What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-04 · 316 added, 549 removed, 302 unchanged (74% of the section changed)

1 unchanged sentence

BLUEROCK HOMES TRUST, INC.

COMBINED BALANCE SHEETS

(In thousands)

September 30,

COMBINED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

Net Real Estate Investments

6 unchanged sentences

Restricted cash

Notes and accrued interest receivable, net

Due from affiliates

Accounts receivable, prepaids and other assets, net

Preferred equity investments in unconsolidated real estate joint ventures, net

In-place lease intangible assets, net

LIABILITIES AND NET PARENT INVESTMENT

LIABILITIES AND EQUITY

Mortgages payable

3 unchanged sentences

Due to affiliates

Distributions payable

Total Liabilities

Net Parent Investment

Bluerock Homes equity

Partially owned noncontrolling interests

Total Net Parent Investment

TOTAL LIABILITIES AND NET PARENT INVESTMENT

See Notes to Combined Financial Statements

Stockholders’ Equity

Preferred stock, $ 0.01 par value, 250,000,000 shares authorized;

no shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock - Class A, $ 0.01 par value, 562,500,000 shares authorized;

3,835,013 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Common stock - Class C, $ 0.01 par value, 187,500,000 shares authorized;

8,489 shares issued and outstanding as of March 31, 2023 and December 31, 2022

Additional paid-in-capital

Retained earnings

Total Stockholders’ Equity

Noncontrolling Interests

Operating partnership units

Partially owned properties

Total Noncontrolling Interests

TOTAL LIABILITIES AND EQUITY

See Notes to Combined Consolidated Financial Statements

BLUEROCK HOMES TRUST, INC.

COMBINED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands)

COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30,

Rental and other property revenues

4 unchanged sentences

General and administrative

Acquisition and pursuit costs

Management fees to related party

Acquisition and other transaction costs

Depreciation and amortization

Total expenses

Operating (loss) income

Operating loss

Other income (expense)

2 unchanged sentences

Interest expense, net

Total other income

Net income (loss) from continuing operations

Discontinued operations

Income on operations of rental property

Loss on extinguishment of debt

Gain on sale of assets from discontinued operations

Income from discontinued operations

Net income (loss)

Net (loss) income attributable to partially owned noncontrolling interests

Net income attributable to Bluerock Homes

See Notes to Combined Financial Statements

Total other (loss) income

Net loss attributable to noncontrolling interests

Operating partnership units

Partially owned properties

Net loss attributable to noncontrolling interests

Net loss attributable to common stockholders

Net loss per common share – Basic (2)

Net loss per common share – Diluted (2)

Weighted average basic common shares outstanding (2)

Weighted average diluted common shares outstanding (2)

(1) The consolidated financial statements for the three months ended March 31, 2023 represent the Company’s results of operations as an independent, publicly traded company.

The combined consolidated financial statements for the three months ended March 31, 2022 present the Company’s results of operations prior to the spin-off transaction on October 6, 2022, which represents a carve-out of operations attributable to the Company related to Bluerock Residential’s single-family residential home business.

As a result, results of operations for the three months ended March 31, 2023 may not be comparable to the Company’s results of operations for the prior period presented.

(2) Basic and diluted net loss per common share for the three months ended March 31, 2022 were calculated using the number of common stock shares distributed on October 6, 2022 in connection with the spin-off transaction.

See Notes to Combined Consolidated Financial Statements

BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2022 and 2021

COMBINED STATEMENTS OF NET PARENT INVESTMENT (Unaudited)

(In thousands)

Partially Owned

Bluerock Homes

Noncontrolling

Total Net Parent

Balance, July 1, 2022

Distributions to partially owned noncontrolling interests

Contributions, net

Net income (loss)

Balance, September 30, 2022

Partially Owned

Bluerock Homes

FOR THE THREE MONTHS ENDED MARCH 31, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share and per share amounts)

Noncontrolling

Total Net Parent

Balance, July 1, 2021

Balance, January 1, 2023

Issuance of LTIP Units for director compensation

Issuance of LTIP Units to Manager

Acquisition of noncontrolling interests

Distributions to partially owned noncontrolling interests

Contributions, net

Balance, September 30, 2021

See Notes to Combined Financial Statements

Contributions from noncontrolling interests

Adjustment for noncontrolling interest ownership in the Operating Partnership

Balance, March 31, 2023

See Notes to Combined Consolidated Financial Statements

BLUEROCK HOMES TRUST, INC.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021

COMBINED STATEMENTS OF NET PARENT INVESTMENT (Unaudited)

FOR THE THREE MONTHS ENDED MARCH 31, 2022

COMBINED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands)

Partially Owned

Bluerock Homes

Noncontrolling

Total Net Parent

Balance, January 1, 2022

Distributions to partially owned noncontrolling interests

Contributions, net

Net income (loss)

Balance, September 30, 2022

Partially Owned

Bluerock Homes

Noncontrolling

Total Net Parent

Balance, January 1, 2021

Distributions to partially owned noncontrolling interests

Contributions, net

Balance, September 30, 2021

See Notes to Combined Financial Statements

Balance, March 31, 2022

See Notes to Combined Consolidated Financial Statements

BLUEROCK HOMES TRUST, INC.

COMBINED STATEMENTS OF CASH FLOWS (Unaudited)

COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

Cash flows from operating activities

Net (loss) income

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Adjustments to reconcile net loss to net cash (used in) provided by operating activities:

Depreciation and amortization

1 unchanged sentence

Preferred returns on unconsolidated real estate joint ventures

Gain on sale of assets from discontinued operations

Fair value adjustment of interest rate caps and swaps

Loss on extinguishment of debt

Recovery of credit losses, net

Provision for (recovery of) credit losses, net

Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures

Share-based compensation attributable to equity incentive plan

Share-based compensation to Manager – LTIP/C-LTIP Units

Changes in operating assets and liabilities:

3 unchanged sentences

Accounts payable and other accrued liabilities

Net cash provided by operating activities

Net cash (used in) provided by operating activities

Cash flows from investing activities:

