receivable, net

 

 

9,045

 

 

 

6,285

 

Prepaid and other assets

 

 

2,405

 

 

 

2,336

 

Fair market value of interest rate swaps

 

 

 

 

 

4,376

 

TOTAL ASSETS

 

$

1,829,214

 

 

$

1,865,989

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Mortgages payable, net

 

$

1,162,855

 

 

$

1,145,371

 

Mortgages payable held for sale, net

 

 

 

 

 

41,176

 

Credit facility, net

 

 

182,323

 

 

 

216,501

 

Accounts payable and other accrued liabilities

 

 

10,058

 

 

 

11,971

 

Accrued real estate taxes payable

 

 

12,822

 

 

 

12,206

 

Accrued interest payable

 

 

2,274

 

 

 

3,691

 

Security deposit liability

 

 

2,688

 

 

 

2,977

 

Prepaid rents

 

 

1,639

 

 

 

1,658

 

Fair market value of interest rate swaps

 

 

43,530

 

 

 

902

 

Total Liabilities

 

 

1,418,189

 

 

 

1,436,453

 

 

 

 

 

 

 

 

 

 

Redeemable noncontrolling interests in the Operating Partnership

 

 

3,098

 

 

 

3,295

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value: 100,000,000 shares authorized; 0 shares issued

 

 

 

 

 

 

Common stock, $0.01 par value: 500,000,000 shares authorized; 25,016,957 and 25,245,740 shares issued and outstanding, respectively

 

 

250

 

 

 

251

 

Additional paid-in capital

 

 

376,710

 

 

 

359,748

 

Accumulated earnings less dividends

 

 

75,321

 

 

 

63,776

 

Accumulated other comprehensive income (loss)

 

 

(44,354

)

 

 

2,466

 

Total Stockholders' Equity

 

 

407,927

 

 

 

426,241

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

 

$

1,829,214

 

 

$

1,865,989

 

 

See Notes to Consolidated Financial Statements

F-6


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

 

 

 

For the Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

199,237

 

 

$

177,162

 

 

$

143,158

 

 

Other income

 

 

5,563

 

 

 

3,904

 

 

 

3,439

 

 

Total revenues

 

 

204,800

 

 

 

181,066

 

 

 

146,597

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

Property operating expenses

 

 

47,201

 

 

 

42,692

 

 

 

35,824

 

 

Real estate taxes and insurance

 

 

31,709

 

 

 

25,113

 

 

 

20,713

 

 

Property management fees (1)

 

 

5,971

 

 

 

5,388

 

 

 

4,382

 

 

Advisory and administrative fees (2)

 

 

7,670

 

 

 

7,500

 

 

 

7,474

 

 

Corporate general and administrative expenses

 

 

10,035

 

 

 

9,613

 

 

 

7,808

 

 

Property general and administrative expenses

 

 

6,239

 

 

 

6,765

 

 

 

6,134

 

 

Depreciation and amortization

 

 

82,411

 

 

 

69,086

 

 

 

47,470

 

 

Total expenses

 

 

191,236

 

 

 

166,157

 

 

 

129,805

 

 

Operating income before gain on sales of real estate

 

 

13,564

 

 

 

14,909

 

 

 

16,792

 

 

Gain on sales of real estate

 

 

69,151

 

 

 

127,684

 

 

 

13,742

 

 

Operating income

 

 

82,715

 

 

 

142,593

 

 

 

30,534

 

 

Interest expense

 

 

(44,753

)

 

 

(37,385

)

 

 

(28,572

)

 

Loss on extinguishment of debt and modification costs

 

 

(1,470

)

 

 

(2,869

)

 

 

(3,576

)

 

Casualty gains (losses)

 

 

5,886

 

 

 

(3,488

)

 

 

 

 

Miscellaneous income

 

 

1,772

 

 

 

587

 

 

 

 

 

Net income (loss)

 

 

44,150

 

 

 

99,438

 

 

 

(1,614

)

 

Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

132

 

 

 

298

 

 

 

(5

)

 

Net income (loss) attributable to common stockholders

 

$

44,018

 

 

$

99,140

 

 

$

(1,609

)

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on interest rate derivatives

 

 

(46,961

)

 

 

(14,625

)

 

 

1,931

 

 

Total comprehensive income (loss)

 

 

(2,811

)

 

 

84,813

 

 

 

317

 

 

Comprehensive income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

(9

)

 

 

254

 

 

 

1

 

 

Comprehensive income (loss) attributable to common stockholders

 

$

(2,802

)

 

$

84,559

 

 

$

316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding - basic

 

 

24,715

 

 

 

24,116

 

 

 

21,189

 

 

Weighted average common shares outstanding - diluted

 

 

25,234

 

 

 

24,593

 

 

 

21,667

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per share - basic

 

$

1.78

 

 

$

4.11

 

 

$

(0.08

)

 

Earnings (loss) per share - diluted

 

$

1.74

 

 

$

4.03

 

 

$

(0.08

)

 

 

 

(1)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership (see Note 10).

(2)

Fees incurred to the Adviser (see Note 11). 

See Notes to Consolidated Financial Statements

 

 

F-7


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands, except share and per share amounts)

 

 

 

Preferred Stock

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Earnings (Loss)

 

 

Accumulated Other

 

 

Common

Stock

Held in

 

 

 

 

 

 

 

Number of

Shares

 

 

Par Value

 

 

Number of

Shares

 

 

Par Value

 

 

Paid-in

Capital

 

 

Less

Dividends

 

 

Comprehensive

Income (Loss)

 

 

Treasury

at Cost

 

 

Total

 

Balances, January 1, 2018

 

 

 

 

$

 

 

 

21,049,565

 

 

$

210

 

 

$

206,227

 

 

$

19,288

 

 

$

13,719

 

 

$

 

 

$

239,444

 

Cumulative effect upon adoption of ASU

   2017-12 (see Note 2)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,403

)

 

 

1,403

 

 

 

 

 

 

 

Net loss attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,609

)

 

 

 

 

 

 

 

 

(1,609

)

Issuance of common shares through public offering

 

 

 

 

 

 

 

 

2,702,500

 

 

 

27

 

 

 

84,755

 

 

 

 

 

 

 

 

 

 

 

 

84,782

 

Repurchase of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,672

)

 

 

(9,672

)

Retirement of common stock held in treasury

 

 

 

 

 

 

 

 

(382,941

)

 

 

(4

)

 

 

(9,668

)

 

 

 

 

 

 

 

 

9,672

 

 

 

 

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

130,511

 

 

 

1

 

 

 

4,197

 

 

 

 

 

 

 

 

 

 

 

 

4,198

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,601

)

 

 

 

 

 

 

 

 

(22,601

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,925

 

 

 

 

 

 

1,925

 

Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(439

)

 

 

 

 

 

 

 

 

(439

)

Balances, December 31, 2018

 

 

 

 

$

 

 

 

23,499,635

 

 

$

234

 

 

$

285,511

 

 

$

(6,764

)

 

$

17,047

 

 

$

 

 

$

296,028

 

Net income attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99,140

 

 

 

-

 

 

 

 

 

 

99,140

 

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

180,783

 

 

 

1

 

 

 

4,379

 

 

 

 

 

 

 

 

 

 

 

 

4,380

 

Issuance of common shares through at-the-market offering

 

 

 

 

 

 

 

 

1,565,322

 

 

 

16

 

 

 

69,858

 

 

 

 

 

 

 

 

 

 

 

 

69,874

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,219

)

 

 

 

 

 

 

 

 

(28,219

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(14,581

)

 

 

 

 

 

(14,581

)

Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(381

)

 

 

 

 

 

 

 

 

(381

)

Balances, December 31, 2019

 

 

 

 

$

 

 

 

25,245,740

 

 

$

251

 

 

$

359,748

 

 

$

63,776

 

 

$

2,466

 

 

$

 

 

$

426,241

 

Net income attributable to common stockholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,018

 

 

 

 

 

 

 

 

 

44,018

 

Repurchases of common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(44,530

)

 

 

(44,530

)

Retirement of common stock held in treasury

 

 

 

 

 

 

 

 

(1,644,697

)

 

 

(16

)

 

 

(44,514

)

 

 

 

 

 

 

 

 

44,530

 

 

 

 

Vesting of stock-based compensation

 

 

 

 

 

 

 

 

137,608

 

 

 

1

 

 

 

3,772

 

 

 

 

 

 

 

 

 

 

 

 

3,773

 

Issuance of common shares through at-the-market offering

 

 

 

 

 

 

 

 

1,278,306

 

 

 

14

 

 

 

57,704

 

 

 

 

 

 

 

 

 

 

 

 

57,718

 

Common stock dividends declared

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(32,564

)

 

 

 

 

 

 

 

 

(32,564

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(46,820

)

 

 

 

 

 

(46,820

)

Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

91

 

 

 

 

 

 

 

 

 

91

 

Balances, December 31, 2020

 

 

 

 

$

 

 

 

25,016,957

 

 

$

250

 

 

$

376,710

 

 

$

75,321

 

 

$

(44,354

)

 

$

 

 

$

407,927

 

 

See Notes to Consolidated Financial Statements

 

 

F-8


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

44,150

 

 

$

99,438

 

 

$

(1,614

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

Gain on sales of real estate

 

 

(69,151

)

 

 

(127,684

)

 

 

(13,742

)

Depreciation and amortization

 

 

82,411

 

 

 

69,086

 

 

 

47,470

 

Amortization/write-off of deferred financing costs

 

 

4,354

 

 

 

3,502

 

 

 

3,062

 

Change in fair value on derivative instruments included in interest expense

 

 

9,370

 

 

 

(6,442

)

 

 

(3,948

)

Net cash received (paid) on derivative settlements

 

 

(7,859

)

 

 

6,842

 

 

 

3,832

 

Amortization/write-off of fair market value adjustment of assumed debt

 

 

(202

)

 

 

(148

)

 

 

(169

)

Provision for bad debts, net

 

 

2,710

 

 

 

906

 

 

 

668

 

Vesting of stock-based compensation

 

 

5,504

 

 

 

5,130

 

 

 

4,198

 

Insurance proceeds received for business interruption

 

 

1,468

 

 

 

 

 

 

 

Insurance proceeds paid for business interruption

 

 

(605

)

 

 

 

 

 

 

Casualty losses (gains)

 

 

(7,125

)

 

 

3,488

 

 

 

 

Changes in operating assets and liabilities, net of effects of acquisitions:

 

 

 

 

 

 

 

 

 

 

 

 

Operating assets

 

 

(4,866

)

 

 

(1,256

)

 

 

(459

)

Operating liabilities

 

 

(2,933

)

 

 

(1,496

)

 

 

2,445

 

Net cash provided by operating activities

 

 

57,226

 

 

 

51,366

 

 

 

41,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

 

 

 

 

Net proceeds from sales of real estate

 

 

140,197

 

 

 

286,479

 

 

 

29,553

 

Prepaid acquisition costs

 

 

 

 

 

 

 

 

(7,653

)

Insurance premiums paid for casualty losses

 

 

(1,495

)

 

 

(600

)

 

 

 

Insurance proceeds received from casualty losses

 

 

7,544

 

 

 

2,500

 

 

 

 

Additions to real estate investments

 

 

(49,977

)

 

 

(44,159

)

 

 

(26,775

)

Acquisitions of real estate investments

 

 

(84,766

)

 

 

(797,349

)

 

 

(130,373

)

Net cash provided by (used in) investing activities

 

 

11,503

 

 

 

(553,129

)

 

 

(135,248

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage proceeds received

 

 

46,464

 

 

 

423,149

 

 

 

232,252

 

Mortgage payments

 

 

(71,914

)

 

 

(145,821

)

 

 

(148,942

)

Credit facilities proceeds received

 

 

35,000

 

 

 

255,000

 

 

 

55,000

 

Credit facilities payments

 

 

(70,000

)

 

 

(37,000

)

 

 

(85,000

)

Bridge facility proceeds received

 

 

 

 

 

 

 

 

30,000

 

Bridge facility payments

 

 

 

 

 

 

 

 

(38,597

)

Deferred financing costs paid

 

 

(861

)

 

 

(5,120

)

 

 

(2,410

)

Interest rate cap fees paid

 

 

(35

)

 

 

(20

)

 

 

(56

)

Prepayment penalties on extinguished debt

 

 

(711

)

 

 

(1,449

)

 

 

(1,706

)

Proceeds from the issuance of common shares through public offering, net of offering costs

 

 

 

 

 

 

 

 

84,782

 

Proceeds from the issuance of common shares through at-the-market offering, net of offering costs

 

 

57,718

 

 

 

69,874

 

 

 

 

Payments for taxes related to net share settlement of stock-based compensation

 

 

(1,731

)

 

 

(751

)

 

 

 

Repurchase of common stock

 

 

(44,530

)

 

 

 

 

 

(9,672

)

Dividends paid to common stockholders

 

 

(32,296

)

 

 

(28,046

)

 

 

(22,265

)

Net cash provided by (used in) financing activities

 

 

(82,896

)

 

 

529,816

 

 

 

93,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(14,167

)

 

 

28,053

 

 

 

(119

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

71,182

 

 

 

43,129

 

 

 

43,248

 

Cash, cash equivalents and restricted cash, end of period

 

$

57,015

 

 

$

71,182

 

 

$

43,129

 

 

See Notes to Consolidated Financial Statements

F-9


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$

34,165

 

 

$

41,053

 

 

$

30,261

 

Supplemental Disclosure of Noncash Activities

 

 

 

 

 

 

 

 

 

 

 

 

Capitalized construction costs included in accounts payable and other accrued liabilities

 

 

2,713

 

 

 

3,776

 

 

 

1,715

 

Change in fair value on derivative instruments designated as hedges

 

 

(46,961

)

 

 

(14,625

)

 

 

1,931

 

Other assets acquired from acquisitions

 

 

31

 

 

 

758

 

 

 

76

 

Liabilities assumed from acquisitions

 

 

44

 

 

 

6,608

 

 

 

1,382

 

Fair market value adjustment of assumed debt

 

 

 

 

 

980

 

 

 

 

Assumed debt on acquisitions

 

 

 

 

 

70,486

 

 

 

 

Increase in dividends payable upon vesting of restricted stock units

 

 

268

 

 

 

173

 

 

 

336

 

Write-off of assets due to casualty losses

 

 

1,297

 

 

 

7,838

 

 

 

 

Write-off of fully amortized in-place leases

 

 

12,414

 

 

 

8,181

 

 

 

1,340

 

Write-off of deferred financing costs

 

 

756

 

 

 

1,419

 

 

 

1,412

 

 

See Notes to Consolidated Financial Statements

 

 

F-10


 

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 December 31, 2020, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169, or 99.7%, were owned by the Company and 73,233, or 0.3%, were owned by a noncontrolling limited partner (see Note 10).

