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Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 178 added, 97 removed, 324 unchanged (46% of the section changed)

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Our Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize our return on investment.

As of March 31, 2024, we held twenty real estate investments, consisting of twelve consolidated investments and eight preferred equity and loan investments.

The twenty investments represent an aggregate of 4,366 residential units, comprised of 2,745 consolidated units, of which 170 units are under development, and 1,621 units through preferred equity and loan investments.

As of March 31, 2024, our consolidated operating investments were approximately 94.8% occupied.

As of June 30, 2024, we held twenty-one real estate investments, consisting of twelve consolidated investments and nine preferred equity and loan investments.

The twenty-one investments represent an aggregate of 4,362 residential units, comprised of 2,732 consolidated units, of which 170 units are under development, and 1,630 units through preferred equity and loan investments.

As of June 30, 2024, our consolidated operating investments were approximately 92.2% occupied;

excluding units classified as held for sale and down/renovation units, our consolidated operating investments were approximately 95.4% occupied.

We have elected to be treated, and currently qualify, as a REIT for federal income tax purposes.

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Other Significant Developments

Investment Activity Summary

Provided below is a summary of our investment activity during the six months ended June 30, 2024:

Acquisition of Villas at Huffmeister

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The purchase price of $41.2 million was funded, in part, with a $24.3 million senior loan assumption secured by Villas at Huffmeister, along with cash of $17.4 million that we funded.

Indigo Cove Interests

On June 27, 2024, we entered into a joint venture agreement with an unaffiliated third party (the “Indigo JV”) to develop approximately 82 build-for-rent, single-family residential units in Bluffton, South Carolina.

We made a commitment to invest $5.3 million for preferred equity interests in the Indigo JV, of which $1.9 million had been funded as of June 30, 2024.

We earn an accrued return on our outstanding capital contributions at a rate of 17.0% per annum compounded monthly, subject to a minimum return, with preferred return payments commencing in December 2025 contingent upon the property generating cash flows in excess of operating costs.

Sale of Consolidated Operating Units

During the first quarter 2024, we closed on the following sales:

one unit in the Indy-Springfield portfolio, four units in the Peak JV 2 portfolio, and nineteen units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements.

The twenty-four units were sold for an aggregate of approximately $3.9 million, subject to certain prorations and adjustments typical in such real estate transactions, and generated net proceeds of approximately $3.7 million and a gain on sales of approximately $0.3 million.

Loan Investment Activity

During the first quarter 2024, we (i) provided funding in the aggregate amount of $9.6 million for the Wayford at Pringle loan investment, with a remaining commitment of $20.5 million to be funded, and (ii) received paydowns on The Woods at Forest Hill loan investment in the aggregate amount of $4.1 million, which included principal investment of $4.0 million and accrued interest of $0.1 million, reducing the outstanding principal balance to $4.3 million at March 31, 2024.

We closed on the following sales:

one unit in the ILE portfolio, two units in the Indy-Springfield portfolio, seven units in the Peak JV 2 portfolio, and twenty-seven units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements.

The thirty-seven units were sold for an aggregate of approximately $6.5 million, subject to certain prorations and adjustments typical in such real estate transactions, and generated net proceeds of approximately $6.2 million and a gain on sales of approximately $0.7 million.

Loan Investments

We (i) provided funding in the aggregate amount of $16.3 million for the Wayford at Pringle loan investment, with a remaining commitment of $13.8 million to be funded, and (ii) received paydowns on The Woods at Forest Hill loan investment in the aggregate amount of $7.3 million, which included principal investment of $7.1 million and accrued interest of $0.2 million, reducing the outstanding principal balance to $1.2 million at June 30, 2024.

Peak Housing Interests

During the first quarter 2024, our preferred equity investment in the operating partnership of Peak Housing REIT (the “Peak REIT OP”) was partially redeemed in the aggregate amount of $2.0 million, which included principal investment of $1.8 million and accrued preferred return of $0.2 million.