3 unchanged sentences

Repayments on notes receivable

Proceeds from sale of real estate investments

Proceeds from sale and redemption of unconsolidated real estate joint ventures

Purchase of interests from noncontrolling interests

Proceeds from redemption of unconsolidated real estate joint ventures

Investment in unconsolidated real estate joint venture interests

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Distributions paid

Distributions to partially owned noncontrolling interests

Contributions from partially owned noncontrolling interests

Contributions from Parent

Contributions from Bluerock Residential

Contributions from noncontrolling interests

Borrowings on mortgages payable

Repayments on mortgages payable including prepayment penalties

Proceeds from revolving credit facilities

Repayments on mortgages payable

Repayments on revolving credit facilities

Payments of deferred financing fees

Purchase of interest rate caps

Net cash provided by (used in) financing activities

Net increase in cash, cash equivalents and restricted cash

Net cash (used in) provided by financing activities

Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash, beginning of year

8 unchanged sentences

Distributions payable – declared and unpaid

Mortgages assumed upon property acquisition

Mortgages assumed by buyer upon sale of real estate assets

Capital expenditures held in accounts payable and other accrued liabilities

See Notes to Combined Financial Statements

See Notes to Combined Consolidated Financial Statements

BLUEROCK HOMES TRUST, INC.

NOTES TO COMBINED FINANCIAL STATEMENTS

NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

Bluerock Homes Trust, Inc.

(the “Company” or “Bluerock Homes”) has 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 that resulted in its single-family residential real estate business and certain other assets being contributed to the Company.

Financial statements have been derived from Bluerock Residential’s historical accounting records and are presented on a carve-out basis.

(the “Company” or “Bluerock Homes”) was formed in Maryland as a wholly owned subsidiary of Bluerock Residential Growth REIT, Inc (“Bluerock Residential”) on December 16, 2021, and historically operated as part of Bluerock Residential and not as a standalone company.

Financial statements for the period ended and prior to October 6, 2022 have been derived from Bluerock Residential's historical accounting records and are presented on a carve-out basis.

All revenues and costs as well as assets and liabilities directly associated with the business activity of 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.

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 financial statements for the period ended and prior to October 6, 2022 also include general and administrative expenses that have been allocated to the Company from Bluerock Residential based on relative unit count.

These allocated expenses are for corporate office expenses and management including, but not limited to, executive oversight, asset management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations.

However, amounts recognized by the Company are not representative of the amounts that would have been reflected in these financial statements had the Company operated independently of Bluerock Residential.

Any references to “the Company” for all periods ended October 6, 2022 and prior refer to Bluerock Homes as owned by Bluerock Residential.

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.

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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 September 30, 2022, the Company held an aggregate of 3,963 residential units held through twenty-nine real estate investments, consisting of twenty-two consolidated operating investments and seven investments held through preferred equity investments.

As of September 30, 2022, the Company’s consolidated operating investments were approximately 90.9 % 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 ending December 31, 2022.

As of March 31, 2023, the Company held an aggregate of 4,160 residential units held through seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments.

As of March 31, 2023, the Company’s consolidated operating investments were approximately 94.5 % occupied.

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 its 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 as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates.

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 and it would not be permitted to qualify as a REIT for four years following the year in which its qualification was denied.

The Company intends to organize and operate in such a manner that it would qualify and remain qualified as a REIT.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

Basis of Presentation and Principles of Consolidation

The Company conducts its operations through Bluerock Residential Holdings, L.P., its operating partnership (the “Operating Partnership”), of which it is the sole general partner.

The combined financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries.

Bluerock Homes consists of the combined 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 (Axelrod, DFW 189, Granbury, Granbury 2.0, Indy, Lubbock, Lubbock 2.0, Lubbock 3.0, Lynnwood, Lynnwood 2.0, Peak Housing, Savannah 319, Springfield, Springtown, Springtown 2.0, Texarkana and Texas Portfolio 183), 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 general and administrative expenses have been allocated to the Company based on relative unit count.

In accordance with adoption of the lease accounting update issued in July 2018, the Company reflects all income earned pursuant to tenant leases in a single line item, “Rental and other property revenues,” in the combined statements of operations.

The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all the information and disclosures required by GAAP for complete financial statements.

It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in our audited combined financial statements for the year ended December 31, 2021 contained in the Information Statement filed as Exhibit 99.1 to our Form 8-K filed on September 26, 2022.

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” in the Information Statement filed as Exhibit 99.1 to our Form 8-K filed on September 26, 2022.

Summary of Significant Accounting Policies

The combined consolidated financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries.

As of March 31, 2023, limited partners other than the Company owned approximately 67.32 % of the common units of the Operating Partnership ( 62.67 % is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 4.65 % is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.45 % which are not vested at March 31, 2023).

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 spin-off transaction.

Reclassifications to net loss 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.

Real Estate Investments and Preferred Equity Investments

11 unchanged sentences

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.

If it has been determined that the Company does not have control but does have the ability to exercise significant influence over the entity, the Company accounts for these investments as preferred equity investments in unconsolidated real estate joint ventures in its consolidated balance sheets.

In accordance with 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 statements of operations.

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.

Notes Receivable (Real Estate Loan Investment)

The Company analyzes each loan arrangement that involves real estate development to consider whether the loan qualifies for accounting as a loan or as an investment in a real estate development project.

The Company has evaluated its real estate loans, where appropriate, for accounting treatment as loans versus real estate development projects, as required by ASC 310-10 Receivables .

For each loan, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate.

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.

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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 September 30, 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, 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.

Real Estate Assets

Capital Additions, Depreciation and Amortization

The Company capitalizes costs, including certain indirect costs, incurred in connection with its capital addition activities, including redevelopment, development and construction projects, other tangible property improvements, and replacements of existing property components.

Included in these capitalized costs are payroll costs associated with time spent by employees in connection with capital addition activities at the property level.

The Company characterizes as “indirect costs” an allocation of certain department costs, including payroll, at the corporate levels that clearly relate to capital additions activities.

The Company also capitalizes interest, property taxes and insurance during periods in which redevelopment, development and construction projects are in progress.

Cost capitalization begins once the development or construction activity commences and ceases when the asset is ready for its intended use.

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.

