What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-10 compared with 2023-05-11 · 130 added, 89 removed, 255 unchanged (46% of the section changed)

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(“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.

(“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.

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● the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates and safety record;

● increased operating costs, including increased real property taxes, HOA fees, maintenance, insurance and utilities costs;

● increased operating costs, including increased real property taxes, homeowners association (“HOA”) fees, maintenance, insurance and utilities costs;

● weather conditions that may increase or decrease energy costs and other weather-related expenses;

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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.

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").

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 Part I, Item 1A of our 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, 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 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.

As of June 30, 2023, we held an aggregate of 4,077 residential units held through seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments.

As of June 30, 2023, our consolidated operating investments were approximately 94.4% 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.

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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.

While inflationary pressures have shown signs of moderation, 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.

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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.

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 such 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.

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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.

Additionally, recent developments in the banking industry have caused uncertainty and concern regarding the strength of the banking system.

As a result, 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.

Although our banking relationships are primarily with large national banks, a significant disruption to the banking system could lead to market-wide liquidity problems which could adversely affect our access to capital and our cost of capital.

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.

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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):

During the six months ended June 30, 2023, we acquired the noncontrolling partner’s interest in the following consolidated operating investments ($ in thousands):

January 6, 2023

Indy-Springfield, formerly Peak JV 1

Sale of Real Estate Assets

During the second quarter 2023, we closed on the following sales:

one unit in the Golden Pacific portfolio, six units in the Peak JV 2 portfolio, and two units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements.

The nine units were sold for an aggregate of approximately $2.8 million, subject to certain prorations and adjustments typical in such real estate transactions.

After deduction for payments of closing costs and fees of $0.1 million, the sales of the nine units generated net proceeds of approximately $2.7 million and a gain on sales of approximately $0.7 million.

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.

During the six months ended June 30, 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 in the aggregate amount of $7.2 million, which included principal investment of $6.8 million and accrued preferred return of $0.4 million, leaving our remaining preferred equity investment in the Peak REIT OP at $13.5 million as of June 30, 2023.

Additionally, we funded an aggregate of approximately $6.7 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.

Our total stockholders’ equity decreased $2.8 million from $160.0 million as of December 31, 2022 to $157.2 million as of June 30, 2023.

The decrease in our total stockholders’ equity is primarily attributable to an adjustment of $2.6 million for noncontrolling interest ownership in the Operating Partnership and a net loss of $1.9 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 March 31, 2023:

The following is a summary of our consolidated operating real estate investments as of June 30, 2023:

Number of Units

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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 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.

(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 June 30, 2023.

(2) Percent occupied is calculated as (i) the number of units occupied as of June 30, 2023 divided by (ii) total number of units, expressed as a percentage.

Percent occupied excludes an aggregate of 55 down/renovation units and 2 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,

The following is a summary of our consolidated operational results for the three and six months ended June 30, 2023 and 2022 ($ in thousands, except average rental rates):

Three Months Ended June 30,

Six Months Ended June 30,

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 March 31, 2023:

The following is a summary of our preferred equity investments as of June 30, 2023:

Total Actual/

Lease-up Investment Name

Location / Market

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Cost Per Unit

Lease-up Investment

The Cottages at Warner Robins

Warner Robins, GA

The Woods at Forest Hill

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Willow Park, TX

The Cottages at Warner Robins

Warner Robins, GA

Total Lease-up Units

Development Investment

The Cottages at Myrtle Beach

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The Cottages of Port St.

Total Lease-up Units

Development Investment Name

Wayford at Innovation Park

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Total Development Units

Operating Investment

Operating Investment Name

Number of Units

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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 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).

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended June 30, 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 June 30, 2023 (refer to Note 7 of our combined consolidated financial statements for further information).

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

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.

Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Rental and other property revenues increased $2.6 million, or 34%, to $10.3 million for the three months ended June 30, 2023 as compared to $7.7 million for the same prior year period.

The increase was primarily due to unit count growth of 349 homes, net of nine homes sold, in our portfolio since April 1, 2022 and operational improvements from our active management and organic market rent growth.

Our average rent per occupied unit increased $151, or 10.7%, to $1,557 as compared to $1,406 during the prior year period.

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(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.

Interest income from loan investments decreased $0.3 million, or 100%, to zero for the three months ended June 30, 2023 as compared to $0.3 million for the same prior year period due to the payoff of two loans in 2022.

We did not have any loan investments during the three months ended June 30, 2023.

Property operating expenses increased $0.8 million, or 21%, to $4.6 million for the three months ended June 30, 2023 as compared to $3.8 million for the same prior year period.

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

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 $2.1 million and $1.8 million, and non-controllable expenses were $2.5 million and $2.0 million, for the three months ended June 30, 2023 and 2022, respectively.

Property management and asset management fee expenses were $1.1 million for the three months ended June 30, 2023 as compared to $0.8 million in the same prior year period.

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

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 amounted to $1.8 million for the three months ended June 30, 2023 as compared to $1.6 million for the same prior year period.

Amounts recognized during the three months ended June 30, 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 June 30, 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 $2.0 million for the three months ended June 30, 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 $0.3 million for the three months ended June 30, 2023 as compared to $0.1 million for the same prior year period.

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

Depreciation and amortization expenses were $4.0 million for the three months ended June 30, 2023, consistent with the prior year period.

Other Income and Expense

Other income and expense amounted to income of $2.3 million for the three months ended June 30, 2023 compared to income of $0.1 million for the same prior year period.

This was due to an increase in preferred returns on unconsolidated real estate joint ventures of $0.9 million as funding to our preferred equity investments increased to $86.2 million at June 30, 2023 as compared to $72.1 million at June 30, 2022, an increase in gain on sale of real estate investments of $0.7 million due to the sale of nine homes during the three months ended June 30, 2023, and a $0.6 million net decrease in interest expense.

The net decrease in interest expense was due to a $0.6 million increase in interest income from our short-term investments, a $0.3 million increase in the fair value of interest rate caps and swaps, partially offset by a $0.3 million increase in interest expense attributable to an increase in the outstanding debt to $167.5 million at June 30, 2023 as compared to $148.2 million at June 30, 2022.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Rental and other property revenues increased $5.9 million, or 40%, to $20.4 million for the six months ended June 30, 2023 as compared to $14.5 million for the same prior year period.

The increase was primarily due to unit count growth of 560 homes, net of nine homes sold, 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 $172, or 12.5%, to $1,549 as compared to $1,377 during the prior year period.

Average occupancy increased 200 basis points from 94.2% to 92.2% on a year over year basis.

The improvement was partially driven by:

Interest income from loan investments decreased $1.2 million, or 100%, to zero for the six months ended June 30, 2023 as compared to $1.2 million for the same prior year period due to the payoff of two loans in 2022.

We did not have any loan investments during the six months ended June 30, 2023.

Property operating expenses increased $2.5 million, or 39%, to $9.1 million for the six months ended June 30, 2023 as compared to $6.6 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 $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.

Controllable expenses were $4.2 million and $2.9 million, and non-controllable expenses were $4.9 million and $3.7 million, for the six months ended June 30, 2023 and 2022, respectively.

Property management and asset management fee expenses were $2.2 million for the six months ended June 30, 2023 as compared to $1.5 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 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.

General and administrative expenses amounted to $3.8 million for the six months ended June 30, 2023 as compared to $3.2 million for the same prior year period.

Amounts recognized during the six months ended June 30, 2023 represent our operations as a standalone company.

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.

As such, expense amounts recognized during the six months ended June 30, 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 $3.9 million for the six months ended June 30, 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.

Acquisition and other transaction costs amounted to $1.8 million for the six months ended June 30, 2023 as compared to $0.1 million for the same prior year period.

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.

Depreciation and amortization expenses were $8.0 million for the six months ended June 30, 2023 as compared to $8.5 million for the same prior year period, with the decrease primarily attributable to in-place leases being fully amortized prior to 2023.

Other Income and Expense

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.

Other income and expense amounted to income of $1.9 million for the six months ended June 30, 2023 compared to income of $0.7 million for the same prior year period.

This was due to an increase in preferred returns on unconsolidated real estate joint ventures of $2.5 million as funding to our preferred equity investments increased to $86.2 million at June 30, 2023 as compared to $39.6 million at December 31, 2021 and an increase in gain on sale of real estate investments of $0.7 million due to the sale of nine homes during the six months ended June 30, 2023.

These income sources were partially offset by a net increase in interest expense of $1.6 million, of which $1.5 million is attributable to an increase in the outstanding debt to $167.5 million at June 30, 2023 as compared to $148.2 million at June 30, 2022, a $0.8 million net decrease in the fair value of our interest rate caps and swaps (which was partially offset by $0.7 million in interest income from our short-term investments), and a decrease in the allowance for credit losses on unconsolidated real estate joint ventures of $0.4 million.

