STET APT The following discussion and analysis should be read in conjunction with the accompanying unaudited consolidated financial statements ofSteadfast Apartment REIT, Inc. and the notes thereto. As used herein, the terms "we," "our" and "us" refer toSteadfast Apartment REIT, Inc. , aMaryland corporation. Forward-Looking Statements Certain statements included in this Quarterly Report on Form 10-Q (this "Quarterly Report") that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as "may," "should," "expect," "could," "intend," "plan," "anticipate," "estimate," "believe," "continue," "predict," "potential" or the negative of such terms and other comparable terminology. The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. One factor that could have a material adverse effect on our operations and future prospects is the adverse effect of COVID-19 and its variants on the financial condition, results of operations, cash flows and performance of us and our tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts us and our residents will depend on future developments, including the outbreak of new strains of the virus and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of the COVID-19 pandemic. Additional factors that could have a material adverse effect on our operations and future prospects include, but are not limited to: •the fact that we have had a net loss for each quarterly and annual period since inception; •changes in economic conditions generally and the real estate and debt markets specifically; •our ability to secure resident leases for our multifamily properties at favorable rental rates; •risks inherent in the real estate business, including resident defaults, potential liability relating to environmental matters and the lack of liquidity of real estate investments; •our pending merger with IRT; •our ability to retain our key employees; •our ability to generate sufficient cash flows to pay distributions to our stockholders; •legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs); •the impact of severe weather events; •the availability of capital; •changes in interest rates; and •changes to generally accepted accounting principles, or GAAP. Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this Quarterly Report. All forward-looking statements are made as of the date of this Quarterly Report and the risk that actual results will differ materially from the expectations expressed in this Quarterly Report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this Quarterly Report, 58
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whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this Quarterly Report, the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this Quarterly Report will be achieved. All forward looking statements included herein should be read in connection with the risks identified in the "Risk Factors" section of this Quarterly Report and our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSecurities and Exchange Commission , or theSEC , onMarch 12, 2021 . Overview We were formed onAugust 22, 2013 , as aMaryland corporation that elected to be taxed as, and qualifies as, a REIT. As ofSeptember 30, 2021 , we owned and managed a diverse portfolio of 70 multifamily properties comprised of 22,001 apartment homes and three parcels of land held for the development of apartment homes. We may acquire additional multifamily properties or pursue multifamily development projects in the future. Agreement and Plan of Merger OnJuly 26, 2021 , we andSteadfast Apartment REIT Operating Partnership, L.P. , our subsidiary operating partnership, or theOperating Partnership , entered into an Agreement and Plan of Merger, or the IRT Merger Agreement, with Independence Realty Trust, Inc., or IRT, IRT's operating partnership,Independence Realty Operating Partnership, LP , or IRT OP, andIRSTAR Sub, LLC , a wholly-owned subsidiary of IRT, or IRT Merger Sub. On the terms, and subject to the conditions of, the IRT Merger Agreement, we will merge with and into IRT Merger Sub, which is referred to herein as the "Company Merger", with IRT Merger Sub surviving the Company Merger as a wholly-owned subsidiary of IRT; and immediately thereafter, theOperating Partnership will merge with and into IRT OP, or the Partnership Merger, and, together with the Company Merger, the "IRT Mergers", with IRT OP surviving the Partnership Merger. In the Company Merger, each outstanding share of our common stock, par value$0.01 per share, will be converted automatically into the right to receive 0.905, or the Exchange Ratio, of a newly issued share of IRT common stock, par value$0.01 per share, or the IRT common stock, with cash paid in lieu of fractional shares. In the Partnership Merger, each outstanding unit of limited partnership of theOperating Partnership will be converted into the right to receive the Exchange Ratio of a newly issued common unit of limited partnership of IRT OP, or the IRT common units. Under the agreement of limited partnership of IRT OP, IRT common unitholders may generally tender their IRT common units, in whole or in part, to IRT OP for redemption for a cash amount based on the then-market price of an equivalent number of shares of IRT common stock, and IRT may thereupon elect, at its option, to satisfy the redemption by issuing one share of IRT common stock for each IRT common unit tendered for redemption. Pursuant to the IRT Mergers, our stockholders will receive, in aggregate, in exchange for their shares of common stock, approximately, 99.7 million shares of IRT common stock and limited partners in ourOperating Partnership will receive, in aggregate, in exchange for their operating partnership units, approximately 6.4 million IRT OP common units. Consummation of the IRT Mergers is subject to customary closing conditions, including, among others, receipt of IRT stockholder approval and approval of our stockholders, and is expected to occur in the fourth quarter of 2021. For more information on the Mergers, see our Definitive Proxy Statement filed with theSEC onSeptember 29, 2021 . In connection with the approval of the IRT Mergers, onJuly 26, 2021 , we announced that our board of directors, including all of our independent directors, voted to terminate our distribution reinvestment plan and the share repurchase plan, each termination effective as of the effective time of the Company Merger. Our board of directors, including all of our independent directors, also voted to suspend (1) the distribution reinvestment plan, effective as of the 10th day after notice is provided to stockholders and (2) indefinitely suspend the share repurchase plan, effective as of 30th day after notice is provided to stockholders. As a result of the suspension of the distribution reinvestment plan, any distributions paid after the distribution payment date inAugust 2021 , will be paid to our stockholders in cash. We can provide stockholders with assistance on directing cash distribution payments and answering questions. The suspension of the distribution reinvestment plan will not affect the payment of distributions to stockholders who previously received their distributions in cash. In addition, as a result of the suspension of the share repurchase plan, we will not process or accept any requests for redemption received afterJuly 26, 2021 . 59
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COVID-19 Impact We are carefully monitoring the ongoing COVID-19 pandemic and its impact on our business. During the quarter endedJune 30, 2020 , we instituted payment plans for our residents that were experiencing hardship due to COVID-19, which we refer to as the "COVID-19 Payment Plan." Pursuant to the COVID-19 Payment Plan, we allowed qualifying residents to defer their rent, which is collected by us in monthly installment payments over the duration of the current lease or renewal term (which may not exceed 12 months). Additionally, for the months of May andJune 2020 , we provided certain qualifying residents with a one-time concession to incentivize their performance under the payment plan. If the qualifying resident failed to make payments pursuant to the COVID-19 Payment Plan, the concession was immediately terminated, and the qualifying resident was required to immediately repay the amount of the concession. Due to reduced demand, we did not offer residents any other payment plans during the remaining months of 2020. In the aggregate, approximately$2,053,821 in rent was subject to the COVID-19 Payment Plan, with$9,945 still due as ofSeptember 30, 2021 . InJanuary 2021 , we began offering an extension to the COVID-19 Payment Plan, or the Extension Plan, that allows eligible residents to defer their rent, which is collected by us in monthly installment payments over the lesser of the duration of the current lease term or a maximum of three months (with the exception of certain states that allow a maximum of six months deferral). Under the Extension Plan, no concessions are offered for residents with a payment plan duration of two months or less and residents who opted for the COVID-19 Payment Plan are not eligible to participate in the Extension Plan unless they paid off the amounts due under the COVID-19 Payment Plan. As ofOctober 13, 2021 , the number of qualifying residents who opted for the Extension Plan were 55 and approximately$37,000 in rent was subject to the Extension Plan. During the quarter endedSeptember 30, 2020 , we initiated a debt forgiveness program for certain of our residents that were experiencing hardship due to COVID-19 and who were in default on their lease payments, which we refer to as the "Debt Forgiveness Program." Pursuant to the Debt Forgiveness Program, we offered qualifying residents an opportunity to terminate the lease without being liable for any unpaid rent and penalties. We determined that accounts receivable of$2,610,927 related to the Debt Forgiveness Program are not probable of collection and therefore included these accounts in our reserve. In the aggregate,$298,576 of rent was written off as ofSeptember 30, 2021 . As ofSeptember 30, 2021 , approximately 55 of 455 residents that qualified for the Debt Forgiveness Program, vacated their apartment homes, terminating their lease resulting in the forgiveness and write-off of their debt. We may in the future continue to offer various types of payment plans or rent relief depending on the ongoing impact of the COVID-19 pandemic. During the nine months endedSeptember 30, 2021 , we collected an average of 96% in rent due pursuant to our leases. We collected 94% in rent due pursuant to our leases throughOctober 25, 2021 . We have reserved approximately$3,863,876 of accounts receivable which we consider not probable for collection. Although the COVID-19 pandemic has not materially impacted our rent collections, the future impact of COVID-19 is still unknown. We are currently working with residents at our communities to obtain rental relief assistance pursuant to theEmergency Rental Assistance Program ("ERA") adopted by theU.S. Department of Treasury . During the nine months endedSeptember 30, 2021 , 1,119 residents applied for the ERA, of which 1,057 residents received rental assistance in the aggregate amount of approximately$3,700,000 . Winter Storm InFebruary 2021 , certain regions ofthe United States experienced winter storms and extreme cold temperatures, including in the states where we own and operate multifamily properties. The storms and the extreme cold temperatures resulted in power outages and freezing water pipes which negatively impacted some of our properties. Our properties are fully insured, and we expect the costs to be fully recoverable by insurance proceeds, less the plan's deductible. During the nine months endedSeptember 30, 2021 , we wrote off$12,515,830 of carrying value of our fixed assets and recorded$10,800,111 of estimated repair expenses, with a corresponding increase in general and administrative expenses and an increase in our accounts payable and accrued liabilities, of which$8,249,358 has been paid as ofSeptember 30, 2021 . We also recorded insurance recoveries of$23,315,941 for the estimated insurance claims proceeds in the amount of total losses incurred (as described above) as an increase in rents and other receivables. As ofSeptember 30, 2021 ,$6,875,000 of proceeds were received and$16,440,941 remained in rents and other receivables. As a result, while our net loss for the nine months endedSeptember 30, 2021 , was not impacted, we experienced a decrease in the carrying value of our real estate held for investment, net and increases to rents and other receivables and accounts payable and accrued liabilities in the consolidated balance sheets for nine months endedSeptember 30, 2021 . Public Offering OnDecember 30, 2013 , we commenced our initial public offering of up to 66,666,667 shares of common stock at an initial price of$15.00 per share and up to 7,017,544 shares of common stock pursuant to our distribution reinvestment plan at an initial price of$14.25 per share. OnMarch 24, 2016 , we terminated our initial public offering. As ofMarch 24, 2016 , we had 60
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sold 48,625,651 shares of common stock for gross offering proceeds of$724,849,631 , including 1,011,561 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of$14,414,752 . Following the termination of our initial public offering, we continued to offer shares of our common stock pursuant to our distribution reinvestment plan until it was suspended in connection with entering into the IRT Merger Agreement. As ofSeptember 30, 2021 , we had sold 112,299,272 shares of common stock for gross offering proceeds of$1,727,794,175 , including 8,669,192 shares of common stock issued pursuant to our distribution reinvestment plan for gross offering proceeds of$130,065,017 and 56,016,053 shares of common stock issued in connection with the Mergers (as defined below). OnMarch 9, 2021 , our board of directors determined an estimated value per share of our common stock of$15.55 as ofDecember 31, 2020 . In connection with the determination of an estimated value per share, our board of directors determined a purchase price per share for the distribution reinvestment plan of$15.55 , effectiveApril 1, 2021 . In the future, our board of directors may, in its sole discretion and from time to time, change the price at which we offer shares pursuant to our distribution reinvestment plan to reflect changes in our estimated value per share and other factors that our board of directors deems relevant. Merger with Steadfast Income REIT, Inc. OnAugust 5, 2019 , we, Steadfast Income REIT, Inc., or SIR, ourOperating Partnership ,Steadfast Income REIT Operating Partnership, L.P. , the operating partnership of SIR, or the SIR OP, andSI Subsidiary, LLC , or SIR Merger Sub, entered into an Agreement and Plan of Merger, or the SIR Merger Agreement. Pursuant to the terms and conditions of the SIR Merger Agreement, onMarch 6, 2020 , SIR merged with and into SIR Merger Sub with SIR Merger Sub surviving the merger, or the SIR Merger. Following the SIR Merger, SIR Merger Sub, as the surviving entity, continued as our wholly-owned subsidiary. In accordance with the applicable provisions of the Maryland General Corporation Law, or MGCL, the separate existence of SIR ceased. At the effective time of the SIR Merger, each issued and outstanding share of SIR common stock (or a fraction thereof),$0.01 par value per share, converted into 0.5934 shares of our common stock. Merger withSteadfast Apartment REIT III, Inc. OnAugust 5, 2019 , we,Steadfast Apartment REIT III, Inc. , or STAR III, ourOperating Partnership ,Steadfast Apartment REIT III Operating Partnership, L.P. , the operating partnership of STAR III, or the STAR III OP, andSIII Subsidiary, LLC , or STAR III Merger Sub, entered into an Agreement and Plan of Merger, or the STAR III Merger Agreement. Pursuant to the terms and conditions of the STAR III Merger Agreement, onMarch 6, 2020 , STAR III merged with and into STAR III Merger Sub with STAR III Merger Sub surviving the merger, or the STAR III Merger, and together with the SIR Merger, the "Mergers." Following the STAR III Merger, STAR III Merger Sub, as the surviving entity, continued as our wholly-owned subsidiary. In accordance with the applicable provisions of the MGCL, the separate existence of STAR III ceased. At the effective time of the STAR III Merger, each issued and outstanding share of STAR III common stock (or a fraction thereof),$0.01 par value per share, was converted into 1.430 shares of our common stock. Combined Company Through the Mergers, we acquired 36 multifamily properties with 10,166 apartment homes and a 10% interest in one unconsolidated joint venture that owned 20 multifamily properties with a total of 4,584 apartment homes, all of which had a gross real estate value of approximately$1.5 billion . The combined company after the Mergers retained the name "Steadfast Apartment REIT, Inc. " Each merger qualified as a "reorganization" under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Pre-Internalization Operating Partnerships Merger OnAugust 28, 2020 , pursuant to an Agreement and Plan of Merger, ourOperating Partnership merged with and into the SIR OP, or the SIR OP/STAR OP Merger. The SIR OP/STAR OP Merger was treated forU.S. federal income tax purposes as a tax-deferred contribution by us of all of the assets and liabilities ofSTAR Operating Partnership to SIR OP under Section 721(a) of the Internal Revenue Code. Immediately following the consummation of the SIR OP/STAR OP Merger, onAugust 28, 2020 , pursuant to an Agreement and Plan of Merger, STAR III OP merged with and into SIR OP, or the Operating Partnership Merger, and together with the SIR OP/STAR OP Merger, the Operating Partnership Mergers, with SIR OP being the "resulting partnership" and STAR III OP terminating. OnAugust 28, 2020 , SIR OP changed its name to "Steadfast Apartment REIT Operating Partnership, L.P. ", which is referred to herein as the "Operating Partnership." In addition, onAugust 28, 2020 , prior to completion of the Operating 61
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Partnership Mergers, we acquired STAR III Merger Sub. OnAugust 28, 2020 , SIR Merger Sub, as the initial general partner of theOperating Partnership , transferred all of its general partnership interests to us, and we were admitted as a substitute general partner of theOperating Partnership . OnAugust 28, 2020 , we,Steadfast Income Advisor, LLC , the initial limited partner of theOperating Partnership , or SIR Advisor,Steadfast Apartment Advisor III, LLC , aDelaware limited liability company and the special limited partner of theOperating Partnership , or STAR III Advisor,Wellington VVM LLC , aDelaware limited liability company and limited partner of theOperating Partnership , or Wellington, andCopans VVM, LLC , aDelaware limited liability company and limited partner of theOperating Partnership , or Copans, and together with Wellington, "VV&M", entered into a Second Amended and Restated Agreement of Limited Partnership, or the Second A&R Partnership Agreement, in order to, among other things, reflect the consummation of the Operating Partnership Mergers. The purpose of the pre-internalization Operating Partnership Mergers was to simplify our corporate structure so that we had a single operating partnership as our direct subsidiary. Internalization Transaction OnAugust 31, 2020 , we and theOperating Partnership entered into a series of transactions and agreements (such transactions and agreements hereinafter collectively referred to as the "Internalization Transaction"), withSteadfast REIT Investments, LLC , our former sponsor, or SRI, which resulted in the internalization of our external management functions provided bySteadfast Apartment Advisor, LLC , our former external advisor, which we refer to as our "Former Advisor," and its affiliates. Prior to the Internalization Closing, which took place contemporaneously with the execution of the Contribution & Purchase Agreement (as defined below) onAugust 31, 2020 , or the Internalization Closing,Steadfast Investment Properties, Inc. , aCalifornia corporation, or SIP,Steadfast REIT Services, Inc. , aCalifornia corporation, or Steadfast REIT Services, and their respective affiliates owned and operated all of the assets necessary to operate as a self-managed company, and employed all the employees necessary to operate as a self-managed company. Pursuant to a Contribution and Purchase Agreement, between us, theOperating Partnership and SRI, SRI contributed to theOperating Partnership all of the membership interests inSTAR RS Holdings, LLC , aDelaware limited liability company, or SRSH, and the assets and rights necessary to operate as a self-managed company in all material respects, and the liabilities associated with such assets and rights, or the Contribution, in exchange for$124,999,000 , which was paid as follows: (1)$31,249,000 in cash, or the Cash Consideration, and (2) 6,155,613.92 Class B units of limited partnership interests in theOperating Partnership , or the Class B OP Units, having the agreed value set forth in the Contribution and Purchase Agreement, or the OP Unit Consideration. In addition, we purchased all of our Class A Convertible Stock held by the Former Advisor for$1,000 . As a result of the Internalization Transaction, we became self-managed and acquired components of the advisory, asset management and property management operations of the Former Advisor and its affiliates by hiring the employees, who comprise the workforce necessary for the management and day-to-day real estate and accounting operations for us and theOperating Partnership . Additional information on the Internalization Transaction can be found on our Current Report in Form 8-K filed with theSEC onSeptember 3, 2020 . See also Note 3 (Internalization Transaction) to our consolidated financial statements in this Quarterly Report. OnJuly 16, 2021 , we received a derivative demand letter addressed to our board of directors, purportedly sent on behalf of two stockholders, relating to the Internalization Transaction. The letter demanded that our board of directors appoint a committee to investigate the Internalization Transaction and, among other things, determine whether there exists any basis for us to pursue claims relating to that transaction, including for recovery of payments made in the transaction. InSeptember 2021 , we established a Demand Review Committee, composed of two independent directors, to pursue the purported claims related to the Internalization Transaction. The Former Advisor Prior to the Internalization Transaction, our day-to-day operations were externally managed by the Former Advisor, pursuant to the Amended and Restated Advisory Agreement effective as ofMarch 6, 2020 , by and between us and the Former Advisor, as amended, the Advisory Agreement. OnAugust 31, 2020 , prior to the Internalization Closing, we, the Former Advisor and theOperating Partnership entered into a Joinder Agreement pursuant to which theOperating Partnership became a party to the Advisory Agreement. OnAugust 31, 2020 , prior to the Internalization Closing, we and the Former Advisor entered into the First Amendment to Amended and Restated Advisory Agreement in order to remove certain restrictions in the Advisory Agreement related to business combinations and to provide that any amounts accrued to the Former Advisor commencing onSeptember 1, 2020 were paid in cash to the Former Advisor by theOperating Partnership . In connection with the Internalization Transaction,STAR REIT Services, LLC , our subsidiary, or SRS, assumed the rights and obligations of the Advisory Agreement from the Former Advisor. 62
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The Operating Partnership Substantially all of our business is conducted through theOperating Partnership . We are the sole general partner of theOperating Partnership . As a condition to the Internalization Closing, onAugust 31, 2020 , we, as the general partner and parent of theOperating Partnership , SRI and VV&M entered into the Operating Partnership Agreement (as defined above), to restate the Second A&R Partnership Agreement in order to, among other things, remove references to the limited partner interests previously held by SIR Advisor and STAR III Advisor, reflect the consummation of the Contribution, and designate Class B OP Units that were issued as the OP Unit Consideration. The Operating Partnership Agreement provides that theOperating Partnership will be operated in a manner that will enable us to (1) satisfy the requirements for being classified as a REIT for federal income tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that theOperating Partnership will not be classified as a "publicly traded partnership" for purposes of Section 7704 of the Internal Revenue Code, which classification could result in theOperating Partnership being taxed as a corporation, rather than as a disregarded entity. We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year endedDecember 31, 2014 . As a REIT, we generally will not be subject to federal income tax to the extent that we distribute qualifying dividends to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate rates and would not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Failing to qualify as a REIT could materially and adversely affect our net income and results of operations. Market Outlook The global COVID-19 pandemic and resulting shutdown of large components of theU.S. economy has created significant uncertainty and enhanced investment risk across many asset classes, including real estate. The degree to which our business is impacted by the COVID-19 pandemic will depend on a number of variables, including access to testing and vaccines, the reimposition of "shelter in place" orders, new strains of the virus and the continuation of new COVID-19 cases throughout the world. While all property classes have been adversely impacted by last year's economic downturn, we believe we are well-positioned to navigate this unprecedented period. We believe multifamily properties have been less adversely impacted than hospitality and retail properties, and our portfolio of moderate-income apartments should continue to outperform most other classes of multifamily properties as we benefit from favorable long-run economic and demographic trends. Home ownership rates should remain low. Millennials and Baby Boomers, the two largest demographic groups comprising roughly half of the total population inthe United States , are expected to continue to increasingly choose rental housing over home ownership. Baby Boomers are downsizing their suburban homes and relocating to multifamily apartments while Millennials are renting multifamily apartments due to high levels of student debt and increased credit standards in order to qualify for a home mortgage. These factors should lead to continued growth as the economy recovers. 63
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Our Real Estate Portfolio As ofSeptember 30, 2021 , we owned the 70 multifamily apartment communities and three parcels of land held for the development of apartment homes listed below: Average Monthly Occupancy(1) Average Monthly Rent(2) PropertyName Location
Purchase Date Number of Homes Purchase Price Mortgage Debt Outstanding(3)
Sep 30, 2021 Dec 31, 2020 Sep 30, 2021 Dec 31, 2020
1 Villages at Spring Spring Hill , 5/22/2014 176 $ 14,200,000 (4) 98.9 % 95.5 %
Hill Apartments TN
2 Harrison Place Indianapolis , 6/30/2014 307 27,864,250 (4) 96.4 % 96.1 % 1,035 967
Apartments IN
3 The Residences on Suwanee , 10/16/2014 696 98,500,000 (4) 95.7 % 95.1 % 1,440 1,331
McGinnis Ferry GA
4 The 1800 at Barrett Kennesaw , 11/20/2014 500 49,000,000 40,684,145 96.4 % 95.4 % 1,152 1,089
Lakes GA
5 The Oasis Colorado 12/19/2014 252 40,000,000 39,551,880 95.2 % 94.4 % 1,516 1,411
Springs, CO
6 Columns on Florence, KY 2/26/2015 192 25,000,000 (4) 99.0 % 95.3 % 1,249 1,134
Wetherington
7 Preston Hills at Buford, GA 3/10/2015 464 51,000,000 (4) 97.8 % 96.6 % 1,262 1,193
Mill Creek
Eagle Lake
8 Landing Speedway, IN 3/27/2015 277 19,200,000 (4) 96.8 % 91.3 % 901 826
Apartments
9 Reveal on Fishers, IN 3/30/2015 220 29,500,000
20,888,067 97.3 % 96.8 % 1,170 1,125
Cumberland
10 Heritage Place Franklin, TN 4/27/2015 105 9,650,000 8,610,219 96.2 % 96.2 % 1,215 1,132
Apartments
11 Rosemont at East Marietta, GA 5/21/2015 180 16,450,000 13,281,722 98.9 % 95.6 % 1,140 1,071
Cobb
12 Ridge Crossings Hoover, AL 5/28/2015 720 72,000,000 57,759,204 94.9 % 95.1 % 1,067 1,008
Apartments
13 Bella Terra at City Aurora, CO 6/11/2015 304 37,600,000 (4) 97.0 % 95.1 % 1,220 1,153
Center
14 Hearthstone at City Aurora, CO 6/25/2015 360 53,400,000 (4) 96.9 % 93.3 % 1,238 1,149
Center
15 Arbors at Mauldin, SC 6/30/2015 702 66,800,000 (4) 95.3 % 94.7 % 953 901
Brookfield
16 Carrington Park Kansas City, MO 8/19/2015 298 39,480,000 (4) 98.0 % 95.0 % 1,106 1,063
17 Delano at North North Richland 8/26/2015 263 38,500,000 31,886,617 98.9 % 97.0 % 1,484 1,492
Richland Hills Hills, TX
18 Meadows at North North Richland 8/26/2015 252 32,600,000 26,644,808 97.6 % 97.2 % 1,463 1,417
Richland Hills Hills, TX
19 Kensington by the Euless, TX 8/26/2015 259 46,200,000 33,188,565 96.9 % 96.5 % 1,548 1,470
Vineyard
20 Monticello by the Euless, TX 9/23/2015 354 52,200,000 40,662,431 96.6 % 95.2 % 1,372 1,315
Vineyard
21 The Shores Oklahoma City , 9/29/2015 300 36,250,000 23,111,833 94.3 % 96.3 % 1,106 1,031
OK
22 Lakeside at Coppell Coppell, TX 10/7/2015 315 60,500,000 47,960,360 95.9 % 94.9 % 1,738 1,708
23 Meadows at River Bolingbrook, IL 10/30/2015 374 58,500,000 41,258,442 95.2 % 95.2 % 1,490 1,421
Run
24 PeakView at Greeley, CO 12/11/2015 224 40,300,000 (4) 95.5 % 94.2 % 1,387 1,340
T-Bone Ranch
25 Park Valley Smyrna, GA 12/11/2015 496 51,400,000 48,686,240 95.4 % 96.4 % 1,063 1,051
Apartments
26 PeakView by Loveland, CO 12/18/2015 222 44,200,000 38,091,358 97.3 % 95.5 % 1,477 1,396
Horseshoe Lake
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Average Monthly Occupancy(1) Average Monthly Rent(2)
Mortgage Debt
Property Name Location Purchase Date Number of Homes Purchase Price Outstanding(3) Sep 30, 2021 Dec 31, 2020 Sep 30, 2021 Dec 31, 2020
27 Stoneridge Farms Smyrna, TN 12/30/2015 336 $ 47,750,000 $ 45,412,028 97.3 % 94.6 % $ 1,283 $ 1,239
28 Fielder's Creek Englewood, CO 3/23/2016 217 32,400,000 (4) 94.5 % 94.9 % 1,220 1,180
29 Landings of Brentwood, TN 5/18/2016 724 110,000,000 - 97.8 % 95.4 % 1,333 1,252
Brentwood
30 1250 West Marietta, GA 8/12/2016 468 55,772,500 (4) 96.6 % 96.4 % 1,148 1,051
Apartments
31 Sixteen50 @ Lake Rockwall, TX 9/29/2016 334 66,050,000 (4) 97.6 % 96.4 % 1,574 1,485
Ray Hubbard
32 Garrison Station (5) Murfreesboro , 5/30/2019 160 29,690,942 18,244,300 85.6 % - % 1,236 -
TN
33 Eleven10 @ Dallas, TX 1/28/2020 313 62,063,929 34,994,043 94.9 % 94.2 % 1,406 1,379
Farmers Market
34 Patina Flats at the Loveland, CO 2/11/2020 155 45,123,782 (4) 97.4 % 93.5 % 1,384 1,275
Foundry
35 Clarion Park Olathe, KS 3/6/2020 220 21,121,795 12,614,109 91.4 % 93.6 % 788 843
Apartments(6)
36 Spring Creek Edmond, OK 3/6/2020 252 28,186,894 16,894,943 98.4 % 96.0 % 946 895
Apartments(6)
Montclair Parc Oklahoma
37 Apartment City, OK 3/6/2020 360 40,352,125 (7) 95.8 % 96.1 % 972 905
Homes(6)
38 Hilliard Park Columbus , 3/6/2020 201 28,599,225 11,591,441 96.5 % 97.0 % 1,233 1,149
Apartments(6) OH
39 Sycamore Terrace Terre Haute , 3/6/2020 250 34,419,259 23,017,688 98.0 % 94.8 % 1,276 1,155
Apartments(6) IN
40 Hilliard Summit Columbus , 3/6/2020 208 31,087,442 14,018,311 96.2 % 95.7 % 1,319 1,260
Apartments(6) OH
41 Forty 57 Lexington, 3/6/2020 436 63,030,831 33,313,390 96.6 % 95.2 % 1,046 964
Apartments(6) KY
42 Riverford Crossing Frankfort , 3/6/2020 300 38,139,145 18,994,781 97.3 % 95.7 % 1,079 1,002
Apartments(6) KY
43 Hilliard Grand Dublin, OH 3/6/2020 314 50,549,232 23,734,176 97.8 % 94.3 % 1,369 1,280
Apartments(6)
44 Deep Deuce at Oklahoma 3/6/2020 294 52,519,973 33,299,429 96.6 % 95.2 % 1,314 1,242
Bricktown(6) City, OK
45 Retreat at Quail Oklahoma 3/6/2020 240 31,945,162 13,449,828 95.8 % 97.1 % 1,049 986
North(6) City, OK
46 Tapestry Park Birmingham , 3/6/2020 354 68,840,769 48,701,516 94.4 % 97.2 % 1,440 1,380
Apartments(8) AL
BriceGrove Park Canal
47 Apartments(6) Winchester, 3/6/2020 240 27,854,616 (7) 97.1 % 94.6 % 1,013 936
OH
48 Retreat at Hamburg Lexington, KY 3/6/2020 150 21,341,085 (7) 98.0 % 97.3 % 1,131 1,026
Place(6)
49 Villas at Houston, TX 3/6/2020 294 41,720,117 27,295,543 98.3 % 97.6 % 1,198 1,190
Huffmeister(6)
50 Villas of Kingwood , 3/6/2020 330 54,428,708 34,722,165 96.1 % 95.5 % 1,232 1,207
Kingwood(6) TX
51 Waterford Place at Cypress, TX 3/6/2020 228 28,278,262 (7) 98.2 % 95.2 % 1,145 1,122
Riata Ranch(6)
52 Carrington Place (6) Houston, TX 3/6/2020 324 42,258,525 (7) 97.8 % 95.7 % 1,087 1,059
Carrington at
53 Champion Houston, TX 3/6/2020 284 37,280,704 (7) 96.8 % 94.7 % 1,052 1,103
Forest(6)
54 Carrington Park at Cypress, TX 3/6/2020 232 33,032,451 20,776,531 96.6 % 97.0 % 1,226 1,179
Huffmeister(6)
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Average Monthly Occupancy(1) Average Monthly Rent(2)
Mortgage Debt
Property Name Location Purchase Date Number of Homes Purchase Price Outstanding(3) Sep 30, 2021 Dec 31, 2020 Sep 30, 2021 Dec 31, 2020
Heritage Grand at Missouri
55 Sienna City, TX 3/6/2020 240 $ 32,796,345 $ 14,063,329 97.5 % 95.4 % $ 1,069 $ 1,104
Plantation(6)
56 Mallard Crossing Loveland , 3/6/2020 350 52,002,345 (7) 96.3 % 94.9 % 1,238 1,150
Apartments(6) OH
57 Reserve at Chattanooga , 3/6/2020 192 24,522,910 15,041,320 97.9 % 95.8 % 1,206 1,096
Creekside(6) TN
58 Oak Crossing Fort Wayne , 3/6/2020 222 32,391,032 21,530,159 96.4 % 94.6 % 1,122 1,026
Apartments(6) IN
59 Double Creek Plainfield, IN 3/6/2020 240 35,490,439 23,521,962 98.8 % 95.8 % 1,138 1,075
Flats(6)
Jefferson at Dunwoody,
60 Perimeter GA 3/6/2020 504 113,483,898 73,044,588 95.8 % 96.2 % 1,359 1,334
Apartments(6)
61 Bristol Village Aurora, CO 3/6/2020 240 62,019,009 34,959,554 96.3 % 96.7 % 1,455 1,400
Apartments(6)
Canyon Resort at
62 Great Hills Austin, TX 3/6/2020 256 48,319,858 31,647,800 95.7 % 95.3 % 1,434 1,371
Apartments(6)
Reflections on Lawrenceville,
63 Sweetwater GA 3/6/2020 280 47,727,470 30,818,218 96.8 % 97.5 % 1,189 1,148
Apartments(6)
64 The Pointe at Vista Lewisville , 3/6/2020 300 51,625,394 30,998,587 98.3 % 96.0 % 1,338 1,282
Ridge(6) TX
65 Belmar Villas (6) Lakewood , 3/6/2020 318 79,351,923 46,582,693 97.5 % 94.7 % 1,390 1,355
CO
66 Sugar Mill Lawrenceville , 3/6/2020 244 42,784,645 24,711,189 97.5 % 96.7 % 1,274 1,154
Apartments(6) GA
67 Avery Point Indianapolis , 3/6/2020 512 55,706,852 31,112,580 97.1 % 95.3 % 885 841
Apartments(6) IN
Cottage Trails at Chesapeake,
68 Culpepper VA 3/6/2020 183 34,657,950 23,067,232 98.9 % 97.8 % 1,538 1,410
Landing(6)
69 Arista at Broomfield, CO 3/13/2020 - 23,418,527 - - % - % - -
Broomfield(8)
70 VV&M Dallas, TX 4/21/2020 310 59,969,074 45,302,903 96.1 % 92.6 % 1,389 1,363
Apartments
71 Flatirons Broomfield, CO 6/19/2020 - 9,168,717 - - % - % - -
Apartments(9)
72 Los Robles San Antonio, TX 11/19/2020 306 51,620,836 - 98.4 % 90.5 % 1,344 1,261
73 Ballpark Apartments Huntsville , 6/29/2021 274 77,466,685 - 93.8 % - % 1,491 -
at Town Madison AL
22,001 $ 3,270,939,249 $ 1,389,742,227 96.5 % 95.4 % $ 1,237 $ 1,173 ________________
(1)As ofSeptember 30, 2021 , our portfolio was approximately 97.7% leased, calculated using the number of occupied and contractually leased apartment homes divided by total apartment homes. (2)Average monthly rent is based upon the effective rental income for the month ofSeptember 2021 after considering the effect of vacancies, concessions and write-offs. (3)Mortgage debt outstanding is net of deferred financing costs, net and premiums and discounts, net associated with the loans for each individual property listed above but excludes the principal balance of$750,477,000 and associated deferred financing costs of$4,977,103 related to the refinancings pursuant to our credit facilities and revolver, each as described herein. (4)Properties secured under the terms of the Master Credit Facility Agreement, or MCFA, with Newmark Group Inc., formerlyBerkeley Point Capital, LLC , or the Facility Lender. 66
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(5)We acquired theGarrison Station property onMay 30, 2019 , which included unimproved land, currently zoned as a planned unit development, or PUD. The current zoning permits the development of the property into a multifamily community with 176 apartment homes of 1, 2 and 3-bedrooms with a typical mix for this market. OnOctober 16, 2019 , we obtained a loan fromPNC Bank, National Association , or PNC Bank, in an amount up to a maximum principal balance of$19,800,000 to finance a portion of the development and construction. As ofSeptember 30, 2021 , eight buildings comprised of 160 apartment homes were placed in service and were 90.5% leased, and are included within total real estate held for investment, net in the accompanying consolidated balance sheets. (6)We acquired 36 real estate properties in the Mergers onMarch 6, 2020 , for an aggregate purchase price of$1,575,891,924 , which represents the fair value of the acquired real estate assets including capitalized transaction costs. (7)Properties secured under the terms of a Master Credit Facility Agreement with PNC Bank, or the PNC MCFA. (8)We acquired the Arista atBroomfield property onMarch 13, 2020 , which included unimproved land, currently zoned as a PUD. The current zoning permits the development of the property into a multifamily community with 325 apartment homes of 1, 2 and 3-bedrooms with a typical mix for this market. (9)We acquired the Flatirons property onJune 19, 2020 , which included unimproved land, currently zoned as a PUD. The current zoning permits the development of the property into a multifamily community with 296 apartment homes of studio, 1 and 2-bedrooms with a typical mix for this market. Critical Accounting Policies The preparation of our financial statements requires significant management judgments, assumptions and estimates about matters that are inherently uncertain. 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. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses. Our critical accounting policies are described in more detail in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K, filed with theSEC onMarch 12, 2021 . There have been no significant changes in our critical accounting policies from those reported in our Annual Report, or the Annual Report, except for the accounting policy regarding casualty loss, which is described below. With respect to these critical accounting policies, we believe that the application of judgments and assessments is consistently applied and produces financial information that fairly depicts the results of operations for all periods presented. Casualty Loss We carry liability insurance to mitigate our exposure to certain losses, including those relating to property damage and business interruption. We record the estimated amount of expected insurance proceeds for property damage and other losses incurred as an asset (typically a receivable from the insurer) and income up to the amount of the losses incurred when receipt of insurance proceeds is deemed probable. Any amount of insurance recovery in excess of the amount of the losses incurred is considered a gain contingency and is recorded in other income when the proceeds are received. During the nine months endedSeptember 30, 2021 , we incurred property damage and other losses of$23,315,941 as a result of winter storms and extreme cold temperatures that led to power outages and freezing water pipes at some of our properties, which was recorded as general and administrative expenses, with a corresponding insurance recoveries income up to the amount of losses incurred (as described above) within general and administrative expenses in the accompanying consolidated statements of operations. Distributions Our board of directors has declared daily distributions that are paid on a monthly basis. We expect to continue paying monthly distributions unless our results of operations, our general financial condition, general economic conditions or other factors prohibit us from doing so. We may declare distributions in excess of our funds from operations. 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. Distributions declared (1) accrued daily to our stockholders of record as of the close of business on each day, (2) are payable in cumulative amounts on or before the third day of each calendar month with respect to the prior month and (3) were calculated at a rate of$0.002466 per share per day during the month ofJanuary 2021 , which if paid each day over a 365-day period, is equivalent to$0.90 per share, and were calculated at a rate of$0.001438 per share per day commencing on February 67
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1, 2021 throughSeptember 30, 2021 , which if paid each day over a 365-day period, is equivalent to$0.525 per share. As a result of the suspension of the DRP onJuly 26, 2021 , any distributions paid after the distribution payment date inAugust 2021 will be paid to our stockholders in cash. The distributions declared and paid during the three fiscal quarters of 2021, along with the amount of distributions reinvested pursuant to the distribution reinvestment plan were as follows:
Sources of Distributions
Distributions Paid(3) Paid
Funds Equal to
Distributions Amounts Reinvested Net Cash Provided
Distributions Declared Per Cash Flow From in our Distribution by Operating
Period Declared(1) Share(1)(2) Cash Reinvested Total Operations Reinvestment Plan Activities
1st Quarter 2021 $ 18,909,212 $ 0.161 $ 18,012,522 $ 4,600,603 $ 22,613,125 $ 4,040,865 $ 18,572,260 $ 4,040,865
2nd Quarter 2021 15,355,645 0.131 12,412,151 3,108,489 15,520,640 15,520,640 - 25,001,402
3rd Quarter 2021 15,525,324 0.132 13,471,671 2,055,356 15,527,027 15,527,027 - 27,430,618
$ 49,790,181 $ 0.425 $ 43,896,344 $ 9,764,448 $ 53,660,792 $ 35,088,532 $ 18,572,260 $ 56,472,885
____________________
(1)Distributions during the month ended January 2021 were based on daily record
dates and calculated at a rate of $0.002466 per share per day. On January 12,
2021 , our board of directors determined to reduce the distribution rate to
$0.001438 per share per day commencing on February 1, 2021 and ending February
28, 2021 , which was extended through September 30, 2021 , and which if paid each
day over a 365-day period is equivalent to $0.525 per share.
(2)Assumes each share was issued and outstanding each day during the period
presented.
(3)Distributions are paid on a monthly basis. Distributions for all record dates
of a given month are paid approximately three days following month end.
For the three and nine months ended September 30, 2021 , we paid aggregate
distributions of $15,527,027 and $53,660,792 , including $13,471,671 and
$43,896,344 of distributions paid in cash and 132,177 and 634,155 shares of our
common stock issued pursuant to our distribution reinvestment plan for
$2,055,356 and $9,764,448 , respectively. For the three and nine months ended
September 30, 2021 , our net loss was $11,646,149 and $40,156,623 , we had funds
from operations, or FFO, of $22,246,823 and $60,439,823 and net cash provided by
operations of $27,430,618 and $56,472,885 , respectively. For the three and nine
months ended September 30, 2021 , we funded $15,527,027 and $35,088,532 , or 100%
and 65%, of total distributions paid, including shares issued pursuant to our
distribution reinvestment plan, from net cash provided by operating activities
and $0 and $18,572,260 , or 0% and 35%, from funds equal to our distribution
reinvestment plan, respectively. Since inception, of the $340,057,852 in total
distributions paid through September 30, 2021 , including shares issued pursuant
to our distribution reinvestment plan, 69% of such amounts were funded from cash
flow from operations, 25% were funded from funds equal to amounts reinvested in
our distribution reinvestment plan and 6% were funded from net public offering
proceeds. For information on how we calculate FFO and the reconciliation of FFO
to net loss, see "-Funds from Operations and Modified Funds from Operations."
Our goal is to pay distributions solely from cash flow from operations. Because
we may receive income from interest or rents at various times during our fiscal
year and because we may need cash flow from operations during a particular
period to fund capital expenditures and other expenses, we expect that from time
to time during our operational stage, we will declare distributions in
anticipation of cash flow that we expect to receive during a later period, and
we expect to pay these distributions in advance of our actual receipt of these
funds. In these instances, our board of directors has the authority under our
organizational documents, to the extent permitted by Maryland law, to fund
distributions from sources such as borrowings or offering proceeds. We have not
established a limit on the amount of proceeds we may use from sources other than
cash flow from operations to fund distributions. If we pay distributions from
sources other than cash flow from operations, we will have fewer funds available
for investments.
We continue to monitor the outbreak of the COVID-19 pandemic and its impact on
our liquidity. Our operations could be materially negatively affected if the
economic downturn is prolonged, which could adversely affect our operating
results and therefore our ability to pay our distributions.
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Inflation
Substantially all of our multifamily property leases are for a term of one year or less. In an inflationary environment, this may allow us to realize increased rents upon renewal of existing leases or the beginning of new leases. Short-term leases generally will minimize our risk from the adverse effects of inflation, although these leases generally permit residents to leave at the end of the lease term and therefore will expose us to the effects of a decline in market rents. In a deflationary rent environment, we may be exposed to declining rents more quickly under these shorter term leases. With respect to other commercial properties, we expect in the future to include provisions in our leases designed to protect us from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements, or in some cases annual reimbursement of operating expenses above a certain allowance. As ofSeptember 30, 2021 , we had not entered into any material leases as a lessee, except for a sub-lease entered into in connection with the Internalization Transaction onSeptember 1, 2020 . See Note 10 (Related Party Arrangements) to our consolidated financial statements in this Quarterly Report for details. REIT Compliance To continue to qualify as a REIT for tax purposes, we are required to distribute at least 90% of our REIT taxable income (which is computed without regard to the dividends-paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders. We must also meet certain asset and income tests, as well as other requirements. We monitor the operations and transactions that may potentially impact our REIT status. If we fail to qualify as a REIT in any taxable year following the year we initially elected to be taxed as a REIT, we would be subject to federal income tax on our taxable income at regular corporate rates. Liquidity and Capital Resources We use secured borrowings, and intend to use in the future secured and unsecured borrowings. AtSeptember 30, 2021 , our debt was approximately 56% of the value of our properties, as determined by the most recent valuations performed by an independent third-party appraiser as ofDecember 31, 2020 . Going forward, we expect that our borrowings (after debt amortization) will be approximately 55% to 60% of the value of our properties and other real estate-related assets. Under our charter, we are prohibited from borrowing in excess of 300% of the value of our net assets, which generally approximates to 75% of the aggregate cost of our assets, though we may exceed this limit only under certain circumstances. Our principal demand for funds will be to fund value-enhancement, a portion of development projects and other capital improvement projects, to pay operating expenses and interest on our outstanding indebtedness and to make distributions to our stockholders. Over time, we intend to generally fund our cash needs, other than asset acquisitions, from operations. Otherwise, we expect that our principal sources of working capital will include: •unrestricted cash balance, which was$122,107,875 as ofSeptember 30, 2021 ; •various forms of secured and unsecured financing; •equity capital from joint venture partners; and •proceeds from our distribution reinvestment plan. Over the short term, we believe that our sources of capital, specifically our cash balances, cash flow from operations, our ability to raise equity capital from joint venture partners and our ability to obtain various forms of secured and unsecured financing will be adequate to meet our liquidity requirements and capital commitments. Over the longer term, in addition to the same sources of capital we will rely on to meet our short-term liquidity requirements, we may also conduct additional public or private offerings of our securities, refinance debt or dispose of assets to fund our operating activities, debt service, distributions and future property acquisitions and development projects. We expect these resources will be adequate to fund our ongoing operating activities as well as providing capital for investment in future development and other joint ventures along with potential forward purchase commitments. 69
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Credit Facilities Master Credit Facility OnJuly 31, 2018 , 16 of our indirect wholly-owned subsidiaries terminated the existing mortgage loans with their lenders for an aggregate principal amount of$479,318,649 and entered into the MCFA with the Facility Lender, for an aggregate principal amount of$551,669,000 . OnFebruary 11, 2020 , in connection with the financing ofPatina Flats at the Foundry, we and the Facility Lender amended the MCFA to includePatina Flats at the Foundry and an unencumbered multifamily property owned by us as substitute collateral for three multifamily properties disposed of and released from the MCFA. We also increased our outstanding borrowings pursuant to the MCFA by$40,468,000 , a portion of which was attributable to the acquisition ofPatina Flats at the Foundry. The MCFA provides for four tranches: (1) a fixed rate loan in the aggregate principal amount of$331,001,400 that accrues interest at 4.43% per annum; (2) a fixed rate loan in the aggregate principal amount of$137,917,250 that accrues interest at 4.57% per annum; (3) a variable rate loan in the aggregate principal amount of$82,750,350 that accrues interest at the one-month London Interbank Offered Rate, or LIBOR, plus 1.70% per annum; and (4) a fixed rate loan in the aggregate principal amount of$40,468,000 that accrues interest at 3.34% per annum. The first three tranches have a maturity date ofAugust 1, 2028 , and the fourth tranche has a maturity date ofMarch 1, 2030 , unless, in each case, the maturity date is accelerated in accordance with the terms of the loan documents. Interest only payments are payable monthly throughAugust 1, 2025 andApril 1, 2027 on the first three tranches and fourth tranche, respectively, with interest and principal payments due monthly thereafter. We paid$2,072,480 in the aggregate in loan origination fees to the Facility Lender in connection with the refinancings, and paid our Former Advisor a loan coordination fee of$3,061,855 . PNC Master Credit Facility OnJune 17, 2020 , seven of our indirect wholly-owned subsidiaries, each a "Borrower" and collectively, the "Facility Borrowers" entered into the PNC MCFA with PNC Bank, for an aggregate principal amount of$158,340,000 . The PNC MCFA provides for two tranches: (1) a fixed rate loan in the aggregate principal amount of$79,170,000 that accrues interest at 2.82% per annum; and (2) a variable rate loan in the aggregate principal amount of$79,170,000 that accrues interest at the one-month LIBOR plus 2.135% per annum. If LIBOR is no longer posted through electronic transmission, is no longer available or, in PNC Bank's determination, is no longer widely accepted or has been replaced as the index for similar financial instruments, PNC Bank will choose a new index taking into account general comparability to LIBOR and other factors, including any adjustment factor to preserve the relative economic positions of theBorrowers and PNC Bank with respect to any advances made pursuant to the PNC MCFA. We paid$633,360 in the aggregate in loan origination fees to PNC Bank in connection with the financings, and paid the Former Advisor a loan coordination fee of$791,700 . Revolving Credit Loan Facility OnJune 26, 2020 , we entered into a revolving credit loan facility, or the Revolver, with PNC Bank in an amount not to exceed$65,000,000 . The Revolver provides for advances, each, a "Revolver Loan", solely for the purpose of financing the costs in connection with acquisitions and development of real estate projects and for general corporate purposes (subject to certain debt service and loan to value requirements). The Revolver has a maturity date ofJune 26, 2023 , subject to extension, as further described in the loan agreement. Advances made under the Revolver are secured by the Landings atBrentwood property. We have the option to select the interest rate in respect of the outstanding unpaid principal amount of the Revolver Loans from the following options: (1) a fluctuating rate per annum equal to the sum of the daily LIBOR rate plus the daily LIBOR rate spread or (2) a fluctuating rate per annum equal to the base rate plus the alternate rate spread. No amounts were outstanding on the Revolver as ofSeptember 30, 2021 andDecember 31, 2020 . As ofSeptember 30, 2021 andDecember 31, 2020 , the advances obtained and certain financing costs incurred under the MCFA, PNC MCFA and the Revolver, which is included in credit facilities, net, in the accompanying consolidated balance sheets, are summarized in the following table. September 30, 2021 December 31, 2020 Principal balance on MCFA, gross$ 592,137,000 $ 592,137,000 Principal balance on PNC MCFA, gross 158,340,000 158,340,000 Deferred financing costs, net on MCFA(1) (3,083,410) (3,436,850) Deferred financing costs, net on PNC MCFA(2) (1,553,045) (1,689,935) Deferred financing costs, net on Revolver(3) (340,648) (487,329) Credit facilities, net$ 745,499,897 $ 744,862,886 70
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_______________
(1) Accumulated amortization related to deferred financing costs in respect of the MCFA as ofSeptember 30, 2021 andDecember 31, 2020 , was$1,651,705 and$1,298,265 , respectively. (2) Accumulated amortization related to deferred financing costs in respect of the PNC MCFA as ofSeptember 30, 2021 andDecember 31, 2020 , was$236,174 and$99,283 , respectively. (3) Accumulated amortization related to deferred financing costs in respect of the Revolver as ofSeptember 30, 2021 andDecember 31, 2020 , was$248,230 and$101,549 , respectively. Forward Contracts OnMay 6, 2021 andJune 14, 2021 , we entered into agreements, or the Forward Contract Obligations, with the general contractor, or GC, to acquire, for a fixed price, a lumber material package and mixed material package to be used in the construction of the Arista atBroomfield development. Under the Forward Contract Obligations, the GC is obligated to deliver the specific package of lumber and mixed materials and we are obligated to pay the agreed upon sum of$8,949,562 and$6,532,344 , respectively, to the GC upon delivery, which is estimated to begin in the fourth quarter of 2021. Pursuant to the Forward Contract Obligations, the GC owns and is responsible for storage of the lumber and mixed material packages prior to delivery to us. The Forward Contract Obligations are recorded in the consolidated financial statements in the period in which the Forward Contract Obligations are cancelled or the lumber and or mixed material packages are purchased from the GC for use in the development. Construction loan OnOctober 16, 2019 , we entered into an agreement with PNC Bank for a construction loan related to the development ofGarrison Station , a development project inMurfreesboro, TN , in an aggregate principal amount not to exceed$19,800,000 for a thirty-six month initial term and two twelve month mini-perm extensions. The rate of interest on the construction loan is daily LIBOR plus 2.00%, which then reduces to the daily LIBOR plus 1.80% upon achieving completion as defined in the construction loan agreement and at a debt service coverage ratio of 1.15x. The loan includes a 0.4% fee at closing, a 0.1% fee upon exercising the mini-perm and a 0.1% fee upon extending the mini-perm, each payable to PNC Bank. There is an exit fee of 1% which will be waived if permanent financing is secured through PNC Bank or one of their affiliates. As ofSeptember 30, 2021 andDecember 31, 2020 , the principal outstanding balance on the construction loan was$18,244,300 and$6,264,549 , respectively. Assumed Debt as a Result of the Completion of Mergers OnMarch 6, 2020 , upon consummation of the Mergers, we assumed all of SIR's and STAR III's obligations under the outstanding mortgage loans secured by 29 properties. We recognized the fair value of the assumed notes payable in the Mergers of$795,431,027 , which consisted of the assumed principal balance of$791,020,471 and a net premium of$4,410,556 . The following is a summary of the terms of the assumed loans on the date of the Mergers: Interest Rate Range Principal Outstanding At Type Number of Instruments Maturity Date Range Minimum Maximum Merger Date 1-Mo LIBOR + Variable rate 2 1/1/2027 - 9/1/2027 1-Mo LIBOR + 2.195% 2.31%$ 64,070,000 Fixed rate 27 10/1/2022 - 10/1/2056 3.19% 4.66% 726,950,471 Assumed Principal Mortgage Notes Payable 29$ 791,020,471 Reference Rate Reform InJuly 2017 , theFinancial Conduct Authority announced it intended to stop compelling banks to submit rates for the calculation of LIBOR after 2021. We are monitoring the market transition from LIBOR and other inter bank offered rates to alternative reference rates, such as the secured overnight financing rate, or SOFR, which we refer to as reference rate reform. For more information on reference rate reform, see Note 2 (Summary of Significant Accounting Policies) to our consolidated financial statements in this Quarterly Report for details. We identified the instruments influenced by LIBOR to be our variable rate mortgage notes payable and interest rate cap agreements, a majority of which, are expected to continue to use LIBOR throughJune 2023 or beyond until lenders and other market participants finalize their transition plans. Once transition plans are finalized, it is expected that SOFR will be used. Given the nature of the expected changes to our interest rate cap agreements and variable rate mortgage notes payable, we expect to meet the conditions of the practical expedients provided by the FASB 71
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and elect to not apply the modification accounting requirements to our contracts affected by the reference rate reform within the permitted period ofDecember 31, 2022 . Cash Flows Provided by Operating Activities During the nine months endedSeptember 30, 2021 , net cash provided by operating activities was$56,472,885 , compared to$42,185,327 for the nine months endedSeptember 30, 2020 . The increase in our net cash provided by operating activities is primarily due to the elimination of investment management fees, loan coordination fees, property management fees and property management reimbursements paid to our Former Advisor prior to the Internalization Transaction, partially offset by an increase in interest payments and an increase related to the damage caused to certain multifamily properties impacted by the winter storm that took place inFebruary 2021 , compared to the same prior year period. Cash Flows (Used in) Provided by Investing Activities During the nine months endedSeptember 30, 2021 , net cash used in investing activities was$145,375,935 , compared to$57,369,417 of net cash provided by investing activities during the nine months endedSeptember 30, 2020 . The increase in our net cash used in investing activities was primarily due to the increase in cash and restricted cash acquired in connection with the Mergers, net of transaction costs, and the decrease in net proceeds from the sale of real estate investments and the decrease in net proceeds from the sale of our unconsolidated joint venture, partially offset by the decrease in the acquisition of land held for the development of apartment homes during the nine months endedSeptember 30, 2021 , compared to the same prior year period. Net cash used in investing activities during the nine months endedSeptember 30, 2021 , consisted of the following: •$75,966,685 of cash used for the acquisition of real estate investments; •$43,476,629 of cash used for improvements to real estate investments; •$25,363,295 of cash used for additions to real estate held for development; •$1,500,000 of cash used for escrow deposits for real estate acquisitions; •$59,700 of cash used to purchase interest rate cap agreements; and •$990,374 of cash provided by proceeds from insurance claims. Cash Flows (Used in) Provided by Financing Activities During the nine months endedSeptember 30, 2021 , net cash used in financing activities was$47,826,022 , compared to$106,044,570 of net cash provided by financing activities during the nine months endedSeptember 30, 2020 . The change from net cash provided by financing activities to net cash used in financing activities was primarily due to a decrease in proceeds received from borrowings on the MCFA and PNC MCFA and an increase in repurchases of common stock from common stockholders during the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , partially offset by a decrease in payments on our mortgage notes payable, a decrease in deferred financing costs and an increase in proceeds from the issuance of mortgage notes payable during the nine months endedSeptember 30, 2021 , compared to the same prior year period. Net cash used in financing activities during the nine months endedSeptember 30, 2021 , consisted of the following: •$5,200,646 of net cash from the issuance of a mortgage note payable after$6,360,104 , of principal payments on mortgage notes payable; •$43,896,344 of net cash distributions to our stockholders, after giving effect to distributions reinvested by stockholders of$9,764,448 ; •$419,000 of loan financing deposits in connection with the IRT Merger; and •$9,130,324 of cash paid for the repurchase of common stock. 72
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Contractual Commitments and Contingencies As ofSeptember 30, 2021 , we had (1) indebtedness totaling$2,135,242,124 , comprised of an aggregate principal amount of$2,143,426,538 , net deferred financing costs of$10,724,664 and net premiums of$2,540,250 and (2) the Forward Contract Obligations of$15,481,906 . The following is a summary of our contractual obligations as ofSeptember 30, 2021 : Payments due by period Contractual Obligations Total Less than 1 year 1-3 years 3-5 years More than 5 years Interest payments on outstanding debt obligations(1)$ 556,468,435 $ 20,045,419 $ 156,760,031 $ 145,521,285 $ 234,141,700 Principal payments on outstanding debt obligations(2) 2,143,426,538 2,317,869 113,773,400 255,744,781
1,771,590,488
Forward contract obligations(3) 15,481,906 15,481,906 - - - Total$ 2,715,376,879 $ 37,845,194 $ 270,533,431 $ 401,266,066 $ 2,005,732,188 ________________ (1)Scheduled interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect atSeptember 30, 2021 . We incurred interest expense of$20,279,374 and$60,174,405 during the three and nine months endedSeptember 30, 2021 , including amortization of deferred financing costs totaling$548,726 and$1,646,291 , net unrealized loss from the change in fair value of interest rate cap agreements of$40,902 and$39,699 , amortization of net loan premiums and discounts of$(428,434) and$(1,269,484) , credit facility commitment fees of$32,861 and$98,852 , imputed interest on the finance lease portion of the sublease of$65 and$258 , and capitalized interest of$284,511 and$844,577 , respectively. The capitalized interest is included in real estate on the consolidated balance sheets. (2)Scheduled principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. Amounts exclude net deferred financing costs and any loan premiums or discounts associated with certain notes payable. (3)Scheduled payments on the Forward Contract Obligations are based on the terms of the forward contract agreements entered into with the GC onMay 6, 2021 andJune 14, 2021 , for the lumber and mixed material packages required to construct the Arista atBroomfield project according to the approved plans, locking in the price of the lumber and mixed materials as of that date. Our debt obligations contain customary financial and non-financial debt covenants. As ofSeptember 30, 2021 andDecember 31, 2020 , we were in compliance with all debt covenants. Results of Operations Overview The discussion that follows is based on our consolidated results of operations for the three and nine months endedSeptember 30, 2021 and 2020. The ability to compare one period to another is primarily affected by (1) the acquisitions and dispositions of multifamily properties inclusive of 36 multifamily properties acquired in the Mergers during the nine months endedSeptember 30, 2020 , the acquisition of two multifamily properties sinceSeptember 30, 2020 , the disposition of one multifamily property sinceSeptember 30, 2020 , and to a lesser extent placing into service 160 apartment homes previously held for development during the nine months endedSeptember 30, 2021 , and (2) the Internalization Closing. As ofSeptember 30, 2021 , we owned 70 multifamily properties and three parcels of land held for the development of apartment homes. Our results of operations were also affected by our value-enhancement activity completed throughSeptember 30, 2021 . Finally, upon completion of the proposed Mergers with IRT, our operations will be combined with those of IRT which will have a significant impact on the results of operations as both companies operate as a single combined company. To provide additional insight into our operating results, we are also providing a detailed analysis of same-store versus non-same-store net operating income, or NOI. For more information on NOI and a reconciliation of NOI (a non-GAAP financial measure) to net loss, see "-Net Operating Income." Our results of operations for the three and nine months endedSeptember 30, 2021 and 2020, are not indicative of those expected in future periods. We continued to perform value-enhancement projects, which may have an impact on our future results of operations. As a result of the Internalization Transaction, we are now a self-managed REIT and no longer bear the 73
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costs of the various fees and expense reimbursements previously paid to our Former Advisor and its affiliates. However, our expenses include the compensation and benefits of our officers, employees and consultants, as well as overhead previously paid by our Former Advisor and its affiliates. Additionally, the outbreak of COVID-19 impacted our residents' ability to pay rent which in turn could impact our future revenues and expenses. The impact of COVID-19 on our future results could be significant and will largely depend on future developments, which are highly uncertain and cannot be predicted, including new information, which may emerge concerning the severity of "future waves" of COVID-19 outbreaks, the success of actions taken to contain or treat COVID-19, access to testing and vaccines, and reactions by consumers, companies, governmental entities and capital markets. Consolidated Results of Operations for the Three Months EndedSeptember 30, 2021 , Compared to the Three Months EndedSeptember 30, 2020 The following table summarizes the consolidated results of operations for the three months endedSeptember 30, 2021 and 2020: $ Change Due to Properties Held For the Three Months Ended September 30, Throughout Both Periods $ Change Due to and Corporate Acquisitions or Level 2021 2020 Change $ Change % Dispositions(1) Activity(2) Total revenues$ 90,641,893 $ 83,670,508 $ 6,971,385 8 % $ 1,183,933$ 5,787,452 Operating, maintenance and management (23,114,563) (21,567,499) (1,547,064) (7) % (282,129) (1,264,935) Real estate taxes and insurance (12,819,459) (12,935,004) 115,545 1 % (93,610) 209,155 Fees to affiliates (4,158) (8,449,715) 8,445,557 100 % 221,374 8,224,183 Depreciation and amortization (34,051,286) (47,564,706) 13,513,420 28 % (807,676) 14,321,096 Interest expense (20,279,374) (20,628,159) 348,785 2 % 309,131 39,654 General and administrative expenses (14,066,611) (11,705,698) (2,360,913) (20) % 3,427 (2,364,340) Gain on sale of real estate, net - 1,392,434 (1,392,434) (100) % (1,392,434) - Interest income 49,382 165,495 (116,113) (70) % 381 (116,494) Insurance proceeds in excess of losses incurred 375,931 112,342 263,589 235 % - 263,589 Equity in loss from unconsolidated joint venture - (16,711) 16,711 100 % - 16,711 Fees and other income from affiliates 1,622,096 390,099 1,231,997 316 % -
1,231,997
Loss on debt extinguishment - (621,451) 621,451 100 % 621,451 - Net loss$ (11,646,149) $ (37,758,065) $ 26,111,916 69 % NOI(3)$ 54,703,713 $ 46,519,021 $ 8,184,692 18 % FFO(4)$ 22,246,823 $ 8,430,520 $ 13,816,303 164 % MFFO(4)$ 25,649,142 $ 15,217,316 $ 10,431,826 69 % ________________ (1) Represents the favorable (unfavorable) dollar amount change for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , related to multifamily properties acquired, disposed of, or placed in service, on or afterJuly 1, 2020 . (2) Represents the favorable (unfavorable) dollar amount change for the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 , related to multifamily properties and corporate level entities owned by us throughout both periods presented. (3) NOI is a non-GAAP financial measure used by investors and our management to evaluate and compare the performance of our properties and to determine trends in earnings. However, the usefulness of NOI is limited because 74
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it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of our properties and other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs, all of which are significant economic costs. For additional information on how we calculate NOI and a reconciliation of NOI to net loss, see "-Net Operating Income." (4) GAAP basis accounting for real estate assets utilizes historical cost accounting and assumes real estate values diminish over time. In an effort to overcome the difference between real estate values and historical cost accounting for real estate assets, theBoard of Governors of theNational Association of Real Estate Investment Trusts , or NAREIT, established the measurement tool of FFO. Since its introduction, FFO has become a widely used non-GAAP financial measure among REITs. Additionally, we use modified funds from operations, or MFFO, as defined by theInstitute for Portfolio Alternatives (formerly known as theInvestment Program Association ), or IPA, as a supplemental measure to evaluate our operating performance. MFFO is based on FFO but includes certain adjustments we believe are necessary due to changes in accounting and reporting under GAAP since the establishment of FFO. Neither FFO nor MFFO should be considered as alternatives to net loss or other measurements under GAAP as indicators of our operating performance, nor should they be considered as alternatives to cash flow from operating activities or other measurements under GAAP as indicators of liquidity. For additional information on how we calculate FFO and MFFO and a reconciliation of FFO and MFFO to net loss, see "-Funds From Operations and Modified Funds From Operations." Net loss For the three months endedSeptember 30, 2021 , we had a net loss of$11,646,149 compared to a net loss of$37,758,065 for the three months endedSeptember 30, 2020 . The decrease in net loss of$26,111,916 over the comparable prior year period was due to the increase in total revenues of$6,971,385 , the decrease in real estate taxes and insurance of$115,545 , the decrease in fees to affiliates of$8,445,557 , the decrease in depreciation and amortization expense of$13,513,420 , the decrease in interest expense of$348,785 , the increase in insurance proceeds in excess of losses incurred of$263,589 , the decrease in loss from unconsolidated joint venture of$16,711 , the increase in fees and other income from affiliates of$1,231,997 and the decrease in loss on debt extinguishment of$621,451 , partially offset by the increase in operating, maintenance and management expenses of$1,547,064 , the increase in general and administrative expenses of$2,360,913 , the decrease in gain on sale of real estate, net of$1,392,434 and the decrease in interest income of$116,113 . Total revenues Total revenues were$90,641,893 for the three months endedSeptember 30, 2021 , compared to$83,670,508 for the three months endedSeptember 30, 2020 . The increase of$6,971,385 was primarily due to an increase in occupancy from 95.9% as ofSeptember 30, 2020 to 96.5% as ofSeptember 30, 2021 coupled with an increase in average monthly rents from$1,172 to$1,237 during the same period. We also experienced an increase of$5,787,452 in total revenues at the multifamily properties held throughout both periods as a result of ordinary monthly rent increases and the completion of value-enhancement projects. Operating, maintenance and management expenses Operating, maintenance and management expenses for the three months endedSeptember 30, 2021 , were$23,114,563 compared to$21,567,499 for the three months endedSeptember 30, 2020 . The increase of$1,547,064 was primarily due to increases in payroll, information technology related expenses and repairs and maintenance during the three months endedSeptember 30, 2021 compared to the same prior year period. Real estate taxes and insurance Real estate taxes and insurance expenses were$12,819,459 for the three months endedSeptember 30, 2021 , compared to$12,935,004 for the three months endedSeptember 30, 2020 . The decrease of$115,545 was primarily due to successful challenges to the assessed real estate tax values at certain properties in our portfolio. Fees to affiliates Fees to affiliates were$4,158 for the three months endedSeptember 30, 2021 , compared to$8,449,715 for the three months endedSeptember 30, 2020 . The net decrease of$8,445,557 was primarily due to the elimination of investment management fees, property management fees, loan coordination fees and the reimbursement of onsite personnel as a result of the Internalization Transaction. 75
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Depreciation and amortization Depreciation and amortization expenses were$34,051,286 for the three months endedSeptember 30, 2021 , compared to$47,564,706 for the three months endedSeptember 30, 2020 . The decrease of$13,513,420 was primarily due to the net decrease in tenant origination and absorption costs acquired in connection with the Mergers, subsequently amortized sinceSeptember 30, 2020 . We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio. Interest expense Interest expense for the three months endedSeptember 30, 2021 , was$20,279,374 compared to$20,628,159 for the three months endedSeptember 30, 2020 . The decrease of$348,785 was primarily due to the decrease in interest expense incurred during the three months endedSeptember 30, 2021 from the sale of one multifamily property during the three months endedSeptember 30, 2020 and the sale of one multifamily property sinceSeptember 30, 2020 . Included in interest expense is the amortization of deferred financing costs of$548,726 and$573,078 , net unrealized loss from the change in fair value of interest rate cap agreements of$40,902 and$29,093 , interest on capital leases of$65 and$47 , amortization of net loan premiums and discounts of$(428,434) and$(431,387) , credit facility commitment fees of$32,861 and$0 , net of capitalized interest of$284,511 and$313,902 and interest on construction loans of$64,120 and$0 , for the three months endedSeptember 30, 2021 and 2020, respectively. The capitalized interest is included in real estate on the consolidated balance sheets. Our interest expense in future periods will vary based on the impact of changes to LIBOR or the adoption of a replacement to LIBOR, our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives. General and administrative expenses General and administrative expenses for the three months endedSeptember 30, 2021 , were$14,066,611 compared to$11,705,698 for the three months endedSeptember 30, 2020 . These general and administrative costs consisted primarily of payroll costs, legal fees, IT related expenses, audit fees, other professional fees and independent director compensation. The increase of$2,360,913 was primarily due to an increase of$2,364,340 in general and administrative expenses predominantly due to payroll costs for the acquired personnel as a result of the Internalization Transaction. Gain on sale of real estate Gain on sale of real estate for the three months endedSeptember 30, 2021 , was$0 compared to$1,392,434 for the three months endedSeptember 30, 2020 . The change in gain on sale of real estate consisted of no gain recognized during the three months endedSeptember 30, 2021 , compared to the gain on sale from the disposition of one multifamily property at a sales price of$49,500,000 during the three months endedSeptember 30, 2020 . Our gain on sales of real estate, computed as the sales price, net of the carrying value of the real estate, selling expenses, and other ancillary costs, will vary in future periods based on the opportunity to sell properties and real estate-related investments. Interest income Interest income for the three months endedSeptember 30, 2021 , was$49,382 compared to$165,495 for the three months endedSeptember 30, 2020 . Interest income consisted of interest earned on our cash, cash equivalents and restricted cash deposits. In general, we expect interest income to fluctuate with the change in our cash, cash equivalents and restricted cash deposits. Insurance proceeds in excess of losses incurred Insurance proceeds in excess of losses incurred for the three months endedSeptember 30, 2021 , was$375,931 compared to$112,342 for the three months endedSeptember 30, 2020 . In general, we expect insurance proceeds in excess of losses incurred to be correlated to the volume and severity of insurance related incidents at our multifamily properties. Equity in loss from unconsolidated joint venture Equity in loss from unconsolidated joint venture for the three months endedSeptember 30, 2021 , was$0 compared to$16,711 for the three months endedSeptember 30, 2020 . Upon consummation of the SIR Merger onMarch 6, 2020 , we acquired a 10% interest in a joint venture. Our investment in the joint venture had been accounted for as an unconsolidated joint venture under the equity method of accounting. OnJuly 16, 2020 , we sold our joint venture interest. See Note 5 (Investment in Unconsolidated Joint Venture) to our consolidated financial statements in this Quarterly Report for details. 76
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Fees and other income from affiliates Fees and other income from affiliates for the three months endedSeptember 30, 2021 , was$1,622,096 compared to$390,099 for the three months endedSeptember 30, 2020 . The increase of$1,231,997 was primarily income earned pursuant to the SRI Property Management Agreements and Construction Management Agreements with affiliates of our former sponsor and the Transition Services Agreement entered into in connection with the Internalization Transaction. See Note 10 (Related Party Arrangements) to our consolidated financial statements in this Quarterly Report for details. Loss on debt extinguishment Loss on debt extinguishment for the three months endedSeptember 30, 2021 , was$0 compared to$621,451 for the three months endedSeptember 30, 2020 . The expenses incurred during the three months endedSeptember 30, 2020 consisted of prepayment penalty and the expenses of the unamortized deferred financing costs related to the repayment and extinguishment of the debt in connection with the sale of one multifamily property during the three months endedSeptember 30, 2020 . The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the notes payable. Consolidated Results of Operations for the Nine Months EndedSeptember 30, 2021 Compared to the Nine Months EndedSeptember 30, 2020 The following table summarizes the consolidated results of operations for the nine months endedSeptember 30, 2021 and 2020: $ Change Due to Properties Held For the Nine Months Ended September 30, Throughout Both $ Change Due to Periods and Acquisitions or Corporate Level 2021 2020 Change $ Change % Dispositions(1) Activity(2) Total revenues$ 259,424,343 $ 217,680,042 $ 41,744,301 19 %$ 34,555,616 $ 7,188,685 Operating, maintenance and management (65,213,378) (53,783,824) (11,429,554) (21) % (8,806,436) (2,623,118) Real estate taxes and insurance (41,263,876) (35,346,220) (5,917,656) (17) % (4,903,263) (1,014,393) Fees to affiliates (12,708) (30,586,344) 30,573,636 100 % 12,731,112 17,842,524 Depreciation and amortization (101,203,302) (129,596,268) 28,392,966 22 % 25,022,865 3,370,101 Interest expense (60,174,405) (54,734,431) (5,439,974) (10) % (6,272,206) 832,232 General and administrative expenses (37,128,402) (19,408,854) (17,719,548) (91) % 355,536 (18,075,084) Impairment of real estate - (5,039,937) 5,039,937 100 % 5,039,937 - Gain on sale of real estate, net - 12,777,033 (12,777,033) (100) % (12,777,033) - Interest income 252,450 553,011 (300,561) (54) % (148,159) (152,402) Insurance proceeds in excess of losses incurred 511,291 236,754 274,537 116 % 468,755 (194,218) Equity in loss from unconsolidated joint venture - (3,020,111) 3,020,111 100 % 3,020,111 - Fees and other income from affiliates 4,651,364 390,099 4,261,265 1,092 % - 4,261,265 Loss on debt extinguishment - (621,451) 621,451 100 % 621,451 - Net loss$ (40,156,623) $ (100,500,501) $ 60,343,878 60 % NOI(3)$ 152,940,297 $ 120,351,797 $ 32,588,500 27 % FFO(4)$ 60,439,823 $ 24,993,259 $ 35,446,564 142 % MFFO(4)$ 64,701,030 $ 33,162,084 $ 31,538,946 95 % ________________ 77
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(1) Represents the favorable (unfavorable) dollar amount change for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , related to multifamily properties acquired, disposed of, or placed in service, on or afterJanuary 1, 2020 . (2) Represents the favorable (unfavorable) dollar amount change for the nine months endedSeptember 30, 2021 , compared to the nine months endedSeptember 30, 2020 , related to multifamily properties and corporate level entities owned by us throughout both periods presented. (3) See "-Net Operating Income" below for a reconciliation of NOI to net loss. (4) See "-Funds From Operations and Modified Funds From Operations" below for a reconciliation of FFO and MFFO to net loss. Net loss For the nine months endedSeptember 30, 2021 , we had a net loss of$40,156,623 compared to$100,500,501 for the nine months endedSeptember 30, 2020 . The decrease in net loss of$60,343,878 over the comparable prior year period was due to an increase in total revenues of$41,744,301 , a decrease in fees to affiliates of$30,573,636 , a decrease in depreciation and amortization expense of$28,392,966 , a decrease in impairment of real estate of$5,039,937 , an increase in insurance proceeds in excess of losses incurred of$274,537 , a decrease in equity in loss from unconsolidated joint venture of$3,020,111 , an increase in fees and other income from affiliates of$4,261,265 and a decrease in loss on debt extinguishment of$621,451 , partially offset by an increase in operating, maintenance and management expenses of$11,429,554 , an increase in real estate taxes and insurance of$5,917,656 , an increase in interest expense of$5,439,974 , an increase in general and administrative expenses of$17,719,548 , a decrease in gain on sale of real estate, net of$12,777,033 , and a decrease in interest income of$300,561 . Total revenues Total revenues were$259,424,343 for the nine months endedSeptember 30, 2021 , compared to$217,680,042 for the nine months endedSeptember 30, 2020 . The increase of$41,744,301 was primarily due to the increase in total revenues of$34,555,616 due to the increase in the number of properties in our portfolio, primarily from the Mergers, which experienced a full nine months of operations in 2021. In addition, we experienced an increase of$7,188,685 in total revenues at the multifamily properties held throughout both periods as a result of an increase in occupancy, ordinary monthly rent increases and the completion of value-enhancement projects. Operating, maintenance and management expenses Operating, maintenance and management expenses were$65,213,378 for the nine months endedSeptember 30, 2021 , compared to$53,783,824 for the nine months endedSeptember 30, 2020 . The increase of$11,429,554 was primarily due to the increase in the number of properties in our portfolio, primarily from the Mergers, which experienced a full nine months of operations in 2021. In addition, we experienced an increase of$2,623,118 in operating, maintenance and management expenses at the multifamily properties held throughout both periods due to increases in payroll, information technology related expenses, utilities, repairs and maintenance and turnover costs. Real estate taxes and insurance Real estate taxes and insurance expenses were$41,263,876 for the nine months endedSeptember 30, 2021 , compared to$35,346,220 for the nine months endedSeptember 30, 2020 . The increase of$5,917,656 was primarily due to the increase in the number of properties in our portfolio, primarily from the Mergers, which experienced a full nine months of operations in 2021. In addition, we experienced an increase of$1,014,393 in real estate taxes and insurance expenses at the multifamily properties held throughout both periods. Fees to affiliates Fees to affiliates were$12,708 for the nine months endedSeptember 30, 2021 , compared to$30,586,344 for the nine months endedSeptember 30, 2020 . The decrease of$30,573,636 was primarily due to the elimination of investment management fees, property management fees, loan coordination fees and the reimbursement of onsite personnel as a result of costs savings in connection with the Internalization Transaction. 78
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Depreciation and amortization Depreciation and amortization expenses were$101,203,302 for the nine months endedSeptember 30, 2021 , compared to$129,596,268 for the nine months endedSeptember 30, 2020 . The decrease of$28,392,966 was primarily due to the net decrease in tenant origination and absorption costs acquired in connection with the Mergers, subsequently amortized sinceSeptember 30, 2020 . In addition, we experienced a decrease of$3,370,101 in depreciation expenses at the properties held throughout both periods. We expect these amounts to increase slightly in future periods as a result of anticipated future enhancements to our real estate portfolio. Interest expense Interest expense for the nine months endedSeptember 30, 2021 , was$60,174,405 compared to$54,734,431 for the nine months endedSeptember 30, 2020 . The increase of$5,439,974 was due to the increase in the number of properties in our portfolio, primarily from the Mergers, and entering into the PNC MCFA inJune 2020 , which experienced a full nine months of expense in 2021. Included in interest expense is the amortization of deferred financing costs of$1,646,291 and$1,382,954 , net, unrealized loss on derivative instruments of$39,699 and$56,287 , amortization of net debt premiums of$(1,269,484) and$(959,827) , interest on capital leases of$258 and$47 , closing costs associated with the refinancing of debt of$0 and$42,881 , credit facility commitment fees of$98,852 and$0 , net of capitalized interest of$844,577 and$576,521 and interest on construction loans of$69,515 and$0 , for the nine months endedSeptember 30, 2021 and 2020, respectively. The capitalized interest is included in real estate held for development on the consolidated balance sheets. Our interest expense in future periods will vary based on the impact of changes to LIBOR or the adoption of a replacement to LIBOR, our level of future borrowings, which will depend on the availability and cost of debt financing and the opportunity to acquire real estate and real estate-related investments meeting our investment objectives. General and administrative expenses General and administrative expenses for the nine months endedSeptember 30, 2021 , were$37,128,402 compared to$19,408,854 for the nine months endedSeptember 30, 2020 . These general and administrative expenses consisted primarily of payroll costs, legal fees, IT related expenses, insurance premiums, audit fees, other professional fees and independent director compensation. The increase of$17,719,548 was primarily due to an increase of$18,075,084 in general and administrative expenses predominantly due to payroll costs for the acquired personnel as a result of the Internalization Transaction, partially offset by the$355,536 change in general and administrative expenses related to properties acquired and or disposed of sinceSeptember 30, 2020 . Impairment of real estate assets Impairment charges of real estate assets for the nine months endedSeptember 30, 2021 , were$0 compared to$5,039,937 for the nine months endedSeptember 30, 2020 . The decrease in impairment charge of$5,039,937 resulted from our efforts to actively market two multifamily properties for sale at disposition prices that were less than their carrying values during the nine months endedSeptember 30, 2020 . No impairment charges were recorded during the nine months endedSeptember 30, 2021 . Gain on sale of real estate Gain on sale of real estate for the nine months endedSeptember 30, 2021 , was$0 compared to$12,777,033 for the nine months endedSeptember 30, 2020 . The decrease in gain on sale of real estate was due to the gain recognized on the disposition of one multifamily property during the nine months endedSeptember 30, 2020 , compared to the disposition of no multifamily properties during the nine months endedSeptember 30, 2021 . Our gain on sale of real estate in future periods will vary based on the opportunity to sell properties and real estate-related investments. Interest income Interest income for the nine months endedSeptember 30, 2021 , was$252,450 compared to$553,011 for the nine months endedSeptember 30, 2020 . Interest income consisted of interest earned on our cash, cash equivalents and restricted cash deposits. In general, we expect interest income to fluctuate with the change in our cash, cash equivalents and restricted cash deposits. 79
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Insurance proceeds in excess of losses incurred Insurance proceeds in excess of losses incurred for the nine months endedSeptember 30, 2021 , was$511,291 compared to$236,754 for the nine months endedSeptember 30, 2020 . In general, we expect insurance proceeds in excess of losses incurred to be correlated to the volume and severity of insurance related incidents at our multifamily properties. Equity in loss from unconsolidated joint venture Equity in loss from unconsolidated joint venture for the nine months endedSeptember 30, 2021 , was$0 compared to$3,020,111 for the nine months endedSeptember 30, 2020 . Upon consummation of the SIR Merger onMarch 6, 2020 , we acquired a 10% interest in a joint venture. Our investment in the joint venture had been accounted for as an unconsolidated joint venture under the equity method of accounting. OnJuly 16, 2020 , we sold our joint venture interest. See Note 5 (Investment in Unconsolidated Joint Venture) to our consolidated financial statements in this Quarterly Report for details. Fees and other income from affiliates Fees and other income from affiliates for the nine months endedSeptember 30, 2021 , was$4,651,364 compared to$390,099 for the nine months endedSeptember 30, 2020 . The increase of$4,261,265 was solely due to income earned pursuant to the SRI Property Management Agreements and Construction Management Agreements with affiliates of our former sponsor and the Transition Services Agreement entered into in connection with the Internalization Transaction. See Note 10 (Related Party Arrangements) to our consolidated financial statements in this Quarterly Report for details. Loss on debt extinguishment Loss on debt extinguishment for the nine months endedSeptember 30, 2021 , was$0 compared to$621,451 for the nine months endedSeptember 30, 2020 . The expenses incurred during the nine months endedSeptember 30, 2020 consisted of prepayment penalty and the expenses of the unamortized deferred financing costs related to the repayment and extinguishment of the debt in connection with the sale of one multifamily property during the nine months endedSeptember 30, 2020 . The loss on debt extinguishment will vary in future periods if we repay the remaining outstanding principal prior to the scheduled maturity dates of the notes payable. Property Operations for the Three Months EndedSeptember 30, 2021 , Compared to the Three Months EndedSeptember 30, 2020 For purposes of evaluating comparative operating performance, we categorize our properties as "same-store" or "non-same-store." A "same-store" property is a property that was owned atJuly 1, 2020 . A "non-same-store" property is a property that was acquired, placed into service or disposed of afterJuly 1, 2020 . As ofSeptember 30, 2021 , 68 of our properties were categorized as same-store properties. The following table presents the same-store results from operations for the three months endedSeptember 30, 2021 and 2020: For the Three Months Ended September 30, 2021 2020 Change $ Change % Same-store properties: Revenues$ 87,552,950 $ 81,765,498 $ 5,787,452 7.1 % Operating expenses(1) 34,426,783 36,136,366 (1,709,583) (4.7) % Net operating income 53,126,167 45,629,132 7,497,035 16.4 % Non-same-store properties: Net operating income 1,577,546 889,889 687,657 Total Net operating income(2)$ 54,703,713 $
46,519,021
________________
(1)Same-store operating expenses include operating, maintenance and management expenses, real estate taxes and insurance, certain fees to affiliates and property-level general and administrative expenses.
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(2)See "-Net Operating Income" below for a reconciliation of NOI to net loss. Net Operating Income Same-store net operating income for the three months endedSeptember 30, 2021 , was$53,126,167 compared to$45,629,132 for the three months endedSeptember 30, 2020 . The 16.4% increase in same-store net operating income was a result of a 7.1% increase in same-store rental revenues and a 4.7% decrease in same-store operating expenses. Revenues Same-store revenues for the three months endedSeptember 30, 2021 , were$87,552,950 compared to$81,765,498 for the three months endedSeptember 30, 2020 . The 7.1% increase in same-store revenues was primarily a result of an increase in same-store occupancy from 95.9% as ofSeptember 30, 2020 , to 96.6% as ofSeptember 30, 2021 and increases in average monthly rents from$1,174 as ofSeptember 30, 2020 to$1,232 as ofSeptember 30, 2021 . Operating Expenses Same-store operating expenses for the three months endedSeptember 30, 2021 , were$34,426,783 compared to$36,136,366 for the three months endedSeptember 30, 2020 . The decrease in same-store operating expenses was primarily attributable to a decrease in property management fees as a result of the Internalization Transaction in addition to a decrease in real estate taxes as a result of successful challenges to assessed property values and a decrease in property related general and administrative expenses, partially offset by increases in insurance and repairs and maintenance costs during the three months endedSeptember 30, 2021 , compared to the three months endedSeptember 30, 2020 . Net Operating Income NOI is a non-GAAP financial measure of performance. NOI is used by investors and our management to evaluate and compare the performance of our properties, to determine trends in earnings and to compute the fair value of our properties as it is not affected by (1) the cost of funds, (2) acquisition costs as applicable, (3) non-operating fees to affiliates, (4) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (5) general and administrative expenses (including excess property insurance) and non-operating other gains and losses that are specific to us or (6) impairment of real estate assets or other investments. The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital which may have changed or may change in the future. Acquisition costs and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale which will usually change from period to period. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these costs from net income (loss) is useful because the resulting measure captures the actual revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs. However, the usefulness of NOI is limited because it excludes general and administrative costs, interest expense, interest income and other expense, acquisition costs as applicable, certain fees to affiliates, depreciation and amortization expense and gains or losses from the sale of properties, impairment charges and non-operating other gains and losses as stipulated by GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income which further limits its usefulness. NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in "-Results of 81
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Operations" regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do. The following is a reconciliation of our NOI to net loss for the three and nine months endedSeptember 30, 2021 and 2020 computed in accordance with GAAP: For the Three Months Ended For
the Nine Months Ended September
September 30, 30,
2021 2020 2021 2020
Net loss $ (11,646,149) $ (37,758,065) $ (40,156,623) $ (100,500,501)
Fees to affiliates(1) - 5,648,468 - 21,143,650
Depreciation and amortization 34,051,286 47,564,706 101,203,302 129,596,268 Interest expense 20,279,374 20,628,159 60,174,405 54,734,431 Loss on debt extinguishment - 621,451 - 621,451 General and
administrative expenses 14,066,611 11,705,698 37,128,402 19,408,854
Gain on sale of real
estate - (1,392,434)
- (12,777,033)
Other gains(2) (425,313) (277,837) (763,741) (789,765) Adjustments for investment in unconsolidated joint venture(3) - 163,001 - 1,816,220 Other-than-temporary impairment of investment in unconsolidated joint venture(4) - - - 2,442,411 Impairment of real estate(5) - - - 5,039,937 Fees and other income from affiliates(6) (1,622,096) (390,099) (4,651,364) (390,099) Affiliated rental revenue(7) - 5,973 5,916 5,973
Net operating income
_______________
(1) Fees to affiliates for the three and nine months endedSeptember 30, 2021 , exclude property management fees of$4,158 and$12,708 , respectively, that are included in NOI. Fees to affiliates for the three and nine months endedSeptember 30, 2020 , exclude property management fees of$1,618,611 and$5,484,468 and other reimbursements of$1,182,636 and$3,958,226 , respectively, that are included in NOI. (2) Other gains for the three and nine months endedSeptember 30, 2021 and 2020, include non-recurring insurance claim recoveries and interest income that are not included in NOI. (3) Reflects adjustment to add back our noncontrolling interest share of the adjustments to reconcile our net loss attributable to common stockholders to NOI for our equity investment in the unconsolidated joint venture, which principally consisted of depreciation, amortization and interest expense incurred by the joint venture as well as the amortization of outside basis difference. The adjustment for investment in unconsolidated joint venture also includes a gain on sale of the investment in unconsolidated joint venture of$66,802 for the three and nine months endedSeptember 30, 2020 . (4) Reflects adjustment to add back an other-than-temporary impairment of$2,442,411 in the nine months endedSeptember 30, 2020 related to our investment inBREIT Steadfast MF JV LP (our "Joint Venture"). See Note 5 (Investment in Unconsolidated Joint Venture) to our consolidated unaudited financial statements in this Quarterly Report for details. (5) Reflects adjustments to add back impairment charges in the nine months endedSeptember 30, 2020 related to our efforts to actively market two multifamily properties for sale at disposition prices that were less than their carrying values. (6) Reflects adjustment to exclude income earned pursuant to the Transition Services Agreement, Property Management Agreements and Construction Management Agreements entered into in connection with the Internalization Transaction. (7) Reflects adjustment to add back rental revenue earned from a consolidated entity following the Internalization Transaction that represent intercompany transactions that are eliminated in consolidation. 82
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Funds from Operations and Modified Funds from Operations Due to certain unique operating characteristics of real estate companies, as discussed below, NAREIT, an industry trade group, has promulgated a measure known as FFO, which we believe to be an appropriate supplemental measure to reflect the operating performance of a REIT. The use of FFO is recommended by the REIT industry as a supplemental performance measure. FFO is not equivalent to our net income (loss) as determined under GAAP. We define FFO, a non-GAAP financial measure, consistent with the standards established by the White Paper on FFO approved by theBoard of Governors of NAREIT, as revised inDecember 2018 , or the White Paper. The White Paper defines FFO as net income (loss) computed in accordance with GAAP, excluding gains or losses from sales of property and non-cash impairment charges of real estate related investments, plus real estate related depreciation and amortization, cumulative effects of accounting changes and after adjustments for unconsolidated partnerships and joint ventures. According to the White Paper, while the majority of equity REITs measure FFO in accordance with NAREIT's definition, there are variations in the securities to which the reported NAREIT-defined FFO applies (e.g., all equity securities, all common shares, all common shares less shares held by non-controlling interests). While each of these metrics may represent FFO as defined by NAREIT, accurate labeling with respect to applicable securities is important, particularly as it relates to the labeling of the FFO metric and in the reconciliation of GAAP net income (loss) to FFO. In calculating FFO, we believe it is appropriate to disregard impairment charges, as this is a fair value adjustment that is largely based on market fluctuations and assessments regarding general market conditions which can change over time. An asset will only be evaluated for impairment if certain impairment indications exist and if the carrying, or book value, exceeds the total estimated undiscounted future cash flows (including net rental and lease revenues, net proceeds on the sale of the property, and any other ancillary cash flows at a property or group level under GAAP) from such asset. Investors should note, however, that determinations of whether impairment charges have been incurred are based partly on anticipated operating performance, because estimated undiscounted future cash flows from a property, including estimated future net rental and lease revenues, net proceeds on the sale of the property, and certain other ancillary cash flows, are taken into account in determining whether an impairment charge has been incurred. While impairment charges are excluded from the calculation of FFO as described above, investors are cautioned that due to the fact that impairments are based on estimated future undiscounted cash flows and the relatively limited term of our operations, it could be difficult to recover any impairment charges. Our FFO calculation complies with NAREIT's policy described above. 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, especially if such assets are not adequately maintained or repaired and renovated as required by relevant circumstances and/or as requested or required by lessees for operational purposes in order to maintain the value disclosed. We believe that since real estate values historically rise and fall with market conditions, including inflation, interest rates, the business cycle, unemployment and consumer spending, presentations of operating results for a REIT using historical accounting for depreciation may be less informative. Historical accounting for real estate involves the use of GAAP. Any other method of accounting for real estate such as the fair value method cannot be construed to be any more accurate or relevant than the comparable methodologies of real estate valuation found in GAAP. Nevertheless, we believe that the use of FFO, which excludes the impact of real estate related depreciation and amortization, provides a more complete understanding of our performance to investors and to management, and when compared year over year, reflects the impact on our operations from trends in occupancy rates, rental rates, operating costs, general and administrative expenses, and interest costs, which may not be immediately apparent from net income. We adopted Accounting Standards Update, or ASU, 2016-02, Leases, or ASU 2016-02 onJanuary 1, 2019 , which requires us, as a lessee, to recognize a liability for obligations under a lease contract and a right-of-use, or ROU, asset. The carrying amount of the ROU asset is amortized over the term of the lease. Because we have no ownership rights (current or residual) in the underlying asset, NAREIT concluded that the amortization of the ROU asset should not be added back to GAAP net income (loss) in calculating FFO. This amortization expense is included in FFO. The White Paper also states that non-real estate depreciation and amortization such as computer software, company office improvements, furniture and fixtures, and other items commonly found in other industries are required to be recognized as expenses by GAAP in the calculation of net income and, similarly, should be included in FFO. However, FFO, and MFFO as described below, should not be construed to be more relevant or accurate than the current GAAP methodology in calculating net income or in its applicability in evaluating our operating performance. The method utilized to evaluate the value and performance of real estate under GAAP should be construed as a more relevant measure of operational performance and considered more prominently than the non-GAAP FFO and MFFO measures and the adjustments to GAAP in calculating FFO and MFFO. 83
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Changes in the accounting and reporting promulgations under GAAP (for acquisition fees and expenses from a capitalization/depreciation model to an expensed-as-incurred model) that were put into effect in 2009 and other changes to GAAP accounting for real estate subsequent to the establishment of NAREIT's definition of FFO have prompted an increase in cash-settled expenses, specifically acquisition fees and expenses for all industries as items that are expensed under GAAP, that are typically accounted for as operating expenses. Management believes these fees and expenses do not affect our overall long-term operating performance. Publicly registered, non-listed REITs typically have a significant amount of acquisition activity and are substantially more dynamic during their initial years of investment and operation. Due to the above factors and other unique features of publicly registered, non-listed REITs, the IPA, an industry trade group, has standardized a measure known as MFFO, which the IPA has recommended as a supplemental measure for publicly registered, non-listed REITs and which we believe to be another appropriate supplemental measure to reflect the operating performance of a public, non-listed REIT having the characteristics described above. MFFO is not equivalent to our net income or loss as determined under GAAP. We believe that, because MFFO excludes costs that we consider more reflective of investing activities and other non-operating items included in FFO and also excludes acquisition fees and expenses that are not capitalized, as discussed below, and affect our operations only in periods in which properties are acquired, MFFO can provide, on a going forward basis, an indication of the sustainability (that is, the capacity to continue to be maintained) of our operating performance after the period in which we are acquiring our properties and once our portfolio is in place. By providing MFFO, we believe we are presenting useful information that assists investors and analysts to better assess the sustainability of our operating performance after our offering has been completed and our properties have been acquired. We also believe that MFFO is a recognized measure of sustainable operating performance by the public, non-listed REIT industry. Further, we believe MFFO is useful in comparing the sustainability of our operating performance after our offering and acquisitions are completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities. Investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our offering has been completed and properties have been acquired, as it excludes acquisition costs that have a negative effect on our operating performance during the periods in which properties are acquired. We define MFFO, a non-GAAP financial measure, consistent with the IPA's Guideline 2010-01, Supplemental Performance Measure for Publicly Registered, Non-Listed REITs: Modified Funds from Operations, or the Practice Guideline, issued by the IPA inNovember 2010 . The Practice Guideline defines MFFO as FFO further adjusted for the following items, as applicable, included in the determination of GAAP net income: acquisition fees and expenses; amounts relating to deferred rent receivables and amortization of above and below market leases and liabilities (which are adjusted in order to reflect such payments from a GAAP accrual basis to a cash basis of disclosing the rent and lease payments); accretion of discounts and amortization of premiums on debt investments; mark-to-market adjustments included in net income; nonrecurring gains or losses included in net income from the extinguishment or sale of debt, hedges, foreign exchange, derivatives or securities holdings where trading of such holdings is not a fundamental attribute of the business plan, unrealized gains or losses resulting from consolidation from, or deconsolidation to, equity accounting, and after adjustments for consolidated and unconsolidated partnerships and joint ventures, with such adjustments calculated to reflect MFFO on the same basis. The accretion of discounts and amortization of premiums on debt investments, nonrecurring unrealized gains and losses on hedges, foreign exchange, derivatives or securities holdings, unrealized gains and losses resulting from consolidations, as well as other listed cash flow adjustments are adjustments made to net income in calculating the cash flows provided by operating activities and, in some cases, reflect gains or losses which are unrealized and may not ultimately be realized. We do not retain an outside consultant to review all our hedging agreements. Inasmuch as interest rate hedges are not a fundamental part of our operations, we believe it is appropriate to exclude such non-recurring gains and losses in calculating MFFO, as such gains and losses are not reflective of on-going operations. Our MFFO calculation complies with the Practice Guideline described above, except with respect to certain acquisition fees and expenses as discussed below. In calculating MFFO, we exclude acquisition related expenses, amortization of above and below market leases, fair value adjustments of derivative financial instruments, deferred rent receivables and the adjustments of such items related to noncontrolling interests. Historically under GAAP, acquisition fees and expenses were characterized as operating expenses in determining operating net income. However, pursuant to Accounting Standards Codification, or ASC 805-50, Business Combinations - Related Issues, or ASC 805, acquisition fees and expenses are capitalized and depreciated under certain conditions. Prior to the completion of the Internalization Transaction, these expenses were paid in cash by us. All paid acquisition fees and expenses had negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of other properties were generated to cover the purchase price of the property, these fees and expenses and other costs related to such property. The acquisition of properties, and the corresponding acquisition fees and expenses, was the key operational feature of our business plan to generate operational income and cash flow to fund distributions to our stockholders. Further, under GAAP, certain 84
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contemplated non-cash fair value and other non-cash adjustments are considered operating non-cash adjustments to net income in determining cash flow from operating activities. In addition, we view fair value adjustments of derivatives and gains and losses from dispositions of assets as non-recurring items or items which are unrealized and may not ultimately be realized, and which are not reflective of on-going operations and are therefore typically adjusted for when assessing operating performance. Our management uses MFFO and the adjustments used to calculate MFFO in order to evaluate our performance against other public, non-listed REITs with varying targeted exit strategies. As noted above, MFFO may not be a useful measure of the impact of long-term operating performance on value if we do not continue to operate in this manner. We believe that our use of MFFO and the adjustments used to calculate MFFO allow us to present our performance in a manner that reflects certain characteristics that are unique to public, non-listed REITs, such as defined acquisition period and targeted exit strategy, and hence that the use of such measures is useful to investors. By excluding expensed acquisition costs, that are not capitalized, the use of MFFO provides information consistent with management's analysis of the operating performance of the properties. Additionally, fair value adjustments, which are based on the impact of current market fluctuations and underlying assessments of general market conditions, but can also result from operational factors such as rental and occupancy rates, may not be directly related or attributable to our current operating performance. By excluding such changes that may reflect anticipated and unrealized gains or losses, we believe MFFO provides useful supplemental information. Presentation of this information is intended to provide useful information to investors as they compare the operating performance to that of other public, non-listed REITs, although it should be noted that not all public, non-listed REITs calculate FFO and MFFO the same way, so comparisons with other public, non-listed REITs may not be meaningful. Furthermore, FFO and MFFO are not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income (loss) or income (loss) from continuing operations as an indication of our performance, as an alternative to cash flows from operations as an indication of our liquidity, or indicative of funds available to fund our cash needs, including our ability to make distributions to our stockholders. FFO and MFFO should be reviewed in conjunction with GAAP measurements as an indication of our performance. MFFO is useful in assisting management and investors in assessing the sustainability of operating performance in future operating periods, and in particular, after the offering and acquisition stages are complete and net asset value is disclosed. MFFO is not a useful measure in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining MFFO. Neither theSEC , NAREIT nor any other regulatory body has passed judgment on the acceptability of the adjustments that we use to calculate FFO or MFFO. In the future, theSEC , NAREIT or another regulatory body may decide to standardize the allowable adjustments across the non-listed REIT industry and in response to such standardization we may have to adjust our calculation and characterization of FFO or MFFO accordingly. Our calculation of FFO and MFFO is presented in the following table for the three and nine months endedSeptember 30, 2021 and 2020: For the Three Months Ended September For the Nine Months Ended September 30, 30, 2021 2020 2021 2020 Reconciliation of net loss to MFFO: Net loss$ (11,646,149) $ (37,758,065) $
(40,156,623)
Depreciation of
real estate assets 33,320,641 33,055,972 99,073,405 89,122,949
Amortization of
lease-related
costs(1) 572,331 14,431,485 1,523,041 40,392,592
Gain on sale of
real estate, net - (1,392,434) - (12,777,033)
Impairment of
real estate(2) - - - 5,039,937
Impairment of
unconsolidated joint
venture(3) - - - 2,442,411
Adjustments for
investment in
unconsolidated
joint
venture(4) - 93,562 - 1,272,904
FFO 22,246,823 8,430,520 60,439,823 24,993,259
Acquisition fees
and expenses(5)(6) 3,363,088 6,137,923 4,226,522 7,495,352
Unrealized loss on
derivative
instruments 40,902 29,093 39,699 56,287
Loss on debt
extinguishment - 621,451 - 621,451Amortization of below market leases (1,671) (1,671) (5,014) (4,265) MFFO$ 25,649,142 $ 15,217,316 $ 64,701,030 $ 33,162,084 85
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________________
(1)Amortization of lease-related costs for the three and nine months endedSeptember 30, 2021 and 2020, exclude amortization of operating lease ROU assets of$3,367 and$10,101 and$3,367 and$6,845 , respectively, and exclude the amortization of Property Management Agreements acquired in connection with the Internalization Transaction of$138,890 and$552,512 and$71,392 and$71,392 , respectively, that are included in FFO. (2)Reflects adjustments to add back impairment charges in the nine months endedSeptember 30, 2020 related to our efforts to actively market two multifamily properties for sale at disposition prices that were less than their carrying values during the nine months endedSeptember 30, 2020 . (3)Reflects adjustments to add back impairment charges in the nine months endedSeptember 30, 2020 related to our investment in our Joint Venture. See Note 5 (Investment in Unconsolidated Joint Venture) to our consolidated unaudited financial statements in this Quarterly Report for details. (4)Reflects adjustments to add back our noncontrolling interest share of the adjustments to reconcile our net loss attributable to common stockholders to FFO for our equity investment in the unconsolidated joint venture, which principally consisted of depreciation and amortization incurred by the joint venture as well as the amortization of outside basis difference and a gain on sale of the investment in unconsolidated joint venture of$66,802 for the three and nine months endedSeptember 30, 2020 . (5)By excluding expensed acquisition costs that are not capitalized, management believes MFFO provides useful supplemental information that is comparable for each type of real estate investment and is consistent with management's analysis of the investing and operating performance of our properties. Acquisition fees and expenses include payments to our Former Advisor or third parties and are capitalized and depreciated under certain conditions. All paid and accrued acquisition fees and expenses will have negative effects on returns to investors, the potential for future distributions, and cash flows generated by us, unless earnings from operations or net sales proceeds from the disposition of properties are generated to cover the purchase price of the property, these fees and expenses and other costs related to the property. The acquisition of properties, and the corresponding acquisition fees and expenses, is the key operational feature of our business plan to generate operational income and cash flow to fund distributions to our stockholders. (6)Acquisition fees and expenses for the three and nine months endedSeptember 30, 2021 and 2020 include acquisition expenses of$3,363,088 and$4,226,522 and$6,137,923 and$7,495,352 , respectively, which did not meet the criteria for capitalization under ASC 805, and were recorded in general and administrative expenses in the accompanying consolidated statements of operations. These expenses largely pertained to professional services fees incurred in connection with the ongoing pursuit of strategic alternatives and the acquisition expenses related to real estate projects which did not come to fruition. FFO and MFFO may be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs. Related-Party Transactions and Agreements We have entered into agreements with our Former Sponsor and its affiliates, including in connection with the Internalization Transaction. Prior to the Internalization Transaction, we paid certain fees to, or reimbursed certain expenses of, paid other consideration for the performance of services provided to our Former Advisor or its affiliates for acquisition and advisory fees and expenses, financing coordination fees, organization and offering costs, sales commissions, dealer manager fees, asset and property management fees and expenses, leasing fees and reimbursement of certain operating costs. See Note 10 (Related Party Arrangements) to the consolidated financial statements included in this Quarterly Report for a discussion of the various related-party transactions, agreements and fees. Item 3. Quantitative and Qualitative Disclosures About Market Risk We may be exposed to the effects of interest rate changes as a result of borrowings used to maintain liquidity and to fund the acquisition, expansion and refinancing of our real estate investment portfolio and operations. We may be also exposed to the effects of changes in interest rates as a result of the acquisition and origination of mortgage, mezzanine, bridge and other loans. Our profitability and the value of our investment portfolio may be adversely affected during any period as a result of interest rate changes. Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings, prepayment penalties and cash flows and to lower overall borrowing costs. We have managed and will continue to manage interest rate risk by maintaining a ratio of fixed rate, long-term debt such that floating rate exposure is kept at an acceptable level. In addition, we may utilize a variety of financial instruments, including interest rate caps, collars, floors and swap 86
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agreements, in order to limit the effects of changes in interest rates on our operations. When we use these types of derivatives to hedge the risk of interest-earning assets or interest-bearing liabilities, we may be subject to certain risks, including the risk that losses on a hedge position will reduce the funds available for distributions to holders of our common stock and that the losses may exceed the amount we invested in the instruments. We borrow funds and make investments at a combination of fixed and variable rates. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt unless such instruments mature or are otherwise terminated. However, interest rate changes will affect the fair value of our fixed rate instruments. AtSeptember 30, 2021 , the fair value of our fixed rate debt was$1,951,113,474 and the carrying value of our fixed rate debt was$1,851,126,751 . The fair value estimate of our fixed rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated atSeptember 30, 2021 . As we expect to hold our fixed rate instruments to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations. Conversely, movements in interest rates on our variable rate debt will change our future earnings and cash flows, but not significantly affect the fair value of those instruments. However, changes in required risk premiums will result in changes in the fair value of floating rate instruments. AtSeptember 30, 2021 , the fair value of our variable rate debt was$279,635,713 and the carrying value of our variable rate debt was$284,115,373 . Based on interest rates as ofSeptember 30, 2021 , if interest rates are 100 basis points higher during the 12 months endingSeptember 30, 2022 , interest expense on our variable rate debt would increase by$2,911,995 and if interest rates are 100 basis points lower during the 12 months endingSeptember 30, 2022 , interest expense on our variable rate debt would decrease by$2,324,317 . AtSeptember 30, 2021 , the weighted-average interest rate of our fixed rate debt and variable rate debt was 3.95% and 2.08%, respectively. The weighted-average interest rate of our blended fixed and variable rates was 3.70% atSeptember 30, 2021 . The weighted-average interest rate represents the actual interest rate in effect atSeptember 30, 2021 (consisting of the contractual interest rate), using interest rate indices as ofSeptember 30, 2021 , where applicable. We may also be exposed to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative contract is negative, we will owe the counterparty and, therefore, do not have credit risk. We will seek to minimize the credit risk in derivative instruments by entering into transactions with high-quality counterparties. As ofSeptember 30, 2021 , we did not have counterparty risk on our interest rate cap agreements as the underlying variable rates for each of our interest rate cap agreements as ofSeptember 30, 2021 were not in excess of the capped rates. See also Note 14 (Derivative Financial Instruments) to our unaudited consolidated financial statements included in this Quarterly Report. Item 4. Controls and Procedures Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms, and that such information is accumulated and communicated to us, including our chief executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily are required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs. As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as ofSeptember 30, 2021 , was conducted under the supervision and with the participation of our management, including our chief executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and principal financial officer concluded that our disclosure controls and procedures, as ofSeptember 30, 2021 , were effective at the reasonable assurance level. Internal Control Over Financial Reporting There have been no changes in our internal control over financial reporting that occurred during the quarter endedSeptember 30, 2021 , that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 87
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