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:

30 – 40 years

Building improvements

Land improvements

Furniture, fixtures and equipment

In-place leases

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.

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, 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 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 statement of operations.

Amounts received in advance are recorded as a liability within other accrued liabilities on the Company’s combined balance sheet.

Other property revenues are recognized in the period earned.

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 investments as two operating segments, and, accordingly, aggregates its properties into two reportable segments:

single-family residential units and multifamily apartment communities.

Refer to Note 15 for further information.

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 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 the lessee operating lease commitments have no material impact on its combined 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.

The Company did not have any loan investments at March 31, 2023.

Significant Risks and Uncertainties

The COVID-19 Pandemic and Uncertainty Due to Economic Volatility

The Company’s results of operations in the future may be directly or indirectly affected by uncertainties such as the effects of the novel coronavirus (“COVID-19”) pandemic or inflation and related volatility in the market.

State, local and federal entities imposed various temporary restrictions on eviction, late fees, and rent prices as a result of the COVID-19 pandemic.

While many of those temporary restrictions have ended, the Company continues to monitor policies related to these restrictions to reduce the consequences of such policies on the Company’s financial condition.

If conditions similar to those experienced during the COVID-19 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.

Additionally, inflation accelerated rapidly in 2022 and into the first quarter of 2023.

The Company’s operating costs, including utilities and payroll, may increase as a result of increases in inflation.

The Federal Reserve has continued to increase interest rates to curb the effects of rising inflation.

Rising interest rates cause uncertainty in credit and capital markets which could have material and adverse effects on the Company’s financial condition, results of operations and cash flows.

The Company continues to closely monitor the impact of COVID-19 and economic volatility on all aspects of its business.

Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission (“SEC”) on March 22, 2023 for discussion of the Company’s significant accounting policies.

During the three months ended March 31, 2023, there were no material changes to these policies.

Interim Financial Information

The accompanying unaudited combined consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) for interim financial reporting, and the instructions to Form 10-Q and Article 10-1 of Regulation S-X.

Accordingly, the financial statements for interim reporting do not include all the information and notes or disclosures required by GAAP for complete financial statements.

In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.

Operating results for interim periods should not be considered indicative of the operating results for a full year.

The balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all the information and disclosures required by GAAP for complete financial statements.

It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s audited combined consolidated financial statements for the year ended December 31, 2022 contained in the Annual Report on Form 10-K as filed with the SEC on March 22, 2023.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the Unites States of America (“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.

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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The amendments in ASU 2021-01 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 amendments in ASU 2021-01 are effective immediately and may be elected over time as reference rate reform activities occur through December 31, 2022.

The amendments in ASU 2021-01 are effective immediately, though as the sunset date of Topic 848 was deferred through the issuance of ASU No.

2022-06, such amendments may 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.

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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 operating properties as follows:

ARIUM Grandewood, James at South First, Marquis at The Cascades, Plantation Park, Park & Kingston and The District at Scottsdale.

We have concluded that these multifamily 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 are summarized in the following table (amounts in thousands):

Three Months Ended

Nine Months Ended

September 30,

Total Revenues

Property operating

Property management and asset management fees

Weather-related losses, net

Depreciation and amortization

Interest expense, net

Total expenses

Income on operations of rental property

Loss on extinguishment of debt

Gain on sale of real estate investments

Income from discontinued operations

The amounts in the statement of cash flows that are included in discontinued operations are summarized in the following table (amounts in thousands):

Nine Months Ended

September 30,

Depreciation and amortization

Capital expenditures

Note 4 – Sale of Real Estate Assets

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 3 – Investments in Real Estate

As of September 30, 2022, the Company held twenty-nine real estate investments, consisting of twenty-two consolidated operating investments and seven investments held through preferred equity investments.

As of March 31, 2023, 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.

1 unchanged sentence

Golden Pacific

Indy-Springfield, formerly Peak JV 1

Navigator Villas

Dallas-Fort Worth, TX

Indianapolis, IN

Springfield, MO

Springtown, TX

Springtown 2.0

Springtown, TX

Texarkana, TX

Texas Portfolio 183

Savannah-84, formerly Peak JV 4

Wayford at Concord

Yauger Park Villas

Depreciation expense was $ 3.5 million and $ 1.0 million, and $ 9.1 million and $ 1.9 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Depreciation expense was $ 4.0 million and $ 2.5 million for the three months ended March 31, 2023 and 2022, respectively.

Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases.

Amortization expense related to the in-place leases was $ 0.1 million and $ 0.7 million, and $ 2.7 million and $ 1.0 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Amortization expense related to the in-place leases was zero and $ 1.7 million for the three months ended March 31, 2023 and 2022, respectively.

Preferred Equity Investments

1 unchanged sentence

Location / Market

The Woods at Forest Hill

Forest Hill, TX

Willow Park, TX

The Cottages at Warner Robins

Warner Robins, GA

Total Lease-up Units

Development Investment Name

The Woods at Forest Hill

Forest Hill, TX

The Cottages at Myrtle Beach

Myrtle Beach, SC

The Cottages at Warner Robins

Warner Robins, GA

The Cottages of Port St.

5 unchanged sentences

Total Operating Units

(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.

Note 6 – Acquisition of Real Estate

The following describes the Company’s significant acquisition activity and related new financing during the nine months ended September 30, 2022 ($ in thousands):

March 11, 2022

March 17, 2022

Golden Pacific

(1) For those acquisitions where the quarter is specified, 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) The $ 5.4 million mezzanine loan provided by the Company at the time of acquisition was converted into a common equity interest on April 1, 2022.

Refer to the Peak Housing Interests and Financing disclosure in Note 8 for further information.

(3) Purchase price was funded in full by the Company and its unaffiliated joint venture partner upon acquisition.

(4) 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.

(1) Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing the Company’s preferred equity investment in the Peak REIT OP as of March 31, 2023 (refer to Note 6 for further information).

Unit counts excludes units presented in the consolidated operating investments table above .

Note 4 – Acquisition of Real Estate and Additional Interests

Acquisition of Additional Savannah-84 units, formerly Peak JV 4

On February 23, 2023, the Company acquired 18 single-family residential units located in Savannah, Georgia that were added to the existing Savannah-84 portfolio.