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 15, 2021 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., which is an affiliate of 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 consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“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 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 year ended December 31, 2020.

Certain reclassifications have been made to prior year financial statements to conform to classifications used in the current year. These reclassifications had no impact on net income (loss), stockholders' equity or cash flows as previously reported.

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 consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries.

 

F-11


 

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 collectible. This is recorded through a provision for bad debts 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, administrative, application and other fees and are recognized when earned.  The Company implemented the provisions of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) as of January 1, 2019 using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

 

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Entities are required to use a modified retrospective approach when transitioning to the ASU for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements. As lessors, substantially all of the Company’s agreements have a term of 12 months or less. For lessors, accounting for leases under the new standard is substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs.

 

In July 2018, the FASB issued ASU 2018-11, Leases – Targeted Improvements (“ASU 2018-11”), which provides entities with relief from the costs of implementing certain aspects of ASU 2016-02. ASU 2018-11 provides a practical expedient that allows lessors to not separate lease and non-lease components in a contract and allocate the consideration in the contract to the separate components if both (i) the timing and pattern of revenue recognition for the non-lease component and the related lease component are the same and (ii) the combined single lease component would be classified as an operating lease. The Company elected the practical expedient to account for lease and non-lease components as a single component in lease contracts where the Company is the lessor. The Company implemented the provisions of ASU 2018-11 and 2016-02, collectively Topic 842 Leases (“ASC 842”), effective January 1, 2019, and elected the transition option that the ASU provides which permits entities to not recast the comparative periods presented when transitioning to the standard. The Company implemented changes to its business processes and controls related to accounting for and the presentation and disclosure of leases in the consolidated statements of operations and began presenting all rentals and reimbursements from tenants as a single line item within rental income on the consolidated statements of operations and comprehensive income (loss). The table below outlines the components of rental income and its other components which were previously classified as other income for the years ended December 31, 2020, 2019 and 2018:

 

 

 

For the Year Ended December 31,

 

Lease Income Type

 

2020

 

 

2019

 

 

2018

 

Rental income

 

$

176,549

 

 

$

158,167

 

 

$

127,964

 

Utility reimbursements (1)

 

 

12,252

 

 

 

10,906

 

 

 

9,835

 

Late fees (1)

 

 

1,288

 

 

 

1,622

 

 

 

1,443

 

Pet fees (1)

 

 

924

 

 

 

816

 

 

 

618

 

Other fees (1)

 

 

8,224

 

 

 

5,651

 

 

 

3,298

 

Total rental income

 

$

199,237

 

 

$

177,162

 

 

$

143,158

 

 

(1)

Previously classified as other income prior to December 31, 2019.

F-12


 

The table below quantifies the effects on rental and other income for the years ended December 31, 2020, 2019 and 2018 from the adoption ASC 842:

 

 

 

For the Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Prior to adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

176,549

 

 

$

158,167

 

 

$

127,964

 

 

Other income

 

 

28,251

 

 

 

22,899

 

 

 

18,633

 

 

Total revenue

 

$

204,800

 

 

$

181,066

 

 

$

146,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

199,237

 

 

$

177,162

 

 

$

143,158

 

 

Other income

 

 

5,563

 

 

 

3,904

 

 

 

3,439

 

 

Total revenue

 

$

204,800

 

 

$

181,066

 

 

$

146,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Differences resulting in ASC 842 adoption

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income difference

 

$

22,688

 

 

$

18,995

 

 

$

15,194

 

 

Other income difference

 

 

(22,688

)

 

 

(18,995

)

 

 

(15,194

)

 

Total revenue difference

 

$

 

 

$

 

 

$

 

 

Certain revenue streams such as service provider income and damage recoveries did not qualify for the practical expedient and therefore remained in other income and were subjected to ASU 2014-09.

In April 2020, the FASB issued a Staff Q&A on accounting for leases during the COVID-19 pandemic, focused on the application of lease guidance in ASC 842, Leases. The Q&A states that some lease contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. Therefore, entities would need to perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions. The FASB determined it would be acceptable for entities to not perform a lease-by-lease analysis regarding rent concessions resulting from COVID-19, and to instead make a policy election regarding rent concessions, which would give entities the option to account or not to account for these rent concessions as lease modifications if the total payments required by the modified contract are substantially the same or less than the total payments required by the original contract. Entities making the election to account for these rent concessions as lease modifications would recognize the effects of rent abatements and rent deferrals on a prospective straight-line basis over the remainder of the modified contract. We have made the election to not perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to payment plans. By electing the FASB relief, we have also made an accounting policy election to not account for rent deferrals provided to lessees due to the COVID-19 pandemic as lease modifications. Lessees are required to pay the full outstanding balance of the rent deferred over the period of the payment plan.

 

Purchase Price Allocation

Upon acquisition of a property, 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 7), 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.

F-13


 

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.

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 December 31, 2020, the Company has not recorded any impairment on its real estate assets. We continue to monitor the impact of COVID-19 on our real estate assets (see “—Coronavirus (‘COVID-19’)” for additional information, below).

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 December 31, 2020, there are no properties held for sale.

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 years ended December 31, 2020, 2019 and 2018.

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 December 31, 2020, 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

F-14


 

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 December 31, 2020. The Company and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2019, 2018 and 2017 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).

Recent Accounting Pronouncements

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”), which changes certain recognition, measurement, presentation, and disclosure requirements for financial instruments. The ASU requires all equity investments, except those accounted for under the equity method of accounting or resulting in consolidation, to be measured at fair value with changes in fair value recognized in net income. The ASU also simplifies the impairment assessment for equity investments without readily determinable fair values, amends the presentation requirements for changes in the fair value of financial liabilities, requires presentation of financial instruments by measurement category and form of financial asset, and eliminates the requirement to disclose the methods and significant assumptions used in estimating the fair value of financial instruments. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. The Company implemented the provisions of ASU 2016-01 as of January 1, 2019, and it did not have a material impact on the Company’s consolidated financial statements as the Company does not, nor does it expect to, have a material amount of financial assets or financial liabilities that would be subject to the provisions of ASU 2016-01.

 

In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (Topic 230) (“ASU 2016-15) which amends the classification of cash payments for debt prepayment or debt extinguishment costs.  Amendments to Topic 230 made by ASU 2016-15 require that any debt prepayment or debt extinguishment costs be classified as cash flows from financing activities. Debt extinguishment costs include third-party costs, premiums paid and other fees paid to creditors that are directly related to the debt prepayment or extinguishment. The Company adopted the provisions of ASU 2016-15 as of January 1, 2019 on a retrospective basis and it did not have a material impact on the Company’s consolidated financial statements.

 

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. During 2020, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these 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.

 

Coronavirus (“COVID-19”)

 

In December 2019, a novel coronavirus, which causes respiratory illness and spreads from person to person (COVID-19), was first identified during an investigation into an outbreak in Wuhan, China. The first case of COVID-19 in the U.S. was reported on January 20, 2020. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the U.S. declared a national emergency with respect to COVID-19. Over the ensuing weeks, the President Trump and the task force that was set up to deal with preparations across the country, announced sweeping and unprecedented actions to help slow the spread of the virus.

F-15


 

 

The President’s task force recommended all citizens practice “social distancing” and other protocols to limit interaction between individuals for a period of 15 days, which was later expanded for 30 days and ultimately expired on April 30, 2020. While many of these restrictions and forced closures were initially lifted in varying degrees beginning in May, the recent spike in COVID-19 cases in the United States has caused many cities and states to reinstitute such restrictions and closures. In addition, the federal U.S. government has imposed restrictions on the entry of certain travelers into the United States and the U.S./Mexican and U.S./Canadian borders remain temporarily closed for all non-essential travel to limit the spread of the virus across countries.

 

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) imposed a moratorium on evictions and the charging of late fees, which expired on July 25, 2020. On September 4, 2020, the Former President issued an executive order, announcing a new moratorium that temporarily halts evictions through December 31, 2020.

 

As of January 29, 2021, according to the U.S. Centers for Disease Control and Prevention, over 4.7 million individuals in the U.S. have been fully vaccinated for COVID-19, and the U.S. will continue to roll out vaccines across the nation, prioritizing frontline and essential workers, the elderly, and individuals considered high risk. However, the initial rollout of vaccine distribution has encountered significant delays, and uncertainties remain as to the amount of vaccine available for distribution, the logistics of implementing a national vaccine program, and the overall efficacy of the vaccines once widely administered, especially as new strains of COVID-19 have been discovered, and the level of resistance these new strains have to the existing vaccines, if any, remains unknown.

 

On January 14, 2020, President Biden unveiled a $1.9 trillion “American Rescue Plan” proposal to combat the pandemic and stimulate the economy. The proposal provides additional provisions for increased unemployment benefits, rental assistance, small businesses, state and local governments, educational institutions, and substantial funding towards accelerated distribution of vaccinations and for COVID-19 testing, as well as direct payments of $1,400 to all eligible Americans. The American Rescue Plan is the first of two major spending initiatives expected to be proposed by President Biden.

 

Collectively, these actions, while for the benefit of public health, have had a significant impact on the American economy.  The U.S. stock market initially experienced historic declines over an extraordinarily short period of time.  Certain industries such as airlines, lodging, entertainment, gaming, cruise ships, plus industries closely associated with these industries have seen, and continue to see, unprecedented declines in business.

 

Potential ineffectiveness or delay of such relief measures could lead to further deterioration of economic conditions, higher unemployment rates, and prolonged recession, which in turn could materially affect our (or our tenants’ or venture investment portfolio companies’) performance, financial condition, results of operations, and cash flows. See “Item 1A. Risk factors” within “Part I” in this annual report on Form 10-K for additional discussion of the risks posed by the COVID-19 pandemic, and uncertainties we, our tenants, and the national and global economies face as a result.

 

3. Investments in Subsidiaries

The Company conducts its operations through the OP, which owns the 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. 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 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.

F-16


 

As of December 31, 2020, the Company, through the OP and the wholly owned TRS, owned 37 properties through single-asset LLCs. The following table represents the Company’s ownership in each property by virtue of its 100% ownership of the single-asset LLCs that directly own the title to each property as of December 31, 2020 and 2019:

 

 

 

 

 

 

 

Effective Ownership Percentage at December 31,

 

 

Property Name

 

Location

 

Year Acquired

 

2020

 

 

2019

 

 

Arbors on Forest Ridge

 

Bedford, Texas

 

2014

 

 

100

%

 

 

100

%

 

Cutter's Point

 

Richardson, Texas

 

2014

 

 

100

%

 

 

100

%

 

Eagle Crest

(1)

Irving, Texas

 

2014

 

 

 

 

 

100

%

 

Silverbrook

 

Grand Prairie, Texas

 

2014

 

 

100

%

 

 

100

%

 

Beechwood Terrace

 

Antioch, Tennessee

 

2014

 

 

100

%

 

 

100

%

 

Willow Grove

(1)

Nashville, Tennessee

 

2014

 

 

 

 

 

100

%

 

Woodbridge

(1)

Nashville, Tennessee

 

2014

 

 

 

 

 

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

%

 

Southpoint Reserve at Stoney Creek

(1)

Fredericksburg, Virginia

 

2014

 

 

 

 

 

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

(2)

Phoenix, Arizona

 

2016

 

 

100

%

 

 

100

%

 

Old Farm

 

Houston, Texas

 

2016

 

 

100

%

 

 

100

%

 

Stone Creek at Old Farm

 

Houston, Texas

 

2016

 

 

100

%

 

 

100

%

 

Hollister Place

 

Houston, Texas

 

2017

 

 

100

%

 

 

100

%

 

Rockledge Apartments

 

Marietta, Georgia

 

2017

 

 

100

%

 

 

100

%

 

Atera Apartments

 

Dallas, Texas

 

2017

 

 

100

%

 

 

100

%

 

Cedar Pointe

(3)

Antioch, Tennessee

 

2018

 

 

100

%

 

 

100

%

 

Crestmont Reserve

 

Dallas, Texas

 

2018

 

 

100

%

 

 

100

%

 

Brandywine I & II

 

Nashville, Tennessee

 

2018

 

 

100

%

 

 

100

%

 

Bella Vista

(4)

Phoenix, Arizona

 

2019

 

 

100

%

 

 

100

%

 

The Enclave

(4)

Tempe, Arizona

 

2019

 

 

100

%

 

 

100

%

 

The Heritage

(4)

Phoenix, Arizona

 

2019

 

 

100

%

 

 

100

%

 

Summers Landing

 

Fort Worth, Texas

 

2019

 

 

100

%

 

 

100

%

 

Residences at Glenview Reserve

(5)

Nashville, Tennessee

 

2019

 

 

100

%

 

 

100

%

 

Residences at West Place

(5)

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

(6)

Las Vegas, Nevada

 

2019

 

 

100

%

 

 

100

%

 

Bloom

(6)

Las Vegas, Nevada

 

2019

 

 

100

%

 

 

100

%

 

Bella Solara

(6)

Las Vegas, Nevada

 

2019

 

 

100

%

 

 

100

%

 

Fairways at San Marcos

(7)

Chandler, AZ

 

2020

 

 

100

%

 

 

 

 

 

(1)

Property was sold in 2020.

(2)

Formerly known as The Colonnade.

F-17


 

(3)

The EAT that directly owned Cedar Pointe was consolidated as a VIE at December 31, 2018.  The master lease agreement with the EAT that directly owned Cedar Pointe terminated on February 20, 2019, at which time legal title to Cedar Pointe transferred to the Company.  Upon the transfer of title, the entity that directly owned Cedar Pointe was no longer considered a VIE.

(4)

The EAT that directly owned Bella Vista, The Enclave and The Heritage was consolidated as a VIE at March 31, 2019.  The master lease agreement with the EAT that directly owned these properties terminated on July 27, 2019, at which time legal title transferred to the Company. Upon the transfer of title, the EAT that directly owned these properties was no longer considered a VIE.

(5)

The Company acquired two multifamily properties, the Residences at Glenview Reserve and the Residences at West Place (the “Residences”) on July 17, 2019. The master lease agreement with the EAT that directly owned these properties terminated on September 3, 2019, at which time legal title transferred to the Company. Upon the transfer of title, the EAT that directly owned these properties was no longer considered a VIE.

(6)

The EAT that directly owned Torreyana, Bloom and Bella Solara was consolidated as a VIE at December 31, 2019. The master lease agreement with the EAT that directly owned these properties terminated on March 31, 2020, at which time legal title transferred to the Company. Upon the transfer of the title, the EAT that directly owned these properties was no longer considered a VIE.

(7)

Fairways at San Marcos was acquired in 2020; therefore, no ownership as of December 31, 2019.

4. Real Estate Investments Statistics

As of December 31, 2020, the Company was invested in a total of 37 multifamily properties, as listed below:

F-18


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average Effective Monthly

Rent Per Unit

as of December 31,*(1)

 

 

% Occupied as of December 31,*(2)

 

 

Property Name

 

Rentable Square

Footage

(in thousands)*

 

 

Number

of

Units*

 

 

Date

Acquired

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

Arbors on Forest Ridge

 

 

155

 

 

210

 

 

1/31/2014

 

$

917

 

 

$

894

 

 

 

94.3

%

 

 

95.7

%

 

Cutter's Point

(3)

 

198

 

 

196

 

 

1/31/2014

 

 

1,112

 

 

 

 

 

 

95.0

%

 

 

 

 

Silverbrook

 

 

526

 

 

642

 

 

1/31/2014

 

 

926

 

 

 

870

 

 

 

94.9

%

 

 

95.5

%

 

Beechwood Terrace

 

 

272

 

 

300

 

 

7/21/2014

 

 

947

 

 

 

937

 

 

 

95.7

%

 

 

91.3

%

 

The Summit at Sabal Park

 

 

205

 

 

252

 

 

8/20/2014

 

 

1,033

 

 

 

1,010

 

 

 

96.0

%

 

 

97.2

%

 

Courtney Cove

 

 

225

 

 

324

 

 

8/20/2014

 

 

946

 

 

 

927

 

 

 

93.5

%

 

 

94.8

%

 

Radbourne Lake

 

 

247

 

 

225

 

 

9/30/2014

 

 

1,137

 

 

 

1,118

 

 

 

89.8

%

 

 

90.7

%

 

Timber Creek

 

 

248

 

 

352

 

 

9/30/2014

 

 

949

 

 

 

916

 

 

 

93.5

%

 

 

94.9

%

 

Sabal Palm at Lake Buena Vista

 

 

371

 

 

400

 

 

11/5/2014

 

 

1,259

 

 

 

1,270

 

 

 

95.0

%

 

 

93.8

%

 

Cornerstone

 

 

318

 

 

430

 

 

1/15/2015

 

 

1,056

 

 

 

1,053

 

 

 

91.2

%

 

 

95.6

%

 

The Preserve at Terrell Mill

 

 

692

 

 

752

 

 

2/6/2015

 

 

1,006

 

 

 

969

 

 

 

95.5

%

 

 

94.9

%

 

Versailles

 

 

301

 

 

388

 

 

2/26/2015

 

 

925

 

 

 

923

 

 

 

94.3

%

 

 

93.0

%

 

Seasons 704 Apartments

 

 

217

 

 

222

 

 

4/15/2015

 

 

1,209

 

 

 

1,155

 

 

 

98.6

%

 

 

94.6

%

 

Madera Point

 

 

193

 

 

256

 

 

8/5/2015

 

 

980

 

 

 

924

 

 

 

93.8

%

 

 

96.1

%

 

Venue at 8651

 

 

289

 

 

333

 

 

10/30/2015

 

 

933

 

 

 

924

 

 

 

93.4

%

 

 

96.1

%

 

Parc500

 

 

266

 

 

217

 

 

7/27/2016

 

 

1,340

 

 

 

1,304

 

 

 

97.7

%

 

 

93.1

%

 

The Venue on Camelback

 

 

256

 

 

415

 

 

10/11/2016

 

 

821

 

 

 

777

 

 

 

93.7

%

 

 

94.2

%

 

Old Farm

 

 

697

 

 

734

 

 

12/29/2016

 

 

1,133

 

 

 

1,162

 

 

 

92.1

%

 

 

92.8

%

 

Stone Creek at Old Farm

 

 

186

 

 

190

 

 

12/29/2016

 

 

1,194

 

 

 

1,194

 

 

 

92.1

%

 

 

95.8

%

 

Hollister Place

 

 

246

 

 

260

 

 

2/1/2017

 

 

1,007

 

 

 

995

 

 

 

91.2

%

 

 

93.1

%

 

Rockledge Apartments

 

 

802

 

 

708

 

 

6/30/2017

 

 

1,261

 

 

 

1,260

 

 

 

95.5

%

 

 

95.3

%

 

Atera Apartments

 

 

334

 

 

380

 

 

10/25/2017

 

 

1,247

 

 

 

1,256

 

 

 

92.1

%

 

 

93.4

%

 

Cedar Pointe

 

 

224

 

 

210

 

 

8/24/2018

 

 

1,075

 

 

 

1,066

 

 

 

96.2

%

 

 

91.4

%

 

Crestmont Reserve

 

 

199

 

 

242

 

 

9/26/2018

 

 

895

 

 

 

902

 

 

 

98.8

%

 

 

94.2

%

 

Brandywine I & II

 

 

414

 

 

632

 

 

9/26/2018

 

 

960

 

 

 

978

 

 

 

94.3

%

 

 

93.7

%

 

Bella Vista

 

 

243

 

 

248

 

 

1/28/2019

 

 

1,320

 

 

 

1,265

 

 

 

95.6

%

 

 

97.2

%

 

The Enclave

 

 

194

 

 

204

 

 

1/28/2019

 

 

1,355

 

 

 

1,295

 

 

 

97.5

%

 

 

93.6

%

 

The Heritage

 

 

199

 

 

204

 

 

1/28/2019

 

 

1,298

 

 

 

1,265

 

 

 

94.1

%

 

 

96.6

%

 

Summers Landing

 

 

139

 

 

196

 

 

6/7/2019

 

 

941

 

 

 

920

 

 

 

95.9

%

 

 

91.8

%

 

Residences at Glenview Reserve

 

 

344

 

 

360

 

 

7/17/2019

 

 

993

 

 

 

977

 

 

 

92.8

%

 

 

94.4

%

 

Residences at West Place

 

 

345

 

 

342

 

 

7/17/2019

 

 

1,214

 

 

 

1,211

 

 

 

90.1

%

 

 

92.7

%

 

Avant at Pembroke Pines

 

 

1,442

 

 

1520

 

 

8/30/2019

 

 

1,515

 

 

 

1,498

 

 

 

94.4

%

 

 

93.7

%

 

Arbors of Brentwood

 

 

325

 

 

346

 

 

9/10/2019

 

 

1,194

 

 

 

1,192

 

 

 

91.3

%

 

 

96.2

%

 

Torreyana Apartments

 

 

309

 

 

315

 

 

11/22/2019

 

 

1,184

 

 

 

1,171

 

 

 

93.0

%

 

 

95.6

%

 

Bloom

 

 

498

 

 

528

 

 

11/22/2019

 

 

1,120

 

 

 

1,105

 

 

 

94.1

%

 

 

90.9

%

 

Bella Solara

 

 

271

 

 

320

 

 

11/22/2019

 

 

1,128

 

 

 

1,136

 

 

 

91.6

%

 

 

91.9

%

 

Fairways at San Marcos

(4)

 

340

 

 

352

 

 

11/2/2020

 

 

1,232

 

 

 

 

 

 

96.0

%

 

 

 

 

 

 

 

12,730

 

 

 

14,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

*

Information is unaudited.

F-19


 

(1)

Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of December 31, 2020 and December 31, 2019, respectively, minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of December 31, 2020 and December 31, 2019, respectively.

(2)

Percent occupied is calculated as the number of units occupied as of December 31, 2020 and 2019, divided by the total number of units, expressed as a percentage.

(3)

Cutter’s Point suffered significant damage from a tornado on October 20, 2019 which necessitated a temporary halt to operation of all 196 units. Upon completion of Phase I of the rebuild efforts, the Company returned 60 units to service in 2020; there are 57 units occupied out of the 60 available as of December 31, 2020. The remaining 136 units are currently being rebuilt as part of Phase II of the rebuild with an expected return to service in 2021 (see Note 5).

(4)

Fairways at San Marcos was acquired in 2020.

5. Real Estate Investments

As of December 31, 2020, the major components of the Company’s investments in multifamily properties were as follows (in thousands):

 

Operating Properties

 

 

Land

 

 

Buildings and

Improvements

 

 

Intangible Lease

Assets

 

 

Construction in

Progress

 

 

Furniture,

Fixtures and

Equipment

 

 

Totals

 

Arbors on Forest Ridge

 

 

$

2,330

 

 

$

11,682

 

 

$

 

 

$

17

 

 

$

1,650

 

 

$

15,679

 

Cutter's Point

 

 

 

3,330

 

 

 

8,035

 

 

 

 

 

 

4,983

 

 

 

2,044

 

 

 

18,392

 

Silverbrook

 

 

 

4,860

 

 

 

27,256

 

 

 

 

 

 

3

 

 

 

5,049

 

 

 

37,168

 

Beechwood Terrace

 

 

 

1,390

 

 

 

22,233

 

 

 

 

 

 

32

 

 

 

2,791

 

 

 

26,446

 

The Summit at Sabal Park

 

 

 

5,770

 

 

 

13,749

 

 

 

 

 

 

 

 

 

1,813

 

 

 

21,332

 

Courtney Cove

 

 

 

5,880

 

 

 

13,713

 

 

 

 

 

 

114

 

 

 

2,165

 

 

 

21,872

 

Radbourne Lake

 

 

 

2,440

 

 

 

22,617

 

 

 

 

 

 

 

 

 

2,147

 

 

 

27,204

 

Timber Creek

 

 

 

11,260

 

 

 

13,245

 

 

 

 

 

 

42

 

 

 

3,473

 

 

 

28,020

 

Sabal Palm at Lake Buena Vista

 

 

 

7,580

 

 

 

42,401

 

 

 

 

 

 

 

 

 

2,391

 

 

 

52,372

 

Cornerstone

 

 

 

1,500

 

 

 

30,781

 

 

 

 

 

 

2

 

 

 

3,343

 

 

 

35,626

 

The Preserve at Terrell Mill

 

 

 

10,170

 

 

 

50,757

 

 

 

 

 

 

1,524

 

 

 

7,310

 

 

 

69,761

 

Versailles

 

 

 

6,720

 

 

 

21,766

 

 

 

 

 

 

 

 

 

3,861

 

 

 

32,347

 

Seasons 704 Apartments

 

 

 

7,480

 

 

 

14,418

 

 

 

 

 

 

18

 

 

 

1,743

 

 

 

23,659

 

Madera Point

 

 

 

4,920

 

 

 

17,926

 

 

 

 

 

 

 

 

 

2,273

 

 

 

25,119

 

Venue at 8651

 

 

 

2,350

 

 

 

17,473

 

 

 

 

 

 

106

 

 

 

3,531

 

 

 

23,460

 

Parc500

 

 

 

3,860

 

 

 

20,927

 

 

 

 

 

 

22

 

 

 

3,827

 

 

 

28,636

 

The Venue on Camelback

 

 

 

8,340

 

 

 

38,106

 

 

 

 

 

 

37

 

 

 

2,570

 

 

 

49,053

 

Old Farm

 

 

 

11,078

 

 

 

70,846

 

 

 

 

 

 

24

 

 

 

3,419

 

 

 

85,367

 

Stone Creek at Old Farm

 

 

 

3,493

 

 

 

19,471

 

 

 

 

 

 

 

 

 

792

 

 

 

23,756

 

Hollister Place

 

 

 

2,782

 

 

 

21,884

 

 

 

 

 

 

 

 

 

2,555

 

 

 

27,221

 

Rockledge Apartments

 

 

 

17,451

 

 

 

96,902

 

 

 

 

 

 

86

 

 

 

5,363

 

 

 

119,802

 

Atera Apartments

 

 

 

22,371

 

 

 

37,525

 

 

 

 

 

 

9

 

 

 

2,188

 

 

 

62,093

 

Cedar Pointe

 

 

 

2,371

 

 

 

24,268

 

 

 

 

 

 

 

 

 

1,577

 

 

 

28,216

 

Crestmont Reserve

 

 

 

4,124

 

 

 

20,955

 

 

 

 

 

 

19

 

 

 

1,411

 

 

 

26,509

 

Brandywine I & II

 

 

 

6,237

 

 

 

73,613

 

 

 

 

 

 

6

 

 

 

4,072

 

 

 

83,928

 

Bella Vista

 

 

 

10,942

 

 

 

36,787

 

 

 

 

 

 

 

 

 

2,110

 

 

 

49,839

 

The Enclave

 

 

 

11,046

 

 

 

30,308

 

 

 

 

 

 

 

 

 

1,856

 

 

 

43,210

 

The Heritage

 

 

 

6,835

 

 

 

34,761

 

 

 

 

 

 

 

 

 

1,793

 

 

 

43,389

 

Summers Landing

 

 

 

1,798

 

 

 

17,909

 

 

 

 

 

 

43

 

 

 

670

 

 

 

20,420

 

Residences at Glenview Reserve

 

 

 

3,367

 

 

 

42,027

 

 

 

 

 

 

14

 

 

 

1,495

 

 

 

46,903

 

Residences at West Place

 

 

 

3,345

 

 

 

51,802

 

 

 

 

 

 

154

 

 

 

1,049

 

 

 

56,350

 

Avant at Pembroke Pines

 

 

 

48,436

 

 

 

272,436

 

 

 

 

 

 

2,847

 

 

 

7,977

 

 

 

331,696

 

Arbors of Brentwood

 

 

 

6,346

 

 

 

55,777

 

 

 

 

 

 

21

 

 

 

1,118

 

 

 

63,262

 

Torreyana Apartments

 

 

 

23,824

 

 

 

43,489

 

 

 

 

 

 

122

 

 

 

1,047

 

 

 

68,482

 

Bloom

 

 

 

23,805

 

 

 

81,714

 

 

 

 

 

 

494

 

 

 

1,782

 

 

 

107,795

 

Bella Solara

 

 

 

12,605

 

 

 

53,134

 

 

 

 

 

 

57

 

 

 

1,228

 

 

 

67,024

 

Fairways at San Marcos

 

 

 

10,993

 

 

 

71,422

 

 

 

1,675

 

 

 

 

 

 

745

 

 

 

84,835

 

 

 

 

 

323,429

 

 

 

1,544,115

 

 

 

1,675

 

 

 

10,796

 

 

 

96,228

 

 

 

1,976,243

 

Accumulated depreciation and amortization

 

 

 

 

 

 

(153,063

)

 

 

(558

)

 

 

 

 

 

(61,873

)

 

 

(215,494

)

Total Operating Properties

 

 

$

323,429

 

 

$

1,391,052

 

 

$

1,117

 

 

$

10,796

 

 

$

34,355

 

 

$

1,760,749

 

F-20


 

As of December 31, 2019, the major components of the Company’s investments in multifamily properties were as follows (in thousands):

 

Operating Properties

 

 

Land

 

 

Buildings and

Improvements

 

 

Intangible Lease

Assets

 

 

Construction in

Progress

 

 

Furniture,

Fixtures and

Equipment

 

 

Totals

 

Arbors on Forest Ridge

 

 

$

2,330

 

 

$

11,585

 

 

$

 

 

$

 

 

$

1,520

 

 

$

15,435

 

Cutter's Point

 

 

 

3,330

 

 

 

2,563

 

 

 

 

 

 

2,648

 

 

 

1,878

 

 

 

10,419

 

Eagle Crest

 

 

 

5,450

 

 

 

23,830

 

 

 

 

 

 

 

 

 

1,832

 

 

 

31,112

 

Silverbrook

 

 

 

4,860

 

 

 

27,091

 

 

 

 

 

 

 

 

 

4,630

 

 

 

36,581

 

Beechwood Terrace

 

 

 

1,390

 

 

 

22,000

 

 

 

 

 

 

70

 

 

 

2,535

 

 

 

25,995

 

The Summit at Sabal Park

 

 

 

5,770

 

 

 

13,600

 

 

 

 

 

 

 

 

 

1,598

 

 

 

20,968

 

Courtney Cove

 

 

 

5,880

 

 

 

13,413

 

 

 

 

 

 

2

 

 

 

1,982

 

 

 

21,277

 

Radbourne Lake

 

 

 

2,440

 

 

 

22,465

 

 

 

 

 

 

 

 

 

1,997

 

 

 

26,902

 

Timber Creek

 

 

 

11,260

 

 

 

13,993

 

 

 

 

 

 

 

 

 

2,939

 

 

 

28,192

 

Sabal Palm at Lake Buena Vista

 

 

 

7,580

 

 

 

41,841

 

 

 

 

 

 

492

 

 

 

2,108

 

 

 

52,021

 

Cornerstone

 

 

 

1,500

 

 

 

30,653

 

 

 

 

 

 

 

 

 

2,977

 

 

 

35,130

 

The Preserve at Terrell Mill

 

 

 

10,170

 

 

 

49,216

 

 

 

 

 

 

8

 

 

 

6,183

 

 

 

65,577

 

Versailles

 

 

 

6,720

 

 

 

21,688

 

 

 

 

 

 

8

 

 

 

3,736

 

 

 

32,152

 

Seasons 704 Apartments

 

 

 

7,480

 

 

 

14,336

 

 

 

 

 

 

 

 

 

1,482

 

 

 

23,298

 

Madera Point

 

 

 

4,920

 

 

 

17,615

 

 

 

 

 

 

 

 

 

2,042

 

 

 

24,577

 

Venue at 8651

 

 

 

2,350

 

 

 

18,192

 

 

 

 

 

 

21

 

 

 

3,330

 

 

 

23,893

 

Parc500

 

 

 

3,860

 

 

 

20,821

 

 

 

 

 

 

193

 

 

 

3,202

 

 

 

28,076

 

The Venue on Camelback

 

 

 

8,340

 

 

 

37,992

 

 

 

 

 

 

 

 

 

2,086

 

 

 

48,418

 

Old Farm

 

 

 

11,078

 

 

 

70,670

 

 

 

 

 

 

40

 

 

 

2,950

 

 

 

84,738

 

Stone Creek at Old Farm

 

 

 

3,493

 

 

 

19,436

 

 

 

 

 

 

1

 

 

 

716

 

 

 

23,646

 

Hollister Place

 

 

 

2,782

 

 

 

21,788

 

 

 

 

 

 

 

 

 

2,159

 

 

 

26,729

 

Rockledge Apartments

 

 

 

17,451

 

 

 

96,108

 

 

 

 

 

 

134

 

 

 

4,759

 

 

 

118,452

 

Atera Apartments

 

 

 

22,371

 

 

 

37,442

 

 

 

 

 

 

8

 

 

 

2,044

 

 

 

61,865

 

Cedar Pointe

 

 

 

2,372

 

 

 

24,193

 

 

 

 

 

 

24

 

 

 

1,268

 

 

 

27,857

 

Crestmont Reserve

 

 

 

4,124

 

 

 

20,613

 

 

 

 

 

 

 

 

 

1,272

 

 

 

26,009

 

Brandywine I & II

 

 

 

6,237

 

 

 

73,004

 

 

 

 

 

 

58

 

 

 

3,148

 

 

 

82,447

 

Bella Vista

 

 

 

10,942

 

 

 

36,690

 

 

 

 

 

 

 

 

 

1,500

 

 

 

49,132

 

The Enclave

 

 

 

11,046

 

 

 

30,224

 

 

 

 

 

 

24

 

 

 

1,176

 

 

 

42,470

 

The Heritage

 

 

 

6,835

 

 

 

34,580

 

 

 

 

 

 

 

 

 

1,246

 

 

 

42,661

 

Summers Landing

 

 

 

1,798

 

 

 

16,958

 

 

 

 

 

 

35

 

 

 

528

 

 

 

19,319

 

Residences at Glenview Reserve

 

 

 

3,367

 

 

 

40,202

 

 

 

 

 

 

11

 

 

 

837

 

 

 

44,417

 

Residences at West Place

 

 

 

3,345

 

 

 

50,884

 

 

 

 

 

 

244

 

 

 

810

 

 

 

55,283

 

Avant at Pembroke Pines

 

 

 

48,436

 

 

 

266,103

 

 

 

6,989

 

 

 

217

 

 

 

5,376

 

 

 

327,121

 

Arbors of Brentwood

 

 

 

6,346

 

 

 

54,995

 

 

 

1,215

 

 

 

137

 

 

 

779

 

 

 

63,472

 

Torreyana Apartments

 

 

 

23,823

 

 

 

42,721

 

 

 

1,201

 

 

 

 

 

 

655

 

 

 

68,400

 

Bloom

 

 

 

23,805

 

 

 

80,365

 

 

 

1,851

 

 

 

 

 

 

1,095

 

 

 

107,116

 

Bella Solara

 

 

 

12,605

 

 

 

52,449

 

 

 

1,158

 

 

 

 

 

 

663

 

 

 

66,875

 

 

 

 

 

317,886

 

 

 

1,472,319

 

 

 

12,414

 

 

 

4,375

 

 

 

81,038

 

 

 

1,888,032

 

Accumulated depreciation and amortization

 

 

 

 

 

 

(105,335

)

 

 

(6,171

)

 

 

 

 

 

(41,046

)

 

 

(152,552

)

Total Operating Properties

 

 

$

317,886

 

 

$

1,366,984

 

 

$

6,243

 

 

$

4,375

 

 

$

39,992

 

 

$

1,735,480

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Held For Sale Properties

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Southpoint Reserve at Stoney Creek

 

 

 

6,120

 

 

 

11,502

 

 

 

 

 

 

1

 

 

 

968

 

 

 

18,591

 

Woodbridge

 

 

 

3,650

 

 

 

13,296

 

 

 

 

 

 

 

 

 

1,934

 

 

 

18,880

 

Willow Grove

 

 

 

3,940

 

 

 

10,946

 

 

 

 

 

 

 

 

 

1,832

 

 

 

16,718

 

 

 

 

 

13,710

 

 

 

35,744

 

 

 

 

 

 

1

 

 

 

4,734

 

 

 

54,189

 

Accumulated depreciation and amortization

 

 

 

 

 

 

(5,390

)

 

 

 

 

 

 

 

 

(2,469

)

 

 

(7,859

)

Total Held For Sale Properties

 

 

$

13,710

 

 

$

30,354

 

 

$

 

 

$

1

 

 

$

2,265

 

 

$

46,330

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

$

331,596

 

 

$

1,397,338

 

 

$

6,243

 

 

$

4,376

 

 

$

42,257

 

 

$

1,781,810

 

 

Depreciation expense was $75.6 million, $56.4 million and $45.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Amortization expense related to the Company’s intangible lease assets was $6.8 million, $12.7 million and $2.5 for the years ended December 31, 2020, 2019 and 2018, respectively. Amortization expense related to the Company’s intangible lease assets for all acquisitions completed through December 31, 2020 is expected to be $1.1 million in 2021. Due to the six-month useful life attributable to intangible lease assets, the value of intangible lease assets on any acquisition prior to June 30, 2020 has been fully amortized and the assets and related accumulated amortization have been written off as of December 31, 2020.

F-21


 

Acquisitions

The Company acquired one property during the year ended December 31, 2020, as detailed in the table below (dollars in thousands). The Company acquired eleven properties for a combined purchase price of approximately $876.7 million during the year ended December 31, 2019. See Notes 3, 4 and 6 for additional information.

 

Property Name

 

Location

 

Date of

Acquisition

 

Purchase Price

 

 

Mortgage Debt (1)

 

 

# Units

 

 

Effective

Ownership

 

Fairways at San Marcos

 

Chandler, Arizona

 

November 2, 2020

 

$

84,480

 

 

$

46,464

 

 

 

352

 

 

 

100

%

 

(1)

For additional information regarding the Company’s debt, see Note 6.

Dispositions

The Company sold four properties during the year ended December 31, 2020, as detailed in the table below (in thousands). The Company sold six property for approximately $289.9 million during the year ended December 31, 2019.

 

Property Name

 

Location

 

Date of Sale

 

Sales Price

 

 

Net Cash Proceeds (1)

 

 

Gain on Sale

of Real Estate

 

Southpoint Reserve at Stoney Creek

 

Fredericksburg, Virginia

 

March 20, 2020

 

$

23,500

 

 

$

23,176

 

 

$

5,469

 

Willow Grove

 

Nashville, Tennessee

 

March 26, 2020

 

 

31,300

 

 

 

31,005

 

 

 

17,513

 

Woodbridge

 

Nashville, Tennessee

 

March 26, 2020

 

 

31,700

 

 

 

31,237

 

 

 

15,990

 

Eagle Crest

 

Irving, Texas

 

September 30, 2020

 

 

55,500

 

 

 

54,779

 

 

 

30,160

 

 

 

 

 

 

 

$

142,000

 

 

$

140,197

 

 

$

69,132

 

 

(1)

Represents sales price, net of closing costs.

