Bluerock Homes Trust, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of the historical results of operations and liquidity and capital resources of Bluerock Homes Trust, Inc. (“Bluerock Homes,” “the Company,” “we,” “us,” or “our”), which was incorporated as a Maryland corporation on December 16, 2021. Prior to October 6, 2022, Bluerock Home’s sole stockholder was Bluerock Residential Growth REIT, Inc, a Maryland corporation (“Bluerock Residential” or “Parent”). 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. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. See also “Forward-Looking Statements” preceding Part I. We refer to Bluerock Real Estate, L.L.C., a Delaware limited liability company, and its affiliate, Bluerock Real Estate Holdings, LLC, a Delaware limited liability company, together as “BRE,” and we refer to our external manager, Bluerock Homes Manager, LLC, a Delaware limited liability company organized in 2022, as the “Manager.” Both BRE and our Manager are affiliated with us. Overview We were incorporated as a Maryland corporation on December 16, 2021. We own and operate high-quality single-family properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt and Western United States. Our principal objective is to generate attractive risk-adjusted returns on investments where we believe we can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units, developing build-to-rent communities, and through Value-Add renovations. Our Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize our return on investment. 61 Table of Contents We have no employees and are supported by a related-party service agreement with the Manager (the “Management Agreement”). We are externally managed by the Manager, which manages our day-to-day operations under 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, 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 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 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 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Date of ​ Number of Ownership Purchase Consolidated Investment Name ​ Location ​ Investment ​ Units ​ Interest ​ Price Savannah-84, formerly Peak JV 4 ​ Savannah, GA ​ February 23, 2023 ​ 18 ​ ​ 100 % $ 4.2 Abode Wendell Falls (1) Wendell, NC December 20, 2023 ​ 170 ​ 100 % ​ 5.8 Total Operating Investments ​ ​ ​ 188 ​ ​ ​ $ 10.0 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Commitment ​ Investment Loan Investment Name ​ ​ ​ ​ ​ Amount ​ Amount Willow Park Willow Park, TX October 26, 2023 ​ 58 $ 9.4 ​ $ 9.4 The Woods at Forest Hill Forest Hill, TX December 28, 2023 ​ 76 ​ 8.3 ​ 8.3 Total Loan Investments ​ ​ ​ 134 ​ ​ ​ $ 17.7 ​ ​ ​ ​ ​ ​ ​ ​ ​ Preferred Equity Investment Name ​ ​ ​ ​ ​ ​ ​ ​ Chandler Chandler, AZ November 15, 2023 ​ 208 $ 15.0 ​ $ 15.0 Total Preferred Equity Investments ​ ​ ​ 208 ​ ​ ​ $ 15.0 Total ​ ​ ​ 530 ​ ​ ​ $ 42.7 (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. 62 Table of Contents 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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ ​ ​ BHM Net Consolidated Investment Name ​ Location ​ Date of Sale (1) ​ Units ​ ​ Sale Price ​ ​ Proceeds Golden Pacific ​ IN / KS / MO ​ 2Q & 4Q 2023 ​ 2 ​ $ 0.8 ​ $ 0.7 Peak JV 2 ​ Various / TX ​ 2Q & 4Q 2023 ​ 12 ​ 2.7 ​ 2.7 Peak JV 3 ​ Dallas-Fort Worth, TX ​ 2Q – 4Q 2023 ​ 39 ​ ​ 6.0 ​ ​ 5.7 Total Consolidated Investments ​ ​ ​ ​ ​ 53 ​ $ 9.5 ​ $ 9.1 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Date of ​ ​ ​ ​ ​ ​ ​ ​ Preferred Equity Investment Name ​ ​ ​ Redemption ​ ​ ​ ​ ​ ​ ​ ​ Willow Park (2) ​ Willow Park, TX ​ October 26, 2023 ​ 46 ​ $ 17.1 ​ $ 4.1 The Cottages at Warner Robins ​ Warner Robins, GA ​ December 15, 2023 ​ 251 ​ ​ 64.7 ​ ​ 16.6 Total Preferred Equity Investments ​ ​ ​ ​ ​ 297 ​ $ 81.8 ​ $ 20.7 Total ​ ​ ​ ​ ​ 350 ​ $ 91.3 ​ $ 29.6 (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 The single-family rental industry has historically been more resilient to economic cycles than the multi-family sector and is currently benefiting from significant industry tailwinds that have accelerated during the pandemic. We believe industry dynamics present a compelling investment opportunity for us, including: ● Supply at accessible price points remains extremely tight, with little new affordable rental product coming on-line over the last decade. These supply and affordability gaps have been in place and intensifying since the wind-down of the Great Recession, with rental prices continuing to increase in step with home price appreciation. ● Limited institutional ownership of single-family rental stock, currently estimated to be approximately 3%, creates potential for outsized growth. Our institutionally operated properties benefit from experienced regional owner-operators and a technology-aided platform, delivering not only a competitive market advantage but also operating growth potential that can benefit investors. ● Demand fundamentals are strong and strengthening further, particularly from rental-biased and debt-burdened millennials now reaching peak single-family house consumption age. We believe that a continued upswing in propensity to rent, coupled with the limited and depleting supply at the middle-income range, signals significant opportunity. 63 Table of Contents Results of Operations Note 4 “Sale of Real Estate Assets and Held for Sale Real Estate Assets”; Note 5 “Investments in Real Estate”; Note 6 “Acquisition of Real Estate”; Note 7 “Notes and Interest Receivable”; and Note 8 “Preferred Equity Investments in Unconsolidated Real Estate Joint Ventures,” to our Combined Consolidated Financial Statements provide discussion of the various purchases and sales of properties and joint venture equity interests. These transactions have resulted in material changes to the presentation of our financial statements. The following is a summary of our consolidated real estate investments as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number of ​ Average Year ​ Ownership ​ Average ​ % ​ Operating Investment Name Market / Location Units (1) Built Interest Rent (2) Occupied (3) ​ Ballast AZ / CO / WA 84 1998 95 % $ 2,104 90.5 % Golden Pacific IN / KS / MO 169 1977 97 % 1,715 92.3 % ILE TX / SE US 482 1991 95 % 1,838 95.8 % Indy-Springfield, formerly Peak JV 1 ​ IN / MO ​ 334 ​ 1999 ​ 100 % ​ 1,266 ​ 95.3 % Navigator Villas Pasco, WA 176 2013 90 % 1,587 97.7 % Peak JV 2 Various / TX 596 1980 80 % 1,292 89.3 % Peak JV 3 Dallas-Fort Worth, TX 150 1961 56 % 1,112 100.0 % Savannah-84, formerly Peak JV 4 Savannah, GA 84 2022 100 % 1,749 97.6 % Wayford at Concord Concord, NC 150 2019 83 % 2,176 97.3 % Yauger Park Villas Olympia, WA 80 2010 95 % 2,400 95.0 % Total Operating Units / Average ​ 2,305 ​ ​ ​ $ 1,597 94.1 % ​ ​ ​ ​ ​ ​ ​ ​ ​ Development Investment Name ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Abode Wendell Falls (4) ​ Wendell, NC ​ 170 ​ — ​ 100 % ​ — ​ — ​ Total Development Units ​ ​ 170 ​ ​ ​ ​ ​ ​ ​ Total Units ​ ​ ​ 2,475 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (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. (3) Percent occupied is calculated as (i) the number of units occupied as of December 31, 2023 divided by (ii) total number of units, expressed as a percentage. Percent occupied excludes an aggregate of 60 down/renovation units. (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): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2023 ​ 2022 Variance Rental and other property revenues ​ $ 40,999 ​ $ 32,859 24.8 % Property operating expenses ​ $ 19,164 ​ $ 15,171 26.3 % Net operating income ​ $ 21,835 ​ $ 17,688 23.4 % Average occupancy percentage (1) ​ 94.4 % 92.4 % 200 bps Average rental rate (2) ​ $ 1,569 ​ $ 1,447 8.4 % (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. 64 Table of Contents The following is a summary of our preferred equity and loan investments as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Actual/ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Actual/ ​ Estimated ​ ​ ​ ​ Actual/ ​ Actual/ ​ Actual/ ​ ​ ​ ​ ​ ​ ​ Planned ​ Construction ​ ​ ​ ​ Estimated ​ Estimated ​ Estimated ​ Estimated ​ ​ Location / ​ Number ​ Cost ​ Cost to Date ​ Construction ​ Initial ​ Construction ​ Average Lease-up Investment Name ​ Market ​ of Units ​ (in millions) ​ (in millions) ​ Cost Per Unit ​ Occupancy ​ Completion ​ Rent (1) The Woods at Forest Hill Forest Hill, TX 76 $ 17.1 $ 17.1 $ 225,000 4Q 2022 3Q 2023 $ 1,625 Willow Park Willow Park, TX 58 ​ ​ 17.1 ​ ​ 17.1 ​ ​ 294,828 2Q 2022 3Q 2023 ​ ​ 2,362 The Cottages at Myrtle Beach Myrtle Beach, SC 294 ​ 63.2 ​ 61.7 ​ 214,966 2Q 2023 4Q 2023 ​ 1,743 The Cottages of Port St. Lucie ​ Port St. Lucie, FL 286 ​ 69.6 ​ 63.8 ​ 243,357 2Q 2023 1Q 2024 ​ 2,133 Wayford at Innovation Park ​ Charlotte, NC ​ 210 ​ ​ 62.0 ​ ​ 40.4 ​ ​ 295,238 ​ 3Q 2023 ​ 3Q 2024 ​ ​ 1,994 Total Lease-up Units ​ 924 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Development Investment Name ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Chandler Chandler, AZ 208 ​ 48.2 ​ 39.6 ​ 231,731 2Q 2024 3Q 2024 ​ 1,920 Total Development Units ​ 208 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Number ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Average Operating Investment Name ​ ​ ​ of Units ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Rent (1) Peak Housing (2) ​ IN / MO / TX 452 ​ ​ ​ ​ $ 1,009 Total Operating Units ​ ​ 452 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Units/Average ​ 1,584 ​ ​ ​ ​ ​ ​ $ 1,687 (1) For lease-up and development investments, represents the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization. For operating investments, represents the average effective monthly rent per occupied unit for the three months ended December 31, 2023. (2) Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing our preferred equity investment in the Peak REIT OP as of 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 Revenue 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. 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 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. Expenses 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. 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. 65 Table of Contents 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. 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 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. There was no management fee expense prior to October 6, 2022. 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 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 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 We believe that net operating income (“NOI”) is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. NOI also is a computation made by analysts and investors to measure a real estate company’s operating performance. 66 Table of Contents We believe that this measure provides an operating perspective not immediately apparent from operating income or net income prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). NOI allows us to evaluate the operating performance of our properties because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. However, NOI should only be used as a supplemental measure of our financial performance. The following table reflects net loss attributable to common stockholders together with a reconciliation to NOI, as computed in accordance with GAAP for the years ended December 31, 2023 and 2022 (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Net loss attributable to common stockholders ​ $ (4,503) ​ $ (1,000) Add back: Net loss attributable to Operating Partnership Units ​ (8,996) ​ (1,927) Net loss attributable to common stockholders and unit holders ​ (13,499) ​ (2,927) ​ ​ ​ ​ ​ ​ ​ Net loss attributable to partially owned properties’ noncontrolling interests ​ (2,398) ​ (2,998) Income from discontinued operations ​ — ​ (311) Real estate depreciation and amortization ​ 16,023 ​ 15,825 Non-real estate depreciation and amortization ​ 200 ​ 483 Non-cash interest expense ​ 2,775 ​ 2,441 Unrealized loss (gain) on derivatives ​ 2,933 ​ (3,084) Provision for (recovery of) credit losses ​ 174 ​ (402) Property management and asset management fees ​ 4,416 ​ 3,834 Management fees to related party ​ 7,922 ​ 1,787 Acquisition and other transaction costs ​ 1,820 ​ 167 Corporate operating expenses ​ 7,959 ​ 6,801 Transaction costs ​ — ​ 24 Weather-related losses, net ​ (17) ​ 25 Interest income ​ (2,609) ​ — Preferred dividends ​ 130 ​ — Other income, net ​ (679) ​ (446) Preferred returns on unconsolidated real estate joint ventures ​ ​ (11,632) ​ ​ (8,588) Interest income from loan investments ​ ​ (94) ​ ​ (1,285) Gain on sale and impairment of real estate investments, net ​ 1,017 ​ — Total property income ​ ​ 14,441 ​ ​ 11,346 Add back: Interest expense ​ 7,394 ​ 6,342 Net operating income ​ $ 21,835 ​ $ 17,688 ​ Liquidity and Capital Resources Liquidity is a measure of our ability to meet potential cash requirements, both short- and long-term. 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 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. 67 Table of Contents In general, we believe our available cash balances, cash flows from operations, proceeds from the Series A Preferred Offering, proceeds from our revolving credit facilities, proceeds from future mortgage debt financings for acquisitions and/or development projects, and other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. In general, we expect that our results related to our existing portfolio will improve in future periods as a result of anticipated future investments in and acquisitions of single-family residential properties and build-to-rent development properties. We believe we will be able to meet our primary liquidity requirements going forward through, among other sources: ● $80.2 million in cash available at December 31, 2023; ● 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; and ● 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. At December 31, 2023, our estimated future required payments on these obligations were as follows (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Less than ​ ​ ​ ​ ​ ​ ​ ​ Total ​ One year ​ 2025-2026 ​ 2027-2028 ​ Thereafter Mortgages Payable (Principal) ​ $ 96,705 ​ $ 1,639 ​ $ 39,188 ​ $ 23,888 ​ $ 31,990 Revolving Credit Facilities ​ 70,000 ​ 20,000 ​ 50,000 ​ — ​ — Estimated Interest Payments on Mortgages Payable and Revolving Credit Facilities ​ 28,079 ​ 10,136 ​ 10,214 ​ 6,718 ​ 1,011 Total ​ $ 194,784 ​ $ 31,775 ​ $ 99,402 ​ $ 30,606 ​ $ 33,001 ​ 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, 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 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. 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. 68 Table of Contents We may also meet our long-term liquidity needs through borrowings from a number of sources, either at the corporate or project level. We believe our revolving credit facilities will serve as our primary debt source that will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base. In addition to restrictive covenants, our revolving credit facilities contain material financial covenants. At December 31, 2023, we were in compliance with all covenants under our credit facilities. We will continue to monitor the debt markets, including Fannie Mae and Freddie Mac, and as market conditions permit, access borrowings that are advantageous to us. If we are unable to obtain financing on favorable terms or at all, we would likely need to curtail our investment activities, including acquisitions and improvements to and developments of real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. 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, 2023, we own investments in six joint ventures that are accounted for as held to maturity debt securities. Cash Flows 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; ● distributions and preferred returns from unconsolidated joint ventures of $5.4 million; and ● an increase in due to affiliates, net of $1.3 million; offset by ● an increase in accounts receivable, prepaids and other assets of $0.2 million; and ● an increase in notes and accrued interest receivable of $0.1 million. 69 Table of Contents Cash Flows from Investing Activities 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; and ● $9.5 million used on capital expenditures; offset by ● $25.8 million of proceeds from the redemption of unconsolidated joint ventures; and ● $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: ● proceeds of $21.0 million from borrowings on revolving credit facilities; ● net proceeds of $8.7 million from the issuance of Series A Preferred Stock; and ● capital contributions of $0.4 million from partially owned properties; noncontrolling interests; offset by ● $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; ● $0.3 million in cash distributions paid to noncontrolling interests; and ● $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 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; and ● increase in net distributions of income and preferred returns from preferred equity investments of $3.3 million; offset by ● increase in notes and accrued interest receivable of $3.1 million; ● net decrease in net due to affiliates of $0.8 million; and ● increase in accounts receivable, prepaid expenses and other assets of $0.3 million. Investing Activities 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; ● 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; and ● higher proceeds from the sales of real estate investments of $9.1 million; offset by ● decreased repayments on notes receivable of $45.6 million; and ● increase in investment in notes receivable of $8.0 million. 70 Table of Contents Financing Activities 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; and ● increase in distributions to preferred stockholders of $0.1 million; offset by ● 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; and ● decrease in the distributions to partially owned properties’ noncontrolling interests of $1.6 million. Capital Expenditures The following table summarizes our total capital expenditures incurred for the years ended December 31, 2023 and 2022 (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Redevelopment/renovations ​ $ 4,551 ​ $ 16,122 Routine capital expenditures ​ 3,193 ​ 2,888 Normally recurring capital expenditures ​ 436 ​ 314 Total capital expenditures ​ $ 8,180 ​ $ 19,324 ​ Redevelopment and renovation costs are non-recurring capital expenditures for significant projects such as preparing a unit for rental. The renovation work varies, but may include flooring, cabinetry, paint, plumbing, appliances and other items required to make the unit rent ready. Routine capital expenditures are necessary non-revenue generating improvements that extend the useful life of the property and that are less frequent in nature, such as roof repairs and concrete work/asphalt resurfacing. Normally recurring capital expenditures are necessary non-revenue generating improvements that occur on a regular ongoing basis, such as flooring and appliances. Funds from Operations and Core Funds from Operations Attributable to Common Stockholders and Unit Holders We believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and core funds from operations (“CFFO”) are important non-GAAP supplemental measures of operating performance for a REIT. FFO attributable to common stockholders and unit holders is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. 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. Adjustments for notes receivable, unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis. 71 Table of Contents 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. As a result, we believe that CFFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential. 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. 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. Neither FFO nor CFFO is equivalent to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity. We 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. 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. As such, the results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance. 72 Table of Contents The table below presents our calculation of FFO and CFFO for the years ended December 31, 2023 and 2022 ($ in thousands): ​ ​ ​ ​ ​ ​ ​ ​ 2023 2022 Net loss attributable to common stockholders ​ $ (4,503) ​ $ (1,000) Add back: Net loss attributable to Operating Partnership Units ​ (8,996) ​ (1,927) Net loss attributable to common stockholders and unit holders ​ (13,499) ​ (2,927) ​ ​ ​ ​ ​ ​ ​ Real estate depreciation and amortization ​ 16,023 ​ 15,825 Gain on sale and impairment of real estate investments, net ​ 1,017 ​ — Gain on sale of assets from discontinued operations ​ — ​ (258) Adjustment for partially owned properties’ noncontrolling interests ​ (2,215) ​ (2,715) FFO attributable to common stockholders and unit holders ​ 1,326 ​ 9,925 ​ ​ ​ ​ ​ ​ ​ Acquisition and other transaction costs ​ 1,820 ​ 167 Non-cash interest expense ​ 2,775 ​ 2,441 Unrealized loss (gain) on derivatives ​ 2,933 ​ (3,084) Provision for (recovery of) credit losses ​ 174 ​ (402) Weather-related losses, net ​ ​ (17) ​ ​ 25 Non-real estate depreciation and amortization ​ 200 ​ 483 Transaction costs ​ — ​ 24 Other income, net ​ (679) ​ (446) Non-cash equity compensation ​ 13,040 ​ 5,246 Adjustment for partially owned properties’ noncontrolling interests ​ (627) ​ (1,293) CFFO attributable to common stockholders and unit holders ​ $ 20,945 ​ $ 13,086 ​ ​ ​ ​ ​ ​ ​ Per Share and Unit Information: ​ ​ ​ FFO attributable to common stockholders and unit holders – diluted ​ $ 0.12 ​ $ 0.88 CFFO attributable to common stockholders and unit holders – diluted ​ $ 1.82 ​ $ 1.16 ​ ​ ​ ​ ​ ​ ​ Weighted average common shares and units outstanding – diluted ​ 11,537,120 ​ 11,239,378 ​ Operating cash flow, FFO and CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO. Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful. FFO or CFFO should not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and CFFO should be reviewed in connection with other GAAP measurements. 73 Table of Contents Distributions ​ ​ ​ ​ ​ ​ ​ ​ Declaration Date Payable to stockholders of record as of Amount Paid / Payable Date Class A common stock Special Dividend ​ December 19, 2023 ​ December 29, 2023 ​ $ 1.00 ​ January 5, 2024 Class C common stock Special Dividend ​ ​ ​ ​ December 19, 2023 ​ December 29, 2023 ​ $ 1.00 ​ January 5, 2024 Series A Preferred Stock (1) ​ ​ ​ ​ September 11, 2023 ​ August 25, 2023 ​ $ 0.125000 ​ October 5, 2023 September 11, 2023 ​ September 25, 2023 ​ 0.125000 ​ October 5, 2023 October 13, 2023 ​ October 25, 2023 ​ 0.125000 ​ November 3, 2023 October 13, 2023 ​ November 24, 2023 ​ 0.125000 ​ December 5, 2023 October 13, 2023 ​ December 22, 2023 ​ 0.125000 ​ January 5, 2024 Series A Preferred Stock Special Dividend (2) ​ ​ ​ ​ November 7, 2023 ​ Each day November 1 - 30, 2023 ​ $ 0.012550 ​ December 5, 2023 November 7, 2023 ​ Each day December 1 - 31, 2023 ​ 0.002469 ​ 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 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 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. Distributions declared and paid for the year ended December 31, 2023 were as follows (amounts in thousands): ​ ​ ​ ​ ​ ​ ​ ​ Distributions 2023 Declared Paid Third Quarter ​ ​ ​ ​ Series A Preferred Stock (1) ​ $ 12 ​ $ — Total third quarter ​ $ 12 ​ $ — Fourth Quarter ​ ​ Class A common stock ​ $ 3,871 ​ $ — Class C common stock ​ 8 ​ — Series A Preferred Stock (1) ​ 118 ​ 78 OP Units ​ 7,366 ​ — LTIP / C-LTIP Units ​ 1,143 ​ — Total fourth quarter ​ $ 12,506 ​ $ 78 Total ​ $ 12,518 ​ $ 78 (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. 74 Table of Contents Critical Accounting Policies and Estimates Below is a discussion of the accounting policies that we consider critical to an understanding of our financial condition and operating results that may require complex or significant judgment in their application or require estimates about matters which are inherently uncertain. Principles of Consolidation and Basis of Presentation We conduct our operations through the Operating Partnership, of which we are the sole general partner. The combined consolidated financial statements include our accounts and those of the Operating Partnership and its subsidiaries. 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). 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. 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. Real Estate Investments, Preferred Equity Investments and Notes Receivable (Real Estate Loan Investment) We first analyze an investment to determine if it is a variable interest entity (“VIE”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation and, if so, whether we are the primary beneficiary requiring consolidation of the entity. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE’s net assets. We continuously re-assess at each level of the investment whether (i) the entity is a VIE, and (ii) we are the primary beneficiary of the VIE. If it was determined that an entity in which we hold an interest qualified as a VIE and we are the primary beneficiary, the entity would be consolidated. If, after consideration of the VIE accounting literature, we have determined that an entity is not a VIE, we assess the need for consolidation under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority voting interest held by the company providing control. In assessing whether we are in control of and requiring consolidation of the limited liability company and partnership venture structures, we evaluate the respective rights and privileges afforded each member or partner (collectively referred to as “member”). Our member would not be deemed to control the entity if any of the other members has either (i) substantive kickout rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) substantive participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be made in the ordinary course of business. We analyze each investment that involves real estate acquisition, development, and construction to consider whether the investment qualifies as an investment in a real estate acquisition, development, and construction arrangement. We have evaluated our real estate investments as required by ASC 310-10 Receivables and concluded that no investments are considered an investment in a real estate acquisition, development, or construction arrangement. As such, we next evaluate if these investments are considered a security under ASC 320 Investments – Debt Securities . 75 Table of Contents For investments that meet the criteria of a security under ASC 320 Investments – Debt Securities , we classify each preferred equity investment as a held-to-maturity debt security as we have the intention and ability to hold the investment to maturity. We earn a fixed return on these investments which is included within preferred returns on unconsolidated real estate joint ventures in our combined consolidated statements of operations. We evaluate the collectability of each preferred equity investment and estimate a provision for credit loss, as applicable. We account for these investments as preferred equity investments in unconsolidated real estate joint ventures in our combined consolidated balance sheets. For investments that do not meet the criteria of a security under ASC 320 Investments – Debt Securities , we have concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate. We recognize interest income on our notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected. Costs incurred to originate our notes receivable are deferred and amortized using the effective interest method over the term of the related notes receivable. We evaluate the collectability of each loan investment and estimate a provision for credit loss, as applicable. Real Estate Assets Real Estate Purchase Price Allocations Upon acquisition, we evaluate our acquired residential properties for purposes of determining whether a transaction should be accounted for as an asset acquisition or business combination. Purchases of residential properties are treated as asset acquisitions and, as such, are recorded at their purchase price, including acquisition costs, which is allocated to land and building based upon their relative fair values at the date of acquisition. Acquisition costs typically include legal fees, broker commissions and title fees, as well as other closing costs. In making estimates of fair values for purposes of allocating the purchase price of acquired properties, we utilize various sources including our own market knowledge obtained from historical transactions, published market data, and independent appraisers. In this regard, we also utilize information obtained from county tax assessment records to assist in the determination of the fair value of the land and building. Intangible assets include the value of in-place leases which represents the estimated fair value of the net cash flows of leases in place at the time of acquisition, as compared to the net cash flows that would have occurred had the property been vacant at the time of acquisition and subject to lease-up. We amortize the value of in-place leases to expense over the remaining non-cancelable term of the respective leases, which is on average six months. Estimates of the fair values of the tangible assets, identifiable intangibles and assumed liabilities require us to make significant assumptions to estimate market lease rates, property operating expenses, carrying costs during lease-up periods, discount rates, market absorption periods, prevailing interest rates and the number of years the property will be held for investment. The use of inappropriate assumptions could result in an incorrect valuation of acquired tangible assets, identifiable intangible assets and assumed liabilities, which could impact the amount of our net income (loss). Differences in the amount attributed to the fair value estimate of the various assets acquired can be significant based upon the assumptions made in calculating these estimates. Capital Additions, Depreciation and Amortization 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 include all costs that do not extend the useful life of the real estate asset. Accordingly, many factors are considered as part of our evaluation processes with no one factor necessarily determinative. Depreciation and amortization expense are computed on the straight-line method over the asset’s estimated useful life. We consider the period of future benefit of an asset to determine its appropriate useful life and anticipate the estimated useful lives of assets by class to be generally as follows: ​ ​ ​ Buildings 30 – 40 years Building improvements 5 – 15 years Land improvements 5 – 15 years Furniture, fixtures and equipment 3 – 8 years In-place leases 6 months ​ 76 Table of Contents 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 We recognize rental revenue on a straight-line basis over the terms of the rental agreements and in accordance with ASC Topic 842 Leases . Rental revenue is recognized on an accrual basis and when the collectability of the amounts due from tenants is deemed probable. Rental revenue is included within rental and other property revenues on our combined