Net Operating Income

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Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

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

Net loss attributable to partially owned noncontrolling interests

Net loss attributable to partially owned properties noncontrolling interests

Real estate depreciation and amortization

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Non-cash interest expense

Unrealized loss on derivatives

Unrealized (gain) loss on derivatives

Provision for (recovery of) credit losses

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Corporate operating expenses

Weather-related losses, net

Other income, net

Preferred returns on unconsolidated real estate joint ventures

Gain on sale of real estate investments

Interest income from loan investments

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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 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 I, Item 1A titled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 22, 2023.

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”).

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 risks detailed in Part I, Item 1A titled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on March 22, 2023.

While consolidated occupancy remains strong at 94.4% as of June 30, 2023, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants.

On June 28, 2023, the SEC declared effective our registration statement on Form S-11 (File No.

333-269415) (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 believe our available cash balances, cash flows from operations, proceeds from the Series A Redeemable Preferred Offering, 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.

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

● $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);

● $79.9 million in cash available at June 30, 2023;

● capacity of $100 million, of which approximately $17 million was available as of June 30, 2023, on our revolving credit facilities dedicated to single-family residential investments;

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

● cash generated from operating activities;

● 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):

● proceeds from our continuous Series A Redeemable Preferred Offering and 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 June 30, 2023 related to our mortgage notes secured by our properties and revolving credit facilities.

At June 30, 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 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 of June 30, 2023, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our preferred equity and joint venture investments was $1.1 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 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.

We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, our revolving credit facilities, as well as future acquisition or project-based borrowings.

Our primary long-term liquidity requirements relate to (i) costs for additional single-family residential investments, including build-to-rent development properties, (ii) repayment of long-term debt and our revolving credit facilities, (iii) capital expenditures, and (iv) cash redemption requirements related to our Series A Redeemable Preferred Stock.

We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, including our continuous Series A Redeemable Preferred Offering, our revolving credit facilities, as well as future acquisition or project-based borrowings.

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

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We also may be forced to dispose of assets at inopportune times to maintain REIT qualification and Investment Company Act exemption.

We expect to begin paying a distribution on our Series A Redeemable Preferred Stock, and maintain such distribution, in accordance with the terms of those securities which require monthly dividends.

While our policy is generally to pay distributions from cash flow from operations, our distributions may in the future be paid from additional sources, such as from borrowings.

We also have preferred equity interests in properties that are in various stages of development, in lease-up and operating, and our preferred equity investments are structured to provide a current and/or accrued preferred return during all phases.

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Off-Balance Sheet Arrangements

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.

As of June 30, 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 June 30, 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 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;

As of June 30, 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 six months ended June 30, 2023, net cash provided by operating activities was $2.1 million after net loss of $6.5 million was adjusted for the following:

● non-cash items of $9.1 million;

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

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

● distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures of $1.0 million;

● an increase in due to affiliates of $0.2 million;

● an increase in accounts receivable, prepaids and other assets of $1.0 million;

● a decrease in accounts payable and other accrued liabilities of $0.7 million.

Cash Flows from Investing Activities

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;

During the six months ended June 30, 2023, net cash used in investing activities was $6.7 million, primarily due to the following:

● $6.7 million used in additional investments in unconsolidated real estate joint ventures;

● $5.2 million used on capital expenditures;

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

● $6.8 million of proceeds from the redemption of unconsolidated real estate joint ventures;

● $2.7 million of proceeds from sale of real estate investments.

Cash Flows from Financing Activities

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

During the six months ended June 30, 2023, net cash provided by financing activities was $8.2 million, primarily due to the following:

● $21.0 million of proceeds from revolving credit facilities;

● $0.3 million of contributions from noncontrolling interests;

● $6.0 million of repayments on revolving credit facilities;

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

● $1.1 million of payments of deferred financing fees;

● $0.7 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.

● $0.2 million of distributions paid to partially owned properties noncontrolling interests.

Capital Expenditures

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

Three Months Ended

The following table summarizes our total capital expenditures for the six months ended June 30, 2023 and 2022 (amounts in thousands):

Six 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.

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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.

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Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

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Real estate depreciation and amortization

Adjustment for partially owned noncontrolling interests

Gain on sale of real estate investments

Adjustment for partially owned properties noncontrolling interests

FFO attributable to common stockholders and unit holders

1 unchanged sentence

Non-cash interest expense

Unrealized loss on derivatives

Unrealized (gain) loss on derivatives

Provision for (recovery of) credit losses

Weather-related losses, net

Non-real estate depreciation and amortization

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Non-cash equity compensation

Adjustment for partially owned noncontrolling interests

Adjustment for partially owned properties noncontrolling interests

CFFO attributable to common stockholders and unit holders

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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.

There were no distributions declared or paid during the six months ended June 30, 2023.

Significant Accounting Policies and Critical Accounting Estimates

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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