Cutter’s Point Casualty Losses

On October 20, 2019, as a result of a tornado, the Cutter’s Point property suffered significant property damage. The damage incurred rendered the Property inoperable; therefore, the Company has ceased operations at the property as it is under reconstruction. In relation to this event, the Company wrote down the carrying value of Cutter’s Point by approximately $7.8 million, and, in accordance with ASC 610 Other Income, the Company recognized approximately $3.5 million in casualty losses on the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2019. Also, the Company filed a business interruption insurance claim and recognized approximately $0.6 million for the lost rent, which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2019. For the year ended December 31, 2020, the Company recognized approximately $1.7 million for lost rents, which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss). Lost rental income is insured and the Company expects any operating losses resulting from the damage to be immaterial while the property undergoes reconstruction. Starting November 1, 2019, the Company began capitalizing insurance expense, real estate taxes, interest expense and debt issuance costs to construction in progress and stopped depreciation due to Cutter’s Point being under reconstruction. As of December 31, 2020, approximately $0.6 million of these costs have been capitalized. During the year ended December 31, 2020, the Company recognized approximately $5.8 million in casualty gains on the consolidated statements of operations and comprehensive income (loss) in relation to this event. Upon completion of Phase I of the rebuild efforts, the Company returned 60 units to service in 2020; there are 57 units occupied out of the 60 available as of December 31, 2020. The remaining 136 units are currently being rebuilt as part of Phase II of the rebuild with an expected return to service in 2021. As of December 31, 2020, Cutter’s Point was excluded from the portfolio’s total unit count and all same store pools due to the property undergoing reconstruction which is estimated to be completed in 2021.

 

Venue 8651 Casualty Losses

On June 10, 2020, as a result of a fire, the Venue 8651 property suffered property damage. In relation to this event, the Company wrote down the carrying value of Venue 8651 by approximately $0.6 million, and, in accordance with ASC 610 Other Income, the Company recognized approximately $0.2 million in net casualty gains which is included in property operating expense on the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2020. Venue 8651 recognized $0.1 million in business interruption proceeds for lost rents which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2020.

F-22


 

Timber Creek Casualty Losses

On November 26, 2020, as a result of a fire, the Timber Creek property suffered property damage. In relation to this event, the Company wrote down the carrying value of Timber Creek by approximately $0.6 million, and, in accordance with ASC 610 Other Income, the Company recognized approximately $0.8 million in net casualty gains which is included in property operating expense on the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2020.

 

6. Debt

Mortgage Debt

The following table contains summary information concerning the mortgage debt of the Company as of December 31, 2020 (dollars in thousands):

 

Operating Properties

 

Type

 

Term (months)

 

 

Outstanding

Principal (1)

 

 

Interest Rate (2)

 

 

Maturity Date

Arbors on Forest Ridge

(3)

Floating

 

 

84

 

 

$

13,130

 

 

1.82%

 

 

7/1/2024

Cutter's Point

(3)

Floating

 

 

84

 

 

 

16,640

 

 

1.82%

 

 

7/1/2024

Silverbrook

(3)

Floating

 

 

84

 

 

 

30,590

 

 

1.82%

 

 

7/1/2024

Beechwood Terrace

(3)

Floating

 

 

84

 

 

 

23,365

 

 

1.58%

 

 

9/1/2025

The Summit at Sabal Park

(3)

Floating

 

 

84

 

 

 

13,560

 

 

1.76%

 

 

7/1/2024

Courtney Cove

(3)

Floating

 

 

84

 

 

 

13,680

 

 

1.76%

 

 

7/1/2024

The Preserve at Terrell Mill

(3)

Floating

 

 

84

 

 

 

42,480

 

 

1.76%

 

 

7/1/2024

Versailles

(3)

Floating

 

 

84

 

 

 

23,880

 

 

1.76%

 

 

7/1/2024

Seasons 704 Apartments

(3)

Floating

 

 

84

 

 

 

17,460

 

 

1.76%

 

 

7/1/2024

Madera Point

(3)

Floating

 

 

84

 

 

 

15,150

 

 

1.76%

 

 

7/1/2024

Venue at 8651

(3)

Floating

 

 

84

 

 

 

13,734

 

 

1.92%

 

 

7/1/2024

The Venue on Camelback

(3)

Floating

 

 

84

 

 

 

28,093

 

 

1.82%

 

 

7/1/2024

Old Farm

(3)

Floating

 

 

84

 

 

 

52,886

 

 

1.82%

 

 

7/1/2024

Stone Creek at Old Farm

(3)

Floating

 

 

84

 

 

 

15,274

 

 

1.82%

 

 

7/1/2024

Timber Creek

(3)

Floating

 

 

84

 

 

 

24,100

 

 

1.40%

 

 

10/1/2025

Radbourne Lake

(3)

Floating

 

 

84

 

 

 

20,000

 

 

1.43%

 

 

10/1/2025

Sabal Palm at Lake Buena Vista

(3)

Floating

 

 

84

 

 

 

42,100

 

 

1.44%

 

 

9/1/2025

Cornerstone

(4)

Fixed

 

 

120

 

 

 

21,299

 

 

4.24%

 

 

3/1/2023

Parc500

(5)

Fixed

 

 

120

 

 

 

14,951

 

 

4.49%

 

 

8/1/2025

Hollister Place

(3)

Floating

 

 

84

 

 

 

14,811

 

 

1.48%

 

 

10/1/2025

Rockledge Apartments

(3)

Floating

 

 

84

 

 

 

68,100

 

 

1.71%

 

 

7/1/2024

Atera Apartments

(3)

Floating

 

 

84

 

 

 

29,500

 

 

1.62%

 

 

11/1/2024

Cedar Pointe

(6)

Floating

 

 

84

 

 

 

17,300

 

 

1.49%

 

 

9/1/2025

Crestmont Reserve

(3)

Floating

 

 

84

 

 

 

12,061

 

 

1.32%

 

 

10/1/2025

Brandywine I & II

(3)

Floating

 

 

84

 

 

 

43,835

 

 

1.32%

 

 

10/1/2025

Bella Vista

(6)

Floating

 

 

84

 

 

 

29,040

 

 

1.46%

 

 

2/1/2026

The Enclave

(6)

Floating

 

 

84

 

 

 

25,322

 

 

1.46%

 

 

2/1/2026

The Heritage

(6)

Floating

 

 

84

 

 

 

24,625

 

 

1.46%

 

 

2/1/2026

Summers Landing

(7)

Floating

 

 

84

 

 

 

10,109

 

 

1.32%

 

 

10/1/2025

Residences at Glenview Reserve

(8)

Floating

 

 

84

 

 

 

26,560

 

 

1.58%

 

 

10/1/2025

Residences at West Place

(8)

Fixed

 

 

120

 

 

 

33,817

 

 

4.24%

 

 

10/1/2028

Avant at Pembroke Pines

(3)

Floating

 

 

84

 

 

 

177,100

 

 

1.57%

 

 

9/1/2026

Arbors of Brentwood

(3)

Floating

 

 

84

 

 

 

34,237

 

 

1.57%

 

 

10/1/2026

Torreyana Apartments

(6)

Floating

 

 

84

 

 

 

37,400

 

 

1.84%

 

 

12/1/2026

Bloom

(6)

Floating

 

 

84

 

 

 

58,850

 

 

1.84%

 

 

12/1/2026

Bella Solara

(6)

Floating

 

 

84

 

 

 

36,575

 

 

1.84%

 

 

12/1/2026

Fairways at San Marcos

(6)

Floating

 

 

84

 

 

 

46,464

 

 

2.21%

 

 

12/1/2027

 

 

 

 

 

 

 

 

$

1,168,078

 

 

 

 

 

 

 

Fair market value adjustment

 

 

 

 

 

 

 

 

1,261

 

(9)

 

 

 

 

 

Deferred financing costs, net of accumulated amortization of $3,706

 

 

 

 

 

 

 

 

(6,484

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

1,162,855

 

 

 

 

 

 

 

 

(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. One-month LIBOR was 0.14388% and 30-Day Average Secured Overnight Financing Rate (“SOFR”) was 0.08334% as of December 31, 2020. Fairways at San Marcos utilizes 30-Day Average SOFR as its reference rate while all other properties utilize one-month LIBOR.

(3)

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.

F-23


 

(4)

Debt in the amount of $18.0 million was assumed upon acquisition of this property and recorded at approximated fair value. The assumed debt carries a 4.09% fixed rate, was originally issued in March 2013, and had a term of 120 months with an initial 24 months of interest only. At the time of acquisition, the principal balance of the first mortgage remained unchanged and had a remaining term of 98 months with 2 months of interest only. The first mortgage is pre-payable and subject to yield maintenance from the 13th month through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. Concurrently with the acquisition of the property, the Company placed a supplemental second mortgage on the property with a principal amount of approximately $5.8 million, a fixed rate of 4.70%, and with a maturity date that is the same time as the first mortgage. The supplemental second mortgage is pre-payable and subject to yield maintenance from the date of issuance through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. As of December 31, 2020, the total indebtedness secured by the property had a blended interest rate of 4.24%.

(5)

Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan is open to pre-payment in the last four months of the term.

(6)

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.

(7)

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.

(8)

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.

(9)

The Company reflected a valuation adjustment on its fixed rate debt for Parc500 and 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.

During the year ended December 31, 2020, the Company sold four properties and repaid the related mortgage loans that encumbered the properties, as detailed in the table below (in thousands):

 

Property Name

 

Date of Sale

 

Type

 

Outstanding

Principal (1)

 

Southpoint Reserve at Stoney Creek

 

March 20, 2020

 

Floating

 

$

13,101

 

Willow Grove

 

March 26, 2020

 

Floating

 

 

14,818

 

Woodbridge

 

March 26, 2020

 

Floating

 

 

13,677

 

Eagle Crest

 

September 30, 2020

 

Floating

 

 

29,510

 

 

 

 

 

 

 

$

71,106

 

 

(1)

Represents the outstanding principal balance when the loan was repaid.

The weighted average interest rate of the Company’s mortgage indebtedness was 1.83% as of December 31, 2020 and 3.34% as of December 31, 2019. The decrease between the periods is primarily related to a decrease in one-month LIBOR of approximately 162 basis points to 0.14388% as of December 31, 2020 from 1.7625% as of December 31, 2019. As of December 31, 2020, the adjusted weighted average interest rate of the Company’s mortgage indebtedness was 3.06%. 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 1.3792% for one-month LIBOR on its combined $1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.1 billion of the Company’s floating rate mortgage debt (see Note 7).

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 December 31, 2020, the Company believes it is in compliance with all provisions.

F-24


 

Freddie Mac Multifamily Green Advantage. In order to obtain more favorable pricing on the Company’s mortgage debt financing with Freddie Mac, the Company decided to participate in Freddie Mac’s Multifamily Green Advantage program (the “Green Program”). As of December 31, 2020, the Company has completed its Green Program improvements on all but one property, which is expected to be completed in 2021. The Company expects to reduce water/sewer costs at each property where the Green Program is implemented by at least 15% through the replacement of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, the Company is not implementing this on acquisitions going forward.

Credit Facility

The following table contains summary information concerning the Company’s credit facility as of December 31, 2020 (dollars in thousands):

 

 

 

Type

 

Term (months)

 

 

Outstanding

Principal

 

 

Interest Rate (1)

 

 

Maturity Date

Corporate Credit Facility

 

Floating

 

 

24

 

 

$

183,000

 

 

2.64%

 

 

1/28/2022

Deferred financing costs, net of accumulated amortization of $1,937

 

 

 

 

 

 

 

 

(677

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

182,323

 

 

 

 

 

 

 

 

(1)

Interest rate is based on one-month LIBOR plus an applicable margin. One-month LIBOR as of December 31, 2020 was 0.14388%.

 

Corporate Credit Facility. On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with Truist Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term. The Company has the right to request an increase in the facility amount up to $150 million (the “Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75 million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional financing through the Accordion Feature (see “Deferred Financing Costs” below). On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $25 million, resulting in incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs. As of December 31, 2020, there was $183.0 million in aggregate principal outstanding on the Corporate Credit Facility.

 

On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022 (the “Maturity Date”), which falls within one year of February 19, 2021. During 2020, the Company repaid $35.0 million in principal on the Corporate Credit Facility and had sufficient cash flow to fund operations as well as close on a new acquisition (Fairways at San Marcos) in the fourth quarter of 2020. Management recognizes that finding an alternative source of funding is necessary to repay the facility by the Maturity Date. Management is evaluating multiple options to fund the repayment of the $183.0 million principal balance outstanding, including recasting the Corporate Credit Facility, securing additional equity or debt financing, selling a portion of the portfolio, or any combination thereof.  Management believes that there is sufficient time before the Maturity Date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

$60 Million Credit Facility. On December 29, 2016, the Company, through the OP, entered into a $30.0 million credit facility (the “$30 Million Credit Facility”) with KeyBank National Association (“KeyBank”). On April 27, 2018, the Company, through the OP, amended the $30 Million Credit Facility to temporarily increase the loan commitment by $5.0 million (the “Temporary Increase”) and immediately drew $5.0 million. The $5.0 million drawn under the Temporary Increase was repaid in full on July 25, 2018. The Company accounted for the Temporary Increase as an extinguishment of a debt instrument. As such, the Company wrote-off the unamortized deferred financing costs of approximately $0.1 million as of April 27, 2018, which is recorded in loss on extinguishment of debt and modification costs on the accompanying consolidated statements of operations and comprehensive income (loss).

