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EXCEL - IDEA: XBRL DOCUMENT - Landmark Apartment Trust, Inc. | Financial_Report.xls |
EX-31.1 - EX-31.1 - Landmark Apartment Trust, Inc. | a58286exv31w1.htm |
EX-31.2 - EX-31.2 - Landmark Apartment Trust, Inc. | a58286exv31w2.htm |
EX-32.1 - EX-32.1 - Landmark Apartment Trust, Inc. | a58286exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011 | ||
or |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 000-52612
APARTMENT TRUST OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
Maryland (State or other jurisdiction of incorporation or organization) |
20-3975609 (I.R.S. Employer Identification No.) |
4901 Dickens Road, Suite 101, Richmond, Virginia (Address of principal executive offices) |
23230 (Zip Code) |
(804) 237-1335
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). o Yes þ No
As of August 12, 2011, there were 19,856,464 shares of common stock of Apartment Trust of
America, Inc. outstanding.
APARTMENT TRUST OF AMERICA, INC.
(A Maryland Corporation)
TABLE OF CONTENTS
(A Maryland Corporation)
TABLE OF CONTENTS
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EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
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
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements. |
APARTMENT TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2011 and December 31, 2010
As of June 30, 2011 and December 31, 2010
June 30, 2011 | December 31, 2010 | |||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Real estate investments: |
||||||||
Operating properties, net |
$ | 344,723,000 | $ | 350,670,000 | ||||
Cash and cash equivalents |
935,000 | 3,274,000 | ||||||
Accounts and other receivables |
1,719,000 | 1,289,000 | ||||||
Restricted cash |
4,924,000 | 4,943,000 | ||||||
Goodwill |
3,751,000 | 3,751,000 | ||||||
Investment in unconsolidated joint venture |
| 50,000 | ||||||
Identified intangible assets, net |
3,741,000 | 2,521,000 | ||||||
Other assets, net |
2,373,000 | 2,036,000 | ||||||
Other assets affiliates, net |
14,000 | | ||||||
Total assets |
$ | 362,180,000 | $ | 368,534,000 | ||||
LIABILITIES AND EQUITY |
||||||||
Liabilities: |
||||||||
Mortgage loan payables, net |
$ | 243,705,000 | $ | 244,072,000 | ||||
Unsecured note payable |
7,750,000 | 7,750,000 | ||||||
Accounts payable and accrued liabilities |
8,616,000 | 9,044,000 | ||||||
Accounts payable due to affiliates |
| 109,000 | ||||||
Security deposits, prepaid rent and other liabilities |
2,963,000 | 1,401,000 | ||||||
Total liabilities |
263,034,000 | 262,376,000 | ||||||
Commitments and contingencies (Note 8) |
| | ||||||
Redeemable noncontrolling interest (Note 10) |
| | ||||||
Equity: |
||||||||
Stockholders equity: |
||||||||
Preferred stock, $0.01 par value; 50,000,000
shares authorized; 0 shares issued and
outstanding |
| | ||||||
Common stock, $0.01 par value; 300,000,000 shares
authorized; 19,815,893 and 19,632,818 shares
issued and outstanding as of June 30, 2011 and
December 31, 2010, respectively |
198,000 | 196,000 | ||||||
Additional paid-in capital |
176,379,000 | 174,704,000 | ||||||
Accumulated deficit |
(77,431,000 | ) | (68,742,000 | ) | ||||
Total stockholders equity |
99,146,000 | 106,158,000 | ||||||
Noncontrolling interest (Note 11) |
| | ||||||
Total equity |
99,146,000 | 106,158,000 | ||||||
Total liabilities and equity |
$ | 362,180,000 | $ | 368,534,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
Table of Contents
APARTMENT TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Six Months Ended June 30, 2011 and 2010
(Unaudited)
For the Three and Six Months Ended June 30, 2011 and 2010
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues: |
||||||||||||||||
Rental income |
$ | 9,761,000 | $ | 8,895,000 | $ | 19,274,000 | $ | 17,266,000 | ||||||||
Other property revenues |
1,257,000 | 980,000 | 2,321,000 | 1,874,000 | ||||||||||||
Management fee income |
3,673,000 | | 7,402,000 | | ||||||||||||
Total revenues |
14,691,000 | 9,875,000 | 28,997,000 | 19,140,000 | ||||||||||||
Expenses: |
||||||||||||||||
Rental expenses |
4,699,000 | 4,622,000 | 9,284,000 | 8,848,000 | ||||||||||||
Property lease expense |
50,000 | | 50,000 | | ||||||||||||
Salaries and benefits expense |
3,683,000 | | 7,254,000 | | ||||||||||||
General and administrative |
1,515,000 | 396,000 | 3,006,000 | 756,000 | ||||||||||||
Acquisition expenses |
554,000 | | 772,000 | 800,000 | ||||||||||||
Loss from unconsolidated joint
venture |
46,000 | 59,000 | ||||||||||||||
Depreciation,
amortization and impairment loss |
3,729,000 | 3,254,000 | 7,158,000 | 6,185,000 | ||||||||||||
Total expenses |
14,276,000 | 8,272,000 | 27,583,000 | 16,589,000 | ||||||||||||
Income from operations |
415,000 | 1,603,000 | 1,414,000 | 2,551,000 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest expense (including
amortization of deferred
financing costs and debt
discount): |
||||||||||||||||
Interest expense related to
unsecured note payables |
(87,000 | ) | (96,000 | ) | (173,000 | ) | (197,000 | ) | ||||||||
Interest expense related to
mortgage loan payables |
(3,102,000 | ) | (2,880,000 | ) | (6,090,000 | ) | (5,548,000 | ) | ||||||||
Interest and dividend income |
| 3,000 | 1,000 | 6,000 | ||||||||||||
Net loss |
(2,774,000 | ) | (1,370,000 | ) | (4,848,000 | ) | (3,188,000 | ) | ||||||||
Less: Net loss attributable to
noncontrolling interests |
| | | | ||||||||||||
Net loss attributable to company
stockholders |
$ | (2,774,000 | ) | $ | (1,370,000 | ) | $ | (4,848,000 | ) | $ | (3,188,000 | ) | ||||
Net loss per common share
attributable to company
stockholders basic and diluted |
$ | (0.14 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.18 | ) | ||||
Weighted average number of common
shares outstanding basic and
diluted |
19,784,133 | 17,984,572 | 19,737,913 | 17,636,906 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
APARTMENT TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
For the Six Months Ended June 30, 2011 and 2010 (Unaudited)
For the Six Months Ended June 30, 2011 and 2010 (Unaudited)
Stockholders Equity | ||||||||||||||||||||||||||||||||
Common Stock | Redeemable | |||||||||||||||||||||||||||||||
Number of | Additional | Preferred | Accumulated | Noncontrolling | Noncontrolling | |||||||||||||||||||||||||||
Shares | Amount | Paid-In Capital | Stock | Deficit | Interest | Total Equity | Interest | |||||||||||||||||||||||||
BALANCE December
31, 2010 |
19,632,818 | $ | 196,000 | $ | 174,704,000 | $ | | $ | (68,742,000 | ) | $ | | $ | 106,158,000 | $ | | ||||||||||||||||
Issuance of common
stock |
| | | | | | | | ||||||||||||||||||||||||
Offering costs |
| | (39,000 | ) | | | | (39,000 | ) | | ||||||||||||||||||||||
Issuance of common
stock to our Advisor |
5,247 | | 47,000 | | | | 47,000 | | ||||||||||||||||||||||||
Issuance of vested
and nonvested
restricted common
stock |
4,000 | | 8,000 | | | | 8,000 | | ||||||||||||||||||||||||
Issuance of common
stock under the DRIP |
173,828 | 2,000 | 1,650,000 | | | | 1,652,000 | | ||||||||||||||||||||||||
Amortization of
nonvested common
stock compensation |
| | 9,000 | | | | 9,000 | | ||||||||||||||||||||||||
Repurchase of common
stock |
| | | | | | | | ||||||||||||||||||||||||
Distributions declared |
| | | | (3,841,000 | ) | | (3,841,000 | ) | | ||||||||||||||||||||||
Net loss |
| | | | (4,848,000 | ) | | (4,848,000 | ) | | ||||||||||||||||||||||
BALANCE June 30,
2011 |
19,815,893 | $ | 198,000 | $ | 176,379,000 | $ | | $ | (77,431,000 | ) | $ | | $ | 99,146,000 | $ | | ||||||||||||||||
Stockholders' Equity | ||||||||||||||||||||||||||||||||
Common Stock | Redeemable | |||||||||||||||||||||||||||||||
Number of | Additional | Preferred | Accumulated | Noncontrolling | Noncontrolling | |||||||||||||||||||||||||||
Shares | Amount | Paid-In Capital | Stock | Deficit | Interest | Total Equity | Interest | |||||||||||||||||||||||||
BALANCE December
31, 2009 |
17,028,454 | $ | 170,000 | $ | 151,542,000 | $ | | $ | (46,943,000 | ) | $ | | $ | 104,769,000 | $ | | ||||||||||||||||
Issuance of common
stock |
1,314,573 | 13,000 | 13,116,000 | | | | 13,129,000 | | ||||||||||||||||||||||||
Offering costs |
| | (1,429,000 | ) | | | | (1,429,000 | ) | | ||||||||||||||||||||||
Issuance of vested
and nonvested
restricted common
stock |
3,000 | | 6,000 | | | | 6,000 | | ||||||||||||||||||||||||
Issuance of common
stock under the
DRIP |
224,124 | 2,000 | 2,127,000 | | | | 2,129,000 | | ||||||||||||||||||||||||
Amortization of
nonvested common
stock compensation |
| | 9,000 | | | | 9,000 | | ||||||||||||||||||||||||
Repurchases of
common stock |
(128,499 | ) | (1,000 | ) | (1,268,000 | ) | | | | (1,269,000 | ) | | ||||||||||||||||||||
Distributions |
| | | | (5,247,000 | ) | | (5,247,000 | ) | | ||||||||||||||||||||||
Net loss |
| | | | (3,188,000 | ) | | (3,188,000 | ) | | ||||||||||||||||||||||
BALANCE June 30,
2010 |
18,441,652 | $ | 184,000 | $ | 164,103,000 | $ | | $ | (55,378,000 | ) | $ | | $ | 108,909,000 | $ | | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Table of Contents
APARTMENT TRUST OF AMERICA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
For the Six Months Ended June 30, 2011 and 2010
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net loss |
$ | (4,848,000 | ) | $ | (3,188,000 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: |
||||||||
Depreciation,
amortization and impairment loss (including deferred financing costs and debt discount) |
7,456,000 | 6,372,000 | ||||||
Stock based compensation, net of forfeitures |
17,000 | 15,000 | ||||||
Stock issuance to Advisor |
47,000 | | ||||||
Bad debt expense |
128,000 | 97,000 | ||||||
Loss from unconsolidated joint venture |
59,000 | | ||||||
Changes in operating assets and liabilities: |
||||||||
Accounts and other receivables |
120,000 | (307,000 | ) | |||||
Other assets, net |
(358,000 | ) | (147,000 | ) | ||||
Other assets with affiliates, net |
(14,000 | ) | | |||||
Accounts payable and accrued liabilities |
(1,236,000 | ) | (251,000 | ) | ||||
Accounts payable due to affiliates |
(98,000 | ) | 57,000 | |||||
Security deposits, prepaid rent and other liabilities |
112,000 | (192,000 | ) | |||||
Net cash provided by operating activities |
1,385,000 | 2,456,000 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Acquisition of real estate operating properties |
| (17,219,000 | ) | |||||
Acquisition of consolidated joint venture, net |
(129,000 | ) | | |||||
Contributions to joint venture |
(568,000 | ) | | |||||
Cash received from tenant termination fees |
117,000 | | ||||||
Capital expenditures |
(614,000 | ) | (580,000 | ) | ||||
Proceeds from property insurance settlements |
| 150,000 | ||||||
Restricted cash |
707,000 | 679,000 | ||||||
Real estate and escrow deposits |
| | ||||||
Net cash used in investing activities |
(487,000 | ) | (16,970,000 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Borrowings on mortgage loan payables |
| 13,300,000 | ||||||
Payments on mortgage loan payables |
(435,000 | ) | (281,000 | ) | ||||
Payments on unsecured note payable to affiliate |
| (1,350,000 | ) | |||||
Deferred financing costs |
| (144,000 | ) | |||||
Security deposits |
(4,000 | ) | 172,000 | |||||
Proceeds from issuance of common stock |
| 13,129,000 | ||||||
Repurchase of common stock |
| (1,269,000 | ) | |||||
Payment of offering costs |
(49,000 | ) | (1,420,000 | ) | ||||
Distributions |
(2,749,000 | ) | (3,062,000 | ) | ||||
Net cash (used in) provided by financing activities |
(3,237,000 | ) | 19,075,000 | |||||
NET CHANGE IN CASH AND CASH EQUIVALENTS |
(2,339,000 | ) | 4,561,000 | |||||
CASH AND CASH EQUIVALENTS Beginning of period |
3,274,000 | 6,895,000 | ||||||
CASH AND CASH EQUIVALENTS End of period |
$ | 935,000 | $ | 11,456,000 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
Cash paid for: |
||||||||
Interest |
$ | 6,111,000 | $ | 5,521,000 | ||||
Income taxes |
$ | 94,000 | $ | 148,000 | ||||
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: |
||||||||
Operating Activities: |
||||||||
Accrued acquisition-related expenses |
$ | 13,000 | $ | | ||||
Investing Activities: |
||||||||
Accrued capital expenditures |
$ | | $ | 244,000 | ||||
The following represents the increase in certain assets and liabilities in
connection with our acquisitions of operating properties: |
||||||||
Other assets |
$ | | $ | 33,000 | ||||
Accounts payable and accrued liabilities |
$ | | $ | 79,000 | ||||
Security deposits, prepaid rent and other liabilities |
$ | | $ | 134,000 | ||||
Financing Activities: |
||||||||
Issuance of common stock under the DRIP |
$ | 1,652,000 | $ | 2,129,000 | ||||
Distributions declared but not paid |
$ | 440,000 | $ | 904,000 | ||||
Accrued offering costs |
$ | | $ | 53,000 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
Table of Contents
APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
For the Three and Six Months Ended June 30, 2011 and 2010
For the Three and Six Months Ended June 30, 2011 and 2010
The use of the words the Company, we, us, our company or our refers to Apartment
Trust of America, Inc. and its subsidiaries, including Apartment Trust of America Holdings, LP,
except where the context otherwise requires.
1. Organization and Description of Business
Apartment Trust of America, Inc., a Maryland corporation, was incorporated on December 21,
2005. We were initially capitalized on January 10, 2006, and therefore, we consider that our date
of inception. On December 29, 2010, our board of directors adopted an amendment to our charter to
change our corporate name from Grubb & Ellis Apartment REIT, Inc. to Apartment Trust of America,
Inc. We are in the business of acquiring and holding a diverse portfolio of quality apartment
communities with stable cash flows and growth potential in select U.S. metropolitan areas. We may
also acquire other real estate-related investments. We focus primarily on investments that produce
current income. We have qualified and elected to be taxed as a real estate investment trust, or
REIT, under the Internal Revenue Code of 1986, as amended, or the Code, for federal income tax
purposes and we intend to continue to be taxed as a REIT.
We commenced a best efforts initial public offering on July 19, 2006, or our initial offering,
in which we offered 100,000,000 shares of our common stock for $10.00 per share and up to 5,000,000
shares of our common stock pursuant to the distribution reinvestment plan, or the DRIP, for $9.50
per share, for a maximum offering of up to $1,047,500,000. We terminated our initial offering on
July 17, 2009. As of July 17, 2009, we had received and accepted subscriptions in our initial
offering for 15,738,457 shares of our common stock, or $157,218,000, excluding shares of our common
stock issued pursuant to the DRIP.
On July 20, 2009, we commenced our follow-on public offering, in which we offered to the
public up to 105,000,000 shares of our common stock. Our follow-on offering included up to
100,000,000 shares of our common stock for sale at $10.00 per share in our primary offering and up
to 5,000,000 shares of our common stock for sale pursuant to the DRIP at $9.50 per share, for a
maximum offering of up to $1,047,500,000. We suspended the primary portion of our follow-on
offering on December 31, 2010. As of December 31, 2010, we had received and accepted subscriptions
in our follow-on offering for 2,992,777 shares of our common stock, or $29,885,000, excluding
shares of our common stock issued pursuant to the DRIP. Our follow-on offering terminated on July
17, 2011.
On February 24, 2011, our board of directors adopted the Second Amended and Restated
Distribution Reinvestment Plan, or the Amended and Restated DRIP, which became effective March 11,
2011. The Amended and Restated DRIP is designed to offer our existing stockholders a simple and
convenient method of purchasing additional shares of our common stock by reinvesting cash
distributions. The Amended and Restated DRIP offers up to 10,000,000 shares of our common stock
for reinvestment for a maximum offering up to $95,000,000. Participants in the Amended and
Restated DRIP are required to have the full amount of their cash distributions with respect to all
shares of stock owned by them reinvested pursuant to the Amended and Restated DRIP. The purchase
price for shares under the Amended and Restated DRIP will be $9.50 per share until such time as the
board of directors determines a reasonable estimate of the value of the shares of our common stock.
On or after the date on which our board of directors determines a reasonable estimate of the value
of the shares of our common stock, the purchase price for shares will equal the most recently
disclosed estimated value of the shares of our common stock. Participants in the Amended and
Restated DRIP will not incur any brokerage commissions, dealer manager fees, organizational and
offering expenses, or service charges when purchasing shares under the Amended and Restated DRIP.
Participants may terminate their participation in the Amended and Restated DRIP at any time by
providing us with written notice. We reserve the right to amend any aspect of the Amended and
Restated DRIP at our sole discretion and without the consent of stockholders. We also reserve the
right to terminate the Amended and Restated DRIP or any participants participation in the Amended
and Restated DRIP for any reason at any time upon ten days prior written notice of termination.
On March 25, 2011, we filed a registration statement on Form S-3 with the Securities and
Exchange Commission, or the SEC, to register shares issuable pursuant to the Amended and Restated
DRIP. The registration statement became effective with the SEC automatically upon filing. In
addition, the registration statement has been declared
6
Table of Contents
APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
effective or is exempt from registration in the various states in which shares will be sold
under the Amended and Restated DRIP.
Until December 31, 2010, the managing broker-dealer for our capital formation efforts had been
Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities. Effective December 31, 2010, Grubb &
Ellis Securities terminated the Grubb & Ellis Dealer Management Agreement. In order to transition
the capital formation function to a successor managing broker-dealer, on November 5, 2010, we
entered into a new Dealer Manager Agreement, or the RCS Dealer Manager Agreement, with Realty
Capital Securities, LLC, or RCS, whereby RCS agreed to serve as our exclusive dealer manager
effective upon the satisfaction of certain conditions, including receipt of a no-objections notice
from the Financial Industry Regulatory Authority, or FINRA, in connection with our follow-on
offering. On November 12, 2010, we suspended our follow-on offering pending receipt of such
no-objections notice. As of December 31, 2010, RCS had not yet received a no-objections notice from
FINRA and, having no effective dealer manager agreement in place, we suspended the primary portion
of our follow-on offering. As of February, 28, 2011, RCS still had not received a no-objections
notice from FINRA relating to our follow-on offering. Additionally, general market conditions had
caused us and RCS to reconsider the merits of continuing the follow-on offering. Therefore, on
February 28, 2011, we provided written notice to RCS that we were terminating the RCS Dealer
Manager Agreement, effective immediately. As a result, our follow-on offering remained suspended
through its July 17, 2011 termination date.
We conduct substantially all of our operations through Apartment Trust of America Holdings,
LP, or our operating partnership. On December 30, 2010, our operating partnership filed a
Certificate of Amendment of a Certificate of Limited Partnership with the Commonwealth of Virginia
State Corporation Commission to change the name of the operating partnership from Grubb & Ellis
Apartment REIT Holdings, LP to Apartment Trust of America Holdings, LP.
Until December 31, 2010, we were externally advised by Grubb & Ellis Apartment REIT Advisor,
LLC, or our Former Advisor, pursuant to an advisory agreement, as amended and restated, or the
Grubb & Ellis Advisory Agreement. Our Former Advisor is jointly owned by entities affiliated with
Grubb & Ellis Company and ROC REIT Advisors, LLC, or ROC REIT Advisors. Prior to the termination of
the Grubb & Ellis Advisory Agreement, our day-to-day operations were managed by our Former Advisor
and our properties were managed by Grubb & Ellis Residential Management, Inc., an affiliate of our
Former Advisor. Our Former Advisor is affiliated with the Company in that all of the Companys
executive officers, Stanley J. Olander, Jr., David L. Carneal and Gustav G. Remppies, are indirect
owners of a minority interest in our Former Advisor through their ownership of ROC REIT Advisors.
In addition, one of our directors, Andrea R. Biller, was an indirect owner of a minority interest
in our Former Advisor until October 2010. In addition, Messrs. Olander, Carneal and Remppies served
as executive officers of our Former Advisor. Mr. Olander and Ms. Biller also own interests in Grubb
& Ellis Company, and served as executive officers of Grubb & Ellis Company until November 2010 and
October 2010, respectively.
On November 1, 2010, we received written notice from our Former Advisor stating that it
had elected to terminate the Grubb & Ellis Advisory Agreement. Pursuant to the Grubb & Ellis
Advisory Agreement, either party was permitted to terminate the agreement upon 60 days written
notice without cause or penalty. Therefore, the Grubb & Ellis Advisory Agreement terminated on
December 31, 2010 and our Former Advisor no longer serves as our companys advisor. In connection
with the termination of the Grubb & Ellis Advisory Agreement, our Former Advisor notified us of its
election to defer the redemption of its Incentive Limited Partnership Interest (as such term is
defined in the agreement of limited partnership for our companys operating partnership) until,
generally, the earlier to occur of (i) a listing of our shares on a national securities exchange or
national market system or (ii) a liquidity event.
On February 25, 2011, we entered into a new advisory agreement among us, our operating
partnership and ROC REIT Advisors, LLC, referred to herein as our Advisor. Our Advisor is
affiliated with us in that ROC REIT Advisors is owned by Stanley J. Olander, Jr., David L. Carneal
and Gustav G. Remppies, each of whom are executive officers of our company. The new advisory
agreement has a one-year term and may be renewed for an unlimited number of successive one-year
terms. Pursuant to the terms of the new advisory agreement, our Advisor will use its commercially
reasonable efforts to present to our company a continuing and suitable investment program and
opportunities to make investments consistent with the investment policies of our company. Our
Advisor is also
7
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
obligated to provide our company with the first opportunity to purchase any Class A
income producing multi-family
property which satisfies our companys investment objectives. In performing these obligations,
our Advisor generally will (i) provide and perform the day-to-day management of our company; (ii)
serve as our companys investment advisor; (iii) locate, analyze and select potential investments
for our company and structure and negotiate the terms and conditions of acquisition and disposition
transactions; (iv) arrange for financing and refinancing with respect to investments by our
company; and (v) enter into leases and service contracts with respect to the investments by our
company. Our Advisor is subject to the supervision of our board of directors and has a fiduciary
duty to our company and its stockholders.
On August 27, 2010, we entered into definitive agreements to acquire nine multi-family
apartment properties from affiliates of MR Holdings, LLC, or MR Holdings, and to acquire
substantially all of the assets and certain liabilities of Mission Residential Management, LLC, or
Mission Residential Management, for a total purchase price of approximately $182,357,000. We are
not affiliated with MR Holdings or Mission Residential Management. On September 30, 2010, we
acquired Mission Rock Ridge Apartments, or the Mission Rock Ridge property, located in Arlington,
Texas, for a purchase price of $19,857,000, plus closing costs. The Mission Rock Ridge property was
the first of the nine multi-family apartment properties that we intended to acquire. We intended to
acquire the remaining eight properties, or the DST properties, from Delaware statutory trusts, or
DSTs, for which an affiliate of MR Holdings serves as a trustee. As of February 23, 2011, the
expiration date for the lenders approval period pursuant to each of the purchase agreements,
certain conditions precedent to our obligation to acquire the eight DST properties had not been
satisfied. With the prior approval of our board of directors, on February 28, 2011, we provided the
respective DSTs written notice of termination of each of the respective purchase agreements in
accordance with the terms of the agreements. See Note 8, Commitments and Contingencies, for
information regarding the pending litigation in connection with such properties.
On November 5, 2010, we, through MR Property Management LLC, or MR Property Management, which
is a wholly-owned taxable subsidiary of our operating partnership, completed the acquisition of
substantially all of the assets and certain liabilities of Mission Residential Management, an
affiliate of MR Holdings, including the in-place workforce of approximately 300 employees. In
connection with the closing, we assumed property management agreements, or entered into
sub-management agreements pending receipt of lender consents, with respect to 41 multi-family
apartment properties containing approximately 12,000 units, including the Mission Rock Ridge
property that we acquired on September 30, 2010 and the eight additional DST properties. We paid
total consideration of $5,513,000 in cash plus the assumption of certain liabilities and other
payments totaling approximately $1,500,000, subject to certain post-closing adjustments. In
connection with the acquisition, we paid an acquisition fee of 2.0% of the purchase price to our
Former Advisor and its affiliates. At the closing of the transaction, we entered into various
ancillary agreements, including:
| an asset management agreement pursuant to which MR Property Management assumed the asset management and investor relations responsibilities for all of the aforementioned properties; and |
| a termination fee agreement pursuant to which the lessees of the managed properties under the master lease structures and certain other affiliates of Mission Residential Management agreed to pay MR Property Management termination fees if any of the property management agreements we assumed, or sub-management agreements we entered into, is terminated by the lessee of the property under its master lease structure other than for cause, is not extended by the lessee or is terminated by the manager without good reason. The termination fee provisions will survive for five years after the closing. The termination fee will not be payable if a property management agreement is terminated as a result of our acquisition of the managed property. The obligations of the lessees of the properties to pay these termination fees are guaranteed by MR Holdings and by Mission Residential Holdings, LLC. |
On December 31, 2010, we, through ATA-Mission, LLC, a wholly-owned subsidiary of our operating
partnership, acquired a 50% ownership interest in NNN/Mission Residential Holdings, LLC, or NNN/MR
Holdings, which serves as a holding company for the master tenants of four multi-family apartment
properties located in Plano and Garland, Texas and Charlotte, North Carolina, with an aggregate of
1,066 units. The primary assets of NNN/MR Holdings consist of four master leases through which the
master tenants operate the four multi-family apartment properties. NNN/MR Holdings does not own
any fee interest in real estate or any other fixed assets. We were not previously affiliated with
NNN/MR Holdings.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
We acquired the 50% ownership interest in NNN/MR Holdings from Grubb & Ellis Realty Investors,
LLC, an affiliate of our Former Advisor. Until June 17, 2011, the remaining 50% interest in NNN/MR
Holdings was owned
by Mission Residential, LLC, which consented to the transaction. We are not affiliated with
Mission Residential, LLC. We paid Grubb & Ellis Realty Investors, LLC $50,000 in cash as
consideration for the 50% ownership interest in NNN/MR. We also assumed the obligation to fund up
to $1,000,000 in draws on credit line loans extended to the four master tenants by NNN/MR Holdings.
The four multi-family apartment properties are managed by our subsidiary, MR Property Management.
On June 17, 2011, we, through ATA-Mission, LLC, acquired the remaining 50% ownership interest
in NNN/MR Holdings from Mission Residential, LLC for $200,000. As a result
of our acquisition of the remaining 50% ownership interest in NNN/MR Holdings, as of June 17, 2011,
we own an indirect 100% interest in NNN/MR Holdings and each of its subsidiaries. We also are
responsible for funding up to $2,000,000 in draws on credit line loans extended to the four master
tenants by NNN/MR Holdings. Accordingly, our accompanying condensed consolidated balance sheets and
statements of operations for the three and six months ended June 30, 2011 include 14 days of
consolidated operations of NNN/MR Holdings and its subsidiaries, including rental income paid by
the primary tenants of the four leased multi-family apartment properties to the master tenants, and
property lease expense paid by the master tenants.
As of June 30, 2011, we owned a total of 15 properties, comprised of nine properties located
in Texas consisting of 2,573 apartment units, two properties in Georgia consisting of 496 apartment
units, two properties in Virginia consisting of 394 apartment units, one property in Tennessee
consisting of 350 apartment units, and one property in North Carolina consisting of 160 apartment
units for an aggregate of 15 properties consisting of 3,973 apartment units, which had an aggregate
purchase price of $377,787,000. We owned an indirect 100% interest in NNN/MR Holdings and each of
its subsidiaries. We are the third-party manager for 39 properties.
2. Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in
understanding our condensed consolidated financial statements. Such condensed consolidated
financial statements and the accompanying notes thereto are the representations of our management,
who are responsible for their integrity and objectivity. These accounting policies conform to
accounting principles generally accepted in the United States of America, or GAAP, in all material
respects, and have been consistently applied in preparing our accompanying condensed consolidated
financial statements.
Basis of Presentation
Our accompanying condensed consolidated financial statements include our accounts and those of
our operating partnership, the wholly-owned subsidiaries of our operating partnership and any
variable interest entities, as defined, in Financial Accounting Standards Board, or FASB,
Accounting Standards Codification, or ASC, Topic 810, Consolidation, which we have concluded should
be consolidated. We operate in an umbrella partnership REIT structure in which wholly-owned
subsidiaries of our operating partnership own all of our properties we acquire. We are the sole
general partner of our operating partnership and, as of June 30, 2011 and December 31, 2010, we
owned a 99.99% general partnership interest in our operating partnership. As of June 30, 2011 and
December 31, 2010, our Former Advisor owned a 0.01% limited partnership interest in our operating
partnership and is a special limited partner in our operating partnership. Our Former Advisor is
also entitled to certain special limited partnership rights under the partnership agreement for our
operating partnership. Because we are the sole general partner of our operating partnership and
have unilateral control over its management and major operating decisions, the accounts of our
operating partnership are consolidated in our consolidated financial statements. All significant
intercompany accounts and transactions are eliminated in consolidation.
We
had an accumulated deficit of $77,431,000 as of June 30, 2011. As discussed further in Note
7, Mortgage Loan Payables, Net and Unsecured Note Payable, as of June 30, 2011, we had an
outstanding principal amount under an unsecured note payable of $7,750,000, which is due on July
17, 2012. We plan to either repay the unsecured note payable using cash on hand or replace the
unsecured note payable with permanent financing or an interim line of credit.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in
accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information
and footnote disclosures required for annual financial statements have been condensed or excluded
pursuant to SEC rules and regulations. Accordingly, our accompanying condensed consolidated
financial statements do not include all of the information and footnotes required by GAAP for
complete financial statements.
Our accompanying condensed consolidated financial statements reflect all adjustments which
are, in our view, of a normal recurring nature and necessary for a fair presentation of our
financial position, results of operations and cash flows for the interim period. Interim results of
operations are not necessarily indicative of the results to be expected for the full year; such
full year results may be less favorable.
In preparing our accompanying condensed consolidated financial statements, management has
evaluated subsequent events through the financial statement issuance date. We believe that,
although the disclosures contained herein are adequate to prevent the information presented from
being misleading, our accompanying condensed consolidated financial statements should be read in
conjunction with our audited consolidated financial statements and the notes thereto included in
our 2010 Annual Report on Form 10-K, as filed with the SEC on March 25, 2011.
Segment Disclosure
ASC Topic 280, Segment Reporting, establishes standards for reporting financial and
descriptive information about a public entitys reportable segments. We have determined that we
have one reportable segment, with activities related to investing in apartment communities. Our
investments in real estate are geographically diversified and management evaluates operating
performance on an individual property level. However, as each of our apartment communities has
similar economic characteristics, tenants and products and services, our apartment communities have
been aggregated into one reportable segment for the three and six months ended June 30, 2011 and
2010.
Income Taxes
We have elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue
Code, beginning with our taxable period ended December 31, 2006. To qualify as a REIT, we must
distribute annually at least 90% of our REIT taxable income (determined without regard to the
dividends paid deduction and excluding net capital gains) as defined in the Internal Revenue Code,
to our shareholders and satisfy certain other organizational and operating requirements. We
generally will not be subject to U.S. federal income taxes if we distribute 100% of our net taxable
income each year to our shareholders. If we fail to qualify as a REIT in any taxable year, we will
be subject to U.S. federal income taxes (including any applicable alternative minimum tax) on our
taxable income at regular corporate rates and may not be able to qualify as a REIT for the four
subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain
state and local taxes on our income and property, and to U.S. federal income taxes and excise taxes
on our undistributed taxable income. We believe that we have met all of the REIT distribution and
technical requirements for the six months ended June 30, 2011, and the year ended December 31,
2010. We intend to continue to adhere to these requirements and maintain our REIT qualification.
Under the provisions of the Internal Revenue Code and applicable state laws, MR Property
Management, LLC, a taxable REIT subsidiary of our operating partnership, is subject to income tax.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statements carrying amounts of existing assets and liabilities
and respective tax basis operating losses and tax-credit carry forwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. The effect of
deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. As of June 30, 2011, our deferred tax
assets and liabilities were immaterial.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update, or ASU, 2010-06, Improving
Disclosures about Fair Value Measurements, or ASU 2010-06. ASU 2010-06 amends ASC Topic 820 to
require additional
disclosure and clarifies existing disclosure requirements about fair value measurements. ASU
2010-06 requires entities to provide fair value disclosures by each class of assets and
liabilities, which may be a subset of assets and liabilities within a line item in the statement of
financial position. The additional requirements also include disclosure regarding the amounts and
reasons for significant transfers in and out of Level 1 and 2 of the fair value hierarchy and
separate presentation of purchases, sales, issuances and settlements of items within Level 3 of the
fair value hierarchy. The guidance clarifies existing disclosure requirements regarding the inputs
and valuation techniques used to measure fair value for measurements that fall in either Level 2 or
Level 3 of the hierarchy. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and
settlements of items within level 3 of the hierarchy, which is effective for fiscal years beginning
after December 15, 2010 and for interim periods within those fiscal years. We adopted the level 3
disclosures in ASU 2010-06 on January 1, 2010, and it did not have a material impact on our
footnote disclosures.
In August 2010, the FASB issued ASU 2010-21, Accounting for Technical Amendments to Various
SEC Rules and Schedules, or ASU 2010-21. ASU 2010-21 updates various SEC paragraphs pursuant to the
issuance of Release No. 33-9026: Technical Amendments to Rules, Forms, Schedules and Codification
of Financial Reporting Policies. The changes affect provisions relating to consolidation and
reporting requirements under conditions of majority and minority ownership positions and ownership
by both controlling and noncontrolling entities. The amendments also deal with redeemable and
non-redeemable preferred stocks and convertible preferred stocks. We adopted ASU 2010-21 upon
issuance in August 2010. The adoption of ASU 2010-21 did not have a material impact on our
consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805), or ASU
2010-29. ASU 2010-29 amends ASC Topic 805 to require the disclosure of pro forma revenue and
earnings for all business combinations that occurred during the current year to be presented as of
the beginning of the comparable prior annual reporting period. The amendments in ASU 2010-29 also
expand the supplemental pro forma disclosures to include a description of the nature and amount of
material, nonrecurring pro forma adjustments directly attributable to the business combination
included in the reported pro forma revenue and earnings. ASU 2010-29 is effective for business
combinations for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2010. The adoption of ASU 2010-29 did not have
a material impact on our consolidated financial statements.
In May 2011, FASB issued ASU 2011-04, Fair Value Measurements and Disclosures (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and
IFRS, or ASU 2011-04. ASU 2011-04 converges guidance between GAAP and International Financial
Reporting Standards on how to measure fair value and on what disclosures to provide about fair
value measurements. ASU 2011-04 is effective for the first reporting period (including interim
periods) beginning after December 15, 2011. The adoption of ASU 2011-04 is not expected to have a
material impact on our consolidated financial statements.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
3. Real Estate Investments
We did not complete any real estate acquisitions during the six months ended June 30, 2011.
Our investments in our consolidated properties consisted of the following as of June 30, 2011 and
December 31, 2010:
June 30, 2011 | December 31, 2010 | |||||||
Land |
$ | 45,747,000 | $ | 45,747,000 | ||||
Land improvements |
24,266,000 | 24,266,000 | ||||||
Building and improvements |
305,299,000 | 304,729,000 | ||||||
Furniture, fixtures and equipment |
12,256,000 | 12,230,000 | ||||||
387,568,000 | 386,972,000 | |||||||
Less: accumulated depreciation |
(42,845,000 | ) | (36,302,000 | ) | ||||
$ | 344,723,000 | $ | 350,670,000 | |||||
Depreciation expense for the three months ended June 30, 2011 and 2010 was $3,295,000 and
$3,144,000, respectively, and for the six months ended June 30, 2011 and 2010 was $6,561,000 and
$6,075,000, respectively.
4. Joint Venture
NNN/Mission Residential Holdings, LLC
As of March 31, 2011, we had one investment in an unconsolidated joint venture. We initially
acquired a 50% ownership interest in the joint venture, NNN/MR Holdings, on December 31, 2010,
through a wholly-owned subsidiary of our operating partnership. On June 17, 2011, we acquired the
remaining 50% ownership interest in NNN/MR Holdings.
Prior to and until we purchased the remaining 50% ownership interest in NNN/MR Holdings, we
accounted for the then unconsolidated joint venture under the equity method of accounting. We
recognized earnings or losses from our investment in the unconsolidated joint venture, consisting
of our proportionate share of the net earnings or loss of the joint venture. For the three and six
months ended June 30, 2011, we recognized $46,000 and $59,000, respectively, in expenses which are
included in loss from unconsolidated joint venture on the condensed consolidated statements of
operations at June 30, 2011. After we purchased the remaining ownership interest in NNN/MR
Holdings, and became its sole owner, we consolidated it on our accompanying condensed consolidated
balance sheets and statements of operations. See the discussion of our acquisition of NNN/MR
Holdings set forth in Note 1, Organization and Description of Business.
As part of the acquisition of the remaining 50% ownership interest in NNN/MR Holdings, we
re-evaluated the initial 50% ownership interest and recognized a loss
on the purchase of the remaining interest of
$354,000, which is included in depreciation, amortization and
impairment loss on the condensed consolidated statements of operations. In connection with the acquisition of the remaining 50% ownership interest in NNN/MR
Holdings, we also recognized a disposition fee right intangible of
$1,580,000 that is included in
identified intangible assets, net on the condensed consolidated balance sheets, and an above market
lease obligation of $1,174,000 that is included in security deposits, prepaid rent and other
liabilities on the condensed consolidated balance sheets. Pursuant to each master lease between
each master tenant subsidiary of NNN/MR Holdings and the respective third-party property owner, or
other operative agreement, NNN/MR Holdings is entitled to a disposition fee in the event that any
of the leased multi-family apartment properties is sold. We have determined that our total lease
payment obligation pursuant to the four master leases is above market.
5. Goodwill and Identified Intangible Assets, Net
During the fourth quarter of 2010, we, through MR Property Management, a taxable REIT
subsidiary of our operating partnership, completed the acquisition of substantially all of the
assets and certain liabilities of Mission Residential Management, an affiliate of MR Holdings,
including the in-place workforce, which created $3,751,000 of goodwill.
In accordance with accounting guidance, goodwill is not amortized but is tested for
impairment at the reporting unit level. Impairment is the condition that exists when the carrying
amount of goodwill exceeds its implied fair value. Goodwill is required to be tested for impairment
annually and between annual tests if events or circumstances change, such as adverse changes in the
business climate, that would more likely than not reduce the fair value of the reporting unit below
its carrying value.
Our goodwill impairment test, to be performed during the fourth quarter of each year,
will be a two-step test. The first step will identify whether there is a potential impairment by
comparing the fair value of the reporting unit to the carrying amount, including goodwill. If the
fair value of the reporting unit is less than the carrying amount, the second step of the
impairment test will be required to measure the amount of any impairment loss. As goodwill was
created from the acquisition of substantially all of the assets and certain liabilities of Mission
Residential Management during the fourth quarter of 2010, our first anticipated test date will be
in the fourth quarter of 2011.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
The following table provides a summary of goodwill from the acquisition of substantially
all of the assets and certain liabilities of Mission Residential Management on November 5, 2010:
Total purchase price |
$ | 5,513,000 | ||
Assumed Oakton above market lease (a) |
250,000 | |||
Assumed paid time off liability (b) |
348,000 | |||
Intangible asset tenant relationships |
(1,760,000 | ) | ||
Intangible asset expected termination fees (c) |
(600,000 | ) | ||
Goodwill |
$ | 3,751,000 | ||
(a) | Included in security deposits, prepaid rent and other liabilities on the condensed consolidated balance sheets with a net balance of $197,000 and $237,600 at June 30, 2011 and December 31, 2010, respectively. | |
(b) | Included in accounts payable and accrued liabilities on the condensed consolidated balance sheets at June 30, 2011 and December 31, 2010. | |
(c) | Represents termination fees that were are likely to receive due to terminations by property owners, as outlined in the asset purchase agreement. During the first quarter of 2011, $117,000 was received in termination fees due to the termination of one property management contract in 2010. |
Identified intangible assets, net are a result of the purchase of NNN/MR Holdings, the Bella
Ruscello Property and the Mission Rock Ridge Property, and substantially all of the assets and
certain liabilities of Mission Residential Management, and consisted of the following as of June
30, 2011 and December 31, 2010:
June 30, 2011 | December 31, 2010 | |||||||
Disposition fee rights |
$ | 1,580,000 | $ | | ||||
In place leases, net of accumulated amortization
of $210,000 and $126,000 as of June 30, 2011 and
December 30, 2010 (with a weighted average
remaining life of 0 months and 2 months as of
June 30, 2011 and December 31, 2010,
respectively) |
| 84,000 | ||||||
Tenant relationships, net of accumulated
amortization of $239,000 and $80,000 as of June
30, 2011 and December 31, 2010, respectively
(with a weighted average remaining life of 227
months as of June 30, 2011 and December 31,
2010) |
1,678,000 | 1,837,000 | ||||||
Tenant relationships expected termination fees |
483,000 | 600,000 | ||||||
$ | 3,741,000 | $ | 2,521,000 | |||||
Amortization expense recorded on the identified intangible assets for the three months ended June 30,
2011 and 2010 was $79,000 and $110,000, respectively, and for the six months ended June 30, 2011
and 2010 was $243,000 and $110,000, respectively
Estimated amortization expense on the tenant relationships as of June 30, 2011, for
the six months ending December 31, 2011, and for each of the next four years ending December 31 and
thereafter, is as follows:
Year | Amount | |||
2011 |
$ | 150,000 | ||
2012 |
$ | 192,000 | ||
2013 |
$ | 165,000 | ||
2014 |
$ | 155,000 | ||
2015 |
$ | 143,000 | ||
Thereafter |
$ | 873,000 |
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
6. Other Assets, Net
Other assets, net consisted of the following as of June 30, 2011 and December 31, 2010:
June 30, 2011 | December 31, 2010 | |||||||
Deferred financing costs,
net of accumulated
amortization of $916,000 and
$686,000 as of June 30, 2011
and December 31, 2010,
respectively |
$ | 1,252,000 | $ | 1,481,000 | ||||
Prepaid expenses and deposits |
1,121,000 | 555,000 | ||||||
$ | 2,373,000 | $ | 2,036,000 | |||||
Amortization expense recorded on the deferred financing costs for the three months ended June
30, 2011 and 2010 was $165,000 and $61,000, respectively, and for the six months ended June 30,
2011 and 2010 was $230,000 and $119,000, respectively, which is included in interest expense in our
accompanying condensed consolidated statements of operations.
7. Mortgage Loan Payables, Net and Unsecured Note Payable
Mortgage Loan Payables, Net
Mortgage loan payables were $244,163,000 ($243,705,000, net of discount) and $244,598,000
($244,072,000, net of discount) as of June 30, 2011 and December 31, 2010, respectively. As of June
30, 2011, we had 12 fixed rate and three variable rate mortgage loans with effective interest rates
ranging from 2.36% to 5.94% per annum and a weighted average effective interest rate of 4.70% per
annum. As of June 30, 2011, we had $183,163,000 ($182,705,000, net of discount) of fixed rate debt,
or 75.0% of mortgage loan payables, at a weighted average interest rate of 5.47% per annum and
$61,000,000 of variable rate debt, or 25.0% of mortgage loan payables, at a weighted average
effective interest rate of 2.39% per annum. As of December 31, 2010, we had 12 fixed rate mortgage
loans and three variable rate mortgage loans with effective interest rates ranging from 2.49% to
5.94% per annum and a weighted average effective interest rate of 4.73% per annum. As of December
31, 2010, we had $183,598,000 ($183,072,000, net of discount) of fixed rate debt, or 75.1% of
mortgage loan payables, at a weighted average interest rate of 5.43% per annum and $61,000,000 of
variable rate debt, or 24.9% of mortgage loan payables, at a weighted average effective interest
rate of 2.52% per annum.
We are required by the terms of certain loan documents to meet certain financial reporting
requirements. As of June 30, 2011 and December 31, 2010, we were in compliance with all such
requirements. Most of the mortgage loan payables may be prepaid in whole but not in part, subject
to prepayment premiums. 11 of our mortgage loan payables currently have monthly interest-only
payments. The mortgage loan payables associated with Residences at Braemar, Towne Crossing
Apartments, Arboleda Apartments and the Bella Ruscello property currently require monthly principal
and interest payments.
Mortgage loan payables, net consisted of the following as of June 30, 2011 and December 31,
2010:
Property | Interest Rate | Maturity Date | June 30, 2011 | December 31, 2010 | ||||||||||||
Fixed Rate Debt: |
||||||||||||||||
Hidden Lake Apartment Homes |
5.34 | % | 01/11/17 | $ | 19,218,000 | $ | 19,218,000 | |||||||||
Walker Ranch Apartment Homes |
5.36 | % | 05/11/17 | 20,000,000 | 20,000,000 | |||||||||||
Residences at Braemar |
5.72 | % | 06/01/15 | 9,101,000 | 9,188,000 | |||||||||||
Park at Northgate |
5.94 | % | 08/01/17 | 10,295,000 | 10,295,000 | |||||||||||
Baypoint Resort |
5.94 | % | 08/01/17 | 21,612,000 | 21,612,000 | |||||||||||
Towne Crossing Apartments |
5.04 | % | 11/01/14 | 14,377,000 | 14,519,000 | |||||||||||
Villas of El Dorado |
5.68 | % | 12/01/16 | 13,600,000 | 13,600,000 | |||||||||||
The Heights at Olde Towne |
5.79 | % | 01/01/18 | 10,475,000 | 10,475,000 | |||||||||||
The Myrtles at Olde Towne |
5.79 | % | 01/01/18 | 20,100,000 | 20,100,000 | |||||||||||
Arboleda Apartments |
5.36 | % | 04/01/15 | 17,381,000 | 17,500,000 | |||||||||||
Bella Ruscello Luxury Apartment
Homes |
5.53 | % | 04/01/20 | 13,104,000 | 13,191,000 | |||||||||||
Mission Rock Ridge Apartments |
4.20 | % | 10/01/20 | 13,900,000 | 13,900,000 | |||||||||||
183,163,000 | 183,598,000 | |||||||||||||||
Variable Rate Debt: |
||||||||||||||||
Creekside Crossing |
2.36 | %* | 07/01/15 | 17,000,000 | 17,000,000 | |||||||||||
Kedron Village |
2.38 | %* | 07/01/15 | 20,000,000 | 20,000,000 | |||||||||||
Canyon Ridge Apartments |
2.41 | %* | 10/01/15 | 24,000,000 | 24,000,000 | |||||||||||
61,000,000 | 61,000,000 | |||||||||||||||
Total fixed and variable rate debt |
244,163,000 | 244,598,000 | ||||||||||||||
Less: discount |
(458,000 | ) | (526,000 | ) | ||||||||||||
Mortgage loan payables, net |
$ | 243,705,000 | $ | 244,072,000 | ||||||||||||
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
* | Represents the per annum interest rate in effect as of June 30, 2011. In addition, pursuant to the terms of the related loan documents, the maximum variable interest rate allowable is capped at rates ranging from 6.5% to 6.75% per annum. |
The principal payments due on our mortgage loan payables as of June 30, 2011, for the six
months ending December 31, 2011 and for each of the next four years ending December 31 and
thereafter, is as follows:
Year | Amount | |||
2011 |
$ | 440,000 | ||
2012 |
$ | 954,000 | ||
2013 |
$ | 1,576,000 | ||
2014 |
$ | 15,416,000 | ||
2015 |
$ | 86,249,000 | ||
Thereafter |
$ | 139,528,000 |
Unsecured Note Payable
The unsecured note payable originally to NNN Realty Advisors, a wholly-owned subsidiary of
Grubb & Ellis Company and an affiliate of our Former Advisor, was evidenced by unsecured promissory
notes, each bearing interest at a fixed rate and requiring monthly interest-only payments for the
terms of the unsecured note payables to affiliate. On November 10, 2009, we entered into a
consolidated unsecured promissory note, or the Consolidated Promissory Note, with NNN Realty
Advisors whereby we cancelled the outstanding promissory notes dated June 27, 2008 and September
15, 2008, and consolidated the outstanding principal balances of the cancelled promissory notes
into the Consolidated Promissory Note. The Consolidated Promissory Note had an interest rate of
4.50% per annum, a default interest rate of 2.0% in excess of the interest rate then in effect and
a maturity date of January 1, 2011. The interest rate payable under the Consolidated Promissory
Note was subject to a one-time adjustment to a maximum rate of 6.0% per annum. On August 11, 2010,
we amended the Consolidated Promissory Note, or the Amended Consolidated Promissory Note. The
material terms of the Amended Consolidated Promissory Note decreased the principal amount
outstanding to $7,750,000 due to our pay down of the principal balance, extended the maturity date
from January 1, 2011 to July 17, 2012, and fixed the interest rate at 4.50% per annum and the
default interest rate at 6.50% per annum. On February 2, 2011, NNN Realty Advisors sold the
Amended Consolidated Promissory Note to G&E Apartment Lender, LLC, a party unaffiliated with us,
for a purchase price of $6,200,000. The material terms of the Amended Consolidated Promissory Note
did not change upon the sale of the note.
As of June 30, 2011 and December 31, 2010, the outstanding principal amount under the Amended
Consolidated Promissory Note was $7,750,000.
Because the original loan pursuant to the Amended Consolidated Promissory Note
represented a related party loan, the terms of the loan and the Amended Consolidated Promissory
Note were approved by our board of directors, including a majority of our independent directors.
After December 31, 2010, this unsecured note payable was no longer due to a related party.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
8. Commitments and Contingencies
Litigation
On August 27, 2010, we entered into definitive agreements to acquire Mission Rock Ridge
Apartments, substantially all of the assets and certain liabilities of Mission Residential
Management, and eight additional apartment communities, or DST properties, owned by eight separate
Delaware Statutory Trusts, or DSTs, for which an affiliate of MR Holdings, LLC serves as trustee,
for total consideration valued at $157,800,000, including approximately $33,200,000 of limited
partnership interests in the OP and the assumption of approximately $124,600,000 of in-place
mortgage indebtedness encumbering the properties. On November 9, 2010, seven of the 277 investors
who hold interests in the eight DSTs that hold the DST properties filed a complaint in the United
States District Court for the Eastern District of Virginia (Civil Action No. 3:10CV824(HEH)), or
the Federal Action, against the trustee of each of these trusts and certain of the trustees
affiliates, as well as against our operating
partnership, seeking, among other things, to enjoin the closing of our proposed acquisition of
the eight DST properties. The complaint alleged, among other things, that the trustee has breached
its fiduciary duties to the beneficial owners of the trusts by entering into the eight purchase and
sale agreements with our operating partnership. The complaint further alleged that our operating
partnership aided and abetted the trustees alleged breaches of fiduciary duty and tortuously
interfered with the contractual relations between the trusts and the trust beneficiaries. In a
Consent Order dated November 10, 2010, entered in the Federal Action, the parties agreed that none
of the eight transactions will be closed during the 90-day period following the date of such
Consent Order. On December 20, 2010, the purported replacement trustee Internacional Realty, Inc.,
as well as investors in each of the 23 DSTs for which Mission Trust Services serves as trustee,
filed a complaint in the Circuit Court of Cook County, Illinois (Case No. 10 CH 53556), or the Cook
County Action. The Cook County Action was filed against the same parties as the Federal Action, and
included the same claims against us as in the Federal Action. On December 23, 2010, the plaintiffs
in the Federal Action dismissed that action voluntarily. On January 28, 2011, Internacional Realty,
Inc. filed a third-party complaint against us and other parties in the Circuit Court for Fairfax
County, Virginia (Case No. 2010-17876), or the Fairfax Action. The Fairfax Action included the same
claims against us as in the Federal Action and the Cook County Action. On March 5, 2011, the court
dismissed the third-party complaint against us.
As of February 23, 2011, the expiration date for the lenders approval period pursuant to each
of the purchase agreements, certain conditions precedent to our obligation to acquire the eight
DSTs had not been satisfied. With the prior approval of the board of directors, on February 28,
2011, we provided the respective Delaware Statutory Trusts written notice of termination of each of
the respective purchase agreements in accordance with the terms of the agreements.
On March 22, 2011, Internacional Realty, Inc. and several DST investors filed a complaint
against us and other parties in the Circuit Court of Fairfax County, or the Fairfax II Action. The
Fairfax II Action contains many of the same factual allegations and seeks the rescission of both
the purchase agreements and the asset purchase agreement. We believe the allegations contained in
the complaints against us are without merit and we intend to defend the claims vigorously. However,
there is no assurance that we will be successful in our defense. We have not accrued any amount for
the possible outcome of this litigation because management does not believe that a material loss is
reasonably likely at this time. On June 7, 2011, the Circuit Court of Cook County, Illinois stayed
the Cook County Action until December 7, 2011 pending developments in the Fairfax litigation.
Our general and administrative expenses
on the condensed consolidated statements of operations for the three
and six months ended June 30, 2011 reflect professional fees of
$405,000 and $817,000, respectively, related to the litigation
described above. We intend to make a claim for indemnification of
such expenses and for any additional expenses or losses we may have
relating to the litigation, however if we are not successful in our
claim, we may not be able to recover any such expenses or the
expenses of pursuing indemnification.
Other than the foregoing, we are not aware of any material pending legal proceedings other
than ordinary routine litigation incidental to our business.
Environmental Matters
We follow a policy of monitoring our properties for the presence of hazardous or toxic
substances. While there can be no assurance that a material environmental liability does not exist
at our properties, we are not currently aware of any environmental liability with respect to our
properties that would have a material effect on our consolidated financial position, results of
operations or cash flows. Further, we are not aware of any material environmental liability or any
unasserted claim or assessment with respect to an environmental liability that we believe would
require additional disclosure or the recording of a loss contingency.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Other Organizational and Offering Expenses
Prior to the termination of the Grubb & Ellis Advisory Agreement, our organizational and
offering expenses, other than selling commissions and the dealer manager fee, incurred in
connection with our follow-on offering were paid by our Former Advisor or its affiliates on our
behalf. Other organizational and offering expenses included all expenses (other than selling
commissions and the dealer manager fee, which generally represent 7.0% and 3.0% of our gross
offering proceeds, respectively) to be paid by us in connection with our follow-on offering.
Pursuant to the terms of the Grubb & Ellis Advisory Agreement, these expenses only became our
liability to the extent these other organizational and offering expenses did not exceed 1.0% of the
gross offering proceeds from the sale of shares of our common stock in our follow-on offering. As
of December 31, 2010, our Former Advisor and its affiliates had incurred expenses on our behalf of
$2,465,000 in excess of 1.0% of the gross proceeds from our follow-on offering, and, therefore,
these expenses are not recorded in our accompanying consolidated financial
statements as of December 31, 2010. See Note 9, Related Party Transactions Offering Stage,
for a further discussion of other organizational and offering expenses.
Other
Our other commitments and contingencies include the usual obligations of real estate owners
and operators in the normal course of business. In our view, these matters are not expected to have
a material adverse effect on our consolidated financial position, results of operations or cash
flows.
9. Related Party Transactions
The below transactions cannot be construed to be at arms length and the results of our operations
may be different than if conducted with non-related parties.
Former Advisor and Affiliates
During 2010, all of our executive officers and our non-independent directors were also
executive officers and employees and/or holders of a direct or indirect interest in our Former
Advisor, Grubb & Ellis Company or other affiliated entities. Also, during 2010, we were a party to
the Grubb & Ellis Advisory Agreement with our Former Advisor, and a dealer manager agreement, or
the Grubb & Ellis Dealer Manager Agreement, with Grubb & Ellis Securities, Inc., or Grubb & Ellis
Securities, our former dealer manager. Until December 31, 2010, these agreements entitled our
Former Advisor or its affiliates, and our former dealer manager or its affiliates, to specified
compensation for certain services, as well as reimbursement of certain expenses.
On November 1, 2010, we received written notice from our Former Advisor that it had
elected to terminate the Grubb & Ellis Advisory Agreement. Pursuant to the Grubb & Ellis Advisory
Agreement, either party was permitted to terminate the agreement upon 60 days written notice.
Therefore, the Grubb & Ellis Advisory Agreement terminated on December 31, 2010. On November 1,
2010, we also received written notice from Grubb & Ellis Securities that it had elected to
terminate the Grubb & Ellis Dealer Manager Agreement. Pursuant to the Grubb & Ellis Dealer Manager
Agreement, either party was permitted to terminate the agreement upon 60 days written notice.
Therefore, the Grubb & Ellis Dealer Manager Agreement terminated on December 31, 2010.
In the aggregate, for the three months ended June 30, 2011 and 2010, we incurred $0 and
$2,360,000, respectively, and for the six months ended June 30, 2011 and 2010, we incurred $6,000
and $4,735,000, respectively, in fees and expenses to our Former Advisor and its affiliates as
detailed below.
Offering Stage
Follow-On Offering Selling Commissions
Until December 31, 2010, pursuant to our follow-on offering, our former dealer manager
received selling commissions of up to 7.0% of the gross offering proceeds from the sale of shares
of our common stock in our follow-on offering, other than shares of our common stock sold pursuant
to the DRIP. Pursuant to the Grubb & Ellis
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Dealer Manager Agreement, which was terminated effective
December 31, 2010, our former dealer manager was permitted to re-allow all or a portion of these
fees to participating broker-dealers. For the three months ended June 30, 2011 and 2010, we
incurred $0 and $544,000, respectively, and for the six months ended June 30, 2011 and 2010, we
incurred $0 and $904,000, respectively, in selling commissions to our former dealer manager. Such
selling commissions are charged to stockholders equity as such amounts were reimbursed to our
former dealer manager from the gross proceeds of our follow-on offering.
Follow-On Offering Dealer Manager Fees
Until December 31, 2010, pursuant to our follow-on offering, our former dealer manager
received a dealer manager fee of up to 3.0% of the gross offering proceeds from the shares of
common stock sold pursuant to our follow-on offering, other than shares of our common stock sold
pursuant to the DRIP. Pursuant to the Grubb & Ellis
Dealer Manager Agreement, our former dealer
manager was permitted to re-allow all or a portion of the dealer
manager fee to participating broker-dealers. For the three months ended June 30, 2011 and
2010, we incurred $0 and $236,000, respectively, and for the six months ended June 30, 2011 and
2010, we incurred $0 and $394,000, respectively, in dealer manager fees to our former dealer
manager or its affiliates. Such fees are charged to stockholders equity as such amounts were
reimbursed to our former dealer manager or its affiliates from the gross proceeds of our follow-on
offering.
Follow-On Offering Other Organizational and Offering Expenses
Until December 31, 2010, our other organizational and offering expenses for our follow-on
offering were paid by our Former Advisor or its affiliates on our behalf. Pursuant to the Grubb &
Ellis Advisory Agreement, our Former Advisor or its affiliates were reimbursed for actual expenses
incurred up to 1.0% of the gross offering proceeds from the sale of shares of our common stock in
our follow-on offering, other than shares of our common stock sold pursuant to the DRIP. For the
three months ended June 30, 2011 and 2010, we incurred $0 and $78,000, respectively, and for the
six months ended June 30, 2011 and 2010, we incurred $0 and $131,000, respectively, in offering
expenses to our Former Advisor and its affiliates. Other organizational expenses are expensed as
incurred, and offering expenses are charged to stockholders equity as such amounts were reimbursed
to our Former Advisor or its affiliates from the gross proceeds of our follow-on offering.
Acquisition and Development Stage
Acquisition Fees
Prior to the termination of the Grubb & Ellis Advisory Agreement on December 31, 2010, our
Former Advisor or its affiliates received, as compensation for services rendered in connection with
the investigation, selection and acquisition of properties, an acquisition fee of up to 3.0% of the
contract purchase price for each property acquired or up to 4.0% of the total development cost of
any development property acquired, as applicable. Additionally, effective July 17, 2009 and until
the termination of the Grubb & Ellis Advisory Agreement, our Former Advisor or its affiliates
received a 2.0% origination fee as compensation for any real estate-related investment acquired.
For the three and six months ended June 30, 2010, we incurred $0 and $522,000, respectively, in
acquisition fees to our Former Advisor or its affiliates. For the three and six months ended June
30, 2010, acquisition fees in connection with the acquisition of properties were expensed as
incurred in accordance with ASC Topic 805 and are disclosed as a separate line item in our
accompanying condensed consolidated statements of operations.
