Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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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 December 31, 2022, 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 December 31, 2022, 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.
Management’s Annual Report on Internal Control over Financial Reporting
This Annual Report on Form 10-K does not include a report of management’s assessment regarding internal control over financial reporting due to a transition period established by rules of the Securities and Exchange Commission for newly public companies .
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting that occurred during the quarter ended December 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Because this Annual Report on Form 10-K is being filed within four business days from the date of the reportable events described below, we have elected to make the following disclosures in this Annual Report on Form 10-K instead of in a Current Report on Form 8-K under Item 3.03 and Item 5.03:
Item 3.03. Material Modification to Rights of Security Holders
On March 17, 2023, the Company filed Articles Supplementary (the “Articles Supplementary”) with the Maryland State Department of Assessments and Taxation to reclassify 30,000,000 shares of the Company’s authorized but unissued preferred stock, $0.01 par value per share, as shares of Series A Preferred Stock, with the powers, designations, preferences and other rights as set forth therein. The Articles Supplementary became effective upon filing on March 17, 2023.
Ranking . The Series A Preferred Stock ranks (a) senior to all classes or series of common stock and to any other class or series of our capital stock issued in the future, unless the terms of that capital stock expressly provide that it ranks senior to, or on parity with, the Series A Preferred Stock; (b) on a parity with any class or series of our capital stock, the terms of which expressly provide that it ranks on parity with the Series A Preferred Stock with respect to priority of payment of dividends and other distributions or rights upon liquidation, dissolution or winding up of the affairs of the Company (the “Parity Preferred Stock”); and (c) junior to any other class or series of capital stock, the terms of which expressly provide that it ranks senior to the Series A Preferred Stock, none of which exists on the date of the Articles Supplementary, and subject to payment of or provision for our debts and other liabilities.
Dividends . The Articles Supplementary provide that, commencing on the date of original issuance, the Company will pay cumulative cash dividends on each share of the Series A Preferred Stock at an annual rate of 6.0% of the Stated Value (each, a “Series A Cash Dividend”). Series A Cash Dividends are expected to be authorized and declared on a quarterly basis, payable monthly on the 5th day of the month to holders of record on the 25th day of the prior month (or if such payment date or record date is not a business day, on the immediately preceding business day). The initial Series A Cash Dividend on each share of Series A Preferred Stock will begin accruing on, and will be cumulative from, the date of original issuance of such share of Series A Preferred Stock. Each subsequent Series A Cash Dividend will begin accruing on, and will be cumulative from, the end of the most recent Series A Cash Dividend period for which a Series A Cash Dividend has been paid on each such share of Series A Preferred Stock.
Any such Series A Cash Dividend may vary among holders of Series A Preferred Stock, and may be prorated with respect to any shares of Series A Preferred Stock that were outstanding, less than the total number of days in the Series A Cash Dividend period immediately preceding the applicable dividend payment date, with the amount of any such prorated Series A Cash Dividend being
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computed on the basis of the actual number of days in such dividend period during which such shares of Series A Preferred Stock were outstanding.
Redemptions . The Series A Preferred Stock is redeemable by the Company as follows:
Redemption at Option of Holders. Holders of the Series A Preferred Stock may, at their option, elect to cause the Company to redeem their shares at a redemption price equal to the Stated Value, initially $25.00 per share, less a redemption fee, plus an amount equal to any accrued but unpaid cash dividends, if any. The redemption fee shall be equal to:
·
Beginning on the date of original issuance of the shares to be redeemed: 12%
·
Beginning one year from the date of original issuance of the shares to be redeemed: 9%
·
Beginning two years from the date of original issuance of the shares to be redeemed: 6%
·
Beginning three years from the date of original issuance of the shares to be redeemed: 3%
·
Beginning four years from the date of original issuance of the shares to be redeemed: 0%
Optional Redemption Following Death or Qualifying Disability of a Holder. In addition, beginning on the date of original issuance, the Company will redeem shares of Series A Preferred Stock of a holder who is a natural person upon his or her death or upon his or her suffering a qualifying disability, including shares held through a revocable grantor trust, or an IRA or other retirement or profit-sharing plan, at the written request, (a) in the case of the death of a holder, the holder’s estate, the recipient of such shares through bequest or inheritance, or, with respect to shares held through a revocable grantor trust, the trustee of such trust, who will have the sole ability to request redemption on behalf of the trust, or (b) in the case of the disability of a holder, the holder or the holder’s legal representative. Only shares of Series A Preferred Stock that have been outstanding for at least one (1) year prior to redemption are eligible for redemption by the Company. The Company must receive such written request within one (1) year after the death or qualifying disability of the holder, but no sooner than one (1) year after the date of original issuance of such shares. If the holder is not a natural person, such as a trust (other than a revocable grantor trust) or a partnership, corporation or similar legal entity, the right of redemption upon death or qualifying disability shall be subject to the approval of company management in its sole discretion. Beginning one (1) year from the date of original issuance of the shares of Series A Preferred Stock to be redeemed, we will redeem such shares at a redemption price equal to 95% of the Stated Value, initially $25.00 per share, and beginning two (2) years from the date of original issuance of the shares of Series A Preferred Stock to be redeemed, we will redeem such shares at a redemption price equal to 100% of the Stated Value, in each case, plus an amount equal to any accrued but unpaid cash dividends thereon, if any, to and including the redemption date.
If a holder of Series A Preferred Stock causes the Company to redeem shares of Series A Preferred Stock, the Company has the right, in its sole discretion, to pay the redemption price in cash or in equal value of shares of its Class A Common Stock, in the Company’s sole discretion, based on the closing price per share of Class A Common Stock for the single trading day prior to the date of redemption.
The Company’s ability to redeem shares of Series A Preferred Stock in cash may be limited to the extent that the Company does not have sufficient funds available to fund such cash redemption. Further, the Company’s obligation to redeem any of the shares of Series A Preferred Stock submitted for redemption in cash may be restricted by Maryland law. No redemptions of shares of Series A Preferred Stock will be made in cash at such time as the terms and provisions of any agreement to which the Company is a party prohibits such redemption or provides that such redemption would constitute a breach thereof or a default thereunder.
Optional Redemption by the Company. On and after the second anniversary of the date of original issuance of the shares of Series A Preferred Stock to be redeemed, the Company may, at its option, redeem the Series A Preferred Stock, in whole or in part, at any time or from time to time, at a redemption price of 100% of the Stated Value, initially $25.00 per share, plus an amount equal to any accumulated but unpaid cash dividends to and including the redemption date, payable, in the Company’s sole discretion, in cash or in equal value of shares of Class A Common Stock based on the closing price per share of Class A Common Stock for the single trading day prior to the date of redemption. Any such Optional Redemption by the Company may be made conditional on such factors as determined by the board of directors and as set forth in a notice of redemption.
Change of Control Redemption by the Company. In addition, upon the occurrence of a Change of Control (as defined in the Articles Supplementary), the Company will be required to redeem all outstanding shares of the Series A Preferred Stock in whole within 60 days
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after the first date on which such Change of Control occurred, in cash at a redemption price of $25.00 per share, plus an amount equal to all accrued but unpaid cash dividends, if any, to and including the redemption date. If the Maryland law solvency tests prohibit us from paying the full redemption price in cash, then the Company will pay such portion as would otherwise violate the solvency tests in shares of Class A Common Stock to holders on a pro rata basis, based on the closing price per share of Class A Common Stock for the single trading day prior to the date of redemption.
Voting Rights . The Series A Preferred Stock generally has no voting rights. However, holders of shares of Series A Preferred Stock will have an exclusive voting right on any amendment to the Company’s charter that would alter only the contract rights, as expressly set forth in the charter, of the Series A Preferred Stock, with any such amendment requiring the affirmative vote or consent of holders of two-thirds of the Series A Preferred Stock issued and outstanding at the time.
In addition, holders of shares of Series A Preferred Stock and of any Parity Preferred Stock upon which like voting rights have been conferred (such Parity Preferred Stock, the “Parity Voting Preferred Stock”), voting together as a single class, will also have an exclusive right to vote on any amendment, alteration or repeal of the charter, including the terms of the Series A Preferred Stock, that would alter only the contract rights, as expressly set forth in the charter, of the Series A Preferred Stock and such Parity Voting Preferred Stock, with any such action requiring the affirmative vote or consent of the holders of shares of Series A Preferred Stock and such Parity Voting Preferred Stock entitled to cast two-thirds of all the votes entitled to be cast by such holders on such matter, with each holder of Series A Preferred Stock and such Parity Voting Preferred Stock entitled to one vote for each $25.00 in liquidation preference.
Further, holders of shares of Series A Preferred Stock will also have the right to vote to (a) authorize, create or issue, or increase the number of authorized or issued shares of, any class or series of the Company’s capital stock ranking senior to the Series A Preferred Stock with respect to dividend rights and rights upon the Company’s liquidation, dissolution or winding up (any such senior stock, the “Senior Stock”), (b) reclassify any authorized shares of the Company’s capital stock into Senior Stock, or (c) create, authorize or issue any obligation or security convertible into, or evidencing the right to purchase, Senior Stock. Any such action will require the approval of a majority of all votes collectively entitled to be cast by the holders of (i) Series A Preferred Stock, and (ii) any Parity Voting Preferred Stock, voting together as a single class, with each such holder entitled to one vote for each $25.00 in liquidation preference.
There are restrictions on ownership of the Series A Preferred Stock intended to preserve the Company’s qualification as a REIT.
The foregoing description of the Articles Supplementary is a summary and is qualified in its entirety by the terms of the Articles Supplementary, a copy of which is filed as Exhibit No. 3.1 to this Annual Report on Form 10-K and incorporated by reference into this Item 3.03.
Item 5.03.Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year
The information set forth above under Item 3.03 of this Annual Report on Form 10-K is hereby incorporated by reference into this Item 5.03.
Item 9C. Disclosure Regarding Foreign Jurisdictions That Prevent Inspections
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance .
The information required by this Item is incorporated by reference from the Company’s 2023 Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference from the Company’s 2023 Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated by reference from the Company’s 2023 Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this Item is incorporated by reference from the Company’s 2023 Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
Item 14. Principal Accountant Fees and Services
The information required by this Item is incorporated by reference from the Company’s 2023 Proxy Statement to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) List of Documents Filed.
1. Financial Statements
The list of the financial statements filed as part of this Annual Report on Form 10-K is set forth on page F-1 herein.
(b) Exhibits.
The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.
(c) Financial Statement Schedules.
Our combined consolidated financial statements and supplementary data are included as a separate section in this Annual Report on Form 10-K commencing on page F-1 and are incorporated herein by reference.
Item 16. Form 10-K Summary
None.
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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: March 22, 2023
/s/ R. Ramin Kamfar
R. Ramin Kamfar
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
BLUEROCK HOMES TRUST, INC .
Date: March 22, 2023
/s/ R. Ramin Kamfar
R. Ramin Kamfar
Chief Executive Officer
(Principal Executive Officer)
Date: March 22, 2023
/s/ Christopher J. Vohs
Christopher J. Vohs
Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)
Date: March 22, 2023
/s/ Elizabeth Harrison
Elizabeth Harrison
Director
Date: March 22, 2023
/s/ Kamal Jafarnia
Kamal Jafarnia
Director
Date: March 22, 2023
/s/ I. Bobby Majumder
I. Bobby Majumder
Director
Date: March 22, 2023
/s/ Romano Tio
Romano Tio
Director
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INDEX TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Page
Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 )
F-2
Combined Consolidated Balance Sheets as of December 31, 2022 and 2021
F-3
Combined Consolidated Statements of Operations for the Years Ended December 31, 2022 and 2021
F-4
Combined Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2022 and 2021
F-5
Combined Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
F-6
Notes to Combined Consolidated Financial Statements
F-7
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Bluerock Homes Trust, Inc.
Opinion on the Financial Statements
We have audited the accompanying combined consolidated balance sheets of Bluerock Homes Trust, Inc. (a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related combined consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2022, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Southfield, Michigan
March 22, 2023
F-2
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BLUEROCK HOMES TRUST, INC.
COMBINED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
December 31,
2022
2021
ASSETS
Net Real Estate Investments
Land
$
69,369
$
41,997
Buildings and improvements
412,463
278,592
Furniture, fixtures and equipment
8,159
2,459
Total Gross Real Estate Investments
489,991
323,048
Accumulated depreciation
( 17,865 )
( 4,964 )
Total Net Real Estate Investments
472,126
318,084
Cash and cash equivalents
78,426
129,389
Restricted cash
4,136
7,540
Notes and accrued interest receivable, net
—
38,883
Due from affiliates
—
428
Accounts receivable, prepaids and other assets, net
17,916
5,094
Preferred equity investments in unconsolidated real estate joint ventures, net
86,289
39,521
In-place lease intangible assets, net
—
2,525
TOTAL ASSETS
$
658,893
$
541,464
LIABILITIES AND EQUITY
Mortgages payable
$
98,191
$
63,007
Revolving credit facilities
55,000
—
Accounts payable
1,751
2,087
Other accrued liabilities
9,752
10,778
Due to affiliates
2,211
506
Distributions payable
—
3,115
Total Liabilities
166,905
79,493
Equity
Stockholders’ Equity
Preferred stock, $ 0.01 par value, 250,000,000 and no shares authorized at December 31, 2022 and 2021, respectively; no shares issued and outstanding as of December 31, 2022 and 2021
—
—
Common stock - Class A, $ 0.01 par value, 562,500,000 and no shares authorized at December 31, 2022 and 2021, respectively; 3,835,013 and no shares issued and outstanding at December 31, 2022 and 2021, respectively
38
—
Common stock - Class C, $ 0.01 par value, 187,500,000 and no shares authorized at December 31, 2022 and 2021, respectively; 8,489 and no shares issued and outstanding at December 31, 2022 and 2021, respectively
—
—
Predecessor Bluerock Homes equity
—
116,510
Additional paid-in-capital
126,623
—
Retained earnings
33,325
34,325
Total Stockholders’ Equity
159,986
150,835
Noncontrolling Interests
Operating partnership units
307,825
289,258
Partially owned properties
24,177
21,878
Total Noncontrolling Interests
332,002
311,136
Total Equity
491,988
461,971
TOTAL LIABILITIES AND EQUITY
$
658,893
$
541,464
See Notes to Combined Consolidated Financial Statements
F-3
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BLUEROCK HOMES TRUST, INC.
COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
Year Ended December 31,
2022 (1)
2021
Revenues
Rental and other property revenues
$
32,859
$
9,275
Interest income from loan investments
1,285
5,355
Total revenues
34,144
14,630
Expenses
Property operating
15,171
3,230
Property management and asset management fees
3,834
550
General and administrative
7,102
4,570
Management fees to related party
1,787
—
Acquisition and pursuit costs
167
—
Weather-related losses, net
25
—
Depreciation and amortization
16,007
5,891
Total expenses
44,093
14,241
Operating (loss) income
( 9,949 )
389
Other income (expense)
Other income
446
253
Preferred returns on unconsolidated real estate joint ventures
8,588
3,190
Recovery of credit losses
402
28
Transaction costs
( 24 )
—
Interest expense, net
( 5,699 )
( 2,915 )
Total other income
3,713
556
Net (loss) income from continuing operations
( 6,236 )
945
Discontinued operations
Income on operations of rental property
53
340
Loss on extinguishment of debt
—
( 6,172 )
Gain on sale of assets from discontinued operations
258
116,690
Income from discontinued operations
311
110,858
Net (loss) income
( 5,925 )
111,803
Net (loss) income attributable to noncontrolling interests
Operating partnership units
( 1,927 )
65,826
Partially-owned properties
( 2,998 )
11,652
Net (loss) income attributable to noncontrolling interests
( 4,925 )
77,478
Net (loss) income attributable to common stockholders
$
( 1,000 )
$
34,325
Net (loss) income per common share – Basic
Continuing operations
$
( 0.29 )
$
0.14
Discontinued operations
0.03
8.79
$
( 0.26 )
$
8.93
Net (loss) income per common share - Diluted
Continuing operations
$
( 0.29 )
$
0.14
Discontinued operations
0.03
8.79
$
( 0.26 )
$
8.93
Weighted average basic common shares outstanding
3,843,502
3,843,502
Weighted average diluted common shares outstanding
3,843,502
3,843,502
(1) The combined consolidated statement of operations for the year ended December 31, 2022 includes (i) the Company’s results of operations for the period of October 6 – December 31, 2022, which represents the Company’s results of operations following its spin-off from Bluerock Residential, and (ii) the Company’s results of operations for the period ending and prior to October 6, 2022, which represents a carve-out of revenues and expenses attributable to the Company related to Bluerock Residential’s single-family residential home business. The Company’s historical financial information for the year ended December 31, 2021 was prepared on the same basis as the carve-out period of 2022. As a result, results of operations for the year ended December 31, 2022 may not be comparative to the Company’s results of operations reported for the prior year presented.
See Notes to Combined Consolidated Financial Statements
F-4
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BLUEROCK HOMES TRUST, INC.
COMBINED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Class A Common Stock
Class C Common Stock
Predecessor
Number of
Par
Number of
Par
Bluerock Homes
Additional
Retained
Noncontrolling
Shares
Value
Shares
Value
Equity
Paid-in Capital
Earnings
Interests
Total Equity
Balance, January 1, 2021
—
$
—
—
$
—
$
( 43,854 )
$
—
$
—
$
227,825
$
183,971
Contributions, net
—
—
—
—
160,364
—
—
22,353
182,717
Distributions to partially owned noncontrolling interests
—
—
—
—
—
—
—
( 16,520 )
( 16,520 )
Net income
—
—
—
—
—
—
34,325
77,478
111,803
Balance, December 31, 2021
—
$
—
—
$
—
$
116,510
$
—
$
34,325
$
311,136
$
461,971
Contributions, net
—
—
—
—
98,204
—
—
7,223
105,427
Cash distribution to Parent at spin-off
—
—
—
—
( 68,470 )
—
—
—
( 68,470 )
Predecessor Bluerock Homes Equity reclassified at spin-off
—
—
—
—
( 146,244 )
128,714
—
17,530
—
Issuance of Class A common stock at spin-off
3,835,013
38
—
—
—
—
—
—
38
Issuance of Class C common stock at spin-off
—
—
8,489
—
—
—
—
—
—
Issuance of LTIP Units for director compensation
—
—
—
—
—
—
—
566
566
Issuance of LTIP Units to Manager
—
—
—
—
—
—
—
306
306
Distributions to partially owned noncontrolling interests
—
—
—
—
—
—
—
( 1,925 )
( 1,925 )
Adjustment for noncontrolling interest ownership in the Operating Partnership
—
—
—
—
—
( 2,091 )
—
2,091
—
Net loss
—
—
—
—
—
—
( 1,000 )
( 4,925 )
( 5,925 )
Balance, December 31, 2022
3,835,013
$
38
8,489
$
—
$
—
$
126,623
$
33,325
$
332,002
$
491,988
See Notes to Combined Consolidated Financial Statements
F-5
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BLUEROCK HOMES TRUST, INC.
COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2022
2021
Cash flows from operating activities
Net (loss) income
$
( 5,925 )
$
111,803
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization
18,768
9,827
Amortization of fair value adjustments
( 319 )
( 261 )
Preferred returns on unconsolidated real estate joint ventures
( 8,588 )
( 3,190 )
Gain on sale of assets from discontinued operations
( 258 )
( 116,690 )
Fair value adjustment of interest rate caps and swaps
( 3,084 )
—
Loss on extinguishment of debt
—
6,172
Recovery of credit losses
( 402 )
( 28 )
Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures
2,125
4,437
Share-based compensation attributable to equity incentive plan
566
—
Share-based compensation to Manager – LTIP Units
306
—
Changes in operating assets and liabilities:
Due to affiliates, net
2,134
151
Accounts receivable, prepaids and other assets
127
( 1,264 )
Notes and accrued interest receivable
2,942
( 1,867 )
Accounts payable and other accrued liabilities
( 4,894 )
719
Net cash provided by operating activities
3,498
9,809
Cash flows from investing activities
Acquisitions of real estate investments
( 147,813 )
( 255,400 )
Capital expenditures
( 18,648 )
( 1,702 )
Investment in notes receivable
( 9,645 )
( 10,419 )
Repayments on notes receivable
45,645
22,319
Proceeds from sale of real estate investments
—
401,780
Proceeds from sale and redemption of unconsolidated real estate joint ventures
—
41,262
Investments in unconsolidated real estate joint venture interests
( 46,716 )
( 39,792 )
Net cash (used in) provided by investing activities
( 177,177 )
158,048
Cash flows from financing activities
Distributions to noncontrolling interests
( 1,925 )
( 16,520 )
Contributions from noncontrolling interests
7,223
22,353
Contribution from Parent
98,204
160,364
Cash distribution to Parent at spin-off
( 68,470 )
—
Other financing activities
38
—
Borrowings on mortgages payable
41,942
2,573
Repayments on mortgages payable including prepayment penalties
( 5,819 )
( 219,021 )
Proceeds from revolving credit facilities
55,000
30,000
Repayments on revolving credit facilities
—
( 63,000 )
Payments of deferred financing fees
( 4,616 )
( 1,209 )
Purchase of interest rate caps
( 2,265 )
—
Net cash provided by (used in) financing activities
119,312
( 84,460 )
Net (decrease) increase in cash, cash equivalents and restricted cash
( 54,367 )
83,397
Cash, cash equivalents and restricted cash, beginning of year
136,929
53,532
Cash, cash equivalents and restricted cash, end of year
$
82,562
$
136,929
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents
$
78,426
$
129,389
Restricted cash
4,136
7,540
Total cash, cash equivalents and restricted cash, end of year
$
82,562
$
136,929
Supplemental disclosure of cash flow information
Cash paid for interest (net of interest capitalized)
$
5,926
$
4,599
Supplemental disclosure of non-cash investing and financing activities
Mortgages assumed upon property acquisitions
$
—
$
40,501
Capital expenditures held in accounts payable and other accrued liabilities
$
1,585
$
909
See Notes to Combined Consolidated Financial Statements
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BLUEROCK HOMES TRUST, INC.
NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business
Bluerock Homes Trust, Inc. (the “Company” or “Bluerock Homes”) was incorporated as a Maryland corporation on December 16, 2021. The Company had historically operated as part of Bluerock Residential Growth REIT, Inc (“Bluerock Residential” or “Parent”) and not as a standalone company. On October 6, 2022, Bluerock Residential completed a spin-off transaction (see “Separation and Distribution Agreement” below) that resulted in its single-family residential real estate business and certain other assets being contributed to the Company. The accompanying combined consolidated financial statements have been derived from (i) Bluerock Residential’s historical accounting records and are presented on a carve-out basis for the period ended and prior to October 6, 2022, and (ii) the Company’s accounting records as a standalone company subsequent to the spin-off transaction. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company 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 the Company are not representative of the amounts that would have been reflected in the financial statements had the Company operated independently of Bluerock Residential. Related-party allocations are discussed further in Note 13. 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.
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 homes, 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 December 31, 2022, the Company 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, the Company’s consolidated operating investments were approximately 94.8 % occupied.
The Company intends to elect to be taxed and to operate in a manner that will allow it to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with its taxable year ended December 31, 2022 upon the filing of our U.S. federal income tax return for such taxable year. As a REIT, the Company generally will not be subject to corporate-level income taxes. To qualify and maintain our REIT status, the Company will be 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 and maintain its qualification as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates.
Separation and Distribution Agreement
On October 5, 2022, the Company entered into a Separation and Distribution Agreement (the “Separation Agreement”) with Bluerock Residential, Badger Parent, Badger Holdco LLC and Bluerock Residential Holdings, L.P., the Company’s operating partnership (the “Operating Partnership”) in connection with the Company’s separation and spin-off from Bluerock Residential (see “Spin-Off” below). The Separation Agreement contains the key provisions relating to the separation from Bluerock Residential of its single-family residential real estate business and certain other assets (the “Separation”). It also sets forth certain other covenants and agreements between the Company and Bluerock Residential related to the Separation, including, among other things, provisions concerning the allocation of cash to the Company prior to the Separation and the treatment of shared contracts following the Separation, as well as certain covenants and agreements that govern aspects of the ongoing relationship between the Company and Bluerock Residential following the Distribution, including, among other things, provisions with respect to the release of claims, insurance, employee liabilities, expenses and indemnification. On October 6, 2022, pursuant to the Separation and Distribution Agreement, Bluerock Residential contributed to the Company the SpinCo Cash Amount (as that term is defined the Separation and Distribution Agreement) of approximately $ 74 million in cash; in addition, the Company held $ 22 million at its properties for a total cash and restricted cash balance of approximately $ 96 million on October 6, 2022. The foregoing description of the Separation Agreement is only
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a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Separation Agreement, which is filed as Exhibit 2.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 6, 2022 .
Spin-Off
On October 6, 2022, following the Separation and pursuant to the Separation Agreement, Bluerock Residential completed the spin-off of the Company by distributing all of the Company’s 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”). As a result of the Separation, the Distribution and the Spin-Off, the Company 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.
Articles of Amendment and Restatement and Bylaws
In connection with the Separation and the Distribution, the Company filed Articles of Amendment and Restatement (the “Second Articles of Amendment and Restatement”) with the Maryland State Department of Assessments and Taxations on October 5, 2022, which became effective as of 12:00 a.m. on October 6, 2022, amending and restating its charter. The Second Articles of Amendment and Restatement provide for, among other things, (i) an increase in our authorized number of shares of capital stock to 1,000,000,000 shares, consisting of 750,000,000 shares of common stock, $ 0.01 par value per share and 250,000,000 shares of preferred stock, $ 0.01 par value per share, and (ii) restrictions on transfer and ownership intended to enable the Company to qualify and maintain its qualification as a real estate investment trust. On October 6, 2022, the Company also amended and restated its bylaws (the “Amended and Restated Bylaws”) to provide terms appropriate as an ongoing publicly traded company. The foregoing description of the Second Articles of Amendment and Restatement and the Amended and Restated Bylaws is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of each of the Second Articles of Amendment and Restatement and the Amended and Restated Bylaws, which are filed as Exhibits 3.1 and 3.2 , respectively, to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 6, 2022.
Tax Matters Agreement
In connection with the Separation and the Distribution, on October 5, 2022, the Company entered into a Tax Matters Agreement with Bluerock Residential, Badger Parent, Badger Holdco LLC, Bluerock REIT Holdings, LLC (“REIT Holdings”) and the Operating Partnership that governs the respective rights, responsibilities and obligations of Bluerock Residential and the Company after the Distribution with respect to tax liabilities and benefits, tax attributes, certain indemnification rights with respect to tax matters, the preparation and filing of tax returns, the control of audits and other tax proceedings, the intended federal income tax characterization of the Separation and the Distribution and the agreed-upon reporting thereof, and certain other tax matters. The Company’s obligations under the Tax Matters Agreement are not limited in amount or subject to any cap. The foregoing description of the Tax Matters Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Tax Matters Agreement, which is filed as Exhibit 10.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 6, 2022 .
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Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company conducts its operations through the Operating Partnership, of which it is the sole general partner. The combined consolidated financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries. As of December 31, 2022, limited partners other than the Company owned approximately 67.0 % of the common units of the Operating Partnership ( 35.03 % is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 31.97 % is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.48 % which are not vested at December 31, 2022).
Bluerock Homes consists of the combined consolidated financial statements of the Operating Partnership and Bluerock REIT Operator, LLC, as well as the following investments and certain related entities: Alexan Southside Place, ARIUM Grandewood, Ballast, Golden Pacific, ILE, James at South First, Marquis at The Cascades, Mira Vista, Navigator Villas, Peak Housing, Peak JV 1 (formerly Indy and Springfield), Peak JV 2 (formerly 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), Peak JV 3 (formerly DFW 189), Peak JV 4 (formerly Savannah 319), Park & Kingston, Plantation Park, The Conley, The Cottages at Myrtle Beach, The Cottages at Warner Robins, The Cottages of Port St. Lucie, The District at Scottsdale, The Hartley at Blue Hill, The Woods at Forest Hill, Thornton Flats, Vickers Historic Roswell, Wayford at Concord, Wayford at Innovation Park, Weatherford 185, Willow Park and Yauger Park Villas. The financial statements 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.
The combined consolidated financial statements include certain prior period reclassifications made by the Company to reflect the Operating Partnership unitholders’ approximately 66 % ownership in the Company following the Separation and Distribution. Reclassifications to net (loss) income on the combined consolidated statements of operations, along with reclassifications to stockholders’ equity and noncontrolling interest for Operating Partnership unitholders on the combined consolidated balances sheets and statements of stockholders’ equity, were made for the period ending and prior to October 6, 2022 and for the year ended December 31, 2021.
Significant Risks and Uncertainties
The COVID-19 Pandemic
For much of 2020, the ongoing pandemic of the novel coronavirus and variants thereof (“COVID-19”) created significant uncertainty and economic disruption that adversely affected the Company and its tenants. The adverse impact of the pandemic moderated during 2021 and has significantly diminished during 2022. However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and various factors could erode the progress that has been made against the virus to date. If conditions similar to those experienced in 2020, at the height of the pandemic, were to reoccur, such conditions and any resulting macro-economic changes could have material and adverse effects on the Company’s financial condition, results of operations and cash flows. The Company continues to closely monitor the impact of COVID-19 on all aspects of its business. For further information regarding the impact of COVID-19 on the Company, see the section titled “Risk Factors---Risks Related to Our Business, Properties and Industry” set forth in Item 1A of this Annual Report on Form 10-K.
Summary of Significant Accounting Policies
Real Estate Investments, Preferred Equity Investments and Notes Receivable (Real Estate Loan Investment)
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
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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.
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 , 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 combined 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 combined 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 notes 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.
Fair Value of Financial Instruments
As of December 31, 2022 and December 31, 2021, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, due to and due from 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 of notes receivable approximate fair value because stated interest rate terms are consistent with interest rate terms on new deals with similar leverage and risk profiles. The fair values of notes receivable are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations. Refer to Note 11 for further information regarding fair value measurements.
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Real Estate Assets
Real Estate Purchase Price Allocations
Upon acquisition, the Company evaluates its acquired residential properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Purchases of residential properties are treated as asset acquisitions and, as such, are recorded at their purchase price, including acquisition costs, which is allocated to land and building based upon their relative fair values at the date of acquisition. Acquisition costs typically include legal fees, broker commissions and title fees, as well as other closing costs. In making estimates of fair values for purposes of allocating the purchase price of acquired properties, the Company utilizes various sources including its own market knowledge obtained from historical transactions, published market data, and independent appraisers. In this regard, the Company also utilizes information obtained from county tax assessment records to assist in the determination of the fair value of the land and building.
Intangible assets include the value of in-place leases which represents the estimated fair value of the net cash flows of leases in place at the time of acquisition, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. The Company amortizes the value of in-place leases to expense over the remaining non-cancelable term of the respective leases, which is on average six months.
Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require the Company to make significant assumptions to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, prevailing interest rates and the number of years the property will be held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could impact the amount of the Company’s net income (loss). Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates.
Capital Additions, Depreciation and Amortization
The Company capitalizes costs incurred in connection with its capital additions activities, including redevelopment, development and construction projects, other tangible improvements, and replacements of existing components. Repair and maintenance and tenant turnover costs are expensed as incurred. Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset. Accordingly, many factors are considered as part of our evaluation processes with no one factor necessarily determinative. Depreciation and amortization expense are computed on the straight-line method over the asset’s estimated useful life. The Company considers the period of future benefit of an asset to determine its appropriate useful life and anticipates the estimated useful lives of assets by class to be generally as follows:
Buildings
30 – 40 years
Building improvements
5 – 15 years
Land improvements
5 – 15 years
Furniture, fixtures and equipment
3 – 8 years
In-place leases
6 months
Impairment of Real Estate Assets
The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of the Company’s real estate and related intangible assets may not be recoverable. When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the assets by estimating whether the Company will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition. Based on this analysis, if the Company does not believe that it will be able to recover the carrying value of the real estate and related intangible assets and liabilities, the Company will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets. No impairment charges were recorded in 2022 or 2021.
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Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.
Restricted Cash
Restricted cash is composed of lender-imposed escrow accounts for replacement reserves, tenant deposits, real estate taxes and insurance.
Concentration of Credit Risk
The Company maintains cash balances with high-quality financial institutions and periodically evaluates the creditworthiness of such institutions and believes that the Company is not exposed to significant credit risk. Cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation.
Rents and Other Receivables
The Company will periodically evaluate the collectability of amounts due from tenants and maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. The Company exercises judgment in establishing these allowances and considers payment history and current credit status of tenants in developing these estimates.
Deferred Financing Fees
Deferred financing fees represent commitment fees, legal fees and other third-party costs associated with obtaining financing. Fees associated with the Company’s revolving lines of credit are recorded within accounts receivable, prepaids and other assets on the combined consolidated balance sheet. Deferred fees associated with its lines of credit are amortized to interest expense over the terms of the financing agreements using the straight-line method, which approximates the effective interest method.
Partially Owned Noncontrolling Interests
Partially owned noncontrolling interests are comprised of the Company’s joint venture partners’ interests in consolidated joint ventures. The Company reports its joint venture partners’ interest in its consolidated real estate joint ventures and other subsidiary interests held by third parties as noncontrolling interests. The Company records these noncontrolling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investments’ net income or loss and equity contributions and distributions. These noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity. Income and losses are allocated to the noncontrolling interest holder pursuant to each joint venture’s operating agreement.
Revenue Recognition
The Company recognizes rental revenue on a straight-line basis over the terms of the rental agreements and in accordance with ASC Topic 842 Leases . Rental revenue is recognized on an accrual basis and when the collectability of the amounts due from tenants is deemed probable. Rental revenue is included within rental and other property revenues on the Company’s combined consolidated statement of operations. Amounts received in advance are recorded as a liability within other accrued liabilities on the Company’s combined consolidated balance sheet.
Other property revenues are recognized in the period earned.
The Company recognizes a gain or loss on the sale of real estate assets when the criteria for an asset to be derecognized are met, which include when (i) a contract exists and (ii) the buyer obtains control.
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Stock-Based Compensation
The Company expenses the fair value of share awards in accordance with the fair value recognition requirements of ASC Topic 718 Compensation-Stock Compensation . ASC Topic 718 requires companies to measure the cost of the recipient services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. The cost of the share award is expensed over the requisite service period (usually the vesting period).
Distribution Policy
The Company expects to authorize and declare regular cash distributions to its stockholders to qualify and maintain its REIT status. Distributions to stockholders will be determined by the Company’s board of directors (the “Board”) and will be dependent upon a number of factors, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements, and annual distribution requirements in order to maintain the Company’s status as a REIT, and other considerations as the Board may deem relevant. Distributions are recorded as a reduction of stockholders’ equity in the period in which they are declared.
Dividends may be funded from a variety of sources. In particular, the Company expects that, initially, dividends may exceed net income under GAAP because of non-cash expenses, mainly depreciation and amortization expense, which are included in net income. To the extent that funds available for distribution are less than the amount required to be distributed to stockholders to satisfy the requirements to qualify as a REIT, the Company may consider various means to cover any such shortfall, including borrowing under loans, selling certain assets or using a portion of the net proceeds from future offerings of equity, equity-related securities or debt securities or declaring taxable share dividends. In addition, the Company’s charter allows the issuance of preferred equity shares that could have a preference on dividends, and if the Company does, the dividend preference on the preferred equity could limit the ability to pay dividends to the holders of our common stock.
Reportable Segment
The Company owns and operates residential investments that generate rental and other property-related income through the leasing of units to a diverse base of tenants. The Company evaluates operating performance on an individual property investment level and based on the investments’ similar economic characteristics. The Company’s primary financial measure for operating performance is net operating income (“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. The Company views its residential real estate assets as one reportable segment, and, accordingly, aggregates its properties into one reportable segment.
Lessor Accounting
The Company’s current portfolio generates rental revenue by leasing residential units. As lease revenues for residential units fall under the scope of ASC Topic 842, such lease revenues are classified as operating leases with straight-line recognition over the terms of the relevant lease agreement and inclusion within rental revenue. Resident leases are generally for one-year or month-to-month terms and are renewable by mutual agreement between the Company and the resident. Non-lease components of the Company’s leases are combined with the related lease component and accounted for as a single lease component under ASC Topic 842. The balances of net real estate investments and related depreciation on the Company’s combined consolidated financial statements relate to assets for which the Company is the lessor.
Lessee Accounting
The Company determines whether an arrangement is a lease at inception. The Company determined that its lessee operating lease commitments have no material impact on its combined consolidated financial statements with the adoption of ASC Topic 842. The Company will continue to assess any modification of existing lease agreements and execution of any new lease agreements for the potential requirement of recording a right-of-use asset or liability in the future.
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.
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New Accounting Pronouncements
In January 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”). The amendments in ASU 2021-01 were effective immediately and permit entities to elect certain optional expedients in connection with reference rate reform activities and their impact on debt, contract modifications and derivative instruments as it is expected the global market will transition from LIBOR and other interbank offered rates to alternative reference rates. The initial sunset date for election of the amendments in ASU 2021-01 was December 31, 2022, though with the issuance by FASB of ASU 2022-06 “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848”, the amendments in ASU 2021-01 can be elected over time as reference rate reform activities occur through December 31, 2024. The Company has not elected the optional expedients, though it continues to evaluate the impact of the guidance and may apply elections as applicable as changes in the market occur.
Current Expected Credit Losses
The Company estimates provision for credit losses on its loans (notes receivable) and preferred equity investments under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. The method for calculating the estimate of expected credit loss considers historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future.
The Company estimates its provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, the Company applies a default rate to the investments for the remaining loan or preferred equity investment hold period. As the Company does not have a significant historical population of loss data on its loan and preferred equity investments, the Company’s default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans.
In addition to analyzing investments as a pool, the Company performs an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or the Company expects repayment through the sale of the collateral, the Company calculates expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if the Company determines that it is probable that it will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded.
In estimating the value of the underlying collateral when determining if a loan or preferred equity investment is fully recoverable, the Company evaluates estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon the Company’s evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease-up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition. The Company may also obtain a third-party valuation which may value the collateral through an “as-is” or “stabilized value” methodology. If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, the Company records a provision for credit loss on that loan or preferred equity investment. As the investment no longer displays the characteristics that are similar to those of the pool of loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above.
Note 3 – Discontinued Operations
During 2021, the Company sold six multifamily consolidated operating investments as follows: ARIUM Grandewood, James at South First, Marquis at The Cascades, Plantation Park, Park & Kingston and The District at Scottsdale. The Company did not sell any consolidated operating investments in 2022.
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We have concluded that these multifamily apartment community sales are discontinued operations as the asset group represents a component of an entity, the component met the criteria of held for sale in 2021, and the disposals represented a strategic shift in our business from multifamily apartment communities to single-family residential units. As a result, certain items were reclassified as part of discontinued operations for comparative purposes. The amounts in the statement of operations that are included in discontinued operations at December 31, 2022 and 2021 are summarized in the following table (amounts in thousands):
2022
2021
Total Revenues
$
—
$
8,875
Expenses
Property operating
( 53 )
3,423
Property management and asset management fees
—
213
Weather-related losses, net
—
87
Depreciation and amortization
—
2,692
Interest expense, net
—
2,120
Total expenses
( 53 )
8,535
Income on operations of rental property
53
340
Loss on extinguishment of debt
—
( 6,172 )
Gain on sale of real estate assets
258
116,690
Income from discontinued operations
$
311
$
110,858
The amounts in the statement of cash flows that are included in discontinued operations at December 31, 2021 are summarized in the following table (amounts in thousands). No amounts are included in the statement of cash flows at December 31, 2022.
2021
Depreciation and amortization
$
2,929
Capital expenditures
714
Note 4 – Sale of Real Estate Assets
Sale of ARIUM Grandewood
On January 28, 2021, the Company closed on the sale of ARIUM Grandewood located in Orlando, Florida. The property was sold for approximately $ 65.3 million, subject to certain prorations and adjustments typical in such real estate transactions. After consideration of the $ 39.1 million senior mortgage and payment of closing costs and fees of $ 1.1 million, the sale of ARIUM Grandewood generated net proceeds of approximately $ 25.1 million and a gain on sale of approximately $ 27.7 million. The Company recorded debt modification costs of $ 0.1 million related to the collateral substitution transaction.
Sale of James at South First
On February 24, 2021, the Company closed on the sale of James at South First located in Austin, Texas. The property was sold for $ 50.0 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 $ 25.6 million, the payment of early extinguishment of debt costs of $ 2.5 million and payment of closing costs and fees of $ 0.5 million, the sale of the property generated net proceeds of approximately $ 21.1 million and a gain on sale of approximately $ 17.4 million. The Company’s pro rata share of the proceeds was approximately $ 18.1 million. The Company recorded a loss on extinguishment of debt of $ 2.6 million related to the sale.
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Sale of Marquis at The Cascades
On March 1, 2021, the Company closed on the sale of the Marquis at The Cascades properties, located in Tyler, Texas, pursuant to the terms and conditions of two separate purchase and sales agreements. The properties were sold for approximately $ 90.9 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for the payoff of the existing mortgage indebtedness encumbering the properties in the amount of $ 53.6 million and payment of closing costs and fees of $ 0.3 million, the sale of the properties generated net proceeds of approximately $ 37.3 million and a gain on sale of approximately $ 23.7 million. The Company’s pro rata share of the proceeds was approximately $ 32.6 million. The Company recorded a loss on extinguishment of debt of $ 0.3 million related to the sale.
Sale of The Conley Interests
On March 18, 2021, The Conley, the underlying asset of an unconsolidated joint venture located in Leander, Texas, was sold. Upon the sale, the Company’s preferred equity investment was redeemed by the joint venture for $ 16.5 million, which included its original preferred investment of $ 15.2 million and accrued preferred return of $ 1.3 million.
Sale of Alexan Southside Place Interests
On March 25, 2021, Alexan Southside Place, the underlying asset of an unconsolidated joint venture located in Houston, Texas, was sold. The Company received $ 10.1 million of its preferred equity investment, which was net of the $ 15.9 million provision for credit loss recorded in the fourth quarter 2020.
Sale of Plantation Park
On April 26, 2021, the Company closed on the sale of Plantation Park located in Lake Jackson, Texas. The property was sold for $ 32.0 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for assumption of the existing mortgage indebtedness encumbering the property in the amount of $ 26.6 million and payment of closing costs and fees of $ 0.4 million, a loss on the sale of $ 1.1 million was incurred. The sale of the property generated net proceeds of approximately $ 4.9 million, of which the Company’s pro rata share of the proceeds was approximately $ 2.7 million. The Company recorded a loss on extinguishment of debt of $ 0.2 million related to the sale.
Sale of Vickers Historic Roswell
On June 29, 2021, Vickers Historic Roswell, a property located in Roswell, Georgia, was sold. Upon the sale, the mezzanine loan provided by the Company was paid off in the amount of $ 12.9 million, which included principal repayment of $ 12.4 million and accrued interest of $ 0.5 million.
Sale of Park & Kingston
On July 7, 2021, the Company closed on the sale of Park & Kingston located in Charlotte, North Carolina. The property was sold for $ 44.9 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for the payoff of the existing mortgage indebtedness encumbering the property in the amount of $ 19.6 million, the payment of early extinguishment of debt costs of $ 2.4 million and payment of closing costs and fees of $ 0.5 million, the sale of the property generated net proceeds of approximately $ 24.7 million and a gain on sale of approximately $ 19.4 million. The Company recorded a loss on extinguishment of debt of $ 2.6 million related to the sale.
Sale of The District at Scottsdale
On July 7, 2021, the Company closed on the sale of The District at Scottsdale located in Scottsdale, Arizona. The property was sold for $ 150.5 million, subject to certain prorations and adjustments typical in such real estate transactions. After deduction for the payoff of the existing mortgage indebtedness encumbering the property in the amount of $ 73.8 million, the payment of early extinguishment of debt costs of $ 0.4 million and payment of closing costs and fees of $ 0.4 million, the sale of the property generated net proceeds of approximately $ 74.8 million and a gain on sale of approximately $ 29.6 million. The Company’s pro rata share of the proceeds was approximately $ 69.5 million. The Company recorded a loss on extinguishment of debt of $ 0.4 million related to the sale.
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Sale of Mira Vista Interests
On September 23, 2021, Mira Vista, the underlying asset of an unconsolidated joint venture located in Austin, Texas, was sold. Upon the sale, the Company’s preferred equity investment was redeemed by the joint venture for $ 5.6 million, which included its original preferred investment of $ 5.3 million and accrued preferred return of $ 0.3 million.
Sale of Thornton Flats Interests
On December 14, 2021, Thornton Flats, the underlying asset of an unconsolidated joint venture located in Austin, Texas, was sold. Upon the sale, the Company’s preferred equity investment was redeemed by the joint venture for $ 5.5 million, which included its original preferred investment of $ 5.3 million and accrued preferred return of $ 0.2 million.
Sale of The Hartley at Blue Hill
On February 28, 2022, The Hartley at Blue Hill, a property located in Chapel Hill, North Carolina, was sold. The mezzanine loan provided by the Company was paid off for $ 34.4 million, which included principal repayment of $ 31.0 million and accrued interest of $ 3.4 million. On April 29, 2022, the senior loan provided by the Company, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $ 5.0 million.
Weatherford 185 Mezzanine Loan Repayment
On July 22, 2022, the outstanding balance of the Weatherford 185 mezzanine loan provided by the Company was paid off for $ 9.4 million, which included principal repayment of $ 9.3 million and accrued interest of $ 0.1 million.
Note 5 – Investments in Real Estate
As of December 31, 2022, the Company held seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments. The following tables provide summary information regarding the Company’s consolidated operating investments and preferred equity investments.
Consolidated Operating Investments
Number of
Average Year
Ownership
Name
Market
Units
Built
Interest
Ballast
AZ / CO / WA
84
1998
95
%
Golden Pacific
IN / KS / MO
171
1976
97
%
ILE
TX / SE US
482
1991
95
%
Navigator Villas
Pasco, WA
176
2013
90
%
Peak
JV 1 (1)
IN / MO
334
1997
60
%
JV 2 (2)
Various / TX
608
1980
80
%
JV 3, formerly DFW 189
Dallas-Fort Worth, TX
189
1962
56
%
JV 4, formerly Savannah 319
Savannah, GA
66
2022
80
%
Wayford at Concord
Concord, NC
150
2019
83
%
Yauger Park Villas
Olympia, WA
80
2010
95
%
Total Units
2,340
(1) Peak JV 1 includes the portfolios formerly presented as Indy and Springfield.
