þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Maryland | 27-0351641 | |
(State or Other Jurisdiction of | (I.R.S. Employer | |
Incorporation or Organization) | Identification No.) | |
18100 Von Karman Avenue, Suite 500 | ||
Irvine, California | 92612 | |
(Address of Principal Executive Offices) | (Zip Code) |
Large Accelerated filer o | Accelerated filer o | Non-Accelerated filer o (Do not check if smaller reporting company) |
Smaller reporting company þ |
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
1
June 30, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Assets: |
||||||||
Real Estate: |
||||||||
Land |
$ | 3,112,459 | $ | 758,600 | ||||
Building and improvements |
30,527,676 | 15,569,680 | ||||||
Tenant origination and absorption costs |
1,683,022 | 1,224,044 | ||||||
Total real estate, cost |
35,323,157 | 17,552,324 | ||||||
Less accumulated depreciation and amortization |
(1,761,525 | ) | (540,572 | ) | ||||
Total real estate, net |
33,561,632 | 17,011,752 | ||||||
Cash and cash equivalents |
5,737,651 | 2,858,197 | ||||||
Restricted cash |
392,220 | | ||||||
Rents and other receivables |
186,594 | 119,210 | ||||||
Deferred financing costs and other assets, net |
371,756 | 182,523 | ||||||
Total assets |
$ | 40,249,853 | $ | 20,171,682 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Accounts payable and accrued liabilities |
$ | 1,048,615 | $ | 831,501 | ||||
Notes payable |
25,822,000 | 11,650,000 | ||||||
Distributions payable |
114,009 | 63,566 | ||||||
Due to affiliates, net |
690,156 | 381,910 | ||||||
Total liabilities |
27,674,780 | 12,926,977 | ||||||
Commitments and contingencies (Note 10) |
||||||||
Redeemable common stock |
220,522 | 57,827 | ||||||
Equity: |
||||||||
Stockholders Equity: |
||||||||
Preferred stock, $0.01 par value per share;
100,000,000 shares authorized, no shares issued and outstanding |
| | ||||||
Common stock, $0.01 par value per share;
999,999,000 shares authorized, 2,103,227 and 1,184,283
shares issued and outstanding at June 30, 2011 and December
31, 2010, respectively |
21,032 | 11,843 | ||||||
Convertible stock, $0.01 par value per share;
1,000 shares issued and outstanding as of June 30, 2011 and
December 31, 2010 |
10 | 10 | ||||||
Additional paid-in capital |
17,201,054 | 9,568,008 | ||||||
Cumulative distributions and net losses |
(4,867,545 | ) | (2,392,983 | ) | ||||
Total stockholders equity |
12,354,551 | 7,186,878 | ||||||
Noncontrolling interest |
| | ||||||
Total equity |
12,354,551 | 7,186,878 | ||||||
Total liabilities and equity |
$ | 40,249,853 | $ | 20,171,682 | ||||
2
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Rental income |
$ | 968,250 | $ | | $ | 1,738,142 | $ | | ||||||||
Tenant reimbursements
and other |
105,864 | | 217,404 | | ||||||||||||
Total revenues |
1,074,114 | | 1,955,546 | | ||||||||||||
Expenses: |
||||||||||||||||
Operating, maintenance
and management |
336,141 | | 694,038 | | ||||||||||||
Real estate taxes and
insurance |
50,158 | | 211,693 | | ||||||||||||
Fees to affiliates |
444,528 | | 512,684 | | ||||||||||||
Depreciation and
amortization |
590,819 | | 1,220,953 | | ||||||||||||
Interest expense |
217,273 | | 384,085 | | ||||||||||||
General and
administrative expenses |
28,171 | 378,755 | 523,416 | 378,755 | ||||||||||||
Other acquisition costs |
278,262 | 47,515 | 338,191 | 47,515 | ||||||||||||
1,945,352 | 426,270 | 3,885,060 | 426,270 | |||||||||||||
Net loss |
(871,238 | ) | (426,270 | ) | (1,929,514 | ) | (426,270 | ) | ||||||||
Net loss attributable to
noncontrolling interest |
| | | | ||||||||||||
Net loss attributable to
common stockholders |
$ | (871,238 | ) | $ | (426,270 | ) | $ | (1,929,514 | ) | $ | (426,270 | ) | ||||
Net loss per common
share basic and
diluted |
$ | (0.48 | ) | $ | (2.85 | ) | $ | (1.22 | ) | $ | (2.10 | ) | ||||
Weighted average number
of common shares
outstanding basic and
diluted |
1,812,300 | 149,386 | 1,577,250 | 203,297 | ||||||||||||
Distributions declared
per common share |
$ | 0.174 | $ | | $ | 0.347 | $ | | ||||||||
3
Stockholders Equity | ||||||||||||||||||||||||||||||||||||
Cummulative | ||||||||||||||||||||||||||||||||||||
Common Stock | Convertible Stock | Additional Paid- | Distributions & | Total Stockholders | Noncontrolling | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | In Capital | Net Losses | Equity | Interest | Total Equity | ||||||||||||||||||||||||||||
BALANCE, December 31,
2009 |
22,223 | $ | 222 | 1,000 | $ | 10 | $ | 200,775 | $ | | $ | 201,007 | $ | 1,000 | $ | 202,007 | ||||||||||||||||||||
Issuance of common stock |
1,162,060 | 11,621 | | | 10,893,889 | | 10,905,510 | | 10,905,510 | |||||||||||||||||||||||||||
Commissions on sales of
common stock and
related
dealer manager fees to
affiliates |
| | | | (927,042 | ) | | (927,042 | ) | | (927,042 | ) | ||||||||||||||||||||||||
Transfers to redeemable
common stock |
| | | | (57,827 | ) | | (57,827 | ) | | (57,827 | ) | ||||||||||||||||||||||||
Other offering costs to
affiliates |
| | | | (596,561 | ) | | (596,561 | ) | | (596,561 | ) | ||||||||||||||||||||||||
Distributions declared |
| | | | | (230,402 | ) | (230,402 | ) | | (230,402 | ) | ||||||||||||||||||||||||
Amortization of
stock-based
compensation |
| | | | 54,774 | | 54,774 | | 54,774 | |||||||||||||||||||||||||||
Net loss for the year
ended December 31, 2010 |
| | | | | (2,162,581 | ) | (2,162,581 | ) | (1,000 | ) | (2,163,581 | ) | |||||||||||||||||||||||
BALANCE, December 31,
2010 |
1,184,283 | 11,843 | 1,000 | 10 | 9,568,008 | (2,392,983 | ) | 7,186,878 | | 7,186,878 | ||||||||||||||||||||||||||
Issuance of common stock |
918,944 | 9,189 | | | 9,118,560 | | 9,127,749 | | 9,127,749 | |||||||||||||||||||||||||||
Commissions on sales of
common stock and
related
dealer manager fees to
affiliates |
| | | | (847,294 | ) | | (847,294 | ) | | (847,294 | ) | ||||||||||||||||||||||||
Transfers to redeemable
common stock |
| | | | (162,695 | ) | | (162,695 | ) | | (162,695 | ) | ||||||||||||||||||||||||
Other offering costs to
affiliates |
| | | | (491,557 | ) | | (491,557 | ) | | (491,557 | ) | ||||||||||||||||||||||||
Distributions declared |
| | | | | (545,048 | ) | (545,048 | ) | | (545,048 | ) | ||||||||||||||||||||||||
Amortization of
stock-based
compensation |
| | | | 16,032 | | 16,032 | | 16,032 | |||||||||||||||||||||||||||
Net loss for the six
months ended June 30,
2011 |
| | | | | (1,929,514 | ) | (1,929,514 | ) | | (1,929,514 | ) | ||||||||||||||||||||||||
BALANCE, June 30, 2011 |
2,103,227 | $ | 21,032 | 1,000 | $ | 10 | $ | 17,201,054 | $ | (4,867,545 | ) | $ | 12,354,551 | $ | | $ | 12,354,551 | |||||||||||||||||||
4
Six Months Ended | ||||
June 30, 2011 | ||||
Cash Flows from Operating Activities: |
||||
Net loss |
$ | (1,929,514 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: |
||||
Depreciation and amortization |
1,220,953 | |||
Amortization of deferred finance costs |
8,466 | |||
Stock-based compensation |
32,282 | |||
Changes in operating assets and liabilities: |
||||
Restricted cash |
(126,062 | ) | ||
Rent and other receivables |
(9,709 | ) | ||
Other assets |
(80,979 | ) | ||
Accounts payable and accrued liabilities |
217,114 | |||
Due to affiliates, net |
306,917 | |||
Net cash used in operating activities |
(360,532 | ) | ||
Cash Flows from Investing Activities: |
||||
Acquisition of real estate investments |
(17,715,000 | ) | ||
Addition to real estate investments |
(55,833 | ) | ||
Restricted cash |
(266,158 | ) | ||
Net cash used in investing activities |
(18,036,991 | ) | ||
Cash Flows from Financing Activities: |
||||
Proceeds from issuance of notes payable |
14,172,000 | |||
Proceeds from issuance of common stock |
8,868,001 | |||
Payments of commissions on sale of common stock and related dealer
manager fees |
(847,294 | ) | ||
Reimbursement of other offering costs to affiliates |
(490,228 | ) | ||
Payment of deferred financing costs |
(116,720 | ) | ||
Distributions to common stockholders |
(308,782 | ) | ||
Net cash provided by financing activities |
21,276,977 | |||
Net increase in cash and cash equivalents |
2,879,454 | |||
Cash and cash equivalents, beginning of period |
2,858,197 | |||
Cash and cash equivalents, end of period |
$ | 5,737,651 | ||
Supplemental Disclosures of Cash Flow Information: |
||||
Interest paid |
$ | 332,684 | ||
Supplemental Disclosure of Noncash Transactions: |
||||
Increase in distributions payable |
$ | 50,443 | ||
Distributions paid to common stockholders through common stock issuances
pursuant to the dividend reinvestment plan |
$ | 185,822 | ||
5
6
7
Buildings
|
25-40 years | |
Building improvements
|
10-25 years | |
Tenant improvements
|
Shorter of lease term or expected useful life | |
Tenant origination and absorption costs
|
Remaining term of related lease | |
Furniture, fixtures, and equipment
|
5-10 years |
8
9
10
| Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities; | ||
| Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and | ||
| Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are both significant to the fair value measurement and unobservable. |
11
12
13
14
15
16
Property Name | City | State | Acquisition Date |
Land | Building and Improvements |
Tenant Origination and Absorption Costs |
Total Purchase Price |
|||||||||||||||||||||
Lincoln Tower Property |
Springfield | IL | 08/11/2010 | $ | 258,600 | $ | 8,741,736 | $ | 499,664 | $ | 9,500,000 | |||||||||||||||||
Park Place Property |
Des Moines | IA | 12/22/2010 | 500,000 | 6,825,620 | 724,380 | 8,050,000 | |||||||||||||||||||||
Arbor Pointe Property |
Louisville | KY | 05/05/2011 | 886,124 | 5,436,189 | 177,687 | 6,500,000 | |||||||||||||||||||||
Clarion Park Property |
Olathe | KS | 06/28/2011 | 1,467,735 | 9,465,974 | 281,291 | 11,215,000 | |||||||||||||||||||||
$ | 3,112,459 | $ | 30,469,519 | $ | 1,683,022 | $ | 35,265,000 | |||||||||||||||||||||
Accumulated | ||||||||||||||||||||
Acquisition | Total Real Estate at | Depreciation and | Total Real Estate, | |||||||||||||||||
Property Name | City | State | Date | Property Type | Cost | Amortization | Net | |||||||||||||
Lincoln Tower Property |
Springfield | IL | 08/11/2010 | Apartment | $ | 9,553,251 | $ | (784,440 | ) | $ | 8,768,811 | |||||||||
Park Place Property |
Des Moines | IA | 12/22/2010 | Condominium Rental | 8,052,696 | (882,955 | ) | 7,169,741 | ||||||||||||
Arbor Pointe Property |
Louisville | KY | 05/05/2011 | Apartment | 6,502,210 | (88,931 | ) | 6,413,279 | ||||||||||||
Clarion Park Property |
Olathe | KS | 06/28/2011 | Apartment | 11,215,000 | (5,199 | ) | 11,209,801 | ||||||||||||
$ | 35,323,157 | $ | (1,761,525 | ) | $ | 33,561,632 | ||||||||||||||
17
July 1, 2011 through December 31, 2011 |
$ | 81,162 | ||
2012 |
144,612 | |||
2013 |
74,487 | |||
2014 |
11,008 | |||
Thereafter |
| |||
$ | 311,269 | |||
18
June 30, 2011 | December 31, 2010 | |||||||
Cost |
$ | 1,683,022 | $ | 1,224,044 | ||||
Accumulated amortization |
(1,241,992 | ) | (390,644 | ) | ||||
Tenant origination and abosorption costs, net |
$ | 441,030 | $ | 833,400 | ||||
June 30, 2011 | December 31, 2010 | |||||||
Deferred financing costs |
$ | 189,220 | $ | 72,500 | ||||
Prepaid expenses |
122,906 | 57,447 | ||||||
Other assets |
69,206 | 53,686 | ||||||
381,332 | 183,633 | |||||||
Less: accumulated amortization |
(9,576 | ) | (1,110 | ) | ||||
Deferred financing costs and other
assets, net |
$ | 371,756 | $ | 182,523 | ||||
19
20
Remainder of | Maturities During the Years Ending December 31, | |||||||||||||||||||||||||||
Contractual Obligation | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||||
Principal payments on
outstanding
debt obligations (1) |
$ | 25,822,000 | $ | 98,973 | $ | 214,998 | $ | 5,226,185 | $ | 238,321 | $ | 6,899,879 | $ | 13,143,644 |
(1) | Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. |
21
22
23
Repurchase Price | ||
Share Purchase Anniversary | on Repurchase Date(1) | |
Less than 1 year
|
No Repurchase Allowed | |
1 year
|
92.5% of Primary Offering Price | |
2 years
|
95.0% of Primary Offering Price | |
3 years
|
97.5% of Primary Offering Price | |
4 years
|
100.0% of Primary Offering Price | |
In the event of a stockholders
death or disability
|
Average Issue Price for Shares(2) |
(1) | As adjusted for any stock dividends, combinations, splits, recapitalizations or any similar transaction with respect to the shares of common stock. | |
(2) | The purchase price per share for shares redeemed upon the death or disability of a stockholder will be equal to the average issue price per share for all of the stockholders shares. |
24
25
26
Incurred | Paid (Received) | |||||||||||||||
For the Three Months | For the Six Months | For the Three Months | For the Six Months | |||||||||||||
Ended June 30, 2011 | Ended June 30, 2011 | Ended June 30, 2011 | Ended June 30, 2011 | |||||||||||||
Consolidated Statements of Operations |
||||||||||||||||
Expensed |
||||||||||||||||
Organizational cost reimbursement |
$ | | $ | | $ | | $ | | ||||||||
Investment management fees (1) |
44,604 | 80,370 | | | ||||||||||||
Acquisition fees (1) |
362,683 | 362,683 | | 222,642 | ||||||||||||
Acquisition
expenses (2) |
75,131 | 135,060 | 88,161 | 135,246 | ||||||||||||
Property management |
||||||||||||||||
Fees (1) |
37,241 | 69,631 | 32,064 | 60,503 | ||||||||||||
Reimbursement of onsite
personnel (3) |
112,126 | 215,078 | 101,592 | 190,869 | ||||||||||||
Consolidated Balance Sheets |
||||||||||||||||
Additional paid-in-capital |
||||||||||||||||
Other offering costs reimbursement |
302,264 | 491,557 | 299,082 | 490,228 | ||||||||||||
Selling commissions |
331,319 | 534,272 | 331,319 | 534,272 | ||||||||||||
Dealer management fees |
194,073 | 313,022 | 194,073 | 313,022 | ||||||||||||
Due to (from) affiliates |
||||||||||||||||
Due from Advisor |
| | | (53,353 | ) | |||||||||||
$ | 1,459,441 | $ | 2,201,673 | $ | 1,046,291 | $ | 1,893,429 | |||||||||
(1) | Included in the $444,528 and $512,684 of fees to affiliates in the accompanying consolidated statement of operations for the three and six months ended June 30, 2011, respectively. | |
(2) | Included in the $278,262 and $338,191 of acquisition expenses in the accompanying consolidated statements of operations for the three and six months ended June 30, 2011, respectively. | |
(3) | Included in the $336,141 and $694,038 of operating, maintenance and management in the accompanying consolidated statements of operations for the three and six months ended June 30, 2011, respectively. |
27
Payable (Receivable) as of | ||||||||
June 30, 2011 | December 31, 2010 | |||||||
Consolidated Statements of Operations |
||||||||
Expensed |
||||||||
Organizational cost reimbursement |
$ | | $ | | ||||
Investment management fees (1) |
112,211 | 31,841 | ||||||
Acquisition fees (2) |
497,678 | 357,637 | ||||||
Acquisition expenses |
31,369 | 31,555 | ||||||
Property management |
||||||||
Fees |
16,143 | 7,014 | ||||||
Reimbursement of onsite
personnel |
24,209 | | ||||||
Consolidated Balance Sheets |
||||||||
Additional paid-in-capital |
||||||||
Other offering costs reimbursement |
8,546 | 7,216 | ||||||
Selling commissions |
| | ||||||
Dealer management fees |
| | ||||||
Due to (from) affiliates |
||||||||
Due from Advisor |
| (53,353 | ) | |||||
$ | 690,156 | $ | 381,910 | |||||
(1) | Investment management fees of $67,607 and $31,841 earned by the Advisor have been deferred as of June 30, 2011 and December 31, 2010, respectively, pursuant to the terms of the Advisory Agreement. | |
(2) | Acquisition fees earned by the advisor totaling $134,995 were deferred as of June 30, 2011 and December 31, 2010 pursuant to the terms of the Advisory Agreement. The remaining acquisition fees of $362,683 and $222,642 were due and payable and are included in due to affiliates in the accompanying balance sheets at June 30, 2011 and December 31, 2010, respectively. |
28
Gross offering proceeds: |
$ | 19,754,616 | ||
O&O limitation |
15 | % | ||
Total O&O costs available to be paid/reimbursed |
$ | 2,963,192 | ||
O&O expenses recorded |
||||
Sales commissions paid |
$ | 1,119,234 | ||
Broker dealer fees paid |
655,102 | |||
Private offering costs reimbursements |
423,707 | |||
Public offering costs reimbursements |
655,865 | |||
Public offering costs reimbursement accrual |
8,546 | |||
Organizational costs reimbursements |
100,738 | |||
Total O&O costs reimbursements recorded by the company |
$ | 2,963,192 | ||
29
Incurred for the | ||||||||||||||||||||||||
Incurred through | Amounts | Deferred as of | Six Months Ended | Amounts | Deferred as of | |||||||||||||||||||
December 31, 2010 | Recognized | December 31, 2010 | June 30, 2011 | Recognized | June 30, 2011 | |||||||||||||||||||
Organizational
expenses |
$ | 100,738 | $ | 100,738 | $ | | $ | | $ | | $ | | ||||||||||||
Private Offering costs |
2,301,719 | 876,649 | 1,425,070 | | | 1,425,070 | ||||||||||||||||||
Public Offering costs |
3,311,290 | 646,954 | 2,664,336 | 2,476,175 | 1,338,852 | 3,801,659 | ||||||||||||||||||
$ | 5,713,747 | $ | 1,624,341 | $ | 4,089,406 | $ | 2,476,175 | $ | 1,338,852 | $ | 5,226,729 | |||||||||||||
30
31
32
33
34
35
36
| the fact that we have a limited operating history as we commenced operations on August 11, 2010; | ||
| our ability to effectively deploy the proceeds raised in our public offering of common stock; | ||
| changes in economic conditions generally and the real estate and debt markets specifically; | ||
| our ability to continue to successfully identify and acquire real estate and real estate-related assets on terms that are favorable to us; | ||
| risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters and liquidity of real estate investments; | ||
| legislative or regulatory changes (including changes to the laws governing the taxation of real estate investment trusts, or REITs); | ||
| the availability of capital; | ||
| interest rates; and | ||
| changes to generally accepted accounting principles, or GAAP. |
37
38
39
40
41
42
| current cash balances; | ||
| sales of shares of common stock in our public offering; | ||
| various forms of secured financing; | ||
| equity capital from joint venture partners; | ||
| proceeds from our operating partnerships private placements, if any; and | ||
| proceeds from our distribution reinvestment plan. |
43
44
Payments Due During the Years Ending December 31, | ||||||||||||||||||||||||||||
Remainder of | ||||||||||||||||||||||||||||
Contractual Obligation | Total | 2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | |||||||||||||||||||||
Interest payments on
outstanding debt obligations (1) |
$ | 6,781,434 | $ | 659,855 | $ | 1,331,182 | $ | 1,319,266 | $ | 1,040,985 | $ | 896,427 | $ | 1,533,719 | ||||||||||||||
Principal payments on outstanding
debt obligations (2) |
$ | 25,822,000 | $ | 98,973 | $ | 214,998 | $ | 5,226,185 | $ | 238,321 | $ | 6,899,879 | $ | 13,143,644 |
(1) | Projected interest payments on outstanding debt obligations are based on the outstanding principal amounts and interest rates in effect at June 30, 2011. We incurred interest expense of $217,273 and $384,085 during the three and six months ended June 30, 2011, respectively, including amortization of deferred financing costs totaling $4,841 and $8,466, respectively. | |
(2) | Projected principal payments on outstanding debt obligations are based on the terms of the notes payable agreements. |
45
46
47
48
For the Three Months | For the Six Months | |||||||
Ended June 30, 2011 | Ended June 30, 2011 | |||||||
Reconciliation of net loss to FFO: |
||||||||
Net loss attributable to common shareholders |
$ | (871,238 | ) | $ | (1,929,514 | ) | ||
Depreciation of real estate assets |
202,737 | 369,605 | ||||||
Amortization of lease-related costs |
388,082 | 851,348 | ||||||
FFO |
(280,419 | ) | (708,561 | ) | ||||
Straight-line rent adjustment |
| | ||||||
Amortization of above or below market leases |
| | ||||||
Acquisition fees and expenses |
640,945 | 700,874 | ||||||
Net loss attributable to noncontrolling interest |
| | ||||||
MFFO |
$ | 360,526 | $ | (7,687 | ) | |||
49
50
Estimated/ | ||||||||
Type of Expense Amount | Amount | Actual | ||||||
Selling commissions and dealer manager fees |
$ | 1,321,394 | Actual | |||||
Other organization and offering costs |
765,150 | Actual | ||||||
Total expenses |
$ | 2,086,544 | ||||||
Total public offering proceeds (excluding DRP
proceeds) |
$ | 13,910,291 | Actual | |||||
Percentage of public offering proceeds used to pay for
organization and offering costs |
15 | % | Actual | |||||
51
3.1 | Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
3.2 | Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.1 | Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to Exhibit 4.1 to Post-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)). | |
4.2 | Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus, incorporated by reference to Exhibit 4.2 to Post-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748)). | |
10.1 | Notice, dated April 11, 2011, from Steadfast Asset Holdings, Inc. to Arbor Pointe, L.P. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed May 10, 2011) | |
10.2 | Assignment and Assumption of Purchase Agreement, dated May 5, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Arbor Pointe, LLC (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed May 10, 2011) | |
10.3 | Property Management Agreement, dated as of May 5, 2011, by and between SIR Arbor Pointe, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed May 10, 2011) | |
10.4 | Multifamily Note, dated May 4, 2011, by SIR Arbor Pointe, LLC in favor of PNC Bank, National Association and Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability by Steadfast Income REIT, Inc. (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed May 10, 2011) | |
10.5 | Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.6 to the Companys Form 8-K filed May 10, 2011) | |
10.6 | Assignment of Management Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC, Steadfast Management Co., Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.7 to the Companys Form 8-K filed May 10, 2011) |
52
10.7 | Operating Expense Reimbursement and Guaranty Agreement, dated as of May 25, 2011, by and among Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC, Beacon Bay Holdings, LLC and Rodney F. Emery (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed May 25, 2011) | |
10.8 | Purchase and Sale Agreement and Joint Escrow Instructions, dated May 3, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed June 17, 2011) | |
10.9 | First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 8, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed June 17, 2011) | |
10.10 | Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 10, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed June 17, 2011) | |
10.11 | Assignment and Assumption of Purchase Agreement, dated as of June 13, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Clarion Park, LLC (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed June 17, 2011) | |
10.12 | Property Management Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed July 6, 2011) | |
10.13 | Multifamily Note, dated as of June 28, 2011, by SIR Clarion Park, LLC in favor of PNC Bank, National Association (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed July 6, 2011) | |
10.14 | Multifamily Loan and Security Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed July 6, 2011) | |
10.15 | Multifamily Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 28, 2011, by and among SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed July 6, 2011) | |
10.16 | Guaranty of Non-Recourse Obligations, dated as of June 28, 2011, by and between Steadfast Income REIT, Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed July 6, 2011) | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document (Furnished herewith) | |
101.SCH | XBRL Schema Document (Furnished herewith) | |
101.CAL | XBRL Calculation Linkbase Document (Furnished herewith) | |
101.LAB | XBRL Labels Linkbase Document (Furnished herewith) | |
101.PRE | XBRL Presentation Linkbase Document (Furnished herewith) | |
101.DEF | XBRL Definition Linkbase Document (Furnished herewith) |
53
Steadfast Income REIT, Inc. |
||||
Date: August 15, 2011 | By: | /s/ Rodney F. Emery | ||
Rodney F. Emery | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) | ||||
Date: August 15, 2011 | By: | /s/ Kevin J. Keating | ||
Kevin J. Keating | ||||
Treasurer (Principal Financial and Accounting Officer) |
||||
3.1 | Second Articles of Amendment and Restatement of Steadfast Income REIT, Inc. (filed as Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
3.2 | Bylaws of Steadfast Secure Income REIT, Inc. (filed as Exhibit 3.2 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.1 | Form of Subscription Agreement (included as Appendix B to prospectus, incorporated by reference to Exhibit 4.1 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
4.2 | Steadfast Income REIT, Inc. Distribution Reinvestment Plan (included as Appendix C to prospectus, incorporated by reference to Exhibit 4.2 to Pre-Effective Amendment No. 5 to the Companys Registration Statement on Form S-11 (No. 333-160748) and incorporated herein by reference). | |
10.1 | Notice, dated April 11, 2011, from Steadfast Asset Holdings, Inc. to Arbor Pointe, L.P. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed May 10, 2011) | |
10.2 | Assignment and Assumption of Purchase Agreement, dated May 5, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Arbor Pointe, LLC (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed May 10, 2011) | |
10.3 | Property Management Agreement, dated as of May 5, 2011, by and between SIR Arbor Pointe, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed May 10, 2011) | |
10.4 | Multifamily Note, dated May 4, 2011, by SIR Arbor Pointe, LLC in favor of PNC Bank, National Association and Acknowledgement and Agreement of Key Principal to Personal Liability for Exceptions to Non-Recourse Liability by Steadfast Income REIT, Inc. (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed May 10, 2011) | |
10.5 | Multifamily Mortgage, Assignment of Rents and Security Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.6 to the Companys Form 8-K filed May 10, 2011) | |
10.6 | Assignment of Management Agreement, dated as of May 4, 2011, by and among SIR Arbor Pointe, LLC, Steadfast Management Co., Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.7 to the Companys Form 8-K filed May 10, 2011) | |
10.7 | Operating Expense Reimbursement and Guaranty Agreement, dated as of May 25, 2011, by and among Steadfast Income REIT, Inc., Steadfast Income Advisor, LLC, Beacon Bay Holdings, LLC and Rodney F. Emery (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed May 25, 2011) |
10.8 | Purchase and Sale Agreement and Joint Escrow Instructions, dated May 3, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed June 17, 2011) | |
10.9 | First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 8, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed June 17, 2011) | |
10.10 | Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions, dated June 10, 2011, by and between Olathe Housing Associates Limited Partnership and Steadfast Asset Holdings, Inc. (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed June 17, 2011) | |
10.11 | Assignment and Assumption of Purchase Agreement, dated as of June 13, 2011, by and between Steadfast Asset Holdings, Inc. and SIR Clarion Park, LLC (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed June 17, 2011) | |
10.12 | Property Management Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and Steadfast Management Co., Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K filed July 6, 2011) | |
10.13 | Multifamily Note, dated as of June 28, 2011, by SIR Clarion Park, LLC in favor of PNC Bank, National Association (Incorporated by reference to Exhibit 10.2 to the Companys Form 8-K filed July 6, 2011) | |
10.14 | Multifamily Loan and Security Agreement, dated as of June 28, 2011, by and between SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.3 to the Companys Form 8-K filed July 6, 2011) | |
10.15 | Multifamily Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of June 28, 2011, by and among SIR Clarion Park, LLC and PNC Bank, National Association (Incorporated by reference to Exhibit 10.4 to the Companys Form 8-K filed July 6, 2011) | |
10.16 | Guaranty of Non-Recourse Obligations, dated as of June 28, 2011, by and between Steadfast Income REIT, Inc. and PNC Bank, National Association (Incorporated by reference to Exhibit 10.5 to the Companys Form 8-K filed July 6, 2011) | |
31.1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
32.2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS | XBRL Instance Document (Furnished herewith) | |
101.SCH | XBRL Schema Document (Furnished herewith) | |
101.CAL | XBRL Calculation Linkbase Document (Furnished herewith) | |
101.LAB | XBRL Labels Linkbase Document (Furnished herewith) | |
101.PRE | XBRL Presentation Linkbase Document (Furnished herewith) | |
101.DEF | XBRL Definition Linkbase Document (Furnished herewith) |
1. | I have reviewed this quarterly report on Form 10-Q of Steadfast Income REIT, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Intentionally omitted; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Rodney F. Emery | |||
Rodney F. Emery | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
1. | I have reviewed this quarterly report on Form 10-Q of Steadfast Income REIT, Inc.; | |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; | |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Intentionally omitted; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Kevin J. Keating | |||
Kevin J. Keating | ||||
Treasurer (Principal Financial and Accounting Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Rodney F. Emery | |||
Rodney F. Emery | ||||
Chief Executive Officer, President and Chairman of the Board (Principal Executive Officer) |
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | ||
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
By: | /s/ Kevin J. Keating | |||
Kevin J. Keating | ||||
Treasurer (Principal Financial and Accounting Officer) |
||||
Consolidated Balance Sheets (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Stockholders' Equity: | Â | Â |
Preferred stock, par value | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 100,000,000 | 100,000,000 |
Preferred stock, shares outstanding | 0 | 0 |
Preferred stock, shares issued | 0 | 0 |
Common Stock
|
 |  |
Stockholders' Equity: | Â | Â |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 999,999,000 | 999,999,000 |
Common stock, shares issued | 2,103,227 | 1,184,283 |
Common stock, shares outstanding | 2,103,227 | 1,184,283 |
Convertible Stock
|
 |  |
Stockholders' Equity: | Â | Â |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, shares issued | 1,000 | 1,000 |
Common stock, shares outstanding | 1,000 | 1,000 |
Consolidated Statements of Operations (Unaudited) (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Revenues: | Â | Â | Â | Â |
Rental income | $ 968,250 | Â | $ 1,738,142 | Â |
Tenant reimbursements and other | 105,864 | Â | 217,404 | Â |
Total revenues | 1,074,114 | Â | 1,955,546 | Â |
Expenses: | Â | Â | Â | Â |
Operating, maintenance and management | 336,141 | Â | 694,038 | Â |
Real estate taxes and insurance | 50,158 | Â | 211,693 | Â |
Fees to affiliates | 444,528 | Â | 512,684 | Â |
Depreciation and amortization | 590,819 | Â | 1,220,953 | Â |
Interest expense | 217,273 | Â | 384,085 | Â |
General and administrative expenses | 28,171 | 378,755 | 523,416 | 378,755 |
Other acquisition costs | 278,262 | 47,515 | 338,191 | 47,515 |
Total expenses | 1,945,352 | 426,270 | 3,885,060 | 426,270 |
Net loss | (871,238) | (426,270) | (1,929,514) | (426,270) |
Net loss attributable to noncontrolling interest | Â | Â | Â | |
Net loss attributable to common stockholders | $ (871,238) | $ (426,270) | $ (1,929,514) | $ (426,270) |
Net loss per common share - basic and diluted | $ (0.48) | $ (2.85) | $ (1.22) | $ (2.10) |
Weighted average number of common shares outstanding - basic and diluted | 1,812,300 | 149,386 | 1,577,250 | 203,297 |
Distributions declared per common share | $ 0.174 | Â | $ 0.347 | Â |
Document and Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
Aug. 09, 2011
|
Jun. 30, 2010
|
|
Document and Entity Information [Abstract] | Â | Â | Â |
Entity Registrant Name | Steadfast Income REIT, Inc. | Â | Â |
Entity Central Index Key | 0001468010 | Â | Â |
Document Type | 10-Q | Â | Â |
Document Period End Date | Jun. 30, 2011 | ||
Amendment Flag | false | Â | Â |
Document Fiscal Year Focus | 2011 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Current Fiscal Year End Date | --12-31 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 482,309 |
Entity Common Stock, Shares Outstanding | Â | 2,433,087 | Â |
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Notes Payable
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Notes Payable [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Notes Payable |
6. Notes Payable
As of June 30, 2011 and December 31, 2010, the outstanding principal
amounts of the Company’s notes payable totaled $25,822,000 and $11,650,000, respectively, and were comprised of $6,650,000 issued by the
seller of the Lincoln Tower Property in connection with the acquisition of the Lincoln Tower
Property on August 11, 2010 (the “Lincoln Tower Note”), $5,000,000 issued by a regional bank in
connection with the Company’s acquisition of the Park Place Property on December 22, 2010 (the
“Park Place Note”), $5,200,000 issued by a regional bank in connection with the Company’s
acquisition of the Arbor Pointe Property on May 5, 2011 (the “Arbor Pointe Note”), and $8,972,000
issued by a regional bank in connection with the Company’s acquisition of the Clarion Park Property
on June 29, 2011 (the “Clarion Park Note”).
The Lincoln Tower Note requires interest only payments during the term and has a term of 60
months, ending September 1, 2015, with the option to extend the maturity date for up to two
successive periods of 12 months each, subject to customary and market rate extension provisions.
Interest on the Lincoln Tower Note accrues at a rate of 6% per annum through September 1, 2015.
The Park Place Note requires interest only payments during the term and has a term of 36
months, ending December 22, 2013, with the option to extend the maturity date for up to two
successive periods of 12 months each, subject to customary and market rate extension provisions.
Interest on the Park Place Note accrues at a rate of 5.25% per annum through December 22, 2013.
The Arbor Pointe Note requires monthly principal and interest payments during the term and has
a term of 84 months, ending June 1, 2018. Interest on the Arbor Pointe Note accrues at a rate of
4.86% per annum through June 1, 2018.
The Clarion Park Note requires monthly principal and interest payments during the term and has
a term of 84 months, ending July 1, 2018. Interest on the Clarion Park Note accrues at a rate of
4.58% per annum through July 1, 2018.
The
following is a summary of our aggregate maturities as of June 30, 2011:
The Company’s notes payable contain customary financial and non-financial debt covenants. As
of June 30, 2011 and December 31, 2010, the Company was in compliance with all financial debt
covenants.
As of June 30, 2011 and December 31, 2010, $76,185 and $33,250 of interest expense was
payable, respectively, which are included in accounts payable and accrued liabilities in the
accompanying consolidated balance sheets.
|
Subsequent Events
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Subsequent Events [Abstract] | Â |
Subsequent Events |
11. Subsequent Events
The Company evaluates subsequent events up until the date the consolidated financial statements are
issued.
Distributions Paid
On July 14, 2011, the Company paid distributions of $114,009, which related to distributions
declared for each day in the period from June 1, 2011 through June 30, 2011 and consisted of cash
distributions paid in the amount of $69,088 and $44,921 in shares issued pursuant to the DRP.
Status of the Offering
The Company commenced its Public Offering on July 19, 2010. As of August 9, 2011, the Company
had sold 1,752,017 shares of common stock in the Public Offering for gross proceeds of $17,414,201,
including 27,943 shares of common stock issued pursuant to the DRP for gross offering proceeds of
$265,459. Total shares sold as of August 9, 2011 in the Private Offering and Public Offering were
2,389,296, shares representing gross proceeds of $23,258,526, including 27,943 shares of common
stock issued pursuant to the DRP for gross offering proceeds of $265,459.
|
Summary of Significant Accounting Policies
|
6 Months Ended | ||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies [Abstract] | Â | ||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies |
2. Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company, the Operating
Partnership and its subsidiaries. All significant intercompany balances and transactions are
eliminated in consolidation. The financial statements of the Company’s subsidiaries are prepared
using accounting policies consistent with those of the Company.
The accompanying unaudited consolidated financial statements are prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”) for interim financial information as
contained within the Financial Accounting Standards Board (“FASB”), Accounting Standards
Codification (“ASC”) and the rules and regulations of the SEC, including the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited consolidated financial statements
do not include all of the information and footnotes required by GAAP for audited financial
statements. In the opinion of management, the financial statements for the unaudited interim
periods presented include all adjustments that are of a normal and recurring nature and necessary
for a fair and consistent presentation of the results of such periods. Operating results for the
three and six months ended June 30, 2011 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2011.
The consolidated financial statements herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2010.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires the
Company to make estimates and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results could materially differ from those
estimates.
Real Estate Assets
Depreciation and Amortization
Real estate costs related to the development, construction and improvement of properties will
be capitalized. Acquisition costs are expensed as incurred. Repair and maintenance and tenant
turnover costs will be charged to expense as incurred and significant replacements and betterments
will be capitalized. Repair and maintenance and tenant turnover costs include all costs that do not
extend the useful life of the real estate asset. The Company considers the period of future benefit
of an asset to determine its appropriate useful life and anticipates the estimated useful lives of
assets by class to be generally as follows:
Real Estate Purchase Price Allocation
The Company records the acquisition of income-producing real estate or real estate that will
be used for the production of income as a business combination. All assets acquired and liabilities
assumed in a business combination are measured at their acquisition-date fair values. Acquisition
costs are expensed as incurred.
The Company assesses the acquisition-date fair values of all tangible assets, identifiable
intangible assets and assumed liabilities using methods similar to those used by independent
appraisers (e.g., discounted cash flow analysis) and that utilize appropriate discount and/or
capitalization rates and available market information. Estimates of future cash flows are based on
a number of factors including historical operating results, known and anticipated trends, and
market and economic conditions. The fair value of tangible assets of an acquired property considers
the value of the property as if it was vacant.
Intangible assets include the value of in-place leases, which represents the estimated value
of the net cash flows of the in-place leases to be realized, as compared to the net cash flows that
would have occurred had the property been vacant at the time of acquisition and subject to
lease-up.
The Company estimates the value of tenant origination and absorption costs by considering the
estimated carrying costs during hypothetical expected lease-up periods, considering current market
conditions. In estimating carrying costs, the Company estimates the amount of lost rentals using
market rates during the expected lease-up periods.
The Company records above-market and below-market in-place lease values for acquired
properties based on the present value (using an interest rate that reflects the risks associated
with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant
to the in-place leases and (2) the Company’s estimate of fair market lease rates for the
corresponding in-place leases, measured over a period equal to the remaining cancelable term of the
lease. The Company amortizes any capitalized above-market or below-market lease values as a
reduction or increase to rental income over the remaining non-cancelable terms of the respective
leases.
The total amount of other intangible assets acquired will be further allocated to in-place
lease values and customer relationship intangible values based on the Company’s evaluation of the
specific characteristics of each tenant’s lease and its overall relationship with that respective
tenant. Characteristics that the Company considers in allocating these values include the nature
and extent of existing business relationships with the tenant, growth prospects for developing new
business with the tenant, and the tenant’s credit quality and expectations of lease renewals
(including those existing under the terms of the lease agreement), among other factors.
The Company amortizes the value of in-place leases to expense over the remaining
non-cancelable term of the respective leases. The value of customer relationship intangibles will
be amortized to expense over the initial term and any renewal periods in the respective leases, but
in no event will the amortization periods for the intangible assets exceed the remaining
depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of
the in-place lease value and customer relationship intangibles would be charged to expense in that
period.
Estimates of the fair values of the tangible assets, identifiable intangible assets and
assumed liabilities require us to make significant assumptions to estimate market lease rates,
property-operating expenses, carrying costs during lease-up periods, discount rates, market
absorption periods, and the number of years the property will be held for investment. The use of
inappropriate assumptions could result in an incorrect valuation of acquired tangible assets,
identifiable intangible assets and assumed liabilities, which could impact the amount of the
Company’s net income.
Impairment of Real Estate Assets
The Company will continually monitor events and changes in circumstances that could indicate
that the carrying amounts of the Company’s real estate and related intangible assets may not be
recoverable. When indicators of potential impairment suggest that the carrying value of real estate
and related intangible assets and liabilities may not be recoverable, the Company assesses the
recoverability of the assets by estimating whether the Company will recover the carrying value of
the asset through its undiscounted future cash flows and its eventual disposition. Based on this
analysis, if the Company does not believe that it will be able to recover the carrying value of the
real estate and related intangible assets and liabilities, the Company records an impairment loss
to the extent that the carrying value exceeds the estimated fair value of the real estate and
related intangible assets and liabilities. If any assumptions, projections or estimates regarding
an asset changes in the future, the Company may have to record an impairment to reduce the net book
value of such individual asset.
Rents and Other Receivables
The Company will periodically evaluate the collectability of amounts due from tenants and
maintain an allowance for doubtful accounts for estimated losses resulting from the inability of
tenants to make required payments under lease agreements. The Company maintains an allowance for
deferred rent receivable that arises from the straight-lining of rents in accordance with ASC Topic
840, Leases. The Company exercises judgment in establishing these allowances and considers payment
history and current credit status of tenants in developing these estimates.
Revenue Recognition
The Company leases apartment and condominium units under operating leases with terms generally
of one year or less. Generally, credit investigations are performed for prospective residents and
security deposits are obtained. The Company will recognize minimum rent, including rental
abatements, concessions and contractual fixed increases attributable to operating leases, on a
straight-line basis over the term of the related lease and amounts expected to be received in later
years will be recorded as deferred rents. The Company records property operating expense
reimbursements due from tenants for common area maintenance, real estate taxes, and other
recoverable costs in the period the related expenses are incurred.
The Company recognizes gains on sales of real estate either in total or deferred for a period
of time, depending on whether a sale has been consummated, the extent of the buyer’s investment in
the property being sold, whether the receivable is subject to future subordination, and the degree
of the Company’s continuing involvement with the property after the sale. If the criteria for
profit recognition under the full-accrual method are not met, the Company will defer gain
recognition and account for the continued operations of the property by applying the
percentage-of-completion, reduced profit, deposit, installment or cost recovery method, as
appropriate, until the appropriate criteria are met.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents may include cash and short-term
investments. Short-term investments are stated at cost, which approximates fair value. As of June
30, 2011 and December 31, 2010, the Company had amounts in excess of federally insured limits in
deposit accounts with a financial institution. The Company limits such deposits to financial
institutions with high credit standing.
Restricted Cash
Restricted cash represents those cash accounts for which the use of funds is restricted by
loan covenants. As of June 30, 2011 and December 31, 2010, our restricted cash balance was $392,220
and $0, respectively, which represents amounts set aside as impounds for future property tax
payments, property insurance payments and tenant improvement payments as required by our agreements
with our lenders.
Deferred Financing Costs
The Company capitalizes deferred financing costs such as commitment fees, legal fees and other
third party costs associated with obtaining commitments for financing that result in a closing of
such financing. The Company amortizes these costs over the terms of the respective financing
agreements using the interest method. The Company expenses unamortized deferred financing costs
when the associated debt is refinanced or repaid before maturity unless specific rules are met that
would allow for the carryover of such costs to the refinanced debt. Costs incurred in seeking
financing transactions that do not close are expensed in the period in which it is determined that
the financing will not close.
Fair Value Measurements
Under GAAP, the Company is required to measure certain financial instruments at fair value on
a recurring basis. In addition, the Company is required to measure other assets and liabilities at
fair value on a non-recurring basis (e.g., carrying value of impaired real estate loans receivable
and long-lived assets). Fair value is defined as the price that would be received upon the sale of
an asset or paid to transfer a liability in an orderly transaction between market participants at
the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value
measurements are classified and disclosed in one of the following three categories:
When available, the Company utilizes quoted market prices from an independent third-party
source to determine fair value and will classify such items in Level 1 or Level 2. In instances
where the market is not active, regardless of the availability of a nonbinding quoted market price,
observable inputs might not be relevant and could require the Company to make a significant
adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price
quoted from an independent third party may rely more on models with inputs based on information
available only to that independent third party. When the Company determines the market for a
financial instrument owned by the Company to be illiquid or when market transactions for similar
instruments do not appear orderly, the Company uses several valuation sources (including internal
valuations, discounted cash flow analysis and quoted market prices) and will establish a fair value
by assigning weights to the various valuation sources.
Changes in assumptions or estimation methodologies can have a material effect on these
estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, may not be realized in an immediate
settlement of the instrument.
Accounting for Stock-Based Compensation
The Company accounts for stock-based compensation in accordance with ASC Topic 718,
Compensation—Stock Compensation (“ASC 718”). ASC 718 established a fair value based method of
accounting for stock-based compensation. Accounting for stock-based compensation under ASC 718
requires the fair value of stock-based compensation awards to be amortized as an expense over the
vesting period and requires any dividend equivalents earned to be treated as dividends for
financial reporting purposes. Stock-based compensation awards are valued at the fair value on the
date of grant and amortized as an expense over the vesting period.
Distribution Policy
The
Company has elected to be taxed as a REIT and to operate as a REIT beginning with its taxable
year ending December 31, 2010. To maintain its qualification as a REIT, the Company intends to make
distributions each taxable year equal to at least 90% of its REIT taxable income (which is
determined 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). For the three and six months
ended June 30, 2011, distributions were based on daily record dates and calculated at a rate of
$0.001917 per share per day. Each day during the period from January 1, 2011 through June 30, 2011
was a record date for distributions.
Distributions to stockholders are determined by the board of directors of the Company and are
dependent upon a number of factors relating to the Company, including funds available for the
payment of distributions, financial condition, the timing of property acquisitions, capital
expenditure requirements and annual distribution requirements in order for the Company to qualify
as a REIT under the Internal Revenue Code.
Organization and Offering Costs
Organization and offering expenses include all expenses (other than sales commissions and
related dealer manager fees) to be paid by the Company in connection with the Public Offering and
the Private Offering, including legal, accounting, printing, mailing and filing fees, charges of
the Company’s transfer agent, expenses of organizing the Company, data processing fees, advertising
and sales literature costs, transfer agent costs, bona fide out-of-pocket due diligence costs and
amounts to reimburse the Advisor or its affiliates for the salaries of its employees and other
costs in connection with preparing supplemental sales materials and providing other administrative
services.
The Company may also reimburse costs of bona fide training and education meetings held by the
Company (primarily travel, meal and lodging costs of registered representatives of broker-dealers),
attendance and sponsorship fees and cost reimbursement of employees of the Company’s affiliates to
attend seminars conducted by broker-dealers and, in special, cases, reimbursement to participating
broker-dealers for technology costs associated with the Public Offering, costs and expenses related
to such technology costs, and costs and expenses associated with the facilitation of the marketing
of the Company’s shares and the ownership of the Company’s shares by such broker-dealers’
customers; provided, however, that the Company will not pay any of the foregoing costs to the
extent that such payment would cause total underwriting compensation for the Public Offering to
exceed 10% of the gross proceeds of the Public Offering, as required by the rules of the Financial
Industry Regulatory Authority, Inc. (“FINRA”).
Pursuant to the Advisory Agreement and the dealer manager agreement (the “Dealer Manager
Agreement”) by and among the Company, the Operating Partnership and the Dealer Manager, the Company
is obligated to reimburse the Advisor, the Dealer Manager or their affiliates, as applicable, for
organization and offering costs paid by them on behalf of the Company, provided that the Advisor
would be obligated to reimburse the Company to the extent selling commissions, dealer manager fees
and organization and offering costs incurred by the Company in the Public Offering exceed 15% of
gross offering proceeds of the Public Offering. Any reimbursement of expenses paid to Advisor will
not exceed actual expenses incurred by the Advisor.
Reimbursements to the Advisor, the Dealer Manager, or their affiliates, for offering costs
paid by them on behalf of the Company with respect to the Private Offering are not limited to 15%
of the gross offering proceeds of the Private Offering. However, the Company will not make
reimbursements of offering costs in excess of 15% of the gross offering proceeds of the Private
Offering unless approval is obtained from the Company’s independent directors. The independent
directors have not approved the reimbursement of such excess costs from the Private Offering.
Accordingly, the Company has not accrued for the reimbursement of organization and offering costs
of the Private Offering in excess of the 15% of gross offering proceeds raised in the Private
Offering.
Income Taxes
The
Company has elected to be taxed as a REIT under the Internal Revenue Code beginning with the
tax year ending December 31, 2010. To qualify as a REIT, the Company must meet certain
organizational and operational requirements, including the requirement to distribute at least 90%
of the Company’s annual REIT taxable income to stockholders (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). As a REIT, the Company generally will not be subject to
federal income tax to the extent it distributes qualifying dividends to its stockholders. If the
Company fails to qualify as a REIT in any taxable year after the taxable year in which the Company
initially elects to be taxed as a REIT, it will be subject to federal income tax on its taxable
income at regular corporate income tax rates and generally will not be permitted to qualify for
treatment as a REIT for federal income tax purposes for the four taxable years following the year
during which qualification is lost, unless the Internal Revenue Service grants the Company relief
under certain statutory provisions. Such an event could materially adversely affect the Company’s
net income and net cash available for distribution to stockholders.
However, the Company believes it is organized and operates in such a manner as to qualify for treatment as a REIT.
The Company follows ASC Topic 740, Income Taxes, to recognize, measure, present and disclose
in its accompanying consolidated financial statements uncertain tax positions that the Company has
taken or expects to take on a tax return. As of June 30, 2011 and December 31, 2010, the Company
did not have any liabilities for uncertain tax positions that it believes should be recognized in
its accompanying consolidated financial statements. The Company has not been assessed interest or
penalties by any major tax jurisdictions. The Company’s evaluation was performed for tax year ended
December 31, 2010.
Per Share Data
The Company reports earnings (loss) per share in accordance to ASC Topic 260, Earnings per
Share. Basic earnings (loss) per share attributable for all periods presented are computed by
dividing net income (loss) attributable to controlling interest by the weighted average number of
shares of the Company’s common stock outstanding during the period. Diluted earnings (loss) per
share are computed based on the weighted average number of shares of the Company’s common stock and
all potentially dilutive securities, if any. Distributions declared per common share assumes each
share was issued and outstanding each day during the period. Nonvested shares of the Company’s
restricted common stock give rise to potentially dilutive shares of the Company’s common stock but
such shares were excluded from the computation of diluted earnings per share because such shares
were anti-dilutive during the period.
Segment Disclosure
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and
descriptive information about a public entity’s reportable segments. The Company has determined
that it has one reportable segment, with activities related to investing in multifamily properties.
The Company’s investments in real estate are in different geographic regions, and management
evaluates operating performance on an individual asset level. However, as each of the Company’s
assets has similar economic characteristics, tenants and products and services, its assets have
been aggregated into one reportable segment for the three and six months ended June 30, 2011.
Recently Issued Accounting Standards
In January 2011, the FASB issued Accounting Standards Update (“ASU”) 2011-01 (“ASU No.
2011-01”), Receivables (ASC Topic 310): Deferral of the Effective Date of Disclosures about
Troubled Debt Restructurings in Update No. 2010-20 (“ASU No. 2010-20”) which delays the effective
date of the disclosure requirements for troubled debt restructurings in ASU No. 2010-20 for public
entities. Other disclosure requirements in ASU No. 2010-20 are not deferred by ASU 2011-01. This
guidance was effective immediately. The adoption of ASU No. 2011-01 did not have a material impact
on the Company’s consolidated financial statements.
In April, 2011, the FASB issued ASU 2011-02 (“ASU No. 2011-02”), Receivables (ASC Topic 310):
A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring in Update
No. 2010-20 which addresses whether a creditor has granted a concession and
whether a debtor is experiencing financial difficulties for purposes of determining whether a
restructuring constitutes a troubled debt restructuring. An entity should disclose the total amount
of receivables and the allowance for credit losses as of the end of the period of adoption related
to those receivables that are newly considered impaired under ASC Topic 310 for which impairment
was previously measured under Contingencies (ASC Topic 450). ASU No. 2011-02 is effective for
annual periods ending on or after June 15, 2011. Early adoption is permitted for public and
nonpublic entities. The adoption of ASU 2011-02 is not expected to have a material impact on the
Company’s consolidated financial statements.
In
April 2011, the FASB issued ASU 2011-03 (“ASU No. 2011-03”), Transfers and Servicing (ASC
Topic 860): Reconsideration of Effective Control for Repurchase Agreements which removes the
transferor’s ability criterion from the consideration of effective control for repurchase
agreements and other agreements that both entitle and obligate the transferor to repurchase or
redeem financial assets before their maturity. Other criteria (under ASC Topic 860) applicable to
the assessment of effective control are not changed by ASU No. 2011-03. ASU No. 2011-03 is
effective for the first interim or annual period beginning on or after December 15, 2011 and should
be applied prospectively to transactions or modifications of existing transactions that occur on or
after the effective date. Early adoption is not permitted. The adoption of ASU 2011-03 is not
expected to have a material impact on the Company’s consolidated financial statements.
In
May 2011, the FASB issued ASU 2011-04 (“ASU No. 2011-04”), Fair Value Measurement (ASC Topic
820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.GAAP
and IFRSs which addresses changes to improve the comparability of fair value measurements presented
and disclosed in financial statements prepared in accordance with GAAP and International Financial
Reporting Standards and clarifies fair value measurement and disclosure requirements. ASU 2011-04
is effective for the first interim or annual period beginning after December 15, 2011 and should be
applied prospectively. Early application is not permitted. The adoption of ASU 2011-04 is not
expected to have a material impact on the Company’s consolidated financial statements.
In
June 2011, the FASB issued ASU 2011-05 (“ASU No. 2011-05”), Comprehensive Income (ASC Topic
220), Presentation of Comprehensive Income, which gives an entity the option to present the
components of net income, components of other comprehensive income (“OCI”) and total comprehensive
income in a single continuous statement of comprehensive income or two separate consecutive
statements. In either presentation, an entity is required to present each component of net income
along with total net income, each component of other comprehensive income along with a total for
other comprehensive income, and a total amount for comprehensive income. The amendments in
this update do not change the items that must be reported in other comprehensive income or when an
item of other comprehensive income must be reclassified to net income, nor does it affect how
earnings per share is calculated or presented. Further, OCI will no longer be allowed to be
presented in the statement of stockholders’ equity. ASU No. 2011-05 should be
applied retrospectively, and is effective for fiscal years, and interim periods within those years,
beginning after December 15, 2011. The adoption of this guidance is not anticipated to have a
material impact on the Company’s consolidated financial statements.
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Related Party Arrangements |
8. Related Party Arrangements
The Company has entered into the Advisory Agreement with the Advisor and a Dealer Manager
Agreement with the Dealer Manager with respect to the Public Offering. Pursuant to the Advisory
Agreement and Dealer Manager Agreement, the Company is obligated to pay the Advisor and the Dealer
Manager specified fees upon the provision of certain services related to the Public Offering, the
investment of funds in real estate and real estate-related investments and the management of the
Company’s investments and for other services (including, but not limited to, the disposition of
investments). Subject to the limitations described below, the Company is also obligated to
reimburse the Advisor and its affiliates for organization and offering costs incurred by the
Advisor and its affiliates on behalf of the Company, and the Company is obligated to reimburse the
Advisor and its affiliates for acquisition and origination expenses and certain operating expenses
incurred on behalf of the Company or incurred in connection with providing services to the Company.
As discussed in Note 7, in certain circumstances, the Company’s obligation to pay some or all of the
fees due to the Advisor pursuant to the Advisory Agreement will be deferred up to an aggregate
amount of $5,000,000.
Amounts attributable to the Advisor and its affiliates incurred and paid (received) for the
three and six months ended June 30, 2011 and 2010 are as follows:
Amounts outstanding to the Advisor and its affiliates as of June 30, 2011 and December 31,
2010 are as follows:
Organizational and Offering Costs
Organization and offering costs (other than selling commissions and dealer manager fees) of
the Company are initially being paid by the Advisor or its affiliates on behalf of the Company.
These organization and other offering costs include all expenses to be paid by the Company in
connection with the Public Offering and Private Offering, including legal, accounting, printing,
mailing and filing fees, charges of the Company’s transfer agent, expenses of organizing the
Company, data processing fees, advertising and sales literature costs, transfer agent costs, bona
fide out-of-pocket due diligence costs and amounts to reimburse the Advisor or its affiliates for
the salaries of its employees and other costs in connection with preparing supplemental sales
materials and providing other administrative services in connection with the Public Offering and
the Private Offering. Any reimbursement of expenses paid to the Advisor will not exceed actual
expenses incurred by the Advisor. Organization costs include all expenses to be incurred by the
Company in connection with the formation of the Company, including, but not limited to, legal fees
and other costs to incorporate the Company.
Pursuant to the Advisory Agreement, the Company is obligated to reimburse the Advisor or its
affiliates, as applicable, for organization and offering costs paid by them on behalf of the
Company in connection with the Public Offering, provided that the Advisor is obligated to reimburse
the Company to the extent selling commissions, dealer manager fees and organization and offering
costs incurred by the Company in the Public Offering exceed 15% of gross offering proceeds raised
in the Public Offering.
Reimbursements to the Advisor or its affiliates for offering costs paid by them on behalf of
the Company with respect to the Private Offering is not limited to 15% of the gross offering
proceeds of the Private Offering. However, the Company will not make reimbursements of organization
and offering costs in excess of 15% of the gross offering proceeds of the Private Offering unless
approval is obtained from the independent directors. The independent directors have not approved
the reimbursement of excess cost of the Private Offering. Accordingly, the Company has not accrued
for the reimbursement of organization and offering costs of the Private Offering in excess of the
15% of gross offering proceeds raised through the Private Offering.
The amount of organization and offering (“O&O”) costs that is reimbursable or was paid from
inception through June 30, 2011 is as follows:
The Company may also reimburse costs of bona fide training and education meetings held by the
Company (primarily the travel, meal and lodging costs of registered representatives of
broker-dealers), attendance and sponsorship fees and cost reimbursement of employees of the
Company’s affiliates to attend seminars conducted by broker-dealers and, in special cases,
reimbursement to participating broker-dealers for technology costs associated with the Public
Offering, costs and expenses related to such technology costs, and costs and expenses associated
with the facilitation of the marketing of the Company’s shares and the ownership of the Company’s
shares by such broker-dealers’ customers; provided, however, that the Company will not pay any of
the foregoing costs to the extent that such payment would cause total underwriting compensation to
exceed 10% of the gross proceeds of the Public Offering, as required by the rules of FINRA.
As of June 30, 2011 and December 31, 2010, the Advisor had incurred $8,189,923 and $5,713,747,
respectively, of organizational and offering costs on behalf of the Company, of which $5,226,730
and $4,089,406, respectively, have been deferred as of that date, as follows:
Organization costs are expensed as incurred. Offering costs, including selling commissions and
dealer manager fees, are deferred and charged to stockholders’ equity as such amounts are
reimbursed to the Advisor, the Dealer Manager or their affiliates from gross offering proceeds. For
the three and six months ended June 30, 2011, the Company did not incur or reimburse any offering
costs to the Advisor that were attributable to the Private Offering. From inception through June
30, 2011, the Company incurred $100,738 of organizational costs of which $100,738 was reimbursed to
the Advisor. For the three and six month ended June 30, 2011, the Company reimbursed the Advisor
$827,657 and $1,338,852, respectively, for organization and offering costs incurred resulting in
$2,963,192 of reimbursements for organizational and offering costs from inception through June 30,
2011.
During the three and six months ended June 30, 2011, the Company, the Advisor and its
affiliates incurred $0 of organizational costs, $0 of offering costs in connection with the Private
Offering, and $302,265 and $491,558, respectively, of offering costs in connection with the Public
Offering. After reimbursing offering costs associated with the Private Offering up to the 15%
limitation of $876,649 ($1,425,070 of which remains potentially reimbursable to the Advisor subject
to the approval of the independent directors), the Company began reimbursing the Advisor for
organization costs. After reimbursing organization costs, the Company commenced reimbursing the
Advisor for offering costs incurred in connection with the Public Offering. The Company accrued
$8,546 and $7,216 for the reimbursement of offering costs in the financial statements as of June
30, 2011 and December 31, 2010, respectively.
Investment Management Fee
The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80%
of (1) the cost of real properties and real estate-related assets acquired directly by the Company
or (2) the Company’s allocable cost of each real property or real estate-related asset acquired
through a joint venture. Such fee will be calculated including acquisition fees, acquisition
expenses and any debt attributable to such investments, or the Company’s proportionate share
thereof in the case of investments made through joint ventures. For the three and six months ended
June 30, 2011, the Company incurred $44,604 and $80,370, respectively, of investment management
fees to the Advisor, which amount was included in due to affiliates in the accompanying balance
sheets as of June 30, 2011. At June 30, 2011, $44,604 of investment management fees are due and
payable to the Advisor. During the year ended December 31, 2010, the distributions the Company paid
exceeded the Company’s Adjusted Funds From Operations for each quarter; therefore, in accordance
with the Advisory Agreement, $67,607 of investment management fees the Company was obligated to pay
the Advisor have been deferred as of June 30, 2011.
Acquisition Fees and Expenses
The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the purchase price in
connection with the acquisition or origination of any type of real property or real estate-related
asset acquired directly by the Company or (2) the Company’s allocable portion of the purchase price
in connection with the acquisition or origination of any type of real property or real
estate-related asset acquired through a joint venture, including any acquisition and origination
expenses and any debt attributable to such investments. Acquisition fees of $362,683 and $222,642
were due and payable and included in due to affiliates in the accompanying balance sheets at June
30, 2011 and December 31, 2010, respectively.
As of December 31, 2010, $357,637 of acquisition fees attributable to the Advisor was earned by the
Advisor in connection with the acquisitions of the Lincoln Tower Property and the Park Place
Property. During the year ended December 31, 2010, the distributions the Company paid exceeded the
Company’s Adjusted Funds From Operations for each quarter; therefore, in accordance with the
Advisory Agreement, $134,995 of acquisition fees the Company was obligated to pay the Advisor have
been deferred as of June 30, 2011.
In addition to acquisition fees, the Company reimburses the Advisor for amounts directly
incurred by the Advisor and amounts the Advisor pays to third parties in connection with the
selection, acquisition or development of a property or acquisition of real estate-related assets,
whether or not the Company ultimately acquires the property or the real estate-related assets. For
the three and six months ended June 30, 2011, the Advisor incurred $75,131 and $135,060,
respectively, of direct acquisition costs and $203,131 of acquisition costs paid to third parties.
The Charter limits the Company’s ability to pay acquisition fees if the total of all
acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase
price. Under the Charter, a majority of the
Company’s board of directors, including a majority of the independent directors, is required to
approve any acquisition fees (or portion thereof) that would cause the total of all acquisition
fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In
connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the
Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit
the payment of the acquisition fee to a firm that is not a registered broker-dealer.
Property Management Fees and Expenses
The Company has entered into Property Management Agreements with Steadfast Management Company,
Inc., an affiliate of the Sponsor (the “Property Manager”) in connection with the acquisition of
each of the Properties. The property management fee payable with respect to each Property under the
Property Management Agreements is equal to 3.5% of the annual gross revenue collected which is
usual and customary for comparable property management services rendered to similar properties in
similar geographic markets, as determined by the Advisor and approved
by a majority of the Company’s board of
directors, including a majority of the independent directors. Each Property Management Agreement
has an initial one year term and will continue thereafter on a month-to-month basis unless either
party gives prior notice of its desire to terminate the Property Management Agreement, provided
that the Company may terminate the Property Management Agreement at any time without cause upon 30
days prior written notice to the Property Manager. For the three and six months ended June 30,
2011, the Company incurred $37,241 and $69,631, respectively, of property management fees payable
to the Property Manager.
In addition, the Company reimburses the Property Manager for the salaries and related benefits
of on-site property management employees. For the three and six months ended June 30, 2011, the
Company incurred $112,126 and $215,078, respectively, of salaries and related benefits of on-site
property management employees, of which $24,209 was payable to the Property Manager at June 30,
2011.
Other Operating Expense Reimbursement
In addition to the various fees paid to the Advisor, the Company is obligated to pay directly
or reimburse all expenses incurred in providing services to the Company, including the Company’s
allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and information
technology costs. The Company will not reimburse the Advisor for employee costs in connection with
services for which the Advisor or its affiliates receive acquisition fees or disposition fees or
for the salaries the Advisor pays to the Company’s executive officers.
The Charter limits the Company’s operating expenses (as defined in the Charter) during any
four fiscal quarters to the greater of 2% of the Company’s average invested assets or 25% of the
Company’s net income for the same period (the “2% 25% Limitation”). The Company may reimburse the
Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor;
provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal
quarter for operating expenses that exceed the 2%/25% Limitation, unless the independent directors
have determined that such excess expenses were justified based on unusual and non-recurring
factors. Commencing upon the fourth fiscal quarter following the fiscal quarter ended March 31,
2010, and at least annually thereafter, the Advisor must reimburse the Company for the amount by
which the Company’s operating expenses for the preceding four
fiscal quarters then ended exceed the 2%/25% Limitation. For purposes of determining the 2%/25% Limitation amount, “Average
invested assets” means the average monthly book value of the Company’s assets invested directly or
indirectly in equity interests and loans secured by real estate during the 12-month period before
deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all
expenses paid or incurred by the Company, as determined under that are in any way related to
the Company’s operation, including investment management fees, but excluding (a) the expenses of
raising capital such as organization and offering expenses, legal, audit, accounting, underwriting,
brokerage, listing, registration and other fees, printing and other such expenses and taxes
incurred in connection with the issuance, distribution, transfer, listing and registration of
shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures
such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on
the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses
(including expenses relating to potential acquisitions that the Company does not close); (g) real
estate commissions on the resale of investments; and (h) other expenses connected with the
acquisition, disposition, management and ownership of investments (including the costs of
foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real
property).
On May 25, 2011, the Company entered into an Operating Expense Reimbursement and Guaranty
Agreement (the “Reimbursement Agreement”), which provides that if, on the earlier of (1) the
termination date of the Advisory Agreement and
(2) December 31, 2011 (in each case, such date the
“Determination Date”), the Company’s total operating
expenses exceed the 2%/25% Limitation, measured
for the Company’s entire operating history, then Advisor will reimburse the Company for the Excess
Amount (the “Determination Date Payment”). For the four fiscal quarters ended June 30,
2011, the Company’s total operating expenses exceeded the 2%/25% Limitation by $1,102,090 (the
“Excess Amount”). In connection with the Reimbursement Agreement, the
payment of the Excess Amount was guaranteed by an affiliate of the Company.
The Reimbursement Agreement also provides that within 30 days of December 31 of each year
subsequent to December 31, 2011, Advisor will be reimbursed by the Company for the Determination
Date Payment, if any, to the extent that the Company’s total operating expenses through such date do
not exceed the 2%/25% Limitation, measured from the commencement of the Company’s operations through
such date. The Company will reimburse the Advisor on a quarterly basis for any future operating
expenses incurred by the Advisor on behalf of the Company up to the 2%/25% Limitation for the prior
four quarters, while any excess may be reimbursed by the Company, subject to independent director
approval, at such time as the Company’s operating expenses for the entire operating history do not
exceed the 2%/25% Limitation, including any
reimbursement. In connection with the Reimbursement
Agreement, the Advisor agreed to pay all of the operating expenses of
the Company beginning April 1, 2011, until such time as the
Company’s cumulative operating expenses are below the 2%/25%
Limitation. For the three and six months ended June
30, 2011, the Advisor and its affiliates incurred $406,815 of the Company’s operating
expenses, of which $0 is included in due to affiliates, net, on the accompanying consolidated balance
sheets. As of December 31, 2010, the Company paid $53,353 of legal and accounting expenses
attributable to the Advisor, which is included in due to affiliates, net, on the accompanying
consolidated balance sheets.
Disposition Fee
If the Advisor or its affiliates provides a substantial amount of services, as determined by
the Company’s independent directors, in connection with the sale of a property or real
estate-related asset, the Company will pay the Advisor or its affiliates 1.5% of the sales price of
each property or real estate-related asset sold. No disposition fee will be paid for securities
traded on a national securities exchange. To the extent the disposition fee is paid upon the sale
of any assets other than real property, it will be included as an operating expense for purposes of
the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid
to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable
FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered
broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor
for the sale of any real property to the lesser of one-half of the brokerage commission paid or
3.0% of the contract sales price. As of June 30, 2011, the
Company had not sold or otherwise
disposed of property or real estate-related assets. Accordingly, the
Company had not incurred any
disposition fees as of June 30, 2011.
Selling Commissions and Dealer Manager Fees
The Company pays the Dealer Manager up to 6.5% and 3.5% of the gross offering proceeds from
the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales
commission and dealer manager fee is paid in connection with volume discounts and certain other
categories of sales. No sales commission or dealer manager fee is paid with respect to shares of
common stock issued pursuant to the DRP. The Dealer Manager will reallow 100% of sales commissions
earned to participating broker-dealers. The Dealer Manager may also reallow to any participating
broker-dealer a portion of the dealer manager fee that is attributable to that participating
broker-dealer to defray the marketing costs of that participating broker-dealer. The Dealer Manager
will negotiate the reallowance of the dealer manager fee on a case-by-case basis with each
participating broker-dealer subject to various factors associated with the cost of the marketing
program. For the three and six months ended June 30, 2011, the Company paid $331,319 and $534,272,
respectively, of selling commissions, and $194,073 and $313,022, respectively, of dealer manager
fees from the proceeds received from the sale of the Company’s common stock, which were recorded as
a reduction of additional paid in capital.
|
Incentive Award Plan and Independent Director Compensation
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Incentive Award Plan and Independent Director Compensation [Abstract] | Â |
Incentive Award Plan and Independent Director Compensation |
9. Incentive Award Plan and Independent Director Compensation
The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the
grant of equity awards to its employees, directors and consultants and those of the Company’s
affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock
options, restricted stock awards, restricted stock units, stock appreciation rights, dividend
equivalents and other stock-based awards or cash-based awards. No awards have been granted under
such plan as of June 30, 2011 and December 31, 2010, except those awards granted to the independent
directors as described below.
Under the Company’s independent directors’ compensation plan, which is a sub-plan of the
Incentive Award Plan, each of the Company’s current independent directors was entitled to receive
5,000 shares of restricted common stock in connection with the initial meeting of the Company’s
full board of directors. The Company’s board of directors, and each of the independent directors,
agreed to delay the initial grant of restricted stock until the Company raised $2,000,000 in gross
offering proceeds in the Private Offering. In addition, on the date following an independent
director’s re-election to the Company’s board of directors, he or she will receive 2,500 shares of
restricted common stock. One-fourth of the shares of restricted common stock will generally vest
and become non-forfeitable upon issuance and the remaining portion will vest in three equal annual
installments beginning on the date of grant and ending on the third anniversary of the date of
grant; provided, however, that the restricted stock will become fully vested and become
non-forfeitable on the earlier to occur of (1) the termination of the independent director’s
service as a director due to his or her death or disability, or (2) a change in control of the Company.
On April 15, 2010, after raising $2,000,000 in gross offering proceeds in the Private
Offering, the Company granted each of the three independent directors 5,000 shares of restricted
common stock. In addition to the shares granted under the independent
directors’ compensation plan, one of the
independent directors has elected to receive 50% of the director compensation in stock. The Company
recorded stock-based compensation expense of $16,141 and $32,282 for the three and six months ended
June 30, 2011, respectively.
|
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