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Item 7. Management’s Discussion and Analysis

2024-03-12 compared with 2023-03-22 · 320 added, 241 removed, 286 unchanged (66% of the section changed)

3 unchanged sentences

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

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

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

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

Please refer to the section in Item 1 captioned “The Separation and the Distribution” for a description of the Separation and the Distribution.

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

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We are externally managed by the Manager, which manages our day-to-day operations under the Management Agreement.

The Management Agreement has a one-year term expiring October 6, 2023 and will be automatically renewed for a one-year term each year on October 6, unless previously terminated in accordance with the terms of the Management Agreement.

The current term of the Management Agreement expires October 6, 2024 and will be automatically renewed for a one-year term each year on October 6, unless previously terminated in accordance with the terms of the Management Agreement.

The Manager is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.

Substantially all our business is conducted through our operating partnership, Bluerock Residential Holdings, L.P., a Delaware limited partnership (our “Operating Partnership”), of which we are the sole general partner.

As of December 31, 2022, we held an aggregate of 3,977 residential units held through seventeen real estate investments, consisting of ten consolidated operating investments and seven investments held through preferred equity investments.

As of December 31, 2023, we held eighteen real estate investments, consisting of eleven consolidated investments and seven preferred equity and loan investments.

The eighteen investments represent an aggregate of 4,059 residential units, comprised of 2,475 consolidated units, of which 170 units are under development, and 1,584 units through preferred equity and loan investments.

As of December 31, 2023, our consolidated operating investments were approximately 94.1% occupied.

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

federal income tax return for such taxable year.

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.

If we fail to qualify and maintain our qualification 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.

We have elected to be taxed and have qualified as a real estate investment trust (“REIT”) for federal income tax purposes commencing with our taxable year ended December 31, 2022.

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

In order 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 maintain our qualification 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 where we would remain qualified as a REIT.

The Separation and the Distribution

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

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

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

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

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

Financial statements representing the historical operations of Bluerock Homes’ single-family residential rental business have been derived from (i) Bluerock Residential’s historical accounting records and are presented on a carve-out basis for the period ended and prior to October 6, 2022, and (ii) the Company’s accounting records as a standalone company subsequent to the Spin-Off.

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

The financial statements also include allocations of certain general, administrative, sales and marketing expenses and operations from Bluerock Residential for the period ended and prior to October 6, 2022.

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

All significant intercompany balances and transactions have been eliminated.

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

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

Significant Developments

Acquisitions of and Investments in Real Estate

During the year ended December 31, 2022, we acquired an aggregate of 551 single-family residential units through four new or existing joint ventures for total purchase prices of $141.3 million.

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

In addition to the investments summarized in the tables below, we increased our preferred equity investments in The Cottages at Myrtle Beach, The Cottages at Warner Robins, The Cottages of Port St.

Lucie, The Woods at Forest Hill and Wayford at Innovation Park by approximately $46.7 million in aggregate.

In addition to the new investments summarized in the table below, we (i) 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) funded an aggregate of approximately $7.6 million of preferred equity investments in The Woods at Forest Hill, Wayford at Innovation Park and Willow Park.

The following is a summary of our real estate investments made during the year ended December 31, 2023 ($ in millions):

Operating Investment Name

First Quarter

Peak JV 2 (2)

Peak JV 4, formerly Savannah 319

Golden Pacific

Second Quarter

Golden Pacific

Third Quarter

Golden Pacific

Fourth Quarter

Golden Pacific

Total Operating

Mezzanine Loan Investment Name

Weatherford 185 (3)

Weatherford, TX

February 15, 2022

Total Mezzanine Loan

(1) For those months where “Various” is listed, we, on various dates throughout that specified quarter, acquired additional units that were added to the respective existing portfolios.

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

(2) Peak JV 2 includes the portfolios formerly presented as Axelrod, Granbury, Granbury 2.0, Lubbock, Lubbock 2.0, Lubbock 3.0, Lynnwood, Lynnwood 2.0, Springtown, Springtown 2.0, Texarkana and Texas Portfolio 183, of which all are in Texas.

The amounts presented relate to the acquisition of the Granbury 2.0 portfolio, the only portfolio acquired by the joint venture during the year.

(3) Our investment in the property was through a mezzanine loan to an unaffiliated third party.

The loan was paid off in July 2022.

Refer to the table below.

Loan Investment Payoffs

During the year ended December 31, 2022, we received loan payoffs of approximately $49.1 million from the sale of one property underlying our investments and the payoff from one investment.

The following is a summary of our loan payoffs during the year ended December 31, 2022 ($ in millions):

Mezzanine Loan Investment Name

Date Sold / Payoff

The Hartley at Blue Hill (1)

Chapel Hill, NC

Consolidated Investment Name

Savannah-84, formerly Peak JV 4

February 23, 2023

Weatherford 185

Weatherford, TX

July 22, 2022

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

The senior loan payoff is included in the BHM Net Proceeds amount.

Our total stockholders’ equity increased $9.2 million from $150.8 million as of December 31, 2021, to $160.0 million as of December 31, 2022.

The increase in our total stockholders’ equity is primarily attributable to net contributions of $98.2 million, partially offset by a cash distribution to Parent at spin-off of $68.5 million, $17.5 million of equity reclassified at spin-off and $1.0 million of net loss.

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

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

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

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

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

We believe our financial condition and liquidity are currently strong.

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

While occupancy remains strong at 94.8% as of December 31, 2022, in future periods, we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of the impact of COVID-19.

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

Abode Wendell Falls (1)

December 20, 2023

Total Operating Investments

Loan Investment Name

Willow Park, TX

October 26, 2023

The Woods at Forest Hill

Forest Hill, TX

December 28, 2023

Total Loan Investments

Preferred Equity Investment Name

November 15, 2023

Total Preferred Equity Investments

(1) Abode Wendell Falls is a build to rent development project expected to commence construction in the second quarter 2024.

The total estimated project cost is $56.0 million, of which $6.5 million was incurred as of December 31, 2023.

Held for Sale

As of December 31, 2023, we classified an aggregate of 118 units as held for sale in our combined consolidated balance sheets, with a $1.3 million recorded impairment related to held for sale units which is included in gain on sale and impairment of real estate investments, net on our combined consolidated statements of operations.

The units are included in the following portfolios:

35 units of Indy-Springfield (formerly Peak JV 1), 13 units of Peak JV 2, and 70 units of Peak JV 3.

These units were identified based on submarket analysis and individual unit-level operational review.

Sale of Real Estate Investments

In addition to the sales summarized in the table below, our preferred equity investment in the operating partnership of Peak Housing REIT (the “Peak REIT OP”) was partially redeemed in the aggregate amount of $10.7 million, which included principal investment of $9.7 million and accrued preferred return of $1.0 million.

The partial redemption of our preferred equity investment was a result of the sale by Peak REIT OP of 196 of the 648 units that collateralized our investment.

As of December 31, 2023, our remaining preferred equity investment in the Peak REIT OP was $10.6 million, with a remaining 452 units as collateral underlying our investment.

The following is a summary of our real estate sales and redemptions of our preferred equity investments during the year ended December 31, 2023 ($ in millions):

Consolidated Investment Name

Date of Sale (1)

Golden Pacific

Dallas-Fort Worth, TX

Total Consolidated Investments

Preferred Equity Investment Name

Willow Park (2)

Willow Park, TX

October 26, 2023

The Cottages at Warner Robins

Warner Robins, GA

December 15, 2023

Total Preferred Equity Investments

(1) Units were sold from the respective portfolios on various dates throughout the specified quarters.

(2) Our preferred equity investment in Willow Park was redeemed for net proceeds of $4.1 million, which included $2.9 million of our total $4.6 million principal investment and $1.2 million of accrued preferred return.

The remaining $1.7 million of our principal investment is collateralized by The Woods at Forest Hill and Peak REIT OP investments and is recorded within accounts receivable, prepaids and other assets of our consolidated balance sheet.

Industry Outlook

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Results of Operations

Note 4 “Sale of Real Estate Assets”;

Note 4 “Sale of Real Estate Assets and Held for Sale Real Estate Assets”;

Note 5 “Investments in Real Estate”;

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These transactions have resulted in material changes to the presentation of our financial statements.

The following is a summary of our consolidated operating real estate investments as of December 31, 2022:

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

Operating Investment Name

Market / Location

Golden Pacific

Indy-Springfield, formerly Peak JV 1

Navigator Villas

JV 3, formerly DFW 189

Dallas-Fort Worth, TX

JV 4, formerly Savannah 319

Savannah-84, formerly Peak JV 4

Wayford at Concord

Yauger Park Villas

Total Units / Average

Total Operating Units / Average

Development Investment Name

Abode Wendell Falls (4)

Total Development Units

(1) Total operating units includes an aggregate of 118 units classified as held for sale and includes the following portfolios:

35 units in Indy-Springfield, 13 units in Peak JV 2, and 70 units in Peak JV 3.

(2) 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 December 31, 2023.

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Percent occupied excludes an aggregate of 60 down/renovation units.

(3) Peak JV 1 includes the portfolios formerly presented as Indy and Springfield.

(4) Peak JV 2 includes the portfolios formerly presented as Axelrod, Granbury, Granbury 2.0, Lubbock, Lubbock 2.0, Lubbock 3.0, Lynnwood, Lynnwood 2.0, Springtown, Springtown 2.0, Texarkana and Texas Portfolio 183, of which all are in Texas.

(4) Abode Wendell Falls is a build to rent development project expected to commence construction in the second quarter 2024.

The total estimated project cost is $56.0 million, of which $6.5 million was incurred as of December 31, 2023.

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

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Average rental rate (2)

(1) Represents the average of the ending occupancy as of the last day of each month in the year.

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

The following is a summary of our preferred equity investments as of December 31, 2022:

(1) Represents the average of the ending occupancy as of the last day of each month in the year presented.

Average occupancy percentage excludes an average of 65 and 82 down/renovation units for 2023 and 2022, respectively.

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

The following is a summary of our preferred equity and loan investments as of December 31, 2023:

Total Actual/

Location / Market

Lease-up Investment Name

(in millions)

1 unchanged sentence

Cost Per Unit

Lease-up Investment

The Woods at Forest Hill

1 unchanged sentence

Willow Park, TX

Total Lease-up Units

Development Investment

The Cottages at Myrtle Beach

Myrtle Beach, SC

The Cottages at Warner Robins

Warner Robins, GA

The Cottages of Port St.