On September 26, 2018, the Company, through the OP, repaid the $30.0 million outstanding under the $30 Million Credit Facility and amended the loan agreement, extending the maturity date to September 26, 2020 and increasing the loan commitment to $60.0 million (the “$60 Million Credit Facility”). The Company accounted for the refinancing as an extinguishment of a debt instrument. The Company, through the OP, immediately drew $50.0 million to fund a portion of the purchase price of Brandywine I & II and Crestmont Reserve.

F-25


 

 

The $60 Million Credit Facility was a full-term, interest-only facility with a 24-month term and was guaranteed by the Company. Interest accrued on the $60 Million Credit Facility at an interest rate of one-month LIBOR plus 2.00%. In November 2018, the Company, through the OP, used net proceeds from the 2018 Offering (as defined below) (see Note 8) to repay the $50.0 million outstanding under the $60 Million Credit Facility, which retired the credit facility. In connection with the repayment, the Company, through the OP, received a commitment fee rebate of approximately $0.8 million from KeyBank, which was previously capitalized as a deferred financing cost on the Company’s consolidated balance sheet as of September 30, 2018.

$30 Million Bridge Facility. On September 26, 2018, the Company, through the OP, entered into a $30.0 million bridge facility (the “$30 Million Bridge Facility”) with KeyBank and immediately drew $30.0 million to fund a portion of the purchase price of Brandywine I & II and Crestmont Reserve. The $30 Million Bridge Facility was a full-term, interest-only facility with a six-month term and was guaranteed by the Company. Interest accrued on the $30 Million Bridge Facility at an interest rate of one-month LIBOR plus 2.00%. In November 2018, the Company, through the OP, used net proceeds from the 2018 Offering to repay the $30.0 million outstanding under the $30 Million Bridge Facility, which retired the bridge facility. In connection with the repayment, the Company, through the OP, received a commitment fee rebate of approximately $0.3 million from KeyBank, which was previously capitalized as a deferred financing cost on the Company’s consolidated balance sheet as of September 30, 2018. 

2017 Bridge Facility. On June 30, 2017, the Company, through the OP, entered into a $65.9 million bridge facility (the “2017 Bridge Facility”) with KeyBank. The 2017 Bridge Facility was a full-term, interest-only facility with an initial four-month term and was guaranteed by the Company. Interest accrued on the 2017 Bridge Facility at an interest rate of one-month LIBOR plus 3.75%. In July 2017, the Company used proceeds from the sale of Regatta Bay to pay down $11.3 million on the 2017 Bridge Facility. In October 2017, the Company used proceeds from the sale of four properties to pay down approximately $46.0 million on the 2017 Bridge Facility, bringing the outstanding balance to approximately $8.6 million, and also extended the maturity date to March 31, 2018. In February 2018, the Company used proceeds from the sale of Timberglen to pay the remaining $8.6 million outstanding on the 2017 Bridge Facility, which retired the bridge 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 years ended December 31, 2020, 2019 and 2018, the Company wrote-off deferred financing costs of approximately $0.8 million, $1.4 million and $1.4 million, respectively, which is included in loss on extinguishment of debt and modification costs on the consolidated statements of operations and comprehensive income (loss). For the years ended December 31, 2020, 2019 and 2018, amortization of deferred financing costs of approximately $2.8 million, $2.1 million and $1.7 million, respectively, is included in interest expense on the consolidated statements of operations and comprehensive income (loss).

Loss on Extinguishment of Debt and Modification Costs

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.

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to December 31, 2020 are as follows (in thousands):

 

 

 

Operating

Properties

 

 

Credit Facility

 

Total

 

2021

 

$

896

 

 

$

 

$

896

 

2022

 

 

1,509

 

 

 

183,000

 

 

184,509

 

2023

 

 

21,293

 

 

 

 

 

21,293

 

2024

 

 

395,168

 

 

 

 

 

395,168

 

2025

 

 

245,780

 

 

 

 

 

245,780

 

Thereafter

 

 

503,432

 

 

 

 

 

503,432

 

Total

 

$

1,168,078

 

 

$

183,000

 

$

1,351,078

 

 

F-26


 

7. 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.

 

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 December 31, 2020, 2019 and 2018 were classified as Level 2 of the fair value hierarchy.

F-27


 

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 years ended December 31, 2020, 2019 and 2018, interest rate cap derivatives were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt. The interest rate cap agreements the Company has entered into effectively cap one-month LIBOR on $393.0 million of the Company’s floating rate mortgage indebtedness at a weighted average rate of 5.16%.

The changes in the fair value of derivative financial instruments that are designated as cash flow hedges are recorded in OCI and are subsequently reclassified into net income (loss) in the period that the hedged forecasted transaction affects earnings. Amounts reported in OCI related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s floating rate debt. Prior to the Company’s adoption of ASU 2017-12 on January 1, 2018, the ineffective portion of changes in the fair value of the Company’s derivatives designated as cash flow hedges was recognized directly in net income (loss) as interest expense. The adoption of ASU 2017-12 eliminates the separate measurement of effectiveness and ineffectiveness, and all changes in the fair value of derivatives that are designated as cash flow hedges are recorded directly in OCI. Therefore, during the years ended December 31, 2020, 2019 and 2018, the Company recorded no gain or loss related to the ineffective portion of changes in the fair value of its derivatives designated as cash flow hedges.

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 eleven interest rate swap transactions with KeyBank and two with Truist Bank (the “Counterparties”) with a combined notional amount of $1.2 billion which are effective as of December 31, 2020. The interest rate swaps the Company has entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.3792%. The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.

As of December 31, 2020, 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)

 

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

$

100,000

 

 

 

1.1055

%

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

1.0210

%

 

July 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

0.9000

%

 

September 1, 2016

 

June 1, 2021

 

KeyBank

 

 

100,000

 

 

 

0.9560

%

 

April 1, 2017

 

April 1, 2022

 

KeyBank

 

 

100,000

 

 

 

1.9570

%

 

May 1, 2017

 

April 1, 2022

 

KeyBank

 

 

50,000

 

 

 

1.9610

%

 

July 1, 2017

 

July 1, 2022

 

KeyBank

 

 

100,000

 

 

 

1.7820

%

 

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

%

 

 

 

 

 

 

 

$

1,167,500

 

 

 

1.3792

%

(2)

 

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2020, one-month LIBOR was 0.14388%.

(2)

Represents the weighted average fixed rate of the interest rate swaps.

F-28


 

As of December 31, 2020, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk with future effective dates (dollars in thousands):

Future Swaps

Effective Date

 

Termination Date

 

Counterparty

 

Notional Amount

 

 

Fixed Rate (1)

 

 

June 1, 2021

 

September 1, 2026

 

KeyBank

 

$

200,000

 

 

 

0.8450

%

 

June 1, 2021

 

September 1, 2026

 

KeyBank

 

 

200,000

 

 

 

0.9530

%

 

September 1, 2026

 

January 1, 2027

 

KeyBank

 

 

92,500

 

 

 

1.7980

%

 

 

 

 

 

 

 

$

492,500

 

 

 

1.0678

%

(2)

 

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of December 31, 2020, one-month LIBOR was 0.14388%.

(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.

As of December 31, 2020, 2019 and 2018, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):

 

As of December 31,

 

Number of

Instruments

 

 

Notional Amount

 

2020

 

 

16

 

 

$

393,006

 

2019

 

 

15

 

 

$

346,542

 

2018

 

 

12

 

 

$

255,179

 

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 December 31, 2020 and 2019 (in thousands):

 

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance Sheet Location

 

December 31, 2020

 

 

December 31, 2019

 

 

December 31, 2020

 

 

December 31, 2019

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

Fair market value of interest rate swaps

 

$

 

 

$

7,298

 

 

$

43,530

 

 

$

3,824

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate caps

 

Prepaid and other assets

 

 

3

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

3

 

 

$

7,298

 

 

$

43,530

 

 

$

3,824

 

 

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 years ended December 31, 2020, 2019 and 2018 (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

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

OCI into income

 

2020

 

 

2019

 

 

2018

 

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate products

 

$

(56,299

)

 

$

(8,153

)

 

$

5,928

 

 

Interest expense

 

$

(9,337

)

 

$

6,472

 

 

$

3,997

 

 

F-29


 

 

 

 

 

 

 

 

 

 

 

 

 

Location of gain

(loss)

 

Amount of gain (loss)

recognized in income

 

 

 

 

 

 

 

 

 

 

recognized in

income

 

2020

 

 

2019

 

 

2018

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the year ended December 31,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate products

 

 

 

 

 

 

 

Interest expense

 

$

(33

)

 

$

(30

)

 

$

(49

)

 

 

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 10). 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 December 31, 2020 and 2019, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other assets, 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 at the time they were recognized. 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 and estimated fair value of our debt at December 31, 2020 and 2019 (in thousands):

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

 

Carrying Value

 

 

Estimated

Fair Value

 

 

Carrying Value

 

 

Estimated

Fair Value

 

Fixed rate debt

 

$

70,067

 

 

$

73,548

 

 

$

70,810

 

 

$

72,386

 

Floating rate debt (1)

 

$

1,281,011

 

 

$

1,324,990

 

 

$

1,340,718

 

 

$

1,318,989

 

(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 year ended December 31, 2020, the Company noted there was no impairment, but incurred a casualty loss that resulted in net write downs of approximately $0.6 million for both Venue 8651 and Timber Creek (see Note 5). The Company did not record any impairment charges related to real estate assets for the years ended December 31, 2020, 2019 and 2018.

F-30


 

8. Stockholders’ Equity

Common Stock 

On November 14, 2018, the Company issued 2,702,500 shares of common stock, par value $0.01 per share, at a public offering price of $33.00 per share (before underwriters’ discounts and offering costs) for gross proceeds of approximately $89.2 million (the “2018 Offering”). The common stock was offered and sold pursuant to a prospectus supplement, dated November 14, 2018, and a base prospectus, dated April 24, 2017, relating to an effective registration statement on Form S-3. The Company contributed the net proceeds from the 2018 Offering to the OP in exchange for 2,702,500 OP Units, and the OP in turn used a majority of the net proceeds to repay the $50.0 million outstanding under the $60 Million Credit Facility and the $30.0 million outstanding under the $30 Million Bridge Facility.

During the year ended December 31, 2020 and 2019, the Company issued 137,608 and 180,783 shares of common stock pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below) and 1,278,306 and 1,565,322 pursuant to its at-the-market offering (see “At-the-Market Offering” below).

As of December 31, 2020, the Company had 25,016,957 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. The Company may utilize various methods to effect 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 year ended December 31, 2020, the Company repurchased 1,644,697 shares of its common stock. Since the inception of the Share Repurchase Program through December 31, 2020, the Company had repurchased 2,382,155 shares of its common stock, par value $0.01 per share, at a total cost of approximately $61,224,000, or $25.70 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 year ended December 31, 2020, the Company retired 1,644,697 shares of its common stock held in treasury. During the years ended December 31, 2019 and 2018, the Company retired no shares of its common stock held in treasury. As of December 31, 2020 and 2019, the Company had no 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.

F-31


 

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 August 11, 2016, pursuant to the 2016 LTIP, the Company granted 209,797 restricted stock units to its directors and officers. On March 16, 2017, pursuant to the 2016 LTIP, the Company granted 219,802 restricted stock units to its directors and officers. On February 15, 2018, pursuant to the 2016 LTIP, the Company granted 275,795 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. 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. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of December 31, 2020:

 

 

 

2020

 

 

 

Number of Units

 

 

Weighted Average

Grant Date Fair Value

 

Outstanding January 1,

 

 

447,039

 

 

$

29.13

 

Granted

 

 

285,035

 

 

 

42.53

 

Vested

 

 

(178,143

)

(1)

 

26.61

 

Outstanding December 31,

 

 

553,931

 

 

$

36.83

 

 

(1)

Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 137,608 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 December 31, 2020:

 

 

Shares Vesting

 

 

 

February

 

 

May

 

 

Total

 

2021

 

 

139,842

 

 

 

27,984

 

 

 

167,826

 

2022

 

 

131,546

 

 

 

22,221

 

 

 

153,767

 

2023

 

 

66,860

 

 

 

22,217

 

 

 

89,077

 

2024

 

 

66,860

 

 

 

22,215

 

 

 

89,075

 

2025

 

 

31,971

 

 

 

22,215

 

 

 

54,186

 

Total

 

 

437,079

 

 

 

116,852

 

 

 

553,931

 

As of December 31, 2020, the Company had issued 559,159 shares of common stock under the 2016 LTIP. For the years ended December 31, 2020, 2019 and 2018, the Company recognized approximately $5.5 million, $5.1 million and $4.2 million, respectively, of equity-based compensation expense related to grants of restricted stock units. As of December 31, 2020, the Company had recognized a liability of approximately $1.1 million related to dividends earned on restricted stock units that are payable in cash upon vesting.

At-the-Market Offering

On February 20, 2019, 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”) and Truist Securities, Inc. f/k/a SunTrust Robinson Humphrey, Inc. (“Truist”, and together with Raymond James and Jefferies, the “2019 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “2019 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 of 1933, as amended (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 and Raymond James, or their respective affiliates, through the 2019 ATM Program. During the year ended December 31, 2019, the Company issued 1,565,322 shares of common stock at an average price of $45.98 per share for gross proceeds of approximately $72.0 million.  The Company paid approximately $1.1 million in fees to the Sales Agents with respect to such sales and incurred other issuance costs of approximately $1.0 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the three months ended March 31, 2020, the Company issued 560,000 shares of common stock at an average price of $50.00 per share for gross proceeds of $28.0 million under the 2019 ATM Program. The Company paid approximately $0.4 million in fees to the 2019 ATM Sales Agents with respect to such sales and

F-32


 

incurred other issuance costs of approximately $0.3 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached aggregate sales of $100,000,000 and therefore expired. The following table contains summary information of the 2019 ATM Program since its inception:

 

Gross proceeds

 

$

99,973,433

 

Common shares issued

 

 

2,125,322

 

Gross average sale price per share

 

$

47.04

 

 

 

 

 

 

Sales commissions

 

$

1,499,601

 

Offering costs

 

 

1,350,920

 

Net proceeds

 

 

97,122,912

 

Average price per share, net

 

$

45.70

 

 

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc Capital Markets Inc. (“KeyBanc”) and Truist Bank (together with Jefferies, Raymond James and KeyBanc, the “2020 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time 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, Raymond James, and Truist, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. The following table contains summary information of the 2020 ATM Program:

 

Gross proceeds

 

 

$

31,546,577

 

Common shares issued

 

 

 

718,306

 

Gross average sale price per share

 

 

$

43.92

 

 

 

 

 

 

 

Sales commissions

 

 

$

473,199

 

Offering costs

 

 

 

609,615

 

Net proceeds

 

 

 

30,463,763

 

Average price per share, net

 

 

$

42.41

 

 

9. 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.

F-33


 

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted earnings (loss) per share, as they are exchangeable for common stock on a one-for-one basis. The income (loss) allocable to such units is allocated on this same basis and reflected as net income (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 earnings (loss) per share. See Note 10 for additional information.

The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):

 

 

 

For the Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Numerator for earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

44,150

 

 

$

99,438

 

 

$

(1,614

)

 

Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership

 

 

132

 

 

 

298

 

 

 

(5

)

 

Net income (loss) attributable to common stockholders

 

$

44,018

 

 

$

99,140

 

 

$

(1,609

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding

 

 

24,715

 

 

 

24,116

 

 

 

21,189

 

 

Denominator for basic loss per share

 

 

24,715

 

 

 

24,116

 

 

 

21,189

 

 

Weighted average unvested restricted stock units

 

 

519

 

 

 

477

 

 

 

478

 

 

Denominator for diluted loss per share

(1)

 

25,234

 

 

 

24,593

 

 

 

21,189

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (loss) per weighted average common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

1.78

 

 

$

4.11

 

 

$

(0.08

)

 

Diluted

 

$

1.74

 

 

$

4.03

 

 

$

(0.08

)

 

 

(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.

 

10. 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 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 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.

F-34


 

The following table sets forth the redeemable noncontrolling interests in the OP for the year ended December 31, 2020 (in thousands):

 

Redeemable noncontrolling interests in the OP, December 31, 2019

 

$

3,295

 

Net income attributable to redeemable noncontrolling interests in the OP

 

 

132

 

Other comprehensive loss attributable to redeemable noncontrolling interests in the OP

 

 

(141

)

Contributions from redeemable noncontrolling interests in the OP

 

 

168

 

Distributions to redeemable noncontrolling interests in the OP

 

 

(265

)

Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP

 

 

(91

)

Redeemable noncontrolling interests in the OP, December 31, 2020

 

$

3,098

 

 

Noncontrolling Interests

Noncontrolling interests have in the past and may in the future be comprised of joint venture partners’ interests in joint ventures the Company consolidates. When applicable, the Company reports its joint venture partners’ interests in its consolidated joint ventures and other subsidiary interests held by third parties as noncontrolling interests. The Company records these noncontrolling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investment’s net income or loss, equity contributions, return of capital, and distributions. Generally, these noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the noncontrolling interest holder based on its economic ownership percentage.

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 years ended December 31, 2020, 2019 and 2018 (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

 

2020

 

 

2019

 

 

2018

 

 

Fees incurred

 

 

 

 

 

 

 

 

 

 

 

 

 

Property management fees

(1)

$

5,949

 

 

$

5,363

 

 

$

4,382

 

 

Construction supervision fees

(2)

 

1,848

 

 

 

1,549

 

 

 

974

 

 

Design fees

(2)

 

666

 

 

 

255

 

 

 

102

 

 

Acquisition fees

(3)

 

201

 

 

 

1,465

 

 

 

348

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reimbursements

 

 

 

 

 

 

 

 

 

 

 

 

 

Payroll and benefits

(4)

 

18,321

 

 

 

18,148

 

 

 

14,100

 

 

Other reimbursements

(5)

 

3,507

 

 

 

3,286

 

 

 

2,200

 

 

 

 

(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)

Includes due diligence costs. Acquisition fees are capitalized to real estate assets on the consolidated balance sheets.

(4)

Included in property operating expenses on the consolidated statements of operations and comprehensive income (loss).

(5)

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).

F-35


 

11. 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 below) 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 years ended December 31, 2020, 2019 and 2018, 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 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 years ended December 31, 2020, 2019 and 2018, the Company incurred advisory and administrative fees of $7.7 million, $7.5 million and $7.5 million, respectively. For the years ended December 31, 2020, 2019 and 2018, the Adviser elected to voluntarily waive the advisory and administrative fees of $15.4 million, $9.1 million and $4.1 million, respectively. The advisory and administrative fees waived by the Adviser for the years ended December 31, 2020, 2019 and 2018 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.

F-36


 

Other Related Party Transactions

The Company has in the past, and may in the future, utilize the services of affiliated parties. For the years ended December 31, 2020, 2019 and 2018, the Company paid approximately $0.2 million, $0.3 million and $0.3 million, respectively, 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.

In the normal course of business, the Company may purchase properties from affiliates of the Adviser. During the year ended December 31, 2019, the Company purchased the Residences at Glenview Reserve and Residences at West Place from an affiliate of the Adviser for approximately $100.0 million. The Company’s Audit Committee authorized, approved and ratified the acquisition of the two properties.

On November 14, 2018, as part of the 2018 Offering, affiliates of the Adviser purchased 207,971 shares from the underwriters. The shares were purchased on the same terms as other investors at a public offering price of $33.00 per share. However, no underwriters’ discount applied to the purchase of such shares.

 

12. 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 December 31, 2020, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.

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. During the year ended December 31, 2020, the Company incurred an environmental liability of $1.1 million at Cutter’s Point involving asbestos. As of December 31, 2020, the environmental liability involving asbestos at Cutter’s Point has been fully depreciated. There can be no assurance that other material environmental liabilities do not exist.

Self-Insurance Program

Effective March 1, 2019, the Company maintains a partial self-insurance program for property and casualty claims whereby it incurs the “first-loss” portion of a claim up to an aggregate loss amount.  Claims resulting in losses in excess of a $100,000 per occurrence property deductible will be paid by the Company up to an aggregate amount of $1.2 million (the “2019 Aggregate Amount”).  For the period from March 1, 2019 to February 29, 2020, the Company incurred a claim related to Cutter’s Point (see Note 5) as part of the 2019 Aggregate Amount.  The claim related to Cutter’s Point required the Company to fund the full 2019 Aggregate Amount with $0.6 million being funded in December 2019 and the remaining $0.6 million funded during the three months ended March 31, 2020. For the period from March 1, 2019 to February 29, 2020, there were no other potential claims, besides the claim involving Cutter’s Point, that met the criteria as set forth under ASC 450-20.

On March 1, 2020, the Adviser entered into a new policy resulting in a new aggregate amount of $2,365,000 (the “2020 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $1.5 million being allocated to the Company. As of December 30, 2020, all of the $1.5 million of the 2020 Aggregate Amount allocated to the Company has been funded. Under ASC 450-20 “Loss Contingencies”, the Company does not reserve for the 2020 Aggregate Amount or any portion thereof until a claim is made and the amount of the claim and the timing of payment on the claim can be reasonably estimated. For the period from March 1, 2020 to December 31, 2020, the Company incurred a claim related to Venue 8651 for $0.9 million and Timber Creek for $1.0 million as part of the 2020 Aggregate Amount (see Note 5).

F-37


 

13. Subsequent Events

Dividends Declared

On February 15, 2021, the Company’s board of directors declared a quarterly dividend of $0.34125 per share, payable on March 31, 2021 to stockholders of record on March 15, 2021.

 

$145.0 Million Swap

On February 17, 2021, NexPoint Residential Trust, Inc. (the “Company”), through its operating partnership, NexPoint Residential Trust Operating Partnership, L.P., entered into an interest rate swap transaction with Truist Bank (the “Swap”). The Company entered into the Swap 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). The Swap has an effective date of March 1, 2022 and a termination date of March 1, 2025. Beginning on April 1, 2022, the Company will be required to make monthly fixed rate payments of 0.573% calculated on a notional amount of $145.0 million, while the counterparty will be obligated to make monthly floating rate payments based on one-month LIBOR to the Company referencing the same notional amount.

 

14. Quarterly Results (unaudited)

Presented below is a summary of the unaudited quarterly consolidated financial information for the years ended December 31, 2020, 2019 and 2018 (in thousands, except per share amounts):

 

 

 

2020 Quarters Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Total revenues

 

$

52,582

 

 

$

50,681

 

 

$

50,990

 

 

$

50,547

 

Net income (loss)

 

 

28,039

 

 

 

(9,318

)

 

 

29,641

 

 

 

(4,212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

 

27,955

 

 

 

(9,290

)

 

 

29,552

 

 

 

(4,199

)

Earnings (loss) per share - basic

(1)

 

1.10

 

 

 

(0.38

)

 

 

1.21

 

 

 

(0.17

)

Earnings (loss) per share - diluted

(1)

 

1.08

 

 

 

(0.38

)

 

 

1.19

 

 

 

(0.17

)

 

(1)

Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the loss per share amount calculated for the year ended December 31, 2020.

 

 

 

2019 Quarters Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Total revenues

 

$

41,491

 

 

$

43,066

 

 

$

46,833

 

 

$

49,676

 

Net income (loss)

 

 

(4,373

)

 

 

(1,987

)

 

 

119,104

 

 

 

(13,306

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

 

(4,360

)

 

 

(1,981

)

 

 

118,747

 

 

 

(13,266

)

Earnings (loss) per share - basic

(1)

 

(0.19

)

 

 

(0.08

)

 

 

4.93

 

 

 

(0.53

)

Earnings (loss) per share - diluted

(1)

 

(0.19

)

 

 

(0.08

)

 

 

4.84

 

 

 

(0.53

)

 

(1)

Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the earnings per share amount calculated for the year ended December 31, 2019.

 

 

 

2018 Quarters Ended

 

 

 

March 31

 

 

June 30

 

 

September 30

 

 

December 31

 

Total revenues

 

$

35,057

 

 

$

35,655

 

 

$

36,495

 

 

$

39,390

 

Net income (loss)

 

 

10,094

 

 

 

(1,666

)

 

 

(5,260

)

 

 

(4,782

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

 

10,064

 

 

 

(1,661

)

 

 

(5,245

)

 

 

(4,767

)

Earnings (loss) per share - basic

(1)

 

0.48

 

 

 

(0.08

)

 

 

(0.25

)

 

 

(0.21

)

Earnings (loss) per share - diluted

(1)

 

0.47

 

 

 

(0.08

)

 

 

(0.25

)

 

 

(0.21

)

 

(1)

Quarterly earnings (loss) per share amounts are based on the weighted average common shares outstanding during the respective quarter and, therefore, may not agree in total with the earnings per share amount calculated for the year ended December 31, 2018.