The Company has a 100 % interest in the units and the purchase price of approximately $ 4.2 million was fully funded in cash upon acquisition.

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 nine months ended September 30, 2022 (amounts in thousands):

The real estate acquisition above has been accounted for as an asset acquisition.

The purchase price was allocated to the acquired assets based on their estimated fair values at the date of acquisition.

The following table summarizes the assets acquired at the acquisition date for the additional Savannah-84 units (amounts in thousands):

Purchase Price

Building improvements

Furniture and fixtures

In-place leases

Total assets acquired (1)

(1) The $ 4.3 million of total assets acquired includes $ 0.1 million of acquisition expenses that have been capitalized as the acquisition of additional real estate units has been accounted for as an asset acquisition.

Acquisition of Additional Interests in Properties

During the three months ended March 31, 2023, the Company acquired the noncontrolling partner’s interest in the following properties ($ in thousands):

January 6, 2023

Indy-Springfield, formerly Peak JV 1

March 8, 2023

Note 5 – Notes and Interest Receivable

At September 30, 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 recovery of credit loss of $ 58,707 .

Provision for and Recovery of Credit Losses

The provision for and recovery of credit losses of the Company’s loan investments at September 30, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):

September 30,

Beginning balances, net as of January 1, 2022 and 2021, respectively

At March 31, 2023 and December 31, 2022, the Company held no loan investments and there were no outstanding interest receivable amounts due to the Company.

Allowance for Credit Losses

The provision for and recovery of credit losses of the Company’s loan investments at December 31, 2022 is summarized in the table below (amounts in thousands).

The Company had no provision for or recovery of credit losses at March 31, 2023.

Beginning balance, net as of January 1, 2022

Recovery of credit losses on pool of assets, net (1)

1 unchanged sentence

(1) Under CECL, a provision for 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 nine months ended September 30, 2022 was a result of the sale of The Hartley at Blue Hill.

Following is a summary of the interest income from loan investments for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

The recovery of credit losses during the year ended December 31, 2022 was a result of the sale of The Hartley at Blue Hill.

The following table is a summary of the interest income from loan investments for the three months ended March 31, 2022 (amounts in thousands).

The Company did no t record any interest income from loan investments during the three months ended March 31, 2023 as it held no loan investments during this period.

Three Months Ended

Nine Months Ended

September 30,

March 31, 2022

The Hartley at Blue Hill (1)

Vickers Historic Roswell (3)

Weatherford 185 (2)

(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 homes previously owned by the Company’s joint venture partner, were combined into one consolidated portfolio known as Texas Portfolio 183.

(1) 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.

(2) 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.

The Hartley at Blue Hill Loan Financing

The Hartley at Blue Hill property was sold on February 28, 2022.

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 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.

Note 6 – 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 September 30, 2022 and December 31, 2021 is summarized in the table below (amounts in thousands):

September 30,

The carrying amount of the Company’s preferred equity investments in unconsolidated real estate joint ventures as of March 31, 2023 and December 31, 2022 is summarized in the table below (amounts in thousands):

The Cottages at Myrtle Beach

4 unchanged sentences

Provision for credit losses

Provision for and Recovery of Credit Losses

The provision for and recovery of credit losses of the Company’s preferred equity investments at September 30, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):

September 30,

Allowance for Credit Losses

The provision for and recovery of credit losses of the Company’s preferred equity investments at March 31, 2023 and December 31, 2022 are summarized in the table below (amounts in thousands):

Beginning balances, net as of January 1, 2023 and 2022, respectively

Recovery of credit losses on pool of assets, net (1)

Recovery of credit loss – Alexan Southside Place (2)

Provision for (recovery of) credit losses on pool of assets, net (1)

Provision for credit losses, net, end of period

1 unchanged sentence

(1) Under CECL, a provision for 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 nine months ended September 30, 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.

As of September 30, 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 statements of operations.

The provision for credit losses during the three months ended March 31, 2023 was primarily attributable to an increase in the trailing twelve-month historical default rate.

(2) In 2021, Alexan Southside Place, the property underlying the Company’s preferred equity investment, was sold.

In 2022, the Company recognized a partial recovery of a previously recorded credit loss on Alexan Southside Place.

As of March 31, 2023, the Company, through wholly-owned subsidiaries of the Operating Partnership, had outstanding preferred equity investments in seven joint ventures which are classified as held to maturity debt securities as the Company has the intention and ability to hold the investments to maturity.

The Company earns a fixed return on these investments, which is included within preferred returns on unconsolidated real estate joint ventures in its combined consolidated statements of operations.

Each joint venture’s purpose is to develop or operate a portfolio of residential units.

The preferred returns on the Company’s unconsolidated real estate joint ventures for the three and nine months ended September 30, 2022 and 2021 are summarized below (amounts in thousands):

The preferred returns on the Company’s unconsolidated real estate joint ventures for the three months ended March 31, 2023 and 2022 are summarized below (amounts in thousands):

Three Months Ended

Nine Months Ended

September 30,

Mira Vista (1)

The Conley (1)

The Cottages at Myrtle Beach

2 unchanged sentences

The Woods at Forest Hill

Thornton Flats (1)

Wayford at Concord (2)

Wayford at Innovation Park

Total preferred returns on unconsolidated joint ventures

(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 September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022

The occupancy percentages of the Company’s unconsolidated real estate joint ventures at March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023

December 31, 2022

5 unchanged sentences

Willow Park (5)

(1) The development had not commenced lease-up as of September 30, 2022.

(1) The development had not commenced lease-up as of March 31, 2023.

(2) The development had not commenced lease-up as of December 31, 2022.

(3) The Cottages at Warner Robins commenced lease-up in February 2023.

(4) The Woods at Forest Hill commenced lease-up in October 2022.

(5) Willow Park commenced lease-up in late June 2022.

Peak Housing Interests and Financing

During 2021, the Company made a preferred equity investment in the operating partnership of Peak Housing REIT (the “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.

During the first quarter 2022, the Company made common equity investments, along with the Peak REIT OP, in the following two portfolios of single-family residential units:

Granbury 2.0 and Savannah 319.

