Attached files
| file | filename |
|---|---|
| EX-99.7 - EX-99.7 UNAUDITED PRO FORMA FINANCIAL INFO OF CCI AS OF 3.31.21 & 12.31.20 - Cottonwood Communities, Inc. | proforma-fullycombinedx033.htm |
| EX-99.6 - EX-99.6 FINANCIAL STATEMENTS OF CMRII 3.31.21 (UNAUDITED) - Cottonwood Communities, Inc. | cmriifinancialstatements-3.htm |
| EX-99.5 - EX-99.5 FINANCIAL STATEMENTS OF CMRI 3.31.21 (UNAUDITED) - Cottonwood Communities, Inc. | cmrifinancialstatements-33.htm |
| EX-99.3 - EX-99.3 FINANCIAL STATEMENTS OF CMRII 12/31/20 (AUDITED) - Cottonwood Communities, Inc. | cmrii20inancialstatementsa.htm |
| EX-99.2 - EX-99.2 FINANCIAL STATEMENTS OF CMRI 12.31.20 (AUDITED) - Cottonwood Communities, Inc. | cmri20inancialstatementsau.htm |
| EX-99.1 - EX-99.1 FINANCIAL STATEMENTS OF CRII 12.31.20 (AUDITED) - Cottonwood Communities, Inc. | crii20inancialstatementsau.htm |
| 8-K/A - 8-K/A - Cottonwood Communities, Inc. | cciaauditedfsinterimfsprof.htm |
Exhibit 99.4
| Index to Condensed Consolidated Financial Statements | |||||
| Condensed Consolidated Financial Statements | |||||
| Condensed Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020 (Audited) | |||||
| Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (Unaudited) | |||||
| Condensed Consolidated Statements of Equity for the Three Months Ended March 31, 2021 and 2020 (Unaudited) | |||||
| Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (Unaudited) | |||||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | |||||
1
| Cottonwood Residential II, Inc. | |||||||||||
| Condensed Consolidated Balance Sheets | |||||||||||
(Amounts in Thousands, Except Share Data) | |||||||||||
| March 31, 2021 | December 31, 2020 | ||||||||||
| Assets | (unaudited) | ||||||||||
| Real estate assets, net | $ | 842,613 | $ | 823,569 | |||||||
| Investments in unconsolidated real estate entities | 40,532 | 44,723 | |||||||||
| Cash and cash equivalents | 29,484 | 36,359 | |||||||||
| Restricted cash | 20,195 | 20,643 | |||||||||
| Related party notes | 9,927 | 9,177 | |||||||||
| Related party receivables | 874 | 1,187 | |||||||||
| Other assets | 34,587 | 36,163 | |||||||||
| Total assets | $ | 978,212 | $ | 971,821 | |||||||
| Liabilities, Equity, and Noncontrolling Interests | |||||||||||
| Liabilities | |||||||||||
| Mortgage notes, net | $ | 628,023 | $ | 628,042 | |||||||
| Construction loans, net | 56,509 | 50,007 | |||||||||
| Preferred stock, net | 143,952 | 143,532 | |||||||||
| Unsecured promissory notes, net | 46,861 | 46,642 | |||||||||
| Accounts payable and accrued liabilities | 34,879 | 34,582 | |||||||||
| Total liabilities | 910,224 | 902,805 | |||||||||
Commitments and contingencies (Note 10) | |||||||||||
| Equity and noncontrolling Interests | |||||||||||
| Stockholders’ equity | |||||||||||
| Common stock, $0.01 par value per share; 1,000,000,000 shares authorized, 213,484 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 2 | 2 | |||||||||
| Additional paid-in capital | 3,554 | 3,554 | |||||||||
| Cumulative distributions | (428) | (380) | |||||||||
| Accumulated deficit | (2,107) | (1,897) | |||||||||
| Total stockholders’ equity | 1,021 | 1,279 | |||||||||
| Noncontrolling interests | |||||||||||
| Limited partners | (76,685) | (70,856) | |||||||||
| Partially owned entities | 143,652 | 138,593 | |||||||||
| Total noncontrolling interests | 66,967 | 67,737 | |||||||||
| Total equity and noncontrolling interests | 67,988 | 69,016 | |||||||||
| Total liabilities, equity and noncontrolling interests | $ | 978,212 | $ | 971,821 | |||||||
| See accompanying notes. | |||||||||||
2
| Cottonwood Residential II, Inc. | |||||||||||
| Condensed Consolidated Statements of Operations | |||||||||||
(Amounts in Thousands) | |||||||||||
(Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Revenues | |||||||||||
| Rental and other property revenues | $ | 21,605 | $ | 21,614 | |||||||
| Property management and development | 3,198 | 3,507 | |||||||||
| Advisory services | 1,534 | 1,002 | |||||||||
| Total revenues | 26,337 | 26,123 | |||||||||
| Operating expenses | |||||||||||
| Property operations | 8,299 | 8,201 | |||||||||
| Property management | 3,309 | 3,820 | |||||||||
| Depreciation and amortization | 8,259 | 8,112 | |||||||||
| General and administrative | 4,598 | 3,690 | |||||||||
| Total operating expenses | 24,465 | 23,823 | |||||||||
| Income from operations | 1,872 | 2,300 | |||||||||
| Equity in earnings of unconsolidated real estate entities | 146 | 254 | |||||||||
| Interest income | 2,157 | 585 | |||||||||
| Interest expense | (8,432) | (10,907) | |||||||||
| Gain from distribution in excess of investment in unconsolidated real estate entity | 2,689 | — | |||||||||
| Gain on sale of unconsolidated real estate assets | — | (1,059) | |||||||||
| Other income (expenses), net | (1,836) | (160) | |||||||||
| Loss before income taxes | (3,404) | (8,987) | |||||||||
| Income tax benefit (loss) | (341) | — | |||||||||
| Net loss | (3,745) | (8,987) | |||||||||
| Net loss attributable to noncontrolling interests: | |||||||||||
| Limited partners | 3,110 | 7,755 | |||||||||
| Partially owned entities | 425 | 840 | |||||||||
| Net loss attributable to common stockholders | $ | (210) | $ | (392) | |||||||
| See accompanying notes. | |||||||||||
3
| Cottonwood Residential II, Inc. | ||||||||||||||||||||||||||||||||
| Condensed Consolidated Statements of Equity | ||||||||||||||||||||||||||||||||
| For the Three Months Ended March 31, 2021 and 2020 | ||||||||||||||||||||||||||||||||
| (Amounts in Thousands, Except Share Data) | ||||||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||||||
| Cottonwood Residential II, Inc. Stockholders’ Equity | Noncontrolling Interests | |||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In-Capital | Cumulative Distributions | Accumulated Deficit | Total Stockholders' Equity | Limited Partners | Partially Owned Entities | Total Equity and Noncontrolling Interests | |||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 213,484 | $ | 2 | $ | 3,554 | $ | (380) | $ | (1,897) | $ | 1,279 | $ | (70,856) | $ | 138,593 | $ | 69,016 | |||||||||||||||
| Development contributions from noncontrolling interests | — | — | — | — | — | — | — | 6,789 | 6,789 | |||||||||||||||||||||||
| Repurchase of OP Units | — | — | — | — | — | — | (250) | — | (250) | |||||||||||||||||||||||
| Share based compensation | — | — | — | — | — | — | 879 | — | 879 | |||||||||||||||||||||||
| Net loss | — | — | — | — | (210) | (210) | (3,110) | (425) | (3,745) | |||||||||||||||||||||||
| Distributions | — | — | — | (48) | — | (48) | (3,348) | (1,305) | (4,701) | |||||||||||||||||||||||
| Balance at March 31, 2021 | 213,484 | $ | 2 | $ | 3,554 | $ | (428) | $ | (2,107) | $ | 1,021 | $ | (76,685) | $ | 143,652 | $ | 67,988 | |||||||||||||||
| Cottonwood Residential II, Inc. Stockholders’ Equity | Noncontrolling Interests | |||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In-Capital | Cumulative Distributions | Accumulated Deficit | Total Stockholders' Equity | Limited Partners | Partially Owned Entities | Total Equity and Noncontrolling Interests | |||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 297,650 | $ | 3 | $ | 5,355 | $ | (166) | $ | (930) | $ | 4,262 | $ | (35,634) | $ | 118,444 | $ | 87,072 | |||||||||||||||
| Development contributions from noncontrolling interests | — | — | — | — | — | — | — | 5,206 | 5,206 | |||||||||||||||||||||||
| Repurchase of OP Units | — | — | — | — | — | — | (281) | — | (281) | |||||||||||||||||||||||
| Share based compensation | — | — | — | — | — | — | 745 | — | 745 | |||||||||||||||||||||||
| Other | — | — | (13) | — | — | (13) | 193 | — | 180 | |||||||||||||||||||||||
| Net loss | — | — | — | — | (392) | (392) | (7,755) | (840) | (8,987) | |||||||||||||||||||||||
| Distributions | — | — | — | (66) | — | (66) | (3,366) | (2,307) | (5,739) | |||||||||||||||||||||||
| Balance at March 31, 2020 | 297,650 | $ | 3 | $ | 5,342 | $ | (232) | $ | (1,322) | $ | 3,791 | $ | (46,098) | $ | 120,503 | $ | 78,196 | |||||||||||||||
| See accompanying notes. | ||||||||||||||||||||||||||||||||
4
| Cottonwood Residential II, Inc. | |||||||||||
| Condensed Consolidated Statements of Cash Flows | |||||||||||
| (Amounts in Thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Operating activities | |||||||||||
| Net loss | $ | (3,745) | $ | (8,987) | |||||||
| Adjustments to reconcile net loss to cash provided by operating activities: | |||||||||||
| Depreciation and amortization | 8,259 | 8,112 | |||||||||
| Amortization of deferred financing costs | 852 | 1,668 | |||||||||
| Share based compensation | 879 | 745 | |||||||||
| Equity in earnings of unconsolidated real estate entities | (146) | (254) | |||||||||
| Distributions from unconsolidated real estate entities - return on capital | 4,337 | 773 | |||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Other assets | 247 | 1,330 | |||||||||
| Accounts payable, accrued and other liabilities | 294 | (2,166) | |||||||||
| Net cash provided by operating activities | 10,977 | 1,221 | |||||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures and development activities | (25,846) | (5,010) | |||||||||
| Contributions to developments from noncontrolling interests | 6,789 | 5,206 | |||||||||
| Investment in unconsolidated real estate entities | — | (28) | |||||||||
| Related party receivables | 286 | (792) | |||||||||
| Related party notes | (750) | (705) | |||||||||
| Issuance of deficiency notes | — | (5,747) | |||||||||
| Sponsored offering costs | (36) | (1,493) | |||||||||
| Other investing activities | (67) | 1 | |||||||||
| Net cash used in investing activities | (19,624) | (8,568) | |||||||||
5
| Cottonwood Residential II, Inc. | |||||||||||
| Condensed Consolidated Statements of Cash Flows (continued) | |||||||||||
| (Amounts in Thousands) | |||||||||||
| (Unaudited) | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Cash flows from financing activities | |||||||||||
| Principal payments on mortgage notes | (231) | (238) | |||||||||
| Proceeds from mortgage notes and construction loans, net of issuance costs | 6,504 | 64,735 | |||||||||
| Repayment of mortgage notes | — | (39,996) | |||||||||
| Loss on debt extinguishment | — | 412 | |||||||||
| Redemption of preferred stock | — | (433) | |||||||||
| Issuance of unsecured promissory notes, net of issuance costs | — | 945 | |||||||||
| Repurchase of OP Units | (250) | (281) | |||||||||
| Distributions to common stockholders | (48) | (66) | |||||||||
| Distributions to noncontrolling interest holders | (4,649) | (5,665) | |||||||||
| Other financing activities | (3) | 177 | |||||||||
| Net cash provided by financing activities | 1,323 | 19,590 | |||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (7,324) | 12,243 | |||||||||
Cash, cash equivalents, and restricted cash at the beginning of period (1) (2) | 57,003 | 52,695 | |||||||||
| Cash, cash equivalents, and restricted cash at the end of period | $ | 49,679 | $ | 64,938 | |||||||
| Reconciliation of cash, cash equivalents and restricted cash to the consolidated balance sheets: | |||||||||||
| Cash and cash equivalents | $ | 29,484 | $ | 54,687 | |||||||
| Restricted cash | 20,195 | 10,251 | |||||||||
| Total cash, cash equivalents and restricted cash | $ | 49,679 | $ | 64,938 | |||||||
(1) As of January 1, 2021, our cash and cash equivalents balance was $36,359 and our restricted cash balance was $20,644. | |||||||||||
(2) As of January 1, 2020, our cash and cash equivalents balance was $44,568 and our restricted cash balance was $8,127. | |||||||||||
| See accompanying notes. | |||||||||||
6
Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements
(Amounts in Thousands, Except Property, Share and Unit Data)
March 31, 2021
1. Organization and Business
Cottonwood Residential II, Inc. (“CRII”) is a Maryland real estate investment trust (“REIT”) dedicated to acquiring, developing, managing and investing in multifamily apartment properties located throughout the United States. Cottonwood Residential O.P., L.P. is our Operating Partnership and together with its subsidiaries holds the Company's real estate interests and conducts the ongoing operations of the Company. CRII is the general partner, and owns interests in, our Operating Partnership. As used herein, the term “Company”, “we”, “our” or “us” includes CRII, our Operating Partnership and its subsidiaries, unless the context indicates otherwise.
At March 31, 2021, we held controlling and noncontrolling investments in 28 multifamily apartment properties representing approximately 8,200 apartment units and managed 20 properties for third parties, bringing the total number of properties which we owned interests in or managed to 48, representing approximately 14,000 units located in 13 states. This number includes structured investment interests in two properties as well as investments in four development projects.
We perform advisory services for Cottonwood Multifamily REIT I, Inc. ("CMRI"), Cottonwood Multifamily REIT II, Inc. ("CMRII") and Cottonwood Communities, Inc. ("CCI"). These are separate sponsored real estate programs that we have joint ventured with and have small ownership interests in. We own 50.005% of Cottonwood Communities Advisors, LLC (the "Advisor"), with the remaining being owned by our senior executives. We also invested $2,000 of promotional interests in CMRI, CMRII and CCI in an entity and receive a 5% cumulative but not compounded return on this contribution. Executives are entitled to receive a percentage membership interest in this entity should certain performance thresholds be met. In such case, our percentage interest will be reduced.
2. Basis of Presentation and Principles of Consolidation
We are a private company. The interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and, with few exceptions, prepared in a similar manner to those of public companies subject to the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial information. These interim condensed consolidated financial statements, including the notes thereto, are unaudited and exclude some of the disclosures required in audited financial statements. The consolidated balance sheet as of December 31, 2020 has been derived from our audited financial statements as of that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the period ending December 31, 2020. The interim condensed consolidated financial statements have not been reviewed by our independent auditors.
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments and eliminations, consisting only of normal recurring adjustments necessary for a fair presentation in conformity with GAAP.
Merger with CCI
In March 2021, the holders of Common Limited OP Units voted in favor of merging CRII with CCI (the "CRII Company Merger") and our Operating Partnership with Cottonwood Communities's Operating Partnership ("CCOP") (the “CROP Merger,” and together with the CRII Company Merger, the "CRII Merger") in a stock-for-stock and unit-for-unit transaction. The exchange ratio was 2.015 of CCI shares and units for one of ours. As a result of these mergers, the separate existence of CRII and CCOP will cease and our Operating Partnership will survive as the new operating partnership of CCI. The CRII Merger closed on May 7, 2021 and is further described in Note 11.
As a result, much of the historical information regarding our structure and agreements presented in this Note 2 and throughout the rest of these notes to the condensed consolidated financial statements has materially changed as a result of the CRII Merger, but did apply as of March 31, 2021.
7
Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
Revenue Recognition
We lease our multifamily residential units with rents generally due on a monthly basis. Terms are one year or less, renewable upon consent of both parties on an annual or monthly basis. Rental and other property revenues is recognized in accordance with Accounting Standards Codification ("ASC") No. 842, Leases ("Topic 842"). Rental and other property revenues represented approximately 82% of our total revenue for the three months ended March 31, 2021.
Our non-lease related revenue consists of income earned from our property management, development, and advisory services. Property management and development revenue is derived primarily from our property management services, development and construction work, and internet services. Advisory services revenue is derived from services provided to our sponsored REITs and based on a percent of gross asset value, as defined in the advisory services agreements.
Non-lease revenues are recognized in accordance with Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers ("Topic 606") ("ASU 2014-09"), as subsequently amended. We adopted this standard on January 1, 2020 using the modified retrospective approach. The guidance requires that revenue (outside of the scope of Topic 842) is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements or our accounting policies and did not result in an opening adjustment to retained earnings.
Leases
On January 1, 2020, we adopted Topic 842 using the modified retrospective transition approach. This standard established new principles, presentation and disclosure requirements for lease accounting for both the lessee and lessor. Under the new standard, lessors generally account for leases in a similar manner as previous lease accounting guidance. Lessees recognize a lease obligation liability and a right-of-use asset for all leases with terms of more than twelve months, and record lease expense in a similar manner to past practice.
The adoption of the new lease standard did not result in a significant change in the accounting for our rental revenues. We have elected the practical expedient to account for separate lease and non-lease components as a single lease component and report as one line item, “Rental and other property revenues”.
3. Real Estate Assets
The following table summarizes the carrying amounts of our consolidated real estate assets:
| March 31, 2021 | December 31, 2020 | ||||||||||
Land | $ | 121,029 | $ | 121,029 | |||||||
Construction in progress (1) | 193,838 | 168,835 | |||||||||
Depreciable property: | |||||||||||
Buildings and improvement | 624,671 | 624,671 | |||||||||
Furniture, fixtures, and equipment | 30,957 | 30,116 | |||||||||
Intangible assets | 17,976 | 17,976 | |||||||||
| 988,471 | 962,627 | ||||||||||
Less: Accumulated depreciation and amortization | (145,858) | (139,058) | |||||||||
Real estate assets, net | $ | 842,613 | $ | 823,569 | |||||||
(1) Includes construction in progress for our development projects and capitalized costs for improvements not yet placed in service at our stabilized properties. | |||||||||||
8
Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
4. Investments in Unconsolidated Real Estate Entities
Stabilized Properties
Our equity method investments consisted of the following:
| Property | % Owned | March 31, 2021 | December 31, 2020 | |||||||||||
| Stabilized Assets | ||||||||||||||
| 3800 Main | 50.0% | $ | 5,918 | $ | 6,152 | |||||||||
| Cottonwood Bayview | 71.0% | 20,821 | 21,127 | |||||||||||
| Cottonwood Ridgeview | 90.5% | 3,043 | 3,086 | |||||||||||
| Fox Point | 52.8% | 5,519 | 5,428 | |||||||||||
| Toscana at Valley Ridge | 58.6% | — | 3,689 | |||||||||||
| Development Project | ||||||||||||||
| Melrose Phase II | 4,175 | 4,175 | ||||||||||||
| Other | 1,056 | 1,066 | ||||||||||||
| Total | $ | 40,532 | $ | 44,723 | ||||||||||
Toscana at Valley Ridge was refinanced on February 1, 2021. We recognized a $2,689 gain on the condensed consolidated statement of operations related to the amount of distributions received from the refinance that exceeded the equity method balance for that property.
Other Projects and Investments
For the three months ended March 31, 2021, we had equity method investments a development project and other real estate related investments. These investments have various capital commitments, promotes and preferred returns as outlined in their respective governing documents.
5. Transactions with Related Parties
Related Party Notes
Our Operating Partnership has outstanding notes to senior executives. These notes were created under an executive compensation plan whereby the Operating Partnership could lend money to senior executives so they could purchase interests in Cottonwood Communities Advisor. The loans cover the senior executives' equity investment and additional capital commitments, if necessary, for their acquired interests. Half of the loans are nonrecourse and secured by the executive’s interest in the respective entity, the other half are recourse and secured by certain collateral. Nonrecourse loans cannot exceed 50% of the applicable executive’s investment in the applicable entity. The nonrecourse loans and recourse loans bear interest at a rate of 5.75% and 4.75%, respectively.
The Advisor has also issued a $2,000 unsecured revolving note to CMRI and a $2,600 unsecured revolving note to CMRII that bear interest of 6% per annum and mature on June 30, 2021. Effective January 1, 2021, the Advisor assigned these notes to CROP. These sponsored REITs may draw on this note as needs required.
The following table summarized the related party notes as described above:
| Lender | Debtor | Investment Type | March 31, 2021 | ||||||||
| Operating Partnership | Senior Executives | Cottonwood Communities Advisor | $ | 6,457 | |||||||
| Operating Partnership | Cottonwood Multifamily REIT I, Inc. | Sponsored REIT | 1,465 | ||||||||
| Operating Partnership | Cottonwood Multifamily REIT II, Inc. | Sponsored REIT | 2,005 | ||||||||
| $ | 9,927 | ||||||||||
9
Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
Related Party Receivables
As of March 31, 2021, we had receivables of $874 from entities for which we sponsor, manage or have an affiliation with. These receivables are generally short term in nature and cover operating and other obligations on behalf of these entities.
Other Transactions with Related Parties
We own a de minimis number of shares in CMRI, CMRII, CCI and Cottonwood Multifamily Opportunity Fund. We receive asset management fees from these funds. We received $1,534 and $1,002 of asset management fees from these funds for the three months ended March 31, 2021 and 2020, respectively.
6. Debt
Mortgage Notes
Our mortgage notes are summarized as follows:
| March 31, 2021 | December 31, 2020 | ||||||||||
Fixed rate mortgage notes | $ | 193,032 | $ | 193,032 | |||||||
Variable rate mortgage notes | 440,813 | 440,813 | |||||||||
| Total mortgage notes | 633,845 | 633,845 | |||||||||
Debt financing costs | (5,822) | (5,803) | |||||||||
| Mortgage notes, net | $ | 628,023 | $ | 628,042 | |||||||
Each mortgage note is collateralized or cross-collateralized by real estate. The mortgage notes outstanding at March 31, 2021 mature at various dates from 2022 through 2030, with a weighted average remaining term of approximately 6.1 years. The weighted average interest rate of our fixed rate mortgage notes was 4.03% at March 31, 2021 and December 31, 2020, respectively. The weighted average interest rate of our variable rate mortgage notes was 2.83% and 2.57% at March 31, 2021 and December 31, 2020, respectively.
Principal payments on mortgage notes for years subsequent to March 31, 2021 are as follows:
Year | Total | ||||
| 2021 | $ | 1,371 | |||
| 2022 | 17,187 | ||||
| 2023 | 83,465 | ||||
| 2024 | 140,383 | ||||
| 2025 | 4,135 | ||||
Thereafter | 387,304 | ||||
| $ | 633,845 | ||||
10
Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
Construction Loans, Net
In 2020, we began drawing on construction loan facilities for two development projects. Information on those construction loans are as follows:
| Amount Drawn as of | ||||||||||||||||||||
| Development | Interest Rate | Final Expiration Date | Loan Amount | March 31, 2021 | December 31, 2020 | |||||||||||||||
| Sugarmont | 3.50% | October 1, 2022 | $ | 63,250 | $ | 41,646 | $ | 41,646 | ||||||||||||
| Park Ave | Daily Libor + 1.9% | May 15, 2023 | 37,000 | 12,009 | 8,361 | |||||||||||||||
| Broadway | Daily Libor + 1.9% | May 15, 2024 | 44,625 | 2,854 | — | |||||||||||||||
| $ | 144,875 | $ | 56,509 | $ | 50,007 | |||||||||||||||
Unsecured Promissory Notes, Net
Our Operating Partnership has issued notes to foreign investors outside of the United States. These notes are unsecured and subordinate to all debt of the Operating Partnership. Each note has two 1-year extension options during which the interest rate will increase 0.25% each additional period.
Information on the foreign notes are as follows:
| Offering Size | Interest Rate | Maturity Date | March 31, 2021 | December 31, 2020 | ||||||||||||||||
| 2017 6.25% Notes | $ | 5,000 | 6.25% | December 31, 2021 | $ | 5,000 | $ | 5,000 | ||||||||||||
| 2017 6% Notes | 35,000 | 6.00% | December 31, 2022 | 20,918 | 20,918 | |||||||||||||||
| 2019 6% Notes | 25,000 | 6.00% | December 31, 2023 | 22,725 | 22,725 | |||||||||||||||
| Unamortized debt financing costs | (1,782) | (2,001) | ||||||||||||||||||
| $ | 65,000 | $ | 46,861 | $ | 46,642 | |||||||||||||||
7. Preferred Stock
Our Series 2016 Preferred Stock and Series 2017 Preferred Stock receive a fixed preferred dividend based on a cumulative, but not compounded, annual return, have a fixed redemption date and are classified as liabilities on the consolidated balance sheets. We have the option to extend redemption of the Series 2016 Preferred Stock for one year and the Series 2017 Preferred Stock for two 1-year extension periods, all subject to an increase in the preferred dividend rate. We can also redeem the preferred stock early for cash plus all accrued and unpaid dividends. Dividends to preferred stockholders are classified as interest expense on the consolidated statement of operations.
Information on our preferred stock is as follows:
| Shares Outstanding at | |||||||||||||||||
| Dividend Rate | Extension Dividend Rate | Redemption Date | March 31, 2021 | December 31, 2020 | |||||||||||||
| Series 2016 Preferred Stock | 6.5% | 7.0% | January 31, 2022 | 14,149,943 | 14,149,943 | ||||||||||||
| Series 2017 Preferred Stock | 7.5% | 8.0% | January 31, 2022 | 258,550 | 258,550 | ||||||||||||
Series 2016 Preferred Stock and Series 2017 Preferred Stock have priority over common stock. Series 2016 Preferred Stock has a priority that is equal to Series 2017 Preferred Stock, except with respect to the earlier redemption date.
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Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
8. Stockholders' Equity
The Company's authorized and outstanding shares are summarized below:
| Shares Outstanding at | ||||||||||||||
| Class | Shares Authorized | March 31, 2021 | December 31, 2020 | |||||||||||
| Common Stock Total | 1,100,000,000 | 213,484 | 213,484 | |||||||||||
| Voting Common Stock | 50 | 50 | 50 | |||||||||||
| Non-Voting Common Stock | 2,000,000 | 213,434 | 213,434 | |||||||||||
The 50 shares of voting common stock are indirectly owned by senior executives of the Company.
9. Noncontrolling Interests
Noncontrolling Interests - Limited Partners
Common Limited OP Units and LTIP Units are Operating Partnership units not owned by CRII and collectively referred to as “Noncontrolling Interests – Limited Partners” on the consolidated balance sheets and consolidated statement of operations.
Common Limited OP Units - Common Limited OP Units share in the profits, losses and cash distributions of the Operating Partnership as defined in the partnership agreement, subject to certain special allocations.
LTIP Units - Certain executives and key employees receive Time-Based LTIP Unit Awards (“Time Awards”) and Performance-Based LTIP Unit Awards (“Performance Awards”), together “LTIP Units”, as a form of share based compensation. LTIP Units are partnership interests in the Operating Partnership constituting profits interests and have no voting rights in the Company.
Vesting of Time Awards is based on continued service. Vesting of Performance Awards is based on internal rate of return hurdles over a specified period. Time Awards receive the same distributions on a per unit basis as holders of OP Units. During the performance period the Performance Awards receive 10% of distributions on a per unit basis as holders of OP Units. At the end of the performance period additional LTIP Units are issued to cover unpaid distributions on actual LTIP Units earned.
Vested awards that receive the requisite allocation of book income through the operation of tax rules automatically convert into OP Units on a one-for-one basis and may in turn be converted into shares of Common Stock of CRII upon certain events.
As of March 31, 2021, there were 409,567 unvested Time Awards and 365,193 unvested Performance Awards outstanding. Share based compensation was $879 and $745 for the three months ended March 31, 2021 and 2020, respectively.
Noncontrolling Interests - Partially Owned Entities
As of March 31, 2021, noncontrolling interests in partially owned entities held ownership interests in entities ranging from 1% to 91%, with the average being 50%.
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Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
10. Commitments and Contingencies
Legal Proceedings
We are subject to a variety of legal actions for personal injury, property damage, or other matters arising in the ordinary course of its business, most of which are covered by liability insurance. Various claims of employment and resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, we believe the final outcome of such legal proceedings and claims will not have a material adverse effect on our liquidity, financial position or results of operations.
Environmental
As an owner of real estate, we are subject to various federal, state and local environmental laws. Compliance with existing laws has not had a material adverse effect on us. However, we cannot predict the impact of new or changed laws or regulations on our properties or on properties that we may acquire in the future.
11. Subsequent Events
We had the following activity subsequent to March 31, 2021:
Merger with CCI and Cottonwood Communities O.P., LP
On May 7, 2021, we merged with CCI (the "CRII Company Merger"), and our Operating Partnership merged with Cottonwood Communities Operating Partnership (“CCOP”) (the “CROP Merger,” and together with the CRII Company Merger, the "CRII Merger") through a stock-for-stock and unit-for-unit transaction provided for pursuant to an Agreement and Plan of Merger dated January 26, 2021 by and among CRII and our Operating Partnership, CCI, CCOP, and Cottonwood Communities GP Subsidiary, LLC ("Merger Sub").
At the effective time of the CRII Merger, each issued and outstanding share of our common stock (the “CRII Common Stock”) converted into 2.015 shares of shares of CCI Class A common stock, each issued and outstanding share of our Series 2016 preferred stock converted into one share of CCI's newly designated Series 2016 preferred stock, and each issued and outstanding share of our Series 2017 preferred stock converted into one share of CCI's newly designated Series 2017 preferred stock.
At the effective time of the CROP Merger, each participating partnership unit of our Operating Partnership (i.e., all partnership units other than preferred units) issued and outstanding immediately prior to the CROP Merger split into 2.015 participating partnership units (the “CROP Unit Split”), whereupon (i) each issued and outstanding Series 2019 preferred unit of CCOP ("CCOP Series 2019 Preferred Stock") converted into one Series 2019 preferred unit of our Operating Partnership, the terms of which mirrored the CCOP Series 2019 Preferred Stock, (ii) each issued and outstanding LTIP Unit of CCOP (the “CCOP LTIP Units”) was converted into the right to receive one LTIP Unit of our Operating Partnership, the terms and conditions of which mirrored the CCOP LTIP Units, (iii) each issued and outstanding Special LTIP Unit of CCOP (the “CCOP Special LTIP Units”) converted into the right to receive one Special LTIP Unit of our Operating Partnership, the terms and conditions of which mirrored the CCOP Special LTIP Units, and (iv) except as set forth above, each issued and outstanding general partner unit of CCOP and CCOP Common Unit converted into the right to receive one common limited partner unit of our Operating Partnership (“CROP Common Unit”). After giving effect to the CROP Unit Split, each of our Operating Partnership's Common Units, general partner units and LTIP units issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding, and each of our Operating Partnership's preferred units issued and outstanding immediately prior to the effective time of the CROP Merger remained outstanding and continues to be held by the Merger Sub.
Upon consummation of the CRII Merger, the separate existence of CRII and CCOP ceased. The CRII Merger was intended to qualify as a “reorganization” under, and within the meaning of, Section 368(a) of the Internal Revenue Code of 1986, as amended.
Sale of Timber Ridge
On April 13, 2021, Timber Ridge was sold for $33,350. We received proceeds of $4,434 related to our investment in the property.
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Cottonwood Residential II, Inc.
Notes to Condensed Consolidated Financial Statements - (Continued)
(Amounts in Thousands, Except Property, Share and Unit Data)
Sugarmont
Sugarmont is a development in Salt Lake City, UT that we invested in through a joint venture (the "Sugarmont JV") with a third-party developer (the "Sugarmont JV Partner"). The project commenced in July 2016. Due to continued delays, Sugarmont JV terminated the initial general contractor and engaged a replacement general contractor in 2019.
On April 19, 2021, we entered into a settlement agreement and release (the "Settlement Agreement") with the Sugarmont JV Partner where we acquired all but one percent of the Sugarmont JV Partner's interest in the project for $4,950. The one percent interest owned by the Sugarmont JV Partner retained limited rights, including the right to control on behalf of Sugarmont JV the prosecution and resolutions of all litigation, claims, or causes of action that Sugarmont JV has or may have against certain third parties associated with the design and construction of Sugarmont ("Third-Party Claims"), as well as the obligation to defend any cross-claims resulting from these actions ("Third-Party Cross Claims"). The Sugarmont JV Partner will be responsible for payment of all upfront legal costs and expenses but will be reimbursed to the extent there are sufficient proceeds recovered through the pursuit of the Third-Party Claims. Proceeds from any settlement of these claims will be split 70% to the Sugarmont JV Partner and 30% to us, after the payment of Third-Party Cross Claims, legal fees and other expenses as outlined in the Settlement Agreement. As a result of the settlement, all lawsuits and disputes between us and the Sugarmont JV Partner were settled and we were confirmed as the sole manager of Sugarmont JV. We have the right to purchase the Sugarmont JV Partner's remaining one percent interest upon the settlement or final resolution of all Third-Party Claims or Third-Party Cross Claims.
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