 

F-38


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2020

(in thousands)

 

 

 

 

 

 

 

 

 

Initial Cost to Company

 

 

Costs Capitalized

 

 

Gross Amount Carried at December 31, 2020

 

 

Accumulated

 

 

 

Property Name

 

Location

 

Encumbrances (1)

 

 

Land

 

 

Buildings and Improvements (2)

 

 

Total

 

 

Subsequent to

Acquisition

 

 

Land

 

 

Buildings and

Improvements (3)

 

 

Total (4)

 

 

Depreciation and

Amortization (5) (6)

 

 

Date Acquired

Arbors on Forest Ridge

 

Bedford, Texas

 

$

13,130

 

 

$

2,330

 

 

$

10,475

 

 

$

12,805

 

 

$

3,186

 

 

$

2,330

 

 

$

13,349

 

 

$

15,679

 

 

$

(4,266

)

 

1/31/2014

Cutter's Point

 

Richardson, Texas

 

 

16,640

 

 

 

3,330

 

 

 

12,515

 

 

 

15,845

 

 

 

2,899

 

 

 

3,330

 

 

 

15,062

 

 

 

18,392

 

 

 

(2,009

)

 

1/31/2014

Silverbrook

 

Grand Prairie, Texas

 

 

30,590

 

 

 

4,860

 

 

 

25,540

 

 

 

30,400

 

 

 

7,561

 

 

 

4,860

 

 

 

32,308

 

 

 

37,168

 

 

 

(10,470

)

 

1/31/2014

Beechwood Terrace

 

Antioch, Tennessee

 

 

23,365

 

 

 

1,390

 

 

 

20,010

 

 

 

21,400

 

 

 

5,455

 

 

 

1,390

 

 

 

25,056

 

 

 

26,446

 

 

 

(7,041

)

 

7/21/2014

The Summit at Sabal Park

 

Tampa, Florida

 

 

13,560

 

 

 

5,770

 

 

 

13,280

 

 

 

19,050

 

 

 

2,686

 

 

 

5,770

 

 

 

15,562

 

 

 

21,332

 

 

 

(4,704

)

 

8/20/2014

Courtney Cove

 

Tampa, Florida

 

 

13,680

 

 

 

5,880

 

 

 

13,070

 

 

 

18,950

 

 

 

3,353

 

 

 

5,880

 

 

 

15,992

 

 

 

21,872

 

 

 

(4,697

)

 

8/20/2014

Radbourne Lake

 

Charlotte, North Carolina

 

 

20,000

 

 

 

2,440

 

 

 

21,810

 

 

 

24,250

 

 

 

3,606

 

 

 

2,440

 

 

 

24,764

 

 

 

27,204

 

 

 

(6,739

)

 

9/30/2014

Timber Creek

 

Charlotte, North Carolina

 

 

24,100

 

 

 

11,260

 

 

 

11,490

 

 

 

22,750

 

 

 

6,069

 

 

 

11,260

 

 

 

16,760

 

 

 

28,020

 

 

 

(5,610

)

 

9/30/2014

Sabal Palm at Lake Buena Vista

 

Orlando, Florida

 

 

42,100

 

 

 

7,580

 

 

 

41,920

 

 

 

49,500

 

 

 

4,259

 

 

 

7,580

 

 

 

44,792

 

 

 

52,372

 

 

 

(10,618

)

 

11/5/2014

Cornerstone

 

Orlando, Florida

 

 

21,299

 

 

 

1,500

 

 

 

30,050

 

 

 

31,550

 

 

 

4,970

 

 

 

1,500

 

 

 

34,126

 

 

 

35,626

 

 

 

(8,861

)

 

1/15/2015

The Preserve at Terrell Mill

 

Marietta, Georgia

 

 

42,480

 

 

 

10,170

 

 

 

47,830

 

 

 

58,000

 

 

 

13,575

 

 

 

10,170

 

 

 

59,591

 

 

 

69,761

 

 

 

(16,074

)

 

2/6/2015

Versailles

 

Dallas, Texas

 

 

23,880

 

 

 

6,720

 

 

 

19,445

 

 

 

26,165

 

 

 

6,763

 

 

 

6,720

 

 

 

25,627

 

 

 

32,347

 

 

 

(7,676

)

 

2/26/2015

Seasons 704 Apartments

 

West Palm Beach, Florida

 

 

17,460

 

 

 

7,480

 

 

 

13,520

 

 

 

21,000

 

 

 

3,060

 

 

 

7,480

 

 

 

16,179

 

 

 

23,659

 

 

 

(4,485

)

 

4/15/2015

Madera Point

 

Mesa, Arizona

 

 

15,150

 

 

 

4,920

 

 

 

17,605

 

 

 

22,525

 

 

 

3,223

 

 

 

4,920

 

 

 

20,199

 

 

 

25,119

 

 

 

(5,113

)

 

8/5/2015

Venue at 8651

 

Fort Worth, Texas

 

 

13,734

 

 

 

2,350

 

 

 

16,900

 

 

 

19,250

 

 

 

4,721

 

 

 

2,350

 

 

 

21,110

 

 

 

23,460

 

 

 

(6,020

)

 

10/30/2015

Parc500

 

West Palm Beach, Florida

 

 

14,951

 

 

 

3,860

 

 

 

19,424

 

 

 

23,284

 

 

 

5,843

 

 

 

3,860

 

 

 

24,776

 

 

 

28,636

 

 

 

(6,073

)

 

7/27/2016

The Venue on Camelback

 

Phoenix, Arizona

 

 

28,093

 

 

 

8,340

 

 

 

36,520

 

 

 

44,860

 

 

 

4,916

 

 

 

8,340

 

 

 

40,713

 

 

 

49,053

 

 

 

(7,496

)

 

10/11/2016

Old Farm

 

Houston, Texas

 

 

52,886

 

 

 

11,078

 

 

 

73,986

 

 

 

85,064

 

 

 

3,657

 

 

 

11,078

 

 

 

74,289

 

 

 

85,367

 

 

 

(12,211

)

 

12/29/2016

Stone Creek at Old Farm

 

Houston, Texas

 

 

15,274

 

 

 

3,493

 

 

 

19,937

 

 

 

23,430

 

 

 

898

 

 

 

3,493

 

 

 

20,263

 

 

 

23,756

 

 

 

(3,287

)

 

12/29/2016

Hollister Place

 

Houston, Texas

 

 

14,811

 

 

 

2,782

 

 

 

21,902

 

 

 

24,684

 

 

 

3,469

 

 

 

2,782

 

 

 

24,439

 

 

 

27,221

 

 

 

(4,664

)

 

2/1/2017

Rockledge Apartments

 

Marietta, Georgia

 

 

68,100

 

 

 

17,451

 

 

 

96,577

 

 

 

114,028

 

 

 

8,795

 

 

 

17,451

 

 

 

102,351

 

 

 

119,802

 

 

 

(15,894

)

 

6/30/2017

Atera Apartments

 

Dallas, Texas

 

 

29,500

 

 

 

22,371

 

 

 

37,090

 

 

 

59,461

 

 

 

3,972

 

 

 

22,371

 

 

 

39,722

 

 

 

62,093

 

 

 

(5,784

)

 

10/25/2017

Cedar Pointe

 

Antioch, Tennessee

 

 

17,300

 

 

 

2,371

 

 

 

24,410

 

 

 

26,781

 

 

 

1,435

 

 

 

2,371

 

 

 

25,845

 

 

 

28,216

 

 

 

(2,801

)

 

8/24/2018

Crestmont Reserve

 

Dallas, Texas

 

 

12,061

 

 

 

4,124

 

 

 

20,667

 

 

 

24,791

 

 

 

1,718

 

 

 

4,124

 

 

 

22,385

 

 

 

26,509

 

 

 

(2,398

)

 

9/26/2018

Brandywine I & II

 

Nashville, Tennessee

 

 

43,835

 

 

 

6,237

 

 

 

73,870

 

 

 

80,107

 

 

 

3,821

 

 

 

6,237

 

 

 

77,691

 

 

 

83,928

 

 

 

(7,761

)

 

9/26/2018

Bella Vista

 

Phoenix, Arizona

 

 

29,040

 

 

 

10,942

 

 

 

37,661

 

 

 

48,603

 

 

 

1,236

 

 

 

10,942

 

 

 

38,897

 

 

 

49,839

 

 

 

(3,437

)

 

1/28/2019

The Enclave

 

Tempe, Arizona

 

 

25,322

 

 

 

11,046

 

 

 

30,933

 

 

 

41,979

 

 

 

1,231

 

 

 

11,046

 

 

 

32,164

 

 

 

43,210

 

 

 

(2,836

)

 

1/28/2019

The Heritage

 

Phoenix, Arizona

 

 

24,625

 

 

 

6,835

 

 

 

35,244

 

 

 

42,079

 

 

 

1,310

 

 

 

6,835

 

 

 

36,554

 

 

 

43,389

 

 

 

(3,111

)

 

1/28/2019

Summers Landing

 

Fort Worth, Texas

 

 

10,109

 

 

 

1,798

 

 

 

17,628

 

 

 

19,426

 

 

 

994

 

 

 

1,798

 

 

 

18,622

 

 

 

20,420

 

 

 

(1,245

)

 

6/7/2019

S-1


 

Residences at Glenview Reserve

 

Nashville, Tennessee

 

 

26,560

 

 

 

3,367

 

 

 

41,652

 

 

 

45,019

 

 

 

1,884

 

 

 

3,367

 

 

 

43,536

 

 

 

46,903

 

 

 

(2,675

)

 

7/17/2019

Residences at West Place

 

Orlando, Florida

 

 

33,817

 

 

 

3,345

 

 

 

52,657

 

 

 

56,002

 

 

 

348

 

 

 

3,345

 

 

 

53,005

 

 

 

56,350

 

 

 

(3,050

)

 

7/17/2019

Avant at Pembroke Pines

 

Pembroke Pines, Florida

 

 

177,100

 

 

 

48,436

 

 

 

275,671

 

 

 

324,107

 

 

 

7,589

 

 

 

48,436

 

 

 

283,260

 

 

 

331,696

 

 

 

(14,844

)

 

8/30/2019

Arbors of Brentwood

 

Nashville, Tennessee

 

 

34,237

 

 

 

6,346

 

 

 

56,409

 

 

 

62,755

 

 

 

507

 

 

 

6,346

 

 

 

56,916

 

 

 

63,262

 

 

 

(3,003

)

 

9/10/2019

Torreyana Apartments

 

Las Vegas, Nevada

 

 

37,400

 

 

 

23,824

 

 

 

44,560

 

 

 

68,384

 

 

 

98

 

 

 

23,824

 

 

 

44,658

 

 

 

68,482

 

 

 

(1,937

)

 

11/22/2019

Bloom

 

Las Vegas, Nevada

 

 

58,850

 

 

 

23,805

 

 

 

83,288

 

 

 

107,093

 

 

 

702

 

 

 

23,805

 

 

 

83,990

 

 

 

107,795

 

 

 

(3,543

)

 

11/22/2019

Bella Solara

 

Las Vegas, Nevada

 

 

36,575

 

 

 

12,605

 

 

 

54,262

 

 

 

66,867

 

 

 

157

 

 

 

12,605

 

 

 

54,419

 

 

 

67,024

 

 

 

(2,278

)

 

11/22/2019

Fairways at San Marcos

 

Chandler, Arizona

 

 

46,464

 

 

 

10,993

 

 

 

73,785

 

 

 

84,778

 

 

 

57

 

 

 

10,993

 

 

 

73,842

 

 

 

84,835

 

 

 

(783

)

 

11/2/2020

 

 

 

 

$

1,168,078

 

 

$

323,429

 

 

$

1,543,593

 

 

$

1,867,022

 

 

$

130,023

 

 

$

323,429

 

 

$

1,652,814

 

 

$

1,976,243

 

 

$

(215,494

)

 

 

 

(1)

Encumbrances includes mortgage debt.

(2)

Includes gross intangible lease assets of approximately $27.8 million and buildings, improvements and furniture, fixtures and equipment of approximately $1.5 billion, which includes total acquisition costs of approximately $7.3 million incurred on the acquisitions of The Colonnade, Old Farm, Stone Creek at Old Farm, Hollister Place, Rockledge Apartments, Atera Apartments, Cedar Pointe, Crestmont Reserve, Brandywine I & II, Bella Vista, The Enclave, The Heritage, Summers Landing, Residences at Glenview Reserve, Residences at West Place, Avant at Pembroke Pines, Arbors of Brentwood, Torreyana, Bloom, Bella Solara, and Fairways at San Marcos and a fair market value adjustment, a premium of approximately $0.9 million, related to the assumption of debt in connection with the acquisition of Parc500.

(3)

Includes gross intangible lease assets of approximately $1.7 million, construction in progress of approximately $10.8 million, and furniture, fixtures and equipment of approximately $96.2 million.

(4)

The aggregate cost, net of accumulated depreciation, for Federal income tax purposes as of December 31, 2020 was approximately $1.8 billion (unaudited).

(5)

Includes accumulated amortization of intangible lease assets of approximately $0.6 million.

(6)

Depreciation and amortization are computed on a straight-line basis over the estimated useful lives. The estimated useful life to compute depreciation for buildings is 30 years, for improvements is 15 years, and for furniture, fixtures and equipment is three years. The estimated useful life to compute amortization for intangible lease assets is six months.

 

S-2


 

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

SCHEDULE III

REAL ESTATE AND ACCUMULATED DEPRECIATION

DECEMBER 31, 2020

 

A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2020, 2019 and 2018 is as follows (in thousands):

 

 

 

For the Year Ended December 31,

 

 

 

2020

 

 

2019

 

 

2018

 

Real Estate:

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

 

$

1,942,221

 

 

$

1,222,563

 

 

$

1,082,805

 

Additions:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate acquired

 

 

84,778

 

 

 

882,313

 

 

 

131,679

 

Improvements

 

 

48,933

 

 

 

47,739

 

 

 

28,809

 

Deductions:

 

 

 

 

 

 

 

 

 

 

 

 

Real estate sold

 

 

(85,588

)

 

 

(191,203

)

 

 

(18,311

)

Write-off of fully amortized assets and other

 

 

(14,101

)

 

 

(19,191

)

 

 

(2,419

)

Balance, end of year

 

$

1,976,243

 

 

$

1,942,221

 

 

$

1,222,563

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Depreciation and Amortization:

 

 

 

 

 

 

 

 

 

 

 

 

Balance, beginning of year

 

$

160,411

 

 

$

135,021

 

 

$

91,649

 

Depreciation expense

 

 

75,609

 

 

 

56,360

 

 

 

45,002

 

Amortization expense

 

 

6,802

 

 

 

12,726

 

 

 

2,468

 

Accumulated depreciation on sales

 

 

(14,523

)

 

 

(32,408

)

 

 

(2,500

)

Write-off of fully amortized assets and other

 

 

(12,805

)

 

 

(11,288

)

 

 

(1,598

)

Balance, end of year

 

$

215,494

 

 

$

160,411

 

 

$

135,021

 

 

S-3