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Charlotte, NC

Total Lease-up Units

Development Investment Name

Total Development Units

Operating Investment

Operating Investment Name

Peak Housing (2)

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

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

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

(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 December 31, 2023 (refer to Note 8 of our combined consolidated financial statements for further information).

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

Year ended December 31, 2023 as compared to the year ended December 31, 2022

Rental and other property revenues increased $8.1 million, or 25%, to $41.0 million for the year ended December 31, 2023 as compared to $32.9 million for the same prior year period.

This was due to a $23.1 million increase from the acquisition of 551 units in 2022 and the full period impact of 1,613 units acquired in 2021 and a $0.5 million increase from our same store property, Navigator Villas.

The increase was primarily due to operating unit count growth of 516 homes, net of 53 homes sold, in our portfolio since January 1, 2022 and operational improvements from our active management and organic market rent growth.

From an operational perspective, our average rent per occupied unit increased $122 or 8.4% to $1,569 as compared to $1,447 during the prior year period.

Average occupancy decreased 340 basis points from 95.8% to 92.4% on a year over year basis due to the following (i) during the 2021 period, average occupancy of 95.8% included only 1,789 units which were fully operational and stabilized during the period, and (ii) we acquired an additional 551 units since January 1, 2022 of which 485 units were scattered homes that typically have an operational value-enhancement strategy which includes increasing individual home occupancy levels over time;

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

Interest income from loan investments decreased $4.1 million, or 76%, to $1.3 million for the year ended December 31, 2022 as compared to $5.4 million for the same prior year period due to the payoff of five loans totaling $72.0 million in 2022 and 2021.

Average occupancy increased 200 basis points from 92.4% to 94.4% on a year over year basis.

The improvement was partially driven by:

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

Interest income from loan investments decreased $1.2 million, or 93%, to $0.1 million for the year ended December 31, 2023 as compared to $1.3 million for the same prior year period due to the payoff of two loans in 2022 partially offset by two new loan investments during the fourth quarter 2023.

Property operating expenses increased $4.0 million, or 26%, to $19.2 million for the year ended December 31, 2023 as compared to $15.2 million for the same prior year period.

This was due to a $11.9 million increase from the acquisition of investments in 2022 and 2021 and a $0.1 million increase from our same story property, Navigator Villas.

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.

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 $9.7 million and $7.6 million, and non-controllable expenses were $9.5 million and $7.6 million, for the years ended December 31, 2023 and 2022, respectively.

Property management and asset management fees expense were $4.4 million for the year ended December 31, 2023 as compared to $3.8 million in the same prior year period.

This was primarily due to a $3.2 million increase from the acquisition of investments in 2022 and 2021.

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

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

General and administrative expenses have been allocated to us from Bluerock Residential prior to October 6, 2022 based on relative unit count.

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

General and administrative expenses increased $2.5 million, or 55%, to $7.1 million for the year ended December 31, 2022 as compared to $4.6 million for the same prior year period.

This was due to a $2.0 million increase in allocation from Bluerock Residential through October 5, 2022 primarily due to the increase in size of the carve out portfolio since the prior year period.

The remaining $0.5 million increase represents an increase of actual expenses incurred from October 6, 2022 through December 31, 2022 compared to the allocated expenses in the prior year period.

Management fees to related party amounted to $1.8 million for the year ended December 31, 2022.

General and administrative expenses amounted to $8.0 million for the year ended December 31, 2023 as compared to $7.1 million for the same prior year period.

Amounts recognized during the year ended December 31, 2023 represent our operations as a standalone company, of which $5.6 million were direct costs incurred by us and $2.4 million were costs allocated from our Manager, such as rent, utilities, information technology, and accounting and legal services.

Commencing with the fourth quarter 2023, we reimbursed our manager for accounting and legal services totaling $0.8 million.

Prior to the fourth quarter 2023, the Manager elected to not seek reimbursement for accounting and legal services during our first year of operations.

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 year ended December 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 $7.9 million for the year ended December 31, 2023 as compared to $1.8 million for the same prior year period.

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

Base management fees of $1.8 million were expensed in the year ended December 31, 2022.

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

Acquisition and pursuit costs amounted to $0.2 million for the year ended December 31, 2022 as compared to none for the same prior year period.

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

Depreciation and amortization expenses were $16.0 million for the year ended December 31, 2022 as compared to $5.9 million for the same prior year period.

This was due to a $9.7 million increase from the acquisition of investments in 2022 and 2021 and a $0.4 million increase from our same store property, Navigator Villas.

Acquisition and other transaction costs amounted to $1.8 million for the year ended December 31, 2023 as compared to $0.2 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 $16.2 million for the year ended December 31, 2023 as compared to $16.0 million for the same prior year period, with the increase primarily attributable to the acquisition of homes since January 1, 2022, partially offset by in-place leases being fully amortized prior to 2023.

Other Income and Expense

Other income and expense amounted to income of $0.6 million for the year ended December 31, 2023 compared to income of $3.7 million for the same prior year period.

This was primarily due to an increase in preferred returns on unconsolidated real estate joint ventures of $5.4 million due to the acquisition of seven investments in 2021, partially offset by the sale of five underlying investments in 2021, and a recovery of credit losses of $0.4 million.

This was partially offset by a net increase in interest expense of $2.8 million primarily due to an increase in the outstanding debt to $153.2 million at December 31, 2022 as compared to $62.1 million at December 31, 2021.

This was due to (i) a $7.4 million net increase in interest expense attributable to a $6.0 million decrease in the fair value of interest rate caps and swaps and a $1.4 million increase in interest expense attributable to an increase in the outstanding debt ($166.7 million at December 31, 2023 as compared to $153.2 million at December 31, 2022), (ii) a $1.3 million impairment related to real estate assets held for sale at December 31, 2023, and (iii) a $0.5 million increase in the provision for credit losses.

These expenses were partially offset by (i) an increase in preferred returns on unconsolidated real estate joint ventures of $3.0 million as funding to our preferred equity investments increased to $81.3 million at December 31, 2023 as compared to $39.6 million at December 31, 2021, (ii) a $2.6 million increase in interest income from our short-term investments, (iii) a $0.3 million gain on sales of real estate investments from the sale of 53 homes during 2023, and (iv) a $0.2 million increase in other income.

Discontinued Operations

Income from discontinued operations was $0.3 million for the year ended December 31, 2022 as compared to $110.9 million for the same prior year period.

In 2021, the discontinued operations were due to the sale of six multifamily operating properties and included a $116.7 million gain from sale of multifamily assets and $0.3 million income on operations, partially offset by a $6.1 million loss on extinguishment of debt.

In 2022, the $0.3 million of income is a result of the final liquidation of the sold properties.

Income from discontinued operations amounted to income of zero for the year ended December 31, 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) income attributable to common stockholders together with a reconciliation to NOI, as computed in accordance with GAAP for the years ended December 31, 2022 and 2021 (amounts in thousands):

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

Net (loss) income attributable to partially owned noncontrolling interest

The following table reflects net loss attributable to common stockholders together with a reconciliation to NOI, as computed in accordance with GAAP for the years ended December 31, 2023 and 2022 (amounts in thousands):

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Net loss attributable to partially owned properties’ noncontrolling interests

Income from discontinued operations

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Non-cash interest expense

Unrealized gain on derivatives

Recovery of credit losses

Unrealized loss (gain) on derivatives

Provision for (recovery of) credit losses

Property management and asset management fees

Management fees to related party

Acquisition and pursuit costs

Acquisition and other transaction costs

Corporate operating expenses

1 unchanged sentence

Weather-related losses, net

Interest income

Preferred dividends

Other income, net

1 unchanged sentence

Interest income from loan investments

Gain on sale and impairment of real estate investments, net

Total property income

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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”.

While occupancy remains strong at 94.8% as of December 31, 2022, 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 (the “January 2023 Registration Statement”).

The securities covered by the January 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”).

While the January 2023 Registration Statement has been filed with the SEC, as of the date of this Annual Report on Form 10-K, the January 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 January 2023 Registration Statement is declared effective, we expect to commence an offering of 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”).

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

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

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”.

While consolidated occupancy remains strong at 94.1% as of December 31, 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”).

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.

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.

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

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

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

● $80.2 million in cash available at December 31, 2023;

● proceeds from our revolving credit facilities dedicated to single-family residential investments, which we expect to add additional collateral to increase our availability up to approximately $50 million during 2023 (there was no availability at December 31, 2022);

● capacity of $100 million, of which approximately $56 million was available at December 31, 2023, on our revolving credit facilities;

● 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”).

● 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 December 31, 2023 related to our mortgage notes secured by our properties and revolving credit facilities.

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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 December 31, 2022, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our preferred equity and joint venture investments was $3.4 million.

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

As of December 31, 2023, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our 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 generally associated with the COVID-19 pandemic and our otherwise stable financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term liquidity needs.

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.

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 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, all of which may continue to be adversely impacted by the COVID-19 pandemic .

As we did in the year ended December 31, 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 maintain a distribution on our Series A Preferred Stock in accordance with the terms which require monthly dividends.

While our distributions through December 31, 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 have notes receivable in conjunction with properties that are in various stages of lease - up.

To date, these investments have been structured as senior loans, and in the future, we may also provide mezzanine financing to these types of projects.

The notes receivable provide a current stated return and require repayment based on a fixed maturity date.

If the property does not repay the notes receivable upon maturity, our income, FFO, CFFO and cash flows could be reduced below the stated returns currently being recognized if the property does not produce sufficient cash flow to pay its operating expenses and debt service, or to refinance its debt obligations.

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.

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

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

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

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

Off-Balance Sheet Arrangements

As of December 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 December 31, 2022, we own investments in seven joint ventures that are accounted for as held to maturity debt securities.

Year ended December 31, 2022 as compared to the year ended December 31, 2021

As of December 31, 2023, we own investments in six joint ventures that are accounted for as held to maturity debt securities.

Cash Flows from Operating Activities

As of December 31, 2023, we held eighteen real estate investments, consisting of eleven consolidated investments and seven preferred equity and loan investments, with the eighteen investments representing an aggregate of 4,059 residential units.

During the year ended December 31, 2023, net cash provided by operating activities was $13.9 million after net loss of $15.8 million was adjusted for the following:

● non-cash items of $23.3 million;

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

● distributions and preferred returns from unconsolidated joint ventures of $5.4 million;

● an increase in due to affiliates, net of $1.3 million;

● a decrease in accounts receivable, prepaids and other assets of $0.1 million;

● a decrease in accounts payable and other accrued liabilities of $4.9 million.

● an increase in accounts receivable, prepaids and other assets of $0.2 million;

● an increase in notes and accrued interest receivable of $0.1 million.

Cash Flows from Investing Activities

During the year ended December 31, 2022, net cash used investing activities was $177.2 million, primarily due to the following:

● $147.8 million used in acquiring consolidated real estate investments;

During the year ended December 31, 2023, net cash used in investing activities was $25.7 million, primarily due to the following:

● $40.3 million used in acquiring investments in unconsolidated joint ventures and notes receivable;

● $10.8 million used in acquiring consolidated real estate investments;

● $9.5 million used on capital expenditures;

● $45.6 million of repayments on notes receivable.

● $25.8 million of proceeds from the redemption of unconsolidated joint ventures;

● $9.1 million of proceeds from the sale of real estate investments.

Cash Flows from Financing Activities

During the year ended December 31, 2023, net cash provided by financing activities was $15.7 million, primarily due to the following:

● $98.2 million of contributions from Parent;

● proceeds of $21.0 million from borrowings on revolving credit facilities;

● borrowings of $41.9 million on mortgages payable;

● capital contributions of $7.2 million from noncontrolling interests;

● $68.5 million cash distribution to Parent at spin-off;

● net proceeds of $8.7 million from the issuance of Series A Preferred Stock;

● capital contributions of $0.4 million from partially owned properties;

noncontrolling interests;

● $6.0 million of repayments on revolving credit facilities;

● $5.0 million for purchase of interests from noncontrolling interests;

● $1.5 million of repayments of our mortgages payable;

● $1.5 million in deferred financing costs;

● $2.3 million paid for interest rate caps;

● $0.3 million in cash distributions paid to noncontrolling interests;

● $0.1 million in cash distributions paid to preferred stockholders.

Year ended December 31, 2023 as compared to the year ended December 31, 2022

Operating Activities

Net cash flow provided by operating activities decreased $6.3 million in 2022 compared to 2021 primarily due to:

● Decrease of $6.2 million attributable to loss on extinguishment of debt;

● Decrease in accounts payable and other accrued liabilities of $5.6 million;

● Decrease in net distributions of income and preferred returns from preferred equity investments of $2.3 million;

● Operating income, adjusted for non-cash activity, decreased $0.4 million;

● Decrease in notes and accrued interest receivable of $4.8 million;

● Net increase in net due to affiliates of $2.0 million;

● Decrease in accounts receivable, prepaid expenses and other assets of $1.4 million.

Net cash flow provided by operating activities increased $10.4 million in 2023 compared to 2022 primarily due to:

● operating income, adjusted for non-cash activity, increased $6.4 million;

● increase in accounts payable and other accrued liabilities of $4.9 million;

● increase in net distributions of income and preferred returns from preferred equity investments of $3.3 million;

● increase in notes and accrued interest receivable of $3.1 million;

● net decrease in net due to affiliates of $0.8 million;

● increase in accounts receivable, prepaid expenses and other assets of $0.3 million.

Investing Activities

Net cash used in investing activities was $177.2 million in 2022 compared to net cash provided by investing activities of $158.0 million in 2021 explained by:

● Lower proceeds from the sales of real estate investments of $401.8 million;

● Lower proceeds from sale and redemption of unconsolidated real estate joint ventures of $41.3 million;

● Higher investments in unconsolidated real estate joint venture interests of $6.9 million;

Net cash used in investing activities decreased $151.5 million in 2023 compared to 2022 primarily due to:

● decrease in acquisition of real estate investments and capital expenditures of $146.1 million;

● Increased repayments on notes receivable of $23.3 million;

● Decrease in investment in notes receivable of $0.8 million.

● lower investments in unconsolidated real estate joint venture interests of $24.1 million;

● higher proceeds from redemption of unconsolidated real estate joint ventures of $25.8 million;

● higher proceeds from the sales of real estate investments of $9.1 million;

● decreased repayments on notes receivable of $45.6 million;

● increase in investment in notes receivable of $8.0 million.

Financing Activities

Net cash provided by financing activities was $119.3 million in 2022 as compared to net cash used in financing activities of $84.5 million in 2021.

This increase of $203.8 million is primarily explained by:

● A decrease in net mortgage repayments of $252.6 million;

● A decrease in revolving credit facility repayments of $63.0 million;

● An increase in proceeds from credit facilities of $25.0 million;

● A decrease in distributions to noncontrolling interests of $14.6 million;

● An increase in cash distribution to Parent at spin-off of $68.5 million;

● A decrease in contributions from Parent of $62.2 million;

● A decrease in contributions from noncontrolling interests of $15.1 million;

● An increase in deferred financing fees of $3.4 million;

● An increase in the purchase of interest rate caps of $2.3 million.

Net cash provided by financing activities decreased $103.6 million in 2023 compared to 2022 primarily due to:

● decrease in contributions from Parent of $98.2 million;

● decrease in proceeds from mortgages of $41.9 million;

● decrease in proceeds from credit facilities of $34.0 million;

● decrease in contributions from noncontrolling interests of $6.8 million;

● increase in the purchase of noncontrolling interests of $5.0 million;

● increase in revolving credit facility repayments of $6.0 million;

● increase in distributions to preferred stockholders of $0.1 million;

● decrease in cash distribution to Parent at spin-off of $68.5 million;

● increase in net proceeds from the Series A Preferred Offering of $8.7 million;

● decrease in net mortgage repayments of $4.3 million;

● decrease in deferred financing fees of $3.1 million;

● decrease in the purchase of interest rate caps of $2.3 million;

● decrease in the distributions to partially owned properties’ noncontrolling interests of $1.6 million.

Capital Expenditures

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Redevelopment/renovations

Normally recurring capital expenditures

Routine capital expenditures

Normally recurring capital expenditures

Total capital expenditures

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

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

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

CFFO makes certain adjustments to FFO, removing the effect of items that do not reflect ongoing property operations such as acquisition expenses, 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.

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

Our management utilizes FFO and CFFO as measures of our operating

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

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

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

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

The accompanying combined consolidated financial statements have been derived from (i) Bluerock Residential’s historical accounting records and are presented on a carve-out basis for the period ended and prior to October 6, 2022, and (ii) our accounting records as a standalone company subsequent to the spin-off transaction.

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

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

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

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

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The table below presents our calculation of FFO and CFFO for the years ended December 31, 2023 and 2022 ($ in thousands):

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

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Real estate depreciation and amortization

Gain on sale of real estate investments

Adjustment for partially owned noncontrolling interests

Gain on sale and impairment of real estate investments, net

Gain on sale of assets from discontinued operations

Adjustment for partially owned properties’ noncontrolling interests

FFO attributable to common stockholders and unit holders

Acquisition and pursuit costs

Acquisition and other transaction costs

Non-cash interest expense

Unrealized gain on derivatives

Recovery of credit losses

Loss on extinguishment of debt

Non-real estate depreciation and amortization

Unrealized loss (gain) on derivatives

Provision for (recovery of) credit losses

Weather-related losses, net

Non-real estate depreciation and amortization

Transaction costs

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

Distributions

Declaration Date

Payable to stockholders of record as of

Paid / Payable Date

Class A common stock Special Dividend

December 19, 2023

December 29, 2023

January 5, 2024

Class C common stock Special Dividend

December 19, 2023

December 29, 2023

January 5, 2024

Series A Preferred Stock (1)

September 11, 2023

August 25, 2023

October 5, 2023

September 11, 2023

September 25, 2023

October 5, 2023

October 13, 2023

October 25, 2023

November 3, 2023

October 13, 2023

November 24, 2023

December 5, 2023

October 13, 2023

December 22, 2023

January 5, 2024

Series A Preferred Stock Special Dividend (2)

November 7, 2023

Each day November 1 - 30, 2023

December 5, 2023

November 7, 2023

Each day December 1 - 31, 2023

January 5, 2024

(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.

(2) Holders of record of Series A Preferred Stock shares as of the close of business on each day of the applicable month are entitled to additional contingent special daily dividends for each such day, to be aggregated and payable (if at all) on the payable date, in each case equal to the amount (if any) by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average 10-year Daily Treasury Par Yield Curve Rate for the period from the 26 th of the prior month to the 25 th of the applicable month (as reported by the United States Department of the Treasury), plus (II) two percent (2.0%), divided by (b) twelve (12), divided further by (c) the actual number of days in the applicable month, exceeds (ii) the quotient of (a) $0.125 divided by (b) the actual number of days in the applicable month.

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 restricted stock, 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 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 under the Internal Revenue Code.

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 maintain our REIT status for federal income tax purposes.

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

However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income”, determined without regard to the dividends paid deduction and excluding net capital gains, each year.

However, to maintain our REIT status for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income”, as defined by the Internal Revenue Code of 1986, determined without regard to the dividends paid deduction and excluding net capital gains, to our stockholders each year.

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 for the years ended December 31, 2022, and 2021.

Distributions declared and paid for the year ended December 31, 2023 were as follows (amounts in thousands):

Distributions

Third Quarter

Series A Preferred Stock (1)

Total third quarter

Fourth Quarter

Class A common stock

Class C common stock

Series A Preferred Stock (1)

LTIP / C-LTIP Units

Total fourth quarter

(1) For the third quarter 2023, amounts include only the standard dividend at an annual rate of 6.0% of the Stated Value.

For the fourth quarter 2023, amounts include the standard dividend at an annual rate of 6.0% of the Stated Value and any special dividends.

Critical Accounting Policies and Estimates

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As of December 31, 2023, limited partners other than the Company owned approximately 68.68% of the common units of the Operating Partnership (59.45% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 9.23% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.76% which are not vested at December 31, 2023).

Bluerock Homes consists of the combined consolidated financial statements of the Operating Partnership and Bluerock REIT Operator, LLC, as well as the following investments and certain related entities:

Alexan Southside Place, ARIUM Grandewood, Ballast, Golden Pacific, ILE, James at South First, Marquis at The Cascades, Mira Vista, Navigator Villas, Peak Housing, Peak JV 1 (formerly Indy and Springfield), Peak JV 2 (formerly Axelrod, Granbury, Granbury 2.0, Lubbock, Lubbock 2.0, Lubbock 3.0, Lynnwood, Lynnwood 2.0, Springtown, Springtown 2.0, Texarkana and Texas Portfolio 183), Peak JV 3 (formerly DFW 189), Peak JV 4 (formerly Savannah 319), Park & Kingston, Plantation Park, The Conley, The Cottages at Myrtle Beach, The Cottages at Warner Robins, The Cottages of Port St.

Lucie, The District at Scottsdale, The Hartley at Blue Hill, The Woods at Forest Hill, Thornton Flats, Vickers Historic Roswell, Wayford at Concord, Wayford at Innovation Park, Weatherford 185, Willow Park and Yauger Park Villas.

The combined consolidated statement of operations for the year ended December 31, 2022 includes (i) Bluerock Homes’ results of operations for the period of October 6 – December 31, 2022, which represents the results of operations following our spin-off from Bluerock Residential, and (ii) Bluerock Homes’ results of operations for the period ending and prior to October 6, 2022, which represents a carve-out of revenues and expenses attributable to us related to Bluerock Residential’s single-family residential home business.

Our historical financial information for the year ended December 31, 2021 was prepared on the same basis as the carve-out period of 2022.

As a result, results of operations for the year ended December 31, 2022 may not be comparative to our results of operations reported for the prior year presented.

The COVID-19 Pandemic

For much of 2020, the ongoing pandemic of the novel coronavirus and variants thereof (“COVID-19”) created significant uncertainty and economic disruption that adversely affected us and our tenants.

The adverse impact of the pandemic moderated during 2021 and has significantly diminished during 2022.

However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and various factors could erode the progress that has been made against the virus to date.

If conditions similar to those experienced in 2020, at the height of the pandemic, were to reoccur, such conditions and any resulting macro-economic changes could have material and adverse effects on our financial condition, results of operations and cash flows.

We continue to closely monitor the impact of COVID-19 on all aspects of our business.

For further information regarding the impact of COVID-19 on the Company, see the section titled “Risk Factors---Risks Related to Our Business, Properties and Industry” set forth in Item 1A of this Annual Report on Form 10-K.

Real Estate Investments, Preferred Equity Investments and Notes Receivable (Real Estate Loan Investment)

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We capitalize costs incurred in connection with our capital additions activities, including redevelopment, development and construction projects, other tangible improvements, and replacements of existing components.

Repair and maintenance and tenant

turnover costs are expensed as incurred.

Repair and maintenance and tenant turnover costs are expensed as incurred.

Repair and maintenance and tenant turnover costs include all costs that do not extend the useful life of the real estate asset.

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In-place leases

Impairment of Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our real estate and related intangible assets may not be recoverable.

When indicators of potential impairment suggest that the carrying value of real estate and related intangible assets may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition.

Based on this analysis, if we do not believe that we will be able to recover the carrying value of the real estate and related intangible assets and liabilities, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the real estate and related intangible assets.

No impairment charges were recorded in 2022 or 2021.

Impairment of Operating Real Estate Assets

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our operating real estate and related intangible assets may not be recoverable.

When indicators of potential impairment suggest that the carrying value of operating real estate and related intangible assets may not be recoverable, we assess the recoverability of the assets by estimating whether we will recover the carrying value of the asset through its undiscounted future cash flows and its eventual disposition.

Based on this analysis, if we do not believe that we will be able to recover the carrying value of the operating real estate and related intangible assets, we will record an impairment loss to the extent that the carrying value exceeds the estimated fair value of the operating real estate and related intangible assets.

No impairment charges on operating real estate and related intangible assets were recorded in 2023 or 2022.

Held for Sale Real Estate Assets

Real estate assets are classified as held for sale when they meet the applicable GAAP criteria in accordance with ASC 360-10 Property, Plant, and Equipment - Overall , including, but not limited to, the availability of the real estate asset for immediate sale in its present condition, the existence of an active program to locate a buyer, the probable sale of the real estate asset within one year, and actions required to complete the sale of the real estate asset are likely to occur.

Real estate assets classified as held for sale are reported at the lower of their carrying value or estimated fair value less costs to sell and are presented separately within operating real estate held for sale, net on our combined consolidated balance sheets.

At December 31, 2023, we had 118 units classified as held for sale, with a recorded impairment related to held for sale units of $1.3 million which is included in gain on sale and impairment of real estate investments, net within our combined consolidated statements of operations.

There were no real estate assets classified as held for sale at December 31, 2022 and no impairment charges were recorded in 2022.

Revenue Recognition

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The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon our evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease-up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition.

We may also obtain a third-

party valuation which may value the collateral through an “as-is” or “stabilized value” methodology.

We may also obtain a third-party valuation which may value the collateral through an “as-is” or “stabilized value” methodology.

If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, we record a provision for credit loss on that loan or preferred equity investment.

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Such LTIP Units were fully vested upon issuance.

Acquisition of Additional Interests in Peak JV 4, formerly Savannah 319

On January 6, 2023, we purchased Peak REIT OP’s interest in Peak JV 4, increasing our interest in the joint venture from 80% to 100%.

We purchased Peak REIT OP’s interest for $1.0 million in cash after our priority equity contributions in the aggregate of $10.3 million were applied against the aggregate unit purchase prices of $15.8 million.

Declaration of Dividends

Declaration Date

Payable to stockholders of record as of

Paid / Payable Date

Series A Preferred Stock (1)

January 15, 2024

January 25, 2024

February 5, 2024

January 15, 2024

February 23, 2024

March 5, 2024

January 15, 2024

March 25, 2024

April 5, 2024

Series A Preferred Stock Special Dividend

January 15, 2024

Each day of January 1 - 31, 2024

February 5, 2024

January 15, 2024

Each day of February 1 - 29, 2024

March 5, 2024

January 15, 2024

Each day of March 1 - 31, 2024

April 5, 2024

Distributions Paid

January 5, 2024 (to stockholders of record as of December 22, 2023)

Series A Preferred Stock (1)

January 5, 2024 (to stockholders of record as of December 29, 2023)

Class A common stock Special Dividend

Class C common stock Special Dividend

LTIP / C-LTIP Units

February 5, 2024 (to stockholders of record as of January 25, 2024)

Series A Preferred Stock (1)

March 5, 2024 (to stockholders of record as of February 23, 2024)

Series A Preferred Stock (1)

The Series A Preferred Stock distributions paid amounts include the standard dividend at an annual rate of 6.0% of the Stated Value and any special dividends.

Issuance of C-LTIP Units for Payment of the Fourth Quarter 2023 Base Management Fee and Operating Expense Reimbursement

5 unchanged sentences

On February 21, 2024, we issued 151,600 and 95,204 C-LTIP Units in payment of the base management fee and the operating expense reimbursement, respectively, for the fourth quarter 2023.

Peak REIT OP Interests

On March 3, 2023, our agreement with Peak REIT OP regarding our total preferred equity investment was amended.

Previously, we earned a 7.0% current return and a 3.0% accrued return, for a total preferred return of 10.0% per annum, on $16.0 million of our investment.

On our remaining $4.3 million investment, we earned a 4.0% current return and a 4.0% accrued return, for a total preferred return of 8.0% per annum.

On our total $20.3 million investment, we earned a total weighted average preferred return of 9.6% per annum.

As part of the amendment, our two tranches of preferred equity investments were combined into one $20.3 million preferred equity investment earning a 6.4% current return and a 3.2% accrued return, for a total preferred return of 9.6% per annum.

In addition, the amendment increased the collateral underlying our preferred investment from 474 units to 648 units.

On March 9, 2023, 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.

Acquisition of Additional Interests in Peak JV 1, formerly Indy and Springfield

On March 8, 2023, we purchased Peak REIT OP’s interest in Peak JV 1, increasing our interest in the joint venture from 60% to 100%.

We purchased Peak REIT OP’s interest for $4.1 million in cash after our priority equity contributions, plus adjustments typical in such real estate transactions, in the aggregate of $40.4 million were applied against the aggregate unit purchase prices of $50.6 million.

Investment Activity

Subsequent to December 31, 2022 and through the filing date of this Annual Report on Form 10-K, we (i) acquired an additional 18 consolidated operating units included in Peak JV 4, (ii) increased our preferred equity investment commitment in the Willow Park joint venture by $2.1 million, for a total commitment of $4.6 million, and (iii) increased our preferred equity investment commitment in The Woods at Forest Hill joint venture by $2.3 million, for a total commitment of $5.6 million.

Wayford at Pringle Loan Financing

On January 10, 2024, we entered into an agreement to provide a loan in the maximum aggregate amount up to $30.1 million (the “Pringle Loan”) to an unaffiliated, third-party borrower to acquire 102-build for rent, single-family residential units in Charlotte, North Carolina to be known as Wayford at Pringle.

The units are currently under development, and we will disburse loan proceeds to the borrower for unit acquisitions as construction is completed.

The Pringle Loan is comprised of two notes as follows:

Note A in the maximum principal amount up to $22.3 million and Note B in the maximum principal amount up to $7.8 million.

Both notes have an initial maturity of January 12, 2026 and contain four (4) six-month extension options subject to certain conditions.

Note A bears interest on the amount drawn at one-month SOFR plus 4.50% through initial maturity, and if extended, such rate becomes subject to a 5.31% rate floor.

Note A has regular monthly payments that are interest-only during the term of the loan, and no prepayment of Note A, in part or in whole, can be made prior to prepayment of Note B subject to certain conditions.

On Note B, interest shall accrue on the amount drawn at a rate of 15.00% per annum, compounded monthly, with outstanding principal and accrued interest amounts due upon maturity.

Note B can be prepaid in part or in whole subject to minimum interest.

As of February 29, 2024, we funded zero and $5.9 million of Note A and Note B, respectively.

Stock Repurchase Plan

On February 13, 2024, our Board authorized a stock repurchase plan for the repurchase, from time to time, of up to an aggregate of $5 million of our outstanding shares of Class A common stock, with such repurchases to be conducted in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and subject to Rule 10b-5 of the Exchange Act.

The repurchase plan has a term of one year and may be discontinued at any time.

The extent to which we repurchase shares of our Class A common stock under the repurchase plan, and the timing of any such repurchases, depends on a variety of factors including general business and market conditions and other corporate considerations.

We expect to repurchase shares of our Class A common stock through open market transactions subject to market conditions, certain price limitations and other conditions established under the plan.

Open market repurchases will be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act.

As of the filing date of this Annual Report on Form 10-K, we made no repurchases of our Class A common stock.

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-K

Item 7. Management’s Discussion and Analysis