Reimbursement of Acquisition Expenses
Prior to the termination of the Grubb & Ellis Advisory Agreement, our Former Advisor or its
affiliates were reimbursed for acquisition expenses related to selecting, evaluating, acquiring and
investing in properties. Until July 17, 2009, acquisition expenses, excluding amounts paid to third
parties, could not exceed 0.5% of the contract purchase price of our properties. The reimbursement
of acquisition expenses, acquisition fees, real estate commissions and other fees paid to
unaffiliated parties could not exceed, in the aggregate, 6.0% of the purchase price or total
development costs, unless fees in excess of such limits were approved by a majority of our
disinterested independent directors. Effective July 17, 2009 and until the termination of the Grubb
& Ellis Advisory
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Agreement, our Former Advisor or its affiliates were reimbursed for all
acquisition expenses actually incurred related to selecting, evaluating and acquiring assets, which
was to be paid regardless of whether an asset was acquired, subject to the aggregate 6.0% limit on
reimbursement of acquisition expenses, acquisition fees and real estate commissions paid to
unaffiliated parties. As of June 30, 2010, such fees and expenses did not exceed 6.0% of the
purchase price of our acquisitions.
For the three and six months ended June 30, 2010, we incurred $0 and $4,000,
respectively, for such expenses to our Former Advisor and its affiliates, excluding amounts our
Former Advisor and its affiliates paid directly to third parties. Acquisition expenses were
expensed as incurred in accordance with ASC Topic 805 and are disclosed as a separate line item in
our accompanying condensed consolidated statements of operations.
Operational Stage
Asset Management Fee
Pursuant to the Grubb & Ellis Advisory Agreement until November 1, 2008, our Former Advisor or
its affiliates received a monthly fee for services rendered in connection with the management of
our assets in an amount that equaled one-twelfth of 1.0% of our average invested assets calculated
as of the close of business on the last day of each month, subject to our stockholders receiving
annualized distributions in an amount equal to at least 5.0% per annum, cumulative, non-compounded,
on average invested capital. The asset management fee was calculated and payable monthly in cash or
shares of our common stock, at the option of our Former Advisor, not to exceed one-twelfth of 1.0%
of our average invested assets as of the last day of the immediately preceding quarter.
Effective November 1, 2008 and until the termination of the Grubb & Ellis Advisory
Agreement, we reduced the monthly asset management fee paid to our Former Advisor or its affiliates
from one-twelfth of 1.0% of our average invested assets to one-twelfth of 0.5% of our average
invested assets. The asset management fee was calculated and payable monthly in cash or shares of
our common stock, at the option of our Former Advisor, not to exceed one-twelfth of 0.5% of our
average invested assets as of the last day of the immediately preceding quarter. Furthermore,
effective January 1, 2009, and until December 31, 2010, no asset management fee was to be due or
payable to our Former Advisor or its affiliates until the quarter following the quarter in which we
generated funds from operations, or FFO, excluding non-recurring charges, sufficient to cover 100%
of the distributions declared to our stockholders for such quarter.
For the three and six months ended June 30, 2011 and 2010, we did not incur any asset
management fees to our Former Advisor and its affiliates.
Property Management Fee
Prior to the termination of the Grubb & Ellis Advisory Agreement, our Former Advisor or its
affiliates were paid a monthly property management fee of up to 4.0% of the monthly gross cash
receipts from any property managed for us. For the three months ended June 30, 2011 and 2010, we
incurred property management fees of $0 and $287,000, respectively, and for the six months ended
June 30, 2011 and 2010, we incurred property management fees of $0 and $561,000, respectively, to
our Former Advisor and its affiliates, which are included in rental expenses in our accompanying
condensed consolidated statements of operations.
On-site Personnel Payroll
For the three and six months ended June 30, 2010, Grubb & Ellis Residential Management
incurred payroll for on-site personnel on our behalf of $1,061,000 and $1,943,000, respectively,
which is included in rental expenses in our accompanying condensed consolidated statements of
operations. Grubb & Ellis Residential Management did not incur payroll for on-site personnel on
our behalf after December 31, 2010.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Operating Expenses
Prior to the termination of the Grubb & Ellis Advisory Agreement, we reimbursed our Former
Advisor or its affiliates for operating expenses incurred in rendering services to us, subject to
certain limitations on our operating expenses. However, we were not permitted to reimburse our
Former Advisor or its affiliates for operating expenses incurred by it for the 12 consecutive
months then ended that exceeded the greater of: (1) 2.0% of our average invested assets, as defined
in the Grubb & Ellis Advisory Agreement; or (2) 25.0% of our net income, as defined in the Grubb &
Ellis Advisory Agreement, unless our independent directors determined that such excess expenses
were justified based on unusual and non-recurring factors. For the 12 months ended June 30, 2010,
our operating expenses did not exceed this limitation. Our operating expenses as a percentage of
average invested assets and as a percentage of net income were 0.3% and 15.1%, respectively, for
the 12 months ended June 30, 2010.
For the three months ended June 30, 2011 and 2010, our former transfer agent Grubb &
Ellis Equity Advisors, Transfer Agent, LLC, or Grubb & Ellis Transfer Agent, which is a
wholly-owned subsidiary of Grubb & Ellis Equity Advisors, incurred operating expenses on our behalf
of $0 and $9,000, respectively. For the six months ended June 30, 2011 and 2010, Grubb & Ellis
Transfer Agent incurred operating expenses on our behalf of $6,000 and $17,000, respectively, which
is included in general and administrative in our accompanying condensed consolidated statements of
operations.
Compensation for Additional Services
Prior to the termination of the Grubb & Ellis Advisory Agreement, our Former Advisor and its
affiliates were paid for services performed for us other than those required to be rendered by our
Former Advisor and its affiliates under such agreement. The rate of compensation for these services
was approved by a majority of our board of directors, including a majority of our independent
directors, and could not exceed an amount that would be paid to unaffiliated third parties for
similar services.
We entered into a services agreement, effective January 1, 2008, or the Services
Agreement, with Grubb & Ellis Realty Investors for subscription agreement processing and investor
services. On January 31, 2010, we terminated the Services Agreement with Grubb & Ellis Realty
Investors. On February 1, 2010, we entered into an agreement, or the Transfer Agent Services
Agreement, with Grubb & Ellis Transfer Agent, for transfer agent and investor services. The terms
of the Transfer Agent Services Agreement were approved and determined by a majority of our
directors, including a majority of our independent directors, to be fair and reasonable to us and
at fees charged to us in an amount no greater than that which would be paid to an unaffiliated
party for similar services. On November 3, 2010, we received notification of termination of the
Transfer Agent Services Agreement from Grubb & Ellis Transfer Agent. On January 29, 2011, we moved
the transfer agent function from Grubb & Ellis Transfer Agent to DST Systems, Inc., an unaffiliated
agent.
For the three months ended June 30, 2011 and 2010, we incurred $0 and $29,000,
respectively, and for the six months ended June 30, 2011 and 2010, we incurred $0 and $42,000,
respectively, for investor services that Grubb & Ellis Transfer Agent or Grubb & Ellis Realty
Investors provided to us, which is included in general and administrative in our accompanying
condensed consolidated statements of operations.
For the three and six months ended June 30, 2010, our Former Advisor and its affiliates
incurred $3,000 and $5,000, respectively, in subscription agreement processing expenses that Grubb
& Ellis Transfer Agent or Grubb & Ellis Realty Investors provided to us. As another organizational
and offering expense, these subscription agreement processing expenses would only become our
liability to the extent that other organizational and offering expenses did not exceed 1.0% of the
gross proceeds of our follow-on offering.
For the three and six months ended June 30, 2010, we incurred $20,000 for tax and internal
controls compliance services that affiliates provided to us, which is also included in general and
administrative in our accompanying condensed consolidated statements of operations. No similar
services were rendered to us by affiliates after December 31, 2010.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
Liquidity Stage
In connection with the termination of the Grubb & Ellis Advisory Agreement, the Former Advisor
notified us of its election to defer the redemption of its incentive limited partnership interest
in our operating partnership until, generally, the earlier to occur of (i) a liquidity event or
(ii) a listing of our shares on a national securities exchange or national market system .
Incentive Distribution upon Sales
Prior to the termination of the Grubb & Ellis Advisory Agreement, in the event of
liquidation, our Former Advisor was to be paid an incentive distribution equal to 15.0% of net
sales proceeds from any disposition of a property after subtracting: (1) the amount of capital we
invested in our operating partnership; (2) an amount equal to an annual 8.0% cumulative,
non-compounded return on such invested capital; and (3) any shortfall with respect to the overall
annual 8.0% cumulative, non-compounded return on the capital invested in our operating partnership.
Actual amounts that our Former Advisor would receive depend on the sale prices of properties upon
liquidation. For the three and six months ended June 30, 2011 and 2010, we did not pay any such
distributions.
Incentive Distribution upon Listing
Prior to the termination of the Grubb & Ellis Advisory Agreement, in the event of a
termination of the agreement upon the listing of shares of our common stock on a national
securities exchange, our Former Advisor was to be paid an incentive distribution equal to 15.0% of
the amount, if any, by which the market value of our outstanding stock plus distributions paid by
us prior to listing, exceeded the sum of the amount of capital we invested in our operating
partnership plus an annual 8.0% cumulative, non-compounded return on such invested capital. Actual
amounts that our Former Advisor would receive depend upon the market value of our outstanding stock
at the time of listing among other factors. Upon our Former Advisors receipt of such incentive
distribution, our Former Advisors special limited partnership units would be redeemed and our
Former Advisor would not be entitled to receive any further incentive distributions upon sale of
our properties. For the three and six months ended June 30, 2011 and 2010, we did not pay any such
distributions.
Unsecured Note Payable to Affiliate
For the three months ended June 30, 2011 and 2010, we incurred $87,000 and $96,000,
respectively, and for the six months ended June 30, 2011 and 2010, we incurred $173,000 and
$197,000, respectively, in interest expense to NNN Realty Advisors. After February 2, 2011, the
note payable upon which interest was incurred was no longer due to a related party. See Note 7,
Mortgage Loan Payables, Net and Unsecured Note Payable Unsecured Note Payable, for a further
discussion.
New Advisor and Affiliates
On February 25, 2011, we entered into an advisory agreement among us, our operating
partnership and ROC REIT Advisors, referred herein as our Advisor. Our Advisor is affiliated with
us in that ROC REIT Advisors is owned by our executive officers, Messrs. Olander, Carneal and
Remppies. The advisory agreement has a one-year term and may be renewed for an unlimited number of
successive one-year terms. The advisory agreement may be terminated by either our Advisor or us
upon 60 days written notice without cause and without penalty.
Pursuant to the terms of the advisory agreement, our Advisor is entitled to receive certain
fees for services performed. As compensation for services rendered in connection with the
investigation, selection and acquisition of investments, we will pay our Advisor an acquisition fee
that will not exceed (A) 1.0% of the contract purchase price of properties, or (B) 1.0% of the
origination price or purchase price of real estate-related securities and real estate assets other
than properties; in each of the foregoing cases along with reimbursement of acquisition expenses.
However, the total of all acquisition fees and acquisition expenses payable with respect to any
real estate assets or real estate-related securities cannot exceed 6.0% of the contract purchase
price of such real estate assets or real estate-related securities, or in the case of a loan, 6.0%
of the funds advanced, unless fees in excess of such amount are approved by a majority of the our
directors not interested in such transaction, including a majority of our independent directors.
Furthermore, in connection with a sale of a property in which our Advisor or its affiliates provide
a substantial amount of services, we will pay our Advisor or its affiliates a property disposition
fee equal to
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
the lesser of (i) 1.75% of the contract sales price of such real estate asset and (ii)
one-half of a competitive real estate commission. However, the total real estate commissions we pay
to all persons with respect to the sale of such property may not exceed the lesser of 6.0% of the
contract sales price or a competitive real estate commission. For the three and six months ended
June 30, 2011, we did not pay any such fees.
As compensation for services rendered in connection with the management of our assets, we will
pay a monthly asset management fee to our Advisor equal to one-twelfth of 0.30% of our average
invested assets as of the last day of the immediately preceding quarter; the asset management fee
shall be payable monthly in arrears in cash equal to 0.25% of our average invested assets and
in shares of our common stock equal to 0.05% of our average invested assets. For the three and six
months ended June 30, 2011, we incurred $284,000 and $378,000, respectively, in asset management
fees to our Advisor which is included in general and administrative expense in our accompanying
condensed consolidated statements of operations. Included in asset management fees to our Advisor
are 5,247 shares of common stock valued at $9.00 per share that were issued to our Advisor for its
services as of June 30, 2011.
Upon the listing of our shares of common stock on a national securities exchange, the Advisor
is entitled to a subordinated performance fee equal to 15.0% of the amount by which the market
value of the shares of our common stock plus distributions paid by us prior to the listing exceeds
(i) a cumulative, non-compounded return equal to
8.0% per annum on our invested capital and (ii) our invested capital. Upon the sale of a real
estate asset, we will pay the Advisor a subordinated performance fee equal to 15.0% of the net
proceeds from such sale remaining after our stockholders have received distributions such that the
owners of all outstanding shares have received distributions in an aggregate amount equal to the
sum of, as of such point in time (i) a cumulative, non-compounded return equal to 8.0% per annum on
our invested capital and (ii) our invested capital. Upon termination of the advisory agreement,
unless we terminated the advisory agreement because of a material breach by our Advisor, or unless
such termination occurs upon a change of control, as defined in the advisory agreement, our Advisor
is entitled to receive a subordinated performance fee equal to 15.0% of the amount by which the
appraised value of our real estate assets and real estate-related securities on the date of
termination of the advisory agreement, less the amount of all indebtedness secured by our real
estate assets and real estate-related securities, plus the total distributions paid to our
stockholders, exceeds (i) a cumulative, non-compounded return equal to 8.0% per annum on our
invested capital plus (ii) our invested capital. Notwithstanding the foregoing, if termination of
the advisory agreement occurs upon a change of control, our Advisor is entitled to payment of a
subordinated performance fee equal to 15.0% of the amount by which the value of our real estate
assets and real estate-related securities on the date of termination of the advisory agreement as
determined in good faith by the board of directors, including a majority of the independent
directors, less the amount of all indebtedness secured by our real estate assets and real
estate-related securities, plus the total distributions paid to our stockholders, exceeds (i) a
cumulative, non-compounded return equal to 8.0% per annum on the our invested capital plus (ii) our
invested capital. In addition, in the event of the origination or refinancing of any debt
financing by us, including the assumption of existing debt, that is used to acquire real estate
assets or originate or acquire real estate-related securities or is assumed in connection with the
acquisition of real estate assets or the origination or acquisition of real estate-related
securities, and if our Advisor provides a substantial amount of services in connection therewith,
we will pay our Advisor a financing coordination fee equal to 1.0% of the amount available to us
and/or outstanding under such debt financing. For the three and six months ended June 30, 2011, we
did not pay any such fees.
In addition to the compensation paid to our Advisor, we will pay directly or reimburse our
Advisor for all the expenses our Advisor pays or incurs in connection with the services provided to
us. However, we will not reimburse our Advisor at the end of any fiscal quarter in which total
operating expenses incurred by it for the 12 consecutive months then ended exceed the greater of
2.0% of our average invested assets or 25.0% of our net income for such year, unless our
independent directors determine such excess expenses are justified. Our Advisor was appointed on
February 25, 2011, and has not served in such capacity for twelve consecutive months. We
reimbursed our Advisor $72,000 and $87,000, respectively, in operating expenses for the three and
six months ended June 30, 2011.
10. Redeemable Noncontrolling Interest
The Grubb & Ellis Advisory Agreement provided that, upon termination of the agreement in
connection with any event other than the listing of shares of our common stock on a national
securities exchange or a national market
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
system or the internalization of our Former Advisor in connection with our conversion to a
self-administered REIT, our Former Advisors special limited partnership interest may be redeemed
by us (as the general partner of our operating partnership) for a redemption price equal to the
amount of the incentive distribution that our Former Advisor would have received upon property
sales, as discussed in further detail in Note 9, Related Party Transactions Liquidity Stage, as
if our operating partnership immediately sold all of its properties for their fair market value.
Such incentive distribution was payable in cash or in shares of our common stock or in units of
limited partnership interest in our operating partnership, if agreed to by us and our Former
Advisor, except that our Former Advisor was not permitted to elect to receive shares of our common
stock to the extent that doing so would have caused us to fail to qualify as a REIT. We recognize
any changes in the redemption value as they occur and adjust the redemption value of the special
limited partnership interest (redeemable noncontrolling interest) as of each balance sheet date. As
of June 30, 2011 and December 31, 2010, we had not recorded any redemption amounts, as the
redemption value of the special limited partnership interest was $0.
On November 1, 2010, we received written notice from our Former Advisor that it had
elected to terminate the Grubb & Ellis Advisory Agreement. In connection with the termination of
the Grubb & Ellis Advisory Agreement, on January 3, 2011, our Former Advisor elected to defer the
redemption of its Incentive Limited Partnership Interest until, generally, the earlier to occur of
(i) our companys shares were listed on a national securities exchange or national market system or
(ii) a liquidity event.
11. Equity
Preferred Stock
Our charter authorizes us to issue 50,000,000 shares of our preferred stock, par value $0.01
per share. As of June 30, 2011 and December 31, 2010, no shares of our preferred stock were issued
and outstanding.
Common Stock
From July 19, 2006 through July 17, 2009, we offered to the public up to 100,000,000 shares of
our common stock for $10.00 per share in our primary offering, and up to 5,000,000 shares of our
common stock pursuant to the DRIP for $9.50 per share, in our initial offering.
On
July 20, 2009, we commenced our follow-on offering through which we offered to the public up
to 100,000,000 shares of our common stock for $10.00 per share in our primary offering, and up to
5,000,000 shares of our common stock pursuant to the DRIP at $9.50 per share, for a maximum
offering of up to $1,047,500,000. Effective December 31, 2010, we suspended the primary portion of
our follow-on offering. The follow-on offering terminated on July 17, 2011. Our charter
authorizes us to issue up to 300,000,000 shares of our common stock.
On January 10, 2006, our Former Advisor purchased 22,223 shares of our common stock for total
cash consideration of $200,000 and was admitted as our initial stockholder. Through June 30, 2011,
we had granted an aggregate of 21,000 shares of our restricted common stock to our independent
directors pursuant to the terms and conditions of our 2006 Incentive Award Plan, or our 2006 Plan,
2,800 of which had been forfeited through June 30, 2011. Through June 30, 2011, we had issued an
aggregate of 15,738,457 shares of our common stock in connection with our initial offering,
2,992,777 shares of our common stock in connection with our follow-on offering and 1,631,681 shares
of our common stock pursuant to the DRIP, and we had repurchased 592,692 shares of our common stock
under our share repurchase plan. As of June 30, 2011, we had issued 5,247 shares of our common
stock to our Advisor for services performed by it. As of June 30, 2011 and December 31, 2010, we
had 19,815,893 and 19,632,818 shares, respectively, of our common stock issued and outstanding.
Noncontrolling Interest
As of June 30, 2011 and December 31, 2010, we owned a 99.99% general partnership interest in
our operating partnership and our Former Advisor owned a 0.01% limited partnership interest in our
operating partnership. On December 31, 2010, the Grubb & Ellis Advisory Agreement was terminated.
In connection with the termination, our Former Advisor elected to defer the redemption of its
incentive limited partnership interest until, generally, the earlier to occur of (i) our companys
shares were listed on a national securities exchange or national market system,
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
or (ii) a liquidity
event. As such, 0.01% of the earnings and losses of our operating partnership are allocated to
noncontrolling interest.
Distribution Reinvestment Plan and Second Amended and Restated Distribution Reinvestment Plan
We adopted the DRIP, which allows stockholders to purchase additional shares of our common
stock through the reinvestment of distributions, subject to certain conditions. We registered and
reserved 5,000,000 shares of our common stock for sale pursuant to the DRIP in both our initial
offering and in our follow-on offering
On February 24, 2011, our board of directors adopted the Second Amended and Restated
Distribution Reinvestment Plan, or the Amended and Restated DRIP, which became effective March 11,
2011. The Amended and Restated DRIP is designed to offer our existing stockholders a simple and
convenient method of purchasing additional shares of our common stock by reinvesting cash
distributions. The Amended and Restated DRIP offers up to 10,000,000 shares of our common stock
for reinvestment for a maximum offering up to $95,000,000. Participants in the Amended and
Restated DRIP are required to have the full amount of their cash distributions with respect to all
shares of stock owned by them reinvested pursuant to the Amended and Restated DRIP. The purchase
price for shares under the Amended and Restated DRIP will be $9.50 per share until such time as the
board of directors determines a reasonable estimate of the value of the shares of our common stock.
On or after the date on which our board of directors determines a reasonable estimate of the value
of the shares of our common stock, the purchase price for shares will equal the most recently
disclosed estimated value of the shares of our common stock. Participants in the Amended and
Restated DRIP will not incur any brokerage commissions, dealer manager fees, organizational and
offering expenses, or service charges when purchasing shares under the Amended and Restated DRIP.
Participants may terminate their participation in the Amended and Restated DRIP at any time by
providing us with written notice. We reserve the right to amend any aspect of the Amended and
Restated DRIP at our sole discretion and without the consent of stockholders. We also reserve the
right to terminate the Amended and Restated DRIP or any participants participation in the Amended
and Restated DRIP for any reason at any time upon ten days prior written notice of termination.
On March 25, 2011, we filed a registration statement on Form S-3 with the SEC to register
shares issuable pursuant to the Amended and Restated DRIP. The registration statement became
effective with the SEC automatically upon filing. In addition, the registration statement has been
declared effective or is exempt from registration in the various states in which shares will be
sold under the Amended and Restated DRIP. For the three months ended June 30, 2011 and 2010,
$873,000 and $1,094,000, respectively, in distributions were reinvested, and 91,859 and 115,215
shares of our common stock, respectively, were issued pursuant to the DRIP and the Amended and
Restated DRIP. For the six months ended June 30, 2011 and 2010, $1,652,000 and $2,129,000,
respectively, in distributions were reinvested, and 173,828 and 224,124 shares of our common stock,
respectively, were issued pursuant to the DRIP and the Amended and Restated DRIP. As of June 30,
2011 and December 31, 2010, a total of $15,502,000 and $13,850,000, respectively, in distributions
were reinvested, and 1,631,681 and 1,457,853 shares of our common stock, respectively, were issued
pursuant to the DRIP and the Amended and Restated DRIP.
Share Repurchase Plan
Our share repurchase plan that was effective through December 31, 2010, allowed for share
repurchases by us upon request by stockholders when certain criteria were met. Share repurchases
were made at the sole discretion of our board of directors. Funds for the repurchase of shares of
our common stock came exclusively from the proceeds we received from the sale of shares of our
common stock pursuant to the DRIP.
Following December 31, 2010, we have not repurchased any shares of our common stock.
In February 2011, our board of directors determined that it is in the best interest of our
company and its stockholders to preserve our companys cash, and terminated our share repurchase
plan. Accordingly, pending share repurchase requests will not be fulfilled.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
2006 Incentive Award Plan
We adopted our 2006 Plan, pursuant to which our board of directors or a committee of our
independent directors may make grants of options, restricted common stock awards, stock purchase
rights, stock appreciation rights or other awards to our non-affiliated directors, employees and
consultants. The maximum number of shares of our common stock that may be issued pursuant to our
2006 Plan is 2,000,000, subject to adjustment under specified circumstances.
On June 28, 2011, in connection with their re-election, we granted an aggregate of 4,000
shares of restricted common stock to our non-affiliated directors under our 2006 Plan, of which
20.0% vested on the grant date and 20.0% will vest on each of the first four anniversaries of the
date of the grant. The value of each share of our restricted common stock was estimated at the
date of grant at $10.00 per share, the per share price of shares in the primary portion of our
public offerings, and is amortized on a straight-line basis over the vesting period. Shares of
restricted common stock may not be sold, transferred, exchanged, assigned, pledged, hypothecated or
otherwise encumbered. Such restrictions expire upon vesting. Shares of restricted common stock have
full voting rights and rights to dividends. For the three months ended June 30, 2011 and 2010, we
recognized compensation expense of $13,000 and $10,000, respectively, and for the six months ended
June 30, 2011 and 2010, we recognized compensation expense of $18,000 and $15,000, respectively,
related to the restricted common stock grants, ultimately expected to vest, which has been reduced
for estimated forfeitures. ASC Topic 718 requires forfeitures to be estimated at the time of grant
and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Stock compensation expense is included in general and administrative in our accompanying condensed
consolidated statements of operations.
As of June 30, 2011 and December 31, 2010, there was $66,000 and $44,000, respectively, of
total unrecognized compensation expense, net of estimated forfeitures, related to the nonvested
shares of our restricted common stock. As of June 30, 2011, this expense is expected to be
recognized over a remaining weighted average period of 3.16 years.
As of June 30, 2011 and December 31, 2010, the fair value of the nonvested shares of our
restricted common stock was $68,000 and $54,000, respectively. A summary of the status of the
nonvested shares of our restricted common stock as of June 30, 2011 and December 31, 2010, and the
changes for the six months ended June 30, 2011, is presented below:
Number of Nonvested | ||||||||
Shares of Our | Weighted | |||||||
Restricted | Average Grant | |||||||
Common Stock | Date Fair Value | |||||||
Balance December 31, 2010 |
5,400 | $ | 10.00 | |||||
Granted |
4,000 | | ||||||
Vested |
(2,600 | ) | | |||||
Forfeited |
| | ||||||
Balance June 30, 2011 |
6,800 | $ | 10.00 | |||||
Expected to vest June 30, 2011 |
6,800 | $ | 10.00 | |||||
12. Fair Value of Financial Instruments
ASC Topic 825, Financial Instruments, requires disclosure of the fair value of financial
instruments, whether or not recognized on the face of the balance sheet. Fair value is defined
under ASC Topic 820.
Our condensed consolidated balance sheets include the following financial instruments: cash
and cash equivalents, restricted cash, accounts and other receivables, accounts payable and accrued
liabilities, accounts payable due to affiliates, mortgage loan payables, net, and unsecured note
payable.
We consider the carrying values of cash and cash equivalents, restricted cash, accounts and
other receivables, and accounts payable and accrued liabilities to approximate fair value for these
financial instruments because of the short period of time between origination of the instruments
and their expected realization. The fair value of accounts payable due to affiliates is not
determinable due to the related party nature of the accounts payable.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
The fair value of the mortgage loan payables is estimated using borrowing rates available to
us for debt instruments with similar terms and maturities. As of June 30, 2011 and December 31,
2010, the fair value of the mortgage loan payables was $256,337,000 and $252,417,000, respectively,
compared to the carrying value of $243,705,000 and $244,072,000, respectively.
The fair value of the unsecured note payable is estimated using the sale price of the
unsecured note payable on February 2, 2011 to G&E Apartment Lender, LLC, an unaffiliated party. As
of June 30, 2011 and December 31, 2010, the fair value was $6,200,000 compared to a carrying value
of $7,750,000.
13. Concentration of Credit Risk
Financial instruments that potentially subject us to a concentration of credit risk are
primarily cash and cash equivalents, escrow deposits, restricted cash and accounts receivable from
tenants. Cash is generally invested in investment-grade, short-term instruments with a maturity of
three months or less when purchased. We have cash in financial institutions that is insured by the
Federal Deposit Insurance Corporation, or FDIC. As of June 30, 2011 and December 31, 2010, we had
cash and cash equivalents and restricted cash accounts in excess of FDIC insured limits. We believe
this risk is not significant. Concentration of credit risk with respect to accounts receivable from
tenants is limited. We perform credit evaluations of prospective tenants, and security deposits are
obtained upon lease execution.
As of June 30, 2011, we owned nine properties located in Texas, two properties in Georgia, two
properties in Virginia, one property in Tennessee and one property in North Carolina, which
accounted for 63.3%, 12.8%, 12.2%, 8.3% and 3.4%, respectively, of our total rental income and
other property revenues for the six months ended June 30, 2011. As of June 30, 2010, we owned eight
properties located in Texas, two properties in Georgia and two properties in Virginia, which
accounted for 58.6%, 14.6% and 13.7%, respectively, of our total revenues for the six months ended
June 30, 2010. Accordingly, there is a geographic concentration of risk subject to fluctuations in
each states economy.
14. Per Share Data
We report earnings (loss) per share pursuant 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 our
common stock outstanding during the period. Diluted earnings (loss) per share are computed based on
the weighted average number of shares of our common stock and all potentially dilutive securities,
if any. Nonvested shares of our restricted common stock give rise to potentially dilutive shares of
our common stock. As of June 30, 2011 and 2010, there were 6,800 shares and 6,000 shares,
respectively, of nonvested shares of our restricted common stock outstanding, but such shares were
excluded from the computation of diluted earnings per share because such shares were anti-dilutive
during these periods.
15. Business Combination
On June 17, 2011, we completed the acquisition of the remaining 50% ownership interest in the
consolidated joint venture, NNN/MR Holdings, for the purchase price of $200,000. The initial 50%
ownership interest in NNN/MR Holdings was previously purchased for $50,000.
Results of operations for the joint venture acquisition are reflected in our consolidated
statements of operations for the three and six months ended June 30, 2011 for the period subsequent
to June 17, 2011. For the period from June 17, 2011 through June 30, 2011, we recognized $326,000
in revenues and $106,000 in net income.
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APARTMENT TRUST OF AMERICA, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
The fair value of NNN/MR Holdings as of June 17, 2011 is shown below:
NNN/MR Holdings | ||||
Joint Venture | ||||
Cash and cash equivalents |
$ | 121,000 | ||
Accounts and other receivables |
678,000 | |||
Restricted cash |
689,000 | |||
Disposition fee right (a) |
1,580,000 | |||
Other assets, net |
263,000 | |||
Accounts payable and accrued liabilities |
(1,447,000 | ) | ||
Security deposits, prepaid rent and other liabilities |
(197,000 | ) | ||
Above market lease (b) |
(1,174,000 | ) | ||
Total net assets and liabilities acquired |
$ | 513,000 |
(a) | Included in identified intangible assets, net on the condensed consolidated balance sheet at June 30, 2011. | |
(b) | Included in security deposits, prepaid rent and other liabilities on the condensed consolidated balance sheet at June 30, 2011. |
The acquisition included the assumption of the joint ventures four master leases. We have
determined that the total rent we are obligated to pay pursuant to the master leases is above
market. Additionally, NNN/MR Holdings is entitled to a disposition fee in the event that any of the
leased multi-family apartment properties is sold. We have determined the total value of this
disposition fee right to be $1,580,000.
16. Subsequent Events
On July 17, 2011, our follow-on offering terminated. As of July 17, 2011, we had received and
accepted subscriptions in our follow-on offering for 2,992,777 shares of our common stock, or
$29,885,000, in our primary offering, and 728,664 shares of our common stock, or $6,923,000,
pursuant to the DRIP.
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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The use of the words we, us, our company, or our refers to Apartment Trust of
America, Inc. and its subsidiaries, including Apartment Trust of America Holdings, LP, except where
the context otherwise requires.
The following discussion should be read in conjunction with our accompanying condensed
consolidated financial statements and notes thereto appearing elsewhere in this Quarterly Report on
Form 10-Q. Such condensed consolidated financial statements and information have been prepared to
reflect our financial position as of June 30, 2011 and December 31, 2010, together with our results
of operations for the three and six months ended June 30, 2011 and 2010 and cash flows for the six
months ended June 30, 2011 and 2010.
Forward-Looking Statements
Historical results and trends should not be taken as indicative of future operations. Our
statements contained in this report that are not historical facts are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results may differ
materially from those included in the forward-looking statements. We intend those forward-looking
statements to be covered by the safe harbor provisions for forward-looking statements contained in
the Private Securities Litigation Reform Act of 1995, and we are including this statement for
purposes of complying with those safe-harbor provisions. Forward-looking statements, which are
based on certain assumptions and describe future plans, strategies and expectations, are generally
identifiable by use of the words expect, project, may, will, should, could, would,
intend, plan, anticipate, estimate, believe, continue, predict, potential or the
negative of such terms and other comparable terminology. Our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations and future prospects on a consolidated basis include, but
are not limited to: the availability of financing; changes in economic conditions generally and the
real estate market specifically; changes in interest rates; competition in the real estate
industry; the supply and demand for operating properties in our target market areas; legislative
and regulatory changes, including changes to laws governing the taxation of real estate investment
trusts, or REITs; changes in accounting principles generally accepted in the United States of
America, or GAAP, policies and guidelines applicable to REITs; and the availability of sources of
capital. These risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such statements. Additional information
concerning us and our business, including additional factors that could materially affect our
financial results, is included herein and in our other filings with the SEC.
Overview and Background
Apartment Trust of America, Inc., a Maryland corporation, was incorporated on December 21,
2005. We were initially capitalized on January 10, 2006 and therefore we consider that our date of
inception. On December 29, 2010, we amended our charter to change our corporate name from Grubb &
Ellis Apartment REIT, Inc. to Apartment Trust of America, Inc. We are in the business of acquiring
and holding a diverse portfolio of quality apartment communities with stable cash flows and growth
potential in select U.S. metropolitan areas. We may also acquire other real estate-related
investments. We focus primarily on investments that produce current income. We have qualified and
elected to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of
1986, as amended, or the Code, for federal income tax purposes and we intend to continue to be
taxed as a REIT.
We commenced our initial public offering on July 19, 2006, in which we offered up to
100,000,000 shares of our common stock for $10.00 per share in our primary offering and up to
5,000,000 shares of our common stock pursuant to our distribution reinvestment plan, or the DRIP,
for $9.50 per share, for a maximum offering of up to $1,047,500,000. We terminated our initial
offering on July 17, 2009. As of July 17, 2009, we had received and accepted subscriptions in our
initial offering for 15,738,457 shares of our common stock, or $157,218,000, excluding shares of
our common stock issued pursuant to the DRIP.
On July 20, 2009, we commenced our follow-on public offering, in which we offered up to
100,000,000 shares of our common stock for sale at $10.00 per share in our primary offering and up
to 5,000,000 shares of our common
stock for sale pursuant to the DRIP for $9.50 per share, for a maximum offering of up to
$1,047,500,000. As explained in more detail below, effective December 31, 2010, we suspended the
primary portion of our follow-on
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offering and, effective March 11, 2011, we adopted the Amended and
Restated DRIP which effectively suspended and superseded the DRIP portion of the follow-on
offering. As of December 31, 2010, we had received and accepted subscriptions in our follow-on
offering for 2,992,777 shares of our common stock, or $29,885,000, excluding shares of our common
stock issued pursuant to the DRIP. Our follow-on offering terminated on July 17, 2011.
Until December 31, 2010, the managing broker-dealer for our capital formation efforts had been
Grubb & Ellis Securities, Inc., or Grubb & Ellis Securities. Effective December 31, 2010, Grubb &
Ellis Securities terminated the Grubb & Ellis Dealer Manager Agreement. In order to transition the
capital formation function to a successor managing broker-dealer, on November 5, 2010, we entered
into a new dealer manager agreement, or the RCS Dealer Manager Agreement, with Realty Capital
Services, LLC, or RCS, whereby RCS agreed to serve as our exclusive dealer manager effective upon
the satisfaction of certain conditions, including receipt of a no-objections notice from the
Financial Industry Regulatory Authority, or FINRA. As of December 31, 2010, RCS had not received a
no-objections notice from FINRA and, therefore, having no effective dealer manager agreement in
place, our follow-on offering was suspended. Additionally, general market conditions have caused us
and RCS to reconsider the merits of continuing the follow-on offering. Therefore, on February 28,
2011, we provided written notice to RCS that we were terminating the dealer manager agreement with
RCS, effective immediately. As a result, our follow-on offering remained suspended through its July
17, 2011 termination date.
We conduct substantially all of our operations through Apartment Trust of America
Holdings, LP, or our operating partnership. Until December 31, 2010, we were externally advised by
Grubb & Ellis Apartment REIT Advisor, LLC, or our Former Advisor, pursuant to an advisory
agreement, as amended and restated, or the Grubb & Ellis Advisory Agreement, between us and our
Former Advisor. Our Former Advisor is jointly owned by entities affiliated with Grubb & Ellis
Company and ROC REIT Advisors, LLC, or ROC REIT Advisors. Prior to the termination of the Grubb &
Ellis Advisory Agreement, our day-to-day operations were managed by our Former Advisor and our
properties were managed by Grubb & Ellis Residential Management, Inc., an affiliate of our Former
Advisor. Our Former Advisor is affiliated with our company in that all of our executive officers,
Stanley J. Olander, Jr., David L. Carneal and Gustav G. Remppies, are indirect owners of a minority
interest in our Former Advisor through their ownership of ROC REIT Advisors. In addition, one of
our directors, Andrea R. Biller, was an indirect owner of a minority interest in our Former Advisor
until October 2010. In addition, Messrs. Olander, Carneal and Remppies served as executive officers
of our Former Advisor. Mr. Olander and Ms. Biller also own interests in Grubb & Ellis Company, and
served as executive officers of Grubb & Ellis Company until November 2010 and October 2010,
respectively.
On November 1, 2010, we received written notice from our Former Advisor stating that it had
elected to terminate the Grubb & Ellis Advisory Agreement. In accordance with the Grubb & Ellis
Advisory Agreement, either party was permitted to terminate the agreement upon 60 days written
notice without cause or penalty. Therefore, the Grubb & Ellis Advisory Agreement terminated on
December 31, 2010, and the Former Advisor no longer serves as our advisor. In connection with the
termination of the Grubb & Ellis Advisory Agreement, the Former Advisor notified us of its election
to defer the redemption of its incentive limited partnership interest in our operating partnership
until, generally, the earlier to occur of (i) a listing of our shares on a national securities
exchange or national market system or (ii) a liquidity event.
On February 25, 2011, we entered into a new advisory agreement among us, our operating
partnership and ROC REIT Advisors, referred to herein as our Advisor. Our Advisor is affiliated
with us in that ROC REIT Advisors is owned by our executive officers, Messrs. Olander, Carneal and
Remppies. The new advisory agreement has a one-year term and may be renewed for an unlimited
number of successive one-year terms. Pursuant to the terms of the new advisory agreement, our
Advisor will use its commercially reasonable efforts to present to us a continuing and suitable
investment program and opportunities to make investments consistent with our investment policies.
Our Advisor is also obligated to provide us with the first opportunity to purchase any Class A
income producing multi-family property which satisfies our investment objectives. In performing
these obligations, our Advisor generally will (i) provide and perform our day-to-day management;
(ii) serve as our investment advisor; (iii) locate, analyze and select potential investments for us
and structure and negotiate the terms and conditions of acquisition and disposition transactions;
(iv) arrange for financing and refinancing with respect to our investments; and (v) enter into
leases and service contracts with respect to our investments. Our Advisor is subject to the
supervision of our board of directors and has a fiduciary duty to us and our stockholders.
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On February 24, 2011, our board of directors approved a Second Amended and Restated
Distribution Reinvestment Plan, or the Amended and Restated DRIP. On March 25, 2011, we filed a
registration statement on Form S-3 with the SEC to register shares issuable pursuant to the Amended
and Restated DRIP. The Amended and Restated DRIP offers up to 10,000,000 shares of our common
stock for reinvestment at $9.50 per share, for a maximum offering up to $95,000,000. The
registration statement became effective with the SEC automatically upon filing. In addition, the
registration statement has also been declared effective or exempt from registration in the various
states in which the shares will be sold under the Amended and Restated DRIP. Thus, all
distributions to stockholders participating in our distribution reinvestment program are made
pursuant to the Amended and Restated DRIP. Stockholders who are already enrolled in our
distribution reinvestment program are not required to take any further action to enroll in the
Amended and Restated DRIP.
On March 25, 2011, we filed a registration statement on Form S-3 with the Securities and
Exchange Commission, or the SEC, to register shares issuable pursuant to the Amended and Restated
DRIP. The registration statement became effective with the SEC automatically upon filing. In
addition, the registration statement has been declared effective or is exempt from registration in
the various states in which shares will be sold under the Amended and Restated DRIP.
On August 27, 2010, we entered into definitive agreements to acquire nine multi-family
apartment properties from affiliates of MR Holdings, LLC, or MR Holdings, and to acquire
substantially all of the assets and certain liabilities of Mission Residential Management, LLC, or
Mission Residential Management, for a total purchase price of 182,357,000. We are not affiliated
with MR Holdings or Mission Residential Management. On September 30, 2010, we acquired Mission Rock
Ridge Apartments, or the Mission Rock Ridge property, located in Arlington, Texas, for a purchase
price of $19,857,000, plus closing costs. The Mission Rock Ridge property was the first of the nine
multi-family apartment properties that we intended to acquire. We intended to acquire the remaining
eight properties, or the DST properties, from Delaware statutory trusts, or DSTs, for which an
affiliate of MR Holdings serves as a trustee. As of February 23, 2011, the expiration date for the
lenders approval period pursuant to each of the purchase agreements, certain conditions precedent
to our obligation to acquire the eight DST properties had not been satisfied. With the prior
approval of the board of directors, on February 28, 2011, we provided the respective DSTs written
notice of termination of each of the respective purchase agreements in accordance with the terms of
the agreements. See Note 8, Commitments and Contingencies, to our accompanying condensed
consolidated financial statements for information regarding the pending litigation in connection
with such properties.
