UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[Mark One]

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 000-36750

Monogram Residential Trust, Inc.

(Exact Name of Registrant as Specified in Its Charter)



Maryland		20-5383745
(State or other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

5800 Granite Parkway, Suite 1000, Plano, Texas 75024

(Address of Principal Executive Offices) (ZIP Code)

(469) 250-5500

(Registrant’s Telephone Number, Including Area Code)

NONE

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
(Do not check if a smaller reporting company)		Emerging growth company o

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of July 31, 2017, the Registrant had 167,026,690 shares of common stock outstanding.

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MONOGRAM RESIDENTIAL TRUST, INC.

Form 10-Q

Quarter Ended June 30, 2017



		Page
PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016	3

	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016	4

	Condensed Consolidated Statements of Equity for the six months ended June 30, 2017 and 2016	5

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2 .	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	53

Item 4.	Controls and Procedures	54

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	55

Item 1A.	Risk Factors	55

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57

Item 3.	Defaults Upon Senior Securities	57

Item 4.	Mine Safety Disclosures	57

Item 5.	Other Information	57

Item 6.	Exhibits	58

Signature		59

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Monogram Residential Trust, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)(Unaudited)



	June 30, 2017			December 31, 2016
Assets
Real estate
Land	$	544,617		$	527,944
Buildings and improvements	2,750,618			2,814,221
Gross operating real estate	3,295,235			3,342,165
Less accumulated depreciation	(460,038		)	(461,869		)
Net operating real estate	2,835,197			2,880,296
Construction in progress, including land	108,052			120,423
Total real estate, net	2,943,249			3,000,719

Assets associated with real estate held for sale	47,843			—
Cash and cash equivalents	56,274			74,396
Tax like-kind exchange escrows	148,313			56,762
Intangibles, net	16,034			16,977
Other assets, net	59,001			51,248
Total assets	$	3,270,714		$	3,200,102

Liabilities and equity

Liabilities
Mortgages and notes payable, net	$	1,131,901		$	1,522,207
Credit facilities payable, net	386,695			8,023
Construction costs payable	18,390			26,859
Accounts payable and other liabilities	30,922			32,707
Deferred revenues and other gains	21,999			22,077
Distributions payable	12,527			12,512
Tenant security deposits	6,268			6,205
Obligations associated with real estate held for sale	33,589			—
Total liabilities	1,642,291			1,630,590

Commitments and contingencies

Redeemable noncontrolling interests	23,516			29,073

Equity
Common stock, $0.0001 par value per share; 875,000,000 shares authorized, 167,031,843 and 166,832,722 shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively	17			17
Additional paid-in capital	1,440,303			1,439,199
Cumulative distributions and net income (loss)	(252,374		)	(310,124		)
Total equity attributable to common stockholders	1,187,946			1,129,092
Non-redeemable noncontrolling interests	416,961			411,347
Total equity	1,604,907			1,540,439
Total liabilities and equity	$	3,270,714		$	3,200,102

See Notes to Condensed Consolidated Financial Statements.

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Monogram Residential Trust, Inc.

Condensed Consolidated Statements of Operations

(in thousands, except per share amounts)

(Unaudited)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Rental revenues	$	71,835		$	68,551		$	145,173		$	134,098

Expenses
Property operating expenses	18,869			20,401			38,007			39,207
Real estate taxes	11,690			10,617			23,654			21,239
General and administrative expenses	4,686			7,353			11,556			13,863
Merger-related expenses	2,801			—			2,801			—
Acquisition, investment and development expenses	69			100			133			378
Interest expense	11,850			11,063			23,554			21,429
Amortization of deferred financing costs	1,327			1,554			2,876			3,090
Depreciation and amortization	31,662			30,998			63,521			61,054
Total expenses	82,954			82,086			166,102			160,260

Interest income	1,246			1,776			2,427			3,458
Loss on early extinguishment of debt	(940		)	—			(4,841		)	—
Other expense, net	(232		)	(168		)	(320		)	(283		)
Loss from continuing operations before gains on sales of real estate	(11,045		)	(11,927		)	(23,663		)	(22,987		)
Gains on sales of real estate	28,559			—			115,282			—

Net income (loss)	17,514			(11,927		)	91,619			(22,987		)

Net (income) loss attributable to non-redeemable noncontrolling interests	(10,683		)	2,710			(8,803		)	5,465
Net income (loss) available to the Company	6,831			(9,217		)	82,816			(17,522		)
Dividends to preferred stockholders	—			(1		)	—			(3		)
Net income (loss) attributable to common stockholders	$	6,831		$	(9,218	)	$	82,816		$	(17,525	)

Weighted average number of common shares outstanding - basic	167,135			166,800			167,068			166,772
Weighted average number of common shares outstanding - diluted	168,241			166,800			168,016			166,772

Basic and diluted earnings (loss) per common share	$	0.04		$	(0.06	)	$	0.49		$	(0.11	)

Distributions declared per common share	$	0.075		$	0.075		$	0.150		$	0.150

See Notes to Condensed Consolidated Financial Statements.

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Monogram Residential Trust, Inc.

Condensed Consolidated Statements of Equity

(in thousands)

(Unaudited)



														Cumulative Distributions and Net
	Preferred Stock				Common Stock			Additional						Income (Loss)
	Number		Par		Number	Par		Paid-in			Noncontrolling			available to			Total
	of Shares		Value		of Shares	Value		Capital			Interests			the Company			Equity
Balance at January 1, 2016	10		$	—	166,612	$	17	$	1,436,254		$	461,833		$	(269,523	)	$	1,628,581
Net loss	—		—		—	—		—			(5,465		)	(17,522		)	(22,987		)
Contributions by noncontrolling interests	—		—		—	—		—			2,967			—			2,967
Issuance of common and restricted shares, net	—		—		173	—		(341		)	—			—			(341		)
Amortization of stock-based compensation	—		—		—	—		1,771			—			—			1,771
Distributions:
Common stock - regular	—		—		—	—		—			—			(25,017		)	(25,017		)
Noncontrolling interests	—		—		—	—		—			(15,769		)	—			(15,769		)
Preferred stock	—		—		—	—		—			—			(3		)	(3		)
Balance at June 30, 2016	10		$	—	166,785	$	17	$	1,437,684		$	443,566		$	(312,065	)	$	1,569,202

Balance at January 1, 2017	10		$	—	166,833	$	17	$	1,439,199		$	411,347		$	(310,124	)	$	1,540,439
Net income	—		—		—	—		—			8,803			82,816			91,619
Acquisitions of noncontrolling interests	—		—		—	—		(674		)	(541		)	—			(1,215		)
Contributions by noncontrolling interests	—		—		—	—		—			12,652			—			12,652
Issuance of common and restricted shares, net	—		—		199	—		(602		)	—			—			(602		)
Cancellation of preferred stock	(10	)	—		—	—		—			—			—			—
Amortization of stock-based compensation	—		—		—	—		2,380			—			—			2,380
Distributions:
Common stock - regular	—		—		—	—		—			—			(25,050		)	(25,050		)
Other related to stock-based compensation	—		—		—	—		—			—			(16		)	(16		)
Noncontrolling interests	—		—		—	—		—			(15,300		)	—			(15,300		)
Balance at June 30, 2017	—		$	—	167,032	$	17	$	1,440,303		$	416,961		$	(252,374	)	$	1,604,907

See Notes to Condensed Consolidated Financial Statements.

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Monogram Residential Trust, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)



	For the Six Months Ended June 30,
	2017			2016
Cash flows from operating activities
Net income (loss)	$	91,619		$	(22,987	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gains on sales of real estate	(115,282		)	—
Loss on early extinguishment of debt	4,841			—
Depreciation	62,960			60,479
Amortization of deferred financing costs and debt premium/discount	2,376			2,089
Amortization of intangibles	516			551
Amortization of deferred revenues	(819		)	(728		)
Amortization of stock-based compensation	2,380			1,771
Other, net	(248		)	(96		)
Changes in operating assets and liabilities:
Accounts payable and other liabilities	300			728
Other assets	(4,553		)	1,291
Cash provided by operating activities	44,090			43,098

Cash flows from investing activities
Additions to real estate:
Acquisitions of real estate	(248,065		)	—
Additions to existing real estate	(5,039		)	(4,295		)
Construction in progress, including land	(47,155		)	(55,332		)
Proceeds from sales of real estate, net	349,379			—
Acquisitions of noncontrolling interests	(6,572		)	—
Advances on notes receivable	—			(17,203		)
Collection on notes receivable	—			14,989
Tax like-kind exchange escrow deposits	(219,184		)	624
Tax like-kind exchange escrow disbursements	127,633			—
Other escrow deposits	1,301			(567		)
Other, net	268			86
Cash used in investing activities	(47,434		)	(61,698		)

Cash flows from financing activities
Mortgage and notes payable proceeds	174,554			39,862
Mortgage and notes payable principal payments	(539,120		)	(6,601		)
Proceeds from credit facilities	440,000			26,000
Credit facilities payments	(61,909		)	(28,000		)
Contributions from noncontrolling interests	12,652			2,967
Distributions paid on common stock - regular	(25,051		)	(25,002		)
Distributions paid to noncontrolling interests	(15,300		)	(15,768		)
Other, net	(604		)	(341		)
Cash used in financing activities	(14,778		)	(6,883		)

Net change in cash and cash equivalents	(18,122		)	(25,483		)
Cash and cash equivalents at beginning of period	74,396			83,727
Cash and cash equivalents at end of period	$	56,274		$	58,244

See Notes to Condensed Consolidated Financial Statements.

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Monogram Residential Trust, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

1. Organization and Business

Monogram Residential Trust, Inc. (which, together with its subsidiaries as the context requires, may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006. Subsequent to June 30, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with newly formed affiliates of Greystar Real Estate Partners, LLC. Under the terms of the Merger Agreement, which was unanimously approved by the Company’s board of directors, the Company’s stockholders will receive $12.00 per share in cash. The Company expects to close the Merger (as defined below) in the second half of 2017. See Note 15, “Subsequent Events — Merger Agreement” for further information.

We are a fully integrated self-managed real estate investment trust (“REIT”) that invests in, develops and operates high quality multifamily communities offering location and lifestyle amenities. We invest in stabilized operating communities and communities in various phases of development, with a focus on communities in select markets across the United States. These primarily include luxury high-rise, mid-rise, and garden style multifamily communities. Our targeted communities include existing “core” communities, which we define as communities that are already stabilized and producing rental income, as well as communities in various phases of development, redevelopment, lease up or repositioning with the intent to transition those communities to core communities. Further, we may invest in other real estate-related securities, including mortgage, bridge, mezzanine or other loans, or in entities that make investments similar to the foregoing.

We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developers/owners which we define as “Co-Investment Ventures” or “CO-JVs.” These are predominately equity investments but may also include debt investments.

As of June 30, 2017, we have equity and debt investments in 48 multifamily communities, of which 41 are stabilized operating multifamily communities and seven are in various stages of lease up or construction. Of the 48 multifamily communities, we wholly own 11 multifamily communities and two debt investments for a total of 13 wholly owned investments. One of the wholly owned multifamily communities was held for sale as of June 30, 2017 and sold in July 2017. See Note 4, “Real Estate Investments.” The remaining 35 investments are held through Co-Investment Ventures, all of which are consolidated.

As of June 30, 2017, we are the managing member of each of the separate Co-Investment Ventures. Our two institutional Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund and its affiliates, a real estate investment vehicle for Dutch pension funds (“PGGM” or the “PGGM Co-Investment Partner”) and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). Our other Co-Investment Venture partners include national or regional real estate developers/owners (“Developer Partners”). When applicable, we refer to individual investments by referencing the individual Co-Investment Venture partner or the underlying multifamily community. We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” those with the MW Co-Investment Partner as “MW CO-JVs,” and those with Developer Partners as “Developer CO-JVs.” Certain PGGM CO-JVs that also include Developer Partners are referred to as PGGM CO-JVs. We are the 1% general partner of Monogram Residential Master Partnership I LP (the “Master Partnership” or the “PGGM Co-Investment Partner”) and PGGM is the 99% limited partner. We are generally a 55% owner with control of day-to-day management and operations, and the Master Partnership is generally a 45% owner in the property owning CO-JVs, all of which are consolidated.

The table below presents a summary of our Co-Investment Ventures as of June 30, 2017 and December 31, 2016. The effective ownership ranges are based on our participation in the distributable operating cash from our investment in the multifamily community. This effective ownership is indicative of, but may differ over time from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture. All are reported on the consolidated basis of accounting.

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	June 30, 2017		December 31, 2016
Co-Investment Structure	Number of Multifamily Communities	Our Effective Ownership	Number of Multifamily Communities	Our Effective Ownership
PGGM CO-JVs (a)	19	50% to 70%	21	50% to 70%
MW CO-JVs	14	55%	14	55%
Developer CO-JVs	2	100%	2	100%
Total	35		37

(a)

As of June 30, 2017 and December 31, 2016, the PGGM CO-JVs include Developer Partners in 15 and 18 multifamily communities, respectively. During the three months ended June 30, 2017, we sold two multifamily communities held by PGGM CO-JVs, both of which included Developer Partners. Additionally during the three months ended June 30, 2017, one of the Developer Partners exercised its put option. See further discussion in Note 9, “Noncontrolling Interests.”

We have elected to be taxed, and currently qualify, as a REIT for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes. To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates. As of June 30, 2017, we believe we are in compliance with all applicable REIT requirements.

2. Summary of Significant Accounting Policies

Interim Unaudited Financial Information

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016, which was filed with the Securities and Exchange Commission (“SEC”) on February 28, 2017. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted from this report.

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated balance sheet as of June 30, 2017 and condensed consolidated statements of operations, equity and cash flows for the periods ended June 30, 2017 and 2016 have not been audited by our independent registered public accounting firm. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments necessary to present fairly our consolidated financial position as of June 30, 2017 and December 31, 2016, and our consolidated results of operations and cash flows for the periods ended June 30, 2017 and 2016. Such adjustments are of a normal recurring nature.

Basis of Presentation

The accompanying condensed consolidated financial statements include the accounts of the Company, as well as all wholly owned subsidiaries and any consolidated variable interest entities (“VIEs”). All inter-company balances and transactions have been eliminated in consolidation.

Developments

We capitalize project costs related to the development and construction of real estate (including interest, real estate taxes, insurance, and other direct costs associated with the development) as a cost of the development. Indirect project costs not clearly related to development and construction are expensed as incurred. Indirect project costs that clearly relate to development and construction are capitalized and allocated to the developments to which they relate. For each development, capitalization begins when we determine that the development is probable and significant development activities are underway. We suspend capitalization at such time as significant development activity ceases, but future development is still probable. We cease capitalization when the developments or other improvements, including any portion thereof, are completed and ready for

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their intended use, or if the intended use changes such that capitalization is no longer appropriate. Developments or improvements are generally considered ready for intended use when the certificates of occupancy have been issued and the units become ready for occupancy.

Impairment of Real Estate Related Assets

If events or circumstances indicate that the carrying amount of the property may not be recoverable, we make an assessment of the property’s recoverability by comparing the carrying amount of the asset to our estimate of the aggregate undiscounted future operating cash flows expected to be generated over the holding period of the asset including its eventual disposition. If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property. In addition, we evaluate indefinite-lived intangible assets for possible impairment at least annually by comparing the fair values with the carrying values. The fair value of intangibles is generally estimated by valuation of similar assets.

We did not record any impairment loss for the six months ended June 30, 2017 and 2016, respectively.

Assets Held for Sale and Discontinued Operations

For sales of real estate or assets classified as held for sale, we evaluate whether the disposition will have a major effect on our operations and financial results and will therefore qualify as a strategic shift. If the disposition represents a strategic shift, it will be classified as discontinued operations in our consolidated statements of operations for all periods presented. If the disposition does not represent a strategic shift, it will be presented in continuing operations in our consolidated statements of operations.

We classify multifamily communities as held for sale when certain criteria are met, in accordance with GAAP. At that time, we present the assets and obligations associated with the real estate held for sale separately in our consolidated balance sheet, and we cease recording depreciation and amortization expense related to that multifamily community. Real estate held for sale is reported at the lower of its carrying amount or its estimated fair value less estimated costs to sell.

As of June 30, 2017, we had one multifamily community held for sale. See Note 4, “Real Estate Investments.” We had no assets held for sale as of December 31, 2016.

Cash and Cash Equivalents

We consider investments in bank deposits, money market funds and highly-liquid cash investments with original maturities of three months or less to be cash equivalents.

As of June 30, 2017 and December 31, 2016, cash and cash equivalents include $29.6 million and $28.8 million, respectively, held by the Master Partnership and individual Co-Investment Ventures that are available only for use in the business of the Master Partnership and the other individual Co-Investment Ventures. Cash held by the Master Partnership and individual Co-Investment Ventures is not restricted to specific uses within those entities. However, the terms of the joint venture agreements define the timing and magnitude of the distribution of those funds to us or limit our use of them for our general corporate purposes. Cash held by the Master Partnership and individual Co-Investment Ventures is distributed from time to time to the Company and to the other Co-Investment Venture partners in accordance with the applicable Co-Investment Venture governing agreement, which may not be the same as the stated effective ownership interest. Cash distributions received by the Company from the Master Partnership and individual Co-Investment Ventures are then available for our general corporate purposes.

Earnings per Share

Basic earnings per share is calculated by dividing net income attributable to common stockholders by the weighted average number of common shares outstanding during the period excluding any unvested restricted stock awards. Diluted earnings per share is calculated by adjusting basic earnings per share for the dilutive effect of the assumed exercise of securities, including the effect of shares issuable under our preferred stock and our stock-based incentive plans. Our unvested share-based awards are considered participating securities and are reflected in the calculation of diluted earnings per share. During periods of net loss, the assumed exercise of securities is anti-dilutive and is not included in the calculation of earnings per share. For the three and six months ended June 30, 2016, any common stock equivalents were anti-dilutive. For the three and six months ended June 30, 2017, the dilutive impact was less than $0.01.

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Reportable Segments

Our current business primarily consists of investing in and operating multifamily communities. Substantially all of our consolidated net income (loss) is from investments in real estate properties that we wholly own or own through Co-Investment Ventures, the latter of which may be accounted for under the equity method of accounting. Our management evaluates operating performance on an individual investment level. However, as each of our investments has similar economic characteristics in our consolidated financial statements, the Company is managed on an enterprise-wide basis with one reportable segment.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes to consolidated financial statements. These estimates include such items as: the purchase price allocations for real estate and other acquisitions; construction payables; impairment of long-lived assets; notes receivable; fair value evaluations; earning recognition of noncontrolling interests; depreciation and amortization; and share-based compensation measurements. Actual results could differ from those estimates.

3. New Accounting Pronouncements

In May 2014, the FASB issued updated guidance with respect to revenue recognition. The revised guidance outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes current revenue recognition guidance, including industry-specific revenue guidance. The revised guidance will replace most existing revenue and real estate sale recognition guidance in GAAP when it becomes effective. The standard specifically excludes lease contracts, which is our primary recurring revenue source; however, our accounting for the sale of real estate will be required to follow the revised guidance. The revised guidance allows for the use of either the full or modified retrospective transition method. Expanded quantitative and qualitative disclosures regarding revenue recognition will be required for contracts that are subject to this guidance. This guidance is effective for fiscal years and interim periods beginning after December 15, 2017. Early adoption is permitted for annual periods beginning after December 15, 2016. We have not yet selected a transition method and are currently evaluating each of our revenue streams for the effect that the adoption of the revised guidance will have on our consolidated financial statements and related disclosures. We do not expect the new guidance to have a significant effect on the recognition of our real estate sales; however, such final determination can only be made based on the specific terms of such sale. We plan to adopt the guidance effective January 1, 2018.

In February 2016, the FASB issued a new standard, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less, which are our primary lease term, will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This guidance is effective for fiscal years and interim periods beginning after December 31, 2018, and early adoption is permitted. This standard must be applied as of the beginning of the earliest comparative period presented in the year of adoption. We are currently evaluating our leases to determine the impact this standard may have on our consolidated financial statements and related disclosures. As a lessee, we have a limited number of lease agreements, mostly related to our office space and office equipment. As a lessor, our primary multifamily community leases are less than one year, and we expect that only our long-term leases, primarily retail leases, are in scope.

In August 2016, the FASB issued guidance, which addresses the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. In November 2016, the FASB issued additional guidance requiring that a statement of cash flows explains the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The guidance is effective for annual

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periods beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period using a retrospective transition method to each period presented. We are currently evaluating the full impact of the new standard.

For other new accounting standards issued by the FASB or other standards setting bodies, we believe the impact of other recently issued standards that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

4. Real Estate Investments

Acquisitions of Real Estate

In January 2017, we acquired Desmond at Wilshire, a 175-unit multifamily community located in Los Angeles, California, from an unaffiliated seller, for a gross contract purchase price of $105.0 million, excluding closing costs. The purchase was substantially funded from the proceeds of multifamily community sales and the tax like-kind exchange escrow. The Desmond at Wilshire was a recently completed development in lease up at the date of acquisition and as of June 30, 2017 is 54% occupied.

In April 2017, we acquired Latitude, a 265-unit multifamily community in Arlington, Virginia, from an unaffiliated seller, for a gross contract purchase price of $142.5 million, excluding closing costs. The purchase was funded from proceeds of the tax like-kind exchange escrow of approximately $70.9 million, related to the sale of a multifamily community in March 2017, and the remainder primarily funded from our credit facilities. Latitude was a recently completed development in lease up at the date of acquisition and as of June 30, 2017 is 35% occupied.

Real Estate Investments and Intangibles and Related Depreciation and Amortization

As of June 30, 2017 and December 31, 2016, major components of our real estate investments and intangibles and related accumulated depreciation and amortization were as follows (in millions):



	June 30, 2017									December 31, 2016
	Buildings			Intangibles						Buildings			Intangibles
	and			In-Place			Other			and			In-Place			Other
	Improvements			Leases			Contractual			Improvements			Leases			Contractual
Cost	$	2,750.6		$	29.6		$	18.9		$	2,814.2		$	34.1		$	18.9
Less: accumulated depreciation and amortization	(460.0		)	(28.2		)	(4.3		)	(461.9		)	(32.1		)	(3.9		)
Net	$	2,290.6		$	1.4		$	14.6		$	2,352.3		$	2.0		$	15.0

Depreciation expense for the three months ended June 30, 2017 and 2016 was approximately $31.3 million and $30.6 million, respectively. Depreciation expense for the six months ended June 30, 2017 and 2016 was approximately $62.7 million and $60.2 million, respectively.

Cost of intangibles relates to the value of in-place leases and other contractual intangibles. Cost of other contractual intangibles as of both June 30, 2017 and December 31, 2016, includes $2.6 million of intangibles, primarily asset management and related fee revenue services. Cost of other contractual intangibles as of both June 30, 2017 and December 31, 2016, also includes $6.8 million related to the use rights of a parking garage and site improvements and $9.5 million of indefinite-lived contractual rights related to land air rights.

Amortization expense associated with our lease and other contractual intangibles for both the three months ended June 30, 2017 and 2016 was approximately $0.3 million. Amortization expense associated with our lease and other contractual intangibles for the six months ended June 30, 2017 and 2016 was approximately $0.5 million and $0.6 million, respectively.

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Anticipated amortization associated with lease and other contractual intangibles for each of the following five years is as follows (in millions):



	Anticipated Amortization
Year	of Intangibles
July through December 2017	$	0.5
2018	0.4
2019	0.4
2020	0.4
2021	0.4

Sales of Real Estate Reported in Continuing Operations

The following table presents our sales of real estate for the six months ended June 30, 2017 (in millions):



Date of Sale	Multifamily Community	Sales Contract Price		Net Cash Proceeds		Gains on Sales of Real Estate
For the Six Months Ended June 30, 2017
June 2017	Allusion West University - Houston, TX (a)	$	49.0	$	48.1	$	12.4
June 2017	Muse Museum District - Houston, TX (a)	60.0		58.8		16.1
March 2017	The District Universal Boulevard - Orlando, FL (a)	78.5		77.0		27.1
March 2017	Skye 2905 - Denver, CO	126.0		124.2		43.7
February 2017	Grand Reserve - Dallas, TX	42.0		41.3		16.0
	Total	$	355.5	$	349.4	$	115.3


(a)	The cash proceeds from the sale, net of related mortgage debt as applicable, are reflected in “Tax like-kind exchange escrow” on the consolidated balance sheet as of June 30, 2017. The proceeds are being held in escrow in connection with a tax like-kind exchange for replacement properties. See Note 15, “Subsequent Events” for acquisitions closing subsequent to June 30, 2017.

The following table presents net income for the periods presented below related to the multifamily communities sold during the three and six months ended June 30, 2017, including gains on sales of real estate (in millions)



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
Net income from multifamily communities sold	$	27.8		$	0.2		$	111.9		$	1.2
Less: net income attributable to noncontrolling interest	(12.5		)	(0.1		)	(12.5		)	(0.2		)
Net income attributable to common stockholders	$	15.3		$	0.1		$	99.4		$	1.0

There were no sales of multifamily communities for the six months ended June 30, 2016.

Real Estate Held for Sale

As of June 30, 2017, we had a 430-unit multifamily community, Veritas, located in Henderson, Nevada, which was classified as real estate held for sale. The multifamily community was sold in July 2017 for a gross sales price of $76.5 million. We had no real estate held for sale as of December 31, 2016. The major classes of assets and obligations associated with real estate held for sale are as follows (in millions):

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	June 30, 2017
Land	$	4.9
Buildings and improvements, net of approximately $13.6 million in accumulated depreciation	42.8
Other assets, net	0.1
Assets associated with real estate held for sale	$	47.8

Mortgages and notes payable, net	$	33.3
Accounts payable and other liabilities	0.3
Obligations associated with real estate held for sale	$	33.6

5. Variable Interest Entities

All of our CO-JVs, including the Master Partnership, are VIEs, and we are the primary beneficiary of each CO-JV. All of these VIEs were created for the purpose of operating and developing multifamily communities. Each of the VIEs are businesses, and assets of each VIE are available for purposes other than the settlement of the VIE’s obligations.

The following table presents the significant balances related to our VIEs as of June 30, 2017 and December 31, 2016 (in millions):



	June 30, 2017			December 31, 2016
Total assets	$	2,354.2		$	2,335.1
Net operating real estate	2,079.6			2,154.6
Construction in progress	108.1			120.8

Mortgages and notes payable outstanding (a)	$	991.3		$	1,237.9
Unsecured credit facility	270.2			—
Plus: unamortized adjustments from business combinations	(0.1		)	0.1
Less: deferred financing costs, net	(8.3		)	(7.9		)
Total mortgages and notes payable, net	$	1,253.1		$	1,230.1


(a)	Except as noted below, the lenders on the outstanding mortgages and notes payable have no recourse to us.

Of the $991.3 million of mortgages and notes payable outstanding as of June 30, 2017, $748.3 million represents fully funded, non recourse mortgages and the remaining $243.0 million relates to amounts outstanding for construction financing with total commitments of $328.8 million. We have provided partial payment guarantees ranging from 5% to 25% on $190.5 million of the $243.0 million outstanding as of June 30, 2017. The outstanding amount of these guarantees is $39.1 million as of June 30, 2017. Each guarantee may terminate or be reduced upon completion of the development or if the development achieves certain operating results. The construction loans are secured by a first mortgage in each multifamily community. See Note 7, “Mortgages and Notes Payable” and Note 8, “Credit Facilities Payable” for further information on our VIE debt.

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6. Other Assets

The components of other assets as of June 30, 2017 and December 31, 2016 are as follows (in millions):



	June 30, 2017		December 31, 2016
Notes receivable, net (a)	$	26.9	$	26.7
Resident, tenant and other receivables	9.4		5.2
Escrows and restricted cash	5.4		13.7
Prepaid assets, deposits and other assets	17.3		5.6
Total other assets, net	$	59.0	$	51.2


(a)	Notes receivable include mezzanine loans, primarily related to multifamily development projects. As of June 30, 2017, the weighted average interest rate is 15.0% and the weighted average remaining years to scheduled maturity is 1.0 years. The borrowers generally have options to prepay prior to maturity or to extend the maturity for one to two years.

7. Mortgages and Notes Payable

The following table summarizes the carrying amounts of the mortgages and notes payable classified by whether the obligation is ours or that of the applicable consolidated Co-Investment Venture as of June 30, 2017 and December 31, 2016 (dollar amounts in millions and monthly LIBOR at June 30, 2017 is 1.22%):



							As of June 30, 2017
	June 30,			December 31,			Weighted Average	Maturity
	2017			2016			Interest Rates	Dates
Company level (a)
Fixed rate mortgages payable	$	180.2		$	292.6		3.71%	2018 to 2021

Co-Investment Venture level - consolidated (b)
Fixed rate mortgages payable	712.6			636.6			3.33%	2017 to 2027
Variable rate mortgage payable	35.7			35.5			Monthly LIBOR + 1.81%	2017 to 2018
Fixed rate construction loans payable:
Operating (c)	52.5			—			4.00%	2018
In construction	—			50.9			N/A	N/A
Variable rate construction loans payable (d):
Operating	190.5			498.5			Monthly LIBOR + 2.10%	2018 to 2019
In construction	—			16.4			Monthly LIBOR + 2.65%	2020
Total Co-Investment Venture level - consolidated	991.3			1,237.9
Total Company and Co-Investment Venture level	1,171.5			1,530.5
Less: mortgage payable, net on multifamily community held for sale as of June 30, 2017 (e)	(33.3		)	—
Less: unamortized adjustments from business combinations	(0.1		)	1.0
Less: deferred financing costs, net	(6.2		)	(9.3		)
Total consolidated mortgages and notes payable, net	$	1,131.9		$	1,522.2


(a)	Company level debt is defined as debt that is a direct obligation of the Company or one of the Company’s wholly owned subsidiaries.


(b)	Co-Investment Venture level debt is defined as debt that is an obligation of the Co-Investment Venture and not an obligation or contingency for us.

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(c)	As of June 30, 2017, includes one loan with a total commitment of $53.5 million. The construction loan includes a two year extension option. As of June 30, 2017, there is $1.0 million remaining to draw under the construction loan. We may elect not to fully draw down any unfunded commitment.

(d)

As of June 30, 2017, includes five loans with total commitments of $275.3 million. As of June 30, 2017, the Company has partially guaranteed four of these loans with total commitments of $195.3 million, of which $39.1 million is recourse to the Company. Our percentage guarantee on each of these loans ranges from 5% to 25%. These loans include one to two year extension options. As of June 30, 2017, there is $84.8 million remaining to draw under the construction loans. We may elect not to fully draw down any unfunded commitment.


(e)	The debt is included in the line item “Obligations associated with real estate held for sale” on the consolidated balance sheet as of June 30, 2017.

In connection with our sales of real estate during the six months ended June 30, 2017, we retired $110.1 million of mortgages and notes payable prior to their maturity date, incurring $3.0 million of loss on early extinguishment of debt. We included payments related to early extinguishment of debt in cash flows from financing activities in the condensed consolidated statement of cash flows.

As of June 30, 2017, $2.0 billion of the net consolidated carrying value of real estate collateralized the mortgages and notes payable. We believe we are in compliance with all financial covenants as of June 30, 2017.

As of June 30, 2017, contractual principal payments for our mortgages and notes payable (excluding any extension options) for the five subsequent years and thereafter are as follows (in millions):



			Co-Investment		Total
Year	Company Level		Venture Level		Consolidated
July through December 2017	$	1.9	$	91.7	$	93.6
2018	63.9		236.8		300.7
2019	60.4		164.3		224.7
2020	1.2		172.9		174.1
2021	52.8		108.5		161.3
Thereafter	—		217.1		217.1
Total	$	180.2	$	991.3	1,171.5
Less: mortgage payable, net on multifamily community held for sale as of June 30, 2017					(33.3		)
Add: unamortized adjustments from business combinations					(0.1		)
Less: deferred financing costs, net					(6.2		)
Total mortgages and notes payable, net					$	1,131.9

We believe these mortgages and notes payable can be refinanced or retired from available capital resources at or prior to their maturity dates, which may include extension options.

8. Credit Facilities Payable

The following table presents the terms and amounts outstanding under our credit facilities as of June 30, 2017 and December 31, 2016 (dollar amounts in millions and monthly LIBOR at June 30, 2017 was 1.22%):

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		Balance Outstanding
		June 30, 2017			December 31, 2016			Interest Rate as of June 30, 2017	Maturity Date
Company level
$150 million credit facility (a)		$	—		$	10.0		N/A	N/A
$200 million revolving credit facility		121.0			—			Monthly LIBOR + 2.50%	January 14, 2019 (b)
Total Company level		121.0			10.0

Co-Investment Venture level - consolidated
Unsecured Credit Facility:
	Revolver	170.2			—			Monthly LIBOR + 2.25%	March 30, 2021 (b)
	Term loan	100.0			—			Monthly LIBOR + 2.25%	March 30, 2022
Total Co-Investment Venture level- consolidated		270.2			—

Total credit facilities outstanding		391.2			10.0
Less: deferred financing costs, net		(4.5		)	(2.0		)
	Total credit facilities payable, net	$	386.7		$	8.0

(a) We retired the facility on February 28, 2017.

(b) Includes a one year extension option, subject to the satisfaction of certain conditions.

Unsecured Credit Facility

On March 30, 2017, we and the PGGM Co-Investment Partner entered into a $300 million unsecured credit facility (the “Unsecured Credit Facility”), consisting of a $200 million revolving credit facility (the “Revolver”) and a $100 million term loan. The Unsecured Credit Facility provides us with the ability from time to time to increase the facility up to $500 million, subject to certain conditions, and to allocate the increase between the Revolver and the term loan.

The aggregate borrowing availability under the Unsecured Credit Facility will generally be equal to 50% of the value of the unencumbered properties, as defined in the agreement governing the Unsecured Credit Facility. Properties may be removed from or added to the unencumbered properties pool, subject to the satisfaction of certain conditions contained in the agreement governing the Unsecured Credit Facility. As of June 30, 2017, additional aggregate borrowing availability is approximately $22.0 million.

The agreement governing the Unsecured Credit Facility contains customary provisions with respect to events of default, covenants and borrowing conditions. The most significant of these are that the ratio of net operating income attributable to the unencumbered properties and tax like-kind exchange escrows to debt interest expense of borrowings under the Unsecured Credit Facility must not be less than 1.4 to 1.0 and that borrowing under the Unsecured Credit Facility must not exceed 50% of the adjusted value of the unencumbered properties.

$200 Million Revolving Credit Facility

Borrowing tranches under the $200 million revolving credit facility (the “$200 Million Facility”) bear interest at rates based on defined leverage ratios, which as of June 30, 2017 is LIBOR + 2.5%. We may increase the size of the $200 Million Facility from $200 million up to a total of $400 million after satisfying certain conditions.

Draws under the $200 Million Facility are primarily supported by equity pledges of our wholly owned subsidiaries and are secured by a first mortgage lien and an assignment of leases and rents against two wholly owned multifamily communities, and a first priority perfected assignment of a portion of certain of our notes receivable. In addition, we may provide additional security related to future property acquisitions.

The agreement governing the $200 Million Facility contains customary provisions with respect to events of default, covenants and borrowing conditions. In particular, the agreement governing the $200 Million Facility requires us to maintain (as defined in such agreement) a tangible consolidated net worth of at least $1.16 billion, consolidated total indebtedness to total gross asset value of less than 65%, and adjusted rolling 12-month consolidated earnings before interest, taxes, depreciation

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and amortization (“EBITDA”) to consolidated fixed charges of not less than 1.50 to 1, and, beginning December 31, 2015, a limit on distributions and share repurchases in excess of 95% of our rolling 12-month funds from operations generally calculated in accordance with the current definition of funds from operations adopted by the National Association of Real Estate Investment Trusts (“NAREIT”).

We believe we are in compliance with all provisions of our credit facilities as of June 30, 2017.

9. Noncontrolling Interests

Non-Redeemable Noncontrolling Interests

Non-redeemable noncontrolling interests for the Co-Investment Venture partners represent their proportionate share of the equity in consolidated real estate ventures. Each noncontrolling interest is not redeemable by the holder, and accordingly, is reported as equity. Income and losses are allocated to the noncontrolling interest holders based on their effective ownership percentage. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

As of June 30, 2017 and December 31, 2016, non-redeemable noncontrolling interests (“NCI”) consisted of the following, including the direct and non-direct noncontrolling interests ownership ranges where applicable (dollar amounts in millions):



	June 30, 2017			December 31, 2016
			Effective			Effective
	Amount		NCI % (a)	Amount		NCI % (a)
PGGM Co-Investment Partner	$	306.4	30% to 45%	$	295.6	30% to 45%
MW Co-Investment Partner	104.5		45%	109.6		45%
Developer Partners	4.1		0% to 10%	4.1		0% to 10%
Subsidiary preferred units	2.0		(b)	2.0		(b)
Total non-redeemable NCI	$	417.0		$	411.3

(a) Effective noncontrolling percentage is based upon the noncontrolling interest’s participation in distributable operating cash. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

(b) The effective NCI for the preferred units is not meaningful and the preferred units have no voting or participation rights.

Each noncontrolling interest relates to ownership interests in CO-JVs where we have substantial operational control rights. In the case of the PGGM Co-Investment Partner, its noncontrolling interest includes an interest in the Master Partnership and the PGGM CO-JVs. For PGGM CO-JVs and MW CO-JVs, capital contributions and distributions are generally made pro rata in accordance with these ownership interests; however, the Master Partnership’s and the PGGM CO-JV’s pro rata interests are subject to a promoted interest to us if certain performance returns are achieved. Developer CO-JVs generally have limited participation in contributions and generally only participate in distributions after certain preferred returns are collected by us or the PGGM CO-JVs, as applicable, which in some cases may not be until we have received all of our investment capital. None of these Co-Investment Venture partners have any rights to put or redeem their ownership interest; however, they generally provide for buy/sell rights after certain periods. In certain circumstances the governing documents of the PGGM CO-JV or MW CO-JV may require a sale of the Co-Investment Venture or its subsidiary REIT rather than an asset sale.

Noncontrolling interests also include between 121 to 125 preferred units issued by a subsidiary of each of the PGGM CO-JVs and the MW CO-JVs in order for such subsidiaries to qualify as a REIT for federal income tax purposes. The subsidiary preferred units pay an annual distribution of 12.5% on their face value and are senior in priority to all other members’ equity. The PGGM CO-JVs and MW CO-JVs may cause the subsidiary REIT, at their option, to redeem the subsidiary preferred units in whole or in part, at any time for cash at their redemption price, generally $500 per unit (par value). The subsidiary preferred units are not redeemable by the unit holders and, as of June 30, 2017, we have no current intent to exercise our redemption option. Accordingly, these noncontrolling interests are reported as equity.

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For the six months ended June 30, 2017 and 2016, we paid the following distributions to noncontrolling interests (in millions):



	For the Six Months Ended June 30,
	2017		2016
Distributions paid to noncontrolling interests:
Operating activities	$	13.5	$	12.8
Investing and financing activities	1.8		3.0
Total	$	15.3	$	15.8

Redeemable Noncontrolling Interests

As of June 30, 2017 and December 31, 2016, redeemable noncontrolling interests consisted of the following (dollar amounts in millions) :

June 30, 2017

December 31, 2016

Effective

Amount

NCI % (a)

Amount

NCI % (a)

Developer Partners

23.5

0% to 10%

29.1

0% to 10%

(a)

Effective noncontrolling interest percentage is based upon the noncontrolling interest’s participation in distributable operating cash. This effective ownership is indicative of, but may differ from, percentages for distributions (particularly in the event of a sale of the underlying multifamily community), contributions or financing requirements. For Co-Investment Ventures where the developer’s equity has been returned, the effective noncontrolling interest percentage is shown as zero.

Developer Partners included in redeemable noncontrolling interests represent ownership interests in Developer CO-JVs by national or regional multifamily developers, which may require that we pay or reimburse our Developer Partners upon certain events. They also generally have put options, which are generally exercisable one year after completion of the development and thereafter, pursuant to which we would be required to acquire their ownership interest at a set price. As of June 30, 2017, we have recorded in redeemable noncontrolling interests $23.3 million of put options, of which $7.6 million are exercisable by certain of our Developer Partners but have not been exercised. During the three months ended June 30, 2017, one of the Developer Partners exercised their put for $2.8 million.

Prior to the sale of two multifamily communities in June 2017, we bought out the Developer Partner interest in each of the related Developer CO-JVs at a negotiated combined price of $3.7 million. The acquisitions of the noncontrolling interests did not result in a change in control, and accordingly, no gain or loss was recognized on the transactions. The acquisitions resulted in a $0.7 million charge to additional paid-in capital.

These Developer CO-JVs also generally include buy/sell provisions, generally available after the tenth year after completion of the development and mark to market elections which if elected, are generally available after the seventh year after formation of the Developer CO-JV. The mark to market provisions provide us the option to acquire the Developer Partner’s ownership interest or sell the multifamily community. None of these buy/sell or mark to market rights are currently available. If the noncontrolling interest relates to a PGGM Co-JV, then the PGGM Co-Investment Partner would be responsible for its share of such payments. See Note 11, “Commitments and Contingencies” for additional information regarding a currently outstanding buy/sell provision.

Each of these Developer CO-JVs is managed by a subsidiary of ours. As manager, we have substantial operational control rights. These Developer CO-JVs generally provide that we have a preferred cash flow distribution until we receive certain returns on and of our investment. If the individual put options are not exercised, these Developer Partners have a back-end interest, generally only attributable to distributions related to a property sale or financing. Generally, these noncontrolling interests have no obligation to make any additional capital contributions. For the six months ended June 30, 2017 and 2016, no promoted interest payments were made by us related to redeemable noncontrolling interests.

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10. Stockholders’ Equity

Capitalization

In connection with our transition to self-management, on July 31, 2013, we issued 10,000 shares of a new Series A non-participating, voting, cumulative, 7.0% convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”) to an affiliate of our former external advisor, Behringer Harvard Multifamily Advisors I, LLC (collectively with its affiliates, “Behringer”). On February 13, 2017, all outstanding shares of the Series A Preferred Stock were canceled without any conversion or other consideration.

Stock Plans

Our Second Amended and Restated Incentive Award Plan (the “Incentive Award Plan”) authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units (“RSUs”), stock appreciation rights, dividend equivalents and other stock-based awards. A total of 20 million shares of common stock has been authorized for issuance under the Incentive Award Plan and 18.2 million shares of common stock are available for issuance as of June 30, 2017. As of June 30, 2017, we have outstanding time-based RSUs (RSUs where the award vests ratably over time and is not subject to future performance targets, and accordingly, which are initially recorded at the current market price at the time of grant), performance-based RSUs (RSUs which at the time of grant are recorded at fair value and the final award, if any, is based on achieving certain performance targets) and restricted stock. For the six months ended June 30, 2017 and 2016, we had approximately $2.4 million and $1.9 million, respectively, in compensation costs related to share-based payments including dividend equivalent payments.

Restricted Stock Units

We have outstanding RSUs held by our executive officers and independent directors. RSUs generally vest in equal increments over the vesting period (generally two to three years with acceleration in the event of certain defined events). Dividends on RSUs that have vested but have not been exercised are reflected in other distributions in the condensed consolidated statement of equity.

The following table includes the number of RSUs granted, exercised (including RSUs used to satisfy employee income tax withholding) and outstanding as of June 30, 2017 and 2016:



	2017				2016
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Outstanding January 1,	801,603		$	9.48	549,496		$	9.64
Granted	634,456		8.64		424,128		9.30
Exercised	(202,165	)	9.34		(130,022	)	9.46
Forfeited	(9,955	)	10.02		(20,496	)	9.66
Outstanding June 30,	1,223,939		$	9.07	823,106		$	9.49

Time-based RSUs outstanding	918,275		$	9.74	823,106		$	9.49
Performance-based RSUs outstanding	305,664		$	6.99	—		$	—

Final awards of our performance-based RSUs outstanding as of June 30, 2017 will be based on our total shareholder return, as defined, compared to absolute targets and to the weighted average of a defined peer group. We believe it is probable that the total shareholder return will achieve the targets and that the performance-based RSUs will be awarded.

Restricted Stock

Restricted stock is granted to non-executive employees and generally vests in equal increments over a three year period following the grant date. The following is a summary of the restricted stock granted, exercised (including shares used to satisfy employee income tax withholding), forfeited and outstanding as of June 30, 2017 and 2016:

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	2017				2016
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding January 1,	123,661		$	9.77	20,868		$	9.21
Granted	75,708		10.36		95,847		9.20
Exercised	(24,928	)	9.20		(6,414	)	9.21
Forfeited	(19,729	)	9.72		(14,195	)	9.20
Outstanding June 30,	154,712		$	10.16	96,106		$	9.20

Distributions

The following table presents the regular distributions declared for the six months ended June 30, 2017 and 2016 (in millions, except per share amounts):



	For the Six Months Ended June 30,
	2017				2016
	Declared		Declared per Share		Declared		Declared per Share
Second quarter	$	12.5	$	0.075	$	12.5	$	0.075
First quarter	12.5		0.075		12.5		0.075
Total	$	25.0	$	0.150	$	25.0	$	0.150

In accordance with the Merger Agreement, as further discussed in Note 15, “Subsequent Events,” no future distributions are expected to be declared or paid through the closing of the Merger. The regular distribution for the second quarter of 2017 was paid on July 7, 2017.

11. Commitments and Contingencies

Substantially all of our Co-Investment Ventures include buy/sell provisions and substantially all of our Developer CO-JVs include mark to market provisions. Under most of these provisions and during specific periods, a partner could make an offer to purchase the interest of the other partner and the other partner would have the option to accept the offer or purchase the offering partner’s interest at that price or in the case of a mark to market provision, we have the option to purchase the Developer Partner’s ownership interest at the established market price or sell the multifamily community. In June 2017, we issued buy/sell notices related to two MW CO-JVs for a combined purchase price of $24.3 million in CO-JV equity. The MW Co-Investment Partner gave notice which effectively elected to our purchase of the MW CO-JV’s equity interest. In response, we gave notice deferring the purchase of MW CO-JV’s interest until November 2017. During this period or the end of the deferral period, we have certain rights, including the right to acquire the MW CO-JV interests, jointly sell the multifamily community or to issue a new buy/sell notice. As of June 30, 2017, no other such buy/sell offers are outstanding or mark to market provisions are available.

In the ordinary course of business, the multifamily communities in which we have investments may have commitments to provide affordable housing. Under these arrangements, we generally receive from the resident a below market rent, which is determined by a local or national authority. In certain markets, a local or national housing authority may make payments covering some or substantially all of the difference between the restricted rent paid by residents and market rents. In connection with our acquisition of The Gallery at NoHo Commons, we assumed an obligation to provide affordable housing through 2048. As partial reimbursement for this obligation, the California housing authority will make level annual payments of approximately $2.0 million through 2028 and no reimbursement for the remaining 20-year period. We may also be required to reimburse the California housing authority if certain operating results are achieved on a cumulative basis during the term of the agreement. At the time of the acquisition, we recorded a liability of $14.0 million based on the fair value of the terms over the life of the agreement. In addition, we record rental revenue from the California housing authority on a straight-line basis, deferring a portion of the collections as deferred lease revenues. As of June 30, 2017 and December 31, 2016, we have

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approximately $18.8 million and $19.5 million, respectively, of carrying value for deferred lease revenues related to The Gallery at NoHo Commons.

As of June 30, 2017, we have entered into construction and development contracts with approximately $70.0 million remaining to be paid. These construction costs are expected to be paid during the completion of the development and construction period, generally within 18 months.

Future minimum lease payments due on our lease commitment payables, primarily related to our corporate office lease which expires in 2024, are as follows (in millions):



Year	Future Minimum Lease Payments
July through December 2017	$	0.3
2018	0.8
2019	0.8
2020	0.8
2021	0.8
Thereafter	2.4
Total	$	5.9

We are also subject to various legal proceedings and claims which arise in the ordinary course of business, operations and developments. Matters which relate to property damage or general liability claims are generally covered by insurance. While the resolution of these legal proceedings and claims cannot be predicted with certainty, management believes the final outcome of such matters will not have a material adverse effect on our consolidated financial statements.

12. Fair Value of Derivatives and Financial Instruments

We had no fair value adjustments on a recurring or nonrecurring basis for the three and six months ended June 30, 2017 and 2016.

Financial Instruments Not Carried at Fair Value

Financial instruments held as of June 30, 2017 and December 31, 2016 and not measured at fair value on a recurring basis include cash and cash equivalents, notes receivable, credit facilities payable and mortgages and notes payable. With the exception of our mortgages and notes payable, the financial statement carrying amounts of these items approximate their fair values due to their short-term nature. Because the credit facilities payable bears interest at a variable rate and has a prepayment option, we believe its carrying amount approximates its fair value. Estimated fair values for mortgages and notes payable have been determined using market pricing for similar mortgages payable, which are classified as Level 2 in the fair value hierarchy.

Carrying amounts and the related estimated fair value of our mortgages and notes payable as of June 30, 2017 and December 31, 2016 are as follows (in millions) :



	June 30, 2017					December 31, 2016
	Carrying			Fair		Carrying			Fair
	Amount			Value		Amount			Value
Mortgages and notes payable	$	1,171.4		$	1,166.0	$	1,531.5		$	1,533.8
Less: mortgage payable, net on multifamily community held for sale as of June, 30 2017	(33.3		)			—
Less: deferred financing costs, net	(6.2		)			(9.3		)
Mortgages and notes payable, net	$	1,131.9				$	1,522.2

13. Related Party Arrangements

On February 13, 2017, we made a payment of $1.6 million to Behringer in full settlement of disputed fees related to Behringer’s prior advisory services. The related expense was recorded in 2016.

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On February 13, 2017, all outstanding shares of the Series A Preferred Stock (See Note 10, “Stockholders’ Equity — Capitalization”) issued to Behringer, which represented all of the Series A Preferred Stock shares issued and outstanding, were canceled without any conversion or other consideration.

14. Supplemental Disclosures of Cash Flow Information

Supplemental cash flow information for the six months ended June 30, 2017 and 2016 is summarized below (in millions)



	For the Six Months Ended June 30,
	2017		2016
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized of $2.1 million and $4.3 million in 2017 and 2016, respectively	$	25.4	$	22.1

Non-cash investing and financing activities:
Transfer of real estate from construction in progress to operating real estate	48.4		155.3
Transfer of assets to assets associated with real estate held for sale	47.8		—
Transfer of liabilities to obligations associated with real estate held for sale	33.6		—
Distributions payable - regular	12.5		12.5
Construction costs and other related payables	13.6		26.7

15. Subsequent Events

We have evaluated subsequent events for recognition or disclosure in our condensed consolidated financial statements.

Merger Agreement

On July 4, 2017, the Company entered into the Merger Agreement with GS Monarch Parent, LLC (“GS Monarch Parent”) and GS Monarch Acquisition, LLC, which are affiliates of Greystar Real Estate Partners, LLC. The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, the Company will merge with and into GS Monarch Acquisition, LLC (the “Merger”). Upon completion of the Merger, GS Monarch Acquisition, LLC will survive and the separate corporate existence of the Company will cease. The Merger Agreement, the Merger and the other transactions contemplated thereby were unanimously approved by the Company’s board of directors.

Pursuant to the terms and conditions in the Merger Agreement, at the closing of the Merger, each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive an amount in cash equal to $12.00 per share, without interest (the “Merger Consideration”). The Company paid a common stock distribution of $0.075 per share in July 2017 for the quarter ended June 30, 2017, but, under the terms of the Merger Agreement, any additional distribution paid during the term of the Merger Agreement will result in a dollar for dollar reduction in the Merger Consideration.

The Merger Agreement also contains customary representations, warranties and covenants, including, among others, covenants by the Company to conduct its business in all material respects in the ordinary course of business consistent with past practice, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Merger. The obligations of the parties to consummate the Merger are not subject to any financing condition or the receipt of any financing by GS Monarch Parent.

The consummation of the Merger is subject to certain customary closing conditions, including, among others, approval of the Merger by the affirmative vote of a majority of the outstanding shares of the Company’s common stock as of the record date for the special meeting of the Company’s common stockholders (the “Company Stockholder Approval”) and that all required approvals, authorizations and consents of any governmental authority have been obtained.

The Merger Agreement requires the Company to convene a stockholders’ meeting for purposes of obtaining the Company Stockholder Approval. On July 28, 2017, we filed a preliminary proxy statement with the SEC with respect to such

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meeting which contains, subject to certain exceptions, the Company’s board of directors’ recommendation that the Company’s stockholders vote in favor of the Merger.

The Company has agreed not to solicit or enter into an agreement regarding an Acquisition Proposal (as defined in the Merger Agreement). However, prior to receipt of the Company Stockholder Approval, the Company may participate in discussions or negotiations with, and provide certain nonpublic information to, third parties related to any unsolicited Acquisition Proposal if the Company’s board of directors concludes after consultation with advisors that failure to do so would be inconsistent with its legal duties and that such Acquisition Proposal constitutes, or could reasonably be expected to result in, a Superior Proposal (as defined in the Merger Agreement).

Prior to the Company Stockholder Approval, the Company’s board of directors may in certain circumstances effect a Change in Recommendation (as defined in the Merger Agreement), subject to complying with specified notice and other conditions set forth in the Merger Agreement.

The Merger Agreement may be terminated under certain circumstances by the Company, including prior to receipt of the Company Stockholder Approval, if, after following certain procedures and adhering to certain restrictions, the Company’s board of directors has approved, and concurrently with the termination of the Merger Agreement, the Company enters into, a definitive agreement providing for the implementation of a Superior Proposal. In addition, GS Monarch Parent may terminate the Merger Agreement under certain circumstances and subject to certain restrictions, including if the Company’s board of directors effects a Change in Recommendation. Upon a termination of the Merger Agreement, under certain circumstances, the Company will be required to pay a termination fee to GS Monarch Parent of either $25,261,292 or $65,679,359 depending on the timing and circumstances of the termination. In certain other circumstances, GS Monarch Parent will be required to pay the Company a termination fee of $202,090,337 upon termination of the Merger Agreement.

During the quarter ended June 30, 2017, the Company recognized $2.8 million of Merger-related expenses. Subsequent to June 30, 2017, we incurred additional Merger-related expenses of approximately $3.0 million. We expect that additional expenses will be incurred in connection with the closing of the Merger. However, all such Merger-related expenses incurred by the Company will not reduce the Merger Consideration.

Acquisitions of Multifamily Communities and Tax Like-Kind Exchange Escrows

In July 2017, we acquired a 229-unit multifamily community in Boca Raton, Florida for a gross contract purchase price of $80.5 million, before any closing costs. The purchase was funded from the proceeds of the tax like-kind exchange escrow of $40.1 million from the sale of a multifamily community in March 2017 with the remainder primarily funded from our credit facilities.

In July 2017, $108.4 million of tax like-kind exchange escrows established in connection with our sales of the Allusion West University and Muse Museum District community sales were released in cash. The proceeds were primarily used to pay down our credit facilities.

In August 2017, we acquired a 182-unit multifamily community in Melrose, Massachusetts for a gross contract purchase price of $75.0 million, before any closing costs. The purchase was funded from the proceeds of the tax like-kind exchange escrow of $42.2 million from the sale of a multifamily community in July 2017 with the remainder primarily funded from our credit facilities.

* * * * *

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

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help provide an understanding of the business and results of operations of Monogram Residential Trust, Inc. (which, together with its subsidiaries as the context requires, may be referred to as the “Company,” “we,” “us” or “our”). This MD&A should be read in conjunction with our condensed consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q. This report, including the following MD&A, contains forward-looking statements regarding future events or trends that should be read in conjunction with the factors described under “Forward-Looking Statements” in this MD&A. Actual results or developments could differ materially from those projected in such statements as a result of the factors described under “Forward-Looking Statements” and Part II, Item 1A, “Risk Factors” included in this Quarterly Report on Form 10-Q as well as the risk factors described in Part I, Item 1A, “Risk Factors” of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017.

Agreement and Plan of Merger

On July 4, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with GS Monarch Parent, LLC, a Delaware limited liability company (“GS Monarch Parent”), and GS Monarch Acquisition, LLC, a Delaware limited liability company and a wholly owned subsidiary of GS Monarch Parent (“Acquisition Sub” and, together with GS Monarch Parent, the “Acquiring Parties”), whereby the Company will merge with and into Acquisition Sub (the “Merger”), with Acquisition Sub surviving as a wholly owned subsidiary of GS Monarch Parent. GS Monarch Parent and Acquisition Sub were formed by a private investment group led by Greystar Real Estate Partners (“Greystar”) and including affiliates of APG Asset Management N.V., GIC, and Ivanhoé Cambridge (collectively with Greystar, the “Sponsors”) via a newly formed investment fund, Greystar Growth and Income Fund, LP. See Item 1. Financial Statements, Note 15, “Subsequent Events” for additional information of the pending Merger.

The Merger is subject to various closing conditions, including but not limited to, the approval by the Company’s shareholders. On July 28, 2017, we filed a preliminary proxy statement with the SEC in connection with the Merger. The Merger, which is expected to close in the second half of 2017, is subject to the satisfaction or waiver of customary closing conditions.

Our ability to execute our business strategies could be affected by operating restrictions included in the Merger Agreement, including restrictions on selling or acquiring properties, raising additional equity capital and obtaining or modifying new or existing financings, except as may be consented to by the Acquiring Parties or provided in the Merger Agreement as further described below in “Liquidity and Capital Resources — Long-Term Liquidity, Acquisition and Property Financing.” We have incurred and anticipate incurring additional Merger-related expenses regardless of whether the Merger closes. See Forward-Looking Statements below, Part II, Item 1A. Risk Factors and elsewhere below for factors and additional discussions related to the Merger that could affect our results of operations and financial condition.

Overview

General

We are a fully integrated self-managed real estate investment trust (“REIT”) that invests in, develops and operates high quality multifamily communities offering location and lifestyle amenities. We invest in stabilized operating communities and communities in various phases of development, with a focus on communities in select markets across the United States. These primarily include luxury high-rise, mid-rise, and garden style multifamily communities. Our targeted communities include existing “core” communities, which we define as communities that are already stabilized and producing rental income, as well as communities in various phases of development, redevelopment, lease up or repositioning with the intent to transition those communities to core communities. As of June 30, 2017, our portfolio includes investments in 48 multifamily communities in ten states comprising 13,438 residential units.

Our investments may be wholly owned by us or held through joint venture arrangements with third-party investors which we define as “Co-Investment Ventures” or “CO-JVs.” As of June 30, 2017, of our 48 investments in multifamily communities, 13 are wholly owned and 35 are held through CO-JVs. These are predominately equity investments but may also include debt investments, consisting of mezzanine or bridge loans. As of June 30, 2017, two of our investments were mezzanine debt investments, both wholly owned.

We also invest in developments and lease up communities, which are generally recently completed multifamily developments that have not started or have just started leasing. These investments may provide a lower cost basis per unit

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relative to stabilized assets. As of June 30, 2017, we have four multifamily communities in lease up and one multifamily community under development and construction.

Co-Investment Ventures

We are the managing member of each of the separate Co-Investment Ventures. Our two institutional Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund and its affiliates, a real estate investment vehicle for Dutch pension funds (“PGGM” or the “PGGM Co-Investment Partner”) and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” and those with the MW Co-Investment Partner as “MW CO-JVs.”

Our other Co-Investment Ventures include strategic joint ventures with national or regional real estate developers and owners (“Developer Partners”). When we utilize third-party developers, we expect to be the controlling owner, partnering with experienced developers, but maintaining control over construction, operations, financing and disposition. When applicable, we refer to individual investments by referencing those with Developer Partners as “Developer Co-JVs.” Certain PGGM CO-JVs that also include Developer Partners are referred to as PGGM CO-JVs. We share with the PGGM Co-Investment Partner in all benefits and obligations of the Developer CO-JVs that are also PGGM CO-JVs. We are the 1% general partner of Monogram Residential Master Partnership I LP (the “Master Partnership” or the “PGGM Co-Investment Partner”) and PGGM is the 99% limited partner. We are generally a 55% owner with control of day-to-day management and operations, and the Master Partnership is generally a 45% owner in the property owning CO-JVs, all of which are consolidated.

The table below presents a summary of our Co-Investment Ventures as of June 30, 2017 and December 31, 2016. The effective ownership ranges are based on our participation in distributable operating cash from our investment in the underlying multifamily community. This effective ownership is indicative of, but may differ over time from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture. All of our Co-Investment Ventures are reported on the consolidated basis of accounting.



	June 30, 2017		December 31, 2016
Co-Investment Structure	Number of Multifamily Communities	Our Effective Ownership	Number of Multifamily Communities	Our Effective Ownership
PGGM CO-JVs (a)	19	50% to 70%	21	50% to 70%
MW CO-JVs	14	55%	14	55%
Developer CO-JVs	2	100%	2	100%
Total CO-JV Multifamily Communities (b)	35		37

(a)

As of June 30, 2017 and December 31, 2016, includes Developer Partners in 15 and 18 multifamily communities, respectively. During the three months ended June 30, 2017, we sold two multifamily communities held by PGGM CO-JVs, both of which included Developer Partners. Additionally during the three months ended June 30, 2017, one of the Developer Partners exercised its put option. See further discussion under “Contractual Obligations” below.


(b)	Total investments in multifamily communities were 48 and 51 as of June 30, 2017 and December 31, 2016, respectively.

Property Portfolio

We invest in operating and development multifamily communities which are geographically diversified by submarket. Our geographic regions are defined by state or by region. Our portfolio is comprised of the following geographic regions and specific markets within each region where we have multifamily communities:


•	Colorado — Denver market


•	South Florida — Greater Miami market and Fort Lauderdale market

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•	Georgia — Atlanta market


•	Mid-Atlantic — Washington, DC market and greater Philadelphia market


•	Nevada — Las Vegas market


•	New England — Greater Boston market


•	Northern California — Greater San Francisco market


•	Southern California — Greater Los Angeles market and San Diego market


•	Texas — Austin market, Dallas market, and Houston market

We consider a multifamily community to be stabilized generally when the multifamily community achieves 90% occupancy. The tables below present the number of communities and units, physical occupancy rates and monthly rental revenue per unit for our stabilized multifamily communities by geographic region as of June 30, 2017 and December 31, 2016:



	June 30, 2017		December 31, 2016
	Number of		Number of
	Stabilized	Number of	Stabilized	Number of
Geographic Region	Communities	Units	Communities	Units
Colorado (a)	3	808	4	1,208
South Florida (a)	5	1,205	6	1,630
Georgia	1	329	1	329
Mid-Atlantic	6	1,873	5	1,412
Nevada (b)	2	598	2	598
New England	5	1,350	4	958
Northern California	5	942	4	821
Southern California	7	1,654	7	1,654
Texas (a)	7	2,423	10	3,073
Totals	41	11,182	43	11,683



	Physical Occupancy Rates (c)				Monthly Rental Revenue per Unit (d)
	June 30,		December 31,		June 30,		December 31,
Geographic Region	2017		2016		2017		2016
Colorado (a)	97	%	93	%	$	1,864	$	1,853
South Florida (a)	94	%	94	%	2,157		1,949
Georgia	90	%	92	%	2,016		2,052
Mid-Atlantic	94	%	94	%	2,116		1,983
Nevada (b)	97	%	96	%	1,121		1,100
New England	95	%	95	%	2,102		1,773
Northern California	97	%	95	%	3,107		3,055
Southern California	96	%	96	%	2,264		2,256
Texas (a)	96	%	95	%	1,551		1,627
Totals	95	%	95	%	$	2,027	$	1,925

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(a) During the six months ended June 30, 2017, we sold the following multifamily communities (dollars in millions):



Multifamily Community	Location	Number of Units	Sales Contract Price
Allusion West University	Houston, Texas	231	$	49.0
Muse Museum District	Houston, Texas	270	60.0
The District Universal Boulevard	Orlando, Florida	425	78.5
Skye 2905	Denver, Colorado	400	126.0
Grand Reserve	Dallas, Texas	149	42.0
Total		1,475	$	355.5


(b)	Includes a multifamily community, Veritas, with 430 units which was sold subsequent to June 30, 2017 for a gross contract sales price of $76.5 million.

(c)

Physical occupancy rate is defined as the number of residential units occupied (including non-revenue producing units) for stabilized multifamily communities as of June 30, 2017 or December 31, 2016 divided by the total number of residential units as of the applicable date. Not considered in the physical occupancy rate is rental space designed for other than residential use, which is primarily retail space. As of June 30, 2017, our stabilized multifamily communities have approximately 138,000 square feet of leasable retail space which is approximately 1% of total rentable area. One large retail space is occupied under a long term lease by a national grocer, which makes up over half of our retail square footage; the remaining retail spaces are small, generally 1,000 square feet or less. As of June 30, 2017, approximately 76% of the 138,000 square feet of retail space was occupied. The calculations of physical occupancy rates by geographic region and total average physical occupancy rates are based upon weighted average number of residential units.

(d) Monthly rental revenue per unit has been calculated based on the leases in effect as of June 30, 2017 or December 31, 2016, as applicable, for stabilized multifamily communities. Monthly rental revenue per unit only includes in-place base rents for the occupied residential units and the current market rent for vacant residential units, including the effects of any rental concessions and affordable housing payments and subsidies, plus other recurring occupancy related revenues from storage, parking, pets, trash, or other recurring resident charges. The monthly rental revenue per unit does not include non-residential rental areas, which are primarily related to retail space, and non-recurring resident charges, such as application fees, termination fees, clubhouse rentals, and late fees.

The table below presents the number of operating communities and units and physical occupancy rates for our multifamily communities in lease up by geographic region (including developments in lease up) as of June 30, 2017 and December 31, 2016:



	Number of Communities		Number of Units		Physical Occupancy Rates
Geographic Region	June 30, 2017	December 31, 2016	June 30, 2017	December 31, 2016	June 30, 2017		December 31, 2016
South Florida	1	—	146	—	21	%	—
Mid-Atlantic	1	1	265	461	35	%	66	%
New England	—	1	—	392	—		69	%
Northern California	—	1	—	121	—		84	%
Southern California	1	—	175	—	54	%	—
Texas	1	1	365	365	70	%	30	%
Total	4	4	951	1,339	50	%	59	%

During the six months ended June 30, 2017, we acquired two multifamily communities in lease up. We added a multifamily community which was classified as under development and construction as of December 31, 2016 that began leasing during 2017 and deducted three multifamily communities classified as lease ups as of December 31, 2016 which are now classified as stabilized.

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The table below presents the number of multifamily communities and the currently projected units by geographic region that are under development and construction as of June 30, 2017 and December 31, 2016:



	Number of Communities		Number of Currently Projected Units
Geographic Region	June 30, 2017	December 31, 2016	June 30, 2017	December 31, 2016
Under development and construction:
South Florida	—	1	—	146
Southern California	1	1	510	510
Total	1	2	510	656

During the six months ended June 30, 2017, a multifamily community which was classified as under development and construction as of December 31, 2016 began leasing in 2017 and was reclassified to lease up.

See further information regarding our development program below under “Liquidity and Capital Resources — Long-Term Liquidity, Acquisition and Property Financing.”

The following table below presents our debt investments by geographic region as of both June 30, 2017 and December 31, 2016:



	June 30, 2017		December 31, 2016
Geographic Region	Number of Communities	Number of Units	Number of Communities	Number of Units
Debt investments:
Texas	2	795	2	795
Total debt investments	2	795	2	795

Both of the underlying communities are in lease up and were 44% and 23% occupied as of June 30, 2017.

Operational Overview

The following discussion provides an overview of the Company’s operations and transactions for the six months ended June 30, 2017 and should be read in conjunction with the full discussion of the pending Merger and the Company’s operating results, liquidity, capital resources and risk factors included or incorporated by reference elsewhere in this Quarterly Report on Form 10-Q.

Property Operations

Rental revenues for the six months ended June 30, 2017 increased $11.1 million over the comparable period of 2016 due primarily to lease up of multifamily communities in our development program, partially offset by the effects of sales of multifamily communities in 2016 and 2017. Our multifamily communities currently classified as stabilized non-comparable and lease up accounted for $23.1 million of the increase in rental revenues for the six months ended June 30, 2017. Since June 30, 2016, nine communities began lease up or reached stabilization, representing 2,542 units and approximately 21% of our operating units as of June 30, 2017. These increases were partially offset by a decrease of rental revenues related to multifamily communities sold in 2016 and 2017. During the six months ended June 30, 2017, we sold five communities with 1,475 units and a net book value of $236.2 million, and in 2016 we sold two communities with 417 units and a net book value of $76.0 million, combined for both years representing approximately 16% of our operating units as of June 30, 2017. In addition, the community we sold in July 2017 represented 430 units and a net book value of $47.7 million, which will decrease revenues beginning in the third quarter. Our acquisitions during the six months ended June 30, 2017, representing 440 units, have not had a significant impact on 2017 rental revenues as these have primarily been lease ups. Subsequent to June 30, 2017, we acquired two multifamily communities which had a combined weighted average occupancy of 64%, which with the earlier 2017 acquisitions will have an increasing effect on rental revenue in the second half of 2017. Rental revenues from Same Store multifamily communities, as defined below, remained relatively flat as a 0.3% increase in rental rates, on a weighted average basis, was offset by a decrease in occupancy.

Overall, Same Store rental revenue per unit remained flat since June 30, 2016. In certain markets, particularly Dallas, Washington D.C. and Las Vegas, we were also able to increase rental rates and occupancy year over year. While in Los Angeles and Boston, we have increased rents year over year by 2.1% and 1.5%, respectively, losing only approximately 30 basis points in occupancy. However, in other markets, increased construction and supply of multifamily units have led to rental concessions and/or significant occupancy declines. These were primarily focused in the South Florida, Houston, Austin and Denver markets. We believe these trends will continue into the second half of 2017, but for certain of these markets, particularly in the coastal markets, we believe the underlying demand fundamentals are still positive and, after the short term effects of oversupply are absorbed, that those markets will return to historical rental revenue growth rates.

When we believe a market will underperform other investment opportunities, we will consider temporarily or permanently exiting such market, as was the case in 2015 and 2017 when we exited Chicago and Orlando, respectively. Since June 30, 2016 (including the period after June 30, 2017 included in this Quarterly Report on Form 10-Q), we have disposed of eight communities with 2,322 units and acquired four communities with 851 units. See “Sales Activities” and “Acquisition Activities” below.

Our operating multifamily communities include those with any recurring lease revenues, which may include developments in lease up. Our Same Store multifamily communities are defined as those that are stabilized and comparable for both the current and the prior reporting year. As of June 30, 2017, our operating multifamily communities included 45 communities, consisting of 32 Same Store communities, nine stabilized communities that were not yet categorized as Same Store (one of which was classified as held for sale as of June 30, 2017 and subsequently sold in July 2017), and four communities (including two 2017 acquisitions in lease up) in various stages of lease up. Since January 1, 2017, eight additional communities qualified for Same Store classification, we sold five Same Store communities, and as of June 30, 2017 classified one as held for sale out of Same Store. Accordingly, since December 31, 2016, we have had a net increase of two Same Store communities from 30 Same Store communities as of December 31, 2016 to a total of 32 Same Store communities as of June 30, 2017.

Lease up of Developments

During the six months ended June 30, 2017, the leasing of our development communities (which includes communities classified as stabilized non-comparable and lease up) accounted for substantially all of our rental revenue growth from the comparable period in 2016. As of June 30, 2017, our development program includes two operating communities that are not yet stabilized.

We expect that our development program, as construction is completed and each development community leases up, will continue to account for a significant portion of revenue and operational growth. The two communities noted above as not yet stabilized as of June 30, 2017 include 511 units and were only 56% occupied in the aggregate as of June 30, 2017. One community, with 510 units, was under construction and not in operations as of June 30, 2017. We expect this community to begin operations in 2018.

Development Activities

As of June 30, 2017, we have one multifamily community in active construction in our development program. The development is in vertical construction, and based on the total costs incurred as a percentage of total estimated costs, is approximately 57% complete. We expect this development to be completed and operational by the end of 2018. Stabilization of operations is expected to occur during 2019.

As of June 30, 2017, we have approximately $97.2 million of remaining development costs (which exclude estimated Developer Partner put options of $23.3 million) related to our current development program and communities recently transferred to operating real estate that still have remaining costs. As of June 30, 2017, approximately $86.1 million of our remaining development costs are expected to be funded from committed construction financing and $4.8 million primarily from PGGM.

We capitalize project costs related to the developments, including interest expense, real estate taxes, insurance and direct overhead. Capitalized interest expense and real estate taxes are the most significant of these costs and were $2.4 million for the six months ended June 30, 2017, compared to $5.7 million in the comparable period in 2016. Capitalization of these items ceases when the development is completed and ready for its intended use, which is usually before significant leasing occupancy has begun and leasing rental revenue is recognized. During this period, the community may be reporting an operating deficit, representing operating expenses and interest expense in excess of rental revenue. Of the $2.4 million capitalized for the six months ended June 30, 2017, $0.7 million relates to developments with no anticipated future capitalized

interest and real estate taxes, and $1.7 million relates to developments with capitalized interest and real estate taxes expected to continue in the second half of 2017 and later.

Sales Activities

During 2017 and 2016, the sales of our stabilized multifamily communities have increased compared to prior periods. These sales have decreased our rental revenues approximately $12.1 million for the six months ended June 30, 2017 compared to the comparable period in 2016. Because the proceeds from these sales were primarily used to acquire communities in lease up or pay down debt, we have not replaced that lost rental revenue as of June 30, 2017. See “Acquisition Activities” below for additional discussion.

During the six months ended June 30, 2017, we sold five multifamily communities in Dallas, Texas, Houston, Texas, Orlando, Florida and Denver, Colorado consisting of an aggregate of 1,475 units for net sales proceeds of $349.4 million and gains on sales of real estate of $115.3 million. During 2016, subsequent to June 30, 2016, we also sold two multifamily communities with 417 units. These communities sold in 2017 and 2016 reported $8.0 million and $20.1 million of revenues (through the sales date) for the six months ended June 30, 2017 and 2016, respectively. Of the seven multifamily communities sold from June 30, 2016 to June 30, 2017, $248.1 million of the sales proceeds was used to acquire two multifamily communities in lease up, approximately $110.1 million was used to retire debt and $275.9 million was placed in a tax like-kind exchange escrows, of which $148.3 million remains in escrow as of June 30, 2017. Also, subsequent to June 30, 2017, we sold Veritas for a gross contract sales price of $76.5 million. For the six months ended June 30, 2017, Veritas reported rental revenues of $3.1 million.

Acquisition Activities

In January 2017, we acquired a 175-unit multifamily community in Los Angeles, California for a gross contract purchase price of $105.0 million, before any closing costs. The purchase was funded from the proceeds of the remaining 2016 tax like-kind exchange escrow and a portion from 2017 net sales proceeds. The multifamily community was acquired in lease up and as of June 30, 2017 was 54% occupied. Accordingly, the acquired multifamily community did not report significant net operating activity during the six months ended June 30, 2017. We expect the multifamily community to achieve stabilized occupancy in the fourth quarter of 2017.

In April 2017, we acquired a 265-unit multifamily community in Arlington, Virginia for a gross contract purchase price of $142.5 million, before any closing costs. The purchase was funded from proceeds of the tax like-kind exchange escrow of approximately $70.9 million from the sale of a multifamily community in March 2017 and the remainder primarily funded from our credit facilities. The multifamily community was acquired in lease up and as of June 30, 2017 was 35% occupied. Accordingly, the acquired multifamily community did not report significant net operating activity during the six months ended June 30, 2017. We expect the multifamily community to achieve stabilized occupancy in the second quarter of 2018.

Subsequent to June 30, 2017, we acquired a 229-unit multifamily community in Boca Raton, Florida for a gross contract purchase price of $80.5 million, before any closing costs. The purchase price was funded from proceeds of the tax like-kind exchange escrow of approximately $40.1 million from the sale of a multifamily community in March 2017 and the remainder primarily funded from our credit facilities. The multifamily community was acquired in lease up, was 47% occupied at the purchase and is expected to achieve stabilized occupancy in the first quarter of 2018.

Additionally, in August 2017, we acquired a 182-unit multifamily community in Melrose, Massachusetts for a gross contract purchase price of $75.0 million, before any closing costs. The purchase price was funded from proceeds of the tax like-kind exchange escrow of approximately $42.2 million from the sale of a multifamily community in July 2017 and the remainder primarily funded from our credit facilities. The multifamily community was acquired in lease up, was 86% occupied at the purchase and is expected to achieve stabilized occupancy in the third quarter of 2017.

We expect that as these communities achieve stabilized operations in 2018, we will substantially replace the rental revenues related to the sales activity discussed above.

Pending Merger

For the three months ended June 30, 2017, we incurred $2.8 million of Merger-related expenses primarily for professional services. We currently expect to incur, in the aggregate, approximately $50 million to $55 million in Merger-related expenses, although that estimate is subject to a number of assumptions and uncertainties, and the actual amount of Merger-

related expenses could differ materially from this estimate. Such Merger-related expenses will not reduce the Merger Consideration.

Results of Operations

The three months ended June 30, 2017 as compared to the three months ended June 30, 2016

Rental Revenues.

The following table presents the classifications of our rental revenue for the three months ended June 30, 2017 and 2016 (in millions):



	For the Three Months Ended June 30,
	2017		2016		Change
Rental revenue
Same Store	$	50.4	$	50.3	$	0.1
Stabilized Non-Comparable	17.7		8.1		9.6
Lease up	2.0		—		2.0
Dispositions and other non-lease up developments	1.7		10.2		(8.5		)
Total rental revenue	$	71.8	$	68.6	$	3.2

Rental revenues for the three months ended June 30, 2017 were $71.8 million compared to $68.6 million for the three months ended June 30, 2016. Same Store revenues, which accounted for approximately 70% of total rental revenues for 2017 remained relatively flat compared to the comparable period in 2016. While Same Store monthly rental revenue per unit, on a weighted average basis, for the three months ended June 30, 2017 increased approximately 0.1%, Same Store occupancy, on a weighted average basis, decreased approximately 0.3%. Multifamily communities that were stabilized non-comparable or in lease up as of June 30, 2017 were 83% occupied as of June 30, 2017, compared to 56% occupied at June 30, 2016. Accordingly, stabilized non-comparable communities and lease ups, which include both acquisitions and developments, produced rental revenues of $19.7 million for the three months ended June 30, 2017, an increase of $11.6 million from the comparable period in 2016. From June 30, 2016 to June 30, 2017, we have sold a total of seven operating communities, representing a total of 1,892 units. These sold communities reported $10.2 million of revenue for the three months ended June 30, 2016 compared to $1.7 million of revenue for the three months ended June 30, 2017, a decrease in revenue of $8.5 million.

Property Operating and Real Estate Tax Expenses.

The following table presents the classifications of our property operating expenses and real estate tax expenses for the three months ended June 30, 2017 and 2016 (in millions):



	For the Three Months Ended June 30,
	2017		2016		Change
Property operating expenses, including real estate taxes
Same Store	$	18.3	$	18.0	$	0.3
Stabilized Non-Comparable	6.8		5.7		1.1
Lease up	2.2		0.2		2.0
Dispositions and other non-lease up developments	1.3		3.7		(2.4		)
Corporate property management expense	2.0		3.4		(1.4		)
Total property operating expenses, including real estate taxes	$	30.6	$	31.0	$	(0.4	)

Total property operating and real estate tax expenses for the three months ended June 30, 2017 and June 30, 2016 were $30.6 million and $31.0 million, respectively. Same Store property operating expenses and real estate taxes accounted for

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approximately 60% of total property operating expenses and real estate taxes for the six months ended June 30, 2017. Stabilized non-comparable communities and lease ups, which include both acquisitions and developments, accounted for $3.1 million of the increase in total property operating and real estate tax expenses. Total real estate tax expense increased $1.1 million due to the decrease in capitalized real estate taxes and higher property tax assessed valuations on our multifamily communities. Since June 30, 2016, three developments have been completed and transferred to operating real estate resulting in a decrease of $0.6 million in capitalized real estate taxes and a corresponding increase in real estate tax expense for the three months ended June 30, 2017 as compared to the same period in 2016. The remaining increase in real estate tax expenses is principally related to developments that stabilized in 2016 or 2017. Sales of multifamily communities during 2016 and 2017 resulted in a decrease in property operating expenses and real estate taxes of approximately $2.4 million. Corporate-related and other property management expenses of $2.0 million for the three months ended June 30, 2017 decreased $1.4 million compared to the same period in 2016. During May 2016, we incurred one-time charges of $0.8 million related to a reduction in workforce. We did not have a reduction in workforce for the comparable period of 2017.

General and Administrative Expenses. General and administrative expenses decreased by $2.7 million for the three months ended June 30, 2017 compared to the same period of 2016. During May 2016, we incurred one-time charges of $1.2 million related to a reduction in workforce. We did not have a reduction in workforce for the comparable period of 2017. The remainder of the decrease was primarily due to decreased compensation and benefits, as a result of the reduction in workforce, and reduced general corporate legal expenses.

Merger-related expenses. For the three months ended June 30, 2017, we incurred Merger-related expenses of $2.8 million, primarily related to legal and other professional services. We currently expect to incur, in the aggregate, approximately $50 million to $55 million in Merger-related expenses, although that estimate is subject to a number of assumptions and uncertainties, and the actual amount of Merger-related expenses could differ materially from this estimate.

Interest Expense. Interest expense, net for the three months ended June 30, 2017 increased by $0.8 million due primarily to decreased capitalized interest. For the three months ended June 30, 2017 and 2016, we incurred total interest charges, net of other finance fees, of $12.9 million and $12.8 million, respectively. Our average debt balances increased $16.8 million between June 30, 2016 and June 30, 2017 with only a slight change in our weighted average interest rate. For the three months ended June 30, 2017 and 2016, we capitalized interest expense of $1.1 million and $1.9 million, respectively, where the decrease in capitalized interest was the result of the completion of significant portions of our development program, when interest capitalization ceases.

Depreciation and Amortization. Depreciation and amortization expense for the three months ended June 30, 2017 and 2016 was $31.7 million and $31.0 million, respectively. Depreciation and amortization primarily includes depreciation of our consolidated multifamily communities and to a lesser extent, amortization of acquired in-place leases and other contractual intangibles. The increase was principally the result of a net increase in our depreciable real estate assets since June 30, 2016. Since June 30, 2016, we have transferred $183.1 million from construction in progress to operating real estate. These increases were only partially offset by the sales of five operating multifamily communities during 2017 and two operating multifamily communities in 2016 (August 2016 and December 2016), which have decreased our depreciable real estate costs by an aggregate $314.9 million. Since the effects of 2017 sales were only for a partial period, the effects on depreciation and amortization may be greater in future periods.

Interest Income. Interest income for the three months ended June 30, 2017 and 2016 was $1.2 million and $1.8 million, respectively. Interest income decreased $0.6 million due to less notes receivable principal and fewer notes receivable outstanding in 2017 as compared to 2016 as a result of a note receivable that was fully paid in the fourth quarter of 2016.

Loss on early extinguishment of debt. For the three months ended June 30, 2017, we incurred a loss on early extinguishment of debt of $0.9 million principally as a result of the write-off of unamortized deferred financing costs related to the refinancing of construction notes payable into permanent mortgage loans during the second quarter of 2017.

Gains on Sales of Real Estate. Gains on sales of real estate for the three months ended June 30, 2017 represents the gains recognized on the sales of Allusion West University and Muse Museum District in June 2017. There were no sales of real estate for the three months ended June 30, 2016. Subsequent to June 30, 2017, we closed on the sale of Veritas, recognizing a gain on sale of approximately $27.5 million.

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The six months ended June 30, 2017 as compared to the six months ended June 30, 2016

Rental Revenues.

The following table presents the classifications of our rental revenue for the six months ended June 30, 2017 and 2016 (in millions):



	For the Six Months Ended June 30,
	2017		2016		Change
Rental revenue
Same Store	$	100.4	$	100.3	$	0.1
Stabilized Non-Comparable	34.1		13.7		20.4
Lease up	2.7		—		2.7
Dispositions and other non-lease up developments	8.0		20.1		(12.1		)
Total rental revenue	$	145.2	$	134.1	$	11.1

Rental revenues for the six months ended June 30, 2017 were $145.2 million compared to $134.1 million for the six months ended June 30, 2016. Same Store revenues, which accounted for approximately 69% of total rental revenues for 2017 remained flat compared to the comparable period of 2016. While Same Store monthly rental revenue per unit, on a weighted average basis, for the six months ended June 30, 2017 increased approximately 0.3%, Same Store occupancy, on a weighted average basis, decreased approximately 0.5%. Multifamily communities that were stabilized non-comparable or in lease up as of June 30, 2017 were 83% occupied as of June 30, 2017, compared to 56% occupied at June 30, 2016. Accordingly, stabilized non-comparable communities and lease ups, which include both acquisitions and developments, produced rental revenues of $36.8 million for the six months ended June 30, 2017, an increase of $23.1 million from the comparable period in 2016. During 2016, subsequent to June 30, 2016, and the six months ended June 30, 2017, we sold a total of seven operating communities, representing a total of 1,892 units. These sold communities reported $20.1 million of revenue for the six months ended June 30, 2016 compared to $8.0 million of revenue for the six months ended June 30, 2017, a decrease in revenue of $12.1 million.

Property Operating and Real Estate Tax Expenses.

The following table presents the classifications of our property operating expenses and real estate tax expenses for the six months ended June 30, 2017 and 2016 (in millions):



	For the Six Months Ended June 30,
	2017		2016		Change
Property operating expenses, including real estate taxes
Same Store	$	36.5	$	36.0	$	0.5
Stabilized Non-Comparable	13.3		10.6		2.7
Lease up	3.6		0.4		3.2
Dispositions and other non-lease up developments	3.7		7.5		(3.8		)
Corporate property management expense	4.6		5.9		(1.3		)
Total property operating expenses, including real estate taxes	$	61.7	$	60.4	$	1.3

Total property operating and real estate tax expenses for the six months ended June 30, 2017 and June 30, 2016 were $61.7 million and $60.4 million, respectively. Same Store property operating expenses and real estate taxes accounted for approximately 59% of total property operating expenses and real estate taxes for the six months ended June 30, 2017. Stabilized non-comparable communities and lease ups, which include both acquisitions and developments, accounted for $5.9 million of the increase in total property operating and real estate tax expenses. Increases in real estate taxes was the largest component of the increase. Total real estate tax expense increased $2.4 million due to the decrease in capitalized real estate taxes and higher property tax assessed valuations on our multifamily communities. Since June 30, 2016, three developments have been completed and transferred to operating real estate resulting in a decrease of $1.0 million in capitalized real estate

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taxes and a corresponding increase in real estate tax expense for the six months ended June 30, 2017 as compared to the same period of 2016. The remaining increase in real estate tax expenses is principally related to developments that stabilize

Monogram Residential Trust, Inc. 10-Q