BRG-A Bluerock Residential Growth REIT Inc

As previously disclosed, on December 20, 2021, Bluerock Residential Growth REIT, Inc. (“Bluerock Residential” or the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Badger Parent LLC (“Parent”) and Badger Merger Sub LLC (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger. The Merger and the other transactions contemplated by the Merger Agreement were unanimously approved by the Company’s board of directors. Parent and Merger Sub are affiliates of Blackstone Real Estate Partners IX L.P., an affiliate of Blackstone Inc. In addition, as previously disclosed, prior to the consummation of the Merger, the Company will complete the separation of its single-family residential real estate business (the “Single-Family Business”) from the Company’s multi-family residential real estate business (the “Separation”). Following the Separation, the Single-Family Business will be indirectly held by Bluerock Homes Trust, Inc., a Maryland corporation (“Bluerock Homes”), and, prior to the consummation of the Merger, the Company will distribute the common stock of Bluerock Homes to the Company’s common stockholders as of the record date for such distribution in a taxable distribution (the “Distribution”).

In connection with the proposed Merger, Bluerock Residential filed with the Securities and Exchange Commission (the “SEC”) a definitive proxy statement (the “Proxy Statement”), which Bluerock Residential first mailed to its stockholders on or about March 11, 2022.

Following the announcement of the Merger Agreement, as of the date of this Current Report on Form 8-K, four lawsuits challenging the Merger have been filed (each, a “Lawsuit” and, collectively, the “Lawsuits”). The Lawsuits are captioned (i) Samuel Marchese v. Bluerock Residential Growth REIT, Inc., et al., No. 1:22-cv-01234, filed in the U.S. District Court for the Southern District of New York on February 15, 2022; (ii) Matthew Whitfield v. Ramin Kamfar, et al., No. 24C22001079, filed in the Circuit Court for Baltimore City, Maryland on February 25, 2022; (iii) Robert Garfield v. Robert Ramin Kamfar, et al., No. 602620/2022, filed in the Supreme Court of the State of New York on March 1, 2022; and (iv) Stephen Bushansky v. Bluerock Residential Growth REIT, Inc., et al., No. 1:22-cv-02482, filed in the U.S. District Court for the Southern District of New York on March 28, 2022. In addition, Bluerock Residential received demand letters from counsel representing individual stockholders of the Company (the “Demand Letters” and, together with the Lawsuits, the “Matters”). The Matters each allege, among other things, that the defendants disseminated a materially incomplete and misleading Proxy Statement relating to the proposed Merger in violation of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 and Rule 14a-9 promulgated thereunder.

The Company believes that the claims asserted in the Matters are without merit and supplemental disclosures are not required or necessary under applicable laws. However, in order to avoid the risk that the Matters delay or otherwise adversely affect the Merger, to minimize the costs, risks and uncertainties inherent in defending the lawsuits, and to provide additional information to stockholders, and without admitting any liability or wrongdoing, the Company has agreed to supplement the Proxy Statement as described in this Current Report on Form 8-K. Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, the Company specifically denies all allegations in the Matters that any additional disclosure was or is required. The inclusion in this Current Report on Form 8-K of certain information should not be regarded as an indication that any of the Company or its affiliates, officers, directors or other representatives, or any other recipient of this information, considered, or now considers, it to be material, and such information should not be relied upon as such.

Supplemental Disclosures to Proxy Statement in Connection with the Matters

The additional disclosures set forth below (the “Supplemental Disclosures”) in this Current Report on Form 8-K supplement the disclosures contained in the Proxy Statement and should be read in conjunction with the disclosures contained in the Proxy Statement, which should be read in its entirety. To the extent that information set forth in the Supplemental Disclosures differs from or updates information contained in the Proxy Statement, the information in this Current Report on Form 8-K shall supersede or supplement the information contained in the Proxy Statement. All page references are to the Proxy Statement and terms used but not otherwise defined herein shall have the meanings ascribed to such terms in the Proxy Statement.

On September 16, 2021, Bloomberg reported that the Company was evaluating strategic alternatives (the “September 16 Bloomberg article”). Thereafter, 38 additional parties contacted the Company, Morgan Stanley or Eastdil regarding a potential transaction. The Company and our financial advisors invited all such parties to enter into non-disclosure agreements. Of the 55 total parties (including Party A), 28 executed nondisclosure agreements with the Company, each of which included a standstill obligation with a “don’t ask, don’t waive” provision, subject in six cases to exceptions for non-public proposals.

Blackstone and the Company have agreed that neither the Company nor the surviving company will enforce any standstill provision to the extent it would operate to preclude a party to a nondisclosure agreement from making non-public company takeover proposals to the board of directors.

Because the financial projections reflect subjective judgment in many respects, they are susceptible to multiple interpretations and frequent revisions based on actual experience and business developments. The financial projections also cover multiple years, and such information by its nature becomes less predictive with each succeeding year. The estimates and assumptions underlying the financial projections involve judgments with respect to, among other things, economic, competitive and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic and competitive uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industries in which we operate. Such judgments reflect, among other things, the input and assessments of the Company’s leasing and property management professionals. The financial projections constitute forward-looking information and are subject to a wide variety of significant risks and uncertainties that could cause the actual results to differ materially from the projected results. For additional information on factors that may cause future financial results to materially vary from the projected results summarized below, see the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 22. Accordingly, there can be no assurance that the projected results summarized below will be realized or that actual results will not differ materially from the projected results summarized below, and the financial projections cannot be considered a guarantee of future operating results and should not be relied upon as such. Neither we nor our affiliates or advisors or any other person has made any representation to any of our stockholders or any other person regarding our actual performance compared to the results included in the financial projections. We have not made any representation to Parent or its affiliates, in the merger agreement or otherwise, concerning the projections.

In connection with its financial analyses and fairness opinion, Morgan Stanley derived from the Company financial projections and disclosed to the board of directors forecasted unlevered free cash flow of the Company of $13 million, $99 million, $106 million, $108 million and $111 million for the 12-month periods ending September 30, 2022, 2023, 2024, 2025 and 2026, respectively. In addition, in connection with its financial analyses and fairness opinion, Morgan Stanley calculated and disclosed to the board of directors forecasted net operating income (“NOI”) of the Company of $169 million for the 12 months ending September 30, 2027 by applying, at the direction of our management, a 3% annual growth rate to the NOI of the Company of $164 million for the 12 months ending September 30, 2026 included in the Company financial projections.

The Company also provided financial projections to the board of directors and to Stanger in connection with its fairness opinion that included $0 in incentive fees payable to the Manager under the Management Agreement under three scenarios assuming capital raises of $1 billion, $1.25 billion and $1.5 billion. These financial projections included for Bluerock Homes’ operating portfolio of real estate assets, stabilized EBITDA of $22.7 million, $62.7 million, $71.4 million and $80.2 million under the $0, $1 billion, $1.25 billion and $1.5 billion equity raise scenarios, respectively. These financial projections additionally included stabilized externally advised adjusted funds from operations of $8.4 million, $36.3 million, $43.8 million and $51.3 million under the $0, $1 billion, $1.25 billion and $1.5 billion equity raise scenarios, respectively.

The table below sets forth the metrics for each of the selected companies and the Company:

* The Company is included for reference, but was not used as a selected company for purposes of these calculations.

An implied per share equity value reference range for the Company was then calculated based on the range of our net asset values derived from such analysis divided by the number of fully diluted shares of Common Stock outstanding as of September 30, 2021, totaling approximately 38.87 million shares (including incremental shares associated with the dilution by Company Warrants outstanding as of December 14, 2021).

The table below sets forth the four equity research analyst reports utilized in the analysis:

The table below sets forth additional information related to the direct capitalization analysis for stabilized properties:

The table below sets forth additional information related to the liquidation valuation:

The table below sets forth additional information related to the broker price opinion valuation analyses for miscellaneous properties:

Based on the financial analyses conducted, Duff & Phelps determined a value range for the net asset value of the properties in the Bluerock Homes Business’ portfolio, excluding cash, of $315.3 million to $336.1 million. Based on the valuation indications derived from its valuation analyses, Duff & Phelps determined a value range for the net asset value of the Bluerock Homes Business of $483.3 million to $504.1 million. Duff & Phelps noted that the value of the Bluerock Homes Business of $498.7 million implied by the exchange consideration fell within the range of the resulting net asset values. As a result, subject to the assumptions, qualifications, and limitations set forth in the Duff & Phelps Opinion, Duff & Phelps determined that the exchange consideration to be paid by the Company in the Exchange is fair, from a financial point of view, to the Company.