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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-04 · 216 added, 273 removed, 128 unchanged (79% of the section changed)

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The following is a discussion of the historical results of operations and liquidity and capital resources of Bluerock Homes Trust, Inc.

(“Bluerock Homes,” “the Company,” “we,” “us,” or “our”), which was incorporated as a Maryland corporation on December 16, 2021.

Prior to October 6, 2022, Bluerock Home’s sole stockholder was Bluerock Residential Growth REIT, Inc, a Maryland corporation (“Bluerock Residential”).

We have historically operated as part of Bluerock Residential and not as a stand-alone company.

(“Bluerock Homes,” “the Company,” “we,” “us,” or “our”), which was formed in Maryland as a wholly owned subsidiary of Bluerock Residential Growth REIT, Inc.

(“Bluerock Residential”) on December 16, 2021.

Bluerock Homes historically operated as part of Bluerock Residential and not as a standalone company.

On October 6, 2022, Bluerock Residential completed a spin-off transaction that resulted in its single-family residential real estate business and certain other assets being contributed to Bluerock Homes, and Bluerock Homes becoming an independent, publicly traded company.

You should read the following discussion and analysis in conjunction with the accompanying financial statements of Bluerock Homes, and the notes thereto.

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The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.

The Separation and the Distribution

On December 20, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bluerock Residential, Badger Parent and Badger Merger Sub LLC (“Merger Sub”).

As contemplated by the Merger Agreement, on October 5, 2022, we entered into a Separation and Distribution Agreement with Bluerock Residential, Badger Parent, Badger Holdco LLC and the Operating Partnership, pursuant to which, among other things, Bluerock Residential contributed to us its single-family residential real estate business and certain other assets (the “Separation”).

On October 6, 2022, following the Separation, Bluerock Residential completed the spin-off of Bluerock Homes by distributing all our outstanding shares of Class A common stock and Class C common stock to the holders of Bluerock Residential common stock (the “Distribution”) as of the record date, September 29, 2022 (the “Spin-Off”).

Pursuant to the terms and conditions of the Merger Agreement, following the Separation, the Distribution and the Spin-Off, Bluerock Residential merged with and into Merger Sub, with Merger Sub continuing as the surviving company, and the separate existence of Bluerock Residential ceased.

As a result of the Separation, the Distribution and the Spin-Off, Bluerock Homes became an independent, publicly traded company and our Class A common stock is listed under the symbol “BHM” on the NYSE American.

Financial statements representing the historical operations of Bluerock Residential’s residential rental business have been derived from Bluerock Residential’s historical accounting records and are presented on a carve-out basis.

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

All revenues and costs as well as assets and liabilities directly associated with the business activity of Bluerock Homes are included in the financial statements.

The financial statements also include allocations of certain general, administrative, sales and marketing expenses and operations from Bluerock Residential.

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

All significant intercompany balances and transactions have been eliminated.

Any references to “the Company,” “we,” “us,” or “our” for all periods ended October 6, 2022 and prior refer to Bluerock Homes as owned by Bluerock Residential, and for all periods subsequent to October 6, 2022 refer to Bluerock Homes as an independent, publicly traded company.

These financial statements also include general and administrative expenses that have been allocated to Bluerock Homes 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 Bluerock Homes are not representative of the amounts that would have been reflected in these financial statements had it operated independently of Bluerock Residential.

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.

Forward-Looking Statements

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Additional factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:

● The impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of COVID-19 and its variants) and the actions taken by government authorities and other related thereto, including the ability of our company, our properties and our tenants to operate;

● The impact of volatility in capital and credit markets, or unfavorable changes in economic conditions, including those caused by inflation and rising interest rates, in the markets in which we operate;

● The impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of novel coronavirus (“ COVID-19”) and its variants) and the actions taken by government authorities and other related thereto, including the ability of our company, our properties and our tenants to operate;

● the factors included in this Quarterly Report on Form 10-Q, including those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;

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● rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs;

● the board of directors’ determination as to timing and payment of dividends, and our ability to pay future distributions at the dividend rates we have paid;

● our ability to maintain our qualification as a REIT;

● the board of directors’ determination as to timing and payment of dividends, and our ability to pay future distributions at the dividend rates we have paid (if any);

● our ability to qualify and maintain our qualification as a real estate investment trust ("REIT");

● litigation, including costs associated with prosecuting or defending claims and any adverse outcomes.

A discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included in “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Information Statement filed as Exhibit 99.1 to our Form 8-K filed on September 26, 2022, as well as risks, uncertainties and other factors discussed in this Quarterly Report on Form 10-Q and identified in other documents filed by us with the SEC.

Any of the assumptions underlying forward-looking statements could be inaccurate.

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Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this report, whether as a result of new information, future events, changed circumstances or any other reason.

Basis of Presentation

We conduct our operations through Bluerock Residential Holdings, L.P., our operating partnership (the “Operating Partnership”), of which we are the sole general partner.

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 us based on relative unit count.

The forward-looking statements should be read in light of the risk factors set forth in Item 1A of this Quarterly Report on Form 10-Q, in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission ("SEC") on March 22, 2023, and subsequent filings by us with the SEC, or ("Risk Factors").

We own and operate high-quality single-family properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt and Western United States.

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Our Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize our return on investment.

As of September 30, 2022, we 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, our consolidated operating investments were approximately 90.9% occupied.

We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a real estate investment trust (“REIT”) for federal income tax purposes beginning with our taxable year ending December 31, 2022.

As of March 31, 2023, we 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, our consolidated operating investments were approximately 94.5% occupied.

We intend to elect to be taxed and to operate in a manner that will allow us to qualify as a REIT for federal income tax purposes beginning with our taxable year ending December 31, 2022.

As a REIT, we generally will not be subject to corporate-level income taxes.

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Such an event could materially and adversely affect our net income and results of operations.

We intend to organize and operate in such a manner where we would remain qualified as a REIT.

We continue to monitor the impact of the COVID-19 pandemic and any resulting macro-economic changes on all aspects of our business and single-family residential communities, including how it will impact our tenants and business partners.

We cannot predict the future impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to the numerous uncertainties.

These uncertainties include the scope, severity and duration of the pandemic (including as the pandemic evolves due to future mutations of the COVID-19 virus), the ongoing governmental, business and individual actions taken to contain the pandemic or mitigate its impact, the availability and adoption of COVID-19 vaccines, and the direct and indirect economic effects of the pandemic and containment measures, among others.

The outbreak of COVID-19 across the globe, including the United States, has significantly and adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets.

Further, the impacts of potential worsening global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown.

We believe our financial condition and liquidity are currently strong.

Although there is uncertainty related to the impact of the COVID-19 pandemic on our future results, we believe the fundamentals of our business model will continue to allow us to effectively manage our business through such uncertainty.

While occupancy remains strong at 90.9% as of September 30, 2022, in future periods, the Company may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of the impact of COVID-19.

The extent to which the COVID-19 pandemic and any resulting macro-economic changes impact the Company’s operations and those of its tenants will depend on future developments, which are uncertain and cannot be predicted with confidence.

We intend to organize and operate in such a manner that we would qualify and remain qualified as a REIT.

Inflation and Related Economic Volatility

We continue to monitor increases in inflation and rising interest rates and resulting economic changes in credit and capital markets.

Inflation and its related impacts, including increased prices for services and goods and higher interest rates and wages, and any policy interventions by the U.S.

government, could negatively impact our residents’ ability to pay rents and our results of operations.

Substantially all our leases are for a term of one year or less, which we believe mitigates our exposure to inflation, by permitting us to set rents commensurate with inflation (subject to rent regulations to the extent they apply and assuming our current or prospective residents will accept and can pay commensurate increased rents, of which there can be no assurance).

Inflation could outpace any increases in rent and adversely affect us.

We may not be able to mitigate the effects of inflation and related impacts, and the duration and extent of any prolonged periods of inflation, and any related adverse effects on our results of operations and financial condition, are unknown at this time.

Inflation may also cause increased volatility in financial markets, which could affect our ability to access the capital markets or impact the cost or timing at which we are able to do so.

Inflation may also increase the costs to complete our development projects, including costs of materials, labor and services from third-party contractors and suppliers.

Higher construction costs could adversely impact our investments in real estate assets and our expected yields on development projects.

Additionally, as a result of concern about the recent deterioration in the financial markets, including the recent failures of banks, the cost of obtaining debt from credit and capital markets has increased as many lenders have increased interest rates, enacted tighter lending standards and reduced and, in some cases, ceased to provide funding to borrowers.

If we need to incur debt from a source other than our revolving credit facilities, we cannot be certain the additional financing will be available to the extent required and on acceptable terms.

If debt financing on acceptable terms is not available, we may be unable to fully execute our growth strategy, otherwise take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our results of operations and financial condition.

Other weakened economic conditions, including job losses, high unemployment levels, stock market volatility, and uncertainty about the future, could adversely affect rental rates and occupancy levels.

Unfavorable changes in economic conditions may have a material adverse impact on our cash flows and operating results.

Other Significant Developments

Acquisition of and Investments in Real Estate

During the nine months ended September 30, 2022, we acquired an additional 537 single-family residential units through four new or existing joint ventures for total purchase prices of $137.9 million.

Additionally, we increased our preferred equity investments in The Cottages at Myrtle Beach, The Cottages at Warner Robins, The Cottages of Port St.

Lucie, The Woods at Forest Hill and Wayford at Innovation Park by an aggregate of approximately $43.4 million.

We entered into a mezzanine loan agreement with Weatherford 185 and provided loan funding of approximately $9.6 million, which was subsequently paid off in full in July 2022.

The following is a summary of our real estate investments made during the nine months ended September 30, 2022 ($ in millions):

Name – Operating

Date of Investment (1)

Number of Units

Ownership Interest

Purchase Price

Granbury 2.0 (2)

March 11, 2022

March 17, 2022

Golden Pacific

Total Operating

Name – Mezzanine Loan

Date of Investment

Number of Units

Commitment Amount

Investment Amount

Weatherford 185 (3)

Weatherford, TX

February 15, 2022

Total Mezzanine Loan

(1) For those acquisitions where the quarter is specified, we acquired additional units on various dates throughout that specified quarter.

These additional units were added to the respective existing portfolios.

For Ballast, the units acquired in the second quarter 2022 were the first of our acquisitions for that portfolio.

(2) At the time of closing, we made a common equity investment in Granbury 2.0 and provided a mezzanine loan to the portfolio owner.

On April 1, 2022, our full mezzanine loan investment was converted into a common equity interest.

Refer to Note 8 of our combined financial statements for further information.

(3) On July 22, 2022, the Weatherford 185 loan that we provided was paid off in full.

Sale of Real Estate Assets and Loan Repayments

The following is a summary of our loan payoffs during the nine months ended September 30, 2022 ($ in millions):

Date of Sale or Repayment

Number of Units

Notes Receivable

The Hartley at Blue Hill

Chapel Hill, NC

February 28, 2022

Weatherford 185

Weatherford, TX

July 22, 2022

Total Notes Receivable

(1) On April 29, 2022, the senior loan that we provided, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $5.0 million.

The senior loan payoff is included in the net proceeds amount.

(2) Net proceeds amount includes $0.3 million of principal payments made by the borrower prior to July 22, 2022.

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

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

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

Acquisition of Additional Interests in Properties

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

January 6, 2023

Indy-Springfield, formerly Peak JV 1

Preferred Equity Investment Activity

During the three months ended March 31, 2023, our preferred equity investment activity was as follows:

(i) we increased our preferred equity investment commitments in (a) the Willow Park joint venture by $2.1 million, for a total commitment of $4.6 million, and (b) The Woods at Forest Hill joint venture by $2.3 million, for a total commitment of $5.6 million, and (ii) our 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 our remaining preferred equity investment in the Peak REIT OP at $16.3 million.

Additionally, we funded an aggregate of approximately $3.7 million of preferred equity investments in The Woods at Forest Hill, Wayford at Innovation Park and Willow Park.

Stockholders’ Equity

Our total stockholders’ equity decreased $1.7 million from $160.0 million as of December 31, 2022 to $158.3 million as of March 31, 2023.

The decrease in our total stockholders’ equity is attributable to an adjustment of $1.7 million for noncontrolling interest ownership in the Operating Partnership and a net loss of $1.5 million, partially offset by an increase of $1.5 million related to the acquisition of noncontrolling interests.

Results of Operations

The following is a summary of our stabilized consolidated operating real estate investments as of September 30, 2022:

The following is a summary of our stabilized consolidated operating real estate investments as of March 31, 2023:

Number of Units

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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

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Total Units / Average

(1) Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the three months ended September 30, 2022.

(2) Percent occupied is calculated as (i) the number of units occupied as of September 30, 2022 divided by (ii) total number of units, expressed as a percentage.

Percent occupied excludes an aggregate of 86 down units under renovation.

The following is a summary of our consolidated operational results for the three and nine months ended September 30, 2022 and 2021 (dollars in thousands, except average rental rates):

Three Months Ended September 30,

Nine Months Ended September 30,

Number of units at period end

(1) Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the three months ended March 31, 2023.

(2) Percent occupied is calculated as (i) the number of units occupied as of March 31, 2023 divided by (ii) total number of units, expressed as a percentage.

Percent occupied excludes an aggregate of 42 down/renovation units and 17 units of Savannah-84 that are in lease-up.

The following is a summary of our consolidated operational results for the three months ended March 31, 2023 and 2022 ($ in thousands, except average rental rates):

Three Months Ended March 31,

Rental and other property revenues

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(2) Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the period presented.

The following is a summary of our preferred equity investments as of September 30, 2022:

The following is a summary of our preferred equity investments as of March 31, 2023:

Total Actual/

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Cost Per Unit

Initial Occupancy

Lease-up Investment

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

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.

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(1) For lease-up and development investments, represents the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization.

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended September 30, 2022.

(2) Peak Housing is a stabilized operating portfolio and consists of our preferred equity investments in a private single-family home REIT (refer to Note 8 of our combined financial statements for further information).

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended March 31, 2023.

(2) Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing our preferred equity investment in the Peak REIT OP as of March 31, 2023 (refer to Note 6 of our combined consolidated financial statements for further information).

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

The following is a summary of income earned on our preferred equity and loan investments for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands):

Three Months Ended

Nine Months Ended

September 30,

Preferred Equity Investments

Mira Vista (1)

The Conley (1)

The Cottages at Myrtle Beach

The Cottages at Warner Robins

The Cottages of Port St.

The Woods at Forest Hill

Thornton Flats (1)

Wayford at Concord (2)

Wayford at Innovation Park

Total preferred returns on unconsolidated joint ventures

Notes Receivable

The Hartley at Blue Hill (4)

Vickers Historic Roswell (5)

Weatherford 185 (6)

Total interest income on notes receivable

Our preferred equity investment was redeemed in 2021.

On June 4, 2021, we purchased the Wayford at Concord property from our unaffiliated joint venture partner, and as part of the transaction, our preferred equity investment was redeemed.

We recapitalized Corpus and Jolin on December 22, 2021 and received full payoffs of the bridge loans.

As part of the recapitalization, both Corpus and Jolin, along with two portfolios of residential units previously owned by our joint venture partner, were combined into one consolidated operating portfolio known as Texas Portfolio 183.

In the first quarter 2022, The Hartley at Blue Hill property was sold.

The mezzanine and senior loans that we provided were paid off in full as of September 30, 2022.

In the second quarter 2021, the Vickers Historic Roswell property was sold.

The mezzanine loan that we provided was paid off in full upon the sale.

On July 22, 2022, the Weatherford 185 loan that we provided was paid off in full.

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021

Rental and other property revenues increased $6.0 million, or 226%, to $8.6 million for the three months ended September 30, 2022 as compared to $2.6 million for the same prior year period.

This was due to a $5.8 million increase from the acquisition of 537 units (through three new and two existing investments) in 2022 and the full period impact of 1,383 units acquired in 2021 (through 16 new investments) and a $0.2 million increase from our same store properties.

From an operational perspective, our average rent per occupied unit increased $12 or 0.8% to $1,483 as compared to $1,471 during the prior year period.

Average occupancy decreased 550 basis points from 97.0% to 91.5% on a year over year basis due to the following (i) during the 2021 period, average occupancy of 97.0% included only 935 units (over 9 investments) which were fully operational and stabilized during the period, and (ii) we acquired an additional 1,391 units since October 1, 2021 of which 1,324 units were scattered homes that typically have an operational value-enhancement strategy which includes increasing individual home occupancy levels over time;

when acquiring scattered homes, the initial occupancy may be slightly lower as homes are often purchased from owner occupants which can create modest frictional vacancy for a brief period of time after acquisition.

Interest income from loan investments decreased $1.1 million, or 94%, to $0.1 million for the three months ended September 30, 2022 as compared to $1.2 million for the same prior year period due to the sale of one underlying investment and the redemption of three loans in 2022, partially offset by the acquisition of one investment in 2022.

Property operating expenses increased $3.6 million, or 454%, to $4.4 million for the three months ended September 30, 2022 as compared to $0.8 million for the same prior year period.

This was primarily due to a $3.5 million increase from the acquisition of investments in 2022 and 2021 and a $0.1 million increase from same store properties.

Property operating expenses consist of controllable (payroll, repairs and maintenance, turnover, administrative, advertising, and utilities) and non-controllable (real estate taxes and insurance) expenses.

Controllable expenses were $2.4 million and $0.5 million and non-controllable expenses were $2.0 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively.

Property management and asset management fees expense were $1.1 million for the three months ended September 30, 2022 as compared to $0.1 million in the same prior year period.

This was primarily due to a $1.0 million increase from the acquisition of investments in 2022 and 2021.

Property management fees are based on a stated percentage of property revenues and asset management fees are based on a stated percentage of capital contributions or assets under management, where applicable.

General and administrative expenses have been allocated to us from Bluerock Residential based on relative unit count.

Expense amounts recognized are not representative of the amounts that would have been reflected in the financial statements had we operated independently of Bluerock Residential.

General and administrative expenses amounted to $1.8 million for the three months ended September 30, 2022 as compared to $1.1 million for the same prior year period.

The $0.7 million increase is primarily due to an increase to the relative unit count allocation from Bluerock Residential due to the increase in size of the carve out portfolio since the prior year period.

Acquisition and pursuit costs amounted to $0.03 million for the three months ended September 30, 2022 as compared to $0.02 million for the same prior year period.

Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Depreciation and amortization expenses were $3.6 million for the three months ended September 30, 2022 as compared to $1.7 million for the same prior year period.

This was due to a $2.4 million increase from the acquisition of investments in 2022 and 2021 partially offset by a $0.5 million decrease from our same store properties.

Other Income and Expense

Other income and expense amounted to income of $2.6 million for the three months ended September 30, 2022 compared to income of $0.1 million for the same prior year period.

This was primarily due to an increase in preferred returns on unconsolidated real estate joint ventures of $2.0 million due to the acquisition of four investments and partially offset by the sale of two underlying investments during the period.

Additionally, there was a net decrease in interest expense of $0.7 million primarily due to an increase in the value of our interest rate caps and swaps and partially offset by an increase in the outstanding debt to $153.6 million at September 30, 2022 as compared to $36.6 million at September 30, 2021.

This was also partially offset by a decrease in other income of $0.2 million due to origination fees received from our joint venture partner in the prior year period.

Discontinued Operations

Income from discontinued operations amounted to income of $0.3 million for the three months ended September 30, 2022 as compared to income of $45.9 million for the same prior year period.

In 2021, the discontinued operations were due to the sale of six multifamily operating properties and included a $49.0 million gain from sale of multifamily assets partially offset by a $3.1 million loss on extinguishment of debt.

In 2022, the income is a result of the reversal of accruals for the sold properties.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021

Rental and other property revenues increased $18.4 million, or 392%, to $23.1 million for the nine months ended September 30, 2022 as compared to $4.7 million for the same prior year period.

This was due to a $18.0 million increase from the acquisition of 537 units (through three new and two existing investments) in 2022 and the full period impact of 1,613 units acquired in 2021 (through 18 new investments) and a $0.4 million increase from our same store property, Navigator Villas.

From an operational perspective, our average rent per occupied unit decreased $12, or 0.8%, to $1,415 as compared to $1,427 during the prior year period.

Average occupancy decreased 540 basis points from 97.4% to 92.0% on a year over year basis due to the following (i) during the 2021 period, average occupancy of 97.4% included only 935 units (over 9 investments) which were fully operational and stabilized during the period, and (ii) we acquired an additional 1,391 units since October 1, 2021 of which 1,324 units were scattered homes that typically have an operational value-enhancement strategy which includes increasing individual home occupancy levels over time;

Interest income from loan investments decreased $2.9 million, or 69%, to $1.3 million for the nine months ended September 30, 2022 as compared to $4.1 million for the same prior year period due to the sale of two underlying investments in 2022 and 2021 and the redemption of three loans in 2022, partially offset by the acquisition of one investment in 2022.

Property operating expenses increased $9.5 million, or 612%, to $11.0 million for the nine months ended September 30, 2022 as compared to $1.5 million for the same prior year period.

This was primarily due to a $9.4 million increase from the acquisition of investments in 2022 and 2021 and a $0.1 million increase from our same store property, Navigator Villas.

Three Months Ended March 31, 2023 Compared to Three Months Ended March 31, 2022

Rental and other property revenues increased $3.2 million, or 48%, to $10.1 million for the three months ended March 31, 2023 as compared to $6.9 million for the same prior year period.

The increase was primarily due to unit count growth of 569 homes in our portfolio since January 1, 2022 and operational improvements from our active management and organic market rent growth.

Our average rent per occupied unit increased $198 or 14.7% to $1,542 as compared to $1,344 during the prior year period.

Average occupancy increased 150 basis points from 92.7% to 94.2% on a year over year basis.

The improvement was partially driven by:

(i) stabilization of homes under renovation within our value-enhancement strategy, and (ii) stabilization of homes that are sometimes purchased from owner occupants which can create modest frictional vacancy for a brief period of time after acquisition.

Interest income from loan investments decreased $0.9 million, or 100%, to zero for the three months ended March 31, 2023 as compared to $0.9 million for the same prior year period due to the payoff of two loans in 2022.

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

Property operating expenses increased $1.8 million, or 64%, to $4.6 million for the three months ended March 31, 2023 as compared to $2.8 million for the same prior year period.

The increase was primarily due to the acquisition of homes since January 1, 2022 and additional repairs and maintenance as part of our lease up stabilization strategy.

Controllable expenses were $5.3 million and $0.9 million and non-controllable expenses were $5.7 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Property management and asset management fees expense were $2.6 million for the nine months ended September 30, 2022 as compared to $0.2 million in the same prior year period.

This was primarily due to a $2.4 million increase from the acquisition of investments in 2022 and 2021.

Controllable expenses were $2.2 million and $1.2 million, and non-controllable expenses were $2.4 million and $1.6 million, for the three months ended March 31, 2023 and 2022, respectively.

Property management and asset management fees expense were $1.1 million for the three months ended March 31, 2023 as compared to $0.6 million in the same prior year period.

The increase was primarily due to the acquisition of homes since January 1, 2022.

General and administrative expenses have been allocated to us from Bluerock Residential based on relative unit count.

Expense amounts recognized are not representative of the amounts that would have been reflected in the financial statements had we operated independently of Bluerock Residential.

General and administrative expenses amounted to $5.0 million for the nine months ended September 30, 2022 as compared to $3.1 million for the same prior year period.

The $1.9 million increase is primarily due to an increase to the relative unit count allocation from Bluerock Residential due to the increase in size of the carve out portfolio since the prior year period.

Acquisition and pursuit costs amounted to $0.1 million for the nine months ended September 30, 2022 as compared to $0.02 million for the same prior year period.

Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods.

Depreciation and amortization expenses were $12.2 million for the nine months ended September 30, 2022 as compared to $3.0 million for the same prior year period.

This was due to a $8.8 million increase from the acquisition of investments in 2022 and 2021 and a $0.4 million increase from our same store property, Navigator Villas.

General and administrative expenses amounted to $2.0 million for the three months ended March 31, 2023 as compared to $1.6 million for the same prior year period.

Amounts recognized during the three months ended March 31, 2023 represent our operations as a standalone company.

For the period ended and prior to October 6, 2022, allocations of certain general, administrative, sales and marketing expenses were allocated to us from Bluerock Residential based on relative unit count.

As such, expense amounts recognized during the three months ended March 31, 2022 are not representative of the amounts that would have been reflected in the financial statements had we operated independently of Bluerock Residential.

Management fees to related party amounted to $1.9 million for the three months ended March 31, 2023.

Commencing on October 6, 2022, we are externally managed and advised by our Manager pursuant to a Management Agreement.

There was no management fee expense prior to October 6, 2022.

Acquisition and other transaction costs amounted to $1.5 million for the three months ended March 31, 2023.

The 2023 expense relates to the transition of property management services for over 1,000 homes.

No acquisition and other transaction costs were expensed in 2022.

Depreciation and amortization expenses were $4.0 million for the three months ended March 31, 2023 as compared to $4.5 million for the same prior year period, with the decrease primarily attributable to in-place leases being fully amortized prior to the first quarter 2023.

Other Income and Expense

Other income and expense amounted to income of $3.3 million for the nine months ended September 30, 2022 compared to income of $0.2 million for the same prior year period.

This was primarily due to an increase in preferred returns on unconsolidated real estate joint ventures of $3.6 million due to the acquisition of seven investments in 2021, partially offset by the sale of five underlying investments in 2021, and a recovery of credit losses of $0.4 million.

This was partially offset by a net increase in interest expense of $0.9 million primarily due to an increase in the outstanding debt to $153.6 million at September 30, 2022 as compared to $36.6 million at September 30, 2021, partially offset by an increase in the value of our interest rate caps and swaps due to rising interest rates.

Discontinued Operations

Income from discontinued operations amounted to income of $0.3 million for the nine months ended September 30, 2022 as compared to income of $110.6 million for the same prior year period.

In 2021, the discontinued operations were due to the sale of six multifamily operating properties and included a $116.6 million gain from sale of multifamily assets and $0.2 million income on operations, partially offset by a $6.2 million loss on extinguishment of debt.

In 2022, the income is a result of the reversal of accruals for the sold properties.

Other income and expense amounted to expense of $0.4 million for the three months ended March 31, 2023 compared to income of $0.6 million for the same prior year period.

This was due to a net increase in interest expense of $2.2 million attributable to an increase in the outstanding debt to $146.9 million at March 31, 2023 as compared to $71.6 million at March 31, 2022, a decrease in the fair value of our interest rate caps and swaps (which was partially offset by a reduction in interest expense from interest rate caps and swaps in effect), and a decrease in the allowance for credit losses on unconsolidated real estate joint ventures of $0.3 million.

These expenses were partially offset by an increase in preferred returns on unconsolidated real estate joint ventures of $1.5 million as funding to our preferred equity investments increased to $85.9 million at March 31, 2023 as compared to $50.3 million at March 31, 2022.

Net Operating Income

We believe that net operating income (“NOI”) is a useful measure of our operating performance.

We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest.

Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.

NOI also is a computation made by analysts and investors to measure a real estate company’s operating performance.

We believe that this measure provides an operating perspective not immediately apparent from operating income or net income prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

NOI allows us to evaluate the operating performance of our properties because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses.

However, NOI should only be used as a supplemental measure of our financial performance.

