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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-08-08 · 186 added, 157 removed, 345 unchanged (50% 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 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;

As of September 30, 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 4,000 residential units, comprised of 2,742 consolidated units, of which 170 units are under development, and 1,258 units through preferred equity and loan investments, which includes planned units and those under development.

As of September 30, 2024, our consolidated operating investments were approximately 90.5% occupied;

excluding units classified as held for sale and down/renovation units, our consolidated operating investments were approximately 94.3% occupied.

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Inflation and Related Economic Volatility

While inflationary pressures have shown signs of moderation, we continue to monitor increases in inflation and rising interest rates and resulting economic changes in credit and capital markets.

While inflationary pressures have shown signs of moderation, including a 50-basis point reduction in interest rates by the Federal Reserve in September 2024, we continue to monitor inflation and interest rates and resulting economic changes in credit and capital markets.

Inflation and its related impacts, including increased prices for services and goods and higher interest rates and wages, and any policy interventions by the U.S.

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Investment Activity Summary

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

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

Acquisition of Villas at Huffmeister

On March 25, 2024, we, through a 95% owned joint venture entity, acquired a 294-unit single-family residential community located in Houston, Texas known as Villas at Huffmeister.

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.

The purchase price of $41.2 million was funded with a $24.3 million senior loan assumption secured by Villas at Huffmeister, along with cash of $18.1 million that we funded, inclusive of certain adjustments typical in such real estate transactions.

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.

On June 27, 2024, we entered into a joint venture agreement with an unaffiliated third party (the “Indigo JV”) to develop approximately 82 build-to-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 $3.0 million had been funded as of September 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.

Acquisition of Avenue at Timberlin Park

On July 31, 2024, we acquired a 200-unit single-family residential community located in Jacksonville, Florida known as Avenue at Timberlin Park.

We have a full ownership interest in the community, and the purchase price of $33.8 million was funded with a $23.7 million senior loan secured by Avenue at Timberlin Park, along with cash of $12.9 million that we funded, inclusive of certain adjustments typical in such real estate transactions.

Sale of Navigator Villas

Prior to the sale of the property, and to effectuate a tax-deferred exchange under Section 1031 of the Code, we purchased our joint venture partner’s interest in Navigator Villas for $2.9 million, inclusive of estimated post-close adjustments.

On August 7, 2024, we closed on the sale of Navigator Villas located in Pasco, Washington for a sale price of $36.4 million, subject to certain prorations and adjustments typical in such real estate transactions.

After deductions for the payoff of existing mortgage indebtedness encumbering the property in the amount of $19.5 million, the purchase price of the joint venture partner’s interest, the payment of early extinguishment of debt costs, and closing costs and fees, the sale of Navigator Villas generated net proceeds of approximately $12.7 million and a gain on sale of approximately $10.0 million.

We recorded a loss on extinguishment of debt of $0.1 million related to the sale.

Sale of Consolidated Operating Units

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.

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

The fifty-one units were sold for an aggregate of approximately $8.9 million, subject to certain prorations and adjustments typical in such real estate transactions, and generated net proceeds of approximately $8.4 million and a gain on sales of approximately $0.9 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

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.

We (i) provided funding in the aggregate amount of $24.6 million for the Wayford at Pringle loan investment, with a remaining commitment of $5.5 million to be funded, and (ii) received a full pay off on The Woods at Forest Hill loan investment in the aggregate amount of $8.5 million, which included principal investment of $8.3 million and accrued interest of $0.2 million.

Preferred Equity Investments

Our remaining preferred equity investment in the operating partnership of Peak Housing REIT was fully redeemed in the aggregate amount of $11.2 million, which included our principal investment of $10.6 million and accrued preferred return of $0.6 million.

In addition, our preferred equity investment in The Woods at Forest Hill was partially redeemed in the aggregate amount of $3.8 million, which included principal investment of $2.1 million, accrued preferred return of $1.1 million, and a minimum multiple payment of $0.6 million.

Held for Sale

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.

At September 30, 2024, we classified an aggregate of 207 units as held for sale in our consolidated balance sheets, and for the three and nine months ended September 30, 2024, we recorded an impairment of $0.9 million and $2.1 million, respectively, 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 207 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.

4 units of ILE, 41 units of Indy-Springfield, 46 units of Peak JV 2, and all 116 units of Peak JV 3.

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

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Series A Redeemable Preferred Stock

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.

During the nine months ended September 30, 2024, we issued 3,459,331 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 $76.7 million after (i) commissions, dealer manager fees and sales discounts of approximately $8.7 million, and (ii) costs related to establishing the offering of Series A Preferred Stock of approximately $1.2 million.

As of September 30, 2024, we had issued a total of 3,896,006 shares of Series A Preferred Stock with total net proceeds of approximately $85.0 million after commissions, dealer manager fees, sales discounts and offering costs.

During the nine months ended September 30, 2024, we, at the request of holders, redeemed 6,560 shares of Series A Preferred Stock through the issuance of 9,103 shares of Class A common stock.

In November 2023, we announced the payment of additional contingent special daily dividends with respect to our Series A Preferred Stock.

This dividend was aggregated with the regular monthly dividend so as to effect a dividend rate of two percent over the average 10-Year Daily Treasury Par Yield Curve Rate with a floor of 6% annually, calculated and paid monthly.

Commencing in November 2023, the Series A Preferred Stock additional contingent special dividend was declared for each month for which the Board declared the regular monthly dividend of $0.125 per outstanding share of Series A Preferred Stock.

In May 2024, we announced the payment of an enhanced special dividend replacing the additional contingent special daily dividend.

The enhanced special dividend is aggregated with the regular monthly dividend so as to effect a dividend rate of the average one-month Term SOFR rate plus two percent, subject to a 6.5% minimum and an 8.5% maximum annual rate, calculated and paid monthly.

Commencing in May 2024, the Series A Preferred enhanced special dividend was declared for each month for which the Board declared the regular monthly dividend of $0.125 per outstanding share of Series A Preferred Stock.

Stockholders’ Equity

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.

Our total stockholders’ equity decreased $4.5 million from $147.4 million as of December 31, 2023 to $142.9 million as of September 30, 2024.

The decrease in our total stockholders’ equity is primarily attributable to $2.2 million related to the acquisition of noncontrolling interests, preferred dividends declared of $2.2 million, and an adjustment of $0.9 million for noncontrolling interest ownership in the Operating Partnership, partially offset by net income of $0.7 million.

Results of Operations

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

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

Excluding Held

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All Units (3)

Avenue at Timberlin Park

Jacksonville, FL

Golden Pacific

Indy-Springfield

Navigator Villas

Dallas-Fort Worth, TX

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Total Development Units

(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,

(1) Total operating units includes an aggregate of 207 units classified as held for sale, with such units included in the following portfolios:

4 units of ILE, 41 units of Indy-Springfield, 46 units of Peak JV 2, and all 116 units of 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 September 30, 2024.

(3) Percent occupied is calculated as (i) the number of units occupied as of September 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 September 30, 2024 divided by (ii) total number of units, expressed as a percentage, and excludes 207 units classified as held for sale and an aggregate of 11 down/renovation units.

(5) Total average rent includes the ending average effective rent per occupied unit for Navigator Villas as of the last day of July 2024.

Navigator Villas was sold in August 2024.

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

The total estimated project cost is $56.9 million, of which $6.9 million had been incurred as of September 30, 2024.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Rental and other property revenues

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(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) Amounts presented for the periods ended September 30, 2024 include Navigator Villas through July 2024.

Navigator Villas was sold in August 2024.

(3) 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 June 30, 2024:

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

Total Actual /

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Myrtle Beach, SC

The Cottages of Port St.

Wayford at Innovation Park

Charlotte, NC

The Cottage of Port St.

Wayford at Pringle (4)(5)

Charlotte, NC

Wayford at Innovation Park (6)

Charlotte, NC

Total Lease-up Units

Development Investment Name

Indigo Cove (7)

Total Development Units

Operating Investment Name

Number of Units

Average Rent (1)

Peak Housing (4)

Total Operating Units

Total Units/Average

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

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

(1) Represents the average pro forma effective monthly rent per occupied unit for all expected occupied units upon stabilization.

(2) The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 18 units at September 30, 2024 resulting from the sales of 58 units during the nine months ended September 30, 2024.

Proceeds from the sales of these units were used to fully pay off our loan investment, and partially redeem our preferred equity investment, in The Woods at Forest Hill.

Construction cost amounts shown are based on the initial 76 units.

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

Refer to Note 6 and Note 7 of our consolidated financial statements for further information.

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

(4) 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 59 units was completed during the six months ended June 30, 2024 for which we provided the borrower with loan proceeds for their acquisition.

Of the total 102 build-to-rent units that are to be acquired, construction of 85 units was completed during the nine months ended September 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 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.

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.

(5) 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.

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

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

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

Rental and other property revenues increased $1.8 million, or 18%, to $12.0 million for the three months ended September 30, 2024 as compared to $10.2 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.

(i) the acquisition of 294 units at Villas at Huffmeister during the first quarter 2024 and 200 units at Avenue at Timberlin Park during the third quarter 2024, and (ii) rental rate improvements from our active management and organic market rent growth.

The increase was partially offset by the sale of 176 units at Navigator Villas and 95 single family units in our portfolio since July 1, 2023.

Our average rent per occupied unit increased $54, or 3.4%, to $1,635 as compared to $1,581 during the prior year period.

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

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.

Average occupancy decreased 20 basis points from 91.1% to 90.9% on a year over year basis.

Interest income from loan investments amounted to $0.7 million for the three months ended September 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 September 30, 2023.

Property operating expenses increased $1.3 million, or 25%, to $6.4 million for the three months ended September 30, 2024 as compared to $5.1 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 April 1, 2023.

(i) the acquisition of 294 units at Villas at Huffmeister during the first quarter 2024 and 200 units at Avenue at Timberlin Park during the third quarter 2024, and (ii) an increase in turnover expenses subsequent to initial renovation completed in previous years.

The increase was partially offset by the sale of 176 units at Navigator Villas and 95 single-family units since July 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 $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.

Controllable expenses were $3.5 million and $2.6 million, and non-controllable expenses were $2.9 million and $2.5 million, for the three months ended September 30, 2024 and 2023, respectively.

Property management and asset management fee expenses were $1.2 million for the three months ended September 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.

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.

General and administrative expenses amounted to $2.5 million for the three months ended September 30, 2024 as compared to $1.7 million for the same prior year period.

Of the $2.5 million total expense for the three months ended September 30, 2024, $1.5 million related to direct costs incurred by us, while the remaining $1.0 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 second quarter 2024, we will pay the full operating expense reimbursement of $1.1 million to the Manager in cash;

For the third quarter 2024, we will pay the full operating expense reimbursement of $1.0 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 $2.2 million for the three months ended June 30, 2024 as compared to $2.0 million for the same prior year period.

Management fees to related party amounted to $2.4 million for the three months ended September 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 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 third quarter 2024, we will pay the base management fee of $2.4 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 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 $4.8 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.

Weather-related losses amounted to $0.2 million for the three months ended September 30, 2024 as compared to zero for the same prior year period.

The 2024 expense primarily relates to hurricane damage in Texas.

Depreciation and amortization expenses were $4.9 million for the three months ended September 30, 2024 as compared to $4.1 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 $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.

Other income and expense amounted to income of $8.4 million for the three months ended September 30, 2024 as compared to income of $0.2 million for the same prior year period.

This was due to a $10.3 million increase in gain on sales of real estate investments and a $0.6 million increase in interest income from our short-term cash investments.

These income sources were partially offset by a $1.7 million net increase in interest expense primarily attributable to a decrease in the fair value of the interest rate caps and swaps and an increase in the outstanding debt to $231.8 million at September 30, 2024 as compared to $167.1 million at September 30, 2023 and a $1.0 million impairment on real estate.

Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Rental and other property revenues increased $4.1 million, or 13%, to $34.7 million for the nine months ended September 30, 2024 as compared to $30.6 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.

The increase was partially offset by the sale of 176 units of Navigator Villas and 104 single-family units in our portfolio since January 1, 2023.

Our average rent per occupied unit increased $57, or 3.7%, to $1,617 as compared to $1,560 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.

Average occupancy remained consistent at 91.9% on a year over year basis.

Interest income from loan investments amounted to $1.7 million for the nine months ended September 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 nine months ended September 30, 2023.

Property operating expenses increased $3.2 million, or 23%, to $17.4 million for the nine months ended September 30, 2024 as compared to $14.2 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.

The increase was partially offset by the sale of 176 units at Navigator Villas and 104 single-family units 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.

Controllable expenses were $9.2 million and $6.8 million, and non-controllable expenses were $8.2 million and $7.4 million, for the nine months ended September 30, 2024 and 2023, respectively.

Property management and asset management fee expenses were $3.5 million for the nine months ended September 30, 2024 as compared to $3.3 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.

General and administrative expenses amounted to $7.8 million for the nine months ended September 30, 2024 as compared to $5.5 million for the same prior year period.

Of the $7.8 million total expense for the nine months ended September 30, 2024, $4.5 million related to direct costs incurred by us, while the remaining $3.3 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 $2.2 million reimbursement for accounting and legal services.

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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.

Management fees to related party amounted to $6.6 million for the nine months ended September 30, 2024 as compared to $5.9 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.

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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 and other transaction costs amounted to zero for the nine months ended September 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.

Weather-related losses amounted to $0.2 million for the nine months ended September 30, 2024 as compared to zero for the same prior year period.

The 2024 expense primarily relates to hurricane damage in Texas.

Depreciation and amortization expenses were $13.7 million for the nine months ended September 30, 2024 as compared to $12.1 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.

Other income and expense amounted to income of $8.0 million for the nine months ended September 30, 2024 as compared to income of $2.1 million for the same prior year period.

This was due to a $10.3 million increase in gain on sales of real estate investments and a $2.2 million increase in interest income from our short-term cash investments.

These income sources were partially offset by a $4.1 million net increase in interest expense primarily attributable to a decrease in the fair value of the interest rate caps and swaps and an increase in the outstanding debt to $231.8 million at September 30, 2024 as compared to $153.2 million at December 31, 2022, a $2.2 million impairment on real estate, and a $0.3 million increase in provision for credit losses.

Net Operating Income

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

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

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

Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Nine Months Ended

September 30,

Net income (loss) attributable to common stockholders

Net income (loss) attributable to Operating Partnership Units

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

Net loss attributable to partially owned properties’ noncontrolling interests

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Non-cash interest expense

Unrealized loss (gain) on derivatives

Unrealized loss on derivatives

Provision for credit losses

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Weather-related losses, net

Loss on extinguishment of debt costs

Interest income

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Preferred stock accretion

Other expense (income), net

Preferred returns on unconsolidated real estate joint ventures

Other (income) expense, net

Income from preferred equity investments

Interest income from loan investments

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

Gain on sale and impairment 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 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.

While consolidated occupancy excluding units classified as held for sale and down/renovation units remains strong at 94.3% as of September 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:

● $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;

● $155.1 million in cash available at September 30, 2024;

● capacity of $65 million, of which approximately $13 million was available at September 30, 2024, on our revolving credit facilities;

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

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● 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 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):

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

At September 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 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 of September 30, 2024, we have contractual commitments to fund future cash obligations in certain of our loan and preferred equity investments in the aggregate of $7.8 million.

In addition, we have made a commitment to fund the total estimated project costs of $56.9 million for the development of Abode Wendell Falls, a 170-unit build-to-rent development project in Wendell, North Carolina.

As of September 30, 2024, the remaining estimated project costs to complete Abode Wendell Falls is $50.0 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 June 30, 2024, we had not made any repurchases of our Class A common stock.

As of September 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.

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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.

As we did in the nine months ended September 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 June 30, 2024, we were in compliance with all covenants under our credit facilities.

At September 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 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.

While our distributions through September 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.

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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.

We also have preferred equity interests in properties that are in various stages of development and in lease-up, 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.

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Off-Balance Sheet Arrangements

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.

As of September 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 September 30, 2024, we own interests in six joint ventures that are accounted for as held to maturity debt securities.

Cash Flows from Operating Activities

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:

As of September 30, 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 4,000 residential units.

During the nine months ended September 30, 2024, net cash provided by operating activities was $4.1 million after net loss of $4.8 million was adjusted for the following:

● non-cash items of $9.4 million;

● an increase in accounts payable and other accrued liabilities of $3.2 million;

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

● distributions of income and income from preferred equity investments of $2.1 million;

● an increase in due to affiliates, net of $0.1 million;

● an increase in accounts receivable, prepaids and other assets of $5.2 million;

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Cash Flows from Investing Activities

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

During the nine months ended September 30, 2024, net cash used in investing activities was $22.4 million, primarily due to the following:

● $51.5 million used in acquiring consolidated real estate investments;

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● $5.9 million used on capital expenditures;

● $3.0 million used in investments in preferred equity investments;

● $2.7 million paid for an interest rate cap;

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

● $44.0 million of proceeds from sales of real estate investments;

● $12.8 million of proceeds from the redemption of preferred equity investments;

● $8.3 million of repayments of notes receivable;

● $6.2 million of proceeds from sale of real estate investments;

● $3.5 million of proceeds from the redemption of unconsolidated real estate joint ventures.

● $0.1 million of insurance proceeds related to real estate investments.

Cash Flows from Financing Activities

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

During the nine months ended September 30, 2024, net cash provided by financing activities was $96.8 million, due to the following:

● net proceeds of $76.7 million from the issuance of shares of Series A Preferred Stock;

● $35.0 million of proceeds from revolving credit facilities;

● $23.7 million of borrowings on mortgages payable;

● $1.0 million of contributions from noncontrolling interests;

● $21.3 million of repayments on our mortgages payable including prepayment penalties;

● $8.5 million of distributions to noncontrolling interests;

● $3.9 million of distributions to common stockholders;

● $1.1 million of repayments on our mortgages payable;

● $0.6 million of payments of deferred financing fees;

● $2.6 million used in the purchase of interests from noncontrolling interests;

● $1.7 million of distributions to preferred stockholders;

● $1.5 million of payments of deferred financing fees;

● $0.1 million of distributions paid to partially owned properties’ noncontrolling interests.

Capital Expenditures

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

Six Months Ended

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

Nine Months Ended

September 30,

Redevelopment/renovations

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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.

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.

Adjustments for notes receivable, preferred equity investments and joint ventures will be calculated to reflect FFO on the same basis.

We believe that CFFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core recurring property operations.

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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 and six months ended June 30, 2024 and 2023 ($ in thousands):

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

Three Months Ended

Six Months Ended

Net loss attributable to common stockholders

Net loss attributable to Operating Partnership Units

Net loss attributable to common stockholders and unit holders

Nine Months Ended

September 30,

Net income (loss) attributable to common stockholders

Net income (loss) attributable to Operating Partnership Units

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

Real estate depreciation and amortization

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

Gain on sale and impairment of real estate investments, net

Adjustment for partially owned properties’ noncontrolling interests

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Non-cash interest expense

Unrealized loss (gain) on derivatives

Unrealized loss on derivatives

Provision for credit losses

Weather-related losses, net

Loss on extinguishment of debt costs

Non-real estate depreciation and amortization

Other expense (income), net

Other (income) expense, net

Non-cash equity compensation

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Declaration Date

Payable to stockholders of record as of

Paid / Payable Date

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June 25, 2024

July 12, 2024

July 25, 2024

August 5, 2024

July 12, 2024

August 23, 2024

September 5, 2024

July 12, 2024

September 25, 2024

October 4, 2024

Series A Preferred Special Dividend (2)

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June 25, 2024

July 12, 2024

July 25, 2024

August 5, 2024

July 12, 2024

August 23, 2024

September 5, 2024

July 12, 2024

September 25, 2024

October 4, 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.

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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 June 30, 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 September 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