Bluerock Homes Trust, Inc. 10-K

Item 1. Business Organization Bluerock Homes Trust, Inc. (“Bluerock Homes,” “the Company,” “we,” “us,” or “our”) was formed in Maryland as a wholly owned subsidiary of Bluerock Residential Growth REIT, Inc. (“Bluerock Residential” or “Parent”) on December 16, 2021, and historically operated as part of Bluerock Residential and not as a standalone company. On October 6, 2022, Bluerock Residential completed a spin-off transaction that resulted in its single-family residential real estate business and certain other assets being contributed to us and Bluerock Homes becoming an independent publicly traded company. We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with our taxable year ended December 31, 2022. As a REIT, we generally will not be subject to corporate-level income taxes. To qualify and maintain our REIT status, we will be 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. Unless otherwise indicated or the context requires otherwise, all references to “the Company,” “we,” “us” and “our” mean Bluerock Homes Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including, without limitation, Bluerock Residential Holdings, L.P., a Delaware limited partnership (our “Operating Partnership”), of which we are the sole general partner. References to our shares of Class A common stock on a “fully diluted basis” includes all outstanding shares of our Class A common stock, shares of our Class C common stock, units of limited partnership interest in our Operating Partnership (“OP Units”), and long-term incentive plan units in our Operating Partnership, (“LTIP Units”), whether vested or unvested. We have no employees and are supported by a related-party service agreement with Bluerock Homes Manager, LLC (the “Manager”), a Delaware limited liability company organized in 2022. We are externally managed by the Manager, which manages our day-to-day operations under a Management Agreement (the “Management Agreement”). Our Management Agreement has a one-year term expiring October 6, 2023 and will be automatically renewed for a one-year term each year on October 6, unless previously terminated in accordance with the terms of the Management Agreement. The Manager is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf. Substantially all our business is conducted through our Operating Partnership, of which we are the sole general partner. The principal executive offices of our Company and the Manager are located at 1345 Avenue of the Americas, 32 nd Floor, New York, New York 10105. Our telephone number is (212) 843-1601. Investments in Real Estate As of December 31, 2022, we held an aggregate of 3,977 residential units held through seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments. As of December 31, 2022, our consolidated operating investments were approximately 94.8% occupied. For more information regarding our investments, see “Item 2. Properties”. The Separation and the Distribution On December 20, 2021, Bluerock Residential entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Badger Parent and Badger Merger Sub LLC (“Merger Sub”). As contemplated by the Merger Agreement, on October 5, 2022, we entered into a Separation and Distribution Agreement with Bluerock Residential, Badger Parent, Badger Holdco LLC and the Operating Partnership, pursuant to which, among other things, Bluerock Residential contributed to us its single-family residential real estate business and certain other assets (the “Separation”). 7 Table of Contents On October 6, 2022, following the Separation, Bluerock Residential completed the spin-off of Bluerock Homes by distributing all our outstanding shares of Class A common stock and Class C common stock to the holders of Bluerock Residential common stock (the “Distribution”) as of the record date, September 29, 2022 (the “Spin-Off”). Pursuant to the terms and conditions of the Merger Agreement, following the Separation, the Distribution and the Spin-Off, Bluerock Residential merged with and into Merger Sub, with Merger Sub continuing as the surviving company, and the separate existence of Bluerock Residential ceased. As a result of the Separation, the Distribution and the Spin-Off, Bluerock Homes became an independent, publicly traded company and our Class A common stock is listed under the symbol “BHM” on the NYSE American. Following the Separation, the Distribution and the Spin-Off, the former holders of Bluerock Residential common stock who received shares of the Company’s common stock in the Distribution indirectly owned approximately 34% of the Company’s single-family residential business, and holders of units in the Operating Partnership (other than the holders of the Company’s common stock) indirectly owned approximately 66% of the Company’s single-family residential business. Financial statements representing the historical operations of Bluerock Residential’s residential rental business have been derived from Bluerock Residential’s historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of Bluerock Homes are included in the financial statements. The financial statements also include allocations of certain general, administrative, sales and marketing expenses and operations from Bluerock Residential for the period ended and prior to October 6, 2022. However, amounts recognized by us are not necessarily representative of the amounts that would have been reflected in the financial statements had we operated independently of Bluerock Residential. All significant intercompany balances and transactions have been eliminated. Any references to “the Company,” “we,” “us,” or “our” for all periods ended October 6, 2022 and prior refer to Bluerock Homes as owned by Bluerock Residential, and for all periods subsequent to October 6, 2022 refer to Bluerock Homes as an independent, publicly traded company. Business and Growth Strategies Our principal business objective is to generate attractive risk-adjusted investment returns by assembling a portfolio of pre-existing single-family rental homes and developing build-to-rent communities. These will be located across a diverse group of growth markets and will target a growing pool of middle-income renters seeking the single-family lifestyle without the upfront and ongoing investments associated with home ownership. By implementing our investment strategies and our institutional-quality management, we expect to be able to achieve sustainable long-term growth in both our FFO and NAV. Value Creation Execution. We acquire single-family rental properties with potential for long-term value creation for our stockholders. We utilize the following internal and external growth strategies to drive growth in FFO and NAV for our investors: ● Scattered-Site Aggregation . Currently, there is a high level of fragmentation in the single-family rental home market. We believe we can generate economies of scale and enable transaction efficiencies by targeting individual or small portfolios of quality, scattered, single-family rental homes with strong and stable cash flows and aggregate them into larger portfolios, which will allow us to reduce per unit costs, including leasing, marketing, insurance and maintenance related costs through increased purchasing power and sharing of resources. We look for middle-market rents that deliver attractive unlevered yields relative to private market portfolio and public market dividend yields. To date, we have acquired scattered-site homes at year one nominal cap rates exceeding 5% and gross rental yields exceeding 9%. We see an opportunity to replicate this strategy across our markets utilizing our network as a force multiplier on the sourcing and execution fronts. ● Build-to-Rent. We develop build-to-rent communities at attractive stabilized unlevered yields, investing selectively in target markets that we believe will enable us to capture development premiums on completion. We may use a convertible loan or convertible preferred equity structure to provide income during the development stage and/or the ability to capture development premiums at completion by exercising our conversion rights to take ownership. ● Value-Add Renovation . We see significant potential for capital appreciation through renovation of existing assets. Our value-add strategy focuses on working with our local experts to reposition lower-quality, less current assets and drive rent growth and expand margins, increasing net operating income (“NOI”) and maximizing our return on investment. 8 Table of Contents ● Institutional Property Management / NOI Margin Expansion . We expect to improve margins at our operating properties by deploying institutional management approaches across the portfolio - including professional management, investment in technology platforms, and leveraging economies of scale - to best position the portfolio for optimal rental growth. Through the aggregation of multiple scattered homes, we seek to address operational inefficiencies, revenue management and deferred capital maintenance at scale and to grow underlying cash flow through substantial NOI margin expansion at stabilized properties. We will also provide an aggressive asset management presence, working alongside our network partners to ensure optimal execution of the asset management plan, enabling us to drive rent growth and values. ● Technology-Aided Platform . We have implemented a data warehouse, which provides us with real-time visibility into leasing, inventory, maintenance and renovation metrics, allowing us to quickly react to changes in current operational performance and monitor trends across our portfolio. Further, we believe we will be able to utilize our data warehouse technology as a building block in the design and implementation of a portfolio-wide revenue management system to further drive NOI and margin expansion. In addition, we utilize various PropTech solutions to both acquire and maximize operational efficiency. Operational PropTech solutions include focus on streamlining value-add initiatives, integrating smart-home technology, automating the lease process and providing robust and coordinated maintenance services. Harvest and Redeploy Capital Selectively. On an opportunistic basis and subject to compliance with REIT restrictions, we intend to sell properties when we have executed our value creation plans and when we believe the investment has limited additional upside relative to other opportunities. This allows us to harvest profits and reinvest proceeds to maximize stockholder value. 9 Table of Contents Summary of Investments and Dispositions The following table presents a summary of our real estate investments during the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ Property Location Month Acquired (1) Ownership Interest Number of Units 2021 ​ ​ ​ ​ Second Quarter Peak Housing (2)(5) IN / MO / TX April — 474 Yauger Park Villas Olympia, WA April 95 % 80 Wayford at Concord (3) Concord, NC June 83 % 150 Wayford at Innovation Park (4)(5) Charlotte, NC June — 210 Willow Park (5) Willow Park, TX June — 46 Third Quarter Corpus (6) Corpus Christi, TX July — 81 Jolin (6) Weatherford, TX August — 24 Peak JV 1 (7) IN / MO August 60 % 334 The Cottages of Port St. Lucie (4)(5) Port St. Lucie, FL August — 286 Peak JV 2 (8) Various / TX September 80 % 195 The Cottages at Myrtle Beach (4)(5) Myrtle Beach, SC September — 294 Fourth Quarter ILE TX / SE US October 95 % 279 Peak JV 2 (8) Various / TX October 80 % 111 Golden Pacific KS / MO November 97 % 7 Peak JV 2 (8) Various / TX November 80 % 20 Peak JV 2 (8) Various / TX December 80 % 248 Peak JV 3, formerly DFW 189 Dallas-Fort Worth, TX December 56 % 189 The Cottages at Warner Robins (4)(5) Warner Robins, GA December — 251 The Woods at Forest Hill (5) Forest Hill, TX December — 76 ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 First Quarter Weatherford 185 (9) Weatherford, TX February — 185 Peak JV 2 (8) Various / TX March 80 % 34 Peak JV 4, formerly Savannah 319 Savannah, GA March 80 % 19 Golden Pacific IN / KS / MO Various 97 % 62 ILE TX / SE US Various 95 % 31 Second Quarter Ballast AZ / CO / WA Various 95 % 65 Golden Pacific IN / KS / MO Various 97 % 66 ILE TX / SE US Various 95 % 108 Peak JV 4 Savannah, GA Various 80 % 20 Third Quarter Ballast AZ / CO / WA Various 95 % 19 Golden Pacific IN / KS / MO Various 97 % 35 ILE TX / SE US Various 95 % 64 Peak JV 4 Savannah, GA Various 80 % 14 Fourth Quarter Golden Pacific IN / KS / MO October 97 % 1 Peak JV 4 Savannah, GA Various 80 % 13 (1) For those months where “Various” is listed, we, on various dates throughout that specified quarter, acquired additional units that were added to the respective existing portfolios. For Ballast, the units acquired in the second quarter 2022 were our first acquisitions for the portfolio. 10 Table of Contents (2) Peak Housing consists of our preferred equity investments in a private single-family home REIT (refer to Note 8 of our combined consolidated financial statements for further information). Unit count excludes consolidated operating investment units which are presented separately. (3) We purchased the Wayford at Concord property from our unaffiliated joint venture partner, and as part of the transaction, our preferred equity investment was redeemed. Refer to Note 8 of our combined consolidated financial statements for further information. (4) The property is a development project. (5) Our investment in the property is through a preferred equity investment with an unaffiliated third party. Refer to Note 8 of our combined consolidated financial statements for further information. (6) We recapitalized Corpus and Jolin on December 22, 2021 and received full payoffs of the bridge loans. As part of the recapitalization, both Corpus and Jolin, along with two portfolios of units previously owned solely by our unaffiliated joint venture partner, were combined into one portfolio and contributed into the existing Peak JV 2 joint venture. (7) Peak JV 1 includes the portfolios formerly presented as Indy and Springfield. (8) Peak JV 2 includes the portfolios formerly presented as Axelrod, Granbury, Granbury 2.0, Lubbock, Lubbock 2.0, Lubbock 3.0, Lynnwood, Lynnwood 2.0, Springtown, Springtown 2.0, Texarkana and Texas Portfolio 183, of which all are in Texas. The number of units presented reflect the aggregate of the portfolios acquired during the period specified. (9) Our investment in the property was through a mezzanine loan to an unaffiliated third party. The loan was paid off in July 2022. Refer to the table below. The following table presents a summary of our real estate sales, loan payoffs and redemption of preferred equity during the years ended December 31, 2022 and 2021: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Ownership ​ ​ ​ ​ ​ ​ ​ ​ Interest in ​ Number Property Location Date Sold / Payoff Property of Units 2021 ​ ​ ​ ​ ​ ​ ​ ​ ARIUM Grandewood ​ Orlando, FL ​ January 28, 2021 ​ 100 % 306 James at South First ​ Austin, TX ​ February 24, 2021 ​ 90 % 250 Marquis at The Cascades Tyler, TX ​ March 1, 2021 90 % 582 The Conley (1) Leander, TX ​ March 18, 2021 — 259 Alexan Southside Place (1) Houston, TX ​ March 25, 2021 — 270 Plantation Park Lake Jackson, TX ​ April 26, 2021 80 % 238 Wayford at Concord (1) Concord, NC ​ June 4, 2021 — 150 Vickers Historic Roswell (2) Roswell, GA ​ June 29, 2021 — 79 Park & Kingston Charlotte, NC ​ July 7, 2021 100 % 168 The District at Scottsdale Scottsdale, AZ ​ July 7, 2021 99 % 332 Mira Vista (1) Austin, TX ​ September 23, 2021 — 200 Thornton Flats (1) Austin, TX ​ December 14, 2021 — 104 Corpus (3) Corpus Christi, TX ​ December 22, 2021 — 81 Jolin (3) Weatherford, TX ​ December 22, 2021 — 24 ​ ​ ​ ​ ​ ​ ​ ​ ​ 2022 ​ ​ ​ ​ ​ ​ ​ ​ The Hartley at Blue Hill (2) Chapel Hill, NC ​ February 28, 2022 — 414 Weatherford 185 (2) Weatherford, TX ​ July 22, 2022 — 185 (1) Our investment in the property, which was through a preferred equity investment with an unaffiliated third party, was redeemed. Refer to Note 8 of our combined consolidated financial statements for further information. (2) Our investment in the property, which was through one or more loans that we provided, was paid off in full. Refer to Note 7 of our combined consolidated financial statements for further information. 11 Table of Contents (3) We recapitalized Corpus and Jolin on December 22, 2021 and received full payoffs of the bridge loans. As part of the recapitalization, both Corpus and Jolin, along with two portfolios of units previously owned solely by our unaffiliated joint venture partner, were combined into one portfolio and contrib uted into the existing Peak JV 2 joint venture. Distribution Policy We intend to qualify and maintain our qualification as a REIT for federal income tax purposes. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains. To satisfy the requirements for qualification as a REIT and generally not be subject to federal income and excise tax, we intend to make regular distributions of all or substantially all of our REIT taxable income, determined without regard to dividends paid, to our stockholders out of assets legally available for such purposes. All future distributions will be determined at the sole discretion of our Board of Directors (the “Board”) on a quarterly basis. When determining the amount of future distributions, we expect that our Board will consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future operating cash flows, (iii) our determination of near-term cash needs for acquisitions of new properties, development investments, general property capital improvements and debt repayments, (iv) our ability to continue to access additional sources of capital, (v) the requirements of Maryland law, (vi) the amount required to be distributed to qualify and maintain our qualification as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay and (vii) any limitations on our distributions contained in our credit or other agreements. Holders of shares of 6.0% Series A Redeemable Preferred Stock, $0.01 par value per share (the “Series A Redeemable Preferred Stock”), will be entitled to receive, when and as authorized by our Board and declared by us out of legally available funds, cumulative cash dividends on each share of Series A Redeemable Preferred Stock at an annual rate of six percent (6.0%) of the $25.00 liquidation preference per share (equivalent to the fixed annual amount of $1.50 per share). Cash dividends on each share of Series A Redeemable Preferred Stock will begin accruing on, and will be cumulative from, the date of original issuance or the end of the most recent dividend period for which cash dividends on the Series A Redeemable Preferred Stock have been paid on each such share, payable monthly in arrears on the 5 th day of each month to holders of record on the 25 th day of the prior month; provided, however, that any such cash dividend may vary among holders of Series A Redeemable Preferred Stock and may be prorated with respect to any shares of Series A Redeemable Preferred Stock that were outstanding less than the total number of days in the dividend period immediately preceding the applicable dividend payment date, with the amount of any such prorated dividend being computed on the basis of the actual number of days in such dividend period during which such shares of Series A Redeemable Preferred Stock were outstanding. Holders of shares of Class A common stock, $0.01 par value per share (the “Class A common stock”), and Class C common stock $0.01 par value per share (the “Class C common stock”), will be entitled to receive cash dividends when, as and if authorized by our Board and declared by us. We cannot assure you that we will generate sufficient cash flows to make distributions to our stockholders, or that we will be able to sustain those distributions. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, offering proceeds, borrowing funds, selling assets, making a taxable distribution of our equity or debt securities, or reducing such distributions. Our distribution policy enables us to review the alternative funding sources available to us from time to time. Our actual results of operations will be affected by a number of factors, including the revenues we receive from our properties, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Item 1A – Risk Factors.” Regulations Our investments are subject to various federal, state and local laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments. 12 Table of Contents Environmental As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future. Human Capital We have no employees and we rely on the employees of our Manager and its affiliates to conduct our operations. In order to attract and retain high performing individuals, our Manager and its affiliates are committed to partnering with its employees to provide opportunities for their professional development and promote their well-being. To that end, our Manager or its affiliates have undertaken various initiatives, including the following: ● implementing an Environmental, Social, and Corporate Governance Initiative to codify and disclose its commitment to good corporate citizenship, including the appointment of an internal corporate responsibility committee in support of its ongoing commitment to sustainability, health and safety, corporate social responsibility, corporate governance, and other public policy matters; ● providing department-specific training, access to online training seminars and opportunities to participate in industry conferences; ● providing annual reviews and regular feedback to assist in employee development and providing opportunities for employees to provide suggestions to management and safely register complaints; ● providing family leave, for example, for the birth or adoption of a child, as well as sick leave; ● focusing on creating a workplace that values employee health and safety; ● committing to the full inclusion of all qualified employees and applicants and providing equal employment opportunities to all persons, in accordance with the principles and requirements of the Equal Employment Opportunities Commission and the principles and requirements of the Americans with Disabilities Act; and ● recognizing the importance and contributions of a diverse workforce, with an appreciation for the unique perspectives and insights offered by diverse backgrounds. Industry Segments We own and operate residential investments that generate rental and other property-related income through the leasing of units to a diverse base of tenants. We evaluate operating performance on an individual property investment level and based on the investments’ similar economic characteristics. Our primary financial measure for operating performance is NOI as it measures the core operations of property performance by excluding corporate level expenses and those other items not related to property operating performance. We view our residential real estate assets as one reportable segment, and, accordingly, aggregate our properties into one reportable segment. Available Information We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC. We also have filed with the SEC registration statements on Form S-11 (File No. 333-269415) and Form S-8 (File No. 333-267764). Copies of our filings with the SEC may be obtained from the SEC’s website at www.sec.gov , or downloaded from our website at www.bluerockhomes.com, as soon as reasonably practicable after such material has been filed with, or furnished to, the SEC. Access to these filings is free of charge. ​ 13 Table of Contents