Bluerock Homes Trust, Inc. 10-Q

Item 1. Financial Statements BLUEROCK HOMES TRUST, INC. COMBINED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (Unaudited) ​ ​ ​ ​ ​ March 31, ​ December 31, ​ 2023 2022 ASSETS ​ ​ Net Real Estate Investments ​ ​ Land ​ $ 69,874 ​ $ 69,369 Buildings and improvements ​ 416,742 ​ 412,463 Furniture, fixtures and equipment ​ 9,020 ​ 8,159 Total Gross Real Estate Investments ​ 495,636 ​ 489,991 Accumulated depreciation ​ ( 21,822 ) ​ ( 17,865 ) Total Net Real Estate Investments ​ 473,814 ​ 472,126 Cash and cash equivalents ​ 58,691 ​ 78,426 Restricted cash ​ 4,411 ​ 4,136 Accounts receivable, prepaids and other assets, net ​ 20,147 ​ 17,916 Preferred equity investments in unconsolidated real estate joint ventures, net ​ 85,891 ​ 86,289 TOTAL ASSETS ​ $ 642,954 ​ $ 658,893 ​ ​ ​ ​ ​ ​ ​ LIABILITIES AND EQUITY ​ ​ Mortgages payable ​ $ 97,820 ​ $ 98,191 Revolving credit facilities ​ 49,000 ​ 55,000 Accounts payable ​ 1,145 ​ 1,751 Other accrued liabilities ​ 7,927 ​ 9,752 Due to affiliates ​ 2,361 ​ 2,211 Total Liabilities ​ 158,253 ​ 166,905 Equity ​ ​ ​ ​ 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 ​ ​ 38 ​ 38 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 ​ ​ 126,482 ​ ​ 126,623 Retained earnings ​ ​ 31,785 ​ ​ 33,325 Total Stockholders’ Equity ​ ​ 158,305 ​ ​ 159,986 Noncontrolling Interests ​ ​ ​ ​ ​ ​ Operating partnership units ​ ​ 309,385 ​ ​ 307,825 Partially owned properties ​ ​ 17,011 ​ ​ 24,177 Total Noncontrolling Interests ​ ​ 326,396 ​ ​ 332,002 Total Equity ​ ​ 484,701 ​ ​ 491,988 TOTAL LIABILITIES AND EQUITY ​ $ 642,954 ​ $ 658,893 ​ See Notes to Combined Consolidated Financial Statements ​ 3 Table of Contents BLUEROCK HOMES TRUST, INC. COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 (1) 2022 (1) Revenues ​ ​ Rental and other property revenues ​ $ 10,138 ​ $ 6,852 Interest income from loan investments ​ — ​ 885 Total revenues ​ 10,138 ​ 7,737 ​ ​ ​ ​ ​ ​ ​ Expenses ​ ​ ​ ​ Property operating ​ 4,557 ​ 2,780 Property management and asset management fees ​ 1,091 ​ 643 General and administrative ​ 1,994 ​ 1,626 Management fees to related party ​ 1,922 ​ — Acquisition and other transaction costs ​ 1,455 ​ — Depreciation and amortization ​ 3,958 ​ 4,482 Total expenses ​ 14,977 ​ 9,531 Operating loss ​ ​ ( 4,839 ) ​ ​ ( 1,794 ) ​ ​ ​ ​ ​ ​ ​ Other income (expense) ​ ​ ​ ​ Other income ​ 44 ​ 1 Preferred returns on unconsolidated real estate joint ventures ​ 2,796 ​ 1,273 (Provision for) recovery of credit losses, net ​ ( 6 ) ​ 362 Interest expense, net ​ ( 3,273 ) ​ ( 1,058 ) Total other (loss) income ​ ( 439 ) ​ 578 Net loss ​ ( 5,278 ) ​ ( 1,216 ) Net loss attributable to noncontrolling interests ​ ​ ​ ​ ​ ​ Operating partnership units ​ ( 2,985 ) ​ ( 302 ) Partially owned properties ​ ( 753 ) ​ ( 757 ) Net loss attributable to noncontrolling interests ​ ( 3,738 ) ​ ( 1,059 ) Net loss attributable to common stockholders ​ $ ( 1,540 ) ​ $ ( 157 ) ​ ​ ​ ​ ​ Net loss per common share – Basic (2) ​ $ ( 0.40 ) ​ $ ( 0.04 ) Net loss per common share – Diluted (2) ​ $ ( 0.40 ) ​ $ ( 0.04 ) ​ ​ ​ ​ ​ Weighted average basic common shares outstanding (2) ​ ​ 3,843,502 ​ ​ 3,843,502 Weighted average diluted common shares outstanding (2) ​ ​ 3,843,502 ​ ​ 3,843,502 (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 ​ 4 Table of Contents BLUEROCK HOMES TRUST, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2023 CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands, except share and per share amounts) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Class A ​ ​ Class C ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Common Stock ​ ​ Common Stock ​ Additional ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number ​ ​ ​ ​ Number ​ ​ ​ ​ Paid-in ​ Retained ​ Noncontrolling ​ ​ ​ ​ ​ of Shares Par Value of Shares Par Value Capital Earnings Interests Total Equity Balance, January 1, 2023 ​ ​ 3,835,013 ​ $ 38 ​ ​ 8,489 ​ $ — ​ $ 126,623 ​ $ 33,325 ​ $ 332,002 ​ $ 491,988 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Issuance of LTIP Units for director compensation ​ — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 279 ​ ​ 279 Issuance of LTIP Units to Manager ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 2,610 ​ ​ 2,610 Acquisition of noncontrolling interests ​ — ​ — ​ — ​ ​ — ​ ​ 1,515 ​ ​ — ​ ​ ( 6,564 ) ​ ​ ( 5,049 ) Distributions to partially owned noncontrolling interests ​ — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 99 ) ​ ​ ( 99 ) Contributions from noncontrolling interests ​ — ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 250 ​ ​ 250 Adjustment for noncontrolling interest ownership in the Operating Partnership ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,656 ) ​ ​ — ​ ​ 1,656 ​ ​ — Net loss ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ ( 1,540 ) ​ ​ ( 3,738 ) ​ ​ ( 5,278 ) Balance, March 31, 2023 ​ ​ 3,835,013 ​ $ 38 ​ ​ 8,489 ​ $ — ​ $ 126,482 ​ $ 31,785 ​ $ 326,396 ​ $ 484,701 ​ See Notes to Combined Consolidated Financial Statements ​ 5 Table of Contents BLUEROCK HOMES TRUST, INC. FOR THE THREE MONTHS ENDED MARCH 31, 2022 COMBINED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Predecessor ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Bluerock ​ Retained ​ Noncontrolling ​ ​ ​ Homes Equity Earnings Interests Total Equity Balance, January 1, 2022 ​ $ 116,510 ​ $ 34,325 ​ $ 311,136 ​ $ 461,971 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Contributions, net ​ ​ 30,694 ​ ​ — ​ ​ 60,307 ​ ​ 91,001 Distributions to partially owned noncontrolling interests ​ ​ — ​ ​ — ​ ​ ( 58 ) ​ ​ ( 58 ) Net loss ​ ​ — ​ ​ ( 157 ) ​ ​ ( 1,059 ) ​ ​ ( 1,216 ) Balance, March 31, 2022 ​ $ 147,204 ​ $ 34,168 ​ $ 370,326 ​ $ 551,698 ​ See Notes to Combined Consolidated Financial Statements ​ 6 Table of Contents BLUEROCK HOMES TRUST, INC. COMBINED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended ​ ​ March 31, ​ 2023 2022 Cash flows from operating activities ​ ​ Net loss ​ $ ( 5,278 ) ​ $ ( 1,216 ) Adjustments to reconcile net loss to net cash (used in) provided by operating activities: ​ ​ ​ ​ Depreciation and amortization ​ 4,544 ​ 4,781 Amortization of fair value adjustments ​ ( 80 ) ​ ( 80 ) Preferred returns on unconsolidated real estate joint ventures ​ ( 2,796 ) ​ ( 1,273 ) Fair value adjustment of interest rate caps and swaps ​ 1,133 ​ — Provision for (recovery of) credit losses, net ​ 6 ​ ( 362 ) Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures ​ 563 ​ 754 Share-based compensation attributable to equity incentive plan ​ 279 ​ — Share-based compensation to Manager – LTIP/C-LTIP Units ​ 2,610 ​ — Changes in operating assets and liabilities: ​ ​ ​ ​ Due to affiliates, net ​ 150 ​ 445 Accounts receivable, prepaids and other assets ​ ( 1,632 ) ​ ( 1,157 ) Notes and accrued interest receivable ​ — ​ 2,757 Accounts payable and other accrued liabilities ​ ( 1,695 ) ​ ( 208 ) Net cash (used in) provided by operating activities ​ ( 2,196 ) ​ 4,441 ​ ​ ​ ​ ​ ​ ​ Cash flows from investing activities: ​ ​ ​ ​ Acquisitions of real estate investments ​ ( 4,330 ) ​ ( 31,917 ) Capital expenditures ​ ( 2,051 ) ​ ( 3,665 ) Investment in notes receivable ​ — ​ ( 9,645 ) Repayments on notes receivable ​ — ​ 31,000 Purchase of interests from noncontrolling interests ​ ( 5,049 ) ​ — Proceeds from redemption of unconsolidated real estate joint ventures ​ 4,058 ​ — Investment in unconsolidated real estate joint venture interests ​ ( 3,666 ) ​ ( 10,712 ) Net cash used in investing activities ​ ( 11,038 ) ​ ( 24,939 ) ​ ​ ​ ​ ​ ​ ​ Cash flows from financing activities: ​ ​ ​ ​ Distributions to partially owned noncontrolling interests ​ ( 99 ) ​ ( 58 ) Contributions from Bluerock Residential ​ — ​ 30,694 Contributions from noncontrolling interests ​ 250 ​ 60,307 Borrowings on mortgages payable ​ — ​ 9,974 Repayments on mortgages payable ​ ( 377 ) ​ ( 508 ) Repayments on revolving credit facilities ​ ( 6,000 ) ​ — Payments of deferred financing fees ​ — ​ ( 428 ) Net cash (used in) provided by financing activities ​ ( 6,226 ) ​ 99,981 ​ ​ ​ ​ ​ Net (decrease) increase in cash, cash equivalents and restricted cash ​ $ ( 19,460 ) ​ $ 79,483 Cash, cash equivalents and restricted cash, beginning of year ​ 82,562 ​ 136,929 Cash, cash equivalents and restricted cash, end of period ​ $ 63,102 ​ $ 216,412 ​ ​ ​ ​ ​ ​ ​ Reconciliation of cash, cash equivalents and restricted cash ​ ​ ​ ​ Cash and cash equivalents ​ $ 58,691 ​ $ 210,666 Restricted cash ​ ​ 4,411 ​ ​ 5,746 Total cash, cash equivalents and restricted cash, end of period ​ $ 63,102 ​ $ 216,412 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of cash flow information ​ ​ ​ ​ Cash paid for interest (net of interest capitalized) ​ $ 1,717 ​ $ 734 ​ ​ ​ ​ ​ ​ ​ Supplemental disclosure of non-cash investing and financing activities ​ ​ ​ ​ Distributions payable – declared and unpaid ​ $ — ​ $ 3,269 Capital expenditures held in accounts payable and other accrued liabilities ​ $ 849 ​ $ 140 ​ See Notes to Combined Consolidated Financial Statements ​ 7 Table of Contents BLUEROCK HOMES TRUST, INC. NOTES TO COMBINED CONSOLIDATED FINANCIAL STATEMENTS ​ Note 1 – Organization and Nature of Business Bluerock Homes Trust, Inc. (the “Company” or “Bluerock Homes”) was 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. 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. 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 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. The Company’s principal objective is to generate attractive risk-adjusted returns on investments where it believes it can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential homes, developing build-to-rent communities, and through Value-Add renovations. The Company’s Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize the Company’s return on investment. As of 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. 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 upon the filing of its U.S. federal income tax return for such taxable year. As a REIT, the Company generally will not be subject to corporate-level income taxes. To qualify and maintain 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 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 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 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). 8 Table of Contents 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 The Company first analyzes an investment to determine if it is a variable interest entity (“VIE”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation and, if so, whether the Company is the primary beneficiary requiring consolidation of the entity. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses at each level of the investment whether (i) the entity is a VIE, and (ii) the Company is the primary beneficiary of the VIE. If it was determined that an entity in which the Company holds an interest qualified as a VIE and the Company was the primary beneficiary, the entity would be consolidated. If, after consideration of the VIE accounting literature, the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority voting interest held by the Company providing control. In assessing whether the Company is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company evaluates the respective rights and privileges afforded each member or partner (collectively referred to as “member”). The Company’s member would not be deemed to control the entity if any of the other members has either (i) substantive kickout rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) substantive participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be made in the ordinary course of business. The Company analyzes each investment that involves real estate acquisition, development, and construction to consider whether the investment qualifies as an investment in a real estate acquisition, development, and construction arrangement. The Company has evaluated its real estate investments as required by ASC 310-10 Receivables and concluded that no investments are considered an investment in a real estate acquisition, development, or construction arrangement. As such, the Company next evaluates if these investments are considered a security under ASC 320 Investments – Debt Securities . For investments that meet the criteria of a security under ASC 320 Investments – Debt Securities , the Company classifies each preferred equity investment as a held-to-maturity debt security as the Company has the intention and ability to hold the investment to maturity. The Company earns a fixed return on these investments which is included within preferred returns on unconsolidated real estate joint ventures in its combined consolidated statements of operations. The Company evaluates the collectability of each preferred equity investment and estimates a provision for credit loss, as applicable. Refer to the Current Expected Credit Losses (“CECL”) section of this Note for further information regarding CECL and the Company’s provision for credit losses. The Company accounts for these investments as preferred equity investments in unconsolidated real estate joint ventures in its combined consolidated balance sheets. For investments that do not meet the criteria of a security under ASC 320 Investments – Debt Securities , the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate. The Company recognizes interest income on its notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected. Costs incurred to originate its notes receivable are deferred and amortized using the effective interest method over the term of the related notes receivable. The Company evaluates the collectability of each loan investment and estimates a provision for credit loss, as applicable. Refer to the CECL section of this Note for further information regarding CECL and the Company’s provision for credit losses. The Company did not have any loan investments at March 31, 2023. 9 Table of Contents 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 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. New Accounting Pronouncements In January 2021, the FASB issued Accounting Standards Update (“ASU”) No. 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”). The amendments in ASU 2021-01 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, 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. 10 Table of Contents Current Expected Credit Losses The Company estimates provision for credit losses on its loans (notes receivable) and preferred equity investments under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. The method for calculating the estimate of expected credit loss considers historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future. The Company estimates its provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, the Company applies a default rate to the investments for the remaining loan or preferred equity investment hold period. As the Company does not have a significant historical population of loss data on its loan and preferred equity investments, the Company’s default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans. In addition to analyzing investments as a pool, the Company performs an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or the Company expects repayment through the sale of the collateral, the Company calculates expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if the Company determines that it is probable that it will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded. In estimating the value of the underlying collateral when determining if a loan or preferred equity investment is fully recoverable, the Company evaluates estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon the Company’s evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease-up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition. The Company may also obtain a third-party valuation which may value the collateral through an “as-is” or “stabilized value” methodology. If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, the Company records a provision for credit loss on that loan or preferred equity investment. As the investment no longer displays the characteristics that are similar to those of the pool of loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above. ​ ​ ​ Note 3 – Investments in Real Estate 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. Consolidated Operating Investments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Average Year ​ Ownership Name Market Units Built Interest ​ Ballast ​ AZ / CO / WA ​ 84 ​ 1998 ​ 95 % Golden Pacific IN / KS / MO 171 1976 97 % ILE TX / SE US 482 1991 95 % Indy-Springfield, formerly Peak JV 1 IN / MO 334 1997 100 % Navigator Villas Pasco, WA 176 2013 90 % Peak JV 2 Various / TX 608 1980 80 % Peak JV 3 Dallas-Fort Worth, TX 189 1962 56 % Savannah-84, formerly Peak JV 4 Savannah, GA 84 2022-2023 100 % Wayford at Concord Concord, NC 150 2019 83 % Yauger Park Villas Olympia, WA 80 2010 95 % Total Units ​ 2,358 ​ ​ Depreciation expense was $ 4.0 million and $ 2.5 million for the three months ended March 31, 2023 and 2022, respectively. 11 Table of Contents 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 zero and $ 1.7 million for the three months ended March 31, 2023 and 2022, respectively. Preferred Equity Investments ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual / ​ Actual / ​ Actual / ​ ​ ​ ​ Planned ​ Estimated ​ Estimated ​ ​ ​ ​ Number of ​ Initial ​ Construction Lease-up Investment Name Location / Market Units Occupancy Completion The Woods at Forest Hill Forest Hill, TX 76 4Q 2022 3Q 2023 Willow Park ​ Willow Park, TX ​ 46 ​ 2Q 2022 ​ 3Q 2023 The Cottages at Warner Robins ​ Warner Robins, GA ​ 251 ​ 1Q 2023 ​ 4Q 2023 Total Lease-up Units ​ 373 ​ ​ ​ ​ ​ ​ ​ ​ ​ Development Investment Name The Cottages at Myrtle Beach Myrtle Beach, SC 294 2Q 2023 4Q 2023 The Cottages of Port St. Lucie Port St. Lucie, FL 286 2Q 2023 1Q 2024 Wayford at Innovation Park Charlotte, NC 210 3Q 2023 3Q 2024 Total Development Units ​ 790 ​ ​ ​ ​ ​ ​ ​ Number of Operating Investment Name Units Peak Housing (1) IN / MO / TX 639 Total Operating Units ​ 639 Total Units ​ 1,802 (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 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 ​ Allocation Land ​ $ 499 Building ​ 3,831 Total assets acquired (1) ​ $ 4,330 (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. 12 Table of Contents 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Previous ​ New ​ ​ ​ ​ ​ ​ ​ Ownership ​ Ownership Property Date Amount Interest Interest Savannah-84 ​ January 6, 2023 ​ $ 939 ​ 80 % 100 % Indy-Springfield, formerly Peak JV 1 ​ March 8, 2023 ​ 4,111 60 % 100 % ​ ​ ​ Note 5 – Notes and Interest Receivable 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. ​ ​ ​ ​ ​ ​ December 31, ​ 2022 Beginning balance, net as of January 1, 2022 ​ $ 59 Recovery of credit losses on pool of assets, net (1) ​ ( 59 ) Provision for credit losses, end of period ​ $ — (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 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 Property March 31, 2022 The Hartley at Blue Hill (1) ​ $ 744 Weatherford 185 (2) ​ ​ 141 Total ​ $ 885 (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. (2) On July 22, 2022, the Weatherford 185 mezzanine loan provided by the Company was paid off in full. ​ 13 Table of Contents 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 March 31, 2023 and December 31, 2022 is summarized in the table below (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, ​ December 31, Property 2023 2022 Peak Housing ​ $ 16,261 ​ $ 20,318 The Cottages at Myrtle Beach ​ 17,913 ​ 17,913 The Cottages at Warner Robins ​ 13,250 ​ 13,250 The Cottages of Port St. Lucie ​ 18,785 ​ 18,785 The Woods at Forest Hill ​ 3,477 ​ 3,300 Wayford at Innovation Park ​ 13,226 ​ 10,205 Willow Park ​ 3,007 ​ 2,540 Total ​ $ 85,919 ​ $ 86,311 Provision for credit losses ​ ( 28 ) ​ ( 22 ) Total, net ​ $ 85,891 ​ $ 86,289 ​ 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, ​ 2023 2022 Beginning balances, net as of January 1, 2023 and 2022, respectively ​ $ 22 ​ $ 73 Provision for (recovery of) credit losses on pool of assets, net (1) ​ 6 ​ ( 51 ) Provision for credit losses, net, end of period ​ $ 28 ​ $ 22 ​ ​ ​ ​ ​ ​ ​ Recovery of credit loss – Alexan Southside Place (2) ​ $ — ​ $ ( 292 ) (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 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. 14 Table of Contents 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 ​ ​ March 31, Property 2023 2022 Peak Housing ​ $ 443 ​ $ 466 The Cottages at Myrtle Beach ​ 649 ​ 371 The Cottages at Warner Robins ​ 480 ​ 26 The Cottages of Port St. Lucie ​ 681 ​ 313 The Woods at Forest Hill ​ 110 ​ 14 Wayford at Innovation Park ​ 341 ​ — Willow Park ​ 92 ​ 83 Total preferred returns on unconsolidated joint ventures ​ $ 2,796 ​ $ 1,273 ​ The occupancy percentages of the Company’s unconsolidated real estate joint ventures at March 31, 2023 and December 31, 2022 are as follows: ​ ​ ​ ​ ​ ​ ​ Property March 31, 2023 December 31, 2022 Peak Housing 92.0 % 95.4 % The Cottages at Myrtle Beach ​ (1) ​ (2) ​ The Cottages at Warner Robins (3) ​ 16.7 % (2) ​ The Cottages of Port St. Lucie ​ (1) ​ (2) ​ The Woods at Forest Hill (4) ​ 10.5 % 1.3 % Wayford at Innovation Park ​ (1) ​ (2) ​ Willow Park (5) 32.6 % 30.4 % (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 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. 15 Table of Contents 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 March 31, 2023 and December 31, 2022 are as follows (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Revolving Credit Facilities March 31, 2023 December 31, 2022 DB Credit Facility ​ $ 29,000 ​ $ 35,000 ILE Sunflower Credit Facility ​ 20,000 ​ 20,000 Total ​ $ 49,000 ​ $ 55,000 ​ Deutsche Bank Credit Facility (“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 units in the Peak JV 2 portfolio. 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. 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. 16 Table of Contents ILE Sunflower Credit Facility On December 27, 2021, the Company’s unaffiliated joint venture partner, ILE, entered into a credit facility with Sunflower Bank, N.A. (the “ILE Sunflower Credit Facility”). The ILE Sunflower Credit Facility provides for a revolving loan with an initial commitment amount of $ 20 million, which commitment contains an accordion feature to a maximum total commitment of up to $ 50 million. The ILE Sunflower Credit Facility, along with four other separate non-revolving credit facilities (refer to Note 8 for further information), is used in the financing of acquisitions of single-family residential units. Borrowings under the ILE Sunflower Credit Facility bear interest at LIBOR plus 3.0 %, subject to a rate floor, and can be prepaid without penalty or premium. The 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 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 March 31, 2023 and December 31, 2022, with respect to the Company’s senior mortgage indebtedness (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Outstanding Principal As of March 31, 2023 ​ ​ March 31, ​ December 31, ​ ​ ​ Interest-only ​ ​ Property 2023 2022 Interest Rate through date Maturity Date ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Fixed Rate: ​ ​ ILE (1) ​ $ 25,759 ​ $ 25,976 3.69 % (2) ​ (1) Navigator Villas (3) ​ 19,953 ​ 20,039 4.57 % (2) ​ June 1, 2028 Yauger Park Villas (4) ​ 14,569 ​ 14,643 4.86 % (2) ​ April 1, 2026 Total Fixed Rate ​ $ 60,281 ​ $ 60,658 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Floating Rate: ​ ​ ​ ​ ​ ​ ILE (5) ​ $ 4,600 ​ $ 4,600 7.66 % August 2023 ​ August 9, 2028 Wayford at Concord (6) ​ 32,973 ​ 32,973 4.73 % May 2027 ​ May 1, 2029 Total Floating Rate ​ $ 37,573 ​ $ 37,573 ​ ​ Total ​ $ 97,854 ​ $ 98,231 ​ ​ Fair value adjustments ​ 1,155 ​ 1,235 ​ ​ Deferred financing costs, net ​ ( 1,189 ) ​ ( 1,275 ) ​ ​ Total mortgages payable ​ $ 97,820 ​ $ 98,191 ​ ​ (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. (3) The principal balance includes a $ 14.4 million senior loan at a fixed rate of 4.31 % and a $ 5.6 million supplemental loan at a fixed rate of 5.23 % . (4) The principal balance includes a $ 10.1 million senior loan at a fixed rate of 4.81 % and a $ 4.5 million supplemental loan at a fixed rate of 4.96 % . (5) ILE’s floating rate debt represents the debt outstanding from one credit agreement and bears interest at one-month Term SOFR plus 3.00 % , subject to a 4.00 % rate floor. In 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 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. Deferred financing costs Costs incurred in obtaining long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which approximates the effective interest method. 17 Table of Contents 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 Upon repayment of or in conjunction with a material change (i.e. a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement, the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt that was extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that are not capitalized are also included within loss on extinguishment of debt and debt modification costs on the combined consolidated statements of operations. Loss on extinguishment of debt and debt modification costs were zero for the three months ended March 31, 2023 and 2022. Debt maturities As of March 31, 2023, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands): ​ ​ ​ ​ ​ Year Total 2023 (April 1–December 31) ​ $ 1,142 2024 ​ 1,639 2025 ​ 1,717 2026 ​ 37,471 2027 ​ 866 Thereafter ​ 55,019 ​ ​ $ 97,854 Add: Unamortized fair value debt adjustment ​ 1,155 Subtract: Deferred financing costs, net ​ ( 1,189 ) Total ​ $ 97,820 ​ 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. These exceptions generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, the Company or our joint ventures would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses. The mortgage loans have a period where a prepayment fee or yield maintenance would be required. Note 9 – Fair Value of Financial Instruments Fair Value Measurements For financial assets and liabilities recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would expect to receive to sell an asset, or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date under current market conditions. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction. 18 Table of Contents In determining fair value, observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions; preference is given to observable inputs. In accordance with GAAP and as defined in ASC Topic 820: Fair Value Measurement, these two types of inputs create the following fair value hierarchy: ● Level 1: Quoted prices for identical instruments in active markets ● Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable ● Level 3: Significant inputs to the valuation model are unobservable ​ If the inputs used to measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted market prices, the Company uses independent sources and data to determine fair value. Fair Value of Financial Instruments As of 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 The estimated fair values of derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. The fair value of interest rate caps is determined using the market-standard methodology of discounting the future expected cash receipts which would occur if floating interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The inputs used in the valuation of interest rate caps and swaps fall within Level 2 of the fair value hierarchy. Fair Value of Debt 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 The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings. The Company’s objectives in using interest rate derivative financial instruments are to add stability to interest expense and to manage the Company’s exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps and swaps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from 19 Table of Contents a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. Interest rate swaps involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company has not designated any of the interest rate derivatives as hedges. Although these derivative financial instruments were not designated or did not qualify for hedge accounting, the Company believes the derivative financial instruments are effective economic hedges against increases in interest rates. The Company does not use derivative financial instruments for trading or speculative purposes. As of 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 ​ Fair Values of Derivative Instruments instruments under ASC 815-20 Balance Sheet Location March 31, 2023 December 31, 2022 Interest rate caps Accounts receivable, prepaids and other assets ​ $ 3,730 ​ $ 4,702 Interest rate swaps Accounts receivable, prepaids and other assets ​ 486 ​ 647 ​ 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 (Loss) ​ The Effect of Derivative Instruments on the instruments under ASC 815-20 Recognized in Income Statements of Operations ​ ​ ​ ​ Three Months Ended March 31, ​ ​ ​ ​ 2023 2022 Interest rate caps Interest Expense ​ $ ( 972 ) ​ $ — Interest rate swaps Interest Expense ​ ( 161 ) ​ ​ — ​ ​ ​ Note 11 – Related Party Transactions 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. 20 Table of Contents 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. ​ ​ ​ ​ ​ ​ ​ ​ ​ March 31, December 31, Amounts payable to the Manager under the Management Agreement ​ 2023 ​ 2022 Base management fee ​ $ 1,922 ​ $ 1,787 Operating and direct expense reimbursements ​ 439 ​ 424 Total amounts payable to the Manager ​ $ 2,361 ​ $ 2,211 ​ 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 21 Table of Contents 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 ​ ​ March 31, ​ 2023 2022 Net loss ​ $ ( 5,278 ) ​ $ ( 1,216 ) Net loss attributable to noncontrolling interests ​ ( 3,738 ) ​ ( 1,059 ) Net loss attributable to common stockholders ​ $ ( 1,540 ) ​ $ ( 157 ) ​ ​ ​ ​ ​ ​ ​ Weighted average common shares outstanding (1) ​ 3,843,502 ​ 3,843,502 Potential dilutive shares ​ — ​ — Weighted average common shares outstanding and potential dilutive shares (1) ​ 3,843,502 ​ 3,843,502 ​ ​ ​ ​ ​ ​ ​ Net loss per common share, basic ​ $ ( 0.40 ) ​ $ ( 0.04 ) Net loss per common share, diluted ​ $ ( 0.40 ) ​ $ ( 0.04 ) (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, 22 Table of Contents 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 $ 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. ​ ​ ​ ​ 23 Table of Contents