consolidated statement of operations. Amounts received in advance are recorded as a liability within other accrued liabilities on our combined consolidated balance sheet. Other property revenues are recognized in the period earned. Current Expected Credit Losses (CECL) We estimate provision for credit losses on our loans (notes receivable) and preferred equity investments under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. The method for calculating the estimate of expected credit loss considers historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future. We estimate our provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, we apply a default rate to the investments for the remaining loan or preferred equity investment hold period. As we do not have a significant historical population of loss data on our loan and preferred equity investments, our default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans. In addition to analyzing investments as a pool, we perform an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or we expect repayment through the sale of the collateral, we calculate expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if we determine that it is probable that we will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded. 77 Table of Contents In estimating the value of the underlying collateral when determining if a loan or preferred equity investment is fully recoverable, we evaluate estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon 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. 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. As the investment no longer displays the characteristics that are similar to those of the pool of loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above. New Accounting Pronouncements See Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” to our Notes to the Combined Consolidated Financial Statements for a description of accounting pronouncements. We do not believe these new pronouncements will have a significant impact on our Combined Consolidated Financial Statements, cash flows or results of operations. Subsequent Events Issuance of LTIP Units under the BHM Incentive Plans On January 8, 2024, we granted 5,185 LTIP Units pursuant to the BHM Incentive Plans to each independent member of the Board in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance. Declaration of Dividends ​ ​ ​ ​ ​ ​ ​ ​ Declaration Date Payable to stockholders of record as of Amount Paid / Payable Date Series A Preferred Stock (1) ​ January 15, 2024 ​ January 25, 2024 ​ $ 0.125 ​ February 5, 2024 January 15, 2024 ​ February 23, 2024 ​ 0.125 ​ March 5, 2024 January 15, 2024 ​ March 25, 2024 ​ 0.125 ​ April 5, 2024 Series A Preferred Stock Special Dividend ​ ​ ​ January 15, 2024 ​ Each day of January 1 - 31, 2024 ​ ​ (2) ​ ​ February 5, 2024 January 15, 2024 ​ Each day of February 1 - 29, 2024 ​ ​ (2) ​ ​ March 5, 2024 January 15, 2024 ​ Each day of March 1 - 31, 2024 ​ ​ (2) ​ ​ April 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. 78 Table of Contents Distributions Paid ​ ​ ​ ​ ​ Distributions Paid January 5, 2024 (to stockholders of record as of December 22, 2023) ​ Series A Preferred Stock (1) ​ $ 51 January 5, 2024 (to stockholders of record as of December 29, 2023) ​ Class A common stock Special Dividend ​ $ 3,871 Class C common stock Special Dividend ​ 8 OP Units ​ 7,366 LTIP / C-LTIP Units ​ 1,143 Total ​ $ 12,388 February 5, 2024 (to stockholders of record as of January 25, 2024) ​ Series A Preferred Stock (1) ​ $ 68 March 5, 2024 (to stockholders of record as of February 23, 2024) ​ Series A Preferred Stock (1) ​ $ 86 (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 The Manager earned a base management fee of $2.0 million during the fourth quarter 2023. This amount was payable 50% in C-LTIP Units with the other 50% payable in either cash or C-LTIP Units, at the discretion of the Board. In addition, the Manager was entitled to a $1.3 million reimbursement for operating expenses it incurred on our behalf for the fourth quarter 2023. This reimbursement was payable in cash or C-LTIP Units, at the discretion of the Board. Upon consultation with the Manager, the Board elected to pay 100% of the base management fee and the operating expense reimbursement in C-LTIP Units. 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. 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. 79 Table of Contents 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.