Filed Pursuant to Rule 424(b)(3)
Registration No. 333-269415
PROSPECTUS SUPPLEMENT NO. 4
(To Prospectus dated April 1, 2024)
BLUEROCK HOMES TRUST, INC.
This prospectus supplement
(the “Prospectus Supplement”) updates, amends, and supplements the prospectus dated April 1, 2024, as supplemented by (i)
that certain Prospectus Supplement No. 1 dated May 9, 2024, (ii) that certain Prospectus Supplement No. 2 dated May 22, 2024, and (iii)
that certain Prospectus Supplement No. 3 dated June 11, 2024 (collectively, the “Prospectus”), which forms a part of our Registration
Statement on Form S-11 (Registration No. 333-269415). Capitalized terms used in this Prospectus Supplement No. 4 and not otherwise defined
herein have the meanings specified in the Prospectus.
This Prospectus Supplement
No. 4 is being filed to update, amend, and supplement the information in the Prospectus with the information contained in our Current
Report on Form 10-Q filed with the Securities and Exchange Commission (“SEC”) on August 8, 2024 (the “Form 10-Q Filing”).
Accordingly, we have attached the Form 10-Q Filing to this Prospectus Supplement.
You should read this Prospectus
Supplement in conjunction with the Prospectus, including any amendments and supplements thereto. This Prospectus Supplement is qualified
by reference to the Prospectus, except to the extent that the information contained in this Prospectus Supplement supersedes the information
contained in the Prospectus. This Prospectus Supplement is not complete without, and may not be utilized except in connection with, the
Prospectus.
Investing in our securities
involves significant risks. See the “Risk Factors” sections of the Prospectus and in Item 1A of our Annual Report on Form
10-K filed on March 12, 2024 for a discussion of the risks that should be considered in connection with an investment in our securities.
Neither the SEC nor
any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus
or this Prospectus Supplement. Any representation to the contrary is a criminal offense.
The date of this Prospectus Supplement is August
8, 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
June 30, 2024
OR
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
_______ to ______
Commission File Number 001-41322
BLUEROCK HOMES TRUST, INC.
(Exact name of registrant as
specified in its charter)
|
|
|
| Maryland |
|
87-4211187 |
| (State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
| |
|
|
| 1345 Avenue of the Americas, 32nd Floor, New York, NY |
|
10105 |
| (Address of principal executive offices) |
|
(Zip Code) |
(212) 843-1601
(Registrant’s telephone
number, including area code)
Securities registered pursuant
to Section 12(b) of the Exchange Act:
| Title of each class |
|
Trading Symbol |
|
Name of each exchange on which registered |
| Class A Common Stock, $0.01 par value per share |
|
BHM |
|
NYSE American |
| |
|
|
|
|
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is
a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| |
|
|
|
|
|
| Large Accelerated Filer |
☐ |
Accelerated Filer |
☐ |
Non-Accelerated Filer |
☒ |
| Smaller reporting company |
☐ |
Emerging growth company |
☒ |
|
|
| |
|
|
|
|
|
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Number of shares outstanding
of the registrant’s
classes of common stock, as
of August 2, 2024
Class A Common Stock:
3,946,162 shares
Class C Common Stock:
8,489 shares
Table of Contents
BLUEROCK HOMES TRUST, INC.
FORM 10-Q
June 30, 2024
| PART I – FINANCIAL INFORMATION |
|
| |
|
|
| Item 1. |
Financial Statements |
|
| |
|
|
| |
Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023 (Audited) |
3 |
| |
|
|
| |
Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023 |
4 |
| |
|
|
| |
Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2024 and 2023 |
5 |
| |
|
|
| |
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2024 and 2023 |
9 |
| |
|
|
| |
Notes to Consolidated Financial Statements |
10 |
| |
|
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
33 |
| |
|
|
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
50 |
| |
|
|
| Item 4. |
Controls and Procedures |
50 |
| |
|
|
| PART II – OTHER INFORMATION |
|
| |
|
|
| Item 1. |
Legal Proceedings |
51 |
| |
|
|
| Item 1A. |
Risk Factors |
51 |
| |
|
|
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
51 |
| |
|
|
| Item 3. |
Defaults Upon Senior Securities |
51 |
| |
|
|
| Item 4. |
Mine Safety Disclosures |
51 |
| |
|
|
| Item 5. |
Other Information |
51 |
| |
|
|
| Item 6. |
Exhibits |
52 |
| |
|
|
| SIGNATURES |
53 |
2
Table of Contents
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEROCK HOMES TRUST, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share
and per share amounts)
|
|
|
|
|
|
|
|
| |
|
(Unaudited) |
|
|
|
| |
|
June 30, |
|
December 31, |
| |
|
2024 |
|
2023 |
| ASSETS |
|
|
|
|
|
|
| Net Real Estate Investments |
|
|
|
|
|
|
| Land |
|
$ |
73,803 |
|
$ |
70,637 |
| Buildings and improvements |
|
|
387,217 |
|
|
394,548 |
| Furniture, fixtures and equipment |
|
|
14,062 |
|
|
13,277 |
| Total Gross Operating Real Estate Investments |
|
|
475,082 |
|
|
478,462 |
| Accumulated depreciation |
|
|
(34,508) |
|
|
(32,452) |
| Total Net Operating Real Estate Investments |
|
|
440,574 |
|
|
446,010 |
| Operating real estate held for sale, net |
|
|
53,865 |
|
|
18,890 |
| Total Net Real Estate Investments |
|
|
494,439 |
|
|
464,900 |
| Cash and cash equivalents |
|
|
115,980 |
|
|
80,163 |
| Restricted cash |
|
|
7,579 |
|
|
6,221 |
| Notes and accrued interest receivable, net |
|
|
27,274 |
|
|
17,797 |
| Accounts receivable, prepaids and other assets, net |
|
|
28,916 |
|
|
19,688 |
| Preferred equity investments in unconsolidated real estate joint ventures, net |
|
|
81,158 |
|
|
82,851 |
| In-place lease intangible assets, net |
|
|
509 |
|
|
— |
| Non-real estate assets associated with operating real estate held for sale |
|
|
323 |
|
|
— |
| TOTAL ASSETS |
|
$ |
756,178 |
|
$ |
671,620 |
| |
|
|
|
|
|
|
| LIABILITIES AND EQUITY |
|
|
|
|
|
|
| Mortgages payable |
|
$ |
119,661 |
|
$ |
96,670 |
| Revolving credit facilities |
|
|
105,000 |
|
|
70,000 |
| Accounts payable |
|
|
585 |
|
|
691 |
| Other accrued liabilities |
|
|
9,909 |
|
|
9,438 |
| Due to affiliates |
|
|
3,526 |
|
|
3,509 |
| Distributions payable |
|
|
265 |
|
|
12,440 |
| Liabilities associated with operating real estate held for sale |
|
|
824 |
|
|
— |
| Total Liabilities |
|
|
239,770 |
|
|
192,748 |
| 6.0% Series A Redeemable Preferred Stock, liquidation preference $25.00 per share, 30,000,000 shares authorized; 2,196,795 and 436,675 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively |
|
|
48,329 |
|
|
8,273 |
| Equity |
|
|
|
|
|
|
| Stockholders’ Equity |
|
|
|
|
|
|
| Preferred stock, $0.01 par value, 220,000,000 shares authorized; no shares issued and outstanding at June 30, 2024 and December 31, 2023 |
|
|
— |
|
|
— |
| Common stock - Class A, $0.01 par value, 562,500,000 shares authorized; 3,946,348 and 3,871,265 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively |
|
|
39 |
|
|
39 |
| Common stock - Class C, $0.01 par value, 187,500,000 shares authorized; 8,489 shares issued and outstanding at June 30, 2024 and December 31, 2023 |
|
|
— |
|
|
— |
| Additional paid-in-capital |
|
|
120,198 |
|
|
122,369 |
| Retained earnings |
|
|
22,291 |
|
|
24,943 |
| Total Stockholders’ Equity |
|
|
142,528 |
|
|
147,351 |
| Noncontrolling Interests |
|
|
|
|
|
|
| Operating partnership units |
|
|
310,362 |
|
|
307,945 |
| Partially owned properties |
|
|
15,189 |
|
|
15,303 |
| Total Noncontrolling Interests |
|
|
325,551 |
|
|
323,248 |
| Total Equity |
|
|
468,079 |
|
|
470,599 |
| TOTAL LIABILITIES AND EQUITY |
|
$ |
756,178 |
|
$ |
671,620 |
See Notes to Consolidated
Financial Statements
3
Table of Contents
BLUEROCK HOMES TRUST, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS (Unaudited)
(In thousands, except share
and per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
| Rental and other property revenues |
|
$ |
11,936 |
|
$ |
10,270 |
|
$ |
22,694 |
|
$ |
20,408 |
| Interest income from loan investments |
|
|
587 |
|
|
— |
|
|
1,005 |
|
|
— |
| Total revenues |
|
|
12,523 |
|
|
10,270 |
|
|
23,699 |
|
|
20,408 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
| Property operating |
|
|
5,952 |
|
|
4,582 |
|
|
10,957 |
|
|
9,139 |
| Property management and asset management fees |
|
|
1,159 |
|
|
1,104 |
|
|
2,291 |
|
|
2,195 |
| General and administrative |
|
|
2,437 |
|
|
1,795 |
|
|
5,305 |
|
|
3,789 |
| Management fees to related party |
|
|
2,173 |
|
|
1,960 |
|
|
4,244 |
|
|
3,882 |
| Acquisition and other transaction costs |
|
|
— |
|
|
325 |
|
|
4 |
|
|
1,780 |
| Weather-related losses, net |
|
|
— |
|
|
(17) |
|
|
— |
|
|
(17) |
| Depreciation and amortization |
|
|
4,821 |
|
|
4,034 |
|
|
8,829 |
|
|
7,992 |
| Total expenses |
|
|
16,542 |
|
|
13,783 |
|
|
31,630 |
|
|
28,760 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income |
|
|
|
|
|
|
|
|
|
|
|
|
| Other (expense) income, net |
|
|
(300) |
|
|
— |
|
|
(60) |
|
|
44 |
| Preferred returns on unconsolidated real estate joint ventures |
|
|
2,846 |
|
|
2,894 |
|
|
5,587 |
|
|
5,690 |
| Provision for credit losses, net |
|
|
(71) |
|
|
(20) |
|
|
(166) |
|
|
(26) |
| (Impairment) and gain on sale of real estate investments, net |
|
|
(707) |
|
|
661 |
|
|
(534) |
|
|
661 |
| Interest expense, net |
|
|
(4,058) |
|
|
(1,821) |
|
|
(7,570) |
|
|
(5,217) |
| Interest income |
|
|
1,138 |
|
|
620 |
|
|
2,333 |
|
|
743 |
| Total other (expense) income |
|
|
(1,152) |
|
|
2,334 |
|
|
(410) |
|
|
1,895 |
| Net loss |
|
|
(5,171) |
|
|
(1,179) |
|
|
(8,341) |
|
|
(6,457) |
| Preferred stock dividends |
|
|
(562) |
|
|
— |
|
|
(815) |
|
|
— |
| Preferred stock accretion |
|
|
(181) |
|
|
— |
|
|
(181) |
|
|
— |
| Net loss attributable to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
| Operating partnership units |
|
|
(3,536) |
|
|
(653) |
|
|
(5,705) |
|
|
(3,638) |
| Partially owned properties |
|
|
(746) |
|
|
(191) |
|
|
(980) |
|
|
(944) |
| Net loss attributable to noncontrolling interests |
|
|
(4,282) |
|
|
(844) |
|
|
(6,685) |
|
|
(4,582) |
| Net loss attributable to common stockholders |
|
$ |
(1,632) |
|
$ |
(335) |
|
$ |
(2,652) |
|
$ |
(1,875) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share – Basic |
|
$ |
(0.42) |
|
$ |
(0.09) |
|
$ |
(0.69) |
|
$ |
(0.49) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share – Diluted |
|
$ |
(0.42) |
|
$ |
(0.09) |
|
$ |
(0.69) |
|
$ |
(0.49) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average basic common shares outstanding |
|
|
3,852,179 |
|
|
3,844,008 |
|
|
3,850,336 |
|
|
3,843,756 |
| Weighted average diluted common shares outstanding |
|
|
3,852,179 |
|
|
3,844,008 |
|
|
3,850,336 |
|
|
3,843,756 |
See Notes to Consolidated
Financial Statements
4
Table of Contents
BLUEROCK HOMES TRUST, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2024
CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (Unaudited)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Class A Common Stock |
|
|
Class C Common Stock |
|
Additional |
|
|
|
|
|
|
|
|
|
| |
|
|
Number |
|
|
|
|
|
Number |
|
|
|
|
Paid-in |
|
Retained |
|
Noncontrolling |
|
|
|
| |
|
|
of Shares |
|
Par Value |
|
|
of Shares |
|
Par Value |
|
Capital |
|
Earnings |
|
Interests |
|
Total Equity |
| Balance, April 1, 2024 |
|
|
3,871,265 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
120,515 |
|
$ |
23,923 |
|
$ |
327,950 |
|
$ |
472,427 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of restricted Class A common stock and long-term incentive plan (“LTIP”) Units for equity incentive plan compensation, net of shares withheld for employee taxes |
|
|
73,737 |
|
|
— |
|
|
— |
|
|
— |
|
|
97 |
|
|
— |
|
|
441 |
|
|
538 |
| Issuance of C-LTIP Units to Manager |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,036 |
|
|
1,036 |
| Series A Preferred Stock distributions declared |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(562) |
|
|
— |
|
|
(562) |
| Series A Preferred Stock accretion |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(181) |
|
|
— |
|
|
(181) |
| Distributions to partially owned properties’ noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(33) |
|
|
(33) |
| Holder redemption of Series A Preferred Stock and conversion into Class A common stock |
|
|
1,346 |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
| Adjustment for noncontrolling interest ownership in the Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(439) |
|
|
— |
|
|
439 |
|
|
— |
| Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(889) |
|
|
(4,282) |
|
|
(5,171) |
| Balance, June 30, 2024 |
|
|
3,946,348 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
120,198 |
|
$ |
22,291 |
|
$ |
325,551 |
|
$ |
468,079 |
See Notes to Consolidated Financial
Statements
5
Table of Contents
BLUEROCK HOMES TRUST, INC.
FOR THE THREE MONTHS
ENDED JUNE 30, 2023
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share
amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Class A Common Stock |
|
Class C Common Stock |
|
Additional |
|
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
|
Number |
|
|
|
Paid-in |
|
Retained |
|
Noncontrolling |
|
|
|
| |
|
of Shares |
|
Par Value |
|
of Shares |
|
Par Value |
|
Capital |
|
Earnings |
|
Interests |
|
Total Equity |
| Balance, April 1, 2023 |
|
|
3,835,013 |
|
$ |
38 |
|
|
8,489 |
|
$ |
— |
|
$ |
126,482 |
|
$ |
31,785 |
|
$ |
326,396 |
|
$ |
484,701 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation |
|
|
31,260 |
|
|
1 |
|
|
— |
|
|
— |
|
|
15 |
|
|
— |
|
|
530 |
|
|
546 |
| Issuance of C-LTIP Units to Manager |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
2,265 |
|
|
2,265 |
| Distributions to partially owned properties’ noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(97) |
|
|
(97) |
| Conversion of Operating Partnership Units to Class A common stock |
|
|
2,424 |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
— |
|
|
(100) |
|
|
— |
| Adjustment for noncontrolling interest ownership in the Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(931) |
|
|
— |
|
|
931 |
|
|
— |
| Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(335) |
|
|
(844) |
|
|
(1,179) |
| Balance, June 30, 2023 |
|
|
3,868,697 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
125,666 |
|
$ |
31,450 |
|
$ |
329,081 |
|
$ |
486,236 |
See Notes to Consolidated Financial
Statements
6
Table of Contents
BLUEROCK HOMES TRUST, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2024
CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (Unaudited)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
Class A Common Stock |
|
Class C Common Stock |
|
Additional |
|
|
|
|
|
|
|
|
|
| |
|
|
Number |
|
|
|
|
Number |
|
|
|
|
Paid-in |
|
Retained |
|
Noncontrolling |
|
|
|
| |
|
|
of Shares |
|
Par Value |
|
of Shares |
|
Par Value |
|
Capital |
|
Earnings |
|
Interests |
|
Total Equity |
| Balance, January 1, 2024 |
|
|
3,871,265 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
122,369 |
|
$ |
24,943 |
|
$ |
323,248 |
|
$ |
470,599 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation, net of shares withheld for employee taxes |
|
|
73,737 |
|
|
— |
|
|
— |
|
|
— |
|
|
144 |
|
|
— |
|
|
1,412 |
|
|
1,556 |
| Issuance of C-LTIP Units to Manager |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,369 |
|
|
4,369 |
| Series A Preferred Stock distributions declared |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(815) |
|
|
— |
|
|
(815) |
| Series A Preferred Stock accretion |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(181) |
|
|
— |
|
|
(181) |
| Distributions to partially owned properties’ noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(86) |
|
|
(86) |
| Contributions from noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
953 |
|
|
953 |
| Holder redemption of Series A Preferred Stock and conversion into Class A common stock |
|
|
1,346 |
|
|
— |
|
|
— |
|
|
— |
|
|
25 |
|
|
— |
|
|
— |
|
|
25 |
| Adjustment for noncontrolling interest ownership in the Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,340) |
|
|
— |
|
|
2,340 |
|
|
— |
| Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,656) |
|
|
(6,685) |
|
|
(8,341) |
| Balance, June 30, 2024 |
|
|
3,946,348 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
120,198 |
|
$ |
22,291 |
|
$ |
325,551 |
|
$ |
468,079 |
See Notes to Consolidated Financial Statements
7
Table of Contents
BLUEROCK HOMES TRUST, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2023
CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY (Unaudited)
(In thousands, except share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Class A Common Stock |
|
Class C Common Stock |
|
Additional |
|
|
|
|
|
|
|
|
|
| |
|
Number |
|
|
|
Number |
|
|
|
Paid-in |
|
Retained |
|
Noncontrolling |
|
|
|
| |
|
of Shares |
|
Par Value |
|
of Shares |
|
Par Value |
|
Capital |
|
Earnings |
|
Interests |
|
Total Equity |
| Balance, January 1, 2023 |
|
|
3,835,013 |
|
$ |
38 |
|
|
8,489 |
|
$ |
— |
|
$ |
126,623 |
|
$ |
33,325 |
|
$ |
332,002 |
|
$ |
491,988 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation |
|
|
31,260 |
|
|
1 |
|
|
— |
|
|
— |
|
|
15 |
|
|
— |
|
|
1,268 |
|
|
1,284 |
| Issuance of C-LTIP Units to Manager |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
4,416 |
|
|
4,416 |
| Acquisition of noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,515 |
|
|
— |
|
|
(6,564) |
|
|
(5,049) |
| Distributions to partially owned properties’ noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(196) |
|
|
(196) |
| Conversion of Operating Partnership Units to Class A common stock |
|
|
2,424 |
|
|
— |
|
|
— |
|
|
— |
|
|
100 |
|
|
— |
|
|
(100) |
|
|
— |
| Contributions from noncontrolling interests |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
250 |
|
|
250 |
| Adjustment for noncontrolling interest ownership in the Operating Partnership |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,587) |
|
|
— |
|
|
2,587 |
|
|
— |
| Net loss |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,875) |
|
|
(4,582) |
|
|
(6,457) |
| Balance, June 30, 2023 |
|
|
3,868,697 |
|
$ |
39 |
|
|
8,489 |
|
$ |
— |
|
$ |
125,666 |
|
$ |
31,450 |
|
$ |
329,081 |
|
$ |
486,236 |
See Notes to Consolidated Financial Statements
8
Table of Contents
BLUEROCK HOMES TRUST, INC.
CONSOLIDATED STATEMENTS OF
CASH FLOWS (Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
| |
|
Six Months Ended |
| |
|
June 30, |
| |
|
2024 |
|
2023 |
| Cash flows from operating activities |
|
|
|
|
|
|
| Net loss |
|
$ |
(8,341) |
|
$ |
(6,457) |
| Adjustments to reconcile net loss to net cash provided by operating activities: |
|
|
|
|
|
|
| Depreciation and amortization |
|
|
9,515 |
|
|
9,267 |
| Amortization of fair value adjustments |
|
|
(21) |
|
|
(160) |
| Preferred returns on unconsolidated real estate joint ventures |
|
|
(5,587) |
|
|
(5,690) |
| Impairment and (gain) on sale of real estate investments, net |
|
|
534 |
|
|
(661) |
| Fair value adjustment of interest rate caps and swaps |
|
|
1,555 |
|
|
638 |
| Provision for credit losses, net |
|
|
166 |
|
|
26 |
| Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures |
|
|
434 |
|
|
969 |
| Share-based compensation attributable to equity incentive plan |
|
|
1,556 |
|
|
1,283 |
| Share-based compensation to Manager – C-LTIP Units |
|
|
4,369 |
|
|
4,416 |
| Changes in operating assets and liabilities: |
|
|
|
|
|
|
| Due to affiliates, net |
|
|
18 |
|
|
209 |
| Accounts receivable, prepaids and other assets |
|
|
(2,496) |
|
|
(1,063) |
| Notes and accrued interest receivable |
|
|
(370) |
|
|
— |
| Accounts payable and other accrued liabilities |
|
|
1,038 |
|
|
(671) |
| Net cash provided by operating activities |
|
|
2,370 |
|
|
2,106 |
| |
|
|
|
|
|
|
| Cash flows from investing activities: |
|
|
|
|
|
|
| Acquisitions of real estate investments |
|
|
(17,454) |
|
|
(4,330) |
| Capital expenditures |
|
|
(3,654) |
|
|
(5,188) |
| Purchase of interest rate cap |
|
|
(2,688) |
|
|
— |
| Investment in notes receivable |
|
|
(16,294) |
|
|
— |
| Repayments on notes receivable |
|
|
7,125 |
|
|
— |
| Proceeds from sale of real estate investments |
|
|
6,180 |
|
|
2,703 |
| Proceeds from redemption of unconsolidated real estate joint ventures |
|
|
3,500 |
|
|
6,794 |
| Investment in unconsolidated real estate joint venture interests |
|
|
(1,911) |
|
|
(6,700) |
| Net cash used in investing activities |
|
|
(25,196) |
|
|
(6,721) |
| |
|
|
|
|
|
|
| Cash flows from financing activities: |
|
|
|
|
|
|
| Distributions to common stockholders |
|
|
(3,879) |
|
|
— |
| Distributions to noncontrolling interests |
|
|
(8,509) |
|
|
— |
| Distributions to partially owned properties’ noncontrolling interests |
|
|
(86) |
|
|
(196) |
| Distributions to preferred stockholders |
|
|
(602) |
|
|
— |
| Contributions from noncontrolling interests |
|
|
953 |
|
|
250 |
| Purchase of interests from noncontrolling interests |
|
|
— |
|
|
(5,049) |
| Repayments on mortgages payable |
|
|
(1,105) |
|
|
(745) |
| Proceeds from revolving credit facilities |
|
|
35,000 |
|
|
21,000 |
| Repayments on revolving credit facilities |
|
|
— |
|
|
(6,000) |
| Payments of deferred financing fees |
|
|
(554) |
|
|
(1,092) |
| Net proceeds from issuance of 6.0% Series A Redeemable Preferred Stock |
|
|
38,783 |
|
|
— |
| Net cash provided by financing activities |
|
|
60,001 |
|
|
8,168 |
| |
|
|
|
|
|
|
| Net increase in cash, cash equivalents and restricted cash |
|
$ |
37,175 |
|
$ |
3,553 |
| Cash, cash equivalents and restricted cash, beginning of year |
|
|
86,384 |
|
|
82,562 |
| Cash, cash equivalents and restricted cash, end of period |
|
$ |
123,559 |
|
$ |
86,115 |
| |
|
|
|
|
|
|
| Reconciliation of cash, cash equivalents and restricted cash |
|
|
|
|
|
|
| Cash and cash equivalents |
|
$ |
115,980 |
|
$ |
79,872 |
| Restricted cash |
|
|
7,579 |
|
|
6,243 |
| Total cash, cash equivalents and restricted cash, end of period |
|
$ |
123,559 |
|
$ |
86,115 |
| |
|
|
|
|
|
|
| Supplemental disclosure of cash flow information |
|
|
|
|
|
|
| Cash paid for interest (net of interest capitalized) |
|
$ |
5,110 |
|
$ |
3,315 |
| |
|
|
|
|
|
|
| Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
| Distributions payable – declared and unpaid |
|
$ |
265 |
|
$ |
— |
| Mortgage assumed upon property acquisition |
|
$ |
24,333 |
|
$ |
— |
| Capital expenditures held in accounts payable and other accrued liabilities |
|
$ |
388 |
|
$ |
498 |
See Notes to Consolidated
Financial Statements
9
Table of Contents
BLUEROCK HOMES TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business
Bluerock Homes Trust, Inc.
(the “Company”) was incorporated in Maryland on December 16, 2021. The Company owns and operates high-quality single-family
properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt
and Western United States. The Company’s principal objective is to generate attractive risk-adjusted returns on investments where
it believes it can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units,
developing build-to-rent communities, and through Value-Add renovations. The Company’s Value-Add strategy focuses on repositioning
lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize the Company’s
return on investment.
As of June 30, 2024, the Company
held twenty-one real estate investments, consisting of twelve consolidated investments and nine preferred equity and loan investments.
The twenty-one investments represent an aggregate of 4,362 residential units, comprised of 2,732 consolidated units, of which 170 units
are under development, and 1,630 units through preferred equity and loan investments. As of June 30, 2024, the Company’s consolidated
operating investments were approximately 92.2% occupied; excluding units classified as held for sale and down/renovation units, the Company’s
consolidated operating investments were approximately 95.4% occupied.
The Company has elected to
be treated, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT,
the Company generally is not subject to corporate-level income taxes. To maintain its REIT status, the Company is required, among other
requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal Revenue Code of
1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable
year, it would be subject to federal income tax on its taxable income at regular corporate tax rates and it would not be permitted to
qualify as a REIT for four years following the year in which it lost its qualification. The Company intends to continue to organize and
operate in such a manner as to remain qualified as a REIT.
Note 2 – Basis of Presentation and Summary of
Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company conducts its operations
through Bluerock Residential Holdings, L.P., its operating partnership (the “Operating Partnership”), of which it is the sole
general partner. The consolidated financial statements include the Company’s accounts and those of the Operating Partnership and
its subsidiaries. As of June 30, 2024, limited partners other than the Company owned approximately 69.19% of the common units of the Operating
Partnership (57.38% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 11.81%
is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.76% which
are not vested as of June 30, 2024).
Certain amounts in prior year
financial statement presentation have been reclassified to conform to the current year presentation.
Real Estate Investments and Preferred Equity Investments
The Company first analyzes
an investment to determine if it is a variable interest entity (“VIE”) in accordance with Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation and, if so, whether the Company
is the primary beneficiary requiring consolidation of the entity. A VIE is an entity that has (i) insufficient equity to permit it
to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics
of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to
direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the
right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual,
ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE’s net assets. The
Company continuously re-assesses at each level of the investment whether (i) the entity is a VIE, and (ii) the Company is the
primary beneficiary of the VIE. If it was determined that an entity in which the Company holds an interest qualified as a VIE and the
Company was the primary beneficiary, the entity would be consolidated.
10
Table of Contents
If, after consideration of
the VIE accounting literature, the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation
under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority voting
interest held by the Company providing control.
In assessing whether the Company
is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company evaluates
the respective rights and privileges afforded each member or partner (collectively referred to as “member”). The Company’s
member would not be deemed to control the entity if any of the other members has either (i) substantive kickout rights providing
the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) substantive
participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively
participate in significant decisions of the entity that would be expected to be made in the ordinary course of business.
The Company analyzes each investment
that involves real estate acquisition, development, and construction to consider whether the investment qualifies as an investment in
a real estate acquisition, development, and construction arrangement. The Company has evaluated its real estate investments as required
by ASC 310-10 Receivables and concluded that no investments are considered an investment in a real estate acquisition, development,
or construction arrangement. As such, the Company next evaluates if these investments are considered a security under ASC 320 Investments
– Debt Securities.
For investments that meet the
criteria of a security under ASC 320 Investments – Debt Securities, except as noted regarding Note B of the Wayford at Pringle
Loan Financing (refer to Note 6), the Company classifies each preferred equity investment as a held-to-maturity debt security as the Company
has the intention and ability to hold the investment to maturity. The Company earns a fixed return on these investments which is included
within preferred returns on unconsolidated real estate joint ventures in its consolidated statements of operations. The Company evaluates
the collectability of each preferred equity investment and estimates a provision for credit loss, as applicable. Refer to the Current
Expected Credit Losses (“CECL”) section of this Note for further information regarding CECL and the Company’s provision
for credit losses. The Company accounts for these investments as preferred equity investments in unconsolidated real estate joint ventures
in its consolidated balance sheets.
For investments that do not
meet the criteria of a security under ASC 320 Investments – Debt Securities, the Company has concluded that the characteristics
and the facts and circumstances indicate that loan accounting treatment is appropriate. The Company recognizes interest income on its
notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest
income is recognized as collected. Costs incurred to originate its notes receivable are deferred and amortized using the effective interest
method over the term of the related note receivable. The Company evaluates the collectability of each loan investment and estimates a
provision for credit loss, as applicable. Refer to the CECL section of this Note for further information regarding CECL and the Company’s
provision for credit losses.
Significant Risks and Uncertainties
Uncertainty Due to Economic Volatility
The Company’s results
of operations in the future may be directly or indirectly affected by uncertainties such as the effects of inflation and related volatility
in the market. As inflation accelerated rapidly in the first half of 2023, the Federal Reserve increased interest rates a total of four
times during 2023 to curb the effects of rising inflation. While the Federal Reserve has held rates steady since July 2023, there can
be no assurances that interest rates will not rise again, and the Company’s operating costs, including utilities and payroll, may
increase as a result of increases in inflation. Rising interest rates cause uncertainty in credit and capital markets which could have
material and adverse effects on the Company’s financial condition, results of operations and cash flows. The long-term impact of
these economic developments will largely depend on any future action by the Federal Reserve, future laws that may be enacted, the impact
on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The Company continues
to closely monitor the impact of economic volatility on all aspects of its business.
Summary of Significant Accounting Policies
Refer to the Company’s
Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”)
on March 12, 2024 for discussion of the Company’s significant accounting policies. During the six months ended June 30, 2024, there
were no material changes to these policies.
11
Table of Contents
Interim Financial Information
The accompanying unaudited
consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the
Unites States of America (“GAAP”) for interim financial reporting, and the instructions to Form 10-Q and Article 10-1 of Regulation
S-X. Accordingly, the financial statements for interim reporting do not include all the information and notes or disclosures required
by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered
necessary for a fair presentation have been included. Operating results for interim periods should not be considered indicative of the
operating results for a full year.
The balance sheet at December
31, 2023 has been derived from the audited financial statements at that date but does not include all the information and disclosures
required by GAAP for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with
the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended
December 31, 2023 contained in the Annual Report on Form 10-K as filed with the SEC on March 12, 2024.
Use of Estimates
The preparation of the financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In November 2023, the FASB
issued Accounting Standards Update No. 2023-07 “Improvements to Reportable Segment Disclosures (Topic 280)” (“ASU 2023-07”).
The amendments in ASU 2023-07 require additional disclosures regarding reportable segments, including a segment’s significant expenses
on both an annual and interim basis. The amendments in ASU 2023-07 will be effective for fiscal years beginning after December 15, 2023,
and for interim periods with fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 should be applied
retrospectively to all prior periods presented in the financial statements unless it is impracticable to do so. The Company does not expect
the adoption of ASU 2023-07 to have a material impact on its consolidated financial statements.
In December 2023, the FASB
issued Accounting Standards Update No. 2023-09 “Improvements to Income Tax Disclosures (Topic 740)” (“ASU 2023-09”).
The amendments in ASU 2023-09 require additional disclosure with respect to the effective tax rate reconciliation and information on income
taxes paid. The amendments in ASU 2023-09 are effective for the Company for annual reporting periods beginning after December 15, 2024.
The Company is currently evaluating the impact of adopting ASU 2023-09 on its financial disclosures.
12
Table of Contents
Note 3 – Acquisition of Real Estate and Additional Interests
Acquisition of Villas at Huffmeister
On March 25, 2024, the Company,
through a 95% owned joint venture entity, acquired a 294-unit single-family residential community located in Houston, Texas known as Villas
at Huffmeister. The purchase price of $41.2 million was funded, in part, with a $24.3 million senior loan assumption secured by Villas
at Huffmeister, along with cash of $17.4 million funded by the Company.
Purchase Price Allocation
The real estate acquisition
above has been accounted for as an asset acquisition. The purchase price was allocated to the acquired assets and mortgage assumed based
on their estimated fair values at the date of acquisition.
The following table summarizes
the assets acquired and mortgage assumed at the acquisition date for Villas at Huffmeister (amounts in thousands):
|
|
|
|
|
| |
|
Purchase Price |
| |
|
Allocation |
| Land |
|
$ |
7,950 |
| Building |
|
|
24,356 |
| Building improvements |
|
|
1,052 |
| Land improvements |
|
|
6,789 |
| Furniture and fixtures |
|
|
620 |
| In-place leases |
|
|
1,018 |
| Total assets acquired (1) |
|
$ |
41,785 |
| |
|
|
|
| Mortgage assumed |
|
$ |
27,440 |
| Fair value adjustment |
|
|
(3,107) |
| Total liabilities assumed |
|
$ |
24,333 |
| (1) |
The $41.8 million of total assets acquired includes $0.6 million of acquisition expenses that have been capitalized as the acquisition of Villas at Huffmeister has been accounted for as an asset acquisition. |
Note 4 – Sale of Real Estate Assets
Sale of Consolidated Operating
Units
During the first quarter 2024,
the Company closed on the following sales: one unit in the Indy-Springfield portfolio, four units in the Peak JV 2 portfolio, and nineteen
units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements. The twenty-four
units were sold for an aggregate of approximately $3.9 million, subject to certain prorations and adjustments typical in such real estate
transactions, and generated net proceeds of approximately $3.7 million and a gain on sales of approximately $0.3 million.
During the second quarter 2024,
the Company closed on the following sales: one unit in the ILE portfolio, one unit in the Indy-Springfield portfolio, three units in the
Peak JV 2 portfolio, and eight units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and
sales agreements. The thirteen units were sold for an aggregate of approximately $2.6 million, subject to certain prorations and adjustments
typical in such real estate transactions, and generated net proceeds of approximately $2.5 million and a gain on sales of approximately
$0.4 million.
13
Table of Contents
Held for Sale
At June 30, 2024, the Company
classified an aggregate of 391 units as held for sale in its consolidated balance sheets, and for the three and six months ended June
30, 2024, the Company recorded an impairment of $1.1 million and $1.2 million, respectively, related to held for sale units which is included
in impairment and gain on sale of real estate investments, net in the consolidated statements of operations. The 391 units classified
as held for sale are included in the following portfolios: 44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak
JV 3, and all 176 units of Navigator Villas. These units were identified based on submarket analysis and individual unit-level operational
review. Real estate assets classified as held for sale are reported at the lower of their carrying value or estimated fair value less
costs to sell and are presented separately within operating real estate held for sale, net on the Company’s consolidated balance
sheets.
Note 5 - Investments in Real Estate
As of June 30, 2024, the Company
held twenty-one real estate investments, consisting of twelve consolidated operating investments and nine held through preferred equity
and loan investments. The following tables provide summary information regarding the Company’s consolidated operating investments
and preferred equity and loan investments.
Consolidated Investments
|
|
|
|
|
|
|
|
|
| |
|
|
|
Number of |
|
Ownership |
|
| Operating Investment Name |
|
Market / Location |
|
Units (1) |
|
Interest |
|
| Ballast |
|
AZ / CO / WA |
|
84 |
|
95 |
% |
| Golden Pacific |
|
IN / KS / MO |
|
169 |
|
97 |
% |
| ILE |
|
TX / SE US |
|
481 |
|
95 |
% |
| Indy-Springfield |
|
IN / MO |
|
332 |
|
100 |
% |
| Navigator Villas |
|
Pasco, WA |
|
176 |
|
90 |
% |
| Peak JV 2 |
|
Various / TX |
|
589 |
|
80 |
% |
| Peak JV 3 |
|
Dallas-Fort Worth, TX |
|
123 |
|
56 |
% |
| Savannah-84 |
|
Savannah, GA |
|
84 |
|
100 |
% |
| Villas at Huffmeister |
|
Houston, TX |
|
294 |
|
95 |
% |
| Wayford at Concord |
|
Concord, NC |
|
150 |
|
83 |
% |
| Yauger Park Villas |
|
Olympia, WA |
|
80 |
|
95 |
% |
| Total Operating Units |
|
|
|
2,562 |
|
|
|
| |
|
|
|
|
|
|
|
| Development Investment Name |
|
|
|
|
|
|
|
| Abode Wendell Falls (2) |
|
Wendell, NC |
|
170 |
|
100 |
% |
| Total Development Units |
|
|
|
170 |
|
|
|
| Total Units |
|
|
|
2,732 |
|
|
|
| (1) |
Total operating units includes an aggregate of 391 units classified as held for sale, and such units are included in the following portfolios: 44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak JV 3, and all 176 units of Navigator Villas. |
| (2) |
Abode Wendell Falls is a build for rent development project expected to commence construction in the third quarter 2024. The total estimated project cost is $56.9 million, of which $6.8 million had been incurred as of June 30, 2024. |
Depreciation expense was $4.3
million and $4.0 million, and $8.3 million and $8.0 million, for the three and six months ended June 30, 2024 and 2023, respectively.
Intangibles related to the
Company’s consolidated investments in real estate consist of the value of in-place leases. Amortization expense related to the in-place
leases was $0.5 million for both the three and six months ended June 30, 2024. There was no amortization expense related to in-place leases
during 2023.
14
Table of Contents
Preferred Equity and Loan Investments
|
|
|
|
|
|
| |
|
|
|
Actual / |
| |
|
|
|
Planned |
| |
|
|
|
Number of |
| Lease-up Investment Name |
|
Location / Market |
|
Units |
| The Woods at Forest Hill (1) |
|
Forest Hill, TX |
|
41 |
| Willow Park |
|
Willow Park, TX |
|
58 |
| The Cottages at Myrtle Beach |
|
Myrtle Beach, SC |
|
294 |
| The Cottages of Port St. Lucie |
|
Port St. Lucie, FL |
|
286 |
| Chandler |
|
Chandler, AZ |
|
208 |
| Wayford at Innovation Park |
|
Charlotte, NC |
|
210 |
| Wayford at Pringle (2) |
|
Charlotte, NC |
|
102 |
| Total Lease-up Units |
|
|
|
1,199 |
| |
|
|
|
|
| Development Investment Name |
|
|
|
|
| Indigo Cove |
|
Bluffton, SC |
|
82 |
| Total Development Units |
|
|
|
82 |
| |
|
|
|
|
| Operating Investment Name |
|
|
|
Number of Units |
| Peak Housing (3) |
|
IN / MO / TX |
|
349 |
| Total Operating Units |
|
|
|
349 |
| Total Units |
|
|
|
1,630 |
| (1) |
The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 41 units at June 30, 2024 resulting from the sales of 35 units during the six months ended June 30, 2024. Proceeds from the sales of these units were used to paydown the Company’s loan investment in The Woods at Forest Hill. Refer to Note 6 for further information. |
| (2) |
Wayford at Pringle is a loan investment for which the Company disburses loan proceeds to the borrower for unit acquisitions upon construction completion. Of the total 102-build for rent units that are to be acquired, construction of 59 units was completed during the six months ended June 30, 2024 for which the Company provided the borrower with loan proceeds for their acquisition. The Company estimates that all units will be completed and acquired, and its loan commitment fully funded, by the end of 2024. Refer to Note 6 for further information. |
| (3) |
Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing the Company’s preferred equity investment in the Peak REIT OP as of June 30, 2024 (refer to Note 7 for further information). Unit count excludes units presented in the consolidated investments table above. |
15
Table of Contents
Note 6 – Notes and Interest Receivable
Following is a summary of the
notes and accrued interest receivable due from loan investments at June 30, 2024 and December 31, 2023 (amounts in thousands):
|
|
|
|
|
|
|
|
| Investment Name |
|
June 30, 2024 |
|
December 31, 2023 |
| Notes Receivable |
|
|
|
|
|
|
| The Woods at Forest Hill |
|
$ |
1,159 |
|
$ |
8,284 |
| Wayford at Pringle |
|
|
16,294 |
|
|
— |
| Willow Park |
|
|
9,400 |
|
|
9,400 |
| Total notes receivable |
|
$ |
26,853 |
|
$ |
17,684 |
| |
|
|
|
|
|
|
| Accrued Interest Receivable |
|
|
|
|
|
|
| The Woods at Forest Hill |
|
$ |
5 |
|
$ |
94 |
| Wayford at Pringle |
|
|
461 |
|
|
— |
| Willow Park |
|
|
33 |
|
|
35 |
| Total accrued interest receivable |
|
$ |
499 |
|
$ |
129 |
| Total notes and accrued interest receivable |
|
$ |
27,352 |
|
$ |
17,813 |
| Allowance for credit losses |
|
|
(78) |
|
|
(16) |
| Total, net |
|
$ |
27,274 |
|
$ |
17,797 |
Allowance for Credit Losses
The provision for credit losses
of the Company’s loan investments at June 30, 2024 and December 31, 2023 are summarized in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
| |
|
|
June 30, |
|
|
December 31, |
| |
|
|
2024 |
|
|
2023 |
| Beginning balances, net as of January 1, 2024 and 2023, respectively |
|
$ |
16 |
|
$ |
— |
| Provision for credit losses on pool of assets, net (1) |
|
|
62 |
|
|
16 |
| Allowance for credit losses, net, end of period |
|
$ |
78 |
|
$ |
16 |
| (1) |
Under CECL, a provision for, or recovery of, credit losses for similar assets is calculated based on a historical default rate applied to the remaining life of the assets. The provision for credit losses during the six months ended June 30, 2024 was attributable to the addition of one investment to the pool of assets and an increase in the trailing twelve-month historical default rate. |
The following table is a summary
of the interest income from loan investments for the three and six months ended June 30, 2024 (amounts in thousands). The Company did
not record any interest income from loan investments during the three and six months ended June 30, 2023 as it held no loan investments
during this period.
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| Investment Name |
|
June 30, 2024 |
|
June 30, 2024 |
| The Woods at Forest Hill |
|
$ |
61 |
|
$ |
247 |
| Wayford at Pringle |
|
|
406 |
|
|
517 |
| Willow Park |
|
|
120 |
|
|
241 |
| Total |
|
$ |
587 |
|
$ |
1,005 |
16
Table of Contents
Peak Housing Financing
Prior to 2024, the Company
provided a mezzanine loan to the portfolio owner in Peak JV 3, which is owned through a joint venture between the Company and the operating
partnership of Peak Housing REIT (the “Peak REIT OP”). The entity through which the Company provided the loan (the lender-entity)
and the entity to which the loan was provided (the property owner) consolidate into the Company’s financial statements. As such,
the loan receivable balance and the loan payable balance, and the loan interest income and loan interest expense attributable to the Company,
are eliminated through consolidation on the consolidated balance sheets and statements of operations, respectively. The Company (as lender
entity) recognizes Peak REIT OP’s portion of interest expense on the loan as income and this amount is reflected in net income (loss)
attributable to common stockholders in the Company’s consolidated statements of operations. The mezzanine loan was to mature on
June 30, 2024; however, on May 22, 2024, the property owner delivered written notice to the Company of its intention to exercise the loan’s
final six-month extension option, extending the maturity date to December 30, 2024. The loan can be prepaid without penalty. At December
31, 2023, the outstanding balance of the loan provided by the Company was $15.9 million. During the six months ended June 30, 2024, proceeds
from the sales of 27 units in the Peak JV 3 portfolio (refer to Note 4 for further information) have been used to reduce the outstanding
balance of the loan to $12.5 million at June 30, 2024.
Wayford at Pringle Loan Financing
On January 10, 2024, the Company
entered into an agreement to provide a loan in the maximum aggregate amount up to $30.1 million (the “Pringle Loan”) to an
unaffiliated, third-party borrower to acquire 102-build for rent, single-family residential units in Charlotte, North Carolina to be known
as Wayford at Pringle. The project is currently under development, and the Company will disburse loan proceeds to the borrower for unit
acquisitions as construction is completed. The Pringle Loan is comprised of two notes as follows: Note A in the maximum principal amount
up to $22.3 million and Note B in the maximum principal amount up to $7.8 million. Note B has certain conversion options that require
the consent of both parties before such options can be exercised; neither party has unilateral control to enforce a conversion. The Company
has evaluated both notes and concluded that loan accounting treatment is appropriate for Note A, whereas Note B, due to the conversion
options, meets the criteria of a debt security and is considered as available for sale. The Company records both notes in notes and accrued
interest receivable, net in its consolidated balance sheets, and the interest income earned on both notes is recorded in interest income
from loan investments in its consolidated statements of operations.
Note A and Note B both have
an initial maturity of January 12, 2026 and contain four (4) six-month extension options subject to certain conditions. Note A bears interest
on the amount drawn at the one-month Secured Overnight Financing Rate (“SOFR”) plus 4.50% through initial maturity, and if
extended, such rate becomes subject to a 5.31% rate floor. Note A has regular monthly payments that are interest-only during the term
of the loan, and no prepayment of Note A, in part or in whole, can be made prior to prepayment of Note B subject to certain conditions.
On Note B, interest shall accrue on the amount drawn at a rate of 15.00% per annum, compounded monthly, with outstanding principal and
accrued interest amounts due upon maturity. Note B can be prepaid in part or in whole subject to minimum interest. As of June 30, 2024,
construction was completed on 59 of the total 102 units, and the Company had funded $8.5 million of Note A and fully funded the $7.8 million
of Note B. There were no unrealized gains or losses associated with Note B as of June 30, 2024 as the Company determined that the $7.8
million face value of Note B represents its fair value at such measurement date.
The Woods at Forest Hill Loan Financing
In December 2023, the Company
assumed an $8.3 million senior loan (the “Woods Loan”) made to an unaffiliated third-party borrower for 76-build for rent,
single family residential units in Forest Hill, Texas. The Woods Loan investment was in addition to the Company’s existing preferred
equity investment in The Woods at Forest Hill. The borrower is currently in the process of selling the individual units collateralizing
the Company’s loan and preferred equity investments. With each unit sale, the borrower is repaying the loan and accrued interest,
after consideration for partnership operating expenses and reserve requirements, until the Company’s full loan investment has been
repaid in full. Subsequently, pursuant to the waterfall of the joint venture agreement, the remaining available proceeds shall be used
to repay the Company’s preferred equity investment, including any accrued but unpaid preferred returns, until the investment has
been repaid in full.
17
Table of Contents
During the six months ended
June 30, 2024, the Company received paydowns on the Woods Loan in the aggregate amount of $7.3 million, which included principal investment
of $7.1 million and accrued interest of $0.2 million. The paydowns on the Woods Loan were a result of the sales by the borrower of 35
of the 76 units that collateralized the Company’s loan and preferred equity investments. At June 30, 2024, the Company’s outstanding
principal investment in the Woods Loan was $1.2 million, with a remaining 41 units as collateral underlying the Company’s loan and
preferred equity investments.
Note 7 – Preferred Equity Investments in Unconsolidated
Real Estate Joint Ventures
The carrying amount of the
Company’s preferred equity investments in unconsolidated real estate joint ventures at June 30, 2024 and December 31, 2023
is summarized in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
December 31, |
| Investment Name |
|
2024 |
|
2023 |
| Chandler |
|
$ |
15,000 |
|
$ |
15,000 |
| Indigo Cove |
|
|
1,911 |
|
|
— |
| Peak Housing |
|
|
7,163 |
|
|
10,663 |
| The Cottages at Myrtle Beach |
|
|
17,913 |
|
|
17,913 |
| The Cottages of Port St. Lucie |
|
|
18,785 |
|
|
18,785 |
| The Woods at Forest Hill |
|
|
7,270 |
|
|
7,270 |
| Wayford at Innovation Park |
|
|
13,400 |
|
|
13,400 |
| Total |
|
$ |
81,442 |
|
$ |
83,031 |
| Allowance for credit losses |
|
|
(284) |
|
|
(180) |
| Total, net |
|
$ |
81,158 |
|
$ |
82,851 |
Allowance for Credit Losses
The provision for credit losses
of the Company’s preferred equity investments at June 30, 2024 and December 31, 2023 are summarized in the table below (amounts
in thousands):
|
|
|
|
|
|
|
|
| |
|
June 30, |
|
December 31, |
| |
|
2024 |
|
2023 |
| Beginning balances, net as of January 1, 2024 and 2023, respectively |
|
$ |
180 |
|
$ |
22 |
| Provision for credit losses on pool of assets, net (1) |
|
|
104 |
|
|
158 |
| Allowance for credit losses, net, end of period |
|
$ |
284 |
|
$ |
180 |
| (1) |
Under CECL, a provision for, or recovery of, credit losses for similar assets is calculated based on a historical default rate applied to the remaining life of the assets. The provision for credit losses during the six months ended June 30, 2024 was primarily attributable to an increase in the trailing twelve-month historical default rate. |
At June 30, 2024, the Company,
through wholly-owned subsidiaries of the Operating Partnership, had outstanding preferred equity investments in seven joint ventures which
are classified as held to maturity debt securities as the Company has the intention and ability to hold the investments to maturity. The
Company earns a fixed return on these investments, which is included within preferred returns on unconsolidated real estate joint ventures
in its consolidated statements of operations. Each joint venture’s purpose is to develop or operate a portfolio of residential units.
18
Table of Contents
The preferred returns on the
Company’s unconsolidated real estate joint ventures for the three and six months ended June 30, 2024 and 2023 are summarized
below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended
June 30, |
|
Six Months Ended
June 30, |
| Investment Name |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Chandler |
|
$ |
512 |
|
$ |
— |
|
$ |
1,024 |
|
$ |
— |
| Indigo Cove |
|
|
2 |
|
|
— |
|
|
2 |
|
|
— |
| Peak Housing |
|
|
189 |
|
|
341 |
|
|
429 |
|
|
784 |
| The Cottages at Myrtle Beach |
|
|
657 |
|
|
657 |
|
|
1,313 |
|
|
1,306 |
| The Cottages at Warner Robins (1) |
|
|
— |
|
|
486 |
|
|
— |
|
|
966 |
| The Cottages of Port St. Lucie |
|
|
689 |
|
|
689 |
|
|
1,378 |
|
|
1,370 |
| The Woods at Forest Hill |
|
|
374 |
|
|
153 |
|
|
595 |
|
|
263 |
| Wayford at Innovation Park |
|
|
423 |
|
|
422 |
|
|
846 |
|
|
763 |
| Willow Park (1) |
|
|
— |
|
|
146 |
|
|
— |
|
|
238 |
| Total preferred returns on unconsolidated joint ventures (2) |
|
$ |
2,846 |
|
$ |
2,894 |
|
$ |
5,587 |
|
$ |
5,690 |
| (1) |
The Company’s preferred equity investments in The Cottages at Warner Robins and Willow Park were redeemed in December 2023 and October 2023, respectively. |
| (2) |
Total includes both current and accrued preferred return amounts. The accrued portion of the total preferred returns was $2.7 million and $2.6 million, and $5.2 million and $4.9 million, for the three and six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company had $18.9 million and $13.7 million, respectively, of total accrued preferred returns, which is recorded in accounts receivable, prepaids and other assets, net in its consolidated balance sheets. |
Indigo Cove Interests
On June 27, 2024, the Company
entered into a joint venture agreement with an unaffiliated third party (the “Indigo JV”) to develop approximately 82 build-for-rent,
single-family residential units in Bluffton, South Carolina. The Company made a commitment to invest $5.3 million for preferred equity
interests in the Indigo JV, of which $1.9 million had been funded as of June 30, 2024. The Company earns an accrued return on its outstanding
capital contributions at a rate of 17.0% per annum compounded monthly, subject to a minimum return, with preferred return payments commencing
in December 2025 contingent upon the property generating cash flows in excess of operating costs. The Indigo JV is required to redeem
the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (addressed below) is
repaid or refinanced, or earlier upon the occurrence of certain events.
In conjunction with the Indigo
Cove development, the Indigo Cove property owner, which is owned by an entity in which the Company has an equity interest, entered into
a $22.0 million construction loan, of which $0.4 million is outstanding as of June 30, 2024. The loan bears interest on the amount drawn
based on one-month Term SOFR plus 5.55%, subject to a 9.87% rate floor, with interest-only monthly payments during the term of the loan.
The loan matures on June 18, 2026 and is secured by the fee simple interest in the Indigo Cove development. The loan contains two (2)
six-month extension options, subject to certain conditions, and can be prepaid without penalty.
19
Table of Contents
Peak Housing Interests
Prior to 2024, the Company
made a preferred equity investment in the Peak REIT OP in the aggregate amount of $20.3 million which was collateralized by 648 single-family
residential units (“Peak Housing”). Peak REIT OP may sell the units collateralizing the Company’s preferred equity investment,
though Peak REIT OP is required to distribute any net sale proceeds to the Company, after consideration for partnership operating expenses
and reserve requirements, until the Company’s full preferred equity investment has been repaid in full, subject to certain rate
of return requirements and including any accrued but unpaid preferred returns. During 2023, the Company’s preferred equity investment
was partially redeemed resulting from the sales by Peak REIT OP of 196 of the 648 units that collateralized the Company’s investment.
At December 31, 2023, the Company’s outstanding preferred equity principal investment in Peak REIT OP was $10.6 million, with a
remaining 452 units as collateral underlying the Company’s investment.
During the six months ended
June 30, 2024, the Company’s preferred equity investment in the Peak REIT OP was partially redeemed in the aggregate amount of $3.9
million, which included principal investment of $3.5 million and accrued preferred return of $0.4 million. The Company’s partial
redemption of its preferred equity investment was a result of the sales by Peak REIT OP of 103 of the 452 units that collateralized the
Company’s investment. At June 30, 2024, the Company’s outstanding preferred equity investment in the Peak REIT OP was $7.1
million, with a remaining 349 units as collateral underlying the Company’s investment.
Note 8— Revolving Credit Facilities
The outstanding balances on
the revolving credit facilities at June 30, 2024 and December 31, 2023 are as follows (amounts in thousands):
|
|
|
|
|
|
|
|
| Revolving Credit Facilities |
|
June 30, 2024 |
|
December 31, 2023 |
| Amended DB Credit Facility |
|
$ |
85,000 |
|
$ |
50,000 |
| Amended ILE Sunflower Credit Facility |
|
|
20,000 |
|
|
20,000 |
| Total |
|
$ |
105,000 |
|
$ |
70,000 |
Amended Deutsche Bank Credit Facility (“Amended DB Credit
Facility”)
On December 29, 2023, certain
of the Company’s subsidiaries entered into an amended and restated credit facility (the “Amended DB Credit Facility”)
with Deutsche Bank Securities Inc. (“Deutsche Bank”), as sole lead arranger, Deutsche Bank AG, New York Branch, as administrative
agent, the financial institutions party thereto as lenders and Computershare Trust Company, N.A., as paying agent and calculation agent,
and the Company as a guarantor. The Amended DB Credit Facility provides for a revolving loan with a maximum commitment amount of $150
million. Borrowings under the Amended DB Credit Facility are limited to financings related to the acquisition, renovation, rehabilitation,
maintenance and leasing of single-family residential units in the Indy-Springfield, Peak JV 2 and Savannah-84 portfolios. Borrowings under
the Amended DB Credit Facility bear interest on the amount drawn at Term SOFR plus 2.80%, and borrowings can be prepaid without premium
or penalty. The interest rate on outstanding borrowings was 8.13% at June 30, 2024. The Amended DB Credit Facility matures on April 6,
2025 and contains a one-year extension option, subject to certain conditions. The Amended DB Credit Facility contains certain financial
and operating covenants, including maximum leverage ratio, minimum debt yield and minimum debt service coverage ratios. At June 30, 2024,
the Amended DB Credit Facility was drawn at $85 million and the Company was in compliance with all covenants under the Amended DB Credit
Facility. The availability of borrowings under the Amended DB Credit Facility at June 30, 2024 was approximately $15 million and is based
on the collateral and compliance with various ratios related to those assets.
20
Table of Contents
Amended ILE Sunflower Credit Facility
On June 27, 2023, the Company,
along with its unaffiliated joint venture partner, ILE, entered into an amended and restated credit facility with Sunflower Bank, N.A.
(the “Amended ILE Sunflower Credit Facility”). The Amended ILE Sunflower Credit Facility transitioned the interest rate on
borrowings from LIBOR to a SOFR-based rate. There were no other material changes in terms from the previous credit facility. The Amended
ILE Sunflower Credit Facility provides for a revolving loan with an initial commitment amount of $20 million, which commitment contains
an accordion feature to a maximum total commitment of up to $50 million. The Amended ILE Sunflower Credit Facility, along with three other
separate non-revolving credit facilities (refer to Note 9 for further information), is used in the financing of acquisitions of single-family
residential units. Borrowings under the Amended ILE Sunflower Credit Facility bear interest at Term SOFR plus 3.11%, subject to a rate
floor, and can be prepaid without penalty or premium. The interest rate on outstanding borrowings was 8.46% at June 30, 2024. The Amended
ILE Sunflower Credit Facility matures on December 27, 2024 and contains certain financial and operating covenants, including a minimum
fixed charge coverage ratio. The Company expects to refinance the loan by year end and is currently in term sheet negotiations with lenders.
At June 30, 2024, the Company was in compliance with all covenants under the Amended ILE Sunflower Credit Facility and the initial commitment
was fully drawn at $20 million. A principal of ILE has guaranteed the obligations under the Amended ILE Sunflower Credit Facility and
the joint venture has pledged certain assets as collateral.
Note 9 – Mortgages Payable
The following table summarizes
certain information as of June 30, 2024 and December 31, 2023 with respect to the Company’s senior mortgage indebtedness (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Outstanding Principal |
|
As of June 30, 2024 |
|
| |
|
June 30, |
|
December 31, |
|
|
|
Interest-only |
|
|
|
| Property |
|
2024 |
|
2023 |
|
Interest Rate |
|
through date |
|
Maturity Date |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fixed Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ILE (1) |
|
$ |
28,898 |
|
$ |
29,680 |
|
4.05 |
% |
(2) |
|
(1) |
|
| Navigator Villas (3) |
|
|
19,529 |
|
|
19,702 |
|
4.57 |
% |
(2) |
|
June 1,2028 |
|
| Villas at Huffmeister |
|
|
27,440 |
|
|
— |
|
3.56 |
% |
October 2024 |
|
October 1, 2029 |
|
| Yauger Park Villas (4) |
|
|
14,199 |
|
|
14,350 |
|
4.86 |
% |
(2) |
|
April 1, 2026 |
|
| Total Fixed Rate |
|
$ |
90,066 |
|
$ |
63,732 |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Floating Rate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Wayford at Concord (5) |
|
$ |
32,973 |
|
$ |
32,973 |
|
4.73 |
% |
May 2027 |
|
May 1, 2029 |
|
| Total Floating Rate |
|
$ |
32,973 |
|
$ |
32,973 |
|
|
|
|
|
|
|
| Total |
|
$ |
123,039 |
|
$ |
96,705 |
|
|
|
|
|
|
|
| Fair value adjustments |
|
|
(2,212) |
|
|
916 |
|
|
|
|
|
|
|
| Deferred financing costs, net |
|
|
(1,166) |
|
|
(951) |
|
|
|
|
|
|
|
| Total mortgages payable |
|
$ |
119,661 |
|
$ |
96,670 |
|
|
|
|
|
|
|
| (1) |
ILE’s fixed rate debt represents the aggregate debt outstanding across three separate credit agreements. Of the outstanding balance, one credit agreement (“CA1”) has a balance of $6.1 million at a fixed rate of 3.50%, the second credit agreement (“CA2”) has a balance of $18.3 million at a fixed rate of 3.75%, and the third credit agreement (“CA3”) has a balance of $4.5 million at a fixed rate of 6.00%. CA1 and CA2 both mature in 2026; CA3 matures in 2028. |
| (2) |
The loan requires monthly payments of principal and interest. |
| (3) |
The principal balance includes a $14.0 million senior loan at a fixed rate of 4.31% and a $5.5 million supplemental loan at a fixed rate of 5.23%. |
| (4) |
The principal balance includes a $9.8 million senior loan at a fixed rate of 4.81% and a $4.4 million supplemental loan at a fixed rate of 4.96%. |
| (5) |
The Wayford at Concord loan bears interest at the 30-day average SOFR plus 2.23%. In June 2024, the 30-day average SOFR in effect was 5.32%. SOFR rate is subject to a 2.50% rate cap through April 2025. Refer to Note 11 for further information. |
21
Table of Contents
Deferred financing costs
Costs incurred in obtaining
long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as
applicable, which approximates the effective interest method.
Fair value adjustments of debt
The Company records a fair
value adjustment based upon the fair value of the loans on the date they were assumed in conjunction with acquisitions. The fair value
adjustments are being amortized to interest expense over the remaining life of the loans.
Loss on Extinguishment of Debt and Debt Modification Costs
Upon repayment of or in conjunction
with a material change (i.e., a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement,
the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt that was
extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that are not capitalized
would also be included within loss on extinguishment of debt and debt modification costs on the consolidated statements of operations.
The Company had no loss on extinguishment of debt or debt modification costs for the three and six months ended June 30, 2024 and 2023.
Debt maturities
At June 30, 2024, contractual
principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):
|
|
|
|
|
| Year |
|
Total |
| 2024 (July 1–December 31) |
|
$ |
911 |
| 2025 |
|
|
2,228 |
| 2026 |
|
|
37,704 |
| 2027 |
|
|
1,415 |
| 2028 |
|
|
23,589 |
| Thereafter |
|
|
57,192 |
| |
|
$ |
123,039 |
| Add: Unamortized fair value debt adjustment |
|
|
(2,212) |
| Subtract: Deferred financing costs, net |
|
|
(1,166) |
| Total mortgages payable |
|
$ |
119,661 |
The net book value of real
estate assets providing collateral for these above borrowings, including the revolving credit facilities (refer to Note 8 for further
information), was $399.6 million at June 30, 2024.
The mortgage loans encumbering
the Company’s properties are nonrecourse, subject to certain exceptions for which the Company would be liable for any resulting
losses incurred by the lender. These exceptions generally include fraud or a material misrepresentation, misstatement or omission
by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender,
filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. In addition,
upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, the Company or our joint ventures
would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties
and expenses. The mortgage loans have a period where a prepayment fee or yield maintenance would be required.
22
Table of Contents
Note 10 – Fair Value of Financial Instruments
Fair Value Measurements
For financial assets and liabilities
recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would expect to receive to sell an asset,
or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date under current market conditions.
In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in
a hypothetical transaction.
In determining fair value,
observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market
assumptions; preference is given to observable inputs. In accordance with GAAP and as defined in ASC Topic 820: Fair Value Measurement,
these two types of inputs create the following fair value hierarchy:
| |
● Level 1: |
Quoted prices for identical instruments in active markets |
| |
● Level 2: |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable |
| |
● Level 3: |
Significant inputs to the valuation model are unobservable |
If the inputs used to measure
the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is significant
to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted
market prices, the Company uses independent sources and data to determine fair value.
Fair Value of Financial Instruments
At June 30, 2024 and December
31, 2023, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, due to affiliates, accounts payable,
other accrued liabilities, and distributions payable approximate their fair value based on their highly-liquid nature and/or short-term
maturities.
The carrying values and fair
values of the Company’s financial instruments at June 30, 2024 and December 31, 2023 are summarized in the table below (amounts
in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
June 30, 2024 |
|
December 31, 2023 |
| |
|
|
|
Carrying Value |
|
Fair Value |
|
Carrying Value |
|
Fair Value |
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Note receivable (available for sale) (1) |
|
Level 3 |
|
$ |
7,800 |
|
$ |
7,800 |
|
$ |
— |
|
$ |
— |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Mortgages payable (2) |
|
Level 2 |
|
$ |
120,827 |
|
$ |
116,283 |
|
$ |
97,621 |
|
$ |
93,046 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Represents Note B of the Pringle Loan which, due to conversion options, meets the criteria of a debt security and is considered as available for sale (refer to Note 6 for further information). The fair value of the note receivable is estimated by modeling the expected contractual cash flows required under the instrument and discounting such cash flows back to their present value using estimates of current market rates. As the estimated current market rates did not substantially differ from the discount rates originally applied, the carrying amount of the note receivable approximates its fair value. There were no purchases, sales, issuances, or settlements during the three and six months ended June 30, 2024 other than the $7.8 million initial funding of the note in the first quarter 2024. |
| (2) |
The carrying values of the mortgages payable include $2,212 and $916 of unamortized fair value debt adjustments and exclude $1,166 and $951 of deferred financing costs at June 30, 2024 and December 31, 2023, respectively. The fair value of mortgages payable is estimated based on interest rates obtained from third party lenders for similar types of borrowing arrangements. |
23
Table of Contents
The Company’s operating
units classified as held for sale for which it has recorded impairments, measured at fair value on a non-recurring basis, for the three
and six months ended June 30, 2024 are summarized below (amounts in thousands). The Company had no operating units classified as held
for sale during these same periods in 2023.
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, 2024 |
|
June 30, 2024 |
| Investment in operating units classified as held for sale (Level 3) |
|
|
|
|
|
|
| Pre-impairment amount |
|
$ |
6,072 |
|
$ |
10,882 |
| Total impairments |
|
|
(1,093) |
|
|
(1,197) |
| Fair value (1) |
|
$ |
4,979 |
|
$ |
9,685 |
| (1) |
Real estate assets classified as held for sale are reported at the lower of their carrying value or estimated fair value less costs to sell and are presented separately within operating real estate held for sale, net on the Company’s consolidated balance sheets. The estimated fair value is based on discussions with third party brokers, historical sales experience, and current market conditions. |
Derivative Financial Instruments
The estimated fair values of
derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity,
and uses observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps is determined
using the market-standard methodology of discounting the future expected cash receipts which would occur if floating interest rates rise
above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the cap are based on an
expectation of future interest rates derived from observable market interest rate curves and volatilities. The fair value of interest
rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and
the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of
future interest rates (forward curves) derived from observable market interest rate curves. The inputs used in the valuation of interest
rate caps and swaps fall within Level 2 of the fair value hierarchy.
Note 11 – Derivative Financial Instruments
The Company is exposed to certain
risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety
of business and operational risks through management of its core business activities. The Company manages economic risks, including interest
rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of
derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise
from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined
by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration
of the Company’s known or expected cash payments principally related to the Company’s borrowings.
The Company’s objectives
in using interest rate derivative financial instruments are to add stability to interest expense and to manage the Company’s exposure
to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps and swaps as part of its interest
rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise
above the strike rate on the contract in exchange for an up-front premium. Interest rate swaps involve the receipt of variable-rate amounts
from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying
notional amount.
The Company has not designated
any of the interest rate derivatives as hedges. Although these derivative financial instruments were not designated or did not qualify
for hedge accounting, the Company believes these derivative financial instruments mitigate increases in interest rates. The Company does
not use derivative financial instruments for trading or speculative purposes.
24
Table of Contents
At June 30, 2024, the Company
had interest rate caps and swaps which effectively limit the Company’s exposure to interest rate risk by providing a ceiling on
the underlying interest rate for $128.5 million of the Company’s debt. The following table summarizes the Company’s derivative
financial instruments at June 30, 2024 ($ in thousands):
|
|
|
|
|
|
|
|
| |
|
Interest Rate Caps |
|
Interest Rate Swaps |
| Notional balance |
|
$ |
145,473 |
|
$ |
10,569 |
| Number of instruments |
|
|
2 |
|
|
2 |
| Earliest maturity date |
|
|
May 2025 |
|
|
March 2026 |
| Latest maturity date |
|
|
May 2025 |
|
|
August 2028 |
The table below presents the
classification and fair value of the Company’s derivative financial instruments on the consolidated balance sheets at June 30, 2024
and December 31, 2023 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
| Derivatives not designated as hedging |
|
|
|
Fair Values of Derivative Instruments |
| instruments under ASC 815-20 |
|
Balance Sheet Location |
|
June 30, 2024 |
|
December 31, 2023 |
| Interest rate caps |
|
Accounts receivable, prepaids and other assets |
|
$ |
3,017 |
|
$ |
1,934 |
| Interest rate swaps |
|
Accounts receivable, prepaids and other assets |
|
|
533 |
|
|
483 |
The table below presents the
classification and effect of the Company’s derivative financial instruments on the consolidated statements of operations for the
three and six months ended June 30, 2024 and 2023 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
The Effect of Derivative Instruments on the |
| |
|
|
|
Statements of Operations |
| Derivatives not designated as hedging |
|
Location of Gain (Loss) |
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
| instruments under ASC 815-20 |
|
Recognized in Income |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Interest rate caps |
|
Interest expense, net |
|
$ |
(800) |
|
$ |
287 |
|
$ |
(1,606) |
|
$ |
(685) |
| Interest rate swaps |
|
Interest expense, net |
|
|
(40) |
|
|
208 |
|
|
51 |
|
|
47 |
Note 12 – Related Party Transactions
Management Agreement
In October 2022, the Company
entered into a management agreement (the “Management Agreement”) with the Operating Partnership and Bluerock Homes Manager,
LLC (the “Manager”), which is an affiliate of Bluerock Real Estate, LLC (“BRE”), pursuant to which the Manager
provides for the day-to-day management of the Company’s operations. Pursuant to the terms of the Management Agreement, the Manager
provides the Company with a management team and appropriate support personnel to provide such management services to the Company. The
Management Agreement requires the Manager to manage the Company’s business affairs under the supervision and direction of the Company’s
board of directions (the “Board”). Specifically, the Manager is responsible for (i) the selection, purchase and sale of the
Company’s portfolio investments, (ii) the Company’s financing activities, and (iii) providing the Company with advisory services,
in each case in conformity with the investment guidelines and other policies approved and monitored by its Board. The Management Agreement
expires on October 6, 2024 and will be automatically renewed for a one-year term on each anniversary date thereafter unless earlier terminated
or not renewed in accordance with the terms thereof.
25
Table of Contents
The Company pays the Manager
a base management fee (the “base management fee”) in an amount equal to 1.50% of the Company’s New Stockholders’
Equity (as defined in the Management Agreement) per year, as well as an incentive fee (the “incentive fee”) with respect to
each calendar quarter (or part thereof that the Management Agreement is in effect) in arrears. The Company is required to reimburse the
Manager for certain expenses and pay all operating expenses (the “operating expense reimbursement”) with respect to each calendar
quarter (or part thereof that the Management Agreement is in effect) in arrears, except those specifically required to be borne by the
Manager under the Management Agreement. The Management Agreement provides that (i) the base management fee and the incentive fee shall
be allocated and payable as one half (50%) in C-LTIP Units and the remainder payable in cash or C-LTIP Units, at the discretion of the
Board, and (ii) the operating expense reimbursement shall be payable either in cash or C-LTIP Units, at the discretion of the Board. The
number of C-LTIP Units payable and issued to the Manager for the base management fee, the incentive fee and expense reimbursements will
be equal to the dollar amount (of the portion deemed payable in C-LTIP Units) of the fees earned or reimbursement amount divided by the
average of the closing prices of the Class A common stock for the five business days prior to issuance.
For the three and six months
ended June 30, 2024 and 2023, the Company recorded base management fees of $2.2 million and $2.0 million, and $4.2 million and $3.9 million,
respectively. Commencing with the base management fee for the first quarter 2024, the Company paid, and expects to continue to pay, the
base management fee to the Manager as one half (50)% in C-LTIP Units and the remainder in cash; prior to the first quarter 2024, the Company
paid the base management fee to the Manager entirely through the issuance of C-LTIP Units. There have been no incentive fee expenses incurred
during 2024 or the year ended December 31, 2023.
For the three and six months
ended June 30, 2024 and 2023, the Company recorded operating expense reimbursements of $1.1 million and $0.4 million, and $2.3 million
and $0.8 million, respectively. Commencing with the operating expense reimbursement for the first quarter 2024, the Company paid, and
expects to continue to pay, the operating expense reimbursement to the Manager entirely in cash; prior to the first quarter 2024, the
Company paid the operating expense reimbursement to the Manager entirely through the issuance of C-LTIP Units. The operating expense reimbursement
for each of the first and second quarters of 2024 included an average reimbursement to the Manager of $0.8 million for accounting and
legal services. Prior to the fourth quarter 2023, the Manager elected to not seek reimbursement for accounting and legal services during
the Company’s first year of operations. In addition, for the three and six months ended June 30, 2024 and 2023, the Company recorded
direct expense reimbursements of $0.07 million and $0.04 million, and $0.2 million and $0.1 million, respectively, which were paid to
the Manager in cash. Both the operating and direct expense reimbursements were recorded as part of general and administrative expenses
in the Company’s consolidated statements of operations.
The table below presents the
related party amounts payable to the Manager pursuant to the terms of the Management Agreement, along with amounts payable to related
parties other than the Manager, at June 30, 2024 and December 31, 2023 (amounts in thousands). The Company records these payables in due
to affiliates in its consolidated balance sheets.
|
|
|
|
|
|
|
|
| Amounts payable to the Manager under the Management Agreement |
|
June 30, 2024 |
|
December 31, 2023 |
| Base management fee |
|
$ |
2,173 |
|
$ |
2,048 |
| Operating and direct expense reimbursements |
|
|
1,135 |
|
|
1,365 |
| Offering expense reimbursements |
|
|
50 |
|
|
96 |
| Total amounts payable to the Manager |
|
$ |
3,358 |
|
$ |
3,509 |
| |
|
|
|
|
|
|
| Total amounts payable to Related Parties other than the Manager |
|
$ |
168 |
|
$ |
— |
| Total amounts payable to Related Parties |
|
$ |
3,526 |
|
$ |
3,509 |
At June 30, 2024 and December
31, 2023, the Company had no receivables due from any related parties.
Selling Commissions and Dealer Manager Fees
In conjunction with the offering
of the Company’s Series A Preferred Stock (refer to Note 13 for further information), the Company engaged a related party as dealer
manager, and pays up to 10% of the gross offering proceeds from the offering as selling commissions and dealer manager fees. The dealer
manager re-allows the substantial majority of the selling commissions and dealer manager fees to participating broker-dealers and incurs
costs in excess of the 10%, which costs are borne by the dealer manager without reimbursement by the Company. For the six months ended
June 30, 2024, the Company incurred $3.1 million in selling commissions and discounts and $1.3 million in dealer manager fees and discounts
related to its offering of Series A Preferred Stock. In addition, the Manager was, or shall be, reimbursed for offering costs of $0.4
million in conjunction with the offering of Series A Preferred Stock during the six months ended June 30, 2024. The selling commissions,
dealer manager fees, discounts and reimbursements for offering costs were recorded as a reduction to the proceeds of the offering.
26
Table of Contents
Note 13 – Stockholders’ Equity and Redeemable Preferred
Stock
Net Loss Per Common Share
Basic and diluted net loss
per common share is computed by dividing net loss attributable to common stockholders, less dividends on restricted stock, LTIP Units
and C-LTIP Units expected to vest, by the weighted average number of common shares outstanding for the period. Net loss attributable to
common stockholders is computed by adjusting net loss for the non-forfeitable dividends paid on non-vested restricted stock, LTIP Units
and C-LTIP Units.
The Company considers the requirements
of the two-class method when preparing earnings per share. The Company has two classes of common stock outstanding: Class A common stock,
$0.01 par value per share, and Class C common stock, $0.01 par value per share. Earnings per share is not affected by the two-class method
because the Company’s Class A and C common stock participate in dividends on a one-for-one basis.
The following table reconciles
the components of basic and diluted net loss per common share for the three and six months ended June 30, 2024 and 2023 (amounts in thousands,
except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Net loss attributable to common stockholders |
|
$ |
(1,632) |
|
$ |
(335) |
|
$ |
(2,652) |
|
$ |
(1,875) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares outstanding (1) |
|
|
3,852,179 |
|
|
3,844,008 |
|
|
3,850,336 |
|
|
3,843,756 |
| Potential dilutive shares (2) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
| Weighted average common shares outstanding and potential dilutive shares (1) |
|
|
3,852,179 |
|
|
3,844,008 |
|
|
3,850,336 |
|
|
3,843,756 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss per common share, basic |
|
$ |
(0.42) |
|
$ |
(0.09) |
|
$ |
(0.69) |
|
$ |
(0.49) |
| Net loss per common share, diluted |
|
$ |
(0.42) |
|
$ |
(0.09) |
|
$ |
(0.69) |
|
$ |
(0.49) |
| (1) |
Amounts relate to shares of the Company’s Class A and Class C common stock outstanding. |
| (2) |
For the three and six months ended June 30, 2024, potential vesting of restricted Class A common stock of 4,772 shares and zero shares, respectively, are excluded from the diluted shares calculation as the effect is antidilutive. For the three and six months ended June 30, 2023, potential vesting of restricted Class A common stock of 1,418 shares and 4,002 shares, respectively, are excluded from the diluted shares calculation as the effect is antidilutive. |
The effect of the conversion
of OP Units is not reflected in the computation of basic and diluted earnings per share as they are exchangeable for Class A common stock
on a one-for-one basis. The income allocable to such OP Units is allocated on this same basis and reflected as noncontrolling interests
in the accompanying consolidated financial statements. As such, the assumed conversion of these OP Units would have no net impact on the
determination of diluted earnings per share.
Series A Redeemable Preferred
Stock
During the six months ended
June 30, 2024, the Company issued 1,761,120 shares of 6.0%Series A Redeemable Preferred Stock (the “Series A Preferred Stock”)
at $25.00 per share (the “Stated Value”) under its continuous registered offering with net proceeds of approximately $38.8
million after (i) commissions, dealer manager fees and sales discounts of approximately $4.4 million, and (ii) costs related to establishing
the offering of Series A Preferred Stock of approximately $0.8 million. As of June 30, 2024, the Company had issued a total of 2,197,795
shares of Series A Preferred Stock with total net proceeds of approximately $47.1 million after commissions, dealer manager fees, sales
discounts and offering costs. During the six months ended June 30, 2024, the Company, at the request of holders, redeemed 1,000 shares
of Series A Preferred Stock through the issuance of 1,346 shares of Class A common stock.
27
Table of Contents
Class A Common Stock Repurchase
Plan
On February 13, 2024, the Board
authorized a stock repurchase plan for the repurchase, from time to time, of up to an aggregate of $5 million of the Company’s outstanding
shares of Class A common stock, with such repurchases to be conducted in accordance with the requirements of Rule 10b-18 of the Securities
Exchange Act of 1934 (the “Exchange Act”) and subject to Rule 10b-5 of the Exchange Act. The repurchase plan has a term of
one year and may be discontinued at any time. The extent to which the Company repurchases shares of its Class A common stock under the
repurchase plan, and the timing of any such repurchases, depends on a variety of factors including general business and market conditions
and other corporate considerations. The Company expects to repurchase shares of its Class A common stock through open market transactions,
subject to market conditions, certain price limitations and other conditions established under the plan. Open market repurchases will
be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act. As of
June 30, 2024, no repurchases of Class A common stock had been made by the Company.
Operating Partnership and
Long-Term Incentive Plan Units
As of June 30, 2024, limited
partners other than the Company owned approximately 69.19% of the common units of the Operating Partnership (7,365,735 OP Units, or 57.38%,
is held by OP Unit holders, and 1,515,185 LTIP Units, or 11.81%, is held by LTIP Unit holders, including 3.76% which are not vested as
of June 30, 2024). Subject to certain restrictions set forth in the Operating Partnership’s Partnership Agreement, OP Units are
exchangeable for Class A common stock on a one-for-one basis, or, at the Company’s election, redeemable for cash. LTIP Units and
C-LTIP Units may be convertible into OP Units under certain conditions and then may be settled in shares of the Company’s Class
A common stock or, at the Company’s election, cash.
On February 21, 2024, the Company
granted to the Manager (i) 151,600 C-LTIP Units in payment of the full base management fee of $2.0 million, and (ii) 95,204 C-LTIP Units
in payment of the full operating expense reimbursement of $1.3 million, incurred for the fourth quarter 2023. On May 14, 2024, the Company
granted 60,080 C-LTIP Units to the Manager in payment of one half (50)% of the total base management fee of $2.1 million incurred for
the first quarter 2024. All such C-LTIP Units were issued pursuant to the Management Agreement and were fully vested upon issuance.
In the future, the Operating
Partnership may issue OP Units or preferred OP Units from time to time in connection with acquisitions of properties or for financing,
compensation or other reasons.
Equity Incentive Plans
The Board has adopted, and
the Company’s sole initial stockholder has approved, the Bluerock Homes Trust, Inc. 2022 Equity Incentive Plan for Individuals (the
“BHM Individuals Plan”) and the Bluerock Homes Trust, Inc. 2022 Equity Incentive Plan for Entities (the “BHM Entities
Plan”). Together, the Company refers to the BHM Individuals Plan and the BHM Entities Plan as the “BHM Incentive Plans.”
The BHM Incentive Plans provide for the grant of options to purchase shares of our common stock, stock awards, stock appreciation rights,
performance units, incentive awards and other equity-based awards, and are administered by the compensation committee of the Board.
LTIP Unit Grants
On January 8, 2024, the Company
granted 5,185 LTIP Units pursuant to the BHM Incentive Plans to each independent member of the Board in payment of the equity portion
of their respective annual retainers. Such LTIP Units were fully vested upon issuance and the Company recognized expense of $0.3 million
based on the fair value at the date of grant.
Effective April 1, 2024, for
tax efficiency purposes, the Manager forfeited 57,670 unvested LTIP Units granted to the Manager on May 25, 2023 in payment of the annual
long-term incentive equity grant pursuant to the BHM Entities Plan. During the three and six months ended June 30, 2024, the Company reversed
previously recognized compensation expense of approximately $0.3 million and $0.3 million, respectively. Such expense reversal was recorded
as part of general and administrative expenses in the Company’s consolidated statements of operations.
28
Table of Contents
On April 30, 2024 the Company
granted 101,789 LTIP Units, including (by mutual agreement of the Manager and the Company, and at the direction of the Manager) the 57,670
unvested LTIP Units forfeited by the Manager, pursuant to the BHM Incentive Plans, directly to and among certain of the Manager’s
executive management team and personnel who provide other services to the Manager as an annual long-term incentive equity grant for the
year ended December 31, 2023. Such LTIP Units will vest ratably on an annual basis over a three-year period from the date of grant.
The Company recognizes compensation
expense ratably over the vesting period for time-based LTIP Units based on the fair value at the date of grant. During the three and six
months ended June 30, 2024 and 2023, the Company recognized compensation expense for such LTIP Units of approximately $0.7 million and
$0.5 million, and $1.3 million and $1.0 million, respectively. Such expense was recorded as part of general and administrative expenses
in the Company’s consolidated statements of operations. At June 30, 2024, there was $8.6 million of total unrecognized compensation
expense related to unvested LTIP Units granted under the BHM Incentive Plans. The remaining expense is expected to be recognized over
a period of 3.1 years.
Restricted Stock
Grants
In November 2023, the Company
issued 31,260 shares of Class A common stock as restricted stock grants (“RSGs”), pursuant to the BHM Individuals Plans, directly
to and among certain of the Manager’s executive management team and personnel who provide other services to the Manager (collectively,
the “BREH Personnel”), as equity compensation for services provided to the Manager in such capacities. One-third of such RSGs
vested on May 25, 2024, and the remainder will vest ratably on an annual basis over a two-year period from April 1, 2024.
On April 1, 2024 and on April
30, 2024, the Company issued 66,846 shares and 10,435 shares, respectively, of Class A common stock as RSGs, pursuant to the BHM Individual
Plans, directly to and among certain of the BREH Personnel as an annual long-term incentive equity grant for the year ended December 31,
2023. Such RSGs will vest ratably on an annual basis over a three-year period from their date of grant.
During the three and six months
ended June 30, 2024 and 2023, the Company recognized compensation expense for all such RSGs of approximately $0.2 million and $0.02 million,
and $0.2 million and $0.02 million, respectively. Such expense was recorded as part of general and administrative expenses in the Company’s
consolidated statements of operations. At June 30, 2024, there was $1.5 million of total unrecognized compensation expense related to
the unvested RSGs granted under the BHM Incentive Plans. The remaining expense is expected to be recognized over a period of 2.5 years.
29
Table of Contents
The Company currently uses
authorized and unissued shares to satisfy share award grants.
Distributions
|
|
|
|
|
|
|
|
|
| Declaration Date |
|
Payable to stockholders of record as of |
|
Amount |
|
Paid / Payable Date |
| Class A common stock Special Dividend |
|
|
|
|
|
|
|
| December 19, 2023 |
|
December 29, 2023 |
|
$ |
1.00 |
|
January 5, 2024 |
| Class C common stock Special Dividend |
|
|
|
|
|
|
|
| December 19, 2023 |
|
December 29, 2023 |
|
$ |
1.00 |
|
January 5, 2024 |
| Series A Preferred Stock (1) |
|
|
|
|
|
|
|
| October 13, 2023 |
|
December 22, 2023 |
|
$ |
0.125 |
|
January 5, 2024 |
| January 15, 2024 |
|
January 25, 2024 |
|
|
0.125 |
|
February 5, 2024 |
| January 15, 2024 |
|
February 23, 2024 |
|
|
0.125 |
|
March 5, 2024 |
| January 15, 2024 |
|
March 25, 2024 |
|
|
0.125 |
|
April 5, 2024 |
| April 12, 2024 |
|
April 25, 2024 |
|
|
0.125 |
|
May 3, 2024 |
| April 12, 2024 |
|
May 24, 2024 |
|
|
0.125 |
|
June 5, 2024 |
| April 12, 2024 |
|
June 25, 2024 |
|
|
0.125 |
|
July 5, 2024 |
| Series A Preferred Special Dividend (2) |
|
|
|
|
|
|
|
| November 7, 2023 |
|
Each day of December 1 - 31, 2023 |
|
$ |
0.002469 |
|
January 5, 2024 |
| January 15, 2024 |
|
Each day of January 1 - 31, 2024 |
|
|
0.000337 |
|
February 5, 2024 |
| January 15, 2024 |
|
Each day of February 1 - 29, 2024 |
|
|
0.003458 |
|
March 5, 2024 |
| January 15, 2024 |
|
Each day of March 1 - 31, 2024 |
|
|
0.004603 |
|
April 5, 2024 |
| April 12, 2024 |
|
Each day of April 1 - 30, 2024 |
|
|
0.009953 |
|
May 3, 2024 |
| Series A Preferred Enhanced Special Dividend (3) |
|
|
|
|
|
|
|
| May 3, 2024 |
|
May 24, 2024 |
|
$ |
0.027507 |
|
June 5, 2024 |
| May 3, 2024 |
|
June 25, 2024 |
|
|
0.027775 |
|
July 5, 2024 |
| (1) |
Holders of record of newly issued Series A Preferred Stock shares that are held only a portion of the applicable monthly dividend period will receive a prorated dividend based on the actual number of days in the applicable dividend period during which each such share of Series A Preferred Stock was outstanding. |
| (2) |
Holders of record of Series A Preferred Stock shares as of the close of business on each day of the applicable month were entitled to additional contingent special daily dividends for each such day, to be aggregated and payable (if at all) on the payable date, in each case equal to the amount (if any) by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average 10-year Daily Treasury Par Yield Curve Rate for the period from the 26th of the prior month to the 25th of the applicable month (as reported by the United States Department of the Treasury), plus (II) two percent, divided by (b) twelve, divided further by (c) the actual number of days in the applicable month, exceeds (ii) the quotient of (a) $0.125 divided by (b) the actual number of days in the applicable month. |
| (3) |
Holders of record of Series A Preferred Stock shares are entitled to an enhanced special dividend, which replaces the additional contingent special daily dividends, equal to the amount by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average of the one-month Term SOFR for each day commencing on the 26th of the prior month to the 25th of the applicable month, plus (II) two percent, divided by (b) twelve, exceeds (ii) the standard monthly dividend of $0.125 per share of Series A Preferred Stock. The enhanced special dividend will be aggregated with the standard monthly dividend so as to effect a dividend rate on the Series A Preferred Stock that is subject to a 6.5% minimum and 8.5% maximum annual rate. |
A portion of each dividend
may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this
rate. Holders of restricted stock, OP Units, LTIP Units and C-LTIP Units are entitled to receive “distribution equivalents”
at the same time as dividends are paid to holders of the Company’s Class A common stock.
30
Table of Contents
Distributions declared and
paid for the six months ended June 30, 2024 were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
| |
|
Distributions |
| 2024 |
|
Declared |
|
Paid |
| First Quarter |
|
|
|
|
|
|
| Class A common stock |
|
$ |
— |
|
$ |
3,871 |
| Class C common stock |
|
|
— |
|
|
8 |
| Series A Preferred Stock (1) |
|
|
253 |
|
|
206 |
| OP Units |
|
|
— |
|
|
7,366 |
| LTIP / C-LTIP Units |
|
|
— |
|
|
1,143 |
| Total first quarter |
|
$ |
253 |
|
$ |
12,594 |
| Second Quarter |
|
|
|
|
|
|
| Series A Preferred Stock (1) |
|
$ |
562 |
|
$ |
396 |
| Total second quarter |
|
$ |
562 |
|
$ |
396 |
| Total |
|
$ |
815 |
|
$ |
12,990 |
| (1) |
Series A Preferred Stock amounts include the standard dividend at an annual rate of 6.0% of the Stated Value plus any special and enhanced special dividends. |
Note 14 – Commitments and Contingencies
The aggregate amount of the
Company’s contractual commitments to fund future cash obligations in certain of its loan, preferred equity and consolidated real
estate investments was $17.4 million and $0.2 million at June 30, 2024 and December 31, 2023, respectively.
In connection with the Company
moving its New York (Manhattan) headquarters, effective on May 31, 2024, the Company and an unaffiliated third-party landlord entered
into a lease for separate corporate space (the “NY Premises Lease”) located at 919 Third Avenue, New York, New York (the “Future
NY Premises”). The NY Premises Lease will commence on the date of the landlord’s consent thereto, upon which such time the
Company will record a right-of-use asset and lease liability on its consolidated balance sheets. The Company expects the NY Premises Lease
to commence in the fourth quarter 2024, with the Company occupying the Future NY Premises shortly thereafter.
The Company is subject to various
legal actions and claims arising in the ordinary course of business. Although the outcome of any legal matter cannot be predicted with
certainty, management does not believe that any of these legal proceedings or matters will have a material adverse effect on the consolidated
financial position or results of operations or liquidity of the Company.
31
Table of Contents
Note 15 – Subsequent
Events
Declaration of Dividends
|
|
|
|
|
|
|
|
|
| Declaration Date |
|
Payable to stockholders of record as of |
|
Amount |
|
Paid / Payable Date |
| Series A Preferred Stock (1) |
|
|
|
|
|
|
|
| July 12, 2024 |
|
July 25, 2024 |
|
$ |
0.125 |
|
August 5, 2024 |
| July 12, 2024 |
|
August 23, 2024 |
|
|
0.125 |
|
September 5, 2024 |
| July 12, 2024 |
|
September 25, 2024 |
|
|
0.125 |
|
October 4, 2024 |
| Series A Preferred Enhanced Special Dividend |
|
|
|
|
|
|
|
| July 12, 2024 |
|
July 25, 2024 |
|
|
(2) |
|
August 5, 2024 |
| July 12, 2024 |
|
August 23, 2024 |
|
|
(2) |
|
September 5, 2024 |
| July 12, 2024 |
|
September 25, 2024 |
|
|
(2) |
|
October 4, 2024 |
| (1) |
Holders of record of newly issued Series A Preferred Stock shares that are held only a portion of the applicable monthly dividend period will receive a prorated dividend based on the actual number of days in the applicable dividend period during which each such share of Series A Preferred Stock was outstanding. |
| (2) |
Holders of record of Series A Preferred Stock shares are entitled to an enhanced special dividend equal to the amount by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average of the one-month Term SOFR for each day commencing on the 26th of the prior month to the 25th of the applicable month, plus (II) two percent, divided by (b) twelve, exceeds (ii) the standard monthly dividend of $0.125 per share of Series A Preferred Stock. The enhanced special dividend will be aggregated with the standard monthly dividend so as to effect a dividend rate on the Series A Preferred Stock that is subject to a 6.5% minimum and 8.5% maximum annual rate. |
Distributions Paid
The following distributions
were declared and/or paid to the Company’s stockholders subsequent to June 30, 2024 (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares |
|
Declaration Date |
|
Record Date |
|
Date Paid |
|
Distribution per Share |
|
Total Distribution |
| Series A Preferred Stock (1) |
|
April 12, 2024 |
|
June 25, 2024 |
|
July 5, 2024 |
|
$ |
0.152775 |
|
$ |
265 |
| Series A Preferred Stock (1) |
|
July 12, 2024 |
|
July 25, 2024 |
|
August 5, 2024 |
|
|
0.152862 |
|
|
365 |
| Total |
|
|
|
|
|
|
|
|
|
|
$ |
630 |
| (1) |
Series A Preferred Stock distribution per share amounts include the standard dividend at an annual rate of 6.0% of the Stated Value and any enhanced special dividends. |
Acquisition of Additional
Interests in Navigator Villas
On July 30, 2024, the Company
purchased the noncontrolling partner’s interest in Navigator Villas for $2.6 million, increasing the Company’s ownership in
the joint venture entity from 90% to 100%.
Acquisition of Avenue Royale
On July 31, 2024, the Company
acquired a 200-unit single-family residential community located in Jacksonville, Florida known as Avenue Royale. The Company has a full
ownership interest in Avenue Royale, and the purchase price of $33.8 million was funded, in part, with a $23.7 million senior loan secured
by Avenue Royale, along with cash of $12.9 million funded by the Company.
Sale of Navigator Villas
On August 7, 2024, the Company
closed on the sale of Navigator Villas located in Pasco, Washington. The property was sold for $36.4 million, subject to certain prorations
and adjustments typical in such real estate transactions. After deduction for the payoff of existing mortgage indebtedness encumbering
the property in the amount of $19.5 million, the payment of early extinguishment of debt costs of $0.3 million, and closing costs and
fees, the sale of Navigator Villas generated net proceeds of approximately $16.0 million.
32
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The following discussion and
analysis should be read in conjunction with the accompanying financial statements of Bluerock Homes Trust, Inc., and the notes thereto.
As used herein, the terms “the Company”, “we”, “our”, and “us” refer to Bluerock Homes
Trust, Inc., a Maryland corporation formed on December 16, 2021, and, as required by context, Bluerock Residential Holdings, L.P., a Delaware
limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We refer to Bluerock Homes
Manager, LLC, a Delaware limited liability company, and an entity affiliated with the Company, as our Manager. This Management’s
Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in
these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially
from those made, projected or implied in the forward-looking statements.
Forward-Looking Statements
All statements other than statements
of historical fact are “forward-looking statements” for purposes of federal and state securities laws and may be identified
by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,”
“goal,” “future,” “outlook,” “guidance,” “target,” “estimate”
and similar words or expressions, including the negative version of such words and expressions. These forward-looking statements are based
upon our present expectations, estimates and projections about the industry and markets in which we operate, and beliefs of and assumptions
made by our management involve uncertainty that could cause our actual results, performance or achievements to be materially different
from any future results, performance or achievements expressed or implied by such forward-looking statements and are not guaranteed to
occur. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying
assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance
upon these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based
on reasonable assumptions, our actual results and performance could differ materially from those set forth in these forward-looking statements
due to numerous factors.
Additional factors that could
have a material adverse effect on our operations and future prospects include, but are not limited to:
| |
● |
The impact of volatility in capital and credit markets, or unfavorable changes in economic conditions, including those caused by inflation and rising interest rates, in the markets in which we operate; |
| |
● |
The impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of novel coronavirus (“COVID-19”) and its variants) and the actions taken by government authorities and other related thereto, including the ability of our company, our properties and our tenants to operate; |
| |
● |
the factors included in this Quarterly Report on Form 10-Q, including those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”; |
| |
● |
use of proceeds of our securities offerings; |
| |
● |
changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, government deficits, high unemployment rates, decreased consumer confidence and liquidity concerns, particularly in markets in which we have a high concentration of properties; |
| |
● |
fluctuations and relative increases in interest rates, which could adversely affect our ability to obtain financing on favorable terms or at all; |
| |
● |
the inability of tenants to pay rent; |
| |
● |
the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates and safety record; |
| |
● |
increased operating costs, including increased real property taxes, homeowners association (“HOA”) fees, maintenance, insurance and utilities costs; |
| |
● |
weather conditions that may increase or decrease energy costs and other weather-related expenses; |
33
Table of Contents
| |
● |
oversupply of single-family housing or a reduction in demand for real estate in the markets in which our properties are located; |
| |
● |
costs and time period required to convert acquisitions to rental units; |
| |
● |
a favorable interest rate environment that may result in a significant number of potential residents of our properties deciding to purchase homes instead of renting; |
| |
● |
rules, regulations and/or policy initiatives by government and private actors, including HOAs, to discourage or deter the purchase of single-family properties by entities owned or controlled by institutional investors; |
| |
● |
our ability to lease newly acquired or newly constructed single-family units; |
| |
● |
changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes; |
| |
● |
rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs; |
| |
● |
the board of directors’ determination as to timing and payment of dividends, and our ability to pay future distributions at the dividend rates we have paid (if any); |
| |
● |
our ability to qualify and maintain our qualification as a real estate investment trust (“REIT”); and |
| |
● |
litigation, including costs associated with prosecuting or defending claims and any adverse outcomes. |
Any of the assumptions underlying
forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included
in this report. All forward-looking statements are made as of the date of this report and the risk that actual results will differ materially
from the expectations expressed in this report will increase with the passage of time. Except as otherwise required by the federal securities
laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this report, whether as
a result of new information, future events, changed circumstances or any other reason. The forward-looking statements should be read in
light of the risk factors set forth in Item 1A of this Quarterly Report on Form 10-Q, in Part I, Item 1A of our Annual Report on Form
10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2024,
and subsequent filings by us with the SEC, or (“Risk Factors”).
Overview
We own and operate high-quality
single-family properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of
the Sunbelt and Western United States. Our principal objective is to generate attractive risk-adjusted returns on investments where we
believe we can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units, developing
build-to-rent communities, and through Value-Add renovations. Our Value-Add strategy focuses on repositioning lower-quality, less current
assets to drive rent growth and expand margins to increase net operating income and maximize our return on investment.
As of June 30, 2024, we held
twenty-one real estate investments, consisting of twelve consolidated investments and nine preferred equity and loan investments. The
twenty-one investments represent an aggregate of 4,362 residential units, comprised of 2,732 consolidated units, of which 170 units are
under development, and 1,630 units through preferred equity and loan investments. As of June 30, 2024, our consolidated operating investments
were approximately 92.2% occupied; excluding units classified as held for sale and down/renovation units, our consolidated operating investments
were approximately 95.4% occupied.
34
Table of Contents
We have elected to be treated,
and currently qualify, as a REIT for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes.
To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable
income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders. If we fail to
qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates
and we would not be permitted to qualify as a REIT for four years following the year in which we lost our qualification. Such an event
could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such
a manner as to remain qualified as a REIT.
Inflation and Related Economic
Volatility
While inflationary pressures
have shown signs of moderation, we continue to monitor increases in inflation and rising interest rates and resulting economic changes
in credit and capital markets. Inflation and its related impacts, including increased prices for services and goods and higher interest
rates and wages, and any policy interventions by the U.S. government, could negatively impact our residents’ ability to pay rents
and our results of operations. Substantially all our leases are for a term of one year or less, which we believe mitigates our exposure
to inflation, by permitting us to set rents commensurate with inflation (subject to rent regulations to the extent they apply and assuming
our current or prospective residents will accept and can pay commensurate increased rents, of which there can be no assurance). Inflation
could outpace any increases in rent and adversely affect us. We may not be able to mitigate the effects of inflation and related impacts,
and the duration and extent of any prolonged periods of inflation, and any such related adverse effects on our results of operations and
financial condition are unknown at this time. Inflation may also cause increased volatility in financial markets, which could affect our
ability to access the capital markets or impact the cost or timing at which we are able to do so. Inflation may also increase the costs
to complete our development projects, including costs of materials, labor and services from third-party contractors and suppliers. Higher
construction costs could adversely impact our investments in real estate assets and our expected yields on development projects.
Additionally, developments
in the banking industry in early 2023 caused uncertainty and concern regarding the strength of the banking system. As a result, the cost
of obtaining debt from credit and capital markets increased as many lenders increased interest rates, enacted tighter lending standards,
and reduced and, in some cases, ceased to provide funding to borrowers. Although our banking relationships are primarily with large national
banks, a significant disruption to the banking system could lead to market-wide liquidity problems which could adversely affect our access
to capital and our cost of capital. If we need to incur debt from a source other than our revolving credit facilities, we cannot be certain
the additional financing will be available to the extent required and on acceptable terms. If debt financing on acceptable terms is not
available, we may be unable to fully execute our growth strategy, otherwise take advantage of business opportunities, or respond to competitive
pressures, any of which could have a material adverse effect on our results of operations and financial condition.
Other weakened economic conditions,
including job losses, high unemployment levels, stock market volatility, and uncertainty about the future, could adversely affect rental
rates and occupancy levels. Unfavorable changes in economic conditions may have a material adverse impact on our cash flows and operating
results.
Other Significant Developments
Investment Activity Summary
Provided below is a
summary of our investment activity during the six months ended June 30, 2024:
Acquisition of Villas
at Huffmeister
On March 25, 2024, we, through
a 95% owned joint venture entity, acquired a 294-unit single-family residential community located in Houston, Texas known as Villas at
Huffmeister. The purchase price of $41.2 million was funded, in part, with a $24.3 million senior loan assumption secured by Villas at
Huffmeister, along with cash of $17.4 million that we funded.
35
Table of Contents
Indigo Cove Interests
On June 27, 2024, we entered
into a joint venture agreement with an unaffiliated third party (the “Indigo JV”) to develop approximately 82 build-for-rent,
single-family residential units in Bluffton, South Carolina. We made a commitment to invest $5.3 million for preferred equity interests
in the Indigo JV, of which $1.9 million had been funded as of June 30, 2024. We earn an accrued return on our outstanding capital contributions
at a rate of 17.0% per annum compounded monthly, subject to a minimum return, with preferred return payments commencing in December 2025
contingent upon the property generating cash flows in excess of operating costs.
Sale of Consolidated
Operating Units
We closed on the following
sales: one unit in the ILE portfolio, two units in the Indy-Springfield portfolio, seven units in the Peak JV 2 portfolio, and twenty-seven
units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements. The thirty-seven
units were sold for an aggregate of approximately $6.5 million, subject to certain prorations and adjustments typical in such real estate
transactions, and generated net proceeds of approximately $6.2 million and a gain on sales of approximately $0.7 million.
Loan Investments
We (i) provided funding in
the aggregate amount of $16.3 million for the Wayford at Pringle loan investment, with a remaining commitment of $13.8 million to be funded,
and (ii) received paydowns on The Woods at Forest Hill loan investment in the aggregate amount of $7.3 million, which included principal
investment of $7.1 million and accrued interest of $0.2 million, reducing the outstanding principal balance to $1.2 million at June 30,
2024.
Peak Housing Interests
Our preferred equity investment
in the operating partnership of Peak Housing REIT (the “Peak REIT OP”) was partially redeemed in the aggregate amount of $3.9
million, which included principal investment of $3.5 million and accrued preferred return of $0.4 million. At June 30, 2024, our remaining
preferred equity investment in the Peak REIT OP was $7.1 million, with a remaining 349 units as collateral underlying our investment.
Held for Sale
At June 30, 2024, we classified
an aggregate of 391 units as held for sale in our consolidated balance sheets, and for the three and six months ended June 30, 2024, we
recorded an impairment of $1.1 million and $1.2 million, respectively, related to held for sale units which is included in impairment
and gain on sale of real estate investments, net in our consolidated statements of operations. The 391 units classified as held for sale
are included in the following portfolios: 44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak JV 3, and all 176
units of Navigator Villas. These units were identified based on submarket analysis and individual unit-level operational review. Real
estate assets classified as held for sale are reported at the lower of their carrying value or estimated fair value less costs to sell
and are presented separately within operating real estate held for sale, net on our consolidated balance sheets.
Series A Redeemable Preferred
Stock
During the six months ended
June 30, 2024, we issued 1,761,120 shares of 6.0% Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) at
$25.00 per share (the “Stated Value”) under a continuous registered offering with net proceeds of approximately $38.8 million
after (i) commissions, dealer manager fees and sales discounts of approximately $4.4 million, and (ii) costs related to establishing the
offering of Series A Preferred Stock of approximately $0.8 million. As of June 30, 2024, we had issued a total of 2,197,795 shares of
Series A Preferred Stock with total net proceeds of approximately $47.1 million after commissions, dealer manager fees, sales discounts
and offering costs. During the six months ended June 30, 2024, we, at the request of holders, redeemed 1,000 shares of Series A Preferred
Stock through the issuance of 1,346 shares of Class A common stock.
36
Table of Contents
Stockholders’ Equity
Our total stockholders’
equity decreased $4.9 million from $147.4 million as of December 31, 2023 to $142.5 million as of June 30, 2024. The decrease in our total
stockholders’ equity is primarily attributable to an adjustment of $2.3 million for noncontrolling interest ownership in the Operating
Partnership, a net loss of $1.7 million, preferred dividends declared of $0.8 million, and preferred stock accretion of $0.2 million.
Results of Operations
The following is a summary
of our consolidated real estate investments as of June 30, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Occupancy – |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Held |
|
| |
|
|
|
Number of |
|
Average |
|
Ownership |
|
Average |
|
Occupancy – |
|
for Sale/Reno |
|
| Operating Investment Name |
|
Market / Location |
|
Units (1) |
|
Year Built |
|
Interest |
|
Rent (2) |
|
All Units (3) |
|
Units (4) |
|
| Ballast |
|
AZ / CO / WA |
|
84 |
|
1998 |
|
95 |
% |
$ |
2,095 |
|
97.6 |
% |
97.6 |
% |
| Golden Pacific |
|
IN / KS / MO |
|
169 |
|
1977 |
|
97 |
% |
|
1,754 |
|
94.7 |
% |
94.7 |
% |
| ILE |
|
TX / SE US |
|
481 |
|
1991 |
|
95 |
% |
|
1,860 |
|
94.6 |
% |
95.8 |
% |
| Indy-Springfield |
|
IN / MO |
|
332 |
|
1999 |
|
100 |
% |
|
1,291 |
|
92.5 |
% |
96.5 |
% |
| Navigator Villas |
|
Pasco, WA |
|
176 |
|
2013 |
|
90 |
% |
|
1,588 |
|
94.9 |
% |
— |
|
| Peak JV 2 |
|
Various / TX |
|
589 |
|
1980 |
|
80 |
% |
|
1,306 |
|
87.4 |
% |
94.6 |
% |
| Peak JV 3 |
|
Dallas-Fort Worth, TX |
|
123 |
|
1960 |
|
56 |
% |
|
1,181 |
|
79.7 |
% |
— |
|
| Savannah-84 |
|
Savannah, GA |
|
84 |
|
2022 |
|
100 |
% |
|
1,772 |
|
92.9 |
% |
92.9 |
% |
| Villas at Huffmeister |
|
Houston, TX |
|
294 |
|
2007 |
|
95 |
% |
|
1,529 |
|
94.9 |
% |
94.9 |
% |
| Wayford at Concord |
|
Concord, NC |
|
150 |
|
2019 |
|
83 |
% |
|
2,171 |
|
95.3 |
% |
96.0 |
% |
| Yauger Park Villas |
|
Olympia, WA |
|
80 |
|
2010 |
|
95 |
% |
|
2,385 |
|
98.8 |
% |
98.8 |
% |
| Total Operating Units / Average |
|
|
|
2,562 |
|
|
|
|
|
$ |
1,615 |
|
92.2 |
% |
95.4 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Development Investment Name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Abode Wendell Fall (5) |
|
Wendell, NC |
|
170 |
|
— |
|
100 |
% |
|
— |
|
— |
|
— |
|
| Total Development Units |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
| Total Units |
|
|
|
2,732 |
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
Total operating units includes an aggregate of 391 units classified as held for sale, and such units are included in the following portfolios: 44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak JV 3, and all 176 units of Navigator Villas. |
| (2) |
Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the three months ended June 30, 2024. |
| (3) |
Percent occupied is calculated as (i) the number of units occupied as of June 30, 2024 divided by (ii) total number of units, expressed as a percentage. |
| (4) |
Percent occupied is calculated as (i) the number of units occupied as of June 30, 2024 divided by (ii) total number of units, expressed as a percentage, and excludes 391 units classified as held for sale and an aggregate of 16 down/renovation units. |
| (5) |
Abode Wendell Falls is a build for rent development project expected to commence construction in the third quarter 2024. The total estimated project cost is $56.9 million, of which $6.8 million had been incurred as of June 30, 2024. |
The following is a summary
of our consolidated operational results for the three and six months ended June 30, 2024 and 2023 ($ in thousands, except average rental
rates):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
| |
|
2024 |
|
2023 |
|
Variance |
|
2024 |
|
2023 |
|
Variance |
|
| Rental and other property revenues |
|
$ |
11,936 |
|
$ |
10,270 |
|
16.2 |
% |
$ |
22,694 |
|
$ |
20,408 |
|
11.2 |
% |
| Property operating expenses |
|
$ |
5,952 |
|
$ |
4,582 |
|
29.9 |
% |
$ |
10,957 |
|
$ |
9,139 |
|
19.9 |
% |
| Net operating income |
|
$ |
5,984 |
|
$ |
5,688 |
|
5.2 |
% |
$ |
11,737 |
|
$ |
11,269 |
|
4.2 |
% |
| Average occupancy percentage (1) |
|
|
92.3 |
% |
|
92.0 |
% |
30 |
bps |
|
92.4 |
% |
|
92.2 |
% |
20 |
bps |
| Average rental rate (2) |
|
$ |
1,615 |
|
$ |
1,557 |
|
3.7 |
% |
$ |
1,608 |
|
$ |
1,549 |
|
3.8 |
% |
| (1) |
Represents the average of the ending occupancy as of the last day of each month in the period presented for all units in our consolidated portfolio. |
37
Table of Contents
| (2) |
Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the period presented. |
The following is a summary
of our preferred equity and loan investments as of June 30, 2024:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Actual/ |
|
|
|
|
Actual/ |
|
Actual/ |
|
Actual/ |
|
|
|
| |
|
|
|
Actual/ |
|
Estimated |
|
|
|
|
Estimated |
|
Estimated |
|
Estimated |
|
Estimated |
| |
|
|
|
Planned |
|
Construction |
|
Cost to Date |
|
Construction |
|
Initial |
|
Construction |
|
Average |
| Lease-up Investment Name |
|
Location / Market |
|
Number of Units |
|
Cost (in millions) |
|
(in millions) |
|
Cost Per Unit |
|
Occupancy |
|
Completion |
|
Rent (1) |
| The Woods at Forest Hill (2) |
|
Forest Hill, TX |
|
41 |
|
$ |
17.1 |
|
$ |
17.1 |
|
$ |
225,000 |
|
4Q 2022 |
|
3Q 2023 |
|
$ |
1,625 |
| Willow Park |
|
Willow Park, TX |
|
58 |
|
|
17.1 |
|
|
17.1 |
|
|
294,828 |
|
2Q 2022 |
|
3Q 2023 |
|
|
2,362 |
| The Cottages at Myrtle Beach |
|
Myrtle Beach, SC |
|
294 |
|
|
63.2 |
|
|
63.2 |
|
|
214,966 |
|
2Q 2023 |
|
4Q 2023 |
|
|
1,743 |
| The Cottages of Port St. Lucie |
|
Port St. Lucie, FL |
|
286 |
|
|
69.6 |
|
|
69.2 |
|
|
243,357 |
|
2Q 2023 |
|
2Q 2024 |
|
|
2,133 |
| Chandler |
|
Chandler, AZ |
|
208 |
|
|
48.2 |
|
|
44.6 |
|
|
231,731 |
|
2Q 2024 |
|
3Q 2024 |
|
|
1,920 |
| Wayford at Innovation Park |
|
Charlotte, NC |
|
210 |
|
|
62.0 |
|
|
50.2 |
|
|
295,238 |
|
3Q 2023 |
|
4Q 2024 |
|
|
1,994 |
| Wayford at Pringle (3) |
|
Charlotte, NC |
|
102 |
|
|
37.2 |
|
|
23.4 |
|
|
364,706 |
|
1Q 2024 |
|
4Q 2024 |
|
|
2,453 |
| Total Lease-up Units |
|
|
|
1,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Development Investment Name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Indigo Cove |
|
Bluffton, SC |
|
82 |
|
|
30.2 |
|
|
5.2 |
|
|
368,293 |
|
4Q 2025 |
|
1Q 2026 |
|
|
3,095 |
| Total Development Units |
|
|
|
82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating Investment Name |
|
|
|
Number of Units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Rent (1) |
| Peak Housing (4) |
|
IN / MO / TX |
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,028 |
| Total Operating Units |
|
|
|
349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Units/Average |
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
1,800 |
| (1) |
For lease-up and development investments, represents the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization. For operating investments, represents the average effective monthly rent per occupied unit for the three months ended June 30, 2024. |
| (2) |
The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 41 units at June 30, 2024 resulting from the sales of 35 units during the six months ended June 30, 2024. Proceeds from the sales of these units were used to paydown our loan investment in The Woods at Forest Hill. Construction cost amounts shown are based on the initial 76 units. Refer to Note 6 of our consolidated financial statements for further information. |
| (3) |
Wayford at Pringle is a loan investment for which we disburse loan proceeds to the borrower for unit acquisitions upon construction completion. Of the total 102-build for rent units that are to be acquired, construction of 59 units was completed during the six months ended June 30, 2024 for which we provided the borrower with loan proceeds for their acquisition. The cost to date amount represents outlays related to completed units and those under construction, and we estimate that all units will be completed and acquired, and our loan commitment fully funded, by the end of 2024. Refer to Note 6 of our consolidated financial statements for further information. |
| (4) |
Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing our preferred equity investment in the Peak REIT OP as of June 30, 2024 (refer to Note 7 of our consolidated financial statements for further information). Unit count excludes units presented in the consolidated investments table above. |
The occupancy percentages of the Company’s
preferred equity and loan investments at June 30, 2024 are as follows:
|
|
|
|
|
| Investment Name |
|
June 30, 2024 |
|
| Chandler (1) |
|
3.9 |
% |
| Indigo Cove (2) |
|
— |
|
| Peak Housing (3) |
|
94.4 |
% |
| The Cottages at Myrtle Beach (4) |
|
63.6 |
% |
| The Cottages of Port St. Lucie (4) |
|
60.8 |
% |
| The Woods at Forest Hill |
|
80.5 |
% |
| Wayford at Innovation Park (5) |
|
31.4 |
% |
| Wayford at Pringle (6) |
|
13.7 |
% |
| Willow Park |
|
58.6 |
% |
| (1) |
Chandler commenced lease-up in June 2024. |
| (2) |
Indigo Cove had not commenced lease-up as of June 30, 2024. |
38
Table of Contents
| (3) |
Percent occupied for Peak Housing excludes 8 down/renovation units at June 30, 2024. |
| (4) |
The Cottages investments commenced lease-up in 2023 as follows: at Myrtle Beach in April and of Port St. Lucie in June. |
| (5) |
Wayford at Innovation Park commenced lease-up in August 2023. |
| (6) |
Wayford at Pringle commenced lease-up in February 2024. |
Three Months Ended June 30, 2024 Compared to Three Months
Ended June 30, 2023
Revenue
Rental
and other property revenues increased $1.6 million, or 16%, to $11.9 million for the three months
ended June 30, 2024 as compared to $10.3 million for the same prior year period. The increase was primarily due to: (i) acquisition of
Villas at Huffmeister during the first quarter 2024 and (ii) operational improvements from our active management and organic market rent
growth. The increase was partially offset by the sale of 90 homes in our portfolio since April 1, 2023.
Our
average rent per occupied unit increased $58, or 3.7%, to $1,615 as compared to $1,557 during the prior year period. Average occupancy
increased 30 basis points from 92.0% to 92.3% on a year over year basis.
Interest
income from loan investments amounted to $0.6 million for the three months ended June 30, 2024 as
compared to zero for the same prior year period due to three new loan investments since the fourth quarter 2023. We did not have any loan
investments during the three months ended June 30, 2023.
Expenses
Property operating expenses
increased $1.4 million, or 30%, to $6.0 million for the three months ended June 30, 2024 as compared to $4.6 million for the same
prior year period. The increase was primarily due to: (i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii)
increase in expenses (primarily repairs and maintenance) incurred as part of our lease up stabilization strategy. The increase was partially
offset by the sale of 90 homes in our portfolio since April 1, 2023. Property operating expenses consist of controllable (payroll, repairs
and maintenance, turnover, administrative, advertising, and utilities) and non-controllable (real estate taxes and insurance) expenses.
Controllable expenses were $3.2 million and $2.1 million, and non-controllable expenses were $2.8 million and $2.5 million, for the three
months ended June 30, 2024 and 2023, respectively.
Property management and
asset management fee expenses were $1.2 million for the three months ended June 30, 2024 as compared to $1.1 million for the same
prior year period. Property management fees are based on a stated percentage of property revenues and asset management fees are based
on a stated percentage of capital contributions or assets under management, where applicable.
General and administrative
expenses amounted to $2.4 million for the three months ended June 30, 2024 as compared to $1.8 million for the same prior year period.
Of the $2.4 million total expense for the three months ended June 30, 2024, $1.3 million related to direct costs incurred by us, while
the remaining $1.1 million related to the operating expense reimbursement to our Manager, which includes rent, utilities, and IT expenses.
The expense reimbursement to our Manager also included a $0.7 million reimbursement for accounting and legal services. Prior to the fourth
quarter 2023, the Manager elected to not seek reimbursement for legal and accounting services during our first year of operations. For
the second quarter 2024, we will pay the full operating expense reimbursement of $1.1 million to the Manager in cash; for the same prior
year period, we paid the full operating expense reimbursement of $0.4 million to the Manager through the issuance of C-LTIP Units.
Management fees to related
party amounted to $2.2 million for the three months ended June 30, 2024 as compared to $2.0 million for the same prior year period.
The increase was due to an increase in equity primarily from our continuous registered offering of Series A Preferred Stock, which began
in the third quarter of 2023. For the second quarter 2024, we will pay the base management fee of $2.2 million to the Manager as one half
(50)% in C-LTIP Units and the remainder in cash; for the same prior year period, we paid the full base management fee of $2.0 million
to the Manager through the issuance of C-LTIP Units.
Acquisition and other transaction
costs amounted to zero for the three months ended June 30, 2024 as compared to $0.3 million for the same prior year period. Acquisition
costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. The 2023 expense
primarily relates to the transition of property management services for over 1,000 homes.
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Table of Contents
Depreciation and amortization
expenses were $4.8 million for the three months ended June 30, 2024 as compared to $4.0 million for the same prior year period, with
the increase primarily attributable to the acquisition of Villas at Huffmeister during the first quarter 2024.
Other Income and Expense
Other income and expense
amounted to expense of $1.2 million for the three months ended June 30, 2024 as compared to income of $2.3 million for the same prior
year period. This was due to a $2.2 million net increase in interest expense primarily attributable to an increase in the outstanding
debt to $228.0 million at June 30, 2024 as compared to $167.5 million at June 30, 2023 and a decrease in the fair value of the interest
rate caps and swaps, a $1.1 million impairment on real estate, a $0.3 million decrease in gain on sales of real estate investments, and
$0.4 million in other expenses. These expense sources were partially offset by a $0.5 million increase in interest income from our short-term
cash investments.
Six Months Ended June 30, 2024 Compared to Six Months Ended
June 30, 2023
Revenue
Rental and other property
revenues increased $2.3 million, or 11%, to $22.7 million for the six months ended June 30, 2024 as compared to $20.4 million for
the same prior year period. The increase was primarily due to: (i) acquisition of Villas at Huffmeister during the first quarter 2024
and (ii) operational improvements from our active management and organic market rent growth. The increase was partially offset by the
sale of 90 homes in our portfolio since January 1, 2023.
Our average rent per occupied
unit increased $59, or 3.8%, to $1,608 as compared to $1,549 during the prior year period. Average occupancy increased 20 basis points
from 92.2% to 92.4% on a year over year basis.
Interest income from loan
investments amounted to $1.0 million for the six months ended June 30, 2024 as compared to zero for the same prior year period due
to three new loan investments since the fourth quarter 2023. We did not have any loan investments during the six months ended June 30,
2023.
Expenses
Property operating expenses
increased $1.9 million, or 20%, to $11.0 million for the six months ended June 30, 2024 as compared to $9.1 million for the same prior
year period. The increase was primarily due to: (i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii) increase
in expenses (primarily repairs and maintenance) incurred as part of our lease up stabilization strategy. The increase was partially offset
by the sale of 90 homes in our portfolio since January 1, 2023. Property operating expenses consist of controllable (payroll, repairs
and maintenance, turnover, administrative, advertising, and utilities) and non-controllable (real estate taxes and insurance) expenses.
Controllable expenses were $5.7 million and $4.2 million, and non-controllable expenses were $5.3 million and $4.9 million, for the six
months ended June 30, 2024 and 2023, respectively.
Property management and
asset management fee expenses were $2.3 million for the six months ended June 30, 2024 as compared to $2.2 million for the same prior
year period. Property management fees are based on a stated percentage of property revenues and asset management fees are based on a stated
percentage of capital contributions or assets under management, where applicable.
General and administrative
expenses amounted to $5.3 million for the six months ended June 30, 2024 as compared to $3.8 million for the same prior year period.
Of the $5.3 million total expense for the six months ended June 30, 2024, $3.0 million related to direct costs incurred by us, while the
remaining $2.3 million related to the operating expense reimbursement to our Manager, which includes rent, utilities, and IT expenses.
The expense reimbursement to our Manager also included a $1.5 million reimbursement for accounting and legal services. Prior to the fourth
quarter 2023, the Manager elected to not seek reimbursement for legal and accounting services during our first year of operations. Commencing
with the operating expense reimbursement for the first quarter 2024, we paid, and expect to continue to pay, the operating expense reimbursement
to the Manager entirely in cash; prior to the first quarter 2024, we paid the full operating expense reimbursement to the Manager through
the issuance of C-LTIP Units.
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Table of Contents
Management fees to related
party amounted to $4.2 million for the six months ended June 30, 2024 as compared to $3.9 million for the same prior year period.
The increase was due to an increase in equity primarily from our continuous registered offering of Series A Preferred Stock, which began
in the third quarter of 2023. Commencing with the base management fee for the first quarter 2024, we paid, and expect to continue to pay,
the base management fee to the Manager as one half (50)% in C-LTIP Units and the remainder in cash; prior to the first quarter 2024, we
paid the full base management fee to the Manager through the issuance of C-LTIP Units.
Acquisition and other transaction
costs amounted to zero for the six months ended June 30, 2024 as compared to $1.8 million for the same prior year period. Acquisition
costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. The 2023 expense
primarily relates to the transition of property management services for over 1,000 homes.
Depreciation and amortization
expenses were $8.8 million for the six months ended June 30, 2024 as compared to $8.0 million for the same prior year period, with
the increase primarily attributable to the acquisition of Villas at Huffmeister during the first quarter 2024.
Other Income and Expense
Other income and expense
amounted to expense of $0.4 million for the six months ended June 30, 2024 as compared to income of $1.9 million for the same prior year
period. This was due to a $2.3 million net increase in interest expense primarily attributable to an increase in the outstanding debt
to $228.0 million at June 30, 2024 as compared to $153.2 million at December 31, 2022 and a decrease in the fair value of the interest
rate caps and swaps, a $1.2 million impairment on real estate, and $0.4 million in other expenses. These expense sources were partially
offset by a $1.6 million increase in interest income from our short-term cash investments.
Net Operating Income
We believe that net operating
income (“NOI”) is a useful measure of our operating performance. We define NOI as total property revenues less total property
operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating
NOI, and accordingly, our NOI may not be comparable to other REITs. NOI also is a computation made by analysts and investors to measure
a real estate company’s operating performance.
We believe that this measure
provides an operating perspective not immediately apparent from operating income or net income prepared in conformity with accounting
principles generally accepted in the United States of America (“GAAP”). NOI allows us to evaluate the operating performance
of our properties because it measures the core operations of property performance by excluding corporate level expenses and other items
not related to property operating performance and captures trends in rental housing and property operating expenses.
41
Table of Contents
However, NOI should only be
used as a supplemental measure of our financial performance. The following table reflects net loss attributable to common stockholders
together with a reconciliation to NOI, as computed in accordance with GAAP, for the periods presented (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Net loss attributable to common stockholders |
|
$ |
(1,632) |
|
$ |
(335) |
|
$ |
(2,652) |
|
$ |
(1,875) |
| Add back: Net loss attributable to Operating Partnership Units |
|
|
(3,536) |
|
|
(653) |
|
|
(5,705) |
|
|
(3,638) |
| Net loss attributable to common stockholders and unit holders |
|
|
(5,168) |
|
|
(988) |
|
|
(8,357) |
|
|
(5,513) |
| Net loss attributable to partially owned properties’ noncontrolling interests |
|
|
(746) |
|
|
(191) |
|
|
(980) |
|
|
(944) |
| Real estate depreciation and amortization |
|
|
4,783 |
|
|
3,995 |
|
|
8,753 |
|
|
7,913 |
| Non-real estate depreciation and amortization |
|
|
41 |
|
|
52 |
|
|
82 |
|
|
113 |
| Non-cash interest expense |
|
|
415 |
|
|
608 |
|
|
666 |
|
|
1,115 |
| Unrealized loss (gain) on derivatives |
|
|
840 |
|
|
(495) |
|
|
1,555 |
|
|
638 |
| Provision for credit losses |
|
|
71 |
|
|
20 |
|
|
166 |
|
|
26 |
| Property management and asset management fees |
|
|
1,159 |
|
|
1,104 |
|
|
2,291 |
|
|
2,195 |
| Management fees to related party |
|
|
2,173 |
|
|
1,960 |
|
|
4,244 |
|
|
3,882 |
| Acquisition and other transaction costs |
|
|
— |
|
|
325 |
|
|
4 |
|
|
1,780 |
| Corporate operating expenses |
|
|
2,434 |
|
|
1,782 |
|
|
5,299 |
|
|
3,755 |
| Weather-related losses, net |
|
|
— |
|
|
(17) |
|
|
— |
|
|
(17) |
| Interest income |
|
|
(1,138) |
|
|
(620) |
|
|
(2,333) |
|
|
(743) |
| Preferred stock dividends |
|
|
562 |
|
|
— |
|
|
815 |
|
|
— |
| Preferred stock accretion |
|
|
181 |
|
|
— |
|
|
181 |
|
|
— |
| Other expense (income), net |
|
|
300 |
|
|
— |
|
|
60 |
|
|
(44) |
| Preferred returns on unconsolidated real estate joint ventures |
|
|
(2,846) |
|
|
(2,894) |
|
|
(5,587) |
|
|
(5,690) |
| Interest income from loan investments |
|
|
(587) |
|
|
— |
|
|
(1,005) |
|
|
— |
| Impairment and (gain) on sale of real estate investments, net |
|
|
707 |
|
|
(661) |
|
|
534 |
|
|
(661) |
| Total property income |
|
|
3,181 |
|
|
3,980 |
|
|
6,388 |
|
|
7,805 |
| Add back: Interest expense |
|
|
2,803 |
|
|
1,708 |
|
|
5,349 |
|
|
3,464 |
| Net operating income |
|
$ |
5,984 |
|
$ |
5,688 |
|
$ |
11,737 |
|
$ |
11,269 |
Liquidity and Capital Resources
Liquidity is a measure of our
ability to meet potential cash requirements, both short- and long-term. Our primary short-term liquidity requirements historically have
related to (i) our operating expenses and other general business needs, (ii) investment in real estate, (iii) distributions to stockholders,
(iv) committed investments and capital requirements to fund development and renovations at existing properties, (v) ongoing commitments
to repay borrowings, including our revolving credit facilities and our maturing debt, and (vi) Class A common stock repurchases under
our stock repurchase plan.
Our ability to access capital
on favorable terms as well as to use cash from operations to continue to meet our short-term liquidity needs could be affected by various
risks and uncertainties, including the risks detailed in Part I, Item 1A titled “Risk Factors” of our Annual Report on Form
10-K for the year ended December 31, 2023 as filed with the SEC on March 12, 2024. While consolidated occupancy excluding units classified
as held for sale and down/renovation units remains strong at 95.4% as of June 30, 2024, in future periods we may experience reduced levels
of tenant retention, and reduced foot traffic and lease applications from prospective tenants.
In general,
we believe our available cash balances, cash flows from operations, proceeds from the offering of our Series A Preferred Stock, proceeds
from our revolving credit facilities, proceeds from future mortgage debt financings for acquisitions and/or development projects, and
other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next
12 months. In general, we expect that our results related to our existing portfolio will improve in future periods as a result of anticipated
future investments in and acquisitions of single-family residential properties and build-to-rent development properties.
42
Table of Contents
We believe we will be able
to meet our primary liquidity requirements going forward through, among other sources:
| |
● |
$116.0 million in cash available at June 30, 2024; |
| |
● |
capacity of $65 million, of which approximately $15 million was available at June 30, 2024, on our revolving credit facilities; |
| |
● |
proceeds from future mortgage debt financings for acquisitions and/or development projects; |
| |
● |
cash generated from operating activities; and |
| |
● |
proceeds from the offering of our Series A Preferred Stock and potential offerings of common and preferred stock, as well as issuances of units of limited partnership interest in our Operating Partnership (“OP Units”). |
The following table summarizes
our contractual obligations as of June 30, 2024 related to our mortgage notes secured by our properties and revolving credit facilities.
At June 30, 2024, our estimated future required payments on these obligations were as follows (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
| |
|
Total |
|
One year |
|
2025-2026 |
|
2027-2028 |
|
Thereafter |
| Mortgages Payable (Principal) |
|
$ |
123,039 |
|
$ |
911 |
|
$ |
39,932 |
|
$ |
25,004 |
|
$ |
57,192 |
| Revolving Credit Facilities |
|
|
105,000 |
|
|
20,000 |
|
|
85,000 |
|
|
— |
|
|
— |
| Estimated Interest Payments on Mortgages Payable and Revolving Credit Facilities |
|
|
30,192 |
|
|
6,960 |
|
|
12,893 |
|
|
8,578 |
|
|
1,761 |
| Total |
|
$ |
258,231 |
|
$ |
27,871 |
|
$ |
137,825 |
|
$ |
33,582 |
|
$ |
58,953 |
Estimated interest payments
are based on the stated rates for mortgage notes payable assuming the interest rate in effect for the most recent quarter remains in effect
through the respective maturity dates.
At June 30, 2024, the aggregate
amount of our contractual commitments to fund future cash obligations in certain of our loan, preferred equity and consolidated real estate
investments was $17.4 million.
As equity capital market conditions
permit, we may supplement our capital for short-term liquidity needs with proceeds of potential offerings of our common and preferred
stock, as well as the issuance of OP Units. Given the significant volatility in the trading price of REIT equities and our otherwise stable
financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term
liquidity needs.
On February 13, 2024, our board
of directors (the “Board”) authorized a stock repurchase plan for the repurchase, from time to time, of up to an aggregate
of $5 million of our outstanding shares of Class A common stock, with such repurchases to be conducted in accordance with the requirements
of Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”) and subject to Rule 10b-5 of the Exchange Act.
The repurchase plan has a term of one year and may be discontinued at any time. The extent to which we repurchase shares of our Class
A common stock under the repurchase plan, and the timing of any such repurchases, depends on a variety of factors including general business
and market conditions and other corporate considerations. We expect to repurchase shares of our Class A common stock through open market
transactions subject to market conditions, certain price limitations and other conditions established under the plan. Open market repurchases
will be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act. As
of June 30, 2024, we had not made any repurchases of our Class A common stock.
Our primary long-term liquidity
requirements relate to (i) costs for additional single-family residential investments, including build-to-rent development projects, (ii)
repayment of long-term debt and our revolving credit facilities, (iii) capital expenditures, (iv) cash redemption requirements related
to our Series A Preferred Stock, and (v) Class A common stock repurchases under our stock repurchase plan.
We intend to finance our long-term
liquidity requirements with net proceeds of additional issuances of common and preferred stock, including issuances in connection with
the continuous registered offering of our Series A Preferred Stock, our revolving credit facilities, as well as future acquisition or
project-based borrowings. Our success in meeting these requirements will therefore depend upon our ability to access capital. Further,
our ability to access equity capital is dependent upon, among other things, general market conditions for REITs and the capital markets
in general, market perceptions about us and our asset class, and current trading prices of our securities.
As we did in the six months
ended June 30, 2024, we may also selectively sell consolidated operating assets at appropriate times, which would be expected to generate
cash sources for both our short-term and long-term liquidity needs.
43
Table of Contents
We may also meet our long-term
liquidity needs through borrowings from a number of sources, either at the corporate or project level. We believe our revolving credit
facilities will serve as our primary debt source that will continue to enable us to deploy our capital more efficiently and provide capital
structure flexibility as we grow our asset base. In addition to restrictive covenants, our revolving credit facilities contain material
financial covenants. At June 30, 2024, we were in compliance with all covenants under our credit facilities. We will continue to monitor
the debt markets, including Fannie Mae and Freddie Mac, and as market conditions permit, access borrowings that are advantageous to us.
If we are unable to obtain
financing on favorable terms or at all, we would likely need to curtail our investment activities, including acquisitions and improvements
to and developments of real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution
to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We also may be forced
to dispose of assets at inopportune times to maintain REIT qualification and Investment Company Act exemption.
We expect to maintain a distribution
on our Series A Preferred Stock in accordance with the terms which require monthly dividends. While our distributions through June 30,
2024 have been paid from cash flow from operations and in accordance with our policy, distributions in the future may be paid from cash
flow from operations, proceeds from the offering of our Series A Preferred Stock, the sales of assets, and additional sources, such as
from borrowings.
We have notes receivable in
conjunction with properties that are in lease-up. To date, these investments have been structured as senior loans, and in the future,
we may also provide mezzanine financing to these types of projects. The notes receivable provide a current stated return and require repayment
based on a fixed maturity date. If the property does not repay the notes receivable upon maturity, our income, FFO, CFFO and cash flows
could be reduced below the stated returns currently being recognized if the property does not produce sufficient cash flow to pay its
operating expenses and debt service, or to refinance its debt obligations.
We also have preferred equity
interests in properties that are in various stages of development, in lease-up and operating, and our preferred equity investments are
structured to provide a current and/or accrued preferred return during all phases. Each joint venture in which we own a preferred equity
interest is required to redeem our preferred equity interests, plus any accrued preferred return, based on a fixed maturity date, generally
in relation to the property’s construction loan or mortgage loan maturity. Upon redemption of the preferred equity interests, our
income, FFO, CFFO and cash flows could be reduced below the preferred returns currently being recognized. Alternatively, if the joint
ventures do not redeem our preferred equity interest when required, our income, FFO, CFFO and cash flows could be reduced if the development
project does not produce sufficient cash flow to pays its operating expenses, debt service and preferred return obligations. As we evaluate
our capital position and capital allocation strategy, we may consider alternative means of financing our development loan and preferred
equity investment activities at the subsidiary level.
Off-Balance Sheet Arrangements
As of June 30, 2024, we have
off-balance sheet arrangements that may have a material effect on our financial condition, revenues or expenses, results of operations,
liquidity, capital resources or capital expenditures. At June 30, 2024, we own interests in seven joint ventures that are accounted for
as held to maturity debt securities.
Cash Flows from Operating Activities
As of June 30, 2024, we held
twenty-one real estate investments, consisting of twelve consolidated investments and nine preferred equity and loan investments, with
the twenty-one investments representing an aggregate of 4,362 residential units. During the six months ended June 30, 2024, net cash provided
by operating activities was $2.4 million after net loss of $8.3 million was adjusted for the following:
| |
● |
non-cash items of $12.1 million; |
| |
● |
an increase in accounts payable and other accrued liabilities of $1.0 million; and |
| |
● |
distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures of $0.4 million; offset by: |
| |
● |
an increase in accounts receivable, prepaids and other assets of $2.5 million; and |
| |
● |
an increase in notes and accrued interest receivable of $0.4 million. |
44
Table of Contents
Cash Flows from Investing Activities
During the six months ended
June 30, 2024, net cash used in investing activities was $25.2 million, due to the following:
| |
● |
$17.5 million used in acquiring consolidated real estate investments; |
| |
● |
$16.3 million used in investments in notes receivable; |
| |
● |
$3.7 million used on capital expenditures; |
| |
● |
$2.7 million paid for an interest rate cap; and |
| |
● |
$1.9 million used in investments in unconsolidated real estate joint ventures; offset by: |
| |
● |
$7.1 million of repayments of notes receivable; |
| |
● |
$6.2 million of proceeds from sale of real estate investments; and |
| |
● |
$3.5 million of proceeds from the redemption of unconsolidated real estate joint ventures. |
Cash Flows from Financing Activities
During the six months ended
June 30, 2024, net cash provided by financing activities was $60.0 million, due to the following:
| |
● |
net proceeds of $38.8 million from the issuance of shares of Series A Preferred Stock; |
| |
● |
$35.0 million of proceeds from revolving credit facilities; and |
| |
● |
$1.0 million of contributions from noncontrolling interests; offset by: |
| |
● |
$8.5 million of distributions to noncontrolling interests; |
| |
● |
$3.9 million of distributions to common stockholders; |
| |
● |
$1.1 million of repayments on our mortgages payable; |
| |
● |
$0.6 million of payments of deferred financing fees; |
| |
● |
$0.6 million of distributions to preferred stockholders; and |
| |
● |
$0.1 million of distributions paid to partially owned properties’ noncontrolling interests. |
Capital Expenditures
The following table summarizes
our total capital expenditures for the six months ended June 30, 2024 and 2023 (amounts in thousands):
|
|
|
|
|
|
|
|
| |
|
Six Months Ended |
| |
|
June 30, |
| |
|
2024 |
|
2023 |
| Redevelopment/renovations |
|
$ |
1,649 |
|
$ |
2,541 |
| Routine capital expenditures |
|
|
1,867 |
|
|
1,348 |
| Normally recurring capital expenditures |
|
|
289 |
|
|
212 |
| Total capital expenditures |
|
$ |
3,805 |
|
$ |
4,101 |
Redevelopment and renovation
costs are non-recurring capital expenditures for significant projects, such as preparing a unit for rental. The renovation work varies,
but may include flooring, cabinetry, paint, plumbing, appliances and other items required to make the unit rent ready. Routine capital
expenditures are necessary non-revenue generating improvements that extend the useful life of the property and that are less frequent
in nature, such as roof repairs and concrete work/asphalt resurfacing. Normally recurring capital expenditures are necessary non-revenue
generating improvements that occur on a regular ongoing basis, such as flooring and appliances.
Funds from Operations and
Core Funds from Operations Attributable to Common Stockholders and Unit Holders
We believe that funds from
operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and core
funds from operations (“CFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.
45
Table of Contents
FFO attributable to common
stockholders and unit holders is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We
consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property
portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets
requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably
over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT,
using historical accounting for depreciation, could be less informative. We define FFO, consistent with the NAREIT definition, as net
income (loss), computed in accordance with GAAP, excluding gains or losses on sales of depreciable real estate property, plus depreciation
and amortization of real estate assets, plus impairment write-downs of certain real estate assets and investments in entities where the
impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for notes receivable,
unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.
CFFO makes certain adjustments
to FFO, removing the effect of items that do not reflect ongoing property operations such as acquisition and other transaction costs,
non-cash interest, unrealized gains or losses on derivatives, provision for (recovery of) credit losses, losses on extinguishment of debt
and debt modification costs (includes prepayment penalties incurred and the write-off of unamortized deferred financing costs and fair
market value adjustments of assumed debt), one-time weather-related costs, and equity compensation expense. We believe that CFFO is helpful
to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings
volatility, but which do not directly relate to our core recurring property operations. As a result, we believe that CFFO can help facilitate
comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential.
Our calculation of CFFO differs
from the methodology used for calculating CFFO by certain other REITs and, accordingly, our CFFO may not be comparable to CFFO reported
by other REITs. Our management utilizes FFO and CFFO as measures of our operating performance after adjustment for certain non-cash items,
such as depreciation and amortization expenses, and acquisition and other transaction costs that are required by GAAP to be expensed but
may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between
periods. Furthermore, although FFO and CFFO and other supplemental performance measures are defined in various ways throughout the REIT
industry, we also believe that FFO and CFFO may provide us and our stockholders with an additional useful measure to compare our financial
performance to certain other REITs.
Neither FFO nor CFFO is equivalent
to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined
in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because
of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should
be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our
operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
46
Table of Contents
The table below presents our
calculation of FFO and CFFO for the three and six months ended June 30, 2024 and 2023 ($ in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Three Months Ended |
|
Six Months Ended |
| |
|
June 30, |
|
June 30, |
| |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
| Net loss attributable to common stockholders |
|
$ |
(1,632) |
|
$ |
(335) |
|
$ |
(2,652) |
|
$ |
(1,875) |
| Add back: Net loss attributable to Operating Partnership Units |
|
|
(3,536) |
|
|
(653) |
|
|
(5,705) |
|
|
(3,638) |
| Net loss attributable to common stockholders and unit holders |
|
|
(5,168) |
|
|
(988) |
|
|
(8,357) |
|
|
(5,513) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Real estate depreciation and amortization |
|
|
4,783 |
|
|
3,995 |
|
|
8,753 |
|
|
7,913 |
| Impairment and (gain) on sale of real estate investments, net |
|
|
707 |
|
|
(661) |
|
|
534 |
|
|
(661) |
| Adjustment for partially owned properties’ noncontrolling interests |
|
|
(606) |
|
|
(288) |
|
|
(927) |
|
|
(808) |
| FFO attributable to common stockholders and unit holders |
|
|
(284) |
|
|
2,058 |
|
|
3 |
|
|
931 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Acquisition and other transaction costs |
|
|
— |
|
|
325 |
|
|
4 |
|
|
1,780 |
| Non-cash interest expense |
|
|
415 |
|
|
608 |
|
|
666 |
|
|
1,115 |
| Unrealized loss (gain) on derivatives |
|
|
840 |
|
|
(495) |
|
|
1,555 |
|
|
638 |
| Provision for credit losses |
|
|
71 |
|
|
20 |
|
|
166 |
|
|
26 |
| Weather-related losses, net |
|
|
— |
|
|
(17) |
|
|
— |
|
|
(17) |
| Non-real estate depreciation and amortization |
|
|
41 |
|
|
52 |
|
|
82 |
|
|
113 |
| Other expense (income), net |
|
|
300 |
|
|
— |
|
|
60 |
|
|
(44) |
| Non-cash equity compensation |
|
|
1,627 |
|
|
2,891 |
|
|
3,679 |
|
|
5,896 |
| Preferred stock accretion |
|
|
181 |
|
|
— |
|
|
181 |
|
|
— |
| Adjustment for partially owned properties’ noncontrolling interests |
|
|
(127) |
|
|
(6) |
|
|
(131) |
|
|
(433) |
| CFFO attributable to common stockholders and unit holders |
|
$ |
3,064 |
|
$ |
5,436 |
|
$ |
6,265 |
|
$ |
10,005 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Per Share and Unit Information: |
|
|
|
|
|
|
|
|
|
|
|
|
| FFO attributable to common stockholders and unit holders - diluted |
|
$ |
(0.02) |
|
$ |
0.18 |
|
$ |
— |
|
$ |
0.08 |
| CFFO attributable to common stockholders and unit holders - diluted |
|
$ |
0.25 |
|
$ |
0.48 |
|
$ |
0.52 |
|
$ |
0.88 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted average common shares and units outstanding - diluted |
|
|
12,216,122 |
|
|
11,344,400 |
|
|
12,112,339 |
|
|
11,338,246 |
Operating cash flow, FFO and
CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO.
Presentation of this information
is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be
noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful. FFO or CFFO should
not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor
is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and CFFO should
be reviewed in connection with other GAAP measurements.
47
Table of Contents
Distributions
|
|
|
|
|
|
|
|
|
| Declaration Date |
|
Payable to stockholders of record as of |
|
Amount |
|
Paid / Payable Date |
| Class A common stock Special Dividend |
|
|
|
|
|
|
|
| December 19, 2023 |
|
December 29, 2023 |
|
$ |
1.00 |
|
January 5, 2024 |
| Class C common stock Special Dividend |
|
|
|
|
|
|
|
| December 19, 2023 |
|
December 29, 2023 |
|
$ |
1.00 |
|
January 5, 2024 |
| Series A Preferred Stock (1) |
|
|
|
|
|
|
|
| October 13, 2023 |
|
December 22, 2023 |
|
$ |
0.125 |
|
January 5, 2024 |
| January 15, 2024 |
|
January 25, 2024 |
|
|
0.125 |
|
February 5, 2024 |
| January 15, 2024 |
|
February 23, 2024 |
|
|
0.125 |
|
March 5, 2024 |
| January 15, 2024 |
|
March 25, 2024 |
|
|
0.125 |
|
April 5, 2024 |
| April 12, 2024 |
|
April 25, 2024 |
|
|
0.125 |
|
May 3, 2024 |
| April 12, 2024 |
|
May 24, 2024 |
|
|
0.125 |
|
June 5, 2024 |
| April 12, 2024 |
|
June 25, 2024 |
|
|
0.125 |
|
July 5, 2024 |
| Series A Preferred Special Dividend (2) |
|
|
|
|
|
|
|
| November 7, 2023 |
|
Each day of December 1 - 31, 2023 |
|
$ |
0.002469 |
|
January 5, 2024 |
| January 15, 2024 |
|
Each day of January 1 - 31, 2024 |
|
|
0.000337 |
|
February 5, 2024 |
| January 15, 2024 |
|
Each day of February 1 - 29, 2024 |
|
|
0.003458 |
|
March 5, 2024 |
| January 15, 2024 |
|
Each day of March 1 - 31, 2024 |
|
|
0.004603 |
|
April 5, 2024 |
| April 12, 2024 |
|
Each day of April 1 - 30, 2024 |
|
|
0.009953 |
|
May 3, 2024 |
| Series A Preferred Enhanced Special Dividend (3) |
|
|
|
|
|
|
|
| May 3, 2024 |
|
May 24, 2024 |
|
$ |
0.027507 |
|
June 5, 2024 |
| May 3, 2024 |
|
June 25, 2024 |
|
|
0.027775 |
|
July 5, 2024 |
| (1) |
Holders of record of newly issued Series A Preferred Stock shares that are held only a portion of the applicable monthly dividend period will receive a prorated dividend based on the actual number of days in the applicable dividend period during which each such share of Series A Preferred Stock was outstanding. |
| (2) |
Holders of record of Series A Preferred Stock shares as of the close of business on each day of the applicable month were entitled to additional contingent special daily dividends for each such day, to be aggregated and payable (if at all) on the payable date, in each case equal to the amount (if any) by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average 10-year Daily Treasury Par Yield Curve Rate for the period from the 26th of the prior month to the 25th of the applicable month (as reported by the United States Department of the Treasury), plus (II) two percent, divided by (b) twelve, divided further by (c) the actual number of days in the applicable month, exceeds (ii) the quotient of (a) $0.125 divided by (b) the actual number of days in the applicable month. |
| (3) |
Holders of record of Series A Preferred Stock shares are entitled to an enhanced special dividend, which replaces the additional contingent special daily dividends, equal to the amount by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average of the one-month Term SOFR for each day commencing on the 26th of the prior month to the 25th of the applicable month, plus (II) two percent, divided by (b) twelve, exceeds (ii) the standard monthly dividend of $0.125 per share of Series A Preferred Stock. The enhanced special dividend will be aggregated with the standard monthly dividend so as to effect a dividend rate on the Series A Preferred Stock that is subject to a 6.5% minimum and 8.5% maximum annual rate. |
48
Table of Contents
A portion of each dividend
may constitute a return of capital for tax purposes. There is no assurance that we will continue to declare dividends or at this rate.
Holders of OP Units, LTIP Units and C-LTIP Units are entitled to receive “distribution equivalents” at the same time as dividends
are paid to holders of our Class A common stock.
Our Board will determine the
amount of dividends to be paid to our stockholders. The determination of our Board will be based on several factors, including funds available
from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status for
federal income tax purposes. As a result, our distribution rate and payment frequency may vary from time to time. However, to maintain
our REIT status for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income”, as defined
by the Internal Revenue Code of 1986, determined without regard to the dividends paid deduction and excluding net capital gains, to our
stockholders each year. While our policy is generally to pay distributions from cash flow from operations, we may declare distributions
in excess of funds from operations.
Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting
policies and critical accounting estimates are disclosed in Note 2, “Basis of Presentation and Summary of Significant Accounting
Policies,” of our Consolidated Financial Statements.
Subsequent Events
Other than the items disclosed
in Note 15 “Subsequent Events” to our interim Consolidated Financial Statements for the period ended June 30, 2024, no material
events have occurred that required recognition or disclosure in these financial statements. Refer to Note 15 of our interim Consolidated
Financial Statements for discussion.
49
Table of Contents
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
We are exposed to interest
rate risk primarily through borrowing activities. There is inherent roll-over risk for borrowings as they mature and are renewed at current
market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future
financing requirements. We are not subject to foreign exchange rates or commodity price risk, and all our financial instruments were entered
into for other than trading purposes.
Our interest rate risk is monitored
using a variety of techniques. The table below ($ in thousands) presents the principal payments and the weighted average interest rates
on outstanding debt, by year of expected maturity, to evaluate the expected cash flows and sensitivity to interest rate changes. Fair
value adjustments and unamortized deferred financing costs, net, of approximately $(3.4) million are excluded.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2024 |
|
2025 |
|
2026 |
|
2027 |
|
2028 |
|
Thereafter |
|
Total |
|
| Mortgage Notes Payable |
|
$ |
911 |
|
$ |
2,228 |
|
$ |
37,704 |
|
$ |
1,415 |
|
$ |
23,589 |
|
$ |
57,192 |
|
$ |
123,039 |
|
| Weighted Average Interest Rate |
|
|
4.15 |
% |
|
4.06 |
% |
|
4.13 |
% |
|
5.03 |
% |
|
4.88 |
% |
|
5.79 |
% |
|
5.06 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Revolving Credit Facilities |
|
$ |
20,000 |
|
$ |
85,000 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
105,000 |
|
| Weighted Average Interest Rate |
|
|
8.46 |
% |
|
8.13 |
% |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
8.19 |
% |
The fair value of mortgages
payable is estimated at $116.3 million at June 30, 2024.
The table above incorporates
those exposures that exist at June 30, 2024; it does not consider those exposures or positions which could arise after that date. As a
result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the
period and interest rates.
At June 30, 2024, we had interest
rate caps and swaps, which are not accounted for as hedges, that we primarily use as part of our interest rate risk management strategy.
Our interest rate caps and swaps mitigate our exposure to interest rate risk by providing a ceiling on the underlying interest rate for
$128.5 million of our debt.
Based on our debt outstanding
and interest rates in effect at June 30, 2024, a 100-basis point increase or decrease in interest rates on the portion of our debt bearing
interest at variable rates would increase interest expense by approximately $50,000 or decrease interest expense by approximately $50,000,
respectively, for the quarter ended June 30, 2024.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b)
and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our
Chief Executive Officer and Chief Financial Officer, evaluated, as of June 30, 2024, the effectiveness of our disclosure controls and
procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024 to provide reasonable assurance
that information required to be disclosed by us in this report filed or submitted under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management,
including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a
controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems
are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any,
within a company have been detected.
Changes in Internal Control over Financial Reporting
There have been no changes
in our internal controls over financial reporting that occurred during the quarter ended June 30, 2024 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
50
Table of Contents
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Other than the following, there
have been no material changes to our potential risks and uncertainties as presented in the section titled “Risk Factors” in
our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 12, 2024.
Your interests could
be subordinated and/or diluted by the incurrence of additional debt, the issuance of additional shares of preferred stock, including additional
shares of Series A Preferred Stock, and by other transactions.
As of June 30, 2024, our total
indebtedness was approximately $228.0 million, which includes $105.0 million outstanding under our revolving credit facilities. We may
incur significant additional debt in the future. The Series A Preferred Stock is subordinate to all our existing and future debt and liabilities
and those of our subsidiaries. Our future debt may include restrictions on our ability to pay dividends to preferred stockholders in the
event of a default under the debt facilities or under other circumstances. In addition, our charter currently authorizes the issuance
of up to 250,000,000 shares of preferred stock in one or more classes or series, of which 30,000,000 have been classified as shares of
Series A Preferred Stock. As of June 30, 2024, we had issued and outstanding 2,196,795 shares of Series A Preferred Stock. The issuance
of additional preferred stock on parity with or senior to the Series A Preferred Stock or any other class or series of preferred stock
would dilute the interests of the holders of shares of preferred stock of the applicable class or series, and any issuance of preferred
stock senior to the Series A Preferred Stock or any other class or series of preferred stock, or any issuance of additional indebtedness,
could affect our ability to pay dividends on, redeem or pay the liquidation preference on any or all of the foregoing class or series
of preferred stock. We may issue preferred stock on parity with the Series A Preferred Stock without the consent of the holders of the
Series A Preferred Stock. Other than the right of holders to cause us to redeem the Series A Preferred Stock upon a change of control,
none of the provisions relating to the Series A Preferred Stock or any other class or series of preferred stock relate to or limit our
indebtedness or afford the holders of shares thereof protection in the event of a highly leveraged or other transaction, including a merger
or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of such shares.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the quarter ended June
30, 2024, none of our directors or officers (as defined in Section 16 of the Exchange Act) adopted or terminated a “Rule 10b5-1
trading arrangement” or a “non-Rule 10b5-1 trading arrangement” (each as defined in Item 408(a) and (c), respectively,
of Regulation S-K).
51
Table of Contents
Item 6. Exhibits
|
|
|
|
| 3.1 |
|
Second Articles of Amendment and Restatement of Bluerock Homes Trust, Inc., incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 6, 2022 |
| |
|
|
| 3.2 |
|
Amended and Restated Bylaws of Bluerock Homes Trust, Inc., incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on October 6, 2022 |
| |
|
|
| 3.3 |
|
Articles Supplementary of the Company, dated December 1, 2022, incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 5, 2022 |
| |
|
|
| 3.4 |
|
Articles Supplementary of the Company, dated January 24, 2023, incorporated by reference to Exhibit 3.3 to the Company’s Registration Statement on Form S-11 (SEC File No. 333-269415) filed on January 25, 2023 |
| |
|
|
| 3.5 |
|
Articles Supplementary of the Company, dated March 14, 2023, incorporated by reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K filed on March 22, 2023 |
| |
|
|
| 4.1 |
|
Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated April 2, 2014, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on April 8, 2014 |
| |
|
|
| 4.2 |
|
Thirteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated September 22, 2022, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed by Bluerock Residential Growth REIT, Inc. on September 22, 2022 |
| |
|
|
| 4.3 |
|
Fourteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated December 1, 2022, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on December 5, 2022 |
| |
|
|
| 4.4 |
|
Fifteenth Amendment to Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated January 24, 2023, incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-11 (SEC File No. 333-269415) filed on January 25, 2023 |
| |
|
|
| 31.1 |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
| 31.2 |
|
Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| |
|
|
| 32.1 |
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
|
| 99.1 |
|
Press release dated May 3, 2024, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on May 7, 2024. |
| |
|
|
| 99.2 |
|
Presentation dated June 4, 2024, incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on June 3, 2024. |
| |
|
|
| 101.1 |
|
The following information from the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2024, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Balance Sheets; (ii) Statements of Operations; (iii) Statement of Stockholders’ Equity; (iv) Statements of Cash Flows; (v) notes to consolidated financial statements. |
| |
|
|
| 104 |
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
52
Table of Contents
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
|
| |
BLUEROCK HOMES TRUST, INC. |
| |
|
|
| DATE: August 8, 2024 |
|
/s/ R. Ramin Kamfar |
| |
|
R. Ramin Kamfar |
| |
|
Chief Executive Officer |
| |
|
(Principal Executive Officer) |
|
|
|
|
| DATE: August 8, 2024 |
|
/s/ Christopher J. Vohs |
| |
|
Christopher J. Vohs |
| |
|
Chief Financial Officer and Treasurer |
| |
|
(Principal Financial Officer, Principal Accounting Officer) |
53
EXHIBIT 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, R. Ramin Kamfar, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Bluerock Homes Trust, Inc.; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this based on such evaluation; and |
| |
d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2024 |
/s/ R. Ramin Kamfar |
| |
R. Ramin Kamfar |
| |
Chief Executive Officer |
| |
(Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Christopher J. Vohs, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Bluerock Homes Trust, Inc.; |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| |
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| |
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| |
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this based on such evaluation; and |
| |
d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions): |
| |
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| |
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| Date: August 8, 2024 |
/s/ Christopher J. Vohs |
| |
Christopher J. Vohs |
| |
Chief Financial Officer and Treasurer |
| |
(Principal Financial Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION
1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
Pursuant to 18 U.S.C. § 1350, as created
by Section § 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Bluerock Homes Trust, Inc. (the “Company”)
hereby certify, to such officers’ knowledge, that:
| |
(i) |
The accompanying Quarterly Report on Form 10-Q for the period ended June 30, 2024 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and |
| |
(ii) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| August 8, 2024 |
/s/ R. Ramin Kamfar |
| |
R. Ramin Kamfar |
| |
Chief Executive Officer |
| |
(Principal Executive Officer) |
| August 8, 2024 |
/s/ Christopher J. Vohs |
| |
Christopher J. Vohs |
| |
Chief Financial Officer and Treasurer |
| |
(Principal Financial Officer) |
A signed original of this written statement required
by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission
or its staff upon request.
The foregoing certification is being furnished
as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly,
is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any
filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of
the Report, irrespective of any general incorporation language contained in such filing).
Bluerock Homes (AMEX:BHM)
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