At March 31, 2024, our remaining preferred equity investment in the Peak REIT OP was $8.8 million, with a remaining 407 units as collateral underlying our investment.

Our preferred equity investment in the operating partnership of Peak Housing REIT (the “Peak REIT OP”) was partially redeemed in the aggregate amount of $3.9 million, which included principal investment of $3.5 million and accrued preferred return of $0.4 million.

At June 30, 2024, our remaining preferred equity investment in the Peak REIT OP was $7.1 million, with a remaining 349 units as collateral underlying our investment.

Held for Sale

At March 31, 2024, we classified an aggregate of 96 units as held for sale in our consolidated balance sheets, and for the three months ended March 31, 2024, we recorded an impairment of $0.1 million related to held for sale units which is included in gain on sale and impairment of real estate investments, net in our consolidated statements of operations.

The units are included in the following portfolios:

34 units of Indy-Springfield, 11 units of Peak JV 2, and 51 units of Peak JV 3.

At June 30, 2024, we classified an aggregate of 391 units as held for sale in our consolidated balance sheets, and for the three and six months ended June 30, 2024, we recorded an impairment of $1.1 million and $1.2 million, respectively, related to held for sale units which is included in impairment and gain on sale of real estate investments, net in our consolidated statements of operations.

The 391 units classified as held for sale are included in the following portfolios:

44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak JV 3, and all 176 units of Navigator Villas.

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

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 consolidated balance sheets.

Series A Redeemable Preferred Stock

During the three months ended March 31, 2024, we issued 395,628 shares of 6.0% Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) at $25.00 per share (the “Stated Value”) under a continuous registered offering with net proceeds of approximately $8.6 million after (i) commissions, dealer manager fees and sales discounts of approximately $1.0 million, and (ii) costs related to establishing the offering of Series A Preferred Stock of approximately $0.3 million.

As of March 31, 2024, we had issued a total of 832,303 shares of Series A Preferred Stock with total net proceeds of approximately $17.3 million after commissions, dealer manager fees, sales discounts and offering costs.

During the six months ended June 30, 2024, we issued 1,761,120 shares of 6.0% Series A Redeemable Preferred Stock (the “Series A Preferred Stock”) at $25.00 per share (the “Stated Value”) under a continuous registered offering with net proceeds of approximately $38.8 million after (i) commissions, dealer manager fees and sales discounts of approximately $4.4 million, and (ii) costs related to establishing the offering of Series A Preferred Stock of approximately $0.8 million.

As of June 30, 2024, we had issued a total of 2,197,795 shares of Series A Preferred Stock with total net proceeds of approximately $47.1 million after commissions, dealer manager fees, sales discounts and offering costs.

During the six months ended June 30, 2024, we, at the request of holders, redeemed 1,000 shares of Series A Preferred Stock through the issuance of 1,346 shares of Class A common stock.

Stockholders’ Equity

Our total stockholders’ equity decreased $2.9 million from $147.4 million as of December 31, 2023 to $144.5 million as of March 31, 2024.

The decrease in our total stockholders’ equity is primarily attributable to an adjustment of $1.9 million for noncontrolling interest ownership in the Operating Partnership, a net loss of $0.8 million, and preferred dividends declared of $0.3 million.

Our total stockholders’ equity decreased $4.9 million from $147.4 million as of December 31, 2023 to $142.5 million as of June 30, 2024.

The decrease in our total stockholders’ equity is primarily attributable to an adjustment of $2.3 million for noncontrolling interest ownership in the Operating Partnership, a net loss of $1.7 million, preferred dividends declared of $0.8 million, and preferred stock accretion of $0.2 million.