On November 5, 2010, we, through MR Property Management LLC, or MR Property Management, which
is a wholly-owned taxable subsidiary of our operating partnership, completed the acquisition of
substantially all of the assets and certain liabilities of Mission Residential Management, an
affiliate of MR Holdings, including the in-place workforce of approximately 300 employees. In
connection with the closing, we assumed property management agreements, or entered into
sub-management agreements pending receipt of lender consents, with respect to 41 multi-family
apartment properties containing approximately 12,000 units, including the Mission Rock Ridge
property that we acquired on September 30, 2010 and the eight additional DST properties. We paid
total consideration of $5,513,000 in cash plus the assumption of certain liabilities and other
payments totaling approximately $1,500,000, subject to certain post-closing adjustments. In
connection with the acquisition, we paid an acquisition fee of 2.0% of the purchase price to our
Former Advisor and its affiliates. At the closing of the transaction, we entered into various
ancillary agreements, including:
| an asset management agreement pursuant to which MR Property Management assumed the asset management and investor relations responsibilities for all of the aforementioned properties; and |
| a termination fee agreement pursuant to which the lessees of the managed properties under the master lease structures and certain other affiliates of Mission Residential Management agreed to pay MR Property Management termination fees if any of the property management agreements we assumed or sub-management agreements we entered into is terminated by the lessee of the property under its master lease structure other than for cause, is not extended by the lessee or is terminated by the manager without good reason. The termination fee provisions will survive for five years after the closing. The termination fee will not be payable if a property management agreement is terminated as a result of our acquisition of the managed property. The obligations of the lessees of the properties to pay these termination fees are guaranteed by MR Holdings and by Mission Residential Holdings, LLC. |
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On December 31, 2010, we, through ATA-Mission, LLC, a wholly-owned subsidiary of our operating
partnership, acquired a 50% ownership interest in NNN/Mission Residential Holdings, LLC, or NNN/MR
Holdings, which serves as a holding company for the master tenants of four multi-family apartment
properties located in Plano and Garland, Texas and Charlotte, North Carolina, with an aggregate of
1,066 units. The primary assets of NNN/MR Holdings consist of the four master leases through which
the master tenants operate the four multi-family apartment properties. NNN/MR Holdings does not
own any fee interest in real estate or any other fixed assets. We were not previously affiliated
with NNN/MR Holdings.
We acquired the 50% ownership interest in NNN/MR Holdings from Grubb & Ellis Realty Investors,
LLC, an affiliate of our Former Advisor. Until June 17, 2011, the remaining 50% interest in NNN/MR
Holdings was owned by Mission Residential, LLC, which consented to the transaction. We are not
affiliated with Mission Residential, LLC. We paid Grubb & Ellis Realty Investors, LLC $50,000 in
cash as consideration for the 50% ownership interest in NNN/MR Holdings. In connection with the
acquisition, we assumed the obligation to fund up to $1,000,000 in draws on credit line loans
extended to the four master tenants by NNN/MR Holdings. The four multi-family apartment properties
are managed by our subsidiary, MR Property Management.
On June 17, 2011, we, through ATA-Mission, LLC, acquired the remaining 50% ownership interest
in NNN/MR Holdings from Mission Residential, LLC for $200,000. As a result of our acquisition of
the remaining 50% ownership interest in NNN/MR Holdings, as of June 17, 2011, we own an indirect
100% interest in NNN/MR Holdings and each of its subsidiaries. We are also responsible for funding
up to $2,000,000 in draws on credit line loans extended to the four master tenants by NNN/MR
Holdings.
As of June 30, 2011, we owned a total of 15 properties comprised of nine properties located in
Texas consisting of 2,573 apartment units, two properties in Georgia consisting of 496 apartment
units, two properties in Virginia consisting of 394 apartment units, one property in Tennessee
consisting of 350 apartment units, and one property in North Carolina consisting of 160 apartment
units for an aggregate of 15 properties consisting of 3,973 apartment units, which had an aggregate
purchase price of $377,787,000. We also owned an indirect 100% interest in NNN/MR Holdings and
each of its subsidiaries. We are the third-party manager for 39 properties.
Critical Accounting Policies
The complete listing of our Critical Accounting Policies was previously disclosed in our 2010
Annual Report on Form 10-K, as filed with the SEC on March 25, 2011, and there have been no
material changes to our Critical Accounting Policies as disclosed therein.
Interim Unaudited Financial Data
Our accompanying condensed consolidated financial statements have been prepared by us in
accordance with GAAP in conjunction with the rules and regulations of the SEC. Certain information
and footnote disclosures required for annual financial statements have been condensed or excluded
pursuant to SEC rules and regulations. Accordingly, our accompanying interim consolidated financial
statements do not include all of the information and footnotes required by GAAP for complete
financial statements. Our accompanying condensed consolidated financial statements reflect all
adjustments which are, in our view, of a normal recurring nature and necessary for a fair
presentation of our financial position, results of operations and cash flows for the interim
period. Interim results of operations are not necessarily indicative of the results to be expected
for the full year; such full year results may be less favorable. Our accompanying condensed
consolidated financial statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in our 2010 Annual Report on Form 10-K, as
filed with the SEC on March 25, 2011.
Recently Issued Accounting Pronouncements
For a discussion of recently issued accounting pronouncements, see Note 2, Summary of
Significant Accounting Policies Recently Issued Accounting Pronouncements, to our accompanying
condensed consolidated financial statements.
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Acquisitions in 2011
There were no real estate acquisitions completed during the six months ended June 30, 2011.
For information regarding our consolidated properties, see Note 3, Real Estate Investments, to our
accompanying condensed consolidated financial statements.
Factors Which May Influence Results of Operations
We are not aware of any material trends or uncertainties, other than national economic
conditions affecting real estate generally, that may reasonably be expected to have a material
impact, favorable or unfavorable, on revenues or income from the acquisition, management and
operation of properties other than those Risk Factors previously disclosed in our 2010 Annual
Report on Form 10-K, as filed with the SEC on March 25, 2011.
Rental Income
The amount of rental income generated by our properties depends principally on our ability to
maintain the occupancy rates of currently leased space and to lease currently available space and
space available from lease terminations at the then existing rental rates. Negative trends in one
or more of these factors could adversely affect our rental income in future periods.
Offering Proceeds
We did not raise enough proceeds from the sale of shares of our common stock in our follow-on
offering to significantly expand or further geographically diversify our real estate portfolio. A
relatively smaller, less geographically diverse portfolio could result in increased exposure to
local and regional economic downturns and the poor performance of one or more of our properties,
and, therefore, expose our stockholders to increased risk. In addition, some of our general and
administrative expenses are fixed regardless of the size of our real estate portfolio. Therefore,
having raised fewer gross offering proceeds than was our expectation, we likely will expend a
larger portion of our income on operating expenses. This would reduce our profitability and, in
turn, the amount of net income available for distribution to our stockholders.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws,
regulations and standards relating to corporate governance and disclosure requirements applicable
to public companies have increased the costs of compliance with corporate governance, reporting and
disclosure practices, which are now required of us. These costs may have a material adverse effect
on our results of operations and could impact our ability to continue to pay distributions at
current rates to our stockholders. Furthermore, we expect that these costs will increase in the
future due to our continuing implementation of compliance programs mandated by these requirements.
Any increased costs may affect our ability to distribute funds to our stockholders. As part of our
compliance with the Sarbanes-Oxley Act, we provided managements assessment of our internal control
over financial reporting as of December 31, 2010 and continue to comply with such regulations.
In addition, these laws, rules and regulations create new legal bases for potential
administrative enforcement, civil and criminal proceedings against us in the event of
non-compliance, thereby increasing the risks of liability and potential sanctions against us. We
expect that our efforts to comply with these laws and regulations will continue to involve
significant and potentially increasing costs, and that our failure to comply with these laws could
result in fees, fines, penalties or administrative remedies against us.
Results of Operations
Our operating results are primarily comprised of income derived from our portfolio of
apartment communities.
Except where otherwise noted, the change in our results of operations is primarily due to our
owning 15 properties as of June 30, 2011, compared to 14 properties as of June 30, 2010. Of the 14
properties owned as of June 30, 2011, one was acquired on March 24, 2010, and thus did not
contribute a full six months of operations. In addition, during the three and six months ended June
30, 2011, we recognized management fee income due to our
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purchase of substantially all of the
assets and certain liabilities of Mission Residential Management, a third party property manager
for 39 properties through a taxable REIT subsidiary in the fourth quarter of 2010. On June 17,
2011, we acquired the remaining 50% ownership interest in the joint venture, NNN/MR Holdings, which
allowed us to consolidate the operations of the master tenants of the four multi-family apartment
properties for the last 14 days in June 2011. These four multi-family apartment properties are
included in the 39 properties that we manage. Due to our purchase of the remaining 50% ownership
interest in NNN/MR Holdings, we no longer recognize management fee income from these four
multi-family apartment properties.
Revenues
For the three months ended June 30, 2011 and 2010, revenues were $14,691,000 and $9,875,000,
respectively. For the three months ended June 30, 2011, revenues were comprised of rental income of
$9,761,000, other property revenues of $1,257,000 and management fee income of $3,673,000. For the
three months ended June 30, 2010, revenues were comprised of rental income of $8,895,000 and other
property revenues of $980,000.
For the six months ended June 30, 2011 and 2010, revenues were $28,997,000 and $19,140,000,
respectively. For the six months ended June 30, 2011, revenues were comprised of rental income of
$19,274,000, other property revenues of $2,321,000 and management fee income of $7,402,000. For the
six months ended June 30, 2010, revenues were comprised of rental income of $17,266,000 and other
property revenues of $1,874,000
The increase in revenues for the three and six months ended June 30, 2011 was primarily
attributed to the recognition of management fee income which was not present during the three and
six months ended June 30, 2010. Other property revenues consist primarily of utility rebillings and
administrative, application and other fees charged to tenants, including amounts recorded in
connection with early lease terminations. The increase in revenues for the three and six months
ended June 30, 2011 as compared to the three and six months ended June 30, 2010 in revenues from
rental income and other property revenues is due to the increase in the number of properties as
discussed above.
The aggregate occupancy for our properties was 93.6% as of June 30, 2011, as compared to 94.5%
as of June 30, 2010. The decrease in occupancy is due to non-renewal of leases by former tenants
that were not offset by new leases by new tenants.
Rental Expenses
For the three months ended June 30, 2011 and 2010, rental expenses were $4,699,000 and
$4,622,000, respectively. For the six months ended June 30, 2011 and 2010, rental expenses were
$9,284,000 and $8,848,000, respectively. Rental expenses consisted of the following for the periods
then ended:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Administration |
$ | 1,645,000 | $ | 1,597,000 | $ | 3,163,000 | $ | 3,000,000 | ||||||||
Real estate taxes |
1,432,000 | 1,292,000 | 2,958,000 | 2,550,000 | ||||||||||||
Utilities |
817,000 | 644,000 | 1,629,000 | 1,289,000 | ||||||||||||
Repairs and maintenance |
645,000 | 649,000 | 1,122,000 | 1,158,000 | ||||||||||||
Property management fees |
| 288,000 | | 561,000 | ||||||||||||
Insurance |
160,000 | 152,000 | 412,000 | 290,000 | ||||||||||||
Total rental expenses |
$ | 4,699,000 | $ | 4,622,000 | $ | 9,284,000 | $ | 8,848,000 | ||||||||
The increase in rental expenses of $77,000 for the three months ended June 30, 2011, as
compared to the three months ended June 30, 2010, was primarily due to a $140,000 increase in real
estate taxes in 2011 relative to 2010 as a result of successful property tax appeals during the
three months ended June 30, 2010, and a $173,000 increase
in utility costs in 2011 over 2010. The increases in rental expenses for the three months
ended June 30, 2011 are partially offset by a $288,000 decrease in property management fees due to
property management becoming an internal function as of January 1, 2011.
The increase in rental expenses of $436,000 for the six months ended June 30, 2011, as
compared to the six months ended June 30, 2010, was primarily due to a $408,000 increase in real
estate taxes in 2011 relative to 2010 as a result of successful property tax appeals during the six
months ended June 30, 2010, and a $340,000 increase in
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utility costs in 2011 over 2010. The increases in rental expenses for the six months
ended June 30, 2011 are partially offset by a $561,000 decrease in property management fees due to
property management becoming an internal function as of January 1, 2011.
As a percentage of revenue, rental expenses remained materially consistent. For the three
months ended June 30, 2011 and 2010, rental expenses as a percentage of rental income and other
property revenues were 42.6% and 46.8%, respectively, and for the six months ended June 30, 2011
and 2010, rental expenses as a percentage of rental income and other property revenues were 43.0%
and 46.2%, respectively.
Property Lease Expense
For the three and six months ended June 30, 2011, property lease expense was $50,000. Our
property lease expense is due to our indirect 100% ownership of NNN/MR Holdings and its
subsidiaries which includes four leased multi-family apartment properties. As the master tenants
of the four leased multi-family apartment properties, property lease expense is paid monthly to the
master landlord.
Salaries and Benefits Expense
For the three and six months ended June 30, 2011, salaries and benefits expense was $3,683,000
and $7,254000, respectively, as compared to $0 for the three and six months ended June 30, 2010.
The salaries and benefits expense for the three and six months ended June 30, 2011 was due to our
purchase, through our taxable REIT subsidiary, MR Property Management, of substantially all of the
assets and certain liabilities of Mission Residential Management, including an in-place work force
to perform property management and leasing services for our properties, in the fourth quarter of
2010. MR Property Management also serves as the property manager for approximately 39 additional
multi-family apartment communities that are owned by unaffiliated third parties. Of the $3,683,000
and $7,254,000 of salaries and benefits expense incurred during the three and six months ended June
30, 2011, $2,945,000 and $5,860,000, respectively, was reimbursed to us by the unaffiliated third
parties and recorded as management fee income.
General and Administrative
For the three months ended June 30, 2011 and 2010, general and administrative was $1,515,000
and $396,000, respectively. For the six months ended June 30, 2011 and 2010, general and
administrative was $3,006,000 and $756,000, respectively. General and administrative consisted of
the following for the periods then ended:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Professional and legal fees (a) |
$ | 668,000 | $ | 95,000 | $ | 1,572,000 | $ | 241,000 | ||||||||
Postage and delivery |
18,000 | 64,000 | 28,000 | 72,000 | ||||||||||||
Directors and officers insurance
premiums |
52,000 | 57,000 | 104,000 | 115,000 | ||||||||||||
Bad debt expense (b) |
| 41,000 | | 97,000 | ||||||||||||
Directors fees |
36,000 | 34,000 | 76,000 | 56,000 | ||||||||||||
Investor-related services (c) |
124,000 | 30,000 | 215,000 | 42,000 | ||||||||||||
Franchise taxes |
24,000 | 25,000 | 51,000 | 52,000 | ||||||||||||
Bank charges |
39,000 | 24,000 | 57,000 | 45,000 | ||||||||||||
Office rent expense (d) |
55,000 | | 113,000 | | ||||||||||||
Stock compensation expense |
13,000 | 10,000 | 18,000 | 15,000 | ||||||||||||
Asset management fee (e) |
284,000 | | 378,000 | | ||||||||||||
Other (f) |
202,000 | 16,000 | 394,000 | 21,000 | ||||||||||||
Total general and administrative |
$ | 1,515,000 | $ | 396,000 | $ | 3,006,000 | $ | 756,000 | ||||||||
The increase in general and administrative of $1,119,000 for the three months ended June 30,
2011, as compared to the three months ended June 30, 2010, and the increase in general and
administrative of $2,250,000 for the six months ended June 30, 2011, as compared to the six months
ended June 30, 2010 were due to the following:
(a) Professional and legal fees
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For the three and six months ended June 30, 2011, professional and legal fees increased
$573,000 and $1,331,000, respectively, as compared to the three and six months ended June 30, 2010.
The increase in professional and legal fees was due to an increase in external legal fees related
to the litigation of the proposed acquisitions of the DST properties, corporate governance, and SEC
reporting and compliance, an increase in external consulting and tax preparation services, an
increase in consulting fees due to our engagement of Robert A. Stanger & Co., Inc. to advise our
management regarding strategic alternatives available to us, and an increase in accounting
professional fees.
(b) Bad debt expense
For the three months ended June 30, 2011, bad debt expense of $71,000 is included in rental
expenses and classified within administration costs. For the three months ended June 30, 2010, bad
debt expense of $41,000 is included in general and administrative expense.
For the six months ended June 30, 2011, bad debt expense of $128,000 is included in rental
expenses and classified within administration costs. For the six months ended June 30, 2010, bad
debt expense of $97,000 is included in general and administrative expense.
(c) Investor-related services
For the three and six months ended June 30, 2011, investor-related services increased by
$94,000 and $173,000, respectively, as compared to the three and six months ended June 30, 2010.
These increases in investor-related services were primarily due to external transfer agent
services.
(d) Office rent expense
For the three and six months ended June 30, 2011, we incurred office rent expense of $55,000
and $113,000, respectively, as compared to $0 for the three and six months ended June 30, 2010.
Upon the purchase of substantially all of the assets and certain liabilities of MR Property
Management during the fourth quarter 2010, we assumed the existing lease for the property
management office.
(e) Asset management fee
The increase in asset management fees for the three and six months ended June 30, 2011 as
compared to the three and six months ended June 30, 2010 is due to asset management fees paid to
our Advisor as part of the advisory agreement entered into on February 25, 2011. There were no
asset management fees incurred to our Former Advisor during 2010.
(f) Other
For the three and six months ended June 30, 2011, other general and administrative increased
$186,000 and $373,000, respectively, as compared to the three and six months ended June 30, 2010.
The increases were primarily due to employee recruitment costs.
Acquisition-Related Expenses
For the three months ended June 30, 2011 and 2010, we incurred acquisition-related expenses of
$554,000 and $0, respectively. For the six months ended June 30, 2011 and 2010, we incurred
acquisition-related expenses of $772,000 and $800,000, respectively. For the six months ended June
30, 2011, we incurred acquisition-related expenses associated with the termination of the proposed
acquisitions of the DST properties. For the six months ended June 30, 2010, we incurred
acquisition-related expenses of $800,000 related to expenses associated with the purchase of the
Bella Ruscello property, including acquisition fees of $522,000 paid to our Former Advisor and its
affiliates.
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Depreciation, Amortization and Impairment Loss
For the three months ended June 30, 2011 and 2010, depreciation, amortization and
impairment loss was $3,729,000 and $3,254,000, respectively. For the three months ended June 30,
2011, depreciation, amortization and impairment loss was comprised of depreciation on our
properties of $3,295,000, amortization of identified intangible assets of $80,000 and an impairment
loss of $354,000. For the three months ended June 30, 2010, depreciation, amortization and
impairment loss was comprised of depreciation on our properties of $3,144,000, amortization of
identified intangible assets of $110,000 and an impairment loss of $0. The increase in depreciation
and amortization of $121,000 for the three months ended June 30, 2011, as compared to the three
months ended June 30, 2010,
excluding the impairment loss,
was
primarily due to a full three month depreciation on 2010 property acquisitions during 2011.
For the six months ended June 30, 2011 and 2010, depreciation, amortization and impairment
loss was $7,158,000 and $6,185,000, respectively. For the six months ended June 30, 2011,
depreciation, amortization and impairment loss was comprised of depreciation on our properties of
$6,561,000, amortization of identified intangible assets of $243,000 and an impairment loss of
$354,000. For the six months ended June 30, 2010, depreciation, amortization and impairment loss
was comprised of depreciation on our properties of $6,075,000, amortization of identified
intangible assets of $110,000 and an impairment loss of $0. The increase in depreciation and
amortization of $619,000 for the six months ended June 30, 2011, as compared to the six months
ended June 30, 2010, excluding the impairment loss, was primarily due to a full six month depreciation on 2010 property
acquisitions during 2011.
For the three and six months ended June 30, 2011, the impairment loss was the result of the
acquisition of the remaining 50% ownership interest in NNN/MR Holdings. On December 31, 2010, we
purchased an initial 50% ownership interest in NNN/MR Holdings and accounted for this transaction
using the equity method of accounting until our purchase of the remaining 50% ownership interest on
June 17, 2011. As part of the acquisition of the remaining 50% ownership interest in NNN/MR
Holdings, we re-evaluated the initial 50% ownership interest and recognized a loss on the purchase
of the remaining 50% ownership interest.
Interest Expense
For the three months ended June 30, 2011 and 2010, interest expense was $3,189,000 and
$2,976,000, respectively. For the six months ended June 30, 2011 and 2010, interest expense was
$6,263,000 and $5,745,000, respectively. Interest expense consisted of the following for the
periods then ended:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Interest expense on
mortgage loan payables |
$ | 2,904,000 | $ | 2,785,000 | $ | 5,793,000 | $ | 5,361,000 | ||||||||
Amortization of deferred
financing fees mortgage
loan payables |
164,000 | 61,000 | 229,000 | 119,000 | ||||||||||||
Amortization of debt discount |
34,000 | 34,000 | 68,000 | 68,000 | ||||||||||||
Interest expense on
unsecured note payables |
87,000 | 96,000 | 173,000 | 197,000 | ||||||||||||
Total interest expense |
$ | 3,189,000 | $ | 2,976,000 | $ | 6,263,000 | $ | 5,745,000 | ||||||||
(a) | The increases in interest expense of $119,000 and $432,000 for the three and six months ended June 30, 2011, respectively, as compared to the three and six months ended June 30, 2010, were due to the increases in mortgage loan payables balances outstanding as a result of the increase in the number of properties we own, partially offset by lower interest expense on the mortgage loan payables with amortizing principal balances. |
Interest and Dividend Income
For the three months ended June 30, 2011 and 2010, interest and dividend income was $0 and
$3,000, respectively. For the six months ended June 30, 2011 and 2010, interest and dividend income
was $1,000 and $6,000, respectively. For such periods, interest and dividend income was primarily
related to interest earned on our money market accounts. The change in interest and dividend income
was due to lower cash balances and lower interest rates during 2011, as compared to 2010.
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Liquidity and Capital Resources
Until December 31, 2010, we were dependent primarily upon the net proceeds from our follow-on
offering to provide the capital required to purchase real estate and real estate-related
investments, net of any indebtedness that we may incur, and to repay our unsecured note payable to
affiliate. We experienced a relative increase in liquidity as additional subscriptions for shares
of our common stock were received and a relative decrease in liquidity as net offering proceeds
were expended in connection with the acquisition, management and operation of our real estate and
real estate-related investments.
Currently, we are dependent upon our income from operations to provide capital required
to meet our principal demands for funds, including operating expenses, principal and interest due
on our outstanding indebtedness, and distributions to our stockholders. In addition, we will
require resources to make certain payments of fees and reimbursements of expenses to our Advisor.
We estimate that we will require approximately $5,988,000 to pay interest on our outstanding
indebtedness in the remaining six months of 2011, based on rates in effect as of June 30, 2011. In
addition, we estimate that we will require $440,000 to pay principal on our outstanding
indebtedness in the remaining six months of 2011. We are required by the terms of the applicable
mortgage loan documents to meet certain financial covenants, such as minimum net worth and
liquidity amounts, and reporting requirements. As of June 30, 2011, we were in compliance with all
such requirements. If we are unable to obtain financing in the future, it may have a material
effect on our operations, liquidity and/or capital resources.
Generally, cash needs for items other than acquisitions of real estate and real-estate related
investments will be met from operations, borrowings and the net proceeds we received from our
follow-on offering prior to its suspension and subsequent termination. We believe that these cash
resources will be sufficient to satisfy our cash requirements for the foreseeable future, and we do
not anticipate a need to raise funds from other than these sources within the next 12 months. Our
Advisor evaluates potential additional investments and engages in negotiations with real estate
sellers, developers, brokers, investment managers, lenders and others on our behalf.
In the event that we acquire a property, our Advisor will prepare a capital plan that
contemplates the estimated capital needs of that investment. In addition to operating expenses,
capital needs may also include costs of refurbishment or other major capital expenditures. The
capital plan will also set forth the anticipated sources of the necessary capital, which may
include a line of credit or other loans established with respect to the investment, operating cash
generated by the investment, additional equity investments from us or joint venture partners or,
when necessary, capital reserves. Any capital reserve would be established from the proceeds from
sales of other investments, operating cash generated by other investments or other cash on hand. In
some cases, a lender may require us to establish capital reserves for a particular investment. The
capital plan for each investment will be adjusted through ongoing, regular reviews of our portfolio
or as necessary to respond to unanticipated additional capital needs.
Other Liquidity Needs
In the event that there is a shortfall in net cash available due to various factors,
including, without limitation, the timing of distributions or the timing of the collections of
receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured
debt financing through one or more third parties, or our Advisor or its affiliates. There currently
are no limits or restrictions on the use of borrowings or the sale of assets that would prohibit us
from making the proceeds available for distribution.
As of June 30, 2011, we estimate that our expenditures for capital improvements will
require approximately $455,000 for the remaining six months of 2011. As of June 30, 2011, we had
$528,000 of restricted cash in loan impounds and reserve accounts for such capital expenditures and
any remaining expenditures will be paid with net cash from operations or borrowings. We cannot
provide assurance, however, that we will not exceed these estimated expenditure levels or be able
to obtain additional sources of financing on commercially favorable terms or at all to fund such
expenditures.
If we experience lower occupancy levels, reduced rental rates, reduced revenues as a
result of asset sales, increased capital expenditures and leasing costs compared to historical
levels due to competitive market conditions for new and renewal leases, the effect would be a
reduction of net cash provided by operating activities. If such a reduction of net cash provided by
operating activities is realized, we may have a cash flow deficit in subsequent
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periods. Our estimate of net cash available is based on various assumptions, which are
difficult to predict, including the levels of leasing activity and related leasing costs. Any
changes in these assumptions could impact our financial results and our ability to fund working
capital and unanticipated cash needs.
Cash Flows
Cash flows provided by operating activities for the six months ended June 30, 2011 were
$1,385,000 compared to cash flows of $2,456,000 provided by operating activities for the six months
ended June 30, 2010. For the six months ended June 30, 2011, cash flows provided by operating
activities primarily related to the operations of our 15 properties, partially offset by a
$1,236,000 decrease in accounts payable and accrued liabilities due to the payment of 2010 real
estate and business taxes. For the six months ended June 30, 2010, cash flows provided by operating
activities primarily related to the operations of our 14 properties, partially offset by the
$251,000 decrease in accounts payable and accrued liabilities primarily due to the payment of 2009
real estate and business taxes. We anticipate cash flows provided by operating activities will
remain relatively constant unless we purchase more properties, in which case cash flows provided by
operating activities would likely increase.
Cash
flows used in investing activities for the six months ended
June 30, 2011 were $487,000
compared to cash flows used in investing activities of $16,970,000 for the six months ended June
30, 2010. For the six months ended June 30, 2011, cash flows used in investing activities related
primarily to capital expenditures of $614,000 and contributions to the joint venture of $568,000,
partially offset by the increase in restricted cash of $707,000 for property taxes, insurance and
capital expenditures. For the six months ended June 30, 2010, cash flows used in investing
activities related primarily to the acquisition of a real estate operating property in the amount
of $17,219,000. We anticipate cash flows used in investing activities will remain relatively
constant unless we purchase properties, in which case cash flows used in investing activities would
likely increase.
Cash flows used in financing activities for the six months ended June 30, 2011 were $3,237,000
compared to cash flows provided by financing activities of $19,075,000 for the six months ended
June 30, 2010. For the six months ended June 30, 2011, cash flows used in financing activities
related primarily to the payment of our mortgage loan payables of $435,000 and distributions made
to our stockholders in the amount of $2,749,000. For the six months ended June 30, 2010, cash flows
provided by financing activities related primarily to borrowings on our mortgage loan payables of
$13,300,000 and funds raised from investors in our follow-on offering of $13,129,000, partially
offset by payments on our unsecured note payable to affiliate of $1,350,000, share repurchases of
$1,269,000, payment of offering costs of $1,420,000 and cash distributions in the amount of
$3,062,000. We anticipate cash flows provided by financing activities will remain relatively
constant unless we raise additional funds in subsequent offerings from investors or incur
additional debt to purchase properties, in which case cash flows provided by financing activities
would likely increase.
Distributions
The amount of the distributions we pay to our stockholders is determined by our board of
directors and is dependent on a number of factors, including funds available for the payment of
distributions, our financial condition, capital expenditure requirements and annual distribution
requirements needed to maintain our status as a REIT under the Code. We have not established any
limit on the amount of offering proceeds or borrowings that may be used to fund distributions,
except that, in accordance with our organizational documents and Maryland law, we may not make
distributions that would: (1) cause us to be unable to pay our debts as they become due in the
usual course of business; (2) cause our total assets to be less than the sum of our total
liabilities plus senior liquidation preferences; or (3) jeopardize our ability to maintain our
qualification as a REIT.
From March 2007 through February 2009, we paid a 7.0% annualized distribution rate based upon
a purchase price of $10.00 per share. Beginning in March 2009, our board of directors reduced our
annualized distribution rate to 6.0% based upon a purchase price of $10.00 per share. We paid
distributions to our stockholders at this annualized rate through February 2011. On February 24,
2011, our board of directors authorized an annualized distribution rate of 3.0% based upon a
purchase price of $10.00 per share for the period commencing on March 1, 2011 and ending on June
30, 2011. On June 28, 2011, our board of directors authorized a daily distribution to our
stockholders of record as of the close of business on each day of the period commencing on July 1,
2011 and ending on September 30, 2011. We generally aggregate daily distributions and pay them
monthly in arrears.
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For the six months ended June 30, 2011, we paid aggregate distributions of $4,400,000
($2,748,000 in cash and $1,652,000 in shares of our common stock pursuant to the DRIP), as compared
to cash flows from operations of $1,385,000. For the six months ended June 30, 2010, we paid
distributions of $5,191,000 ($3,062,000 in cash and $2,129,000 in shares of our common stock
pursuant to the DRIP), as compared to cash flows from operations of $2,456,000. From our inception
through June 30, 2011, we paid cumulative distributions of $36,731,000 ($21,229,000 in cash and
$15,502,000 in shares of our common stock pursuant to the DRIP), as compared to cumulative cash
flows from operations of $14,864,000. The cumulative distributions paid in excess of our cash flows
from operations were paid using net proceeds from our offerings.
Our distributions of amounts in excess of our current and accumulated earnings and profits
have resulted in a return of capital to our stockholders. We have not established any limit on the
amount of offering proceeds that may be used to fund distributions other than those limits imposed
by our organizational documents and Maryland law. Therefore, all or any portion of a distribution
to our stockholders may be paid from offering proceeds. The payment of distributions from our
offering proceeds could reduce the amount of capital we ultimately invest in assets and negatively
impact the amount of income available for future distributions.
Sources of Distributions
For the six months ended June 30, 2011 and 2010, our funds from operations, or FFO were
$2,310,000 and $2,997,000, respectively. For the six months ended June 30, 2011, we paid
distributions of $2,310,000 from FFO. For the six months ended June 30, 2010, we paid distributions
of $2,997,000 from FFO. The payment of distributions from sources other than FFO reduces the
amount of proceeds available for investment and operations and may cause us to incur additional
interest expense as a result of borrowed funds. For a further discussion of FFO, see Funds from
Operations and Modified Funds from Operations below.
On June 28, 2011, our board of directors authorized a daily distribution to our stockholders of
record as of the close of business on each day of the period commencing on July 1, 2011 and ending
on September 30, 2011. The distributions will be calculated based on 365 days in the calendar year
and will be equal to $0.0008219 per share of common stock, which is equal to an annualized
distribution rate of 3.0%, assuming a purchase price of $10.00 per share. These distributions will
be aggregated and paid in cash monthly in arrears. The distributions declared for each record date
in the July 2011, August 2011 and September 2011 periods will be paid in August 2011, September
2011 and October 2011, respectively, only from legally available funds.
Financing
We generally anticipate that aggregate borrowings, both secured and unsecured, will not exceed
65.0% of all the combined fair market value of all of our real estate and real estate-related
investments, as determined at the end of each calendar year. For these purposes, the fair market
value of each asset will be equal to the purchase price paid for the asset or, if the asset was
appraised subsequent to the date of purchase, then the fair market value will be equal to the value
reported in the most recent independent appraisal of the asset. Our policies do not limit the
amount we may borrow with respect to any individual investment. However, we incurred higher
leverage during the period prior to the investment of all of the net proceeds of our follow-on
offering. As of June 30, 2011, our aggregate borrowings were 66.7% of all of the combined fair
market value of all of our real estate and real estate-related investments and such excess over
65.0% was due to the unsecured note payable we incurred to purchase Kedron Village and Canyon Ridge
Apartments.
Our charter precludes us from borrowing in excess of 300.0% of our net assets, unless approved
by a majority of our independent directors and the justification for such excess borrowing is
disclosed to our stockholders in our next quarterly report. For purposes of this determination, net
assets are our total assets, other than intangibles, valued at cost before deducting depreciation,
amortization, bad debt or other similar non-cash reserves, less total liabilities. We compute our
leverage at least quarterly on a consistently-applied basis. Generally, the preceding calculation
is expected to approximate 75.0% of the aggregate cost of our real estate and real estate-related
investments before depreciation, amortization, bad debt and other similar non-cash reserves. We may
also incur indebtedness to finance improvements to properties and, if necessary, for working
capital needs or to meet the distribution requirements
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applicable to REITs under the federal income tax laws. As of August 12, 2011 and June 30,
2011, our leverage did not exceed 300.0% of our net assets.
Mortgage Loan Payables, Net and Unsecured Note Payable
For a discussion of our mortgage loan payables, net and our unsecured note payable, see Note
7, Mortgage Loan Payables, Net, and Unsecured Note Payable, to our accompanying condensed
consolidated financial statements.
REIT Requirements
In order to continue to qualify as a REIT for federal income tax purposes, we are required to
make distributions to our stockholders of at least 90.0% of our annual taxable income, excluding
net capital gains. In the event that there is a shortfall in net cash available due to factors
including, without limitation, the timing of such distributions or the timing of the collections of
receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured
debt financing through one or more third parties, or our Advisor or its affiliates. We may also pay
distributions from cash from capital transactions including, without limitation, the sale of one or
more of our properties.
Commitments and Contingencies
For a discussion of our commitments and contingencies, see Note 8, Commitments and
Contingencies, to our accompanying condensed consolidated financial statements.
Debt Service Requirements
One of our principal liquidity needs is the payment of interest and principal on our
outstanding indebtedness. As of June 30, 2011, we had 15 mortgage loan payables outstanding in the
aggregate principal amount of $244,163,000 ($243,705,000, net of discount).
As of June 30, 2011, we had $7,750,000 outstanding under the amended and restated
consolidated unsecured promissory note, or the Amended Consolidated Promissory Note, with G&E
Apartment Lender, LLC, an unaffiliated party. The original note was with NNN Realty Advisors,
Inc., or NNN Realty Advisors, a wholly-owned subsidiary of our former sponsor, and stipulated an
interest rate of 4.50% per annum that was subject to a one-time adjustment, had a default interest
rate of 2.00% per annum in excess of the interest rate then in effect, which was due January 1,
2011. The material terms of the Amended Consolidated Promissory Note decreased the principal amount
outstanding to $7,750,000 due to our pay down of the principal balance, extended the maturity date
from January 1, 2011 to July 17, 2012, and fixed the interest rate at 4.50% per annum and the
default interest rate at 6.50% per annum. On February 2, 2011, NNN Realty Advisors sold the Amended
Consolidated Promissory Note to G & E Apartment Lender, LLC for a purchase price of $6,200,000,
with the principal outstanding balance remaining at $7,750,000.
We are required by the terms of the applicable loan documents to meet certain financial
covenants, such as minimum net worth and liquidity amounts, and reporting requirements. As of June
30, 2011, we were in compliance with all such requirements and we expect to remain in compliance
with all such requirements during the fiscal year ending 2011. As of June 30, 2011, the weighted
average effective interest rate on our outstanding debt was 4.69% per annum.
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Contractual Obligations
The following table provides information with respect to the maturities and scheduled
principal repayments of our indebtedness as of June 30, 2011. The table does not reflect any
available extension options.
Payments Due by Period | ||||||||||||||||||||
Less than 1 Year | 1-3 Years | 4-5 Years | More than 5 Years | |||||||||||||||||
(2011) | (2012-2013) | (2014-2015) | (After 2015) | Total | ||||||||||||||||
Principal payments
fixed rate debt |
$ | 440,000 | $ | 10,245,000 | $ | 40,700,000 | $ | 139,528,000 | $ | 190,913,000 | ||||||||||
Interest payments
fixed rate debt |
5,248,000 | 20,274,000 | 17,740,000 | 14,282,000 | 57,544,000 | |||||||||||||||
Principal payments
variable rate
debt |
| 35,000 | 60,965,000 | | 61,000,000 | |||||||||||||||
Interest payments
variable rate
debt (based on
rates in effect as
of June 30, 2011) |
740,000 | 2,957,000 | 2,472,000 | | 6,169,000 | |||||||||||||||
Total |
$ | 6,428,000 | $ | 33,511,000 | $ | 121,877,000 | $ | 153,810,000 | $ | 315,626,000 | ||||||||||
Off-Balance Sheet Arrangements
As of June 30, 2011, we had no off-balance sheet transactions nor do we currently have any
such arrangements or obligations.
Funds from Operations and Modified Funds from Operations
Funds From Operations is a non-GAAP financial performance measure defined by the National
Association of Real Estate Investment Trusts, or NAREIT, and widely recognized by investors and
analysts as one measure of operating performance of a REIT. The FFO calculation excludes items such
as real estate depreciation and amortization, and gains and losses on the sale of real estate
assets. Historical accounting convention used for real estate assets requires straight-line
depreciation of buildings and improvements, which implies that the value of real estate assets
diminishes predictably over time. Since real estate values have historically risen or fallen with
market conditions, it is managements view, and we believe the view of many industry investors and
analysts, that the presentation of operating results for a REIT using the historical accounting for
depreciation is insufficient. In addition, FFO excludes gains and losses from the sale of real
estate but includes asset impairment and write-downs, which we believe provides management and
investors with a helpful additional measure of the performance of our real estate portfolio, as it
allows for comparisons, year to year, that reflect the impact on operations from trends in items
such as occupancy rates, rental rates, operating costs, general and administrative expenses, and
interest expenses.
In addition to FFO, we use Modified Funds From Operations, or MFFO, as a non-GAAP
supplemental financial performance measure to evaluate the operating performance of our real estate
portfolio. MFFO, as defined by our company, excludes from FFO, acquisition-related expenses,
litigation expenses related to DST properties,
amortization of
debt discount and amortization of an above market lease. In evaluating the performance of our
portfolio over time, management employs business models and analyses that differentiate the costs
to acquire investments from the investments revenues and expenses. Management believes that
excluding acquisition costs from MFFO provides investors with supplemental performance information
that is consistent with the performance models and analysis used by management, and provides
investors a view of the performance of our portfolio over time, including after the time we cease
to acquire properties on a frequent and regular basis. In calculating MFFO, we also exclude
amortization of debt discount and amortization of an above market lease in accordance with the
practice guidelines of the Investment Program Association, an industry trade group. MFFO enables
investors to compare the performance of our portfolio with other REITs that have not recently
engaged in acquisitions, as well as a comparison of our performance with that of other non-traded
REITs, as MFFO, or an equivalent measure, is routinely reported by non-traded REITs, and we believe
often used by analysts and investors for comparison purposes.
For all of these reasons, we believe that, in addition to net income and cash flows from
operations, as defined by GAAP, both FFO and MFFO are helpful supplemental performance measures and
useful in understanding the various ways in which our management evaluates the performance of our
real estate portfolio in relation to managements performance models, and in relation to the
operating performance of other REITs. However, not all REITs calculate FFO and
MFFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO and
MFFO should not be considered as alternatives to net income or to cash flows from
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operations, and are not intended to be used as a liquidity measure indicative of cash
flow available to fund our cash needs.
MFFO may provide investors with a useful indication of our future performance,
particularly after our acquisition stage, and of the sustainability of our current distribution
policy. However, because MFFO excludes acquisition expenses, which are an important component in an
analysis of the historical performance of a property, MFFO should not be construed as a historic
performance measure.
The following is a reconciliation of net loss, which is the most directly comparable GAAP
financial measure, to FFO and MFFO for the three and six months ended June 30, 2011 and 2010:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (2,774,000 | ) | $ | (1,370,000 | ) | $ | (4,848,000 | ) | $ | (3,188,000 | ) | ||||
Add: |
||||||||||||||||
Net loss attributable to
noncontrolling interests |
| | | | ||||||||||||
Depreciation,
amortization and impairment loss |
3,729,000 | 3,254,000 | 7,158,000 | 6,185,000 | ||||||||||||
FFO |
$ | 955,000 | $ | 1,884,000 | $ | 2,310,000 | $ | 2,997,000 | ||||||||
Add: |
||||||||||||||||
Acquisition-related expenses |
554,000 | | 772,000 | 800,000 | ||||||||||||
Litigation
expenses related to DST Properties |
405,000 | | 817,000 | | ||||||||||||
Amortization of debt discount |
34,000 | 34,000 | 68,000 | 68,000 | ||||||||||||
Amortization of above market lease |
(21,000 | ) | | (41,000 | ) | | ||||||||||
MFFO |
$ | 1,927,000 | $ | 1,918,000 | $ | 3,926,000 | $ | 3,865,000 | ||||||||
Weighted average common shares
outstanding basic and diluted |
19,784,133 | 17,984,572 | 19,737,913 | 17,636,906 | ||||||||||||
Net loss per common share |
$ | (0.14 | ) | $ | (0.08 | ) | $ | (0.25 | ) | $ | (0.18 | ) | ||||
FFO per common share basic and
diluted |
$ | 0.05 | $ | 0.10 | $ | 0.12 | $ | 0.17 | ||||||||
MFFO per common share basic
and diluted |
$ | 0.10 | $ | 0.11 | $ | 0.20 | $ | 0.22 | ||||||||
Net Operating Income
Net operating income is a non-GAAP financial measure that is defined as net income (loss),
computed in accordance with GAAP, generated from properties before general and administrative
expenses, acquisition-related expenses, depreciation and amortization, interest expense, loss from
unconsolidated joint venture, and interest and dividend income. We believe that net operating
income is useful for investors as it provides an accurate measure of the operating performance of
our operating assets because net operating income excludes certain items that are not associated
with the management of our properties. Additionally, we believe that net operating income is a
widely accepted measure of comparative operating performance in the real estate community. However,
our use of the term net operating income may not be comparable to that of other real estate
companies as they may have different methodologies for computing this amount.
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The following is a reconciliation of net loss, which is the most directly comparable GAAP
financial measure, to net operating income for the three and six months ended June 30, 2011 and
2010:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Net loss |
$ | (2,774,000 | ) | $ | (1,370,000 | ) | $ | (4,848,000 | ) | $ | (3,188,000 | ) | ||||
Add: |
||||||||||||||||
General and administrative |
1,515,000 | 396,000 | 3,006,000 | 756,000 | ||||||||||||
Acquisition-related expenses |
554,000 | | 772,000 | 800,000 | ||||||||||||
Depreciation,
amortization and impairment loss |
3,729,000 | 3,254,000 | 7,158,000 | 6,185,000 | ||||||||||||
Interest expense |
3,189,000 | 2,976,000 | 6,263,000 | 5,745,000 | ||||||||||||
Loss from unconsolidated
joint venture |
46,000 | | 59,000 | | ||||||||||||
Less: |
||||||||||||||||
Interest and dividend income |
| (3,000 | ) | (1,000 | ) | (6,000 | ) | |||||||||
Net operating income |
$ | 6,259,000 | $ | 5,253,000 | $ | 12,409,000 | $ | 10,292,000 | ||||||||
Share Repurchases
In February 2011, our board of directors determined that it is in the best interest of
our company and its stockholders to preserve our companys cash, and terminated our share
repurchase plan. Accordingly, pending share repurchase requests will not be fulfilled. We did not
repurchase any shares of our common stock in the six months ended June 30, 2011.
Material Related Party Arrangements
On February 25, 2011, we entered into a new advisory agreement among us, our operating
partnership and ROC REIT Advisors. See Note 9, Related Party Transactions New Advisor and
Affiliates, to the consolidated financial statements that are a part of this Quarterly Report on
Form 10-Q, for a discussion of the terms of the new advisory agreement and payments thereunder.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There
were no material changes to the information regarding market risk, or to the methods we
use to manage market risk, previously disclosed in our 2010 Annual Report on Form 10-K, as filed
with the SEC on March 25, 2011.
The table below presents, as of June 30, 2011, the principal amounts and weighted average
interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to
interest rate changes. The table below does not reflect any available extension options.
Expected Maturity Date | ||||||||||||||||||||||||||||||||
2011 | 2012 | 2013 | 2014 | 2015 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||
Fixed rate debt
principal
payments |
$ | 440,000 | $ | 8,704,000 | $ | 1,541,000 | $ | 15,199,000 | $ | 25,501,000 | $ | 139,528,000 | $ | 190,913,000 | $ | 202,116,000 | ||||||||||||||||
Weighted average
interest rate on
maturing debt |
5.36 | % | 4.59 | % | 5.28 | % | 5.07 | % | 5.48 | % | 5.52 | % | 5.43 | % | | % | ||||||||||||||||
Variable rate debt
principal
payments |
$ | | $ | | $ | 35,000 | $ | 217,000 | $ | 60,748,000 | $ | | $ | 61,000,000 | $ | 60,421,000 | ||||||||||||||||
Weighted average
interest rate on
maturing debt
(based on rates in
effect as of June
30, 2011) |
| % | | % | 2.41 | % | 2.41 | % | 2.39 | % | | % | 2.39 | % | | % |
Mortgage loan payables were $244,163,000 ($243,705,000, net of discount) as of June 30,
2011. As of June 30, 2011, we had fixed and variable rate mortgage loans with effective interest
rates ranging from 2.36% to 5.94% per annum and a weighted average effective interest rate of 4.70%
per annum. As of June 30, 2011, we had $183,163,000 ($182,705,000, net of discount) of fixed rate
debt, or 75.0% of mortgage loan payables, at a weighted
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average interest rate of 5.47% per annum and $61,000,000 of variable rate debt, or 25.0% of
mortgage loan payables, at a weighted average effective interest rate of 2.39% per annum.
As of June 30, 2011, we had $7,750,000 outstanding under the Amended Consolidated Promissory
Note at a fixed interest rate of 4.50% per annum and a default interest rate at 6.50% per annum,
which is due on July 17, 2012.
Borrowings as of June 30, 2011, bore interest at a weighted average effective interest rate of
4.69% per annum.
An increase in the variable interest rate on our three variable interest rate mortgages
constitutes a market risk. As of June 30, 2011, a 0.50% increase in London Interbank Offered Rate
would have increased our overall annual interest expense by $305,000, or 2.43%.
In addition to changes in interest rates, the value of our future properties is subject to
fluctuations based on changes in local and regional economic conditions and changes in the
creditworthiness of tenants, which may affect our ability to refinance our debt if necessary.
Item 4. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and
procedures that are designed to ensure that information required to be disclosed in our reports
pursuant to the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the rules and forms, and that such information is accumulated and communicated
to us, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow
timely decisions regarding required disclosure. In designing and evaluating the disclosure controls
and procedures, we recognize that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired control objectives, as
ours are designed to do, and we necessarily were required to apply our judgment in evaluating
whether the benefits of the controls and procedures that we adopt outweigh their costs.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, an evaluation as of June 30,
2011 was conducted under the supervision and with the participation of our management, including
our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based
on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures, as of June 30, 2011, were effective.
(b) Changes in internal control over financial reporting. Effective January 1, 2011, we
internalized our financial reporting functions as well as the management of our 15 wholly-owned
properties. As a result of this change, our internal controls over financial reporting experienced
changes in the general ledger accounting system being used and the design of our related control
environment, as well as changes in accounting and operational personnel that operate our internal
financial reporting controls.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
On August 27, 2010, we entered into definitive agreements to acquire Mission Rock Ridge
Apartments, substantially all of the assets of Mission Residential Management, and eight additional
apartment communities, or the DST properties, owned by eight separate Delaware Statutory Trusts, or
DSTs, for which an affiliate MR Holdings, LLC serves as trustee, for total consideration valued at
$157,800,000, including approximately $33,200,000 of limited partnership interests in the OP and
the assumption of approximately $124,600,000 of in-place mortgage indebtedness encumbering the
properties. On November 9, 2010, seven of the 277 investors who hold interests in the eight DSTs
that hold the DST properties filed a complaint in the United States District Court for the Eastern
District of Virginia (Civil Action No. 3:10CV824(HEH), or the Federal Action, against the trustee
of each of these trusts and certain of the trustees affiliates, as well as against our operating
partnership, seeking, among other things, to enjoin the closing of our proposed acquisition of the
eight DST properties. The complaint alleged, among other things, that the trustee has breached its
fiduciary duties to the beneficial owners of the trusts by entering into the eight purchase and
sale agreements with our operating partnership. The complaint further alleged that our operating
partnership aided and abetted the trustees alleged breaches of fiduciary duty and tortuously
interfered with the contractual relations between the trusts and the trust beneficiaries. In a
Consent Order dated November 10, 2010, entered in the Federal Action, the parties agreed that none
of the eight transactions will be closed during the 90-day period following the date of such
Consent Order. On December, 20, 2010, the purported replacement trustee Internacional Realty, Inc.,
as well as investors in each of the 23 DSTs for which Mission Trust Services serves as trustee,
filed a complaint in the Circuit Court of Cook County, Illinois (Case No. 10 CH 53556), or the Cook
County Action. The Cook County Action was filed against the same parties as the Federal Action, and
included the same claims against us as in the Federal Action. On December 23, 2010, the plaintiffs
in the Federal Action dismissed that action voluntarily. On January 28, 2011, Internacional Realty,
Inc. filed a third-party complaint against us and other parties in the Circuit Court for Fairfax
County, Virginia (Case No. 2010-17876), or the Fairfax Action. The Fairfax Action included the same
claims against us as in the Federal Action and the Cook County Action. On March 5, 2011, the court
dismissed the third-party complaint against us.
As of February 23, 2011, the expiration date for the lenders approval period pursuant to each
of the purchase agreements, certain conditions precedent to our obligation to acquire the eight DST
properties had not been satisfied. With the prior approval of the board of directors, on February
28, 2011, we provided the respective Delaware Statutory Trusts written notice of termination of
each of the respective purchase agreements in accordance with the terms of the agreements.
On March 22, 2011, Internacional Realty, Inc. and several DST investors filed a complaint
against us and other parties in the Circuit Court of Fairfax County, or the Fairfax II Action. The
Fairfax II Action contains many of the same factual allegations and seeks the rescission of both
the purchase agreements and the asset purchase agreement. We believe the allegations contained in
the complaints against us are without merit and we intend to defend the claims vigorously. However,
there is no assurance that we will be successful in our defense. We have not accrued any amount for
the possible outcome of this litigation because management does not believe that a material loss is
reasonably likely at this time. On June 7, 2011, the Circuit Court of Cook County, Illinois stayed
the Cook County Action until December 7, 2011 pending developments in the Fairfax litigation.
Other than the foregoing, we are not aware of any material pending legal proceedings other
than ordinary routine litigation incidental to our business.
Item 1A. Risk Factors.
There were no material changes from the risk factors previously disclosed in our 2010 Annual
Report on Form 10-K, as filed with the SEC on March 25, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On June 28, 2011, in connection with their re-election, we granted an aggregate of 4,000
shares of restricted common stock to our non-affiliated directors under our 2006 Plan. In
addition, on May 1, 2011, we issued 3,498
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shares of common stock to our Advisor, and on each of June 1, 2011 and July 1, 2011, we issued
1,749 shares of common stock to our Advisor for the performance of services in accordance with the
advisory agreement.
The shares described in the preceding paragraph were not registered under the Securities Act
of 1933, as amended, or the Securities Act, and were issued in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. There were no other sales of
unregistered securities in the three months ended June 30, 2011.
Use of Public Offering Proceeds
Follow-on Offering
On July 20, 2009, we commenced our follow-on offering, in which we offered up to 100,000,000
shares of our common stock for sale at $10.00 per share in our primary offering and up to 5,000,000
shares of our common stock for sale pursuant to the DRIP at $9.50 per share, for a maximum offering
of up to $1,047,500,000. As explained elsewhere in this report, we suspended the primary portion
of our follow-on offering on December 31, 2010 and the DRIP portion of our follow-on offering on
March 11, 2011. The follow-on offering terminated on July 17, 2011.
As of July 17, 2011, we had received and accepted subscriptions in our follow-on offering for
2,992,777 shares of our common stock, or $29,885,000, in our primary offering, and 728,664 shares
of our common stock, or $6,923,000, pursuant to the DRIP. In connection with the primary portion of
our follow-on offering, as of July 17, 2011, we had incurred selling commissions of $2,052,000 and
dealer manager fees of $897,000. We had also incurred other offering expenses of $299,000 as of
such date. Such fees and expenses were paid to former affiliates and were charged to stockholders
equity as such amounts were reimbursed from the gross proceeds of our follow-on offering. As of
July 17, 2011, net offering proceeds from our follow-on offering were $32,781,000, including
proceeds from the DRIP and after deducting selling commissions, dealer manager fees and other
offering expenses.
As of June 30, 2011, no amounts remained payable to Grubb & Ellis Company, our former dealer
manager, our Former Advisor or their affiliates for offering related costs in connection with our
follow-on offering.
As of July 17, 2011, we had used $9,513,000 in proceeds from our follow-on offering to
purchase Bella Ruscello Luxury Apartment Homes located in Duncanville, Texas and Mission Rock Ridge
Apartments located in Arlington, Texas from unaffiliated parties, $5,513,000 to purchase
substantially all of the assets and certain liabilities of Mission Residential Management,
$1,236,000 for acquisition-related expenses paid to affiliate parties, $3,329,000 for
acquisition-related expenses paid to unaffiliated parties, $1,350,000 to repay borrowings from an
affiliate incurred in connection with previous property acquisitions,$3,271,000 to repay borrowings
from unaffiliated parties incurred in connection with previous property acquisitions and $8,569,000
to pay distributions.
Second Amended and Restated Distribution Reinvestment Plan
On February 24, 2011, our board of directors approved the Amended and Restated DRIP. On March
25, 2011, we filed a registration statement on Form S-3 with the SEC (Registration No. 333-173104)
to register shares issuable pursuant to the Amended and Restated DRIP. The Amended and Restated
DRIP offers up to 10,000,000 shares of our common stock for reinvestment at $9.50 per share, for a
maximum offering up to $95,000,000. As of June 30, 2011, a total of $873,000 in distributions was
reinvested and 91,859 shares of our common stock were issued pursuant to the Amended and Restated
DRIP. Proceeds from the Amended and Restated DRIP were used to fund our operations.
Purchase of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. [Removed and Reserved.]
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Item 5 (a). Other Information.
None.
Item 5 (b). Material Changes to Proceedings by Which Security Holders May Recommend Nominees.
None.
Item 6. Exhibits.
The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly
Report on Form 10-Q) are included, or incorporated by reference, in this Quarterly Report on Form
10-Q.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
APARTMENT TRUST OF AMERICA, INC. (Registrant) |
||||
August 12, 2011 | By: | /s/ Stanley J. Olander, Jr. | ||
Date | Stanley J. Olander, Jr. | |||
Chief Executive Officer and Chairman of the Board of Directors (principal executive officer) |
||||
August 12, 2011 | By: | /s/ B. Mechelle lafon | ||
Date | B. Mechelle Lafon | |||
Chief Financial Officer (principal financial officer and principal accounting officer) |
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EXHIBIT INDEX
Our company and our operating partnership were formerly known as NNN Apartment REIT, Inc. and
NNN Apartment REIT Holdings, L.P. Following the merger of NNN Realty Advisors, Inc. with Grubb &
Ellis Company on December 7, 2007, we changed our corporate name, and the name of our operating
partnership, to Grubb & Ellis Apartment REIT, Inc. and Grubb & Ellis Apartment REIT Holdings, L.P.,
respectively. On December 29, 2010, we amended our charter to change our corporate name from Grubb
& Ellis Apartment REIT, Inc. to Apartment Trust of America, Inc., and we changed the name of our
operating partnership from Grubb & Ellis Apartment REIT Holdings, L.P. to Apartment Trust of
America Holdings, LP. The following Exhibit List refers to the entity names used prior to such name
changes, as applicable, in order to accurately reflect the names of the parties on the documents
listed.
Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit Index immediately precedes the
exhibits.
The following exhibits are included, or incorporated by reference, in this Quarterly Report on
Form 10-Q for the period ended June 30, 2011 (and are numbered in accordance with Item 601 of
Regulation S-K).
3.1
|
Articles of Amendment and Restatement of NNN Apartment REIT, Inc. dated July 18, 2006 (included as Exhibit 3.1 to our Form 10-Q filed November 9, 2006 and incorporated herein by reference) | |
3.2
|
Articles of Amendment to the Articles of Amendment and Restatement of Grubb & Ellis Apartment REIT, Inc. dated December 7, 2007 (included as Exhibit 3.1 to our Current Report on Form 8-K filed on December 10, 2007 and incorporated herein by reference) | |
3.3
|
Second Articles of Amendment to the Articles of Amendment and Restatement of Grubb & Ellis Apartment REIT, Inc., dated June 22, 2010 (included as Exhibit 3.1 to our Current Report on Form 8-K filed on June 23, 2010 and incorporated herein by reference) | |
3.4
|
Third Articles of Amendment to the Articles of Amendment and Restatement of Grubb & Ellis Apartment REIT, Inc. (included as Exhibit 3.1 to our Current Report on Form 8-K filed January 5, 2011, and incorporated herein by reference) | |
3.5
|
Amended and Restated Bylaws of NNN Apartment REIT, Inc. dated July 19, 2006 (included as Exhibit 3.2 to our Form 10-Q filed November 9, 2006 and incorporated herein by reference) | |
3.6
|
Amendment to Amended and Restated Bylaws of NNN Apartment REIT, Inc. dated December 6, 2006 (included as Exhibit 3.6 to Post-Effective Amendment No. 1 to the registrants Registration Statement on Form S-11 (File No. 333-130945) filed January 31, 2007 and incorporated herein by reference) | |
3.7
|
Second Amendment to Amended and Restated Bylaws of Apartment Trust of America, Inc. (included as Exhibit 3.1 to our Current Report on Form 8-K filed June 30, 2011 and incorporated herein by reference). | |
3.8
|
Agreement of Limited Partnership of NNN Apartment REIT Holdings, L.P. (included as Exhibit 3.3 to our Form 10-Q filed on November 9, 2006 and incorporated herein by reference) | |
3.9
|
First Amendment to Agreement of Limited Partnership of Grubb & Ellis Apartment REIT Holdings, L.P., dated June 3, 2010 (included as Exhibit 10.2 to our Current Report on Form 8-K filed on June 3, 2010 and incorporated herein by reference) | |
3.10
|
Second Amendment to Agreement of Limited Partnership of Apartment Trust of America Holdings, LP (the Partnership) entered into by Apartment Trust of America, Inc., as the general partner of the partnership (included as Exhibit 10.1 to our Current Report on Form 8-K filed on June 30, 2011, and incorporated herein by reference). | |
4.1
|
Form of Subscription Agreement of Grubb & Ellis Apartment REIT, Inc. (included as Exhibit B to Supplement No. 4 to the Prospectus filed pursuant to Rule 424(b)(3) (File No. 333-157375) filed August 23, 2010 and incorporated herein by reference) | |
4.2
|
Second Amended and Restated Distribution Reinvestment Plan (included as Exhibit A to our Registration Statement on Form S-3 (File No. 333-173104) filed March 25, 2011 and incorporated herein by reference) | |
10.1
|
Advisory Agreement, dated February 25, 2011, by and between Apartment Trust of America, Inc., Apartment Trust of America Holdings, LP, and ROC REIT Advisors, LLC (included as Exhibit 10.1 to our Current Report on Form 8-K filed March 1, 2011, and incorporated herein by reference) | |
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31.1*
|
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2*
|
Certification of Chef Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1**
|
Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS***
|
XBRL Instance Document | |
101.SCH***
|
XBRL Taxonomy Extension Schema Document | |
101.CAL***
|
XBRL Taxonomy Extension Calculation Linkbase Document | |
101.LAB***
|
XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE***
|
XBRL Taxonomy Extension Presentation Linkbase Document | |
101.DEF***
|
XBRL Taxonomy Extension Definition Linkbase Document | |
* | Filed herewith. | |
** | Furnished herewith. | |
*** | XBRL (Extensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act and otherwise is not subject to liability under these sections. |
50