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 (Savannah 319 excluded) respective portfolio owners.

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 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 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 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 statements of operations.

On April 1, 2022, the mortgage or mezzanine loans provided by the Company to twelve of the fifteen respective portfolio owners 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 two of the fifteen respective portfolio owners 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 September 30, 2022, one mezzanine loan remains outstanding that has been provided by the Company to a portfolio owner.

Peak Housing Interests

On March 3, 2023, the Company’s agreement with the operating partnership of 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 equity investment from 474 units to 648 units.

Peak REIT OP may sell the units collateralizing the Company’s preferred equity investment, though Peak REIT OP is required to distribute any net sale proceeds to the Company, after consideration for partnership operating expenses and reserve requirements, until the Company’s full preferred equity investment has been repaid in full, subject to certain rate of return requirements and including any accrued but unpaid preferred returns.

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.

The Woods at Forest Hill Interests

The Company is party to a joint venture agreement with the Peak REIT OP (the “Woods JV”) to develop approximately 76 -build for rent, single-family residential homes in Forest Hill, Texas.

The Company made an original commitment to invest $ 3.3 million of preferred equity interests in the Woods JV.

On March 17, 2023, the Company increased its commitment in the Woods JV by $ 2.3 million, for a total preferred equity investment commitment of $ 5.6 million, of which $ 3.5 million had been funded as of March 31, 2023.

The Company earns a 13.0 % per annum accrued return on its original preferred equity investment of $ 3.3 million.

On its additional preferred equity investment commitment of $ 2.3 million, the Company will earn an accrued return on its outstanding capital contributions at a rate of 15.0 % per annum compounded monthly, subject to a minimum multiple.

Willow Park Interests

The Company is party to a joint venture agreement with the Peak REIT OP (the “Willow Park JV”) to develop approximately 46 -build for rent, single-family residential homes in Willow Park, Texas.

The Company made an original commitment to invest $ 2.5 million of preferred equity interests in the Willow Park JV.

On February 28, 2023, the Company increased its commitment in the Willow Park JV by $ 2.1 million, for a total preferred equity investment commitment of $ 4.6 million, of which $ 3.0 million had been funded as of March 31, 2023.

The Company earns a 13.0 % per annum accrued return on its original preferred equity investment of $ 2.5 million.

On its additional preferred equity investment commitment of $ 2.1 million, the Company will earn an accrued return on its outstanding capital contributions at a rate of 15.0 % per annum compounded monthly, subject to a minimum multiple.

Note 7 — Revolving Credit Facilities

The outstanding balances on the revolving credit facilities as of September 30, 2022 and December 31, 2021 are as follows (amounts in thousands):

The outstanding balances on the revolving credit facilities as of March 31, 2023 and December 31, 2022 are as follows (amounts in thousands):

Revolving Credit Facilities

September 30, 2022

March 31, 2023

December 31, 2022

Amended Senior Credit Facility

Amended Junior Credit Facility

DB Credit Facility

ILE Sunflower Credit Facility

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 was to mature on March 6, 2023 and contained two one-year extension options, subject to certain conditions.

The Amended Senior Credit Facility contained certain financial and operating covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio and minimum tangible net worth.

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.

At September 30, 2022, Bluerock Residential had one outstanding letter of credit of $ 0.8 million.

Amended Junior Credit Facility

On September 21, 2021, Bluerock Residential entered into the Amended Junior Credit Facility.

The Amended Junior Credit Facility extended the maturity date of the credit facility to December 21, 2023 and included changes in certain financial and operating covenants.

There were no other material changes in terms from the previous 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, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, minimum debt yield, minimum tangible net worth and minimum equity raise and collateral values.

Bluerock Residential had guaranteed the obligations under the Amended Junior Credit Facility and had pledged certain assets as collateral.

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”).

On April 6, 2022, the Company entered into a credit facility with Deutsche Bank Securities Inc.

(“Deutsche Bank”), as sole lead arranger, Deutsche Bank AG, New York Branch, as administrative agent, the financial institutions party thereto as lenders and Computershare Trust Company, N.A., as paying agent and calculation agent (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 interest rate on outstanding borrowings was 7.47 % at March 31, 2023.

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 September 30, 2022, the Company was in compliance with all covenants under the DB Credit Facility.

During the period ended March 31, 2023, Deutsche Bank waived the minimum debt service coverage ratio covenant in lieu of the Company reducing the outstanding balance under the DB Credit Facility to remain in compliance with such covenant.

At March 31, 2023, the DB Credit Facility was drawn at $ 29 million, the maximum available amount as of such date.

The Company has guaranteed the obligations under the DB Credit Facility.

At September 30, 2022, the capacity of borrowings under the DB Credit Facility was $ 115 million, of which $ 12 million was available based on the collateral and compliance with various ratios related to those assets.

ILE Sunflower Credit Facility

4 unchanged sentences

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 interest rate on outstanding borrowings was 7.83 % at March 31, 2023.

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 September 30, 2022, ILE was in compliance with all covenants under the ILE Sunflower Credit Facility.

At March 31, 2023, 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.

Note 8 – Mortgages Payable

The following table summarizes certain information as of September 30, 2022 and December 31, 2021, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):

The following table summarizes certain information as of March 31, 2023 and December 31, 2022, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):

Outstanding Principal

As of September 30, 2022

September 30,

As of March 31, 2023

Interest-only

6 unchanged sentences

Floating Rate:

August 9, 2028

Wayford at Concord (6)

3 unchanged sentences

Total mortgages payable

(1) ILE’s fixed rate debt represents the debt outstanding from one credit agreement.

(1) ILE’s fixed rate debt represents the aggregate debt outstanding across two separate credit agreements.

Of the $ 25.8 million balance, $ 6.6 million held through one credit agreement has a fixed rate of 3.50 % , while the remaining $ 19.2 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.

1 unchanged sentence

(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 aggregate debt outstanding across two separate credit agreements.

Of the $ 11.3 million principal balance, $ 6.7 million held through one credit agreements requires monthly payments of principal and interest, while the remaining principal balance of $ 4.6 million held through the second credit agreement has monthly payments that are currently interest-only.