Results of Operations

The following is a summary of our consolidated real estate investments as of March 31, 2024:

The following is a summary of our consolidated real estate investments as of June 30, 2024:

Excluding Held

for Sale/Reno

Operating Investment Name

Market / Location

Number of Units (1)

Average Year Built

Ownership Interest

Average Rent (2)

% Occupied (3)

All Units (3)

Golden Pacific

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Total Development Units

(1) Total operating units includes an aggregate of 96 units classified as held for sale and includes the following portfolios:

34 units in Indy-Springfield, 11 units in Peak JV 2, and 51 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 March 31, 2024.

(3) Percent occupied is calculated as (i) the number of units occupied as of March 31, 2024 divided by (ii) total number of units, expressed as a percentage.

Percent occupied excludes an aggregate of 46 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 $6.6 million had been incurred as of March 31, 2024.

The following is a summary of our consolidated operational results for the three months ended March 31, 2024 and 2023 ($ in thousands, except average rental rates):

Three Months Ended March 31,

(1) Total operating units includes an aggregate of 391 units classified as held for sale, and such units are included in the following portfolios:

44 units of Indy-Springfield, 48 units of Peak JV 2, all 123 units of Peak JV 3, and all 176 units of Navigator Villas.

(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 June 30, 2024.

(3) Percent occupied is calculated as (i) the number of units occupied as of June 30, 2024 divided by (ii) total number of units, expressed as a percentage.

(4) Percent occupied is calculated as (i) the number of units occupied as of June 30, 2024 divided by (ii) total number of units, expressed as a percentage, and excludes 391 units classified as held for sale and an aggregate of 16 down/renovation units.

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

The total estimated project cost is $56.9 million, of which $6.8 million had been incurred as of June 30, 2024.

The following is a summary of our consolidated operational results for the three and six months ended June 30, 2024 and 2023 ($ in thousands, except average rental rates):

Three Months Ended June 30,

Six Months Ended June 30,

Rental and other property revenues

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Average rental rate (2)

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

Average occupancy excludes an average of 50 and 46 down/renovation units for the three months ended March 31, 2024 and 2023, respectively.

(1) Represents the average of the ending occupancy as of the last day of each month in the period presented for all units in our consolidated portfolio.

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

The following is a summary of our preferred equity and loan investments as of March 31, 2024:

The following is a summary of our preferred equity and loan investments as of June 30, 2024:

Total Actual/

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Number of Units

Average Rent (1)

Peak Housing (4)

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

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended March 31, 2024.

(2) The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 56 units at March 31, 2024 resulting from the sales of 20 units during the first quarter 2024.

For operating investments, represents the average effective monthly rent per occupied unit for the three months ended June 30, 2024.

(2) The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 41 units at June 30, 2024 resulting from the sales of 35 units during the six months ended June 30, 2024.

Proceeds from the sales of these units were used to paydown our loan investment in The Woods at Forest Hill.

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(3) Wayford at Pringle is a loan investment for which we disburse loan proceeds to the borrower for unit acquisitions upon construction completion.

Of the total 102-build for rent units that are to be acquired, construction of 37 units was completed during the first quarter 2024 for which we provided the borrower with loan proceeds for their acquisition.

Of the total 102-build for rent units that are to be acquired, construction of 59 units was completed during the six months ended June 30, 2024 for which we provided the borrower with loan proceeds for their acquisition.

The cost to date amount represents outlays related to completed units and those under construction, and we estimate that all units will be completed and acquired, and our loan commitment fully funded, by the end of 2024.

Refer to Note 6 of our consolidated financial statements for further information.

(4) Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing our preferred equity investment in the Peak REIT OP as of March 31, 2024 (refer to Note 7 of our consolidated financial statements for further information).

(4) Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing our preferred equity investment in the Peak REIT OP as of June 30, 2024 (refer to Note 7 of our consolidated financial statements for further information).

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

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Rental and other property revenues increased $0.7 million, or 7%, to $10.8 million for the three months ended March 31, 2024 as compared to $10.1 million for the same prior year period.

The increase was primarily due to $0.3 million in operational improvements from our active management and organic market rent growth and a $0.3 million increase in ancillary income (such as late fees, term fees, and damage fees).

The occupancy percentages of the Company’s preferred equity and loan investments at June 30, 2024 are as follows:

Investment Name

June 30, 2024

Indigo Cove (2)

Peak Housing (3)

The Cottages at Myrtle Beach (4)

The Cottages of Port St.

The Woods at Forest Hill

Wayford at Innovation Park (5)

Wayford at Pringle (6)

(1) Chandler commenced lease-up in June 2024.

(2) Indigo Cove had not commenced lease-up as of June 30, 2024.

(3) Percent occupied for Peak Housing excludes 8 down/renovation units at June 30, 2024.

(4) The Cottages investments commenced lease-up in 2023 as follows:

at Myrtle Beach in April and of Port St.

Lucie in June.

(5) Wayford at Innovation Park commenced lease-up in August 2023.

(6) Wayford at Pringle commenced lease-up in February 2024.

Three Months Ended June 30, 2024 Compared to Three Months Ended June 30, 2023

Rental and other property revenues increased $1.6 million, or 16%, to $11.9 million for the three months ended June 30, 2024 as compared to $10.3 million for the same prior year period.

The increase was primarily due to:

(i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii) operational improvements from our active management and organic market rent growth.

The increase was partially offset by the sale of 90 homes in our portfolio since April 1, 2023.

Our average rent per occupied unit increased $58, or 3.7%, to $1,615 as compared to $1,557 during the prior year period.

Average occupancy increased 30 basis points from 92.0% to 92.3% on a year over year basis.

The improvements were partially driven by:

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

Interest income from loan investments amounted to $0.4 million for the three months ended March 31, 2024 as compared to zero for the same prior year period due to three new loan investments since the fourth quarter 2023.

We did not have any loan investments during the three months ended March 31, 2023.

Property operating expenses increased $0.4 million, or 10%, to $5.0 million for the three months ended March 31, 2024 as compared to $4.6 million for the same prior year period.

Interest income from loan investments amounted to $0.6 million for the three months ended June 30, 2024 as compared to zero for the same prior year period due to three new loan investments since the fourth quarter 2023.

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

Property operating expenses increased $1.4 million, or 30%, to $6.0 million for the three months ended June 30, 2024 as compared to $4.6 million for the same prior year period.

The increase was primarily due to:

(i) a $0.3 million increase in expenses (primarily repairs and maintenance) incurred as part of our lease up stabilization strategy and (ii) a $0.1 million or 4% increase in insurance and real estate taxes.

(i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii) increase in expenses (primarily repairs and maintenance) incurred as part of our lease up stabilization strategy.

The increase was partially offset by the sale of 90 homes in our portfolio since April 1, 2023.

Property operating expenses consist of controllable (payroll, repairs and maintenance, turnover, administrative, advertising, and utilities) and non-controllable (real estate taxes and insurance) expenses.

Controllable expenses were $2.5 million and $2.2 million, and non-controllable expenses were $2.5 million and $2.4 million, for the three months ended March 31, 2024 and 2023, respectively.

Property management and asset management fee expenses were $1.1 million for the three months ended March 31, 2024, consistent with the prior year period.

Controllable expenses were $3.2 million and $2.1 million, and non-controllable expenses were $2.8 million and $2.5 million, for the three months ended June 30, 2024 and 2023, respectively.

Property management and asset management fee expenses were $1.2 million for the three months ended June 30, 2024 as compared to $1.1 million for the same prior year period.

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

Although property revenues increased 6% compared to the prior year period, the negotiation of management fees with two property managers in 2023 resulted in property management fees remaining consistent with the prior year period.

General and administrative expenses amounted to $2.9 million for the three months ended March 31, 2024 as compared to $2.0 million for the same prior year period.

Of the $2.9 million total expense in the first quarter 2024, $1.7 million related to direct costs incurred by us, while the remaining $1.2 million related to the operating expense reimbursement to our Manager, which includes rent, utilities, and IT expenses.

