Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying financial statements of Bluerock Homes Trust, Inc., and the notes thereto. As used herein, the terms “the Company”, “we”, “our”, and “us” refer to Bluerock Homes Trust, Inc., a Maryland corporation formed on December 16, 2021, and, as required by context, Bluerock Residential Holdings, L.P., a Delaware limited partnership, which we refer to as our “Operating Partnership,” and to their subsidiaries. We refer to Bluerock Homes Manager, LLC, a Delaware limited liability company, and an entity affiliated with the Company, as our “Manager”. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.
Forward-Looking Statements
All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws and may be identified by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “goal,” “future,” “outlook,” “guidance,” “target,” “estimate” and similar words or expressions, including the negative version of such words and expressions. These forward-looking statements are based upon our present expectations, estimates and projections about the industry and markets in which we operate, and beliefs of and assumptions made by our management involve uncertainty that could cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements and are not guaranteed to occur. Furthermore, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes. Investors should not place undue reliance upon these forward-looking statements. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in these forward-looking statements due to numerous factors.
Additional factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:
● The impact of volatility in capital and credit markets, or unfavorable changes in economic conditions, including those caused by inflation and rising interest rates, in the markets in which we operate;
● The impact of epidemics, pandemics, or other outbreaks of illness, disease or virus (such as the outbreak of novel coronavirus (“COVID-19”) and its variants) and the actions taken by government authorities and other related thereto, including the ability of our company, our properties and our tenants to operate;
● the factors included in this Quarterly Report on Form 10-Q, including those set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations”;
● use of proceeds of our securities offerings;
● changes in national, regional and local economic conditions, which may be negatively impacted by concerns about inflation, deflation, tariffs and global trade tensions, government deficits, high unemployment rates, decreased consumer confidence and liquidity concerns, particularly in markets in which we have a high concentration of properties;
● fluctuations and relative increases in interest rates, which could adversely affect our ability to obtain financing on favorable terms or at all;
● the inability of tenants to pay rent;
● the existence and quality of the competition, such as the attractiveness of our properties as compared to our competitors’ properties based on considerations such as convenience of location, rental rates and safety record;
● increased operating costs, including increased real property taxes, homeowners association (“HOA”) fees, maintenance, insurance and utilities costs;
● weather conditions that may increase or decrease energy costs and other weather-related expenses;
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● oversupply of rental housing or a reduction in demand for real estate in the markets in which our properties are located;
● costs and time period required to convert acquisitions to rental properties;
● a favorable interest rate environment that may result in a significant number of potential residents of our properties deciding to purchase homes instead of renting;
● rules, regulations and/or policy initiatives by government and private actors, including HOAs, to discourage or deter the purchase of residential properties by entities owned or controlled by institutional investors;
● our ability to lease newly acquired or newly constructed residential properties;
● changes in, or increased costs of compliance with, laws and/or governmental regulations, including those governing usage, zoning, the environment and taxes;
● rent control or stabilization laws, or other laws regulating rental housing, which could prevent us from raising rents to offset increases in operating costs;
● the board of directors’ determination as to timing and payment of dividends, and our ability to pay future distributions at the dividend rates we have paid (if any);
● our ability to qualify and maintain our qualification as a real estate investment trust (“REIT”); and
● litigation, including costs associated with prosecuting or defending claims and any adverse outcomes.
Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this report. All forward-looking statements are made as of the date of this report and the risk that actual results will differ materially from the expectations expressed in this report will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this report, whether as a result of new information, future events, changed circumstances or any other reason. The forward-looking statements should be read in light of the risk factors set forth in Item 1A of this Quarterly Report on Form 10-Q, in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission (“SEC”) on March 20, 2025, and subsequent filings by us with the SEC, or “Risk Factors”.
Overview
We own and operate a portfolio of institutional residential properties including single-family homes, build-to-rent communities, and other residential communities located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt and Western United States. Our principal objective is to generate attractive risk-adjusted returns on investments where we believe we can drive growth in funds from operations and net asset value by acquiring residential units, developing residential communities, and through Value-Add renovations. Our Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize our return on investment.
As of March 31, 2025, we held twenty-three real estate investments, consisting of fourteen consolidated investments and nine preferred equity and loan investments. The twenty-three investments represent an aggregate of 5,048 residential units, comprised of 3,414 consolidated units, of which 170 units are under development, and 1,634 units through preferred equity and loan investments, which includes planned units and those under development. As of March 31, 2025, our consolidated operating investments were approximately 91.9% occupied; excluding units classified as held for sale and down/renovation units, our consolidated operating investments were approximately 94.1% occupied.
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We have elected to be treated, and currently qualify, as a REIT for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes. To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates and we would not be permitted to qualify as a REIT for four years following the year in which we lost our qualification. Such an event could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.
Industry Segments
We own and operate residential real estate assets that generate rental and other property-related income through the leasing of residential units to a diverse base of tenants. We view our residential real estate assets as two reportable segments, consisting of (i) scattered single-family homes, and (ii) residential communities. Our Chief Operating Decision Makers, which are our Chief Executive Officer, Chief Investment Officer and Chief Financial Officer, do not distinguish or group operations on a geographic, tenant or other basis when assessing the financial performance of our portfolio of properties/investments.
Scattered single-family homes segment includes the acquisition, ownership, management, and renovation of scattered single-family homes, which are, generally, detached homes with no onsite property management.
Residential communities segment includes the acquisition, ownership, management, renovation, construction, and development of residential communities, which include both detached single-family home communities and attached unit communities such as apartments, townhouses, and duplexes. Each residential community is, generally, located on a single, contiguous land parcel and has amenities including clubhouses, gyms, pools and common areas. In addition, these residential communities typically have onsite property management.
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. 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. government, could negatively impact our residents’ ability to pay rents and our results of operations. Substantially all our leases are for a term of one year or less, which we believe mitigates our exposure to inflation, by permitting us to set rents commensurate with inflation (subject to rent regulations to the extent they apply and assuming our current or prospective residents will accept and can pay commensurate increased rents, of which there can be no assurance). Inflation could outpace any increases in rent and adversely affect us. We may not be able to mitigate the effects of inflation and related impacts, and the duration and extent of any prolonged periods of inflation, and any such related adverse effects on our results of operations and financial condition are unknown at this time. Inflation may also cause increased volatility in financial markets, which could affect our ability to access the capital markets or impact the cost or timing at which we are able to do so. Inflation may also increase the costs to complete our development projects, including costs of materials, labor and services from third-party contractors and suppliers. Higher construction costs could adversely impact our investments in real estate assets and our expected yields on development projects.
Additionally, developments in the banking industry in early 2023 caused uncertainty and concern regarding the strength of the banking system. As a result, the cost of obtaining debt from credit and capital markets increased as many lenders increased interest rates, enacted tighter lending standards, and reduced and, in some cases, ceased to provide funding to borrowers. Although our banking relationships are primarily with large national banks, a significant disruption to the banking system could lead to market-wide liquidity problems which could adversely affect our access to capital and our cost of capital. If we need to incur debt from a source other than our revolving credit facilities, we cannot be certain the additional financing will be available to the extent required and on acceptable terms. If debt financing on acceptable terms is not available, we may be unable to fully execute our growth strategy, otherwise take advantage of business opportunities, or respond to competitive pressures, any of which could have a material adverse effect on our results of operations and financial condition.
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Other weakened economic conditions, including job losses, high unemployment levels, stock market volatility, and uncertainty about the future, could adversely affect rental rates and occupancy levels. In addition, any tariffs imposed by the current administration or other countries may cause further inflationary pressures in the economy, uncertainty and volatility of debt and equity markets, and a slowdown in the U.S. and global economies. The announced tariffs are likely to increase construction costs and further reduce already constrained new supply starts, which could adversely impact the timing of actual completion and/or stabilization of our build - to - rent communities, including potential delays due to supply shortages and labor shortages. Any of these factors could depress economic activity and have a material adverse effect on our business, financial condition, cash flows, and our results of operations.
Other Significant Developments
Investment Activity Summary
Provided below is a summary of our investment activity during the three months ended March 31, 2025.
Sale of Consolidated Operating Units
We closed on the following sales: seven units in the ILE portfolio, four units in the Indy-Springfield portfolio, ten units in the Peak JV 2 portfolio, and eighteen units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sale agreements. The thirty-nine units were sold for an aggregate of approximately $6.9 million, subject to certain closing costs, prorations and adjustments typical in such real estate transactions. After deducting the paydown of existing mortgage indebtedness encumbering six units in the ILE portfolio of $1.2 million, the sales of the thirty-nine units generated net proceeds of approximately $5.1 million and a gain on sales of approximately $0.8 million.
Loan Investment Activity
Our loan investment in Wayford at Pringle was paid off in full in the aggregate amount of $23.0 million, which included principal investment of $22.3 million and accrued interest of $0.7 million.
Preferred Equity Investment Summary
Our preferred equity investment activity was as follows: (i) we increased our original capital commitment for preferred equity interests in Wayford at Innovation Park by $2.0 million, increasing our total investment to $15.4 million, and (ii) as of March 31, 2025, we had funded $11.8 million of our $26.9 million aggregate commitment to fund capital for preferred equity interests in Canvas at Wildwood, Indigo Cove and River Ford.
Held for Sale
At March 31, 2025, we classified an aggregate of 138 units as held for sale in our consolidated balance sheets, and for the three months ended March 31, 2025, 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 and comprehensive income. The 138 units classified as held for sale are all reported in our scattered single-family homes segment and are included in the following portfolios: 11 units of ILE, 33 units of Indy-Springfield, 22 units of Peak JV 2, and all 72 units of Peak JV 3. 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, 2025, we issued 651,768 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 $14.1 million after (i) commissions, dealer manager fees and sales discounts, and (ii) costs related to establishing the offering of Series A Preferred Stock. As of March 31, 2025, we had issued a total of 5,285,053 shares of Series A Preferred Stock with total net proceeds of approximately $115.2 million after commissions, dealer manager fees, sales discounts and offering costs. Additionally, as of March 31, 2025, we, at the request of holders, had redeemed 6,560 shares of Series A Preferred Stock through the issuance of 9,103 shares of Class A common stock.
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Series A Preferred Stock Redemption Safeguard Policy
On February 6, 2025, we implemented a new Series A Preferred Stock Redemption Safeguard Policy (the “Policy”) with respect to our Series A Preferred Stock. The Policy is applicable in the event of any redemption of shares of Series A Preferred Stock in shares of our Class A common stock rather than in cash (each, a “Preferred Redemption in common stock”). The Policy provides that if, within 10 business days of any such Preferred Redemption in common stock, any such shares of Class A common stock are sold at a loss (i.e. a lower price than the Aggregate Redemption Value), the holder can apply to us for a cash payment to the holder in an amount equal to the difference between (i) the Aggregate Redemption Value of the Class A common stock so issued, and (ii) the Aggregate Sale Price at which such shares of Class A common stock were sold, subject to certain conditions and requirements as set forth in the Policy. The Policy applies both retroactively, and on a go-forward basis, to holders of our Series A Preferred Stock.
Stockholders’ Equity
Our total stockholders’ equity decreased $2.0 million from $139.1 million as of December 31, 2024 to $137.1 million as of March 31, 2025. The decrease in our total stockholders’ equity is primarily attributable to dividends declared of $2.5 million and preferred stock accretion of $0.5 million, partially offset by comprehensive income of $0.5 million and a net adjustment of $0.4 million for noncontrolling interests.
Results of Operations
The following is a summary of our consolidated real estate investments as of March 31, 2025:
Occupancy –
Excluding Held
Number of
Average
Ownership
Average
Occupancy –
for Sale/Reno
Operating Investment Name
Market / Location
Units (1)
Year Built
Interest
Rent (2)
All Units (3)
Units (4)
Scattered Single-Family Homes
Ballast
AZ / CO / WA
84
1998
95
%
$
2,086
98.8
%
98.8
%
Golden Pacific
IN / KS / MO
169
1977
97
%
1,790
95.3
%
96.4
%
ILE
TX / SE US
471
1991
95
%
1,866
91.3
%
93.9
%
Indy-Springfield
IN / MO
319
1999
100
%
1,352
93.1
%
96.5
%
Peak JV 2
Various / TX
563
1981
80
%
1,334
88.3
%
91.3
%
Peak JV 3
Dallas-Fort Worth, TX
72
1960
56
%
1,306
58.3
%
—
Savannah-84
Savannah, GA
84
2022
100
%
1,832
98.8
%
98.8
%
Total Scattered Single-Family Homes / Average
1,762
$
1,590
90.4
%
94.3
%
Residential Communities
Allure at Southpark
Charlotte, NC
350
2014
98
%
$
1,727
92.0
%
92.0
%
Amira at Westly
Tampa, FL
408
1999/2023
51
%
1,927
92.6
%
92.9
%
Avenue at Timberlin Park
Jacksonville, FL
200
2001
100
%
1,600
92.5
%
93.0
%
Villas at Huffmeister
Houston, TX
294
2007
95
%
1,567
95.6
%
95.9
%
Wayford at Concord
Concord, NC
150
2019
83
%
2,148
95.3
%
96.0
%
Yauger Park Villas
Olympia, WA
80
2010
95
%
2,449
98.8
%
98.8
%
Total Residential Communities Units / Average
1,482
$
1,816
93.7
%
93.9
%
Total Operating Units / Average
3,244
$
1,695
91.9
%
94.1
%
Development Investment Name
Residential Communities
Abode Wendell Fall (5)
Wendell, NC
170
—
100
%
—
—
—
Total Development Units
170
Total Units
3,414
(1)
Total operating units includes an aggregate of 138 units classified as held for sale, with such units included in the following portfolios: 11 units of ILE, 33 units of Indy-Springfield, 22 units of Peak JV 2, and all 72 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 March 31, 2025.
(3)
Percent occupied is calculated as (i) the number of units occupied as of March 31, 2025 divided by (ii) total number of units, expressed as a percentage.
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(4)
Percent occupied is calculated as (i) the number of units occupied as of March 31, 2025 divided by (ii) total number of units, expressed as a percentage, and excludes 138 units classified as held for sale and an aggregate of 8 down/renovation units.
(5)
Abode Wendell Falls is a build-to-rent development project that commenced construction in 2024.
The following is a summary of our consolidated operational results by reportable segment for the three months ended March 31, 2025 and 2024 ($ in thousands, except average rental rates):
Three Months Ended March 31,
2025
2024
Variance
Rental and other property revenues
Scattered single-family homes
$
7,801
$
8,186
(4.7)
%
Residential communities
8,109
2,572
215.3
%
Total rental and other property revenues
$
15,910
$
10,758
47.9
%
Property operating expenses
Scattered single-family homes
$
4,150
$
4,118
0.8
%
Residential communities
3,502
887
294.8
%
Total property operating expenses
$
7,652
$
5,005
52.9
%
Net operating income
Scattered single-family homes
$
3,651
$
4,068
(10.3)
%
Residential communities
4,607
1,685
173.4
%
Total net operating income
$
8,258
$
5,753
43.5
%
Scattered single-family homes
89.9
%
91.5
%
(160)
bps
Residential communities
94.2
%
96.3
%
(210)
bps
Average occupancy percentage (1)(2)
91.8
%
92.5
%
(70)
bps
Scattered single-family homes
$
1,590
$
1,528
4.1
%
Residential communities
1,816
1,852
(1.9)
%
Average rental rate (2)(3)
$
1,695
$
1,600
5.9
%
(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) The amount presented for 2024 includes Navigator Villas which 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.
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The following is a summary of our preferred equity and loan investments as of March 31, 2025:
Total Actual /
Actual /
Actual /
Actual /
Actual /
Estimated
Estimated
Estimated
Estimated
Estimated
Planned
Construction
Cost to Date
Construction
Initial
Construction
Average
Lease-up Investment Name
Location / Market
Number of Units
Cost (in millions)
(in millions)
Cost Per Unit
Occupancy
Completion
% Occupied
Rent (1)
Willow Park
Willow Park, TX
58
$
17.1
$
17.1
$
294,828
2Q 2022
3Q 2023
87.9
%
$
2,362
The Cottages at Myrtle Beach
Myrtle Beach, SC
294
63.2
63.2
214,966
2Q 2023
4Q 2023
71.8
%
1,743
Chandler (2)
Chandler, AZ
208
48.2
48.2
231,731
2Q 2024
3Q 2024
72.6
%
1,920
Wayford at Innovation Park
Charlotte, NC
210
64.0
60.2
304,762
3Q 2023
2Q 2025
79.1
%
1,994
Total Lease-up Units
770
Development Investment Name (3)
Indigo Cove
Bluffton, SC
82
30.2
9.2
368,293
4Q 2025
3Q 2026
—
3,095
River Ford
Brunswick, GA
170
51.6
11.5
303,529
4Q 2025
1Q 2027
—
2,004
Canvas at Wildwood
Wildwood, FL
224
60.3
9.7
269,196
4Q 2026
4Q 2027
—
1,937
Total Development Units
476
Operating Investment Name (4)
The Cottage of Port St. Lucie
Port St. Lucie, FL
286
92.7
%
2,133
Wayford at Pringle
Charlotte, NC
102
97.1
%
2,453
Total Operating Units
388
Total Units/Average
1,634
$
2,055
(1)
Represents the average pro forma effective monthly rent per occupied unit for all expected occupied units during the first full quarter of stabilization.
(2)
Chandler commenced lease-up in June 2024.
(3)
None of the development investments had commenced lease-up as of March 31, 2025.
(4)
Operating investments represent stabilized operating properties.
Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024
Revenue
Rental and other property revenues increased $5.1 million, or 48%, to $15.9 million for the three months ended March 31, 2025 as compared to $10.8 million for the same prior year period. The increase was primarily due to: (i) the acquisition of 294 units at Villas at Huffmeister during the first quarter 2024, 200 units at Avenue at Timberlin Park during the third quarter 2024, 408 units at Amira at Westly and 350 units at Allure at Southpark during the fourth quarter 2024, and (ii) rental rate improvement from our active management and organic market rent growth. The increase was partially offset by the sale of 176 units at Navigator Villas and 137 single-family units in our portfolio since January 1, 2024. Our average rent per occupied unit increased $95, or 5.9%, to $1,695 as compared to $1,600 during the prior year period. Average occupancy decreased 70 basis points from 92.5% to 91.8% on a year over year basis.
Interest income from loan investments amounted to $0.5 million for the three months ended March 31, 2025 as compared to $0.4 million for the same prior year period due to (i) an increase in the outstanding balance of one loan investment, which was fully paid off in the first quarter 2025 and (ii) an increase in the return on a second loan investment. These increases in interest income were partially offset by the full payoff of a third loan investment in the third quarter of 2024.
Expenses
Property operating expenses increased $2.7 million, or 53%, to $7.7 million for the three months ended March 31, 2025 as compared to $5.0 million for the same prior year period. The increase was primarily due to: (i) the acquisition of 294 units at Villas at Huffmeister during the first quarter 2024, 200 units at Avenue at Timberlin Park during the third quarter 2024, 408 units at Amira at Westly and 350 units at Allure at Southpark during the fourth quarter 2024, and (ii) an increase in turnover expense subsequent to initial renovation completed on units in previous years. The increase was partially offset by the sale of 176 units at Navigator Villas and 137 single-family units since January 1, 2024.
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Property management and asset management fee expenses were $1.3 million for the three months ended March 31, 2025 as compared to $1.1 million in 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 $3.1 million for the three months ended March 31, 2025 as compared to $2.9 million for the same prior year period. Of the $3.1 million total expense in the first quarter 2025, $2.1 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.
Management fees to related party amounted to $2.5 million for the three months ended March 31, 2025 as compared to $2.1 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. For the first quarter of 2025, we will pay $0.2 million of the base management fee in C-LTIP Units with the remainder in cash. Prior to the fourth quarter 2024, we paid the base management fee to the Manager as one half (50%) in C-LTIP Units and the remainder in cash.
Acquisition and other transaction costs amounted to $0.1 million for the three months ended March 31, 2025 and were minimal 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.
Depreciation and amortization expenses were $7.5 million for the three months ended March 31, 2025 as compared to $4.0 million for the same prior year period, with the increase primarily due to the acquisition of Villas at Huffmeister during the first quarter 2024, Avenue at Timberlin Park during the third quarter 2024, and Amira at Westly and Allure at Southpark during the fourth quarter 2024. The increase was partially offset by the sale of Navigator Villas and single-family units in our portfolio since January 1, 2024.
Other Income and Expense
Other income and expense amounted to expense of $1.3 million for the three months ended March 31, 2025 as compared to income of $0.7 million for the same prior year period. This was primarily due to a $2.7 million increase in interest expense primarily attributable to an increase in the outstanding debt to $343.9 million at March 31, 2025 as compared to $228.7 million at March 31, 2024 and a decrease in the fair value of the interest rate caps and swaps, which was partially offset by a $0.5 million increase in gain on sale of real estate investments.
Income Tax Expense
Income tax expense amounted to income of $0.3 million for the three months ended March 31, 2025 as compared to zero for the same prior year period. The 2025 expense primarily relates to Amira at Westly and two preferred equity investments.
Net Operating Income
We believe that net operating income (“NOI”) is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. NOI also is a computation made by analysts and investors to measure a real estate company’s operating performance.
We believe that this measure provides an operating perspective not immediately apparent from operating income or net income prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). NOI allows us to evaluate the operating performance of our properties because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses.
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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):
Three Months Ended
March 31,
2025
2024
Net loss attributable to common stockholders
$
(2,529)
$
(1,020)
Add back: Net loss attributable to Operating Partnership Units
(5,661)
(2,169)
Net loss attributable to common stockholders and unit holders
(8,190)
(3,189)
Net loss attributable to partially owned properties’ noncontrolling interests
(1,673)
(234)
Real estate depreciation and amortization
7,476
3,970
Non-real estate depreciation and amortization
16
41
Non-cash interest expense
758
251
Unrealized loss on derivatives
778
715
(Recovery of) provision for credit losses
(102)
95
Property management and asset management fees
1,325
1,132
Management fees to related party
2,540
2,071
Acquisition and other transaction costs
76
4
Corporate operating expenses
3,057
2,865
Loss on extinguishment of debt costs
4
—
Interest income
(1,104)
(1,195)
Preferred dividends
2,010
253
Preferred stock accretion
523
—
Other expense (income), net
59
(240)
Income tax expense
346
—
Income from preferred equity investments
(3,110)
(2,741)
Interest income from loan investments
(503)
(418)
Gain on sale and impairment of real estate investments, net
(703)
(173)
Total property income
3,583
3,207
Add back: Interest expense
4,675
2,546
Net operating income
$
8,258
$
5,753
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, both short- and long-term. Our primary short-term liquidity requirements historically have related to (i) our operating expenses and other general business needs, (ii) investment in real estate, (iii) distributions to stockholders, (iv) committed investments and capital requirements to fund development and renovations at existing properties, and (v) ongoing commitments to repay borrowings, including our maturing debt, the Amended DB Credit Facility and KeyBank Credit Facility.
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, 2024 as filed with the SEC on March 20, 2025. While consolidated occupancy excluding units classified as held for sale and down/renovation units remains strong at 94.1% as of March 31, 2025, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants.
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In addition, in October 2024, we launched a program to sponsor and raise capital through private placement offerings of Delaware statutory trusts (each, a “DST”) holding residential properties (collectively, the “DST Program”). We expect that the DST Program will give us the opportunity to expand and diversify our capital raise strategies by offering what we believe to be an attractive investment product for investors that may be seeking replacement properties to complete like-kind exchange transactions and create future pipeline acquisition opportunities. In conjunction with the DST Program, our Operating Partnership has issued certain non-interest bearing demand notes in relation to its role as the master tenant (the “Master Tenant”) under certain master leases (the “Master Leases”) related to the DST Program (the “Demand Notes”), which could be called upon if the net operating cash flow is insufficient to pay the rent required under the Master Leases (subject to limited deferral rights) or satisfy its other obligations under the Master Leases. As compensation for the Operating Partnership’s obligations under the Master Leases, we will share in the rent paid by the tenants of the underlying properties in accordance with the waterfall set forth in the applicable Master Lease. As of March 31, 2025, we had one offering in our DST Program and had raised net offering proceeds of $29.2 million, issued a demand note of $0.7 million, and had $102.8 million in total net real estate investments associated with the DST Program.
In conjunction with sponsoring of the DST Program, our Operating Partnership is granted an option to acquire DST Interests from the DST Program’s beneficial owners at a later date for an aggregate value equal to such beneficial owner’s pro rata share of the appraised value of the properties, as determined by an independent appraisal firm, less any indebtedness encumbering such beneficial owner’s DST Interest or the beneficial owner’s pro rata share of any indebtedness encumbering the properties, which will be assumed or paid off by our Operating Partnership.
In general, we believe our available cash balances, cash flows from operations, proceeds from the offering of our Series A Preferred Stock, proceeds from the KeyBank Credit Facility (as hereinafter defined, the “revolving credit facility”), proceeds from our DST Program, proceeds from future mortgage debt financings for acquisitions and/or development projects, and other financing arrangements will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. In general, we expect that our results related to our existing portfolio will improve in future periods as a result of anticipated future investments in and acquisitions of residential properties and build-to-rent communities.
We believe we will be able to meet our primary liquidity requirements going forward through, among other sources:
● $134.7 million in cash available at March 31, 2025;
● capacity of $50 million, all of which was available on the KeyBank Credit Facility at March 31, 2025 for use in our DST Program;
● proceeds from future mortgage debt financings for acquisition and/or development projects;
● cash generated from operating activities; and
● 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, 2025 related to our mortgage notes secured by our properties and the Amended DB Credit Facility. At March 31, 2025, the KeyBank Credit Facility had no outstanding balance. At March 31, 2025, our estimated future required payments on these obligations were as follows (amounts in thousands):
Total
2025
2026-2027
2028-2029
Thereafter
Mortgages Payable (Principal)
$
258,907
$
1,417
$
59,522
$
86,152
$
111,816
Amended DB Credit Facility
85,000
85,000
—
—
—
Estimated Interest Payments on Mortgages Payable and the Amended DB Credit Facility
67,943
10,393
24,845
18,846
13,859
Total
$
411,850
$
96,810
$
84,367
$
104,998
$
125,675
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, 2025, we had contractual commitments to fund future cash obligations in certain of our preferred equity investments and our loan investment in the aggregate of $15.1 million and zero, respectively. In addition, we 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. At March 31, 2025, the remaining estimated project costs to complete Abode Wendell Falls was $47.5 million.
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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. Given the significant volatility in the trading price of REIT equities and our otherwise stable financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term liquidity needs.
On February 13, 2024, our board of directors (the “Board”) authorized a stock repurchase plan for the repurchase of up to an aggregate of $5 million of our outstanding shares of Class A common stock. The repurchase plan had a term of one year and ended in February 2025. We made no repurchases of our Class A common stock under the plan.
On February 28, 2025, our Board authorized a new stock repurchase plan for the repurchase, from time to time, of up to an aggregate of $5 million of our outstanding shares of Class A common stock, with such repurchases to be conducted in accordance with the requirements of Rule 10b-18 of the Securities Exchange Act of 1934 (the “Exchange Act”) and subject to Rule 10b-5 of the Exchange Act. The repurchase plan has a term of one year and may be discontinued at any time. The extent to which we repurchase shares of our Class A common stock under the repurchase plan, and the timing of any such repurchases, depends on a variety of factors including general business and market conditions and other corporate considerations. We expect that any repurchases of our Class A common stock will be through open market transactions, subject to market conditions, certain price limitations and other conditions established under the plan. Open market repurchases will be structured to occur in conformity with the method, timing, price and volume requirements of Rule 10b-18 of the Exchange Act. As of March 31, 2025, we had not made any repurchases of our Class A common stock.
Our primary long-term liquidity requirements relate to (i) costs for additional residential investments, including development properties, (ii) repayment of long-term debt and our revolving credit facility, (iii) capital expenditures, (iv) cash redemption requirements related to our Series A Preferred Stock, (v) cash requirements related to our Series A Preferred Stock Safeguard Policy, and (vi) 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 facility, 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, 2025, 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. We believe our revolving credit facility will serve as our primary debt source that will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base. In addition to restrictive covenants, our revolving credit facility contains material financial covenants. At March 31, 2025, we were in compliance with all covenants under our credit facility. We will continue to monitor the debt markets, including Fannie Mae and Freddie Mac, and as market conditions permit, access borrowings that are advantageous to us.
If we are unable to obtain financing on favorable terms or at all, we would likely need to curtail our investment activities, including acquisitions and improvements to and developments of real properties, which could limit our growth prospects. This, in turn, could reduce cash available for distribution to our stockholders and may hinder our ability to raise capital by issuing more securities or borrowing more money. We also may be forced to dispose of assets at inopportune times to maintain REIT qualification and Investment Company Act exemption.
We expect to maintain a distribution on our Series A Preferred Stock in accordance with the terms which require monthly dividends. While our distributions through March 31, 2025 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.
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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. The notes receivable provide a current stated return and require repayment based on a fixed maturity date. If the property does not repay the notes receivable upon maturity, our income, FFO, CFFO and cash flows could be reduced below the stated returns currently being recognized if the property does not produce sufficient cash flow to pay its operating expenses and debt service, or to refinance its debt obligations.
We also have preferred equity interests in properties that are in various stages of development 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. Upon redemption of the preferred equity interests, our income, FFO, CFFO and cash flows could be reduced below the preferred returns currently being recognized. Alternatively, if the joint ventures do not redeem our preferred membership interest when required, our income, FFO, CFFO and cash flows could be reduced if the development project does not produce sufficient cash flow to pays its operating expenses, debt service and preferred return obligations. As we evaluate our capital position and capital allocation strategy, we may consider alternative means of financing our development loan and preferred equity investment activities at the subsidiary level.
Off-Balance Sheet Arrangements
As of March 31, 2025, 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, 2025, we hold preferred equity interests in eight joint ventures that are accounted for as available-for-sale debt securities.
Cash Flows from Operating Activities
As of March 31, 2025, we held twenty-three real estate investments, consisting of fourteen consolidated investments and nine preferred equity and loan investments, with the twenty-three investments representing an aggregate of 5,048 residential units. During the three months ended March 31, 2025, net cash provided by operating activities was $1.0 million after net loss of $7.3 million was adjusted for the following:
● non-cash items of $6.7 million;
● an increase in accounts payable and other accrued liabilities of $1.4 million;
● distributions of income and income from preferred equity investments of $1.3 million; and
● a decrease in notes and accrued interest receivable of $0.4 million; offset by:
● an increase in accounts receivable, prepaids and other assets of $1.2 million; and
● an increase in due to affiliates of $0.3 million.
Cash Flows from Investing Activities
During the three months ended March 31, 2025, net cash provided by investing activities was $19.0 million, primarily due to the following:
● $22.3 million of repayments on notes receivable; and
● $6.3 million of proceeds from the sales of real estate investments; offset by:
● $5.8 million used in investments in preferred equity investments; and
● $3.8 million used on capital expenditures.
Cash Flows from Financing Activities
During the three months ended March 31, 2025, net cash used in financing activities was $0.5 million, primarily due to the following:
● $36.0 million of repayments on revolving credit facilities;
● $1.9 million of distributions to preferred stockholders; and
● $1.7 million of repayments on mortgages payable; offset by:
● $25.2 million of contributions from noncontrolling interests; and
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● net proceeds of $14.1 million from the issuance of shares of Series A Preferred Stock.
Capital Expenditures
The following table summarizes our total capital expenditures for the three months ended March 31, 2025 and 2024 (amounts in thousands):
Three Months Ended
March 31,
2025
2024
New development
$
1,933
$
130
Redevelopment/renovations
1,302
639
Routine capital expenditures
1,030
936
Normally recurring capital expenditures
195
121
Total capital expenditures
$
4,460
$
1,826
New development represents the expenditures for the planning, land development, and construction of residential homes and communities. Redevelopment and renovation costs are non-recurring capital expenditures for significant projects, such as preparing a unit for rental. The renovation work varies, but may include flooring, cabinetry, paint, plumbing, appliances and other items required to make the unit rent ready. Routine capital expenditures are necessary non-revenue generating improvements that extend the useful life of the property and that are less frequent in nature, such as roof repairs and concrete work/asphalt resurfacing. Normally recurring capital expenditures are necessary non-revenue generating improvements that occur on a regular ongoing basis, such as flooring and appliances.
Funds from Operations and Core Funds from Operations Attributable to Common Stockholders and Unit Holders
We believe that funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), and core funds from operations (“CFFO”) are important non-GAAP supplemental measures of operating performance for a REIT.
FFO attributable to common stockholders and unit holders is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance. We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the NAREIT definition, as net income (loss), computed in accordance with GAAP, excluding gains or losses on sales of depreciable real estate property, plus depreciation and amortization of real estate assets, plus impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity. Adjustments for notes receivable, preferred equity investments 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, equity compensation expense, non-recurring income tax, and preferred stock accretion. We believe that CFFO is helpful to investors as a supplemental performance measure because it excludes the effects of certain items which can create significant earnings volatility, but which do not directly relate to our core recurring property operations. As a result, we believe that CFFO can help facilitate comparisons of operating performance between periods and provides a more meaningful predictor of future earnings potential.
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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 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.
Neither FFO nor CFFO is equivalent to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
The table below presents our calculation of FFO and CFFO for the three months ended March 31, 2025 and 2024 ($ in thousands):
Three Months Ended
March 31,
2025
2024
Net loss attributable to common stockholders
$
(2,529)
$
(1,020)
Add back: Net loss attributable to Operating Partnership Units
(5,661)
(2,169)
Net loss attributable to common stockholders and unit holders
(8,190)
(3,189)
Real estate depreciation and amortization
7,476
3,970
Gain on sale and impairment of real estate investments, net
(703)
(173)
Adjustment for partially owned properties’ noncontrolling interests
(694)
(321)
FFO attributable to common stockholders and unit holders
(2,111)
287
Acquisition and other transaction costs
76
4
Non-cash interest expense
758
251
Unrealized loss on derivatives
778
715
(Recovery of) provision for credit losses
(102)
95
Loss on extinguishment of debt costs
4
—
Non-real estate depreciation and amortization
16
41
Other income, net
(16)
(240)
Non-cash equity compensation
1,373
2,052
Non-recurring income tax expense
168
—
Preferred stock accretion
523
—
Adjustment for partially owned properties’ noncontrolling interests
(178)
(4)
CFFO attributable to common stockholders and unit holders
$
1,289
$
3,201
Per Share and Unit Information:
FFO attributable to common stockholders and unit holders - diluted
$
(0.17)
$
0.02
CFFO attributable to common stockholders and unit holders - diluted
$
0.10
$
0.27
Weighted average common shares and units outstanding - diluted
12,527,468
12,044,069
Operating cash flow, FFO and CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO.
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Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful. FFO or CFFO should not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and CFFO should be reviewed in connection with other GAAP measurements.
Distributions
Declaration Date
Record Date
Amount
Paid / Payable Date
Class A common stock
March 11, 2025
March 25, 2025
$
0.125
April 4, 2025
March 11, 2025
June 25, 2025
0.125
July 3, 2025
March 11, 2025
September 25, 2025
0.125
October 3, 2025
March 11, 2025
December 24, 2025
0.125
January 5, 2026
Class C common stock
March 11, 2025
March 25, 2025
$
0.125
April 4, 2025
March 11, 2025
June 25, 2025
0.125
July 3, 2025
March 11, 2025
September 25, 2025
0.125
October 3, 2025
March 11, 2025
December 24, 2025
0.125
January 5, 2026
Series A Preferred Stock (1)
October 14, 2024
December 24, 2024
$
0.125
January 3, 2025
January 15, 2025
January 24, 2025
0.125
February 5, 2025
January 15, 2025
February 25, 2025
0.125
March 5, 2025
January 15, 2025
March 25, 2025
0.125
April 4, 2025
Series A Preferred Enhanced Special Dividend (2)
October 14, 2024
December 24, 2024
$
0.010417
January 3, 2025
January 15, 2025
January 24, 2025
0.010417
February 5, 2025
January 15, 2025
February 25, 2025
0.010417
March 5, 2025
January 15, 2025
March 25, 2025
0.010417
April 4, 2025
(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 are entitled to an enhanced special dividend 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. There is no assurance that we will continue to declare dividends or at this rate. Holders of OP Units, LTIP Units and C-LTIP Units are entitled to receive “distribution equivalents” at the same time as dividends are paid to holders of our Class A common stock.
Our Board will determine the amount of dividends to be paid to our stockholders. The determination of our Board will be based on several factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status for federal income tax purposes. As a result, our distribution rate and payment frequency may vary from time to time. However, to maintain our REIT status for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income”, as defined by the Internal Revenue Code of 1986, determined without regard to the dividends paid deduction and excluding net capital gains, to our stockholders each year. While our policy is generally to pay distributions from cash flow from operations, we may declare distributions in excess of funds from operations.
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Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting policies and critical accounting estimates are disclosed in Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of our Consolidated Financial Statements.
Subsequent Events
Other than the items disclosed in Note 16 “Subsequent Events” to our interim Consolidated Financial Statements for the period ended March 31, 2025, no material events have occurred that required recognition or disclosure in these financial statements. Refer to Note 16 of our interim Consolidated Financial Statements for discussion.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.