(2) 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.
Depreciation expense was $ 12.9 million and $ 3.6 million for the years ended December 31, 2022 and 2021, respectively.
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Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. In-place leases are amortized over the remaining term of the in-place leases, which is approximately six months. Amortization expense related to the in-place leases was $ 2.7 million and $ 2.1 million for the years ended December 31, 2022 and 2021, respectively.
The Company’s real estate assets are leased to tenants under operating leases for which the terms and expirations vary. The leases may have provisions to extend the lease agreements, options for early termination after paying a specified penalty and other terms and conditions as negotiated. The Company retains substantially all the risks and benefits of ownership of the consolidated real estate assets leased to tenants. Generally, upon the execution of a lease, the Company requires security deposits from tenants in the form of a cash deposit. Amounts required as a security deposit vary depending upon the terms of the respective leases and the creditworthiness of the tenant, but generally are not individually significant amounts. Therefore, exposure to credit risk exists to the extent that a receivable from a tenant exceeds the amount of their security deposit. Security deposits received in cash related to tenant leases are included within other accrued liabilities in the accompanying combined consolidated balance sheets and totaled $ 2.1 million and $ 1.5 million as of December 31, 2022 and 2021, respectively, for the Company’s consolidated real estate investments. No individual tenant represents over 10% of the Company’s annualized base rent for the consolidated real estate investments.
Preferred Equity Investments
Actual /
Actual /
Estimated
Actual / Estimated
Planned
Initial
Construction
Lease-up Investment Name
Location / Market
Number of Units
Occupancy
Completion
The Woods at Forest Hill
Forest Hill, TX
76
4Q 2022
3Q 2023
Willow Park
Willow Park, TX
46
2Q 2022
3Q 2023
Total Lease-up Units
122
Development Investment Name
The Cottages at Myrtle Beach
Myrtle Beach, SC
294
2Q 2023
4Q 2023
The Cottages at Warner Robins
Warner Robins, GA
251
3Q 2023
4Q 2023
The Cottages of Port St. Lucie
Port St. Lucie, FL
286
2Q 2023
1Q 2024
Wayford at Innovation Park
Charlotte, NC
210
3Q 2023
3Q 2024
Total Development Units
1,041
Operating Investment Name
Number of Units
Peak Housing (1)
IN / MO / TX
474
Total Operating Units
474
Total Units
1,637
(1) Peak Housing is a stabilized operating portfolio and consists of the Company’s preferred equity investments in a private single-family home REIT (refer to Note 8 for further information). Unit count excludes units presented in the consolidated operating investments table above.
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Note 6 – Acquisition of Real Estate
The following describes the Company’s significant acquisition activity and related new financing during the years ended December 31, 2022 and 2021 ($ in thousands):
Number of
Ownership
Purchase
Name
Market
Month (1)
Units
Interest
Price
Debt
2021
Second Quarter
Yauger Park Villas
Olympia, WA
April
80
95
%
$
24,500
$
15,077
(2)
Wayford at Concord
Concord, NC
June
150
83
%
44,438
—
(3)
Third Quarter
Peak JV 1 (4)
IN / MO
August
334
60
%
52,785
38,175
(5)
Peak JV 2 (6)
Various / TX
September
195
80
%
26,150
18,305
(5)
Fourth Quarter
ILE
TX / SE US
October
279
95
%
57,139
26,839
(7)
Peak JV 2 (6)
Various / TX
October
111
80
%
16,393
11,493
(5)
Golden Pacific
KS / MO
November
7
97
%
1,213
—
(3)
Peak JV 2 (6)
Various / TX
November
20
80
%
2,448
1,714
(5)
Peak JV 2 (6)
Various / TX
December
248
80
%
35,354
24,748
(5)
Peak JV 3, formerly DFW 189
Dallas-Fort Worth, TX
December
189
56
%
27,670
19,950
(8)
2022
First Quarter
Peak JV 2 (6)
Various / TX
March
34
80
%
7,650
5,355
(5)
Peak JV 4, formerly Savannah 319
Savannah, GA
March
19
80
%
4,465
—
(3)
Golden Pacific
IN / KS / MO
Various
62
97
%
11,774
—
(3)
ILE
TX / SE US
Various
31
95
%
7,011
9,974
(7)
Second Quarter
Ballast
AZ / CO / WA
Various
65
95
%
26,100
—
(3)
Golden Pacific
IN / KS / MO
Various
66
97
%
13,966
—
(3)
ILE
TX / SE US
Various
108
95
%
27,804
8,802
(7)
Peak JV 4
Savannah, GA
Various
20
80
%
4,767
—
(3)
Third Quarter
Ballast
AZ / CO / WA
Various
19
95
%
6,233
—
(3)
Golden Pacific
IN / KS / MO
Various
35
97
%
7,859
—
(3)
ILE
TX / SE US
Various
64
95
%
16,711
10,193
(7)
Peak JV 4
Savannah, GA
Various
14
80
%
3,394
—
(3)
Fourth Quarter
Golden Pacific
IN / KS / MO
October
1
97
%
155
—
(3)
Peak JV 4
Savannah, GA
Various
13
80
%
3,151
—
(3)
(1) For those months where “Various”is listed, the Company, 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 the first acquisitions by the Company for the portfolio.
(2) Mortgage balance includes a $ 10.5 million senior loan assumption and a $ 4.6 million supplemental loan assumption secured by the Yauger Park Villas property.
(3) Purchase price was funded in full by the Company and its unaffiliated joint venture partner upon acquisition.
(4) Peak JV 1 includes the portfolios formerly presented as Indy and Springfield.
(5) As part of the acquisition, the Company provided a mortgage or mezzanine loan to the consolidated portfolio owner in the full amount shown. During 2022, these loans were converted into common equity interests. Refer to the Peak Housing disclosure in Note 7 for further information.
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(6) 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 amounts presented reflect the aggregate of the portfolios acquired during the period specified.
(7) As there are four separate credit agreements under which the ILE portfolio acquisitions are financed, the debt amount represents the aggregate debt held through one or more of these credit agreements. Refer to Note 9 and Note 10 for further information.
(8) As part of the acquisition, the Company provided a mezzanine loan to the consolidated portfolio owner in the full amount shown. The loan is eliminated in the Company’s combined consolidated financial statements. Refer to the Peak Housing disclosure in Note 7 for further information.
Purchase Price Allocation
The real estate acquisitions above have been accounted for as asset acquisitions. The purchase prices were allocated to the acquired assets based on their estimated fair values at the dates of acquisition.
The following table summarizes the assets acquired at the acquisition date for acquisitions made during the year ended December 31, 2022 (amounts in thousands):
Purchase Price
Allocation
Land
$
27,366
Building
119,408
Building improvements
680
Furniture and fixtures
166
In-place leases
193
Total assets acquired
$
147,813
Note 7 – Notes and Interest Receivable
At December 31, 2022 and December 31, 2021, the Company had zero and $ 38.9 million, respectively, in notes and accrued interest receivable due from its loan investments. The $ 38.9 million receivable due at December 31, 2021 represents the Company’s loan investments in The Hartley at Blue Hill and is net of a provision for credit loss of $ 0.06 million.
Credit Losses
The provision for and recovery of credit losses of the Company’s loan investments at December 31, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):
2022
2021
Beginning balances, net as of January 1, 2022 and 2021, respectively
$
59
$
82
Recovery of credit losses on pool of assets, net (1)
( 59 )
( 23 )
Provision for credit losses, end of period
$
—
$
59
(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 recovery of credit losses during the year ended December 31, 2022 was a result of the sale of The Hartley at Blue Hill.
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Following is a summary of the interest income from loan investments for the years ended December 31, 2022 and 2021 (amounts in thousands):
Property
2022
2021
Corpus (1)
$
—
$
219
Jolin (1)
—
84
The Hartley at Blue Hill (2)
784
4,149
Vickers Historic Roswell (3)
—
903
Weatherford 185 (4)
501
—
Total
$
1,285
$
5,355
(1) In the third quarter 2021, the Company provided bridge loans to both Corpus and Jolin. In December 2021, the Company recapitalized both Corpus and Jolin and received a full payoff of each loan. As part of the recapitalization, both Corpus and Jolin, along with two portfolios of units previously owned by the Company’s joint venture partner, were combined into Peak JV 2.
(2) In the first quarter 2022, The Hartley at Blue Hill property was sold and the mezzanine loan provided by the Company was paid off in full. The Hartley at Blue Hill senior loan provided by the Company was paid off in full in the second quarter 2022.
(3) In the second quarter 2021, the Vickers Historic Roswell property was sold. The mezzanine loan provided by the Company was paid off in full upon the sale.
(4) On July 22, 2022, the Weatherford 185 mezzanine loan provided by the Company was paid off in full. Refer to the disclosure below for further information.
Corpus and Jolin Bridge Loan Financing
On July 9, 2021, the Company provided a $ 6.8 million bridge loan to the operating partnership of Peak Housing REIT (the “Peak REIT OP”), an unaffiliated private single-family home REIT, for Corpus, an 81 -unit, stabilized portfolio of single-family residential units located in the Corpus Christi, Texas market. On August 6, 2021, the Company provided a $ 3.1 million bridge loan to the Peak REIT OP for Jolin, a 24 -unit, stabilized portfolio of single-family residential units located in the Weatherford, Texas market. Both the Corpus and Jolin bridge loans bore interest at a fixed rate of 7.0 % with regular monthly payments that were interest-only. At the time each bridge loan was provided, the Company also made a preferred equity investment in the Peak REIT OP for Corpus and Jolin on which the Company earned a 10.0 % per annum return on its investments.
On December 22, 2021, the Company and Peak REIT OP entered into an agreement to recapitalize the Corpus and Jolin portfolios. As part of the recapitalization, both Corpus and Jolin, along with two portfolios of units previously owned solely by Peak REIT OP, were combined into one portfolio which was contributed to Peak JV 2, an existing joint venture between the Company and the Peak REIT OP. In addition, the Company, through a contribution to Peak JV 2, made a common equity investment in this portfolio and provided a mezzanine loan of $ 19.8 million to the portfolio owner. The Company received full payoffs, including any accrued but unpaid interest, of both the Corpus and Jolin bridge loans from the Peak REIT OP. Additionally, the Company’s original preferred equity investments in the Peak REIT OP for Corpus and Jolin were amended to reduce the preferred return rate from 10.0 % to 8.0 % per annum. Refer to the Peak Housing Financing disclosure below for further information regarding the mezzanine loan. Refer to the Peak Housing Interests disclosure in Note 8 for further information about the Company’s preferred equity investments in the Peak REIT OP.
Peak Housing Financing
During 2021, the Company made a preferred equity investment in the operating partnership of Peak REIT OP, and in addition, made common equity investments, through joint ventures with Peak REIT OP, in fourteen portfolios of single-family residential units as follows: two portfolios through Peak JV 1, eleven portfolios through Peak JV 2, and one portfolio through Peak JV 3. These fourteen portfolios are part of Peak Housing (refer to Note 8 for further information about the Company’s preferred equity investment therein). During 2022, the Company made common equity investments, through joint ventures with Peak REIT OP, in two portfolios of single-family residential units as follows: one portfolio through Peak JV 2 and one portfolio through Peak JV 4. In addition to its common and/or preferred equity investments, the Company, through wholly-owned lender-entities, provided the full mortgage or mezzanine loan to each of the fifteen respective portfolio owners within Peak JV 1, JV 2 and JV 3. These portfolio owners are owned by joint ventures in which the Company has its common equity investments along with Peak REIT OP. To determine if consolidation of the joint ventures was appropriate, the Company evaluated the basis of consolidation under ASC 810: Consolidation using the voting interest equity
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method as it had determined that the joint ventures were not variable interest entities. As the Company has controlling voting interests and substantive participating rights of the joint ventures under the operating agreements, the Company determined that consolidation of the joint ventures was appropriate. As the entities through which the Company provided the loans (the lender-entities) and the entities to which the loans were provided (the property owners) consolidate into the Company’s financial statements, the loan receivable balances and the loan payable balances are eliminated through consolidation and therefore are not reflected in the Company’s combined consolidated balance sheets. In addition, the Company’s pro rata share of each loan’s interest expense incurred through the portfolio owner partially offsets, through consolidation, the Company’s interest income for each loan recognized at the wholly-owned lender-entity. The remaining interest income, which is attributable to interest incurred by Peak REIT OP as the noncontrolling interest in each portfolio, is reflected in net income (loss) attributable to common stockholders in the Company’s combined consolidated statements of operations. Through its impact on the net operations of the portfolio, Peak REIT OP’s pro rata share of each loan’s interest expense is reflected in net income (loss) attributable to partially owned noncontrolling interests in the Company’s combined consolidated statements of operations.
On April 1, 2022, the mortgage or mezzanine loans provided by the Company to the twelve respective portfolio owners in Peak JV 2 were converted into a total of $ 66.2 million of common equity interests, which included the full principal loan balances in the aggregate amount of $ 61.6 million and an aggregate amount of $ 4.6 million representing the minimum interest associated with the respective loans.
On May 10, 2022, the mortgage loans provided by the Company to the two respective portfolio owners in Peak JV 1 were converted into a total of $ 39.2 million of common equity interests, which included the full principal loan balances in the aggregate amount of $ 38.2 million and an aggregate amount of $ 1.0 million representing the minimum interest associated with the respective loans. As of December 31, 2022, one mezzanine loan remains outstanding that has been provided by the Company to the portfolio owner in Peak JV 3.
The Hartley at Blue Hill Loan Financing
The Company provided a $ 31.0 million mezzanine loan (the “Hartley Mezz Loan”) to BR Chapel Hill JV, LLC (“BR Chapel Hill JV”), which owns a 100 % interest in BR Chapel Hill, LLC (“BR Chapel Hill”) and is a joint venture with common interests held by Bluerock Special Opportunity + Income Fund, LLC, Bluerock Special Opportunity + Income Fund II, LLC (“Fund II”), and BR Chapel Hill Investment, LLC, all managed by affiliates of BRG Manager, LLC (the “former Manager”). The Hartley Mezz Loan was to mature on March 31, 2024 or earlier upon the occurrence of certain events, including the date of sale or transfer or property, and could be prepaid without penalty. The Hartley Mezz Loan bore interest at a current rate of 5.25 % and an accrued rate of 6.5 % for a total interest rate of 11.75 % per annum.
In conjunction with the Hartley Mezz Loan, the Company provided a $ 5.0 million senior loan to BR Chapel Hill. The senior loan was secured by BR Chapel Hill’s fee simple interest in The Hartley at Blue Hill property. The senior loan was to mature on March 31, 2024 and could be prepaid without penalty. The senior loan bore interest at a fixed rate of 10.0 % per annum with regular monthly payments that were interest-only during the initial term.
On February 28, 2022, The Hartley at Blue Hill property was sold and the Hartley Mezz Loan was paid off for $ 34.4 million, which included principal repayment of $ 31.0 million and accrued interest of $ 3.4 million. In April 2022, the senior loan of $ 5.0 million was paid off in full.
Vickers Historic Roswell Mezzanine Loan Financing
The Company provided a $ 12.4 million mezzanine loan (the “Vickers Mezz Loan”) to BR Vickers Roswell JV Member, LLC (the “Vickers JV Member”), an affiliate of the former Manager. The Vickers Mezz Loan was secured by Vickers JV Member’s approximate 80 % interest in a joint venture along with Bluerock Special Opportunity + Income Fund III, LLC (“Fund III”), an affiliate of the former Manager, and an unaffiliated third party, which developed a 79 -unit Class A apartment community located in Roswell, Georgia known as Vickers Historic Roswell. The Vickers Mezz Loan was to mature on February 26, 2022 or earlier upon the occurrence of certain events, including the date of sale or transfer of the property. The Vickers Mezz Loan bore interest at a fixed rate of 15.0 % with regular monthly payments that were interest-only and could be prepaid without penalty.
On June 29, 2021, the Vickers Historic Roswell property was sold and the Vickers Mezz Loan was paid off for $ 12.9 million, which included principal repayment of $ 12.4 million and accrued interest of $ 0.5 million.
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Weatherford 185 Mezzanine Loan Financing
On February 15, 2022, the Company provided a $ 9.6 million mezzanine loan to an unaffiliated third party to purchase land in Weatherford, Texas for the development of approximately 185 -build for rent, single-family residential units. The loan bore interest at a fixed rate of 12 % per annum with interest-only payments during the term of the loan. The loan was to initially mature on May 16, 2022 and contained three (3) thirty-day extension options, of which the borrower exercised all three options, extending the maturity date to August 14, 2022. At the time of each such extension, the borrower was required to make a payment to the Company of $ 0.1 million toward the unpaid principal amount of the loan. The loan could be prepaid without penalty.
On July 22, 2022, the outstanding balance of the Weatherford 185 mezzanine loan provided by the Company was paid off for $ 9.4 million, which included principal repayment of $ 9.3 million and accrued interest of $ 0.1 million.
Note 8 – 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 as of December 31, 2022 and 2021 is summarized in the table below (amounts in thousands):
Property
2022
2021
Peak Housing
$
20,318
$
20,318
The Cottages at Myrtle Beach
17,913
9,034
The Cottages at Warner Robins
13,250
—
The Cottages of Port St. Lucie
18,785
7,260
The Woods at Forest Hill
3,300
442
Wayford at Innovation Park
10,205
—
Willow Park
2,540
2,540
Total
$
86,311
$
39,594
Provision for credit losses
( 22 )
( 73 )
Total, net
$
86,289
$
39,521
Credit Losses
The provision for and recovery of credit losses of the Company’s preferred equity investments at December 31, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):
2022
2021
Beginning balances, net as of January 1, 2022 and 2021, respectively
$
73
$
16,009
Recovery of credit losses on pool of assets, net (1)
( 51 )
( 6 )
Recovery of credit loss – Alexan Southside Place (2)
—
( 15,930 )
Provision for credit losses, net, end of period
$
22
$
73
Recovery of credit loss – Alexan Southside Place
$
( 292 )
$
—
(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 recovery of credit losses during the year ended December 31, 2022 was primarily attributable to a decrease in the trailing twelve-month historical default rate.
(2) In the first quarter 2021, Alexan Southside Place, the property underlying the Company’s preferred equity investment, was sold. Refer to the disclosure below for further information.
As of December 31, 2022, the Company, through wholly-owned subsidiaries of the Operating Partnership, had outstanding equity investments in seven joint ventures. These seven equity investments are preferred equity investments that 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 combined consolidated statements of operations. Each joint venture’s purpose is to develop or operate a portfolio of residential units.
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The preferred returns on the Company’s unconsolidated real estate joint ventures for the years ended December 31, 2022 and 2021 is summarized below (amounts in thousands):
Property
2022
2021
Mira Vista (1)
$
—
$
391
Peak Housing
1,887
1,030
The Conley (1)
—
405
The Cottages at Myrtle Beach
2,288
300
The Cottages at Warner Robins
1,151
—
The Cottages of Port St. Lucie
2,186
227
The Woods at Forest Hill
274
2
Thornton Flats (1)
—
420
Wayford at Concord (2)
—
364
Wayford at Innovation Park
469
—
Willow Park
333
51
Total preferred returns on unconsolidated joint ventures
$
8,588
$
3,190
(1) The Company’s preferred equity investment was redeemed in 2021.
(2) On June 4, 2021, the Company purchased the Wayford at Concord property from its unaffiliated joint venture partner, and as part of the transaction, its preferred equity investment was redeemed.
The occupancy percentages of the Company’s unconsolidated real estate joint ventures at December 31, 2022 and 2021 are as follows:
Property
2022
2021
Peak Housing
95.4
%
92.8
%
The Cottages at Myrtle Beach
(1)
(2)
The Cottages at Warner Robins
(1)
(2)
The Cottages of Port St. Lucie
(1)
(2)
The Woods at Forest Hill (3)
1.3
%
(2)
Wayford at Innovation Park
(1)
(2)
Willow Park (4)
30.4
%
(2)
(1) The development had not commenced lease-up as of December 31, 2022.
(2) The development had not commenced lease-up as of December 31, 2021.
(3) The Woods at Forest Hill commenced lease-up in October 2022.
(4) Willow Park commenced lease-up in late June 2022.
Alexan Southside Place Interests
The Company made a $ 24.9 million preferred equity investment in a joint venture along with Fund II and Fund III (together, the “Funds”), affiliates of the former Manager, and an unaffiliated third party (the “Alexan Southside JV”), which developed a 270 -unit Class A apartment community upon a tract of land under an 85 -year ground lease located in Houston, Texas, known as Alexan Southside Place. In 2021, the Company earned a preferred return of 3.5 % per annum. The Alexan Southside JV was required to redeem the Company’s preferred membership interest plus any accrued but unpaid return on November 9, 2022 or earlier upon the occurrence of certain events.
On March 25, 2021, the Company’s preferred equity investment in Alexan Southside Place was redeemed by the Alexan Southside JV for $ 10.1 million, which was net of the $ 15.9 million provision for credit loss (refer to below) the Company recorded in the fourth quarter 2020.
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Alexan Southside Place Provision for Credit Loss
Consistent with the overall Houston – Medical Center submarket, Alexan Southside Place lost significant value because of the onset of the COVID-19 pandemic given the pandemic’s impact on demand within the submarket. At the time in the fourth quarter 2020, it was expected that the overall submarket would rebound over the next twenty-four to thirty-six months, though it was more likely than not that the joint venture would sell before recovery. As a result of this change in the submarket and the impact on the underlying operations of the Alexan Southside Place preferred equity investment, and the likelihood that the joint venture would sell before recovery (which it did sell in March 2021 as disclosed above), the risk characteristics of the investment, such as investment duration, had changed; the investment was removed from the pool analysis for credit losses under CECL and the investment was evaluated separately through an individual investment recoverability analysis. This separate analysis deemed the investment was not fully recoverable, and as a result, a $ 15.9 million provision for credit loss was recorded in the fourth quarter 2020. The credit loss on this asset was a result of writing down the Company’s investment to equal its estimated value. The estimated value was based on a letter of intent to purchase the property from an unrelated third party which was received by the joint venture. Refer to Note 2 for further information regarding CECL.
Mira Vista Interests
In September 2019, the Company made a $ 5.3 million preferred equity investment in a joint venture (the “Mira Vista JV”) with an unaffiliated third party for a stabilized property in Austin, Texas known as Mira Vista. The Company earned a 7.0 % current return and a 3.1 % accrued return, for a total preferred return of 10.1 % per annum. The Mira Vista JV was required to redeem the Company’s preferred membership interest plus any accrued but unpaid preferred return on January 1, 2030 or earlier upon the occurrence of certain events.
On September 23, 2021, the Company’s preferred equity investment in Mira Vista was redeemed by the Mira Vista JV for $ 5.6 million, which included its original preferred investment of $ 5.3 million and accrued preferred return of $ 0.3 million.
Peak Housing Interests
On April 12, 2021, the Company made a $ 10.7 million preferred equity investment in the Peak REIT OP for a portfolio of 474 single-family residential units located throughout Texas. During the third and fourth quarters 2021, the Company made additional preferred equity investments totaling $ 9.6 million in the Peak REIT OP which is cross-collateralized by an additional fourteen portfolios representing an aggregate of 1,097 single-family residential units.
Of the Company’s total $ 20.3 million preferred equity investment in the Peak REIT OP, the Company earns a 7.0 % current return and a 3.0 % accrued return on $ 16.0 million of its investment, for a total preferred return of 10.0 % per annum. On its remaining $ 4.3 million investment, the Company earns a 4.0 % current return and a 4.0 % accrued return, for a total preferred return of 8.0 % per annum. The current returns shall be paid monthly to the extent the property generates cash flow in excess of operating costs, and any amount of the current returns not paid monthly shall be accrued at a rate of 15 % per annum. The units in Peak Housing are subject to individual mortgage debt in the aggregate amount of $ 86.9 million. The Peak REIT OP is required to redeem the Company’s preferred equity interest plus any accrued preferred return in each property, on a pro rata basis, on the earlier date of: (i) the third anniversary on which the Company made its preferred equity investment, with the option for two (2) one-year extensions, subject to certain conditions, (ii) the sale of a property, (iii) the refinancing of the loan related to a property, or (iv) the maturity date of a property loan.
The Conley Interests
In October 2018, the Company made a $ 15.2 million preferred equity investment in a joint venture (the “The Conley JV”) with an unaffiliated third party which developed a 259 -unit Class A apartment community located in Leander, Texas known as The Conley. The Company earned an 8.5 % current return and a 4.0 % accrued return for a total preferred return of 12.5 % per annum. The Conley JV was required to redeem the Company’s preferred membership interest plus any accrued but unpaid preferred return on October 29, 2023 or earlier upon the occurrence of certain events.
On March 18, 2021, the Company’s preferred equity investment in The Conley was redeemed by The Conley JV for $ 16.5 million, which included its original preferred investment of $ 15.2 million and accrued preferred return of $ 1.3 million.
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The Cottages at Myrtle Beach Interests
On September 9, 2021, the Company entered into a joint venture agreement with an unaffiliated third party (the “Cottages MB JV”) to develop approximately 294 -build for rent, single-family residential units in Myrtle Beach, South Carolina. The Company made a commitment to invest $ 17.9 million of preferred equity interests in the Cottages MB JV, all of which had been funded as of December 31, 2022. The Company will earn a 14.5 % per annum accrued return on outstanding capital contributions with payments to be remitted when the properties generate cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of properties. The Cottages MB JV is required to redeem the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (refer to below) is due and payable or earlier upon the occurrence of certain events.
In conjunction with The Cottages at Myrtle Beach investment, The Cottages at Myrtle Beach property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into a $ 40.2 million construction loan, of which $ 19.9 million was outstanding as of December 31, 2022. The loan matures on March 9, 2025 and is secured by the fee simple interest in The Cottages at Myrtle Beach property. The loan contains two (2) one-year extension options, subject to certain conditions, and can be prepaid without penalty. The loan bears interest on the amount drawn at the greater of 3.10 % or one-month LIBOR plus 2.60 % with interest-only monthly payments through the initial term of the loan.
The Cottages at Warner Robins Interests
On December 8, 2021, the Company entered into a joint venture agreement with an unaffiliated third party (the “Cottages WR JV”) to develop approximately 251 -build for rent, single-family residential units in Warner Robins, Georgia. The Company made a commitment to invest $ 13.3 million of preferred equity interests in the Cottages WR JV, all of which had been funded as of December 31, 2022. The Company will earn a 14.5 % per annum accrued return on outstanding capital contributions with payments to be remitted when the properties generate cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of properties. The Cottages WR JV is required to redeem the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (refer to below) is due and payable or earlier upon the occurrence of certain events.
In conjunction with The Cottages at Warner Robins investment, The Cottages at Warner Robins property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into a $ 34.5 million construction loan, of which $ 18.1 million was outstanding as of December 31, 2022. The loan matures on April 5, 2025 and is secured by the fee simple interest in The Cottages at Warner Robins property. The loan contains an extension option to December 5, 2026, subject to certain conditions, and can be prepaid without penalty. The loan bears interest on the amount drawn at one-month Term SOFR plus 3.10 % with interest-only monthly payments through the initial term of the loan.
The Cottages of Port St. Lucie Interests
On August 26, 2021, the Company entered into a joint venture agreement with an unaffiliated third party (the “Cottages St. Lucie JV”) to develop approximately 286 -build for rent, single-family residential units in Port St. Lucie, Florida. The Company made a commitment to invest $ 18.8 million of preferred equity interests in the Cottages St. Lucie JV, all of which had been funded as of December 31, 2022. The Company will earn a 14.5 % per annum accrued return on outstanding capital contributions with payments to be remitted when the properties generate cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of properties. The Cottages St. Lucie JV is required to redeem the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (refer to below) is due and payable or earlier upon the occurrence of certain events.
In conjunction with The Cottages of Port St. Lucie investment, The Cottages of Port St. Lucie property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into a $ 45.2 million construction loan, of which $ 14.4 million was outstanding as of December 31, 2022. The loan matures on August 26, 2024 and is secured by the fee simple interest in The Cottages of Port St. Lucie property. The loan contains two (2) one-year extension options, subject to certain conditions, and can be prepaid without penalty. The loan bears interest on the amount drawn at the greater of 3.50 % or one-month LIBOR plus 2.75 % with interest-only monthly payments through the initial term of the loan.
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The Woods at Forest Hill Interests
On December 20, 2021, the Company entered into a joint venture agreement with Peak REIT OP (the “Woods JV”) to develop approximately 76 -build for rent, single-family residential units in Forest Hill, Texas. The Company made a commitment to invest $ 3.3 million of preferred equity interests in the Woods JV, all of which had been funded as of December 31, 2022. The Company will earn a 13 % per annum accrued return on outstanding capital contributions with payments to be remitted when the properties generate cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of properties. The Woods JV is required to redeem the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (refer to below) is due and payable or earlier upon the occurrence of certain events.
In conjunction with The Woods at Forest Hill development, The Woods at Forest Hill property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into an $ 8.3 million construction loan, of which $ 7.9 million was outstanding as of December 31, 2022. The loan matures on December 20, 2024 and is secured by the fee simple interest in The Woods at Forest Hill property. The loan contains two (2) one-year extension options, subject to certain conditions, and can be prepaid subject to a make whole premium. The loan bears interest on the amount drawn at the greater of 4.75 % or the prime rate plus 1.50 % with interest-only monthly payments through July 2024 and future monthly payments based on twenty-five-year amortization.
Thornton Flats Interests
In September 2019, the Company made a $ 4.6 million preferred equity investment in a joint venture (the “Thornton JV”) with an unaffiliated third party for a stabilized property in Austin, Texas known as Thornton Flats. The Company earned an 8.0 % current return and a 1.0 % accrued return for a total preferred return of 9.0 % per annum. On August 26, 2021, the Company, in accordance with terms as set forth in the Thornton Flats operating agreement, funded an additional $ 0.8 million of preferred equity interests in the Thornton JV, increasing the Company’s total preferred equity investment in the Thornton JV to $ 5.3 million. The Thornton JV was required to redeem the Company’s preferred membership interest plus any accrued but unpaid preferred return on September 25, 2024 or earlier upon the occurrence of certain events.
On December 14, 2021, the Company’s preferred equity investment in Thornton Flats was redeemed by the Thornton JV for $ 5.5 million, which included its original preferred investment of $ 5.3 million and accrued preferred return of $ 0.2 million.
Wayford at Concord Interests
The Company made a $ 6.5 million preferred equity investment in a joint venture (the “Wayford JV”) with an unaffiliated third party which developed 150 -build for rent, single-family residential units in Concord, North Carolina known as Wayford at Concord. The Company earned a 9.0 % current return and a 4.0 % accrued return for a total preferred return of 13.0 % per annum. The Wayford JV was required to redeem the Company’s preferred membership interest plus any accrued but unpaid preferred return on November 9, 2023 or earlier upon the occurrence of certain events.
On June 4, 2021, the Company, along with an unaffiliated third party, purchased the interests in the Wayford at Concord property, the underlying asset of the Wayford JV, from the Company’s Wayford JV partner for $ 44.4 million. The Company acquired an 83 % interest in Wayford at Concord. In conjunction with the sale, the Company’s preferred equity investment was redeemed by the Wayford JV for $ 7.0 million, which included its original preferred investment of $ 6.5 million and accrued preferred return of $ 0.5 million. Upon the redemption of its preferred investment and the purchase of Wayford at Concord, the Company began consolidating the property’s statement of operations and balance sheet.
Wayford at Innovation Park Interests
On June 17, 2021, the Company entered into a joint venture agreement with an unaffiliated third party (the “Wayford IP JV”) to develop approximately 210 -build for rent, single-family residential units in Charlotte, North Carolina to be known as Wayford at Innovation Park. The Company made a commitment to invest $ 13.4 million of preferred equity interests in the Wayford IP JV, of which $ 10.2 million had been funded as of December 31, 2022. The Company will earn a 12.5 % per annum accrued return on outstanding capital contributions with payments to be remitted when the property generates cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of the property. The Wayford IP JV is required to redeem the Company’s preferred equity interest plus any accrued preferred return on June 17, 2026 or earlier upon the occurrence of certain events.
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In conjunction with the Wayford at Innovation Park development, the Wayford at Innovation Park property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into a $ 39.6 million construction loan, of which none was outstanding as of December 31, 2022. The loan matures on October 15, 2026, can be prepaid without penalty, and is secured by the fee simple interest in the Wayford at Innovation Park property. The loan bears interest on the amount drawn at the greater of 3.50 % or one-month LIBOR plus 2.25 % with interest-only monthly payments through October 2024 and future monthly payments based on thirty-year amortization.
Willow Park Interests
On June 17, 2021, the Company entered into a joint venture agreement with Peak REIT OP (the “Willow Park JV”) to develop approximately 46 -build for rent, single-family residential units in Willow Park, Texas. The Company made a commitment to invest $ 2.5 million of preferred equity interests in the Willow Park JV, all of which had been funded as of December 31, 2022. The Company will earn a 13.0 % per annum accrued return on outstanding capital contributions with payments to be remitted when the properties generate cash flow in excess of operating costs and/or there are available net proceeds from financing, refinancing or sale of properties. The Willow Park JV is required to redeem the Company’s preferred equity interests plus any accrued preferred return on the date the construction loan (refer to below) is due and payable or earlier upon the occurrence of certain events.
In conjunction with the Willow Park development, the Willow Park property owner, which is owned by an entity in which the Company has a preferred equity interest, entered into an $ 8.8 million construction loan, of which $ 7.9 million was outstanding as of December 31, 2022. The loan matures on August 5, 2024 and is secured by the fee simple interest in the Willow Park property. The loan contains two (2) one-year extension options, subject to certain conditions, and can be prepaid subject to a make whole premium. The loan bears interest on the amount drawn at the greater of 4.50 % or the prime rate plus 1.25 % with interest-only monthly payments through February 2024 and future monthly payments based on twenty-five-year amortization.
Note 9 — Revolving Credit Facilities
The outstanding balances on the revolving credit facilities as of December 31, 2022 are summarized in the table below (amounts in thousands). No amounts were outstanding on the revolving credit facilities as of December 31, 2021.
Revolving Credit Facilities
2022
DB Credit Facility
$
35,000
ILE Sunflower Credit Facility
20,000
Total
$
55,000
Amended Senior Credit Facility
On March 6, 2020, Bluerock Residential entered into the Amended Senior Credit Facility. The Amended Senior Credit Facility provided for a revolving loan with an initial commitment amount of $ 100 million, which commitment contained an accordion feature to a maximum total commitment of up to $ 350 million. Borrowings under the Amended Senior Credit Facility bore interest, at Bluerock Residential’s option, at LIBOR plus 1.30 % to 1.65 % or the base rate plus 0.30 % to 0.65 %, depending on its leverage ratio. Bluerock Residential paid an unused fee at an annual rate of 0.15 % to 0.20 % of the unused portion of the Amended Senior Credit Facility, depending on the borrowings outstanding. The Amended Senior Credit Facility contained certain financial and operating covenants and was to mature on March 6, 2023. Bluerock Residential had guaranteed the obligations under the Amended Senior Credit Facility and had pledged certain assets as collateral. The Amended Senior Credit Facility provided Bluerock Residential with the ability to issue up to $ 50 million in letters of credit. While the issuance of letters of credit did not increase its borrowings outstanding under the Amended Senior Credit Facility, it did reduce the availability of borrowings.
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Amended Junior Credit Facility
On September 21, 2021, Bluerock Residential entered into the Amended Junior Credit Facility. The Amended Junior Credit Facility provided for a revolving loan with a maximum commitment amount of $ 72.5 million. Borrowings under the Amended Junior Credit Facility bore interest, at Bluerock Residential’s option, at LIBOR plus 2.75 % to 3.25 % or the base rate plus 1.75 % to 2.25 %, depending on its leverage ratio. Bluerock Residential paid an unused fee at an annual rate of 0.35 % to 0.40 % of the unused portion of the Amended Junior Credit Facility, depending on the borrowings outstanding. The Amended Junior Credit Facility contained certain financial and operating covenants and was to mature on December 21, 2023. Bluerock Residential had guaranteed the obligations under the Amended Junior Credit Facility and had pledged certain assets as collateral.
Termination of Credit Facilities with KeyBank
On October 6, 2022, in connection with transactions related to the Separation, the Distribution and the Spin-Off, Bluerock Residential caused the termination of all commitments, liabilities and other obligations under the Amended Senior Credit Facility and the Amended Junior Credit Facility. The Company was not a party to the Amended Senior Credit Facility or the Amended Junior Credit Facility.
Deutsche Bank Credit Facility (“DB Credit Facility”)
On April 6, 2022, the Company entered into a credit facility with Deutsche Bank Securities Inc., 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 (the “DB Credit Facility”). The DB Credit Facility provides for a revolving loan with a maximum commitment amount of $ 150 million. Borrowings under the DB Credit Facility are limited to financings related to the acquisition, renovation, rehabilitation, maintenance and leasing of single-family residential properties owned by various Peak joint ventures. During the initial term of the DB Credit Facility, borrowings bear interest on the amount drawn at Term SOFR plus 2.80 %, and borrowings can be prepaid without premium or penalty. The DB Credit Facility matures on April 6, 2024 and contains two (2) one-year extension options, subject to certain conditions. The DB Credit Facility contains certain financial and operating covenants, including maximum leverage ratio, minimum debt yield and minimum debt service coverage ratio. At December 31, 2022, the Company was in compliance with all covenants under the DB Credit Facility and the credit facility was fully drawn at $ 35 million based on the collateral and compliance with various ratios related to those assets. The Company has guaranteed the obligations under the DB Credit Facility.
ILE Sunflower Credit Facility
On December 27, 2021, the Company’s unaffiliated joint venture partner, ILE, entered into a credit facility with Sunflower Bank, N.A. (the “ILE Sunflower Credit Facility”). The 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 ILE Sunflower Credit Facility, along with three other separate non-revolving credit facilities (refer to Note 10 for further information), is used in the financing of acquisitions of single-family residential units. Borrowings under the ILE Sunflower Credit Facility bear interest at LIBOR plus 3.0 %, subject to a rate floor, and can be prepaid without penalty or premium. The ILE Sunflower Credit Facility matures on December 27, 2024 and contains certain financial and operating covenants, including a minimum fixed charge coverage ratio. At December 31, 2022, ILE was in compliance with all covenants under the ILE Sunflower Credit Facility and the initial commitment was fully drawn at $ 20 million. A principal of ILE has guaranteed the obligations under the ILE Sunflower Credit Facility and the Company and ILE have pledged certain assets as collateral.
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Note 10 – Mortgages Payable
The following table summarizes certain information as of December 31, 2022 and 2021, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):
Outstanding Principal
As of December 31, 2022
December 31,
December 31,
Interest-only
Property
2022
2021
Interest Rate
through date
Maturity Date
Fixed Rate:
ILE (1)
$
25,976
$
—
3.69
%
(2)
(1)
Navigator Villas (3)
20,039
20,361
4.57
%
(2)
June 1, 2028
Yauger Park Villas (4)
14,643
14,921
4.86
%
(2)
April 1, 2026
Total Fixed Rate
$
60,658
$
35,282
Floating Rate:
ILE (5)
$
4,600
$
26,825
7.18
%
August 2023
August 9, 2028
Wayford at Concord (6)
32,973
—
4.73
%
May 2027
May 1, 2029
Total Floating Rate
$
37,573
$
26,825
Total
$
98,231
$
62,107
Fair value adjustments
1,235
1,555
Deferred financing costs, net
( 1,275 )
( 655 )
Total mortgages payable
$
98,191
$
63,007
(1) ILE’s fixed rate debt represents the aggregate debt outstanding across two separate credit agreements. Of the $ 26.0 million balance, $ 6.6 million held through one credit agreement has a fixed rate of 3.50 % , while the remaining $ 19.4 million held through the second credit agreement has a fixed rate of 3.75 % . Both credit agreements mature in 2026.
(2) The loan requires monthly payments of principal and interest.
(3) The principal balance includes a $ 14.4 million senior loan at a fixed rate of 4.31 % and a $ 5.6 million supplemental loan at a fixed rate of 5.23 % .
(4) The principal balance includes a $ 10.1 million senior loan at a fixed rate of 4.81 % and a $ 4.5 million supplemental loan at a fixed rate of 4.96 % .
(5) ILE’s floating rate debt represents the debt outstanding from one credit agreement and bears interest at one-month Term SOFR plus 3.00 %, subject to a 4.00 % rate floor. In December 2022, the one-month Term SOFR in effect was 4.18 % .
(6) The Wayford at Concord loan bears interest at the 30-day average SOFR plus 2.23 %. In December 2022, the 30-day average SOFR in effect was 3.73 %. SOFR rate is subject to a 2.50 % rate cap through April 2025. Please refer to Note 12 for further information.
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. Amortization of deferred financing costs, including the amounts related to the revolving credit facilities, was $ 2.8 million and $ 1.0 million for the years ended December 31, 2022 and 2021, respectively.
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. Amortization of fair value adjustments was $ 0.3 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively.
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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 are also included within loss on extinguishment of debt and debt modification costs on the combined consolidated statements of operations. Loss on extinguishment of debt and debt modification costs were zero for the years ended December 31, 2022 and 2021.
Refinancing of Wayford at Concord
Upon its acquisition in June 2021, the Company and its unaffiliated joint venture partner (together, the “Wayford JV”) fully funded the purchase price of Wayford at Concord. On April 21, 2022, the Wayford JV entered into a $ 33.0 million floating rate loan, which is secured by the Wayford at Concord property, with the loan proceeds distributed to the Wayford JV members in accordance with the distribution provisions in the joint venture agreement.
Debt maturities
As of December 31, 2022, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):
Year
Total
2023
$
1,519
2024
1,639
2025
1,717
2026
37,471
2027
866
Thereafter
55,019
$
98,231
Add: Unamortized fair value debt adjustment
1,235
Subtract: Deferred financing costs, net
( 1,275 )
Total
$
98,191
The net book value of real estate assets providing collateral for these above borrowings, including the revolving credit facilities (refer to Note 9 for further information), was $ 301.7 million as of December 31, 2022.
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.
Note 11 – 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.
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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
As of December 31, 2022 and 2021, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, due to and due from 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 of notes receivable approximate fair value because stated interest rate terms are consistent with interest rate terms on new deals with similar leverage and risk profiles. The fair values of notes receivable are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.
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 values of interest rate swaps are 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 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 inputs used in the valuation of interest rate caps fall within Level 2 of the fair value hierarchy.
Fair Value of Debt
As of December 31, 2022 and December 31, 2021, based on the discounted amount of future cash flows using rates currently available to the Company for similar liabilities, the fair value of the Company’s mortgages payable is estimated at $ 93.7 million and $ 64.8 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $ 99.5 million and $ 63.7 million, respectively. The fair value of mortgages payable is estimated based on the Company’s current interest rates (Level 3 inputs of the fair value hierarchy) for similar types of borrowing arrangements.
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Note 12 – Derivative Financial Instruments
Risk Management Objective of Using Derivatives
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 the derivative financial instruments are effective economic hedges against increases in interest rates. The Company does not use derivative financial instruments for trading or speculative purposes.
As of December 31, 2022, 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 $ 74.6 million of the Company’s debt.
The table below presents the classification and fair value of the Company’s derivative financial instruments on the combined consolidated balance sheets as of December 31, 2022 and 2021 (amounts in thousands):
Derivatives not designated as hedging
Fair Values of Derivative
instruments under ASC 815-20
Balance Sheet Location
Instruments
2022
2021
Interest rate caps
Accounts receivable, prepaids and other assets
$
4,702
$
—
Interest rate swaps
Accounts receivable, prepaids and other assets
647
—
The table below presents the effect of Company’s derivative financial instruments as well as their classification on the combined consolidated statements of operations for the years ended December 31, 2022 and 2021 (amounts in thousands):
The Effect of Derivative Instruments
Derivatives not designated as hedging
Location of Gain (Loss)
on the Statements of Operations
instruments under ASC 815-20
Recognized in Income
2022
2021
Interest rate caps
Interest expense
$
2,437
$
—
Interest rate swaps
Interest expense
647
—
Credit-risk-related Contingent Features
The Company has agreements with each of its derivative counterparties that contain a provision where the Company could be declared in default on its derivative obligations if repayment of the underlying indebtedness is accelerated by the lender due to the Company’s default on the indebtedness.
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Note 13 – Related Party Transactions
Administrative Services Agreement
In October 2017, Bluerock Residential entered into an Administrative Services Agreement (the “Administrative Services Agreement”, or “ASA”) with Bluerock Real Estate, LLC and its affiliate, Bluerock Real Estate Holdings, LLC (together “BRE”). Pursuant to the Administrative Services Agreement, BRE provided Bluerock Residential with certain human resources, investor relations, marketing, legal and other administrative services (the “Services”). The Services were provided on an at-cost basis, generally allocated based on the use of such Services for the benefit of the business, and were invoiced on a quarterly basis. In addition, the Administrative Services Agreement permitted certain employees to provide or cause to be provided services to BRE, on an at-cost basis, generally allocated based on the use of such services for the benefit of the business of BRE, and otherwise subject to the terms of the Services provided by BRE to Bluerock Residential under the Administrative Services Agreement. Payment by Bluerock Residential of invoices and other amounts payable under the Administrative Services Agreement was made in cash or, at the sole discretion of the board of directors of Bluerock Residential, in the form of Bluerock Residential’s long-term incentive plan units. On August 5, 2022, Bluerock Residential delivered written notice to BRE of its intention to renew the Administrative Services Agreement for an additional one-year term, to expire on October 31, 2023. The Administrative Services Agreement would terminate (i) upon termination by Bluerock Residential of all Services, or (ii) in the event of non-renewal by Bluerock Residential.
Pursuant to the Administrative Services Agreement, BRE was responsible for the payment of all employee benefits and any other direct and indirect compensation for the employees of BRE (or their affiliates or permitted subcontractors) assigned to perform the Services, as well as such employees’ worker’s compensation insurance, employment taxes, and other applicable employer liabilities relating to such employees.
Bluerock Residential and BRE also entered into a Leasehold Cost-Sharing Agreement (the “Leasehold Cost-Sharing Agreement”, or “CSA”) with respect to the lease for their New York headquarters (the “NY Lease”) to provide for the allocation and sharing between BRE and Bluerock Residential of the costs thereunder, including costs associated with tenant improvements. The NY Lease permitted Bluerock Residential and certain of its respective subsidiaries and/or affiliates to share occupancy of the New York headquarters with BRE. Under the NY Lease, Bluerock Residential issued a $ 750,000 letter of credit as a security deposit, and BRE was obligated under the Leasehold Cost-Sharing Agreement to indemnify and hold Bluerock Residential harmless from loss if there is a claim under such letter of credit. Payment by Bluerock Residential of any amounts payable under the Leasehold Cost-Sharing Agreement to BRE was made in cash or, at the sole discretion of the board of directors of Bluerock Residential, in the form of Bluerock Residential’s long-term incentive plan units.
Pursuant to the terms of the Administrative Services Agreement, operating expenses were (i) paid by BRE on behalf of Bluerock Residential, and (ii) paid by Bluerock Residential on behalf of BRE. The following presents operating expense amounts allocated to the Company by applying an allocation percentage, which was determined by taking the number of units carved out of the Bluerock Residential portfolio divided by Bluerock Residential’s total portfolio unit count, to the total operating expenses paid on behalf of or by Bluerock Residential. Operating expense amounts recognized by the Company are not representative of the amounts that would have been reflected in the financial statements had the Company operated independently of Bluerock Residential. Recorded as part of general and administrative expenses in the Company’s combined consolidated statements of operations, BRE paid operating expenses on behalf of Bluerock Residential as follows: $ 0.7 million during 2022 for the period ending and prior to October 6, 2022, and $ 0.5 million for the year ended December 31, 2021. Bluerock Residential paid operating expenses on behalf of BRE as follows: $ 0.7 million during 2022 for the period ending and prior to October 6, 2022, and $ 0.4 million for the year ended December 31, 2021.
The table below presents the net related party amounts payable to BRE at December 31, 2021 pursuant to the terms of the Administrative Services Agreement and the Leasehold Cost-Sharing Agreement (amounts in thousands). No amounts were payable to BRE at December 31, 2022 under these agreements.
Amounts payable to BRE under the ASA and CSA
2021
Operating and direct expense reimbursements under the ASA, net
$
319
Operating and direct expense reimbursements under the CSA
187
Total amounts payable to BRE, net
$
506
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Termination of Administrative Services and Leasehold-Cost Sharing Agreements
On October 6, 2022, in connection with the transactions related to the Separation, the Distribution and the Spin-Off, Bluerock Residential caused the termination of (i) all Services under the Administrative Services Agreement, and (ii) the Leasehold-Cost Sharing Agreement. As it pertains to the Leasehold-Cost Sharing Agreement, and in conjunction with the termination of the Amended Senior Credit Facility (refer to Note 9 for further information), the $ 750,000 letter of credit issued by Bluerock Residential under the NY Lease was also terminated.
Management Agreement with the Manager
In connection with the Separation and the Distribution, on October 5, 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, pursuant to which the Manager will provide for the day-to-day management of the Company’s operations. The Management Agreement requires the Manager to manage the Company’s business affairs under the supervision and direction of its Board. Specifically, the Manager will be 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.
Pursuant to the terms of the Management Agreement, the Manager will provide the Company with a management team and appropriate support personnel to provide the management services to be provided by the Manager to the Company. The Company will pay the Manager a base management fee (the “base management fee”) in an amount equal to 1.50 % of the Company’s new stockholders’ equity 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 (as such capitalized terms are defined and such fees are described in the Management Agreement). The Company will also be required to reimburse the Manager for certain expenses and pay all operating expenses, except those specifically required to be borne by the Manager under the Management Agreement. The initial term of the Management Agreement expires on October 6, 2023 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. 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 (refer to Note 14 for further information regarding C-LTIP Units) and the remainder payable in cash or C-LTIP Units, at the discretion of the Board, and (ii) expense reimbursements 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 5 -day trailing average Class A common stock price prior to issuance. The foregoing description of the Management Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Management Agreement, which is filed as Exhibit 10.2 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission on October 6, 2022 . For the period of October 6 – December 31, 2022, the Company recorded the following expenses: (i) a base management fee for the Manager of $ 1.8 million, and (ii) expense reimbursements of $ 0.4 million which are recorded as part of general and administrative expenses in the Company’s combined consolidated statements of operations. There was no incentive fee expense in 2022.
The table below presents the related party amounts payable to the Manager at December 31, 2022 pursuant to the terms of the Management Agreement (amounts in thousands):
Amounts payable to the Manager under the Management Agreement
2022
Base management fee
$
1,787
Operating and direct expense reimbursements
424
Total amounts payable to the Manager
$
2,211
As of December 31, 2022 and 2021, the Company had zero and $ 0.4 million, respectively, in receivables due from related parties other than BRE.
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Note 14 – Stockholders’ Equity
On October 6, 2022 (the “Distribution Date”), each of the Company’s stockholders received one share of the Company’s common stock for every eight shares of Bluerock Residential common stock held as of the close of business on September 29, 2022 (the “Record Date”). An aggregate of 3,843,502 shares of the Company’s common stock was distributed to its stockholders, comprised of 3,835,013 shares of the Company’s Class A common stock and 8,489 shares of the Company’s Class C common stock. Because the Company had no common stock outstanding prior to the Distribution Date, basic and diluted earnings per share for all prior periods have been calculated based on the aggregate of 3,843,502 shares of the Company’s common stock distributed to its stockholders on the Distribution Date.
Net (Loss) Income Per Common Share
Basic net (loss) income per common share is computed by dividing net (loss) income attributable to common stockholders, less dividends on LTIP Units expected to vest, by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per common share is computed by dividing net (loss) income attributable to common stockholders by the sum of the weighted average number of common shares outstanding and any potential dilutive shares for the period. Net (loss) income attributable to common stockholders is computed by adjusting net (loss) income for the non-forfeitable dividends paid on non-vested 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) income per common share for the years ended December 31, 2022 and 2021 (amounts in thousands, except share and per share amounts):
2022
2021
(Loss) income from continuing operations
$
( 6,236 )
$
945
Net (loss) income from continuing operations attributable to noncontrolling interests
( 5,130 )
405
(Loss) income from continuing operations attributable to BHM
$
( 1,106 )
$
540
Income from discontinued operations
311
110,858
Net (loss) income from discontinued operations attributable to noncontrolling interests
205
77,073
Income from discontinued operations attributable to BHM
106
33,785
Net (loss) income attributable to common stockholders
$
( 1,000 )
$
34,325
Weighted average common shares outstanding (1)
3,843,502
3,843,502
Potential dilutive shares
—
—
Weighted average common shares outstanding and potential dilutive shares (1)
3,843,502
3,843,502
Net (loss) income per common share, basic
Continuing operations
$
( 0.29 )
$
0.14
Discontinued operations
0.03
8.79
$
( 0.26 )
$
8.93
Net (loss) income per common share, diluted
Continuing operations
$
( 0.29 )
$
0.14
Discontinued operations
0.03
8.79
$
( 0.26 )
$
8.93
(1) Amounts relate to shares of the Company’s Class A and Class C common stock outstanding.
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 combined 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.
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Class C Common Stock
The Company’s Class C common stock will be equivalent in all material respects to, and rank on parity with, the Company’s Class A common stock, except that each share of Class C common stock will entitle the holder thereof to up to fifty votes. A holder of Class C common stock will not be entitled to a number of votes in excess of the number of its direct and indirect economic interests in the Operating Partnership. Therefore, no holder of Class C common stock will have a number of votes in respect of its shares of Class C common stock that exceeds the number of shares of Class C common stock, C-LTIP units, LTIP units, C-OP units and OP units beneficially owned by such holder. In order to implement this limitation, the number of votes (“Class C Votes”) per share of Class C common stock beneficially owned by a holder will equal the lesser of: (x) 50 and (y) the quotient of (A) the sum of (1) the number of shares of Class C common stock beneficially owned by such holder plus (2) the number of C-LTIP units beneficially owned by such holder plus (3) the number of LTIP units beneficially owned by such holder plus (4) the number of C-OP units beneficially owned by such holder plus (5) the number of OP units beneficially owned by such holder (each of a share of Class C common stock, a C-LTIP unit, a LTIP unit, a C-OP unit and an OP Unit, a “Class C Interest”) divided by (B) the number of shares of Class C common stock beneficially owned by such holder. If any Class C Interest is beneficially owned by more than one holder of Class C common stock and would, in the absence of this sentence, increase the number of Class C Votes of more than one such holder of Class C common stock by virtue of clause (y) of the immediately preceding sentence, then such Class C Interest shall only increase the number of Class C Votes of the ultimate beneficial owner of such Class C Interest that is also such a holder of Class C common stock, and not any other holder of Class C common stock.
Shares of the Company’s Class C common stock may be converted, or automatically convert, in certain circumstances to shares of the Company’s Class A common stock on a one -for-one basis. Subject to the preferential rights, if any, of holders of any class or series of the Company’s stock other than the Company’s Class A common stock and to the provisions of the Company’s charter regarding the restrictions on the ownership and transfer of stock, the holders of the Company’s Class C common stock will be entitled to receive distributions authorized by the Company’s Board and declared by the Company out of legally available funds after payment of, or provision for, full cumulative distributions on and any required redemptions of shares of any series of preferred stock then outstanding.
Operating Partnership and Long-Term Incentive Plan Units
On April 2, 2014, Bluerock Residential entered into the Second Amended and Restated Agreement of Limited Partnership of its Operating Partnership, Bluerock Residential Holdings, L.P. (the “Partnership Agreement”), pursuant to which Bluerock Residential was the sole general partner of the Operating Partnership. In connection with the Distribution, the Partnership Agreement was amended by the Thirteenth Amendment thereto, pursuant to which Bluerock Residential withdrew as the general partner of the Operating Partnership and the Company was admitted as the sole general partner thereof. The Company may not be removed as general partner of the Operating Partnership by the limited partners with or without cause.
The Partnership Agreement, as amended, provides, among other things, that the Operating Partnership initially has two classes of limited partnership interests: OP Units and LTIP Units. Certain OP units will be designated as “C-OP Units” and certain LTIP units will be designated as “C-LTIP Units.” The Company expects that its Operating Partnership will issue OP units to limited partners, including the Company, in exchange for capital contributions of cash or property, including in connection with the contribution of the net proceeds of any future offering of the Company’s shares, as described above, and that the Company’s Operating Partnership will issue LTIP units, pursuant to the BHM Incentive Plans, to persons (including our Manager, directors and employees) or entities who provide services to the Company. In addition, the Company’s Operating Partnership will issue C-LTIP Units to the Company’s Manager pursuant to the Management Agreement. In calculating the percentage interests of the partners in the Operating Partnership, LTIP Units are treated as OP Units. Additional C-LTIP Units will also be issuable to the Company’s executive officers or other service providers of the Company at the discretion of the Company’s Board.
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Pursuant to the Partnership Agreement the Company will be obligated file a registration statement covering the issuance or resale of shares of common stock received by limited partners who held their Partnership Units as of the date of the partnership agreement (including their transferees and assigns) upon such limited partners’ redemption of their OP units, under which the Company will agree to use reasonable efforts to have the registration statement declared effective, to register or qualify such shares under the securities or blue sky laws of such jurisdictions within the United States as required by law, to list the Company’s shares of common stock issued pursuant to the exercise of redemption rights on any securities exchange or national market system upon which the Company’s shares of common stock are then listed, and to indemnify limited partners exercising redemption rights against all losses caused by any untrue statement of a material fact contained in the registration statement, preliminary prospectus or prospectus or caused by any omission to state a material fact required to be stated or necessary to make the statements therein not misleading, except insofar as such losses are caused by any untrue statement or omission based upon information furnished to us by such limited partners.
In general, LTIP Units will receive the same per-unit distributions as the OP Units. Initially, each LTIP Unit will have a capital account balance of zero and, therefore, will not have full parity with OP Units with respect to any liquidating distributions. However, the Partnership Agreement, as amended provides that “book gain,” or economic appreciation, in the Company’s assets realized by the Operating Partnership as a result of the actual sale of all or substantially all of the Operating Partnership’s assets, or the revaluation of the Operating Partnership’s assets as provided by applicable U.S. Department of Treasury regulations, will be allocated first to the holders of LTIP Units until their capital account per unit is equal to the average capital account per-unit of the Company’s OP Unit holders in the Operating Partnership.
As of December 31, 2022, limited partners other than the Company owned approximately 67.00 % of the common units of the Operating Partnership ( 4,079,245 OP Units, or 35.03 %, is held by OP Unit holders, and 3,721,690 LTIP Units, or 31.97 %, is held by LTIP Unit holders, including 3.48 % which are not vested at December 31, 2022). 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 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.
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
LTIP Unit Grants
The Company’s 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 our Board.
The aggregate number of shares of the Company’s common stock authorized for issuance under the BHM Incentive Plans is 3,597,109 , with (i) 1,200,000 shares available for issuance under the BHM Incentive Plans, and (ii) 2,397,109 shares subject to awards granted under the Bluerock Residential Growth REIT, Inc. Amended and Restated 2014 Equity Incentive Plan for Individuals and the Bluerock Residential Growth REIT, Inc. Amended and Restated 2014 Equity Incentive Plan for Entities (together, the “Prior Plans”) that may become available for issuance or reissuance, as applicable, under the BHM Incentive Plans if such awards are forfeited, canceled or otherwise terminated (other than by exercise).
On November 3, 2022, the Company made an initial staking grant of 405,796 LTIP Units to the Manager (such grant, the “Manager Grant”) pursuant to the BHM Incentive Plans. The Manager Grant was evidenced by an LTIP Unit Vesting Agreement. Such LTIP Units will vest ratably on an annual basis over a five-year period. 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. The Company recognized expense of $ 0.3 million related to the Manager grant during the 2022 period. Once vested, these awards of LTIP Units may convert to OP Units upon reaching capital account equivalency with the OP Units held by the Company, and may then be redeemed for cash or, at the option of the Company and after a one year holding period (including any period during which the LTIP Units were held), settled in shares of the Company’s Class A common stock on a one -for-one basis. As a holder of LTIP Units, the Manager will be entitled to receive “distribution equivalents”
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with respect to such LTIP Units, whether or not vested, at the same time distributions are paid to the holders of the Company’s Class A common stock.
In addition, on November 3, 2022, the Company made an initial staking grant of 5,339 LTIP Units to each independent member of the Board (such grants, collectively, the “Director Grants”). Each such Director Grant was evidenced by an LTIP Unit Award Agreement. Such LTIP Units were fully vested upon issuance and may convert to OP Units upon reaching capital account equivalency with the OP Units held by the Company, and may then be redeemed for cash or, at the option of the Company and after a one year holding period (including any period during which the LTIP Units were held), settled in shares of the Company’s Class A common stock on a one -for-one basis. The Company recognized an aggregate expense of $ 0.5 million immediately based on the fair value at the date of grant. From the date of grant, holders of such LTIP Units will be entitled to receive “distribution equivalents” with respect to such LTIP Units at the time distributions are paid to the holders of the Company’s Class A common stock.
In addition, on November 3, 2022, the Company granted 764 LTIP Units to each independent member of the Board in payment of the prorated equity portion of their respective annual retainers for fiscal year 2022 (such grants, collectively, the “Retainer Grants”) pursuant to the BHM Incentive Plans. Each such Retainer Grant was evidenced by an LTIP Unit Award Agreement. Such LTIP Units were fully vested upon issuance and may convert to OP Units upon reaching capital account equivalency with the OP Units held by the Company, and may then be redeemed for cash or, at the option of the Company and after a one year holding period (including any period during which the LTIP Units were held), settled in shares of the Company’s Class A common stock on a one -for-one basis. The Company recognized an aggregate expense of $ 0.1 million immediately based on the fair value at the date of grant. From the date of grant, holders of such LTIP Units will be entitled to receive “distribution equivalents” with respect to such LTIP Units at the time distributions are paid to the holders of the Company’s Class A common stock.
A summary of the status of the Company’s non-vested LTIP Units granted under the BHM Incentive Plans as of December 31, 2022, is as follows:
Weighted average grant-
Non-Vested LTIP Units
LTIP Units
date fair value
Balance at January 1, 2022
—
$
—
Granted
430,208
22.64
Vested
( 24,412 )
22.64
Forfeited
—
—
Balance at December 31, 2022
405,796
$
22.64
As of December 31, 2022, there was $ 8.9 million of total unrecognized compensation expense related to unvested LTIP Units granted under the Incentive Plans. The remaining expense is expected to be recognized over a period of 4.8 years.
The Company currently uses authorized and unissued shares to satisfy share award grants.
Distributions
There is no assurance that the Company will declare dividends. Holders of OP Units and 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.
Note 15 – Commitments and Contingencies
The aggregate amount of the Company’s contractual commitments to fund future cash obligations in certain of its preferred equity and joint venture investments was $ 3.4 million and $ 108.1 million as of December 31, 2022 and 2021, respectively.
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 combined consolidated financial position or results of operations or liquidity of the Company.
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Note 16 – Subsequent Events
Issuance of LTIP Units under the BHM Incentive Plans
On January 1, 2023, the Company granted 3,303 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.
Acquisition of Additional Interests in Peak JV 4, formerly Savannah 319
On January 6, 2023, the Company purchased Peak REIT OP’s interest in Peak JV 4, increasing the Company’s interest in the joint venture from 80 % to 100 %. The Company purchased Peak REIT OP’s interest for $ 1.0 million in cash after the Company’s priority equity contributions in the aggregate of $ 10.3 million were applied against the aggregate unit purchase prices of $ 15.8 million.
Issuance of C-LTIP Units for Payment of the Fourth Quarter 2022 Base Management Fee and Operating Expense Reimbursement
The Manager earned a base management fee of $ 1.8 million during the fourth quarter 2022. This amount was payable 50 % in C-LTIP Units with the other 50 % payable in either cash or C-LTIP Units, at the discretion of the Board. In addition, the Manager was entitled to a $ 0.4 million reimbursement for operating expenses it incurred on behalf of the Company for the fourth quarter 2022. This reimbursement was payable in cash or C-LTIP Units, at the discretion of the Board. Upon consultation with the Manager, the Board elected to pay 100 % of the base management fee and the operating expense reimbursement in C-LTIP Units. On February 22, 2023, the Company issued 85,750 and 17,462 C-LTIP Units in payment of the base management fee and operating expense reimbursement, respectively, for the fourth quarter 2022.
Peak REIT OP Interests
On March 3, 2023, the Company’s agreement with Peak REIT OP regarding its total preferred equity investment was amended. Previously, the Company earned a 7.0 % current return and a 3.0 % accrued return, for a total preferred return of 10.0 % per annum, on $ 16.0 million of its investment. On the Company’s remaining $ 4.3 million investment, it earned a 4.0 % current return and a 4.0 % accrued return, for a total preferred return of 8.0 % per annum. On the Company’s total $ 20.3 million investment, it earned a total weighted average preferred return of 9.6 % per annum. As part of the amendment, the Company’s two tranches of preferred equity investments were combined into one $ 20.3 million preferred equity investment earning a 6.4 % current return and a 3.2 % accrued return, for a total preferred return of 9.6 % per annum. In addition, the amendment increased the collateral underlying the Company’s preferred investment from 474 units to 648 units.
On March 9, 2023, the Company’s preferred equity investment in the Peak REIT OP was partially redeemed for $ 4.1 million, which included principal investment of $ 4.0 million and accrued preferred return of $ 0.1 million, leaving the Company’s remaining preferred equity investment in the Peak REIT OP at $ 16.3 million.
Acquisition of Additional Interests in Peak JV 1, formerly Indy and Springfield
On March 8, 2023, the Company purchased Peak REIT OP’s interest in Peak JV 1, increasing its interest in the joint venture from 60 % to 100 %. The Company purchased Peak REIT OP’s interest for $ 4.1 million in cash after its priority equity contributions, plus adjustments typical in such real estate transactions, in the aggregate of $ 40.4 million were applied against the aggregate unit purchase prices of $ 50.6 million.
Investment Activity
Subsequent to December 31, 2022 and through the filing date of this Annual Report on Form 10-K, the Company (i) acquired an additional 18 consolidated operating units included in Peak JV 4, (ii) increased its preferred equity investment commitment in the Willow Park JV by $ 2.1 million, for a total commitment of $ 4.6 million, and (iii) increased its preferred equity investment commitment in the Woods JV by $ 2.3 million, for a total commitment of $ 5.6 million.
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Bluerock Homes Trust, Inc.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 2022
(amounts in thousands)
COLUMN A
COLUMN B
COLUMN C
COLUMN D
COLUMN E
COLUMN F
COLUMN G
COLUMN H
Life on Which
Costs
Depreciation in
Initial Cost
Capitalized
Gross Amount at Which Carried at Close of Period
Latest Income
Building and
Subsequent
Building and
Accumulated
Date of
Statement is
Property
Location
Encumbrance
Land
Improvements
to Acquisition
Land
Improvements
Total
Depreciation
Acquisition
Computed
Real Estate Held for Investment
Ballast
AZ / CO / WA
$
—
$
7,272
$
25,900
$
1,009
$
7,316
$
26,865
$
34,181
$
569
2022
3 - 40 Years
Golden Pacific
IN / KS / MO
—
6,235
29,994
4,583
6,235
34,577
40,812
795
2021 / 2022
3 - 40 Years
ILE
TX / SE US
30,575
22,438
90,637
10,118
22,438
100,755
123,193
2,829
2021 / 2022
3 - 40 Years
Navigator Villas
WA
20,039
2,026
27,206
1,103
2,027
28,308
30,335
3,215
2019
3 - 40 Years
Peak JV 1 (1)
IN / MO
—
8,304
44,645
1,031
8,308
45,672
53,980
2,037
2021
3 - 40 Years
Peak JV 2 (2)
TX
—
10,938
77,105
2,898
10,949
79,992
90,941
2,966
2021 / 2022
3 - 40 Years
Peak JV 3, formerly DFW 189
TX
—
5,638
22,416
695
5,641
23,108
28,749
788
2021
3 - 40 Years
Peak JV 4, formerly Savannah 319
GA
—
2,200
14,049
97
2,200
14,146
16,346
230
2022
3 - 40 Years
Wayford at Concord
NC
32,973
2,933
40,922
90
2,933
41,012
43,945
2,133
2021
3 - 40 Years
Yauger Park Villas
WA
14,644
1,322
24,575
637
1,322
25,212
26,534
1,619
2021
3 - 40 Years
Subtotal
98,231
69,306
397,449
22,261
69,369
419,647
489,016
17,181
Non-Real Estate assets
REIT Operator
MI
—
—
185
790
—
975
975
684
2017
5 Years
Subtotal
—
—
185
790
—
975
975
684
Total
$
98,231
$
69,306
$
397,634
$
23,051
$
69,369
$
420,622
$
489,991
$
17,865
(1) Peak JV 1 includes the portfolios formerly presented as Indy and Springfield.
(2) 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.
F-41
Table of Contents
Bluerock Homes Trust, Inc.
Notes to Schedule III
December 31, 2022
(amounts in thousands)
1. Reconciliation of Real Estate Properties
The following table reconciles the Real Estate Properties from January 1, 2021 to December 31, 2022.
2022
2021
Balance at January 1
$
323,048
$
377,781
Construction and acquisition cost
166,943
293,846
Disposition of real estate
—
( 348,579 )
Balance at December 31
$
489,991
$
323,048
2. Reconciliation of Accumulated Depreciation
The following table reconciles the Real Estate Properties from January 1, 2021 to December 31, 2022.
2022
2021
Balance at January 1
$
4,964
$
35,375
Current year depreciation expense
12,901
6,332
Disposition of real estate
—
( 36,743 )
Balance at December 31
$
17,865
$
4,964
F-42
Table of Contents
Bluerock Homes Trust, Inc.
Schedule IV - Mortgage Loans on Real Estate
December 31, 2022
Principal Amount of
Face Amount of
Carrying Amount of
Mortgages Subject
Periodic Payment
Mortgages (in
Mortgages (in
to Delinquent
Description
Property Name
Location
Interest Rate
Maturity Date
Terms
Prior Liens
thousands)
thousands)
Principal or Interest
Real Estate Loans on Residential Rental Community (1)
—
—
—
—
—
—
$
—
$
—
—
$
—
$
—
(1) The Hartley at Blue Hill and Weatherford 185 loans previously presented in Schedule IV were paid off in full during 2022. Refer to Note 7 for further information.
F-43
Table of Contents
Bluerock Homes Trust, Inc.
Notes to Schedule IV - Reconciliation of Mortgage Loans on Real Estate
(amounts in thousands)
Year Ended December 31,
2022
2021
Balance at beginning of period
$
36,000
$
47,900
Additions during period:
Purchases
9,645
526
Deductions during period:
Collections of principal
( 45,645 )
( 12,426 )
Balance at end of period
$
—
$
36,000
F-44
Table of Contents
EXHIBIT INDEX
Exhibit Number
Description
2.1
Separation and Distribution Agreement, dated as of October 5, 2022, by and among Bluerock Residential Growth REIT, Inc., Badger Parent LLC, Badger Holdco LLC, Bluerock Residential Holdings, L.P. and Bluerock Homes Trust, Inc., incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on October 6, 2022
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
4(vi)
Description of Registrant ’ s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934
10.1
Tax Matters Agreement, dated as of October 5, 2022, by and among Bluerock Residential Growth REIT, Inc., Badger Parent LLC, Badger Holdco LLC, Bluerock Residential Holdings, L.P., Bluerock REIT Holdings, LLC and Bluerock Homes Trust, Inc., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.2
Management Agreement, dated as of October 5, 2022, by and among Bluerock Homes Manager, LLC, Bluerock Homes Trust, Inc. and Bluerock Residential Holdings, L.P., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.3
Amendment to Management Agreement, dated January 10, 2023, by and among Bluerock Homes Manager, LLC, Bluerock Homes Trust, Inc. and Bluerock Residential Holdings, L.P., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 12, 2023
10.4
Bluerock Homes Trust, Inc. 2022 Equity Incentive Plan for Individuals, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.5
Bluerock Homes Trust, Inc. 2022 Equity Incentive Plan for Entities, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.6
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and R. Ramin Kamfar, effective October 6, 2022, incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.7
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Jordan Ruddy, effective October 6, 2022, incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on October 6, 2022
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Table of Contents
10.8
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Ryan MacDonald, effective October 6, 2022, incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.9
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and James G. Babb, III, effective October 6, 2022, incorporated by reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.10
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Christopher J. Vohs, effective October 6, 2022, incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.11
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Michael DiFranco, effective October 6, 2022, incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.12
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Jason Emala, effective October 6, 2022, incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.13
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and I. Bobby Majumder, effective October 6, 2022, incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.14
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Elizabeth Harrison, effective October 6, 2022, incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.15
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Kamal Jafarnia, effective October 6, 2022, incorporated by reference to Exhibit 10.14 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.16
Indemnification Agreement by and among Bluerock Homes Trust, Inc., Bluerock Residential Holdings, L.P. and Romano Tio, effective October 6, 2022, incorporated by reference to Exhibit 10.15 to the Company’s Current Report on Form 8-K filed on October 6, 2022
10.17
Loan Agreement, dated April 6, 2022, by and among persons that are party thereto listed as Borrowers, persons party thereto that are listed as Equity Owners, Bluerock Residential Holdings, LP, persons that are party thereto listed as Lenders, Deutsche Bank Securities Inc., Deutsche Bank AG, New York Branch and Computershare Trust Company, N.A., incorporated by reference to Exhibit 10.16 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2022
10.18
Sponsor Guaranty, dated April 6, 2022, by and between Bluerock Homes Trust, Inc. and Deutsche Bank AG, New York Branch, incorporated by reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2022
10.19
Managing Broker Dealer Agreement by and among Bluerock Homes Trust, Inc. and Bluerock Capital Markets, LLC, dated November 1, 2022, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 1, 2022
10.20
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
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Table of Contents
10.21
First Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated October 21, 2015, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on October 21, 2015
10.22
Second Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated December 21, 2015, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on December 22, 2015
10.23
Third Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated March 1, 2016, incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on March 1, 2016
10.24
Fourth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated March 29, 2016, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on April 19, 2016
10.25
Fifth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated July 15, 2016, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on July 18, 2016
10.26
Sixth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated October 11, 2016, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on October 12, 2016
10.27
Seventh Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated July 21, 2017, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on July 21, 2017
10.27
Eighth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated October 31, 2017, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on November 6, 2017
10.28
Ninth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated November 15, 2017, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on November 20, 2017
10.29
Tenth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated August 6, 2018, incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q of Bluerock Residential Growth REIT, Inc. filed on August 8, 2018
10.30
Eleventh Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated November 16, 2018, incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on November 19, 2018
10.31
Twelfth Amendment to the Second Amended and Restated Agreement of Limited Partnership of Bluerock Residential Holdings, L.P., dated November 19, 2019, incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on November 19, 2019
10.32
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 the Current Report on Form 8-K of Bluerock Residential Growth REIT, Inc. filed on September 22, 2022
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Table of Contents
10.33
Fourteenth Amendment to the 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 1, 2022
10.34
Fifteenth Amendment to the 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
10.35
Form of Dealer Manager Agreement by and among Bluerock Homes Trust, Inc. and Bluerock Capital Markets, LLC, incorporated by reference to Exhibit 10.18 to the Company’s Registration Statement on Form S-11 (SEC File No. 333-269415) filed on January 25, 2023
14.1
Code of Business Conduct and Ethics, effective October 6, 2022, incorporated by reference to Exhibit 14.1 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2022
14.2
Code of Ethics for Senior Executive and Financial Officers, effective October 6, 2022, incorporated by reference to Exhibit 14.2 to the Company’s Quarterly Report on Form 10-Q filed on November 4, 2022
21.1
List of Subsidiaries, incorporated by reference to Exhibit 21.1 to the Company’s Registration Statement on Form S-11 (SEC File No. 333-269415) filed on January 25, 2023
23.1
Consent of Grant Thornton LLP
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
Information Statement of Bluerock Homes Trust, Inc., dated September 26, 2022, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by the Company on September 26, 2022
99.2
Press Release of Bluerock Homes Trust, Inc., issued October 6, 2022, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by the Company on October 6, 2022
99.3
Unaudited Pro Forma Combined Financial Statements as of September 30, 2022 and for the three and nine months ended September 30, 2022, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K filed by the Company on November 4, 2022
101.1
The following information from the Company’s annual report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Balance Sheets; (ii) Statements of Operations; (iii) Statement of Stockholders’ Equity; (iv) Statements of Cash Flows
104.1
Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101.1)
84
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.