The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
The accompanying notes are an integral
part of the consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 1. ORGANIZATION AND OPERATION
Reven Housing REIT, Inc. is a Maryland
corporation (Reven Housing REIT, Inc., along with its wholly-owned subsidiaries, are also referred to herein collectively as the
“Company”) which acquires portfolios of occupied and rented single family homes throughout the United States with the
objective of receiving income from rental property activity and future profits from the sale of rental property at appreciated
values.
As of December 31, 2015 the Company
owned 527 single family homes in the Houston, Jacksonville, Memphis and Atlanta metropolitan areas.
The Company filed a registration statement
on Form S-11 with the SEC for the offer of a minimum of 2,610,000 shares and a maximum of 5,000,000 shares of common stock for
sale to the public at an offering price of $5.75 per share. The SEC declared the Company’s registration statement effective
on February 11, 2016. The common shares are being offered by the Company on a best-efforts basis. Unless the minimum offering is
completed by March 31, 2016, or the Company elects to extend the minimum offering for up to an additional 60 days, the offering
will terminate. If the minimum offering is completed by such date, the offering will continue until the earlier of (1) all shares
are sold; (2) the Company’s decision to terminate the offering; or (3) December 31, 2016.
NOTE 2. BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial
statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”),
as contained within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”),
and the rules and regulations of the Securities Exchange Commission (“SEC”).
Principles of Consolidation
The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiaries, Reven Housing REIT OP, L.P., Reven Housing GP,
LLC, Reven Housing REIT TRS, LLC, Reven Housing Georgia, LLC, Reven Housing Texas, LLC, Reven Housing Florida, LLC, Reven Housing
Florida 2, LLC, and Reven Housing Tennessee, LLC. All significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of the consolidated
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet dates and reported amounts of
revenues and expenses for the periods presented. Accordingly, actual results could differ from those estimates.
Financial Instruments
The carrying value of the Company’s
financial instruments, as reported in the accompanying consolidated balance sheets, approximates fair value due to their short
term nature. The Company’s short term financial instruments consist of cash, rents and other receivables, property tax and
insurance reserves, escrow deposits, accounts payable and accrued liabilities, and security deposits.
The carrying value of the Company’s
notes payable, as reported in the accompanying consolidated balance sheets, approximates fair value due to their floating market
interest rate and due to the fact that their security and payment terms are similar to other debt instruments currently being issued.
Reclassifications
Certain amounts for 2014 have been reclassified
to conform to the current year’s presentation.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2. BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in Real Estate
The Company accounts for its investments
in real estate as business combinations under the guidance of ASC Topic 805,
Business Combinations
(“ASC 805”)
and these acquisitions are recorded at their estimated fair value. The purchase price is allocated to land, building and the existing
leases based upon their fair values at the date of acquisition, with acquisition costs expensed as incurred. In making estimates
of fair values for purposes of allocating purchase price, the Company utilizes its own market knowledge and published market data.
The estimated fair value of acquired in-place leases represents the expected costs the Company would have incurred to lease the
property at the date of acquisition. Each portfolio of single family homes acquired is recorded as a separate business combination.
Buildings and improvements are depreciated
over estimated useful lives of approximately 10 to 27.5 years using the straight-line method. Lease origination costs are amortized
over the average remaining term of the in-place leases which is generally less than one year. Maintenance and repair costs are
charged to expenses as incurred.
The Company assesses its investments
in real estate for impairment whenever events or changes in business circumstances indicate that carrying amounts of the assets
may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the
asset’s carrying value with its fair value. Should impairment exist, the asset is written down to its estimated fair value.
The Company has not recognized any impairment losses for the years ended December 31, 2015 and 2014.
Cash
The Company maintains its cash at financial
institutions. The combined account balances at one or more institutions typically exceed the Federal Depository Insurance Corporation
("FDIC") insurance coverage, and, as a result, there is a concentration of credit risk related to amounts on deposit
in excess of FDIC insurance coverage. The Company believes that the risk is not significant, as the Company does not anticipate
the financial institutions’ non-performance. As of December 31, 2015 and 2014, the Company did not have any cash equivalents.
Rents and Other Receivables
Rents and other receivables represent
the amount of rent receivables, security deposits and net rental funds which are held by the property managers on behalf of the
Company, net of any allowance for amounts deemed uncollectible. The Company has not recognized any allowance for doubtful accounts
as of December 31, 2015 and 2014.
Property Tax and Insurance Reserves
Property tax and insurance reserves
represented amounts held in accordance with the terms of the Company’s notes payable for property taxes and insurance. During
the first quarter of 2015, the lender waived this requirement and the amounts previously held in escrow have been released to the
Company.
Escrow Deposits
Escrow deposits include refundable and
non-refundable cash and earnest money on deposit with third parties for future property purchases. As of December 31, 2015, the
Company had offers accepted to purchase residential properties for an aggregate amount of $14,486,000 and had corresponding refundable
earnest deposits for these purchases of $143,901. However, not all of these properties are certain to be acquired because properties
may fall out of escrow through the closing process for various reasons and these purchases are contingent on the Company’s
ability to secure the debt or equity financing required to fund the acquisition.
Deferred Loan Fees
Costs incurred in the placement of the
Company’s debt are deferred and amortized using the effective interest method over the term of the loans as a component of
interest expense on the consolidated statements of operations. Deferred loan costs and fees totaled $606,648 and accumulated amortization
totaled $125,692 as of December 31, 2015. Deferred loan closing costs and fees totaled $362,596 and accumulated amortization totaled
$29,052 as of December 31, 2014. Amortization expense for these loan fees was $96,640 and $29,052 for the years ended December
31, 2015 and 2014, respectively.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2. BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (continued)
Deferred Stock Issuance Costs
Deferred stock issuance costs represent
amounts paid for legal, consulting, and other offering expenses in conjunction with the future raising of additional capital to
be completed within one year. These costs are netted against additional paid-in capital as a cost of the stock issuance upon closing
of the respective stock placement. During the year ended December 31, 2014, $227,729 of deferred stock issuance costs were netted
against additional paid-in capital as a cost of stock issued.
Security Deposits
Security deposits represent amounts
deposited by tenants at the inception of the lease. As of December 31, 2015 and 2014, the Company had $435,267 and $306,004, respectively,
in resident security deposits. Security deposits are refundable, net of any outstanding charges and fees, upon expiration of the
underlying lease.
Revenue Recognition
Property is leased under short term
rental agreements of generally one year and revenue is recognized over the lease term on a straight-line basis.
Income Taxes
The
tax
benefit
of
uncertain
tax
positions
is
recognized
only
if
it
is
“more
likely
than
not”
that
the
tax
position
will
be
sustained,
based
solely
on
its technical
merits,
with
the
taxing
authority
having
full
knowledge
of
relevant
information. The
measurement
of
a
tax
benefit
for
an
uncertain
tax
position
that meets
the
“more
likely
than
not”
threshold
is
based
on
a
cumulative
probability
model
under
which
the
largest
amount
of
tax
benefit
recognized
is
the
amount with
a
greater
than 50%
likelihood of being
realized upon ultimate settlement with
the taxing authority, having
full knowledge of all the relevant information. As of December 31, 2015 and 2014, the Company had no unrecognized tax benefits.
The Company
intends
to
elect
to
be
taxed
as
a
real estate investment trust (“
REIT”)
,
as defined in
the
Internal
Revenue
Code,
commencing with
the
taxable
year
ended
December
31,
2015. However, the Company has not completed its evaluation of all requirements necessary to qualify as a REIT. Management
believes
that
the Company
will
be able
to
satisfy
these
requirements for
qualification
as
a
REIT. Accordingly, the Company does
not expect to
be
subject
to
federal
income
tax,
provided
that
it
qualifies
as
a
REIT
and
distributions to
the
stockholders
equal
or
exceed REIT
taxable
income.
Qualification and
taxation
as
a
REIT
depends
upon
the Company’s
ability
to
meet
the
various
qualification tests
imposed
under
the
Internal Revenue
Code
related
to
the percentage
of
income
that
are earned from specified
sources, the percentage
of assets that
fall
within specified categories,
the diversity of capital stock ownership, and the percentage
of earnings that are distributed.
Accordingly, no
assurance
can be
given that the
Company will
be
organized
or be
able to
operate in
a manner
so
as
to
qualify
or
remain
qualified
as
a
REIT.
If
the Company
fails
to
qualify
as
a
REIT
in
any
taxable
year,
it
will
be
subject
to
federal
and
state
income
tax (including any
applicable alternative minimum tax)
on
its
taxable
income
at
regular
corporate tax
rates,
and
the Company
may
be
ineligible to
qualify
as
a
REIT
for
four subsequent tax
years.
Even
if the Company
qualifies
as
a REIT,
it
may
be
subject
to certain
state
or
local
income
taxes.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 2. BASIS OF PRESENTATION AND
SIGNIFICANT ACCOUNTING POLICIES (continued)
Incentive Compensation Plan
During 2012, the Company established
the 2012 Incentive Compensation Plan, which was subsequently amended and restated in December 2013 (“2012 Plan”). The
2012 Plan allows for the grant of options and other awards representing up to 1,650,000 shares of the Company’s common stock.
Such awards may be granted to officers, directors, employees, consultants and other persons who provide services to the Company
or any related entity. Under the 2012 Plan, options may be granted at an exercise price greater than or equal to the market value
at the date of the grant, for owners of 10% or more of the voting shares, at an exercise price of not less than 110% of the market
value. Awards are exercisable over a period of time as determined by a committee designated by the Board of Directors, but in no
event longer than ten years.
On April 4, 2014, the Board of Directors
authorized the issuance of, and the Company issued, an aggregate of 48,750 shares of the Company’s common stock under the
2012 Plan to the members of the Board of Directors as compensation for their services.
On October 16, 2014, the Board of Directors
authorized the issuance of, and the Company issued, an aggregate of 425,000 shares of the Company’s common stock under the
2012 Plan to certain officers and consultants of the Company. The shares issued are subject to restrictions and future vesting
conditions based on the Company reaching certain future milestones. None of the shares were vested as of the issuance date.
Net Loss Per Share
Net loss per share is computed by dividing
the net loss by the weighted average number of shares of common stock outstanding. Warrants, stock options, and common stock issuable
upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive
and would increase the earnings or decrease loss per share. For the years ended December 31, 2015 and 2014, potentially dilutive
securities excluded from the calculations were 263,588 shares issuable upon exercise of outstanding warrants granted in prior years.
On November 5, 2014, the Company effected
a 1-for-20 reverse stock split of the issued common stock. Each stockholder’s percentage ownership and proportional voting
power generally remained unchanged as a result of the reverse stock split. All applicable share data, per share amounts and related
information in the consolidated financial statements and notes thereto have been adjusted to give effect to the 1-for-20 reverse
stock split.
Segment Reporting
The Company has determined that it has
one reportable segment with activities related to leasing and operating single-family homes as rental properties. The Company's
properties are geographically dispersed and management evaluates operating performance at the market level and while each market
and its properties are unique, the aggregate market portfolios have similar economic interests and operating performance. As of
December 31, 2015, approximately 48% of the Company’s properties were located in Jacksonville, Florida, approximately
32% of the Company’s properties were located in Houston, Texas, and approximately 18% of the Company’s properties were
located in Memphis, Tennessee.
New Accounting Pronouncements
The Company is currently evaluating
all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective,
is not anticipated to have a material effect on the financial position or results of operations of the Company.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3. INVESTMENTS IN REAL ESTATE
The Company’s investment in real
estate consists of single family homes purchased by the Company. The homes are generally leased to individual tenants under leases
with terms of one year or less.
The following table summarizes the Company’s investments
in real estate:
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
Investments
|
|
|
|
Number
|
|
|
|
|
|
Buildings and
|
|
|
Investments
|
|
|
Accumulated
|
|
|
in Real Estate
|
|
|
|
of Homes
|
|
|
Land
|
|
|
Improvements
|
|
|
in Real Estate
|
|
|
Depreciation
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at January 1, 2014
|
|
|
159
|
|
|
$
|
2,514,009
|
|
|
$
|
9,685,361
|
|
|
$
|
12,199,370
|
|
|
$
|
(73,950
|
)
|
|
$
|
12,125,420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and improvements during 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
18
|
|
|
|
319,500
|
|
|
|
1,236,765
|
|
|
|
1,556,265
|
|
|
|
(375,533
|
)
|
|
|
1,180,732
|
|
Jacksonville, FL
|
|
|
123
|
|
|
|
1,506,938
|
|
|
|
6,865,952
|
|
|
|
8,372,890
|
|
|
|
(50,239
|
)
|
|
|
8,322,651
|
|
Memphis, TN
|
|
|
95
|
|
|
|
1,082,200
|
|
|
|
6,160,183
|
|
|
|
7,242,383
|
|
|
|
(74,474
|
)
|
|
|
7,167,909
|
|
Atlanta, GA improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
13,347
|
|
|
|
13,347
|
|
|
|
(17,918
|
)
|
|
|
(4,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2014
|
|
|
395
|
|
|
$
|
5,422,647
|
|
|
$
|
23,961,608
|
|
|
$
|
29,384,255
|
|
|
$
|
(592,114
|
)
|
|
$
|
28,792,141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases and improvements during 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
-
|
|
|
|
-
|
|
|
|
34,938
|
|
|
|
34,938
|
|
|
|
(380,630
|
)
|
|
|
(345,692
|
)
|
Jacksonville, FL
|
|
|
133
|
|
|
|
1,345,453
|
|
|
|
7,723,661
|
|
|
|
9,069,114
|
|
|
|
(415,172
|
)
|
|
|
8,653,942
|
|
Memphis, TN
|
|
|
-
|
|
|
|
-
|
|
|
|
60,550
|
|
|
|
60,550
|
|
|
|
(226,188
|
)
|
|
|
(165,638
|
)
|
Memphis, TN (disposition)
|
|
|
(1
|
)
|
|
|
(6,750
|
)
|
|
|
(38,250
|
)
|
|
|
(45,000
|
)
|
|
|
1,507
|
|
|
|
(43,493
|
)
|
Atlanta, GA improvements
|
|
|
-
|
|
|
|
-
|
|
|
|
2,150
|
|
|
|
2,150
|
|
|
|
(18,276
|
)
|
|
|
(16,126
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total at December 31, 2015
|
|
|
527
|
|
|
$
|
6,761,350
|
|
|
$
|
31,744,657
|
|
|
$
|
38,506,007
|
|
|
$
|
(1,630,873
|
)
|
|
$
|
36,875,134
|
|
For the year ended December 31, 2015, the Company included
$698,976 of rental income, $366,809 of property operating, maintenance and real estate taxes, $375,780 of acquisition costs, $118,180
of depreciation, and net loss of $161,793 in its consolidated statements of operations related to the Company’s acquisitions
of additional properties during 2015.
For the year ended December 31, 2014, the Company included
$830,148 of rental income, $325,736 of property operating, maintenance and real estate taxes, $454,554 of acquisition costs, $178,521
of depreciation, and net loss of $128,663 in its consolidated statements of operations related to the Company’s acquisitions
of additional properties during 2014.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 3. INVESTMENTS IN REAL ESTATE
(continued)
Unaudited Pro Forma Financial Information
The following table summarizes, on an
unaudited pro forma basis, the combined results of operations of the Company for the years ended December 31, 2015 and 2014 prepared
as if all of the Company’s acquisitions of properties in 2015 and 2014 occurred on January 1, 2014. This pro forma
information does not purport to represent what the actual results of operations of the Company would have been had these acquisitions
occurred on this date, nor does it purport to predict the results of operations for future periods.
|
|
For the Year Ended December 31
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Rental income
|
|
$
|
5,505,588
|
|
|
$
|
4,973,401
|
|
Property operating, maintenance and real estate taxes
|
|
$
|
2,581,141
|
|
|
$
|
2,309,751
|
|
Depreciation and amortization
|
|
$
|
1,275,312
|
|
|
$
|
1,295,232
|
|
Net loss
|
|
$
|
(1,491,237
|
)
|
|
$
|
(2,538,505
|
)
|
Net loss per share, basic and fully diluted
|
|
$
|
(0.21
|
)
|
|
$
|
(0.43
|
)
|
Weighted average number of common shares outstanding, basic and fully diluted
|
|
|
7,016,796
|
|
|
|
5,946,159
|
|
The unaudited pro forma information
for the years ended December 31, 2015 and 2014 has been adjusted to include all acquisition fees and expenses related to the acquisitions
as being recorded on January 1, 2014 and additionally to include the additional interest expense relating to the Company’s
2015 and 2014 borrowings.
NOTE 4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 2015 and 2014, accounts
payable and accrued liabilities consisted of the following:
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
321,815
|
|
|
$
|
12,673
|
|
Property taxes payable
|
|
|
415,124
|
|
|
|
292,290
|
|
Accrued legal, board fees and other expenses
|
|
|
343,750
|
|
|
|
372,389
|
|
Interest payable
|
|
|
62,749
|
|
|
|
40,810
|
|
|
|
$
|
1,143,438
|
|
|
$
|
718,162
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 5. NOTES PAYABLE
On June 12, 2014, Reven Housing Texas,
LLC, a wholly owned subsidiary of the Company, received loan proceeds and issued a promissory note in the principal amount of up
to $7,570,000 to Silvergate Bank, secured by deeds of trust encumbering the Company’s homes located in Texas. The entire
balance of principal and accrued interest is due and payable on July 5, 2019. The note provides for monthly interest - only payments
at a rate of 1.00% over the prime rate (interest rate is 4.50% per annum at December 31, 2015) until July 5, 2016. Thereafter,
monthly payments of interest (1.00% over the prime rate) and principal, based on a 25 year amortization rate, will be made until
maturity. The note has a prepayment penalty of 3% calculated on principal amounts prepaid prior to July 5, 2016. There is no prepayment
penalty on amounts paid after such date.
On November 17, 2014, Reven Housing
Tennessee, LLC, a wholly owned subsidiary of the Company, received loan proceeds and issued a promissory note in the principal
amount of $3,952,140 to Silvergate Bank, secured by deeds of trust encumbering primarily all of the Company’s homes located
in Tennessee. The entire balance of principal and accrued interest is due and payable on December 5, 2019. The note provides for
monthly interest - only payments at a rate of 1.00% over the prime rate (interest rate is 4.50% per annum at December 31, 2015)
until December 5, 2016. Thereafter, monthly payments of interest (1.00% over the prime rate) and principal, based on a 25 year
amortization rate, will be made until maturity. The note has a prepayment penalty of 3% calculated on principal amounts prepaid
prior to December 5, 2016. There is no prepayment penalty on amounts paid after such date. The Company paid $34,610 of principal
on this note in 2015 upon the disposition of one of the homes.
On March 13, 2015, Reven Housing Florida,
LLC, a wholly owned subsidiary of the Company, received loan proceeds and issued a promissory note in the principal amount of $3,526,985
to Silvergate Bank, secured by deeds of trust encumbering 125 of the Company’s homes located in Florida. The entire balance
of principal and accrued interest is due and payable on April 5, 2020. The note provides for monthly interest only payments at
a rate of 1.00% over the prime rate (interest rate is 4.50% per annum at December 31, 2015) until April 5, 2017. Thereafter, monthly
payments of interest (1.00% over the prime rate) and principal, based on a 25 year amortization rate, will be made until maturity.
The note has a prepayment penalty of 3% calculated on principal amounts prepaid prior to April 5, 2017. There is no prepayment
penalty on amounts paid after such date.
On October 14, 2015, Reven Housing Florida
2, LLC, a wholly owned subsidiary of the Company, received $4,452,382 of loan proceeds and issued a promissory note to Silvergate
Bank. On December 10, 2015 an additional $423,513 of proceeds was received by the Company resulting in a total outstanding principal
amount of $4,875,895 for this note at December 31, 2015. The loan is secured by deeds of trust encumbering 131 of the Company’s
homes located in Florida. The entire balance of principal and accrued interest is due and payable on November 5, 2020. The note
provides for monthly interest only payments at a rate of 1.00% over the prime rate (current interest rate is 4.50% per annum at
December 31, 2015) until November 5, 2017. Thereafter, monthly payments of interest and principal, based on a 25 year amortization
rate, will be made until maturity. The note has a prepayment penalty of 3% calculated on principal amounts prepaid prior to November
5, 2017. There is no prepayment penalty on amounts paid after that date.
The terms of the notes also provide
for lender reserve accounts for taxes and insurance reserves. As of December 31, 2014, a total of $260,123 was held in these lender
escrow accounts. During the first quarter of 2015, the lender waived this requirement and the amounts previously held in escrow
have been released to the Company.
During the years ended December 31,
2015 and 2014, the Company incurred $744,000 and $194,363, respectively, of interest expense related to the notes payable, which
includes $96,640 and $29,052, respectively, of amortization of deferred loan fees.
A summary of the Company’s notes
payable as of December 31, 2015 and 2014 is as follows:
|
|
2015
|
|
|
2014
|
|
Note
|
|
|
|
|
|
|
|
|
Reven Housing Texas, LLC
|
|
$
|
7,570,000
|
|
|
$
|
7,570,000
|
|
Reven Housing Tennessee, LLC
|
|
|
3,917,530
|
|
|
|
3,952,140
|
|
Reven Housing Florida, LLC
|
|
|
3,526,985
|
|
|
|
-
|
|
Reven Housing Florida 2, LLC
|
|
|
4,875,895
|
|
|
|
-
|
|
|
|
$
|
19,890,410
|
|
|
$
|
11,522,140
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 5. NOTES PAYABLE (continued)
A schedule of future minimum principal
payments under the terms of the loans for the following years is as follows:
2016
|
|
|
68,960
|
|
2017
|
|
|
318,168
|
|
2018
|
|
|
458,419
|
|
2019
|
|
|
11,089,038
|
|
2020
|
|
|
7,955,825
|
|
|
|
$
|
19,890,410
|
|
NOTE 6. STOCKHOLDERS’ EQUITY
On April 4, 2014, the Company issued
675,000 shares of its common stock for a purchase price of $4.00 per share for gross proceeds of $2,700,000 in a private placement.
On May 16, 2014, the Company completed the final tranche of this follow-on private placement with the same accredited investor
upon the receipt of additional gross proceeds of $5,900,000 and issued an additional 1,475,000 shares of its common stock for a
purchase price of $4.00 per share. Offering costs related to this follow-on private placement totaled $227,729 resulting in combined
net proceeds of $8,372,271.
On November 5, 2014, the Company effected
a 1-for-20 reverse stock split of issued common stock. In conjunction with the reverse stock split, the Board of Directors approved
a change in the number of authorized common shares from 600,000,000 to 100,000,000, which change was effected immediately after
the effectiveness of the reverse stock split. Additionally, the par value of the shares was modified from $.02 to $.001 per share
so that the par value per share of the common stock before the reverse stock split and after the reverse stock split remained at
$.001 per share. References in these consolidated financial statements and notes thereto have been adjusted to retroactively account
for the effects of the reverse split.
The Company has outstanding warrants
that allow holders to purchase up to 263,588 shares at an exercise price of $4.00 per share. The warrants will expire on
September 27, 2018, if not exercised prior to that date.
NOTE 7. STOCK COMPENSATION
On April 4, 2014, the Board of Directors
authorized the issuance of, and the Company issued, an aggregate of 48,750 shares of the Company’s common stock under the
2012 Plan to the members of the Board of Directors as compensation for their past services. These shares were issued to compensate
the members for past services and valued at $4.00 per share, based on the grant date fair value, for a total expense of $195,000
which has been included in the Company’s Consolidated Statement of Operations for the year ended December 31, 2014. Due to
the Company’s low trading volume, the grant date fair value was determined based on similar issuances of stock in the Company’s
private placements.
On October 16, 2014, the Board of Directors
authorized the issuance of, and the Company issued, an aggregate of 425,000 shares of the Company’s common stock under the
2012 Plan to certain officers and consultants of the Company. The shares issued are subject to restrictions and future vesting
conditions based on the Company reaching certain future milestones. None of the shares were vested as of the issuance date. Compensation
expense will be recognized in the applicable future periods should the applicable milestones be achieved in accordance with the
vesting schedule. As of December 31, 2015 there is no assurance that these milestones will in fact be achieved and that the shares
will in fact vest in the future.
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 8. INCOME TAXES
Realization of deferred tax assets is
dependent upon sufficient future taxable income during the period that deductible temporary differences and expected carry-forwards
are available to reduce taxable income. The Company records a valuation allowance when, in the opinion of management, it is more
likely than not, that the Company will not realize some or all deferred tax assets. As the achievement of required future taxable
income is uncertain, the Company recorded a valuation allowance equal to the deferred tax asset at December 31, 2015 and 2014.
At December 31, 2015 and December 31, 2014, the Company had federal and state net operating loss carry-forwards of approximately
$2,900,000 and $1,511,000 respectively. The federal and state tax loss carry-forwards will begin to expire in 2032, unless previously
utilized.
Pursuant to Internal Revenue Code Section
382, use of the Company’s net operating loss carry-forwards may be limited if a cumulative change in ownership of more than
50% occurs within a three year period. Management believes that such an ownership change had occurred but has not performed a study
of the limitations on the net operating losses.
The Company plans to elect REIT status
effective for the year ended December 31, 2015, should it meet all requirements allowing it to do so. The Company would then generally
not be subject to income taxes assuming it complied with the specific distribution rules applicable to REITs. The Company is currently
in the process of evaluating whether it will meet the REIT requirements for 2015. The Company has also incurred current and prior
year net operating losses, thus is not expecting to incur current income tax expenses, and due to its expectations of electing
REIT status commencing in 2015, is not expected to realize any future tax benefits from the current years, or prior years’
operating losses.
Significant components of the Company’s
deferred tax assets are as follows:
|
|
2015
|
|
|
2014
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Start-up and acquisition costs
|
|
$
|
500,000
|
|
|
$
|
400,000
|
|
Net operating losses
|
|
|
1,276,000
|
|
|
|
640,000
|
|
|
|
|
1,776,000
|
|
|
|
1,040,000
|
|
Valuation allowance
|
|
|
(1,776,000
|
)
|
|
|
(1,040,000
|
)
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
Expected income tax (benefit) by applying
the statutory income tax rate to net loss differs from the actual tax provision as follows:
|
|
2014
|
|
|
2014
|
|
Tax computed at the federal statutory rate
|
|
$
|
(630,000
|
)
|
|
$
|
(450,000
|
)
|
State taxes
|
|
|
(160,000
|
)
|
|
|
(80,000
|
)
|
Valuation allowance
|
|
|
790,000
|
|
|
|
530,000
|
|
Total provision
|
|
$
|
-
|
|
|
$
|
-
|
|
REVEN HOUSING REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2015 and 2014
NOTE 9. RELATED PARTY TRANSACTIONS
The Company sub-leased office space
on a month-to-month basis from Reven Capital, LLC which is wholly-owned by Chad M. Carpenter, a shareholder of the Company and
its Chief Executive Officer, through January 31, 2016. Rental payments totaled $36,000 and $34,555 for the years ended December
31, 2015 and 2014, respectively.
NOTE 10. RENTAL INCOME
The Company generally rents single family
homes to individuals under non-cancelable lease agreements with a term of one year. Future minimum rental revenues under existing
leases on properties as of December 31, 2015 are expected to be as follows:
2016
|
|
|
1,928,499
|
|
2017
|
|
|
707,196
|
|
|
|
$
|
2,635,695
|
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
Legal and Regulatory
The Company is subject to potential
liability under laws and government regulations and various claims and legal actions arising in the ordinary course of the Company’s
business. Liabilities are established for legal claims when payments associated with the claims become probable and the costs can
be reasonably estimated. The actual costs of resolving legal claims may be substantially higher or lower than the amounts established
for those claims. Based on information currently available, management is not aware of any legal or regulatory claims that would
have a material effect on the Company’s consolidated financial statements and, therefore, no accrual has been recorded as
of the years ended December 31, 2015 and 2014.
Operating Lease
On December 21, 2015, the Company entered
into a new office lease agreement. The lease term is 64 months and commences on February 1, 2016 when the Company will relocate
to the new space. In addition to monthly rent and utility payments, the Company will also pay its proportionate share of all common
area maintenance and taxes above certain 2016 base costs. The lease is subject to annual rent payment escalation clauses.
A schedule of future minimum lease payments
under the operating lease for the following years is as follows:
2016
|
|
|
57,600
|
|
2017
|
|
|
65,728
|
|
2018
|
|
|
81,279
|
|
2019
|
|
|
83,717
|
|
2020
|
|
|
86,229
|
|
2021
|
|
|
36,881
|
|
|
|
$
|
411,434
|
|