Residential propety

NEXPOINT RESIDENTIAL TRUST, INC. Management’s Discussion and Analysis of Financial Condition and Results of Operations (Form 10-Q)

The following is a discussion and analysis of our financial condition and our
historical results of operations. The following should be read in conjunction
with our financial statements and accompanying notes included herein and with
our annual report on Form 10-K for the year ended December 31, 2021 (our "Annual
Report"), filed with the Securities and Exchange Commission (the "SEC") on
February 18, 2022. This discussion contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ materially from
those projected, forecasted, or expected in these forward-looking statements as
a result of various factors, including, but not limited to, those discussed
below and elsewhere in this quarterly report. See "Cautionary Statement
Regarding Forward-Looking Statements" in this report, and "Risk Factors" in Part
I, Item 1A, "Risk Factors" of our Annual Report.

Insight

As of June 30, 2022, our Portfolio consisted of 41 multifamily properties
primarily located in the Southeastern and Southwestern United States
encompassing 15,387 units of apartment space that was approximately 94.5% leased
with a weighted average monthly effective rent per occupied apartment unit of
$1,387. Substantially all of our business is conducted through the OP. We own
the Portfolio through the OP and our TRS. The OP owns approximately 99.9% of the
Portfolio; our TRS owns approximately 0.1% of the Portfolio. The OP GP is the
sole general partner of the OP. As of June 30, 2022, there were 26,050,945 OP
Units outstanding, of which 25,951,154, or 99.6%, were owned by us, and 99,791,
or 0.4%, owned by unaffiliated limited partners (see Note 10 to our consolidated
financial statements).

We are primarily focused on directly or indirectly acquiring, owning, and
operating well-located multifamily properties with a value-add component in
large cities and suburban submarkets of large cities, primarily in the
Southeastern and Southwestern United States. We generate revenue primarily by
leasing our multifamily properties. We intend to employ targeted management and
a value-add program at a majority of our properties in an attempt to improve
rental rates and the net operating income ("NOI") at our properties and achieve
long-term capital appreciation for our stockholders. We are externally managed
by the Adviser through the Advisory Agreement, by and among the OP, the Adviser
and us. The Advisory Agreement was renewed on February 14, 2022 for a one-year
term. The Adviser is wholly owned by NexPoint Advisors, L.P.

On March 4, 2020, the Company, the OP and the Adviser entered into separate
equity distribution agreements with each of Jefferies LLC ("Jefferies"), Raymond
James & Associates, Inc. ("Raymond James"), KeyBanc Capital Markets Inc.
("KeyBanc") and Truist Securities (f/k/a SunTrust Robinson Humphrey, Inc.,
"SunTrust," and together with Jefferies, Raymond James and KeyBanc, the "ATM
Sales Agents"), pursuant to which the Company may issue and sell from time to
time shares of the Company's common stock, par value $0.01 per share, having an
aggregate sales price of up to $225,000,000 (the "2020 ATM Program"). Sales of
shares of common stock, if any, may be made in transactions that are deemed to
be "at the market" offerings, as defined in Rule 415 under the Securities Act,
including, without limitation, sales made by means of ordinary brokers'
transactions on the New York Stock Exchange, to or through a market maker at
market prices prevailing at the time of sale, at prices related to prevailing
market prices or at negotiated prices based on prevailing market prices. In
addition to the issuance and sale of shares of common stock, the Company may
enter into forward sale agreements with each of Jefferies, KeyBanc and Raymond
James, or their respective affiliates, through the 2020 ATM Program. During the
six months ended June 30, 2022, the Company issued 52,091 shares of common stock
at an average price of $83.16 per share for gross proceeds of $4.3 million under
the 2020 ATM Program. The Company paid approximately $0.1 million in fees to the
ATM Sales Agents with respect to such sales and incurred other issuance costs of
approximately $0.2 million, both of which were netted against the gross proceeds
and recorded in additional paid in capital (see Note 8 to our consolidated
financial statements).

We have elected to be taxed as a REIT under Sections 856 through 860 of the
Code, and expect to continue to qualify as a REIT. To qualify as a REIT, we must
meet a number of organizational and operational requirements, including a
requirement that we distribute at least 90% of our REIT taxable income to our
stockholders. As a REIT, we will be subject to federal income tax on our
undistributed REIT taxable income and net capital gain and to a 4% nondeductible
excise tax on any amount by which distributions we pay with respect to any
calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95%
of our capital gain net income and (3) 100% of our undistributed income from
prior years. We believe we qualify for taxation as a REIT under the Code, and we
intend to continue to operate in such a manner, but no assurance can be given
that we will operate in a manner so as to qualify as a REIT. Taxable income from
certain non-REIT activities is managed through a TRS and is subject to
applicable federal, state, and local income and margin taxes. We had no
significant taxes associated with our TRS for the six months ended June 30, 2022
and 2021.

On October 15, 2021, a lawsuit was filed by a trust set up in connection with
the Highland bankruptcy in the United States Bankruptcy Court for the Northern
District of Texas. The lawsuit makes claims against a number of entities,
including our Sponsor and James Dondero. The lawsuit does not include claims
related to our business or our assets or operations. Our Sponsor and Mr. Dondero
have informed us they believe the lawsuit has no merit and they intend to
vigorously defend against the claims. We do not expect the lawsuit will have a
material effect on our business, results of operations or financial condition.

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Components of our income and expenses

Revenue

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

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

Expenses

Building operating expenses. Asset operating expenses include asset maintenance costs, salary and benefits costs, utilities, claims expenses and recoveries, and other asset operating costs.

Property taxes and insurance. Property taxes include property taxes assessed by local and state authorities based on the location of each property. Insurance includes the cost of commercial and general liability insurance and other necessary insurance for each property.

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

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

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

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

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

Other Income and Expense

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

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

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

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

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

Results of operations for the three and six months ended June 30, 2022 and 2021

The three months ended June 30, 2022 compared to the three months ended June 30, 2021

The following table provides a summary of our operating results for the three months ended June 30, 2022 and 2021 (in thousands):

                                                 For the Three Months Ended June 30,
                                                    2022                    2021             $ Change
Total revenues                                $          65,766       $          52,563     $    13,203
Total expenses                                          (61,567 )               (47,821 )       (13,746 )
Operating income                                          4,199                   4,742            (543 )
Interest expense                                        (12,402 )               (10,683 )        (1,719 )
Casualty gains                                              229                   2,379          (2,150 )
Miscellaneous income                                        147                     472            (325 )
Loss on extinguishment of debt and
modification costs                                            -                    (328 )           328
Net loss                                                 (7,827 )                (3,418 )        (4,409 )
Net loss attributable to redeemable
noncontrolling interests in the Operating
Partnership                                                 (30 )                   (10 )           (20 )
Net loss attributable to common
stockholders                                  $          (7,797 )     $          (3,408 )   $    (4,389 )




The change in our net loss for the three months ended June 30, 2022 as compared
to our net loss for the three months ended June 30, 2021 primarily relates to a
decrease in casualty gains and increases in operating expenses and interest
expense, partially offset by an increase in total revenues.

Revenue

Rental income. Rental income was $64.2 million for the three months ended June
30, 2022 compared to $51.0 million for the three months ended June 30, 2021,
which was an increase of approximately $13.2 million. The increase between the
periods was primarily due to a 23.6% increase in the weighted average monthly
effective rent per occupied apartment unit in our Portfolio to $1,387 as of June
30, 2022 from $1,122 as of June 30, 2021. The increase in effective rent was
primarily driven by the value-add program that we have implemented, organic
growth in rents, and our acquisition activity in 2022 and 2021 and the timing of
the transactions.

Other income. Other income was $1.6 million for the three months ended June 30,
2022 compared to $1.5 million for the three months ended June 30, 2021, which
was an increase of approximately $0.1 million. The increase between the periods
was primarily due to an increase in non-refundable fees of approximately $0.1
million.

Expenses

Property operating expenses. Property operating expenses was $16.7 million for
the three months ended June 30, 2022 compared to $11.2 million for the three
months ended June 30, 2021, which was an increase of approximately $5.5 million.
The increase between periods was primarily due to a $3.0 million increase in
casualty losses and a $0.3 million increase in water and sewage expense.

Real estate taxes and insurance. Real estate taxes and insurance costs were $9.5
million for the three months ended June 30, 2022 compared to $8.5 million for
the three months ended June 30, 2021, which was an increase of approximately
$1.0 million. The increase between the periods was primarily due to our
acquisition activity in 2022 and 2021 and the timing of the transactions. The
increase between the periods was also due to a $0.5 million, or 6.2%, increase
in property taxes and a $0.3 million, or 26.3%, increase in property insurance.
Property taxes incurred in the first year of ownership may be significantly less
than subsequent years since the purchase price of the property may trigger a
significant increase in assessed value by the taxing authority in subsequent
years, increasing the costs of real estate taxes.

Property management fees. Property management fees were $1.9 million for the
three months ended June 30, 2022 compared to $1.5 million for the three months
ended June 30, 2021 which was an increase of $0.4 million. Property management
fees are primarily based on total revenues.

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Advisory and administrative fees. Advisory and administrative fees were $1.9
million for the three months ended June 30, 2022 compared to $1.9 million for
the three months ended June 30, 2021. For the three months ended June 30, 2022
and 2021, our Adviser elected to voluntarily waive the advisory and
administrative fees of approximately $5.2 million and $4.1 million. Our Adviser
is not contractually obligated to waive fees on New Assets in the future and may
cease waiving fees on New Assets at its discretion. Advisory and administrative
fees may increase in future periods as we acquire additional properties, which
will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and
administrative expenses were $3.8 million for the three months ended June 30,
2022 compared to $3.0 million for the three months ended June 30, 2021, which
was an increase of approximately $0.8 million. The increase between the periods
was primarily due to increases of $0.2 million in stock compensation expense and
a $0.2 million increase in other professional fees.

Property general and administrative expenses. Property general and
administrative expenses were $2.2 million for the three months ended June 30,
2022 compared to $1.8 million for the three months ended June 30, 2021, which
was an increase of approximately $0.4 million. The increase between the periods
was primarily due to a $0.2 million increase in professional fees and a $0.1
million increase in eviction fees.

Depreciation and amortization. Depreciation and amortization costs were $25.5
million for the three months ended June 30, 2022 compared to $20.0 million for
the three months ended June 30, 2021, which was an increase of approximately
$5.5 million. The increase between the periods was primarily due to an increase
of $1.5 million in amortization of intangible lease assets and an increase in
depreciation expense of approximately $4.1 million, which was primarily due to
our acquisition activity in 2022 and 2021 and the timing of the transactions.
The amortization of intangible lease assets over a six-month period from the
date of acquisition is expected to increase the amortization expense during the
initial year of operations for each property.

Other income and expenses

Interest expense. Interest expense was $12.4 million for the three months ended
June 30, 2022 compared to $10.7 million for the three months ended June 30,
2021, which was an increase of approximately $1.7 million. The increase between
the periods was primarily due to an increase in interest on debt of
approximately $4.4 million, partially offset by a decrease in interest rate swap
expense of approximately $2.7 million. The following table details the various
costs included in interest expense for the three months ended June 30, 2022 and
2021 (in thousands):

                                                   For the Three Months Ended June 30,
                                                     2022                       2021              $ Change
Interest on debt                              $           10,786         $            6,388     $      4,398
Amortization of deferred financing costs                     734                        495              239
Interest rate swap expense                                 1,066                      3,745           (2,679 )
Interest rate caps expense                                  (184 )                       55             (239 )
Total                                         $           12,402         $           10,683     $      1,719


The six months have ended June 30, 2022 compared to the half-year ended June 30, 2021

The following table provides a summary of our operating results for the six months ended June 30, 2022 and 2021 (in thousands):

                                                 For the Six Months Ended June 30,
                                                    2022                    2021            $ Change
Total revenues                                $         126,552       $        104,359     $    22,193
Total expenses                                         (116,693 )              (96,369 )       (20,324 )
Operating income                                          9,859                  7,990           1,869
Interest expense                                        (23,038 )              (21,299 )        (1,739 )
Casualty gains                                              357                  2,379          (2,022 )
Miscellaneous income                                        328                    940            (612 )
Loss on extinguishment of debt and
modification costs                                            -                   (328 )           328
Net loss                                                (12,494 )              (10,318 )        (2,176 )
Net loss attributable to redeemable
noncontrolling interests in the Operating
Partnership                                                 (44 )                  (31 )           (13 )
Net loss attributable to common
stockholders                                  $         (12,450 )     $        (10,287 )   $    (2,163 )


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The change in our net loss for the six months ended June 30, 2022 to net loss for the six months ended June 30, 2021 primarily relates to a decrease in claims gains and increases in operating expenses and interest expense, partially offset by an increase in total revenue.

Revenue

Rental income. Rental income was $123.4 million for the six months ended June
30, 2022 compared to $101.4 million for the six months ended June 30, 2021,
which was an increase of approximately $22.0 million. The increase between the
periods was primarily due to a 23.6% increase in the weighted average monthly
effective rent per occupied apartment unit in our Portfolio to $1,387 as of June
30, 2022 from $1,122 as of June 30, 2021. The increase in effective rent was
primarily driven by the value-add program that we have implemented and organic
growth in rents in the markets where our properties are located.

Other income. Other income was $3.1 million for the six months ended June 30,
2022 compared to $3.0 million for the six months ended June 30, 2021, which was
an increase of approximately $0.1 million. The increase between the periods was
primarily due to a $0.3 million increase in internet and tech income.

Expenses

Property operating expenses. Property operating expenses were $30.3 million for
the six months ended June 30, 2022 compared to $22.4 million for the six months
ended June 30, 2021, which was an increase of approximately $7.9 million. The
increase between the periods was primarily due to our acquisition activity in
2022 and 2021 and the timing of the transactions. The increase between the
periods was also due to a $4.0 million increase in casualty losses.

Real estate taxes and insurance. Real estate taxes and insurance costs were
$18.3 million for the six months ended June 30, 2022 compared to $17.2 million
for the six months ended June 30, 2021, which was an increase of approximately
$1.1 million. The increase between the periods was primarily due to a $0.7
million, or 4.6%, increase in property taxes and a $0.4 million, or 23.0%,
increase in property insurance. Property taxes incurred in the first year of
ownership may be significantly less than subsequent years since the purchase
price of the property may trigger a significant increase in assessed value by
the taxing authority in subsequent years, increasing the cost of real estate
taxes.

Property management fees. Property management fees were $3.7 million for the six
months ended June 30, 2022 and $3.0 million for the six months ended June 30,
2021. Property management fees are primarily based on total revenues.

Advisory and administrative fees. Advisory and administrative fees were $3.7
million for the six months ended June 30, 2022 and $3.8 million for the six
months ended June 30, 2021 which was a decrease of approximately $0.1 million.
For the six months ended June 30, 2022 and 2021, our Adviser elected to
voluntarily waive the advisory and administrative fees of approximately $10.1
million and $8.1 million. Our Adviser is not contractually obligated to waive
fees on New Assets in the future and may cease waiving fees on New Assets at its
discretion. Advisory and administrative fees may increase in future periods as
we acquire additional properties, which will be classified as New Assets.

Corporate general and administrative expenses. Corporate general and
administrative expenses were $7.3 million for the six months ended June 30, 2022
compared to $5.9 million for the six months ended June 30, 2021, which was an
increase of approximately $1.4 million. The increase was primarily due to
increases in other professional fees of $0.2 million and stock compensation
expense of $0.5 million.

Property general and administrative expenses. Property general and
administrative expenses were $4.2 million for the six months ended June 30, 2022
compared to $3.3 million for the six months ended June 30, 2021, which was an
increase of approximately $0.9 million. The increase was primarily due to an
increase in professional fees of $0.4 million.

Depreciation and amortization. Depreciation and amortization costs were $49.3
million for the six months ended June 30, 2022 compared to $40.7 million for the
six months ended June 30, 2021, which was an increase of approximately $8.6
million. The increase between the periods was primarily due a decrease in
amortization of intangible lease assets of $1.7 million, partially offset by an
increase of $6.8 million in depreciation expense, which was primarily due to our
acquisition activity in 2022 and 2021 and the timing of the transactions. The
amortization of intangible lease assets over a six-month period from the date of
acquisition is expected to increase the amortization expense during the initial
year of operations for each property.

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Other income and expenses

Interest expense. Interest expense was $23.0 million for the six months ended
June 30, 2022 compared to $21.3 million for the six months ended June 30, 2021,
which was an increase of approximately $1.7 million. The increase between the
periods was primarily due an increase in interest on debt of $5.7 million,
partially offset by decreases in interest rate swap expense of approximately
$2.8 million. The following table details the various costs included in interest
expense for the six months ended June 30, 2022 and 2021 (in thousands):

                                                   For the Six Months Ended June 30,
                                                    2022                      2021              $ Change
Interest on debt                              $          18,475         $          12,791     $      5,684
Amortization of deferred financing costs                  1,299                     1,056              243
Interest rate swap expense                                4,628                     7,409           (2,781 )
Interest rate caps expense                               (1,364 )                      43           (1,407 )
Total                                         $          23,038         $          21,299     $      1,739




Loss on extinguishment of debt and modification costs. There were no loss on
extinguishment of debt and modification costs for the six months ended June 30,
2022 compared to a $0.3 million loss for the six months ended June 30, 2021,
which was a decrease of approximately $0.3 million. The decrease between the
periods was due to a decrease in write-off of deferred financing costs of
approximately $0.3 million. The following table details the various costs
included in loss on extinguishment of debt and modification costs for the six
months ended June 30, 2022 and 2021 (in thousands):

                                                          For the Six 

Months ended June 30th,

                                                        2022                          2021               $ Change
Prepayment penalties and defeasance costs          $             -             $                 -     $          -
Write-off of deferred financing costs                            -                             328             (328 )
Debt modification and other extinguishment costs                 -                               -                -
Total                                              $             -             $               328     $       (328 )


Non-GAAP Measurements

Net operating income and comparable store net operating income

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

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

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

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

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

NOI and same store NOI for the three and six month periods ended June 30, 2022 and 2021

The following table, which has not been adjusted for the effects of non-controlling interests, reconciles our NOI and our Same Store NOI for the three and six months ended June 30, 2022 and 2021 to net loss, the most directly comparable GAAP financial measure (in thousands):

                                                  For the Three Months Ended        For the Six Months Ended
                                                           June 30,                         June 30,
                                                    2022               2021           2022             2021
Net loss                                         $   (7,827 )       $   (3,418 )   $  (12,494 )     $  (10,318 )
Adjustments to reconcile net loss to NOI:
Advisory and administrative fees                      1,868              1,900          3,711            3,768
Corporate general and administrative
expenses                                              3,812              2,978          7,298            5,918
Casualty-related expenses/(recoveries)       (1)      2,592               (435 )        3,642             (392 )
Casualty gain                                          (229 )           (2,379 )         (357 )         (2,379 )
Pandemic expense                                          -                 12              -               35
Property general and administrative expenses (2)        680                572          1,307              948
Depreciation and amortization                        25,548             19,986         49,266           40,744
Interest expense                                     12,402             10,683         23,038           21,299
Loss on extinguishment of debt and
modification costs                                        -                328              -              328
NOI                                              $   38,846         $   30,227     $   75,411       $   59,951
Less Non-Same Store
Revenues                                             (8,053 )           (2,008 )      (13,335 )         (3,926 )
Operating expenses                                    2,920              1,029          4,795            2,060
Operating income                                        (11 )             (305 )          (14 )           (645 )
Same Store NOI                                   $   33,702         $   28,943     $   66,857       $   57,440


(1) Adjustment to net loss to exclude certain operating expenses

are expenses/(recoveries) related to claims.

(2) Adjustment to net loss to exclude certain general and administrative property

expenses that do not reflect the continuing operations of the

properties or are incurred on our behalf at the property for expenses such as

legal, professional, centralized rental service and franchise taxes.

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Second quarter comparable store net operating income and Store properties not identical for the three months ended June 30, 2022 and 2021

There are 34 properties encompassing 13,433 units of apartment space in our same
store pool for the three months ended June 30, 2022 and 2021 (our "Q2 Same
Store" properties). Our Q2 Same Store properties exclude the following seven
properties in our Portfolio as of June 30, 2022: Cutter's Point, The Verandas at
Lake Norman, Creekside at Matthews, Six Forks Station, High House at Cary, The
Adair and Estates on Maryland as well as the 67 units that are currently down
(see Note 5).

The following table reflects revenue, building operating expenses and NOI for the three months ended June 30, 2022 and 2021 for our Q2 same store and
Different store properties (thousands of dollars):

                                         For the Three Months Ended June 30,
                                           2022                       2021            $ Change       % Change
Revenues
Same Store
Rental income                       $           56,206         $           49,086     $   7,120           14.5 %
Other income                                     1,507                      1,469            38            2.6 %
Same Store revenues                             57,713                     50,555         7,158           14.2 %
Non-Same Store
Rental income                                    7,946                      1,961         5,985            N/M
Other income                                       107                         47            60            N/M
Non-Same Store revenues                          8,053                      2,008         6,045            N/M
Total revenues                                  65,766                     52,563        13,203           25.1 %

Operating expenses
Same Store
Property operating expenses (1)                 12,583                     11,013         1,570           14.3 %
Real estate taxes and insurance                  8,566                      8,191           375            4.6 %
Property management fees (2)                     1,683                      1,453           230           15.8 %
Property general and
administrative expenses (3)                      1,315                      1,122           193           17.2 %
Same Store operating expenses                   24,147                     21,779         2,368           10.9 %
Non-Same Store
Property operating expenses (4)                  1,528                        583           945            N/M
Real estate taxes and insurance                    965                        317           648            N/M
Property management fees (2)                       229                         63           166            N/M
Property general and
administrative expenses (5)                        198                         66           132            N/M
Non-Same Store operating expenses                2,920                      1,029         1,891            N/M
Total operating expenses                        27,067                     22,808         4,259           18.7 %

Operating income
Same Store
Miscellaneous income                               136                        167           (31 )        -18.6 %
Non-Same Store
Miscellaneous income                                11                        305          (294 )          N/M
Total operating income                             147                        472          (325 )        -68.9 %

NOI
Same Store                                      33,702                     28,943         4,759           16.4 %
Non-Same Store                                   5,144                      1,284         3,860          300.6 %
Total NOI                           $           38,846         $           30,227     $   8,619           28.5 %

(1) For the three months ended June 30, 2022 and 2021, excludes approximately

$361,000 and ($425,000)respectively, of accidents related

expenses/(recoveries).

(2) Costs incurred by an unaffiliated third party who is an affiliate of the

non-controlling sponsor of the PO.

(3) For the three months ended June 30, 2022 and 2021, excludes approximately

$578,000 and $491,000respectively, expenses that do not reflect

continuing operations of the Properties or are undertaken on our behalf at

the property for expenses such as legal, professional, centralized rental

service charges and franchise taxes.

                                       36
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(4) For the three months ended June 30, 2022 and 2021, excludes approximately

$2,231,000 and $2,000respectively, accident-related expenses.

(5) For the three months ended June 30, 2022 and 2021, excludes approximately

$102,000 and $81,000respectively, expenses that do not reflect

continuing operations of the Properties or are undertaken on our behalf at

the property for expenses such as legal, professional, centralized rental

service charges and franchise taxes.

See reconciliation of net loss and NOI above under “NOI and Same Store NOI for the three and six months ended June 30, 2022 and 2021.”

Second quarter comparable store operating results for the three months ended June 30, 2022 and 2021

As of June 30, 2022, our Q2 Same Store properties were approximately 94.5%
leased with a weighted average monthly effective rent per occupied apartment
unit of $1,385. As of June 30, 2021, our Q2 Same Store properties were
approximately 96.0% leased with a weighted average monthly effective rent per
occupied apartment unit of $1,162. For our Q2 Same Store properties, we recorded
the following operating results for the three months ended June 30, 2022 as
compared to the three months ended June 30, 2021:

Revenue

Rental income. Rental income was $56.2 million for the three months ended June
30, 2022 compared to $49.1 million for the three months ended June 30, 2021,
which was an increase of approximately $7.1 million, or 14.5%. The majority of
the increase is related to a 19.2% increase in the weighted average monthly
effective rent per occupied apartment unit to $1,385 as of June 30, 2022 from
$1,162 as of June 30, 2021, partially offset by a 1.5% decrease in occupancy.

Other income. Other income was $1.5 million for the three months ended June 30, 2022compared to $1.5 million for the three months ended June 30, 2021.

Expenses

Property operating expenses. Property operating expenses were $12.6 million for
the three months ended June 30, 2022 compared to $11.0 million for the three
months ended June 30, 2021, which was an increase of $1.6 million, or 14.3%. The
majority of the increase is related to a $0.9 million, or 20.1% increase in
repair and maintenance costs and a $0.4 million, or 9.7% increase in payroll
costs.

Real estate taxes and insurance. Real estate taxes and insurance costs were $8.6
million for the three months ended June 30, 2022 compared to $8.2 million for
the three months ended June 30, 2021, which was an increase of approximately
$0.4 million, or 4.6%. The increase is primarily related to a $0.2 million, or
3.2%, increase in property taxes.

Property management fees. Property management fees were $1.7 million for the
three months ended June 30, 2022 compared to $1.5 million for the three months
ended June 30, 2021, which was an increase of approximately $0.2 million. The
increase between the periods was primarily due to an increase in revenues, which
the fee is primarily based on.

Property general and administrative expenses. Property general and
administrative expenses were $1.3 million for the three months ended June 30,
2022 compared to $1.1 million for the three months ended June 30, 2021, which
was an increase of approximately $0.2 million. The majority of the increase is
related to a $0.1 million increase in office operation expenses.

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Net operating income from our comparable store and Store properties not identical for the semester ended June 30, 2022 and 2021

There are 34 properties encompassing 13,433 units of apartment space in our same
store pool for the six months ended June 30, 2022 and 2021 (our "Same Store"
properties). Our Same Store properties exclude the following seven properties in
our Portfolio as of June 30, 2022: Cutter's Point, The Verandas at Lake Norman,
Creekside at Matthews, Six Forks Station, High House at Cary, The Adair and
Estates on Maryland as well as the 67 units that are currently down (see Note
5).

The following table reflects the revenues, property operating expenses and NOI
for the six months ended June 30, 2022 and 2021 for our Same Store and Non-Same
Store properties (dollars in thousands):

                                       For the Six Months Ended June 30,
                                          2022                   2021           $ Change       % Change
Revenues
Same Store
Rental income                       $        110,328       $         97,521     $  12,807           13.1 %
Other income                                   2,889                  2,912           (23 )         -0.8 %
Same Store revenues                          113,217                100,433        12,784           12.7 %
Non-Same Store
Rental income                                 13,121                  3,866         9,255            N/M
Other income                                     214                     60           154            N/M
Non-Same Store revenues                       13,335                  3,926         9,409            N/M
Total revenues                               126,552                104,359        22,193           21.3 %

Operating expenses
Same Store
Property operating expenses (1)               24,152                 21,578         2,574           11.9 %
Real estate taxes and insurance               16,676                 16,597            79            0.5 %
Property management fees (2)                   3,289                  2,876           413           14.4 %
Property general and
administrative expenses (3)                    2,557                  2,237           320           14.3 %
Same Store operating expenses                 46,674                 43,288         3,386            7.8 %
Non-Same Store
Property operating expenses (4)                2,505                  1,168         1,337            N/M
Real estate taxes and insurance                1,575                    633           942            N/M
Property management fees (2)                     380                    125           255            N/M
Property general and
administrative expenses (5)                      335                    134           201            N/M
Non-Same Store operating expenses              4,795                  2,060         2,735            N/M
Total operating expenses                      51,469                 45,348         6,121           13.5 %

Operating income
Same Store
Miscellaneous income                             314                    295            19            6.4 %
Non-Same Store
Miscellaneous income                              14                    645          (631 )          N/M
Total operating income                           328                    940          (612 )        -65.1 %

NOI
Same Store                                    66,857                 57,440         9,417           16.4 %
Non-Same Store                                 8,554                  2,511         6,043            N/M
Total NOI                           $         75,411       $         59,951     $  15,460           25.8 %


(1) For the six months ended June 30, 2022 and 2021, excludes approximately

$1,315,000 and $368,000respectively, losses related recoveries.

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(2) Costs incurred by an unaffiliated third party who is an affiliate of the

non-controlling sponsor of the PO.

(3) For the six months ended June 30, 2022 and 2021, excludes approximately

$1,187,000 and $812,000respectively, expenses that do not reflect

continuing operations of the Properties or are undertaken on our behalf at

the property for expenses such as legal fees, professional fees and franchise taxes.

(4) For the six months ended June 30, 2022 and 2021, excludes approximately

($44,000) and $11,000respectively, accident-related expenses.

(5) For the six months ended June 30, 2022 and 2021, excludes approximately

$120,000 and $136,000respectively, expenses that do not reflect

continuing operations of the Properties or are undertaken on our behalf at

the property for expenses such as legal, professional, centralized rental

service charges and franchise taxes.

See reconciliation of net loss and NOI above under “NOI and Same Store NOI for the three and six months ended June 30, 2022 and 2021.”

Comparable store operating results for the six months ended June 30, 2022 and 2021

As of June 30, 2022, our Same Store properties were approximately 94.5% leased
with a weighted average monthly effective rent per occupied apartment unit of
$1,385. As of June 30, 2021, our Same Store properties were approximately 96.0%
leased with a weighted average monthly effective rent per occupied apartment
unit of $1,162. For our Same Store properties, we recorded the following
operating results for the six months ended June 30, 2022 as compared to the six
months ended June 30, 2021:

Revenue

Rental income. Rental income was $110.3 million for the six months ended June
30, 2022 compared to $97.5 million for the six months ended June 30, 2021, which
was an increase of approximately $12.8 million, or 13.1%. The majority of the
increase is related to a 19.2% increase in the weighted average monthly
effective rent per occupied apartment unit to $1,385 as of June 30, 2022 from
$1,162 as of June 30, 2021, partially offset by a 1.5% decrease in occupancy.

Other income. Other income was $2.9 million for the six months ended June 30, 2022 compared to $2.9 million for the six months ended June 30, 2021.

Expenses

Property operating expenses. Property operating expenses were $24.2 million for
the six months ended June 30, 2022 compared to $21.6 million for the six months
ended June 30, 2021, which was an increase of approximately $2.6 million, or
11.9%. The majority of the increase is related to a $1.3 million, or 15.3%,
increase in repairs and maintenance and a $0.7 million, or 9.7%, increase in
payroll.

Real estate taxes and insurance. Real estate taxes and insurance costs were
$16.7 million for the six months ended June 30, 2022 compared to $16.6 million
for the six months ended June 30, 2021, which was an increase of approximately
$0.1 million, or 0.5%. The majority of the increase is related to a $0.3
million, or 11.5%, increase in insurance.

Property management fees. Property management fees were $3.3 million for the six
months ended June 30, 2022 compared to $2.9 million for the six months ended
June 30, 2021, which was an increase of approximately $0.4 million, or 14.4%.
The majority of the increase is related to a $12.8 million, or 13.1%, increase
in rental income, which the fee is primarily based on.

Property general and administrative expenses. Property general and
administrative expenses were $2.6 million for the six months ended June 30, 2022
compared to $2.2 million for the six months ended June 30, 2021, which was an
increase of approximately $0.4 million. The majority of the increase is related
to a $0.2 million increase in office operation expenses.

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FFOs, Core FFOs and AFFOs

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

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

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

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

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

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

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The following table reconciles our calculations of FFO, Core FFO and AFFO to net
loss, the most directly comparable GAAP financial measure, for the three and six
months ended June 30, 2022 and 2021 (in thousands, except per share amounts):

                                      For the Three Months Ended        For the Six Months Ended
                                               June 30,                         June 30,
                                        2022               2021           2022             2021        % Change (1)
Net loss                             $   (7,827 )       $   (3,418 )   $  (12,494 )     $  (10,318 )            21.1 %
Depreciation and amortization            25,548             19,986         49,266           40,744              20.9 %
Adjustment for noncontrolling
interests                                   (72 )              (50 )         (129 )            (91 )            41.8 %
FFO attributable to common
stockholders                             17,649             16,518         36,643           30,335              20.8 %

FFO per share - basic                $     0.69         $     0.66     $     1.43       $     1.21              18.2 %
FFO per share - diluted              $     0.69         $     0.66     $     1.43       $     1.21              18.2 %

Loss on extinguishment of debt
and modification costs                        -                328              -              328               N/M
Casualty-related
expenses/(recoveries)                     2,592               (435 )        3,642             (392 )             N/M
Casualty gains                             (229 )           (2,379 )         (357 )         (2,379 )             N/M
Pandemic expense                              -                 12              -               35               N/M
Amortization of deferred
financing costs - acquisition
term notes                                  326                140            505              349              44.7 %
Adjustment for noncontrolling
interests                                   (10 )                7            (14 )              6               N/M
Core FFO attributable to common
stockholders                             20,328             14,191         40,419           28,282              42.9 %

Core FFO per share - basic           $     0.79         $     0.56     $     1.58       $     1.13              39.8 %
Core FFO per share - diluted         $     0.79         $     0.56     $     1.58       $     1.13              39.8 %

Amortization of deferred
financing costs - long term debt            408                355            794              707              12.3 %
Equity-based compensation
expense                                   2,005              1,796          3,881            3,404              14.0 %
Adjustment for noncontrolling
interests                                   (11 )               (6 )          (17 )            (12 )            41.7 %
AFFO attributable to common
stockholders                             22,730             16,336         45,077           32,381              39.2 %

AFFO per share - basic               $     0.89         $     0.65     $     1.76       $     1.29              36.4 %
AFFO per share - diluted             $     0.89         $     0.65     $     1.76       $     1.29              36.4 %

Weighted average common stock
outstanding - basic                      25,672             25,140         25,646           25,104               2.2 %
Weighted average common stock
outstanding - diluted                    25,672             25,140         25,646           25,104               2.2 %

Dividends declared per common
share                                $     0.38         $     0.34     $     0.76       $     0.68              11.4 %

FFO Coverage - diluted           (2)      1.81x              1.93x          1.88x            1.77x              6.13 %
Core FFO Coverage - diluted      (2)      2.08x              1.65x          2.08x            1.66x             25.56 %
AFFO Coverage - diluted          (2)      2.33x              1.90x          2.32x            1.89x             22.52 %


(1) Represents the percentage change for the six months ended June 30, 2022

compared to the half-year ended June 30, 2021.

(2) Indicates the FFO/Core FFO/AFFO coverage ratio per ordinary share (diluted) on

dividends declared per common share during the period.

                                       41
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The three months ended June 30, 2022 compared to the three months ended June 30, 2021

FFO was $17.6 million for the three months ended June 30, 2022 compared to $16.5
million for the three months ended June 30, 2021, which was an increase of
approximately $1.1 million. The change in our FFO between the periods primarily
relates to an increase in total revenues of $13.2 million, partially offset by
increases in operating expenses.

Core FFO was $20.3 million for the three months ended June 30, 2022 compared to
$14.2 million for the three months ended June 30, 2021, which was an increase of
approximately $6.1 million. The change in our Core FFO between the periods
primarily relates to an increase in FFO and a decrease in casualty gains of $2.2
million.

AFFO was $22.7 million for the three months ended June 30, 2022 compared to
$16.3 million for the three months ended June 30, 2021, which was an increase of
approximately $6.4 million. The change in our AFFO between the periods primarily
relates to an increase in Core FFO and an increase in equity-based compensation
expense of $0.2 million.

The six months have ended June 30, 2022 compared to the half-year ended June 30, 2021

FFO was $36.6 million for the six months ended June 30, 2022 compared to $30.3
million for the six months ended June 30, 2021, which was an increase of
approximately $6.3 million. The change in our FFO between the periods primarily
relates to an increase in total revenues of $22.2 million, partially offset by
an increase in operating expenses.

Core FFO was $40.4 million for the six months ended June 30, 2022 compared to
$28.3 million for the six months ended June 30, 2021, which was an increase of
approximately $12.1 million. The change in our Core FFO between the periods
primarily relates to an increase in FFO and an increase in casualty related
expenses of $4.0 million, partially offset by a decrease in loss on
extinguishment of debt and modification costs of $0.3 million.

AFFO was $45.1 million for the six months ended June 30, 2022 compared to $32.4
million for the six months ended June 30, 2021, which was an increase of
approximately $12.7 million. The change in our AFFO between the periods
primarily relates to an increase in Core FFO and an increase of equity-based
compensation expense of $0.5 million.

Cash and capital resources

Our short-term cash requirements consist primarily of funds needed to pay debt maturities, operating expenses and other expenses directly associated with our multi-family properties, including:

• capital expenditures to continue our value-added program and improve the

        quality and performance of our multifamily properties;


    •   interest expense and scheduled principal payments on outstanding
        indebtedness (see "-Obligations and Commitments" below);

• recurring maintenance required to maintain our multi-family properties;

  • distributions necessary to qualify for taxation as a REIT;


  • acquisition of additional properties;


  • advisory and administrative fees payable to our Adviser;


  • general and administrative expenses;


  • reimbursements to our Adviser; and


  • property management fees payable to BH.


We expect to meet our short-term liquidity requirements generally through net
cash provided by operations and existing cash balances and any unused capacity
on the Corporate Credit Facility. As of June 30, 2022, we had approximately
$19.3 million of renovation value-add reserves for our planned capital
expenditures to implement our value-add program. Renovation value-add reserves
are not required to be held in escrow by a third party. We may reallocate these
funds, at our discretion, to pursue other investment opportunities or meet our
short-term liquidity requirements.

Our long-term liquidity requirements consist primarily of funds necessary to pay
for the costs of acquiring additional multifamily properties, renovations and
other capital expenditures to improve our multifamily properties and scheduled
debt payments and distributions. We expect to meet our long-term liquidity
requirements through various sources of capital, which may include a revolving
credit facility and future debt or equity issuances, existing working capital,
net cash provided by operations, long-term mortgage indebtedness and other
secured and unsecured borrowings, and property dispositions. However, there are
a number of factors that may have a material adverse effect on our ability to
access these capital sources, including the state of overall equity and credit
markets, our degree of leverage, our unencumbered asset base and borrowing
restrictions imposed by lenders (including as a result of any failure to comply
with financial covenants in our existing and future indebtedness), general
market conditions for REITs, our operating

                                       42
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performance and liquidity, market perceptions about us and restrictions on sales
of properties under the Code. The Company continues to monitor the impact on
COVID-19 and its impact on future rent collections, valuation of real estate
investments, impact on cash flow and ability to refinance or repay debt. The
success of our business strategy will depend, in part, on our ability to access
these various capital sources.

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

On March 4, 2020, the Company, the OP and the Adviser entered into separate
equity distribution agreements with each of the ATM Sales Agents, pursuant to
which the Company may issue and sell from time to time shares of the Company's
common stock, par value $0.01 per share, having an aggregate sales price of up
to $225,000,000 (the "2020 ATM Program"). Sales of shares of common stock, if
any, may be made in transactions that are deemed to be "at the market"
offerings, as defined in Rule 415 under the Securities Act, including, without
limitation, sales made by means of ordinary brokers' transactions on the New
York Stock Exchange, to or through a market maker at market prices prevailing at
the time of sale, at prices related to prevailing market prices or at negotiated
prices based on prevailing market prices. In addition to the issuance and sale
of shares of common stock, the Company may enter into forward sale agreements
with each of Jefferies, KeyBanc and Raymond James, or their respective
affiliates, through the 2020 ATM Program. During the six months ended June 30,
2022, the Company issued 52,091 shares of common stock at an average price of
$83.16 per share for gross proceeds of $4.3 million under the 2020 ATM Program.
The Company paid approximately $0.1 million in fees to the 2020 ATM Sales Agents
with respect to such sales and incurred other issuance costs of approximately
$0.2 million, both of which were netted against the gross proceeds and recorded
in additional paid in capital (see Note 8 to our consolidated financial
statements).

We believe that our available cash, expected operating cash flows, and potential
debt or equity financings will provide sufficient funds for our operations,
anticipated scheduled debt service payments and dividend requirements for the
twelve-month period following June 30, 2022.

Cash flow

The following table presents selected data from our Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (in thousands):

                                                         For the Six Months 

Ended June 30th,

                                                           2022             

2021

Net cash provided by operating activities            $          38,685       $          30,950
Net cash used in investing activities                         (165,414 )              (139,764 )
Net cash provided by financing activities                      104,251                 112,026
Net increase (decrease) in cash, cash equivalents
and restricted cash                                            (22,478 )                 3,212
Cash, cash equivalents and restricted cash,
beginning of period                                             88,696                  57,015
Cash, cash equivalents and restricted cash, end of
period                                               $          66,218       $          60,227




Cash flows from operating activities. During the six months ended June 30, 2022,
net cash provided by operating activities was $38.7 million compared to net cash
provided by operating activities of $31.0 million for the six months ended June
30, 2021. The change in cash flows from operating activities was mainly due to
an increase in total revenues.

Cash flows from investing activities. During the six months ended June 30, 2022,
net cash used in investing activities was $165.4 million compared to net cash
used in investing activities of $139.8 million for the six months ended June 30,
2021. The change in cash flows from investing activities was mainly due to our
acquisition activity in 2022 and 2021 and disposition activity in 2020 and a
decrease in insurance proceeds received from casualty losses.

Cash flows from financing activities. During the six months ended June 30, 2022,
net cash provided by financing activities was $104.3 million compared to net
cash provided by financing activities of $112.0 million for the six months ended
June 30, 2021. The change in cash flows from financing activities was mainly due
to an increase in repurchases of common stock of $5.1 million.

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Debt, derivatives and hedging activity

Mortgage debt

As of June 30, 2022, our subsidiaries had aggregate mortgage debt outstanding to
third parties of approximately $1.4 billion at a weighted average interest rate
of 3.29% and an adjusted weighted average interest rate of 2.67%. For purposes
of calculating the adjusted weighted average interest rate of our mortgage debt
outstanding, we have included the weighted average fixed rate of 1.1245% for
one-month LIBOR on our combined $1.3 billion notional amount of interest rate
swap agreements, which effectively fix the interest rate on $1.3 billion of our
floating rate mortgage debt. See Notes 6 and 7 to our consolidated financial
statements for additional information.

We have entered into and expect to continue to enter into interest rate swap and
cap agreements with various third parties to fix or cap the floating interest
rates on a majority of our floating rate mortgage debt outstanding. The interest
rate swap agreements generally have a term of four to five years and effectively
establish a fixed interest rate on debt on the underlying notional amounts. The
interest rate swap agreements involve the receipt of variable-rate amounts from
a counterparty in exchange for us making fixed-rate payments over the life of
the agreements without exchange of the underlying notional amount. As of June
30, 2022, interest rate swap agreements effectively covered 98% of our $1.3
billion of floating rate mortgage debt outstanding.

The interest rate cap agreements generally have a term of three to four years,
cover the outstanding principal amount of the underlying debt and are generally
required by our lenders. Under the interest rate cap agreements, we pay a fixed
fee in exchange for the counterparty to pay any interest above a maximum rate.
As of June 30, 2022, interest rate cap agreements covered $537.1 million of our
$1.3 billion of floating rate mortgage debt outstanding. These interest rate cap
agreements effectively cap one-month LIBOR on $537.1 million of our floating
rate mortgage debt at a weighted average rate of 4.66%.

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

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

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

Corporate Credit Facility

On March 25, 2022, the Company entered into a loan modification agreement by and
among the Company, the OP, Truist Bank and the Lenders party thereto, which
modified the Company's existing credit agreement, dated as of June 30, 2021 (as
amended and supplemented, the "Corporate Credit Facility"). As of June 30, 2022,
there was $350.0 million available for borrowing under the Corporate Credit
Facility. Subject to conditions provided in the Corporate Credit Facility, the
commitments under Corporate Credit Facility may be increased up to an additional
$150.0 million if the lenders agree to increase their commitments or if the
lenders agree for the increase to be funded by any additional lender proposed by
the Company, through the OP. The Corporate Credit Facility will mature on June
30, 2024 with respect to the revolving commitments, unless the Company exercises
its option to voluntarily and permanently reduce all of the revolving
commitments before the maturity date or elects to exercise its right and option
to extend the facility with respect to the revolving commitments for a single
one-year term. As of June 30, 2022, there was $335.0 million in aggregate
principal outstanding under the Corporate Credit Facility.

The Corporate Credit Facility is a non-recourse obligation and contains
customary events of default, including defaults in the payment of principal or
interest, defaults in compliance with the covenants contained in the document
evidencing the loan, defaults in payments under any other security instrument,
and bankruptcy or other insolvency events. As of June 30, 2022, the Company
believes it is compliant with all provisions. For additional information
regarding our Corporate Credit Facility, see Note 6.

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Interest rate swap contracts

In order to fix a portion of, and mitigate the risk associated with, our
floating rate indebtedness (without incurring substantial prepayment penalties
or defeasance costs typically associated with fixed rate indebtedness when
repaid early or refinanced), we, through the OP, have entered into eleven
interest rate swap transactions with KeyBank and two with Truist (collectively
the "Counterparties") with a combined notional amount of $1.3 billion. As of
June 30, 2022, the interest rate swaps we have entered into effectively replace
the floating interest rate (one-month LIBOR) with respect to $1.3 billion of our
floating rate debt outstanding with a weighted average fixed rate of 1.1245%.
During the term of these interest rate swap agreements, we are required to make
monthly fixed rate payments of 1.1245%, on a weighted average basis, on the
notional amounts, while the Counterparties are obligated to make monthly
floating rate payments based on one-month LIBOR to us referencing the same
notional amounts. For purposes of hedge accounting under FASB ASC
815, Derivatives and Hedging, we have designated these interest rate swaps as
cash flow hedges of interest rate risk. See Notes 6 and 7 to our consolidated
financial statements for additional information.

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

Effective date End date Counterparty Notional amount

   Fixed Rate (1)
  July 1, 2017        July 1, 2022         KeyBank                 100,000              1.7820 %
  June 1, 2019        June 1, 2024         KeyBank                  50,000              2.0020 %
  June 1, 2019        June 1, 2024          Truist                  50,000              2.0020 %
September 1, 2019   September 1, 2026      KeyBank                 100,000              1.4620 %
September 1, 2019   September 1, 2026      KeyBank                 125,000              1.3020 %
 January 3, 2020    September 1, 2026      KeyBank                  92,500              1.6090 %
  March 4, 2020       June 1, 2026          Truist                 100,000              0.8200 %
  June 1, 2021      September 1, 2026      KeyBank                 200,000              0.8450 %
  June 1, 2021      September 1, 2026      KeyBank                 200,000              0.9530 %
  March 1, 2022       March 1, 2025         Truist                 145,000              0.5730 %
  March 1, 2022       March 1, 2025         Truist                 105,000              0.6140 %
                                                         $       1,267,500              1.1245 % (2)


(1) The floating rate option for interest rate swaps is one month LIBOR. As

of June 30, 2022the one-month LIBOR was 1.79%.

(2) Represents the weighted average fixed rate of interest rate swaps.



As of June 30, 2022, the Company had the following outstanding interest rate
swaps that were designated as cash flow hedges of interest rate risk with future
effective dates (dollars in thousands):

Effective date End date Counterparty Notional amount

   Fixed Rate (1)
September 1, 2026   January 1, 2027       KeyBank       $          92,500              1.7980 %



(1) The floating rate option for interest rate swaps is one month LIBOR. As

of June 30, 2022the one-month LIBOR was 1.79%.

Obligations and Commitments

The following table summarizes our contractual obligations and commitments as of
June 30, 2022 for the next five calendar years subsequent to June 30, 2022. We
used one-month LIBOR as of June 30, 2022 to calculate interest expense due by
period on our floating rate debt and net interest expense due by period on our
interest rate swaps.

                                                               Payments Due by Period (in thousands)
                                     Total          2022         2023         2024          2025          2026         Thereafter
Operating Properties
Mortgage Debt
Principal payments                $ 1,358,675     $    650     $ 21,003     $ 394,952     $ 205,738     $ 423,149     $    313,183
Interest expense            (1)       143,022       18,539       36,018        29,288        22,626        15,672           20,879
Total                             $ 1,501,697     $ 19,189     $ 57,021     $ 424,240     $ 228,364     $ 438,821     $    334,062

Credit Facility
Principal payments                $   335,000     $      -     $      -     $ 335,000     $       -     $       -     $          -
Interest expense                       28,436        7,148       14,231         7,057             -             -                -
Total                             $   363,436     $  7,148     $ 14,231     $ 342,057     $       -     $       -     $          -

Total contractual obligations and commitments $1,865,133 $26,337 $71,252 $766,297 $228,364 $438,821 $334,062

(1) Interest expense includes the impact of expected settlements on

interest rate swaps that have been entered into to fix the interest rate

rate on the hedged portion of our floating rate debt securities. From June

As of December 30, 2022, we had entered into eleven interest rate swap transactions with a

combined notional amount of $1.3 billion. We have allocated the total impact

    of


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the expected regulations on $1.3 billion notional amount of interest rate

is exchanged for “mortgage debt of operating properties”. We used one month LIBOR from

June 30, 2022 to determine our expected settlements through the terms of the

    interest rate swaps.




Corporate Credit Facility


The Corporate Credit Facility will mature on June 30, 2024 with respect to the
revolving commitments, unless the Company exercises its option to voluntarily
and permanently reduce all of the revolving commitments before the maturity date
or elects to exercise its right and option to extend the facility with respect
to the revolving commitments for a single one-year term.



Advisory Agreement



Our Advisory Agreement requires that we pay our Adviser an annual advisory and
administrative fee of 1.2%. The advisory and administrative fees paid to the
Adviser on the Contributed Assets (as defined in the Advisory Agreement) are
subject to an annual cap of approximately $5.4 million. For the three months
ended June 30, 2022 and 2021, the Company incurred advisory and administrative
fees of $1.9 million and $1.9 million, respectively. For the six months ended
June 30, 2022 and 2021, advisory and administrative fees were $3.7 million and
$3.8 million, respectively.



NLMF Holdco, LLC



The Company's agreement with NLMF Holdco, LLC may result in additional funding
requirements to cover future project costs. The maximum exposure of potential
commitments is expected to be no more than $4.0 million. We expect that these
actions will provide faster, more reliable and lower cost internet to our
residents. We expect to roll out this service to our other properties in the
future. As of June 30, 2022, the Company has funded approximately $0.3 million
to NLMF Holdco, LLC which is included in prepaid and other assets on the
consolidated balance sheet of the Company. For the six months ended June 30,
2022, the Company incurred expenses of $0.1 million for fiber internet service
which is included in property operating expenses on the consolidated statement
of operations and comprehensive income (loss).



Capital expenditures and value-added program

We anticipate incurring average annual repairs and maintenance expense of $575
to $725 per apartment unit in connection with the ongoing operations of our
business. These expenditures are expensed as incurred. In addition, we reserve,
on average, approximately $250 to $350 per apartment unit for non-recurring
capital expenditures and/or lender required replacement reserves. When incurred,
these expenditures are either capitalized or expensed, in accordance with GAAP,
depending on the type of the expenditure. Although we will continuously monitor
the adequacy of this average, we believe these figures to be sufficient to
maintain the properties at a high level in the markets in which we operate. A
majority of the properties in our Portfolio were underwritten and acquired with
the premise that we would invest $4,000 to $10,000 per unit in the first 36
months of ownership, in an effort to add value to the asset's exterior and
interiors. In many cases, we reserve cash at the closing of each acquisition to
fund these planned capital expenditures and value-add improvements. As of June
30, 2022, we had approximately $19.3 million of renovation value-add reserves
for our planned capital expenditures and other expenses to implement our
value-add program. The following table sets forth a summary of our capital
expenditures related to our value-add program for the three and six months ended
June 30, 2022 and 2021 (in thousands):

                                          For the Three Months Ended June      For the Six Months Ended June
                                                        30,                                 30,
         Rehab Expenditures                  2022                2021            2022                2021
Interior                              (1) $     5,924         $     3,027     $    10,638         $     5,359
Exterior and common area                        2,437               2,321           3,354               5,281
Total rehab expenditures                  $     8,361         $     5,348   

$13,992 $10,640

(1) Includes total capital expenditures during the period on

interior renovations in progress. For the six months ended June 30, 2022 and 2021,

we carried out complete and partial interior renovations on 1,181 and 621 units,

    respectively.


Income Taxes

We anticipate that we will continue to qualify to be taxed as a REIT for U.S.
federal income tax purposes, and we intend to continue to be organized and to
operate in a manner that will permit us to qualify as a REIT. To qualify as a
REIT, we must meet certain organizational and operational requirements,
including a requirement to distribute at least 90% of our annual REIT taxable
income to stockholders. As a REIT, we will be subject to federal income tax on
our undistributed REIT taxable income and net capital gain and to a 4%
nondeductible excise tax on any amount by which distributions we pay with
respect to any calendar year are less than the sum of (1) 85% of our ordinary
income, (2) 95% of our capital gain net income and (3) 100% of our undistributed
income from prior years. Taxable income from certain non-REIT activities is
managed through a TRS and is subject to applicable federal, state, and local
income and margin taxes. We had no significant taxes associated with our TRS for
the six months ended June 30, 2022 and 2021.

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

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

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

We had no material unrecognized tax benefit or expense, accrued interest or
penalties as of June 30, 2022. We and our subsidiaries are subject to federal
income tax as well as income tax of various state and local jurisdictions. The
2021, 2020 and 2019 tax years remain open to examination by tax jurisdictions to
which our subsidiaries and we are subject. When applicable, we recognize
interest and/or penalties related to uncertain tax positions on our consolidated
statements of operations and comprehensive income (loss).

Dividends

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

We will make dividend payments based on our estimate of taxable earnings per
share of common stock, but not earnings calculated pursuant to GAAP. Our
dividends and taxable income and GAAP earnings will typically differ due to
items such as depreciation and amortization, fair value adjustments, differences
in premium amortization and discount accretion, and non-deductible general and
administrative expenses. Our quarterly dividends per share may be substantially
different than our quarterly taxable earnings and GAAP earnings per share. Our
Board declared our second quarterly dividend of 2022 of $0.38 per share on April
25, 2022 which was paid on June 30, 2022 and funded out of cash flows from
operations.

Off-balance sheet arrangements

From June 30, 2022 and December 31, 2021we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, expenses in fixed assets or our capital resources.

Significant Accounting Policies and Estimates

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

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Allocation of the purchase price

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

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

impairment

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

Inflation

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

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

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code
and expect to continue to qualify as a REIT. To qualify as a REIT, we must meet
a number of organizational and operational requirements, including a requirement
that we distribute at least 90% of our "REIT taxable income," as defined by the
Code, to our stockholders. Taxable income from certain non-REIT activities is
managed through a TRS and is subject to applicable federal, state, and local
income and margin taxes. We had no significant taxes associated with our TRS for
the six months ended June 30, 2022 and 2021. We believe we qualify for taxation
as a REIT under the Code, and we intend to continue to operate in such a manner,
but no assurance can be given that we will operate in a manner so as to qualify
as a REIT.

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