General and administrative expenses amounted to $2.4 million for the three months ended June 30, 2024 as compared to $1.8 million for the same prior year period.

Of the $2.4 million total expense for the three months ended June 30, 2024, $1.3 million related to direct costs incurred by us, while the remaining $1.1 million related to the operating expense reimbursement to our Manager, which includes rent, utilities, and IT expenses.

The expense reimbursement to our Manager also included a $0.7 million reimbursement for accounting and legal services.

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

For the first quarter 2024, we will pay the full operating expense reimbursement of $1.2 million to the Manager in cash;

For the second quarter 2024, we will pay the full operating expense reimbursement of $1.1 million to the Manager in cash;

for the same prior year period, we paid the full operating expense reimbursement of $0.4 million to the Manager through the issuance of C-LTIP Units.

Management fees to related party amounted to $2.1 million for the three months ended March 31, 2024 as compared to $1.9 million for the same prior year period.

Management fees to related party amounted to $2.2 million for the three months ended June 30, 2024 as compared to $2.0 million for the same prior year period.

The increase was due to an increase in equity primarily from our continuous registered offering of Series A Preferred Stock, which began in the third quarter of 2023.

For the first quarter 2024, we will pay the base management fee of $2.1 million to the Manager as one half (50%) in C-LTIP Units and the remainder in cash;

For the second quarter 2024, we will pay the base management fee of $2.2 million to the Manager as one half (50)% in C-LTIP Units and the remainder in cash;

for the same prior year period, we paid the full base management fee of $2.0 million to the Manager through the issuance of C-LTIP Units.

Acquisition and other transaction costs amounted to zero for the three months ended March 31, 2024 as compared to $1.5 million for the same prior year period.

Acquisition and other transaction costs amounted to zero for the three months ended June 30, 2024 as compared to $0.3 million for the same prior year period.

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

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

Depreciation and amortization expenses were $4.0 million for the three months ended March 31, 2024, consistent with the prior year period.

Depreciation and amortization expenses were $4.8 million for the three months ended June 30, 2024 as compared to $4.0 million for the same prior year period, with the increase primarily attributable to the acquisition of Villas at Huffmeister during the first quarter 2024.

Other Income and Expense

Other income and expense amounted to income of $0.7 million for the three months ended March 31, 2024 as compared to expense of $0.4 million for the same prior year period.

This was primarily due to a $1.1 million increase in interest income from our short-term investments and a $0.3 million gain on sales of real estate investments from the sale of 24 homes during the three months ended March 31, 2024, partially offset by a $0.1 million net increase in interest expense, a $0.1 million impairment on real estate, and a $0.1 million increase in provision for credit losses.

Other income and expense amounted to expense of $1.2 million for the three months ended June 30, 2024 as compared to income of $2.3 million for the same prior year period.

This was due to a $2.2 million net increase in interest expense primarily attributable to an increase in the outstanding debt to $228.0 million at June 30, 2024 as compared to $167.5 million at June 30, 2023 and a decrease in the fair value of the interest rate caps and swaps, a $1.1 million impairment on real estate, a $0.3 million decrease in gain on sales of real estate investments, and $0.4 million in other expenses.

These expense sources were partially offset by a $0.5 million increase in interest income from our short-term cash investments.

Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Rental and other property revenues increased $2.3 million, or 11%, to $22.7 million for the six months ended June 30, 2024 as compared to $20.4 million for the same prior year period.

The increase was primarily due to:

(i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii) operational improvements from our active management and organic market rent growth.

The increase was partially offset by the sale of 90 homes in our portfolio since January 1, 2023.

Our average rent per occupied unit increased $59, or 3.8%, to $1,608 as compared to $1,549 during the prior year period.

Average occupancy increased 20 basis points from 92.2% to 92.4% on a year over year basis.

Interest income from loan investments amounted to $1.0 million for the six months ended June 30, 2024 as compared to zero for the same prior year period due to three new loan investments since the fourth quarter 2023.

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

Property operating expenses increased $1.9 million, or 20%, to $11.0 million for the six months ended June 30, 2024 as compared to $9.1 million for the same prior year period.

The increase was primarily due to:

(i) acquisition of Villas at Huffmeister during the first quarter 2024 and (ii) increase in expenses (primarily repairs and maintenance) incurred as part of our lease up stabilization strategy.

The increase was partially offset by the sale of 90 homes in our portfolio since January 1, 2023.

Controllable expenses were $5.7 million and $4.2 million, and non-controllable expenses were $5.3 million and $4.9 million, for the six months ended June 30, 2024 and 2023, respectively.

Property management and asset management fee expenses were $2.3 million for the six months ended June 30, 2024 as compared to $2.2 million for the same prior year period.

General and administrative expenses amounted to $5.3 million for the six months ended June 30, 2024 as compared to $3.8 million for the same prior year period.

Of the $5.3 million total expense for the six months ended June 30, 2024, $3.0 million related to direct costs incurred by us, while the remaining $2.3 million related to the operating expense reimbursement to our Manager, which includes rent, utilities, and IT expenses.

The expense reimbursement to our Manager also included a $1.5 million reimbursement for accounting and legal services.

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

Commencing with the operating expense reimbursement for the first quarter 2024, we paid, and expect to continue to pay, the operating expense reimbursement to the Manager entirely in cash;

prior to the first quarter 2024, we paid the full operating expense reimbursement to the Manager through the issuance of C-LTIP Units.

Management fees to related party amounted to $4.2 million for the six months ended June 30, 2024 as compared to $3.9 million for the same prior year period.

The increase was due to an increase in equity primarily from our continuous registered offering of Series A Preferred Stock, which began in the third quarter of 2023.

Commencing with the base management fee for the first quarter 2024, we paid, and expect to continue to pay, the base management fee to the Manager as one half (50)% in C-LTIP Units and the remainder in cash;

prior to the first quarter 2024, we paid the full base management fee to the Manager through the issuance of C-LTIP Units.

Acquisition and other transaction costs amounted to zero for the six months ended June 30, 2024 as compared to $1.8 million for the same prior year period.

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

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

Depreciation and amortization expenses were $8.8 million for the six months ended June 30, 2024 as compared to $8.0 million for the same prior year period, with the increase primarily attributable to the acquisition of Villas at Huffmeister during the first quarter 2024.

Other Income and Expense

Other income and expense amounted to expense of $0.4 million for the six months ended June 30, 2024 as compared to income of $1.9 million for the same prior year period.

This was due to a $2.3 million net increase in interest expense primarily attributable to an increase in the outstanding debt to $228.0 million at June 30, 2024 as compared to $153.2 million at December 31, 2022 and a decrease in the fair value of the interest rate caps and swaps, a $1.2 million impairment on real estate, and $0.4 million in other expenses.

These expense sources were partially offset by a $1.6 million increase in interest income from our short-term cash investments.

Net Operating Income

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Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

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Non-cash interest expense

Unrealized loss on derivatives

Unrealized loss (gain) on derivatives

Provision for credit losses

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Corporate operating expenses

Weather-related losses, net

Interest income

Preferred dividends

Other income, net

Preferred stock dividends

Preferred stock accretion

Other expense (income), net

Preferred returns on unconsolidated real estate joint ventures

Interest income from loan investments

Gain on sale and impairment of real estate investments, net

Impairment and (gain) on sale of real estate investments, net

Total property income

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Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our short-term liquidity needs could be affected by various risks and uncertainties, including the risks detailed in Part I, Item 1A titled “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 12, 2024.

While consolidated occupancy remains strong at 94.8% as of March 31, 2024, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants.

While consolidated occupancy excluding units classified as held for sale and down/renovation units remains strong at 95.4% as of June 30, 2024, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants.

In general, we believe our available cash balances, cash flows from operations, proceeds from the offering of our Series A Preferred Stock, 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.

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

● $92.3 million in cash available at March 31, 2024;

● capacity of $65 million, of which approximately $15 million was available at March 31, 2024, on our revolving credit facilities;

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

● $116.0 million in cash available at June 30, 2024;

● capacity of $65 million, of which approximately $15 million was available at June 30, 2024, on our revolving credit facilities;

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

● cash generated from operating activities;

● proceeds from the offering of our Series A Preferred Stock 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 March 31, 2024 related to our mortgage notes secured by our properties and revolving credit facilities.

At March 31, 2024, our estimated future required payments on these obligations were as follows (amounts in thousands):

The following table summarizes our contractual obligations as of June 30, 2024 related to our mortgage notes secured by our properties and revolving credit facilities.

At June 30, 2024, our estimated future required payments on these obligations were as follows (amounts in thousands):

Mortgages Payable (Principal)

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Estimated interest payments are based on the stated rates for mortgage notes payable assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates.

At March 31, 2024, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our loan and consolidated real estate investments was $20.7 million.

At June 30, 2024, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our loan, preferred equity and consolidated real estate investments was $17.4 million.

As equity capital market conditions permit, we may supplement our capital for short-term liquidity needs with proceeds of potential offerings of our common and preferred stock, as well as the issuance of OP Units.

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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 March 31, 2024, we had not made any repurchases of our Class A common stock.

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, (iv) cash redemption requirements related to our Series A Preferred Stock, and (v) Class A common stock repurchases under our stock repurchase plan.

As of June 30, 2024, we had not made any repurchases of our Class A common stock.

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

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

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

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

As we did in the three months ended March 31, 2024, 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.

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

As we did in the six months ended June 30, 2024, we may also selectively sell consolidated operating assets at appropriate times, which would be expected to generate cash sources for both our short-term and long-term liquidity needs.

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

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In addition to restrictive covenants, our revolving credit facilities contain material financial covenants.

At March 31, 2024, we were in compliance with all covenants under our credit facilities.

At June 30, 2024, 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.

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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 March 31, 2024 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 the offering of our Series A Preferred Stock, 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 development and in lease-up.

While our distributions through June 30, 2024 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 the offering of our Series A Preferred Stock, the sales of assets, and additional sources, such as from borrowings.

We have notes receivable in conjunction with properties that are in 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.

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Off-Balance Sheet Arrangements

As of March 31, 2024, 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.

At March 31, 2024, we own interests in six joint ventures that are accounted for as held to maturity debt securities.

As of June 30, 2024, 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.

At June 30, 2024, we own interests in seven joint ventures that are accounted for as held to maturity debt securities.

Cash Flows from Operating Activities

As of March 31, 2024, we held twenty real estate investments, consisting of twelve consolidated investments and eight preferred equity and loan investments, with the twenty investments representing an aggregate of 4,366 residential units.

During the three months ended March 31, 2024, net cash provided by operating activities was $1.1 million after net loss of $3.2 million was adjusted for the following:

As of June 30, 2024, we held twenty-one real estate investments, consisting of twelve consolidated investments and nine preferred equity and loan investments, with the twenty-one investments representing an aggregate of 4,362 residential units.

During the six months ended June 30, 2024, net cash provided by operating activities was $2.4 million after net loss of $8.3 million was adjusted for the following:

● non-cash items of $12.1 million;

● an increase in accounts payable and other accrued liabilities of $1.0 million;

● distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures of $0.4 million;

● an increase in accounts receivable, prepaids and other assets of $2.5 million;

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

● a decrease in due to affiliates of $0.1 million.

● an increase in notes and accrued interest receivable of $0.4 million.

Cash Flows from Investing Activities

During the three months ended March 31, 2024, net cash used in investing activities was $19.3 million, due to the following:

During the six months ended June 30, 2024, net cash used in investing activities was $25.2 million, due to the following:

● $17.5 million used in acquiring consolidated real estate investments;

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● $3.7 million used on capital expenditures;

● $2.7 million paid for an interest rate cap;

● $1.9 million used in investments in unconsolidated real estate joint ventures;

● $7.1 million of repayments of notes receivable;

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Cash Flows from Financing Activities

During the three months ended March 31, 2024, net cash provided by financing activities was $30.9 million, primarily due to the following:

● $35.0 million of proceeds from revolving credit facilities;

During the six months ended June 30, 2024, net cash provided by financing activities was $60.0 million, due to the following:

● net proceeds of $38.8 million from the issuance of shares of Series A Preferred Stock;

● $35.0 million of proceeds from revolving credit facilities;

● $1.0 million of contributions from noncontrolling interests;

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● $3.9 million of distributions to common stockholders;

● $0.5 million of payments of deferred financing fees;

● $1.1 million of repayments on our mortgages payable;

● $0.6 million of payments of deferred financing fees;

● $0.6 million of distributions to preferred stockholders;

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Capital Expenditures

The following table summarizes our total capital expenditures for the three months ended March 31, 2024 and 2023 (amounts in thousands):

Three Months Ended

The following table summarizes our total capital expenditures for the six months ended June 30, 2024 and 2023 (amounts in thousands):

Six Months Ended

Redevelopment/renovations

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

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

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

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

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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.

The table below presents our calculation of FFO and CFFO for the three months ended March 31, 2024 and 2023 ($ in thousands):

The table below presents our calculation of FFO and CFFO for the three and six months ended June 30, 2024 and 2023 ($ in thousands):

Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

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Real estate depreciation and amortization

Gain on sale and impairment of real estate investments, net

Impairment and (gain) on sale of real estate investments, net

Adjustment for partially owned properties’ noncontrolling interests

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Non-cash interest expense

Unrealized loss on derivatives

Unrealized loss (gain) on derivatives

Provision for credit losses

Weather-related losses, net

Non-real estate depreciation and amortization

Other income, net

Other expense (income), net

Non-cash equity compensation

Preferred stock accretion

Adjustment for partially owned properties’ noncontrolling interests

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April 5, 2024

April 12, 2024

April 25, 2024

April 12, 2024

June 25, 2024

Series A Preferred Special Dividend (2)

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April 5, 2024

April 12, 2024

Each day of April 1 - 30, 2024

Series A Preferred Enhanced Special Dividend (3)

June 25, 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, divided by (b) twelve, 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.

(2) Holders of record of Series A Preferred Stock shares as of the close of business on each day of the applicable month were 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, divided by (b) twelve, 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.

(3) Holders of record of Series A Preferred Stock shares are entitled to an enhanced special dividend, which replaces the additional contingent special daily dividends, equal to the amount by which (i) the Stated Value of the Series A Preferred Stock multiplied by (a) the sum of (I) the average of the one-month Term SOFR for each day commencing on the 26 th of the prior month to the 25 th of the applicable month, plus (II) two percent, divided by (b) twelve, exceeds (ii) the standard monthly dividend of $0.125 per share of Series A Preferred Stock.

The enhanced special dividend will be aggregated with the standard monthly dividend so as to effect a dividend rate on the Series A Preferred Stock that is subject to a 6.5% minimum and 8.5% maximum annual rate.

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

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Subsequent Events

Other than the items disclosed in Note 15 “Subsequent Events” to our interim Consolidated Financial Statements for the period ended March 31, 2024, no material events have occurred that required recognition or disclosure in these financial statements.

Other than the items disclosed in Note 15 “Subsequent Events” to our interim Consolidated Financial Statements for the period ended June 30, 2024, no material events have occurred that required recognition or disclosure in these financial statements.

Refer to Note 15 of our interim Consolidated Financial Statements for discussion.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis