EDGAR 10-K Filing

Company CIK: 1559484
Filing Year: 2022
Filename: 1559484_10-K_2022_0000950170-22-004631.json

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ITEM 1. BUSINESS
ITEM 1. 	BUSINESS
General
Resource REIT, Inc. is a Maryland corporation that has elected to be taxed as a real estate investment trust, or REIT, and to operate as a REIT beginning with our taxable year ended December 31, 2014. As used herein, the terms “we,” “our” and “us” refer to Resource REIT, Inc. and, as required by context RRE Opportunity OP II, LP (“OP II”), a Delaware limited partnership through which we own our interest in all of our properties, and to its subsidiaries. We focus on multifamily assets, although we may also purchase interests in other types of commercial property assets consistent with our investment objectives. We have acquired and may continue to acquire underperforming apartment communities which we will renovate and optimize in order to increase rents and, to a lesser extent, acquire or originate commercial real estate debt secured by apartments. . As of December 31, 2021, we owned 45 properties in 13 states, comprising a total of 13,707 multifamily units, as described further in “Item 2. Properties”. Our objective is to invest in multifamily assets across the entire spectrum of investments in order to provide stockholders with growing cash flow and increasing asset values.
On January 28, 2021, we acquired Resource Real Estate Opportunity REIT I, Inc. (“REIT I”) and Resource Apartment REIT III, Inc. (“REIT III”) and their respective subsidiaries in stock-for-stock transactions (together, the “Resource REIT Mergers”). As a result of our acquisition of REIT I and its subsidiaries, including the entities that provide our advisory, asset and property management services, we are a self-managed REIT and have 44 employees. Prior to January 28, 2021, we were externally advised by Resource Real Estate Opportunity Advisor II, LLC (our “Advisor”) pursuant to an advisory agreement initially entered in February 2014.
Through a series of transactions which we refer to as the “Self-Management Transaction,” REIT I acquired our Advisor and Resource Real Estate Opportunity Manager II, LLC (our “Manager”) on September 8, 2020 from C-III Capital Partners, LLC (“C-III”) and its affiliates. Prior to this transaction, our Advisor was an indirect wholly-owned subsidiary of Resource America, Inc. (“RAI”), our initial sponsor and a wholly-owned subsidiary of C-III.
Proposed Merger with Blackstone Real Estate Income Trust, Inc.
On January 23, 2022, we, Rapids Parent LLC (“Rapids Parent”) and Rapids Merger Sub LLC (“Rapids Merger Sub”) entered into an Agreement and Plan of Merger (the “Blackstone Merger Agreement”). The Blackstone Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, we will merge with and into Rapids Merger Sub (the “Blackstone Merger”). Upon completion of the Blackstone Merger, Rapids Merger Sub will survive and our separate existence will cease. The Blackstone Merger and the other transactions contemplated by the Blackstone Merger Agreement were unanimously approved by our board of directors. Rapids Parent and Rapids Merger Sub are affiliates of BREIT, which is an affiliate of Blackstone, Inc.
Pursuant to the terms and conditions in the Blackstone Merger Agreement, at the effective time of the Blackstone Merger (the “Effective Time”), each share of our common stock that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled and converted into the right to receive an amount in cash equal to $14.75, without interest. In addition, at the Effective Time, each share of our convertible stock that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled and converted into the right to receive an amount in cash equal to $1,846.76, without interest.
The Blackstone Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by us to conduct our business in all material respects in the ordinary course of business and in a manner consistent with past practice, subject to certain exceptions, during the period between the execution of the Blackstone Merger Agreement and the consummation of the Blackstone Merger. The obligations of the parties to consummate the Blackstone Merger are not subject to any financing condition or the receipt of any financing by Rapids Parent or Rapids Merger Sub.
The consummation of the Blackstone Merger is subject to certain customary closing conditions, including, among others, approval of the Blackstone Merger by the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to cast a vote on the Blackstone Merger (the “Stockholder Approval”). We will hold a special meeting on May 16, 2022 for the purpose of obtaining the Stockholder Approval. In addition, the holders of more than two-thirds of the outstanding shares of our convertible stock entitled to vote on the Blackstone Merger have approved the Blackstone Merger by written consent in accordance with Maryland law and our charter and bylaws.
The foregoing description of the Blackstone Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Blackstone Merger Agreement filed as Exhibit 2.1 to our Current
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Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 24, 2022 and to our definitive proxy statement filed with the SEC on March 14, 2022. For additional information regarding the Blackstone Merger, including associated risks and uncertainties, see Part I, Item 1A - Risk Factors. There is no guarantee that the Blackstone Merger will be consummated.
Our Offerings
We commenced capital raising activities in February 2014 when we launched our initial public offering, the primary portion of which terminated in February 2016. As of December 31, 2021, we had raised $566.8 million in our public offerings, including $99.1 million in our distribution reinvestment plan offering (the “DRP Offering”).
Our Business Strategy
Our business strategy has a particular focus on multifamily assets, although we may also purchase interests in other types of commercial property assets consistent with our investment objectives. We have acquired underperforming apartment communities which we have or will renovate and optimize in order to increase rents and, to a lesser extent, acquired or originated commercial real estate debt secured by apartments. We may make adjustments to our target portfolio based on real estate market conditions and investment opportunities. We will not forego an attractive investment because it does not fit within our targeted asset class or portfolio composition.
Our Operating Policies and Strategies
Our Investment Committee, which includes three of our independent directors, approves proposed real estate property investments and real estate-related debt investments. Our board of directors meets regularly to monitor the execution of our investment strategies and our progress in achieving our investment objectives.
We may use leverage for our acquisitions in the form of both REIT level financing and individual investment financing. Such financing, both at the REIT level and at the individual investment level, may also be obtained from the seller of an investment.
Our Advisor and our Property Manager
As of January 28, 2021, when we acquired REIT I, we have acquired our Advisor and Manager, and are a self-managed REIT. Our Advisor originally invested approximately $1.2 million in us; however, in conjunction with the Self-Management Transaction, our Advisor transferred its 137,432 shares of our common stock to C-III. As of December 31, 2021, of the 50,000 shares of our convertible stock that are issued and outstanding, 19,968 shares were granted to individuals who were employees of RAI and its subsidiaries and affiliates at the time of the grants. The shares granted vested ratably over three years; 18,628 of the shares have vested as of December 31, 2021. Vested shares of convertible stock will only convert to common stock upon certain triggering events, none of which occurred or are probable to occur as of December 31, 2021.
Pursuant to the terms and conditions in the Blackstone Merger Agreement, at the Effective Time of the Blackstone Merger, each share of convertible stock owned by affiliated persons (or fraction thereof) that is issued and outstanding immediately prior to the Effective Time of the Blackstone Merger will be automatically cancelled and converted into the right to receive an amount in cash equal to $1,846.76, without interest.
Greystar, a third-party, is a property management company that we have subcontracted with to manage most of the real estate assets that we own. The employees of Greystar, with the oversight of our asset management team, assist in providing property management as well as construction management services to us.
Competition
We believe that the current market for properties that meet our investment objectives is extremely competitive and many of our competitors have greater resources than we do. We believe that our multifamily communities are suitable for their intended purposes and adequately covered by insurance. There are a number of comparable properties located in the same submarkets that may compete with them. We compete with numerous other entities engaged in real estate investment activities, including individuals, corporations, banks and insurance company investment accounts, other REITs, real estate limited partnerships, the U.S. Government and other entities, to acquire, manage and sell real estate properties and real estate related assets. Many of our competitors enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase.
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Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.
Human Capital Resources
Until the effective time of the REIT I Merger on January 28, 2021, we were externally advised by our Advisor and engaged our Manager, an affiliated property manager, and an unaffiliated property sub-manager, to provide property management services to us. As an externally advised REIT we relied on the employees of our Advisor, Manager and sub-manager to provide services related to our operations.
As of December 31, 2021, we have 44 employees located in three different cities with the majority based out of our principal office in Philadelphia. Approximately 45% of our employees are women and approximately 11% of our employees are people of color or minorities. 98% of our employees are full time. Although we are a recently self-managed REIT with our own employees, our employees have been involved in our operations through their employment with our Advisor, Manager and their affiliates for an average of 10.4 years. None of our employees are represented by a labor union. We believe that a wide range of opinions and experiences are key to our continued success, and we therefore value racial, gender, and generational diversity throughout our organization.
We believe prioritizing employee well-being is a key element for attracting and retaining the best and most talented associates. Our key human capital management objectives are to attract, recruit, hire, develop and promote a deep and diverse bench of talent that translates into a strong and successful workforce. To support these objectives, our human resources programs are designed to develop talent to prepare them for the critical roles and leadership positions for the future; reward and support employees through competitive pay and benefit programs; enhance our culture through efforts to foster, promote, and preserve a culture of diversity and inclusion; and evolve and invest in technology, tools, and resources to enable employees at work.
In addition to competitive wages and salaries, our compensation programs include cash bonus and equity incentive compensation opportunities, a 401(k) plan with employer matching, medical, dental and vision insurance, health savings and dependent care flexible spending accounts, paid time off, short- and long-term disability insurance, life insurance, a variety of personal and family leave options, life-planning financial and legal resources, and other voluntary supplemental benefits.
We sponsor a number of programs and events that emphasize the health and well-being of our employees, including relational, financial, emotional and physical programs. We promote a culture of health and well-being through employee assistance program services, comprehensive health care benefits and resources for preventative health, such as flu shot clinics and healthy lifestyle programs. Throughout the course of the COVID-19 pandemic, we have put the health and safety of our employees and their families first, supporting comprehensive work-from-home policies, as well as enhanced safety measures and precautions in each of our offices as recommended by the federal, state and local agencies for employees who carry out essential on-site work.
We communicate with our workforce through a variety of channels and encourage open and direct communication, including monthly company-wide calls with executives and frequent corporate email communications. Also, to continuously monitor and improve employee performance and engagement, we conduct annual performance reviews.
We actively support charitable organizations that promote education and social well-being and we encourage our employees to personally volunteer with organizations that are meaningful to them. For example, we proudly sponsor local charities and our employees volunteer in local charitable organizations such as Rebuilding Together Philadelphia which works to transform vulnerable, owner-occupied houses into safe, healthy and energy-efficient homes.	
We believe that all individuals should be treated with dignity and respect, and have adopted policies that, among other things, prohibit discrimination and harassment.
Access to Company Information
We electronically file our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the United States Securities and Exchange Commission (“SEC”). The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically.
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We make available free of charge, the Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports on our website, www.resourcereit.com, or by responding to requests addressed to our investor relations group. These reports are available as soon as reasonably practicable after such material is electronically filed or furnished to the SEC.
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ITEM 1A. RISK FACTORS
ITEM 1A.	 RISK FACTORS
Below are some of the risks and uncertainties that could cause our actual results to differ materially from those presented in our forward-looking statements. The risks and uncertainties described below are not the only ones we face but do represent those risks and uncertainties that we believe are material to our business, operating results, prospects, and financial condition. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also harm our business.
Risks Related to the Proposed Blackstone Merger
The Blackstone Merger is subject to a number of conditions which, if not satisfied or waived in a timely manner, would delay the Blackstone Merger or adversely impact our ability to complete the transaction.
The completion of the Blackstone Merger is subject to the satisfaction or waiver of certain customary closing conditions, including the approval of the Blackstone Merger by the affirmative vote of the holders of a majority of the outstanding shares of our common stock. While it is currently anticipated that the Blackstone Merger will be completed shortly after our special meeting to approve the Blackstone Merger, there can be no assurance that the conditions to closing will be satisfied in a timely manner or at all, or that an effect, event, circumstance, occurrence, development or change will not transpire that could delay or prevent these conditions from being satisfied. In addition, under circumstances specified in the Blackstone Merger Agreement, we or BREIT may terminate the Blackstone Merger Agreement. Accordingly, we can provide no assurances with respect to the timing of the closing, whether the Blackstone Merger will be completed at all and when our stockholders would receive the consideration for the Blackstone Merger, if at all.
Failure to consummate the Blackstone Merger as currently contemplated or at all could adversely affect our future business and financial results.
The Blackstone Merger may be consummated on terms different than those contemplated by the Blackstone Merger Agreement, or the Blackstone Merger may not be consummated at all. If the Blackstone Merger is not completed, or is completed on different terms than as contemplated by the Blackstone Merger Agreement, we could be adversely affected and subject to a variety of risks associated with the failure to consummate the Merger, or to consummate the Blackstone Merger as contemplated by the Blackstone Merger Agreement, including the following:
•the requirement, under certain circumstances, for us to pay BREIT a termination fee;
•incurrence of substantial costs relating to the proposed Blackstone Merger, such as legal, accounting, financial advisor, filing, printing and mailing fees; and
•the attention of our management and employees may be diverted from their day-to-day business and operational matters as a result of efforts relating to attempting to consummate the Blackstone Merger.
Any delay in the consummation of the Blackstone Merger or any uncertainty about the consummation of the Blackstone Merger on terms other than those contemplated by the Blackstone Merger Agreement, or if the Blackstone Merger is not completed, could materially adversely affect our business and financial results.
The pendency of the Blackstone Merger could adversely affect our business and operations.
In connection with the pending Blackstone Merger, some of the parties with whom we do business may delay or defer decisions, which could negatively impact our revenues, earnings, cash flows and expenses, regardless of whether the Blackstone Merger is completed. In addition, under the Blackstone Merger Agreement, we are subject to certain restrictions on the conduct of our business prior to completing the Blackstone Merger. These restrictions may prevent us from pursuing certain strategic transactions, acquiring and disposing assets, undertaking certain capital projects, undertaking certain financing transactions and otherwise pursuing other actions that are not in the ordinary course of business, even if such actions could prove beneficial. These restrictions may impede our growth which could negatively impact our revenue, earnings and cash flows. Additionally, the pendency of the Blackstone Merger may make it more difficult for us to effectively retain and incentivize key personnel.
Stockholder litigation could prevent or delay the closing of the pending Blackstone Merger or otherwise negatively impact our business, operating results and financial condition.
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If a stockholder were to commence litigation related to the pending Blackstone Merger, we may incur significant costs in connection with the defense or settlement of any such litigation including costs associated with the indemnification of obligations to our directors. Such litigation may also adversely affect our ability to complete the pending Blackstone Merger.
Risks Related to an Investment in Us
There is no public trading market for your shares; therefore, it will be difficult for you to sell your shares.
There is no current established public market for our shares and our charter does not require our directors to seek stockholder approval to liquidate our assets by a specified date nor list our shares on an exchange by a specified date. Our charter limits your ability to transfer or sell your shares unless the prospective stockholder meets the applicable suitability and minimum purchase standards. Our charter also prohibits the ownership of more than 9.8% of our stock, unless exempted by our board of directors, which may inhibit large investors from desiring to purchase your shares. Moreover, our share redemption program is suspended. Therefore, it will be difficult for you to sell your shares promptly or at all. If you are able to sell your shares, you would likely have to sell them at a substantial discount to the estimated net asset value. It is also likely that your shares would not be accepted as the primary collateral for a loan.
We are recently self-managed.
On January 28, 2021, upon consummation of the merger with REIT I, we became a self-managed REIT. We no longer bear the costs of the various fees and expense reimbursements previously paid to our Advisor; however, our expenses now include the compensation and benefits of our officers, employees and consultants, as well as overhead previously paid by our Advisor and their affiliates. Our employees provide services historically provided by the external advisor and its affiliates. We are subject to potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes, and other employee-related liabilities and grievances, and we bear the cost of the establishment and maintenance of any employee compensation plans. In addition, because we had not previously operated as a self-managed REIT, we may encounter unforeseen costs, expenses and difficulties associated with providing these services on a self-advised basis. If we incur unexpected expenses as a result of our self-management, our results of operations could be lower than they otherwise would have been.
The loss of or the inability to hire additional or replacement key real estate and debt finance professionals could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment.
We believe that our future success depends, in large part, upon our ability to retain highly skilled managerial, operational and marketing professionals. Competition for such professionals is intense, and we may be unsuccessful in attracting and retaining such skilled individuals. If we are unable to obtain the services of highly skilled professionals, our ability to implement our investment strategies could be delayed or hindered and the value of your investment may decline.
If we make distributions from sources other than our cash flow from operations, we will have less funds available for the acquisition of properties, your overall return may be reduced and the value of a share of our common stock may be diluted.
We will declare distributions when our board of directors determines we have sufficient cash flow. Our board of directors considers many factors before authorizing a cash distribution, including current and projected cash flow from operations, capital expenditure needs, general financial conditions and REIT qualification requirements. We expect that our board may declare cash distributions that are paid in advance of our receipt of cash flow that we expect to receive during a later period. In these instances, where we do not have sufficient cash flow to cover our distributions, we expect to use the proceeds from borrowings or asset sales to pay distributions. We may borrow funds or sell assets to make and cover our declared distributions, all or a portion of which could be deemed a return of capital. We may also fund such distributions from third-party borrowings. If we fund cash distributions from borrowings, sales of assets or the net proceeds from securities issuances, we will have less funds available for the acquisition of real estate and real estate-related assets and your overall return may be reduced. Further, to the extent cash distributions exceed cash flow from operations, a stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a stockholder’s basis, the stockholder may recognize capital gain. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.
The outbreak of widespread contagious disease, such as the novel coronavirus, COVID-19, could adversely impact our operations and the value of our investments.
The outbreak of the COVID-19 virus in 2020 has created considerable instability and disruption in the U.S. and world economies. The extent to which our results of operations or our overall value will be affected by the COVID-19 virus will largely depend on future developments, which remain uncertain and cannot be accurately predicted, including new information which
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may emerge concerning the severity of the COVID-19 virus and the actions required to be undertaken to contain the COVID-19 virus or treat its impact. As a result of shutdowns, quarantines or actual viral health issues, tenants at our multifamily apartment communities may experience reduced wages for a prolonged period of time and may be unable to make their rental payments. We may be unable to evict tenants due to federal, state and/or local laws or regulations or lender requirements implemented as a result of the COVID-19 virus outbreak. Our results of operations have also been partially impacted as a result of waiving late fees and the suspension of evictions at our properties. In addition, property managers may be limited in their ability to properly maintain our multifamily apartment communities and we have and may continue to defer significant value-add projects. Market fluctuations may affect our ability to obtain necessary funds for our operations from current lenders or new borrowings. In addition, we may be unable to obtain financing for the acquisition of investments on satisfactory terms, or at all. The occurrence of any of the foregoing events or any other related matters could materially and adversely affect our financial performance and our overall value, and investors could lose all or a substantial portion of their investment.
Future interest rate increases in response to inflation may inhibit our ability to conduct our business and acquire or dispose of real property or real estate-related debt investments at attractive prices and your overall return may be reduced.
While we expect a significant amount of our leases to be short term multi-family leases that are not impacted by inflation, we will be exposed to inflation risk with respect to income from any long-term leases on real property and from related real estate debt investments as these may constitute a source of our cash flows from operations. High inflation may tighten credit and increase prices. Further, if interest rates rise, such as during an inflationary period, the cost of acquisition capital to purchasers may also rise, which could adversely impact our ability to dispose of our assets at attractive sales prices. Should we be required to acquire, hold or dispose of our assets during a period of inflation, our overall return may be reduced.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
Maryland law provides that a director or officer has no liability in that capacity if he or she performs his or her duties in good faith, in a manner he or she reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter require us to indemnify our directors and officers to the maximum extent permitted by Maryland law for liability actually incurred in connection with any proceeding to which they may be made, or threatened to be made, a party, except to the extent that the act or omission of the director or officer was material to the matter giving rise to the proceeding and was either committed in bad faith or was the result of active and deliberate dishonesty, the director or officer actually received an improper personal benefit in money, property or services, or, in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. In addition, our charter eliminates our directors’ and officers’ liability to us and our stockholders for monetary damages, except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty established by a final judgment and which is material to the cause of action. As a result, we and our stockholders may have more limited rights against our directors and officers than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by our directors and officers.
We may change our policies and our operations without stockholder consent.
Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under Maryland General Corporation Law and our charter, our stockholders have a right to vote only on limited matters. Our board’s broad discretion in setting policies and our stockholders’ inability to exert control over those policies increases the uncertainty and risks you face as a stockholder.
The estimated value per share of our common stock may not reflect the value that stockholders will receive for their investment.
On January 23, 2022, our board of directors approved an estimated value per share of our common stock of $14.75 based solely on the cash consideration to be paid to our common stockholders by BREIT in connection with the Blackstone Merger. See “Background of the Merger” in our definitive proxy statement filed with the SEC on March 14, 2022 for additional information about how the merger consideration was determined. We provided this estimated value per share to assist broker-dealers that participated in our public offerings in meeting their customer account statement reporting obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231. The estimated value per share is based solely on the merger consideration that BREIT is willing to pay to acquire our shares of common stock. With respect to the estimated value per share, we can give no assurances that:
•a stockholder would be able to resell his or her shares at the estimated value per share;
•a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of our liabilities or a sale of our company;
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•our shares of common stock would trade at the estimated value per share on a national securities exchange;
•independent third-party appraiser or third-party valuation firm would agree with the our estimated value per share; or
•the methodology used to calculate our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.
We face risks associated with security breaches through cyber-attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology, or IT, networks and related systems.
We will face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our IT networks and related systems or the IT systems of our vendors. The risk of a security breach or disruption, particularly through cyber-attack or cyber intrusion, including by computer hackers, foreign governments and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our IT networks and related systems (including the IT systems of our vendors, such as Greystar, our third-party property manager) are essential to the operation of our business and our ability to perform day-to-day operations, and, in some cases, may be critical to the operations of certain of our tenants. There can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving our, or our vendors, IT networks and related systems could adversely impact our financial condition, results of operations, cash flows, and our ability to satisfy our debt service obligations and to pay distributions to our stockholders.
Risks Related to Our Corporate Structure
Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. To help us comply with the REIT ownership requirements of the Internal Revenue Code, our charter prohibits a person from directly or constructively owning more than 9.8% of our outstanding shares, unless exempted by our board of directors. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all, or substantially all, of our assets) that might provide a premium price for holders of our common stock.
Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third-party from acquiring us in a manner that could result in a premium price to our stockholders.
Our board of directors may increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications and terms or conditions of redemption of any such stock. Our board of directors could authorize the issuance of preferred stock with terms and conditions that could have priority as to distributions and amounts payable upon liquidation over the rights of the holders of our common stock. Such preferred stock could also have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all, or substantially all, of our assets) that might provide a premium price to holders of our common stock. Prior to the amendment of our charter in July 2021 (following our transition to a self-managed structure), our charter required our conflicts committee, which consists of all of our independent directors, to approve any issuance of preferred stock. Although we have amended our charter to remove references to our conflicts committee due to no longer being externally advised, our independent directors continue to be charged with the responsibility of approving any such issuance of preferred stock.
Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or our exception from the definition of an investment company under the Investment Company Act.
If the market value or income potential of our qualifying real estate assets changes as compared to the market value or income potential of our non-qualifying assets, or if the market value or income potential of our assets that are considered “real estate-related assets” under the Investment Company Act or REIT qualification tests changes as compared to the market value or income potential of our assets that are not considered “real estate-related assets” under the Investment Company Act or REIT
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qualification tests, whether as a result of increased interest rates, prepayment rates or other factors, we may need to modify our investment portfolio in order to maintain our REIT qualification or exception from the definition of an investment company. If the decline in asset values or income occurs quickly, this may be especially difficult, if not impossible, to accomplish. This difficulty may be exacerbated by the illiquid nature of many of the assets that we may own. We may have to make investment decisions that we otherwise would not make absent REIT and Investment Company Act considerations.
You may not be able to sell your shares under our share redemption program and, if you are able to sell your shares under the program, you may not be able to recover the amount of your investment in our shares.
On January 23, 2022, our board of directors suspended our share redemption program. Previously, our share redemption program was only available for redemptions submitted in connection with a stockholder’s death, qualifying disability or confinement to a long-term care facility (each as defined in the share redemption program). Our board of directors may amend, suspend or terminate our share redemption program upon 30 days’ notice without stockholder approval. Our board of directors may reject any request for redemption of shares. Further, there are many limitations on your ability to sell your shares pursuant to the share redemption program. Any stockholder requesting repurchase of their shares pursuant to our share redemption program will be required to certify to us that such stockholder acquired the shares by either (1) a purchase directly from REIT II, REIT I or REIT III or (2) a transfer from the original investor by way of (i) a bona fide gift not for value to, or for the benefit of, a member of the stockholder’s immediate or extended family, (ii) a transfer to a custodian, trustee or other fiduciary for the account of the stockholder or his or her immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or (iii) operation of law.
In addition, our share redemption program contains other restrictions and limitations. We expect to redeem shares on a quarterly basis. If our board of directors determines to fully resume our share redemption program, shares will be redeemed pro rata among all stockholders requesting redemption in such quarter, with a priority given to redemptions upon the death, qualifying disability, or confinement to a long-term care facility of a stockholder; next, to stockholders who demonstrate, in the discretion of our board of directors, another involuntary, exigent circumstance, such as bankruptcy; next, to stockholders subject to a mandatory distribution requirement under such stockholder’s IRA; and, finally, to other redemption requests.
If open, we will not redeem more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption. In addition, the cash available for redemption in a given fiscal quarter will be limited to proceeds from our distribution reinvestment plan during the immediately preceding calendar quarter; provided that, for any quarter in which no proceeds from the distribution reinvestment plan are available, the funding limitation for the quarter will be set by the board of directors upon ten business days’ notice to stockholders.
Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment.
