We are an internally
managed Maryland corporation that engages in the acquisition, ownership and operation of portfolios of leased single-family residential
properties in the United States. We operate our portfolio properties as single family rentals, or SFRs, and we generate most of
our revenue from rental income from the existing tenants of the SFRs we have acquired. We are currently evaluating whether to elect
to be taxed as a real estate investment trust (“REIT”), as defined in the Internal Revenue Code, commencing with the
taxable year ending December 31, 2017. Although we believe we currently meet all requirements allowing us to make the election,
we are evaluating if we should postpone the election to a later year based on what would provide us the most benefits and flexibility
in our tax planning and capital raising activities. Since we have incurred tax operating losses in 2017 and currently in 2018,
the election of REIT status does not impact our current tax liability.
As of June 30, 2018,
we have invested an aggregate of approximately $63.6 million and own a total of 826 homes, of which 263 homes are in the Houston,
Texas metropolitan area, 252 homes are in the Jacksonville, Florida metropolitan area, 120 homes are in the Memphis, Tennessee
metropolitan area (with two of the Memphis homes located just across the border in Mississippi), 144 homes are in the Birmingham,
Alabama metropolitan area, and 47 homes are in the Atlanta, Georgia metropolitan area.
We intend to expand
our acquisitions to other select markets in the United States that fit our investment criteria as we continue to evaluate new investment
opportunities in different markets. As of June 30, 2018, our portfolio properties were 93.3% occupied. Our portfolio properties
have been acquired from available cash and with the proceeds from our secured loan transactions with banks pursuant to which we
had an outstanding principal amount owed of approximately $33.1 million as of June 30, 2018. Our loan transactions are secured
by first priority liens and related rents on specific portfolios of our homes.
Our principal objective
is to generate cash flow, while gaining home price appreciation, or HPA, at the same time through the ownership of our portfolio
properties. With this objective in mind, we have developed our primary business strategy of acquiring portfolios of leased SFRs.
We believe the execution of this strategy will allow us to generate immediate and steady cash flow from the rental income from
the SFRs that we acquire while potentially gaining significant HPA over time. While our goal is to grow our company and generate
available cash flow that will allow us to pay all of our operating costs for the operation of our portfolio properties and distribute
profits to our stockholders in the form of quarterly dividends, there can be no assurance we will be able to do so.
We plan to continue
to acquire and manage single-family homes with a focus on long term earnings growth and appreciation in asset value. Our ability
to identify and acquire single-family properties that meet our investment criteria will be affected by home prices in our markets,
the inventory of properties available through our acquisition channels, competition for our target assets, our capital available
for investment, and the cost of that capital. We believe the housing market environment in our markets remains attractive for single-family
property acquisitions and rentals. Pricing for housing in certain markets remains attractive and demand for housing is growing.
At the same time, we continue to face relatively steady competition for new properties and residents from local operators and institutional
managers. Housing prices across our markets have appreciated over the past years. Despite these gains, we believe housing in certain
of our markets continues to provide attractive acquisition opportunities and remains inexpensive relative to replacement cost and
affordability metrics.
We anticipate continued
strong rental demand for single-family homes. While new building activity has begun to increase, it remains below historical averages
and we believe substantial under-investment in residential housing over the past years will create upward pressure on home prices
and rents as demand exceeds supply.
Property Portfolio
The following tables
represent our investment in the homes as of June 30, 2018:
Total Portfolio of Single-Family Homes — Summary Statistics
|
(as of June 30, 2018)
|
Market
|
|
No. of
Homes
|
|
|
Aggregate
Investment
|
|
|
Average
Investment per
Home
|
|
|
Properties
Leased
|
|
|
Properties
Vacant
|
|
|
Portfolio
Occupancy
Rate
|
|
|
Average Age
(years)
|
|
|
Average Size
(sq.ft.)
