What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-09 compared with 2023-08-10 · 152 added, 108 removed, 277 unchanged (48% of the section changed)

31 unchanged sentences

● oversupply of single-family housing or a reduction in demand for real estate in the markets in which our properties are located;

● costs and time period required to convert acquisitions to rental homes;

● costs and time period required to convert acquisitions to rental units;

● a favorable interest rate environment that may result in a significant number of potential residents of our properties deciding to purchase homes instead of renting;

● rules, regulations and/or policy initiatives by government and private actors, including HOAs, to discourage or deter the purchase of single-family properties by entities owned or controlled by institutional investors;

● our ability to lease newly acquired or newly constructed single-family properties;

● our ability to lease newly acquired or newly constructed single-family units;

● changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes;

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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.

Our principal objective is to generate attractive risk-adjusted returns on investments where we believe we 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.

Our principal objective is to generate attractive risk-adjusted returns on investments where we believe we can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units, developing build-to-rent communities, and through Value-Add renovations.

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 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.

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

To qualify and maintain our REIT status, we will be required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.

As of September 30, 2023, we held seventeen real estate investments, consisting of ten consolidated operating investments and seven preferred equity investments.

The seventeen investments contain an aggregate of 3,996 residential units, comprised of 2,331 consolidated operating units and 1,665 units held through preferred equity investments.

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

In October 2023, we filed our U.S.

federal income tax return for the taxable year ending December 31, 2022 and elected to be treated, and currently qualify, as a REIT for federal income tax purposes.

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

To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.

If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates and we would not be permitted to qualify as a REIT for four years following the year in which our qualification is denied.

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

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

We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.

Inflation and Related Economic Volatility

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

Acquisition of Additional Interests in Properties

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

Acquisition of Additional Interests in Investments

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

January 6, 2023

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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.

During the third quarter 2023, we closed on the sales of eighteen units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements.

The eighteen units were sold for an aggregate of approximately $3.0 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 eighteen units generated net proceeds of approximately $2.9 million and no gain on sales.

Preferred Equity Investment Activity

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.

During the nine months ended September 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 operating partnership of Peak Housing REIT ( the “Peak REIT OP”) was partially redeemed in the aggregate amount of $9.3 million, which included principal investment of $8.5 million and accrued preferred return of $0.8 million, leaving our remaining preferred equity investment in the Peak REIT OP at $11.8 million as of September 30, 2023.

Additionally, we funded an aggregate of approximately $7.5 million of preferred equity investments in The Woods at Forest Hill, Wayford at Innovation Park and Willow Park.

Series A Redeemable Preferred Stock

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

333-269415) (the “2023 Registration Statement”).

On June 30, 2023, we filed a prospectus supplement to the 2023 Registration Statement offering a maximum of 20,000,000 shares of 6.0% Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) at $25.00 per share, for a maximum offering amount of $500,000,000 in Series A Preferred Stock (the “Series A Preferred Offering”), and on August 11, 2023, we made the initial issuance of Series A Preferred Stock pursuant to the Series A Preferred Offering.

As of September 30, 2023, we had issued 152,222 shares of Series A Preferred Stock pursuant to the Series A Preferred Offering with net proceeds of approximately $3.4 million after commissions, dealer manager fees and discounts of approximately $0.4 million.

Stockholders’ Equity

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.

Our total stockholders’ equity decreased $4.9 million from $160.0 million as of December 31, 2022 to $155.1 million as of September 30, 2023.

The decrease in our total stockholders’ equity is primarily attributable to an adjustment of $3.6 million for noncontrolling interest ownership in the Operating Partnership and a net loss of $2.9 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 consolidated operating real estate investments as of June 30, 2023:

The following is a summary of our consolidated operating real estate investments as of September 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 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 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,

(1) Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the three months ended September 30, 2023.

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

Percent occupied excludes an aggregate of 84 down/renovation units.

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

Three Months Ended September 30,

Nine Months Ended September 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 June 30, 2023:

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

Total Actual/

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The Cottages of Port St.

Total Lease-up Units

Development Investment Name

Wayford at Innovation Park

Charlotte, NC

Total Development Units

Total Lease-up Units

Operating Investment Name

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Total Units / Average

(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 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).

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

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended September 30, 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 September 30, 2023 (refer to Note 8 of our combined consolidated financial statements for further information).

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

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.

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

Rental and other property revenues increased $1.6 million, or 18%, to $10.2 million for the three months ended September 30, 2023 as compared to $8.6 million for the same prior year period.

The increase was primarily due to unit count growth of 137 units, net of 27 units sold, in our portfolio since July 1, 2022 and operational improvements from our active management and organic market rent growth.

Our average rent per occupied unit increased $98, or 6.6%, to $1,581 as compared to $1,483 during the prior year period.

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The improvement was partially driven by:

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

Interest income from loan investments decreased $0.3 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.

(i) stabilization of units under renovation within our value-enhancement strategy, and (ii) stabilization of units 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 $0.1 million, or 100%, to zero for the three months ended September 30, 2023 as compared to $0.1 million for the same prior year period due to the payoff of one loan since September 30, 2022.

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

Property operating expenses increased $0.7 million, or 15%, to $5.1 million for the three months ended September 30, 2023 as compared to $4.4 million for the same prior year period.

The increase was primarily due to the acquisition of units since July 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.

Controllable expenses were $2.6 million and $2.3 million, and non-controllable expenses were $2.5 million and $2.1 million, for the three months ended September 30, 2023 and 2022, respectively.

Property management and asset management fee expenses were $1.1 million for the three months ended September 30, 2023, consistent with the prior year period.

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.

Although revenues increased 18% compared to the prior year period, the negotiation of management fees with two property managers in 2023 resulted in property management fees remaining consistent with the prior year period.

General and administrative expenses amounted to $1.7 million for the three months ended September 30, 2023 as compared to $1.8 million for the same prior year period.

Amounts recognized during the three months ended September 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.

As such, expense amounts recognized during the three months ended September 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 September 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.

Acquisition and other transaction costs amounted to $0.01 million for the three months ended September 30, 2023 as compared to $0.03 million for the same prior year period.

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

Depreciation and amortization expenses were $4.1 million for the three months ended September 30, 2023 as compared to $3.6 million for the same prior year period, with the increase primarily attributable to the acquisition of units since July 1, 2022.

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.

Other income and expense amounted to income of $0.2 million for the three months ended September 30, 2023 compared to income of $2.6 million for the same prior year period.

This was due to a $2.5 million net increase in interest expense attributable to a $3.2 million decrease in the fair value of interest rate caps and swaps, a $0.2 million increase in interest expense attributable to an increase in the outstanding debt to $167.1 million at September 30, 2023 as compared to $153.6 million at September 30, 2022, partially offset by a $0.9 million increase in interest income from our short-term investments.

In addition, there was a $0.2 million increase in property casualty losses.

The $2.7 million increase in net interest expense and property casualty losses was partially offset by an increase in preferred returns on unconsolidated real estate joint ventures of $0.3 million as funding to our preferred equity investments increased to $85.3 million at September 30, 2023 as compared to $83.0 million at September 30, 2022.

In addition, 18 units were sold during the quarter at net book value with no gain on sales.

Discontinued Operations

Income from discontinued operations amounted to income of zero for the three months ended September 30, 2023 as compared to income of $0.3 million for the same prior year period due to trailing sales activity of multifamily investments in 2021.

Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Rental and other property revenues increased $7.5 million, or 32%, to $30.6 million for the nine months ended September 30, 2023 as compared to $23.1 million for the same prior year period.

The increase was primarily due to unit count growth of 542 units, net of 27 units 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 $145, or 10.2%, to $1,560 as compared to $1,415 during the prior year period.

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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.

Interest income from loan investments decreased $1.3 million, or 100%, to zero for the nine months ended September 30, 2023 as compared to $1.3 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 nine months ended September 30, 2023.

Property operating expenses increased $3.2 million, or 29%, to $14.2 million for the nine months ended September 30, 2023 as compared to $11.0 million for the same prior year period.

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

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.

Controllable expenses were $6.8 million and $5.3 million, and non-controllable expenses were $7.4 million and $5.7 million, for the nine months ended September 30, 2023 and 2022, respectively.

Property management and asset management fee expenses were $3.3 million for the nine months ended September 30, 2023 as compared to $2.6 million in the same prior year period.

The increase was primarily due to the acquisition of units since January 1, 2022 , partially offset by lower property management fees negotiated with two property managers in 2023.

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.

General and administrative expenses amounted to $5.5 million for the nine months ended September 30, 2023 as compared to $5.0 million for the same prior year period.

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

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.

As such, expense amounts recognized during the nine months ended September 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 $5.9 million for the nine months ended September 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 $1.8 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.

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.

Acquisition and other transaction costs amounted to $1.8 million for the nine months ended September 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 units.

Depreciation and amortization expenses were $12.1 million for the nine months ended September 30, 2023 as compared to $12.2 million for the same prior year period, with the decrease primarily attributable to in-place leases being fully amortized prior to 2023 partially offset by the acquisition of units since January 1, 2022.

Other Income and Expense

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.

Other income and expense amounted to income of $2.1 million for the nine months ended September 30, 2023 compared to income of $3.3 million for the same prior year period.

This was due to a $4.1 million net increase in interest expense attributable to a $4.1 million decrease in the fair value of interest rate caps and swaps, a $1.6 million increase in interest expense attributable to an increase in the outstanding debt to $167.1 million at September 30, 2023 as compared to $153.6 million at September 30, 2022 (which was offset by a $1.6 million increase in interest income from our short-term investments), a $0.4 million increase in the allowance for credit losses on unconsolidated real estate joint ventures, and $0.2 million from property casualty losses.

These expenses were partially offset by an increase in preferred returns on unconsolidated real estate joint ventures of $2.8 million as funding to our preferred equity investments increased to $85.3 million at September 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 27 units during the nine months ended September 30, 2023.

Discontinued Operations

Income from discontinued operations amounted to income of zero for the nine months ended September 30, 2023 as compared to income of $0.3 million for the same prior year period due to trailing sales activity of multifamily investments in 2021.

Net Operating Income

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

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

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

Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Nine Months Ended

September 30,

Net (loss) income attributable to common stockholders

Net (loss) income attributable to Operating Partnership Units

Net (loss) income attributable to common stockholders and unit holders

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

Net loss attributable to partially owned properties noncontrolling interests

Income from discontinued operations

Real estate depreciation and amortization

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Non-cash interest expense

Unrealized (gain) loss on derivatives

Unrealized loss (gain) on derivatives

Provision for (recovery of) credit losses

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Weather-related losses, net

Other income, net

Preferred dividends

Other expense (income), net

Preferred returns on unconsolidated real estate joint ventures

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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.

While consolidated occupancy remains strong at 94.4% as of September 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”).

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 believe our available cash balances, cash flows from operations, proceeds from the Series A 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:

● $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;

● $89.4 million in cash available at September 30, 2023;

● capacity of $100 million, of which approximately $10 million was available as of September 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 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):

● proceeds from our Series A 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 September 30, 2023 related to our mortgage notes secured by our properties and revolving credit facilities.

At September 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 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 of September 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 $0.2 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 (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 primary long-term liquidity requirements relate to (i) costs for additional single-family residential investments, including build-to-rent development investments, (ii) repayment of long-term debt and our revolving credit facilities, (iii) capital expenditures, and (iv) cash redemption requirements related to our Series A Preferred Stock.

We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, including our Series A 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.

Further, our ability to access equity capital is dependent upon, among other things, general market conditions for REITs and the capital markets generally, market perceptions about us and our asset class, and current trading prices of our securities.

As we did in the three months ended September 30, 2023, we may also selectively sell consolidated operating assets at appropriate times, which would be expected to generate cash sources for both our short-term and long-term liquidity needs.

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

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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 expect to maintain a distribution on our Series A Preferred Stock in accordance with the terms which require monthly dividends.

While our distributions through September 30, 2023 have been paid from cash flow from operations and in accordance with our policy, distributions in the future may be paid from cash flow from operations, proceeds from our Series A Preferred Offering, the sales of assets and 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 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.

As of September 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 September 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 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:

As of September 30, 2023, we owned indirect equity interests in seventeen real estate investments, consisting of ten consolidated operating investments and seven preferred equity investments.

During the nine months ended September 30, 2023, net cash provided by operating activities was $6.8 million after net loss of $10.1 million was adjusted for the following:

● non-cash items of $14.9 million;

● distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures of $1.3 million;

● an increase in accounts payable and other accrued liabilities of $1.2 million;

● an increase in due to affiliates of $0.4 million;

● an increase in accounts receivable, prepaids and other assets of $0.8 million.

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

Cash Flows from Investing Activities

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

During the nine months ended September 30, 2023, net cash used in investing activities was $4.9 million, primarily due to the following:

● $7.5 million used in additional investments in unconsolidated real estate joint ventures;

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Cash Flows from Financing Activities

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

During the nine months ended September 30, 2023, net cash provided by financing activities was $11.2 million, primarily due to the following:

● $21.0 million of proceeds from revolving credit facilities;

● net proceeds of $3.4 million from the issuance of shares of Series A Preferred Stock in our Series A Preferred Offering;

● $0.3 million of contributions from noncontrolling interests;

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Capital Expenditures

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

Six Months Ended

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

Nine Months Ended

September 30,

Redevelopment/renovations

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

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

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

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Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Nine Months Ended

September 30,

Net (loss) income attributable to common stockholders

Net (loss) income attributable to Operating Partnership Units

Net (loss) income attributable to common stockholders and unit holders

Real estate depreciation and amortization

Gain on sale of real estate investments

Gain on sale of assets from discontinued operations

Adjustment for partially owned properties noncontrolling interests

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Non-cash interest expense

Unrealized (gain) loss on derivatives

Unrealized loss (gain) on derivatives

Provision for (recovery of) credit losses

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Non-real estate depreciation and amortization

Other income, net

Other expense (income), net

Non-cash equity compensation

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

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

Distributions

Payable to stockholders

Declaration Date

of record as of

Paid / Payable Date

Series A Preferred Stock (1)

September 11, 2023

August 25, 2023

October 5, 2023

September 11, 2023

September 25, 2023

October 5, 2023

(1) Holders of record of newly issued Series A Preferred Stock shares that are held only a portion of the applicable monthly dividend period will receive a prorated dividend based on the actual number of days in the applicable dividend period during which each such share of Series A Preferred Stock was outstanding.

A portion of each dividend may constitute a return of capital for tax purposes.

There is no assurance that we will continue to declare dividends or at this rate.

Holders of OP Units, LTIP Units and C-LTIP Units are entitled to receive "distribution equivalents"

at the same time as dividends are paid to holders of our Class A common stock.

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

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

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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 six months ended June 30, 2023.

Significant Accounting Policies and Critical Accounting Estimates

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

Subsequent Events

Other than the items disclosed in Note 16 "Subsequent Events"

to our interim Combined Consolidated Financial Statements for the period ended September 30, 2023, no material events have occurred that required recognition or disclosure in these financial statements.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis