NXRT 10-Q Quarterly Report March 31, 2021

NEXPOINT RESIDENTIAL TRUST, INC.

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2025
10-Q	Quarter ended June 30, 2025
10-Q	Quarter ended March 31, 2025
10-K	Fiscal year ended Dec. 31, 2024
10-Q	Quarter ended Sept. 30, 2024
10-Q	Quarter ended June 30, 2024
10-Q	Quarter ended March 31, 2024
10-K	Fiscal year ended Dec. 31, 2023
10-Q	Quarter ended Sept. 30, 2023
10-Q	Quarter ended June 30, 2023
10-Q	Quarter ended March 31, 2023
10-K	Fiscal year ended Dec. 31, 2022
10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015

PROXIES

DEF 14A	Filed on May 20, 2025
DEF 14A	Filed on April 7, 2025
DEF 14A	Filed on May 7, 2024
DEF 14A	Filed on April 11, 2024
DEF 14A	Filed on April 11, 2023
DEF 14A	Filed on May 10, 2022
DEF 14A	Filed on April 8, 2022
DEF 14A	Filed on April 9, 2021
DEF 14A	Filed on April 10, 2020
DEF 14A	Filed on April 10, 2019
DEF 14A	Filed on April 11, 2018
DEF 14A	Filed on April 24, 2017
DEF 14A	Filed on April 29, 2016

10-Q

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


☐	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 001-36663

NexPoint Residential Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland

47-1881359

(State or other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

300 Crescent Court , Suite 700 , Dallas , Texas

(Address of Principal Executive Offices)

75201

(Zip Code)

( 972 ) 628-4100

(Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NXRT	New York Stock Exchange

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, a 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	☐	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 Exchange Act). Yes ☐ No ☒

As of April 29, 2021 , the registrant had 25,127,141 shares of its common stock, par value $0.01 per share, outstanding.

NEXPOINT RESIDENTIAL TRUST, INC.

Form 10-Q

Quarter Ended March 31, 2021

INDEX


			Page
Cautionary Statement Regarding Forward-Looking Statements			iii

	PART I—FINANCIAL INFORMATION

Item 1.		Financial Statements
		Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020	1
		Consolidated Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2021 and 20 20	2
		Consolidated Unaudited Statements of Stockholders’ Equity for the Three Months Ended March 31, 2021 and 2020	3
		Consolidated Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2021 and 20 20	4
		Notes to Consolidated Unaudited Financial Statements	6
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.		Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.		Controls and Procedures	45

	PART II—OTHER INFORMATION

Item 1.		Legal Proceedings	46
Item 1A.		Risk Factors	46
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3.		Defaults Upon Senior Securities	46
Item 4.		Mine Safety Disclosures	46
Item 5.		Other Information	46
Item 6.		Exhibits	47
Signatures			48

Cautionary Statement Regardin g Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are subject to risks and uncertainties. In particular, statements relating to our liquidity and capital resources, the performance of our properties and results of operations contain forward-looking statements. Furthermore, all of the statements regarding future financial performance (including market conditions and demographics) are forward-looking statements. We caution investors that any forward-looking statements presented in this quarterly report are based on management’s current beliefs and assumptions made by, and information currently available to, management. When used, the words “anticipate,” “believe,” “expect,” “intend,” “may,” “might,” “plan,” “estimate,” “project,” “should,” “will,” “would,” “result” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

Forward-looking statements are subject to risks, uncertainties and assumptions and may be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. We caution you therefore against relying on any of these forward-looking statements.

Some of the risks and uncertainties that may cause our actual results, performance, liquidity or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following:



unfavorable changes in market and economic conditions in the United States and globally and in the specific markets where our properties are located;



risks associated with the current COVID-19 pandemic and the future outbreak of other highly infectious or contagious diseases;



risks associated with ownership of real estate;



limited ability to dispose of assets because of the relative illiquidity of real estate investments;



our multifamily properties are concentrated in certain geographic markets in the Southeastern and Southwestern United States, which makes us more susceptible to adverse developments in those markets;



increased risks associated with our strategy of acquiring value-enhancement multifamily properties rather than more conservative investment strategies;



potential reforms to the Federal Home Loan Mortgage Corporation (“Freddie Mac”) and the Federal National Mortgage Association;



competition could limit our ability to acquire attractive investment opportunities, which could adversely affect our profitability and impede our growth;



competition and any increased affordability of residential homes could limit our ability to lease our apartments or increase or maintain rents;



the relatively low residential mortgage rates may result in potential renters purchasing residences rather than leasing them, and as a result, cause a decline in our occupancy rates;



the risk that we may fail to consummate future property acquisitions;



failure of acquisitions to yield anticipated results;



risks associated with increases in interest rates and our ability to issue additional debt or equity securities in the future;



risks associated with selling apartment communities, which could limit our operational and financial flexibility;



contingent or unknown liabilities related to properties or businesses that we have acquired or may acquire;



lack of or insufficient amounts of insurance;



the risk that our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient;



high costs associated with the investigation or remediation of environmental contamination, including asbestos, lead-based paint, chemical vapor, subsurface contamination and mold growth;



high costs associated with the compliance with various accessibility, environmental, building and health and safety laws and regulations, such as the Americans with Disabilities Act of 1990 and the Fair Housing Act;



risks associated with limited warranties we may obtain when purchasing properties;



exposure to decreases in market rents due to our short-term leases;



risks associated with operating through joint ventures and funds;



our dependence on information systems;



risks associated with breaches of our data security;



costs associated with being a public company, including compliance with securities laws;



the risk that our business could be adversely impacted if there are deficiencies in our disclosure controls and procedures or internal control over financial reporting;



risks associated with our substantial current indebtedness and indebtedness we may incur in the future;



risks associated with derivatives or hedging activity;



loss of key personnel of NexPoint Advisors, L.P. (our “Sponsor”), NexPoint Real Estate Advisors, L.P. (our “Adviser”) and our property manager;



the risk that we may not replicate the historical results achieved by other entities managed or sponsored by affiliates of our Adviser, members of our Adviser’s management team or by our Sponsor or its affiliates;



risks associated with our Adviser’s ability to terminate the Advisory Agreement (as defined below);



our ability to change our major policies, operations and targeted investments without stockholder consent;



the substantial fees and expenses we pay to our Adviser and its affiliates;



risks associated with any potential internalization of our management functions;



conflicts of interest and competing demands for time faced by our Adviser, our Sponsor and their officers and employees;



the risk that we may compete with other entities affiliated with our Sponsor or property manager for properties and tenants;



failure to maintain our status as a REIT;



failure of our operating partnership to be taxable as a partnership for federal income tax purposes, possibly causing us to fail to qualify for or to maintain REIT status;



compliance with REIT requirements, which may limit our ability to hedge our liabilities effectively and cause us to forgo otherwise attractive opportunities, liquidate certain of our investments or incur tax liabilities;



risks associated with our ownership of interests in taxable REIT subsidiaries;



the recognition of taxable gains from the sale of properties as a result of the inability to complete certain like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended (the “Code”);



the risk that the Internal Revenue Service (the “IRS”) may consider certain sales of properties to be prohibited transactions, resulting in a 100% penalty tax on any taxable gain;



the ineligibility of dividends payable by REITs for the reduced tax rates available for some dividends;



risks associated with the stock ownership restrictions of the Code for REITs and the stock ownership limit imposed by our charter;



the ability of our board of directors to revoke our REIT qualification without stockholder approval;



recent and potential legislative or regulatory tax changes or other actions affecting REITs;



risks associated with the market for our common stock and the general volatility of the capital and credit markets;



failure to generate sufficient cash flows to service our outstanding indebtedness or pay distributions at expected levels;



risks associated with limitations of liability for and our indemnification of our directors and officers;



any other risks included under Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 22, 2021 or under Part II, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. They are based on estimates and assumptions only as of the date of this quarterly report. We undertake no obligation to update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDA TED BALANCE SHEETS

(in thousands, except share and per share amounts)


	March 31, 2021			December 31, 2020
	(Unaudited)
ASSETS
Operating Real Estate Investments
Land	$	323,429		$	323,429
Buildings and improvements		1,546,465			1,544,115
Intangible lease assets		1,675			1,675
Construction in progress		11,975			10,796
Furniture, fixtures, and equipment		100,377			96,228
Total Gross Operating Real Estate Investments		1,983,921			1,976,243
Accumulated depreciation and amortization		( 235,669	)		( 215,494	)
Total Net Operating Real Estate Investments		1,748,252			1,760,749
Cash and cash equivalents		22,706			24,457
Restricted cash		29,925			32,558
Accounts receivable, net		7,757			9,045
Prepaid and other assets		1,578			2,405
TOTAL ASSETS	$	1,810,218		$	1,829,214

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable, net	$	1,162,969		$	1,162,855
Credit facility, net		182,531			182,323
Accounts payable and other accrued liabilities		11,022			10,058
Accrued real estate taxes payable		7,876			12,822
Accrued interest payable		2,240			2,274
Security deposit liability		2,670			2,688
Prepaid rents		1,844			1,639
Fair market value of interest rate swaps		12,198			43,530
Total Liabilities		1,383,350			1,418,189

Redeemable noncontrolling interests in the Operating Partnership		3,375			3,098

Stockholders' Equity:
Preferred stock, $ 0.01 par value: 100,000,000 shares authorized; 0 shares issued		—			—
Common stock, $ 0.01 par value: 500,000,000 shares authorized; 25,127,141 and 25,016,957 shares issued and outstanding, respectively		251			250
Additional paid-in capital		376,897			376,710
Accumulated earnings less dividends		59,451			75,321
Accumulated other comprehensive loss		( 13,106	)		( 44,354	)
Total Stockholders' Equity		423,493			407,927
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	1,810,218		$	1,829,214

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED ST ATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share amounts)

(Unaudited)


	For the Three Months Ended March 31,
	2021			2020
Revenues
Rental income	$	50,340		$	51,115
Other income		1,456			1,467
Total revenues		51,796			52,582
Expenses
Property operating expenses		11,216			11,721
Real estate taxes and insurance		8,722			8,023
Property management fees (1)		1,485			1,550
Advisory and administrative fees (2)		1,868			1,865
Corporate general and administrative expenses		2,940			2,701
Property general and administrative expenses		1,559			1,832
Depreciation and amortization		20,758			23,338
Total expenses		48,548			51,030
Operating income before gain on sales of real estate		3,248			1,552
Gain on sales of real estate		—			38,972
Operating income		3,248			40,524
Interest expense		( 10,616	)		( 11,662	)
Loss on extinguishment of debt and modification costs		—			( 874	)
Casualty gains		—			51
Miscellaneous income		468			—
Net income (loss)		( 6,900	)		28,039
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		( 21	)		84
Net income (loss) attributable to common stockholders	$	( 6,879	)	$	27,955
Other comprehensive income (loss)
Unrealized gains (losses) on interest rate derivatives		31,342			( 50,540	)
Total comprehensive income (loss)		24,442			( 22,501	)
Comprehensive income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		73			( 68	)
Comprehensive income (loss) attributable to common stockholders	$	24,369		$	( 22,433	)

Weighted average common shares outstanding - basic		25,068			25,388
Weighted average common shares outstanding - diluted		25,068			25,851

Earnings (loss) per share - basic	$	( 0.27	)	$	1.10
Earnings (loss) per share - diluted	$	( 0.27	)	$	1.08

(1)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the Company’s Operating Partnership (see Note 10).

(2)

Fees incurred to the Adviser (see Note 11).

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in thousands)

(Unaudited)


	Preferred Stock				Common Stock				Additional			Accumulated Earnings (Loss)			Accumulated Other
	Number of Shares		Par Value		Number of Shares		Par Value		Paid-in Capital			Less Dividends			Comprehensive Income (Loss)			Total
Balances, December 31, 2020		—	$	—		25,016,957	$	250	$	376,710		$	75,321		$	( 44,354	)	$	407,927
Net loss attributable to common stockholders		—		—		—		—		—			( 6,879	)		—			( 6,879	)
Vesting of stock-based compensation		—		—		110,184		1		363			—			—			364
Issuance of common shares through at-the-market offering		—		—		—		—		( 176	)		—			—			( 176	)
Common stock dividends declared ($ 0.34125 per share)		—		—		—		—		—			( 8,776	)		—			( 8,776	)
Other comprehensive income		—		—		—		—		—			—			31,248			31,248
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—		—		—			( 215	)		—			( 215	)
Balances, March 31, 2021		—	$	—		25,127,141	$	251	$	376,897		$	59,451		$	( 13,106	)	$	423,493


	Preferred Stock				Common Stock						Additional			Accumulated Earnings (Loss)			Accumulated Other			Common Stock Held in
	Number of Shares		Par Value		Number of Shares			Par Value			Paid-in Capital			Less Dividends			Comprehensive Income (Loss)			Treasury at Cost			Total
Balances, December 31, 2019		—	$	—		25,245,740		$	251		$	359,748		$	63,776		$	2,466		$	—		$	426,241
Net income attributable to common stockholders		—		—		—			—			—			27,955			—			—			27,955
Repurchase of common stock		—		—		—			—			—			—			—			( 30,999	)		( 30,999	)
Retirement of common stock held in treasury		—		—		( 225,799	)		( 2	)		( 7,546	)		—			—			7,548			—
Vesting of stock-based compensation		—		—		137,608			1			( 433	)		—			—			—			( 432	)
Issuance of common shares through at-the-market offering		—		—		560,000			6			27,174			—			—			—			27,180
Common stock dividends declared ($ 0.3125 per share)		—		—		—			—			—			( 8,206	)		—			—			( 8,206	)
Other comprehensive loss		—		—		—			—			—			—			( 50,388	)		—			( 50,388	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in the Operating Partnership		—		—		—			—			—			820			—			—			820
Balances, March 31, 2020		—	$	—		25,717,549		$	256		$	378,943		$	84,345		$	( 47,922	)		( 23,451	)	$	392,171

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED ST ATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


		For the Three Months Ended March 31,
		2021			2020
Cash flows from operating activities
Net income (loss)		$	( 6,900	)	$	28,039
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on sales of real estate			—			( 38,972	)
Depreciation and amortization			20,758			23,338
Amortization/write-off of deferred financing costs			571			1,207
Change in fair value on derivative instruments included in interest expense			3,663			( 648	)
Net cash received (paid) on derivative settlements			( 3,618	)		737
Interest payable on derivative instruments			—			( 62	)
Amortization/write-off of fair market value adjustment of assumed debt			( 51	)		( 51	)
Provision for bad debts, net			734			—
Vesting of stock-based compensation			1,608			1,300
Insurance proceeds received for business interruption			121			—
Casualty gains			( 468	)		( 51	)
Changes in operating assets and liabilities, net of effects of acquisitions:
Operating assets			578			791
Operating liabilities			( 3,252	)		( 4,210	)
Net cash provided by operating activities			13,744			11,418

Cash flows from investing activities
Net proceeds from sales of real estate			—			85,418
Prepaid acquisition costs			—			( 2,025	)
Insurance premiums paid for casualty losses			—			( 549	)
Insurance proceeds received from casualty losses			3,178			3,049
Additions to real estate investments			( 10,765	)		( 13,604	)
Net cash provided by (used in) investing activities			( 7,587	)		72,289

Cash flows from financing activities
Mortgage payments			( 198	)		( 41,845	)
Credit facilities proceeds received			—			35,000
Credit facilities payments			—			( 28,000	)
Prepayment penalties on extinguished debt			—			( 416	)
Proceeds from the issuance of common shares through at-the-market offering, net of offering costs	(1)		( 176	)		27,180
Payments for taxes related to net share settlement of stock-based compensation			( 1,244	)		( 1,732	)
Repurchase of common stock			—			( 30,999	)
Dividends paid to common stockholders			( 8,923	)		( 8,496	)
Net cash used in financing activities			( 10,541	)		( 49,308	)

Net increase (decrease) in cash, cash equivalents and restricted cash			( 4,384	)		34,399
Cash, cash equivalents and restricted cash, beginning of period			57,015			71,182
Cash, cash equivalents and restricted cash, end of period		$	52,631		$	105,581

(1)

For the three months ended March 31, 2021, no common shares were issued, but the Company incurred offering costs in connection with the at-the-market offering.

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)


Supplemental Disclosure of Cash Flow Information
Interest paid	$	6,489		$	9,176
Supplemental Disclosure of Noncash Activities
Capitalized construction costs included in accounts payable and other accrued liabilities		2,237			1,542
Change in fair value on derivative instruments designated as hedges		31,342			( 5,665	)
Other assets acquired from acquisitions		—			87
Liabilities assumed from acquisitions		—			271
Increase in dividends payable upon vesting of restricted stock units		( 147	)		( 290	)
Write-off of assets due to casualty losses		2,028			—
Write-off of fully amortized in-place leases		—			8,203
Write-off of deferred financing costs		—			455

See Notes to Consolidated Financial Statements

NEXPOINT RESIDENTIAL TRUST, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Description of Business

NexPoint Residential Trust, Inc. (the “Company”, “we”, “our”) was incorporated in Maryland on September 19, 2014 , and has elected to be taxed as a real estate investment trust (“REIT”). The Company is focused on “value-add” multifamily investments primarily located in the Southeastern and Southwestern United States. Substantially all of the Company’s business is conducted through NexPoint Residential Trust Operating Partnership, L.P. (the “OP”), the Company’s operating partnership. The Company owns its properties (the “Portfolio”) through the OP and its wholly owned taxable REIT subsidiary (“TRS”). The OP owns approximately 99.9 % of the Portfolio; the TRS owns approximately 0.1 % of the Portfolio. The Company’s wholly owned subsidiary, NexPoint Residential Trust Operating Partnership GP, LLC (the “OP GP”), is the sole general partner of the OP. As of March 31, 2021, there were 23,819,402 common units in the OP (“OP Units”) outstanding, of which 23,746,169 , or 99.7 % , were owned by the Company and 73,233 , or 0.3 % , were owned by a noncontrolling limited partner (see Note 10).

The Company is externally managed by NexPoint Real Estate Advisors, L.P. (the “Adviser”), through an agreement dated March 16, 2015, as amended, and renewed on February 15, 2021 for a one-year term (the “Advisory Agreement”), by and among the Company, the OP and the Adviser. The Adviser conducts substantially all of the Company’s operations and provides asset management services for its real estate investments. The Company expects it will only have accounting employees while the Advisory Agreement is in effect. All of the Company’s investment decisions are made by the Adviser, subject to general oversight by the Adviser’s investment committee and the Company’s board of directors (the “Board”). The Adviser is wholly owned by NexPoint Advisors, L.P. (the “Sponsor”).

The Company’s investment objectives are to maximize the cash flow and value of properties owned, acquire properties with cash flow growth potential, provide quarterly cash distributions and achieve long-term capital appreciation for its stockholders through targeted management and a value-add program. Consistent with the Company’s policy to acquire assets for both income and capital gain, the Company intends to hold at least majority interests in its properties for long-term appreciation and to engage in the business of directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities primarily in the Southeastern and Southwestern United States consistent with its investment objectives. Economic and market conditions may influence the Company to hold properties for different periods of time. From time to time, the Company may sell a property if, among other deciding factors, the sale would be in the best interest of its stockholders.

The Company may allocate up to 30 % of the Portfolio to investments in real estate-related debt and securities with the potential for high current income or total returns. These allocations may include first and second mortgages and subordinated, bridge, mezzanine, construction and other loans, as well as debt securities related to or secured by multifamily real estate and common and preferred equity securities, which may include securities of other REITs or real estate companies.

2. Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the dates of the unaudited consolidated financial statements and the amounts of revenues and expenses during the reporting periods. Actual amounts realized or paid could differ from those estimates. All significant intercompany accounts and transactions have been eliminated in consolidation. There have been no significant changes to the Company’s significant accounting policies during the three months ended March 31, 2021.

The accompanying unaudited consolidated financial statements have been prepared according to the rules and regulations of the SEC. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted according to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.

In the opinion of management, all adjustments and eliminations necessary for the fair presentation of the Company’s financial position as of March 31, 2021 and December 31, 2020 and results of operations for the three months ended March 31, 2021 and 2020 have been included. Such adjustments are normal and recurring in nature. The unaudited information included in this quarterly report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2020 and notes thereto included in its Annual Report on Form 10-K filed with the SEC on February 22, 2021 .

Principles of Consolidation

The Company accounts for subsidiary partnerships, joint ventures and other similar entities in which it holds an ownership interest in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation . The Company first evaluates whether each entity is a variable interest entity (“VIE”). Under the VIE model, the Company consolidates an entity when it has control to direct the activities of the VIE and the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. Under the voting model, the Company consolidates an entity when it controls the entity through ownership of a majority voting interest. The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries, including the OP and its subsidiaries.

Revenue Recognition

The Company’s primary operations consist of rental income earned from its residents under lease agreements typically with terms of one year or less. Rental income is recognized when earned. This policy effectively results in income recognition on the straight-line method over the related terms of the leases. The Company records an allowance to reflect revenue that may not be collectible. This is recorded through a provision for bad debts which is included in rental income in the accompanying consolidated statements of operations and comprehensive income (loss). Resident reimbursements and other income consist of charges billed to residents for utilities, carport and garage rental, and pets, administrative, application and other fees and are recognized when earned. The Company implemented the provisions of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) as of January 1, 2019 using the modified retrospective approach. The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements as a substantial portion of its revenue consists of rental income from leasing arrangements, which is specifically excluded from ASU 2014-09.

In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which supersedes the current accounting for leases and while retaining two distinct types of leases, finance and operating, (1) requires lessees to record a right of use asset and a related liability for the rights and obligations associated with a lease, regardless of lease classification, and recognize lease expense in a manner similar to current accounting, (2) eliminates most real estate specific lease provisions and (3) aligns many of the underlying lessor model principles with those in the new revenue standard. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. Entities are required to use a modified retrospective approach when transitioning to the ASU for leases that exist as of or are entered into after the beginning of the earliest comparative period presented in the financial statements. As lessors, substantially all of the Company’s agreements have a term of 12 months or less. For lessors, accounting for leases under the new standard is substantially the same as existing guidance for sales-type leases, direct financing leases, and operating leases, but eliminates current real estate specific provisions and changes the treatment of initial direct costs.

In April 2020, the FASB issued a Staff Q&A on accounting for leases during the COVID-19 pandemic, focused on the application of lease guidance in ASC 842, Leases. The Q&A states that some lease contracts may contain explicit or implicit enforceable rights and obligations that require lease concessions if certain circumstances arise that are beyond the control of the parties to the contract. Therefore, entities would need to perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to lease concessions. The FASB determined it would be acceptable for entities to not perform a lease-by-lease analysis regarding rent concessions resulting from COVID-19, and to instead make a policy election regarding rent concessions, which would give entities the option to account or not to account for these rent concessions as lease modifications if the total payments required by the modified contract are substantially the same or less than the total payments required by the original contract. Entities making the election to account for these rent concessions as lease modifications would recognize the effects of rent abatements and rent deferrals on a prospective straight-line basis over the remainder of the modified contract. We have made the election to not perform a lease-by-lease analysis to determine whether contractual provisions in an existing lease agreement provide enforceable rights and obligations related to payment plans. By electing the FASB relief, we have also made an accounting policy election to not account for rent deferrals provided to lessees due to the COVID-19 pandemic as lease modifications. Lessees are required to pay the full outstanding balance of the rent deferred over the period of the payment plan.

Purchase Price Allocation

Upon acquisition of a property, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.

The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (“ASC 820”) (see Note 7), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. The allocation of the total consideration to intangible lease assets represents the value associated with the in-place leases, which may include lost rent, leasing commissions, legal and other related costs, which the Company, as buyer of the property, did not have to incur to obtain the residents. If any debt is assumed in an

acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.

Real estate assets, including land, buildings, improvements, furniture, fixtures and equipment, and intangible lease assets are stated at historical cost less accumulated depreciation and amortization. Costs incurred in making repairs and maintaining real estate assets are expensed as incurred. Expenditures for improvements, renovations, and replacements are capitalized at cost. Real estate-related depreciation and amortization are computed on a straight-line basis over the estimated useful lives as described in the following table:


Land		Not depreciated
Buildings		30 years
Improvements		15 years
Furniture, fixtures, and equipment		3 years
Intangible lease assets		6 months

Construction in progress includes the cost of renovation projects being performed at the various properties. Once a project is complete, the historical cost of the renovation is placed into service in one of the categories above depending on the type of renovation project and is depreciated over the estimated useful lives as described in the table above.

Impairment

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment.

As of March 31, 2021, the Company has not recorded any impairment on its real estate assets. However, we continue to monitor the impact of COVID-19 (see “–Coronavirus (“COVID-19”)” for additional information, below).

Held for Sale

The Company periodically classifies real estate assets as held for sale when certain criteria are met, in accordance with GAAP. At that time, the Company presents the net real estate assets and the net debt associated with the real estate held for sale separately in its consolidated balance sheet, and the Company ceases recording depreciation and amortization expense related to that property. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell. As of March 31, 2021 , there are no properties held for sale.

Income Taxes

The Company has elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), and expects to continue to qualify as a REIT. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90 % of its “REIT taxable income,” as defined by the Code, to its stockholders. As a REIT, the Company will be subject to federal income tax on its undistributed REIT taxable income and net capital gain and to a 4 % nondeductible excise tax on any amount by which distributions it pays with respect to any calendar year are less than the sum of (1) 85 % of its ordinary income, (2) 95 % of its capital gain net income and (3) 100 % of its undistributed income from prior years. The Company intends to operate in such a manner so as to qualify as a REIT, but no assurance can be given that the Company will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company had no significant taxes associated with its TRS for the three months ended March 31, 2021 and 2020.

If the Company fails to meet these requirements, it could be subject to federal income tax on all of the Company’s taxable income at regular corporate rates for that year. The Company would not be able to deduct distributions paid to stockholders in any year in which it fails to qualify as a REIT. Additionally, the Company will also be disqualified from electing to be taxed as a REIT for the four taxable years following the year during which qualification was lost unless the Company is entitled to relief under specific statutory provisions. As of March 31, 2021, the Company believes it is in compliance with all applicable REIT requirements.

The Company evaluates the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of

being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. The Company’s management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. The Company has no examinations in progress and none are expected at this time.

The Company recognizes its tax positions and evaluates them using a two-step process. First, the Company determines whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, the Company will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

The Company had no material unrecognized tax benefit or expense, accrued interest or penalties as of March 31, 2021. The Company and its subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2020, 2019 and 2018 tax years remain open to examination by tax jurisdictions to which the Company and its subsidiaries are subject. When applicable, the Company recognizes interest and/or penalties related to uncertain tax positions on its consolidated statements of operations and comprehensive income (loss).

Recent Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2021, the Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company will continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

Coronavirus (“COVID-19”)

As a result of the COVID-19 pandemic, the Company may experience difficulties collecting monthly rent on time, leasing additional apartment units and/or renewing leases with existing tenants, selling or purchasing properties and accessing debt and equity capital on attractive terms, or at all. To date, the Company has not been materially impacted by the COVID-19 pandemic and will continue to monitor the impact of the COVID-19 pandemic on all aspects of its business. As of March 31, 2021, 3,257 residents were on payment plans due to the COVID-19 pandemic for a total of approximately $ 4.7 million in rent. For additional information regarding the risks to the Company related to the COVID-19 pandemic, or any other future pandemic, see Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2020.

3. Investments in Subsidiaries

The Company conducts its operations through the OP, which owns the properties through single asset limited liability companies that are special purpose entities (“SPEs”). The Company consolidates the SPEs that it controls as well as any VIEs where it is the primary beneficiary. In connection with its indirect equity investments in the properties acquired, the Company, through the OP and the TRS, directly or indirectly holds 100 % of the membership interests in SPEs that directly own the properties. All of the properties the SPEs own are consolidated in the Company’s consolidated financial statements. The assets of each entity can only be used to settle obligations of that particular entity, and the creditors of each entity have no recourse to the assets of other entities or the Company.

Additionally, the Company has in the past and may in the future enter into purchase and sale transactions structured as reverse like-kind exchanges (“1031 Exchanges”) under Section 1031 of the Code. For a reverse 1031 Exchange in which the Company purchases a new property prior to selling the property to be matched in the like-kind exchange (the Company refers to the new property being acquired in the 1031 Exchange prior to the sale of the related property as a “Parked Asset”), legal title to the Parked Asset is held by an Exchange Accommodation Titleholder (“EAT”) engaged to execute the 1031 Exchange until the sale transaction and the 1031 Exchange are completed. The Company, through a wholly owned subsidiary, enters into a master lease agreement with the EAT whereby the EAT leases the acquired property and all other rights acquired in connection with the acquisition to the Company. The term of the master lease agreement is the earlier of the completion of the reverse 1031 Exchange or 180 days from the date that the property was acquired. The EAT is classified as a VIE as it does not have sufficient equity investment at risk to finance its activities without additional subordinated financial support. The Company consolidates the EAT as its primary beneficiary because it has the ability to control the activities that most significantly impact the EAT’s economic performance and the Company retains all of the legal and economic benefits and obligations related to the Parked Assets prior to completion of the 1031 Exchange. As such, the Parked Assets are included in the Company’s consolidated financial statements as VIEs until legal title is transferred to the Company upon either completion of the 1031 Exchange or termination of the master lease agreement, at which time they will be consolidated as wholly owned subsidiaries.

As of March 31, 2021, the Company, through the OP and the wholly owned TRS, owned 37 properties through SPEs. The following table represents the Company’s ownership in each property by virtue of its 100 % ownership of the SPEs that directly own the title to each property as of March 31, 2021 and December 31, 2020:


				Effective Ownership Percentage at
Property Name		Location	Year Acquired	March 31, 2021			December 31, 2020
Arbors on Forest Ridge		Bedford, Texas	2014		100	%		100	%
Cutter's Point		Richardson, Texas	2014		100	%		100	%
Silverbrook		Grand Prairie, Texas	2014		100	%		100	%
Beechwood Terrace		Antioch, Tennessee	2014		100	%		100	%
The Summit at Sabal Park		Tampa, Florida	2014		100	%		100	%
Courtney Cove		Tampa, Florida	2014		100	%		100	%
Radbourne Lake		Charlotte, North Carolina	2014		100	%		100	%
Timber Creek		Charlotte, North Carolina	2014		100	%		100	%
Sabal Palm at Lake Buena Vista		Orlando, Florida	2014		100	%		100	%
Cornerstone		Orlando, Florida	2015		100	%		100	%
The Preserve at Terrell Mill		Marietta, Georgia	2015		100	%		100	%
Versailles		Dallas, Texas	2015		100	%		100	%
Seasons 704 Apartments		West Palm Beach, Florida	2015		100	%		100	%
Madera Point		Mesa, Arizona	2015		100	%		100	%
Venue at 8651		Fort Worth, Texas	2015		100	%		100	%
Parc500		West Palm Beach, Florida	2016		100	%		100	%
The Venue on Camelback	(1)	Phoenix, Arizona	2016		100	%		100	%
Old Farm		Houston, Texas	2016		100	%		100	%
Stone Creek at Old Farm		Houston, Texas	2016		100	%		100	%
Hollister Place		Houston, Texas	2017		100	%		100	%
Rockledge Apartments		Marietta, Georgia	2017		100	%		100	%
Atera Apartments		Dallas, Texas	2017		100	%		100	%
Cedar Pointe		Antioch, Tennessee	2018		100	%		100	%
Crestmont Reserve		Dallas, Texas	2018		100	%		100	%
Brandywine I & II		Nashville, Tennessee	2018		100	%		100	%
Bella Vista		Phoenix, Arizona	2019		100	%		100	%
The Enclave		Tempe, Arizona	2019		100	%		100	%
The Heritage		Phoenix, Arizona	2019		100	%		100	%
Summers Landing		Fort Worth, Texas	2019		100	%		100	%
Residences at Glenview Reserve		Nashville, Tennessee	2019		100	%		100	%
Residences at West Place		Orlando, Florida	2019		100	%		100	%
Avant at Pembroke Pines		Pembroke Pines, Florida	2019		100	%		100	%
Arbors of Brentwood		Nashville, Tennessee	2019		100	%		100	%
Torreyana Apartments	(2)	Las Vegas, Nevada	2019		100	%		100	%
Bloom	(2)	Las Vegas, Nevada	2019		100	%		100	%
Bella Solara	(2)	Las Vegas, Nevada	2019		100	%		100	%
Fairways at San Marcos		Chandler, AZ	2020		100	%		100	%

(1)

Formerly known as The Colonnade.

(2)

The EAT that directly owned Torreyana, Bloom and Bella Solara was consolidated as a VIE at December 31, 2019. The master lease agreement with the EAT that directly owned these properties terminated on March 31, 2020, at which time legal title transferred to the Company. Upon transfer of the title, the EAT that directly owned these properties was no longer considered a VIE.

4. Real Estate Investments Statistics

As of March 31, 2021, the Company was invested in a total of 37 multifamily properties, as listed below:


						Average Effective Monthly Rent Per Unit (1) as of				% Occupied (2) as of
Property Name	Rentable Square Footage (in thousands)		Number of Units (3)		Date Acquired	March 31, 2021		December 31, 2020		March 31, 2021			December 31, 2020
Arbors on Forest Ridge		155		210	1/31/2014	$	919	$	917		94.3	%		94.3	%
Cutter's Point		198		196	1/31/2014		1,140		1,112		100.0	%		95.0	%
Silverbrook		526		642	1/31/2014		937		926		95.5	%		94.9	%
Beechwood Terrace		272		300	7/21/2014		957		947		93.3	%		95.7	%
The Summit at Sabal Park		205		252	8/20/2014		1,034		1,033		95.6	%		96.0	%
Courtney Cove		225		324	8/20/2014		957		946		95.7	%		93.5	%
Radbourne Lake		247		225	9/30/2014		1,116		1,137		95.6	%		89.8	%
Timber Creek		248		352	9/30/2014		949		949		97.0	%		97.6	%
Sabal Palm at Lake Buena Vista		371		400	11/5/2014		1,231		1,259		94.5	%		95.0	%
Cornerstone		318		430	1/15/2015		1,036		1,056		95.3	%		91.2	%
The Preserve at Terrell Mill		692		752	2/6/2015		1,011		1,006		94.9	%		95.6	%
Versailles		301		388	2/26/2015		924		925		93.8	%		94.3	%
Seasons 704 Apartments		217		222	4/15/2015		1,231		1,209		96.8	%		98.6	%
Madera Point		193		256	8/5/2015		982		980		97.7	%		93.8	%
Venue at 8651		289		333	10/30/2015		919		933		95.5	%		99.7	%
Parc500		266		217	7/27/2016		1,347		1,340		98.6	%		97.7	%
The Venue on Camelback		256		415	10/11/2016		813		821		95.4	%		93.7	%
Old Farm		697		734	12/29/2016		1,135		1,133		93.3	%		92.1	%
Stone Creek at Old Farm		186		190	12/29/2016		1,174		1,194		97.3	%		94.6	%
Hollister Place		246		260	2/1/2017		1,025		1,007		96.2	%		100.9	%
Rockledge Apartments		802		708	6/30/2017		1,264		1,261		96.5	%		95.5	%
Atera Apartments		334		380	10/25/2017		1,234		1,247		97.7	%		98.9	%
Cedar Pointe		224		210	8/24/2018		1,082		1,075		92.9	%		96.2	%
Crestmont Reserve		199		242	9/26/2018		899		895		94.6	%		98.8	%
Brandywine I & II		414		632	9/26/2018		946		960		94.1	%		94.3	%
Bella Vista		243		248	1/28/2019		1,326		1,320		97.6	%		95.6	%
The Enclave		194		204	1/28/2019		1,349		1,355		97.1	%		97.5	%
The Heritage		199		204	1/28/2019		1,306		1,298		96.6	%		94.1	%
Summers Landing		139		196	6/7/2019		944		941		98.0	%		95.9	%
Residences at Glenview Reserve		344		360	7/17/2019		986		993		95.0	%		92.8	%
Residences at West Place		345		342	7/17/2019		1,205		1,214		93.6	%		90.1	%
Avant at Pembroke Pines		1,442		1520	8/30/2019		1,524		1,515		95.9	%		94.4	%
Arbors of Brentwood		325		346	9/10/2019		1,184		1,194		95.1	%		91.3	%
Torreyana Apartments		309		315	11/22/2019		1,195		1,184		96.2	%		93.0	%
Bloom		498		528	11/22/2019		1,142		1,120		88.8	%		94.1	%
Bella Solara		271		320	11/22/2019		1,130		1,128		97.2	%		91.6	%
Fairways at San Marcos		340		352	11/2/2020		1,268		1,232		95.2	%		96.0	%
		12,730		14,205

(1)

Average effective monthly rent per unit is equal to the average of the contractual rent for commenced leases as of March 31, 2021 and December 31, 2020, respectively, minus any tenant concessions over the term of the lease, divided by the number of units under commenced leases as of March 31, 2021 and December 31, 2020 , respectively.

(2)

Percent occupied is calculated as the number of units occupied as of March 31, 2021 and December 31, 2020 , divided by the total number of units, expressed as a percentage.

(3)

Includes 229 down units due to casualty events as of March 31, 2021 (see Note 5).

5. Real Estate Investments

As of March 31, 2021, the major components of the Company’s investments in multifamily properties were as follows (in thousands):


Operating Properties	Land		Buildings and Improvements			Intangible Lease Assets			Construction in Progress		Furniture, Fixtures and Equipment			Totals
Arbors on Forest Ridge	$	2,330	$	11,683		$	—		$	6	$	1,685		$	15,704
Cutter's Point		3,330		8,186			—			7,266		2,046			20,828
Silverbrook		4,860		27,283			—			5		5,124			37,272
Beechwood Terrace		1,390		22,266			—			—		2,839			26,495
The Summit at Sabal Park		5,770		13,741			—			—		1,842			21,353
Courtney Cove		5,880		13,758			—			194		2,223			22,055
Radbourne Lake		2,440		22,657			—			—		2,190			27,287
Timber Creek		11,260		13,252			—			44		3,519			28,075
Sabal Palm at Lake Buena Vista		7,580		42,417			—			—		2,451			52,448
Cornerstone		1,500		30,787			—			2		3,440			35,729
The Preserve at Terrell Mill		10,170		50,855			—			1,696		7,779			70,500
Versailles		6,720		21,772			—			3		3,880			32,375
Seasons 704 Apartments		7,480		14,480			—			—		1,825			23,785
Madera Point		4,920		17,949			—			—		2,322			25,191
Venue at 8651		2,350		16,682			—			218		3,587			22,837
Parc500		3,860		21,006			—			11		3,896			28,773
The Venue on Camelback		8,340		38,176			—			11		2,740			49,267
Old Farm		11,078		70,794			—			36		3,506			85,414
Stone Creek at Old Farm		3,493		19,362			—			5		810			23,670
Hollister Place		2,782		21,151			—			16		2,599			26,548
Rockledge Apartments		17,451		96,983			—			169		5,457			120,060
Atera Apartments		22,371		36,700			—			401		2,198			61,670
Cedar Pointe		2,371		24,274			—			—		1,616			28,261
Crestmont Reserve		4,124		21,038			—			—		1,426			26,588
Brandywine I & II		6,237		73,633			—			—		4,295			84,165
Bella Vista		10,942		36,804			—			—		2,260			50,006
The Enclave		11,046		30,339			—			—		1,946			43,331
The Heritage		6,835		34,796			—			—		1,947			43,578
Summers Landing		1,798		18,020			—			—		695			20,513
Residences at Glenview Reserve		3,367		42,201			—			—		1,593			47,161
Residences at West Place		3,345		51,839			—			264		1,237			56,685
Avant at Pembroke Pines		48,436		275,032			—			1,157		8,897			333,522
Arbors of Brentwood		6,346		55,808			—			—		1,227			63,381
Torreyana Apartments		23,824		43,541			—			101		1,095			68,561
Bloom		23,805		82,351			—			—		1,921			108,077
Bella Solara		12,605		53,229			—			33		1,344			67,211
Fairways at San Marcos		10,993		71,620			1,675			337		920			85,545
		323,429		1,546,465			1,675			11,975		100,377			1,983,921
Accumulated depreciation and amortization		—		( 166,571	)		( 1,396	)		—		( 67,702	)		( 235,669	)
Total Operating Properties	$	323,429	$	1,379,894		$	279		$	11,975	$	32,675		$	1,748,252

As of December 31, 2020, the major components of the Company’s investments in multifamily properties were as follows (in thousands):


Operating Properties	Land		Buildings and Improvements			Intangible Lease Assets			Construction in Progress		Furniture, Fixtures and Equipment			Totals
Arbors on Forest Ridge	$	2,330	$	11,682		$	—		$	17	$	1,650		$	15,679
Cutter's Point		3,330		8,035			—			4,983		2,044			18,392
Silverbrook		4,860		27,256			—			3		5,049			37,168
Beechwood Terrace		1,390		22,233			—			32		2,791			26,446
The Summit at Sabal Park		5,770		13,749			—			—		1,813			21,332
Courtney Cove		5,880		13,713			—			114		2,165			21,872
Radbourne Lake		2,440		22,617			—			—		2,147			27,204
Timber Creek		11,260		13,245			—			42		3,473			28,020
Sabal Palm at Lake Buena Vista		7,580		42,401			—			—		2,391			52,372
Cornerstone		1,500		30,781			—			2		3,343			35,626
The Preserve at Terrell Mill		10,170		50,757			—			1,524		7,310			69,761
Versailles		6,720		21,766			—			—		3,861			32,347
Seasons 704 Apartments		7,480		14,418			—			18		1,743			23,659
Madera Point		4,920		17,926			—			—		2,273			25,119
Venue at 8651		2,350		17,473			—			106		3,531			23,460
Parc500		3,860		20,927			—			22		3,827			28,636
The Venue on Camelback		8,340		38,106			—			37		2,570			49,053
Old Farm		11,078		70,846			—			24		3,419			85,367
Stone Creek at Old Farm		3,493		19,471			—			—		792			23,756
Hollister Place		2,782		21,884			—			—		2,555			27,221
Rockledge Apartments		17,451		96,902			—			86		5,363			119,802
Atera Apartments		22,371		37,525			—			9		2,188			62,093
Cedar Pointe		2,371		24,268			—			—		1,577			28,216
Crestmont Reserve		4,124		20,955			—			19		1,411			26,509
Brandywine I & II		6,237		73,613			—			6		4,072			83,928
Bella Vista		10,942		36,787			—			—		2,110			49,839
The Enclave		11,046		30,308			—			—		1,856			43,210
The Heritage		6,835		34,761			—			—		1,793			43,389
Summers Landing		1,798		17,909			—			43		670			20,420
Residences at Glenview Reserve		3,367		42,027			—			14		1,495			46,903
Residences at West Place		3,345		51,802			—			154		1,049			56,350
Avant at Pembroke Pines		48,436		272,436			—			2,847		7,977			331,696
Arbors of Brentwood		6,346		55,777			—			21		1,118			63,262
Torreyana Apartments		23,824		43,489			—			122		1,047			68,482
Bloom		23,805		81,714			—			494		1,782			107,795
Bella Solara		12,605		53,134			—			57		1,228			67,024
Fairways at San Marcos		10,993		71,422			1,675			—		745			84,835
		323,429		1,544,115			1,675			10,796		96,228			1,976,243
Accumulated depreciation and amortization		—		( 153,063	)		( 558	)		—		( 61,873	)		( 215,494	)
Total Operating Properties	$	323,429	$	1,391,052		$	1,117		$	10,796	$	34,355		$	1,760,749

Depreciation expense was $ 19.9 million and $ 18.5 million for the three months ended March 31, 2021 and 2020, respectively.

Amortization expense related to the Company’s intangible lease assets was $ 0.8 million and $ 4.8 million for the three months ended March 31, 2021 and 2020, respectively. Amortization expense related to the Company’s intangible lease assets for all acquisitions completed through March 31, 2021 is expected to be $ 0.3 million for the remainder of the year ended December 31, 2021. Due to the six-month useful life attributable to intangible lease assets, the value of intangible lease assets on any acquisition prior to September 30, 2020 has been fully amortized and the assets and related accumulated amortization have been written off as of March 31, 2021.

Acquisitions

There were no acquisitions of real estate during the three months ended March 31, 2021 and 2020.

Dispositions

There were no dispositions of real estate during the three months ended March 31, 2021 . The Company sold three properties during the three months ended March 31, 2020 for approximately $ 86.5 million.

Cutter’s Point Casualty Losses

On October 20, 2019, as a result of a tornado, the Cutter’s Point property suffered significant property damage. The damage incurred rendered the property inoperable; therefore, the Company has ceased operations at the property as it is under reconstruction. In relation to this event, the Company wrote down the carrying value of Cutter’s Point by approximately $ 7.8 million, and, in accordance with ASC 610 Other Income , the Company recognized approximately $ 3.5 million in casualty losses on the consolidated statement of

operations and comprehensive income during the year ended December 31, 2019. Lost rental income is insured and the Company expects any operating losses resulting from the damage to be immaterial while the property undergoes reconstruction. Starting November 1, 2019, the Company began capitalizing insurance expense, real estate taxes, interest expense and debt issuance costs to construction in progress and stopped depreciation due to Cutter’s Point being under development. As of March 31, 2021, approximately $ 0.8 million of these costs have been capitalized. During the three months ended March 31, 2021, Cutter's Point recognized no casualty gains on the consolidated statements of operations and comprehensive income (loss) in relation to this event. The Company filed a business interruption insurance claim and recognized approximately $ 0.3 million for the lost rent, which is included in miscellaneous income on the consolidated statement of operations and comprehensive income (loss) for the three months ended March 31, 2021. Upon completion of Phase I of the rebuild efforts, the Company returned 60 units to service in 2020; there are 60 units occupied out of the 60 available as of March 31, 2021. The remaining 136 units are currently being rebuilt as part of Phase II of the rebuild with an expected return to service in 2021. As of March 31, 2021, Cutter's Point excluded 136 units from the Portfolio’s total unit count due to the property reconstruction which is estimated to be completed in 2021.

Venue 8651 Casualty Losses

On June 10, 2020, as a result of a fire, the Venue 8651 property suffered property damage. In relation to this event, the Company wrote down the carrying value of Venue 8651 by approximately $ 0.6 million, and, in accordance with ASC 610 Other Income , the Company recognized approximately $ 0.2 million in net casualty gains which is included in property operating expense on the consolidated statements of operations and comprehensive income (loss) during the year ended December 31, 2020. During the three months ended March 31, 2021, Venue 8651 recognized approximately $ 0.1 million in business interruption proceeds for lost rent which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss). As of March 31, 2021, Venue 8651 excluded 21 units from the Portfolio’s total unit count and all same store pools due to the property reconstruction which is estimated to be completed in 2021.

Timber Creek Casualty Losses

On November 26, 2020, as a result of a fire, the Timber Creek property suffered property damage. In relation to this event, the Company wrote down the carrying value of Timber Creek by approximately $ 0.6 million. During the three months ended March 31, 2021, Timber Creek recognized approximately $ 0.1 million in business interruption proceeds for lost rent which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss). As of March 31, 2021, Timber Creek excluded 15 units from the Portfolio’s total unit count and all same store pools due to the property reconstruction which is estimated to be completed in 2021.

Winter Storm Uri

In February of 2021, as a result of winter storm Uri, Atera, Hollister Place, Old Farm, Stone Creek, and Venue 8651 each sustained significant property damage. In relation to this event, the Company wrote down the carrying value of the impacted properties by approximately $ 2.0 million. For the three months ended March 31, 2021, approximately $ 0.1 million of business interruption for lost rent was recognized which is included in miscellaneous income on the consolidated statements of operations and comprehensive income (loss). In accordance with ASC 450 Contingencies, the Company did not recognize a gain contingency since a final settlement from insurance was not reached as of March 31, 2021. As of March 31, 2021, 57 units damaged by winter storm Uri are excluded from the Portfolio’s total unit count and all same store pools due to the properties reconstruction which are estimated to be completed in 2021.

6. Debt

Mortgage Debt

The following table contains summary information concerning the mortgage debt of the Company as of March 31, 2021 (dollars in thousands):


Operating Properties		Type	Term (months)		Outstanding Principal (1)		Interest Rate (2)	Maturity Date
Arbors on Forest Ridge	(3)	Floating		84	$	13,130	1.79 %	7/1/2024
Cutter's Point	(3)	Floating		84		16,640	1.79 %	7/1/2024
Silverbrook	(3)	Floating		84		30,590	1.79 %	7/1/2024
Beechwood Terrace	(3)	Floating		84		23,365	1.55 %	9/1/2025
The Summit at Sabal Park	(3)	Floating		84		13,560	1.73 %	7/1/2024
Courtney Cove	(3)	Floating		84		13,680	1.73 %	7/1/2024
The Preserve at Terrell Mill	(3)	Floating		84		42,480	1.73 %	7/1/2024
Versailles	(3)	Floating		84		23,880	1.73 %	7/1/2024
Seasons 704 Apartments	(3)	Floating		84		17,460	1.73 %	7/1/2024
Madera Point	(3)	Floating		84		15,150	1.73 %	7/1/2024
Venue at 8651	(3)	Floating		84		13,734	1.89 %	7/1/2024
The Venue on Camelback	(3)	Floating		84		28,093	1.79 %	7/1/2024
Old Farm	(3)	Floating		84		52,886	1.79 %	7/1/2024
Stone Creek at Old Farm	(3)	Floating		84		15,274	1.79 %	7/1/2024


Timber Creek	(3)	Floating	84		24,100			1.37 %	10/1/2025
Radbourne Lake	(3)	Floating	84		20,000			1.40 %	10/1/2025
Sabal Palm at Lake Buena Vista	(3)	Floating	84		42,100			1.41 %	9/1/2025
Cornerstone	(4)	Fixed	120		21,174			4.24 %	3/1/2023
Parc500	(5)	Fixed	120		14,878			4.49 %	8/1/2025
Hollister Place	(3)	Floating	84		14,811			1.45 %	10/1/2025
Rockledge Apartments	(3)	Floating	84		68,100			1.68 %	7/1/2024
Atera Apartments	(3)	Floating	84		29,500			1.59 %	11/1/2024
Cedar Pointe	(6)	Floating	84		17,300			1.46 %	9/1/2025
Crestmont Reserve	(3)	Floating	84		12,061			1.29 %	10/1/2025
Brandywine I & II	(3)	Floating	84		43,835			1.29 %	10/1/2025
Bella Vista	(6)	Floating	84		29,040			1.43 %	2/1/2026
The Enclave	(6)	Floating	84		25,322			1.43 %	2/1/2026
The Heritage	(6)	Floating	84		24,625			1.43 %	2/1/2026
Summers Landing	(7)	Floating	84		10,109			1.29 %	10/1/2025
Residences at Glenview Reserve	(8)	Floating	84		26,560			1.55 %	10/1/2025
Residences at West Place	(8)	Fixed	120		33,817			4.24 %	10/1/2028
Avant at Pembroke Pines	(3)	Floating	84		177,100			1.54 %	9/1/2026
Arbors of Brentwood	(3)	Floating	84		34,237			1.54 %	10/1/2026
Torreyana Apartments	(6)	Floating	84		37,400			1.81 %	12/1/2026
Bloom	(6)	Floating	84		58,850			1.81 %	12/1/2026
Bella Solara	(6)	Floating	84		36,575			1.81 %	12/1/2026
Fairways at San Marcos	(6)	Floating	84		46,464			2.14 %	12/1/2027
				$	1,167,880
Fair market value adjustment					1,211		(9)
Deferred financing costs, net of accumulated amortization of $ 4,068					( 6,122	)
				$	1,162,969

(1) Mortgage debt that is non-recourse to the Company and encumbers the multifamily properties.

(2) Interest rate is based on a reference rate plus an applicable margin, except for fixed rate mortgage debt. One-month LIBOR was 0.11113 % and 30-Day Average Secured Overnight Financing Rate (“SOFR”) was 0.01467 % as of March 31, 2021. Fairways at San Marcos utilizes 30-Day Average SOFR as its reference rate while all other properties utilize one-month LIBOR.

(3) Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00 %. Starting in the 13 th month of the term through the 81 st month of the term, the loan can be pre-paid at par plus 1.00 % of the unpaid principal balance and at par during the last three months of the term.

(4) Debt in the amount of $ 18.0 million was assumed upon acquisition of this property and recorded at approximated fair value. The assumed debt carries a 4.09 % fixed rate, was originally issued in March 2013, and had a term of 120 months with an initial 24 months of interest only. At the time of acquisition, the principal balance of the first mortgage remained unchanged and had a remaining term of 98 months with 2 months of interest only. The first mortgage is pre-payable and subject to yield maintenance from the 13 th month through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. Concurrently with the acquisition of the property, the Company placed a supplemental second mortgage on the property with a principal amount of approximately $ 5.8 million, a fixed rate of 4.70 %, and with a maturity date that is the same time as the first mortgage. The supplemental second mortgage is pre-payable and subject to yield maintenance from the date of issuance through August 31, 2022 and is pre-payable at par September 1, 2022 until maturity. As of March 31, 2021 , the total indebtedness secured by the property had a blended interest rate of 4.24 %.

(5) Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan is open to pre-payment in the last four months of the term.

(6) Loan can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00 %. Starting in the 13 th month of the term through the 81 st month of the term, the loan can be pre-paid at par plus 1.00 % of the unpaid principal balance and at par during the last three months of the term.

(7) Debt was assumed upon acquisition of this property and recorded at approximated fair value. It can be pre-paid in the first 12 months of the term in certain circumstances at par plus 5.00 %. Starting in the 13 th month of the term through the 81 st month of the term, the loan can be pre-paid at par plus 1.00 % of the unpaid principal balance and at par during the last three months of the term.

(8) Debt was assumed upon acquisition of this property and recorded at approximated fair value. The loan can be prepaid at the greater of par plus 1.00 % of the unpaid principal balance or the product obtained by multiplying the present value of the principal being prepaid by the excess of the monthly fixed interest rate of the loan over a daily discount rate. The loan is open to pre-payment in the last three months of the term.

(9) The Company reflected a valuation adjustment on its fixed rate debt for Parc500 and Residences at West Place to adjust it to fair market value on their respective dates of acquisition for the difference between the fair value and the assumed principal amount of debt. The difference is amortized into interest expense over the remaining terms of the mortgages.

The weighted average interest rate of the Company’s mortgage indebtedness was 1.79 % as of March 31, 2021 and 1.83 % as of December 31, 2020. The decrease between the periods is primarily related to a decrease in one-month LIBOR of approximately 3 basis points to 0.11113 % as of March 31, 2021 from 0.14388 % as of December 31, 2020. As of March 31, 2021, the adjusted weighted average interest rate of the Company’s mortgage indebtedness was 3.06 % . For purposes of calculating the adjusted weighted average interest rate of the outstanding mortgage indebtedness, the Company has included the weighted average fixed rate of 1.3792 % for one-month LIBOR on its combined $ 1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $ 1.2 billion of the Company’s floating rate mortgage debt (see Note 7).

Each of the Company’s mortgages is a non-recourse obligation subject to customary provisions. The loan agreements contain customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the documents evidencing the loan, defaults in payments under any other security instrument covering any part of the property, whether junior or senior to the loan, and bankruptcy or other insolvency events. As of March 31, 2021, the Company believes it is in compliance with all provisions.

Freddie Mac Multifamily Green Advantage . In order to obtain more favorable pricing on the Company’s mortgage debt financing with Freddie Mac, the Company decided to participate in Freddie Mac’s Multifamily Green Advantage program (the “Green Program”). As of March 31, 2021, the Company has completed its Green Program improvements on all but one property, which is expected to be completed in 2021. The Company expects to reduce water/sewer costs at each property where the Green Program is implemented by at least 15 % through the replacement of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, the Company is not implementing this on acquisitions going forward.

Credit Facility

The following table contains summary information concerning the Company’s credit facility as of March 31, 2021 (dollars in thousands):


	Type	Term (months)		Outstanding Principal			Interest Rate (1)	Maturity Date
Corporate Credit Facility	Floating		24	$	183,000		2.61 %	1/28/2022
Deferred financing costs, net of accumulated amortization of $ 2,146					( 469	)
				$	182,531

(1) Interest rate is based on one-month LIBOR plus an applicable margin. One-month LIBOR as of March 31, 2021 was 0.11113 % .

Corporate Credit Facility . On January 28, 2019, the Company, through the OP, entered into a $ 75.0 million credit facility (the “Corporate Credit Facility”) with Truist Bank, as administrative agent and the lenders party thereto, and immediately drew $ 52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term. The Company has the right to request an increase in the facility amount up to $ 150 million (the “Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00 % to 2.50 % , depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $ 75 million to $ 125 million. In conjunction with the increase in the facility, the Company incurred costs of $ 0.5 million in obtaining the additional financing through the Accordion Feature (see “Deferred Financing Costs” below). On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $ 25 million, resulting in incurred costs of $ 0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $ 75 million, resulting in aggregate commitments of $ 225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $ 0.8 million of deferred financing costs. As of March 31, 2020, there was $ 183.0 million in aggregate principal outstanding on the Corporate Credit Facility.

On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022 (the “Maturity Date”). During 2020, the Company repaid $ 35.0 million in principal on the Corporate Credit Facility and had sufficient cash flow to fund operations as well as close on a new acquisition (Fairways at San Marcos) in the fourth quarter of 2020. Management recognizes that finding an alternative source of funding is necessary to repay the facility by the Maturity Date. Management is evaluating multiple options to fund the repayment of the $ 183.0 million principal balance outstanding, including recasting the Corporate Credit Facility, securing additional equity or debt financing, selling a portion of the Portfolio, or any combination thereof. Management believes that there is sufficient time before the Maturity Date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

Deferred Financing Costs

The Company defers costs incurred in obtaining financing and amortizes the costs over the terms of the related loans using the straight-line method, which approximates the effective interest method. Deferred financing costs, net of amortization, are recorded as a reduction from the related debt on the Company’s consolidated balance sheets. Upon repayment of or in conjunction with a material change in the terms of the underlying debt agreement, any unamortized costs are charged to loss on extinguishment of debt and modification costs (see “Loss on Extinguishment of Debt and Modification Costs” below). For the three months ended March 31, 2021 and 2020, the Company wrote-off deferred financing costs of approximately $ 0.0 million and $ 0.5 million , respectively, which is included in loss on extinguishment of debt and modification costs on the consolidated statements of operations and comprehensive income (loss). For the three months ended March 31, 2021 and 2020, amortization of deferred financing costs of approximately $ 0.6 million and $ 0.7 million , respectively, is included in interest expense on the consolidated statements of operations and comprehensive income (loss).

Loss on Extinguishment of Debt and Modification Costs

Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs incurred on the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment.

Schedule of Debt Maturities

The aggregate scheduled maturities, including amortizing principal payments, of total debt for the next five calendar years subsequent to March 31, 2021 are as follows (in thousands):


	Operating Properties		Credit Facility		Total
2021	$	698	$	—	$	698
2022		1,502		183,000		184,502
2023		21,254		—		21,254
2024		395,085		—		395,085
2025		245,910		—		245,910
Thereafter		503,431		—		503,431
Total	$	1,167,880	$	183,000	$	1,350,880

7. Fair Value of Derivatives and Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy):



Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.



Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.



Level 3 inputs are the unobservable inputs for the asset or liability, which are typically based on an entity’s own assumption, as there is little, if any, related market activity. In instances where the determination of the fair value measurement is based on input from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The Company utilizes independent third parties to perform the allocation of value analysis for each property acquisition and to perform the market valuations on its derivative financial instruments and has established policies, as described above, processes and procedures intended to ensure that the valuation methodologies for investments and derivative financial instruments are fair and consistent as of the measurement date.

Derivative Financial Instruments and Hedging Activities

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. In order to minimize counterparty credit risk, the Company enters into and expects to enter into hedging arrangements only with major financial institutions that have high credit ratings.

The Company utilizes an independent third party to perform the market valuations on its derivative financial instruments. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair values of interest rate caps are determined using the market standard methodology of discounting the future expected cash receipts that would occur if variable interest rates rise above the strike rate of the caps. The variable interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both the Company’s own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. In adjusting the fair value of the Company’s derivative contracts for the effect of nonperformance risk, the Company has considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts and guarantees. Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with the Company’s derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has determined that the significance of the impact of the credit valuation adjustments made to its derivative contracts, which determination was based on the fair value of each individual contract, was not significant to the overall valuation. As a result, all of the Company’s derivatives held as of March 31, 2021 and December 31, 2020 were classified as Level 2 of the fair value hierarchy.

The Company’s main objective in using interest rate derivatives is to add stability to interest expense related to floating rate debt. To accomplish this objective, the Company primarily uses interest rate swaps and caps as part of its interest rate risk management strategy. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The interest rate swaps have terms ranging from four to five years . Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. The interest rate caps have terms ranging from three to four years . During the three months ended March 31, 2021 and 2020 , interest rate cap derivatives were used to hedge the variable cash flows associated with a portion of the Company’s floating rate debt. The interest rate cap agreements the Company has entered into effectively cap one-month LIBOR on $ 379.4 million of the Company’s floating rate mortgage indebtedness at a weighted average rate of 5.52 % as of March 31, 2021 .

In order to fix a portion of, and mitigate the risk associated with, the Company’s floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), the Company, through the OP, has entered into eleven interest rate swap transactions with KeyBank National Association ("KeyBank") and two with Truist Bank (the “Counterparties”) with a combined notional amount of $ 1.2 billion which are effective as of March 31, 2021 . The interest rate swaps the Company has entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.3792 % . The Company has designated these interest rate swaps as cash flow hedges of interest rate risk.

As of March 31, 2021, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk (dollars in thousands):


Effective Date	Termination Date	Counterparty	Notional Amount		Fixed Rate (1)
July 1, 2016	June 1, 2021	KeyBank	$	100,000		1.1055	%
July 1, 2016	June 1, 2021	KeyBank		100,000		1.0210	%
July 1, 2016	June 1, 2021	KeyBank		100,000		0.9000	%
September 1, 2016	June 1, 2021	KeyBank		100,000		0.9560	%
April 1, 2017	April 1, 2022	KeyBank		100,000		1.9570	%
May 1, 2017	April 1, 2022	KeyBank		50,000		1.9610	%
July 1, 2017	July 1, 2022	KeyBank		100,000		1.7820	%
June 1, 2019	June 1, 2024	KeyBank		50,000		2.0020	%
June 1, 2019	June 1, 2024	Truist		50,000		2.0020	%
September 1, 2019	September 1, 2026	KeyBank		100,000		1.4620	%
September 1, 2019	September 1, 2026	KeyBank		125,000		1.3020	%
January 3, 2020	September 1, 2026	KeyBank		92,500		1.6090	%
March 4, 2020	June 1, 2026	Truist		100,000		0.8200	%
			$	1,167,500		1.3792	%	(2)

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2021, one-month LIBOR was 0.11113 % .

(2)

Represents the weighted average fixed rate of the interest rate swaps.

As of March 31, 2021, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk with future effective dates (dollars in thousands):

Future Swaps


Effective Date	Termination Date	Counterparty	Notional Amount	Fixed Rate (1)
June 1, 2021	September 1, 2026	KeyBank	$ 200,000	0.8450 %
June 1, 2021	September 1, 2026	KeyBank	200,000	0.9530 %
March 1, 2022	March 1, 2025	Truist	145,000	0.5730 %
March 1, 2022	March 1, 2025	Truist	105,000	0.6140 %
September 1, 2026	January 1, 2027	KeyBank	92,500	1.7980 %
			$ 742,500	0.9070 %	(2)

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2021, one-month LIBOR was 0.11113 % .

(2)

Represents the weighted average fixed rate of the interest rate swaps.

Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements but either do not meet the strict requirements to apply hedge accounting in accordance with FASB ASC 815, Derivatives and Hedging , or the Company has elected not to designate such derivatives as hedges. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in net income (loss) as interest expense.

As of March 31, 2021 and 2020, the Company had the following outstanding derivatives that were not designated as hedges in qualifying hedging relationships (dollars in thousands):


As of March 31,	Number of Instruments		Notional Amount
2021		15		$	379,406
2020		15		$	346,542

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance sheets as of March 31, 2021 and December 31, 2020 (in thousands):


		Asset Derivatives				Liability Derivatives
	Balance Sheet Location	March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020
Derivatives designated as hedging instruments:
Interest rate swaps	Fair market value of interest rate swaps	$	—	$	—	$	12,198	$	43,530

Derivatives not designated as hedging instruments:
Interest rate caps	Prepaid and other assets		15		3		—		—
Total		$	15	$	3	$	12,198	$	43,530

The tables below present the effect of the Company’s derivative financial instruments on the consolidated statements of operations and comprehensive income (loss) for the three months ended March 31, 2021 and 2020 (in thousands):


	Amount of gain (loss) recognized in OCI					Location of gain (loss) reclassified from accumulated	Amount of gain (loss) reclassified from OCI into income
	2021		2020			OCI into income	2021			2020
Derivatives designated as hedging instruments:
For the three months ended March 31,
Interest rate products	$	27,679	$	( 49,931	)	Interest expense	$	( 3,663	)	$	609


	Location of gain (loss)	Amount of gain (loss) recognized in income
	recognized in income	2021		2020
Derivatives not designated as hedging instruments:
For the three months ended March 31,
Interest rate products	Interest expense	$	12	$	41

Other Financial Instruments Carried at Fair Value

Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP (see Note 10). The redemption value is based on the fair value of the Company’s common stock at the redemption date, and therefore, is calculated based on the fair value of the Company’s common stock at the balance sheet date. Since the valuation is based on observable inputs such as quoted prices for similar instruments in active markets, redeemable noncontrolling interests in the OP are classified as Level 2 if they are adjusted to their redemption value.

Financial Instruments Not Carried at Fair Value

At March 31, 2021 and December 31, 2020, the fair values of cash and cash equivalents, restricted cash, accounts receivable, prepaid and other assets, accounts payable and other accrued liabilities, accrued real estate taxes payable, accrued interest payable, security deposits and prepaid rent approximated their carrying values because of the short term nature of these instruments. The estimated fair values of other financial instruments were determined by the Company using available market information and appropriate valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company would realize on the disposition of the financial instruments. The use of different market assumptions or estimation methodologies may have a material effect on the estimated fair value amounts.

Long-term indebtedness is carried at amounts that reasonably approximate their fair value at the time they were recognized. In calculating the fair value of its long-term indebtedness, the Company used interest rate and spread assumptions that reflect current credit worthiness and market conditions available for the issuance of long-term debt with similar terms and remaining maturities. These financial instruments utilize Level 2 inputs.

The table below presents the carrying value and estimated fair value of our debt at March 31, 2021 and 2020 (in thousands):


	March 31, 2021		March 31, 2020
	Carrying Value	Estimated Fair Value	Carrying Value	Estimated Fair Value
Fixed rate debt	$ 69,869	$ 71,374	$ 70,625	$ 72,386
Floating rate debt (1)	$ 1,281,011	$ 1,317,408	$ 1,306,058	$ 1,274,224

(1)

Includes balances outstanding under our Corporate Credit Facility.

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, the Company will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. There can be no assurance that the estimates discussed herein, using Level 3 inputs, are indicative of the amounts the Company could realize on disposition of the real estate asset. For the three months ended March 31, 2021 and 2020 , the Company did no t record any impairment charges related to real estate assets.

8. Stockholders’ Equity

Common Stock

During the three months ended March 31, 2021, the Company issued 110,184 shares of common stock pursuant to its long-term incentive plan (see “Long Term Incentive Plan” below) and no shares pursuant to its at-the-market offering (see “At-the-Market Offering” below).

As of March 31, 2021, the Company had 25,127,141 shares of common stock, par value $ 0.01 per share, issued and outstanding.

Share Repurchase Program

On June 15, 2016, the Board authorized the Company to repurchase up to $ 30.0 million of its common stock, par value $ 0.01 per share, during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, the Board increased the Share Repurchase Program from $ 30.0 million to up to $ 40.0 million and extended it by an additional two years to June 15, 2020 . On March 13, 2020, the Board further increased the Share Repurchase Program from $40.0 million to up to $ 100.0 million and extended it to March 12, 2023 . The Company may utilize various methods to effect the repurchases, and the timing and extent of the repurchases will depend upon several factors, including market and business conditions, regulatory requirements and other corporate considerations, including whether the Company’s common stock is trading at a significant discount to net asset value per share. Repurchases under this program may be discontinued at any time. During the three months ended March 31, 2020, the Company repurchased 1,090,480 shares of its common stock. During the three months ended March 31, 2021 , the Company repurchased no shares of its common stock. Since the inception of the Share Repurchase Program through March 31, 2021, the Company had repurchased 2,382,155 shares of its common stock, par value $ 0.01 per share, at a total cost of approximately $ 61.2 million, or $ 25.70 per share.

Treasury Shares

From time to time, in accordance with the Company’s Share Repurchase Program, the Company may repurchase shares of its common stock in the open market. Until any such shares are retired, the cost of the shares is included in common stock held in treasury at cost on the consolidated balance sheet. The number of shares of common stock classified as treasury shares reduces the number of shares of the Company’s common stock outstanding and, accordingly, are considered in the weighted average number of shares outstanding during the period. During the three months ended March 31, 2020, the Company retired 225,799 shares of its common stock held in treasury. During the three months ended March 31, 2021, the Company retired no shares of its common stock. As of March 31, 2021 , the Company had no shares of common stock held in treasury.

Long Term Incentive Plan

On June 15, 2016, the Company’s stockholders approved a long-term incentive plan (the “2016 LTIP”) and the Company filed a registration statement on Form S-8 registering 2,100,000 shares of common stock, par value $ 0.01 per share, which the Company may issue pursuant to the 2016 LTIP. The 2016 LTIP authorizes the compensation committee of the Board to provide equity-based compensation in the form of stock options, appreciation rights, restricted shares, restricted stock units, performance shares, performance units and certain other awards denominated or payable in, or otherwise based on, the Company’s common stock or factors that may

influence the value of the Company’s common stock, plus cash incentive awards, for the purpose of providing the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries), the Company’s non-employee directors, and potentially certain non-employees who perform employee-type functions, incentives and rewards for performance.

Restricted Stock Units .

Under the 2016 LTIP, restricted stock units may be granted to the Company’s directors, officers and other key employees (and those of the Adviser and the Company’s subsidiaries) and typically vest over a three to five-year period for officers, employees and certain key employees of the Adviser and annually for directors. Beginning on the date of grant, restricted stock units earn dividends that are payable in cash on the vesting date. On August 11, 2016, pursuant to the 2016 LTIP, the Company granted 209,797 restricted stock units to its directors and officers. On March 16, 2017, pursuant to the 2016 LTIP, the Company granted 219,802 restricted stock units to its directors and officers. On February 15, 2018, pursuant to the 2016 LTIP, the Company granted 275,795 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 21, 2019, pursuant to the 2016 LTIP, the Company granted 186,662 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 20, 2020, pursuant to the 2016 LTIP, the Company granted 168,183 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On May 11, 2020, pursuant to the 2016 LTIP, the Company granted 116,852 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. On February 18, 2021, pursuant to the 2016 LTIP, the Company granted 205,119 restricted stock units to its directors, officers, employees and certain key employees of the Adviser. The following table includes the number of restricted stock units granted, vested, forfeited and outstanding as of March 31, 2021:


	2021
	Number of Units				Weighted Average Grant Date Fair Value
Outstanding January 1,		553,931			$	36.83
Granted		204,663				41.43
Vested		( 139,842	)	(1)		34.81
Forfeited		( 5,496	)			39.11
Outstanding March 31,		613,256			$	38.81

(1)

Certain key employees of the Adviser elected to net the taxes owed upon vesting against the shares issued resulting in 110,184 shares being issued as shown on the Consolidated Statement of Stockholders’ Equity.

The following table contains information regarding the vesting of restricted stock units under the 2016 LTIP for the next five calendar years subsequent to March 31, 2021:


	Shares Vesting
	February			May		Total
2021		—	(1)		27,602		27,602
2022		179,420			21,839		201,259
2023		104,995			21,836		126,831
2024		104,995			21,834		126,829
2025		70,395			21,834		92,229
2026		38,962			—		38,962
Total		498,767			114,945		613,712

(1)

Shares vested prior to March 31, 2021 .

As of March 31, 2021, the Company had issued 669,343 shares of common stock under the 2016 LTIP. For the three months ended March 31, 2021 and 2020, the Company recognized approximately $ 1.6 million and $ 1.3 million , respectively, of equity-based compensation expense related to grants of restricted stock units. As of March 31, 2021, the Company had recognized a liability of approximately $ 1.0 million related to dividends earned on restricted stock units that are payable in cash upon vesting.

At-the-Market Offering

On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies LLC (“Jefferies”), Raymond James & Associates, Inc. (“Raymond James”) and Truist Securities, Inc. f/k/a SunTrust Robinson Humphrey, Inc. (“Truist”, and together with Raymond James and Jefferies, the “2019 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $ 0.01 per share, having an aggregate sales price of up to $ 100,000,000 (the “2019 ATM Program”). Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the 2019 ATM Program. During the three months ended March 31, 2020, the Company issued 560,000 shares of common stock at an average price of $ 50.00 per share for gross proceeds of $ 28.0 million under the 2019 ATM Program. The Company paid approximately $ 0.4 million in fees to the 2019 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $ 0.4 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached aggregate sales of $ 100,000,000 and has therefore expired. The following table contains summary information of the 2019 ATM Program during the year ended December 31, 2020:


Gross proceeds	$	28,000,000
Common shares issued		560,000
Gross average sale price per share	$	50.00

Sales commissions	$	420,000
Offering costs		331,143
Net proceeds		27,248,857
Average price per share, net	$	48.66

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc Capital Markets Inc. (“KeyBanc”) and Truist (together with Jefferies, Raymond James, KeyBanc and Truist, the “2020 ATM Sales Agents”), pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $ 0.01 per share, having an aggregate sales price of up to $ 225,000,000 (the “2020 ATM Program”). Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc, Raymond James, and Truist or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $ 43.92 per share for gross proceeds of $ 31.5 million under the 2020 ATM Program. The Company paid approximately $ 0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $ 0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the three months ended March 31, 2021, no shares were issued under the 2020 ATM Program. The following table contains summary information of the 2020 ATM Program:


Gross proceeds	$	31,546,577
Common shares issued		718,306
Gross average sale price per share	$	43.92

Sales commissions	$	473,199
Offering costs (1)		785,615
Net proceeds		30,287,763
Average price per share, net	$	42.17

(1)

For the three months ended March 31, 2021, no common shares were issued, but the Company incurred offering costs in connection with the 2020 ATM Program.

9. Earnings (Loss) Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) attributable to common stockholders by the weighted average number of shares of the Company’s common stock outstanding, which excludes any unvested restricted stock units issued pursuant to the 2016 LTIP. Diluted earnings (loss) per share is computed by adjusting basic earnings (loss) per share for the dilutive effect of the assumed vesting of restricted stock units. During periods of net loss, the assumed vesting of restricted stock units is anti-dilutive and is not included in the calculation of earnings (loss) per share.

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted earnings (loss) per share, as they are exchangeable for common stock on a one -for-one basis. The income (loss) allocable to such units is allocated on this same basis and reflected as net income (loss) attributable to redeemable noncontrolling interests in the OP in the accompanying consolidated statements of operations and comprehensive income (loss). As such, the assumed conversion of these units would have no net impact on the determination of diluted earnings (loss) per share. See Note 10 for additional information.

The following table sets forth the computation of basic and diluted earnings (loss) per share for the periods presented (in thousands, except per share amounts):


		For the Three Months Ended March 31,
		2021	2020
Numerator for earnings (loss) per share:
Net income (loss)		$( 6,900 )	$ 28,039
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		( 21 )	84
Net income (loss) attributable to common stockholders		$( 6,879 )	$ 27,955

Denominator for earnings (loss) per share:
Weighted average common shares outstanding		25,068	25,388
Denominator for basic earnings (loss) per share		25,068	25,388
Weighted average unvested restricted stock units		582	463
Denominator for diluted earnings per share	(1)	25,068	25,851

Earnings (loss) per weighted average common share:
Basic		$( 0.27 )	$ 1.10
Diluted		$( 0.27 )	$ 1.08

(1)

If the Company sustains a net loss for the period presented, unvested restricted stock units are not included in the diluted earnings per share calculation.

10. Noncontrolling Interests

Redeemable Noncontrolling Interests in the OP

Interests in the OP held by limited partners are represented by OP Units. Net income (loss) is allocated to holders of OP Units based upon net income (loss) attributable to common stockholders and the weighted average number of OP Units outstanding to total common shares plus OP Units outstanding during the period. Capital contributions, distributions, and profits and losses are allocated to OP Units in accordance with the terms of the partnership agreement of the OP. Each time the OP distributes cash to the Company, outside limited partners of the OP receive their pro-rata share of the distribution. Redeemable noncontrolling interests in the OP have a redemption feature and are marked to their redemption value if such value exceeds the carrying value of the redeemable noncontrolling interests in the OP.

On June 30, 2017, the Company and the OP entered into a contribution agreement with BH Equities, LLC and its affiliates (collectively, “BH Equity”), whereby the Company purchased 100 % of the joint venture interests in the Portfolio owned by BH Equity, representing approximately 8.4 % ownership in the Portfolio (the “BH Buyout”), for total consideration of approximately $ 51.7 million (the “Purchase Amount”). The Purchase Amount consisted of approximately $ 49.7 million in cash that was paid on June 30, 2017 and 73,233 OP Units (initially valued at $ 2.0 million) that were issued on August 1, 2017. The number of OP Units issued was calculated by dividing $ 2.0 million by the midpoint of the range of the Company’s net asset value as publicly disclosed in connection with the Company’s release of its second quarter of 2017 earnings results, which was $ 27.31 per share.

In connection with the issuance of OP Units to BH Equity on August 1, 2017, the Company and the OP amended the partnership agreement of the OP (the “Amendment”). Pursuant to the Amendment, limited partners holding OP Units have the right to cause the OP to redeem their units at a redemption price equal to and in the form of the Cash Amount (as defined in the partnership agreement of the OP), provided that such OP Units have been outstanding for at least one year. The Company, through the OP GP, as the general partner of the OP may, in its sole discretion, purchase the OP Units by paying to the limited partner either the Cash Amount or the REIT Share Amount (one share of common stock of the Company for each OP Unit), as defined in the partnership agreement of the OP. Notwithstanding the foregoing, a limited partner will not be entitled to exercise its redemption right to the extent the issuance of the Company’s common stock to the redeeming limited partner would (1) be prohibited, as determined in the Company’s sole discretion, under the Company’s charter or (2) cause the acquisition of common stock by such redeeming limited partner to be “integrated” with any other distribution of the Company’s common stock for purposes of complying with the Securities Act. Accordingly, the Company records the OP Units held by noncontrolling limited partners outside of permanent equity and reports the OP Units at the greater of their carrying value or their redemption value using the Company’s stock price at each balance sheet date.

The following table sets forth the redeemable noncontrolling interests in the OP for the three months ended March 31, 2021 (in thousands):


Redeemable noncontrolling interests in the OP, December 31, 2020	$	3,098
Net loss attributable to redeemable noncontrolling interests in the OP		( 21	)
Other comprehensive income attributable to redeemable noncontrolling interests in the OP		94
Contributions from redeemable noncontrolling interests in the OP		5
Distributions to redeemable noncontrolling interests in the OP		( 16	)
Adjustment to reflect redemption value of redeemable noncontrolling interests in the OP		215
Redeemable noncontrolling interests in the OP, March 31, 2021	$	3,375

Noncontrolling Interests

Noncontrolling interests have in the past and may in the future be comprised of joint venture partners’ interests in joint ventures the Company consolidates. When applicable, the Company reports its joint venture partners’ interests in its consolidated joint ventures and other subsidiary interests held by third parties as noncontrolling interests. The Company records these noncontrolling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investment’s net income or loss, equity contributions, return of capital, and distributions. Generally, these noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the noncontrolling interest holder based on its economic ownership percentage.

Fees and Reimbursements to BH and its Affiliates

The Company has entered into management agreements with BH Management Services, LLC (“BH”), the Company’s property manager and an independently owned third party, who manages the Company’s properties and supervises the implementation of the Company’s value-add program. BH is an affiliate of BH Equity, who was a noncontrolling interest member of the Company’s joint ventures prior to the BH Buyout on June 30, 2017. Through BH Equity’s noncontrolling interests in such joint ventures, BH Equity was deemed to be a related party. With the completion of the BH Buyout, BH Equity is no longer deemed to be a related party. BH Equity became a noncontrolling limited partner of the OP upon execution of the Amendment. BH and its affiliates do not have common ownership in any joint venture with the Adviser; there is also no common ownership between BH and its affiliates and the Adviser.

The property management fee paid to BH is approximately 3 % of the monthly gross income from each property managed. Currently, BH manages all of the Company’s properties. Additionally, the Company may pay BH certain other fees, including: (1) a fee of $ 15 - 25 per unit for the one-time setup and inspection of properties, (2) a construction supervision fee of 5 - 6 % of total project costs, which is capitalized, (3) acquisition fees and due diligence costs reimbursements, and (4) other owner approved fees at $ 55 per hour. BH also acts as a paymaster for the properties and is reimbursed at cost for various operating expenses it pays on behalf of the properties. The following is a summary of fees that the properties incurred to BH and its affiliates, as well as reimbursements paid to BH from the properties for various operating expenses, for the three months ended March 31, 2021 and 2020 (in thousands):


		For the Three Months Ended March 31,
		2021		2020
Fees incurred
Property management fees	(1)	$	1,479	$	1,544
Construction supervision fees	(2)		254		634
Design fees	(2)		54		296

Reimbursements
Payroll and benefits	(3)		4,238		4,358
Other reimbursements	(4)		825		977

(1)

Included in property management fees on the consolidated statements of operations and comprehensive income (loss).

(2)

Capitalized on the consolidated balance sheets and reflected in buildings and improvements.

(3)

Included in property operating expenses on the consolidated statements of operations and comprehensive income (loss).

(4)

Includes property operating expenses such as repairs and maintenance costs and certain property general and administrative expenses, which are included on the consolidated statements of operations and comprehensive income (loss).

11. Related Party Transactions

Advisory and Administrative Fee

In accordance with the Advisory Agreement, the Company pays the Adviser an advisory fee equal to 1.00 % of the Average Real Estate Assets (as defined below). The duties performed by the Company’s Adviser under the terms of the Advisory Agreement include, but are not limited to: providing daily management for the Company, selecting and working with third party service providers, managing the Company’s properties or overseeing the third party property manager, formulating an investment strategy for the Company and selecting suitable properties and investments, managing the Company’s outstanding debt and its interest rate exposure through derivative instruments, determining when to sell assets, and managing the value-add program or overseeing a third party vendor that implements the value-add program. “Average Real Estate Assets” means the average of the aggregate book value of Real Estate Assets before reserves for depreciation or other non-cash reserves, computed by taking the average of the book value of real estate assets at the end of each month (1) for which any fee under the Advisory Agreement is calculated or (2) during the year for which any expense reimbursement under the Advisory Agreement is calculated. “Real Estate Assets” is defined broadly in the Advisory Agreement to include, among other things, investments in real estate-related securities and mortgages and reserves for capital expenditures (the value-add program). The advisory fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the advisory fee in shares of common stock, subject to certain limitations.

In accordance with the Advisory Agreement, the Company also pays the Adviser an administrative fee equal to 0.20 % of the Average Real Estate Assets. The administrative fee is payable monthly in arrears in cash, unless the Adviser elects, in its sole discretion, to receive all or a portion of the administrative fee in shares of common stock, subject to certain limitations.

The advisory and administrative fees paid to the Adviser on the Contributed Assets (as defined in the Advisory Agreement) are subject to an annual cap of approximately $ 5.4 million (the “Contributed Assets Cap”) (see “Expense Cap” below).

Pursuant to the terms of the Advisory Agreement, the Company will reimburse the Adviser for all documented Operating Expenses and Offering Expenses it incurs on behalf of the Company. “Operating Expenses” include legal, accounting, financial and due diligence services performed by the Adviser that outside professionals or outside consultants would otherwise perform, the Company’s pro rata share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Adviser required for the Company’s operations, and compensation expenses under the 2016 LTIP. Operating Expenses do not include expenses for the advisory and administrative services described in the Advisory Agreement. Certain Operating Expenses, such as the Company’s ratable share of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses incurred by the Adviser or its affiliates that relate to the operations of the Company, may be billed monthly to the Company under a shared services agreement. “Offering Expenses” include all expenses (other than underwriters’ discounts) in connection with an offering, including, without limitation, legal, accounting, printing, mailing and filing fees and other documented offering expenses. For the three months ended March 31, 2021 and 2020, the Adviser did not bill any Operating Expenses or Offering Expenses to the Company and any such expenses the Adviser incurred during the periods are considered to be permanently waived.

Expense Cap

Pursuant to the terms of the Advisory Agreement, expenses paid or incurred by the Company for advisory and administrative fees payable to the Adviser and Operating Expenses will not exceed 1.5 % of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect (the “Expense Cap”)). The Expense Cap does not limit the reimbursement of expenses related to Offering Expenses. The Expense Cap also does not apply to legal, accounting, financial, due diligence and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation or other events outside the Company’s ordinary course of business or any out-of-pocket acquisitions or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Also, advisory and administrative fees are further limited on Contributed Assets to approximately $ 5.4 million in any calendar year. Contributed Assets refers to all Real Estate Assets contributed to the Company as part of its spin-off. The Contributed Assets Cap is not reduced for dispositions of such assets subsequent to its spin-off. Advisory and administrative fees on New Assets are not subject to the above limitation and are based on an annual rate of 1.2 % on Average Real Estate Assets, but are subject to the Expense Cap. New Assets are all Real Estate Assets that are not Contributed Assets.

For the three months ended March 31, 2021 and 2020, the Company incurred advisory and administrative fees of $ 1.9 million and $ 1.9 million , respectively. For the three months ended March 31, 2021 and 2020 , the Adviser elected to voluntarily waive the advisory and administrative fees of $ 4.0 million and $ 3.9 million, respectively, and are considered to be permanently waived. The Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion.

Other Related Party Transactions

The Company has in the past, and may in the future, utilize the services of affiliated parties. For the three months ended March 31, 2021 and 2020 , the Company paid approximately $ 0.0 million and $ 0.1 million, respectively, to NexBank Title, Inc. (“NexBank Title”). NexBank Title is an affiliate of the Adviser through common beneficial ownership. NexBank Title provides title insurance and work related to providing title insurance on properties related to acquisitions, dispositions and refinancing transactions. These amounts are either capitalized as real estate assets or deferred financing costs, expensed as loss on extinguishment of debt and modification costs, or expensed as selling costs when determining gain (loss) on sales of real estate, depending on the appropriate accounting as determined for each specific transaction.

12. Commitments and Contingencies

Commitments

In the normal course of business, the Company enters into various rehabilitation construction related purchase commitments with parties that provide these goods and services. In the event the Company were to terminate rehabilitation construction services prior to the completion of projects, the Company could potentially be committed to satisfy outstanding or uncompleted purchase orders with such parties. As of March 31, 2021, management does not anticipate any material deviations from schedule or budget related to rehabilitation projects currently in process.

Contingencies

In the normal course of business, the Company is subject to claims, lawsuits, and legal proceedings. While it is not possible to ascertain the ultimate outcome of all such matters, management believes that the aggregate amount of such liabilities, if any, in excess of amounts provided or covered by insurance, will not have a material adverse effect on the consolidated balance sheets or consolidated statements of operations and comprehensive income (loss) of the Company. The Company is not involved in any material litigation nor, to management’s knowledge, is any material litigation currently threatened against the Company or its properties or subsidiaries.

Environmental liabilities could have a material adverse effect on the Company’s business, assets, cash flows or results of operations. There can be no assurance that material environmental liabilities do not exist.

Self-Insurance Program

Effective March 1, 2019, the Company maintains a partial self-insurance program for property and casualty claims whereby it incurs the “first-loss” portion of a claim up to an aggregate loss amount. Claims resulting in losses in excess of a $ 100,000 per occurrence property deductible will be paid by the Company up to an aggregate amount of $ 1.2 million (the “2019 Aggregate Amount”). For the period from March 1, 2019 to February 29, 2020, the Company incurred a claim related to Cutter’s Point (see Note 5) as part of the 2019 Aggregate Amount. The claim related to Cutter’s Point required the Company to fund the full 2019 Aggregate Amount with $ 0.6 million being funded in December 2019 and the remaining $ 0.6 million funded during the three months ended March 31, 2020. For the period from March 1, 2019 to February 29, 2020, there were no other potential claims, besides the claim involving Cutter’s Point, that met the criteria as set forth under ASC 450-20.

On March 1, 2020, the Adviser entered into a new policy resulting in a new aggregate amount of $ 2,365,000 (the “2020 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $ 1.5 million being allocated to the Company. As of December 30, 2020, all of the $ 1.5 million of the 2020 Aggregate Amount allocated to the Company has been funded. Under ASC 450-20 “Loss Contingencies”, the Company does no t reserve for the 2020 Aggregate Amount or any portion thereof until a claim is made and the amount of the claim and the timing of payment on the claim can be reasonably estimated. For the period from March 1, 2020 to March 31, 2021, the Company fully funded the 2020 Aggregate for claims related to Venue 8651 and Timber Creek (see Note 5).

On March 1, 2021, the Adviser entered into a new policy resulting in a new aggregate amount of $ 2,468,750 (the “2021 Aggregate Amount”) which is allocated across properties managed by the Adviser with approximately $ 1.6 million being allocated to the Company. Under ASC 450-20 “Loss Contingencies”, the Company does no t reserve for the 2021 Aggregate Amount or any portion thereof until a claim is made and the amount of the claim and the timing of payment on the claim can be reasonably estimated. For the period from March 1, 2021 to March 31, 2021, the Company did not fund any claims under the 2021 Aggregate Amount.

13. Subsequent Events

Dividends Declared

On April 26, 2021, the Company’s Board declared a quarterly dividend of $ 0.34125 per share, payable on June 30, 2021 to stockholders of record on June 15, 2021 .

Item 2. Management’s Discussion and Analysis o f Financial Condition and Results of Operations

The following is a discussion and analysis of our financial condition and our historical results of operations. The following should be read in conjunction with our financial statements and accompanying notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected, forecasted, or expected in these forward-looking statements as a result of various factors, including, but not limited to, those discussed below and elsewhere in this quarterly report. See “Cautionary Statement Regarding Forward-Looking Statements” in this report, and “Risk Factors” in Part I, Item 1A, “Risk Factors” of our annual report on Form 10-K (our “Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on February 22, 2021.

Overview

As of March 31, 2021, our Portfolio consisted of 37 multifamily properties primarily located in the Southeastern and Southwestern United States encompassing 14,205 units of apartment space that was approximately 95.3% leased with a weighted average monthly effective rent per occupied apartment unit of $1,130. Substantially all of our business is conducted through the OP. We own the Portfolio through the OP and our TRS. The OP owns approximately 99.9% of the Portfolio; our TRS owns approximately 0.1% of the Portfolio. The OP GP is the sole general partner of the OP. As of March 31, 2021, there were 23,819,402 OP Units outstanding, of which 23,746,169, or 99.7%, were owned by us and 73,233, or 0.3%, were owned by an unaffiliated limited partner (see Note 10 to our consolidated financial statements).

We are primarily focused on directly or indirectly acquiring, owning, and operating well-located multifamily properties with a value-add component in large cities and suburban submarkets of large cities, primarily in the Southeastern and Southwestern United States. We generate revenue primarily by leasing our multifamily properties. We intend to employ targeted management and a value-add program at a majority of our properties in an attempt to improve rental rates and the net operating income ("NOI") at our properties and achieve long-term capital appreciation for our stockholders. We are externally managed by the Adviser through the Advisory Agreement, by and among the OP, the Adviser and us. The Advisory Agreement was renewed on February 15, 2021 for a one-year term. The Adviser is wholly owned by NexPoint Advisors, L.P.

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc and Truist, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000. Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc, Raymond James, Truist, or their respective affiliates, through the 2020 ATM Program. During the three months ended March 31, 2021, no shares were issued under the 2020 ATM Program. The 2020 ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the 2020 ATM Program reach $225,000,000 (see Note 8 to our consolidated financial statements).

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code, and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the three months ended March 31, 2021 and 2020.

For information on the effects the COVID-19 pandemic has had on our business, see Note 2 “Coronavirus (‘COVID-19’)” to our consolidated financial statements.

Components of Our Revenues and Expenses

Revenues

Rental income . Our earnings are primarily attributable to the rental revenue from our multifamily properties. We anticipate that the leases we enter into for our multifamily properties will typically be for one year or less on average. Also included are utility reimbursements, late fees, pet fees, and other rental fees charged to tenants.

Other income. Other income includes ancillary income earned from tenants such as non-refundable fees, application fees, laundry fees, cable TV income, and other miscellaneous fees charged to tenants.

Expenses

Property operating expenses. Property operating expenses include property maintenance costs, salary and employee benefit costs, utilities, casualty-related expenses and recoveries and other property operating costs.

Real estate taxes and insurance. Real estate taxes include the property taxes assessed by local and state authorities depending on the location of each property. Insurance includes the cost of commercial, general liability, and other needed insurance for each property.

Property management fees. Property management fees include fees paid to BH, our property manager, or other third party management companies for managing each property (see Note 10 to our consolidated financial statements).

Advisory and administrative fees. Advisory and administrative fees include the fees paid to our Adviser pursuant to the Advisory Agreement (see Note 11 to our consolidated financial statements).

Corporate general and administrative expenses. Corporate general and administrative expenses include, but are not limited to, audit fees, legal fees, listing fees, board of director fees, equity-based compensation expense, investor relations costs and payments of reimbursements to our Adviser for operating expenses. Corporate general and administrative expenses and the advisory and administrative fees paid to our Adviser (including advisory and administrative fees on properties defined in the Advisory Agreement as New Assets) will not exceed 1.5% of Average Real Estate Assets per calendar year (or part thereof that the Advisory Agreement is in effect), calculated in accordance with the Advisory Agreement (the "Expense Cap"). The Expense Cap does not limit the reimbursement by us of expenses related to securities offerings paid by our Adviser. The Expense Cap also does not apply to legal, accounting, financial, due diligence, and other service fees incurred in connection with mergers and acquisitions, extraordinary litigation, or other events outside our ordinary course of business or any out-of-pocket acquisition or due diligence expenses incurred in connection with the acquisition or disposition of real estate assets. Additionally, in the sole discretion of the Adviser, the Adviser may elect to waive certain advisory and administrative fees otherwise due. If advisory and administrative fees are waived in a period, the waived fees for that period are considered to be waived permanently and the Adviser may not be reimbursed in the future.

Property general and administrative expenses. Property general and administrative expenses include the costs of marketing, professional fees, general office supplies, and other administrative related costs of each property.

Depreciation and amortization. Depreciation and amortization costs primarily include depreciation of our multifamily properties and amortization of acquired in-place leases.

Other Income and Expense

Interest expense. Interest expense primarily includes the cost of interest expense on debt, the amortization of deferred financing costs and the related impact of interest rate derivatives used to manage our interest rate risk.

Loss on extinguishment of debt and modification costs. Loss on extinguishment of debt and modification costs includes prepayment penalties and defeasance costs, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment.

Casualty losses . Casualty losses include expenses resulting from damages from an unexpected and unusual event such as a natural disaster. Expenses can include additional payments on insurance premiums, impairment recognized on a property, and other abnormal expenses arising from the related event.

Miscellaneous income . Miscellaneous income includes proceeds received from insurance for business interruption involving the loss of rental income at a property that has temporarily suspended operations due to an unexpected and unusual event.

Gain on sales of real estate. Gain on sales of real estate includes the gain recognized upon sales of properties. Gain on sales of real estate is calculated by deducting the carrying value of the real estate and costs incurred to sell the properties from the sales prices of the properties.

Results of Operations for the Three Months Ended March 31, 2021 and 2020

The following table sets forth a summary of our operating results for the three months ended March 31, 2021 and 2020 (in thousands):


	For the Three Months Ended March 31,
	2021			2020			$ Change
Total revenues	$	51,796		$	52,582		$	(786	)
Total expenses		(48,548	)		(51,030	)		2,482
Operating income before gain on sales of real estate		3,248			1,552			1,696
Gain on sales of real estate		—			38,972			(38,972	)
Miscellaneous income		468			—			468
Operating income		3,716			40,524			(36,808	)
Interest expense		(10,616	)		(11,662	)		1,046
Loss on extinguishment of debt and modification costs		—			(874	)		874
Casualty gains		—			51			(51	)
Net income (loss)		(6,900	)		28,039			(34,939	)
Net income (loss) attributable to redeemable noncontrolling interests in the Operating Partnership		(21	)		84			(105	)
Net income (loss) attributable to common stockholders	$	(6,879	)	$	27,955		$	(34,834	)

The change in our net loss for the three months ended March 31, 2021 as compared to the net income for the three months ended March 31, 2020 primarily relates to a decrease in gain on sales of real estate and was partially offset by decreases in operating expenses and interest expense. The change in our net income (loss) between the periods was also due to our acquisition and disposition activity in 2020 and the timing of the transactions (we disposed of three properties in the first quarter of 2020, one property in the third quarter of 2020, and purchased one property in the fourth quarter of 2020).

Revenues

Rental income . Rental income was $50.3 million for the three months ended March 31, 2021 compared to $51.1 million for the three months ended March 31, 2020, which was a decrease of approximately $0.8 million. The decrease between the periods was primarily due to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above, partially offset by a 2.0% increase in the weighted average monthly effective rent per occupied apartment unit in our Portfolio to $1,130 as of March 31, 2021 from $1,110 as of March 31, 2020. The increase in effective rent was primarily driven by the value-add program that we have implemented and organic growth in rents in the markets where our properties are located.

Other income. Other income remained flat at $1.5 million for the three months ended March 31, 2021 and 2020.

Expenses

Property operating expenses. Property operating expenses were $11.2 million for the three months ended March 31, 2021 compared to $11.7 million for the three months ended March 31, 2020, which was a decrease of approximately $0.5 million. The decrease between the periods was primarily due to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above. The decrease between the periods was also due to a $0.4 million, or 7.0%, decrease in payroll costs.

Real estate taxes and insurance. Real estate taxes and insurance costs were $8.7 million for the three months ended March 31, 2021 compared to $8.0 million for the three months ended March 31, 2020, which was an increase of approximately $0.7 million. The increase between the periods was primarily due to a $0.5 million, or 7.9%, increase in property taxes. Property taxes incurred in the first year of ownership may be significantly less than subsequent years since the purchase price of the property may trigger a significant increase in assessed value by the taxing authority in subsequent years, increasing the cost of real estate taxes.

Property management fees. Property management fees were $1.5 million for the three months ended March 31, 2021 compared to $1.6 million for the three months ended March 31, 2020, which was a decrease of approximately $0.1 million. The decrease between the periods was primarily due to a decrease in total revenues, which the fee is primarily based on.

Advisory and administrative fees. Advisory and administrative fees remained flat at $1.9 million for the three months ended March 31, 2021 and 2020. For the three months ended March 31, 2021 and 2020, our Adviser elected to voluntarily waive the advisory and administrative fees of approximately $4.0 million and $3.9 million and are considered to be permanently waived. Our Adviser is not contractually obligated to waive fees on New Assets in the future and may cease waiving fees on New Assets at its discretion. Advisory and administrative fees may increase in future periods as we acquire additional properties, which will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and administrative expenses were $2.9 million for the three months ended March 31, 2021 compared to $2.7 million for the three months ended March 31, 2020, which was an increase of approximately $0.2 million. The increase between the periods was primarily due to approximately $1.6 million of equity-based compensation expense recognized during the three months ended March 31, 2021 related to the grants of restricted stock units to our directors, officers, employees and certain key employees of our Adviser pursuant to our long-term incentive plan (the “2016 LTIP”), compared to $1.3 million of equity-based compensation expense recognized during the three months ended March 31, 2020 (see Note 8 to our consolidated financial statements). Subject to the Expense Cap, corporate general and administrative expenses may increase in future periods as we acquire additional properties or if the Board issues additional equity grants under the 2016 LTIP.

Property general and administrative expenses. Property general and administrative expenses were $1.6 million for the three months ended March 31, 2021 compared to $1.8 million for the three months ended March 31, 2020, which was a decrease of approximately $0.2 million. The decrease between the periods was primarily due to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above.

Depreciation and amortization. Depreciation and amortization costs were $20.8 million for the three months ended March 31, 2021 compared to $23.3 million for the three months ended March 31, 2020, which was a decrease of approximately $2.5 million. The decrease between the periods was primarily due to the amortization of intangible lease assets of $0.8 million related to one property for the three months ended March 31, 2021 compared to $4.8 million related to five properties for the three months ended March 31, 2020, which was a decrease of approximately $4.0 million. The amortization of intangible lease assets over a six-month period from the date of acquisition is expected to increase the amortization expense during the year of acquisition for each property.

Other Income and Expense

Interest expense. Interest expense was $10.6 million for the three months ended March 31, 2021 compared to $11.7 million for the three months ended March 31, 2020, which was a decrease of approximately $1.1 million. The decrease between the periods was primarily due to a decrease in interest on debt of $5.2 million related to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above, partially offset by an increase in interest rate swap expense of approximately $4.3 million. The following table details the various costs included in interest expense for the three months ended March 31, 2021 and 2020 (in thousands):


	For the Three Months Ended March 31,
	2021			2020			$ Change
Interest on debt	$	6,404		$	11,576		$	(5,173	)
Amortization of deferred financing costs		561			735			(174	)
Interest rate swaps		3,663			(609	)		4,272
Interest rate caps expense		(12	)		(41	)		28
Total	$	10,616		$	11,662		$	(1,046	)

Loss on extinguishment of debt and modification costs. There was no loss on extinguishment of debt and modification costs for the three months ended March 31, 2021. There was a $0.9 million loss on extinguishment of debt and modification costs for the three months ended March 31, 2020. The following table details the various costs included in loss on extinguishment of debt and modification costs for the three months ended March 31, 2021 and 2020 (in thousands):


	For the Three Months Ended March 31,
	2021		2020		$ Change
Prepayment penalties and defeasance costs	$	—	$	416	$	(416	)
Write-off of deferred financing costs		—		455		(455	)
Debt modification and other extinguishment costs		—		3		(3	)
Total	$	—	$	874	$	(874	)

Gain on sales of real estate. Gain on sale of real estate was $0.0 million during the three months ended March 31, 2021 and $39.0 million for the three months ended March 31, 2020, which was a decrease of approximately $39.0 million. The increase between the periods was primarily due to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above.

Non-GAAP Measurements

Net Operating Income and Same Store Net Operating Income

NOI is used by investors and our management to evaluate and compare the performance of our properties to other comparable properties, to determine trends in earnings and to compute the fair value of our properties. NOI is calculated by adjusting net income (loss) to add back (1) interest expense (2) advisory and administrative fees, (3) the impact of depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets that are included in net income computed in accordance with GAAP, (4) corporate general and administrative expenses, (5) other gains and losses that are specific to us including loss on extinguishment of debt and modification costs, (6) casualty-related expenses/(recoveries) and casualty gains (losses), (7) pandemic expenses that are not reflective of continuing operations of the properties and (8) property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on behalf of the Company at the property for expenses such as legal, professional and franchise tax fees.

The cost of funds is eliminated from net income (loss) because it is specific to our particular financing capabilities and constraints. The cost of funds is also eliminated because it is dependent on historical interest rates and other costs of capital as well as past decisions made by us regarding the appropriate mix of capital, which may have changed or may change in the future. Acquisition costs and non-operating fees to affiliates are eliminated because they do not reflect continuing operating costs of the property owner. Depreciation and amortization expenses as well as gains or losses from the sale of operating real estate assets are eliminated because they may not accurately represent the actual change in value in our multifamily properties that result from use of the properties or changes in market conditions. While certain aspects of real property do decline in value over time in a manner that is reasonably captured by depreciation and amortization, the value of the properties as a whole have historically increased or decreased as a result of changes in overall economic conditions instead of from actual use of the property or the passage of time. Gains and losses from the sale of real property vary from property to property and are affected by market conditions at the time of sale, which will usually change from period to period. Casualty-related expenses and recoveries and gains and losses are excluded because they do not reflect continuing operating costs of the property owner. Miscellaneous income is eliminated as the income is derived from recognition of lost rents covered by insurance. Corporate level general and administrative expenses are eliminated because they do not reflect the operating activity performed at the properties. Entity level general and administrative expenses incurred at the properties and pandemic expenses are eliminated as they are specific to the way in which we have chosen to hold our properties and are the result of our ownership structuring. Also, expenses that are incurred upon acquisition of a property do not reflect continuing operating costs of the property owner. These gains and losses can create distortions when comparing one period to another or when comparing our operating results to the operating results of other real estate companies that have not made similarly timed purchases or sales. We believe that eliminating these items from net income is useful because the resulting measure captures the actual ongoing revenue generated and actual expenses incurred in operating our properties as well as trends in occupancy rates, rental rates and operating costs.

However, the usefulness of NOI is limited because it excludes corporate general and administrative expenses, interest expense, loss on extinguishment of debt and modification costs, acquisition costs, certain fees to affiliates such as advisory and administrative fees, depreciation and amortization expense and gains or losses from the sale of properties, pandemic expenses, and other gains and losses as determined under GAAP, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, all of which are significant economic costs. NOI may fail to capture significant trends in these components of net income, which further limits its usefulness.

NOI is a measure of the operating performance of our properties but does not measure our performance as a whole. NOI is therefore not a substitute for net income (loss) as computed in accordance with GAAP. This measure should be analyzed in conjunction with net income (loss) computed in accordance with GAAP and discussions elsewhere in “—Results of Operations” regarding the components of net income (loss) that are eliminated in the calculation of NOI. Other companies may use different methods for calculating NOI or similarly entitled measures and, accordingly, our NOI may not be comparable to similarly entitled measures reported by other companies that do not define the measure exactly as we do.

We define “Same Store NOI” as NOI for our properties that are comparable between periods. We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods.

Net Operating Income for Our Same Store and Non-Same Store Properties for the Three Months Ended March 31, 2021 and 2020

There are 35 properties encompassing 13,564 and 13,657 units of apartment space in our same store pool for the three months ended March 31, 2021 and 2020 (our “Same Store” properties). Our Same Store properties exclude the following two properties in our Portfolio as of March 31, 2021: Fairways at San Marcos and Cutter’s Point as well as the 93 units (see Note 5) that are currently down.

The following table reflects the revenues, property operating expenses and NOI for the three months ended March 31, 2021 and 2020 for our Same Store and Non-Same Store properties (dollars in thousands):


	For the Three Months Ended March 31,
	2021		2020		$ Change			% Change
Revenues
Same Store
Rental income	$	48,811	$	47,782	$	1,029			2.2	%
Other income		1,441		1,426		15			1.1	%
Same Store revenues		50,252		49,208		1,044			2.1	%
Non-Same Store
Rental income		1,529		3,333		(1,804	)		-54.1	%
Other income		15		41		(26	)		-63.4	%
Non-Same Store revenues		1,544		3,374		(1,830	)		-54.2	%
Total revenues		51,796		52,582		(786	)		-1.5	%

Operating expenses
Same Store
Property operating expenses (1)		10,833		10,629		204			1.9	%
Real estate taxes and insurance		8,574		7,507		1,067			14.2	%
Property management fees (2)		1,436		1,436		-			0.0	%
Property general and administrative expenses (3)		1,270		1,277		(7	)		-0.5	%
Same Store operating expenses		22,113		20,849		1,264			6.1	%
Non-Same Store
Property operating expenses (4)		317		1,032		(715	)		-69.3	%
Real estate taxes and insurance		148		516		(368	)		-71.3	%
Property management fees (2)		50		114		(64	)		-56.1	%
Property general and administrative expenses (5)		56		86		(30	)		-34.9	%
Non-Same Store operating expenses		571		1,748		(1,177	)		-67.3	%
Total operating expenses		22,684		22,597		87			0.4	%

Operating income
Same Store
Miscellaneous income		128		-		128			-
Non-Same Store
Miscellaneous income		341		-		341			-
Total operating income		469		—		428			0.0	%

NOI
Same Store		28,267		28,359		(220	)		-0.3	%
Non-Same Store		1,314		1,626		(653	)		-19.2	%
Total NOI	$	29,581	$	29,985	$	(873	)		-1.3	%

(1)

For the three months ended March 31, 2021 and 2020, excludes approximately $58,000 and $64,000, respectively, of casualty-related expenses.

(2)

Fees incurred to an unaffiliated third party that is an affiliate of the noncontrolling limited partner of the OP.

(3)

For the three months ended March 31, 2021 and 2020, excludes approximately $228,000 and $316,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

(4)

For the three months ended March 31, 2021 and 2020, excludes approximately $8,000 and $(4,000), respectively, of casualty-related expenses/(recoveries).

(5)

For the three months ended March 31, 2021 and 2020, excludes approximately $5,000 and $153,000, respectively, of expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

See reconciliation of net income (loss) to NOI below under “NOI and Same Store NOI for the Three Months Ended March 31, 2021 and 2020.”

Same Store Results of Operations for the Three Months Ended March 31, 2021 and 2020

As of March 31, 2021, our Same Store properties were approximately 95.3% leased with a weighted average monthly effective rent per occupied apartment unit of $1,127. As of March 31, 2020, our Same Store properties were approximately 94.2% leased with a weighted average monthly effective rent per occupied apartment unit of $1,114. For our Same Store properties, we recorded the following operating results for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020:

Revenues

Rental income . Rental income was $48.8 million for the three months ended March 31, 2021 compared to $47.8 million for the three months ended March 31, 2020, which was an increase of approximately $1.0 million, or 2.2%. The majority of the increase is related to a 1.2% increase in the weighted average monthly effective rent per occupied apartment unit to $1,127 as of March 31, 2021 from $1,114 as of March 31, 2020, and a 1.1% increase in occupancy.

Other income. Other income remained flat at $1.4 million for the three months ended March 31, 2021 and 2020.

Expenses

Property operating expenses. Property operating expenses were $10.8 million for the three months ended March 31, 2021 compared to $10.6 million for the three months ended March 31, 2020, which was an increase of approximately $0.2 million, or 1.9%. The majority of the increase is related to a $0.1 million, or 3.2%, increase in repair and maintenance costs and an increase in utility expense of $0.1 million, or 6.0%.

Real estate taxes and insurance. Real estate taxes and insurance costs were $8.6 million for the three months ended March 31, 2021 compared to $7.5 million for the three months ended March 31, 2020, which was an increase of approximately $1.1 million, or 14.2%. The majority of the increase is related to a $0.8 million, or 11.9%, increase in property taxes due to higher assessments of value by taxing authorities.

Property management fees. Property management fees remained flat at $1.4 million for the three months ended March 31, 2021 and 2020.

Property general and administrative expenses. Property general and administrative expenses remained flat at $1.3 million for the three months ended March 31, 2021 and 2020.

NOI and Same Store NOI for the Three Months Ended March 31, 2021 and 2020

The following table, which has not been adjusted for the effects of noncontrolling interests, reconciles our NOI and our Same Store NOI for the three months ended March 31, 2021 and 2020 to net income (loss), the most directly comparable GAAP financial measure (in thousands):


		For the Three Months Ended March 31,
		2021			2020
Net income (loss)		$	(6,900	)	$	28,039
Adjustments to reconcile net income (loss) to NOI:
Advisory and administrative fees			1,868			1,865
Corporate general and administrative expenses			2,940			2,701
Casualty-related expenses	(1)		42			60
Casualty gains			—			(51	)
Pandemic expense	(2)		24			—
Property general and administrative expenses	(3)		233			469
Depreciation and amortization			20,758			23,338
Interest expense			10,616			11,662
Loss on extinguishment of debt and modification costs			—			874
Gain on sales of real estate			—			(38,972	)
NOI		$	29,581		$	29,985
Less Non-Same Store
Revenues			(1,544	)		(3,374	)
Operating expenses			571			1,748
Operating income			(341	)		—
Same Store NOI		$	28,267		$	28,359

(1)

Adjustment to net income (loss) to exclude certain property operating expenses that are casualty-related expenses.

(2)

Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.

(3)

Adjustment to net income (loss) to exclude certain property general and administrative expenses that are not reflective of the continuing operations of the properties or are incurred on our behalf at the property for expenses such as legal, professional and franchise tax fees.

FFO, Core FFO and AFFO

We believe that net income, as defined by GAAP, is the most appropriate earnings measure. We also believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), core funds from operations (“Core FFO”) and adjusted funds from operations (“AFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.

Since the historical cost accounting convention used for real estate assets requires depreciation except on land, such accounting presentation implies that the value of real estate assets diminishes predictably over time. However, since real estate values have historically risen or fallen with market and other conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. Thus, NAREIT created FFO as a supplemental measure of operating performance for REITs that excludes historical cost depreciation and amortization, among other items, from net income, as defined by GAAP. FFO is defined by NAREIT as net income computed in accordance with GAAP, excluding gains or losses from real estate dispositions, plus real estate depreciation and amortization. We compute FFO attributable to common stockholders in accordance with NAREIT’s definition. Our presentation differs slightly in that we begin with net income (loss) before adjusting for amounts attributable to noncontrolling interests and we show the combined amounts attributable to such noncontrolling interests as an adjustment to arrive at FFO attributable to common stockholders.

Core FFO makes certain adjustments to FFO, which are either not likely to occur on a regular basis or are otherwise not representative of the ongoing operating performance of our portfolio. Core FFO adjusts FFO to remove items such as acquisition expenses, losses on extinguishment of debt and modification costs (including prepayment penalties and defeasance costs incurred on the early repayment of debt, the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt related to the early repayment of debt, costs incurred in a debt modification that are not capitalized as deferred financing costs and other costs incurred in a debt extinguishment), casualty-related expenses and recoveries and gains or losses, pandemic expenses, the amortization of deferred financing costs incurred in connection with obtaining short-term debt financing, and the noncontrolling interests (as described above) related to these items. We believe Core FFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

AFFO makes certain adjustments to Core FFO in order to arrive at a more refined measure of the operating performance of our Portfolio. There is no industry standard definition of AFFO and practice is divergent across the industry. AFFO adjusts Core FFO to remove items such as equity-based compensation expense and the amortization of deferred financing costs incurred in connection with obtaining long-term debt financing, and the noncontrolling interests (as described above) related to these items. We believe AFFO is useful to investors as a supplemental gauge of our operating performance and is useful in comparing our operating performance with other REITs that are not as involved in the aforementioned activities.

The effect of the conversion of OP Units held by noncontrolling limited partners is not reflected in the computation of basic and diluted FFO, Core FFO and AFFO per share, as they are exchangeable for common stock on a one-for-one basis. The FFO, Core FFO and AFFO allocable to such units is allocated on this same basis and reflected in the adjustments for noncontrolling interests in the table below. As such, the assumed conversion of these units would have no net impact on the determination of diluted FFO, Core FFO and AFFO per share. See Note 10 to our consolidated financial statements for additional information.

We believe that the use of FFO, Core FFO and AFFO, combined with the required GAAP presentations, improves the understanding of operating results of REITs among investors and makes comparisons of operating results among such companies more meaningful. While FFO, Core FFO and AFFO are relevant and widely used measures of operating performance of REITs, they do not represent cash flows from operations or net income (loss) as defined by GAAP and should not be considered as an alternative or substitute to those measures in evaluating our liquidity or operating performance. FFO, Core FFO and AFFO do not purport to be indicative of cash available to fund our future cash requirements. Further, our computation of FFO, Core FFO and AFFO may not be comparable to FFO, Core FFO and AFFO reported by other REITs that do not define FFO in accordance with the current NAREIT definition or that interpret the current NAREIT definition or define Core FFO or AFFO differently than we do.

The following table reconciles our calculations of FFO, Core FFO and AFFO to net income (loss), the most directly comparable GAAP financial measure, for the three months ended March 31, 2021 and 2020 (in thousands, except per share amounts):


		For the Three Months Ended March 31,
		2021	2020	% Change
Net income (loss)		$(6,900)	$28,039	N/M
Depreciation and amortization		20,758	23,338	(11.1)%
Gain on sales of real estate		—	(38,972)	N/M
Adjustment for noncontrolling interests		(41)	(37)	10.8%
FFO attributable to common stockholders		13,817	12,368	11.7%

FFO per share - basic		$0.55	$0.49	13.1%
FFO per share - diluted		$0.55	$0.48	15.2%

Loss on extinguishment of debt and modification costs		—	874	N/M
Casualty-related expenses		42	60	(29.6)%
Casualty gains		—	(51)	N/M
Pandemic expense	(1)	24	—	0.0%
Amortization of deferred financing costs - acquisition term notes		209	349	(40.1)%
Adjustment for noncontrolling interests		(1)	(4)	N/M
Core FFO attributable to common stockholders		14,091	13,596	3.6%

Core FFO per share - basic		$0.56	$0.54	5.0%
Core FFO per share - diluted		$0.56	$0.53	6.9%

Amortization of deferred financing costs - long term debt		352	386	(8.9)%
Equity-based compensation expense		1,608	1,300	23.7%
Adjustment for noncontrolling interests		(6)	(5)	20.0%
AFFO attributable to common stockholders		16,045	15,277	5.0%

AFFO per share - basic		$0.64	$0.60	6.4%
AFFO per share - diluted		$0.64	$0.59	8.3%

Weighted average common shares outstanding - basic		25,068	25,388	(1.3)%
Weighted average common shares outstanding - diluted		25,068	25,851	(3.0)%

Dividends declared per common share		$0.341	$0.313	9.2%

FFO Coverage - diluted	(2)	1.62x	1.53x	5.5%
Core FFO Coverage - diluted	(2)	1.65x	1.68x	(2.1)%
AFFO Coverage - diluted	(2)	1.88x	1.89x	(0.8)%

(1)

Represents additional cleaning, disinfecting and other costs incurred at the properties related to COVID-19.

(2)

Indicates coverage ratio of FFO/Core FFO/AFFO per common share (diluted) over dividends declared per common share during the period.

The three months ended March 31, 2021 as compared to the three months ended March 31, 2020

FFO was $13.8 million for the three months ended March 31, 2021 compared to $12.4 million for the three months ended March 31, 2020, which was an increase of approximately $1.4 million. The change in our FFO between the periods primarily relates to decreases in property operating expenses of $0.5 million and interest expense of $1.1 million.

Core FFO was $14.1 million for the three months ended March 31, 2021 compared to $13.6 million for the three months ended March 31, 2020, which was an increase of approximately $0.5 million. The change in our Core FFO between the periods primarily relates to an increase in FFO and a decrease in casualty gains of $0.1 million, partially offset by a decrease in loss on extinguishment of debt and modification costs of $0.9 million.

AFFO was $16.0 million for the three months ended March 31, 2021 compared to $15.3 million for the three months ended March 31, 2020, which was an increase of approximately $0.7 million. The change in our AFFO between the periods primarily relates to increases in Core FFO and equity-based compensation expense of $0.3 million.

Liquidity and Capital Resources

Our short-term liquidity requirements consist primarily of funds necessary to pay for debt maturities, operating expenses and other expenditures directly associated with our multifamily properties, including:



capital expenditures to continue our value-add program and to improve the quality and performance of our multifamily properties;



interest expense and scheduled principal payments on outstanding indebtedness (see “—Obligations and Commitments” below);



recurring maintenance necessary to maintain our multifamily properties;



distributions necessary to qualify for taxation as a REIT;



acquisitions of additional properties;



advisory and administrative fees payable to our Adviser;



general and administrative expenses;



reimbursements to our Adviser; and



property management fees payable to BH.

We expect to meet our short-term liquidity requirements generally through net cash provided by operations and existing cash balances and any unused capacity on the Corporate Credit Facility. As of March 31, 2021, we had approximately $9.1 million of renovation value-add reserves for our planned capital expenditures to implement our value-add program. Renovation value-add reserves are not required to be held in escrow by a third party. We may reallocate these funds, at our discretion, to pursue other investment opportunities or meet our short-term liquidity requirements. Additionally, we had $42.0 million of unused capacity on the Corporate Credit Facility as of March 31, 2021.

On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022 (the “Maturity Date”). During 2020, the Company repaid $35.0 million in principal on the Corporate Credit Facility and had sufficient cash flow to fund operations as well as close on a new acquisition (Fairways at San Marcos) in the fourth quarter of 2020. Management recognizes that finding an alternative source of funding is necessary to repay the facility by the Maturity Date. Management is evaluating multiple options to fund the repayment of the $183.0 million principal balance outstanding, including recasting the Corporate Credit Facility, securing additional equity or debt financing, selling a portion of the Portfolio, or any combination thereof. Management believes that there is sufficient time before the Maturity Date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

Our long-term liquidity requirements consist primarily of funds necessary to pay for the costs of acquiring additional multifamily properties, renovations and other capital expenditures to improve our multifamily properties and scheduled debt payments and distributions. We expect to meet our long-term liquidity requirements through various sources of capital, which may include a revolving credit facility and future debt or equity issuances, existing working capital, net cash provided by operations, long-term mortgage indebtedness and other secured and unsecured borrowings, and property dispositions. However, there are a number of factors that may have a material adverse effect on our ability to access these capital sources, including the state of overall equity and credit markets, our degree of leverage, our unencumbered asset base and borrowing restrictions imposed by lenders (including as a result of any failure to comply with financial covenants in our existing and future indebtedness), general market conditions for REITs, our operating performance and liquidity, market perceptions about us and restrictions on sales of properties under the Code. The Company continues to monitor the impact on COVID-19 and its impact on future rent collections, valuation of real estate investments, impact on cash flow and ability to refinance or repay debt. The success of our business strategy will depend, in part, on our ability to access these various capital sources.

In addition to our value-add program, our multifamily properties will require periodic capital expenditures and renovation to remain competitive. Also, acquisitions, redevelopments, or expansions of our multifamily properties will require significant capital outlays. Long-term, we may not be able to fund such capital improvements solely from net cash provided by operations because we must distribute annually at least 90% of our REIT taxable income, determined without regard to the deductions for dividends paid and excluding net capital gains, to qualify and maintain our qualification as a REIT, and we are subject to tax on any retained income and gains. As a result, our ability to fund capital expenditures, acquisitions, or redevelopment through retained earnings long-term is limited. Consequently, we expect to rely heavily upon the availability of debt or equity capital for these purposes. If we are unable to obtain the necessary capital on favorable terms, or at all, our financial condition, liquidity, results of operations, and prospects could be materially and adversely affected.

On February 20, 2019, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James and Truist (collectively, the “2019 ATM Sales Agents”), pursuant to which the Company could issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $100,000,000 (the “2019 ATM Program”). Sales of shares of common stock, if any, could be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company could enter into forward sale agreements with each of Jefferies and Raymond James, or their respective affiliates, through the 2019 ATM Program. During the three months ended March 31, 2020, the Company issued 560,000 shares of common stock at an average price of $50.00 per share for gross proceeds of $28.0 million under the 2019 ATM Program. The Company paid approximately $0.4 million in fees to the 2019 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.4 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. On February 27, 2020, the 2019 ATM Program reached aggregate sales of $100,000,000 and therefore expired.

On March 4, 2020, the Company, the OP and the Adviser entered into separate equity distribution agreements with each of Jefferies, Raymond James, KeyBanc and Truist, pursuant to which the Company may issue and sell from time to time shares of the Company’s common stock, par value $0.01 per share, having an aggregate sales price of up to $225,000,000. Sales of shares of common stock, if any, may be made in transactions that are deemed to be “at the market” offerings, as defined in Rule 415 under the Securities Act, including, without limitation, sales made by means of ordinary brokers’ transactions on the New York Stock Exchange, to or through a market maker at market prices prevailing at the time of sale, at prices related to prevailing market prices or at negotiated prices based on prevailing market prices. In addition to the issuance and sale of shares of common stock, the Company may enter into forward sale agreements with each of Jefferies, KeyBanc, Raymond James, Truist, or their respective affiliates, through the 2020 ATM Program. During the year ended December 31, 2020, the Company issued 718,306 shares of common stock at an average price of $43.92 per share for gross proceeds of $31.5 million under the 2020 ATM Program. The Company paid approximately $0.5 million in fees to the 2020 ATM Sales Agents with respect to such sales and incurred other issuance costs of approximately $0.6 million, both of which were netted against the gross proceeds and recorded in additional paid in capital. During the three months ended March 31, 2021, no shares were issued under the 2020 ATM Program. The 2020 ATM Program may be terminated by the Company at any time and expires automatically once aggregate sales under the 2020 ATM Program reach $225,000,000 (see Note 8 to our consolidated financial statements).

We believe that our available cash, expected operating cash flows, and potential debt or equity financings will provide sufficient funds for our operations, anticipated scheduled debt service payments and dividend requirements for the twelve-month period following March 31, 2021.

Cash Flows

The following table presents selected data from our consolidated statements of cash flows for the three months ended March 31, 2021 and 2020 (in thousands):


	For the Three Months Ended March 31,
	2021			2020
Net cash provided by operating activities	$	13,744		$	11,418
Net cash provided by (used in) investing activities		(7,587	)		72,289
Net cash used in financing activities		(10,541	)		(49,308	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(4,384	)		34,399
Cash, cash equivalents and restricted cash, beginning of period		57,015			71,182
Cash, cash equivalents and restricted cash, end of period	$	52,631		$	105,581

Cash flows from operating activities. During the three months ended March 31, 2021, net cash provided by operating activities was $13.7 million compared to net cash provided by operating activities of $11.4 million for the three months ended March 31, 2020. The change in cash flows from operating activities was mainly due our acquisition and disposition activity in 2020 and the timing of the transactions, as described above.

Cash flows from investing activities. During the three months ended March 31, 2021, net cash used in investing activities was $7.6 million compared to net cash provided by investing activities of $72.3 million for the three months ended March 31, 2020. The change in cash flows from investing activities was mainly due to our acquisition and disposition activity in 2020 and the timing of the transactions, as described above.

Cash flows from financing activities. During the three months ended March 31, 2021, net cash used in financing activities was $10.5 million compared to net cash used in financing activities of $49.3 million for the three months ended March 31, 2020. The change in cash flows from financing activities was mainly due to a net increase in debt of approximately $34.6 million and a decrease in common stock repurchases of approximately $31.0 million. These were partially offset by an increase in common stock dividends paid of approximately $0.4 million and proceeds from the issuance of common stock through the 2019 ATM Program of approximately $27.4 million (net of Sales Agents fees and other legal fees) between the periods.

Debt, Derivatives and Hedging Activity

Mortgage Debt

As of March 31, 2021, our subsidiaries had aggregate mortgage debt outstanding to third parties of approximately $1.2 billion at a weighted average interest rate of 1.79% and an adjusted weighted average interest rate of 3.06%. For purposes of calculating the adjusted weighted average interest rate of our mortgage debt outstanding, we have included the weighted average fixed rate of 1.3792% for one-month LIBOR on our combined $1.2 billion notional amount of interest rate swap agreements, which effectively fix the interest rate on $1.2 billion of our floating rate mortgage debt. See Notes 6 and 7 to our consolidated financial statements for additional information.

We have entered into and expect to continue to enter into interest rate swap and cap agreements with various third parties to fix or cap the floating interest rates on a majority of our floating rate mortgage debt outstanding. The interest rate swap agreements generally have a term of four to five years and effectively establish a fixed interest rate on debt on the underlying notional amounts. The interest rate swap agreements involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of March 31, 2021, interest rate swap agreements effectively covered 100% of our $1.1 billion of floating rate mortgage debt outstanding.

The interest rate cap agreements generally have a term of three to four years, cover the outstanding principal amount of the underlying debt and are generally required by our lenders. Under the interest rate cap agreements, we pay a fixed fee in exchange for the counterparty to pay any interest above a maximum rate. As of March 31, 2021, interest rate cap agreements covered $379.4 million of our $1.1 billion of floating rate mortgage debt outstanding. These interest rate cap agreements effectively cap one-month LIBOR on $379.4 million of our floating rate mortgage debt at a weighted average rate of 5.52%.

We intend to invest in additional multifamily properties as suitable opportunities arise and adequate sources of equity and debt financing are available. We expect that future investments in properties, including any improvements or renovations of current or newly acquired properties, will depend on and will be financed by, in whole or in part, our existing cash, future borrowings and the proceeds from additional issuances of common stock or other securities or property dispositions.

Although we expect to be subject to restrictions on our ability to incur indebtedness, we expect that we will be able to refinance existing indebtedness or incur additional indebtedness for acquisitions or other purposes, if needed. However, there can be no assurance that we will be able to refinance our indebtedness, incur additional indebtedness or access additional sources of capital, such as by issuing common stock or other debt or equity securities, on terms that are acceptable to us or at all.

Furthermore, following the completion of our value-add and capital expenditures programs and depending on the interest rate environment at the applicable time, we may seek to refinance our floating rate debt into longer-term fixed rate debt at lower leverage levels.

Corporate Credit Facility

On January 28, 2019, the Company, through the OP, entered into a $75.0 million credit facility (the “Corporate Credit Facility”) with Truist Bank, as administrative agent and the lenders party thereto, and immediately drew $52.5 million to fund a portion of the purchase price of Bella Vista, The Enclave, and The Heritage. The Corporate Credit Facility is a full-term, interest-only facility with an initial 24-month term, has one 12-month extension at the option of the Company, and the Company has the right to request an increase in the facility amount up to $150 million (the “Accordion Feature”). The facility bears interest at a rate of one-month LIBOR plus a range from 2.00% to 2.50%, depending on the Company’s leverage level as determined under the Corporate Credit Facility agreement, and is guaranteed by the Company. On June 29, 2019, the Company, through the OP, exercised its option under the Accordion Feature of the Corporate Credit Facility and increased the amount of the facility from $75 million to $125 million. In conjunction with the increase in the facility, the Company incurred costs of $0.5 million in obtaining the additional financing through the Accordion Feature (see Note 6 for additional information related to our deferred financing costs). On August 28, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $25 million, resulting in aggregate commitments of $150 million as of September 30, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.2 million of deferred financing costs. On November 20, 2019, the Company, through the OP, increased the amount of the Corporate Credit Facility by $75 million, resulting in aggregate commitments of $225 million as of December 31, 2019. In conjunction with the increase in the facility, the Company incurred costs of $0.8 million of deferred financing costs. As of March 31, 2021, there was $183.0 million in aggregate principal outstanding on the Corporate Credit Facility.

On October 13, 2020, the Company extended the maturity date of the Corporate Credit Facility from January 28, 2021 to January 28, 2022 (the “Maturity Date”). During 2020, the Company repaid $35.0 million in principal on the Corporate Credit Facility and had sufficient cash flow to fund operations as well as close on a new acquisition (Fairways at San Marcos) in the fourth quarter of 2020. Management recognizes that finding an alternative source of funding is necessary to repay the facility by the Maturity Date. Management is evaluating multiple options to fund the repayment of the $183.0 million principal balance outstanding, including recasting the Corporate Credit Facility, securing additional equity or debt financing, selling a portion of the Portfolio, or any combination thereof. Management believes that there is sufficient time before the Maturity Date and that the Company has sufficient access to capital to ensure the Company is able to meet its obligations as they become due.

The Corporate Credit Facility is a non-recourse obligation and contains customary events of default, including defaults in the payment of principal or interest, defaults in compliance with the covenants contained in the document evidencing the loan, defaults in payments under any other security instrument, and bankruptcy or other insolvency events. As of March 31, 2021, the Company believes it is compliant with all provisions.

Interest Rate Swap Agreements

In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into eleven interest rate swap transactions with KeyBank and two with Truist Bank (collectively the “Counterparties”) with a combined notional amount of $1.2 billion which are effective as of March 31, 2021. As of March 31, 2021, the interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to $1.2 billion of our floating rate mortgage debt outstanding with a weighted average fixed rate of 1.3792%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.3792%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. For purposes of hedge accounting under FASB ASC 815, Derivatives and Hedging, we have designated these interest rate swaps as cash flow hedges of interest rate risk. See Notes 6 and 7 to our consolidated financial statements for additional information.

The following table contains summary information regarding our outstanding interest rate swaps (dollars in thousands):


Effective Date	Termination Date	Counterparty	Notional Amount		Fixed Rate (1)
July 1, 2016	June 1, 2021	KeyBank	$	100,000		1.1055	%
July 1, 2016	June 1, 2021	KeyBank		100,000		1.0210	%
July 1, 2016	June 1, 2021	KeyBank		100,000		0.9000	%
September 1, 2016	June 1, 2021	KeyBank		100,000		0.9560	%
April 1, 2017	April 1, 2022	KeyBank		100,000		1.9570	%
May 1, 2017	April 1, 2022	KeyBank		50,000		1.9610	%
July 1, 2017	July 1, 2022	KeyBank		100,000		1.7820	%
June 1, 2019	June 1, 2024	KeyBank		50,000		2.0020	%
June 1, 2019	June 1, 2024	Truist		50,000		2.0020	%
September 1, 2019	September 1, 2026	KeyBank		100,000		1.4620	%
September 1, 2019	September 1, 2026	KeyBank		125,000		1.3020	%
January 3, 2020	September 1, 2026	KeyBank		92,500		1.6090	%
March 4, 2020	June 1, 2026	Truist		100,000		0.8200	%
			$	1,167,500		1.3792	%	(2)

(1)

The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2021, one-month LIBOR was 0.11113%.

(2)

Represents the weighted average fixed rate of the interest rate swaps.

As of March 31, 2021, the Company had the following outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk with future effective dates (dollars in thousands):

Future Swaps


Effective Date	Termination Date	Counterparty	Notional Amount	Fixed Rate (1)
June 1, 2021	September 1, 2026	KeyBank	$200,000	0.8450%
June 1, 2021	September 1, 2026	KeyBank	200,000	0.9530%
March 1, 2022	March 1, 2025	Truist	145,000	0.5730%
March 1, 2022	March 1, 2025	Truist	105,000	0.6140%
September 1, 2026	January 1, 2027	KeyBank	92,500	1.7980%
			$742,500	0.9070%	(2)

(3)

The floating rate option for the interest rate swaps is one-month LIBOR. As of March 31, 2021, one-month LIBOR was 0.11113%.

(4)

Represents the weighted average fixed rate of the interest rate swaps.

Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of March 31, 2021 for the next five calendar years subsequent to March 31, 2021. We used one-month LIBOR as of March 31, 2021 to calculate interest expense due by period on our floating rate debt and net interest expense due by period on our interest rate swaps.


		Payments Due by Period (in thousands)
		Total		2021		2022		2023		2024		2025		Thereafter
Operating Properties Mortgage Debt
Principal payments		$	1,167,880	$	698	$	1,502	$	21,254	$	395,085	$	245,910	$	503,431
Interest expense	(1)		42,231		12,907		8,452		6,920		5,801		5,002		3,149
Total		$	1,210,111	$	13,605	$	9,954	$	28,174	$	400,886	$	250,912	$	506,580

Credit Facility
Principal payments		$	183,000	$	—	$	183,000	$	—	$	—	$	—	$	—
Interest expense			4,029		3,663		366		—		—		—		—
Total		$	187,029	$	3,663	$	183,366	$	—	$	—	$	—	$	—

Total contractual obligations and commitments		$	1,397,140	$	17,268	$	193,320	$	28,174	$	400,886	$	250,912	$	506,580

(1)

Interest expense obligations includes the impact of expected settlements on interest rate swaps which have been entered into in order to fix the interest rate on the hedged portion of our floating rate debt obligations. As of March 31, 2021, we had entered into thirteen interest rate swap transactions with a combined notional amount of $1.2 billion. We have allocated the total impact of expected settlements on the $1.2 billion notional amount of interest rate swaps to "Operating Properties Mortgage Debt." We used one-month LIBOR as of March 31, 2021 to determine our expected settlements through the terms of the interest rate swaps.

Capital Expenditures and Value-Add Program

We anticipate incurring average annual repairs and maintenance expense of $575 to $725 per apartment unit in connection with the ongoing operations of our business. These expenditures are expensed as incurred. In addition, we reserve, on average, approximately $250 to $350 per apartment unit for non-recurring capital expenditures and/or lender required replacement reserves. When incurred, these expenditures are either capitalized or expensed, in accordance with GAAP, depending on the type of the expenditure. Although we will continuously monitor the adequacy of this average, we believe these figures to be sufficient to maintain the properties at a high level in the markets in which we operate. A majority of the properties in our Portfolio were underwritten and acquired with the premise that we would invest $4,000 to $10,000 per unit in the first 36 months of ownership, in an effort to add value to the asset’s exterior and interiors. In many cases, we reserve cash at the closing of each acquisition to fund these planned capital expenditures and value-add improvements. As of March 31, 2021, we had approximately $9.1 million of renovation value-add reserves for our planned capital expenditures and other expenses to implement our value-add program, which will complete approximately 924 planned interior rehabs. The following table sets forth a summary of our capital expenditures related to our value-add program for the three months ended March 31, 2021 and 2020 (in thousands):


		For the Three Months Ended March 31,
Rehab Expenditures		2021		2020
Interior	(1)	$	2,332	$	2,358
Exterior and common area			2,960		5,619
Total rehab expenditures		$	5,292	$	7,977

(1) Includes total capital expenditures during the period on completed and in-progress interior rehabs. For the three months ended March 31, 2021 and 2020, we completed full and partial interior rehabs on 285 and 412 units, respectively.

Freddie Mac Multifamily Green Advantage Program

In order to obtain more favorable pricing on our mortgage debt financing with Freddie Mac, the Company decided to participate in Freddie Mac’s Multifamily Green Advantage program (the “Green Program”). As of March 31, 2020, the Company has completed its Green Program improvements on all but one property, which is expected to be completed in 2021. We expect to reduce water/sewer costs at each property where the Green Program is implemented by at least 15% through the replacement of showerheads, plumbing fixtures and toilets with modern energy efficient upgrades. Due to changes in Freddie Mac’s requirements to participate in the Green Program, we are not implementing this on acquisitions going forward.

Income Taxes

We anticipate that we will continue to qualify to be taxed as a REIT for U.S. federal income tax purposes, and we intend to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the three months ended March 31, 2021 and 2020.

If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and dividends paid to our stockholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT.

We evaluate the accounting and disclosure of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” (greater than 50 percent probability) of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Our management is required to analyze all open tax years, as defined by the statute of limitations, for all major jurisdictions, which include federal and certain states. We have no examinations in progress and none are expected at this time.

We recognize our tax positions and evaluate them using a two-step process. First, we determine whether a tax position is more likely than not to be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. Second, we will determine the amount of benefit to recognize and record the amount that is more likely than not to be realized upon ultimate settlement.

We had no material unrecognized tax benefit or expense, accrued interest or penalties as of March 31, 2021. We and our subsidiaries are subject to federal income tax as well as income tax of various state and local jurisdictions. The 2020, 2019 and 2018 tax years remain open to examination by tax jurisdictions to which our subsidiaries and we are subject. When applicable, we recognize interest and/or penalties related to uncertain tax positions on our consolidated statements of operations and comprehensive income (loss).

Dividends

We intend to make regular quarterly dividend payments to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. We intend to make regular quarterly dividend payments of all or substantially all of our taxable income to holders of our common stock out of assets legally available for this purpose, if and to the extent authorized by our Board. Before we make any dividend payments, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets, borrow funds or raise additional capital to make cash dividends or we may make a portion of the required dividend in the form of a taxable distribution of stock or debt securities.

We will make dividend payments based on our estimate of taxable earnings per share of common stock, but not earnings calculated pursuant to GAAP. Our dividends and taxable income and GAAP earnings will typically differ due to items such as depreciation and amortization, fair value adjustments, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. Our quarterly dividends per share may be substantially different than our quarterly taxable earnings and GAAP earnings per share. Our Board declared our first quarterly dividend of 2021 of $0.34125 per share on February 15, 2021, which was paid on March 31, 2021 and funded out of cash flows from operations.

Off-Balance Sheet Arrangements

As of March 31, 2021 and December 31, 2020, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes that would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Below is a discussion of the accounting policies that we consider critical to understanding our financial condition or results of operations where there is uncertainty or where significant judgment is required. A discussion of recent accounting pronouncements and our significant accounting policies, including further discussion of the accounting policies described below, can be found in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements included in this quarterly report.

Purchase Price Allocation

Upon acquisition of a property considered to be an asset acquisition, the purchase price and related acquisition costs (“total consideration”) are allocated to land, buildings, improvements, furniture, fixtures, and equipment, and intangible lease assets based on relative fair value in accordance with FASB ASC 805, Business Combinations. Acquisition costs are capitalized in accordance with FASB ASC 805.

The allocation of total consideration, which is determined using inputs that are classified within Level 3 of the fair value hierarchy established by FASB ASC 820, Fair Value Measurement and Disclosures (see Note 7 to our consolidated financial statements), is based on management’s estimate of the property’s “as-if” vacant fair value and is calculated by using all available information such as the replacement cost of such asset, appraisals, property condition reports, market data and other related information. If any debt is assumed in an acquisition, the difference between the fair value, which is estimated using inputs that are classified within Level 2 of the fair value hierarchy, and the face value of debt is recorded as a premium or discount and amortized as interest expense over the life of the debt assumed.

Impairment

Real estate assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The key inputs into our impairment analysis include, but are not limited to, the holding period, net operating income, and capitalization rates. In such cases, we will evaluate the recoverability of such real estate assets based on estimated future cash flows and the estimated liquidation value of such real estate assets, and provide for impairment if such undiscounted cash flows are insufficient to recover the carrying amount of the real estate asset. If impaired, the real estate asset will be written down to its estimated fair value. The Company’s impairment analysis identifies and evaluates events or changes in circumstances that indicate the carrying amount of a real estate investment may not be recoverable, including determining the period the Company will hold the rental property, net operating income, and the estimated capitalization rate for each respective real estate investment.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate. The majority of our lease terms are for a period of one year or less and reset to market if renewed. The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities. Should inflation return, due to the short-term nature of our leases, we do not believe our results will be materially affected.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. Currently, interest rates are less than historical averages. However, the Federal Reserve, in response to or in anticipation of continued inflation concerns, could continue to raise interest rates. We intend to mitigate these risks through long-term fixed interest rate loans and interest rate hedges, which to date have included interest rate cap and interest rate swap agreements.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our “REIT taxable income,” as defined by the Code, to our stockholders. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. We had no significant taxes associated with our TRS for the three months ended March 31, 2021 and 2020. We believe we qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify as a REIT.

Item 3. Quantitative and Qualita tive Disclosures About Market Risk

Market risk is the adverse effect on the value of assets and liabilities that results from a change in market conditions. Our primary market risk exposure is interest rate risk with respect to our indebtedness and counterparty credit risk with respect to our interest rate derivatives. In order to minimize counterparty credit risk, we enter into and expect to enter into hedging arrangements only with major financial institutions that have high credit ratings. As of March 31, 2021, we had total indebtedness of $1.4 billion at a weighted average interest rate of 1.91%, of which $1.3 billion was debt with a floating interest rate. The interest rate swap agreements we have entered into effectively fix the interest rate on 100% of our $1.1 billion of floating rate mortgage debt outstanding (see below). As of March 31, 2021, the adjusted weighted average interest rate of our total indebtedness was 3.07%. For purposes of calculating the adjusted weighted average interest rate of the total indebtedness, we have included the weighted average fixed rate of 1.3792% for one-month LIBOR on the $1.2 billion notional amount of interest rate swap agreements that we have entered into as of March 31, 2021, which effectively fix the interest rate on $1.1 billion of our floating rate mortgage debt outstanding.

An increase in interest rates could make the financing of any acquisition by us costlier. Rising interest rates could also limit our ability to refinance our debt when it matures or cause us to pay higher interest rates upon refinancing and increase interest expense on refinanced indebtedness. We may manage, or hedge, interest rate risks related to our borrowings by means of interest rate cap and interest rate swap agreements. As of March 31, 2021, the interest rate cap agreements we have entered into effectively cap one-month LIBOR on $379.4 million of our floating rate mortgage debt at a weighted average rate of 5.52% for the term of the agreements, which is generally 3 to 4 years. We also expect to manage our exposure to interest rate risk by maintaining a mix of fixed and floating rates for our indebtedness.

In order to fix a portion of, and mitigate the risk associated with, our floating rate indebtedness (without incurring substantial prepayment penalties or defeasance costs typically associated with fixed rate indebtedness when repaid early or refinanced), we, through the OP, have entered into thirteen interest rate swap transactions with the Counterparties with a combined notional amount of $1.2 billion. The interest rate swaps we have entered into effectively replace the floating interest rate (one-month LIBOR) with respect to that amount with a weighted average fixed rate of 1.3792%. During the term of these interest rate swap agreements, we are required to make monthly fixed rate payments of 1.3792%, on a weighted average basis, on the notional amounts, while the Counterparties are obligated to make monthly floating rate payments based on one-month LIBOR to us referencing the same notional amounts. We have designated these interest rate swaps as cash flow hedges of interest rate risk.

Until our interest rates reach the caps provided by our interest rate cap agreements, each quarter point change in LIBOR would result in an approximate increase to annual interest expense costs on our floating rate indebtedness, reduced by any payments due from the Counterparties under the terms of the interest rate swap agreements we had entered into as of March 31, 2021, of the amounts illustrated in the table below for our indebtedness as of March 31, 2021 (dollars in thousands):


Change in Interest Rates		Annual Increase to Interest Expense
0.25%		$280
0.50%		560
0.75%		840
1.00%		1,120

There is no assurance that we would realize such expense as such changes in interest rates could alter our liability positions or strategies in response to such changes.

We may also be exposed to credit risk in the derivative financial instruments we use. Credit risk is the failure of the counterparty to perform under the terms of the derivative financial instruments. If the fair value of a derivative financial instrument is positive, the counterparty will owe us, which creates credit risk for us. If the fair value of a derivative financial instrument is negative, we will owe the counterparty and, therefore, do not have credit risk. We seek to minimize the credit risk in derivative financial instruments by entering into transactions with major financial institutions that have high credit ratings.

In July 2017, the Financial Conduct Authority of the U.K. (the “FCA”) (the authority that regulates LIBOR) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. The Alternative Reference Rates ("ARRC") has proposed that the SOFR is the rate that represents best practice as the alternative to USD-LIBOR for use in derivatives and other financial contracts that are currently indexed to USD-LIBOR. ARRC has proposed a paced market transition plan to SOFR from USD-LIBOR and organizations are currently working on industry wide and company specific transition plans as it relates to derivatives and cash markets exposed to USD-LIBOR. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates, whether the COVID-19 outbreak will have further effect on LIBOR transition timelines or plans, or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. Furthermore, on November 30, 2020, the ICE Benchmark Administration Limited, with the support of the FCA and the U.S. Federal Reserve, announced plans to consult on ceasing publication of LIBOR on December 31, 2021 for only the one-week and two-month LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. While this announcement extends the transition period to June 2023, the U.S. Federal Reserve concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. On March 5, 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of the one-week and two-month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings. We have material contracts that are indexed to USD-LIBOR and are monitoring this activity and evaluating the related risks.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of March 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2021, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the President and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are party to legal proceedings that arise in the ordinary course of our business. Management is not aware of any legal proceedings of which the outcome is reasonably likely to have a material adverse effect on our results of operations or financial condition, nor are we aware of any such legal proceedings contemplated by government agencies.

Item 1A. Ri sk Factors

There have been no material changes to the risk factors previously disclosed under Part I, Item 1A, “Risk Factors” in our Annual Report, filed with the SEC on February 22, 2021.

Item 2. Unregistered Sales of Equi ty Securities and Use of Proceeds

Repurchase of Shares

On June 15, 2016, we announced that our Board authorized us to repurchase an indeterminate number of shares of our common stock at an aggregate market value of up to $30.0 million during a two-year period that was set to expire on June 15, 2018 (the “Share Repurchase Program”). On April 30, 2018, our Board increased the Share Repurchase Program from $30.0 million to up to $40.0 million and extended it by an additional two years to June 15, 2020. On March 13, 2020, the Board increased the Share Repurchase Program from $40.0 million to up to $100.0 million and extended it to March 12, 2023. During the three months ended March 31, 2021, the Company repurchased no shares of its common stock. During the three months ended March 31, 2020, the Company repurchased 1,090,480 shares of its common stock. Since the inception of the Share Repurchase Program through March 31, 2021, the Company had repurchased 2,382,155 shares of its common stock, par value $0.01 per share, at a total cost of approximately $61.2 million, or $25.70 per share as shown in the table below:


Period	Total Number of Shares Purchased	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that may yet be Purchased under the Plans or Programs (in millions)
Beginning Total	2,382,155	$25.70	2,382,155	$38.8
January 1 – January 31	—	—	—	38.8
February 1 – February 28	—	—	—	38.8
March 1 – March 31	—	—	—	38.8
Total as of March 31, 2021	2,382,155	$25.70	2,382,155	$38.8

Item 3. Defaults Upo n Senior Securities

None.

Item 4. Mine Saf ety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

EXHIBIT INDEX


Exhibit Number		Description



31.1*		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1 +		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

101.INS*		Inline XBRL Instance Document (The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document)

101.SCH*		Inline XBRL Taxonomy Extension Schema

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase
104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished herewith.

SIGNAT URES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

NEXPOINT RESIDENTIAL TRUST, INC.


Signature	Title	Date

/s/ Jim Dondero	President and Director	April 29, 2021
Jim Dondero	(Principal Executive Officer)

/s/ Brian Mitts	Chief Financial Officer and Director	April 29, 2021
Brian Mitts	(Principal Financial Officer and Principal Accounting Officer)

TABLE OF CONTENTS

Part I Financial Information Item 1. Financial Statements Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations 28 Item 3. Quantitative and Qualitative Disclosures About Market Risk 44 Item 4. Controls and Procedures 45 Part II Other Information Item 1. Legal Proceedings 46 Item 1A. Risk Factors 46 Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds 46 Item 3. Defaults Upon Senior Securities 46 Item 4. Mine Safety Disclosures 46 Item 5. Other Information 46 Item 6. Exhibits 47 Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 2. Management S Discussion and Analysis O Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 3. Quantitative and Qualita Item 4. Controls and Procedures Item 4. Controls Item 1. Legal Proceedings Item 1. Legal Item 1A. Risk Factors Item 1A. Ri Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 2. Unregistered Sales Of Equi Item 3. Defaults Upon Senior Securities Item 3. Defaults Upo Item 4. Mine Safety Disclosures Item 4. Mine Saf Item 5. Other Information Item 5. Other Item 6. Exhibits

Exhibits

31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1+ Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

NXRT 10-Q Quarter ended March 31, 2021

Exhibits