|
|
|
Average
Monthly Rent
|
|
|
Average
Remaining
Lease Term
(Months)
|
|
Atlanta,
Georgia
|
|
|
47
|
|
|
|
3,463,647
|
|
|
|
73,695
|
|
|
|
45
|
|
|
|
2
|
|
|
|
95.7
|
%
|
|
|
30
|
|
|
|
1,453
|
|
|
|
927
|
|
|
|
4.27
|
|
Birmingham,
Alabama
|
|
|
144
|
|
|
|
9,912,110
|
|
|
|
68,834
|
|
|
|
131
|
|
|
|
13
|
|
|
|
91.0
|
%
|
|
|
57
|
|
|
|
1,302
|
|
|
|
837
|
|
|
|
4.91
|
|
Houston,
Texas
|
|
|
263
|
|
|
|
22,414,392
|
|
|
|
85,226
|
|
|
|
252
|
|
|
|
11
|
|
|
|
95.8
|
%
|
|
|
49
|
|
|
|
1,452
|
|
|
|
1,132
|
|
|
|
5.77
|
|
Jacksonville,
Florida
|
|
|
252
|
|
|
|
18,062,011
|
|
|
|
71,675
|
|
|
|
232
|
|
|
|
20
|
|
|
|
92.1
|
%
|
|
|
55
|
|
|
|
1,289
|
|
|
|
932
|
|
|
|
5.96
|
|
Memphis,
Tennesee
|
|
|
120
|
|
|
|
9,735,600
|
|
|
|
81,130
|
|
|
|
111
|
|
|
|
9
|
|
|
|
92.5
|
%
|
|
|
44
|
|
|
|
1,675
|
|
|
|
999
|
|
|
|
9.49
|
|
Totals
|
|
|
826
|
|
|
$
|
63,587,760
|
|
|
$
|
76,983
|
|
|
|
771
|
|
|
|
55
|
|
|
|
93.3
|
%
|
|
|
50
|
|
|
|
1,409
|
|
|
$
|
989
|
|
|
|
6.1
|
|
Results of Operations
Three Months Ended June
30, 2018 Compared to Three Months Ended June 30, 2017
The following table
sets forth a comparison of the results of operations for the three months ended June 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
2,232,786
|
|
|
$
|
2,029,504
|
|
|
$
|
203,282
|
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
682,431
|
|
|
|
586,070
|
|
|
|
96,361
|
|
|
|
16.4
|
%
|
Real estate taxes
|
|
|
369,545
|
|
|
|
370,088
|
|
|
|
(543
|
)
|
|
|
-0.1
|
%
|
Depreciation and amortization
|
|
|
514,858
|
|
|
|
479,240
|
|
|
|
35,618
|
|
|
|
7.4
|
%
|
General and administration
|
|
|
575,413
|
|
|
|
601,067
|
|
|
|
(25,654
|
)
|
|
|
-4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
2,142,247
|
|
|
|
2,036,465
|
|
|
|
105,782
|
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
90,539
|
|
|
|
(6,961
|
)
|
|
|
97,500
|
|
|
|
1400.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of residential property
|
|
|
-
|
|
|
|
36,823
|
|
|
|
(36,823
|
)
|
|
|
-100.0
|
%
|
Casualty gain (loss), net
|
|
|
25,758
|
|
|
|
(6,221
|
)
|
|
|
31,979
|
|
|
|
514.0
|
%
|
Other income
|
|
|
7,201
|
|
|
|
4,112
|
|
|
|
3,089
|
|
|
|
75.1
|
%
|
Previously deferred stock issuance costs
|
|
|
(674,144
|
)
|
|
|
-
|
|
|
|
(674,144
|
)
|
|
|
|
|
Interest expense
|
|
|
(435,171
|
)
|
|
|
(317,637
|
)
|
|
|
(117,534
|
)
|
|
|
-37.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(1,076,356
|
)
|
|
|
(282,923
|
)
|
|
|
(793,433
|
)
|
|
|
-280.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(985,817
|
)
|
|
$
|
(289,884
|
)
|
|
$
|
(695,933
|
)
|
|
|
-240.1
|
%
|
For the three months
ended June 30, 2018, we had total rental income of $2,232,786 compared to total rental income of $2,029,504 for the three months
ended June 30, 2017. The increase is due primarily to an increase in the number of homes owned during the 2018 period when compared
to the number of homes owned during the three months ended June 30, 2017. As of June 30, 2018, we owned 826 homes, at June 30,
2017 we owned 754 homes.
As of June 30, 2018,
771, or approximately 93.3%, of our 826 homes were occupied. During the three months ended June 30, 2018, we had 64 home leases
turnover, which represented approximately 7.7% of our end of the quarter portfolio. As of June 30, 2017, 735, or approximately
97.5%, of our 754 homes were occupied. During the quarter ended June 30, 2017, we had 43 home leases turnover, which represented
approximately 5.7% of our end of the quarter portfolio.
For the three months
ended June 30, 2018, we had property operating and maintenance expenses of $682,431 compared to $586,070 for the corresponding
prior year period. Property operating and maintenance expenses consist of insurance, property management fees paid to third parties,
repairs and maintenance costs, home owner association fees, and other miscellaneous property costs. Real estate taxes for the three
months ended June 30, 2018 were $369,545 compared to $370,088 for the three months ended June 30, 2017. The increase in property
operating, maintenance expenses from 2017 to 2018 is primarily due to the corresponding increase in our inventory of single family
homes. Real estate taxes are shown as basically unchanged for 2018 when compared to 2017, as the 2017 estimate contained a larger
assessment increase which is not included in the current quarter’s provision. We had net operating income from rentals of
$1,180,810 for the three months ended June 30, 2018 compared to net operating income from rentals of $1,073,346 in the corresponding
prior year period. This resulted in a net operating income margin of approximately 52.9% in 2018 which was the same as the net
operating income margin in 2017.
Depreciation and amortization
on our home investments increased to $514,858 for the three months ended June 30, 2018 compared to $479,240 in 2017, reflecting
the corresponding increase in the number of single family homes owned.
General and administrative
expenses for the three months ended June 30, 2018 totaled $575,413 compared to $601,067 for the corresponding prior year period.
General and administrative expenses consist of personnel costs, outside director fees, occupancy fees, public company filing fees,
legal, accounting, and other general expenses. The nominal decrease in our general and administrative expenses is due primarily
to a decrease in legal, accounting, and miscellaneous travel and promotional expense in 2018 when compared to 2017.
The above results in
total expenses of $2,142,247 for the three months ended June 30, 2018 resulting in an operating income for the three months ended
June 30, 2018 of $90,539, compared to total expenses of $2,036,465 for the three months ended June 30, 2017 and a corresponding
operating loss of $6,961 for the three months ended June 30, 2017.
We sold one residential
property during the three months ended June 30, 2017 for a gain of $36,823. There were no corresponding sales during the three
months ended June 30, 2018. We had net casualty gains of $25,758 during the three months ended June 30, 2018, compared to a net
casualty loss of $6,221 during the three months ended June 30, 2017. Other income was $7,201 for the three months ended June 30,
2018 as compared to other income of $4,112 for the three months ended June 30, 2017. During the quarter ended June 30, 2018 we
expensed $674,144 of previously deferred stock issuance costs relating to a discontinued capital raise; there was not a corresponding
charge during the three months ended June 30, 2017. Interest expense on our notes payable was $435,171 for the three months ended
June 30, 2018 compared to $317,637 for the three months ended June 30, 2017. The increase is primarily due to higher note payable
balances for the three months ended June 30, 2018 when compared to the corresponding period in 2017. This resulted in net other
expense of $1,076,356 for the three months ended June 30, 2018 compared to a net other expense of $282,923 for the three months
ended June 30, 2017.
Net loss for the three
months ended June 30, 2018 was $985,817. The net loss for the three months ended June 30, 2017 was $289,884. The weighted average
number of shares outstanding for the three months ended June 30, 2018 increased to 10,769,530 from 10,734,025 for the three months
ended June 30, 2017 resulting in a net loss per share of $0.09 for the three months ended June 30, 2018 and a net loss per share
of $0.03 for the three months ended June 30, 2017. You will note that the expensing of $674,144 of previously deferred stock issuance
costs during the three months ended June 30, 2018 caused the net loss per share to increase $0.06 per share.
Six Months Ended
June 30, 2018 Compared to Six Months Ended June 30, 2017
The following table
sets forth a comparison of the results of operations for the six months ended June 30, 2018 and 2017:
|
|
2018
|
|
|
2017
|
|
|
$
Change
|
|
|
%
Change
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
4,412,078
|
|
|
$
|
3,770,813
|
|
|
$
|
641,265
|
|
|
|
17.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property operating and maintenance
|
|
|
1,300,594
|
|
|
|
1,101,631
|
|
|
|
198,963
|
|
|
|
18.1
|
%
|
Real estate taxes
|
|
|
732,916
|
|
|
|
642,170
|
|
|
|
90,746
|
|
|
|
14.1
|
%
|
Depreciation and amortization
|
|
|
1,033,896
|
|
|
|
920,965
|
|
|
|
112,931
|
|
|
|
12.3
|
%
|
General and administration
|
|
|
1,191,832
|
|
|
|
1,302,398
|
|
|
|
(110,566
|
)
|
|
|
-8.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
4,259,238
|
|
|
|
3,967,164
|
|
|
|
292,074
|
|
|
|
7.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
152,840
|
|
|
|
(196,351
|
)
|
|
|
349,191
|
|
|
|
177.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain on sale of residential properties
|
|
|
-
|
|
|
|
75,796
|
|
|
|
(75,796
|
)
|
|
|
-100.0
|
%
|
Casualty gain (loss), net
|
|
|
76,133
|
|
|
|
82,987
|
|
|
|
(6,854
|
)
|
|
|
-8.3
|
%
|
Other income
|
|
|
14,995
|
|
|
|
8,163
|
|
|
|
6,832
|
|
|
|
83.7
|
%
|
Previously deferred stock issuance costs
|
|
|
(674,144
|
)
|
|
|
-
|
|
|
|
(674,144
|
)
|
|
|
|
|
Interest expense
|
|
|
(835,763
|
)
|
|
|
(625,157
|
)
|
|
|
(210,606
|
)
|
|
|
-33.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(1,418,779
|
)
|
|
|
(458,211
|
)
|
|
|
(960,568
|
)
|
|
|
-209.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,265,939
|
)
|
|
$
|
(654,562
|
)
|
|
$
|
(611,377
|
)
|
|
|
-93.4
|
%
|
For the six months
ended June 30, 2018, we had total rental income of $4,412,078 compared to total rental income of $3,770,813 for the six months
ended June 30, 2017. The increase in total rental and other income is due primarily to the increase in rental homes owned for the
2018 time period as compared to 2017.
For the six months
ended June 30, 2018, we had property operating and maintenance expenses of $1,300,594 compared to $1,101,631 for the six months
ended June 30, 2017. Real estate taxes for the six months ended June 30, 2018 were $732,916 compared to $642,170 for the six months
ended June 30, 2017. The increase in property operating, maintenance and real estate taxes from 2017 to 2018 is due to a corresponding
increase in our inventory of single family homes.
We had net operating
income from rentals of $2,378,568 for the first six months of 2018 compared to net operating income from rentals of $2,027,012
in the corresponding prior year’s period. The increase in net operating income is due primarily to the increase in rental
homes owned during the current 2017 period. This results in a net operating income margin of approximately 53.9% in 2017 compared
to a net operating income margin of 53.8% in 2017.
Depreciation and amortization
increased to $1,033,896 during the six months ended June 30, 2018 compared to $920,965 during the six months ended June 30, 2017,
reflecting the corresponding increase in our number of single family homes owned.
General and administrative
expenses for the six months ended June 30, 2018 totaled $1,191,832 compared to $1,302,398 for the prior year period. The decrease
in our general and administrative expenses is due primarily to a decrease in legal, accounting, and miscellaneous travel and promotional
expenses in 2018 when compared to 2017, due to a decrease in acquisition and promotional activities in the current period.
We sold two residential
properties during the six months ended June 30, 2017 for a gain of $75,796. There were no corresponding sales during the six months
ended June 30, 2018. We had net casualty gains of $76,133 during the six months ended June 30, 2018, compared to net casualty gains
of $82,987 during the six months ended June 30, 2017. Other income was $14,995 for the six months ended June 30, 2018 as compared
to other income of $8,163 for the six months ended June 30, 2017. During the six months ended June 30, 2018 we expensed $674,144
of previously deferred stock issuance costs relating to a discontinued capital raise; there was not a corresponding charge during
the six months ended June 30, 2017. Interest expense on our notes payable was $835,763 for the six months ended June 30, 2018 compared
to $625,157 for the six months ended June 30, 2017. The increase is primarily due to higher note payable balances for the six months
ended June 30, 2018 when compared to the corresponding period in 2017. This resulted in net other expense of $1,418,779 for the
six months ended June 30, 2018 compared to a net other expense of $458,211 for the six months ended June 30, 2017.
Net loss for the six
months ended June 30, 2018 was $1,265,939. The net loss for the six months ended June 30, 2017 was $654,562. The weighted average
number of shares outstanding for the six months ended June 30, 2018 increased to 10,764,063 from 10,734,025 for the six months
ended June 30, 2017, resulting in a net loss per share of $0.12 for the six months ended June 30, 2018 and a net loss per share
of $0.06 for the six months ended June 30, 2017. You will note that the expensing of $674,144 of previously deferred stock issuance
costs during the three months ended June 30, 2018 caused the net loss per share to increase $0.06 per share.
Liquidity and Capital Resources
Liquidity is a measure
of our ability to meet potential cash requirements, fund and maintain our assets and operations, make interest payments and fund
other general business needs. Our liquidity, to a certain extent, is subject to general economic, financial, competitive and other
factors that are beyond our control. Our near-term liquidity requirements consist primarily of acquiring properties, funding our
operations, and making interest payments.
Our liquidity and capital
resources as of June 30, 2018 consisted primarily of cash of $6,700,475. We believe our current liquidity and the expected cash
flows from operations will be sufficient to fund the present level of our operations through the 12 months following the date of
this report. However, our future acquisition activity will depend primarily on our ability to raise funds from the further issuance
of shares of our common stock or units of our operating partnership combined with new loan transactions secured by our current
and future home inventories. In order to purchase additional single-family homes, we intend to opportunistically utilize the capital
markets to raise additional capital, including through the issuance of debt and equity securities, but there can be no assurance
that we will be able to access adequate liquidity sources on favorable terms, or at all.
Credit Facilities
On February 16, 2018
we received additional loan proceeds of $2,736,630 and amended our promissory note to a total principal amount of $6,530,550 to
a bank, secured by deeds of trust encumbering certain of the homes located in Birmingham, AL. The entire balance of principal and
accrued interest is due and payable January 2023. The note provides for monthly principal and interest payments amortized over
20 years at a fixed rate of 4.25% per annum.
The net proceeds from
this note were primarily used to purchase a portfolio of 27 single-family homes, located in the Birmingham, Alabama metropolitan
area for approximately $1,659,000 not including closing and acquisition costs on February 16, 2018.
A summary of our notes
payable as of June 30, 2018 and December 31, 2017 is as follows:
|
|
2018
|
|
|
2017
|
|
|
Interest
Rate
(Fixed)
|
|
|
Maturity Date
|
Note
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reven Housing Texas, LLC
|
|
$
|
7,227,071
|
|
|
$
|
7,312,030
|
|
|
|
4.50
|
%
|
|
April, 2020
|
Reven Housing Texas 2, LLC
|
|
|
4,732,558
|
|
|
|
4,890,978
|
|
|
|
4.50
|
%
|
|
January, 2022
|
Reven Housing Tennessee, LLC
|
|
|
3,786,766
|
|
|
|
3,830,791
|
|
|
|
4.50
|
%
|
|
April, 2020
|
Reven Housing Florida, LLC
|
|
|
3,345,672
|
|
|
|
3,442,987
|
|
|
|
4.50
|
%
|
|
April, 2020
|
Reven Housing Florida 2, LLC
|
|
|
4,693,139
|
|
|
|
4,805,389
|
|
|
|
4.50
|
%
|
|
April, 2020
|
Reven Housing Georgia, LLC
|
|
|
1,760,866
|
|
|
|
1,780,765
|
|
|
|
4.50
|
%
|
|
July, 2020
|
Reven Housing Tennessee, LLC
|
|
|
1,135,962
|
|
|
|
1,148,726
|
|
|
|
4.50
|
%
|
|
September, 2020
|
Reven Housing Alabama, LLC
|
|
|
6,456,483
|
|
|
|
3,793,920
|
|
|
|
4.25
|
%
|
|
January, 2023
|
|
|
|
33,138,517
|
|
|
|
31,005,586
|
|
|
|
|
|
|
|
Less deferred loan fees, net
|
|
|
(475,636
|
)
|
|
|
(512,462
|
)
|
|
|
|
|
|
|
Notes payable, net
|
|
$
|
32,662,881
|
|
|
$
|
30,493,124
|
|
|
|
|
|
|
|
Cash Flows
The following table
summarizes our cash flows for the six months ended June 30, 2018 and 2017.
|
|
|
|
|
|
|
|
$
|
|
|
|
2018
|
|
|
2017
|
|
|
Change
|
|
Net cash provided by (used in) operating activities
|
|
$
|
222,928
|
|
|
$
|
(108,463
|
)
|
|
$
|
331,391
|
|
Net cash used in investing activities
|
|
|
(1,911,697
|
)
|
|
|
(10,258,454
|
)
|
|
|
8,346,757
|
|
Net cash provided by financing activities
|
|
|
1,946,922
|
|
|
|
4,306,236
|
|
|
|
(2,359,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
$
|
258,153
|
|
|
$
|
(6,060,681
|
)
|
|
$
|
6,318,834
|
|
Operating Activities
We had net cash provide
by operating activities of $222,298 for the six months ended June 30, 2018. This resulted from a net loss of $1,265,939, adding
back depreciation and amortization of $1,033,896, amortization of deferred loan fees of $101,988, cancelled offering costs of $674,144,
and then decreasing the amount by the net change in operating assets and liabilities of $321,161.
We had net cash used
in operating activities of $108,463 for the six months ended June 30, 2017. This resulted from a net loss of $654,562, adding back
depreciation and amortization of $920,965, amortization of deferred loan fees of $68,119, and then deducting gain on sale of residential
properties of $75,796, and then decreasing the amount by the net change in operating assets and liabilities of $367,189.
Investing Activities
During the six months
ended June 30, 2018, we invested $1,681,413 in new homes, $1,510,195 in capital improvements for our homes (of which approximately
$987,000 were for hurricane renovation costs), and $134,817 in lease origination costs. We received $1,390,298 of insurance proceeds
for property damages, and received $24,430 in reductions of escrow deposits for a total of $1,911,697 of net cash used in investing
activities.
During the six months
ended June 30, 2017, we invested $10,039,852 in new homes, $354,414 in capital improvements for our homes, and $174,715 in lease
origination costs. We received $205,027 of proceeds on the disposition of residential properties and received $105,500 in refunds
of escrow deposits for a total of $10,258,454 of cash used in investing activities.
Financing Activities
During the six months
ended June 30, 2018, we had net cash provided by financing activities of $1,946,922 derived from $2,736,630 of proceeds from a
note payable, less $603,699 of notes payable principal payments, less $65,161 of loan fees, and the payment of $120,848 of deferred
offering costs.
During the six months
ended June 30, 2017, we had net cash provided by financing activities of $4,306,236 derived from $5,020,000 of proceeds from a
note payable, less $258,266 of notes payable principal payments, less $124,196 of loan fees, less payments of deferred stock issuance
costs of $331,302.
Our future acquisition
activity relies primarily on our ability to raise funds from the further issuance of common shares combined with new loan transactions
secured by our current and future home inventories. We remain focused on acquiring new capital. We believe our current cash balance
combined with our estimated future net rental revenue is sufficient to fund our operating activities through the 12 months following
the date of this report.
Off Balance Sheet Arrangements
None.
Net Operating Income
We define net operating
income (or NOI) as total revenue less property operating and maintenance and real estate taxes. NOI is a non-GAAP measurement that
excludes acquisition costs, depreciation and amortization, general and administration, legal and accounting, and interest expenses.
We consider NOI to
be a meaningful financial measure when considered with the financial statements determined in accordance with GAAP. We believe
NOI is helpful to investors in understanding the amount of income after operating expenses which is generated in a given period.
The following is a
reconciliation of our NOI to net loss as determined in accordance with GAAP for the three and six months ended June 30, 2018 and
2017.
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(985,817
|
)
|
|
$
|
(289,884
|
)
|
|
$
|
(1,265,939
|
)
|
|
$
|
(654,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
514,858
|
|
|
|
479,240
|
|
|
|
1,033,896
|
|
|
|
920,965
|
|
General and administration
|
|
|
575,413
|
|
|
|
601,067
|
|
|
|
1,191,832
|
|
|
|
1,302,398
|
|
Interest expense and other income and expenses, net
|
|
|
1,076,356
|
|
|
|
282,923
|
|
|
|
1,418,779
|
|
|
|
458,211
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income
|
|
$
|
1,180,810
|
|
|
$
|
1,073,346
|
|
|
$
|
2,378,568
|
|
|
$
|
2,027,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating income as a percentage of total revenue
|
|
|
52.9
|
%
|
|
|
52.9
|
%
|
|
|
53.9
|
%
|
|
|
53.8
|
%
|
NOI should not be considered
an alternative to net loss or net cash flows from operating activities, as determined in accordance with GAAP, as indications of
our performance or as measures of liquidity. Nor is NOI necessarily indicative of cash available to fund future cash needs or distributions
to shareholders. In addition, although we use NOI for comparability in assessing our performance against other REITs, not all REITs
compute the same non-GAAP measure of NOI. Accordingly, our basis for computing this non- GAAP measure may not be comparable with
that of other REITs. This is due in part to the differences in property operating and maintenance expenses incurred by, and real
estate taxes applicable to, different companies and the significant effect these items have on NOI.
Funds From Operations and Core Funds
From Operations
Funds From Operations
(or FFO) is a non-GAAP financial measure that we believe, when considered with the financial statements determined in accordance
with GAAP, is helpful to investors in understanding our performance because it captures features particular to real estate performance
by recognizing that real estate generally appreciates over time or maintains residual value to a much greater extent than do other
depreciable assets. The National Association of Real Estate Investment Trusts (or NAREIT) defines FFO as net income (computed in
accordance with GAAP), excluding gains (or losses) from sales of, and impairment losses recognized with respect to, depreciable
property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments
for unconsolidated partnerships and joint ventures are calculated on the same basis to determine FFO.
Core Funds From Operations
(or Core FFO) is a non-GAAP financial measure that we use as a supplemental measure of our performance. We believe that Core FFO
is further helpful to investors as it provides a more consistent measurement of our performance across reporting periods by removing
the impact of certain items that are not comparable from period to period. We adjust FFO for expensed acquisition fees and costs,
share-based compensation, non-cash interest expense related to amortization of deferred financing costs, casualty gains and losses,
cancelled offering costs, and certain other non-comparable costs to arrive at Core FFO.
FFO and Core FFO should
not be considered alternatives to net income (loss) or net cash flows from operating activities, as determined in accordance with
GAAP, as indications of our performance or as measures of liquidity. These non-GAAP measures are not necessarily indicative of
cash available to fund future cash needs. In addition, although we use these non-GAAP measures for comparability in assessing our
performance against other REITs, not all REITs compute the same non-GAAP measures. Accordingly, there can be no assurance that
our basis for computing these non-GAAP measures is comparable with that of other REITs. This is due in part to the differences
in capitalization policies used by different companies and the significant effect these capitalization policies have on FFO and
Core FFO. Real estate costs which are accounted for as capital improvements are added to the carrying value of the property and
depreciated over time, whereas real estate costs that are expenses are accounted for as a current period expense. This affects
FFO and Core FFO because costs that are accounted for as expenses reduce FFO and Core FFO. Conversely, real estate costs associated
with assets that are capitalized and then subsequently depreciated are added back to net income to calculate FFO and Core FFO.
The following table
sets forth a reconciliation of our net loss as determined in accordance with GAAP and our calculations of FFO and Core FFO for
the three and six months ended June 30, 2018 and 2017:
|
|
Three Months ended June 30,
|
|
|
Six Months ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(985,817
|
)
|
|
$
|
(289,884
|
)
|
|
$
|
(1,265,939
|
)
|
|
$
|
(654,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back depreciation and amortization
|
|
|
514,858
|
|
|
|
479,240
|
|
|
|
1,033,896
|
|
|
|
920,965
|
|
Less gain on sale of residential properties
|
|
|
-
|
|
|
|
(36,823
|
)
|
|
|
-
|
|
|
|
(75,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from (used in) operations
|
|
$
|
(470,959
|
)
|
|
$
|
152,533
|
|
|
$
|
(232,043
|
)
|
|
$
|
190,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Add back noncash amortization of deferred loan fees
|
|
|
50,994
|
|
|
|
35,502
|
|
|
|
101,988
|
|
|
|
68,119
|
|
Less net casualty gain; add net casualty loss
|
|
|
(25,758
|
)
|
|
|
6,221
|
|
|
|
(76,133
|
)
|
|
|
(82,987
|
)
|
Add back previously deferred stock issuance costs
|
|
|
674,144
|
|
|
|
-
|
|
|
|
674,144
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core funds from operations
|
|
$
|
228,421
|
|
|
$
|
194,256
|
|
|
$
|
467,956
|
|
|
$
|
175,739
|
|