Our stockholders do not have preemptive rights to any shares we issue in the future. Our charter authorizes us to issue 1,010,050,000 shares of capital stock, of which 1,000,000,000 shares are designated as common stock, 50,000 shares are designated as convertible stock and 10,000,000 are designated as preferred stock. Our board of directors may increase the number of authorized shares of capital stock without stockholder approval. Our board may elect to (1) sell additional equity securities in future public or private offerings; (2) issue shares of our common stock upon the exercise of the options we may grant to our independent directors or to employees of our advisor or property manager; (3) issue shares to our Advisor, its successors or assigns, in payment of an outstanding obligation or as consideration in a related-party transaction; (4) issue shares of common stock upon the conversion of our convertible stock; or (5) issue shares of our common stock to sellers of properties we acquire in connection with an exchange of limited partnership interests of our operating partnership. To the extent we issue additional equity interests, your percentage ownership interest in us will be diluted. Further, depending upon the terms of such transactions, most notably the offering price per share, which may be less than the price paid per share in any public offering and the value of our properties, existing stockholders may also experience a dilution in the book value of their investment in us.
Our board of directors could opt into certain provisions of the Maryland General Corporation Law in the future, which may discourage others from trying to acquire control of us and may prevent our stockholders from receiving a premium price for their stock in connection with a business combination.
Under Maryland law, “business combinations” between a Maryland corporation and certain interested stockholders or affiliates of interested stockholders are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. Also under Maryland law, control shares of a Maryland corporation acquired in a control share acquisition have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. Shares owned by the acquirer, an officer of the corporation or an employee of the corporation who is also a director of the corporation are excluded from the vote on whether to
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accord voting rights to the control shares. Should our board opt into these provisions of Maryland law, it may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.
Because Maryland law permits our board to adopt certain anti-takeover measures without stockholder approval, investors may be less likely to receive a “control premium” for their shares.
In 1999, the State of Maryland enacted legislation that enhances the power of Maryland corporations to protect themselves from unsolicited takeovers. Among other things, the legislation permits our board, without stockholder approval, to amend our charter to:
•stagger our board of directors into three classes;
•require a two-thirds stockholder vote for removal of directors;
•provide that only the board can fix the size of the board;
•provide that all vacancies on the board, however created, may be filled only by the affirmative vote of a majority of the remaining directors in office; and
•require that special stockholder meetings may only be called by holders of a majority of the voting shares entitled to be cast at the meeting.
Under Maryland law, a corporation can opt to be governed by some or all of these provisions if it has a class of equity securities registered under the Exchange Act, and has at least three independent directors. Our charter does not prohibit our board from opting into any of the above provisions permitted under Maryland law. Becoming governed by any of these provisions could discourage an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our securities.
Risks Related to Investments in Real Estate
Economic and regulatory changes that impact the real estate market generally may decrease the value of our investments and weaken our operating results.
The properties we acquire and their performance are subject to the risks typically associated with real estate, including:
•downturns in national, regional and local economic conditions;
•competition;
•adverse local conditions, such as oversupply or reduction in demand and changes in real estate zoning laws that may reduce the desirability of real estate in an area;
•vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space;
•changes in the supply of or the demand for similar or competing properties in an area;
•changes in interest rates and the availability of permanent mortgage financing, which may render the sale of a property or loan difficult or unattractive;
•changes in governmental regulations, including those involving tax, real estate usage, environmental and zoning laws; and
•periods of high interest rates and tight money supply.
Any of the above factors, or a combination thereof, could result in a decrease in the value of our investments, which would have an adverse effect on our results of operations, reduce the cash available for distributions and the return on your investment.
Residents of multifamily rental properties who have experienced personal financial problems or a downturn in their business may delay enforcement of our rights, and we may incur substantial costs attempting to protect our investment.
Residents or tenants who have experienced a downturn in their residential or business leases and residents or tenants who have experienced difficulties with their personal financial situations such as a job loss, bankruptcy or bad credit rating, may result in their failure to make timely rental payments or their default under their leases. In the event of any default by residents or tenants at our properties, we may experience delays in enforcing our rights and may incur substantial costs attempting to protect our investment.
The bankruptcy or insolvency of any resident or tenant also may adversely affect the income produced by our properties. If any resident or tenant becomes a debtor in a case under the U.S. Bankruptcy Code, our actions may be restricted by the bankruptcy court and our financial condition and results of operations could be adversely affected.
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The operating costs of our properties will not necessarily decrease if our income decreases.
Certain expenses associated with ownership and operation of a property may be intentionally increased to enhance the short- and long-term success of the property in the form of capital gain and current income, such as:
•increased staffing levels;
•enhanced technology applications; and
•increased marketing efforts.
Certain expenses associated with the ownership and operation of a property are not necessarily reduced by events that adversely affect the income from the property, such as:
•real estate taxes;
•insurance costs; and
•maintenance costs.
For example, if the leased property loses tenants or rents are reduced, then those costs described in the preceding sentence are not necessarily reduced. As a result, our cost of owning and operating leased properties may, in the future, exceed the income the property generates even though the property’s income exceeded its costs at the time it was acquired. This would decrease the amount of cash available to us to distribute to you and could negatively affect your return on investment.
We compete with third parties in acquiring, managing and selling properties and other investments, which could reduce our profitability and the return on your investment.
We believe that the current market for properties that meet our investment objectives is extremely competitive and many of our competitors have greater resources than we do. We compete with numerous other entities engaged in real estate investment activities, including individuals, corporations, banks and insurance company investment accounts, other REITs, real estate limited partnerships, the U.S. Government and other entities, to acquire, manage and sell real estate and real estate-related assets. Many of our expected competitors enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase. 	
Competition with these entities may result in the following:
•greater demand for the acquisition of real estate and real estate-related assets, which results in increased prices we must pay for our real estate and real estate-related assets;
•delayed investment of our capital;
•decreased availability of financing to us; or
•reductions in the size or desirability of the potential tenant base for one or more properties that we lease.
If such events occur, you may experience a lower return on your investment.
Properties that have significant vacancies may experience delays in leasing up or could be difficult to sell, which could diminish our return on these properties.
A property may incur vacancies either by the expiration of tenant leases or the continued default of tenants under their leases. Further, our potential investments in underperforming multifamily rental properties may have significant vacancies at the time of acquisition. If vacancies continue for a prolonged period of time beyond the expected lease-up stage that we anticipate will follow any redevelopment or repositioning efforts, we may suffer reduced revenues resulting in less cash available for distributions. In addition, the resale value of the property could be diminished because the market value of a particular property depends principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction on the resale value of a property could also reduce your return on investment.
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We utilize third-party property managers to manage the day-to-day affairs of properties we acquire, and should the staff of a particular property perform poorly, our operating results for that property will similarly be hindered and our net income may be reduced..
With our oversight, we depend upon the performance of third-party property managers to manage our properties. Poor performance by those sales, leasing and other management staff members operating a particular property will necessarily translate into poor results of operations for that particular property. Should our third-party property managers fail to identify problems in the day-to-day management of a particular property or fail to take the appropriate corrective action in a timely manner, our operating results may be hindered and our net income reduced.
If we are unable to obtain funding for future capital needs, cash distributions to our stockholders could be reduced and the value of our investments could decline.
If we need additional capital in the future to improve or maintain our properties or for any other reason, we may have to obtain financing from sources beyond our cash flow from operations, such as borrowings, sales of assets or future equity offerings. These sources of funding may not be available on attractive terms or at all. If we cannot procure additional funding for capital improvements, our investments may generate lower cash flows or decline in value, or both, which would limit our ability to make distributions to you and could reduce the value of your investment.
If we are unable to sell a property for the price, on the terms, or within the time frame we desire, it could limit our ability to pay cash distributions to you.
Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties for the price, on the terms, or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. Because real estate investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell a property on the terms we want, it may be necessary to expend funds to correct defects or to make improvements. However, we can give no assurance that we will have the funds available to correct such defects or to make such improvements. We may be unable to sell our properties at a profit. Our inability to sell properties at the time and on the terms we want could reduce our cash flow and limit our ability to make distributions to you and could reduce the value of your investment.
Government entities, community associations and contractors may cause unforeseen delays and increase costs to redevelop and reposition underperforming properties that we may acquire, which may reduce our net income and cash available for distributions to you.
We may seek to or be required to incur substantial capital obligations to redevelop or reposition existing properties that we acquire at a discount as a result of neglect of the previous owners or tenants of the properties and to sell the properties. Our advisor and its key real estate professionals will do their best to acquire properties that do not require excessive redevelopment or modifications and that do not contain hidden defects or problems. There could, however, be unknown and excessive costs, expenses and delays associated with a discounted property’s redevelopment, repositioning or interior and exterior upgrades. We will be subject to risks relating to the uncertainties associated with rezoning for redevelopment and other concerns of governmental entities, community associations and our construction manager’s ability to control costs and to build in conformity with plans and the established timeframe. We will pay a construction management fee to a construction manager, which may be our Manager or its affiliates, if new capital improvements are required.
If we are unable to increase rental rates or sell the redeveloped property at a price consistent with our underwritten projections due to local market or economic conditions to offset the cost of the redevelopment or repositioning the property, the return on your investment may suffer. To the extent we acquire discounted properties in major metropolitan areas where the local government has imposed rent controls, we may be prohibited from increasing the rental rates to a level sufficient to cover the particular property’s redevelopment costs and expenses.
Costs of responding to both known and previously undetected environmental contamination and hazardous conditions may decrease our cash flows and limit our ability to make distributions.
Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials, and other health and safety-related concerns.
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Some of these laws and regulations may impose joint and several liability on the tenants, current or previous owners or operators of real property for the costs to investigate or remediate contaminated properties, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Our tenants’ operations, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.
Environmental laws also may impose liens on a property or restrictions on the manner in which a property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances.
The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties, or damages we must pay will reduce our ability to make distributions and may reduce the value of your investment.
Properties acquired by us may have toxic mold that could result in substantial liabilities to us.
Litigation and concern about indoor exposure to certain types of toxic molds has been increasing as the public becomes aware that exposure to mold can cause a variety of health effects and symptoms, including allergic reactions. It is impossible to eliminate all mold and mold spores in the indoor environment. There can be no assurance that the properties acquired by us will not contain toxic mold. The difficulty in discovering indoor toxic mold growth could lead to an increased risk of lawsuits by affected persons and the risk that the cost to remediate toxic mold will exceed the value of the property. There is a risk that we may acquire properties that contain toxic mold and such properties may negatively affect our performance and your return on investment.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on your investment.
There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases have begun to insist that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions.
Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act, the Fair Housing Act and other tax credit programs may adversely affect cash available for distributions.
Our properties are generally expected to be subject to the Americans with Disabilities Act of 1990, as amended. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We cannot assure you that we will be able to acquire properties that comply with the Disabilities Act or place the burden on the seller or other third-party to ensure compliance with such laws. If we cannot, our funds used for compliance with these laws may affect cash available for distributions and the amount of distributions to you.
The multifamily rental properties we acquire must comply with Title III of the Disabilities Act, to the extent that such properties are “public accommodations” or “commercial facilities” as defined by the Disabilities Act. Compliance with the Disabilities Act could require removal of structural barriers to handicapped access in certain public areas of our apartment
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communities where such removal is readily achievable. The Disabilities Act does not, however, consider residential properties, such as multifamily rental properties, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public.
We also must comply with the Fair Housing Amendment Act of 1988 (“FHAA”), which requires that multifamily rental properties first occupied after March 13, 1991 be accessible to handicapped residents and visitors. Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of multifamily rental properties for compliance with the requirements of the FHAA and the Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against multifamily rental properties to ensure compliance with these requirements. Noncompliance with the FHAA and the Disabilities Act could result in the imposition of fines, awards of damages to private litigants, payment of attorneys’ fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.
Certain of our properties may be subject to the low income housing tax credits, historic preservation tax credits or other similar tax credit rules at the federal, state or municipal level. The application of these tax credit rules is extremely complicated and noncompliance with these rules may have adverse consequences for us. Noncompliance with applicable tax regulations may result in the loss of future or other tax credits and the fractional recapture of these tax credits already taken. Accordingly, noncompliance with these tax credit rules and related restrictions may adversely affect our ability to distribute any cash to our investors.
Our properties may be dispersed geographically and across various markets and sectors.
We may acquire and operate properties in different locations throughout the United States and in different markets and sectors. The success of our properties will depend largely on our ability to hire various managers and service providers in each area, market and sector where the properties are located or situated. It may be more challenging to manage a diverse portfolio. Failure to meet such challenges could reduce the value of your investment.
Because of the concentration of a significant portion of our assets in certain geographic markets, any adverse economic, real estate or business conditions in these markets could affect our operating results and our ability to make distributions to our stockholders
As of December 31, 2021, our real estate investments located in Texas, Georgia, Illinois and Colorado represented approximately 26%, 13%, 12% and 10% of the portfolio. As a result, the geographic concentration of our portfolio makes it particularly susceptible to adverse economic developments in these real estate markets. Any adverse economic or real estate developments in these markets, such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics and other factors, or any decrease in demand for multifamily rentals resulting from the local business climate, could adversely affect our operating results and our ability to make distributions to stockholders.
Newly constructed and existing multifamily rental properties or other properties that compete with any properties we may acquire in any particular location could adversely affect the operating results of our properties and our cash available for distribution.
We may acquire properties in locations that experience increases in construction of multifamily rental or other properties that compete with our properties. This increased competition and construction could:
•make it more difficult for us to find residents to lease units in our apartment communities;
•force us to lower our rental prices in order to lease units in our apartment communities; or
•substantially reduce our revenues and cash available for distribution.
Our efforts to upgrade multifamily rental properties to increase occupancy and raise rental rates through redevelopment and repositioning may fail, which may reduce our net income and the cash available for distributions to you.
The success of our ability to upgrade any multifamily rental properties that we may acquire and realize capital gains and current income for you on these investments materially depends upon the status of the economy where the multifamily rental property is located. Our revenues will be lower if the rental market cannot bear the higher rental rate that accompanies the upgraded multifamily rental property due to job losses or other economic hardships. Should the local market be unable to support a higher rental rate for a multifamily rental property that we upgraded, we may not realize the premium rental we had assumed by a given upgrade and we may realize reduced rental income or a reduced gain or even loss upon the sale of the property. These events could cause us to reduce the cash available for distributions. Further, economic conditions caused by the COVID-19 pandemic may hinder or delay our ability to significantly carry out our value-add programs and thereby increase rents.
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Repositioning risks could affect our profitability.
A component of our strategy is to renovate and reposition multifamily communities in order to effect long-term growth. Our renovation and repositioning activities generally entail certain risks, including the following:
•funds may be expended and management’s time devoted to projects that may not be completed due to a variety of factors, including without limitation, the inability to obtain necessary governmental approvals;
•construction costs of a renovation or repositioning project may exceed original estimates, possibly making the project economically unfeasible or the economic return on a repositioned property less than anticipated;
•increased material and labor costs, problems with subcontractors, or other costs due to errors and omissions which occur in the renovation process;
•projects may be delayed due to required governmental approvals, adverse weather conditions, labor shortages or other unforeseen complications;
•occupancy rates and rents at a repositioned property may be less than anticipated; and
•the operating expenses at a repositioned property may be higher than anticipated.
These risks may reduce the funds available for distribution to our stockholders. Further, the renovation and repositioning of properties is also subject to the general risks associated with real estate investments.
A concentration of our investments in any one property sector may leave our profitability vulnerable to a downturn or slowdown in such sector.
All of our investments are in the multifamily sector. Vacancy rates in multifamily rental properties and other commercial real estate properties may be related to jobless rates. As a result, we are subject to risks inherent in investments in a single type of property. The potential effects on our revenues, and as a result, on cash available for distribution, resulting from increased jobless rates as well as a general downturn or slowdown in multifamily properties could be more pronounced than if we had more fully diversified our investments.
Increased competition and the increased affordability of single-family and multifamily homes and condominiums for sale or rent could limit our ability to retain residents, lease apartment units or increase or maintain rents.
Any multifamily rental property that we may acquire and own will most likely compete with numerous housing alternatives in attracting residents, including single-family and multifamily homes and condominiums. Due to the current economic conditions, competitive housing in a particular area and the increasing affordability of single-family and multifamily homes and condominiums to buy caused by relatively low mortgage interest rates and generous federal and state government programs to promote home ownership could adversely affect our ability to fully occupy any multifamily rental properties we may acquire. Further, single-family homes and condominiums available for rent could also adversely affect our ability to retain our residents, lease apartment units and increase or maintain rental rates.
Short-term multifamily leases expose us to the effects of declining market rent, which could adversely impact our ability to make cash distributions.
We expect that substantially all of our apartment leases will be for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term or earlier in certain situations, such as when a resident loses his/her job, without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.
Risks Associated with Debt Financing
We have incurred, and may continue to incur, mortgage indebtedness and other borrowings, which increases our risk of loss due to foreclosure.
We have incurred, and may continue to incur, mortgage indebtedness and lines of credit and long-term financing that may be secured by our properties and other assets. In some instances, we may acquire real properties by financing a portion of the price of the properties and mortgaging or pledging some or all of the properties purchased as security for that debt. We may also incur mortgage debt on properties that we already own in order to obtain funds to acquire additional properties. In addition, we may borrow as necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes, including borrowings to satisfy the REIT requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the dividends paid deduction and excluding net capital gain). We, however, can give you no assurance that we will be able to obtain such borrowings on satisfactory terms.
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If we do mortgage a property and there is a shortfall between the cash flow from that property and the cash flow needed to service mortgage debt on that property, then the amount of cash available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss of a property since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, reducing the value of your investment. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure even though we would not necessarily receive any cash proceeds. We may give full or partial guaranties to lenders of mortgage debt on behalf of the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, a default on a single property could affect multiple properties.
We also have obtained recourse debt which may be used to finance our acquisitions and meet our REIT distribution requirements. If we have insufficient income to service our recourse debt obligations, our lenders could institute proceedings against us to foreclose upon certain of our assets. If a lender successfully forecloses upon any of our assets, our ability to pay cash distributions to our stockholders will be limited and you could lose all or part of your investment.
High mortgage interest rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.
If mortgage debt is unavailable at reasonable interest rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the loans become due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to you and may hinder our ability to raise more capital by issuing more stock or by borrowing more money.
We may not be able to access financing sources on attractive terms, which could adversely affect our ability to execute our business plan.
We may finance our assets over the long term through a variety of means, including credit facilities, issuance of commercial mortgage-backed securities, and other structured financings. Our ability to execute this strategy will depend on various conditions in the markets for financing in this manner that are beyond our control, including lack of liquidity and greater credit spreads. We cannot be certain that these markets will remain an efficient source of long-term financing for our assets. If our strategy is not viable, we will have to find alternative forms of long-term financing for our assets. This could subject us to more recourse indebtedness and the risk that debt service on less efficient forms of financing would require a larger portion of our cash flows, thereby reducing cash available for distribution to our stockholders and funds available for operations, as well as for future business opportunities.
We could be negatively impacted by the condition of Fannie Mae or Freddie Mac and by changes in government support for multifamily housing.
Fannie Mae and Freddie Mac are a major source of financing for multifamily real estate in the United States. We have utilized and expect to continue to utilize loan programs sponsored by these entities as a key source of capital to finance our growth and our operations. In September 2008, the U.S. government increased its control of Fannie Mae and Freddie Mac and placed both companies into a government conservatorship under the Federal Housing Finance Agency (the “FHFA”). Since that time, members of Congress have introduced and Congressional committees have considered a substantial number of bills that include comprehensive or incremental approaches to winding down Fannie Mae and Freddie Mac or changing their purposes, businesses or operations. In 2019, the FHFA for the first time released formal objectives calling for the return of Fannie Mae and Freddie Mac to the private sector. It was also announced during the year that Fannie Mae and Freddie Mac will be permitted to retain a combined $45 billion worth of earnings ( Fannie Mae will be allowed to retain $25 billion and Freddie Mac $20 billion). This is a modification of the so-called “net worth sweep” provision that has required Fannie Mae and Freddie Mac to deliver nearly all of their profits to the Treasury; the result being that each organization will have the opportunity to build its net worth. A decision by the U.S. government to eliminate or downscale Fannie Mae or Freddie Mac or to reduce government support for multifamily housing more generally may adversely affect interest rates, capital availability, development of multifamily communities and the value of multifamily assets and, as a result, may adversely affect our operations. Any potential reduction in loans, guarantees and credit enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector’s derivative securities market, potentially causing breaches in loan covenants, and through reduced loan availability, impact the value of multifamily assets, which could impair the value of a significant portion of multifamily communities. Specifically, the potential for a decrease in liquidity made available to the multifamily sector by Fannie Mae and Freddie Mac could (i) hinder
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our ability to refinance our existing loans; (ii) require us to obtain other sources of debt capital with potentially different terms; and (iii) make it more difficult for potential buyers of our properties to obtain financing.
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property or discontinue insurance coverage. These or other limitations may limit our flexibility and our ability to achieve our operating plans.
Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.
As of December 31, 2021, we had total outstanding debt of approximately $1.42 billion, including $613.0 million of debt subject to variable interest rates (excluding amounts that were hedged to fix rates), and may incur additional indebtedness in the future. Interest we pay reduces our cash available for distributions. Since we have incurred and may continue to incur variable rate debt, increases in interest rates raise our interest costs, which reduces our cash flows and our ability to make distributions to you. In addition, if we need to repay existing debt during periods of rising interest rates, we could be required to sell one or more of our properties at times which may not permit realization of the maximum return on such investments.
We may be adversely affected by the discontinuation of LIBOR after June 2023.
As of December 31, 2021, we had approximately $588.3 million of debt and 17 interest rate caps with an aggregate notional value of approximately $601.9 million that were indexed to the London Interbank Offered Rate (“LIBOR”). After June 2023, the United Kingdom’s Financial Conduct Authority (the “FCA”), which regulates LIBOR, intends to stop compelling banks to submit rates for the calculation of the tenors used in our LIBOR-based debt. As a result, the Alternative Reference Rates Committee (“ARRC”), a steering committee comprised of U.S. financial market participants, published model LIBOR replacement language for use in bilateral and syndicated loan facilities and identified the Secured Overnight Financing Rate (“SOFR”) as the replacement to LIBOR.
The International Swaps and Derivatives Association (“ISDA”), the trade association for the derivatives marketplace, published the ISDA IBOR Fallbacks Protocol (the “Protocol”) and the ISDA IBOR Fallbacks Supplement (the “Supplement”) which became effective on January 25, 2021. The Protocol incorporates LIBOR transition provisions into non-cleared derivatives transactions that reference LIBOR and were entered into before January 25, 2021 between parties to derivatives transactions that each have adhered to the Protocol. The Supplement automatically incorporates these LIBOR transition provisions into non-cleared derivatives transactions that reference LIBOR and are entered into on or after January 25, 2021. Any interest rate hedges that reference LIBOR and that we entered into on or after January 25, 2021 and that incorporate the 2006 ISDA Definition are subject to conversion based on the ISDA methodology set forth in the Supplement. In 2021, ISDA published the 2021 ISDA Interest Rate Derivatives Definitions (the “2021 Definitions”). Any interest rate hedges that reference LIBOR and that incorporate the ISDA 2021 Definitions are subject to conversion based on the ISDA methodology set forth in the 2021 Definitions. The spread adjustments to be used in connection with the transition from LIBOR to SOFR under any of our hedging agreements have been fixed pursuant to ISDA’s conversion methodology. These spread adjustments are expected to be the same regardless of whether the conversion occurs under the terms of the Protocol, the Supplement or the 2021 Definitions.
Differences between ARRC and ISDA LIBOR replacement methodology could result in differences in conversion between our debt instruments and corresponding hedges. Mismatches could occur resulting from conversion at different times, into different benchmark replacement rates, or into the same benchmark replacement rates calculated at different times or using different methods of calculation.
The transition from LIBOR to an alternate reference rate could result in higher all-in interest costs and could hinder our ability to maintain effective hedges, which could impact our financial performance. Furthermore, the impact or potential impact of LIBOR transition could incentivize us to prepay debt and/or unwind hedge positions earlier than we anticipated when closing the debt facility and/or entering into the hedge position. If we prepay debt, we may owe prepayment penalties or other breakage costs. If we unwind hedge positions, we could owe unwind payments to our counterparties, which could be significant. For hedges entered into before January 25, 2021, if we do not subsequently adhere to the Protocol, negotiate bilateral solutions with our counterparties, or unwind our positions before the discontinuation of LIBOR, it may be impossible for us or our counterparties to perform under these hedges following the discontinuation of LIBOR.
We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and decrease the value of your investment.
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We have no limit on the amount of debt that we may incur. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of your investment.
Federal Income Tax Risks
Our failure to continue to qualify as a REIT would subject us to federal income tax and reduce cash available for distribution to stockholders.
We elected to be taxed as a REIT under the Internal Revenue Code commencing with our taxable year ended December 31, 2014. We intend to continue to operate in a manner so as to continue to qualify as a REIT for federal income tax purposes. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions for which only a limited number of judicial and administrative interpretations exist. Even an inadvertent or technical mistake could jeopardize our REIT status. Our continued qualification as a REIT will depend on our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. Moreover, new tax legislation, administrative guidance or court decisions, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to continue to qualify as a REIT. If we fail to continue to qualify as a REIT in any taxable year, we would be subject to federal and applicable state and local income tax on our taxable income at corporate rates, in which case we might be required to borrow or liquidate some investments in order to pay the applicable tax. Losing our REIT status would reduce our net income available for investment or distribution to you because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends-paid deduction and we would no longer be required to make distributions. Furthermore, if we fail to qualify as a REIT in any taxable year for which we have elected to be taxed as a REIT, we would generally be unable to elect REIT status for the four taxable years following the year in which our REIT status is lost.
