Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex322_6.htm |
EX-32.1 - EX-32.1 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex321_8.htm |
EX-31.2 - EX-31.2 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex312_7.htm |
EX-31.1 - EX-31.1 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex311_9.htm |
EX-10.1 - EX-10.1 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex101_494.htm |
EX-3.3 - EX-3.3 - Starwood Real Estate Income Trust, Inc. | ck0001711929-ex33_493.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Transition period from to .
Commission file number 000-56046
Starwood Real Estate Income Trust, Inc.
(Exact name of Registrant as specified in Governing Instruments)
Maryland |
1601 Washington Avenue, Suite 800 Miami Beach, FL 33139 |
82-2023409 |
(State or other jurisdiction of incorporation or organization) |
(Address of principal executive offices) (Zip Code) |
(I.R.S. Employer Identification No.) |
Registrant’s telephone number, including area code: (305) 695-5500
Securities registered pursuant to Section 12(b) of the Act: None.
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
Large accelerated filer |
|
☐ |
|
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
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☒ |
|
|
Smaller reporting company |
|
☐ |
|
|
|
|
|
Emerging growth company |
|
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of May 11, 2021, the registrant had the following shares outstanding: 2,942,650 shares of Class T common stock, 78,500,315 shares of Class S common stock, 7,613,136 shares of Class D common stock and 68,801,273 shares of Class I common stock.
TABLE OF CONTENTS
PART I. |
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ITEM 1. |
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|
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Condensed Consolidated Financial Statements (Unaudited): |
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Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020 |
1 |
|
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Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 |
2 |
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3 |
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Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 |
5 |
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6 |
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ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
29 |
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ITEM 3. |
44 |
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ITEM 4. |
46 |
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PART II. |
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ITEM 1. |
47 |
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ITEM 1A. |
47 |
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ITEM 2. |
47 |
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ITEM 3. |
49 |
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ITEM 4. |
49 |
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ITEM 5. |
49 |
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ITEM 6. |
50 |
Starwood Real Estate Income Trust, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(in thousands, except share and per share data)
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||
Assets |
|
|
|
|
|
|
|
|
Investments in real estate, net |
|
$ |
4,681,786 |
|
|
$ |
4,597,054 |
|
Investments in real estate debt |
|
|
704,363 |
|
|
|
218,225 |
|
Investments in unconsolidated real estate ventures |
|
|
11,204 |
|
|
|
10,991 |
|
Cash and cash equivalents |
|
|
199,149 |
|
|
|
128,650 |
|
Restricted cash |
|
|
284,936 |
|
|
|
164,761 |
|
Other assets |
|
|
234,179 |
|
|
|
211,135 |
|
Total assets |
|
$ |
6,115,617 |
|
|
$ |
5,330,816 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
Mortgage notes and revolving credit facility, net |
|
$ |
3,343,708 |
|
|
$ |
3,278,762 |
|
Secured financings on investments in real estate debt |
|
|
137,970 |
|
|
|
108,254 |
|
Unsecured revolving credit facility |
|
|
— |
|
|
|
— |
|
Accounts payable, accrued expenses and other liabilities |
|
|
122,379 |
|
|
|
117,072 |
|
Subscriptions received in advance |
|
|
231,243 |
|
|
|
113,532 |
|
Due to affiliates |
|
|
116,566 |
|
|
|
96,371 |
|
Total liabilities |
|
|
3,951,866 |
|
|
|
3,713,991 |
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
— |
|
|
|
— |
|
Redeemable non-controlling interest |
|
|
25,722 |
|
|
|
10,409 |
|
|
|
|
|
|
|
|
|
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Equity |
|
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|
|
|
|
|
|
Preferred stock, $0.01 par value per share, 100,000,000 shares authorized; none issued and outstanding as of March 31, 2021 and December 31, 2020 |
|
|
— |
|
|
|
— |
|
Common stock — Class T shares, $0.01 par value per share, 250,000,000 shares authorized; 2,674,868 and 2,463,182 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
27 |
|
|
|
25 |
|
Common stock — Class S shares, $0.01 par value per share, 250,000,000 shares authorized; 60,490,804 and 46,431,661 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
605 |
|
|
|
464 |
|
Common stock — Class D shares, $0.01 par value per share, 250,000,000 shares authorized; 4,609,087 and 2,847,097 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
46 |
|
|
|
28 |
|
Common stock — Class I shares, $0.01 par value per share, 250,000,000 shares authorized; 51,381,947 and 39,152,913 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively |
|
|
514 |
|
|
|
392 |
|
Additional paid-in capital |
|
|
2,401,579 |
|
|
|
1,819,526 |
|
Accumulated deficit and cumulative distributions |
|
|
(274,596 |
) |
|
|
(224,198 |
) |
Total stockholders' equity |
|
|
2,128,175 |
|
|
|
1,596,237 |
|
Non-controlling interests in consolidated joint ventures |
|
|
9,854 |
|
|
|
10,179 |
|
Total equity |
|
|
2,138,029 |
|
|
|
1,606,416 |
|
Total liabilities and equity |
|
$ |
6,115,617 |
|
|
$ |
5,330,816 |
|
See accompanying notes to condensed consolidated financial statements.
1
Starwood Real Estate Income Trust, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(in thousands, except share and per share data)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Revenues |
|
|
|
|
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|
|
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Rental revenue |
|
$ |
98,107 |
|
|
$ |
46,465 |
|
Hotel revenue |
|
|
6,966 |
|
|
|
10,215 |
|
Other revenue |
|
|
678 |
|
|
|
357 |
|
Total revenues |
|
|
105,751 |
|
|
|
57,037 |
|
Expenses |
|
|
|
|
|
|
|
|
Rental property operating |
|
|
38,462 |
|
|
|
15,544 |
|
Hotel operating |
|
|
4,418 |
|
|
|
5,964 |
|
General and administrative |
|
|
2,706 |
|
|
|
2,358 |
|
Management fees |
|
|
7,420 |
|
|
|
3,946 |
|
Performance participation allocation |
|
|
8,708 |
|
|
|
46 |
|
Depreciation and amortization |
|
|
54,796 |
|
|
|
30,543 |
|
Total expenses |
|
|
116,510 |
|
|
|
58,401 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
(Loss) earnings from unconsolidated real estate ventures |
|
|
(22 |
) |
|
|
360 |
|
Income (loss) from investments in real estate debt |
|
|
8,794 |
|
|
|
(20,173 |
) |
Interest expense |
|
|
(17,945 |
) |
|
|
(19,641 |
) |
Other (expense) income, net |
|
|
(199 |
) |
|
|
171 |
|
Total other expense |
|
|
(9,372 |
) |
|
|
(39,283 |
) |
Net loss |
|
$ |
(20,131 |
) |
|
$ |
(40,647 |
) |
Net loss attributable to non-controlling interests in consolidated joint ventures |
|
$ |
21 |
|
|
$ |
638 |
|
Net loss attributable to non-controlling interests in Operating Partnership |
|
|
221 |
|
|
|
332 |
|
Net loss attributable to stockholders |
|
$ |
(19,889 |
) |
|
$ |
(39,677 |
) |
Net loss per share of common stock, basic and diluted |
|
$ |
(0.19 |
) |
|
$ |
(0.69 |
) |
Weighted-average shares of common stock outstanding, basic and diluted |
|
|
106,818,450 |
|
|
|
57,844,231 |
|
See accompanying notes to condensed consolidated financial statements.
2
Starwood Real Estate Income Trust, Inc.
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(in thousands)
|
|
Par Value |
|
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|
|
|
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Accumulated |
|
|
|
|
|
|
|
|
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||||||||||||||
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Common Stock Class T |
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Common Stock Class S |
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Common Stock Class D |
|
|
Common Stock Class I |
|
|
Additional Paid-In Capital |
|
|
Deficit and Cumulative Distributions |
|
|
Total Stockholders' Equity |
|
|
Non- controlling Interests |
|
|
Total Equity |
|
|||||||||
Balance at December 31, 2020 |
|
$ |
25 |
|
|
$ |
464 |
|
|
$ |
28 |
|
|
$ |
392 |
|
|
$ |
1,819,526 |
|
|
$ |
(224,198 |
) |
|
$ |
1,596,237 |
|
|
$ |
10,179 |
|
|
$ |
1,606,416 |
|
Common stock issued |
|
|
2 |
|
|
|
141 |
|
|
|
18 |
|
|
|
121 |
|
|
|
611,592 |
|
|
|
— |
|
|
|
611,874 |
|
|
|
— |
|
|
|
611,874 |
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,594 |
) |
|
|
— |
|
|
|
(30,594 |
) |
|
|
— |
|
|
|
(30,594 |
) |
Distribution reinvestments |
|
|
— |
|
|
|
4 |
|
|
|
— |
|
|
|
2 |
|
|
|
14,095 |
|
|
|
— |
|
|
|
14,101 |
|
|
|
— |
|
|
|
14,101 |
|
Amortization of restricted stock grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
53 |
|
|
|
— |
|
|
|
53 |
|
Common stock repurchased |
|
|
— |
|
|
|
(4 |
) |
|
|
— |
|
|
|
(1 |
) |
|
|
(12,254 |
) |
|
|
— |
|
|
|
(12,259 |
) |
|
|
— |
|
|
|
(12,259 |
) |
Net loss ($221 allocated to redeemable non- controlling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19,889 |
) |
|
|
(19,889 |
) |
|
|
(21 |
) |
|
|
(19,910 |
) |
Contributions from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(304 |
) |
|
|
(304 |
) |
Distributions declared on common stock (see Note 10) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(30,509 |
) |
|
|
(30,509 |
) |
|
|
— |
|
|
|
(30,509 |
) |
Allocation to redeemable non- controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(839 |
) |
|
|
— |
|
|
|
(839 |
) |
|
|
— |
|
|
|
(839 |
) |
Balance at March 31, 2021 |
|
$ |
27 |
|
|
$ |
605 |
|
|
$ |
46 |
|
|
$ |
514 |
|
|
$ |
2,401,579 |
|
|
$ |
(274,596 |
) |
|
$ |
2,128,175 |
|
|
$ |
9,854 |
|
|
$ |
2,138,029 |
|
See accompanying notes to condensed consolidated financial statements.
3
Starwood Real Estate Income Trust, Inc.
Condensed Consolidated Statements of Changes in Equity (Unaudited)
(in thousands)
|
|
Par Value |
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Common Stock Class T |
|
|
Common Stock Class S |
|
|
Common Stock Class D |
|
|
Common Stock Class I |
|
|
Additional Paid-In Capital |
|
|
Deficit and Cumulative Distributions |
|
|
Total Stockholders' Equity |
|
|
Non- controlling Interests |
|
|
Total Equity |
|
|||||||||
Balance at December 31, 2019 |
|
$ |
14 |
|
|
$ |
262 |
|
|
$ |
17 |
|
|
$ |
161 |
|
|
$ |
883,506 |
|
|
$ |
(46,697 |
) |
|
$ |
837,263 |
|
|
$ |
11,984 |
|
|
$ |
849,247 |
|
Common stock issued |
|
|
6 |
|
|
|
94 |
|
|
|
6 |
|
|
|
89 |
|
|
|
421,464 |
|
|
|
— |
|
|
|
421,659 |
|
|
|
— |
|
|
|
421,659 |
|
Offering costs |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20,528 |
) |
|
|
— |
|
|
|
(20,528 |
) |
|
|
— |
|
|
|
(20,528 |
) |
Distribution reinvestments |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
1 |
|
|
|
8,361 |
|
|
|
— |
|
|
|
8,364 |
|
|
|
— |
|
|
|
8,364 |
|
Amortization of restricted stock grants |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
|
|
— |
|
|
|
21 |
|
Common stock repurchased |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(980 |
) |
|
|
— |
|
|
|
(980 |
) |
|
|
— |
|
|
|
(980 |
) |
Net loss ($332 allocated to redeemable non- controlling interest) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(39,677 |
) |
|
|
(39,677 |
) |
|
|
(638 |
) |
|
|
(40,315 |
) |
Contributions from non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
58,840 |
|
|
|
58,840 |
|
Distributions to non-controlling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(356 |
) |
|
|
(356 |
) |
Distributions declared on common stock (see Note 10) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(16,368 |
) |
|
|
(16,368 |
) |
|
|
— |
|
|
|
(16,368 |
) |
Allocation to redeemable non- controlling interest |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(302 |
) |
|
|
— |
|
|
|
(302 |
) |
|
|
— |
|
|
|
(302 |
) |
Balance at March 31, 2020 |
|
$ |
20 |
|
|
$ |
358 |
|
|
$ |
23 |
|
|
$ |
251 |
|
|
$ |
1,291,542 |
|
|
$ |
(102,742 |
) |
|
$ |
1,189,452 |
|
|
$ |
69,830 |
|
|
$ |
1,259,282 |
|
See accompanying notes to condensed consolidated financial statements.
4
Starwood Real Estate Income Trust, Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2021 |
|
|
2020 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(20,131 |
) |
|
$ |
(40,647 |
) |
Adjustments to reconcile net loss to net cash provided by operating activities |
|
|
|
|
|
|
|
|
Management fee |
|
|
7,420 |
|
|
|
3,946 |
|
Performance participation allocation |
|
|
8,708 |
|
|
|
46 |
|
Depreciation and amortization |
|
|
54,796 |
|
|
|
30,543 |
|
Amortization of deferred financing costs |
|
|
814 |
|
|
|
436 |
|
Straight-line rent amortization |
|
|
(2,381 |
) |
|
|
(911 |
) |
Deferred income amortization |
|
|
(439 |
) |
|
|
(235 |
) |
Unrealized (gain) loss on changes in fair value of financial instruments |
|
|
(12,884 |
) |
|
|
26,973 |
|
Foreign currency loss |
|
|
5,680 |
|
|
|
— |
|
Loss on sales of investment in real estate debt |
|
|
— |
|
|
|
1,329 |
|
Amortization of restricted stock grants |
|
|
53 |
|
|
|
21 |
|
Distributions from investments in unconsolidated real estate ventures |
|
|
— |
|
|
|
276 |
|
Loss (earnings) from unconsolidated real estate ventures |
|
|
22 |
|
|
|
(360 |
) |
Other items |
|
|
11 |
|
|
|
(266 |
) |
Change in assets and liabilities |
|
|
|
|
|
|
|
|
Increase in other assets |
|
|
(435 |
) |
|
|
(11,561 |
) |
Increase in due to affiliates |
|
|
1,001 |
|
|
|
144 |
|
Increase in accounts payable, accrued expenses and other liabilities |
|
|
8,039 |
|
|
|
17,711 |
|
Net cash provided by operating activities |
|
|
50,274 |
|
|
|
27,445 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Acquisitions of real estate |
|
|
(147,263 |
) |
|
|
(1,512,285 |
) |
Capital improvements to real estate |
|
|
(6,430 |
) |
|
|
(1,838 |
) |
Investment in unconsolidated real estate ventures |
|
|
(235 |
) |
|
|
— |
|
Origination and purchase of investments in real estate debt |
|
|
(504,692 |
) |
|
|
(65,754 |
) |
Proceeds from paydown of principal and settlement of investments in real estate debt |
|
|
12,374 |
|
|
|
5,029 |
|
Net cash used in investing activities |
|
|
(646,246 |
) |
|
|
(1,574,848 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net |
|
|
491,593 |
|
|
|
307,520 |
|
Offering costs paid |
|
|
(5,720 |
) |
|
|
(3,901 |
) |
Subscriptions received in advance |
|
|
231,243 |
|
|
|
41,012 |
|
Repurchase of common stock |
|
|
(12,259 |
) |
|
|
(980 |
) |
Borrowings from mortgage notes and revolving credit facility |
|
|
112,158 |
|
|
|
1,007,273 |
|
Repayments of mortgage notes and revolving credit facility |
|
|
(47,775 |
) |
|
|
(734 |
) |
Repayments under secured financings on investments in real estate debt, short term net |
|
|
(42,557 |
) |
|
|
— |
|
Borrowings under secured financings on investments in real estate debt |
|
|
140,150 |
|
|
|
117,399 |
|
Repayments under secured financings on investments in real estate debt |
|
|
(65,697 |
) |
|
|
— |
|
Payment of deferred financing costs |
|
|
(161 |
) |
|
|
(5,971 |
) |
Contributions from non-controlling interests |
|
|
— |
|
|
|
58,840 |
|
Distributions to non-controlling interests |
|
|
(304 |
) |
|
|
(356 |
) |
Distributions |
|
|
(14,025 |
) |
|
|
(6,177 |
) |
Net cash provided by financing activities |
|
|
786,646 |
|
|
|
1,513,925 |
|
Net change in cash and cash equivalents and restricted cash |
|
|
190,674 |
|
|
|
(33,478 |
) |
Cash and cash equivalents and restricted cash at the beginning of the period |
|
|
293,411 |
|
|
|
188,961 |
|
Cash and cash equivalents and restricted cash at the end of the period |
|
$ |
484,085 |
|
|
$ |
155,483 |
|
Reconciliation of cash and cash equivalents and restricted cash to the condensed consolidated balance sheets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
199,149 |
|
|
$ |
61,222 |
|
Restricted cash |
|
|
284,936 |
|
|
|
94,261 |
|
Total cash and cash equivalents and restricted cash |
|
$ |
484,085 |
|
|
$ |
155,483 |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Accrued stockholder servicing fee due to affiliate |
|
$ |
27,626 |
|
|
$ |
18,151 |
|
Right of use asset/liability |
|
$ |
— |
|
|
$ |
6,408 |
|
Redeemable non-controlling interest issued as settlement for performance participation allocation |
|
$ |
15,061 |
|
|
$ |
10,366 |
|
Accrued distributions |
|
$ |
11,431 |
|
|
$ |
6,191 |
|
Distribution reinvestment |
|
$ |
14,101 |
|
|
$ |
8,364 |
|
Allocation to redeemable non-controlling interest |
|
$ |
839 |
|
|
$ |
302 |
|
See accompanying notes to condensed consolidated financial statements.
5
Starwood Real Estate Income Trust, Inc.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. |
Organization and Business Purpose |
Starwood Real Estate Income Trust, Inc. (the “Company”) was formed on June 22, 2017 as a Maryland corporation and has elected to be taxed as a real estate investment trust (“REIT”) for U.S. federal income tax purposes commencing with the taxable year ended December 31, 2019. The Company was organized to invest primarily in stabilized, income-oriented commercial real estate and debt secured by commercial real estate. The Company’s portfolio is principally comprised of properties located in the United States. The Company may diversify its portfolio on a global basis through the acquisition of properties outside of the United States, with a focus on Europe. To a lesser extent, the Company invests in real estate debt, including loans secured by real estate and real estate-related securities. The Company is the sole general partner of Starwood REIT Operating Partnership, L.P., a Delaware limited partnership (the “Operating Partnership”). Starwood REIT Special Limited Partner, L.L.C. (the “Special Limited Partner”), a wholly owned subsidiary of Starwood Capital Group Holdings, L.P. (the “Sponsor”), owns a special limited partner interest in the Operating Partnership. Substantially all of the Company’s business is conducted through the Operating Partnership. The Company and the Operating Partnership are externally managed by Starwood REIT Advisors, L.L.C. (the “Advisor”), an affiliate of the Sponsor.
The Company has registered with the Securities and Exchange Commission (the “SEC”) an offering of up to $5.0 billion in shares of common stock, consisting of up to $4.0 billion in shares in its primary offering and up to $1.0 billion in shares pursuant to its distribution reinvestment plan (the “Offering”). The Company is selling in the Offering any combination of four classes of shares of its common stock, with a dollar value up to the maximum aggregate amount. The share classes have different upfront selling commissions, dealer manager fees and ongoing stockholder servicing fees. The Company intends to continue selling shares on a monthly basis. On October 29, 2020, the Company filed a registration statement on Form S-11 with the SEC for its follow-on public offering, which the Company anticipates will become effective in 2021.
As of March 31, 2021, the Company owned 147 real estate properties, one investment in an unconsolidated real-estate venture and 56 positions in real estate debt investments. The Company currently operates in six reportable segments: Multifamily, Hotel, Industrial, Office, Medical Office and Investments in Real Estate Debt. Financial results by segment are reported in Note 14.
Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. All significant intercompany balances and transactions have been eliminated in consolidation. Management believes it has made all necessary adjustments, consisting of only normal recurring items, so that the condensed consolidated financial statements are presented fairly and that estimates made in preparing its condensed consolidated financial statements are reasonable and prudent. The accompanying unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC.
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company, the Company’s subsidiaries and joint ventures in which the Company has a controlling interest. For consolidated joint ventures, the non-controlling partner’s share of the assets, liabilities and operations of the joint ventures is included in non-controlling interests as equity of the Company. The non-controlling partner’s interest is generally computed as the joint venture partner’s ownership percentage.
In determining whether the Company has a controlling financial interest in a partially owned entity and the requirement to consolidate the accounts of that entity, the Company considers whether the entity is a variable interest entity (“VIE”) and whether it is the primary beneficiary. The Company is the primary beneficiary of a VIE when it has (i) the power to direct the most significant activities impacting the economic performance of the VIE and (ii) the obligation to absorb losses or receive benefits significant to the VIE. The Operating Partnership is considered to be a VIE. The Company consolidates the Operating Partnership because it has the ability to direct the most significant activities of the entities such as purchases, dispositions, financings, budgets, and overall operating plans. Where the Company does not have the power to direct the activities of the VIE that most significantly impact its economic performance, the Company's interest for those partially owned entities are accounted for using the equity method of accounting. The Company meets the VIE disclosure exemption criteria, as the Company’s interest in the Operating Partnership is considered a majority voting interest.
6
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the balance sheet. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents represent cash held in banks, cash on hand, and liquid investments with original maturities of three months or less. The Company may have bank balances in excess of federally insured amounts; however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure.
Restricted Cash
Restricted cash primarily consists of cash received for subscriptions prior to the date in which the subscriptions are effective. The Company’s restricted cash is held primarily in a bank account controlled by the Company’s transfer agent but in the name of the Company. The remaining balance of restricted cash primarily consists of amounts in escrow related to real estate taxes and insurance in connection with mortgages at certain of the Company’s properties and tenant security deposits.
Investments in Real Estate
In accordance with the guidance for business combinations, the Company determines whether the acquisition of a property qualifies as a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the property acquired is not a business, the Company accounts for the transaction as an asset acquisition. All property acquisitions to date have been accounted for as asset acquisitions.
The Company capitalizes acquisition-related costs associated with asset acquisitions. Upon acquisition of a property, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-market” and “below-market” leases, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price to the acquired assets and assumed liabilities. The Company assesses and considers fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that it deems appropriate, as well as other available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends and market and economic conditions.
The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on its acquisitions to date, the Company’s allocation to customer relationship intangible assets has not been material.
The cost of buildings and improvements includes the purchase price of the Company’s properties and any acquisition-related costs, along with any subsequent improvements to such properties.
The Company’s investments in real estate are stated at cost and are generally depreciated on a straight-line basis over the estimated useful lives of the assets as follows:
Description |
|
Depreciable Life |
Building |
|
35 - 40 years |
Building and land improvements |
|
5 - 15 years |
Furniture, fixtures and equipment |
|
5 - 7 years |
Lease intangibles and leasehold improvements |
|
Shorter of useful life or lease term |
Repairs and maintenance are expensed to operations as incurred and are included in Rental property operating and Hotel operating expenses on the Company’s Condensed Consolidated Statements of Operations. Significant improvements to properties are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.
7
The Company records acquired above-market and below-market leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be received pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related expenses.
The amortization of acquired above-market and below-market leases is recorded as an adjustment to Rental revenue on the Company’s Condensed Consolidated Statements of Operations. The amortization of in-place leases is recorded as an adjustment to Depreciation and amortization expense on the Company’s Condensed Consolidated Statements of Operations.
Certain of the Company’s investments in real estate are subject to a ground lease, for which a lease liability and corresponding right-of-use (“ROU”) asset were recognized. The Company calculates the amount of the lease liability and ROU asset by taking the present value of the remaining lease payments, and adjusting the ROU asset for any existing straight-line ground rent liability and acquired ground lease intangibles. The Company’s estimated incremental borrowing rate of a loan with a similar term as the ground lease was used as the discount rate. The lease liability is included as a component of Accounts payable, accrued expenses, and other liabilities and the related ROU asset is recorded as a component of Investments in real estate, net on the Company’s Condensed Consolidated Balance Sheets. The amortization of the below-market ground lease is recorded as an adjustment to Depreciation and amortization expense on the Company’s Condensed Consolidated Statements of Operations.
The Company’s management reviews its real estate properties for impairment when there is an event or change in circumstances that indicates an impaired value. Since cash flows on real estate properties considered to be “long-lived assets to be held and used” are considered on an undiscounted basis to determine whether an asset has been impaired, the Company’s strategy of holding properties over the long term decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material to the Company’s results. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value. During the periods presented, no such impairment occurred.
Investments in Unconsolidated Real Estate Ventures
Investments in unconsolidated joint ventures are initially recorded at cost, and subsequently adjusted for equity in earnings or losses and cash contributions and distributions. Under the equity method of accounting, the net equity investment of the Company is reflected within the Condensed Consolidated Balance Sheets, and the Company’s share of net income or loss from the joint ventures is included within the Company’s Condensed Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, the Company’s recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. The Company’s investments in unconsolidated joint ventures are reviewed for impairment periodically and the Company records impairment charges when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than-temporary. The ultimate realization of the investment in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions.
8
Investments in Real Estate Debt
The Company’s investments in real estate debt consists of loans secured by real estate and real estate-related securities. The Company has elected to classify its real estate-related securities as trading securities and record such investments at fair value. As such, the resulting unrealized gains and losses of such securities are recorded as a component of Income/(loss) from investments in real estate debt on the Company’s Condensed Consolidated Statements of Operations.
The Company elected the fair value option (“FVO”) for its loans secured by real estate. As such, the resulting unrealized gains and losses of such loans are recorded as a component of Income/(loss) from investments in real estate debt on the Company’s Condensed Consolidated Statements of Operations.
Interest income from the Company’s investments in real estate debt is recognized over the life of each investment using the effective interest method and is recorded on the accrual basis. Recognition of premiums and discounts associated with these investments is deferred and recorded over the term of the investment as an adjustment to yield. Upfront costs and fees related to items for which the fair value option is elected shall be recognized in earnings as incurred and not deferred. Such items are recorded as components of Income (loss) from investments in real estate debt on the Company’s Condensed Consolidated Statements of Operations.
Derivative Instruments
The Company uses derivative financial instruments such as foreign currency swaps, interest rate swaps and interest rate caps to manage risks from fluctuations in exchange rates and interest rates.
The Company records its derivatives on its condensed consolidated balance sheets at fair value and such amounts are included in Other assets or Accounts payable, accrued expenses and other liabilities. Any changes in the fair value of these derivatives are recorded in earnings.
Foreign Currency
The Company's functional currency is the U.S. dollar. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the reporting period. Income statement accounts are translated at average rates for the reporting period. Gains and losses from translation of foreign denominated statements into U.S. dollars are included in current results of operations. Gains and losses resulting from foreign currency transactions are also included in current results of operations. Aggregate foreign currency translation and transaction losses included in operations totaled $5.7 million for the three months ended March 31, 2021. These amounts are recorded as a component of Income/(loss) from investments in real estate debt on the Company’s Condensed Consolidated Statements of Operations.
9
Fair Value Measurements
Under normal market conditions, the fair value of an investment is the amount that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price). Additionally, there is a hierarchal framework that prioritizes and ranks the level of market price observability used in measuring investments at fair value. Market price observability is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and the state of the market place, including the existence and transparency of transactions between market participants. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.
Investments measured and reported at fair value are classified and disclosed in one of the following levels within the fair value hierarchy:
Level 1 — quoted prices are available in active markets for identical investments as of the measurement date. The Company does not adjust the quoted price for these investments.
Level 2 — quoted prices are available in markets that are not active or model inputs are based on inputs that are either directly or indirectly observable as of the measurement date.
Level 3 — pricing inputs are unobservable and include instances where there is minimal, if any, market activity for the investment. These inputs require significant judgment or estimation by management or third parties when determining fair value and generally represent anything that does not meet the criteria of Levels 1 and 2. Due to the inherent uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these investments existed.
Valuation
The Company generally determines the fair value of its investments in real estate-related securities by utilizing third-party pricing service providers. In determining the value of a particular investment, the pricing service providers may use broker-dealer quotations, reported trades or valuation estimates from their internal pricing models to determine the reported price. The pricing service providers’ internal models for real estate-related securities usually consider the attributes applicable to a particular class of security (e.g., credit rating, seniority), current market data, and estimated cash flows for each class and incorporate deal collateral performance such as prepayment speeds and default rates, as available. As of March 31, 2021 and December 31, 2020, the Company’s investments in real estate-related securities are classified as Level 2.
The Company’s investment in loans secured by real estate, such as its term loan, are unlikely to have readily available market quotations. In such cases, the Company will generally determine the initial value based on the origination amount or acquisition price of such investment if acquired by the Company or the par value of such investment if originated by the Company. Following the initial measurement, the Company will determine fair value by utilizing or reviewing certain of the following inputs (i) market yield data, (ii) discounted cash flow modeling, (iii) collateral asset performance, (iv) local or macro real estate performance, (v) capital market conditions, (vi) debt yield or loan-to-value ratios and (vii) borrower financial condition and performance. As of March 31, 2021, the Company’s term loan is classified as Level 3.
Fair value of the Company’s indebtedness is estimated by modeling the cash flows required by the Company’s debt agreements and discounting them back to the present value using an appropriate discount rate. Additionally, the Company considers current market rate and conditions by evaluating similar borrowing agreements with comparable loan-to-value ratios and credit profiles. The inputs used in determining the fair value of the Company’s indebtedness are considered Level 3. As of March 31, 2021, the fair value of the Company’s mortgage notes, revolving credit facility and secured financings on investments in real estate debt was approximately $32.9 million below the outstanding principal balance.
The Company’s interest rate swap agreements are valued using a discounted cash flow analysis based on the terms of the contract and the forward interest rate curve adjusted for the Company’s nonperformance risk. The Company’s interest rate cap positions are valued using models developed by the respective counterparty as well as third party pricing service providers that use as their basis readily observable market parameters (such as forward yield curves and credit default swap data). The Company’s derivative positions are classified as Level 2. As of March 31, 2021 and December 31, 2020, the fair value of the Company’s interest rate caps were approximately $1.7 million and $5.4 million, respectively, below their cost. As of March 31, 2021 and December 31, 2020, the Company’s interest rate swaps had an aggregate fair value liability of $0.8 million and $5.2 million, respectively.
The fair values of the Company’s foreign currency swaps are determined by comparing the contracted forward exchange rate to the current market exchange rate. The current market exchange rates are determined by using market spot rates, forward rates and interest rate curves for the underlying instruments. As of March 31, 2021, the fair value of the Company’s foreign currency swaps were approximately $3.6 million.
10
The fair values of the Company’s financial instruments (other than investments in real estate debt, mortgage notes, revolving credit facility and derivative instruments), including cash, cash equivalents and restricted cash and other financial instruments, approximate their carrying or contract value.
Deferred Charges
The Company’s deferred charges include financing and leasing costs. Deferred financing costs include legal, structuring and other loan costs incurred by the Company for its financing agreements. Deferred financing costs related to the Company’s mortgage notes are recorded as an offset to the related liability and amortized over the term of the applicable financing instruments as interest expense. Deferred financing costs related to the Company’s revolving credit facility and its unsecured revolving credit facility are recorded as a component of Other assets on the Company’s Condensed Consolidated Balance Sheets and amortized over the term of the applicable financing agreement. Deferred leasing costs incurred in connection with new leases, which consist primarily of brokerage commissions, are recorded as a component of Other assets on the Company’s Condensed Consolidated Balance Sheets and amortized over the life of the related lease.
Revenue Recognition
The Company commences revenue recognition on its leases based on a number of factors, including the initial determination that the contract is or contains a lease. Generally, all of the Company’s contracts are, or contain leases, and therefore revenue is recognized when the lessee takes possession of or controls the physical use of the leased assets. In most instances this occurs on the lease commencement date. At the inception of a new lease, including new leases that arise from amendments, the Company assesses the terms and conditions of the lease to determine the proper lease classification.
The Company adopted the provisions of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) and related ASUs subsequently issued (collectively, “ASC 842”) as of January 1, 2019. A lease is classified as an operating lease if none of the following criteria are met: (i) ownership transfers to the lessee at the end of the lease term, (ii) the lessee has a purchase option that is reasonably expected to be exercised, (iii) the lease term is for a major part of the economic life of the leased property, (iv) the present value of the future lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all of the fair value of the leased property, and (v) the leased property is of such a specialized nature that it is expected to have no future alternative use to the Company at the end of the lease term. If one or more of these criteria are met, the lease will generally be classified as a sales-type lease, unless the lease contains a residual value guarantee from a third party other than the lessee, in which case it would be classified as a direct financing lease under certain circumstances in accordance with ASC 842.
The Company’s rental revenue primarily consists of fixed contractual base rent arising from tenant leases at the Company’s properties under operating leases. Revenue under operating leases that are deemed probable of collection, is recognized as revenue on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in the Company’s Condensed Consolidated Balance Sheets. The Company’s Hotel revenue consists of room revenue and food and beverage revenue. Room revenue is recognized when the related room is occupied and other hotel revenue is recognized when the service is rendered. For leases that are deemed not probable of collection, revenue is recorded as the lesser of (i) the amount which would be recognized on a straight-line basis or (ii) cash that has been received from the tenant, with any tenant and deferred rent receivable balances charged as a direct write-off against rental income in the period of the change in the collectability determination.
Certain of the Company’s contracts contain nonlease components (e.g., charges for management fees, common area maintenance, and reimbursement of third-party maintenance expenses) in addition to lease components (i.e., monthly rental charges). Services related to nonlease components are provided over the same period of time as, and billed in the same manner as, monthly rental charges. The Company elected to apply the practical expedient available under ASC 842, for all classes of assets, not to segregate the lease components from the nonlease components when accounting for operating leases. Since the lease component is the predominant component under each of these leases, combined revenues from both the lease and nonlease components are accounted for in accordance with ASC 842 and reported as Rental revenues in the Company’s Condensed Consolidated Statements of Operations.
In connection with its investments, the Company has acquired assets subject to loan programs designed to encourage housing development. The proceeds from these loans are governed by restrictive covenants. For certain housing development loans, so long as the Company remains in compliance with the covenants and program requirements, the loans will be forgiven in equal annual installments until the loans are discharged in full. The Company treats these loans as deferred income and records them as a component of Accounts payable, accrued expenses and other liabilities on the Company’s Condensed Consolidated Balance Sheets. As of March 31, 2021 and December 31, 2020, deferred income related to these loans amounted to $5.6 million and $5.8 million, respectively. As the loan balances are reduced during the compliance period, the Company will record income associated with the discharge of the loans
11
as a component of Other revenue on the Company’s Condensed Consolidated Statements of Operations. For the three months ended March 31, 2021 and 2020, Other revenue related to these loans amounted to $0.2 million and $0.2 million, respectively.
Other revenues and interest income are recorded on an accrual basis.
Organization and Offering Expenses
Organization costs are expensed as incurred and recorded as a component of General and administrative expenses on the Company’s Condensed Consolidated Statements of Operations and offering costs are charged to equity as such amounts are incurred.
The Advisor advanced $7.3 million of organization and offering expenses on behalf of the Company (including legal, accounting, and other expenses attributable to the organization, but excluding upfront selling commissions, dealer manager fees and stockholder servicing fees) through December 21, 2019, the first anniversary of the date on which the proceeds from escrow were released. The Company reimburses the Advisor for all such advanced expenses ratably over a 60-month period following December 21, 2019. These organization and offering costs are recorded as a component of Due to affiliates on the Company’s Condensed Consolidated Balance Sheets.
Starwood Capital, L.L.C. (the “Dealer Manager”), a registered broker-dealer affiliated with the Advisor, serves as the dealer manager for the Offering. The Dealer Manager is entitled to receive selling commissions and dealer manager fees based on the transaction price of each applicable class of shares sold in the primary offering. The Dealer Manager is also entitled to receive a stockholder servicing fee based on the aggregate net asset value (“NAV”) of the Company’s outstanding Class T shares, Class S shares, and Class D shares.
The following table details the selling commissions, dealer manager fees, and stockholder servicing fees for each applicable share class as of March 31, 2021:
|
|
Common Stock Class T |
|
|
Common Stock Class S |
|
|
Common Stock Class D |
|
|
Common Stock Class I |
Selling commissions and dealer manager fees (% of transaction price) |
|
up to 3.5% |
|
|
up to 3.5% |
|
|
up to 1.5% |
|
|
— |
Stockholder servicing fee (% of NAV) |
|
0.85% |
|
|
0.85% |
|
|
0.25% |
|
|
— |
For Class T shares sold in the primary offering, investors will pay upfront selling commissions of up to 3.0% of the transaction price and upfront dealer manager fees of 0.5% of the transaction price, however such amounts may vary at certain participating broker-dealers, provided that the sum will not exceed 3.5% of the transaction price. For Class S shares sold in the primary offering, investors will pay upfront selling commissions of up to 3.5% of the transaction price. For Class D shares sold in the primary offering, investors will pay upfront selling commissions of up to 1.5% of the transaction price. Prior to February 4, 2020, no upfront selling commissions were paid on Class D shares.
The Dealer Manager is entitled to receive stockholder servicing fees of 0.85% per annum of the aggregate NAV for Class T shares and Class S shares. For Class T shares such stockholder servicing fee includes, an advisor stockholder servicing fee of 0.65% per annum, and a dealer stockholder servicing fee of 0.20% per annum, of the aggregate NAV for the Class T shares, however, with respect to Class T shares sold through certain participating broker-dealers, the advisor stockholder servicing fee and the dealer stockholder servicing fee may be other amounts, provided that the sum of such fees will always equal 0.85% per annum of the NAV of such shares. The Class D shares will incur a stockholder servicing fee equal to 0.25% per annum of the aggregate NAV for the Class D shares. There is no stockholder servicing fee with respect to Class I shares.
The Dealer Manager has entered into agreements with the selected dealers distributing the Company’s shares in the Offering, which provide, among other things, for the re-allowance of the full amount of the selling commissions and dealer manager fees received and all or a portion of the stockholder servicing fees to such selected dealers. The Company will cease paying the stockholder servicing fee with respect to any Class T share, Class S share or Class D share sold in the primary offering at the end of the month in which the total selling commissions, dealer manager fees and stockholder servicing fees paid with respect to the shares held by such stockholder within such account would exceed 8.75% (or, in the case of Class T shares sold through certain participating broker-dealers, a lower limit as set forth in any applicable agreement between the Dealer Manager and a participating broker-dealer) of the gross proceeds from the sale of such share (including the gross proceeds of any shares issued under the Company’s distribution reinvestment plan with respect thereto). The Company will accrue the full cost of the stockholder servicing fee as an offering cost at the time each Class T, Class S and Class D share is sold during the primary offering. As of March 31, 2021 and December 31, 2020, the Company had accrued $98.4 million and $73.2 million respectively, of stockholder servicing fees related to shares sold and recorded such amount as a component of Due to affiliates on the Company’s Condensed Consolidated Balance Sheets.
12
Income Taxes
The Company elected to be taxed as a REIT under the Internal Revenue Code (the “Code”), for federal income tax purposes, beginning with its taxable year ended December 31, 2019. As long as the Company qualifies for taxation as a REIT, it generally will not be subject to U.S. federal corporate income tax on its net taxable income that is currently distributed to its stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distributes at least 90% of its REIT taxable income (subject to certain adjustments) to its stockholders. If the Company fails to qualify as a REIT in a taxable year, without the benefit of certain relief provisions, it will be subject to federal and state income tax on its taxable income at regular corporate tax rates. Even if the Company qualifies for taxation as a REIT, it may also be subject to certain federal, state, and local taxes on its income and assets, including (1) taxes on any undistributed income, (2) taxes related to its taxable REIT subsidiaries (“TRSs”) and (3) certain state or local income taxes.
The Company has formed wholly owned subsidiaries to function as TRSs and filed TRS elections, together with such subsidiaries, with the Internal Revenue Service. In general, a TRS may perform additional services for the Company’s tenants and generally may engage in any real estate or non-real estate-related business other than management or operation of a lodging facility or a health care facility. The TRSs are subject to taxation at the federal, state and local levels, as applicable, at the regular corporate tax rates. The Company accounts for applicable income taxes by utilizing the asset and liability method. As such, the Company records deferred tax assets and liabilities for the future tax consequences resulting from the difference between the carrying value of existing assets and liabilities and their respective tax basis. A valuation allowance for deferred tax assets is provided if the Company believes all or some portion of the deferred tax asset may not be realized.
For the three months ended March 31, 2021 and 2020, the Company recognized an income tax expense of $0.1 million and $0.1 million, respectively, within Other (expense) income, net on the Company’s Condensed Consolidated Statements of Operations. As of March 31, 2021 and December 31, 2020, the Company recorded a net deferred tax liability of $1.2 million and $1.2 million, respectively, due to its hotel investments within Accounts payable, accrued expenses and other liabilities on the Company’s Condensed Consolidated Balance Sheets.
Net Loss per Share
Basic net loss per share is computed by dividing net loss attributable to stockholders for the period by the weighted average number of common shares outstanding during the period. All classes of common stock are allocated net loss at the same rate per share and receive the same gross distribution per share. Diluted loss per share is computed by dividing net loss attributable to stockholders for the period by the weighted average number of common shares and common share equivalents outstanding (unless their effect is antidilutive) for the period. There are no common share equivalents outstanding that would have a dilutive effect as a result of the net loss, and accordingly, the weighted average number of common shares outstanding is identical for the periods ended March 31, 2021 and 2020, for both basic and diluted shares.
The restricted stock grants of Class I shares held by the Company’s independent directors are not considered to be participating securities because they do not contain non-forfeitable rights to distributions. As a result, there is no impact of these restricted stock grants on basic and diluted net loss per common share until the restricted stock grants have fully vested.
Recent Accounting Pronouncements
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments simplify the accounting for income taxes by removing certain exceptions to the general principles of Topic 740, Income Taxes and also improve consistent application by clarifying and amending existing guidance. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted, with the amendments to be applied on a retrospective, modified retrospective or prospective basis, depending on the specific amendment. The Company has adopted this pronouncement as of January 1, 2021.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). ASU 2020-04 provides optional expedients and exceptions to GAAP requirements for modifications on debt instruments, leases, derivatives, and other contracts, related to the expected market transition from LIBOR, and certain other floating rate benchmark indices, or collectively, IBORs, to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. The guidance in ASU 2020-04 is optional and may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. The Company has not adopted any of the optional expedients or exceptions as of March 31, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
13
3. |
Investments |
Investments in Real Estate
Investments in real estate, net consisted of the following ($ in thousands):
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||||
Building and building improvements |
|
$ |
|
3,967,595 |
|
|
$ |
|
3,860,297 |
|
Land and land improvements |
|
|
|
704,601 |
|
|
|
|
689,107 |
|
Furniture, fixtures and equipment |
|
|
|
77,291 |
|
|
|
|
76,808 |
|
Right of use asset - operating lease(1) |
|
|
|
101,382 |
|
|
|
|
101,382 |
|
Total |
|
|
|
4,850,869 |
|
|
|
|
4,727,594 |
|
Accumulated depreciation and amortization |
|
|
|
(169,083 |
) |
|
|
|
(130,540 |
) |
Investments in real estate, net |
|
$ |
|
4,681,786 |
|
|
$ |
|