The two credit agreements have maturity dates ranging from 2026 to 2028 and bear interest at one-month LIBOR or Term SOFR plus margins ranging from 2.30 % to 3.00 % , subject to rate floors, and have current interest rates ranging from 4.93 % to 5.60 % with a weighted average interest rate of 5.20 % as of September 30, 2022.

(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 March 2023, the one-month Term SOFR in effect was 4.66 % .

(6) The Wayford at Concord loan bears interest at the 30-day average SOFR plus 2.23 % .

In September 2022, the 30-day average SOFR in effect was 2.28 % .

SOFR rate is subject to a rate cap.

In March 2023, the 30-day average SOFR in effect was 4.53 % .

SOFR rate is subject to a 2.50 % rate cap through April 2025.

Please refer to Note 10 for further information.

1 unchanged sentence

Costs incurred in obtaining long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which approximates the effective interest method.

Fair value adjustments of debt

The Company records a fair value adjustment based upon the fair value of the loans on the date they were assumed in conjunction with acquisitions.

The fair value adjustments are being amortized to interest expense over the remaining life of the loans.

Loss on Extinguishment of Debt and Debt Modification Costs

1 unchanged sentence

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 statements of operations.

Loss on extinguishment of debt and debt modification costs on the Company’s continuing operations were zero for the three and nine months ended September 30, 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.

Loss on extinguishment of debt and debt modification costs were zero for the three months ended March 31, 2023 and 2022.

Debt maturities

As of September 30, 2022, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):

2022 (October 1–December 31)

As of March 31, 2023, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):

2023 (April 1–December 31)

Unamortized fair value debt adjustment

Deferred financing costs, net

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 $ 302.0 million as of September 30, 2022.

The net book value of real estate assets providing collateral for these above borrowings, including the revolving credit facilities (refer to Note 7 for further information), was $ 300.0 million as of March 31, 2023.

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.

18 unchanged sentences

In the absence of quoted market prices, the Company uses independent sources and data to determine fair value.

Financial Instrument Fair Value Disclosures

As of September 30, 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.

Fair Value of Financial Instruments

As of March 31, 2023 and December 31, 2022, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, due to affiliates, accounts payable, and other accrued liabilities approximate their fair value based on their highly-liquid nature and/or short-term maturities.

Derivative Financial Instruments

4 unchanged sentences

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 caps 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.

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 and swaps fall within Level 2 of the fair value hierarchy.

Fair Value of Debt

As of September 30, 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 $ 94.2 million and $ 64.8 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $ 99.9 million and $ 63.7 million, respectively.

As of March 31, 2023 and December 31, 2022, 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 $ 94.1 million and $ 93.7 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $ 99.0 million and $ 99.5 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.

Note 10 – 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.

5 unchanged sentences

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 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.

2 unchanged sentences

The Company does not use derivative financial instruments for trading or speculative purposes.

As of September 30, 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 floating interest rate for $ 79.2 million of the Company’s floating rate debt.

The table below presents the classification and fair value of the Company’s derivative financial instruments on the combined balance sheets as of September 30, 2022 and December 31, 2021 (amounts in thousands):

As of March 31, 2023, 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 $ 68.6 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 March 31, 2023 and December 31, 2022 (amounts in thousands):

Derivatives not designated as hedging

2 unchanged sentences

Balance Sheet Location

September 30, 2022

March 31, 2023

December 31, 2022

3 unchanged sentences

Accounts receivable, prepaids and other assets

The table below presents the classification and effect of the Company’s derivative financial instruments on the combined statements of operations for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

The Effect of Derivative Instruments on the Statements of Operations

The table below presents the classification and effect of the Company’s derivative financial instruments on the combined consolidated statements of operations for the three months ended March 31, 2023 and 2022 (amounts in thousands):

Derivatives not designated as hedging

Location of Gain or (Loss)

Three Months Ended September 30,

Nine Months Ended September 30,

Location of Gain (Loss)

The Effect of Derivative Instruments on the

instruments under ASC 815-20

Recognized in Income

Statements of Operations

Three Months Ended March 31,

Interest rate caps

3 unchanged sentences

Note 11 – 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 provides Bluerock Residential with certain human resources, investor relations, marketing, legal and other administrative services (the “Services”).

The Services are provided on an at-cost basis, generally allocated based on the use of such Services for the benefit of the business, and are invoiced on a quarterly basis.

In addition, the Administrative Services Agreement permits 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 will be made in cash or, in 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 will automatically 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 is 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 permits 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 is 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 will be made in cash or, in 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, operating expenses paid by BRE on behalf of Bluerock Residential of $ 0.2 million and $ 0.1 million, and $ 0.6 million and $ 0.3 million were expensed during the three and nine months ended September 30, 2022 and 2021, respectively.

Bluerock Residential paid operating expenses on behalf of BRE of $ 0.2 million and $ 0.1 million, and $ 0.7 million and $ 0.3 million for the three and nine months ended September 30, 2022 and 2021, respectively.

Pursuant to the terms of the Administrative Services Agreement and the Leasehold Cost-Sharing Agreement, summarized below are the net related party amounts payable to BRE as of September 30, 2022 and December 31, 2021 (amounts in thousands):

September 30, 2022

December 31, 2021

Management Agreement

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 (“BRE”), pursuant to which the Manager will provide for the day-to-day management of the Company’s operations.

Pursuant to the terms of the Management Agreement, the Manager will provide the Company with a management team and appropriate support personnel to provide such management services to the Company.

The Management Agreement requires the Manager to manage the Company’s business affairs under the supervision and direction of the Company’s board of directions (the “Board”).

Specifically, the Manager 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.

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 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 (as defined in the Management Agreement) per year, as well as an incentive fee (the “incentive fee”) with respect to each calendar quarter (or part thereof that the Management Agreement is in effect) in arrears.

The Company 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 Management Agreement provides that (i) the base management fee and the incentive fee shall be allocated and payable as one half ( 50 %) in C-LTIP Units and the remainder payable in cash or C-LTIP Units, at the discretion of the Board, and (ii) 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 average of the closing prices of the Class A common stock for the five business days prior to issuance.

For the three months ended March 31, 2023, the Company recorded a base management fee of $ 1.9 million and expense reimbursements of $ 0.4 million.

The expense reimbursements were recorded as part of general and administrative expenses in the Company’s consolidated statement of operations.

There was no incentive fee expense for the first quarter 2023.

The table below presents the related party amounts payable to the Manager as of March 31, 2023 and December 31, 2022 pursuant to the terms of the Management Agreement (amounts in thousands).

The Company records these payables in due to affiliates in its combined consolidated balance sheets.

Amounts payable to the Manager under the Management Agreement

Base management fee

Operating and direct expense reimbursements

Amounts payable to BRE under the ASA, net

Amounts payable to BRE under the CSA

Total amounts payable to BRE, net

As of September 30, 2022 and December 31, 2021, Bluerock Residential had zero and $ 0.4 million, respectively, in receivables due from related parties other than BRE.

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 both the ASA and the CSA.

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.

Total amounts payable to the Manager

As of March 31, 2023 and December 31, 2022, the Company had no receivables due from any related parties.

Administrative Services Agreement

Prior to the completion of the spin-off transaction on October 6, 2022, Bluerock Residential was party to an Administrative Services Agreement (the “ASA”) and a Leasehold Cost-Sharing Agreement (the “CSA”) with BRE and its affiliate, Bluerock Real Estate Holdings, LLC (together “BREH”).

Pursuant to the ASA, BREH provided Bluerock Residential with certain human resources, investor relations, marketing, legal and other administrative services (the “Services”).

In addition, the ASA permitted certain Bluerock Residential employees to provide services to BREH, on an at-cost basis, generally allocated based on the use of such services for the benefit of the business of BREH, and otherwise subject to the terms of the Services provided by BREH to Bluerock Residential under the ASA.

Pursuant to the CSA, Bluerock Residential and BREH were allocated costs, including those costs associated with tenant improvements, with respect to the lease for their New York headquarters (the “NY Lease”).

Payments by Bluerock Residential of any amounts payable to BREH under the ASA and CSA were made in cash or, at the discretion of its board of directors, in the form of Bluerock Residential’s long-term incentive plan units.

Pursuant to the terms of the ASA, operating expenses were (i) paid by BREH on behalf of Bluerock Residential, and (ii) paid by Bluerock Residential on behalf of BREH.

Pursuant to the terms of the CSA, costs with respect to the NY Lease were paid by BREH on behalf of Bluerock Residential.

Recorded as part of general and administrative expenses in the Company’s combined consolidated statements of operations, operating expenses paid by BREH on behalf of Bluerock Residential of $ 0.2 million were expensed during the three months ended March 31, 2022.

Additionally, Bluerock Residential paid operating expenses on behalf of BREH of $ 0.2 million during the three months ended March 31, 2022.

These prior period amounts were 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.

Prior period 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.

Both the ASA and CSA were terminated in connection with the completion of the spin-off transaction on October 6, 2022.

Note 12 – 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.

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.

As 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 Per Common Share

Basic net loss per common share is computed by dividing net loss 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 per common

share is computed by dividing net loss 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 attributable to common stockholders is computed by adjusting net loss for the non-forfeitable dividends paid on non-vested LTIP Units and C-LTIP Units.

The Company considers the requirements of the two-class method when preparing earnings per share.

The Company has two classes of common stock outstanding:

Class A common stock, $ 0.01 par value per share, and Class C common stock, $ 0.01 par value per share.

Earnings per share is not affected by the two-class method because the Company’s Class A and C common stock participate in dividends on a one -for- one basis.

The following table reconciles the components of basic and diluted net loss per common share for the three months ended March 31, 2023 and 2022 (amounts in thousands, except share and per share amounts):

Three Months Ended

Net loss attributable to noncontrolling interests

Net loss attributable to common stockholders

Weighted average common shares outstanding (1)

Potential dilutive shares

Weighted average common shares outstanding and potential dilutive shares (1)

Net loss per common share, basic

Net loss per common share, diluted

(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.

Operating Partnership and Long-Term Incentive Plan Units

As of March 31, 2023, limited partners other than the Company owned approximately 67.32 % of the common units of the Operating Partnership ( 7,370,727 OP Units, or 62.67 %, is held by OP Unit holders, and 546,632 LTIP Units, or 4.65 %, is held by LTIP Unit holders, including 3.45 % which are not vested at March 31, 2023).

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.

On February 22, 2023, the Company granted 85,750 and 17,462 C-LTIP Units pursuant to the Management Agreement to the Manager in payment of the base management fee and operating expense reimbursement, respectively, for the fourth quarter 2022.

Such C-LTIP Units were fully vested upon issuance.

In the future, the Operating Partnership may issue OP Units or preferred OP Units from time to time in connection with acquisitions of properties or for financing, compensation or other reasons.

Equity Incentive Plans

The Board has adopted, and the Company’s sole initial stockholder has approved, the Bluerock Homes Trust, Inc.

2022 Equity Incentive Plan for Individuals (the “BHM Individuals Plan”) and the Bluerock Homes Trust, Inc.

2022 Equity Incentive Plan for Entities (the “BHM Entities Plan”).

Together, the Company refers to the BHM Individuals Plan and the BHM Entities Plan as the “BHM Incentive Plans.” The BHM Incentive Plans provide for the grant of options to purchase shares of our common stock, stock awards,

stock appreciation rights, performance units, incentive awards and other equity-based awards, and are administered by the compensation committee of the Board.

LTIP Unit Grants

On January 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 and the Company recognized expense of $ 0.3 million based on the fair value at the date of grant.

During the three months ended March 31, 2023, the Company recognized compensation expense of approximately $ 0.5 million.

As of March 31, 2023, there was $ 8.4 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 4.6 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 13 – 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 $ 6.7 million and $ 108.1 million as of September 30, 2022 and December 31, 2021, respectively.

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 $ 4.1 million and $ 3.4 million as of March 31, 2023 and December 31, 2022, 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 consolidated financial position or results of operations or liquidity of the Company.

Note 15 – Segment Information

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 Chief Operating Decision Maker, which is comprised of several members of the Company’s executive management team, evaluates the performance of the Company’s operations and allocates financial and other resources by assessing the financial results of and future performance outlook for the Company’s two reportable segments:

single-family residential units (“Single-family”) and multifamily apartment communities (“Multifamily”).

