Item 1. Business
Item 1. Business
Organization
Bluerock Homes Trust, Inc. (“Bluerock Homes,” “the Company,” “we,” “us,” or “our”) was formed in Maryland as a wholly owned subsidiary of Bluerock Residential Growth REIT, Inc. (“Bluerock Residential” or “Parent”) on December 16, 2021, and historically operated as part of Bluerock Residential and not as a standalone company. On October 6, 2022, Bluerock Residential completed a spin-off transaction that resulted in its single-family residential real estate business and certain other assets being contributed to us and Bluerock Homes becoming an independent publicly traded company.
We have elected to be taxed and have qualified as a real estate investment trust (“REIT”) for federal income tax purposes beginning 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 we lost our qualification. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.
Unless otherwise indicated or the context requires otherwise, all references to “the Company,” “we,” “us” and “our” mean Bluerock Homes Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including, without limitation, Bluerock Residential Holdings, L.P., a Delaware limited partnership (our “Operating Partnership”), of which we are the sole general partner. References to our shares of Class A common stock on a “fully diluted basis” includes all outstanding shares of our Class A common stock, shares of our Class C common stock, units of limited partnership interest in our Operating Partnership (“OP Units”), and long-term incentive plan units in our Operating Partnership, (“LTIP Units”), whether vested or unvested.
We have no employees and are supported by a related-party service agreement with Bluerock Homes Manager, LLC (the “Manager”), a Delaware limited liability company organized in 2022. We are externally managed by the Manager, which manages our day-to-day operations under a Management Agreement (the “Management Agreement”). The current term of our 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, of which we are the sole general partner.
The principal executive offices of our Company and the Manager are located at 1345 Avenue of the Americas, 32 nd Floor, New York, New York 10105. Our telephone number is (212) 843-1601.
Investments in Real Estate
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. For more information regarding our investments, see “Item 2. Investments”.
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”).
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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. Following the Separation, the Distribution and the Spin-Off, the former holders of Bluerock Residential common stock who received shares of the Company’s common stock in the Distribution indirectly owned approximately 34% of the Company’s single-family residential business, and holders of units in the Operating Partnership (other than the holders of the Company’s common stock) indirectly owned approximately 66% of the Company’s single-family residential business.
Financial statements for the period ended and prior to October 6, 2022 represent the historical operations of Bluerock Residential’s single-family residential real estate business, have been derived from Bluerock Residential’s historical accounting records and are presented on a carve-out basis. All revenues and costs as well as assets and liabilities directly associated with the business activity of Bluerock Homes are included in the financial statements. The financial statements also include allocations of certain general, administrative, sales and marketing expenses and operations from Bluerock Residential for the period ended and prior to October 6, 2022. These allocated expenses are for corporate office expenses and management including, but not limited to, executive oversight, asset management, treasury, finance, human resources, tax, accounting, financial reporting, information technology and investor relations. However, amounts recognized by us are not necessarily representative of the amounts that would have been reflected in the financial statements had we operated independently of Bluerock Residential during that period. 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.
Business and Growth Strategies
Our principal business objective is to generate attractive risk-adjusted investment returns by assembling a portfolio of pre-existing single-family rental homes and developing build-to-rent communities. These will be located across a diverse group of growth markets and will target a growing pool of middle-income renters seeking the single-family lifestyle without the upfront and ongoing investments associated with home ownership. By implementing our investment strategies and our institutional-quality management, we expect to be able to achieve sustainable long-term growth in both our funds from operations (“FFO”) and net asset value (“NAV”)
Value Creation Execution. We acquire single-family rental properties with potential for long-term value creation for our stockholders. We utilize the following internal and external growth strategies to drive growth in FFO and NAV for our investors:
● Scattered-Site Aggregation . Currently, there is a high level of fragmentation in the single-family rental home market. We believe we can generate economies of scale and enable transaction efficiencies by targeting individual or small portfolios of quality, scattered, single-family rental homes with strong and stable cash flows and aggregate them into larger portfolios, which will allow us to reduce per unit costs, including leasing, marketing, insurance and maintenance related costs through increased purchasing power and sharing of resources. We look for middle-market rents that deliver attractive unlevered yields relative to private market portfolio and public market dividend yields. To date, we have acquired scattered-site homes at year one nominal cap rates exceeding 5% and gross rental yields exceeding 9%. We see an opportunity to replicate this strategy across our markets utilizing our network as a force multiplier on the sourcing and execution fronts.
● Build-to-Rent. We develop build-to-rent communities at attractive stabilized unlevered yields, investing selectively in target markets that we believe will enable us to capture development premiums on completion. We may use a convertible loan or convertible preferred equity structure to provide income during the development stage and/or the ability to capture development premiums at completion by exercising our conversion rights to take ownership.
● Value-Add Renovation . We see significant potential for capital appreciation through renovation of existing assets. Our value-add strategy focuses on working with our local experts to reposition lower-quality, less current assets and drive rent growth and expand margins, increasing net operating income (“NOI”) and maximizing our return on investment.
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● Institutional Property Management / NOI Margin Expansion . We expect to improve margins at our operating properties by deploying institutional management approaches across the portfolio - including professional management, investment in technology platforms, and leveraging economies of scale - to best position the portfolio for optimal rental growth. Through the aggregation of multiple scattered homes, we seek to address operational inefficiencies, revenue management and deferred capital maintenance at scale and to grow underlying cash flow through substantial NOI margin expansion at stabilized properties. We will also provide an aggressive asset management presence, working alongside our network partners to ensure optimal execution of the asset management plan, enabling us to drive rent growth and values.
● Technology-Aided Platform . We have implemented a data warehouse, which provides us with real-time visibility into leasing, inventory, maintenance and renovation metrics, allowing us to quickly react to changes in current operational performance and monitor trends across our portfolio. Further, we believe we will be able to utilize our data warehouse technology as a building block in the design and implementation of a portfolio-wide revenue management system to further drive NOI and margin expansion. In addition, we utilize various PropTech solutions to both acquire and maximize operational efficiency. Operational PropTech solutions include focus on streamlining value-add initiatives, integrating smart-home technology, automating the lease process and providing robust and coordinated maintenance services.
Harvest and Redeploy Capital Selectively. On an opportunistic basis and subject to compliance with REIT restrictions, we intend to sell properties when we have executed our value creation plans and when we believe the investment has limited additional upside relative to other opportunities. This allows us to harvest profits and reinvest proceeds to maximize stockholder value.
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Summary of Investments and Dispositions
The following table presents a summary of our real estate investments during the years ended December 31, 2023 and 2022:
Investment Name
Location / Market
Date of Investment (1)
Ownership Interest
Number of Units
2022
First Quarter
Weatherford 185 (2)
Weatherford, TX
February 15,2022
—
185
Peak JV 2
Various / TX
March
80
%
34
Savannah-84, formerly Peak JV 4 (3)
Savannah, GA
March
100
%
19
Golden Pacific
IN / KS / MO
Various
97
%
62
ILE
TX / SE US
Various
95
%
31
Second Quarter
Ballast
AZ / CO / WA
Various
95
%
65
Golden Pacific
IN / KS / MO
Various
97
%
66
ILE
TX / SE US
Various
95
%
108
Savannah-84 (3)
Savannah, GA
Various
100
%
20
Third Quarter
Ballast
AZ / CO / WA
Various
95
%
19
Golden Pacific
IN / KS / MO
Various
97
%
35
ILE
TX / SE US
Various
95
%
64
Savannah-84 (3)
Savannah, GA
Various
100
%
14
Fourth Quarter
Golden Pacific
IN / KS / MO
October
97
%
1
Savannah-84 (3)
Savannah, GA
Various
100
%
13
2023
Savannah-84
Savannah, GA
February 23,2023
100
%
18
Willow Park (4)
Willow Park, TX
October 26,2023
—
58
Chandler (5)
Chandler, AZ
November 15,2023
—
208
Abode Wendell Falls (6)
Wendell, NC
December 20,2023
100
%
170
The Woods at Forest Hill (4)
Forest Hill, TX
December 28,2023
—
76
(1) For those dates where a month is listed, additional units were acquired and added to the respective existing portfolio throughout that specified month. For those dates where “Various” is listed, additional units were acquired and added to the respective existing portfolios on various dates throughout that specified quarter. For Ballast, the units acquired in the second quarter 2022 were our first acquisitions for the portfolio.
(2) 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.
(3) In January 2023, we acquired the unaffiliated joint venture partner’s interest in Savannah-84, increasing our interest from 80% to 100%.
(4) Our investment is through a note receivable provided to an unaffiliated third party. Refer to Note 7 of our combined consolidated financial statements for further information.
(5) Our investment in Chandler is through a preferred equity investment with an unaffiliated third party. Refer to Note 8 of our combined consolidated financial statements for further information.
(6) 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. Abode Wendell Falls is classified as a consolidated investment.
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The following table presents a summary of our loan payoffs, real estate sales, and redemption of preferred equity investments during the years ended December 31, 2023 and 2022:
Ownership
Date of Payoff, Sale
Interest in
Number
Investment Name
Location / Market
or Redemption (1)
Property
of Units
2022
The Hartley at Blue Hill (2)
Chapel Hill, NC
February 28, 2022
—
414
Weatherford 185 (2)
Weatherford, TX
July 22, 2022
—
185
2023
First Quarter
Peak Housing (3)
IN / MO / TX
Various
—
9
Second Quarter
Golden Pacific
Brownsburg, IN
May 2, 2023
97
%
1
Peak Housing (3)
IN / MO / TX
Various
—
74
Peak JV 2
Various / TX
Various
80
%
6
Peak JV 3
Dallas-Fort Worth, TX
Various
56
%
2
Third Quarter
Peak Housing (3)
IN / MO / TX
Various
—
63
Peak JV 3
Dallas-Fort Worth, TX
Various
56
%
18
Fourth Quarter
Golden Pacific
Lee’s Summit, MO
October 18, 2023
97
%
1
Peak Housing (3)
IN / MO / TX
Various
—
50
Peak JV 2
Various / TX
Various
80
%
6
Peak JV 3
Dallas-Fort Worth, TX
Various
56
%
19
Willow Park (4)
Willow Park, TX
October 26, 2023
—
46
The Cottages at Warner Robins (4)
Warner Robins, GA
December 15, 2023
—
251
(1) For those dates where “Various” is listed, units were sold from the respective portfolios on various dates throughout that specified quarter.
(2) Our investment in the property, which was through one or more loans that we provided, was paid off in full. Refer to Note 7 of our combined consolidated financial statements for further information.
(3) Our investment in the property, which is through a preferred equity investment with an unaffiliated third party, was partially redeemed as units collateralizing our investment (such units collectively known as “Peak Housing”) were sold. Refer to Note 8 of our combined consolidated financial statements for further information.
(4) Our investment in the property, which was through a preferred equity investment with an unaffiliated third party, was redeemed. Refer to Note 8 of our combined consolidated financial statements for further information.
Distribution Policy
We intend to maintain our qualification as a REIT for federal income tax purposes. The Code generally requires that a REIT annually distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain, and imposes tax on any taxable income retained by a REIT, including capital gains.
To satisfy the requirements for qualification as a REIT and generally not be subject to federal income and excise tax, we intend to make regular distributions of all or substantially all of our REIT taxable income, determined without regard to dividends paid, to our stockholders out of assets legally available for such purposes. All future distributions will be determined at the sole discretion of our Board on a quarterly basis. When determining the amount of future distributions, we expect that our Board will consider, among other factors, (i) the amount of cash generated from our operating activities, (ii) our expectations of future operating cash flows, (iii) our determination of near-term cash needs for acquisitions of new properties, development investments, general property capital improvements and debt repayments, (iv) our ability to continue to access additional sources of capital, (v) the requirements of Maryland law, (vi) the amount required to be distributed to maintain our qualification as a REIT and to reduce any income and excise taxes that we otherwise would be required to pay and (vii) any limitations on our distributions contained in our credit or other agreements.
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Holders of shares of the Series A Preferred Stock will be entitled to receive, when and as authorized by our Board and declared by us out of legally available funds, cumulative cash dividends on each share of Series A Preferred Stock at an annual rate of six percent (6.0%) of the $25.00 liquidation preference per share (equivalent to the fixed annual amount of $1.50 per share). Cash dividends on each share of Series A Preferred Stock will begin accruing on, and will be cumulative from, the date of original issuance or the end of the most recent dividend period for which cash dividends on the Series A Preferred Stock have been paid on each such share, payable monthly in arrears on the 5 th day of each month to holders of record on the 25 th day of the prior month; provided, however, that any such cash dividend may vary among holders of Series A Preferred Stock and may be prorated with respect to any shares of Series A Preferred Stock that were outstanding less than the total number of days in the dividend period immediately preceding the applicable dividend payment date, with the amount of any such prorated dividend being computed on the basis of the actual number of days in such dividend period during which such shares of Series A Preferred Stock were outstanding.
Holders of shares of Class A common stock, $0.01 par value per share (the “Class A common stock”), and Class C common stock $0.01 par value per share (the “Class C common stock”), will be entitled to receive cash dividends when, as and if authorized by our Board and declared by us.
We cannot assure you that we will generate sufficient cash flows to make distributions to our stockholders, or that we will be able to sustain those distributions. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, offering proceeds, borrowing funds, selling assets, making a taxable distribution of our equity or debt securities, or reducing such distributions. Our distribution policy enables us to review the alternative funding sources available to us from time to time. Our actual results of operations will be affected by a number of factors, including the revenues we receive from our properties and other investments, our operating expenses, interest expense, the ability of our tenants to meet their obligations and unanticipated expenditures. For more information regarding risk factors that could materially adversely affect our actual results of operations, please see “Item 1A – Risk Factors.”
Regulations
Our investments are subject to various federal, state and local laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.
Environmental
As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.
Human Capital
We have no employees and we rely on the employees of our Manager and its affiliates to conduct our operations. In order to attract and retain high performing individuals, our Manager and its affiliates are committed to partnering with its employees to provide opportunities for their professional development and promote their well-being. To that end, our Manager or its affiliates have undertaken various initiatives, including the following:
● implementing an Environmental, Social, and Corporate Governance Initiative to codify and disclose its commitment to good corporate citizenship, including the appointment of an internal corporate responsibility committee in support of its ongoing commitment to sustainability, health and safety, corporate social responsibility, corporate governance, and other public policy matters;
● providing department-specific training, access to online training seminars and opportunities to participate in industry conferences;
● providing annual reviews and regular feedback to assist in employee development and providing opportunities for employees to provide suggestions to management and safely register complaints;
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● providing family leave, for example, for the birth or adoption of a child, as well as sick leave;
● focusing on creating a workplace that values employee health and safety;
● committing to the full inclusion of all qualified employees and applicants and providing equal employment opportunities to all persons, in accordance with the principles and requirements of the Equal Employment Opportunities Commission and the principles and requirements of the Americans with Disabilities Act; and
● recognizing the importance and contributions of a diverse workforce, with an appreciation for the unique perspectives and insights offered by diverse backgrounds.
Industry Segments
We own and operate residential investments that generate rental and other property-related income through the leasing of units to a diverse base of tenants. We evaluate operating performance on an individual property investment level and based on the investments’ similar economic characteristics. Our primary financial measure for operating performance is NOI as it measures the core operations of property performance by excluding corporate level expenses and those other items not related to property operating performance. We view our residential real estate assets as one reportable segment, and, accordingly, aggregate our properties into one reportable segment.
Available Information
We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC. We also have filed with the SEC registration statements on Form S-11 (File No. 333-269415) and Form S-8 (File No. 333-267764). Copies of our filings with the SEC may be obtained from the SEC’s website at www.sec.gov , or downloaded from our website at www.bluerockhomes.com, as soon as reasonably practicable after such material has been filed with, or furnished to, the SEC. Access to these filings is free of charge.