Complying with REIT requirements may force us to borrow funds to make distributions to you or otherwise depend on external sources of capital to fund such distributions.
To continue to qualify as a REIT, we are required to distribute annually at least 90% of our taxable income, subject to certain adjustments, to our stockholders. To the extent that we satisfy the distribution requirement, but distribute less than 100% of our taxable income, we will be subject to federal corporate income tax on our undistributed taxable income. In addition, we may elect to retain and pay income tax on our net long-term capital gain. In that case, if we so elect, a stockholder would be taxed on its proportionate share of our undistributed long-term gain and would receive a credit or refund for its proportionate share of the tax we paid. A stockholder, including a tax-exempt or foreign stockholder, would have to file a federal income tax return to claim that credit or refund. Furthermore, we will be subject to a 4% nondeductible excise tax if the actual amount that we distribute to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws.
From time-to-time, we may generate taxable income greater than our net income for GAAP. In addition, our taxable income may be greater than our cash flow available for distribution to you as a result of, among other things, investments in assets that generate taxable income in advance of the corresponding cash flow from the assets (for instance, if a borrower defers the payment of interest in cash pursuant to a contractual right or otherwise).
If we do not have other funds available in the situations described in the preceding paragraphs, we could be required to borrow funds on unfavorable terms, sell investments at disadvantageous prices or find another alternative source of funds to make distributions sufficient to enable us to distribute enough of our taxable income to satisfy the REIT distribution requirement and to avoid corporate income tax and the 4% excise tax in a particular year. These alternatives could increase our costs or reduce our equity.
Because of the distribution requirement, it is unlikely that we will be able to fund all future capital needs, including capital needs in connection with investments, from cash retained from operations. As a result, to fund future capital needs, we likely will have to rely on third-party sources of capital, including both debt and equity financing, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital will depend upon a number of factors, including our current and potential future earnings and cash distributions.
Despite our qualification for taxation as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you.
Despite our qualification for taxation as a REIT for federal income tax purposes, we may be subject to certain federal, state and local taxes on our income and assets, including taxes on any undistributed income or property. Any of these taxes would decrease cash available for distribution to you. For instance:
•In order to continue to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) to you.
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•To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income.
•We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
•If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other non-qualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
•If we sell an asset, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business and do not qualify for a safe harbor in the Internal Revenue Code, our gain would be subject to the 100% “prohibited transaction” tax.
•Any domestic taxable REIT subsidiary, or TRS, of ours will be subject to federal corporate income tax on its income, and on any non-arm’s-length transactions between us and any TRS, for instance, excessive rents charged to a TRS could be subject to a 100% tax.
•We may be subject to tax on income from certain activities conducted as a result of taking title to collateral.
•We may be subject to state or local income, property and transfer taxes, such as mortgage recording taxes.
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
To continue to qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to stockholders and the ownership of our stock. As discussed above, we may be required to make distributions to our stockholders at disadvantageous times or when we do not have funds readily available for distribution. Additionally, we may be unable to pursue investments that would be otherwise attractive to us in order to satisfy the requirements for qualifying as a REIT.
We must also ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets, including certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets can consist of the securities of any one issuer (other than government securities and qualified real estate assets) and no more than 20% of the value of our gross assets (25% for tax years ending before 2018) may be represented by securities of one or more TRSs. Finally, for the taxable years after 2017, no more than 25% of our assets may consist of debt investments that are issued by “publicly offered REITs” and would not otherwise be treated as qualifying real estate assets. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences, unless certain relief provisions apply. As a result, compliance with the REIT requirements may hinder our ability to operate solely on the basis of profit maximization and may require us to liquidate investments from our portfolio, or refrain from making, otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to stockholders.
Complying with REIT requirements may limit our ability to hedge effectively.
The REIT provisions of the Internal Revenue Code may limit our ability to hedge our operations effectively. Our aggregate gross income from non-qualifying hedges, fees and certain other non-qualifying sources cannot exceed 5% of our annual gross income. As a result, we might have to limit our use of advantageous hedging techniques or implement those hedges through a TRS. Any hedging income earned by a TRS would be subject to federal, state and local income tax at regular corporate rates. This could increase the cost of our hedging activities or expose us to greater risks associated with interest rate or other changes than we would otherwise incur.
Liquidation of assets may jeopardize our REIT qualification.
To continue to qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% prohibited transaction tax on any resulting gain if we sell assets that are treated as dealer property or inventory.
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The prohibited transactions tax may limit our ability to engage in transactions, including disposition of assets and certain methods of securitizing loans, which would be treated as sales for federal income tax purposes.
A REIT’s net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of dealer property, other than foreclosure property, but including loans held primarily for sale to customers in the ordinary course of business. We might be subject to the prohibited transaction tax if we were to dispose of or securitize loans in a manner that is treated as a sale of the loans, for federal income tax purposes. In order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans and may limit the structures we use for any securitization financing transactions, even though such sales or structures might otherwise be beneficial to us. Additionally, we may be subject to the prohibited transaction tax upon a disposition of real property. Although a safe-harbor exception to prohibited transaction treatment is available, we cannot assure you that we can comply with such safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of our trade or business. Consequently, we may choose not to engage in certain sales of real property or may conduct such sales through a TRS.
It may be possible to reduce the impact of the prohibited transaction tax by conducting certain activities through a TRS. However, to the extent that we engage in such activities through a TRS, the income associated with such activities will be subject to a corporate income tax. In addition, the IRS may attempt to ignore or otherwise recast such activities in order to impose a prohibited transaction tax on us, and there can be no assurance that such recast will not be successful.
We also may not be able to use secured financing structures that would create taxable mortgage pools, other than in a TRS or through a subsidiary REIT.
We may recognize substantial amounts of REIT taxable income, which we would be required to distribute to you, in a year in which we are not profitable under GAAP principles or other economic measures.
We may recognize substantial amounts of REIT taxable income in years in which we are not profitable under GAAP or other economic measures as a result of the differences between GAAP and tax accounting methods. For instance, certain of our assets will be marked-to-market for GAAP purposes but not for tax purposes, which could result in losses for GAAP purposes that are not recognized in computing our REIT taxable income. Additionally, we may deduct our capital losses only to the extent of our capital gains in computing our REIT taxable income for a given taxable year. Consequently, we could recognize substantial amounts of REIT taxable income and would be required to distribute such income to you, in a year in which we are not profitable under GAAP or other economic measures.
We may distribute our common stock in a taxable distribution, in which case our stockholders may sell shares of our common stock to pay tax on such distributions, and our stockholders may receive less in cash than the amount of the dividend that is taxable.
We may make taxable distributions that are payable in cash and common stock. The IRS has issued private letter rulings to other REITs treating certain distributions that are paid partly in cash and partly in stock as taxable distributions that would satisfy the REIT annual distribution requirement and qualify for the dividends paid deduction for federal income tax purposes. Those rulings may be relied upon only by taxpayers to whom they were issued, but we could request a similar ruling from the IRS. Accordingly, it is unclear whether and to what extent we will be able to make taxable distributions payable in cash and common stock. If we made a taxable dividend payable in cash and common stock, taxable stockholders receiving such distributions will be required to include the dividend as taxable income to the extent of our current and accumulated earnings and profits, as determined for federal income tax purposes. As a result, our stockholders may be required to pay income tax with respect to such distributions in excess of the cash distributions received. If a U.S. stockholder sells the common stock that it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount recorded in earnings with respect to the dividend, depending on the market price of our common stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. federal income tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in common stock.
REIT distribution requirements could adversely affect our ability to execute our business plan.
We generally must distribute annually at least 90% of our REIT taxable income (which is determined without regard to the dividends paid deduction or net capital gain for this purpose) in order to continue to qualify as a REIT. We intend to make distributions to our stockholders to comply with the REIT requirements of the Internal Revenue Code and to avoid corporate income tax and the 4% excise tax. We may be required to make distributions to stockholders at times when it would be more advantageous to reinvest cash in our business or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
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Distributions paid by REITs do not qualify for the reduced tax rates that apply to other corporate distributions.
The maximum tax rate for “qualified dividends” paid by corporations to non-corporate stockholders is currently 20%. Distributions paid by REITs, however, generally are taxed at ordinary income rates (subject to a maximum rate of 37% for non-corporate stockholders, provided individuals may be able to deduct 20% of income received as ordinary REIT dividends, thus reducing the maximum effective federal income tax rate on such dividends), rather than the preferential rate applicable to qualified dividends.
You may have current tax liability on distributions you elect to reinvest in our common stock.
If you participate in our distribution reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received.
Retirement Plan Risks
If the fiduciary of an employee benefit plan subject to ERISA (such as a profit sharing, Section 401(k) or pension plan) or an owner of a retirement arrangement subject to Section 4975 of the Internal Revenue Code (such as an IRA) fails to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, the fiduciary could be subject to penalties and other sanctions.
There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, Section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Internal Revenue Code (such as an IRA) that are investing in our shares. Fiduciaries and IRA owners investing the assets of such a plan or account in our common stock should satisfy themselves that:
•the investment is consistent with their fiduciary and other obligations under ERISA and the Internal Revenue Code;
•the investment is made in accordance with the documents and instruments governing the plan or IRA, including the plan’s or account’s investment policy;
•the investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;
•the investment in our shares, for which no public market currently exists, is consistent with the liquidity needs of the plan or IRA;
•the investment will not produce an unacceptable amount of “unrelated business taxable income” for the plan or IRA;
•our stockholders will be able to comply with the requirements under ERISA and the Internal Revenue Code to value the assets of the plan or IRA annually; and
•the investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
With respect to the annual valuation requirements described above, we will provide an estimated value for our shares annually. We can make no claim whether such estimated value will or will not satisfy the applicable annual valuation requirements under ERISA and the Internal Revenue Code. The Department of Labor or the Internal Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common stock. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions. See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities - Market Information” of this Annual Report on Form 10-K.
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies, including liability for investment losses. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary or IRA owner who authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested. In addition, the investment transaction must be undone. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified as a tax-exempt account and all of the assets of the IRA may be deemed distributed and subjected to tax.
If our assets are deemed to be plan assets, we may be exposed to liabilities under Title I of ERISA and the Internal Revenue Code
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In some circumstances where an ERISA plan holds an interest in an entity, the assets of the entity are deemed to be ERISA plan assets unless an exception applies. This is known as the “look-through rule.” Under those circumstances, the obligations and other responsibilities of plan sponsors, plan fiduciaries and plan administrators, and of parties in interest and disqualified persons, under Title I of ERISA or Section 4975 of the Internal Revenue Code, may be applicable, and there may be liability under these and other provisions of ERISA and the Internal Revenue Code. We believe that our assets should not be treated as plan assets because the shares should qualify as “publicly-offered securities” that are exempt from the look-through rules under applicable Treasury Regulations. We note, however, that because certain limitations are imposed upon the transferability of shares so that we may qualify as a REIT, and perhaps for other reasons, it is possible that this exemption may not apply. If that is the case, and if we are exposed to liability under ERISA or the Internal Revenue Code, our performance and results of operations could be adversely affected.
If you invest in our shares through an IRA or other retirement plan, you may be limited in your ability to withdraw required minimum distributions.
If you establish an IRA or other retirement plan through which you invest in our shares, federal law may require you to withdraw required minimum distributions ("RMDs") from such plan in the future. Our share redemption program limits the amount of redemptions that can be made in a given year. As a result, you may not be able to have your shares redeemed at a time in which you need liquidity to satisfy the RMD requirements under your IRA or other retirement plan. Even if you are able to have your shares redeemed, such redemption may be at a price less than the price at which the shares were initially purchased. If you fail to withdraw RMDs from your IRA or other retirement plan, you may be subject to certain tax penalties.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.	UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. PROPERTIES
ITEM 2.	PROPERTIES
As of December 31, 2021, we owned 45 multifamily properties encompassing approximately 13,707 units. Additional information is included in Schedule III to our financial statements included in this Report. The following is a summary of our real estate properties as of December 31, 2021:
Property
City, State
Number of Units
Net Effective Rent per Occupied Unit (1)
Average Occupancy (2)
1000 Spalding
Atlanta, GA
1,394
94.5
%
81 Fifty at West Hills
Portland, OR
1,410
95.2
%
The Adairs
Dallas, TX
1,223
95.6
%
Addison at Sandy Springs
Sandy Springs, GA
1,253
93.7
%
Arcadia
Centennial , CO
1,596
94.1
%
Aston at Cinco Ranch
Katy, TX
1,365
97.5
%
Bay Club
Jacksonville, FL
1,301
96.3
%
Bristol at Grapevine
Grapevine, TX
1,070
95.0
%
Calloway at Las Colinas
Irving, TX
1,171
92.1
%
Cannery Lofts
Dayton, OH
1,282
94.3
%
Courtney Meadows
Jacksonville, FL
1,279
97.7
%
Crosstown at Chapel Hill
Chapel Hill, NC
1,218
94.5
%
Estates at Johns Creek
John’s Creek , GA
1,692
95.3
%
Grand Reserve
Naperville, IL
1,775
96.5
%
Green Trails
Lisle, IL
1,471
96.4
%
Heritage Pointe
Gilbert, AZ
1,220
96.8
%
Indigo Creek
Glendale, AZ
1,275
96.6
%
Legacy at Martin's Point
Lombard, IL
1,530
96.2
%
Matthews Reserve
Matthews, NC
1,273
95.6
%
Maxwell Townhomes
San Antonio, TX
1,136
90.0
%
Meridian Pointe
Burnsville, MN
1,402
95.3
%
Montclair Terrace
Portland, OR
1,479
95.0
%
Perimeter 5550
Atlanta, GA
1,317
97.1
%
Perimeter Circle
Atlanta, GA
1,401
96.2
%
Point Bonita
Chula Vista, CA
1,795
94.8
%
Providence Park
Arlington , TX
1,328
91.3
%
Ravina
Austin, TX
1,302
97.5
%
Skyview
Westminster, CO
1,309
86.4
%
South Lamar Village
Austin, TX
1,371
96.3
%
Sunset Ridge
San Antonio, TX
1,162
95.2
%
Terraces at Lake Mary
Lake Mary, FL
1,332
96.3
%
The Bryant at Yorba Linda
Yorba Linda, CA
2,180
94.2
%
The Palmer at Las Colinas
Dallas, TX
1,451
93.2
%
The Summit
Alexandria, VA
1,939
95.8
%
The Westside
Plano, TX
1,173
94.2
%
Trailpoint at the Woodlands
The Woodlands, TX
1,112
96.1
%
Tramore Village
Austell, GA
1,251
95.2
%
Uptown Buckhead
Atlanta, GA
1,288
95.6
%
Verdant
Boulder , CO
1,899
93.4
%
Verona
Littleton, CO
1,327
94.0
%
Vista Apartment Homes
Philadelphia , PA
1,470
97.0
%
Wimbledon Oaks
Arlington, TX
1,146
94.6
%
Windbrooke Crossing
Buffalo Grove, IL
1,593
95.7
%
Winthrop West
Riverview, FL
1,294
96.3
%
Woods of Burnsville
Burnsville, MN
1,288
96.4
%
Total
13,707
94.9
%
(1)Net effective rent, per occupied unit is equal to the average of gross potential rent net of gain/loss to lease, less vacancy, non-revenue units and concessions, divided by the average occupancy (in units) for the year ended December 31, 2021.
(2)Average occupancy represents the daily average occupied units for the reporting period divided by the total number of units, expressed as a percentage for the year ended December 31, 2021.
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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. 	LEGAL PROCEEDINGS
From time to time, we are party to legal proceedings, which arise in the ordinary course of our business. We are not currently involved in 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 governmental authorities, except for the following:
On June 17, 2021, stockholders Karl R. Wilber and Julia M. Wilber, as co-trustees of the Karl R. and Julia M. Wilber Revocable Trust dtd 2/18/2002 (“Wilber Trust”), sent a letter to Alan F. Feldman alleging breaches of fiduciary duty by the directors of our predecessor entities arising from the Self-Management Transaction and Resource REIT Mergers and demanding that our board of directors (our “Board”) take action to remedy such breaches (the “Demand Letter”). On August 3, 2021, our Board formed a special committee to investigate the allegations in the Demand Letter. The special committee engaged independent counsel and conducted a full investigation and, on January 25, 2022, communicated to Wilber Trust its conclusion that the claims in the Demand Letter had no merit and would not be pursued by us. On February 7, 2022, the Wilber Trust filed a class action complaint in the Circuit Court for Baltimore City, Maryland (Karl R. Wilber et al. v. Alan F. Feldman et al., Case No. 24-C-22-000531) against current and former members of our Board, us, C-III Capital Partners LLC, and its subsidiary, RRE Legacy Co LLC. The complaint alleges, among other things, that (a) the former REIT II directors breached their fiduciary duties by approving the REIT I Merger given that the Self-Management Transaction provided inadequate value to both REIT I and REIT II, thus diluting the stock value of the purported class; (b) the current Board failed to consider the value of the claims in the Demand Letter when negotiating the proposed transaction with BREIT; and (c) C-III and the sponsor were unjustly enriched by the Self-Management Transaction. Wilber Trust seeks an unspecified award of compensatory damages and invalidation of the stock consideration paid to C-III and the sponsor in the Self-Management Transaction. Defendants’ response is due on April 15, 2022. We intend to vigorously defend against the complaint. Based on the early stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of this matter.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.	MINE SAFETY DISCLOSURES
Not applicable.
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PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.	MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Stockholder Information
As of December 31, 2021, we had approximately 165.8 million shares of common stock outstanding, including approximately 1.1 million restricted shares, held by a total of approximately 29,121 stockholders.
Estimated Value Per Share
On January 23, 2022, we entered the Blackstone Merger Agreement with Rapids Parent and Rapids Merger Sub, both affiliates of BREIT. The Blackstone Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, we will merge with and into Rapids Merger Sub. Upon completion of the Blackstone Merger, Rapids Merger Sub will survive and our separate existence will cease. Pursuant to the terms and conditions in the Blackstone Merger Agreement, at the Effective Time, each share of our common stock that is issued and outstanding immediately prior to the Effective Time will be automatically cancelled and converted into the right to receive an amount in cash equal to $14.75, without interest. For additional information regarding the Blackstone Merger, including risks and uncertainties, see Part I, Item 1 - Business and Part I, Item 1A - Risk Factors as well as our definitive proxy statement filed with the SEC on March 14, 2022.
On January 23, 2022, our board of directors approved an estimated value per share of our common stock of $14.75 based solely on the consideration to be paid to holders of our common stock by BREIT in connection with the Blackstone Merger. See “Background of the Merger” in our definitive proxy statement filed with the SEC on March 14, 2022 for additional information about how the merger consideration was determined. We are providing this estimated value per share to assist broker-dealers that participated in our public offerings in meeting their customer account statement reporting obligations under Financial Industry Regulatory Authority (“FINRA”) Rule 2231.
Limitations of Estimated Value Per Share
With respect to the estimated value per share, we can give no assurance that:
•a stockholder would be able to resell his or her shares at the estimated value per share;
•a stockholder would ultimately realize distributions per share equal to our estimated value per share upon liquidation of our assets and settlement of its liabilities or a sale of our company;
•our shares of common stock would trade at the estimated value per share on a national securities exchange;
•an independent third-party appraiser or third-party valuation firm would agree with our estimated value per share; or
•the methodology used to calculate our estimated value per share would be acceptable to FINRA or for compliance with ERISA reporting requirements.
Historical Estimated Values per Share
The historical reported estimated values per share of our common stock approved by the board of directors are set forth below:
Estimated Value per Share
Valuation Date
Filing with the Securities and Exchange Commission
$
9.01
December 31, 2015
Annual Report on Form 10-K filed March 30, 2016
$
9.10
December 31, 2016
Annual Report on Form 10-K filed March 31, 2017
$
9.08
December 31, 2017
Annual Report on Form 10-K filed March 29, 2018
$
8.77
December 31, 2018
Annual Report on Form 10-K filed March 22, 2019
$
9.08
December 31, 2019
Annual Report on Form 10-K filed March 20, 2020
$
9.06
January 28, 2021
Annual Report on Form 10-K filed March 25, 2021
Unregistered Sale of Equity Securities
All securities sold by us during the year ended December 31, 2021 were sold in an offering registered under the Securities Act of 1933.
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Redemption of Securities
Our board of directors has adopted a share redemption program that may enable stockholders to sell their shares to us, subject to the significant conditions and limitations of the program. The program was initially adopted in February 2014 and has been amended and restated at various times thereafter. On February 3, 2021, our board of directors adopted the Fifth Amended and Restated Share Redemption Program (the “SRP”). Under the SRP, redemptions will be made quarterly in an amount not to exceed proceeds from the sale of shares in our distribution reinvestment plan offering (the “DRP Offering”) in the immediately preceding calendar quarter; provided that, for any quarter in which no DRP Offering proceeds are available, the funding limitation for the quarter will be set by the board of directors upon ten business days’ notice to stockholders. In addition, we will not redeem in excess of 5% of the weighted average number of shares outstanding during the 12-month period immediately prior to the effective date of redemption. These limitations apply to all redemptions, including redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (each as defined in the SRP and collectively, “Special Redemptions”). Since the first quarter of 2020, the SRP has been suspended except for Special Redemptions. During the year ended December 31, 2021, we honored all Special Redemption requests that were submitted pursuant to the terms of the SRP.
Pursuant to the SRP, during the three months ended December 31, 2021, we redeemed shares as follows (in thousands, except per share data):
Period
Total Number of Shares Redeemed (1)
Average Price Paid per Share
Year to Date Number of Shares Purchased as Part of a Publicly Announced Plan or Program (2)
Approximate Dollar Value of Shares Available That May Yet Be Redeemed Under the Program
October 2021
-
-
-
(2)
November 2021
-
-
-
(2)
December 2021
184,236
$
9.06
879,789
(2)
(1) All purchases of equity securities in the three months ended December 31, 2021 were made pursuant to our share redemption program.
(2)	As of December 31, 2021, we limit the dollar value and number of shares that may be repurchased under the program, as discussed above. As of December 31, 2021, we had $2.7 million available to repurchase shares under the SRP.
Distribution Information
For the year ended December 31, 2021, we paid aggregate distributions of $45.2 million, including $34.6 million of distributions paid in cash and $10.6 million of distributions reinvested in shares of common stock through our DRP. Distributions declared, distributions paid and cash flows provided by operating activities were as follows for the year ended December 31, 2021 (in thousands):
Distributions Paid
Distributions Declared
Sources of Distributions Paid
Cash
Distributions Reinvested (DRP)
Total
Cash Provided By Operating Activities
Total
Per Share
Operating Activities Amount Paid/Percent of Total
First Quarter
$
8,539
$
2,490
$
11,029
$
12,101
$
11,029
$
0.07
$11,029 / 100%
Second Quarter
8,365
2,674
11,039
22,269
11,039
0.07
$11,039 / 100%
Third Quarter
8,868
2,704
11,572
25,182
11,572
0.07
$11,572 / 100%
Fourth Quarter
8,875
2,707
11,582
12,997
11,582
0.07
$11,582 / 100%
Total
$
34,647
$
10,575
$
45,222
$
72,549
$
45,222
$
0.28
We elected to be taxed as a REIT and to operate as a REIT beginning with our taxable year ended December 31, 2014. To maintain our qualification as a REIT, we are required to make aggregate annual distributions to our common stockholders of at least 90% of our REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain). Our board of directors may authorize distributions in excess of those required for us to maintain REIT status depending on our financial condition and such other factors as our board of directors deems relevant.
Our board of directors considers many factors before authorizing a cash distribution, including current and projected cash flow from operations, capital expenditure needs, general financial conditions and REIT qualification requirements. To the extent permitted by Maryland law, we may borrow funds, issue new securities or sell assets to make and cover our declared distributions, all or a portion of which could be deemed a return of capital. Our organizational documents do not limit the amount of distributions we can fund from sources other than from cash flows from operations.
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We have not established a minimum distribution level, and our charter does not require that we make distributions to our stockholders. We will make distributions with respect to our shares of common stock in the sole discretion of our Board of Directors. No distributions will be made with respect to shares of our convertible stock.
Pursuant to the terms of the Blackstone Merger Agreement, we may continue to pay regular quarterly distributions of no more than $0.07 per share of our common stock for the first two quarters of 2022. Thereafter, we may not pay distribution except as necessary to preserve our tax status as a REIT, and any such distributions would result in an offsetting decrease to the merger consideration to be paid to our common stockholders.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Resource REIT, Inc. and the notes thereto. See also “Cautionary Note Regarding Forward-Looking Statements” preceding Part I, as well as the notes to our financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations for Resource Real Estate Opportunity REIT I, Inc. included in the Amended Current Report on Form 8-K/A filed by Resource REIT, Inc. on April 8, 2021.
Overview
We are a self-managed REIT formed as a Maryland corporation on September 28, 2012. We own a diversified portfolio of U.S. commercial real estate. We conduct our operations through RRE Opportunity OP II, LP, (“REIT II OP” or “OP II”), our operating partnership. We have sub-contracted with Greystar, a third-party property management company to provide property management services at our properties. Our portfolio consists of multifamily rental properties to which we have added value with a capital infusion (referred to as “value add properties”). The primary portion of our initial public offering commenced in February 2014 and closed in February 2016.
On January 28, 2021, we acquired REIT I and Resource Apartment REIT III, Inc. (“REIT III”) and their respective subsidiaries in stock-for-stock transactions (collectively, the “Resource REIT Mergers”). As a result of our acquisition of REIT I and its subsidiaries, including the entities that provide our advisory, asset and property management services, we became self-managed and as of December 31, 2021, have 44 employees. Prior to January 28, 2021, we were externally advised by Resource Real Estate Opportunity Advisor II, LLC (our “Advisor”) pursuant to an advisory agreement initially entered into in February 2014. As of December 31, 2021, we owned 45 properties in 13 states, comprising a total of 13,707 multifamily units.
In connection with the Resource REIT Mergers, REIT II was the legal acquirer of both REIT I and REIT III, however, REIT I was the accounting acquirer for financial reporting purposes. Thus, the financial information set forth herein subsequent to the Resource REIT Mergers reflects results of the combined entity, and the financial information set forth herein prior to the Resource REIT Mergers reflects REIT I’s results. For this reason, period to period comparisons may not be meaningful.
In addition, unless the context requires otherwise, all references to the “Company,” “we,” “our,” and “us” herein mean REIT I, and one or more of REIT I’s subsidiaries for periods prior to the Resource REIT Mergers, and REIT II and one or more of REIT II’s subsidiaries for periods following the Resource REIT Mergers. Certain historical information of REIT II is included for background purposes.
Self-Management Transaction
On September 8, 2020, REIT I engaged in a series of transactions which we refer to as the “Self-Management Transaction,” pursuant to which REIT I acquired the advisors and property managers for REIT I, REIT II and REIT III from C-III Capital Partners, LLC (“C-III”) and its affiliates in exchange for 6,158,759 REIT I OP Common Units (“OP Common units”), 319,965 REIT I OP Series A Preferred Units (“OP I Preferred Units”) with a face value of $67.5 million, and the right to receive certain deferred payments having the aggregate value of $27.0 million. Prior to this transaction, our Advisor was an indirect wholly-owned subsidiary of Resource America, Inc. (“RAI”), our initial sponsor and an indirect wholly-owned subsidiary of C-III.
As a result of the Self-Management Transaction, REIT I was self-managed for the period from September 8, 2020 through the effectiveness of the Resource REIT Mergers and succeeded to the advisory, asset management and property management arrangements formerly in place with REIT II and REIT III until the Resource REIT Mergers. At the time of the Resource REIT Mergers, the OP I Common Units converted into 7,539,738 OP Common Units and Op I Preferred Units have participation rights of 391,711 OP Preferred Units.
On September 14, 2021, in accordance with a letter agreement entered with C-III and RRE Legacy Co LLC (“Legacy Co”), we redeemed all of the 319,965 outstanding Series A Preferred Units collectively held by C-III and Legacy Co for $67.5 million and exchanged all of the 7,539,737.53 common units collectively held by C-III and Legacy Co for an equivalent number of shares of our common stock.
Blackstone Merger
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On January 23, 2022, we entered into an Agreement and Plan of Merger (the “Blackstone Merger Agreement”). The Blackstone Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, we will merge with and into an affiliate of Blackstone Real Estate Income Trust, Inc. (“BREIT”), which is an affiliate of Blackstone, Inc. Upon completion of the transaction (the “Blackstone Merger”), our separate existence will cease. The transactions contemplated by the Blackstone Merger Agreement were unanimously approved by our board of directors.
COVID-19 Pandemic and Portfolio Outlook
As of December 31, 2021, the novel coronavirus, or COVID-19, pandemic is ongoing. During the year ended December 31, 2020, the COVID-19 pandemic created disruption in the U.S. and global economies, adversely impacting many industries, including the real estate industry, directly or indirectly. During the year ended December 31, 2021, the global economy has, with certain setbacks, begun reopening and wider distribution of vaccines will likely encourage greater economic activity. Nonetheless, the recovery could remain uneven, particularly given uncertainty with respect to the distribution and acceptance of the vaccines and their effectiveness with respect to new variants of the virus.
The outbreak of COVID-19 and its impact on the current financial, economic, capital markets and real estate market environment, and future developments in these and other areas present uncertainty and risk with respect to our financial condition, results of operations, liquidity, and ability to pay distributions. Although a recovery is partially underway, it continues to be gradual, uneven and characterized by meaningful dispersion across sectors and regions, and could be hindered by persistent or resurgent infection rates. The most recent round of U.S. fiscal stimulus could provide meaningful support, along with continued accommodative monetary policy and wider distribution of vaccines. Issues with respect to the distribution and acceptance of vaccines or the spread of new variants of the virus could adversely impact the recovery. Overall, there remains significant uncertainty regarding the timing and duration of the economic recovery, which precludes any prediction as to the ultimate adverse impact COVID-19 may have on our business.
Many of our tenants have suffered difficulties with their personal financial situations as a result of job loss or reduced income and, depending upon the duration of the measures put in place to mitigate or contain the spread of the virus and the corresponding economic slowdown, some of our tenants have or will seek rent deferrals or become unable to pay their rent. For the three months ended December 31, 2021, our 30-day collection rate was approximately 95.6%, of the billed rental income. Collections and rent relief requests to-date may not be indicative of collections or requests in any future period. In particular, many of our tenants may be the recipients of unemployment benefits or other economic stimulus under the CARES Act and the 2021 American Rescue Plan which will have aided in the payment of rent due. The extent to which these benefits will be available going forward is uncertain. To the extent our tenants do not have access to additional federal or state relief to mitigate the impact of the COVID-19 pandemic on their personal finances our ability to collect rent and our operations would be adversely affected. In addition, we expect the economic disruptions caused by the COVID-19 pandemic will cause elevated credit losses and may impede our ability to increase rental rates. If required by applicable law, we may continue to waive late fees, halt evictions, and offer a payment deferral plan to residents who have been adversely financially impacted by COVID-19 where applicable federal, state or local restrictions are in effect. To help mitigate the impact on our operating results of the COVID-19 pandemic, in 2020, we initiated various operational cost saving initiatives across our portfolio. In addition, we have taken measures to preserve cash, which will help to offset any impact to our liquidity that may occur as a result of the COVID-19 pandemic.
The extent to which the COVID-19 pandemic or any other pandemic, epidemic or disease impacts our operations and those of our tenants remain uncertain and cannot be predicted with confidence and will depend on the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. However, notwithstanding the challenging economic circumstances created by the COVID-19 pandemic, we believe our focus on multifamily assets makes us better positioned relative to other classes of real estate to withstand many of the adverse impacts of the COVID-19 pandemic as housing is a basic need, rather than a discretionary expense. In addition, we have taken several steps to offset any disruptions in rent that may occur as a result of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic (or a future pandemic, epidemic or disease) presents material uncertainty and risk with respect to our business, financial condition, results of operations and cash flows.
Results of Operations
As of December 31, 2021, we owned interests in a total of 45 multifamily properties. The three combined REITs have acquired interests in 78 multifamily properties, and as of December 31, 2021, have sold interests in 33 of these properties.
Through December 31, 2021, the COVID-19 pandemic has not significantly impacted our operating results; however, we have experienced some reductions in revenue during the year as a result of increased bad debt expense, waiving late fees and the suspension of evictions at our properties. We expect, however, that as the impact of COVID-19 continues to be felt, the COVID-19 outbreak will adversely affect our business, financial condition, results of operations and cash flows going forward,
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including but not limited to, rental revenues and leasing activity, in ways that may vary widely depending on the duration and magnitude of the COVID-19 pandemic and ensuing economic turmoil, as well as numerous factors, many of which are outside of our control, as discussed above.
Year Ended December 31, 2021 Compared to the Year Ended December 31, 2020
The following table reflects the revenues, property operating expenses and net operating income, or NOI, (as defined below) for the years ended December 31, 2021 and 2020 for our Same Store and Non-Same Store properties (as defined below) (dollars in thousands, except per unit):
As Of or For the Year Ended
December 31, 2021(2)
December 31, 2020
Increase / (Decrease)
% Change(1)
Number of properties:
Same Store
-
%
Non-Same Store
%
Total
%
Number of Units
Same Store
7,473
7,473
-
Non-Same Store
6,234
1,014
5,220
N/M
Total
13,707
8,487
5,220
%
Average Occupancy
Same Store
94.5
%
93.1
%
1.4
%
Non-Same Store
95.6
%
95.6
%
0.0
%
Total
95.1
%
93.4
%
1.7
%
Net effective rent, per occupied unit
Same Store
$
1,362
$
1,308
$
%
Non-Same Store
1,350
%
All properties
1,356
1,267
%
Revenues:
Same Store revenues
$
126,275
$
120,609
$
5,666
%
Non-Same Store revenues
114,602
12,633
101,969
N/M
Total Rental income
240,877
133,242
107,635
%
Expenses:
Same Store
Property operating expenses, including real estate taxes
51,194
50,634
%
Property management fees - third party
3,411
1,015
2,396
%
Property management fees - related party
-
3,682
(3,682
)
%
General and administrative - property
3,036
3,211
(175
)
%
Same Store operating expenses
57,641
58,542
(901
)
%
Non-Same Store
Property operating expenses, including real estate taxes
44,006
5,362
38,644
N/M
Property management fees - third party
3,279
3,158
%
Property management fees - related party
-
(389
)
%
General and administrative - property
2,782
2,350
N/M
Non-Same Store operating expenses
50,067
6,304
43,763
N/M
Total operating expenses
107,708
64,846
42,862
%
Net Operating Income "NOI"
Same Store
68,634
62,067
6,567
%
Non-Same Store
64,535
6,329
58,206
N/M
Total NOI
$
133,169
$
68,396
$
64,773
%
(1) N/M- result not meaningful.
(2) We have combined two properties; Adair off Addison and Adair off Addison II.
See reconciliation of Net income (loss) attributable to common stockholders to NOI table below:
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For the Year Ended
December 31, 2021
December 31, 2020
Increase / (Decrease)
% Change
Net income (loss) attributable to common stockholders
$
52,254
$
(25,159
)
77,413
%
Allocation of income to preferred unit holders attributable to noncontrolling interests
(158
)
(101
)
(57
)
%
Net loss attributable to noncontrolling interests
(696
)
(279
)
(417
)
%
Net income (loss) after preferred unit distributions
51,400
(25,539
)
76,939
%
Preferred return to preferred OP unit holders
3,161
1,406
1,755
%
Redemption of preferred OP units
-
%
Net income (loss)
$
54,903
$
(24,133
)
$
79,036
%
Adjustments to reconcile net income (loss) to NOI:
Casualty loss
2,359
2,021
%
Acquisition fees
-
(113
)
%
Transaction expenses
2,282
(1,817
)
%
Property management fees - third party
-
(887
)
%
Asset Management fees - related party
-
8,518
(8,518
)
%
General and administrative - corporate
25,303
8,543
16,760
%
Loss on disposal of assets
%
Depreciation and amortization expense
96,918
51,460
45,458
%
Interest expense
47,377
25,723
21,654
%
Interest income
(22
)
(217
)
%
Gain on sale of land easement
-
(310
)
%
Gain on sale of rental property
(93,665
)
-
(93,665
)
%
Management fee and other income
(1,212
)
(5,296
)
4,084
%
Insurance proceeds in excess of cost basis
(311
)
(168
)
(143
)
%
Provision for income taxes
-
%
NOI
133,169
68,396
64,773
Net Operating Income or “NOI” is a non-GAAP financial measure, which we define as total rental property revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation and amortization, interest expense, related party management fees, casualty losses and gains, losses on disposal of assets and corporate general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.
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. The 22 properties formerly held by REIT II and REIT III which were acquired in the Resource REIT Mergers are included in Non-Same Store results and statistics for the year ended December 31, 2021.
Net effective rent, per occupied unit is equal to the average of gross potential rent net of gain/loss to lease, less vacancy, non-revenue units and concessions, divided by the average occupancy (in units) for the periods presented.
Average occupancy represents the daily average occupied units for the reporting period divided by the total number of units, expressed as a percentage.
Rental and other property revenue. Same store property revenue of the former REIT I portfolio, increased by approximately $5.7 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020. The increase was principally due to an approximately $5.2 million increase in rental income resulting from a 1.4% increase in average occupancy and an approximately $54 per unit increase in net effective monthly rent. This increase was offset by an increase in bad debt expense, net of recoveries, of approximately $420,000 for the year ended December 31, 2021 as compared to the year ended December 31, 2020. In addition, utility income and ancillary tenant fees increased by approximately $861,000 due to increased utility charges and late fees charged to tenants. Non-same store results include the former REIT II and REIT III properties for the period from January 28, 2021 through December 31, 2021 due to the Resource REIT Mergers as well as four former REIT I properties sold during 2021.
Property operating expenses. Same store property operating expenses increased by approximately $560,000 primarily due to an approximately $383,000 increase in real estate taxes and an approximately $195,000 increase in utilities. There was an approximately $1.3 million net decrease in property management fees for same store for the year ended December 31, 2021 as compared the year ended December 31, 2020. Prior to September 8, 2020, our former Advisor subcontracted certain services to
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an unaffiliated third-party, Greystar, and paid for those services from its property management fee; after September 8, 2020, we paid those fees directly to Greystar.
Management Fees. Asset management fees- related party decreased by approximately $8.5 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 as a result of the Self-Management Transaction on September 8, 2020. In addition, we paid Greystar approximately $887,000 for the period September 8, 2020 to December 31, 2020 to manage the former REIT II and III properties. These costs are included in non-same store operating expenses in 2021.
Casualty Loss. We are self-insured for property related casualties up to $1.1 million and as of December 31, 2021, we had incurred approximately $944,000 of expense related to these losses. In addition, we have deductibles of $25,000 for general liability losses and $100,000 for property related losses.
Transaction expenses. We incurred approximately $465,000 of transaction costs related to the Blackstone Merger in the three months ended December 31, 2021. Transaction costs of approximately $2.3 million were expensed in connection with the Self-Management Transaction during the year ended December 31, 2020.
General and Administrative. Corporate general and administrative expenses increased by approximately $16.8 million for the year ended December 31, 2021 as compared the year ended December 31, 2020 including an increase in payroll and benefit costs of approximately $12.3 million including approximately $4.6 million of compensation expense for restricted stock awards, professional fees of approximately $980,000, transfer agent fees of approximately $628,000 and insurance expense of approximately $777,000. The year ended December 31, 2020 primarily included allocations from our former Advisor to reimburse for costs incurred to manage assets of REIT I. As of December 31, 2021, we employed 44 employees to manage the assets of the merged REITs.
Depreciation and Amortization. Depreciation and amortization expense is comprised of the depreciation on our rental properties and amortization of intangible assets primarily related to in-place apartment unit leases from the Resource REIT Mergers. The increase in depreciation and amortization expense during the year ended December 31, 2021, as compared to the year ended December 31, 2020, was comprised as follows (in thousands):
Same Store
Non-Same Store
Corporate
Total
Depreciation
$
(3,958
)
$
40,941
$
$
37,088
Amortization of intangibles
(4
)
8,374
-
8,370
$
(3,962
)
$
49,315
$
$
45,458
Interest Expense. Interest expense increased by approximately $21.7 million for the year ended December 31, 2021 as compared to the year ended December 31, 2020 and the increase was comprised as follows (in thousands):
Same Store
Non-Same Store
Revolving Credit Facility
Total
Interest payable to banks
$
(2,364
)
$
17,727
$
$
15,552
Deferred finance cost amortization
(211
)
Fair value amortization
-
Interest rate cap adjustments
(23
)
(60
)
-
(83
)
Prepayment penalties
1,557
1,817
-
3,374
Deferred finance extinguishment
1,959
-
2,363
$
$
20,250
$
$
21,654
Gain on sale of rental properties. We sold five properties (Evergreen at Coursey, Brookwood, Pines of York, Retreat at Rocky Ridge, and Tech Center) during the year ended December 31, 2021 totaling approximately $202.2 million in gross proceeds and realizing approximately $93.7 million in gain on sales.
Other Revenue. We recorded approximately $1.2 million of asset and property management fee revenue from REIT II and REIT III for the period from January 1, 2021 through January 27, 2021 prior to the Resource REIT Mergers in 2021. We recorded asset and property management fee revenue and debt financing fees from REIT II and REIT III for the period September 9, 2020 through December 31, 2020 of approximately $5.2 million following the Self-Management Transaction in 2020. Upon effectiveness of the Resource REIT Mergers, these fees were no longer earned.
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Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019
The following table reflects the revenues, property operating expenses and net operating income, or NOI, (as defined below) for the years ended December 31, 2020 and 2019 for our Same Store and Non-Same Store properties (as defined below) (dollars in thousands, except per unit):
For the Year Ended
December 31, 2020
December 31, 2019
Increase / (Decrease)
% Change (1)
Number of properties:
Same Store
-
%
Non-Same Store
-
%
Total
-
%
Number of Units
Same Store
7,473
7,473
-
%
Non-Same Store
1,014
1,014
-
%
Total
8,487
8,487
-
%
Average Occupancy
Same Store
93.1
%
93.5
%
-0.4
%
Non-Same Store
95.6
%
93.4
%
2.2
%
Total
93.4
%
93.5
%
-0.1
%
Net effective rent, per occupied unit
Same Store
$
1,308
$
1,285
$
%
Non-Same Store
%
All properties
1,267
1,220
%
Revenues:
Same Store revenues
$
120,609
$
119,344
$
1,265
%
Non-Same Store revenues
12,633
15,827
(3,194
)
%
Total Rental income
133,242
135,171
(1,929
)
%
Expenses:
Same Store
Property operating expenses, including real estate taxes
50,634
48,104
2,530
%
Property management fees - third party
1,015
-
1,015
%
Property management fees - related party
3,682
5,340
(1,658
)
%
General and administrative - property
3,211
3,014
%
Same Store operating expenses
58,542
56,458
2,084
%
Non-Same Store
Property operating expenses, including real estate taxes
5,362
7,412
(2,050
)
%
Property management fees - third party
-
%
Property management fees - related party
(300
)
%
General and administrative - property
(149
)
%
Non-Same Store operating expenses
6,304
8,682
(2,378
)
%
Total operating expenses
64,846
65,140
(294
)
%
Net Operating Income "NOI"
Same Store
62,067
62,886
(819
)
%
Non-Same Store
6,329
7,145
(816
)
%
Total NOI
$
68,396
$
70,031
$
(1,635
)
%
(1) N/M- result not meaningful.
See reconciliation of net loss attributable to common stockholders to NOI in the table below:
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For the Year Ended
December 31, 2020
December 31, 2019
Increase / (Decrease)
% Change
Net loss attributable to common stockholders
$
(25,159
)
$
(1,747
)
$
(23,412
)
%
Allocation of income to preferred unit holders attributable to noncontrolling interests
(101
)
-
(101
)
%
Net loss attributable to noncontrolling interests
(279
)
-
(279
)
%
Net loss after preferred unit distributions
(25,539
)
(1,747
)
(23,792
)
%
Preferred return to preferred OP unit holders
1,406
-
1,406
%
Net loss
$
(24,133
)
$
(1,747
)
$
(22,386
)
%
Adjustments to reconcile net loss to NOI:
Casualty loss
%
Acquisition fees
-
%
Transaction expenses
2,282
-
2,282
%
Property management fees - third party
-
%
Asset Management fees - related party
8,518
12,505
(3,987
)
%
General and administrative - corporate
8,543
6,462
2,081
%
Loss on disposal of assets
%
Depreciation and amortization expense
51,460
53,814
(2,354
)
%
Interest expense
25,723
37,908
(12,185
)
%
Interest income
(217
)
(374
)
%
Gain on sale of land easement
(310
)
-
(310
)
%
Gain on sale of rental property
-
(38,810
)
38,810
%
Management fee and other income
(5,296
)
-
(5,296
)
%
Insurance proceeds in excess of cost basis
(168
)
(570
)
%
NOI
68,396
70,031
(1,635
)
Net Operating Income or “NOI” is a non-GAAP financial measure, which we define as total rental property revenues less property operating expenses, including real estate taxes. We believe that NOI is an important supplemental measure of operating performance for real estate because it provides a measure of operations that is unaffected by depreciation and amortization, interest expense, related party management fees, casualty losses and gains, losses on disposal of assets and corporate general and administrative expenses. NOI does not represent cash generated by operating activities in accordance with GAAP and should not be considered an alternative to net income, net income available for common shareholders, or cash flow from operating activities as a measure of financial performance.
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. Same Store and Non-Same Store for the years ended December 31, 2020 and 2019 are comprised of REIT I properties only.
Net effective rent, per occupied unit is equal to the average of gross potential rent net of gain/loss to lease, less vacancy, non-revenue units and concessions, divided by the average occupancy (in units) for the periods presented.
Average occupancy represents the daily average occupied units for the reporting period divided by the total number of units, expressed as a percentage.
Rental and other property revenue. Same store property revenue of the former REIT I portfolio, increased by approximately $1.3 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase was principally resulting from an increase of approximately $23 per unit net effective monthly rent. This increase was offset by an increase in bad debt expense, net of recoveries, of approximately $834,000 for the year ended December 31, 2020 as compared to the year ended December 31, 2019. In addition, utility income increased by approximately $110,000 due to increased utility charges to tenants.
Property operating expenses. Same store property operating expenses increased by approximately $2.5 million primarily due to an approximate $486,000 increase in real estate taxes, $436,000 increase in turnover costs, $494,000 increase in utilities and an $608,000 increase in insurance. There was an approximate $643,000 net decrease in property management fees for same store for the year ended December 31, 2020 as compared the year ended December 31, 2019. Prior to September 8, 2020, our former Advisor subcontracted certain services to an unaffiliated third-party, Greystar, and paid for those services from its property management fee; after September 8, 2020, we paid those fees directly to Greystar.
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Transaction expenses. Transaction costs of approximately $2.3 million were expensed in connection with the Self-Management Transaction during the twelve months ended December 31, 2020.
Management Fees. Asset management fees- related party decreased by approximately $4.0 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 as a result of these fees no longer being paid as of September 8, 2020.
General and Administrative. Corporate general and administrative expenses, primarily payroll and benefit costs, increased by approximately $2.1 million for the year ended December 31, 2020 as compared the year ended December 31, 2019 connected to the Self-Management Transaction in 2020.
Depreciation and Amortization. Depreciation and amortization expense is comprised of the depreciation on our rental properties and amortization of intangible assets related to in-place apartment unit leases from the Resource REIT Mergers and in-place antennae leases. The decrease in depreciation and amortization expense during the year ended December 31, 2020, as compared to the year ended December 31, 2019, was comprised as follows (in thousands):
Same Store
Non-Same Store
Corporate
Total
Depreciation
$
(2,118
)
$
(274
)
$
$
(2,350
)
Amortization of intangibles
(4
)
-
-
(4
)
$
(2,122
)
$
(274
)
$
$
(2,354
)
Interest Expense. Interest expense decreased by approximately $12.2 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019 and the decrease was comprised as follows (in thousands):
Same Store
Non-Same Store
Total
Interest payable to banks
$
(10,769
)
$
(436
)
$
(11,205
)
Deferred finance cost amortization
(771
)
(2
)
(773
)
Fair value amortization
(1
)
Interest rate cap adjustments
(197
)
(22
)
(219
)
Deferred finance extinguishment
(6
)
-
(6
)
$
(11,724
)
$
(461
)
$
(12,185
)
Gain on sale of rental properties. We sold Williamsburg on March 8, 2019 for $70.0 million realizing an approximate $34.6 million gain on sale. We sold Pinehurst on December 20, 2019 for $12.3 million realizing an approximate $4.2 million gain on sale.
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Liquidity and Capital Resources
We have derived the capital required to purchase real estate investments and conduct our operations from the proceeds of our public offerings, secured financings from banks or other lenders, proceeds from the sale of assets, and cash flow generated from our operations.
Our ability to derive the capital needed to conduct our operations may be adversely affected by the impact of the COVID-19 pandemic as discussed above.
We allocate funds as necessary to support the future maintenance and viability of properties we acquire in order to preserve value for our investors. If such allocations and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties, debt investments or other assets we may hold. We cannot assure you that we will be able to access additional funds when we need them or upon acceptable terms.
During the year ended December 31, 2021, we obtained REIT-level financing through a line of credit from Bank of America. Some of our assets serve as collateral for this debt. In addition to debt financing at the REIT-level, we have financed, and may continue to finance, the acquisition costs of individual real estate investments, as well as the acquisition costs of all or a group of real estate investments acquired by us, by causing our subsidiaries to borrow directly from third-party financial institutions or other commercial lenders. Under these circumstances, we anticipate that certain properties will serve as collateral for the debt we incur to acquire those particular properties and that we will seek to obtain nonrecourse financing for the acquisition of the properties. However, there is no guarantee that we will be successful in obtaining financing arrangements on a property-by-property basis and that the loans would be nonrecourse to us. We have and may again also obtain mortgage financing which contains cross-collateralization or cross-default provisions whereby a default on a single property could affect multiple properties. Finally, we may also obtain seller financing with respect to specific assets that we acquire.
Material Cash Requirements
Our expected material cash requirements for the twelve months ended December 31, 2022 and thereafter are comprised of (i) contractually obligated expenditures; (ii) other required expenditures; and (iii) capital expenditures.
Contractually Obligated Expenditures
The following table summarizes our debt payments (excluding extension options), interest payment obligations (excluding debt premiums and discounts, unused fees and deferred financing costs) and obligations under non-cancelable operating leases (excluding renewal options) as of December 31, 2021 (dollars in millions):
Twelve Months Ended
December 31, 2022
Thereafter
Debt repayments
$
38,899
$
1,376,422
Interest payments (1)
36,053
160,996
Operating leases
2,179
$
75,535
$
1,539,597
(1) Scheduled interest payments included in these amounts for variable rate loans are presented using rates as of December 31, 2021.
Other Required Expenditures
We incur certain other required expenditures in the ordinary course of business, such as utilities, insurance, real estate taxes, third-party management fees, certain capital expenditures related to the maintenance of our properties, and corporate level expenses. Additionally, we carry comprehensive insurance to protect our properties against various losses. The amount of insurance expense that we incur depends on the assessed value of our properties, prevailing market rates, changes in risk. Furthermore, we incur real estate taxes in the various jurisdictions in which we operate. The amount of real estate taxes that we incur depends on changes in the assessed value of our properties, changes in tax rates assessed by certain jurisdictions.
In order to continue to qualify as a REIT for federal income tax purposes, we must meet several organizational and operational requirements, including a requirement that we annually distribute to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. We intend to continue to satisfy this requirement and maintain our REIT status. Our Board of Directors will evaluate the dividend on a quarterly basis,
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taking into account a variety of relevant factors, including REIT taxable income. Pursuant to the terms of the Blackstone Merger Agreement, we may continue to pay regular quarterly distributions of no more than $0.07 per share of our common stock for the first two quarters of 2022. Thereafter, we may not pay distribution except as necessary to preserve our tax status as a REIT, and any such distributions would result in an offsetting decrease to the merger consideration to be paid to our common stockholders.
Capital Expenditures
We deployed approximately $28.4 million during the year ended December 31, 2021 for capital expenditures. The properties in which we deployed the most capital during the year ended December 31, 2021 are listed separately and the capital expenditures made on all other properties are aggregated in "All other properties" below (in thousands):
Capital deployed
during the year ended
2022 capital
December 31, 2021
budgeted
Skyview
$
4,614
$
1,292
Calloway at Las Colinas
3,210
Maxwell Townhomes
1,627
-
The Westside Apartment Homes
1,564
Meridian Pointe
1,494
1,608
Providence in the Park
1,418
1,422
The Palmer at Las Colinas
1,019
1,827
Crosstown at Chapel Hill
1,314
Verona Apartment Homes
The Adairs
1,227
All other properties
11,235
29,360
$
28,424
$
40,216
Distributions Paid to Common Stockholders
For the year ended December 31, 2021, we paid aggregate distributions as follows (dollars in thousands, except per share data):
Record Date
Per Common Share
Distribution Date
Net Cash Distributions
Distributions reinvested in shares of Common Stock
Total Aggregate Distributions
March 30, 2021
$
0.07
March 31, 2021
$
8,539
$
2,490
$
11,029
June 29, 2021
0.07
June 30, 2021
8,365
2,674
11,039
September 29, 2021
0.07
September 30, 2021
8,868
2,704
11,572
December 28, 2021
0.07
December 29, 2021
8,875
2,707
11,582
$
0.28
$
34,647
$
10,575
$
45,222
Gross Offering Proceeds
As of December 31, 2021, we had an aggregate of 165.8 million shares of our $0.01 par value common stock outstanding including 1.1 million unvested restricted shares. The following table presents our shares issued (dollars in thousands):
Shares
Issued
Gross
Proceeds
Shares issued through private offering
1,279,227
$
12,737
Shares issued through primary public offering
129,923,354
1,289,845
Shares issued through stock distributions
2,406,986
-
Shares issued through distribution reinvestment plan
29,042,460
279,519
Restricted shares issued to employees
1,370,952
-
Shares issued through conversion of common OP units
7,539,738
-
Shares issued in conjunction with the Resource REIT Mergers
14,724,323
-
Total
186,287,040
$
1,582,101
Shares redeemed and retired
(20,520,287
)
Total shares issued and outstanding as of December 31, 2021
165,766,753
LIBOR
Central banks and regulators in a number of major jurisdictions (including both the U.S. and the U.K.) have convened working groups to find, and implement the transition to, suitable replacements for Interbank Offered Rates (IBORs), including LIBOR. The FCA, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021.
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On March 5, 2021, the FCA announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative (i) immediately after December 31, 2021, in the case of the 1-week and 2-month US dollar settings; and (ii) immediately after June 30, 2023, in the case of the remaining US dollar settings. The tenors that were extended to June 30, 2023 are more widely used and are the tenors used in our LIBOR-based debt.
We have exposure to IBORs through floating rate mortgage debt with maturity dates beyond 2021 for which the interest rates are tied to LIBOR. There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate. Any changes in benchmark interest rates could increase our cost of capital, which could impact our results of operations, cash flows, and the market value of our real estate investments.
Share Redemption Program
On February 3, 2021, our board of directors adopted the Fifth Amended and Restated Share Redemption Program (the “Amended SRP”) pursuant to which, subject to significant conditions and limitations of the program, our stockholders can have their shares repurchased by us. The Amended SRP provides that redemptions will continue to be made quarterly but in an amount not to exceed proceeds from the sale of shares in the DRP in the immediately preceding calendar quarter; provided that, for any quarter in which no DRP proceeds are available, the funding limitation for the quarter will be set by the board of directors upon ten business days’ notice to stockholders. Additional changes to the share redemption program in the Amended SRP clarify the timing of redemption procedures. The share redemption program remains suspended except with respect to redemptions sought up on a stockholder’s death, disability, or confinement to a long-term care facility (each as defined in the Amended SRP). Further, on January 23, 2022, in connection with the entry into the Blackstone Merger Agreement, our board of directors suspended the share redemption program.
Funds from Operations (FFO) and Core Funds from Operations (Core FFO)
Funds from operations, or FFO, is a non-GAAP financial measurement that is widely recognized as a measure of operating performance for a REIT. We calculate FFO as defined by the National Association of Real Estate Investment Trusts, or NAREIT, to be net income or loss, computed in accordance with GAAP, excluding:
•depreciation and amortization related to real estate;
•gains and losses from the sale of certain real estate assets; and
•impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity.
These reconciling items include adjustments related to noncontrolling interests.
We believe that FFO is helpful to our investors as a measure of operating performance because it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities, general and administrative expenses, and interest costs, which are not immediately apparent from net income. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate and intangibles diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient. As a result, we believe that the use of FFO, together with the required GAAP presentations, is helpful to our investors in understanding our performance. Factors that impact FFO include start-up costs, fixed costs, delays in buying assets, yields on cash held in accounts, interest rates on acquisition financing, and operating expenses. In addition, FFO will be affected by the types of investments in our portfolio.
Core FFO includes certain adjustments to FFO for non-routine items or items not considered core to business operations. Core FFO adjusts FFO to exclude equity compensation expense, losses on extinguishment of debt and modification costs, transaction (including Self-Management) costs, amortization of deferred financing costs, amortization of intangible lease assets, debt premium or discount amortization, realized losses on fair value adjustments related to interest rate caps, and casualty gains and losses. By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides investors with additional information to compare core operating and financial performance between periods.
FFO and Core FFO should not be considered as alternatives to net income or loss or any other GAAP measurement of performance, but rather should be considered as additional, supplemental measures. FFO and Core FFO do not represent cash generated from operating activities in accordance with GAAP, nor indicate funds available to fund all cash needs, including the ability to service indebtedness or make distributions to shareholders. In addition, Core FFO is a non-GAAP and non-standardized financial measure that may be calculated differently by other REITs and that should not be considered a substitute for operating results determined in accordance with GAAP.
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The following table reconciles net income (loss) attributable to common shareholders to FFO and Core FFO for the years ended December 31, 2021, 2020 and 2019 (in thousands, except per share amounts). Amounts reported in the tables below include adjustments attributable to noncontrolling interests for the years ended December 31,2021 and 2020. There were no noncontrolling interests in the year ended December 31, 2019.
Years Ended December 31,
Net income (loss) attributable to common stockholders - GAAP
$
52,254
$
(25,159
)
$
(1,747
)
Depreciation expense (1)
85,531
50,099
53,802
Net gains on disposition of properties (2)
(92,805
)
-
(38,810
)
FFO attributable to common stockholders
44,980
24,940
13,245
Stock compensation expense (3)
4,380
-
Redemption of preferred units (4)
-
-
Debt prepayment costs (5)
3,245
-
-
Acquisition fees
-
-
Amortization of intangible lease assets (6)
7,983
Realized loss on change in fair value of interest rate cap (7)
Debt premium (discount) amortization (8)
(308
)
(333
)
Deferred financing costs amortization (9)
3,848
1,499
2,389
Casualty losses, net of casualty gains (10)
1,997
(268
)
Transaction expenses (11)
2,203
-
Core FFO attributable to common stockholders
$
67,270
$
28,758
$
15,389
Basic and diluted net income (loss) per common share - GAAP
$
0.34
$
(0.29
)
$
(0.02
)
FFO per diluted share (12)
$
0.29
$
0.29
$
0.15
Core FFO per diluted share (12)
$
0.44
$
0.34
$
0.18
Weighted average shares outstanding - basic
153,820
85,531
85,861
Weighted average shares outstanding - diluted (13)
153,889
85,531
85,861
(1) Includes allocation for noncontrolling interests of approximately $3.0 million and $1.4 million, respectively, for the years ended December 31, 2021 and 2020.
(2) Includes allocation for noncontrolling interests of approximately $860,000 for the year ended December 31, 2021. There was no allocation for the year ended December 31, 2020.
(3) Includes allocation for noncontrolling interests of approximately $192,000 and $1,000, respectively, for the years ended December 31, 2021 and 2020.
(4) Includes allocation for noncontrolling interests of approximately $13,000 for the year ended December 31, 2021. There was no allocation for the year ended December 31, 2020.
(5) Includes allocation for noncontrolling interests of approximately $129,000 for the year ended December 31, 2021. There was no allocation for the year ended December 31, 2020.
(6) Includes allocation for noncontrolling interests of approximately $396,000 for the year ended December 31, 2021. There was no allocation for the year ended December 31, 2020.
(7) Includes allocation for noncontrolling interests of approximately $5,000 and $2,000, respectively, for the years ended December 31, 2021 and 2020.
(8) Includes allocation for noncontrolling interests of approximately $15,000, and $7,000, respectively, for the years ended December 31, 2021 and 2020.
(9) Includes allocation for noncontrolling interests of approximately $168,000 and $42,000, respectively, for the years ended December 31, 2021 and 2020.
(10) Includes allocation for noncontrolling interests of approximately $51,000 and $1,000, respectively, for the years ended December 31, 2021 and 2020.
(11) Includes allocation for noncontrolling interests of approximately $79,000 for the year ended December 31, 2020. There was no allocation for the year ended December 31, 2021.
(12) Calculated using weighted average shares outstanding - diluted.
(13) None of the shares of convertible stock or 467,461 unvested performance awards that vest only upon a liquidation event are included in the diluted earnings per share calculations because the necessary conditions for conversion have not been satisfied as of either December 31, 2021, 2020 and 2019. Income (loss) attributable to outstanding OP Common and Preferred units issued in the Self-Management Transaction prior to their redemption and or conversion were included in net (income) loss attributable to noncontrolling interest, and therefore, excluded from the calculation of earnings (loss) per common share, basic and diluted, for all periods presented.
Critical Accounting Estimates
We consider these policies critical because they involve significant management judgments and assumptions, they require estimates about matters that are inherently uncertain, and they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of our assets and liabilities and our disclosure of contingent assets and liabilities on the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Real Estate Assets
Real Estate Purchase Price Allocation
Acquisitions that do not meet the definition of a business under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC"), Business Combinations, ("ASC 805") are accounted for as asset acquisitions. In most cases, we believe acquisitions of real estate will no longer be considered business combinations, as in most cases
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substantially all of the fair value is concentrated in a single identifiable asset or group of tangible assets that are physically attached to each other (land and building). However, if we determine that substantially all of the fair value of the gross assets acquired is not concentrated in either a single identifiable asset or in a group of similar identifiable assets, we will then perform an assessment to determine whether the asset is a business by using the framework outlined in the guidance. If we determine that the acquired asset is not a business, we will allocate the cost of the acquisition, including transaction costs, to the assets acquired or liabilities assumed based on their relative fair value.
Upon the acquisition of real properties, we allocate the purchase price of properties to acquired tangible assets consisting of land, buildings, fixtures and improvements, identified intangible lease assets, consisting of the value of above-market and below-market leases, as applicable, the value of in-place leases, the value of tenant relationships, and liabilities, based in each case on their fair values.
We record above-market and below-market in-place lease values for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining non-cancelable term of the lease. We amortize any capitalized above-market or below-market lease values as an increase or reduction to rental income over the remaining non-cancelable terms of the respective leases.
We measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates and (ii) the property valued as if it were vacant. Management’s estimates of value are determined by independent appraisers. Factors to be considered in the analysis include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.
In estimating the fair value of both the tangible and intangible acquired assets, we also consider information obtained about each property as a result of its pre-acquisition due diligence. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. Management also estimates costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction.
The total amount of other intangible assets acquired is further allocated to customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics to be considered by management in allocating these values include the nature and extent of the our existing relationships with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors.
We amortize the value of in-place leases to expense over the average remaining term of the underlying leases. The value of customer relationship intangibles is amortized to expense over the initial term and any renewal periods in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building.
The determination of the fair value of assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the purchase price allocations, which could impact the amount of our reported net income.
Valuation of Real Estate Assets
We periodically evaluate our long-lived assets, primarily investments in rental properties, for impairment indicators. The review considers factors such as past and expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. When circumstances indicate the carrying value of a property may not be recoverable, we review the asset for permanent impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. An impairment loss will be recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss would be the adjustment to fair value less the estimated cost to dispose of the asset.
In conjunction with the Resource REIT Mergers and for our annual estimated value per share calculation in 2020 and 2019, we engaged with a third-party to provide the estimated fair value of its rental properties as of January 28, 2021, December 31, 2020 and 2019, respectively. We compared these values to the carrying values and concluded that there was no indication that the carrying value of our investments in real estate were not recoverable as of December 31, 2021, 2020 and 2019. There were no impairment losses recorded on long lived assets during the years ended December 31, 2021, 2020 and 2019.
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Adoption of New Accounting Standards
In March 2020, FASB issued Accounting Standards Update ("ASU") No. 2020-04, “Reference Rate Reform (Topic 848).” ASU No. 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. The amendments in ASU No. 2020-04 are effective for all entities as of March 12, 2020 through December 31, 2022. During the year ended December 31, 2021, we have 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. We continue to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
Off-Balance Sheet Arrangements
As of both December 31, 2021 and 2020, we did not have any off-balance sheet arrangements or obligations.
Subsequent Events
On January 20, 2022, we sold The Bryant at Yorba Linda in Yorba Linda, California for $205.5 million. We expect to recognize a gain on the sale during the quarter ending March 31, 2022.
On January 20, 2022, we sold Maxwell Townhomes in San Antonio, Texas for $48.0 million. We expect to recognize a gain on the sale during the quarter ending March 31, 2022.
On January 23, 2022, we entered into the Blackstone Merger Agreement. In addition, our board of directors suspended our share redemption program and our distribution reinvestment plan offering.
On January 28, 2022, we repaid in the full the loans secured by Skyview, Courtney Meadows, Indigo Creek, and Meridian Pointe.
On March 22, 2022, we sold Sunset Ridge in San Antonio, Texas for $60.8 million. We expect to recognize a gain on the sale during the quarter ending March 31, 2022.
We have evaluated subsequent events and determined that no events have occurred, other than those disclosed above, which would require an adjustment to or additional disclosure in the consolidated financial statements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from our financial instruments primarily from changes in market interest rates. We do not have exposure to any other significant market risks. We monitor interest rate risk as an integral part of our overall risk management, which recognizes the unpredictability of financial markets and seeks to reduce the potentially adverse effect on our results of operations. Our operating results are affected by changes in interest rates, primarily changes in LIBOR, as a result of borrowings under our outstanding mortgage loans.
We enter into derivative financial instruments to manage exposures that arise from business activities that result in the payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our objectives in using interest rate derivatives are to add stability to interest expense and to manage our exposure to interest rate movements. To accomplish this objective, we entered into a total of 18 interest rate caps that were designated as cash flow hedges. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
As of December 31, 2021 and 2020, we had approximately $613.0 million and $680.9 million, respectively, in variable rate debt outstanding. If interest rates on the variable rate debt had been 100 basis points higher during the years ended December 31, 2021 and 2020, our annual interest expense would have increased by approximately $7.0 million and $6.7 million, respectively.
In addition, changes in interest rates affect the fair value of our fixed rate mortgage notes payable. As of December 31, 2021 and 2020, the face value of fixed rate outstanding borrowings was approximately $802.3 million and $150.1 million, respectively. As of December 31, 2021 and 2020, this fixed rate debt had fair values of approximately $782.5 million and $151.0 million, respectively. Fair values are computed using rates available to us for debt with similar terms and remaining maturities.
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If interest rates had been 100 basis points higher as of December 31, 2021 and 2020, the fair value of this fixed rate debt would have decreased by approximately $43.7 million and $4.4 million, respectively.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to Financial Statements at page of this Annual Report on Form 10-K.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There were no disagreements with our independent registered public accountants during the year ended December 31, 2021.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.	CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our periodic reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our principal executive officer and principal financial officer, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective.
Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2021. In making this assessment, management used the criteria set forth in the 2013 version of the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based upon this assessment, management believes that our internal control over financial reporting is effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred in the three months ended December 31, 2021 that has materially affected, or is reasonable likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
We have provided below certain information about our executive officers and directors. At our July 21, 2021 annual meeting, Alan F. Feldman, Andrew Ceitlin, Gary Lichtenstein, Lee F. Shlifer, Robert C. Lieber, and Thomas J. Ikeler were elected to the board of directors for one-year terms. On August 3, 2021, our board of directors increased the size of the board from six to eight members and appointed Paula Baiman Brown and Alan F. Riffkin to serve as independent directors for one-year terms expiring at the next annual meeting. Mr. Lieber subsequently resigned on September 14, 2021, for reasons unrelated to any disagreement with our operations, policies, or practices.
Name *
Age **
Positions
Alan F. Feldman
Chairman of the Board, Chief Executive Officer, President and Director
Paula Baiman Brown
Independent Director
Andrew Ceitlin
Independent Director
Thomas J. Ikeler
Independent Director
Gary Lichtenstein
Independent Director
Alan F. Riffkin
Independent Director
Lee F. Shlifer
Independent Director
Thomas C. Elliott
Chief Financial Officer, Executive Vice President and Treasurer
Marshall P. Hayes
Chief Investment Officer and Senior Vice President
Shelle R. Weisbaum
Chief Legal Officer, Senior Vice President and Secretary
* The address of each executive officer and director listed is 1845 Walnut Street, 17th Floor, Philadelphia, Pennsylvania 19103.
** As of March 1, 2022.
Alan F. Feldman has served as our Chief Executive Officer and Chairman of our Board of Directors since October 2012 and as our President since September 2020 overseeing the strategy for the company and its investment strategy. Prior to the Resource REIT Mergers, he was also Chief Executive Officer and Chairman of the Board of REIT I from June 2009 and REIT III from June 2017. He also served as the President of REIT I and REIT III from September 2020 until the Resource REIT Mergers. Mr. Feldman also served as a Senior Vice President of RAI from August 2002 to September 2020 and as Chief Executive Officer of its wholly owned subsidiary, Resource Real Estate (our founding sponsor) from May 2004 to September 2020. In addition, prior to September 2020, he served in various officer and director positions for other real estate program sponsored by Resource Real Estate. From 1998 to 2002, Mr. Feldman was a Vice President at Lazard Freres & Co., an investment banking firm specializing in real estate matters. From 1992 through 1998, Mr. Feldman was an Executive Vice President of the Pennsylvania Real Estate Investment Trust and its predecessor, The Rubin Organization. From 1990 to 1992, Mr. Feldman was a director at Strouse, Greenberg & Co., a regional full-service real estate company. From 1986 through 1988, Mr. Feldman was an engineer at Squibb Corporation. Mr. Feldman received a Bachelor of Science degree and Master of Science degree from Tufts University, and a Master of Business Administration, Real Estate and Finance concentration degree from The Wharton School, University of Pennsylvania.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Feldman, in light of his day-to-day company-specific operational experience, significant finance and market experience, and his real estate investment trust experience, to serve as one of our directors.
Paula Baiman Brown was appointed to our board of directors on August 3, 2021. She has served as the Senior Vice President and General Counsel of Lanard & Axilbund, LLC (d/b/a Colliers International) from March 2010 to the present. From March 1993 to March 2009, Ms. Brown was counsel at Ledgewood, a law firm where she practiced real estate and real estate finance law. She also holds a Real Estate Broker license from the Commonwealth of Pennsylvania. Ms. Brown received a Bachelor of Arts from Connecticut College and a Juris Doctorate from the University of Pennsylvania Law School.
The board of directors has determined that it is in the best interests of our company and our stockholders for Ms. Brown, in light of her legal background in real estate transactions, to serve as one of our directors.
Andrew Ceitlin was appointed to our board of directors at the closing of the REIT I Merger as the REIT I designated director pursuant to the terms of the REIT I Merger Agreement. He served as a REIT I director from February 2014 until the closing of the REIT I Merger. Mr. Ceitlin has served as the Vice President and Assistant General Counsel for Tishman Construction Corporation, an AECOM company, since June 2017 and previously served as its Senior Corporate Counsel from
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June 2010 to June 2017. Prior to joining Tishman Construction Corporation, Mr. Ceitlin served as legal counsel for Bovis Lend Lease Holdings, Inc. from May 2007 to June 2010. Prior to joining Bovis Lend Lease Holdings, Inc., Mr. Ceitlin was an associate attorney at Peckar & Abramson, P.C., a law firm specializing in construction law. Mr. Ceitlin served as a director of Resource IO REIT from March 2015 to May 2018. Mr. Ceitlin is a licensed member of the New York State Bar and has practiced law for over 20 years. He holds a Bachelor’s degree in political science from The Ohio State University and a Juris Doctor degree from New York Law School.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Ceitlin, in light of his significant experience in the legal and real estate markets and his expertise in construction law, to serve as one of our directors.
Thomas J. Ikeler has been a director since November 2013. Mr. Ikeler also served as an independent director for REIT I from September 2009 until February 2014. From November 2014 to December 2020 when he retired, Mr. Ikeler served as Executive Vice President, Chief Investment Officer and Partner of Hoffman & Associates, a Washington, DC based mixed-use and residential real estate developer, but continues to serve as an advisor to the firm. From January 2010 to November 2014, Mr. Ikeler served as Managing Director, Capital Markets of Penzance, a private equity real estate investment and operating company, based in Washington, DC, and was one of four members of its Executive Committee. He was involved with all aspects of the firm’s investment activities, including acquisitions, development and capital placement. Immediately prior to that, from January 2009 to January 2010, Mr. Ikeler was President of K2 Capital Advisors, LLC, a boutique advisory practice that assisted real estate companies in selling or capitalizing existing assets and new acquisitions. From 2005 to 2009, Mr. Ikeler served as Managing Director of Jones Lang LaSalle, one of the largest global real estate service firms with 180 offices in 60 countries and over 36,000 employees, where he specialized in commercial property and multifamily equity and debt financing. From 1999 to 2005, he served as Managing Director of Aegis Realty Consultants, the real estate banking affiliate of Berwind Property Group, which owns and operates more than 25,000 apartment units and 100 communities. From 1997 to 1999, Mr. Ikeler served as Vice President/Corporate Finance for Security Capital Group and Senior Vice President for a subsidiary. From 1994 to 1997, he established a real estate investment and advisory firm that targeted “off market” opportunities and advised institutional owners and operators of real estate, which included serving as lead outside advisor to RF&P Corporation, a private REIT owned by the Virginia Retirement System. He received his Bachelor of Arts degree from Bucknell University and his Master in Business Administration from Harvard University.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Ikeler, in light of his significant experience in finance and real estate markets and his expertise in commercial property and multifamily equity and debt financing, to serve as one of our directors.
Gary Lichtenstein has been a director since November 2013. Mr. Lichtenstein also served as an independent director for REIT I from September 2009 until the closing of the REIT I Merger. Mr. Lichtenstein served as a partner of Grant Thornton LLP, a registered public accounting firm, from 1987 to July 2009. He worked at Grant Thornton LLP from 1974 to 1977 and served as a manager at Grant Thornton LLP from 1977 to 1987. Prior to joining Grant Thornton LLP, Mr. Lichtenstein served as an accountant for Soloway & von Rosen CPA from 1970 to 1974 and for Touche Ross Bailey & Smart from 1969 to 1970. Mr. Lichtenstein served on the Board of Directors of Atlas Resources, LLC from September 2016 to September 2018. He received his Bachelor of Business Administration and his Juris Doctor degree from Cleveland State University.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Lichtenstein, in light of his public company accounting and financial reporting expertise, to serve as one of our directors.
Alan F. Riffkin was appointed to our board of directors on August 3, 2021. He is the Managing Member of AFR Capital Advisory LLC, a strategic advisor to real estate owners and operators since December 2020. From 2003 to December 2019, Mr. Riffkin held positions as Director to Managing Director of the Real Estate Investment Banking Group at Lazard Freres & Co LLC. From 1994 to 2003, he held positions as Associate to Vice President of the Real Estate, Technology and Industrial Groups in the Investment Banking Division of Goldman Sachs & Co. Prior to that, Mr. Riffkin held positions as Account Officer to Senior Account Officer at Citicorp in the Real Estate Division from 1988 to 1992. Mr. Riffkin has served as a Trustee of the Urban Land Institute since 2017. He received a Bachelor of Science from Cornell University and a Master of Business Administration from The Wharton School of the University of Pennsylvania.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Riffkin, in light of his financial expertise and in particular his background in real estate finance, to serve as one of our directors.
Lee F. Shlifer was appointed to our board of directors at the closing of the REIT III Merger as the REIT III designated director pursuant to the terms of the REIT III Merger Agreement. He served as a director of REIT I from September 2009 and of
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REIT III from January 2016, each until the closing of the respective mergers. Mr. Shlifer has served as founder, President and broker for Signature Investment Realty, Inc., an investment brokerage and management/consulting firm that emphasizes the acquisition and management of multifamily apartment buildings, since 1985. Prior to founding Signature Investment Realty, Inc., he served as Vice President of Marketing for Spencer Industries from 1979 to 1981. In addition, Mr. Shlifer served as a psychotherapist for the Eastern Pennsylvania Psychiatric Institute from 1978 to 1979. Mr. Shlifer is a member of the board of directors of ELIT, a non-profit organization that operates schools in India and Pakistan to teach impoverished women basic computer skills. He received his Bachelor of Arts degree from the University of Pennsylvania and his Masters of Arts degree in Clinical Psychology from The New School for Social Research.
The board of directors has determined that it is in the best interests of our company and our stockholders for Mr. Shlifer, in light of his significant finance and real estate market experience and his expertise in the acquisition and management of multifamily apartment buildings, to serve as one of our directors.
Thomas C. Elliott has served as our Chief Financial Officer, Executive Vice President and Treasurer since September 8, 2020. He served in the same positions for REIT I and REIT III from September 2020 until the closing of the respective mergers. From June 2020 until June 2021, he also served on the board of directors of ACRES REIT. Mr. Elliott previously held various officer positions at Resource America, all of which he resigned from, effective as of September 8, 2020: Chief Financial Officer since December 2009, Executive Vice President since September 2016 and Senior Vice President since 2005. Prior to that, he was Senior Vice President-Finance and Operations of Resource America from 2006 to December 2009; Senior Vice President-Finance from 2005 to 2006 and Vice President-Finance from 2001 to 2005. From February 2017 to July 2020, Mr. Elliott was Executive Vice President-Finance and Operations of ACRES REIT and was its Senior Vice President-Finance and Operations from September 2006 to February 2017 and, prior to that, was its Chief Financial Officer, Chief Accounting Officer and Treasurer from September 2005 to June 2006. He was also Senior Vice President-Assets and Liabilities Management of ACRES REIT from June 2005 until September 2005 and, before that, served as its Vice President-Finance from March 2005. Prior to joining Resource America in 2001, Mr. Elliott was a Vice President at Fidelity Leasing, Inc., a former equipment leasing subsidiary of Resource America, where he managed all capital market functions, including the negotiation of all securitizations and credit and banking facilities in the U.S. and Canada. Mr. Elliott also oversaw the financial controls and budgeting departments.
Marshall Hayes has served as our Chief Investment Officer and Senior Vice President since February 2021. Prior to the acquisition of our sponsor and external advisor by REIT I, Mr. Hayes was employed by our sponsor and the owner of our advisor. Mr. Hayes held various titles at our sponsor, including Managing Director, Senior Vice President and Vice President. Mr. Hayes first joined our sponsor in 2006. Prior to working for our sponsor, Mr. Hayes was Vice President of Transactions at AIMCO, a Denver-based multifamily REIT from 2004-2006. From 1998 to 2004 Mr. Hayes worked for investment banking firm Lazard, Freres & Co., in New York, where he was a member of the real estate investment banking group. Mr. Hayes received a Bachelor of Science in Economics from The Wharton School at the University of Pennsylvania, Magna Cum Laude.
Shelle Weisbaum has served as our Chief Legal Officer, Senior Vice President and Secretary since October 2012 and in the same positions for REIT I from June 2009 and for REIT III from July 2015, until the closing of the respective mergers. Ms. Weisbaum has also served as Chief Legal Officer, Senior Vice President and Secretary of our advisor since its formation in October 2012 as well as for the advisors for REIT I and REIT II. Ms. Weisbaum also previously served as Executive Vice President, from April 2017 to September 2020, Senior Vice President, from January 2014, and General Counsel and Secretary, from August 2007, of the Sponsor to September 2020. Previously she held the position of Vice President of our sponsor from August 2007 to December 2013. Ms. Weisbaum also served as the Chief Legal Officer, Senior Vice President and Secretary of ACRES REIT from September 2016 to July 2020. Ms. Weisbaum joined our sponsor in October 2006 from Ledgewood Law, a Philadelphia-based law firm, where she practiced commercial real estate law from 1998 to 2006 as an associate and later as a partner of the firm. Prior to Ledgewood, from 1987 to 1998, Ms. Weisbaum was Vice President and Assistant General Counsel at the Philadelphia Stock Exchange. Ms. Weisbaum received a Bachelor of Science degree in Business Administration from Boston University and a Juris Doctor degree from Temple University.
Other Significant Employees
The following sets forth certain information regarding other significant employees of our company who provide important services to us.
Steven R. Saltzman has served as Chief Accounting Officer and Vice President since September 2020. He served in the same position for REIT I and REIT III from September 2020 until the closing of the respective mergers. Prior to that, he was Chief Financial Officer, Senior Vice President and Treasurer for us since October 2012 and in the same capacity for REIT I since June 2009 and for REIT III since July 2015. Mr. Saltzman has also served as Chief Financial Officer, Senior Vice President and Treasurer for REIT II Advisor since its formation in October 2012. In addition, Mr. Saltzman previously served as Senior Vice
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President and Chief Financial Officer of our sponsor from January 2014 to September 2020; and previously held the positions of Vice President and Controller from May 2004. From 1999 to 2003, Mr. Saltzman was Controller at WP Realty, Inc., a regional developer and property manager specializing in community shopping centers. Mr. Saltzman began his real estate career in 1988 as a Property Controller at The Rubin Organization, a predecessor to the Pennsylvania Real Estate Investment Trust. Mr. Saltzman began his professional career at Price Waterhouse from 1985 to 1988. Mr. Saltzman earned a Bachelor of Science degree from The Wharton School, University of Pennsylvania. Mr. Saltzman is both a Certified Public Accountant and a Certified Management Accountant.
Yvana L. Rizzo serves as Vice President, Asset Management. Ms. Rizzo joined Resource Real Estate in 2006 and oversees the asset management of the company’s commercial real estate equity portfolios. Prior to joining Resource Real Estate, Ms. Rizzo served for six years as Vice President of both the Structured Asset Management and CMBS Credit Administration groups for Capmark Finance, Inc. (formerly GMAC Commercial Mortgage Corporation). Ms. Rizzo began her career as an underwriter and loan originator for the Northeast Commercial Real Estate Lending division of Washington Mutual Bank. Ms. Rizzo received a bachelor’s degree in Finance from the University of Pittsburgh.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the directors and officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership of such equity securities with the SEC. As a matter of practice, our inside general counsel and outside counsel assists our directors and executive officers in preparing these reports, and typically file those reports on behalf of our directors and executive officers. Based solely on a review of the copies of such forms filed with the SEC during fiscal year 2021 and on written representations from our directors and executive officers, we believe that during fiscal year 2021, except for one Form 4 for Mr. Lichtenstein to report the receipt of our common stock in connection with the REIT I Merger, and one Form 3 for Mr. Ceitlin to report his initial ownership of our equity securities, of which he owned none, all of our directors and executive officers filed the required reports on a timely basis under Section 16(a).
Code of Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all of our executive officers and directors, including but not limited to, our chief executive officer and chief financial officer. Our Code of Business Conduct and Ethics may be found at http://www.resourcereit.com, on the Investors/Corporate Governance page. Any amendment to, or a waiver from, a provision of the Code of Conduct and Ethics that would require disclosure under Item 5.05 of Form 8-K will be posted on our website.
The Audit Committee
Our board of directors has established an audit committee. The audit committee assists the board of directors in overseeing:
•our accounting and financial reporting processes;
•the integrity and audits of our financial statements;
•our compliance with legal and regulatory requirements;
•the qualifications and independence of our independent auditors; and
•the performance of our internal and independent auditors.
The audit committee is responsible for engaging independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, and considering and approving the audit and non-audit services and fees provided by the independent public accountants. The audit committee fulfills these responsibilities primarily by carrying out the activities enumerated in the audit committee charter adopted by our board of directors initially in 2013 and as amended and restated in February 2021. A copy of the audit committee charter is available under “Corporate Governance” in the “Investors” section of our website at www.resourcereit.com.
Since February 3, 2021, the members of the audit committee are Gary Lichtenstein (Chairman), Andrew Ceitlin and Lee F. Shlifer. Previously, Gary Lichtenstein (Chairman), Thomas J. Ikeler and David Spoont comprised the audit committee. Each of the members of the audit committee is “independent” as defined by the NYSE. The board of directors has determined that Mr. Lichtenstein qualifies as the audit committee “financial expert” as defined by SEC rules.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.	EXECUTIVE COMPENSATION
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Executive Compensation Paid by Our Former Advisor
Prior to the closing of the REIT I Merger and our transition to a self-managed structure, pursuant to the terms of our advisory agreement, our former advisor was responsible for providing our day-to-day management, subject to the supervision of our board of directors, and we reimbursed our advisor for expenses incurred in connection with its provision of services to us and our allocable share of costs for advisor personnel and overhead, including allocable personnel salaries and other employment expenses. Included in the operating expenses reimbursed to our advisor during the year ended December 31, 2020 was $537,839 for a portion of the compensation paid in 2020 to Alan F. Feldman, our Chief Executive Officer and President, $165,032 for a portion of the compensation paid in 2020 to Thomas C. Elliott, our Chief Financial Officer, Executive Vice President and Treasurer as of September 2020 and 177,308 for a portion of the compensation paid in 2020 to Shelle R. Weisbaum, our Senior Vice President and Chief Legal Officer. Included in the operating expenses reimbursed to our advisor during the year ended December 31, 2019 was $460,884 for a portion of the compensation paid in 2019 to Mr. Feldman and $110,629 for a portion of the compensation paid in 2019 to Ms. Weisbaum.
Compensation Discussion and Analysis
Overview
This section discusses the components of, and objectives behind, our executive compensation program for our executive officers who are named in the “Summary Compensation Table” below. Our “named executive officers” during 2021 were Alan F. Feldman, Chief Executive Officer and President, Thomas C. Elliott, Executive Vice President, Chief Financial Officer and Treasurer, Marshall P. Hayes, Senior Vice President and Chief Investment Officer, and Shelle R. Weisbaum, Senior Vice President and Chief Legal Officer.
Prior to the closing of the REIT I Merger on January 28, 2021, all of our executive officers were employees of our former advisor or its affiliates and we were not a party to any employment or severance agreements with our executive officers and did not pay or grant, and were not involved in determining, cash compensation, equity plan-based awards or any pension benefits, perquisites or other personal benefits for any of these individuals. Therefore, the discussion below reflects executive compensation that we paid to our executive officers since January 28, 2021.
Compensation Philosophy and Objectives
We seek to maintain a total compensation package that provides fair, reasonable and competitive compensation for executives while also permitting us the flexibility to differentiate actual pay based on the level of individual and organizational performance.
Our compensation programs are designed to achieve the following objectives:
•to attract and retain candidates capable of performing at the highest levels of our industry;
•to create and maintain a performance-focused culture by rewarding outstanding performance based upon objective predetermined metrics;
•to reflect the qualifications, skills, experience and responsibilities of each executive officer;
•to align the interests of our executive officers and stockholders by creating opportunities and incentives for our executive officers to increase their equity ownership in us; and
•to motivate our executive officers to manage our business to meet our short- and long-term objectives.
Determination of Executive Compensation
On February 3, 2021, following the closing of the REIT I Merger on January 28, 2021, the board of directors formed the compensation committee which has the authority to determine the compensation for our executive officers. The compensation committee exercises independent discretion with respect to executive compensation matters and administers our equity incentive programs, including reviewing and approving equity grants to our executive officers under the 2020 Incentive Plan. The compensation committee operates pursuant to the terms of a written charter adopted by the board of directors, a copy of which is available under “Corporate Governance” in the “Investors” section of our website at www.resourcereit.com.
In connection with the REIT I Merger, we assumed from REIT I the employment agreements, dated September 8, 2020, with Mr. Feldman, our Chief Executive Officer and President; Mr. Elliott, our Executive Vice President, Chief Financial Officer
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and Treasurer; and Ms. Weisbaum, our Senior Vice President and Chief Legal Officer. We assumed REIT I’s obligations under these employment agreements in their entirety. As a result, the initial compensation arrangements with our executive officers were determined in REIT I’s negotiations with each individual executive officer and were formalized in each executive officer’s employment agreement. Such negotiations were the purview of the special committee of REIT I, which was composed entirely of independent directors. For a more detailed discussion of the employment agreements with each of our executive officers, see “-Employment Agreements” below.
In making compensation decisions for 2021, the compensation committee reviewed market-based compensation data provided by its independent compensation consultant, Ferguson Partners Consulting L.P., f/k/a FPL Associates, L.P. (“FPC”), a nationally recognized compensation consulting firm specializing in the real estate industry. The compensation committee also evaluated the performance of our Chief Executive Officer and, together with our Chief Executive Officer, assessed the individual performance of the other executive and senior officers. While the compensation committee considers these recommendations, along with data provided by its other advisors, it retains full discretion to set all compensation. As of the filing of this report, we have not yet held an advisory vote on executive compensation as 2021 was the first year we compensated our officers directly.
Engagement of Compensation Consultant
The compensation committee is authorized to retain the services of one or more executive compensation consultants, in its discretion, to assist with the establishment and review of our compensation programs and related policies. The compensation committee has sole authority to hire, terminate and set the terms of any future engagement of FPC or any other compensation consultant.
For compensation advice in 2021, the compensation committee engaged FPC to provide market-based compensation data to assist the committee in the implementation of our comprehensive executive compensation program. In connection with these efforts, FPC prepared for the compensation committee reports that included compensation analyses for each executive position, an analysis of a recommended peer group for the company and a description of the methodology used to provide the compensation analyses. FPC researched competitive market practices, reviewed the proxy statements of its recommended peer group and checked its own proprietary information data bases. The compensation committee reviewed the information provided to the company and approved the 2021 executive compensation program.
Elements of Executive Compensation
The following table summarizes the key elements of our executive compensation program for our executive officers and each element’s objectives, including annual cash compensation and equity incentive awards. A more detailed discussion of each element of our executive compensation program follows this table.
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Element
Description
Objectives
Annual Cash Compensation
Annual Base Salary
Fixed cash compensation. Reviewed and adjusted periodically.
•Attract and retain executives
•Provide steady source of income sufficient to permit executives to focus effectively on their responsibilities
•Help ensure that total cash compensation is competitive
Short-Term Incentive Plan
Annual cash bonus based on company, strategic and individual performance goals.
•Encourage executives to achieve annual company, strategic and individual performance goals
•Align executives’ interests with the stockholders’ interests
Equity Incentive Compensation
Time-Based Restricted Stock
Awards vest in equal installments over three years, subject to continued service. Time-based restricted stock awards constitute 70% of the executive officers’ total equity incentive compensation.
•Promote long-term equity ownership by executives
•Encourage the retention of executives
•Align executives’ interests with the stockholders’ interests
Performance-Based Restricted Stock
Variable equity compensation based on company performance over a three-year performance period. Awards are paid in common stock. Performance-based restricted stock awards constitute 30% of the executive officers’ total equity incentive compensation.
•Encourage executives to achieve long-term company performance goals
•Align executives’ interests with the stockholders’ interests
•Attract and retain executives
Base Salary
Each executive officer’s compensation was initially established based on negotiations with the special committee of REIT I, composed entirely of independent directors, in connection with the execution of each officer’s employment agreement in September 2020. We believe that our executive officers’ base salary levels are commensurate with their positions and are expected to provide a steady source of income sufficient to permit these officers to focus their time and attention on their work duties and responsibilities. Base salaries of our named executive officers periodically will be reviewed by the compensation committee.
Short-Term Incentive Plan
The short-term incentive plan is intended to compensate our executive officers for achieving annual company, strategic and individual performance goals. The compensation committee believes that the opportunity to earn an annual cash bonus encourages our executive officers to achieve company, strategic and individual performance goals, which fosters a performance-driven company culture that aligns the executives’ interests with the stockholders’ interests.
The short-term incentive plan allows our executive officers to earn a cash bonus based on various pre-defined and pre-weighted company, strategic and individual performance goals established by the compensation committee (at least 50% of which are objective, calculable company performance measurements). Strategic and individual performance goals are assessed subjectively.
The table below provides a summary of our short-term incentive plan, including the 2021 performance goals and their relative weighting:
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Short-Term Incentive Plan
Performance Metrics
50% Corporate Performance Goals
20% Core FFO per Share
10% Same Store NOI Growth
10% Operating Margin
10% Net Debt to EBITDA
25% Strategic Performance Goals
25% Individual Performance Goals
.
Performance Bandwidths
Defined performance bandwidths based on percentage of base salary:
Feldman / Elliott:
Threshold - 62.5%
Target - 125%
Maximum -187.5%
Hayes:
Threshold - 56.25%
Target - 112.5%
Maximum -168.75%
Weisbaum:
Threshold - 50%
Target - 100%
Maximum -150%
Results between threshold and target or between target and maximum are based on linear interpolation. Performance below threshold earns 0%, and performance above the maximum is capped at the maximum level (no additional amounts are paid for exceeding the maximum performance goal). The total cash bonus earned by an executive officer is the sum of the weighted annual incentive amounts earned with respect to each goal.
Company Performance Goals
For 2021, 50% of the annual cash incentive bonuses was based on the following company performance goals:
Core FFO per Share
FFO is a widely recognized measure of the performance of REITs. We calculate FFO in accordance with the standards established by NAREIT. FFO represents net income or loss (computed in accordance with GAAP), excluding depreciation and amortization related to real estate, gains and losses from the sale of certain real estate assets, and impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. These reconciling items include adjustments related to noncontrolling interests. Core FFO includes certain adjustments to FFO for non-routine items or items not considered core to business operations. Core FFO adjusts FFO to exclude equity compensation expense, losses on extinguishment of debt and modification costs, transaction (including Self-Management) costs, amortization of deferred financing costs, amortization of intangible lease assets, debt premium or discount amortization, realized losses on fair value adjustments related to interest rate caps, and casualty gains and losses. By further adjusting for items that are not considered part of core business operations, we believe that Core FFO provides useful information to compare core operating and financial performance between periods.
With the 20% weighting of the Core FFO per Share component, Messrs. Feldman and Elliott can earn between 12.5 percentage points (at the threshold level) and 37.5 percentage points (at the maximum level), Mr. Hayes can earn between 11.25 (at the threshold level) and 33.75 (at maximum level), and Ms. Weisbaum can earn between 10 (at the threshold level) and 30 (at maximum level) under this performance goal component. For 2021, the Core FFO per share performance criteria was $0.32 at the threshold, $0.33 to $0.35 at target and $0.36 at the maximum. Our Core FFO per Share, assuming bonuses were paid at target levels, was $0.44 per share. As a result, Messrs. Feldman and Elliott earned 37.5 percentage points, Mr. Hayes earned 33.75 percentage points and Ms. Weisbaum earned 30 percentage points under the Core FFO per Share performance goal component.
Same Store NOI Growth
Same Store NOI Growth is a measurement of our internal growth and a primary financial measure for evaluating the core operating performance of our properties. We define “NOI” as total property revenue less total property expenses, excluding interest expense, depreciation and amortization and non-recurring and recurring expenses that are not reflective of the continuing operations of the properties. We believe that NOI is an appropriate supplemental performance measure because it reflects the core operations of property performance without the other corporate level and non-recurring items not related to our properties
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and their continuing operations. Comparing NOI on a “same store” basis (i.e., looking at the exact same set of properties over the periods being compared) allows for an apples-to-apples comparison.
With the 10% weighting of the Same Store Cash NOI Growth component, Messrs. Feldman and Elliott can earn between 6.25 percentage points (at the threshold level) and 18.75 percentage points (at the maximum level), Mr. Hayes can earn between 5.625 (at the threshold level) and 16.875 (at maximum level), and Ms. Weisbaum can earn between 5 (at the threshold level) and 15 (at maximum level) under this performance goal component. For 2021, the Same Store Cash NOI Growth performance criteria was -1.5% at the threshold, -1.0% to 0.5% at target and 1.0% at the maximum. Our Same Store NOI Growth was 15.0%. As a result, Messrs. Feldman and Elliott earned 18.75 percentage points, Mr. Hayes earned 16.875 percentage points and Ms. Weisbaum earned 15 percentage points under the Same Store NOI Growth performance goal component.
Operating Margin
We define “Operating Margin” as our property revenues less property expenses (excluding property management expenses) divided by property revenues. We believe that Operating Margin is an important metric to evaluate the core performance of our portfolio and provides an objective goal for increasing performance through revenue growth and expense management.
With the 10% weighting of the Operating Margin component, Messrs. Feldman and Elliott can earn between 6.25 percentage points (at the threshold level) and 18.75 percentage points (at the maximum level), Mr. Hayes can earn between 5.625 (at the threshold level) and 16.875 (at maximum level), and Ms. Weisbaum can earn between 5 (at the threshold level) and 15 (at maximum level) under this performance goal component. For 2021, the Operating Margin performance criteria was 52.5% at the threshold, 53.5% to 54.0% at target and 55.0% at the maximum. Our Operating Margin for 2021 was 58.2%. As a result, Messrs. Feldman and Elliott earned 18.75 percentage points, Mr. Hayes earned 16.875 percentage points and Ms. Weisbaum earned 15 percentage points under the Operating Margin performance goal component.
Net Debt to EBITDA
We define “Net Debt” as our total debt less cash and cash equivalents. We believe that Net Debt is a helpful measure of its credit position and progress towards reducing overall leverage. We define “EBITDA” as net income (loss) (computed in accordance with GAAP) before interest expense, including amortization of deferred financing costs, income tax expense and depreciation and amortization expenses. We consider EBITDA to be appropriate supplemental measures of performance because they eliminate interest, income taxes, and depreciation and amortization which permit investors to view income from operations without these non-cash or non-operating items. We also use these measures in ratios to compare our performance to that of our industry peers, such as Net Debt to EBITDA, which we view as an important measurement of the ability of our earnings to service our debt.
With the 10% weighting of the Net Debt to EBITDA component, Messrs. Feldman and Elliott can earn between 6.25 percentage points (at the threshold level) and 18.75 percentage points (at the maximum level), Mr. Hayes can earn between 5.625 (at the threshold level) and 16.875 (at maximum level), and Ms. Weisbaum can earn between 5 (at the threshold level) and 15 (at maximum level) under this performance goal component. For 2021, the Net Debt to EBITDA performance criteria was 15.25x at the threshold, 14.50x to 15.00x at target and 14.25x at the maximum. Our Net Debt to EBITDA was 11.9x. As a result, Messrs. Feldman and Elliott earned 18.75 percentage points, Mr. Hayes earned 16.875 percentage points and Ms. Weisbaum earned 15 percentage points under the Net Debt to EBIDTA performance goal component.
Strategic Performance Goals
For 2021, 25% of the annual cash incentive bonuses was based on the compensation committee’s (and the chief executive officer’s with respect to the other named executive officers) assessment of such strategic performance goals as managing occupancy rates and delinquency rates through the continuing pandemic, disposing of non-core assets and starting to reimplement our value add program.
With the 20% weighting of the strategic performance component, Messrs. Feldman and Elliott can earn between 15.625 percentage points (at the threshold level) and 46.875 percentage points (at the maximum level), Mr. Hayes can earn between 14.0625 (at the threshold level) and 42.1875 (at maximum level), and Ms. Weisbaum can earn between 12.5 (at the threshold level) and 37.5 (at maximum level) under this component. Based on this assessment, the compensation committee determined that Messrs. Feldman, Elliott and Hayes and Ms. Weisbaum earned 46.875, 46.875, 42.1875, and 37.5 percentage points, respectively, under this strategic performance goal component.
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Individual Performance Goals
For 2021, 25% of the annual cash incentive bonuses was based on the compensation committee’s (and the chief executive officer’s with respect to the other named executive officers) assessment of each officer’s individual contributions to our overall success in significant areas based upon the executive’s position and responsibilities as they related to our overall business plan.
With the 20% weighting of the individual performance component, Messrs. Feldman and Elliott can earn between 15.625 percentage points (at the threshold level) and 46.875 percentage points (at the maximum level), Mr. Hayes can earn between 14.0625 (at the threshold level) and 42.1875 (at maximum level), and Ms. Weisbaum can earn between 12.5 (at the threshold level) and 37.5 (at maximum level) under this component. Based on this assessment, the compensation committee determined that Messrs. Feldman, Elliott and Hayes and Ms. Weisbaum earned 46.875, 46.875, 42.1875, and 37.5 percentage points, respectively, under this individual performance goal component.
Calculation of the Bonuses
Based on our actual performance in 2021, the compensation committee approved annual cash incentive bonuses for the named executive officers for 2021 in the following amounts:
2021 Annual Cash Incentive Bonus Opportunity
Percentage Points Earned
Executive
2021 Base Salary
Below Threshold
Threshold
Target
Maximum
Company Performance
Strategic Performance
Individual Performance
Total
2021 Bonus
Alan F. Feldman
$
700,000
-
$
437,500
$
875,000
$
1,312,500
93.75
46.875
46.875
187.50
$
1,312,500
Thomas C. Elliott
500,000
-
312,500
625,000
937,500
93.75
46.875
46.875
187.50
937,500
Marshall P. Hayes
300,000
-
168,750
337,500
506,250
84.375
42.1875
42.1875
168.75
506,250
Shelle R. Weisbaum
300,000
-
150,000
300,000
450,000
37.5
37.5
150.00
450,000
Equity Incentive Compensation
The goals of our equity incentive compensation program are to incentivize and reward increases in long-term stockholder value and to align the interests of our executive officers with the interests of our stockholders. Because vesting is based on continued employment or the achievement of company performance goals, our equity-based incentives also encourage the retention of our executive officers through the multi-year vesting or performance periods in the awards. For 2021, the compensation committee determined that annual equity awards should consist of approximately 70% in time-based awards (subject to multi-year vesting) and 30% in performance-based awards (with a multi-year measurement period).
Time-Based Restricted Stock
The following table sets forth the number of shares of time-based restricted stock granted to our executive officers in February 2021 for 2021 compensation. The time-based awards vest over three years in equal installments on the first, second and third anniversaries of the grant date, subject to continued service.
Executive
Date of Grant
Number of Shares
Alan F. Feldman
February 17, 2021
140,693
Thomas C. Elliott
February 17, 2021
79,019
Marshall P. Hayes
February 17, 2021
39,509
Shelle R. Weisbaum
February 17, 2021
26,982
In January 2022, the compensation committee approved the grant of an aggregate of 286,836 shares of restricted stock to the named executive officers for 2022 compensation. The grants were made on January 4, 2022. These shares vest in full over three years with 331/3 vesting per year beginning on January 4, 2023, subject to continued service. The 2022 grants of time-based restricted stock will be reflected in the “Summary Compensation Table” and “2022 Grants of Plan-Based Awards” table in our next filing for which such disclosure is required.
Performance-Based Restricted Stock
The compensation committee grants performance-based restricted stock to our executive officers as an additional long-term incentive award designed to align the executive officers’ interests more closely with those of the stockholders. The ultimate value of the performance-based restricted stock depends on our Same Store Relative NOI Growth (measured against a select group of peer companies) (50% weighting) and our ratio of Net Debt to Average EBITDA (50% weighting) over a three-year measuring period. See “-Company Performance Goals” above for a discussion of how we determine Same Store NOI Growth and Net Debt to EBITDA.
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For our 2021 performance-based restricted stock, the Same Store Relative NOI Growth targets as measured against a peer group of companies over the three-year performance period are 25% at the threshold, 50% at the target and 75% at the maximum. The Net Debt to Average EBITDA targets, as measured over a three-year period are 14.75x at the threshold, 14.25x at target and 13.75x at the maximum. Awards for performance between the indicated targets are determined by interpolating between the earned amounts.
The following table sets forth the target number of shares of performance-based restricted stock granted to our executive officers in February 2021 for 2021 compensation.
Executive
Date of Grant
Target Number of Shares
Alan F. Feldman
February 17, 2021
60,297
Thomas C. Elliott
February 17, 2021
33,865
Marshall P. Hayes
February 17, 2021
16,932
Shelle R. Weisbaum
February 17, 2021
11,564
A recipient of performance-based restricted stock may receive as few as zero shares or as many as 125% of the target number of shares. For example, at the end of the measurement period, a recipient of 10,000 shares of performance-based restricted stock may receive no value (no shares of common stock and no dividends) or receive as many as 12,500 shares of common stock, plus cash dividends on earned shares. After the actual amount of the performance-based award is determined (or earned) on the determination date, the earned shares will be fully vested and generally transferable. Dividends will be deemed to have accrued on all of the earned shares during the measurement period until the determination date. Such accrued dividends on earned shares will be paid to the awardee on the determination date. Thereafter, the awardee is entitled to receive dividends as declared and paid on the earned shares. The awardee will be entitled to vote the shares from the grant date.
In January 2022, the compensation committee approved the grant of an aggregate target of 122,929 shares of performance-based restricted stock to the named executive officers for 2022 compensation. The 2022 grants of performance-based restricted stock will be reflected in the “Summary Compensation Table” and “2022 Grants of Plan-Based Awards” table in our next filing for which such disclosure is required.
2020 Long-Term Incentive Plan
As of January 28, 2021, the effective time of the REIT I Merger, we assumed the 2020 Long-Term Incentive Plan of REIT I, as amended to replace all references to REIT I with Resource REIT, Inc. (the “2020 Incentive Plan”). The purpose of the 2020 Incentive Plan is to advance the interests of the company and its stockholders by providing an incentive to attract, retain, and reward certain eligible persons performing services for the company and by motivating such persons to contribute to the growth and profitability of the company. The 2020 Incentive Plan allows for grants of stock options (non-statutory and incentive), restricted stock awards, stock appreciation rights, restricted stock units, performance shares, performance units, cash-based awards, and other stock-based awards to our employees, consultants, and directors. The maximum aggregate number of shares of our common stock that may be issued pursuant to awards granted under the 2020 Incentive Plan is 3,500,000 shares.
Employment Agreements
Alan F. Feldman
In connection with Mr. Feldman’s appointment as Chief Executive Officer and President of REIT I, on September 8, 2020, REIT I entered into an employment agreement with Mr. Feldman (the “Feldman Employment Agreement”). Upon the closing of the REIT I Merger, we assumed REIT I’s obligations under the Feldman Employment Agreement in its entirety.
The Feldman Employment Agreement has an initial term continuing until December 31, 2023 and will automatically renew for additional one-year periods thereafter, unless either we or Mr. Feldman provides advance written notice of our or his intent not to renew or unless sooner terminated in accordance with the terms thereof (the “Term”).
Pursuant to the terms of the Feldman Employment Agreement, Mr. Feldman is entitled to, among other things:
•an annual base salary of $700,000, subject to annual review for increase (but not decrease) by our board of directors or a committee thereof;
•the opportunity to earn an annual cash bonus (“Incentive Bonus”) at the discretion of our board of directors or a committee thereof based upon specified corporate and individual performance;
•equity awards as follows:
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oan initial equity grant with a fair market value of $2,750,000 that was awarded in the form of restricted stock of REIT I;
owith respect to each calendar year during the Term beginning after calendar year 2020, Mr. Feldman shall be eligible to receive an annual long-term equity incentive award;
•payments and benefits upon termination of employment as follows:
oDeath or “Disability” (as defined in the Feldman Employment Agreement): (i) base salary earned, but not paid as of the termination date, reimbursement for unpaid expenses to which Mr. Feldman is entitled to reimbursement, and any accrued vacation time or other vested compensation or benefits to which Mr. Feldman is entitled under any benefits plans (collectively, the “Accrued Amounts”); (ii) any Incentive Bonus earned by Mr. Feldman for the prior calendar year, but not yet paid; and (iii) the Incentive Bonus for the calendar year in which the termination occurs, pro-rated for the amount of time Mr. Feldman was employed during such calendar year, assuming target performance;
oTermination without “Cause” or with “Good Reason” (as such terms are defined in the Feldman Employment Agreement) or termination by the company upon expiration of the Term of the Feldman Employment Agreement: (i) the Accrued Amounts; (ii) any Incentive Bonus earned by Mr. Feldman for the prior calendar year, but not yet paid; (iii) the Incentive Bonus for the calendar year in which the termination occurs, pro-rated for the amount of time Mr. Feldman was employed during such calendar year, assuming target performance; (iv) any unvested time-based equity incentive awards shall immediately vest; (v) a pro-rated portion of any performance-based equity incentive awards shall remain outstanding and eligible to vest based on actual performance through the last day of the performance period, based on the number of days during the performance period that Mr. Feldman was employed; (vi) a lump sum payment equal to 1.5 times (or 2.0 times for termination with “Good Reason”) the sum of (A) the base salary then in effect plus (B) the average of the Incentive Bonus paid to Mr. Feldman for the prior three calendar years preceding the year in which such termination occurs (or, (1) if Mr. Feldman was eligible to earn a bonus for only two fiscal years completed prior to the date of termination, the amount of such average Incentive Bonus deemed to have been earned, if any, for the prior two fiscal years, (2) if Mr. Feldman was eligible to earn a bonus for only one fiscal year completed prior to the date of termination, the amount of such bonus, if any, deemed to have been earned for such fiscal year, or (3) if Mr. Feldman has not been employed long enough to be eligible to earn an Incentive Bonus, then the amount of Mr. Feldman’s target annual bonus for the fiscal year in which the date of termination occurs); and (vii) continued health coverage under our health plan for a period of 18 months following the date of termination;
oTermination for “Cause” or without “Good Reason” (as such terms are defined in the Feldman Employment Agreement) or by Mr. Feldman upon the expiration of the Term of the Feldman Employment Agreement: the Accrued Amounts;
oWithin 12 months following the consummation of a “Change in Control,” termination without “Cause” or with “Good Reason” (as such terms are defined in the Feldman Employment Agreement) or termination by the company upon expiration of the Term of the Feldman Employment Agreement: all of the benefits and payments described in the bullet “Termination by the company without “Cause” or termination by Mr. Feldman with “Good Reason” (as such terms are defined in the Feldman Employment Agreement) or termination by the company upon expiration of the Term of the Feldman Employment Agreement” above, except that the lump sum payment set forth in clause (vi) shall be equal to 3.0 times the sum of (A) the base salary then in effect plus (B) the average of the Incentive Bonus paid to Mr. Feldman for the prior three calendar years preceding the year in which such termination occurs.
The Feldman Employment Agreement also provides that Mr. Feldman will be subject to customary non-compete, non-solicitation and other restrictive covenants.
Mr. Elliott and Ms. Weisbaum
On September 8, 2020, REIT I also entered into employment agreements with each of Mr. Elliott in connection with his appointment as REIT I’s Executive Vice President, Chief Financial Officer and Treasurer (the “Elliott Employment Agreement”) and Ms. Weisbaum in connection with her appointment as REIT I’s Senior Vice President and Chief Legal Officer (the “Weisbaum Employment Agreement”). In connection with the REIT I Merger, we assumed REIT I’s obligations under the Elliott Employment Agreement and Weisbaum Employment Agreement in their entirety.
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Each of such employment agreements is substantially similar to the material terms of the Feldman Employment Agreement except as noted below:
•Mr. Elliott is entitled to an annual base salary of $500,000, subject to annual review for increase (but not decrease) by the board of directors or a committee thereof;
•Mr. Elliott received an initial equity grant with a fair market value of $1,550,000 that was awarded in the form of restricted stock of REIT I;
•upon Mr. Elliott’s termination without “Cause” or with “Good Reason” (as such terms are defined in the Elliott Employment Agreement) or termination by the company upon expiration of the term of the Elliott Employment Agreement, Mr. Elliott shall be entitled to all of the benefits and payments described in the Feldman Employment Agreement; and
•upon Mr. Elliott’s termination without “Cause” or with “Good Reason” (as such terms are defined in the Elliott Employment Agreement) or termination by the company upon expiration of the term of the Elliott Employment Agreement, each event within 12 months following the consummation of a “Change in Control” (as defined in the Elliott Employment Agreement), Mr. Elliott shall be entitled to all of the benefits and payments described in the Feldman Employment Agreement.
•Ms. Weisbaum is entitled to an annual base salary of $300,000, subject to annual review for increase (but not decrease) by the board of directors or a committee thereof;
•Ms. Weisbaum received an initial equity grant with a fair market value of $500,000 that was awarded in the form of restricted stock of REIT I;
•upon Ms. Weisbaum’s termination without “Cause” or with “Good Reason” (as such terms are defined in the Weisbaum Employment Agreement) or termination by the company upon expiration of the term of the Weisbaum Employment Agreement, Ms. Weisbaum shall be entitled to all of the benefits and payments described in the Feldman Employment Agreement above, except that the lump sum payment shall be equal to 1.0 times (or 1.5 times for termination with “Good Reason”) the sum of (A) the base salary then in effect plus (B) the average of the Incentive Bonus paid to Ms. Weisbaum for the prior three calendar years preceding the year in which such termination occurs; and
•upon Ms. Weisbaum’s termination without “Cause” or with “Good Reason” (as such terms are defined in the Weisbaum Employment Agreement) or termination by the company upon expiration of the term of the Weisbaum Employment Agreement, each event within 12 months following the consummation of a “Change in Control” (as defined in the Weisbaum Employment Agreement), Ms. Weisbaum shall be entitled to all of the benefits and payments described in the Feldman Employment Agreement above, except that the lump sum payment shall be equal to 2.0 times the sum of (A) the base salary then in effect plus (B) the average of the Incentive Bonus paid to Ms. Weisbaum for the prior three calendar years preceding the year in which such termination occurs.
Potential Payments upon Termination or Change in Control
Vesting of Long-Term Equity Incentive Awards
The terms of the time-based restricted stock granted to the named executive officers generally provide that:
•Upon a change in control of the company, the unvested shares will be subject to the definitive agreement entered into by the company in connection with the change of control.
•Upon termination of the named executive officer’s employment with the company for any reason except death or disability, the unvested shares will be forfeited.
•Upon termination of the named executive officer’s employment with the company because of the named executive officer’s death or disability, the unvested shares vest.
The terms of the performance-based restricted share award agreements granted to the named executive officers generally provide that:
•Upon a change in control of the company, the unvested shares will be subject to the definitive agreement entered into by the company in connection with the change of control.
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•In the event the named executive officer’s employment with the company terminates for any reason except death or disability before the completion of the performance period, all unearned or unvested shares under the award agreement are forfeited.
•In the event of a named executive officer’s death or disability during the performance period of the award agreement (which is generally a designated three-year period specified at the time the award is granted), the final value of the award will be determined by the extent to which the applicable performance goals have been attained with respect to the entire performance period and will be prorated based on the number of months of the executive officer’s service during the performance period.
Severance Arrangements
See “Employment Agreements” above for information regarding our severance arrangements with Messrs. Feldman and Elliott and Ms. Weisbaum.
Employee Benefits
Effective upon the closing of the REIT I Merger on January 28, 2021, our full-time employees, including our executive officers, became eligible to participate in health and welfare benefit plans, which provide medical, dental, prescription, life insurance, disability insurance and related benefits.
Pension Benefits and Nonqualified Deferred Compensation
We did not provide our executive officers with any benefits pursuant to defined benefit plans or nonqualified deferred compensation plans during 2021.
Additional Compensation Components
In the future, as we further formulate and implement our compensation program, we may provide different and/or additional compensation components, benefits and/or perquisites to our executive officers, to ensure that we provide a balanced and comprehensive compensation structure. We believe that it is important to maintain flexibility to adapt our compensation structure when needed to properly attract, motivate and retain the top executive talent for which we compete.
Risk Management
A committee of independent directors for REIT I was involved in negotiating each of the employment agreements with our executives. In February 2021 we formed the compensation committee to act with respect to various compensation matters of the company. The compensation committee manages risks related to our compensation policies and programs, including whether any compensation program has the potential to encourage excessive risk taking. The committee believes that our compensation policies and practices do not encourage our employees to take excessive or unnecessary risks and are not reasonably likely to have a material adverse effect on the company. The compensation committee considered a variety of factors, including base salary, annual cash incentive compensation, and long-term equity incentive compensation opportunities available to our executives. The committee believes that the combination of those factors should lead to executive and employee behavior that is consistent with our overall objectives and risk profile.
Executive Officer Compensation Tables
Summary Compensation Table
The following table sets forth the information required by Item 402 of Regulation S-K promulgated by the SEC. The table sets forth the base salary and other compensation that was paid to or earned by the named executive officers during 2021 as prior to January 28, 2021, we did not directly employ our named executive officers. With respect to equity incentive awards, the dollar amounts indicated in the table under “Stock Awards” are the aggregate grant date fair value of awards computed in accordance with ASC Topic 718.
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Executive
Year
Salary
Stock Awards (1)
Non-Equity Incentive Plan Compensation
All Other Compensation (2)
Total
Alan F. Feldman
$
700,000
$
1,825,000
$
1,312,500
$
70,033
$
3,907,533
Chief Executive Officer and President
Thomas C. Elliott
500,000
1,025,000
937,500
52,474
$
2,514,974
Executive Vice President, Chief Financial Officer and Treasurer
Marshall P. Hayes
300,000
512,500
506,250
22,663
$
1,341,413
Senior Vice President and Chief Investment Officer
Shelle R. Weisbaum
300,000
350,000
450,000
23,235
$
1,123,235
(1) Represents the total grant date fair value of restricted stock granted on February 17, 2021 under the 2020 Incentive Plan, determined in accordance with ASC Topic 718. See Note 12 to our consolidated financial statements herein, for a discussion of our accounting of share-based compensation and the assumptions used.
The grant date fair values for the following named executive officers relating to restricted stock awards granted on February 17, 2021, are as follows: Alan F. Feldman-$1,277,500; Thomas C. Elliott-$717,500; Marshall P. Hayes-$358,750; and Shelle R. Weisbaum-$245,000. The time-based restricted stock awards granted in 2021 vest over three years from the date of grant in equal installments with 331/3 vesting per year, subject to continued service.
The grant date fair values for the named executive officers relating to 2021 performance-based restricted stock granted on February 17, 2021, are as follows: Alan F. Feldman-$547,500; Thomas C. Elliott-$307,500; Marshall P. Hayes-$153,750; and Shelle R. Weisbaum-$105,000. The maximum value of the 2021 performance unit awards assuming that the highest level of performance is achieved are as follows: Alan F. Feldman-$684,375; Thomas C. Elliott-$384,375; Marshall P. Hayes-$192,188; and Shelle R. Weisbaum-$131,250.
(2) All other compensation for 2021 represents amounts paid for 401(k) matching contributions for each officer of $11,600; dividends paid on unvested restricted stock awards that were not included in grant date fair value as follows: Alan F. Feldman-$39,394; Thomas C. Elliott-$22,125; Marshall P. Hayes-$11,063; and Shelle R. Weisbaum-$7,555; automobile allowances of $12,000 each to Alan F. Feldman and Thomas C. Elliott, as well as perquisites of parking allowances and life insurance premiums.
2021 Grants of Plan-Based Awards
The following table sets forth information with respect to plan-based awards granted in 2021 to the named executive officers.
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards (1)
Estimated Future Payouts Under Equity Incentive Plan Awards (2)
All Other Stock Awards:
Executive
Date of Grant
Threshold ($)
Target ($)
Maximum ($)
Threshold (#)
Target (#)
Maximum (#)
Number of Shares or Units (#)(3)
Grant Date Fair Value (4)
Alan F. Feldman
Annual cash incentive bonus
$
437,500
$
875,000
$
1,312,500
Time-based restricted stock
February 17, 2021
140,693
$
1,277,500
Performance-based restricted stock
February 17, 2021
45,223
60,297
75,371
547,500
Thomas C. Elliott
Annual cash incentive bonus
$
312,500
$
625,000
$
937,500
Time-based restricted stock
February 17, 2021
79,019
$
717,500
Performance-based restricted stock
February 17, 2021
25,399
33,865
42,332
307,500
Marshall P. Hayes
Annual cash incentive bonus
$
168,750
$
337,500
$
506,250
Time-based restricted stock
February 17, 2021
39,509
$
358,750
Performance-based restricted stock
February 17, 2021
12,699
16,932
21,166
153,750
Shelle R. Weisbaum
Annual cash incentive bonus
$
150,000
$
300,000
$
450,000
Time-based restricted stock
February 17, 2021
26,982
$
245,000
Performance-based restricted stock
February 17, 2021
8,672
11,563
14,454
105,000
(1) For the year ended December 31, 2021, the compensation committee approved annual cash incentive bonuses for Messrs. Feldman, Elliott, Hayes, and Ms. Weisbaum of $1,312,500, $937,500, $506,250 and $450,000, respectively. For more information regarding the company and individual performance goals for these annual cash incentive bonuses, see “2021 Executive Compensation-Short-Term Incentive Plan.”
(2) Equity incentive plan awards were made in the form of performance-based restricted stock. At the end of the three-year measuring period, a recipient of performance-based restricted stock may receive as few as zero shares or as many as 125% of the target number of shares, plus accrued dividends on earned
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shares. For more information regarding the performance criteria for these awards, see “Compensation Discussion and Analysis-Equity Incentive Compensation -Performance -Based Restricted Stock.”
(3) Stock awards were made in the form of time-based restricted stock. The time-based restricted stock will vest over three years from the date of grant in equal installments with 331/3 vesting per year, subject to continued service. For more information regarding the time-based awards, see “Compensation Discussion and Analysis-Equity Incentive Compensation-Time-Based Restricted Stock.”
(4) The amounts included in this column represent the full grant date fair value of the awards, determined in accordance with ASC Topic 718. See Note 12 to our consolidated financial statements herein, for a discussion of our accounting of share-based compensation and the assumptions used. The grant date fair value of each award granted on February 17, 2021 was $9.08 based on the estimated value per share of our common stock approved by our board of directors on March 19, 2020. For a full description of the methodologies used to calculate the estimated value per share, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information" our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 20, 2020.
2021 Outstanding Equity Awards
The following table sets forth information with respect to outstanding equity awards held by the named executive officers as of December 31, 2021. No option awards were outstanding for the named executive officers as of December 31, 2021.
Restricted Stock Awards
Name
Number of Shares of Stock That Have Not Vested (1)
Market Value of Shares That Have Not Vested (2)
Equity Incentive Plan Awards:
Number of Unearned Shares, Units or Other Rights That Have Not Vested (3)
Equity Incentive Plan Awards:
Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (3)(4)
Alan F. Feldman
140,693
$
1,277,492
244,601
$
2,220,981
Thomas C. Elliott
79,019
$
717,493
137,745
$
1,250,730
Marshall P. Hayes
39,509
$
358,742
58,819
$
534,077
Shelle R. Weisbaum
26,982
$
244,997
45,072
$
409,259
(1) The following table summarizes the time-based restricted stock awards for which a portion of the awards remain unvested as of December 31, 2021. The table also provides information about the applicable vesting periods:
Number of Shares of Time-Based Restricted Stock
Grant Date
Grant Date Fair Value
Feldman
Elliott
Hayes
Weisbaum
Vesting Period
February 17, 2021
$
9.08
140,693
79,019
39,509
26,982
Over three years with 33.33% vesting per year beginning on February 17, 2022
(2) The grant date fair value of each award granted on February 17, 2021 was $9.08 based on the estimated value per share of our common stock approved by our board of directors on March 19, 2020. For a full description of the methodologies used to calculate the estimated value per share, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information" our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 20, 2020.
(3) The following table summarizes the performance-based restricted stock awards (at target amounts) for which a portion of the awards remain unearned and unvested as of December 31, 2021, assuming the performance-based restricted stock awards are earned at the conclusion of the applicable measurement period. The table also provides information about the applicable vesting periods.
Number of Shares of Performance-Based Restricted Stock
Grant Date
Grant Date Fair Value
Feldman
Elliott
Hayes
Weisbaum
Vesting Period
February 17, 2021
$
9.08
244,601
137,746
58,819
45,073
All earned shares vest immediately in full
(4) For performance units, value is based on $9.08. The number and value set forth in the table above assumes that the named executive officers earn the target amounts of performance-based restricted stock. See footnote 3 above.
2021 Option Exercises and Stock Vested Table
The following table sets forth information regarding vesting of restricted stock during the last completed fiscal year for each of the named executive officers. The value realized on vesting is the product of (i) the fair market value of a share of common stock on the vesting date, multiplied by (ii) the number of shares vesting. The value realized is before payment of any applicable withholding tax. The named executive officers did not exercise any stock options during 2021.
Name
Number of Shares Acquired on Vesting (#)
Value Realized on Vesting ($) (1)
Alan F. Feldman
122,870
$
1,115,656
Thomas C. Elliott
69,254
$
628,824
Marshall P. Hayes
27,925
$
253,556
Shelle R. Weisbaum
22,340
$
202,845
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(1) Reflects the vesting of restricted stock awards granted by REIT I and assumed and adjusted by us to become awards with respect to our common stock at the effective time of the REIT I Merger. These shares vested upon the consummation of the REIT I Merger on January 28, 2021. The fair market value at vesting was $9.08 based on the estimated value per share of our common stock approved by our board of directors on March 19, 2020. For a full description of the methodologies used to calculate the estimated value per share, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information" our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 20, 2020.
2021 Termination Payment Table
The following table indicates the cash amounts and accelerated vesting that Messrs. Feldman, Elliott, Hayes and Ms. Weisbaum would be entitled to receive under various termination or change of control circumstances pursuant to the terms of their employment agreements, as applicable to Messrs. Feldman and Elliott and Ms. Weisbaum, and the applicable award agreements under the 2020 Incentive Plan. This table assumes that the termination or change of control, as applicable, occurred on December 31, 2021.
Name and Termination or Change of Control Scenario
Cash Payment (1) ($)
Acceleration of Vesting of Equity Awards (2) ($)
Perquisites/
Benefits (3) ($)
Total ($)
Alan F. Feldman
Voluntary termination, retirement or involuntary termination for cause
$
-
$
-
$
-
$
-
Termination by company without cause or upon expiration of term of employment agreement (4)(5)
3,425,000
3,107,514
30,151
6,562,665
Termination by employee with good reason (4)(6)
4,275,000
3,107,514
30,151
7,412,665
Within 12 months following a change of control, termination by company without cause or upon expiration of term of employment agreement, termination by employee with good reason (4)(7)
5,975,000
3,107,514
30,151
9,112,665
Death or disability (8)
875,000
3,107,514
-
3,982,514
Thomas C. Elliott
Voluntary termination, retirement or involuntary termination for cause
$
-
$
-
$
-
$
-
Termination by company without cause or upon expiration of term of employment agreement (4)(5)
2,500,000
1,748,638
29,683
4,278,321
Termination by employee with good reason (4)(6)
3,125,000
1,748,638
29,683
4,903,321
Within 12 months following a change of control, termination by company without cause or upon expiration of term of employment agreement, termination by employee with good reason (4)(7)
4,375,000
1,748,638
29,683
6,153,321
Death or disability (8)
625,000
1,748,638
-
2,373,638
Marshall P. Hayes
Voluntary termination, retirement or involuntary termination for cause
$
-
$
-
$
-
$
-
Termination by company without cause or upon expiration of term of employment agreement (4)(5)
-
-
-
-
Termination by employee with good reason (4)(6)
-
-
-
-
Within 12 months following a change of control, termination by company without cause or upon expiration of term of employment agreement, termination by employee with good reason (4)(7)
-
-
-
-
Death or disability (8)
-
783,231
-
783,231
Shelle R. Weisbaum
Voluntary termination, retirement or involuntary termination for cause
$
-
$
-
$
-
$
-
Termination by company without cause or upon expiration of term of employment agreement (4)(5)
825,000
579,319
20,568
1,424,887
Termination by employee with good reason (4)(6)
1,087,500
579,319
20,568
1,687,387
Within 12 months following a change of control, termination by company without cause or upon expiration of term of employment agreement, termination by employee with good reason (4)(7)
1,350,000
579,319
20,568
1,949,887
Death or disability (8)
300,000
579,319
-
879,319
(1) Each named executive officer is also paid his salary earned but not yet paid, reimbursement for unpaid expenses to which the officer is entitled to reimbursement, and the cash equivalent vacation time or other vested compensation or benefits to which the named executive officer is entitled. In addition, unless termination is for cause or without good reason, or by the named executive officer upon the expiration of the term of the employment agreement, each named executive officer also receives any incentive bonus earned for the prior calendar year but not yet paid.
(2) Amounts in this column reflect accelerated vesting of unvested time-based restricted stock awards and a pro-rated portion of performance-based restricted stock (assuming target performance), including the value of all accrued and unpaid cash dividends that would have been paid with respect to the time-vested restricted stock and performance-based restricted stock, as applicable, for each named executive officer. With respect to the pro-rated performance-based restricted stock, any performance-based restricted stock awards shall remain outstanding and eligible to vest based on actual performance through the last day of
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the performance period, based on the number of days during the performance period, the named executive officer was employed. For purposes of this table each restricted share of common stock was valued at $9.06 based on the estimated value per share of our common stock approved by our board of directors on March 24, 2021. For a full description of the methodologies used to calculate the estimated value per share, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information" our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission on March 25, 2021.
(3) This figure represents the sum of the amount needed to pay for then current health, dental, disability and life insurance benefits for 18 months for Messrs. Feldman and Elliott and Ms. Weisbaum, with such amounts payable following the named executive officer’s termination of employment at the same level as in effect immediately preceding his termination of employment. The health insurance benefits amounts were determined using the estimated premiums currently in effect.
(4) Cash payments in this column reflect a cash severance payment, and an incentive bonus (assuming target performance) for the calendar year in which the termination occurs, pro-rated for the amount of time the named executive officer was employed by the company during such calendar year.
(5) The cash severance payment is an amount equal to the sum of the named executive officer’s annual base salary then in effect, plus the average of the incentive bonus paid to the named executive officer for the prior three calendar years (as adjusted for such lesser number of years that the named executive officer has been employed by us), multiplied by (a) 1.5 for Messrs. Feldman and Elliott and (b) 1.0 times for Ms. Weisbaum.
(6) The cash severance payment is an amount equal to the sum of the named executive officer’s annual base salary then in effect, plus the average of the incentive bonus paid to the named executive officer for the prior three calendar years (as adjusted for such lesser number of years that the named executive officer has been employed by us), multiplied by (a) 2.0 for Messrs. Feldman and Elliott and (b) 1.5 times for Ms. Weisbaum.
(7) The cash severance payment is an amount equal to the sum of the named executive officer’s annual base salary then in effect, plus the average of the incentive bonus paid to the named executive officer for the prior three calendar years (as adjusted for such lesser number of years that the named executive officer has been employed by us), multiplied by (a) 3.0 for Messrs. Feldman and Elliott and (b) 2.0 times for Ms. Weisbaum.
(8) With respect to Messrs. Feldman and Elliott and Ms. Weisbaum, upon death or disability of the named executive officer, the executive officer will receive a prorated bonus for services performed during the year, assuming target performance. With respect to all named executive officers, unvested time-based restricted stock awards will vest and performance-based restricted stock awards will remain outstanding and eligible to vest based on actual performance through the last day of the performance period, based on the number of days during the performance period, the named executive officer was employed.
2021 Director Compensation Table
We pay an annual cash retainer of $65,000 to each independent director for services as a director, as well as an annual grant of equity with a value of approximately $65,000 at the time of grant. The equity has a one year vesting schedule. For service on the audit committee, compensation committee, nominating and governance committee and investment committee we pay an annual cash retainer of $7,500; provided that the chair of each of these committees will receive an additional annual cash retainer as follows: $15,000 to the chair of the audit committee and the chair of the compensation committee, and $12,500 to the chair of the nominating and governance committee and the chair of the investment committee. All members of the board of directors are reimbursed for their costs and expenses in attending our board meetings.
The table below provides information regarding compensation paid to or earned by our directors during the year ended December 31, 2021 as required by Item 402(k) of Regulation S-K.
Name
Fees Earned or Paid in Cash
Stock Awards (1)
All Other Compensation
Total
Alan F. Feldman (2)
$
-
$
-
$
-
$
-
Robert C. Lieber (2) (3)
-
-
-
-
Thomas J. Ikeler
84,792
65,000
2,004
151,796
Gary Lichtenstein
93,583
65,000
2,004
160,587
Paula Baiman Brown
47,083
65,000
1,004
113,087
Alan F. Riffkin
47,083
65,000
1,004
113,087
Andrew Ceitlin
84,792
65,000
2,004
151,796
Lee F. Shlifer
87,083
65,000
2,004
154,087
David Spoont (4)
12,333
-
-
12,333
(1) Represents the total grant date fair value of 7,158 shares of restricted stock granted on February 17, 2021 under the Incentive Plan, determined in accordance with ASC Topic 718. See Note 12 to our consolidated financial statements herein, for a discussion of our accounting of share-based compensation and the assumptions used. The grant date fair value of each award granted on February 17, 2021 was $9.08 based on the estimated value per share of our common stock approved by our board of directors on March 19, 2020. For a full description of the methodologies used to calculate the estimated value per share, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities - Market Information" our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 20, 2020. As of December 31, 2021, Messrs. Ikeler, Lichtenstein, Ceitlin and Shlifer each held 7,158 shares of unvested restricted stock and Mr. Riffkin and Ms. Brown each held 7,174 shares of unvested restricted stock.
(2) Directors who are not independent of us do not receive compensation for their services as a director.
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(3) Mr. Lieber resigned effective September 14, 2021.
(4) Mr. Spoont resigned effective January 28, 2021.
Pay Ratio Disclosure
As required by Item 402(u) of Regulation S-K, we are providing the following information about the ratio of the median employee’s total annual compensation to the total annual compensation of our chief executive officer for the year ended December 31, 2021:
•the total compensation of the employee who represents the Company's median compensated employee (other than CEO) was approximately $178,000
•Annual total compensation of our chief executive officer (as reported in the “Summary Compensation Table” presented above): $3,907,533
•Ratio of median employee to chief executive officer total annual compensation: 1:22
In determining the median employee, we prepared a list of all employees as of December 31, 2021 and reviewed the amount of salary, wages and equity awards of all such employees reported to the Internal Revenue Service on Form W-2 for 2021. We also reviewed pre-tax wages that were contributed by employees to a pre-tax parking program, a flexible spending account program and supplemental insurance policy premiums. More specifically, for each employee, we aggregated the amounts indicated on the face of his or her Form W-2 and pre-tax wages allocated to commuting costs, flexible spending accounts and supplemental insurance policy premiums. We had 44 employees as of December 31, 2021. Salaries, wages and bonuses were annualized for those employees that were not employed for the full year of 2021. In addition, bonuses for employees who were not employed for the full year of 2021 were annualized because the Form W-2 amounts reflect bonuses paid in 2021 for 2020 employment. We identified the median employee using this compensation measure, which was consistently applied to all employees included in the calculation. Because all employees are located in the United States, we did not make any cost-of-living adjustments in identifying the median employee.
Once the median employee was identified, we combined all of the elements of such employee’s compensation for 2021 in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K promulgated by the SEC, resulting in median employee total annual compensation of approximately $178,000. Given the different methodologies that various public companies will use to determine an estimate of their pay ratio, the estimated ratio reported above should not be used as a basis for comparison between companies.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Lee F. Shlifer (Chairman), Gary Lichtenstein, and Thomas J. Ikeler. None of the members of the compensation committee is or has been employed by us. With the exception of Alan F. Feldman, who serves as our Chief Executive Officer and President as well as a director and served in similar positions for REIT I and REIT III prior to their acquisition by us, none of our executive officers currently serves, or in the past three years has served, as a member of the board of directors or compensation committee of another entity that has one or more executive officers serving on the board of directors or compensation committee. No member of the compensation committee has any other business relationship or affiliation with us other than his or her service as a director.
Compensation Committee Report
The following is a report by the compensation committee regarding its review of the foregoing Compensation Discussion and Analysis section:
The compensation committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on such review and discussion, the compensation committee recommended to the board of directors, and the board has approved, that the Compensation Discussion and Analysis be included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 for filing with the SEC.
March 25, 2022 The Compensation Committee of the Board of Directors: Lee F. Shlifer (Chairman), Gary Lichtenstein, and Thomas J. Ikeler
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
The following table summarizes information, as of December 31, 2021, relating to our equity compensation plan pursuant to which we grant restricted stock from time to time.
Plan Category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders (1)
-
-
2,132,770
Equity compensation plans not approved by security holders
-
-
-
Total
-
-
2,132,770
(1) Resource REIT, Inc. 2020 Long-Term Incentive Plan (the “Incentive Plan”). The Incentive Plan was approved by our board of directors on September 8, 2020 in connection with our entry into the merger agreement with REIT I as we agreed to assume the REIT I incentive plan at the time of the REIT I Merger. As of January 28, 2021, the effective time of the REIT I Merger, we assumed the incentive plan of REIT I and the awards thereunder. On July 21, 2021, at our annual meeting, our stockholders approved the Incentive Plan. Prior to stockholder approval of the Incentive Plan, we had granted 567,983 shares of restricted stock, including 135,045 shares of performance-based restricted stock based on target levels of performance. A recipient of performance-based restricted stock may receive as few as zero shares or as many as 125% the target number of shares.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 22, 2022, except as otherwise set forth in the footnotes to the table, the beneficial ownership of our common stock and convertible stock, for (1) each person who is a beneficial owner of 5% or more of our outstanding common stock, (2) each director, (3) each named executive officer and (4) our directors and named executive officers as a group.
In accordance with SEC rules, each listed person’s beneficial ownership includes all shares the person actually owns beneficially or of record, all shares over which the person has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund), and all shares the person has the right to acquire within 60 days, except as otherwise set forth in the footnotes to the table.
Unless otherwise indicated, each person named in the table has sole voting and investment power with respect to all of the shares of common stock shown as beneficially owned by such person and none of our directors or executive officers has pledged shares of common stock as collateral. Unless otherwise noted, the address for each beneficial owner is 1845 Walnut Street, 17th Floor, Philadelphia, Pennsylvania 19103.
Common Stock Beneficially Owned
Convertible Stock Beneficially Owned
Name of Beneficial Owners
Number
Percent of Total (1)
Number
Percent of Total (2)
Alan F. Feldman (3)(5)
660,508
*
4,200
22.5
%
Paula Baiman Brown (4)
7,174
*
-
-
Andrew Ceitlin (4)
14,332
*
-
-
Thomas J. Ikeler (4)
14,332
*
-
-
Gary Lichtenstein (4)(6)
17,773
*
-
-
Alan F. Riffkin (4)
7,174
*
-
-
Lee F. Shlifer (4)
14,332
*
-
-
Thomas C. Elliott (3)
351,191
*
4.3
%
Marshall Hayes (3)
166,754
*
1,398
7.5
%
Shelle Weisbaum (3)
121,962
*
3.2
%
All directors and executive officers as a group (10 persons)
1,375,532
*
6,996
37.60
%
* Represents ownership of less than 1.0%.
(1) Based on 166,259,239 shares of common stock outstanding as of March 22, 2022.
(2) Based on 18,628 shares of convertible stock outstanding as of March 22, 2022 (other than excluded convertible stock).
(3) Includes 234,800, 131,874, 65,937 and 45,029 shares of time vested restricted stock held by each of Messrs. Feldman, Elliott and Hayes and Ms. Weisbaum, respectively, and 305,031, 171,686, 75,789 and 56,662 shares of performance restricted stock (assuming target-level
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performance) held by each of Messrs. Feldman, Elliott and Hayes and Ms. Weisbaum, respectively. The shares of time vested restricted stock and performance restricted stock have not vested.
(4) Includes 7,174 shares of time vested restricted stock held by each of Ms. Brown and Messrs. Ceitlin, Ikeler, Lichtenstein, Riffkin and Shlifer. The shares of time vested restricted stock have not vested.
(5) Includes 12,395 shares of common stock held indirectly by A & M Feldman Foundation, Inc., of which the reporting person is a director and founding member. The reporting person disclaims beneficial ownership of these securities.
(6) Includes 3,441 shares of common stock held indirectly by spouse.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Review and Approval of Transactions with Related Persons
Prior to the amendment of our charter in July 2021 (following our transition to a self-managed structure), our charter required our conflicts committee, which consists of all of our independent directors, to review and approve all transactions between us and our advisor, any of our officers or directors or any of their affiliates. Further, before entering into a transaction with a related party, a majority of the conflicts committee was required to conclude that the transaction was fair and reasonable to us and on terms and conditions not less favorable to us than those available from unaffiliated third parties. Although we have amended our charter to remove references to our conflicts committee due to no longer being externally advised, our independent directors continue to be charged with the responsibility of approving related party transactions consistent with our past charter requirements.
Certain Transactions with Related Persons
In the ordinary course of our business operations, we have had relationships with several related parties. Set forth below is a description of the material transactions between us and these related parties since the beginning of 2021 as well as any such currently proposed transactions.
Relationship with C-III and RAI
As of December 31, 2021, C-III and its subsidiary, Legacy Co, collectively owned approximately 8.3 million common shares. Following the Self-Management Transaction and prior to September 14, 2021, C-III and Legacy Co collectively owned approximately 7.5 million common units in our operating partnership (“OP Common Units”) and 319,965 preferred units in our operating partnership (“OP Preferred Units”) and had the right to designate one individual to be included on our board of directors. Robert C. Lieber, an Executive Management Directors of C-III, was the C-III nominee. In accordance with a letter agreement between the parties, on September 14, 2021, we redeemed all of the 319,965 outstanding Series A Preferred Units collectively held by C-III and Legacy Co for $67.5 million and exchanged all of the 7,539,737.53 common units collectively held by C-III and Legacy Co for an equivalent number of shares of our common stock. In addition, on that date, Mr. Lieber resigned his position as a member of our board of directors. Prior to the Self-Management Transaction, C-III controlled our former advisor as well as the external advisors to REIT I and REIT III, as indirect subsidiaries of RAI, and owned the property management entities for us, REIT I and REIT III.
On September 8, 2020, we entered into a Transitional Services Agreement with C-III and its affiliates (the “Transitional Services Agreement”), pursuant to which, effective September 8, 2020 and for a one-year period, C-III provided us and our affiliates and subsidiaries certain services in order to ensure an orderly transition and the continued conduct and operation of the advisory and property management business acquired in connection with the Self-Management Transaction. In connection with these services, we have paid C-III an agreed-upon monthly fee for each service provided, as well as reimbursement of out-of-pocket expenses incurred by C-III and RAI as a result of the provision of these services. C-III also reimbursed us for services provided by our employees to C-III during this period.
Property loss pool: We participated (with other properties directly or indirectly managed by RAI and C-III) in a catastrophic insurance policy, which covered claims up to $250.0 million, after either a $25,000 or a $100,000 deductible per incident, depending on location and/or type of loss. Therefore, unforeseen or catastrophic losses in excess of our insured limits could have a material adverse effect on our financial condition and operating results. This policy expired on March 1, 2021 and was replaced with similar coverage in the normal course of business independent of RAI and C-III.
General liability coverage: We (with other properties directly managed by RAI) had an insured and dedicated limit for the general liability of $1,000,000 per occurrence. Total claims were limited to $2.0 million per premium year. In excess of these limits, we participated (with other properties directly or indirectly managed by RAI and C-III) in a $50.0 million per occurrence excess liability program. Therefore, the total insured limit per occurrence was $51.0 million for the general and
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excess liability program, after a $25,000 deductible per incident. This policy expired on March 1, 2021 and was replaced with similar coverage in the normal course of business independent of RAI and C-III.
Directors and officers insurance: Until the effectiveness of the Resource REIT Mergers, we participated in a liability insurance program for directors and officers coverage with REIT I and REIT III.
Relationship with REIT I and REIT III
Following the Self-Management Transaction, REIT I, as the indirect owner of the advisor to REIT II and REIT III, received asset management fees, property management fees and debt financing fees from REIT II and REIT III until the Resource REIT Mergers in January 2021. All of the same individuals served as officers of REIT I, REIT II and REIT III as well as officers of the external advisor entities.
Relationship with ACRES Commercial Realty Corp. (“ACR”)
We provided office space and other office-related services to ACRES Commercial Realty Corp. (f/k/a Exantas Capital Corp.) under a sublease that was assigned from RAI which terminated on March 31, 2021. In addition, three of our employees provided internal audit services until March 31, 2021 under an internal audit engagement letter that was assigned from RAI to our subsidiary. Our Chief Financial Officer was a director of ACR until June 2021.
The following table presents the our fees earned by, and expenses paid to, such related parties (in thousands):
Fees earned / expenses paid to related parties:
REIT II (prior to 1/28/2021):
Asset management fee income
$
Property management fee income
Operating expense reimbursements
Internal audit
REIT III (prior to 1/28/2021):
Asset management fee income
$
Property management fee income
C-III/RAI:
Transition services paid to C-III
$
Preferred unit distributions
3,161
Common OP unit distributions
1,110
ACR:
Internal audit
$
Sublease rent reimbursement
Director Independence
Under our charter, an independent director is a person who satisfies the independence requirements under the rules and regulations of the New York Stock Exchange (“NYSE”) as in effect from time to time. The NYSE standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, the board of directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). The board of directors has determined that Paula Baiman Brown, Andrew Ceitlin, Thomas J. Ikeler, Gary Lichtenstein, Alan F. Riffkin, and Lee F. Shlifer each satisfies the bright-line criteria and that none has a relationship with us that would interfere with such person’s ability to exercise independent judgment as a director. None of these directors has ever served as (or is related to) an employee of ours or any of our predecessors or acquired companies or received or earned any compensation from us or any such other entities except for compensation directly related to service as a director of us or REIT I. Therefore, we believe that all of these directors are independent directors.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES
During the year ended December 31, 2021, Grant Thornton LLP served as our independent registered public accounting firm and provided certain tax and other services. Grant Thornton has served as our independent registered public accounting firm since our formation. The audit committee reviewed the audit and non-audit services performed by Grant Thornton, as well as the fees charged by Grant Thornton for such services. The aggregate fees billed to us for professional accounting services, including
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the audit of our annual financial statements by Grant Thornton for the years ended December 31, 2021 and 2020, are set forth in the table below (in thousands).
December 31,
Audit fees
$
$
Audit-related fees
Tax fees
Total
$
1,541
$
For purposes of the preceding table, Grant Thornton’s professional fees are classified as follows:
•Audit fees - These are fees for professional services performed for the audit of our annual financial statements and other procedures performed by Grant Thornton in order for them to be able to form an opinion on our consolidated financial statements, as well as the required review of quarterly financial statements.
•Audit-related fees - These are fees for assurance and related services that traditionally are performed by independent auditors, such as due diligence related to acquisitions and dispositions, attestation services that are not required by statute or regulation, internal control reviews and consultation concerning financial accounting and reporting standards.
•Tax fees - These are fees for all professional services performed by professional staff in our independent auditor’s tax division, except those services related to the audit of our financial statements. These include fees for tax compliance, tax planning and tax advice, including federal, state and local issues. Services may also include assistance with tax audits and appeals before the IRS and similar state and local agencies, as well as federal, state and local tax issues related to due diligence.
•All other fees - These fees cover services that are normally provided by independent auditors in connection with statutory and regulatory filings or engagements.
Pre-Approval Policies
In order to ensure that the provision of such services does not impair the auditors’ independence, the audit committee charter imposes a duty on the audit committee to pre-approve all auditing services performed for us by our independent auditors, as well as all permitted non-audit services. In determining whether to pre-approve services, the audit committee will consider whether the service is a permissible service under the rules and regulations promulgated by the SEC. The audit committee has established a pre-approval policy that any audit or non-audit services that do not exceed $15,000 in cost may be presented to and approved by the audit committee at its next scheduled meeting.
All services rendered by Grant Thornton for the year ended December 31, 2021 were pre-approved in accordance with the policies and procedures described above.
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PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Annual Report on Form 10-K:
(a)Financial Statements
1.See the Index to Consolidated Financial Statements at page of this report.
(b)Financial Statement Schedule
i.Our financial statement schedule is included in a separate section of this Annual Report on Form 10-K commencing on page.
(c)Exhibits
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Exhibit No.
Description
2.1
Agreement and Plan of Merger, dated as of September 8, 2020, by and among the Company, OP II, Revolution I Merger Sub, LLC, OP I and REIT I (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed September 11, 2020)
2.2
Agreement and Plan of Merger, dated as of September 8, 2020, by and among the Company, OP II, Revolution III Merger Sub, LLC, OP III and REIT III (incorporated by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed September 11, 2020)
2.3
Agreement and Plan of Merger, dated as of January 23, 2022, by and among Rapids Parent LLC, Rapids Merger Sub LLC, and the Company (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 24, 2022)
3.1
Second Articles of Amendment and Restated of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed August 2, 2021)
3.2
Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed February 5, 2021)
3.3
Articles of Amendment of the Company (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed January 29, 2021)
4.1
Statement regarding restrictions on transferability of shares of common stock (to appear on stock certificate or to be sent upon request and without charge to stockholders issued shares without certificates) (incorporated by reference to the Company’s Registration Statement on Form S-11 (No. 333-184476) filed October 17, 2012)
4.2
Description of the Company’s Common Stock Registered Pursuant to Section 12 of the Exchange Act of 1934 (incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K filed March 20, 2020)
10.1
Resource REIT, Inc. 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed January 29, 2021)
10.2
Form of Restricted Stock Agreement (Time Based) (incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed January 29, 2021)
10.3
Form of Restricted Stock Agreement (Performance-Based) (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 23, 2021)
10.4
Employment Agreement dated September 8, 2020 between REIT I and Mr. Feldman (incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K filed by REIT I on September 11, 2020)
10.5
Employment Agreement dated September 8, 2020 between REIT I and Mr. Elliott (incorporated by reference to Exhibit 10.7 to the Current Report on Form 8-K filed by REIT I on September 11, 2020)
10.6
Employment Agreement dated September 8, 2020 between REIT I and Ms. Weisbaum (incorporated by reference to Exhibit 10.8 to the Current Report on Form 8-K filed by REIT I on September 11, 2020)
10.7
Form of Indemnification Agreement between the Company and each independent director of the Company (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 16, 2020)
10.8
Amended and Restated Limited Partnership Agreement of RRE Opportunity OP II, LP, dated January 28, 2021 (incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K filed March 25, 2021)
10.9
Master Credit Facility Agreement, dated as of January 28, 2021, by and among RRE Addison Place Holdings, LLC, RRE Gilbert Holdings, LLC, RRE Providence Holdings, LLC, RRE Woodmoor Holdings, LLC, RRE Centennial Holdings, LLC, RRE Brentdale Holdings, LLC, RRE Breckenridge Holdings, LLC, RRE Bear Creek Holdings, LLC, RRE Fairways of Bent Tree Holdings, LLC, RRE Montclair Terrace Holdings, LLC, RRE Santa Rosa Holdings, LLC, RRE Buckhead Holdings, LLC, RRE FNM1 LLC, RRE FNM2 LLC, RRE FNM3 LLC, RRE FNM4 LLC, (collectively, the “Borrowers”) and CBRE Multifamily Capital, Inc. (incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed January 29, 2021)
10.10
Credit Agreement, dated as of May 20, 2021, among RRE Opportunity OP II, LP, as the Borrower, Resource REIT, Inc., Revolution I Merger Sub, LLC, RRE Opportunity Holdings LLC, RRE Opportunity Holdings II, LLC and certain subsidiaries of the Borrower from time to time party thereto, as guarantors, Bank of America, N.A., as Administrative Agent, Bank of America, N.A., as L/C Issuer and the other lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed May 21, 2021)
10.11
2022 Employee Retention/Transaction Bonus Plan, dated as of January 23, 2022
21.1
Subsidiaries of the Company
23.1
Consent of Grant Thornton
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1
Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2
Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2
Fifth Amended and Restated Share Redemption Program (incorporated by reference to Exhibit 99.2 to the Company’s Form 8-K filed February 5, 2021)
101.INS
Inline XBRL Instance 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
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)