The following table reflects net loss attributable to common stockholders together with a reconciliation to NOI, as computed in accordance with GAAP for the periods presented (amounts in thousands):

Three Months Ended

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Add common stockholders and Operating Partnership Units pro-rata share of:

Net loss attributable to partially owned noncontrolling interests

Real estate depreciation and amortization

Non-real estate depreciation and amortization

Non-cash interest expense

Unrealized loss on derivatives

Provision for (recovery of) credit losses

Property management and asset management fees

Management fees to related party

Acquisition and other transaction costs

Corporate operating expenses

Other income, net

Preferred returns on unconsolidated real estate joint ventures

Interest income from loan investments

Total property income

Interest expense

Net operating income

Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, both short- and long-term.

Our primary short-term liquidity requirements historically have related to (i) our operating expenses and other general business needs, (ii) acquisition of properties, (iii) committed investments and capital requirements to fund development and renovations at existing properties, (iv) ongoing commitments to repay borrowings, including our revolving credit facilities and our maturing short-term debt, and (v) distributions to stockholders.

Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our short-term liquidity needs could be affected by various risks and uncertainties, including the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors”.

W hile occupancy remains strong at 90.9% as of September 30, 2022, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of the impact of COVID-19.

In general, we believe our available cash balances, cash flows from operations, $115.0 million capacity, of which $12.2 million is available, on our revolving credit facilities dedicated to single-family residential investments, proceeds from future mortgage debt financings for acquisitions and/or development projects, and other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months.

While consolidated occupancy remains strong at 94.5% as of March 31, 2023, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, whether as a result of the impact of COVID-19 or otherwise.

On January 25, 2023, we filed a registration statement on Form S-11 (File No.

333-269415) with the SEC, as amended by that certain amended registration statement on Form S-11 filed on April 3, 2023 (collectively, the “2023 Registration Statement”).

The securities covered by the 2023 Registration Statement include a maximum of 20,000,000 shares of 6.0% Series A Redeemable Preferred Stock (the “Series A Redeemable Preferred Stock”) at $25.00 per share, for a maximum offering amount of $500,000,000 in Series A Redeemable Preferred Stock (the “Series A Redeemable Preferred Offering”).

While the 2023 Registration Statement has been filed with the SEC, as of the date of this Current Report on Form 10-Q, the 2023 Registration Statement has not yet been declared effective by the SEC, and there are no shares of Series A Redeemable Preferred Stock issued or outstanding.

In the event the 2023 Registration Statement is declared effective, we expect to commence the Series A Redeemable Preferred Offering.

The Series A Redeemable Preferred Stock to be registered pursuant to the 2023 Registration Statement may not be sold nor may offers to buy be accepted prior to the time the 2023 Registration Statement becomes effective.

Any disclosure concerning the Series A Redeemable Preferred Offering is neither an offer nor a solicitation to purchase our securities.

There can be no assurance that we will be able to commence the Series A Redeemable Preferred Offering or successfully sell the full number of shares of Series A Redeemable Preferred Stock to be registered pursuant to the 2023 Registration Statement.

In general, we believe our available cash balances, cash flows from operations, proceeds from our revolving credit facilities, proceeds from future mortgage debt financings for acquisitions and/or development projects, and other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months.

In general, we expect that our results related to our existing portfolio will improve in future periods as a result of anticipated future investments in and acquisitions of single-family residential properties and build-to-rent development properties.

However, there can be no assurance that the worldwide economic disruptions arising from the COVID-19 pandemic will not cause conditions in the lending, capital and other financial markets to deteriorate, nor that our future revenues or access to capital and other sources of funding will not become constrained, which could reduce the amount of liquidity and credit available for use in acquiring and further diversifying our portfolio of single-family properties.

We cannot provide any assurances that we will be able to add properties to our portfolio at the anticipated pace, or at all.

We believe we will be able to meet our primary liquidity requirements going forward through, among other sources:

● following transactional adjustments in connection with the Separation, the Distribution and the Spin-Off, $95.8 million in cash and restricted cash available at October 6, 2022;

● capacity of $115.0 million, of which $12.2 million is available, as of September 30, 2022 on our revolving credit facilities dedicated to single-family residential investments;

● $58.7 million in cash available at March 31, 2023;

● proceeds from our revolving credit facilities, to which we expect to add additional collateral to increase our availability exceeding $50 million during 2023 (there was no availability at March 31, 2023);

● proceeds from future mortgage debt financings for acquisition and/or development projects;

● cash generated from operating activities;

● proceeds from future borrowings and potential offerings of common and preferred stock, as well as issuances of units of limited partnership interest in our Operating Partnership, or OP Units.

The following table summarizes our contractual obligations as of September 30, 2022 related to our mortgage notes secured by our properties and revolving credit facilities.

At September 30, 2022, our estimated future required payments on these obligations were as follows (amounts in thousands):

● proceeds from potential offerings of common and preferred stock, as well as issuances of units of limited partnership interest in our Operating Partnership (“OP Units”).

The following table summarizes our contractual obligations as of March 31, 2023 related to our mortgage notes secured by our properties and revolving credit facilities.

At March 31, 2023, our estimated future required payments on these obligations were as follows (amounts in thousands):

Mortgages Payable (Principal)

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Estimated interest payments are based on the stated rates for mortgage notes payable assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates.

As of September 30, 2022, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our preferred equity and joint venture investments was $6.7 million;

as of November 1, 2022, this amount was $5.9 million.

At the current time, we do not anticipate the need to establish any material contingency reserves related to the COVID-19 pandemic, but we continue to assess along with our network of business partners the possible need for such contingencies, whether at the corporate or property level.

As of March 31, 2023, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our preferred equity and joint venture investments was $4.1 million.

As equity capital market conditions permit, we may supplement our capital for short-term liquidity needs with proceeds of potential offerings of common and preferred stock, as well as issuance of OP Units.

Given the significant volatility in the trading price of REIT equities generally associated with the COVID-19 pandemic and our otherwise stable financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term liquidity needs.

Given the significant volatility in the trading price of REIT equities and our otherwise stable financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term liquidity needs.

Our primary long-term liquidity requirements relate to (a) costs for additional single-family residential investments, including build-to-rent development properties, (b) repayment of long-term debt and our revolving credit facilities, and (c) capital expenditures.

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Our success in meeting these requirements will therefore depend upon our ability to access capital.

Further, our ability to access equity capital is dependent upon, among other things, general market conditions for REITs and the capital markets generally, market perceptions about us and our asset class, and current trading prices of our securities, all of which may continue to be adversely impacted by the COVID-19 pandemic .

We may also meet our long-term liquidity needs through borrowings from a number of sources, either at the corporate or project level.

We believe the $115.0 million capacity, of which $12.2 million is available, on our revolving credit facilities will serve as our primary debt source that will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base.

In addition to restrictive covenants, our revolving credit facilities contain material financial covenants.

At September 30, 2022, we were in compliance with all covenants under our credit facilities.

We believe our revolving credit facilities will serve as our primary debt source that will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base.

We will continue to monitor the debt markets, including Fannie Mae and Freddie Mac, and as market conditions permit, access borrowings that are advantageous to us.

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Each joint venture in which we own a preferred equity interest is required to redeem our preferred equity interests, plus any accrued preferred return, based on a fixed maturity date, generally in relation to the property’s construction loan or mortgage loan maturity.

Upon redemption of the preferred membership interests, our income, FFO, CFFO and cash flows could be reduced below the preferred returns currently being recognized.

Alternatively, if the joint ventures do not redeem our preferred membership interest when required, our income, FFO, CFFO and cash flows could be reduced if the development project does not produce sufficient cash flow to pays its operating expenses, debt service and preferred return obligations.

As we evaluate our capital position and capital allocation strategy, we may consider alternative means of financing our development loan and preferred equity investment activities at the subsidiary level.

Off-Balance Sheet Arrangements

As of September 30, 2022, we have off-balance sheet arrangements that may have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

As of September 30, 2022, we own interests in seven joint ventures that are accounted for as held to maturity debt securities.

As of March 31, 2023, we have off-balance sheet arrangements that may have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

As of March 31, 2023, we own interests in seven joint ventures that are accounted for as held to maturity debt securities.

Cash Flows from Operating Activities

As of September 30, 2022, we owned indirect equity interests in twenty-nine real estate investments, consisting of twenty-two consolidated operating investments and seven investments held through preferred equity investments.

During the nine months ended September 30, 2022, net cash provided by operating activities was $12.4 million after net loss of $2.8 million was adjusted for the following:

● an increase in accounts payable and other accrued liabilities of $5.5 million;

As of March 31, 2023, we owned indirect equity interests in seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments.

During the three months ended March 31,2023, net cash used in operating activities was $2.2 million after net loss of $5.3 million was adjusted for the following:

● a decrease in accounts payable and other accrued liabilities of $1.7 million;

● an increase in accounts receivable, prepaids and other assets of $1.6 million;

● non-cash items of $5.7 million;

● a decrease in notes and accrued interest receivable of $2.9 million;

● distributions and preferred returns from unconsolidated joint ventures of $0.5 million;

● a decrease in accounts receivable, prepaids and other assets of $0.4 million;

● a decrease in due from affiliates of $0.2 million.

Cash Flows from Investing Activities

During the nine months ended September 30, 2022, net cash used in investing activities was $167.9 million, primarily due to the following:

During the three months ended March 31, 2023, net cash used in investing activities was $11.0 million, primarily due to the following:

● $5.0 million used in the purchase of interests from noncontrolling interests;

● $4.3 million used in acquiring consolidated real estate investments;

● $53.0 million used in funding investments in unconsolidated joint ventures and notes receivable;

● $16.3 million used on capital expenditures, offset by:

● $45.6 million of repayments on notes receivable.

● $3.7 million used in additional investments in unconsolidated real estate joint ventures;

● $2.1 million used on capital expenditures;

● $4.1 million of proceeds from the redemption of unconsolidated real estate joint ventures.

Cash Flows from Financing Activities

During the nine months ended September 30, 2022, net cash provided by financing activities was $209.5 million, primarily due to the following:

● contributions from Parent of $121.6 million;

● net proceeds of $55.0 million from borrowings on revolving credit facilities;

● net borrowings of $41.9 million on mortgages payable;

● contributions from partially owned noncontrolling interests of $6.2 million;

● partially offset by $5.5 million of repayments of our mortgages payable;

● $4.5 million increase in deferred financing costs;

● $2.1 million paid for interest rate caps;

● $1.8 million in distributions paid;

● $1.3 million in distributions paid to our partially owned noncontrolling interests.

During the three months ended March 31, 2023, net cash used in financing activities was $6.2 million, primarily due to the following:

● $6.0 million of repayments on revolving credit facilities;

● $0.4 million of repayments on our mortgages payable;

● $0.1 million in distributions paid to partially owned noncontrolling interests;

● $0.3 million of contributions from partially owned noncontrolling interests.

Capital Expenditures

The following table summarizes our total capital expenditures for the nine months ended September 30, 2022 and 2021 (amounts in thousands):

Nine Months Ended

September 30,

The following table summarizes our total capital expenditures for the three months ended March 31, 2023 and 2022 (amounts in thousands):

Three Months Ended

Redevelopment/renovations

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The renovation work varies, but may include flooring, cabinetry, paint, plumbing, appliances and other items required to make the unit rent ready.

Routine capital expenditures are necessary non-revenue generating improvements that extend the useful life of the property and that are less frequent in nature, such as roof repairs and concrete work/asphalt resurfacing.

Routine capital expenditures are necessary non-revenue generating improvements that extend the useful life of the

property and that are less frequent in nature, such as roof repairs and concrete work/asphalt resurfacing.

Normally recurring capital expenditures are necessary non-revenue generating improvements that occur on a regular ongoing basis, such as flooring and appliances.

Net Operating Income

We believe that net operating income (“NOI”) is a useful measure of our operating performance.

We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest.

Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs.

NOI also is a computation made by analysts and investors to measure a real estate company’s operating performance.

However, NOI should only be used as a supplemental measure of our financial performance.

The following table reflects net income attributable to Bluerock Homes together with a reconciliation to NOI, as computed in accordance with GAAP for the periods presented (amounts in thousands):

Funds from Operations and Core Funds from Operations Attributable to Common Stockholders and Unit Holders

We believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and core funds from operations (“CFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.

FFO attributable to common stockholders and unit holders is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.

We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation.

The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time.

Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative.

We define FFO, consistent with the NAREIT definition, as net income (loss), computed in accordance with GAAP, excluding gains or losses on sales of depreciable real estate property, plus depreciation and amortization of real estate assets, plus impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, and after adjustments for unconsolidated partnerships and joint ventures.

Adjustments for notes receivable, unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.

CFFO makes certain adjustments to FFO, removing the effect of items that do not reflect ongoing property operations such as acquisition and other transaction costs, non-cash interest, unrealized gains or losses on derivatives, provision for (recovery of) credit losses, losses on extinguishment of debt and debt modification costs (includes prepayment penalties incurred and the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt), one-time weather-related costs and stock compensation expense.

We believe that CFFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core recurring property operations.

As a result, we believe that CFFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential.

Our calculation of CFFO differs from the methodology used for calculating CFFO by certain other REITs and, accordingly, our CFFO may not be comparable to CFFO reported by other REITs.

Our management utilizes FFO and CFFO as measures of our operating performance after adjustment for certain non-cash items, such as depreciation and amortization expenses, and acquisition and other transaction costs that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods.

Furthermore, although FFO and CFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and CFFO may provide us and our stockholders with an additional useful measure to compare our financial performance to certain other REITs.

Neither FFO nor CFFO is equivalent to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP.

Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties.

Neither FFO nor CFFO should be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

We historically operated as part of Bluerock Residential and not as a standalone company.

On October 6, 2022, Bluerock Residential completed a spin-off transaction that resulted in its single-family residential real estate business and certain other assets being contributed to us.

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 our business activity are included in the financial statements.

The financial statements for the period ended and prior to October 6, 2022 also include allocations of certain general, administrative, sales and marketing expenses that have been allocated to us from Bluerock Residential based on relative unit count.

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

As such, the results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.

The table below presents our calculation of FFO and CFFO for the periods presented ($ in thousands):

Three Months Ended

Nine Months Ended

September 30,

Net income attributable to Bluerock Homes

Net (loss) income attributable to partially owned noncontrolling interests

Income from discontinued operations

Net loss attributable to Common Stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to Common Stockholders and Unit Holders

Real estate depreciation and amortization

Non-real estate depreciation and amortization

Adjustment for partially owned noncontrolling interests

FFO attributable to Common Stockholders and Unit Holders

Acquisition and other transaction costs

Non-cash interest expense

Provision for (recovery of) credit losses, net

Property management and asset management fees

Corporate operating expenses

Acquisition and pursuit costs

Unrealized loss on derivatives

Provision for (recovery of) credit losses

Non-real estate depreciation and amortization

Other income, net

Preferred returns on unconsolidated real estate joint ventures

Interest income from loan investments

Total property income

Interest expense

Net operating income

Non-cash equity compensation

Adjustment for partially owned noncontrolling interests

CFFO attributable to Common Stockholders and Unit Holders

Per Share and Unit Information:

FFO attributable to Common Stockholders and Unit Holders - diluted

CFFO attributable to Common Stockholders and Unit Holders - diluted

Weighted average common shares and units outstanding - diluted

Operating cash flow, FFO and CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO.

Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful.

FFO or CFFO should not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions.

Both FFO and CFFO should be reviewed in connection with other GAAP measurements.

Our board of directors (“Board”) will determine the amount of dividends to be paid to our stockholders.

The determination of our Board will be based on several factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to qualify and maintain our REIT status for federal income tax purposes.

As a result, our distribution rate and payment frequency may vary from time to time.

To qualify and maintain our REIT status, we will be required to distribute annually at least 90% of our “REIT taxable income”, as defined by the Internal Revenue Code of 1986, determined without regard to the dividends paid deduction and excluding net capital gains, to our stockholders.

While our policy is generally to pay distributions from cash flow from operations, we may declare distributions in excess of funds from operations.

There were no distributions declared or paid during the three months ended March 31, 2023.

Significant Accounting Policies and Critical Accounting Estimates

Our significant accounting policies and critical accounting estimates are disclosed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of our Combined Financial Statements.

Subsequent Events

Other than the items disclosed in Note 16 “Subsequent Events” to our Combined Financial Statements for the period ended September 30, 2022, no material events have occurred that required recognition or disclosure in these financial statements.

Refer to Note 16 of our Combined Financial Statements for discussion.

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 2. Management’s Discussion and Analysis