The Chief Operating Decision Maker uses NOI as the primary financial measure for the Company’s operating performance.

NOI is a non-GAAP measure that the Company defines as total property revenues less total property operating expenses, excluding depreciation and amortization and interest.

The Chief Operating Decision Maker evaluates the Company’s operating performance using 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 following table summarizes NOI by the Company’s reportable segments for the three and nine months ended September 30, 2022 and 2021, and reconciles NOI to net income attributable to Bluerock Homes on the Company’s combined statements of operations.

Prior year amounts have been reclassified to conform to the current period segment presentation (amounts in thousands):

Three Months Ended September 30,

Nine Months Ended September 30,

Rental and other property revenues

Single-family

Total rental and other property revenues

Property operating expenses

Single-family

Total property operating expenses

Net operating income

Single-family

Total net operating income

Reconciling items:

Interest income from loan investments

Property management and asset management fee expenses

General and administrative expenses

Acquisition and pursuit costs

Depreciation and amortization

Preferred returns on unconsolidated real estate joint ventures

(Provision for) recovery of credit losses, net

Interest expense, net

Net income (loss) from continuing operations

Net income from discontinued multifamily operations

Net income (loss)

Net (loss) income attributable to partially owned noncontrolling interests

Net income attributable to Bluerock Homes

The following table summarizes the assets of the Company’s reportable segments as of September 30, 2022 and December 31, 2021 (amounts in thousands):

September 30, 2022

December 31, 2021

Net Real Estate Investments

Single-family

Total Net Real Estate Investments

Reconciling items:

Cash and cash equivalents

Restricted cash

Notes and accrued interest receivable, net

Due from affiliates

Accounts receivable, prepaids and other assets, net

Preferred equity investments in unconsolidated real estate joint ventures, net

In-place lease intangible assets, net

Total Consolidated Assets

Note 16 – Subsequent Events

In connection with the preparation of the accompanying financial statements, the Company has evaluated subsequent events and transactions occurring through the date that this Form 10-Q was issued for potential recognition and/or disclosure.

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 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 $ 96 million on October 6, 2022.

The foregoing description of the Separation 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 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 .

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 own 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 own 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 our 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 .

Management Agreement with the Manager

In connection with the Separation and the Distribution, on October 5, 2022, the Company entered into a Management Agreement with the Operating Partnership and Bluerock Homes Manager, LLC (the “Manager”), which is an affiliate of Bluerock, 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 of directors.

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 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 .

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 each of (i) that certain Amended Senior Credit Facility dated March 6, 2020 by and among the Operating Partnership, as borrower, Bluerock Residential, as REIT guarantor, KeyBank National Association, as both agent and lender, KeyBanc Capital Markets Inc.

and SunTrust Robinson Humphrey, Inc., as co-lead arrangers and book runners, and Truist Bank, as syndication agent, and (ii) under that certain Amended Junior Credit Facility dated November 6, 2019, as first amended on October 5, 2020 and second amended on September 21, 2021, by and among Bluerock Residential and BRG KB Borrower, LLC, as borrower, KeyBank National Association, as both agent and lender, and KeyBanc Capital Markets Inc.

as lead arranger and book runner.

The Company was not a party to the Amended Senior Credit Facility or the Amended Junior Credit Facility.

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, the $ 750,000 letter of credit issued by Bluerock Residential under the NY Lease was also terminated.

Staking Grant of LTIP Units to Manager

On November 3, 2022, the Company made an initial staking grant to the Manager of 405,796 of the Operating Partnership ’ s long-term incentive plan units ( “ LTIP Units ” ) (such grant, the “ Manager Grant”).

The LTIP Units issued as the Manager Grant were issued pursuant to the Bluerock Homes Trust, Inc.

2022 Equity Incentive Plan for Entities.

The Manager Grant was evidenced by an LTIP Unit Vesting Agreement.

The issuance of LTIP Units as the Manager Grant was made in reliance upon exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D thereunder for transactions not involving any public offering.

No general solicitation or advertising occurred in connection with the issuance and sale of these securities.

Such LTIP Units will vest ratably on an annual basis over a five-year period.

Once vested, these awards of LTIP Units may convert to limited partnership interests of the Operating Partnership ( “ 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 recipient of these initial awards of LTIP Units, the Manager will be entitled to receive “ distribution equivalents ” with respect to such LTIP Units, whether or not vested, at the same time as distributions are paid to the holders of the Company ’ s Class A common stock.

Staking Grant of LTIP Units to Independent Directors

On November 3, 2022, the Company made an initial staking grant of 5,339 LTIP Units to each of the non-employee members of the Company’s board of directors (such grants, collectively, the “Director Grants”).

The LTIP Units issued as Director Grants were issued pursuant to the Bluerock Homes Trust, Inc.

2022 Equity Incentive Plan for Individuals.

Each such Director Grant was evidenced by an LTIP Unit Award Agreement.

The issuances of LTIP Units as Director Grants were made in reliance upon exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D thereunder for transactions not involving any public offering.

No general solicitation or advertising occurred in connection with the issuance and sale of these securities.

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.

From the date of grant, holders of such LTIP Units will be entitled to receive “distribution equivalents” at the time distributions are paid to the holders of the Company’s Class A common stock.

Board Compensation

On November 3, 2022, the Company granted 764 LTIP Units to each of the non-employee members of the Company’s board of directors in payment of the prorated equity portion of their respective annual retainers for fiscal year 2022 (such grants, collectively, the “Retainer Grants”).

The LTIP Units issued as Retainer Grants were issued pursuant to the Bluerock Homes Trust, Inc.

2022 Equity Incentive Plan for Individuals.

Each such Retainer Grant was evidenced by an LTIP Unit Award Agreement.

The issuances of LTIP Units as Retainer Grants were made in reliance upon exemptions from registration provided by Section 4(a)(2) of the Securities Act of 1933 and Regulation D thereunder for transactions not involving any public offering.

No general solicitation or advertising occurred in connection with the issuance and sale of these securities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements