BLUEROCK RESIDENTIAL GROWTH REIT, INC. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofBluerock Residential Growth REIT, Inc. , and the notes thereto. As used herein, the terms "we," "our" and "us" refer toBluerock Residential Growth REIT, Inc. , aMaryland corporation, and, as required by context,Bluerock Residential Holdings, L.P. , aDelaware limited partnership, which we refer to as our "Operating Partnership," and to their subsidiaries. We refer toBluerock Real Estate, L.L.C. , aDelaware limited liability company, andBluerock Real Estate Holdings, LLC , aDelaware limited liability company, together as "Bluerock", and we refer to our former external manager, BRG Manager, LLC, as our "former Manager." Both Bluerock and our former Manager are affiliated with the Company. See also "Forward-Looking Statements" preceding Part I. Overview We were incorporated as aMaryland corporation onJuly 25, 2008 . Our principal business objective is to generate attractive risk-adjusted investment returns by assembling a high-quality portfolio of apartment properties located in demographically attractive growth markets and by implementing our investment strategies and our "Live/Work/Play Initiatives" to achieve sustainable long-term growth in both our funds from operations and net asset value.
On
We conduct our operations through ourOperating Partnership , of which we are the sole general partner. The consolidated financial statements include our accounts and those of theOperating Partnership . As ofDecember 31, 2020 , we owned interests in fifty-nine real estate properties, consisting of thirty-seven consolidated operating properties and twenty-two properties held through preferred equity, mezzanine loan and ground lease investments. Of the property interests held through preferred equity, mezzanine loan and ground lease investments, five are under development, three are in lease-up and fourteen properties are stabilized. The fifty-nine properties contain an aggregate of 17,862 units, comprised of 12,722 consolidated operating units and 5,140 units through preferred equity, mezzanine loan and ground lease investments. As ofDecember 31, 2020 , our consolidated operating properties were approximately 95.4% occupied. We have elected to be taxed as a Real Estate Investment Trust ("REIT") under Sections 856 through 860 of the Code and have qualified as a REIT commencing with our taxable year endedDecember 31, 2010 . In order to continue to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is 58 Table of Contents
denied. Such an event could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.
Significant Developments
During 2020, we acquired six operating multifamily properties through various multi-tiered joint ventures in which we have indirect ownership ranging from 90% to 100%, representing an aggregate of 1,898 units, for an aggregate purchase price of$338.4 million . These properties are located inPhoenix, Arizona ;Cumming, Georgia ;Austin, Texas (two properties);Morrisville, North Carolina ; andMesa, Arizona . We also purchased a parcel of land inAustin, Texas for$3.1 million and simultaneously entered into a ground lease with an unaffiliated ground lease tenant and have funded$12.0 million of the$20.4 million leasehold improvement allowance. We increased our investment in the Strategic Portfolio joint venture through increased preferred equity investments of approximately$16.9 million representing an aggregate of 1,124 units. These properties are located inSavannah, Georgia ;Pensacola, Florida ; andJacksonville, Florida . We also increased our preferred equity investments in Alexan CityCentre,Alexan Southside Place ,Riverside Apartments , TheConley (formerlyNorth Creek Apartments ) and Wayford atConcord (formerly Wayforth atConcord ) by approximately$8.0 million . We also committed to a preferred equity investment in a 208-unit development project located inChandler, Arizona for$10.2 million . We entered into mezzanine loan agreements withReunion Apartments andAvondale Hills , located inOrlando, Florida andDecatur, Georgia , respectively, and have provided loan funding of$9.0 million out of total commitments of$21.7 million . We also provided increased loan funding to Arlo, Domain at The One Forty, Novel Perimeter, The Park atChapel Hill and Vickers Historic Roswell of approximately$9.5 million . We sold five operating properties and, together with unaffiliated joint venture partners, sold two assets underlying unconsolidated joint ventures for an aggregate sale price of approximately$357.7 million . We also received mezzanine loan payoffs from the sales of two properties of approximately$54.7 million . During the year endedDecember 31, 2020 , we issued 9,688,208 shares of Series T Preferred Stock under the Series T Preferred Offering (as hereinafter defined) with net proceeds of approximately$218.0 million after commissions, discounts and dealer manager fees. InDecember 2019 , our Board authorized the repurchase of up to an aggregate of$50 million of our outstanding shares of Class A common stock over a period of one year pursuant to stock repurchase plans. OnMay 9, 2020 , our Board authorized the modification of the stock repurchase plans to provide for the repurchase, from time to time, of up to an aggregate of$50 million in shares of its Class A common stock, 8.250% Series A Cumulative Redeemable Preferred Stock,$0.01 par value per share ("Series A Preferred Stock"), 7.625% Series C Cumulative Redeemable Preferred Stock,$0.01 par value per share ("Series C Preferred Stock"), and/or 7.125% Series D Cumulative Preferred Stock,$0.01 par value per share ("Series D Preferred Stock"). OnOctober 29, 2020 , our Board authorized new stock repurchase plans for the repurchase, from time to time, of up to an aggregate of$75 million in shares of the Company's Class A common stock, Series A Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be conducted in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). OnFebruary 9, 2021 , our Board authorized the modification of the stock repurchase plans to provide for the repurchase, from time to time, of up to an aggregate of$150 million in shares of our Class A common stock, Series C Preferred Stock and/or Series D Preferred Stock. The repurchase plans will terminate at the close of the NYSE American trading day on which we file our Form 10-Q with theSEC for the quarter endedSeptember 30, 2021 . The extent to which we repurchase shares of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock under the repurchase plans, and the timing of any such repurchases, depends on a variety of factors including general business and market conditions and other corporate considerations. Stock repurchases under the repurchase plans may be made in the open market or through privately negotiated transactions, subject to certain price limitations and other conditions established under the plans. Open market repurchases will be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act. During the year endedDecember 31, 2020 , we repurchased shares under the repurchase plans as follows: 3,983,842 shares of Class A common stock, 163,068 shares of Series A Preferred Stock, 27,905 shares of Series C Preferred Stock and 76,264 shares of Series D Preferred Stock for a total purchase price of approximately$46.4 million . During the year endedDecember 31, 2019 , we repurchased 1,313,328 shares of Class A common stock under the repurchase plans for a total purchase price of approximately$14.1 59
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million. During the life of all repurchase plans, the total purchase price of shares repurchased by us is approximately$69.5 million , and as ofDecember 31, 2020 , the value of shares that may yet be purchased under the repurchase plans is$56.1 million . COVID-19 We continue to monitor the impact of the COVID-19 pandemic on all aspects of our business and apartment communities, including how it will impact our tenants and business partners. While we collected 97% of rents from our multifamily properties for the three months endedDecember 31, 2020 , going forward we cannot predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 across the globe, includingthe United States , 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 been rapidly evolving and, as cases of COVID-19, including mutating variants of COVID-19, have continued to be identified in additional countries, many countries, includingthe United States , have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including where we own communities, have developments and where our Company has places of business located, have also reacted by instituting quarantines, restrictions on travel, "stay-at-home" orders, restrictions on types of business that may continue to operate, and/or restrictions on the types of construction projects that may continue. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which our tenants are employed. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. We also are unable to predict the impact that COVID-19 will have on our tenants, business partners within our network, and our service providers; and therefore, any material effect on these parties could adversely impact us. As ofDecember 31, 2020 , we collected 97% of rents from our multifamily properties for the three months endedDecember 31, 2020 . As ofJanuary 31, 2021 , we collected 97% of January rents from our multifamily properties. In addition, we have provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19 decreasing from 1% in the quarter endedJune 30, 2020 , to 0.2% in the quarter endedDecember 31, 2020 . Although we expect to continue to receive tenant requests for rent deferrals in the coming months, we do not expect to waive our contractual rights under our lease agreements. Further, while occupancy remains strong at 95.4% and 95.6% as ofDecember 31, 2020 andJanuary 31, 2021 , respectively, in future periods, we may experience reduced levels of tenant retention as well as reduced foot traffic and lease applications from prospective tenants as a result of COVID-19 impact. During the fourth quarter, we recorded a provision for credit losses of$16.4 million on our preferred equity, mezzanine loan and ground lease investments, of which$15.9 million relates to ourAlexan Southside Place preferred equity investment. Consistent with the overallHouston - Medical Center submarket,Alexan Southside Place lost significant value since the onset of the COVID-19 pandemic given the pandemic's impact on demand within the submarket. The provision for credit loss recorded on ourAlexan Southside Place investment is a result of this change in the submarket, its impact on the underlying operations of theAlexan Southside Place preferred equity investment, and the likelihood that the joint venture will sell before recovery. The impact of the COVID-19 pandemic on our rental revenue for 2021 and thereafter cannot be determined at present. The situation surrounding the COVID-19 pandemic remains uncertain, and we are actively managing our response in collaboration with business partners in our network and service providers and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled "Risk Factors." While we expect COVID-19 to adversely impact our tenants in the short term, we believe the knowledge economy renter by choice targeted by our Class A affordable rent strategy should be less impacted by COVID-19 related job loss, which should provide a downside buffer in the interim and allow us to reaccelerate rent growth more quickly once more economic certainty exists around the COVID-19 pandemic. Since the beginning of the COVID-19 pandemic, we have taken actions to prioritize the health and well-being of our tenants and our employees, while maintaining our high standard of service. As ofDecember 31, 2020 , all our properties are open and are complying with federal, state and local government orders. In keeping with such orders, we have implemented, and will continue to implement, operational changes, including the adoption of social distancing practices, additional use of PPE equipment and a virtual leasing/virtual office structure. Our property offices are now open to the public and to residents by appointment and with strict social distancing protocols in place. Work orders are now being completed, also with strict safety protocols in place including PPE 60 Table of Contents equipment and a safety questionnaire of each resident at time of request. Generally, the outdoor amenity areas at our communities, including pools, pet parks, and outdoor social areas, have re-opened with strict social distancing protocols, limited capacity and cleaning protocols implemented. Our properties continue the cleaning protocols for the sanitization of all community common areas (including handrails, doors and elevators). In response to shelter-in-place orders, our corporate offices have also transitioned to a remote work environment. There can be no assurances that the continuation of such remote work arrangements for an extended period of time will not strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, or impair our ability to manage our business.
Industry Outlook
We believe that the apartment sector will continue to deliver attractive performance for the foreseeable future due to favorable underlying demographics and supply and demand fundamentals.
Large demographic trends, including the Millennial generation of 90 million entering prime rental age through 2030, followed by the Gen-Z generation of 82 million, are projected to form more households than the Baby Boomer and the Gen-X generations, which should drive significant renter demand over the coming decades. As one data point, new research from theNational Multifamily Housing Council (the "NMHC") indicates that approximately 4.6 million new rental units will be needed to meet projected demand by 2030, and that current construction trends indicate that only 3 million new units will be delivered. We believe that a significant amount of institutional capital and public REITs are primarily focused on investing in the big six Gateway Markets ofBoston, New York ,Washington, D.C. ,Seattle ,San Francisco , andLos Angeles , and that many other primary markets are underinvested by institutional/public capital. As a result, we believe that our target "next generation, knowledge economy" markets, which are primary markets below the "big six," provide the opportunity to source investments at cap rates that have the potential to provide not only significant current income, but also attractive capital appreciation. Further, given that a significant portion of the nation's apartment stock was built prior to 1980, we believe that a number of our target markets are underserved by institutional quality highly amenitized live/work/play apartment properties desired by Millennials as they continue to move into their prime rental years. We also believe that rising construction costs will continue to limit supply in the near to intermediate term, and as such, there is opportunity in our target markets for development and/or redevelopment to deliver institutional quality highly amenitized live/work/play product and capture premium rental rates and generate value.
Results of Operations
Note 3, "Sale of Real Estate Assets and Held forSale Properties "; Note 4, "Investments in Real Estate"; Note 5, "Acquisition of Real Estate"; Note 6, "Notes and Interest Receivable"; and Note 7, "Preferred Equity Investments and Investments inUnconsolidated Real Estate Joint Ventures ," to our Consolidated Financial Statements provide discussion of the various purchases and sales of properties and joint venture equity interests. These transactions have resulted in material changes to the presentation of our financial statements. 61
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The following is a summary of our stabilized consolidated operating real estate
investments as of
Year Number Occupancy
Multifamily Community Built/Renovated(1) of Units Ownership % (2)
ARIUM Glenridge 1990 480 90 % 95.4 %
ARIUM Grandewood 2005 306 100 % 93.1 %
ARIUM Hunter's Creek 1999 532 100 % 95.7 %
ARIUM Metrowest 2001 510 100 % 93.9 %
ARIUM Westside 2008 336 90 % 94.3 %
Ashford Belmar 1988/1993 512 85 % 96.5 %
Avenue 25 2013 254 100 % 94.9 %
Carrington at Perimeter Park 2007 266 100 % 95.9 %
Chattahoochee Ridge 1996 358 90 % 96.6 %
Chevy Chase 1971 320 92 % 98.1 %
Cielo on Gilbert 1985 432 90 % 95.4 %
Citrus Tower 2006 336 97 % 96.4 %
Denim 1979 645 100 % 96.6 %
Elan 2007 270 100 % 93.7 %
Element 1995 200 100 % 97.5 %
Falls at Forsyth 2019 356 100 % 95.5 %
Gulfshore Apartment Homes 2016 368 100 % 95.4 %
James on South First 2016 250 90 % 93.6 %
Marquis at the Cascades 2009 582 90 % 96.0 %
Navigator Villas 2013 176 90 % 94.9 %
Outlook at Greystone 2007 300 100 % 96.3 %
Park & Kingston 2015 168 100 % 96.4 %
Pine Lakes Preserve 2003 320 100 % 96.9 %
Plantation Park 2016 238 80 % 91.2 %
Providence Trail 2007 334 100 % 95.8 %
Roswell City Walk 2015 320 98 % 94.4 %
Sands Parc 2017 264 100 % 95.8 %
The Brodie 2001 324 100 % 95.4 %
The District at Scottsdale 2018 332 100 % 91.3 %
The Links at Plum Creek 2000 264 88 % 93.9 %
The Mills 2013 304 100 % 96.4 %The Preserve at Henderson Beach 2009 340
100 % 94.1 %
The Reserve at Palmer Ranch 2016 320 100 % 95.9 %
The Sanctuary 1988 320 100 % 97.2 %
Veranda at Centerfield 1999 400 93 % 94.8 %
Villages of Cypress Creek 2001 384 80 % 94.8 %
Wesley Village 2010 301 100 % 95.7 %
Total/Average 12,722 95.4 %
(1) Represents date of most recent significant renovation or date built if no
renovations.
Percent occupied is calculated as (i) the number of units occupied as of
(2)
percentage.
Year ended
Revenue
Rental and other property revenues increased$11.1 million , or 6%, to$196.5 million for the year endedDecember 31, 2020 as compared to$185.4 million for the same prior year period. This was due to a$36.2 million increase from the acquisition of six properties in 2020 and the full year impact of eight properties acquired in 2019, and a$1.3 million increase from same
store
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properties, partially offset by a $26.4 million decrease driven by the sales of
four properties in 2020 and the full period impact of six properties sold in
2019. See Item 1. Business "Summary of Investments and Dispositions".
Interest income from mezzanine loan and ground lease investments decreased $1.3
million , or 5%, to $23.3 million for the year ended December 31, 2020 as
compared to $24.6 million for the same prior year period primarily due to the
consolidation of Cade Boca Raton and a decreased interest rate at Domain at The
One Forty, partially offset by increases in the average balance of mezzanine
loans outstanding.
Expenses
Property operating expenses increased$1.9 million , or 2%, to$76.3 million for the year endedDecember 31, 2020 as compared to$74.4 million for the same prior year period. This was due to a$13.2 million increase from the acquisition of properties in 2020 and 2019, and a$1.1 million increase from same store properties, partially offset by a$12.4 million decrease driven by the sales of properties in 2020 and 2019. Property NOI margins increased to 61.2% of total revenues for the year endedDecember 31, 2020 , from 59.8% in the prior year period. Property NOI margins are computed as total property revenues less property operating expenses, divided by total property revenues. Property management fees expense increased$0.1 million , or 2%, to$5.0 million for the year endedDecember 31, 2020 as compared to$4.9 million in the same prior year period. Property management fees incurred are based on property level revenues; an increase in property management fees was due to the increase in rental and other property revenues.
General and administrative expenses increased
Acquisition and pursuit costs amounted to$4.2 million for the year endedDecember 31, 2020 as compared to$0.6 million for the same prior year period. Acquisition and pursuit costs incurred for the year endedDecember 31, 2020 were primarily related to the write-off of pre-acquisition costs from abandoned deals due to the uncertainty from COVID-19, of which$3.3 million of the total costs related to two abandoned deals. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Weather-related losses, net amounted to$0.4 million for the year endedDecember 31, 2019 . The 2019 expense primarily related to hail damage at one property inTexas and lightning damage at one property inFlorida , partially offset by insurance reimbursements related to prior year storms. No weather-related losses were recorded in 2020. Depreciation and amortization expenses increased to$79.5 million for the year endedDecember 31, 2020 as compared to$70.5 million for the same prior year period. This was due to a$16.6 million increase from the acquisition of properties in 2020 and 2019 and a$0.7 million increase from same store properties, partially offset by a$8.3 million decrease driven by the sales
of properties in 2020 and 2019. Other Income and Expenses
Other income and expenses amounted to net expense of$16.1 million for the year endedDecember 31, 2020 as compared to net expense of$7.6 million for the same prior year period. This was primarily due to an allowance for credit losses of$16.4 million in 2020 combined with an increase in loss from extinguishment of debt of$7.4 million . This was partially offset by an increase in gains on sale of real estate investments of$10.1 million , increase in preferred returns on unconsolidated real estate joint ventures of$1.5 million and a decrease of$3.6 million in interest expense. The Company recorded a$16.4 million provision for credit losses in the fourth quarter of 2020. The provision for credit losses primarily related to a decline in the collectability of the Alexan Southside preferred equity investment since the onset of COVID-19 and its impact on the value of the property.
Year ended
Revenue
Rental and other property revenues increased$22.9 million , or 14%, to$185.4 million for the year endedDecember 31, 2019 as compared to$162.5 million for the same prior year period. This was due to a$28.1 million increase from the acquisition of seven 63 Table of Contents
properties in 2019 and the full year impact of five properties acquired in 2018, and a$5.8 million increase from same store properties, partially offset by a$11.0 million decrease driven by the sales of six properties in 2019. See Item 1. Business "Summary of Investments and Dispositions". Interest income from mezzanine loan and ground lease investments increased$2.3 million , or 11%, to$24.6 million for the year endedDecember 31, 2019 as compared to$22.3 million for the same prior year period due to increases in the average balance of mezzanine loans outstanding.
Expenses
Property operating expenses increased$6.4 million , or 9%, to$74.4 million for the year endedDecember 31, 2019 as compared to$68.0 million for the same prior year period. This was due to a$10.0 million increase from the acquisition of properties in 2019 and 2018, and a$1.7 million increase from same store properties, partially offset by a$5.3 million decrease driven by the sales of properties in 2019. Property NOI margins increased to 59.8% of total revenues for the year endedDecember 31, 2019 , from 58.1% in the prior year period. Property NOI margins are computed as total property revenues less property operating expenses, divided by total property revenues. Property management fees expense increased$0.5 million , or 12%, to$4.9 million for the year endedDecember 31, 2019 as compared to$4.4 million in the same prior year period. Property management fees incurred are based on property level revenues; an increase in property management fees was due to the increase in rental and other property revenues. General and administrative expenses amounted to$22.6 million for the year endedDecember 31, 2019 as compared to$19.6 million for the same prior year period. Excluding non-cash equity compensation expense of$10.9 million and$6.9 million for the years endedDecember 31, 2019 and 2018, respectively, general and administrative expenses were$11.6 million , or 5.5% of revenues for the year endedDecember 31, 2019 as compared to$12.6 million , or 6.8% of revenues, for the same prior year end period. Acquisition and pursuit costs amounted to$0.6 million for the year endedDecember 31, 2019 as compared to$0.1 million for the same prior year period. Acquisition and pursuit costs incurred in the year endedDecember 31, 2019 were related to the write-off of pre-acquisition costs from abandoned deals. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Weather-related losses, net amounted to$0.4 million for the year endedDecember 31, 2019 as compared to$0.3 million for the same prior year period. In 2019, the expense primarily relates to hail damage at one property inTexas and lightning damage at one property inFlorida , partially offset by insurance reimbursements related to prior year storms. In 2018, the expense related to freeze damages at three properties inNorth Carolina and one property inTexas , along with hail damages at one property inTexas . Depreciation and amortization expenses increased to$70.5 million for the year endedDecember 31, 2019 as compared to$62.7 million for the same prior year period. This was due to a$13.7 million increase from the acquisition of properties in 2019 and 2018, partially offset by a$1.5 million decrease from same store properties and a$4.4 million decrease from the sale of properties in 2019. Other Income and Expenses Other income and expenses amounted to net expense of$7.6 million for the year endedDecember 31, 2019 as compared to net expense of$45.0 million for the same prior year period. This was primarily due to the$48.7 million of gains of on sale of six properties in 2019. This was partially offset by an increase in interest expense of$6.6 million and a loss on extinguishment of debt of$5.0 million due to property sales and the refinance of various loans.
Property Operations
We define "same store" properties as those that we owned and operated for the
entirety of both periods being compared, except for properties that are in the
construction or lease-up phases, or properties that are undergoing development
or significant redevelopment. We move properties previously excluded from our
same store portfolio for these reasons into the same store designation once they
have stabilized or the development or redevelopment is complete and such status
has been reflected fully in all
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quarters during the applicable periods of comparison. For newly constructed or lease-up properties or properties undergoing significant redevelopment, we consider a property stabilized upon attainment of 90.0% physical occupancy.
For comparison of our three months endedDecember 31, 2020 and 2019, the same store properties included properties owned atOctober 1, 2019 . Our same store properties for the three months endedDecember 31, 2020 and 2019 consisted of 28 properties, representing 9,958 units. For comparison of our twelve months endedDecember 31, 2020 and 2019, the same store properties included properties owned atJanuary 1, 2019 . Our same store properties for the twelve months endedDecember 31, 2020 and 2019 consisted of 24 properties, representing 8,459 units. Because of the limited number of same store properties as compared to the number of properties in our portfolio in 2020 and 2019, respectively, our same store performance measures may be of limited usefulness. The following table presents the same store and non-same store results from operations for the three months endedDecember 31, 2020 and 2019 (dollars in thousands): Three Months Ended December 31, Change 2020 2019 $ % Property Revenues Same Store$ 41,325 $ 41,092 $ 233 0.6 % Non-Same Store 8,485 4,708 3,777 80.2 % Total property revenues 49,810 45,800 4,010 8.8 % Property Expenses Same Store 15,779 15,609 170 1.1 % Non-Same Store 3,082 1,991 1,091 54.8 % Total property expenses 18,861 17,600 1,261 7.2 % Same Store NOI 25,546 25,483 63 0.2 % Non-Same Store NOI 5,403 2,717 2,686 98.9 % Total NOI(1)$ 30,949 $ 28,200 $ 2,749 9.7 %
See "Net Operating Income" below for a reconciliation of Same Store NOI, (1) Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
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The following table presents the same store and non-same store results from
operations for the years ended December 31, 2020 and 2019 (dollars in
thousands):
Year Ended
December 31, Change
2020 2019 $ %
Property Revenues
Same Store $ 142,199 $ 140,900 $ 1,299 0.9 %
Non-Same Store 54,323 44,476 9,847 22.1 %
Total property revenues 196,522 185,376 11,146 6.0 %
Property Expenses
Same Store 56,660 55,598 1,062 1.9 %
Non-Same Store 19,641 18,851 790 4.2 %
Total property expenses 76,301 74,449 1,852 2.5 %
Same Store NOI 85,539 85,302 237 0.3 %
Non-Same Store NOI 34,682 25,625 9,057 35.3 %
Total NOI(1) $ 120,221 $ 110,927 $ 9,294 8.4 %
See "Net Operating Income" below for a reconciliation of Same Store NOI, (1) Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
Three Months Ended
Same store NOI for the three months endedDecember 31, 2020 increased 0.2%, or$0.06 million , compared to the 2019 period. Same store property revenues increased 0.6%, or$0.2 million , as compared to the 2019 period, primarily attributable to a 140 basis point increase in occupancy and a 0.2% increase in average rental rates; of our twenty-eight same store properties, twenty-two recognized occupancy increases and fifteen recognized rental rate increases during the period. This increase in revenue was partially offset by a$0.3 million increase in bad debt expense due to the impact of COVID-19. Same store expenses for the three months endedDecember 31, 2020 increased 1.1%, or$0.2 million , compared to the 2019 period. The increase was primarily due to the timing of repairs and maintenance expense in 2020. Non-controllable expenses were essentially flat compared to the 2019 period; insurance expenses increased$0.16 million due to industrywide multifamily price increases offset by a$0.19 million decrease in real estate taxes. Real estate tax decrease was due to a$0.35 million credit in the current year offset by$0.16 million of municipality tax increases. Property revenues and property expenses for our non-same store properties increased due to our investment activity sinceOctober 1, 2019 : the acquisition of six properties in 2020 and the full period impact of four properties acquired in 2019, partially offset by the sale of four properties in 2020. The results of operations for acquired properties have been included in our consolidated statements of operations from the date of acquisition and the results of operations for disposed properties have been excluded from the consolidated statements of operations since the date of disposition.
Twelve Months Ended
Same store NOI for the twelve months endedDecember 31, 2020 increased 0.3%, or$0.2 million , compared to the 2019 period. Same store property revenues increased 0.9% as compared to the 2019 period, primarily attributable to a 90-basis point increase in average occupancy and a 1.2% increase in average rental rates; of our twenty-four same store properties, seventeen recognized occupancy increases and sixteen recognized rental rate increases during the period. The increases were partially offset by a$0.95 million increase in bad debt expense and$0.37 million less ancillary income, such as termination fees and late fees, due to the impact of COVID-19. Same store expenses for the twelve months endedDecember 31, 2020 increased 1.9%, or$1.06 million , compared to the 2019 period. The expense increase was primarily due to non-controllable expenses; insurance expenses increased$0.7 million due to industrywide multifamily price increases and real estate taxes increased$0.6 million from prior year due to municipality tax increases. 66
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The increases were partially offset by a$0.3 million decrease in discretionary expenses, such as seasonal maintenance, resident functions, and travel due to COVID-19. Property revenues and property expenses for our non-same store properties increased due to our investment activity sinceJanuary 1, 2019 : the acquisition of six properties in 2020 and the full period impact of eight properties acquired in 2019, partially offset by the sale of four properties in 2020 and the full period impact of six properties sold in 2019. The results of operations for acquired properties have been included in our consolidated statements of operations from the date of acquisition and the results of operations for disposed properties have been excluded from the consolidated statements of operations since the date of disposition.
Prior year's comparisons
For comparison of our three months endedDecember 31, 2019 and 2018, the same store properties included properties owned atOctober 1, 2018 . Our same store properties for the three months endedDecember 31, 2019 and 2018 consisted of 26 properties, representing 8,779 units. For comparison of our twelve months endedDecember 31, 2019 and 2018, the same store properties included properties owned atJanuary 1, 2018 . Our same store properties for the twelve months endedDecember 31, 2019 and 2018 consisted of 22 properties, representing 7,613 units. Because of the limited number of same store properties as compared to the number of properties in our portfolio in 2019 and 2018, respectively, our same store performance measures may be of limited usefulness. The following table presents the same store and non-same store results from operations for the three months endedDecember 31, 2019 and 2018 (dollars in thousands): Three Months Ended December 31, Change 2019 2018 $ % Property Revenues Same Store$ 36,319 $ 35,472 $ 847 2.4 % Non-Same Store 9,481 8,816 665 7.5 % Total property revenues 45,800 44,288 1,512 3.4 % Property Expenses Same Store 14,569 13,681 888 6.5 % Non-Same Store 3,031 3,812 (781) (20.5) % Total property expenses 17,600 17,493 107 0.6 % Same Store NOI 21,750 21,791 (41) (0.2) % Non-Same Store NOI 6,450 5,004 1,446 28.9 % Total NOI(1)$ 28,200 $ 26,795 $ 1,405 5.2 %
See "Net Operating Income" below for a reconciliation of Same Store NOI, (1) Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
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The following table presents the same store and non-same store results from
operations for the years ended December 31, 2019 and 2018 (dollars in
thousands):
Year Ended
December 31, Change
2019 2018 $ %
Property Revenues
Same Store $ 126,568 $ 120,770 $ 5,798 4.8 %
Non-Same Store 58,808 41,691 17,117 41.1 %
Total property revenues 185,376 162,461 22,915 14.1 %
Property Expenses
Same Store 51,012 49,340 1,672 3.4 %
Non-Same Store 23,437 18,657 4,780 25.6 %
Total property expenses 74,449 67,997 6,452 9.5 %
Same Store NOI 75,556 71,430 4,126 5.8 %
Non-Same Store NOI 35,371 23,034 12,337 53.6 %
Total NOI(1) $ 110,927 $ 94,464 $ 16,463 17.4 %
See "Net Operating Income" below for a reconciliation of Same Store NOI, (1) Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
Three Months Ended
Same store NOI for the three months endedDecember 31, 2019 decreased 0.2%, or$0.04 million , compared to the 2018 period. Same store property revenues increased 2.4% as compared to the 2018 period, primarily attributable to a 3.6% increase in average rental rates as twenty-four of our twenty-six same store properties recognized rental rate increases during the period. Revenues were moderated by a 120 basis points decrease in average occupancy to 93.6% primarily due to a loss of 27 corporate leases in one asset, and the transition of property management at three assets necessitated by performance issues. Occupancy at the above assets has recovered to 96.2% as of end ofJanuary 2020 . Same store expenses for the three months endedDecember 31, 2019 increased 6.5%, or$0.9 million , compared to the 2018 period, primarily due to non-controllable expense increases. Real estate taxes increased$0.6 million from prior year due to$0.3 million in municipality tax increases and to a$0.3 million real estate tax credit recognized in the prior year. In addition, insurance expenses increased$0.2 million due to industrywide multifamily price increases stemming from carrier losses over the past two years from hurricanes, wildfires, and hail. Property revenues for our non-same store properties increased due to the acquisition and disposition transactions in our portfolio sinceOctober 1, 2018 ; the 2019 non-same store property count was eight compared to seven properties for the 2018 period. Property expenses for our non-same store properties decreased primarily due to real estate taxes being lower on our acquired properties than the real estate taxes on our disposed properties. The results of operations for acquired properties have been included in our consolidated statements of operations from the date of acquisition and the results of operations for disposed properties have been excluded from the consolidated statements of operations since the date of disposition.
Twelve Months Ended
Same store NOI for the twelve months endedDecember 31, 2019 increased 5.8%, or$4.1 million , compared to the 2018 period. Same store property revenues increased 4.8% as compared to the 2018 period, primarily attributable to a 5.2% increase in average rental rates; all twenty-two same store properties recognized rental rate increases during the period. Average occupancy decreased 20 basis points to 94.1%. In addition, other revenue increased$0.4 million related to valet trash service and amenity fees.
Same store expenses for the twelve months ended
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stemming from carrier losses over the past two years from hurricanes, wildfires,
and hail. The remaining $0.7 million expense increase relates to increases of
$0.23 million in turnover, $0.22 million in repairs and maintenance, $0.16
million in trash valet costs, and $0.12 million in marketing.
Property revenues and property expenses for our non-same store properties
increased significantly due to the acquisition and disposition transactions in
our portfolio since January 1, 2018 ; the 2019 non-same store property count was
eighteen compared to eleven properties for the 2018 period. The results of
operations for acquired properties have been included in our consolidated
statements of operations from the date of acquisition and the results of
operations for disposed properties have been excluded from the consolidated
statements of operations since the date of disposition.
Net Operating Income
We believe that net operating income ("NOI") is a useful measure of our
operating performance. We define NOI as total property revenues less total
property operating expenses, excluding depreciation and amortization and
interest. Other REITs may use different methodologies for calculating NOI, and
accordingly, our NOI may not be comparable to other REITs. NOI also is a
computation made by analysts and investors to measure a real estate company's
operating performance.
We believe that this measure provides an operating perspective not immediately
apparent from GAAP operating income or net income. We use NOI to evaluate our
performance on a same store and non-same store basis; NOI allows us to evaluate
the operating performance of our properties because it measures the core
operations of property performance by excluding corporate level expenses and
other items not related to property operating performance and captures trends in
rental housing and property operating expenses.
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However, NOI should only be used as a supplemental measure of our financial performance. The following table reflects net loss attributable to common stockholders together with a reconciliation to NOI and to same store and non-same store contributions to consolidated NOI, as computed in accordance with GAAP for the periods presented (amounts in thousands):
Year Ended December 31,
2020 2019 2018
Net loss attributable to common stockholders
$ (42,759) Add back: Net loss attributable to Operating Partnership Units (17,313) (6,779)
(12,839)
Net loss attributable to common stockholders and unit holders (61,987) (26,530)
(55,598)
Add common stockholders and Operating Partnership Units pro-rata share of: Real estate depreciation and amortization 75,727 66,670
59,103
Non-real estate depreciation and amortization 486 448
301
Non-cash interest expense 3,025 3,174
3,757
Unrealized loss on derivatives 115 2,450
2,776
Loss on extinguishment of debt and debt modification costs 14,238 7,199 2,226 Provision for credit losses 16,369 - - Property management fees 4,751 4,645 4,151
Acquisition and pursuit costs 4,152 556
116
Corporate operating expenses 23,770 22,261
19,416
Weather-related losses, net - 313
280
Preferred dividends 58,463 46,159 35,637
Preferred stock accretion 16,851 10,335 5,970
Less common stockholders and Operating
Partnership units pro-rata share of:
Other income, net 74 68 -
Preferred returns on unconsolidated real estate
joint ventures 11,381 9,797 10,312
Interest income from mezzanine loan and ground lease investments 23,326 24,595
22,255
Gain on sale of real estate investments 56,777 48,172 - Gain on sale of non-depreciable real estate investments - 679 - Pro-rata share of properties' income 64,402 54,369
45,568
Add:
Noncontrolling interest pro-rata share of partially owned property income 3,074 2,810
2,629
Total property income 67,476 57,179 48,197
Add:
Interest expense 52,745 53,748 46,267
Net operating income 120,221 110,927 94,464
Less:Non-same store net operating income 34,682 25,625
23,034
Same store net operating income$ 85,539 $ 85,302
$ 71,430
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, both short- and long-term. Our primary short-term liquidity requirements historically have related to (a) our operating expenses and other general business needs, (b) distributions to our stockholders, (c) committed investments and capital requirements to fund development and renovations at existing properties, (d) ongoing commitments to repay borrowings, including our credit facilities and our maturing short-term debt, (e) the partial redemption of our Series A Preferred Stock, and (f) Class A common stock, Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock repurchases under our stock repurchase plans. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our short-term liquidity needs could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled "Risk Factors" and in the other reports we have filed with theSEC . We believe we currently have a stable financial condition; as ofDecember 31, 2020 , we collected 97% of rents from our multifamily properties for the three months endedDecember 31, 2020 . As ofJanuary 31, 2021 , we collected 97% of January rents from our multifamily properties. In addition, we have provided rent deferral payment plans as a result of hardships certain tenants 70
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experienced due to the COVID-19 impact, decreasing from 1% in the quarter endedJune 30, 2020 , to 0.2% in the quarter endedDecember 31, 2020 . Although we expect to continue to receive tenant requests for rent deferrals in the coming months, we do not expect to waive our contractual rights under our lease agreements. Further, while occupancy remains strong at 95.4% and 95.6% as ofDecember 31, 2020 andJanuary 31, 2021 , respectively, in future periods, we may experience reduced levels of tenant retention as well as reduced foot traffic and lease applications from prospective tenants as a result of COVID-19 impact. During the fourth quarter, we recorded a provision for credit losses of$16.4 million on our preferred equity, mezzanine loan and ground lease investments, of which$15.9 million relates to ourAlexan Southside Place preferred equity investment. Consistent with the overallHouston - Medical Center submarket,Alexan Southside Place lost significant value since the onset of the COVID-19 pandemic given the pandemic's impact on demand within the submarket. The provision for credit loss recorded on ourAlexan Southside Place investment is a result of this change in the submarket, its impact on the underlying operations of theAlexan Southside Place preferred equity investment, and the likelihood that the joint venture will sell before recovery. We believe the stabilized properties underlying our consolidated real estate investments are performing well with an occupancy of 95.4%, exclusive of our development properties, atDecember 31, 2020 . OnMay 17, 2018 , we filed, and onMay 23, 2018 , theSEC declared effective on Form S-3 (File No. 333-224990), a shelf registration statement that expires inMay 2021 (the "May 2018 Shelf Registration Statement"). The securities covered by theMay 2018 Shelf Registration Statement cannot exceed$2,500,000,000 in the aggregate and include common stock, preferred stock, depositary shares representing preferred stock, debt securities, warrants to purchase stock or debt securities and units. We may periodically offer one or more of these securities in amounts, prices and on terms to be announced when and if these securities are offered. The specifics of any future offerings, along with the use of proceeds of any securities offered, will be described in detail in a prospectus supplement, or other offering materials, at the time of the offering. OnOctober 31, 2019 , based on general market conditions and related considerations, our Board determined it to be in the best interest of us and our stockholders to replace the Series B Preferred Offering with an offering of up to 32,000,000 shares of a new Series T Redeemable Preferred Stock (the "Series T Preferred Stock"), with a maximum of 20,000,000 shares of Series T Redeemable Preferred Stock offered in the primary offering and an additional 12,000,000 shares of Series T Preferred Stock offered pursuant to a dividend reinvestment plan (collectively, the "Series T Preferred Offering"). OnNovember 13, 2019 , we filed a prospectus supplement to ourMay 2018 Shelf Registration Statement for the Series T Preferred Offering, and onDecember 20, 2019 , we made the initial issuance of Series T Preferred Stock pursuant to the Series T Preferred Offering. As ofDecember 31, 2020 , we have issued and outstanding 9,717,917 shares of Series T Preferred Stock. OnSeptember 13, 2019 , we and ourOperating Partnership entered into an At Market Issuance Sales Agreement (the "Class A Sales Agreement") withB. Riley FBR, Inc. ("FBR") as sales agent. OnNovember 20, 2019 , and again onDecember 18, 2019 , the Class A Sales Agreement was amended to addRobert W. Baird & Co. Incorporated ,Compass Point Research and Trading, LLC ,JMP Securities LLC andMorgan Stanley & Co. LLC with FBR (collectively, the "Sales Agents") as sales agents. Pursuant to the Class A Sales Agreement, the Sales Agents will act as distribution agents with respect to the offering and sale of up to$100,000,000 in shares of Class A common stock in "at the market offerings" as defined in Rule 415 under the Securities Act, including without limitation sales made directly on or through the NYSE American, or on any other existing trading market for Class A common stock or through a market maker (the "Class A ATM Offering"). We sold 166,873 shares of Class A common stock in 2020, for a total of 621,110 shares of Class A common stock through the Class A ATM Offering as ofDecember 31, 2020 . We have approximately$21.8 million of cash and$136.4 million of capacity on our credit facilities as ofJanuary 31, 2021 . AtDecember 31, 2020 , we were in compliance with all covenants under our credit facilities. We continue to communicate with our key lenders and believe access to capacity under our credit facilities will remain available for the uses set forth in their terms. As we did in 2020 and to date in 2021, we expect to maintain a proactive capital allocation process and selectively sell assets at appropriate cap rates, which would be expected to generate cash sources for both our short-term and long-term liquidity needs. Due to the uncertainty surrounding the COVID-19 impact, we had temporarily suspended interior renovations at several properties as part of assuming a more conservative posture; however, we have selectively restarted the program at various properties as we gained more visibility on the economic recovery nationally and within our specific markets. Our total stockholders' equity decreased$69.1 million from$127.5 million as ofDecember 31, 2019 to$58.4 million as ofDecember 31, 2020 . The decrease in our total stockholders' equity is primarily attributable to distributions declared of$74.0 million for the year endedDecember 31, 2020 , and repurchase of Class A common stock of$40.3 million , offset by net income attributable to 71
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common stockholders of
In general, we believe our available cash balances, the proceeds from the Series T Preferred Offering, the Senior and Junior Credit Facilities, the Fannie Facility (each as defined below), other financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. We expect that properties added to our portfolio with the proceeds from the Series T Preferred Offering and from the credit facilities will have a positive impact on our future results of operations. In general, we expect that our results related to our portfolio will improve in future periods as a result of anticipated future investments in and acquisitions of real estate. However, there can be no assurance that the worldwide economic disruptions arising from the COVID-19 pandemic will not cause conditions in the lending, capital and other financial markets to deteriorate, nor that our future revenues or access to capital and other sources of funding will not become constrained, which could reduce the amount of liquidity and credit available for use in acquiring and further diversifying our portfolio of multifamily assets. We cannot provide any assurances that we will be able to add properties to our portfolio at the anticipated pace, or at all.
We believe we will be able to meet our primary liquidity requirements going forward through:
?
?
? cash generated from operating activities; and
our continuous Series T Preferred Offering, proceeds from future borrowings and
? potential offerings, including potential offerings of common and preferred
stock through underwritten offerings, as well as issuances of units of limited
partnership interest in our
At the current time, we do not anticipate the need to establish any material contingency reserves related to the COVID-19 pandemic, other than the provision for credit loss referred to earlier, but continue to assess along with our network of business partners the possible need for such contingencies, whether at the corporate or property level. Our primary long-term liquidity requirements relate to (a) costs for additional apartment community investments, (b) repayment of long-term debt and our credit facilities, (c) capital expenditures, (d) cash redemption requirements related to our Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series T Preferred Stock, and (e) repurchases of Class A common stock, Series A Preferred Stock, Series C Preferred Stock and Series D Preferred Stock under our stock repurchase plans. InDecember 2019 , our Board authorized the repurchase of up to an aggregate of$50 million of our outstanding shares of Class A common stock over a period of one year pursuant to stock repurchase plans. OnMay 9, 2020 , our Board authorized the modification of the stock repurchase plans to provide for the repurchase, from time to time, of up to an aggregate of$50 million in shares of our Class A common stock, 8.250% Series A Cumulative Redeemable Preferred Stock,$0.01 par value per share ("Series A Preferred Stock"), 7.625% Series C Cumulative Redeemable Preferred Stock,$0.01 par value per share ("Series C Preferred Stock"), and/or 7.125% Series D Cumulative Preferred Stock,$0.01 par value per share ("Series D Preferred Stock"). OnOctober 29, 2020 , our Board authorized new stock repurchase plans for the repurchase, from time to time, of up to an aggregate of$75 million in shares of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock to be conducted in accordance with Rules 10b5-1 and 10b-18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). OnFebruary 9, 2021 , our Board authorized the modification of the stock repurchase plans to provide for the repurchase, from time to time, of up to an aggregate of$150 million in shares of our Class A common stock, Series C Preferred Stock and/or Series D Preferred Stock. The repurchase plans will terminate at the close of the NYSE American trading day on which we file our Form 10-Q with theSEC for the quarter endedSeptember 30, 2021 . The extent to which we repurchase shares of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock, and/or Series D Preferred Stock under the repurchase plans, and the timing of any such repurchases, depends on a variety of factors including general business and market conditions and other corporate considerations. Stock repurchases under the repurchase plans may be made in the open market or through privately negotiated transactions, subject to certain price limitations and other conditions established under the plans. Open market repurchases will be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act. 72
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During the year endedDecember 31, 2020 , we repurchased shares under the repurchase plans as follows: 3,983,842 shares of Class A common stock, 163,068 shares of Series A Preferred Stock, 27,905 shares of Series C Preferred Stock and 76,264 shares of Series D Preferred Stock for a total purchase price of approximately$46.4 million . During the year endedDecember 31, 2019 , we repurchased 1,313,328 shares of Class A common stock under the repurchase plans for a total purchase price of approximately$14.1 million . During the life of all repurchase plans, the total purchase price of shares we repurchased is approximately$69.5 million , and as ofDecember 31, 2020 , the value of shares that may yet be purchased under the repurchase plans is$56.1 million . We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, including our continuous Series T Preferred Offering, our credit facilities, as well as future borrowings. Our success in meeting these requirements will therefore depend upon our ability to access capital. Further, our ability to access equity capital is dependent upon, among other things, general market conditions for REITs and the capital markets generally, market perceptions about us and our asset class, and current trading prices of our securities , all of which may continue to be adversely impacted by COVID-19 pandemic. As we did in 2020 and 2019, we may also selectively sell assets at appropriate times, which would be expected to generate cash sources for both our short-term and long-term liquidity needs. We may also meet our long-term liquidity needs through borrowings from a number of sources, either at the corporate or project level. We believe the Amended Senior and Second Amended Junior Credit Facilities, as well as the Fannie Facility, will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base. We expect the combination of these facilities to provide us flexibility by allowing us, among other things, to use borrowings under our Amended Senior and Second Amended Junior Credit Facilities to acquire properties pending placement of permanent mortgage indebtedness, including under the Fannie Facility. In addition to restrictive covenants, these credit facilities contain material financial covenants. AtDecember 31, 2020 , we were in compliance with all covenants under our credit facilities. We will continue to monitor the debt markets, including Fannie Mae and Freddie Mac, and as market conditions permit, access borrowings that are advantageous to us. We intend to continue to use prudent amounts of leverage in making our investments, which we define as having total indebtedness of approximately 65% of the fair market value of the properties in which we have invested. For purposes of calculating our leverage, we assume full consolidation of all of our real estate investments, whether or not they would be consolidated under GAAP, include assets we have classified as held for sale, and include any joint venture level indebtedness in our total indebtedness. 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 we currently anticipate. We expect our leverage to decline commensurately as we execute our business plan to grow our net asset value. If we are unable to obtain financing on favorable terms or at all, we would likely need to curtail our investment activities, including acquisitions and improvements to and developments of, real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We also may be forced to dispose of assets at inopportune times in order to maintain our REIT qualification and Investment Company Act exemption. We expect to maintain distributions paid to our Series A Preferred Stock, our Series B Preferred Stock, our Series C Preferred Stock, our Series D Preferred Stock and our Series T Preferred Stock in accordance with the terms of those securities which require monthly or quarterly dividends depending on the series. While our policy is generally to pay distributions from cash flow from operations, our distributions throughDecember 31, 2020 have been paid from cash flow from operations, proceeds from our continuous preferred stock offerings, including our Series T Preferred Stock, proceeds from underwritten securities offerings, and sales of assets and may in the future be paid from additional sources, such as from borrowings. We have notes receivable in conjunction with properties that are in various stages of development, in lease-up and operating. To date, these investments have been structured as mezzanine loans, and in the future, we may also provide mortgage financing to these types of projects. The notes receivable provide a current stated return, and in certain cases, an accrued return, and required repayment based on a fixed maturity date, generally in relation to the property's construction loan or mortgage loan maturity. If the property does not repay the notes receivable upon maturity, our income, FFO, CFFO and cash flows could be reduced below the stated returns currently being recognized if the property does not produce sufficient cash flow to pay its operating expenses and debt service, or to refinance its debt obligations. In addition, we have, in certain cases, an option to purchase up to 100% of the common interest which holds an interest in the entity that owns the property. If we were to convert into common ownership, our income, FFO, CFFO 73
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and cash flows would be reflective of our pro rata share of the property's results, which could be a reduction from what our notes receivable currently generate.
We also have preferred membership interests in properties that are in various stages of development, in lease-up and operating. Our preferred equity investments are structured to provide a current preferred return, and in some cases an accrued return, during all phases. Each joint venture in which we own a preferred membership interest is required to redeem our preferred membership interests, plus any accrued but unpaid preferred return, based on a fixed maturity date, generally in relation to the property's construction loan or mortgage loan maturity. Upon redemption of the preferred membership interests, our income, FFO, CFFO and cash flows could be reduced below the preferred returns currently being recognized. Alternatively, if the joint ventures do not redeem our preferred membership interest when required, our income, FFO, CFFO and cash flows could be reduced if the property does not produce sufficient cash flow to pay its operating expenses, debt service and preferred return obligations. As we evaluate our capital position and capital allocation strategy, we may consider alternative means of financing the loan and preferred equity investment activities at the subsidiary level.
Cash Flows
Year ended
As ofDecember 31, 2020 , we owned interests in fifty-nine real estate properties, thirty-seven consolidated operating properties and twenty-two through preferred equity, mezzanine loan and ground lease investments. During the year endedDecember 31, 2020 , net cash provided by operating activities was$74.5 million after net income of$14.7 million was adjusted for the following:
? Non-cash items of
? an increase in accounts payable, accrued liabilities and distributions of
million;
? an increase in loss on early extinguishment of debt of
? an increase in due to affiliates of
? distributions and preferred returns from unconsolidated joint ventures of
million; offset by
? an increase in accounts receivable, prepaid expenses and other assets of
million.
Cash Flows from Investing Activities
During the year ended
?
?
?
and notes receivable;
?
?
?
real estate investments; and
?$50.7 million proceeds from sale of unconsolidated real estate real estate joint ventures. 74 Table of Contents
Cash Flows from Financing Activities
During the year ended
? borrowings of
? proceeds of
? net proceeds of
? net proceeds of
? net proceeds of
Stock;
?
? partially offset by
?
?
?
?
?
?
?
?
Preferred Stock; and
?
Operating Activities
Net cash flow provided by operating activities increased
? Net increase in net due to affiliates of
? Increase of
? Increase in net distributions of income and preferred returns from preferred
equity investments of
? Increase in accounts payable and other accrued liabilities of
? Decrease in notes and accrued interest receivable of
? Operating income, adjusted for non-cash activity, decreased
result of our acquisitions (net of dispositions); and
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? An increase in accounts receivable, prepaid expenses and other assets of
million. Investing Activities
Net cash used in investing activities decreased
? Acquisition of real estate investments and capital expenditures decreased
? Decrease in investment in notes receivable of
? Lower investments in unconsolidated real estate joint ventures interests of
? Increased repayments on notes receivable from related parties of
? Higher proceeds from sale and redemption of unconsolidated real estate joint
ventures of
? Lower purchases from noncontrolling interests of
? Lower proceeds from sales of real estate investments of
Financing Activities
Cash flows from financing activities were$20.7 million in 2020 as compared to$245.8 million in 2019. This decrease of$225.1 million is primarily explained by:
? A decrease in net mortgage borrowings of
? An increase in distributions paid of
? A decrease in contributions from noncontrolling interests of
? An increase in redemption of Series A Preferred Stock of
? An increase in the repurchase of Series A, Series C and Series D Preferred
Stock of
? An increase in Class A common stock repurchases of
? A decrease in the Series B preferred stock continuous offering of
million;
? A decrease in Class A common stock offering of
? A decrease in net proceeds of
? A decrease in deferred financing costs of
? An increase in revolving credit facility borrowings of
? An increase in the Series T Preferred Stock continuous offering of$217.0 million . 76 Table of Contents Capital Expenditures
The following table summarizes our total capital expenditures incurred for
the years ended
2020 2019 2018
Redevelopment/renovations $ 10,164 $ 13,124 $ 16,095
Normally recurring capital expenditures 3,093 3,209 2,716
Routine capital expenditures 3,869 4,229 3,215
Total capital expenditures $ 17,126 $ 20,562 $ 22,026
Redevelopment and renovation costs are non-recurring capital expenditures for
significant projects that are revenue enhancing through unit or common area
upgrades, such as clubhouse renovations and kitchen remodels. Routine capital
expenditures are necessary non-revenue generating improvements that extend the
useful life of the property and that are less frequent in nature, such as roof
repairs and asphalt resurfacing. Normally recurring capital expenditures are
necessary non-revenue generating improvements that occur on a regular ongoing
basis, such as carpet and appliances.
Funds from Operations and Core Funds from Operations Attributable to Common Stockholders and Unit Holders
We believe that funds from operations ("FFO"), as defined by the National
Association of Real Estate Investment Trusts ("NAREIT"), and core funds from
operations ("CFFO") are important non-GAAP supplemental measures of operating
performance for a REIT.
FFO attributable to common stockholders and unit holders is a non-GAAP financial
measure that is widely recognized as a measure of REIT operating performance. We
consider FFO to be an appropriate supplemental measure of our operating
performance as it is based on a net income analysis of property portfolio
performance that excludes non-cash items such as depreciation. The historical
accounting convention used for real estate assets requires straight-line
depreciation of buildings and improvements, which implies that the value of real
estate assets diminishes predictably over time. Since real estate values
historically rise and fall with market conditions, presentations of operating
results for a REIT, using historical accounting for depreciation, could be less
informative. We define FFO, consistent with the NAREIT definition, as net income
(loss), computed in accordance with GAAP, excluding gains or losses on sales of
depreciable real estate property, plus depreciation and amortization of real
estate assets, plus impairment write-downs of certain real estate assets and
investments in entities where the impairment is directly attributable to
decreases in the value of depreciable real estate held by the entity, and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
notes receivable, unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis.
CFFO makes certain adjustments to FFO, removing the effect of items that do not
reflect ongoing property operations such as acquisition expenses, non-cash
interest, unrealized gains or losses on derivatives, losses on extinguishment of
debt and debt modification costs (includes prepayment penalties incurred and the
write-off of unamortized deferred financing costs and fair market value
adjustments of assumed debt), one-time weather-related costs, gains or losses on
sales of non-depreciable real estate property, shareholder activism, stock
compensation expense and preferred stock accretion. Commencing January 1, 2020 ,
we did not deduct the accrued portion of the preferred income on our preferred
equity investments from FFO to determine CFFO as the income is deemed fully
collectible. The accrued portion of the preferred income totaled $0.3 million
and $1.5 million for the three and twelve months ended December 31, 2020 ,
respectively. We believe that CFFO is helpful to investors as a supplemental
performance measure because it excludes the effects of certain items which can
create significant earnings volatility, but which do not directly relate to our
core recurring property operations. As a result, we believe that CFFO can help
facilitate comparisons of operating performance between periods and provides a
more meaningful predictor of future earnings potential.
Our calculation of CFFO differs from the methodology used for calculating CFFO
by certain other REITs and, accordingly, our CFFO may not be comparable to CFFO
reported by other REITs. Our management utilizes FFO and CFFO as measures of our
operating performance after adjustment for certain non-cash items, such as
depreciation and amortization expenses, and acquisition and pursuit costs that
are required by GAAP to be expensed but may not necessarily be indicative of
current operating performance and that may not accurately compare our operating
performance between periods. Furthermore, although FFO and CFFO and other
supplemental performance measures are defined in various ways throughout the
REIT industry, we also believe that FFO and CFFO may provide us and our
stockholders with an additional useful measure to compare our financial
performance to certain other REITs.
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Neither FFO nor CFFO is equivalent to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity. We have acquired six operating properties, made eight investments through mezzanine loan, preferred equity interest or ground lease investments, sold six operating properties and received our full mezzanine loan or preferred equity in three investments subsequent toDecember 31, 2019 . As ofDecember 31, 2019 , we had acquired seven operating properties, made six investments through mezzanine loan or preferred equity interests, and sold seven operating properties subsequent toDecember 31, 2018 . The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.
The table below presents our calculation of FFO and CFFO for the years ended
2020 2019 2018
Net loss attributable to common stockholders $ (44,674) $ (19,751) $ (42,759)
Add back: Net loss attributable to Operating
Partnership Units (17,313) (6,779) (12,839)
Net loss attributable to common stockholders and
unit holders (61,987) (26,530) (55,598)
Common stockholders and Operating Partnership
Units pro-rata share of:
Real estate depreciation and amortization(1) 75,727 66,670 59,103
Provision for credit losses 16,369 - -
Gain on sale of real estate investments (56,777) (48,172) -
FFO attributable to Common Stockholders and Unit
Holders (26,668) (8,032) 3,505
Common stockholders and Operating Partnership
Units pro-rata share of:
Acquisition and pursuit costs 4,152 556 116
Non-cash interest expense 3,025 3,174 3,757
Unrealized loss on derivatives 115 2,450 2,776
Loss on extinguishment of debt and debt
modification costs 14,238 7,199 2,226
Weather-related losses, net - 313 280
Non-real estate depreciation and amortization 486 448 301
Gain on sale of non-depreciable real estate
investments - (679) -
Shareholder activism - 393 -
Other income, net (400) (68) -
Non-cash preferred returns on unconsolidated real
estate joint ventures - (1,291) (980)
Non-cash equity compensation 11,917 10,615 6,807
Preferred stock accretion 16,851 10,335 5,970
CFFO Attributable to Common Stockholders and Unit
Holders $ 23,716 $
25,413
Per Share and Unit Information: FFO attributable to Common Stockholders and Unit Holders - diluted$ (0.81) $ (0.26) $ 0.11 CFFO attributable to Common Stockholders and Unit Holders - diluted$ 0.72 $ 0.82 $ 0.80 Weighted average common shares and units outstanding - diluted 33,116,871
30,899,927 30,995,249
The real estate depreciation and amortization amount includes our share of
consolidated real estate-related depreciation and amortization of (1) intangibles, less amounts attributable to noncontrolling interests for
partially owned properties, and our similar estimated share of unconsolidated
depreciation and amortization, which is included in earnings of our
unconsolidated real estate joint venture investments.
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Operating cash flow, FFO and CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO.
Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful. FFO or CFFO should not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and CFFO should be reviewed in connection with other GAAP measurements. Contractual Obligations The following table summarizes our contractual obligations as ofDecember 31, 2020 which consisted of mortgage notes secured by our properties and revolving credit facilities. AtDecember 31, 2020 , our estimated future required payments on these obligations were as follows (amounts in thousands): Less than Total one year 2022-2023 2024-2025 Thereafter Mortgages Payable (Principal)$ 1,534,643 $ 86,214 $ 142,688 $ 645,000 $ 660,741 Revolving Credit Facilities (Principal) 33,000 - 33,000 - - Estimated Interest Payments on Mortgages Payable and Revolving Credit Facilities 307,502 53,243 102,467 76,499 75,293 Total$ 1,875,145 $ 139,457 $ 278,155 $ 721,499 $ 736,034 Estimated interest payments are based on the stated rates for mortgage notes payable and revolving credit facility assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates. 79 Table of Contents Distributions Payable to stockholders Date Declaration Date of record as of Amount Paid or Payable Class A Common Stock December 6, 2019 December 24, 2019$ 0.162500 January 3, 2020 March 13, 2020 March 25, 2020$ 0.162500 April 3, 2020 May 9, 2020 June 25, 2020$ 0.162500 July 2, 2020 September 11, 2020 September 25, 2020$ 0.162500 October 5, 2020 December 11, 2020 December 24, 2020$ 0.162500 January 5, 2021 ClassC Common Stock December 6, 2019 December 24, 2019$ 0.162500 January 3, 2020 March 13, 2020 March 25, 2020$ 0.162500 April 3, 2020 May 9, 2020 June 25, 2020$ 0.162500 July 2, 2020 September 11, 2020 September 25, 2020$ 0.162500 October 5, 2020 December 11, 2020 December 24, 2020$ 0.162500 January 5, 2021 Series A Preferred Stock December 6, 2019 December 24, 2019$ 0.515625 January 3, 2020 March 13, 2020 March 25, 2020$ 0.515625 April 3, 2020 May 9, 2020 June 25, 2020$ 0.515625 July 2, 2020 September 11, 2020 September 25, 2020$ 0.515625 October 5, 2020 September 21, 2020(1) October 21, 2020$ 0.120313 October 21, 2020 November 19, 2020 (1) December 21, 2020$ 0.464063 December 21, 2020 December 11, 2020 December 24, 2020$ 0.515625 January 5, 2021 Series B Preferred Stock (2) October 31, 2019 December 24, 2019$ 5.00 January 3, 2020 January 13, 2020 January 24, 2020$ 5.00 February 5, 2020 January 13, 2020 February 25, 2020$ 5.00 March 5, 2020 January 13, 2020 March 25, 2020$ 5.00 April 3, 2020 April 14, 2020 April 24, 2020$ 5.00 May 5, 2020 May 9, 2020 May 22, 2020$ 5.00 June 5, 2020 May 9, 2020 June 25, 2020$ 5.00 July 2, 2020 July 10, 2020 July 24, 2020$ 5.00 August 5, 2020 July 10, 2020 August 25, 2020$ 5.00 September 4, 2020 July 10, 2020 September 25, 2020$ 5.00 October 5, 2020 October 9, 2020 October 23, 2020$ 5.00 November 5, 2020 October 9, 2020 November 25, 2020$ 5.00 December 4, 2020 October 9, 2020 December 24, 2020$ 5.00 January 5, 2021 Series C Preferred Stock December 6, 2019 December 24, 2019$ 0.4765625 January 3, 2020 March 13, 2020 March 25, 2020$ 0.4765625 April 3, 2020 May 9, 2020 June 25, 2020$ 0.4765625 July 2, 2020 September 11, 2020 September 25, 2020$ 0.4765625 October 5, 2020 December 11, 2020 December 24, 2020$ 0.4765625 January 5, 2021 Series D Preferred Stock December 6, 2019 December 24, 2019$ 0.4453125 January 3, 2020 March 13, 2020 March 25, 2020$ 0.4453125 April 3, 2020 May 9, 2020 June 25, 2020$ 0.4453125 July 2, 2020 September 11, 2020 September 25, 2020$ 0.4453125 October 5, 2020 December 11, 2020 December 24, 2020$ 0.4453125 January 5, 2021 Series T Preferred Stock(2) December 20, 2019 December 24, 2019$ 0.128125 January 3, 2020 January 13, 2020 January 24, 2020$ 0.128125 February 5, 2020 January 13, 2020 February 25, 2020$ 0.128125 March 5, 2020 January 13, 2020 March 25, 2020$ 0.128125 April 3, 2020 April 14, 2020 April 24, 2020$ 0.128125 May 5, 2020 May 9, 2020 May 22, 2020$ 0.128125 June 5, 2020 May 9, 2020 June 25, 2020$ 0.128125 July 2, 2020 July 10, 2020 July 24, 2020$ 0.128125 August 5, 2020 July 10, 2020 August 25, 2020$ 0.128125 September 4, 2020 July 10, 2020 September 25, 2020$ 0.128125 October 5, 2020 October 9, 2020 October 23, 2020$ 0.128125 November 5, 2020 October 9, 2020 November 25, 2020$ 0.128125 December 4, 2020 October 9, 2020 December 24, 2020$ 0.128125 January 5, 2021 December 11, 2020(3) December 24, 2020$ 0.05 December 29, 2020
(1) This dividend was paid on the date indicated to shareholders in conjunction
with the redemption of Series A preferred shares.
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Shares of Series B Preferred Stock issued on or after
all newly-issued shares of Series T Preferred Stock that are held only a (2) portion of the applicable monthly dividend period will receive a prorated
monthly dividend based on the actual number of days in the applicable
dividend period during which each such share of Series B Preferred Stock or
Series T Preferred Stock was outstanding.
The Board authorized, and the Company declared, an annual Series T Preferred
Stock dividend of 0.20% per share of Series T Preferred Stock. Shares of
Series T Preferred Stock that are held only for a portion of the applicable (3) annual stock dividend period will receive a prorated Series T Preferred Stock
dividend based on the actual number of months in the applicable annual stock
dividend period during which each such share of Series T Preferred Stock was
outstanding. The annual stock dividend equates to
Preferred Stock.
A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that we will continue to declare dividends or at this rate. Holders of OP Units and LTIP Units are entitled to receive "distribution equivalents" at the same time as dividends are paid to holders of our Class A common stock. We have a dividend reinvestment plan that allows for participating stockholders to have their Class A common stock dividend distributions automatically reinvested in additional Class A common shares based on the average price of the Class A common shares on the investment date. We plan to issue Class A common shares to cover shares required for investment. We also have a dividend reinvestment plan that allows for participating stockholders to have their Series T Preferred Stock dividend distributions automatically reinvested in additional shares of Series T Preferred Stock at a price of$25.00 per share. We plan to issue shares of Series T Preferred Stock to cover shares required for investment. Our Board will determine the amount of dividends to be paid to our stockholders. The determination of our Board will be based on several factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status under the Internal Revenue Code. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our "REIT taxable income" each year. While our policy is generally to pay distributions from cash flow from operations, we may declare distributions in excess of funds from operations. 81 Table of Contents Distributions for the year endedDecember 31, 2020 were as follows (amounts in thousands): Distributions 2020 Declared Paid First Quarter Class A Common Stock$ 3,901 $ 3,816 Class C Common Stock 12 12 Series A Preferred Stock 2,950 2,950 Series B Preferred Stock 7,848 7,867 Series C Preferred Stock 1,107 1,107 Series D Preferred Stock 1,269 1,269 Series T Preferred Stock 373 130 OP Units 1,037 1,037 LTIP Units 554 347 Total first quarter 2020$ 19,051 $ 18,535 Second Quarter Class A Common Stock$ 3,995 $ 3,902 Class C Common Stock 12 12 Series A Preferred Stock 2,880 2,950 Series B Preferred Stock 7,766 7,779 Series C Preferred Stock 1,103 1,107 Series D Preferred Stock 1,245 1,269 Series T Preferred Stock 1,243 1,000 OP Units 1,026 1,038 LTIP Units 635 407 Total second quarter 2020$ 19,905 $ 19,464 Third Quarter Class A Common Stock$ 4,012 $ 3,994 Class C Common Stock 12 12 Series A Preferred Stock 2,866 2,880 Series B Preferred Stock 7,745 7,751 Series C Preferred Stock 1,094 1,102 Series D Preferred Stock 1,236 1,245 Series T Preferred Stock 2,062 1,738 OP Units 1,026 1,027 LTIP Units 649 487 Total third quarter 2020$ 20,702 $ 20,236 Distributions 2020 Declared Paid Fourth Quarter Class A Common Stock$ 3,630 $ 4,011 Class C Common Stock 12 12 Series A Preferred Stock 2,214 3,944 Series B Preferred Stock 7,717 7,729 Series C Preferred Stock 1,094 1,094 Series D Preferred Stock 1,236 1,235 Series T Preferred Stock 3,415 3,037 OP Units 1,026 1,027 LTIP Units 658 500 Total fourth quarter 2020$ 21,002 $ 22,589 Total$ 80,660 $ 80,824 82 Table of Contents Declaration of Dividends Payable to stockholders Paid / Declaration Date of record as of Amount Payable Date Series B Preferred Stock January 13, 2021 January 25, 2021$ 5.00 February 5, 2021 January 13, 2021 February 25, 2021$ 5.00 March 5, 2021 January 13, 2021 March 25, 2021$ 5.00 April 5, 2021 Series T Preferred Stock(1) January 13, 2021 January 25, 2021$ 0.128125 February 5, 2021 January 13, 2021 February 25, 2021$ 0.128125 March 5, 2021 January 13, 2021 March 25, 2021$ 0.128125 April 5, 2021
Shares of newly-issued Series T Preferred Stock and held only a portion of
the applicable monthly dividend period will receive a prorated monthly (1) Series T Preferred Stock dividend based on the actual number of days in the
applicable dividend period during which each such share of Series T Preferred
Stock was outstanding.
Critical Accounting Policies
Below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain.
Principles of Consolidation and Basis of Presentation
Our consolidated financial statements include our accounts and the accounts of
other subsidiaries over which we have control. All inter-company transactions,
balances, and profits have been eliminated in consolidation. Interests in
entities acquired will be evaluated based on applicable GAAP, which includes the
requirement to consolidate entities deemed to be variable interest entities
("VIE"). VIEs in which we are the primary beneficiary. If the entity in which we
hold an interest is determined not to be a VIE, then the entity will be
evaluated for consolidation based on legal form, economic substance, and the
extent to which we have control and/or substantive participating rights under
the respective ownership agreement.
There are judgments and estimates involved in determining if an entity in which
we have made an investment is a VIE and, if so, whether we are the primary
beneficiary. The entity is evaluated to determine if it is a VIE by, among other
things, calculating the percentage of equity being risked compared to the total
equity of the entity. A change in the judgments, assumptions, and estimates used
could result in consolidating an entity that should not be consolidated or
accounting for an investment using the equity method that should in fact be
consolidated, the effects of which could be material to our financial
statements.
Real Estate Asset Acquisition and Valuation
Upon the acquisition of real estate properties which do not constitute the
definition of a business, we recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest as of the acquisition date, measured at
their relative fair values. Acquisition-related costs are capitalized in the
period incurred and are recorded to the components of the real estate assets
acquired. We assess the acquisition-date fair values of all tangible assets,
identifiable intangible assets and assumed liabilities using methods similar to
those used by independent appraisers (e.g., discounted cash flow analysis) and
that utilize appropriate discount and/or capitalization rates and available
market information. Estimates of future cash flows are based on several factors
including historical operating results, known and anticipated trends, and market
and economic conditions. The fair value of tangible assets of an acquired
property considers the value of the property as if it was vacant.
Intangible assets include the value of in-place leases, which represents the
estimated fair value of the net cash flows of leases in place at the time of
acquisition, as compared to the net cash flows that would have occurred had the
property been vacant at the time of acquisition and subject to lease-up. We
amortize the value of in-place leases to expense over the remaining
non-cancelable term of the respective leases, which on average is six months.
Should a tenant terminate its lease, the unamortized portion of the in-place
lease value and customer relationship intangibles would be charged to expense in
that period.
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Estimates of the fair values of the tangible assets, identifiable intangible
assets and assumed liabilities require us to make significant assumptions to
estimate market lease rates, property operating expenses, carrying costs during
lease-up periods, discount rates, market absorption periods, prevailing interest
rates and the number of years the property will be held for investment. The use
of inappropriate assumptions could result in an incorrect valuation of acquired
tangible assets, identifiable intangible assets and assumed liabilities, which
could impact the amount of our net income (loss). Differences in the amount
attributed to the fair value estimate of the various assets acquired can be
significant based on the assumptions made in calculating these estimates.
Revenue Recognition
We recognize rental revenue on a straight-line basis over the terms of the rental agreements and in accordance with ASC Topic 842 Leases. Rental revenue is recognized on an accrual basis and when the collectability of the amounts due from tenants is deemed probable. Rental revenue is included within rental and other property revenues on our consolidated statements of operations. Amounts received in advance are recorded as a liability within other accrued liabilities on our consolidated balance sheets.
Other property revenues are recognized in the period earned.
We recognize a gain or loss on the sale of real estate assets when the criteria for an asset to be derecognized are met, which include when (i) a contract exists and (ii) the buyer obtains control.
Preferred Equity Investments and Investments in
We analyze an investment to determine if it is a variable interest entity (a "VIE") in accordance with Topic ASC 810 and, if so, whether we are the primary beneficiary requiring consolidation. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity's economic performance and the obligation to absorb losses of the entity or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE's net assets. We continuously re-assess at each level of the investment whether the entity is (i) a VIE, and (ii) if we are the primary beneficiary of the VIE. If it was determined that the entity in which we hold an interest qualified as a VIE and we were the primary beneficiary, the entity would be consolidated. If after consideration of the VIE accounting literature, we have determined that an entity is not a VIE, we assess the need for consolidation under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities where majority voting interest held by us provides control, or through determination of control by virtue of us being the general partner in a limited partnership or the controlling member of a limited liability company. In assessing whether we are in control of and requiring consolidation of the limited liability company and partnership venture structures we evaluate the respective rights and privileges afforded each member or partner (collectively referred to as "member"). Our member would not be deemed to control the entity if any of the other members have either (i) substantive kickout rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) has substantive participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be made in the ordinary course business. If it has been determined that we do not have control but do have the ability to exercise significant influence over the entity, we account for these investments as preferred equity investments and investments in unconsolidated real estate joint ventures in our consolidated balance sheets. In accordance with ASC 320 Investments -Debt Securities , we classify each preferred equity investment as a held to maturity debt security as we have the intention and ability to hold the investment to maturity. We earn a fixed return on these investments which is included within preferred returns on unconsolidated real estate joint ventures in our consolidated statements of operations. We evaluate the collectability of each preferred equity investment and estimates a provision for credit loss, as applicable. Refer to the Current Expected Credit Losses ("CECL") section below for further information regarding CECL and our provision for credit losses.
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Mezzanine Loan Investments
We analyze each loan arrangement that involves real estate development to
consider whether the loan qualifies for accounting as a loan or as an investment
in a real estate development project. We have evaluated our real estate loans,
where appropriate, for accounting treatment as loans versus real estate
development projects, as required by ASC 310-10 Receivables. For each loan, we
have concluded that the characteristics and the facts and circumstances indicate
that loan accounting treatment is appropriate. We recognize interest income on
our notes receivable on the accrual method unless a significant uncertainty of
collection exists. If a significant uncertainty exists, interest income is
recognized as collected. Costs incurred to originate our notes receivable are
deferred and amortized using the effective interest method over the term of the
related notes receivable. We evaluate the collectability of each mezzanine loan
investment and estimate a provision for credit loss, as applicable. Refer to
CECL section below for further information regarding CECL and our provision for
credit losses.
Current Expected Credit Losses ("CECL")
We estimate provision for credit losses on our mezzanine loan and preferred equity investments under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. The method for calculating the estimate of expected credit loss takes into account historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future. We estimate our provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, we apply a default rate to the investments for the remaining mezzanine loan or preferred equity investment hold period. As we do not have a significant historical population of loss data on our mezzanine loans and preferred equity investments, our default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans. In addition to analyzing investments as a pool, we perform an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or we expect repayment through the sale of the collateral, we calculate expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if we determine that it is probable that we will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that mezzanine loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded. In estimating the value of the underlying collateral when determining if a mezzanine loan or preferred equity investment is fully recoverable, we evaluate estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon our evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition. We may also obtain a third-party valuation which may value the collateral through an "as-is" or "stabilized value" methodology. If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, we record a provision for credit loss on that mezzanine loan or preferred equity investment. As the investment no longer displays the characteristics that are similar to those of the pool of mezzanine loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above. Our significant accounting policies are more fully described in Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," to our Notes to the Consolidated Financial Statements. Certain of our accounting policies require management to make estimates and judgments regarding uncertainties that may affect the reported amounts presented and disclosed in our consolidated financial statements. These estimates and judgments are affected by management's application of accounting policies. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. We base these estimates on historical experience and various other factors that are believed to be reasonable, the results of which form the basis for making judgments under the circumstances. Due to the inherent uncertainty involved in making these estimates, actual results reported may differ from these estimates under different situations or conditions. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. We consider an accounting estimate to be significant if it requires us to make assumptions
about matters that were
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uncertain at the time the estimate was made and changes in the estimate would
have had a significant impact on our consolidated financial position or results
of operations.
Off-Balance Sheet Arrangements
As ofDecember 31, 2020 , we have off-balance sheet arrangements that may have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures. As ofDecember 31, 2020 , we own interests in eleven joint ventures that are accounted for as held to maturity debt securities or loans as we exercise significant influence over, but do not control, the investee.
New Accounting Pronouncements
See Note 2, "Basis of Presentation and Summary of Significant Accounting Policies," to our Notes to the Consolidated Financial Statements for a description of accounting pronouncements. We do not believe these new pronouncements will have a significant impact on our Consolidated Financial Statements, cash flows or results of operations.
Subsequent Events
Issuance of LTIP Units under the Fourth Amended 2014 Incentive Plans
OnJanuary 1, 2021 , we granted certain equity grants of LTIP Units of ourOperating Partnership to various executive officers under the Fourth Amended 2014 Incentive Plans. These awards were issued pursuant to the executive officers' employment and service agreements as time-based LTIP Units and performance-based LTIP Units. All such LTIP Unit grants require continuous employment for vesting. Time-based LTIP Units were comprised of an aggregate of 277,001 LTIP Units that vest over approximately three years. Performance-based LTIP Units were comprised of an aggregate of 554,003 LTIP Units, are subject to a three-year performance period, and will thereafter vest upon successful achievement of performance-based conditions. In addition, onJanuary 1, 2021 , we granted 7,381 LTIP Units pursuant to the Fourth Amended 2014 Incentive Plans to each independent member of the Board in payment of the equity portion of their respective annual retainers. The LTIP Units vested immediately upon issuance.
Distributions Declared
OnJanuary 13, 2021 , our Board authorized, and we declared monthly dividends for the first quarter of 2021 equal to a monthly rate of$5.00 per share on our Series B Preferred Stock, payable monthly to the stockholders of record as ofJanuary 25, 2021 ,February 25, 2021 andMarch 25, 2021 , which was paid in cash onFebruary 5, 2021 , and which will be paid in cash onMarch 5, 2021 andApril 5, 2021 , respectively. OnJanuary 13, 2021 , our Board authorized, and we declared monthly dividends for the first quarter of 2021 equal to a monthly rate of$0.128125 per share on our Series T Preferred Stock, payable monthly to the stockholders of record as ofJanuary 25, 2021 ,February 25, 2021 andMarch 25, 2021 , which was paid in cash onFebruary 5, 2021 , and which will be paid in cash onMarch 5, 2021 andApril 5, 2021 , respectively. Newly-issued shares of Series T Preferred Stock held for only a portion of the applicable monthly dividend period will receive a prorated Series T Preferred Stock dividend based on the actual number of days in the applicable dividend period during which each shares of Series T Preferred Stock was outstanding. 86 Table of Contents Distributions Paid
The following distributions have been paid subsequent to
Distributions Paid
January 5, 2021 (to stockholders of record as of December 24, 2020 )
Class A Common Stock $ 3,630
Class C Common Stock 12
Series A Preferred Stock 1,135
Series B Preferred Stock 2,568
Series C Preferred Stock 1,094
Series D Preferred Stock 1,235
Series T Preferred Stock 1,190
OP Units 1,026
LTIP Units 510
Total $ 12,400
February 5, 2021 (to stockholders of record as of January 25, 2021 )
Series B Preferred Stock $ 2,492
Series T Preferred Stock 1,334
Total $ 3,826
Stock Activity
Subsequent to December 31, 2020 and as of February 5, 2021 , we have completed
the following activity as it relates to our Class A common stock, Series A
Preferred Stock, and Series B Preferred Stock (refer to Note 13 - Stockholders'
Equity of our consolidated financial statements for further information):
? redeemed 27,513 shares of Series B Preferred Stock through the issuance of
2,430,374 Class A common shares;
? announced the redemption of the remaining outstanding shares of Series A
Preferred Stock to occur on
? purchased 1,668,551 shares of Class A common stock under the stock repurchase
plans for a total purchase price of approximately
Redemption of 8.250% Series A Cumulative Redeemable Preferred Stock
OnJanuary 27, 2021 , we issued notice of redemption of all 2,201,547 outstanding shares of our Series A Preferred Stock to occur onFebruary 26, 2021 at a redemption price of$25.00 per share, plus accrued and unpaid dividends up to, and including, the date of redemption in an amount equal to$0.320833 per share, for a total payment of$25.320833 per share, in cash.
Sale of ARIUM Grandewood
OnJanuary 28, 2021 , we closed on the sale of ARIUM Grandewood located inOrlando, Florida . The property was sold for approximately$65.3 million , subject to certain prorations and adjustments typical in such real estate transactions. ARIUM Grandewood was encumbered by a$39.1 million senior mortgage through the Fannie Facility. Under the Fannie Facility, we have the option to forgo the repayment of the principal balance and any related prepayment penalties and costs by substituting the collateral securing the senior mortgage with collateral of the same or higher value. We elected to substitute the ARIUM Grandewood collateral with our Falls atForsyth property and the transaction is anticipated to be completed by the end ofFebruary 2021 . After consideration of the$39.1 million senior mortgage and payment of closing costs and fees of$0.9 million , the sale of ARIUM Grandewood generated net proceeds of approximately$25.1 million . 87 Table of Contents Stock Repurchase Plans OnFebruary 9, 2021 , the Board authorized the modification of the stock repurchase plans to provide for the repurchase, from time to time, of up to an aggregate of$150 million in shares, increased from the previous$75 million , of our Class A common stock, Series C Preferred Stock and/or Series D Preferred Stock.
Fannie Facility Second Advance
OnFebruary 18, 2021 , we, through certain subsidiaries of theOperating Partnership , entered into a$12.9 million floating rate advance originated under the Fannie Facility (the "Second Advance"). As noted above and upon the sale of ARIUM Grandewood, we elected to substitute the ARIUM Grandewood collateral on the Fannie Facility with our Falls atForsyth property. As the collateral value of Falls atForsyth exceeds the collateral value of ARIUM Grandewood, we elected to receive this incremental difference in collateral value as an advance under the Fannie Facility. The Second Advance matures onMarch 1, 2028 and bears interest at the 30-day average SOFR plus 2.70%, subject to an interest rate cap, with interest-only payments throughMarch 2023 and then monthly payments based on thirty-year amortization. The Second Advance may be prepaid without prepayment or yield maintenance beginningDecember 1, 2027 .
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