Bluerock Residential Growth REIT Inc
Bluerock Residential Growth REIT Inc details
Bluerock Residential Growth REIT, Inc. is a real estate investment trust that focuses on developing and acquiring a diversified portfolio of institutional-quality highly amenitized live/work/play apartment communities in demographically attractive knowledge economy growth markets to appeal to the renter by choice. The Company's objective is to generate value through off-market/relationship-based transactions and, at the asset level, through value add improvements to properties and operations. The Company is included in the Russell 2000 and Russell 3000 Indexes. BRG has elected to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes.
Ticker:BRG
Employees: 2019
Filing
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission File Number 001-36369
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
(Exact name of registrant as specified in its charter)
Maryland 26-3136483
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
1345 Avenue of the Americas, 32nd Floor, New York, NY 10105
(Address of principal executive offices) (Zip Code)
(212) 843-1601
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share BRG NYSE American
7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share BRG -PrC NYSE American
7.125% Series D Cumulative Preferred Stock, $0.01 par value per share BRG -PrD NYSE American
Securities registered pursuant to Section 12(g) of the Exchange Act:
Title of each class
Series B Redeemable Preferred Stock, $0.01 par value per share
Warrants to Purchase Shares of Class A Common Stock, $0.01 par value per share
Series T Redeemable Preferred Stock, $0.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☐ Accelerated Filer ☒ Non-Accelerated Filer ☐
Smaller reporting company ☐ Emerging growth company ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Number of shares outstanding of the registrant’s
classes of common stock, as of August 2, 2022:
Class A Common Stock: 30,506,694 shares
Class C Common Stock: 67,933 shares
Table of Contents
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
FORM 10-Q
June 30, 2022
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021 (Audited) 3
Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 4
Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and 2021 5
Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and 2021 9
Notes to Consolidated Financial Statements 10
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38
Item 3. Quantitative and Qualitative Disclosures about Market Risk 60
Item 4. Controls and Procedures 61
PART II – OTHER INFORMATION
Item 1. Legal Proceedings 62
Item 1A. Risk Factors 62
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 62
Item 3. Defaults Upon Senior Securities 62
Item 4. Mine Safety Disclosures 62
Item 5. Other Information 62
Item 6. Exhibits 63
SIGNATURES 64
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
June 30, December 31,
2022 2021
ASSETS
Net Real Estate Investments
Land $ 307,341 $ 287,406
Buildings and improvements 1,989,363 1,894,745
Furniture, fixtures and equipment 95,102 89,270
Total Gross Real Estate Investments 2,391,806 2,271,421
Accumulated depreciation (264,286) (224,123)
Total Net Real Estate Investments 2,127,520 2,047,298
Cash and cash equivalents 244,924 166,492
Restricted cash 30,807 30,015
Notes and accrued interest receivable, net 23,118 173,489
Due from affiliates 1,536 711
Accounts receivable, prepaids and other assets, net 48,543 43,108
Preferred equity investments and investments in unconsolidated real estate joint ventures, net 165,556 135,690
In-place lease intangible assets, net 97 2,530
Total Assets $ 2,642,101 $ 2,599,333
LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY
Mortgages payable $ 1,393,076 $ 1,364,991
Revolving credit facilities 49,407 —
Accounts payable 3,184 3,824
Other accrued liabilities 50,095 52,947
Due to affiliates 595 599
Distributions payable 15,590 15,345
Total Liabilities 1,511,947 1,437,706
8.250% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, 5,153,540 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021 — —
6.000 % Series B Redeemable Preferred Stock, liquidation preference $ 1,000 per share, 1,225,000 shares authorized; 358,235 and 359,197 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 338,444 331,983
7.625% Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share, 4,000,000 shares authorized; 2,295,845 shares issued and outstanding as of June 30, 2022 and December 31, 2021 57,002 56,823
6.150 % Series T Redeemable Preferred Stock, liquidation preference $ 25.00 per share, 32,000,000 shares authorized; 28,235,362 and 28,272,134 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 648,910 643,428
Equity
Stockholders’ Equity
Preferred stock, $0.01 par value, 203,621,460 shares authorized; no shares issued and outstanding as of June 30, 2022 and December 31, 2021 — —
7.125% Series D Cumulative Preferred Stock, liquidation preference $25.00 per share, 4,000,000 shares authorized; 2,774,338 shares issued and outstanding as of June 30, 2022 and December 31, 2021 66,867 66,867
Common stock - Class A, $ 0.01 par value, 747,509,582 shares authorized; 30,410,316 and 27,257,586 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 304 273
Common stock - Class C, $ 0.01 par value, 76,603 shares authorized; 67,933 and 76,603 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively 1 1
Additional paid-in-capital 353,155 344,003
Distributions in excess of cumulative earnings (369,705) (327,270)
Total Stockholders’ Equity 50,622 83,874
Noncontrolling Interests
Operating Partnership units (4,922) 5,889
Partially owned properties 40,098 39,630
Total Noncontrolling Interests 35,176 45,519
Total Equity 85,798 129,393
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK AND EQUITY $ 2,642,101 $ 2,599,333
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except share and per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Revenues
Rental and other property revenues $ 58,515 $ 49,721 $ 115,014 $ 100,803
Interest income from loan and ground lease investments 1,073 4,114 7,825 8,835
Total revenues 59,588 53,835 122,839 109,638
Expenses
Property operating 21,806 18,909 41,690 38,841
Property management fees 2,104 1,247 3,974 2,528
General and administrative 7,284 6,595 15,204 13,240
Acquisition and pursuit costs 71 3 116 15
Weather-related losses, net — — — 400
Depreciation and amortization 21,425 19,926 43,456 40,250
Total expenses 52,690 46,680 104,440 95,274
Operating income 6,898 7,155 18,399 14,364
Other income (expense)
Other income 198 57 1,184 209
Preferred returns on unconsolidated real estate joint ventures 4,547 2,329 8,364 4,616
Provision for credit losses 134 (26) 930 (567)
Gain on sale of real estate investments — 19,429 — 88,342
Gain on sale of unconsolidated joint ventures 2,802 — 6,694 —
Transaction costs (2,158) — (9,703) —
Loss on extinguishment of debt and debt modification costs — (647) — (3,687)
Interest expense, net (13,373) (13,460) (24,918) (27,294)
Total other (expense) income (7,850) 7,682 (17,449) 61,619
Net (loss) income (952) 14,837 950 75,983
Preferred stock dividends (18,557) (14,367) (37,129) (28,984)
Preferred stock accretion (5,639) (7,290) (10,845) (14,312)
Net (loss) income attributable to noncontrolling interests
Operating Partnership units (6,108) (1,978) (11,924) 8,182
Partially owned properties (1,766) 587 (2,430) 6,353
Net (loss) income attributable to noncontrolling interests (7,874) (1,391) (14,354) 14,535
Net (loss) income attributable to common stockholders $ (17,274) $ (5,429) $ (32,670) $ 18,152
Net (loss) income per common share - Basic $ (0.59) $ (0.21) $ (1.14) $ 0.68
Net (loss) income per common share – Diluted $ (0.59) $ (0.21) $ (1.14) $ 0.68
Weighted average basic common shares outstanding 30,022,451 28,129,862 29,239,514 25,623,537
Weighted average diluted common shares outstanding 30,022,451 28,129,862 29,239,514 25,688,530
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2022
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share and per share amounts)
Class A Common Stock Class C Common Stock Series D Preferred Stock
Additional
Number of Number of Number of Paid- Cumulative Net Income Noncontrolling
Shares Par Value Shares Par Value Shares Value in Capital Distributions to Stockholders Interests Total Equity
Balance, April 1, 2022 29,609,359 $ 296 67,933 $ 1 2,774,338 $ 66,867 $ 349,117 $ (484,338) $ 136,856 $ 40,490 $ 109,289
Issuance of Class A common stock due to Series B warrant exercises 595,540 6 — — — — 13,473 — — — 13,479
Issuance of Long-Term Incentive Plan (“LTIP”) Units for executive salaries — — — — — — — — — 267 267
Issuance of LTIP Units for executive bonuses — — — — — — — — — 2,779 2,779
Vesting of LTIP Units for compensation — — — — — — — — — 1,884 1,884
Vesting of restricted Class A common stock, net of forfeitures and shares withheld for employee taxes (21,658) — — — — — (134) — — — (134)
Issuance of LTIP Units for expense reimbursements — — — — — — — — — 390 390
Common stock distributions declared — — — — — — — (4,949) — — (4,949)
Series B Preferred Stock distributions declared — — — — — — — (5,373) — — (5,373)
Series B Preferred Stock accretion — — — — — — — (2,209) — — (2,209)
Series C Preferred Stock distributions declared — — — — — — — (1,094) — — (1,094)
Series C Preferred Stock accretion — — — — — — — (101) — — (101)
Series D Preferred Stock distributions declared — — — — — — — (1,235) — — (1,235)
Series T Preferred Stock distributions declared — — — — — — — (10,855) — — (10,855)
Series T Preferred Stock accretion — — — — — — — (3,329) — — (3,329)
Distributions to Operating Partnership noncontrolling interests — — — — — — — — — (1,780) (1,780)
Distributions to partially owned noncontrolling interests — — — — — — — — — (1,050) (1,050)
Conversion of Operating Partnership Units into Class A common stock 227,075 2 — — — — 12 — — (15) (1)
Cash redemption of Operating Partnership Units — — — — — — (9) — — — (9)
Cash redemptions of Series T Preferred Stock — — — — — — 5 — — — 5
Cash redemptions of Series B Preferred Stock — — — — — — 17 — — — 17
Series B Preferred Stock warrant exercises and activity, net — — — — — — (12,273) — — — (12,273)
Contributions from noncontrolling interests, net — — — — — — — — — 3,032 3,032
Adjustment for noncontrolling interest ownership in Operating Partnership — — — — — — 2,947 — — (2,947) —
Net income (loss) — — — — — — — — 6,922 (7,874) (952)
Balance, June 30, 2022 30,410,316 $ 304 67,933 $ 1 2,774,338 $ 66,867 $ 353,155 $ (513,483) $ 143,778 $ 35,176 $ 85,798
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
FOR THE THREE MONTHS ENDED JUNE 30, 2021
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share and per share amounts)
Class A Common Stock Class C Common Stock Series D Preferred Stock
Additional
Number of Number of Number of Paid- Cumulative Net Income Noncontrolling
Shares Par Value Shares Par Value Shares Value in Capital Distributions to Stockholders Interests Total Equity
Balance, April 1, 2021 25,110,432 $ 251 76,603 $ 1 2,774,338 $ 66,867 $ 332,926 $ (375,748) $ 81,982 $ 36,510 $ 142,789
Issuance of Class A common stock, net 941 — — — — — 9 — — — 9
Issuance costs for Class A common stock ATM — — — — — — (626) — — — (626)
Issuance of Class A common stock due to Series B warrant exercise 20 — — — — — 1 — — — 1
Repurchase of Class A common stock (4,605,598) (45) — — — — (45,060) — — — (45,105)
Issuance of restricted Class A common stock, net of shares withheld for employee taxes 38,721 — — — — — 1 — — — 1
Issuance of LTIP Units for executive salaries — — — — — — — — — 219 219
Vesting of LTIP Units for compensation — — — — — — — — — 1,969 1,969
Issuance of LTIP Units for expense reimbursements — — — — — — — — — 389 389
Common stock distributions declared — — — — — — — (4,765) — — (4,765)
Series B Preferred Stock distributions declared — — — — — — — (5,818) — — (5,818)
Series B Preferred Stock accretion — — — — — — — (5,206) — — (5,206)
Series C Preferred Stock distributions declared — — — — — — — (1,094) — — (1,094)
Series C Preferred Stock accretion — — — — — — — (94) — — (94)
Series D Preferred Stock distributions declared — — — — — — — (1,235) — — (1,235)
Series T Preferred Stock distributions declared — — — — — — — (6,220) — — (6,220)
Series T Preferred Stock accretion — — — — — — — (1,990) — — (1,990)
Distributions to Operating Partnership noncontrolling interests — — — — — — — — — (1,748) (1,748)
Distributions to partially owned noncontrolling interests — — — — — — — — — (2,795) (2,795)
Redemption of Operating Partnership Units — — — — — — (4) — — (1) (5)
Holder redemptions of Series T Preferred Stock and conversion into Class A common stock 54,736 — — — — — 547 — — — 547
Holder redemptions of Series B Preferred Stock and conversion into Class A common stock 71,927 1 — — — — 714 — — — 715
Company redemptions of Series B Preferred Stock and conversion into Class A common stock 8,190,758 82 — — — — 79,473 — — — 79,555
Contributions from noncontrolling interests, net — — — — — — — — — 4,147 4,147
Adjustment for noncontrolling interest ownership in Operating Partnership — — — — — — (5,474) — — 5,474 —
Net income (loss) — — — — — — — — 16,228 (1,391) 14,837
Balance, June 30, 2021 28,861,937 $ 289 76,603 $ 1 2,774,338 $ 66,867 $ 362,507 $ (402,170) $ 98,210 $ 42,773 $ 168,477
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2022
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share and per share amounts)
Class A Common Stock Class C Common Stock Series D Preferred Stock
Additional
Number of Number of Number of Paid- Cumulative Net Income Noncontrolling
Shares Par Value Shares Par Value Shares Value in Capital Distributions to Stockholders Interests Total Equity
Balance, January 1, 2022 27,257,586 $ 273 76,603 $ 1 2,774,338 $ 66,867 $ 344,003 $ (455,744) $ 128,474 $ 45,519 $ 129,393
Issuance of Class A common stock due to Series B warrant exercises 2,221,231 22 — — — — 49,483 — — — 49,505
Conversion of Class C common stock into Class A common stock 8,670 — (8,670) — — — — — — — —
Issuance of LTIP Units for director compensation — — — — — — — — — 374 374
Issuance of LTIP Units for executive salaries — — — — — — — — — 534 534
Issuance of LTIP Units for executive bonuses — — — — — — — — — 2,779 2,779
Vesting of LTIP Units for compensation — — — — — — — — — 3,879 3,879
Vesting of restricted Class A common stock, net of forfeitures and shares withheld for employee taxes (22,323) — — — — — (6) — — — (6)
Issuance of LTIP Units for expense reimbursements — — — — — — — — — 824 824
Common stock distributions declared — — — — — — — (9,765) — — (9,765)
Series B Preferred Stock distributions declared — — — — — — — (10,756) — — (10,756)
Series B Preferred Stock accretion — — — — — — — (4,265) — — (4,265)
Series C Preferred Stock distributions declared — — — — — — — (2,188) — — (2,188)
Series C Preferred Stock accretion — — — — — — — (179) — — (179)
Series D Preferred Stock distributions declared — — — — — — — (2,470) — — (2,470)
Series T Preferred Stock distributions declared — — — — — — — (21,715) — — (21,715)
Series T Preferred Stock accretion — — — — — — — (6,401) — — (6,401)
Miscellaneous offering costs — — — — — — (60) — — — (60)
Distributions to Operating Partnership noncontrolling interests — — — — — — — — — (3,606) (3,606)
Distributions to partially owned noncontrolling interests — — — — — — — — — (1,579) (1,579)
Conversion of Operating Partnership Units into Class A common stock 945,152 9 — — — — 454 — — (463) —
Cash redemption of Operating Partnership Units — — — — — — (9) — — — (9)
Cash redemptions of Series T Preferred Stock — — — — — — 49 — — — 49
Cash redemptions of Series B Preferred Stock — — — — — — 36 — — — 36
Series B Preferred Stock warrant exercises and activity, net — — — — — — (44,003) — — — (44,003)
Contributions from noncontrolling interests, net — — — — — — — — — 4,477 4,477
Adjustment for noncontrolling interest ownership in Operating Partnership — — — — — — 3,208 — — (3,208) —
Net income (loss) — — — — — — — — 15,304 (14,354) 950
Balance, June 30, 2022 30,410,316 $ 304 67,933 $ 1 2,774,338 $ 66,867 $ 353,155 $ (513,483) $ 143,778 $ 35,176 $ 85,798
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
FOR THE SIX MONTHS ENDED JUNE 30, 2021
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)
(In thousands, except share and per share amounts)
Class A Common Stock Class C Common Stock Series D Preferred Stock
Additional
Number of Number of Number of Paid- Cumulative Net Income Noncontrolling
Shares Par Value Shares Par Value Shares Value in Capital Distributions to Stockholders Interests Total Equity
Balance, January 1, 2021 22,020,950 $ 220 76,603 $ 1 2,774,338 $ 66,867 $ 304,710 $ (350,154) $ 36,762 $ 21,394 $ 79,800
Issuance of Class A common stock, net 1,740 — — — — — 19 — — — 19
Issuance costs for Class A common stock ATM — — — — — — (626) — — — (626)
Issuance of Class A common stock due to Series B warrant exercise 20,908 — — — — — 228 — — — 228
Repurchase of Class A common stock (8,163,160) (81) — — — — (85,744) — — — (85,825)
Issuance of restricted Class A common stock, net of shares withheld for employee taxes 27,631 — — — — — 61 — — — 61
Issuance of LTIP Units for director compensation — — — — — — — — — 374 374
Issuance of LTIP Units for executive bonuses — — — — — — — — — 2,170 2,170
Issuance of LTIP Units for executive salaries — — — — — — — — — 439 439
Vesting of LTIP Units for compensation — — — — — — — — — 3,785 3,785
Issuance of LTIP Units for expense reimbursements — — — — — — — — — 786 786
Common stock distributions declared — — — — — — — (8,720) — — (8,720)
Series A Preferred Stock distributions declared — — — — — — — (706) — — (706)
Series A Preferred Stock accretion — — — — — — — (35) — — (35)
Company redemption of Series A Preferred Stock accretion — — — — — — — (710) — — (710)
Series B Preferred Stock distributions declared — — — — — — — (12,907) — — (12,907)
Series B Preferred Stock accretion — — — — — — — (10,051) — — (10,051)
Series C Preferred Stock distributions declared — — — — — — — (2,188) — — (2,188)
Series C Preferred Stock accretion — — — — — — — (165) — — (165)
Series D Preferred Stock distributions declared — — — — — — — (2,470) — — (2,470)
Series T Preferred Stock distributions declared — — — — — — — (10,713) — — (10,713)
Series T Preferred Stock accretion — — — — — — — (3,351) — — (3,351)
Distributions to Operating Partnership noncontrolling interests — — — — — — — — — (3,589) (3,589)
Distributions to partially owned noncontrolling interests — — — — — — — — — (11,144) (11,144)
Conversion of Operating Partnership Units into Class A common stock 62,023 1 — — — — (23) — — 24 2
Redemption of Operating Partnership Units — — — — — — (4) — — (1) (5)
Holder redemptions of Series T Preferred Stock and conversion into Class A common stock 110,893 1 — — — — 1,187 — — — 1,188
Holder redemptions of Series B Preferred Stock and conversion into Class A common stock 188,402 2 — — — — 2,091 — — — 2,093
Company redemptions of Series B Preferred Stock and conversion into Class A common stock 14,592,550 146 — — — — 150,534 — — — 150,680
Company redemption of Series A Preferred Stock activity — — — — — — 22 — — — 22
Series B warrant activity and exercise, net — — — — — — (95) — — — (95)
Contributions from noncontrolling interests, net — — — — — — — — — 4,147 4,147
Adjustment for noncontrolling interest ownership in Operating Partnership — — — — — — (9,853) — — 9,853 —
Net income — — — — — — — — 61,448 14,535 75,983
Balance, June 30, 2021 28,861,937 $ 289 76,603 $ 1 2,774,338 $ 66,867 $ 362,507 $ (402,170) $ 98,210 $ 42,773 $ 168,477
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended
June 30,
2022 2021
Cash flows from operating activities
Net income $ 950 $ 75,983
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 45,401 42,005
Amortization of fair value adjustments ( 764 ) ( 563 )
Preferred returns on unconsolidated real estate joint ventures ( 8,364 ) ( 4,616 )
Gain on sale of real estate investments — ( 88,342 )
Gain on sale of unconsolidated joint ventures ( 6,694 ) —
Fair value adjustment of interest rate caps ( 2,084 ) ( 15 )
Loss on extinguishment of debt and debt modification costs — 3,687
Provision for credit losses ( 930 ) 567
Amortization of deferred interest income on mezzanine loan ( 2,996 ) ( 997 )
Distributions of income and preferred returns from preferred equity investments and unconsolidated real estate joint ventures 4,171 5,884
Share-based compensation attributable to equity incentive plan 4,253 4,159
Share-based compensation attributable to executive salaries 534 439
Share-based compensation attributable to restricted stock grants 176 190
Share-based expense to BRE – LTIP Units 824 786
Changes in operating assets and liabilities:
Due to affiliates, net 707 117
Accounts receivable, prepaids and other assets 124 ( 5,083 )
Notes and accrued interest receivable 4,531 ( 1,813 )
Accounts payable and other accrued liabilities 4,336 7,631
Net cash provided by operating activities 44,175 40,019
Cash flows from investing activities:
Acquisitions of real estate investments ( 108,203 ) ( 76,998 )
Capital expenditures ( 14,427 ) ( 10,130 )
Investment in notes receivable and ground lease ( 9,783 ) ( 27,228 )
Repayments on notes receivable and related promote interest 161,169 12,426
Proceeds from sale of real estate investments — 224,051
Proceeds from sale and redemption of unconsolidated real estate joint ventures 30,123 31,412
Investment in unconsolidated real estate joint venture interests ( 59,842 ) ( 34,881 )
Net cash (used in) provided by investing activities ( 963 ) 118,652
Cash flows from financing activities:
Distributions to common stockholders ( 9,190 ) ( 7,599 )
Distributions to noncontrolling interests ( 5,396 ) ( 14,541 )
Distributions to preferred stockholders ( 37,248 ) ( 29,838 )
Contributions from noncontrolling interests 4,477 4,147
Borrowings on mortgages payable 37,342 12,880
Repayments on mortgages payable including prepayment penalties ( 6,476 ) ( 87,501 )
Proceeds from credit facilities 49,407 30,000
Repayments on credit facilities — ( 63,000 )
Payments of deferred financing fees ( 3,517 ) ( 1,139 )
Miscellaneous offering costs ( 60 ) ( 626 )
Net proceeds from issuance of Class A common stock — 19
Repurchase of Class A common stock — ( 85,825 )
Shares withheld for employee taxes upon vesting of awards ( 182 ) ( 129 )
Redemption of 8.250 % Series A Redeemable Preferred Stock — ( 55,055 )
Retirement of 6.0 % Series B Redeemable Preferred Stock — ( 79 )
Payments to redeem 6.0 % Series B Redeemable Preferred Stock ( 929 ) ( 28 )
Net proceeds from exercise of Warrants associated with the 6.0 % Series B Redeemable Preferred Stock 8,663 179
Net proceeds from issuance of 6.150 % Series T Redeemable Preferred Stock — 193,714
Retirement of 6.150 % Series T Redeemable Preferred Stock — ( 126 )
Payments to redeem 6.150 % Series T Redeemable Preferred Stock ( 870 ) ( 6 )
Payments to redeem Operating Partnership Units ( 9 ) ( 5 )
Net cash provided by (used in) financing activities 36,012 ( 104,558 )
Net increase in cash, cash equivalents and restricted cash $ 79,224 $ 54,113
Cash, cash equivalents and restricted cash, beginning of year 196,507 118,961
Cash, cash equivalents and restricted cash, end of period $ 275,731 $ 173,074
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 244,924 $ 136,766
Restricted cash 30,807 36,308
Total cash, cash equivalents and restricted cash, end of period $ 275,731 $ 173,074
Supplemental disclosure of cash flow information
Cash paid for interest (net of interest capitalized) $ 25,447 $ 26,516
Supplemental disclosure of non-cash investing and financing activities
Distributions payable – declared and unpaid $ 15,590 $ 13,879
Mortgages assumed upon property acquisition $ — $ 45,515
Mortgages assumed by buyer upon sale of real estate assets $ — $ ( 67,268 )
Capital expenditures held in accounts payable and other accrued liabilities $ ( 2,051 ) $ 595
See Notes to Consolidated Financial Statements
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BLUEROCK RESIDENTIAL GROWTH REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and Nature of Business
Bluerock Residential Growth REIT, Inc. (the “Company”) was incorporated as a Maryland corporation on July 25, 2008. The Company’s objective is to maximize long-term stockholder value by acquiring and developing well-located institutional-quality multifamily apartment communities and single-family residential homes in knowledge economy growth markets across the United States. The Company seeks to maximize returns through investments where it believes it can drive substantial growth in its core funds from operations and net asset value primarily through its Value-Add and Invest-to-Own investment strategies.
As of June 30, 2022, the Company held an aggregate of 18,399 units, comprised of 14,383 multifamily units and 4,016 single-family residential units. The aggregate number of units are held through seventy-four real estate investments, consisting of fifty-two consolidated operating investments and twenty-two investments held through preferred equity, loan or ground lease investments. As of June 30, 2022, the Company’s consolidated operating investments were approximately 94.6% occupied.
The Company has elected to be treated, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, the Company generally is not subject to corporate-level income taxes. To maintain its REIT status, the Company is required, among other requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates.
Proposed Merger
On December 20, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Badger Parent LLC (“Parent”) and Badger Merger Sub LLC (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger. The Merger and the other transactions contemplated by the Merger Agreement were unanimously approved by the Company’s board of directors (the “Board”). Parent and Merger Sub are affiliates of Blackstone Real Estate Partners IX L.P., an affiliate of Blackstone Inc. On April 12, 2022, the Company held a special meeting of stockholders (the “Special Meeting”) at which the Merger was approved by the holders of issued and outstanding common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) entitled to cast a majority of all the votes entitled to be cast on the Merger. No further action by the Company’s stockholders is required to approve the Merger.
Pursuant to the terms and conditions in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Company Common Stock that is issued and outstanding immediately prior to the Effective Time will automatically be converted into the right to receive $24.25 in cash, without interest and less any applicable withholding taxes (the “Per Share Merger Consideration”).
The Company will deliver a notice of redemption (the “Preferred Stock Redemption Notice”) to the holders of our Series B Redeemable Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), 7.625% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), 7.125% Series D Cumulative Preferred Stock, par value $0.01 per share (“Series D Preferred Stock”), and Series T Redeemable Preferred Stock, par value $0.01 per share (“Series T Preferred Stock”), in accordance with their respective Articles Supplementary, which will provide that such preferred stock will be redeemed effective as of the Effective Time. Each share of Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock will be redeemed for an amount equal to $25.00 plus an amount equal to all accrued and unpaid dividends to and including the redemption date set forth in the Preferred Stock Redemption Notice, without interest. Each share of Series B Preferred Stock will be redeemed for an amount equal to $1,000.00 plus an amount equal to all accrued and unpaid dividends to and including the redemption date set forth in the Preferred Stock Redemption Notice, without interest.
The outstanding warrants to purchase Class A common stock of the Company (the “Company Warrants”) will remain outstanding following the Effective Time in accordance with their terms, but will be adjusted so that the holder of any Company Warrant exercised at or after the Effective Time will be entitled to receive in cash the amount of the Per Share Merger Consideration which, if the Company Warrant had been exercised immediately prior to the Closing, such holder would have been entitled to receive upon the consummation of the Merger.
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In addition, each award of shares of restricted Class A common stock of the Company that is outstanding immediately prior to the Effective Time will be cancelled in exchange for a cash payment in an amount equal to (i) the number of shares of Company Common Stock subject to such award immediately prior to the Effective Time multiplied by (ii) the Per Share Merger Consideration, without interest and less any applicable withholding taxes.
Prior to the consummation of the Merger, the Company will complete the separation of our single-family residential real estate business (the “SFR Business”) from our multi-family residential real estate business (the “Separation”). Following the Separation, the SFR Business will be indirectly held by Bluerock Homes Trust, Inc. (“BHM”), a Maryland corporation, and the Operating Partnership, and, prior to the consummation of the Merger, the Company will distribute the common stock of BHM to the Company’s stockholders as of the record date for such distribution in a taxable distribution (the “Distribution”). Only holders of Company Warrants that are exercised so that the Company Common Stock issued in respect thereof is issued and outstanding as of the record date for the Distribution will be entitled to receive any common stock of BHM in the Distribution in respect of such Company Warrants.
In connection with the Separation, the Operating Partnership will exchange its interests in an entity holding its multi-family residential real estate business with the Company as consideration for a redemption of all of the Company’s preferred interests in the Operating Partnership and a portion of our common units in the Operating Partnership (the “Redemption”). As a result, following the Redemption, the Operating Partnership will cease to hold interests in the Company’s multi-family residential real estate business, and will hold the assets related to the SFR Business. Most members of the Company’s senior management, along with certain entities related to them, have agreed to retain their interests in the Operating Partnership until the earlier of the Effective Time and the termination of the Merger Agreement, rather than redeeming their interests for cash or shares of Company Common Stock that will receive the Per Share Merger Consideration. As a result, following the Separation and the Distribution, the Company’s stockholders who receive shares of BHM in the Distribution are expected to indirectly own approximately 35% of the SFR Business, with holders of units in the Operating Partnership (other than BHM) expected to indirectly own an interest of approximately 65% of the SFR Business. In connection with the Separation and the Distribution, BHM and the Operating Partnership will enter into a management agreement with an affiliate of Bluerock providing for it to be externally managed thereby.
The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to use commercially reasonable efforts to conduct its business in all material respects in the ordinary course, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Merger. The obligations of Parent and Merger Sub to consummate the Merger are not subject to any financing condition or the receipt of any financing by Parent or Merger Sub.
The consummation of the Merger is conditioned on the consummation of the Separation and the Distribution, as well as certain customary closing conditions.
The Company has agreed not to solicit or enter into an agreement regarding a Company Takeover Proposal (as defined in the Merger Agreement) and is not permitted to enter into discussions or negotiations concerning, or provide information to a third party in connection with, any Company Takeover Proposal, in each case subject to certain exceptions that no longer apply following the approval of the Merger by the Company’s common stockholders.
The Merger Agreement may be terminated under certain circumstances by the Company. In addition, Parent may terminate the Merger Agreement under certain circumstances and subject to certain restrictions. The Merger Agreement also may be terminated by either the Company or Parent if the Merger has not been completed on or prior to the date that is nine months after the date of the Merger Agreement, which date may be extended to complete the Separation and the Distribution, by the Company, up to the date that is ten months after the date of the Merger Agreement, or by Parent, up to the date that is twelve months after the date of the Merger Agreement.
In connection with a termination of the Merger Agreement in certain circumstances, the Company will be required to pay a termination fee to Parent of $60 million. Upon termination of the Merger Agreement in certain other circumstances, Parent will be required to pay the Company a termination fee of $200 million.
The foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to the Company’s current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 21, 2021.
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The Company expects the Separation, the Distribution and the Merger to be completed in the second half of 2022, subject to the satisfaction of the closing conditions set forth in the Merger Agreement.
Note 2 – Basis of Presentation and Summary of Significant Accounting Policies
Principles of Consolidation and Basis of Presentation
The Company operates as an umbrella partnership REIT in which Bluerock Residential Holdings, L.P. (its “Operating Partnership”), or the Operating Partnership’s wholly-owned subsidiaries, owns substantially all the property interests acquired and investments made on the Company’s behalf. As of June 30, 2022, limited partners other than the Company owned approximately 26.76% of the common units of the Operating Partnership (14.14% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 12.62% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 4.60% which are not vested at June 30, 2022).
Because the Company is the sole general partner of the Operating Partnership and has unilateral control over its management and major operating decisions (even if additional limited partners are admitted to the Operating Partnership), the accounts of the Operating Partnership are consolidated in its consolidated financial statements.
The Company also consolidates entities in which it controls more than 50% of the voting equity and in which control does not rest with other investors.
In cases where the Company holds a preferred equity investment in real estate joint ventures where the preferred equity interest must be redeemed by the issuing entity or is redeemable at the Company’s option, the preferred equity investment is accounted for as a held to maturity debt security. These preferred equity investments have a mandatory redemption provision, and the Company has the intent and ability to hold the investment until redemption. The preferred equity investments are included in the Company’s consolidated financial statements as “Preferred equity investments and investments in unconsolidated real estate joint ventures.” All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
The Company will consider future preferred equity investments and loan investments for consolidation in accordance with the provisions required by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation.
Significant Risks and Uncertainties
At the present time, one of the most significant risks and uncertainties is the potential adverse effect of the ongoing pandemic of the novel coronavirus and variants thereof (“COVID-19”). The Company’s tenants may experience financial difficulty due to the loss of their jobs and some have requested rent deferral or rent abatement during this pandemic. Experts have predicted that the outbreak will trigger, or has already triggered, a period of global economic slowdown or a global recession.
The COVID-19 pandemic could have material and adverse effects on the Company’s financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:
● reduced economic activity may impact the employment of the Company’s tenants and their ability to pay their obligations to the Company, thus requesting modifications of such obligations, resulting in increases in uncollectible receivables and reductions in rental income;
● the negative financial impact of the pandemic could impact the Company’s future compliance with financial covenants of its credit facilities and other debt agreements;
● weaker economic conditions could require that the Company recognize impairment in value of its real estate assets due to a reduction in property income;
● the Company’s inability to maintain occupancy or leasing rates, or increase these rates at stabilizing development properties, including due to possible reduced foot traffic and lease applications from prospective tenants at the Company’s properties as a result of shelter-in-place orders and similar government guidelines; and
● concentration of the Company’s properties in markets that may be more severely affected by the COVID-19 pandemic due to its significant negative impact on certain key economic drivers in those markets, such as travel and entertainment.
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The extent to which the COVID-19 pandemic and any resulting macro-economic changes impact the Company’s operations and those of its tenants will depend on future developments, which are uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
The Company had provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19, decreasing from 1% in the quarter ended June 30, 2020 to none in the quarter ended June 30, 2022. Although the Company may receive tenant requests for rent deferrals in the coming months, the Company does not expect to waive its contractual rights under its lease agreements. Further, while occupancy remains strong at 94.6% as of June 30, 2022, in future periods, the Company may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of the impact of COVID-19.
Summary of Significant Accounting Policies
Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 11, 2022 for discussion of the Company’s significant accounting policies. During the six months ended June 30, 2022, there were no material changes to these policies.
Interim Financial Information
The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial reporting, and the instructions to Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, the financial statements for interim reporting do not include all the information and notes or disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for interim periods should not be considered indicative of the operating results for a full year.
The balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all the information and disclosures required by GAAP for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in our audited consolidated financial statements for the year ended December 31, 2021 contained in the Annual Report on Form 10-K as filed with the SEC on March 11, 2022.
Use of Estimates
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
New Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06 “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company beginning January 1, 2022 as the Company did not early adopt ASU 2020-06 as allowed on January 1, 2021. The Company adopted ASU 2020-06 on January 1, 2022 and its adoption did not have an impact on the Company’s consolidated financial statements.
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In January 2021, the FASB issued ASU No. 2021-01 “Reference Rate Reform (Topic 848)” (“ASU 2021-01”). The amendments in ASU 2021-01 permit entities to elect certain optional expedients in connection with reference rate reform activities and their impact on debt, contract modifications and derivative instruments as it is expected the global market will transition from LIBOR and other interbank offered rates to alternative reference rates. The amendments in ASU 2021-01 are effective immediately and may be elected over time as reference rate reform activities occur through December 31, 2022. The Company has not elected the optional expedients, though it continues to evaluate the impact of the guidance and may apply elections as applicable as changes in the market occur.
Note 3 – Sale of Real Estate Assets
Sale of Alexan CityCentre Interests
On January 20, 2022, Alexan CityCentre, the underlying asset of an unconsolidated joint venture located in Houston, Texas, was sold. Upon the sale, the Company’s preferred equity investment was redeemed by the joint venture for $18.7 million, which included its original preferred equity investment of $18.2 million and accrued preferred return of $0.5 million.
Sale of Reunion Apartments
On February 25, 2022, Reunion Apartments, a property located in Orlando, Florida, was sold. Upon the sale, the mezzanine loan provided by the Company was paid off for $12.5 million, which included principal repayment of $10.0 million, accrued interest of $1.5 million and an incremental payment of $1.0 million to achieve the minimum interest per the terms of the loan agreement.
Sale of The Hartley at Blue Hill
On February 28, 2022, The Hartley at Blue Hill, a property located in Chapel Hill, North Carolina, was sold. The mezzanine loan provided by the Company was paid off for $34.4 million, which included principal repayment of $31.0 million and accrued interest of $3.4 million. On April 29, 2022, the senior loan provided by the Company, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $5.0 million.
Sale of Motif
On March 24, 2022, Motif, a property located in Fort Lauderdale, Florida, was sold. Upon the sale, the mezzanine loan provided by the Company was paid off for $87.2 million, which included principal repayment of $84.4 million and accrued interest of $2.8 million. The Company recorded a $3.9 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also has a $1.0 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.
Partial sale of Strategic Portfolio Interests
During 2022, three of the six assets underlying the Strategic joint venture (the “Strategic JV”), in which the Company had preferred equity investments, were sold as follows: Georgetown Crossing located in Savannah, Georgia sold on March 29, 2022; Park on the Square located in Pensacola, Florida sold on April 12, 2022; and The Commons located in Jacksonville, Florida sold on June 16, 2022. Upon the sales of Georgetown Crossing, Park on the Square and The Commons, the Company’s preferred equity investments therein were redeemed by the Strategic JV for $2.2 million, $5.9 million and $3.9 million, respectively. These redemption amounts included the Company’s original preferred equity investment, accrued preferred return and an exit fee. Refer to Note 7 for further information on the Strategic Portfolio.
Sale of Domain at The One Forty
On May 5, 2022, Domain at The One Forty, a property located in Garland, Texas, was sold. The mezzanine loan provided by the Company was paid off for $25.4 million, which included principal repayment and accrued interest. The Company recorded a $2.8 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also recorded a $0.5 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.
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Note 4 – Investments in Real Estate
As of June 30, 2022, the Company held seventy-four real estate investments, consisting of fifty-two consolidated operating investments and twenty-two investments held through preferred equity, loan or ground lease investments. The following tables provide summary information regarding the Company’s consolidated operating investments and preferred equity, loan and ground lease investments.
Consolidated Operating Investments
Number of Date Built / Ownership
Name Location Units Renovated (1) Interest
Multifamily
ARIUM Glenridge Atlanta, GA 480 1990 90 %
ARIUM Westside Atlanta, GA 336 2008 90 %
Ashford Belmar Lakewood, CO 512 1988/1993 85 %
Avenue 25 Phoenix, AZ 254 2013 100 %
Burano Hunter’s Creek Orlando, FL 532 1999 100 %
Carrington at Perimeter Park Morrisville, NC 266 2007 100 %
Chattahoochee Ridge Atlanta, GA 358 1996 90 %
Chevy Chase Austin, TX 320 1971 92 %
Cielo on Gilbert Mesa, AZ 432 1985 90 %
Citrus Tower Orlando, FL 336 2006 97 %
Denim Scottsdale, AZ 645 1979 100 %
Elan Austin, TX 270 2007 100 %
Element Las Vegas, NV 200 1995 100 %
Falls at Forsyth Cumming, GA 356 2019 100 %
Gulfshore Apartment Homes Naples, FL 368 2016 100 %
Outlook at Greystone Birmingham, AL 300 2007 100 %
Pine Lakes Preserve Port St. Lucie, FL 320 2003 100 %
Providence Trail Mount Juliet, TN 334 2007 100 %
Roswell City Walk Roswell, GA 320 2015 98 %
Sands Parc Daytona Beach, FL 264 2017 100 %
The Brodie Austin, TX 324 2001 100 %
The Debra Metrowest Orlando, FL 510 2001 100 %
The Links at Plum Creek Castle Rock, CO 264 2000 88 %
The Mills Greenville, SC 304 2013 100 %
The Preserve at Henderson Beach Destin, FL 340 2009 100 %
The Sanctuary Las Vegas, NV 320 1988 100 %
Veranda at Centerfield Houston, TX 400 1999 93 %
Villages of Cypress Creek Houston, TX 384 2001 80 %
Wesley Village Charlotte, NC 301 2010 100 %
Windsor Falls Raleigh, NC 276 1994 100 %
Total Multifamily Units 10,626
Number of Average Year
Single-Family Residential (2) Market Units Built
Ballast AZ / CO / WA 65 1999 95 %
Golden Pacific IN / KS / MO 135 1975 97 %
ILE TX / SE US 418 1990 95 %
Navigator Villas Pasco, WA 176 2013 90 %
Peak
Axelrod Garland, TX 22 1959 80 %
DFW 189 Dallas-Fort Worth, TX 189 1962 56 %
Granbury Granbury, TX 36 2020-2021 80 %
Granbury 2.0 Granbury, TX 34 2021-2022 80 %
Indy Indianapolis, IN 44 1958 60 %
Lubbock Lubbock, TX 60 1955 80 %
Lubbock 2.0 Lubbock, TX 75 1972 80 %
Lubbock 3.0 Lubbock, TX 45 1945 80 %
Lynnwood Lubbock, TX 20 2005 80 %
Lynnwood 2.0 Lubbock, TX 20 2003 80 %
Savannah 319 Savannah, GA 39 2022 80 %
Springfield Springfield, MO 290 2004 60 %
Springtown Springtown, TX 70 1991 80 %
Springtown 2.0 Springtown, TX 14 2018 80 %
Texarkana Texarkana, TX 29 1967 80 %
Texas Portfolio 183 Various / TX 183 1975 80 %
Wayford at Concord Concord, NC 150 2019 83 %
Yauger Park Villas Olympia, WA 80 2010 95 %
Total Single-Family Units 2,194
Total Units 12,820
(1) Represents date of last significant renovation or year built if there were no renovations.
(2) Single-Family Residential includes single-family residential homes and attached townhomes/flats.
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Depreciation expense was $20.3 million and $18.4 million, and $40.2 million and $37.1 million for the three and six months ended June 30, 2022 and 2021, respectively.
Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. Amortization expense related to the in-place leases was $1.0 million and $1.4 million, and $2.7 million and $2.9 million for the three and six months ended June 30, 2022 and 2021, respectively.
Preferred Equity, Loan and Ground Lease Investments
Actual /
Actual / Estimated Actual / Estimated
Planned Initial Construction
Lease-up Investment Name (1) Location / Market Number of Units Occupancy Completion
Multifamily
Zoey Austin, TX 307 4Q 2021 1Q 2022
Total Multifamily Units 307
Single-Family Residential
Willow Park Willow Park, TX 46 2Q 2022 1Q 2023
Total Single-Family Units 46
Total Lease-up Units 353
Development Investment Name (1)
Multifamily
Avondale Hills Decatur, GA 240 1Q 2023 1Q 2023
Deerwood Apartments Houston, TX 330 4Q 2022 2Q 2023
Chandler Chandler, AZ 208 3Q 2023 4Q 2023
Orange City Apartments Orange City, FL 298 1Q 2023 4Q 2023
Lower Broadway San Antonio, TX 386 4Q 2023 2Q 2024
Total Multifamily Units 1,462
Single-Family Residential
The Woods at Forest Hill Forest Hill, TX 76 1Q 2023 3Q 2023
The Cottages at Myrtle Beach Myrtle Beach, SC 294 2Q 2023 4Q 2023
The Cottages at Warner Robins Warner Robins, GA 251 3Q 2023 4Q 2023
The Cottages of Port St. Lucie Port St. Lucie, FL 286 1Q 2023 4Q 2023
Wayford at Innovation Park Charlotte, NC 210 3Q 2023 3Q 2024
Weatherford 185 (2) Weatherford, TX 185 — —
Total Single-Family Units 1,302
Total Development Units 2,764
Operating Investment Name (1) Location / Market Number of Units
Multifamily
Deercross Indianapolis, IN 372
Hunter's Pointe (3) Pensacola, FL 204
Renew 3030 Mesa, AZ 126
Spring Parc Dallas, TX 304
The Crossings of Dawsonville Dawsonville, GA 216
The Reserve at Palmer Ranch (3) Sarasota, FL 320
The Riley Richardson, TX 262
Water's Edge (3) Pensacola, FL 184
Total Multifamily Units 1,988
Single-Family Residential
Peak Housing (4) IN / MO / TX 474
Total Single-Family Units 474
Total Operating Units 2,462
Total Units 5,579
(1) Investments in which the Company has a preferred equity, loan or ground lease investment. Operating investments represent stabilized operating investments. Refer to Note 6 and Note 7 for further information.
(2) The development is in the planning phase; final project specifications are in process.
(3) These three operating investments are collectively known as the Strategic Portfolio. Refer to Note 7 for further information.
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(4) Peak Housing consists of the Company’s preferred equity investments in a private single-family home REIT (refer to Note 7 for further information). Unit count excludes units presented in the consolidated operating investments table above.
Note 5 – Acquisition of Real Estate
The following describes the Company’s significant acquisition activity and related new financing during the six months ended June 30, 2022 ($ in thousands):
Number of Ownership Purchase
Name Market Date (1) Units Interest Price Debt
Single-Family Residential (2)
Granbury 2.0 Granbury, TX March 11, 2022 34 80 % $ 7,650 $ 5,355 (3)
Savannah 319 Savannah, GA March 17, 2022 19 80 % 4,465 — (4)
Golden Pacific IN / KS / MO 1Q 2022 62 97 % 11,774 — (4)
ILE TX / SE US 1Q 2022 31 95 % 7,011 9,974 (5)
Ballast AZ / CO / WA 2Q 2022 65 95 % 26,100 — (4)
Golden Pacific IN / KS / MO 2Q 2022 66 97 % 13,966 — (4)
ILE TX / SE US 2Q 2022 108 95 % 27,804 8,802 (5)
Savannah 319 Savannah, GA 2Q 2022 20 80 % 4,767 — (4)
(1) For those acquisitions where the quarter is specified, the Company, on various dates throughout that specified quarter, acquired additional units that were added to the respective existing portfolios. For Ballast, the units acquired in the second quarter 2022 were the first acquisitions by the Company for the portfolio.
(2) Single-Family Residential includes single-family residential homes and attached townhomes/flats.
(3) The $ 5.4 million mezzanine loan provided by the Company at the time of acquisition was converted into a common equity interest on April 1, 2022. Refer to the Peak Housing Interests and Financing disclosure in Note 7 for further information.
(4) Purchase price was funded in full by the Company and its unaffiliated joint venture partner upon acquisition.
(5) As there are five separate credit agreements under which the ILE portfolio acquisitions are financed, the debt amount represents the aggregate debt held through one or more of these credit agreements. Refer to Note 8 and Note 9 for further information.
Purchase Price Allocation
The real estate acquisitions above have been accounted for as asset acquisitions. The purchase prices were allocated to the acquired assets based on their estimated fair values at the dates of acquisition.
The following table summarizes the assets acquired at the acquisition date for acquisitions made during the six months ended June 30, 2022 (amounts in thousands):
Purchase
Price
Allocation
Land $ 19,955
Building 87,321
Building improvements 529
Furniture and fixtures 205
In-place leases 193
Total assets acquired $ 108,203
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Note 6 – Notes and Interest Receivable
Following is a summary of the notes and accrued interest receivable due from loan investments as of June 30, 2022 and December 31, 2021 (amounts in thousands):
June 30, December 31,
Property 2022 2021
Avondale Hills $ 13,583 $ 12,874
Domain at The One Forty — 25,309
Motif — 85,375
Reunion Apartments — 11,382
The Hartley at Blue Hill — 38,942
Weatherford 185 9,540 —
Total $ 23,123 $ 173,882
Provision for credit losses (5) (393)
Total, net $ 23,118 $ 173,489
Provision for Credit Losses
As of June 30, 2022, the Company’s provision for credit losses on its loan investments was immaterial on a carrying amount of $23.1 million of these investments. The provision for credit losses of the Company’s loan investments at June 30, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):
June 30, December 31,
2022 2021
Beginning balances as of January 1, 2022 and 2021, respectively $ 393 $ 174
Provision for credit loss on pool of assets, net (1) (388) 219
Provision for credit losses, end of period $ 5 $ 393
(1) Under Current Expected Credit Losses (CECL), a provision for credit losses for similar assets is calculated based on a historical default rate applied to the remaining life of the assets. The decrease in the provision during the six months ended June 30, 2022 was a result of the removal of four investments from the pool of assets and a decrease in the trailing twelve-month historical default rate.
Following is a summary of the interest income from loan and ground lease investments for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
Property 2022 2021 2022 2021
Avondale Hills $ 356 $ 286 $ 709 $ 403
Domain at The One Forty 83 244 270 483
Motif (1)(2) — 1,488 4,849 3,862
Reunion Apartments (1) — 303 187 593
The Hartley at Blue Hill (1) 40 1,035 784 2,058
Vickers Historic Roswell (3) — 463 — 903
Weatherford 185 291 — 432 —
Zoey (4) 303 295 594 533
Total $ 1,073 $ 4,114 $ 7,825 $ 8,835
(1) In the first quarter 2022, the Motif, Reunion Apartments and The Hartley at Blue Hill properties were sold. Each mezzanine loan provided by the Company was paid off in full. The Hartley at Blue Hill senior loan provided by the Company was paid off in full in the second quarter 2022.
(2) The Motif interest income for the six months ended June 30, 2022 includes $ 3.0 million of income recognized upon the sale of the property that was deferred in 2021 due to adjustments for straight line income recognition.
(3) In the second quarter 2021, the Vickers Historic Roswell property was sold. The mezzanine loan provided by the Company was paid off in full upon the sale.
(4) The ground lease investment is in lease-up and the full leasehold improvement allowance of $ 20.4 million has been fully funded and is included within accounts receivable, prepaids and other assets in the Company’s consolidated balance sheets.
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The occupancy percentages of the Company’s loan and ground lease investment properties at June 30, 2022 and December 31, 2021 are as follows:
June 30, December 31,
Property 2022 2021
Avondale Hills (1) (2)
Weatherford 185 (1) —
Zoey 74.6 % 15.6 %
(1) The development had not commenced lease-up as of June 30, 2022.
(2) The development had not commenced lease-up as of December 31, 2021.
Domain at The One Forty Mezzanine Loan Financing
On May 5, 2022, Domain at The One Forty, a property located in Garland, Texas, was sold. The mezzanine loan provided by the Company was paid off for $25.4 million, which included principal repayment and accrued interest. The Company recorded a $2.8 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also recorded a $0.5 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.
Motif Mezzanine Loan Financing
The Motif property was sold on March 24, 2022. The mezzanine loan provided by the Company was paid off for $87.2 million, which included principal repayment of $84.4 million and accrued interest of $2.8 million. The Company recorded a $3.9 million gain on sale representing its estimated promote interest share of proceeds that remained after the Company and joint venture members received full return of their capital contributions. The Company also has a $1.0 million receivable, which is included in due from affiliates in the Company’s consolidated balance sheet, representing the remaining proceeds that were not distributed as of quarter end.
Reunion Apartments Mezzanine Loan Financing
The Reunion Apartments property was sold on February 25, 2022. Upon the sale, the mezzanine loan provided by the Company was paid off for $12.5 million, which included principal repayment of $10.0 million, accrued interest of $1.5 million and an incremental payment of $1.0 million to achieve the minimum interest per the terms of the loan agreement.
The Hartley at Blue Hill Loan Financing
The Hartley at Blue Hill property was sold on February 28, 2022. The mezzanine loan provided by the Company was paid off for $34.4 million, which included principal repayment of $31.0 million and accrued interest of $3.4 million. On April 29, 2022, the senior loan provided by the Company, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $5.0 million.
Weatherford 185 Mezzanine Loan Financing
On February 15, 2022, the Company provided a $9.6 million mezzanine loan to an unaffiliated third party to purchase land in Weatherford, Texas for the development of approximately 185- build for rent, single-family residential units. The loan bears interest at a fixed rate of 12% per annum with interest-only payments during the term of the loan, unless subject to conditions upon extension. The loan was to initially mature on May 16, 2022, though during the second quarter 2022, the borrower exercised two of the loan’s three available thirty-day extension options, extending the maturity date to July 15, 2022. At the time of each such extension, the borrower was required to make a payment to the Company of $0.1 million toward the unpaid principal amount of the loan. At June 30, 2022, the outstanding loan balance was $9.4 million. The loan may be prepaid without penalty.
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Note 7 – Preferred Equity Investments and Investments in Unconsolidated Real Estate Joint Ventures
The carrying amount of the Company’s preferred equity investments and investments in unconsolidated real estate joint ventures as of June 30, 2022 and December 31, 2021 is summarized in the table below (amounts in thousands):
June 30, December 31,
Property 2022 2021
Alexan CityCentre (1) $ — $ 18,261
Chandler 7,545 3,305
Deercross 4,000 4,000
Deerwood Apartments 16,452 9,245
Lower Broadway 9,913 908
Orange City Apartments 6,836 —
Peak Housing 20,319 20,319
Renew 3030 7,060 7,060
Spring Parc 8,000 8,000
Strategic Portfolio (2) 16,350 28,212
The Cottages at Myrtle Beach 17,913 9,034
The Cottages at Warner Robins 8,828 —
The Cottages of Port St. Lucie 17,196 7,260
The Crossings of Dawsonville 10,450 10,450
The Riley 6,961 6,961
The Woods at Forest Hill 2,833 442
Wayford at Innovation Park 2,520 —
Willow Park 2,540 2,540
Other — 64
Total $ 165,716 $ 136,061
Provision for credit losses (160) (371)
Total, net $ 165,556 $ 135,690
(1) The Company’s preferred equity investment was redeemed in the first quarter 2022.
(2) During 2022, three of the Company’s six preferred equity investments in the Strategic joint venture were redeemed. The three remaining investments, Hunter’s Pointe, The Reserve at Palmer Ranch and Water’s Edge, are collectively known as the Strategic Portfolio.
Provision for Credit Losses
As of June 30, 2022, the Company’s provision for credit losses on its preferred equity investments was $0.2 million on a carrying amount of $165.7 million of these investments. The provision for credit losses of the Company’s preferred equity investments at June 30, 2022 and December 31, 2021 are summarized in the table below (amounts in thousands):
June 30, December 31,
2022 2021
Beginning balances as of January 1, 2022 and 2021, respectively $ 371 $ 16,153
Provision for credit loss on pool of assets, net (1) (211) 148
Provision for credit loss – Alexan Southside Place (2) — (15,930)
Provision for credit losses, end of period $ 160 $ 371
Recovery of previous provision for credit loss – Alexan Southside Place $ (292) $ —
(1) Under Current Expected Credit Losses (CECL), a provision for credit losses for similar assets is calculated based on a historical default rate applied to the remaining life of the assets. The decrease in the provision during the six months ended June 30, 2022 was a result of a decrease in the trailing twelve-month historical default rate and the removal of four investments from the pool of assets.
(2) In the first quarter 2021, Alexan Southside Place, the property underlying the Company’s preferred equity investment, was sold. Refer to the Company’s Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 11, 2022 for further information.
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As of June 30, 2022, the Company, through wholly-owned subsidiaries of the Operating Partnership, had outstanding equity investments in seventeen joint ventures. These seventeen equity investments are preferred equity investments that are classified as held to maturity debt securities as the Company has the intention and ability to hold the investments to maturity. The Company earns a fixed return on these investments, which is included within preferred returns on unconsolidated real estate joint ventures in its consolidated statements of operations. Each joint venture is the controlling member in an entity whose purpose is to develop or operate a multifamily apartment community or a portfolio of single-family residential homes.
The preferred returns on the Company’s unconsolidated real estate joint ventures for the three and six months ended June 30, 2022 and 2021 are summarized below (amounts in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
Property 2022 2021 2022 2021
Alexan CityCentre $ — $ 714 $ 219 $ 1,377
Chandler 217 — 340 —
Deercross 106 6 211 6
Deerwood Apartments 472 — 845 —
Lower Broadway 219 — 279 —
Mira Vista — 134 — 267
Orange City Apartments 168 — 201 —
Peak Housing 470 235 936 235
Renew 3030 187 — 373 —
Spring Parc 212 — 422 —
Strategic Portfolio 581 791 1,349 1,501
The Conley — — — 405
The Cottages at Myrtle Beach 589 — 960 —
The Cottages at Warner Robins 186 — 212 —
The Cottages of Port St. Lucie 494 — 808 —
The Crossings of Dawsonville 277 — 552 —
The Riley 194 194 385 257
The Woods at Forest Hill 52 — 66 —
Thornton Flats — 103 — 205
Wayford at Concord — 152 — 363
Wayford at Innovation Park 40 — 40 —
Willow Park 83 — 166 —
Total preferred returns on unconsolidated joint ventures $ 4,547 $ 2,329 $ 8,364 $ 4,616
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The occupancy percentages of the Company’s unconsolidated real estate joint ventures at June 30, 2022 and December 31, 2021 are as follows:
June 30, December 31,
Property 2022 2021
Chandler (1) (2)
Deercross 93.8 % 86.8 %
Deerwood Apartments (1) (2)
Lower Broadway (1) (2)
Orange City Apartments (1) (2)
Peak Housing 92.1 % 92.8 %
Renew 3030 92.1 % 96.8 %
Spring Parc 94.1 % 98.4 %
Strategic Portfolio
Hunter’s Pointe 98.0 % 98.5 %
The Reserve at Palmer Ranch 96.9 % 97.5 %
Water’s Edge 98.9 % 97.3 %
The Cottages at Myrtle Beach (1) (2)
The Cottages at Warner Robins (1) (2)
The Cottages of Port St. Lucie (1) (2)
The Crossings of Dawsonville 91.2 % 98.1 %
The Riley 98.5 % 97.3 %
The Woods at Forest Hill (1) (2)
Wayford at Innovation Park (1) (2)
Willow Park 2.2 % (2)
(1) The development had not commenced lease-up as of June 30, 2022.
(2) The development had not commenced lease-up as of December 31, 2021.
Alexan CityCentre Interests
On January 20, 2022, Alexan CityCentre, the underlying asset of the Alexan CityCentre JV, was sold. Upon the sale, the Company’s preferred equity investment was redeemed by the Alexan CityCentre JV for $18.7 million, which included its original preferred equity investment of $18.2 million and accrued preferred return of $0.5 million.
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Peak Housing Interests and Financing
During 2021, the Company made common and preferred equity investments, along with the operating partnership of Peak Housing REIT (the “Peak REIT OP”), in fourteen portfolios of single-family residential homes. These fourteen portfolios constitute Peak Housing, which represents the aggregate of the Company’s preferred equity investments in these portfolios. During the first quarter 2022, the Company made common equity investments, along with the Peak REIT OP, in the following two portfolios of single-family residential homes: Granbury 2.0 and Savannah 319. In addition to its common and/or preferred equity investments, the Company, through wholly-owned lender-entities, provided the full mortgage or mezzanine loan to each of the fifteen (Savannah 319 excluded) respective portfolio owners. These portfolio owners are owned by joint ventures in which the Company has its common equity investments along with Peak REIT OP. To determine if consolidation of the joint ventures was appropriate, the Company evaluated the basis of consolidation under ASC 810: Consolidation using the voting interest equity method as it had determined that the joint ventures were not variable interest entities. As the Company has controlling voting interests and substantive participating rights of the joint ventures under the operating agreements, the Company determined that consolidation of the joint ventures was appropriate. As the entities through which the Company provided the loans (the lender-entities) and the entities to which the loans were provided (the property owners) consolidate into the Company’s financial statements, the loan receivable balances and the loan payable balances are eliminated through consolidation and therefore are not reflected in the Company’s consolidated balance sheets. In addition, the Company’s pro rata share of each loan’s interest expense incurred through the portfolio owner partially offsets, through consolidation, the Company’s interest income for each loan recognized at the wholly-owned lender-entity. The remaining interest income, which is attributable to interest incurred by Peak REIT OP as the noncontrolling interest in each portfolio, is reflected in net income (loss) attributable to common stockholders in the Company’s consolidated statements of operations. Through its impact on the net operations of the portfolio, Peak REIT OP’s pro rata share of each loan’s interest expense is reflected in net income (loss) attributable to noncontrolling interests partially owned properties in the Company’s consolidated statements of operations.
On April 1, 2022, the mortgage or mezzanine loans provided by the Company to twelve of the fifteen respective portfolio owners were converted into a total of $ 66.2 million of common equity interests, which included the full principal loan balances in the aggregate amount of $ 61.6 million and an aggregate amount of $ 4.6 million representing the minimum interest associated with the respective loans.
On May 10, 2022, the mortgage loans provided by the Company to two of the fifteen respective portfolio owners were converted into a total of $39.2 million of common equity interests, which included the full principal loan balances in the aggregate amount of $38.2 million and an aggregate amount of $1.0 million representing the minimum interest associated with the respective loans. As of June 30, 2022, one mezzanine loan remains outstanding that has been provided by the Company to a portfolio owner.
Strategic Portfolio Interests
During 2022, three of the six assets underlying the Strategic joint venture (the “Strategic JV”), in which the Company had preferred equity investments, were sold as follows: Georgetown Crossing located in Savannah, Georgia sold on March 29, 2022; Park on the Square located in Pensacola, Florida sold on April 12, 2022; and The Commons located in Jacksonville, Florida sold on June 16, 2022. Upon the sales of Georgetown Crossing, Park on the Square and The Commons, the Company’s preferred equity investments therein were redeemed by the Strategic JV for $2.2 million, $5.9 million and $3.9 million, respectively. These redemption amounts included the Company’s original preferred equity investment, accrued preferred return and an exit fee.
The Company continues to earn a 7.5% current return and a 3.0% accrued return, for a total preferred return of 10.5% per annum, on its investments in Hunter’s Pointe and Water’s Edge, along with earning a 6.35% current return and a 5.15% accrued return, for a total preferred return of 11.5% per annum, on its investment in The Reserve at Palmer Ranch. These three remaining properties are collectively known as the Strategic Portfolio and are subject to individual property mortgage debt in the aggregate amount of $74.3 million.
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Note 8 – Revolving Credit Facilities
The outstanding balances on the revolving credit facilities as of June 30, 2022 and December 31, 2021 are as follows (amounts in thousands):
June 30, December 31,
Revolving Credit Facilities 2022 2021
Amended Senior Credit Facility $ — $ —
Amended Junior Credit Facility — —
DB Credit Facility 35,000 —
ILE Sunflower Credit Facility 14,407 —
Total $ 49,407 $ —
Amended Senior Credit Facility
On March 6, 2020, the Company entered into the Amended Senior Credit Facility. The Amended Senior Credit Facility provides for a revolving loan with an initial commitment amount of $ 100 million, which commitment contains an accordion feature to a maximum total commitment of up to $ 350 million. Borrowings under the Amended Senior Credit Facility bear interest, at the Company’s option, at LIBOR plus 1.30 % to 1.65 % or the base rate plus 0.30 % to 0.65 % , depending on the Company’s leverage ratio. The Company pays an unused fee at an annual rate of 0.15 % to 0.20 % of the unused portion of the Amended Senior Credit Facility, depending on the borrowings outstanding. The Amended Senior Credit Facility matures on March 6, 2023 and contains two one-year extension options, subject to certain conditions. The Amended Senior Credit Facility contains certain financial and operating covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio and minimum tangible net worth. At June 30, 2022, the Company was in compliance with all covenants under the Amended Senior Credit Facility. The Company has guaranteed the obligations under the Amended Senior Credit Facility and has pledged certain assets as collateral.
The Amended Senior Credit Facility provides the Company with the ability to issue up to $ 50 million in letters of credit. While the issuance of letters of credit does not increase the Company’s borrowings outstanding under the Amended Senior Credit Facility, it does reduce the availability of borrowings. At June 30, 2022, the Company had one outstanding letter of credit of $ 0.8 million.
Amended Junior Credit Facility
On September 21, 2021, the Company entered into the Amended Junior Credit Facility. The Amended Junior Credit Facility extended the maturity date of the credit facility to December 21, 2023 and included changes in certain financial and operating covenants. There were no other material changes in terms from the previous credit facility. The Amended Junior Credit Facility provides for a revolving loan with a maximum commitment amount of $ 72.5 million. Borrowings under the Amended Junior Credit Facility bear interest, at the Company’s option, at LIBOR plus 2.75% to 3.25% or the base rate plus 1.75 % to 2.25 % , depending on the Company’s leverage ratio. The Company pays an unused fee at an annual rate of 0.35 % to 0.40 % of the unused portion of the Amended Junior Credit Facility, depending on the borrowings outstanding. The Amended Junior Credit Facility contains certain financial and operating covenants, including a maximum leverage ratio, minimum liquidity, minimum debt service coverage ratio, minimum debt yield, minimum tangible net worth and minimum equity raise and collateral values. At June 30, 2022, the Company was in compliance with all covenants under the Amended Junior Credit Facility. The Company has guaranteed the obligations under the Amended Junior Credit Facility and has pledged certain assets as collateral.
The availability of borrowings under the Amended Senior Credit Facility and Amended Junior Credit Facility at June 30, 2022 is based on the collateral and compliance with various ratios related to those assets and was approximately $114.2 million.
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Deutsche Bank Credit Facility (“DB Credit Facility”)
On April 6, 2022, the Company entered into a credit facility with Deutsche Bank Securities Inc., as sole lead arranger, Deutsche Bank AG, New York Branch, as administrative agent, the financial institutions party thereto as lenders and Computershare Trust Company, N.A., as paying agent and calculation agent (the “DB Credit Facility”). The DB Credit Facility provides for a revolving loan with a maximum commitment amount of $150 million. Borrowings under the DB Credit Facility are limited to financings related to the acquisition, renovation, rehabilitation, maintenance and leasing of single-family residential properties owned by various Peak joint ventures. During the initial term of the DB Credit Facility, borrowings bear interest on the amount drawn at Term SOFR plus 2.80%, and borrowings can be prepaid without premium or penalty. The DB Credit Facility matures on April 6, 2024 and contains two (2) one-year extension options, subject to certain conditions. The DB Credit Facility contains certain financial and operating covenants, including maximum leverage ratio, minimum debt yield and minimum debt service coverage ratio. At June 30, 2022, the Company was in compliance with all covenants under the DB Credit Facility. The Company has guaranteed the obligations under the DB Credit Facility.
The availability of borrowings under the DB Credit Facility at June 30, 2022 is based on the collateral and compliance with various ratios related to those assets and was approximately $10.5 million.
ILE Sunflower Credit Facility
On December 27, 2021, the Company’s unaffiliated joint venture partner, ILE, entered into a credit facility with Sunflower Bank, N.A. (the “ILE Sunflower Credit Facility”). The ILE Sunflower Credit Facility provides for a revolving loan with an initial commitment amount of $20 million, which commitment contains an accordion feature to a maximum total commitment of up to $50 million. The ILE Sunflower Credit Facility, along with four other separate non-revolving credit facilities (refer to Note 9 for further information), is used in the financing of acquisitions of single-family residential units. Borrowings under the ILE Sunflower Credit Facility bear interest at LIBOR plus 3.0%, subject to a rate floor, and can be prepaid without penalty or premium. The ILE Sunflower Credit Facility matures on December 27, 2024 and contains certain financial and operating covenants, including a minimum fixed charge coverage ratio. At June 30, 2022, ILE was in compliance with all covenants under the ILE Sunflower Credit Facility. A principal of ILE has guaranteed the obligations under the ILE Sunflower Credit Facility and the Company and ILE have pledged certain assets as collateral.
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Note 9 – Mortgages Payable
The following table summarizes certain information as of June 30, 2022 and December 31, 2021, with respect to the Company’s senior mortgage indebtedness (amounts in thousands):
Outstanding Principal As of June 30, 2022
June 30, December 31, Interest-only
Property 2022 2021 Interest Rate through date Maturity Date
Fixed Rate:
ARIUM Westside $ 51,365 $ 51,841 3.68 % (1) August 1, 2023
Ashford Belmar 100,675 100,675 4.53 % December 2022 December 1, 2025
Avenue 25 (2) 36,566 36,566 4.18 % July 2022 July 1, 2027
Burano Hunter’s Creek 68,795 69,502 3.65 % (1) November 1, 2024
Carrington at Perimeter Park (3) 31,214 31,244 4.16 % (3) July 1, 2027
Chattahoochee Ridge 45,338 45,338 3.25 % December 2022 December 5, 2024
Citrus Tower 39,517 39,896 4.07 % (1) October 1, 2024
Denim (4) 101,205 101,205 3.41 % August 2024 August 1, 2029
Elan (5) 25,473 25,508 4.19 % (5) July 1, 2027
Element 29,260 29,260 3.63 % July 2022 July 1, 2026
Falls at Forsyth 19,099 19,265 4.35 % (1) July 1, 2025
Gulfshore Apartment Homes 46,345 46,345 3.26 % September 2022 September 1, 2029
ILE (6) 19,695 — 3.75 % (1) June 7, 2026
Navigator Villas (7) 20,200 20,361 4.57 % (1) June 1, 2028
Outlook at Greystone 21,749 21,930 4.30 % (1) June 1, 2025
Providence Trail 47,137 47,587 3.54 % (1) July 1, 2026
Roswell City Walk 48,540 49,050 3.63 % (1) December 1, 2026
The Brodie 32,527 32,876 3.71 % (1) December 1, 2023
The Debra Metrowest 63,463 63,982 4.43 % (1) May 1, 2025
The Links at Plum Creek 38,571 38,916 4.31 % (1) October 1, 2025
The Mills 24,450 24,731 4.21 % (1) January 1, 2025
The Preserve at Henderson Beach 48,490 48,490 3.26 % September 2028 September 1, 2029
The Sanctuary 33,707 33,707 3.31 % Interest-only August 1, 2029
Wesley Village 38,362 38,730 4.25 % (1) April 1, 2024
Windsor Falls 27,442 27,442 4.19 % November 2022 November 1, 2027
Yauger Park Villas (8) 14,784 14,921 4.86 % (1) April 1, 2026
Total Fixed Rate $ 1,073,969 $ 1,059,368
Floating Rate (9):
ARIUM Glenridge $ 48,530 $ 49,170 2.45 % (1) September 1, 2025
Chevy Chase 24,400 24,400 3.44 % September 2022 September 1, 2027
Cielo on Gilbert (10) 58,000 58,000 3.33 % January 2026 January 1, 2031
Falls at Forsyth 19,015 19,186 2.52 % (1) July 1, 2025
Fannie Facility Advance 13,936 13,936 3.72 % June 2022 June 1, 2027
Fannie Facility Second Advance (10) 12,880 12,880 3.42 % March 2023 March 1, 2028
ILE (11) 11,093 26,825 4.14 % (11) (11)
Pine Lakes Preserve 42,728 42,728 4.10 % July 2025 July 1, 2030
Veranda at Centerfield 25,797 25,962 2.31 % (1) July 26, 2023 (12)
Villages of Cypress Creek 33,520 33,520 3.67 % July 2022 July 1, 2027
Wayford at Concord (10) 32,973 — 2.95 % May 2027 May 1, 2029
Total Floating Rate $ 322,872 $ 306,607
Total $ 1,396,841 $ 1,365,975
Fair value adjustments 7,395 8,159
Deferred financing costs, net (11,160) (9,143)
Total mortgages payable $ 1,393,076 $ 1,364,991
(1) The loan requires monthly payments of principal and interest.
(2) The principal balance includes a $ 29.7 million senior loan at a fixed rate of 4.02 % and a $ 6.9 million supplemental loan at a fixed rate of 4.86 % .
(3) The principal balance includes a $ 27.5 million senior loan at a fixed rate of 4.09 % and a $ 3.7 million supplemental loan at a fixed rate of 4.66 % . The senior loan has monthly payments that are interest-only through July 2024, whereas the supplemental loan has monthly payments of principal and interest. Both loans have a maturity date of July 1, 2027.
(4) The principal balance includes a $ 91.6 million senior loan at a fixed rate of 3.32 % and a $ 9.6 million supplemental loan at a fixed rate of 4.22 % .
(5) The principal balance includes a $ 21.2 million senior loan at a fixed rate of 4.09 % and a $ 4.3 million supplemental loan at a fixed rate of 4.66 % . The senior loan has monthly payments that are interest-only through July 2024, whereas the supplemental loan has monthly payments of principal and interest. Both loans have a maturity date of July 1, 2027.
(6) ILE’s fixed rate debt represents the debt outstanding from one credit agreement.
(7) The principal balance includes a $ 14.6 million senior loan at a fixed rate of 4.31 % and a $ 5.6 million supplemental loan at a fixed rate of 5.23 % .
(8) The principal balance includes a $ 10.3 million senior loan at a fixed rate of 4.81 % and a $ 4.5 million supplemental loan at a fixed rate of 4.96 %.
(9) Other than Cielo on Gilbert, the Fannie Facility Second Advance, ILE and Wayford at Concord, the Company’s remaining floating rate loans bear interest at one-month LIBOR + margin. In June 2022, one-month LIBOR in effect was 1.12 % . LIBOR rate is subject to a rate cap. Please refer to Note 11 for further information.
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(10) The Cielo on Gilbert loan, the Fannie Facility Second Advance and the Wayford at Concord loan bear interest at the 30-day average SOFR + 2.61 % , + 2.70 % and + 2.23 % , respectively. In June 2022, the 30-day average SOFR in effect was 0.72 % . SOFR rate is subject to a rate cap. Please refer to Note 11 for further information.
(11) ILE’s floating rate debt represents the aggregate debt outstanding across three separate credit agreements. Of the $ 11.1 million principal balance, $ 7.4 million held through two credit agreements requires monthly payments of principal and interest, while the remaining principal balance of $ 3.7 million held through one credit agreement has monthly payments that are currently interest-only. The three credit agreements have maturity dates ranging from 2022 to 2026 and bear interest at one-month LIBOR or prime rate plus margins ranging from 0.50 % to 2.30 % , subject to rate floors, and have current interest rates ranging from 3.50 % to 5.25 % with a weighted average interest rate of 4.14 % as of June 30, 2022.
(12) The loan has two (2) one-year extension options subject to certain conditions.
Deferred financing costs
Costs incurred in obtaining long-term financing are amortized on a straight-line basis to interest expense over the terms of the related financing agreements, as applicable, which approximates the effective interest method.
Loss on Extinguishment of Debt and Debt Modification Costs
Upon repayment of or in conjunction with a material change (i.e. a 10% or greater difference in the cash flows between instruments) in the terms of an underlying debt agreement, the Company writes-off any unamortized deferred financing costs and fair market value adjustments related to the original debt that was extinguished. Prepayment penalties incurred on the early repayment of debt and costs incurred in a debt modification that are not capitalized are also included within loss on extinguishment of debt and debt modification costs on the consolidated statements of operations. Loss on extinguishment of debt and debt modification costs were zero and $0.6 million, and zero and $3.7 million for the three and six months ended June 30, 2022 and 2021, respectively.
Refinancing of Wayford at Concord
Upon its acquisition in June 2021, the Company and its unaffiliated joint venture partner (together, the “Wayford JV”) fully funded the purchase price of Wayford at Concord. On April 21, 2022, the Wayford JV entered into a $33.0 million floating rate loan, which is secured by the Wayford at Concord property, with the loan proceeds distributed to the Wayford JV members in accordance with the distribution provisions in the joint venture agreement.
Master Credit Facility with Fannie Mae
The Company previously entered into a Master Credit Facility Agreement issued through Fannie Mae’s Multifamily Delegated Underwriting and Servicing Program. Refer to the Company’s Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 11, 2022 for further information.
Debt maturities
As of June 30, 2022, contractual principal payments for the five subsequent years and thereafter are as follows (amounts in thousands):
Year Total
2022 (July 1–December 31) $ 11,760
2023 127,300
2024 202,721
2025 332,877
2026 160,185
Thereafter 561,998
$ 1,396,841
Add: Unamortized fair value debt adjustment 7,395
Subtract: Deferred financing costs, net (11,160)
Total $ 1,393,076
The net book value of real estate assets providing collateral for these above borrowings, including the revolving credit facilities (refer to Note 8 for further information) and Fannie Facility, was $2,005.0 million as of June 30, 2022.
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The mortgage loans encumbering the Company’s properties are generally nonrecourse, subject to certain exceptions for which the Company would be liable for any resulting losses incurred by the lender. These exceptions vary from loan to loan but generally include fraud or a material misrepresentation, misstatement or omission by the borrower, intentional or grossly negligent conduct by the borrower that harms the property or results in a loss to the lender, filing of a bankruptcy petition by the borrower, either directly or indirectly, and certain environmental liabilities. In addition, upon the occurrence of certain events, such as fraud or filing of a bankruptcy petition by the borrower, the Company or our joint ventures would be liable for the entire outstanding balance of the loan, all interest accrued thereon and certain other costs, including penalties and expenses. The mortgage loans generally have a period where a prepayment fee or yield maintenance would be required.
Note 10 – Fair Value of Financial Instruments
Fair Value Measurements
For financial assets and liabilities recorded at fair value on a recurring or non-recurring basis, fair value is the price the Company would expect to receive to sell an asset, or pay to transfer a liability, in an orderly transaction with a market participant at the measurement date under current market conditions. In the absence of such data, fair value is estimated using internal information consistent with what market participants would use in a hypothetical transaction.
In determining fair value, observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions; preference is given to observable inputs. In accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) and as defined in ASC Topic 820, “Fair Value Measurement”, these two types of inputs create the following fair value hierarchy:
● Level 1: Quoted prices for identical instruments in active markets
● Level 2: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable
● Level 3: Significant inputs to the valuation model are unobservable
If the inputs used to measure the fair value fall within different levels of the hierarchy, the fair value is determined based upon the lowest level input that is significant to the fair value measurement. Whenever possible, the Company uses quoted market prices to determine fair value. In the absence of quoted market prices, the Company uses independent sources and data to determine fair value.
Financial Instrument Fair Value Disclosures
As of June 30, 2022 and December 31, 2021, the carrying values of cash and cash equivalents, restricted cash, accounts receivable, due to and due from affiliates, accounts payable, other accrued liabilities, and distributions payable approximate their fair value based on their highly-liquid nature and/or short-term maturities. The carrying values of notes receivable approximate fair value because stated interest rate terms are consistent with interest rate terms on new deals with similar leverage and risk profiles. The fair values of notes receivable are classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs that are utilized in their respective valuations.
Derivative Financial Instruments
The estimated fair values of derivative financial instruments are valued using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and volatility. The fair value of interest rate caps is determined using the market-standard methodology of discounting the future expected cash receipts which would occur if floating interest rates rise above the strike rate of the caps. The floating interest rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived from observable market interest rate curves and volatilities. The inputs used in the valuation of interest rate caps fall within Level 2 of the fair value hierarchy.
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Fair Value of Debt
As of June 30, 2022 and December 31, 2021, based on the discounted amount of future cash flows using rates currently available to the Company for similar liabilities, the fair value of the Company’s mortgages payable is estimated at $1,345.3 million and $1,388.3 million, respectively, compared to the carrying amounts, before adjustments for deferred financing costs, net, of $1,404.2 million and $1,374.1 million, respectively. The fair value of mortgages payable is estimated based on the Company’s current interest rates (Level 3 inputs of the fair value hierarchy) for similar types of borrowing arrangements.
Note 11 – Derivative Financial Instruments
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash payments principally related to the Company’s borrowings.
The Company’s objectives in using interest rate derivative financial instruments are to add stability to interest expense and to manage the Company’s exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate caps as part of its interest rate risk management strategy. Interest rate caps involve the receipt of variable-rate amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium.
The Company has not designated any of the interest rate derivatives as hedges. Although these derivative financial instruments were not designated or did not qualify for hedge accounting, the Company believes the derivative financial instruments are effective economic hedges against increases in interest rates. The Company does not use derivative financial instruments for trading or speculative purposes.
As of June 30, 2022, the Company had interest rate caps which effectively limit the Company’s exposure to interest rate risk by providing a ceiling on the underlying floating interest rate for $346.8 million of the Company’s floating rate mortgage debt.
The table below presents the classification and fair value of the Company’s derivative financial instruments on the consolidated balance sheets as of June 30, 2022 and December 31, 2021 (amounts in thousands):
Derivatives not designated as hedging Fair values of derivative
instruments under ASC 815-20 Balance Sheet Location instruments
June 30, December 31,
2022 2021
Interest rate caps Accounts receivable, prepaids and other assets $ 4,403 $ 185
The table below presents the classification and effect of the Company’s derivative financial instruments on the consolidated statements of operations for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
Derivatives not designated
as hedging instruments Location of Gain or (Loss) The Effect of Derivative Instruments
under ASC 815‑20 Recognized in Income on the Statements of Operations
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Interest rate caps Interest Expense $ 879 $ (20) $ 2,084 $ 15
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Note 12 – Related Party Transactions
Administrative Services Agreement
In October 2017, the Company entered into an Administrative Services Agreement (the “Administrative Services Agreement”) with Bluerock Real Estate, LLC and its affiliate, Bluerock Real Estate Holdings, LLC (together “BRE”). Pursuant to the Administrative Services Agreement, BRE provides the Company with certain human resources, investor relations, marketing, legal and other administrative services (the “Services”). The Services are provided on an at-cost basis, generally allocated based on the use of such Services for the benefit of the Company’s business, and are invoiced on a quarterly basis. In addition, the Administrative Services Agreement permits certain employees of the Company to provide or cause to be provided services to BRE, on an at-cost basis, generally allocated based on the use of such services for the benefit of the business of BRE, and otherwise subject to the terms of the Services provided by BRE to the Company under the Administrative Services Agreement. Payment by the Company of invoices and other amounts payable under the Administrative Services Agreement will be made in cash or, in the sole discretion of the Board, in the form of LTIP Units. The term of the Administrative Services Agreement expires on October 31, 2022 unless the Company renews. The Administrative Services Agreement will automatically terminate (i) upon termination by the Company of all Services, or (ii) in the event of non-renewal by the Company.
Pursuant to the Administrative Services Agreement, BRE is responsible for the payment of all employee benefits and any other direct and indirect compensation for the employees of BRE (or their affiliates or permitted subcontractors) assigned to perform the Services, as well as such employees’ worker’s compensation insurance, employment taxes, and other applicable employer liabilities relating to such employees.
The Company and BRE also entered into a Leasehold Cost-Sharing Agreement (the “Leasehold Cost-Sharing Agreement”) with respect to the lease for their New York headquarters (the “NY Lease”) to provide for the allocation and sharing between BRE and the Company of the costs thereunder, including costs associated with tenant improvements. The NY Lease permits the Company and certain of its respective subsidiaries and/or affiliates to share occupancy of the New York headquarters with BRE. Under the NY Lease, the Company, through its Operating Partnership, issued a $750,000 letter of credit as a security deposit, and BRE is obligated under the Leasehold Cost-Sharing Agreement to indemnify and hold the Company harmless from loss if there is a claim under such letter of credit. Payment by the Company of any amounts payable under the Leasehold Cost-Sharing Agreement to BRE will be made in cash or, in the sole discretion of the Board, in the form of LTIP Units.
Recorded as part of general and administrative expenses, operating expenses paid by BRE on behalf of the Company of $1.1 million and $0.7 million, and $2.2 million and $1.5 million were expensed during the three and six months ended June 30, 2022 and 2021, respectively. Operating expense reimbursements of $0.4 million for the first quarter 2022 were paid to BRE through the issuance of 14,705 LTIP Units on May 10, 2022.
Pursuant to the terms of the Administrative Services Agreement, the Company paid operating expenses on behalf of BRE of $1.1 million and $0.6 million, and $2.3 million and $1.5 million for the three and six months ended June 30, 2022 and 2021, respectively. Operating expense reimbursements for the first quarter 2022 were paid to the Company in cash during the second quarter 2022.
Pursuant to the terms of the Administrative Services Agreement (“ASA”) and the Leasehold Cost-Sharing Agreement (“CSA”), summarized below are the net related party amounts payable to BRE as of June 30, 2022 and December 31, 2021 (amounts in thousands):
June 30, December 31,
Amounts Payable to BRE, net 2022 2021
Operating and direct expense reimbursements under the ASA $ 404 $ 318
Offering expense reimbursements under the ASA — 94
Total amounts payable under the ASA, net $ 404 $ 412
Operating and direct expense reimbursements under the CSA 191 187
Total amounts payable to BRE, net $ 595 $ 599
As of June 30, 2022 and December 31, 2021, the Company had $1.5 million and $0.7 million, respectively, in receivables due from related parties other than BRE. The $1.5 million balance at June 30, 2022 represents the Company’s remaining estimated promote interest share of proceeds resulting from the sales of the Motif and Domain properties that were not distributed as of quarter end. Refer to Note 6 for further information.
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Note 13 – Stockholders’ Equity and Redeemable Preferred Stock
Net (Loss) Income Per Common Share
Basic net (loss) income per common share is computed by dividing net (loss) income attributable to common stockholders, less dividends on restricted stock and LTIP Units expected to vest, by the weighted average number of common shares outstanding for the period. Diluted net (loss) income per common share is computed by dividing net (loss) income attributable to common stockholders by the sum of the weighted average number of common shares outstanding and any potential dilutive shares for the period. Net (loss) income attributable to common stockholders is computed by adjusting net (loss) income for the non-forfeitable dividends paid on restricted stock and non-vested LTIP Units.
The Company considers the requirements of the two-class method when preparing earnings per share. The Company has two classes of common stock outstanding: Class A common stock, $ 0.01 par value per share, and Class C common stock, $ 0.01 par value per share. Earnings per share is not affected by the two-class method because the Company’s Class A and C common stock participate in dividends on a one-for-one basis.
The following table reconciles the components of basic and diluted net (loss) income per common share ($ in thousands):
Three Months Ended Six Months Ended
June 30, June,
2022 2021 2022 2021
Net (loss) income attributable to common stockholders $ (17,274) $ (5,429) $ (32,670) $ 18,152
Dividends on restricted stock and LTIP Units expected to vest (321) (384) (654) (767)
Basic net (loss) income attributable to common stockholders $ (17,595) $ (5,813) $ (33,324) $ 17,385
Weighted average common shares outstanding (1) 30,022,451 28,129,862 29,239,514 25,623,537
Potential dilutive shares (2) — — — 64,993
Weighted average common shares outstanding and potential dilutive shares (1) 30,022,451 28,129,862 29,239,514 25,688,530
Net (loss) income per common share, basic $ (0.59) $ (0.21) $ (1.14) $ 0.68
Net (loss) income per common share, diluted $ (0.59) $ (0.21) $ (1.14) $ 0.68
(1) Amounts relate to shares of the Company’s Class A and Class C common stock outstanding.
(2) For the three months ended June 30, 2022, the following are excluded from the diluted shares calculation as the effect is antidilutive: a) Company Warrants outstanding from issuances in conjunction with the Company’s Series B Preferred Stock offerings that are potentially exercisable for 555,750 shares of Class A common stock, and b) potential vesting of restricted stock to employees for 50,518 shares of Class A common stock. For the six months ended June 30, 2022, the following are excluded from the diluted shares calculation as the effect is antidilutive: a) Company Warrants outstanding from issuances in conjunction with the Company’s Series B Preferred Stock offerings that are potentially exercisable for 556,936 shares of Class A common stock, and b) potential vesting of restricted stock to employees for 50,063 shares of Class A common stock.
For the three months ended June 30, 2021, potential vesting of restricted stock to employees for 53,988 shares of Class A common stock are excluded from the diluted shares calculation as the effect is antidilutive. For the six months ended June 30, 2021, the following are included in the diluted shares calculation: a) Warrants outstanding from issuances in conjunction with the Company’s Series B Preferred Stock offerings that are potentially exercisable for 11,932 shares of Class A common stock, and b) potential vesting of restricted stock to employees for 53,061 shares of Class A common stock.
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The effect of the conversion of OP Units is not reflected in the computation of basic and diluted earnings per share, as they are exchangeable for Class A common stock on a one-for-one basis. The income allocable to such OP Units is allocated on this same basis and reflected as noncontrolling interests in the accompanying consolidated financial statements. As such, the assumed conversion of these OP Units would have no net impact on the determination of diluted earnings per share.
Series T Redeemable Preferred Stock
On November 19, 2021, the Company made the final issuance of Series T Preferred Stock pursuant to the Series T Preferred Offering, and upon the final issuance, the Series T Preferred Offering terminated pursuant to its terms. During the life of the Series T Preferred Offering, the Company issued a total of 28,369,906 shares of Series T Preferred Stock for net proceeds of approximately $638.3 million after commissions, dealer manager fees and discounts. During the six months ended June 30, 2022, the Company, at the request of holders, redeemed 36,771 shares of Series T Preferred Stock for $0.9 million in cash.
Series B Redeemable Preferred Stock
During the six months ended June 30, 2022, the Company, at the request of holders, redeemed 962 shares of Series B Preferred Stock for $0.9 million in cash.
As of June 30, 2022, the Company had 55,127 outstanding Company Warrants from its offering of Series B Preferred Stock. The Company Warrants are exercisable by the holder at an exercise price of 120% of the market price per share of Class A common stock on the date of issuance of such Company Warrant, with a minimum exercise price of $10.00 per share. The market price per share of our Class A common stock was determined using the volume weighted average price per share of our Class A common stock for the 20 trading days prior to the date of issuance of such Company Warrant, subject to the minimum exercise price of $10.00 per share (subject to adjustment). One Company Warrant is exercisable by holder to purchase 20 shares of Class A common stock. The Company Warrants are exercisable one year following the date of issuance and expire four years following the date of issuance. During the six months ended June 30, 2022, a total of 185,658 Company Warrants were exercised into 2,222,199 shares of Class A common stock. The outstanding Company Warrants have exercise prices ranging from $10.70 to $14.71 per share.
Operating Partnership and Long-Term Incentive Plan Units
As of June 30, 2022, limited partners other than the Company owned approximately 26.76% of the common units of the Operating Partnership (5,881,776 OP Units, or 14.14%, is held by OP Unit holders, and 5,250,197 LTIP Units, or 12.62%, is held by LTIP Unit holders, including 4.60% which are not vested at June 30, 2022). Subject to certain restrictions set forth in the Operating Partnership’s Partnership Agreement, OP Units are exchangeable for Class A common stock on a one-for-one basis, or, at the Company’s election, redeemable for cash. LTIP Units may be convertible into OP Units under certain conditions and then may be settled in shares of the Company’s Class A common stock, or, at the Company’s election, cash.
Equity Incentive Plans
LTIP Unit Grants
On January 1, 2022, the Company granted an aggregate of 134,131 time-based LTIP Units and an aggregate of 268,265 performance-based LTIP Units to various executive officers under the Fourth Amended 2014 Incentive Plans pursuant to the executive officers’ employment or service agreements. The time-based LTIP Units vest over approximately three years, while the performance-based LTIP Units are subject to a three-year performance period and will thereafter vest upon successful achievement of performance-based conditions. All such LTIP Unit grants require continuous employment for vesting.
In addition, on January 1, 2022, the Company granted 3,546 LTIP Units pursuant to the Fourth Amended 2014 Incentive Plans to each independent member of the Board in payment of the equity portion of their respective annual retainers. Such LTIP Units were fully vested upon issuance and the Company recognized expense of $0.4 million immediately based on the fair value at the date of grant.
On April 1, 2022, the Company granted 13,176 LTIP Units to an employee under the Incentive Plans. Such LTIP Units will vest in three equal installments on each anniversary of the date of grant.
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On February 28, 2022 and May 10, 2022, the Company granted an aggregate of 10,068 LTIP Units and 10,065 LTIP Units, respectively, to two executive officers under the Fourth Amended 2014 Incentive Plans in lieu of cash payment of an agreed upon portion of the executive officers’ base salary, with the remaining portion payable in cash, for the first and second quarter 2022, respectively. Such LTIP Units will vest on the first anniversary of the date of grant.
On April 12, 2022, the Company granted an aggregate of 104,632 LTIP Units to various executive officers under the Fourth Amended 2014 Incentive Plans pursuant to the executive officers’ employment or service agreements in lieu of cash payment of annual incentive bonuses for the fiscal year ended December 31, 2021. Of the LTIP Units granted, 41,386 LTIP Units were fully vested upon issuance, with the remaining 63,246 LTIP Units to vest on the first anniversary of the date of grant.
The Company recognizes compensation expense ratably over the requisite service periods for time-based LTIP Units based on the fair value at the date of grant; thus, the Company recognized compensation expense of approximately $1.0 million and $1.0 million, and $2.0 million and $2.0 million during the three and six months ended June 30, 2022 and 2021, respectively. The Company recognizes compensation expense based on the fair value at the date of grant and the probability of achievement of performance criteria over the performance period for performance-based LTIP Units; thus, the Company recognized compensation expense of approximately $1.0 million and $0.9 million, and $2.0 million and $1.7 million during the three and six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, there was $9.5 million of total unrecognized compensation expense related to unvested LTIP Units granted under the Incentive Plans. The remaining expense is expected to be recognized over a period of 2.0 years.
Restricted Stock Grants
Each April starting in 2019 through 2021, the Company provided restricted stock grants (“RSGs”) to employees under the Incentive Plans. Such RSGs will vest in three equal installments on each anniversary of the date of grant. The RSGs provided were comprised of an aggregate of 237,402 shares of Class A common stock with an aggregate fair value of $2.0 million. The Company recognized compensation expense for such RSGs of approximately $0.05 million and $0.1 million, and $0.2 million and $0.2 million during the three and six months ended June 30, 2022 and 2021, respectively.
As of June 30, 2022, there was $0.2 million of total unrecognized compensation expense related to the unvested RSGs granted under the Incentive Plans. The remaining expense is expected to be recognized over the remaining 1.6 years.
Distributions
Payable to stockholders
Declaration Date of record as of Amount Date Paid or Payable
Class A Common Stock
December 10, 2021 December 23, 2021 $ 0.162500 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.162500 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.162500 July 5, 2022
Class C Common Stock
December 10, 2021 December 23, 2021 $ 0.162500 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.162500 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.162500 July 5, 2022
Series B Preferred Stock
October 11, 2021 December 23, 2021 $ 5.00 January 5, 2022
January 14, 2022 January 25, 2022 $ 5.00 February 4, 2022
January 14, 2022 February 25, 2022 $ 5.00 March 4, 2022
January 14, 2022 March 25, 2022 $ 5.00 April 5, 2022
April 11, 2022 April 25, 2022 $ 5.00 May 5, 2022
May 13, 2022 May 25, 2022 $ 5.00 June 3, 2022
June 10, 2022 June 24, 2022 $ 5.00 July 5, 2022
Series C Preferred Stock
December 10, 2021 December 23, 2021 $ 0.4765625 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.4765625 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.4765625 July 5, 2022
Series D Preferred Stock
December 10, 2021 December 23, 2021 $ 0.4453125 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.4453125 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.4453125 July 5, 2022
Series T Preferred Stock
October 11, 2021 December 23, 2021 $ 0.128125 January 5, 2022
January 14, 2022 January 25, 2022 $ 0.128125 February 4, 2022
January 14, 2022 February 25, 2022 $ 0.128125 March 4, 2022
January 14, 2022 March 25, 2022 $ 0.128125 April 5, 2022
April 11, 2022 April 25, 2022 $ 0.128125 May 5, 2022
May 13, 2022 May 25, 2022 $ 0.128125 June 3, 2022
June 10, 2022 June 24, 2022 $ 0.128125 July 5, 2022
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A portion of each dividend may constitute a return of capital for tax purposes. There is no assurance that the Company will continue to declare dividends or at this rate. Holders of OP Units and LTIP Units are entitled to receive “distribution equivalents” at the same time as dividends are paid to holders of the Company’s Class A common stock.
The Company had a dividend reinvestment plan that allowed for participating stockholders to have their Class A common stock dividend distributions automatically reinvested in additional Class A common shares based on the average price of the Class A common shares on the investment date. The Company also had a dividend reinvestment plan that allowed for participating stockholders to have their Series T Preferred Stock dividend distributions automatically reinvested in additional shares of Series T Preferred Stock at a price of $25.00 per share. In December 2021, the Board approved the suspension of the dividend reinvestment plans until further notice.
Distributions declared and paid for the six months ended June 30, 2022 were as follows (amounts in thousands):
Distributions
2022 Declared Paid
First Quarter
Class A Common Stock $ 4,804 $ 4,361
Class C Common Stock 12 12
Series B Preferred Stock 5,383 5,386
Series C Preferred Stock 1,094 1,094
Series D Preferred Stock 1,235 1,235
Series T Preferred Stock 10,860 10,971
OP Units 958 1,027
LTIP Units 868 645
Total first quarter 2022 $ 25,214 $ 24,731
Second Quarter
Class A Common Stock $ 4,937 $ 4,805
Class C Common Stock 12 12
Series B Preferred Stock 5,373 5,376
Series C Preferred Stock 1,094 1,094
Series D Preferred Stock 1,235 1,235
Series T Preferred Stock 10,855 10,857
OP Units 956 955
LTIP Units 824 1,190
Total second quarter 2022 $ 25,286 $ 25,524
Total $ 50,500 $ 50,255
Note 14 – Commitments and Contingencies
As of June 30, 2022, the aggregate amount of the Company’s contractual commitments to fund future cash obligations in certain of its preferred equity, loan and joint venture investments was $60.0 million.
The Company is subject to various legal actions and claims arising in the ordinary course of business. Although the outcome of any legal matter cannot be predicted with certainty, management does not believe that any of these legal proceedings or matters will have a material adverse effect on the consolidated financial position or results of operations or liquidity of the Company.
Note 15 – Segment Information
The Company owns and operates residential investments that generate rental and other property-related income through the leasing of units to a diverse base of tenants. The Chief Operating Decision Maker, which is comprised of several members of the Company’s executive management team, evaluates the performance of the Company’s operations and allocates financial and other resources by assessing the financial results of and future performance outlook for the Company’s two reportable segments: multifamily apartment communities (“Multifamily”) and single-family residential homes (“Single-family”).
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The Chief Operating Decision Maker’s primary financial measure for the Company’s operating performance is net operating income (“NOI”). NOI is a non-GAAP measure that the Company defines as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. The Chief Operating Decision Maker evaluates the Company’s operating performance using NOI as it measures the core operations of property performance by excluding corporate level expenses and those other items not related to property operating performance.
The following table summarizes NOI by the Company’s reportable segments for the three and six months ended June 30, 2022 and 2021, and reconciles NOI to net (loss) income attributable to common stockholders on the Company’s consolidated statements of operations. Prior year amounts have been reclassified to conform to the current period segment presentation (amounts in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Rental and other property revenues
Multifamily $ 50,839 $ 48,323 $ 100,486 $ 98,742
Single-family 7,676 1,398 14,528 2,061
Total rental and other property revenues 58,515 49,721 115,014 100,803
Property operating expenses
Multifamily 18,032 18,522 35,136 38,099
Single-family 3,774 387 6,554 742
Total property operating expenses 21,806 18,909 41,690 38,841
Net operating income
Multifamily 32,807 29,801 65,350 60,643
Single-family 3,902 1,011 7,974 1,319
Total net operating income 36,709 30,812 73,324 61,962
Reconciling items:
Interest income from loan and ground lease investments 1,073 4,114 7,825 8,835
Property management fee expenses (2,104) (1,247) (3,974) (2,528)
General and administrative expenses (7,284) (6,595) (15,204) (13,240)
Acquisition and pursuit costs (71) (3) (116) (15)
Weather-related losses, net — — — (400)
Depreciation and amortization (21,425) (19,926) (43,456) (40,250)
Other income 198 57 1,184 209
Preferred returns on unconsolidated real estate joint ventures 4,547 2,329 8,364 4,616
Provision for credit losses 134 (26) 930 (567)
Gain on sale of real estate investments — 19,429 — 88,342
Gain on sale of unconsolidated joint venture 2,802 — 6,694 —
Transaction costs (2,158) — (9,703) —
Loss on extinguishment of debt and debt modification costs — (647) — (3,687)
Interest expense, net (13,373) (13,460) (24,918) (27,294)
Net (loss) income (952) 14,837 950 75,983
Preferred stock dividends (18,557) (14,367) (37,129) (28,984)
Preferred stock accretion (5,639) (7,290) (10,845) (14,312)
Net (loss) income attributable to noncontrolling interests
Operating partnership units (6,108) (1,978) (11,924) 8,182
Partially-owned properties (1,766) 587 (2,430) 6,353
Net (loss) income attributable to noncontrolling interests (7,874) (1,391) (14,354) 14,535
Net (loss) income attributable to common stockholders $ (17,274) $ (5,429) $ (32,670) $ 18,152
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The following table summarizes the assets of the Company’s reportable segments as of June 30, 2022 and December 31, 2021 (amounts in thousands):
June 30, December 31,
2022 2021
Assets
Net Real Estate Investments
Multifamily $ 1,700,308 $ 1,729,214
Single-family 427,212 318,084
Total Net Real Estate Investments 2,127,520 2,047,298
Reconciling items:
Cash and cash equivalents 244,924 166,492
Restricted cash 30,807 30,015
Notes and accrued interest receivable, net 23,118 173,489
Due from affiliates 1,536 711
Accounts receivable, prepaids and other assets, net 48,543 43,108
Preferred equity investments and investments in unconsolidated real estate joint ventures, net 165,556 135,690
In-place lease intangible assets, net 97 2,530
Total Consolidated Assets $ 2,642,101 $ 2,599,333
Note 16 – Subsequent Events
Declaration of Dividends
Payable to stockholders
Declaration Date of record as of Amount Paid / Payable Date
Series B Preferred Stock
July 11, 2022 July 25, 2022 $ 5.00 August 5, 2022
Series T Preferred Stock
July 11, 2022 July 25, 2022 $ 0.128125 August 5, 2022
Distributions Paid
The following distributions were declared and/or paid to the Company’s stockholders, as well as holders of OP Units and LTIP Units, subsequent to June 30, 2022 (amounts in thousands):
Declaration Distributions Total
Shares Date Record Date Date Paid per Share Distribution
Class A Common Stock June 10, 2022 June 24, 2022 July 5, 2022 $ 0.1625000 $ 4,937
Class C Common Stock June 10, 2022 June 24, 2022 July 5, 2022 0.1625000 12
Series B Preferred Stock June 10, 2022 June 24, 2022 July 5, 2022 5.0000000 1,791
Series C Preferred Stock June 10, 2022 June 24, 2022 July 5, 2022 0.4765625 1,094
Series D Preferred Stock June 10, 2022 June 24, 2022 July 5, 2022 0.4453125 1,235
Series T Preferred Stock June 10, 2022 June 24, 2022 July 5, 2022 0.1281250 3,618
OP Units June 10, 2022 June 24, 2022 July 5, 2022 0.1625000 956
LTIP Units June 10, 2022 June 24, 2022 July 5, 2022 0.1625000 661
Series B Preferred Stock July 11, 2022 July 25, 2022 August 5, 2022 5.0000000 1,791
Series T Preferred Stock July 11, 2022 July 25, 2022 August 5, 2022 0.1281250 3,618
Total $ 19,713
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Weatherford 185 Mezzanine Loan Financing
In July 2022, the borrower exercised the last of the loan’s thirty-day extension options, extending the maturity date to mid-August 2022. Upon the exercise, the borrower was required to make a payment to the Company of $0.1 million toward the unpaid principal balance of the loan. On July 22, 2022, the loan provided by the Company was paid off for $9.4 million, which included principal repayment of $9.3 million and accrued interest of $0.1 million.
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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 consolidated financial statements of Bluerock Residential Growth REIT, Inc., and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Bluerock Residential Growth REIT, Inc., a Maryland corporation, 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 Real Estate, L.L.C., a Delaware limited liability company, as “Bluerock”, and we refer to our former external manager, BRG Manager, LLC, a Delaware limited liability company, as our “former Manager.” Both Bluerock and our former Manager are affiliated with the Company.
Forward-Looking Statements
Statements included in this Quarterly Report on Form 10-Q that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are “forward-looking statements,” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements.
On December 20, 2021, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Badger Parent LLC (“Parent”) and Badger Merger Sub LLC (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger. The Merger and the other transactions contemplated by the Merger Agreement were unanimously approved by our Board. Parent and Merger Sub are affiliates of Blackstone Real Estate Partners IX L.P., an affiliate of Blackstone Inc.
Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus and variants thereof (“COVID-19”) on our financial condition, results of operations, cash flows and performance, the tenants of our properties, business partners within our network and service providers, as well as the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts us and our tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact (including governmental actions that may vary by jurisdiction, such as mandated business closing; “stay-at-home” orders; limits on group activity; and actions to protect residential tenants from eviction), and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this Quarterly Report on Form 10-Q, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
Additional factors that could have a material adverse effect on our operations and future prospects include, but are not limited to:
● 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;
● the competitive environment in which we operate;
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● the occurrence of any event, change or other circumstances that could delay the completion of the Merger or give rise to the termination of the Merger Agreement with Parent and Merger Sub, and the risk that the Merger Agreement may be terminated in circumstances that require us to pay a termination fee of $60 million;
● the failure to satisfy any of the conditions to the completion of the Merger, the Separation or the Distribution;
● the ability to meet expectations regarding the timing and completion of the Merger and the Separation and the Distribution;
● risks related to disruption of management’s attention from our ongoing business operations due to the proposed Merger, the Separation and the Distribution;
● the incurrence of substantial costs relating to the Merger, the Separation and the Distribution;
● the effect of the announcement and the pendency of the Merger, the Separation and the Distribution on our business relationships, operating results and business generally;
● any legal proceedings that may be initiated against us related to the Merger Agreement or any of the transactions contemplated by the Merger Agreement, and the outcome thereof;
● real estate risks, including fluctuations in real estate values and the general economic climate in local markets and competition for tenants in such markets;
● risks associated with geographic concentration of our investments;
● decreased rental rates or increasing vacancy rates;
● our ability to lease newly acquired or newly constructed apartment or single-family properties;
● potential defaults on or non-renewal of leases by tenants;
● creditworthiness of tenants;
● our ability to obtain financing for and complete acquisitions under contract at the contemplated terms, or at all;
● development and acquisition risks, including rising and unanticipated costs, delays in timing, abandonment of opportunities, and failure of such acquisitions and developments to perform in accordance with projections;
● the timing of acquisitions and dispositions;
● the performance of our network of leading regional apartment and single-family residential owner/operators with which we invest, including through controlling positions in joint ventures;
● potential natural disasters such as hurricanes, tornadoes and floods;
● national, international, regional and local economic conditions;
● Board determination as to timing and payment of dividends, and our ability to pay future distributions at the dividend rates we have paid historically;
● the general level of interest rates;
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● potential changes in the law or governmental regulations that affect us and interpretations of those laws and regulations, including changes in real estate and zoning or tax laws, and potential increases in real property tax rates;
● financing risks, including the risks that our cash flows from operations may be insufficient to meet required payments of principal and interest and we may be unable to refinance our existing debt upon maturity or obtain new financing on attractive terms or at all;
● lack of or insufficient amounts of insurance;
● our ability to maintain our qualification as a REIT;
● litigation, including costs associated with prosecuting or defending claims and any adverse outcomes; and
● possible environmental liabilities, including costs, fines or penalties that may be incurred due to necessary remediation of contamination of properties presently owned or previously owned by us or a subsidiary owned by us or acquired by us.
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 Item 1A of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 11, 2022, and subsequent filings by us with the SEC, or (“Risk Factors”).
Overview
We were incorporated as a Maryland corporation on July 25, 2008. Our objective is to maximize long-term stockholder value by acquiring and developing well-located institutional-quality multifamily apartment communities and single-family residential homes in knowledge economy growth markets across the United States. We seek to maximize returns through investments where we believe we can drive substantial growth in our core funds from operations and net asset value primarily through our Value-Add and Invest-to-Own investment strategies.
We conduct our operations through Bluerock Residential Holdings, L.P., our operating partnership (the “Operating Partnership”), of which we are the sole general partner. The consolidated financial statements include our accounts and those of the Operating Partnership and its subsidiaries.
As of June 30, 2022, we held an aggregate of 18,399 units, comprised of 14,383 multifamily units and 4,016 single-family residential units. The aggregate number of units are held through seventy-four real estate investments, consisting of fifty-two consolidated operating investments and twenty-two investments held through preferred equity, loan or ground lease investments. As of June 30, 2022, our consolidated operating investments were approximately 94.6% occupied.
We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT commencing with our taxable year ended December 31, 2010. In order to continue to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations. We intend to continue to organize and operate in such a manner as to remain qualified as a REIT.
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Proposed Merger
On December 20, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Badger Parent LLC (“Parent”) and Badger Merger Sub LLC (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, the Company will be merged with and into Merger Sub (the “Merger”), with Merger Sub surviving the Merger. The Merger and the other transactions contemplated by the Merger Agreement were unanimously approved by the Board. Parent and Merger Sub are affiliates of Blackstone Real Estate Partners IX L.P., an affiliate of Blackstone Inc. On April 12, 2022, the Company held a special meeting of stockholders (the “Special Meeting”) at which the Merger was approved by the holders of issued and outstanding common stock, par value $0.01 per share, of the Company (the “Company Common Stock”) entitled to cast a majority of all the votes entitled to be cast on the Merger. No further action by the Company’s stockholders is required to approve the Merger.
Pursuant to the terms and conditions in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share of Company Common Stock, that is issued and outstanding immediately prior to the Effective Time will automatically be converted into the right to receive $24.25 in cash, without interest and less any applicable withholding taxes (the “Per Share Merger Consideration”).
The Company will deliver a notice of redemption (the “Preferred Stock Redemption Notice”) to the holders of our Series B Redeemable Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), 7.625% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), 7.125% Series D Cumulative Preferred Stock, par value $0.01 per share (“Series D Preferred Stock”), and Series T Redeemable Preferred Stock, par value $0.01 per share (“Series T Preferred Stock”), in accordance with their respective Articles Supplementary, which will provide that such preferred stock will be redeemed effective as of the Effective Time. Each share of Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock will be redeemed for an amount equal to $25.00 plus an amount equal to all accrued and unpaid dividends to and including the redemption date set forth in the Preferred Stock Redemption Notice, without interest. Each share of Series B Preferred Stock will be redeemed for an amount equal to $1,000.00 plus an amount equal to all accrued and unpaid dividends to and including the redemption date set forth in the Preferred Stock Redemption Notice, without interest.
The outstanding warrants to purchase Class A common stock of the Company (the “Company Warrants”) will remain outstanding following the Effective Time in accordance with their terms, but will be adjusted so that the holder of any Company Warrant exercised at or after the Effective Time will be entitled to receive in cash the amount of the Per Share Merger Consideration which, if the Company Warrant had been exercised immediately prior to the Closing, such holder would have been entitled to receive upon the consummation of the Merger.
In addition, each award of shares of restricted Class A common stock of the Company that is outstanding immediately prior to the Effective Time will be cancelled in exchange for a cash payment in an amount equal to (i) the number of shares of Company Common Stock subject to such award immediately prior to the Effective Time multiplied by (ii) the Per Share Merger Consideration, without interest and less any applicable withholding taxes.
Prior to the consummation of the Merger, we will complete the separation of our single-family residential real estate business (the “SFR Business”) from our multi-family residential real estate business (the “Separation”). Following the Separation, the SFR Business will be indirectly held by Bluerock Homes Trust, Inc. (“BHM”), a Maryland corporation, and the Operating Partnership, and, prior to the consummation of the Merger, we will distribute the common stock of BHM to our stockholders as of the record date for such distribution in a taxable distribution (the “Distribution”). Only holders of Company Warrants that are exercised so that the Company Common Stock issued in respect thereof is issued and outstanding as of the record date for the Distribution will be entitled to receive any common stock of BHM in the Distribution in respect of such Company Warrants.
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In connection with the Separation, the Operating Partnership will exchange its interests in an entity holding its multi-family residential real estate business with the Company as consideration for a redemption of all of our preferred interests in the Operating Partnership and a portion of our common units in the Operating Partnership (the “Redemption”). As a result, following the Redemption, the Operating Partnership will cease to hold interests in the Company’s multi-family residential real estate business, and will hold the assets related to the SFR Business. Most members of our senior management, along with certain entities related to them, have agreed to retain their interests in the Operating Partnership until the earlier of the Effective Time and the termination of the Merger Agreement, rather than redeeming their interests for cash or shares of Company Common Stock that will receive the Per Share Merger Consideration. As a result, following the Separation and the Distribution, our stockholders who receive shares of BHM in the Distribution are expected to indirectly own approximately 35% of the SFR Business, with holders of units in the Operating Partnership (other than BHM) expected to indirectly own an interest of approximately 65% of the SFR Business. In connection with the Separation and the Distribution, BHM and the Operating Partnership will enter into a management agreement with an affiliate of Bluerock providing for it to be externally managed thereby.
The Merger Agreement contains customary representations, warranties and covenants, including, among others, covenants by the Company to use commercially reasonable efforts to conduct its business in all material respects in the ordinary course, subject to certain exceptions, during the period between the execution of the Merger Agreement and the consummation of the Merger. The obligations of Parent and Merger Sub to consummate the Merger are not subject to any financing condition or the receipt of any financing by Parent or Merger Sub.
The consummation of the Merger is conditioned on the consummation of the Separation and the Distribution, as well as certain customary closing conditions.
The Company has agreed not to solicit or enter into an agreement regarding a Company Takeover Proposal (as defined in the Merger Agreement) and is not permitted to enter into discussions or negotiations concerning, or provide information to a third party in connection with, any Company Takeover Proposal, in each case subject to certain exceptions that no longer apply following the approval of the Merger by the Company’s common stockholders.
The Merger Agreement may be terminated under certain circumstances by the Company. In addition, Parent may terminate the Merger Agreement under certain circumstances and subject to certain restrictions. The Merger Agreement also may be terminated by either the Company or Parent if the Merger has not been completed on or prior to the date that is nine months after the date of the Merger Agreement, which date may be extended to complete the Separation and the Distribution, by the Company, up to the date that is ten months after the date of the Merger Agreement, or by Parent, up to the date that is twelve months after the date of the Merger Agreement.
In connection with a termination of the Merger Agreement in certain circumstances, the Company will be required to pay a termination fee to Parent of $60 million. Upon termination of the Merger Agreement in certain other circumstances, Parent will be required to pay the Company a termination fee of $200 million.
The foregoing description of the Merger Agreement is only a summary, does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is filed as Exhibit 2.1 to our current report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on December 21, 2021.
The Company expects the Separation, the Distribution and the Merger to be completed in the second half of 2022, subject to the satisfaction of the closing conditions set forth in the Merger Agreement.
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COVID-19
We continue to monitor the impact of the COVID-19 pandemic and any resulting macro-economic changes on all aspects of our business and apartment communities, including how it will impact our tenants and business partners. While, consistent with prior quarters, we did not incur any significant impact on our performance during the three months ended June 30, 2022 from the COVID-19 pandemic, going forward we cannot predict the impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to the numerous uncertainties. These uncertainties include the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The outbreak of COVID-19 across the globe, including the United States, has significantly and adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel. Certain states and cities, including where we own communities, have developments and where our Company has places of business located, have also reacted by instituting quarantines, restrictions on travel, “stay-at-home” orders, restrictions on types of business that may continue to operate or be reinstituted, as applicable, and/or restrictions on the types of construction projects that may continue or be reinstituted. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire or, to the extent expired, be reinstituted. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which our tenants are employed. Further, the impacts of a potential worsening of global economic conditions and the continued disruptions to, and volatility in, the credit and financial markets, consumer spending as well as other unanticipated consequences remain unknown. We also are unable to predict the impact that COVID-19 will have on our tenants, business partners within our network, and our service providers; and therefore, any material effect on these parties could adversely impact us.
Previously, we had provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19, decreasing from 1% in the quarter ended June 30, 2020 to none in the quarter ended June 30, 2022. Although we may receive tenant requests for rent deferrals in the coming months, we do not expect to waive our contractual rights under our lease agreements. Further, while occupancy remains strong at 94.6% and 94.5% as of June 30, 2022 and July 31, 2022, respectively, in future periods, we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of the impact of COVID-19.
The impact of the COVID-19 pandemic and any resulting macro-economic changes on our rental revenue for the third quarter of 2022 and thereafter cannot be determined at present. The situation surrounding the COVID-19 pandemic remains uncertain, and we are actively managing our response in collaboration with business partners in our network and service providers and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. While we expect COVID-19 to adversely impact our tenants in the short term, we believe the knowledge economy renter by choice targeted by our Class A affordable rent strategy should be less impacted by COVID-19 related job loss, which should provide a downside buffer in the interim and allow us to reaccelerate rent growth more quickly once more economic certainty exists around the COVID-19 pandemic.
Since the beginning of the COVID-19 pandemic, we have taken actions to prioritize the health and well-being of our tenants and our employees, while maintaining our high standard of service. As of June 30, 2022, all our properties are open and are complying with federal, state and local government orders. In keeping with such orders, we have implemented, and will continue to implement, operational changes, including the adoption of social distancing practices, additional use of PPE equipment and a virtual leasing/virtual office structure. Our property offices are now open to the public and to residents by appointment and with strict social distancing protocols in place. Work orders are now being completed, also with strict safety protocols in place including PPE equipment and a safety questionnaire of each resident at time of request. Generally, the outdoor amenity areas at our communities, including pools, pet parks, and outdoor social areas, have re-opened with strict social distancing protocols, limited capacity and cleaning protocols implemented. Our properties continue the cleaning protocols for the sanitization of all community common areas (including handrails, doors and elevators).
Our corporate offices have also transitioned from a full remote work week to a hybrid model. There can be no assurances that the continuation of such remote work arrangements for an extended period of time will not strain our business continuity plans, introduce operational risk, including cybersecurity risks, or impair our ability to manage our business.
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Other Significant Developments
Acquisition of and Investments in Real Estate
During the six months ended June 30, 2022, we acquired an additional 405 single-family residential units through four new or existing joint ventures for total purchase prices of $103.7 million. Additionally, we increased our preferred equity investments in Chandler, Deerwood Apartments, Lower Broadway, Orange City Apartments, The Cottages at Myrtle Beach, The Cottages at Warner Robins, The Cottages of Port St. Lucie, The Woods at Forest Hill and Wayford at Innovation Park by an aggregate of approximately $59.8 million.
We entered into a mezzanine loan agreement with Weatherford 185 and provided loan funding of approximately $9.6 million, and we subsequently received principal loan repayments from Weatherford 185 in the aggregate of $0.2 million. We also provided increased mezzanine loan funding to Domain at The One Forty of approximately $0.1 million.
The following is a summary of our real estate investments made during the six months ended June 30, 2022 ($ in millions):
Number of Ownership Purchase
Name - Operating Market Date of Investment (1) Units Interest Price
Single-Family Residential (2)
Granbury 2.0 (3) Granbury, TX March 11, 2022 34 80 % $ 7.7
Savannah 319 Savannah, GA March 17, 2022 19 80 % 4.5
Golden Pacific IN / KS / MO 1Q 2022 62 97 % 11.8
ILE TX / SE US 1Q 2022 31 95 % 7.0
Ballast AZ / CO / WA 2Q 2022 65 95 % 26.1
Golden Pacific IN / KS / MO 2Q 2022 66 97 % 14.0
ILE TX / SE US 2Q 2022 108 95 % 27.8
Savannah 319 Savannah, GA 2Q 2022 20 80 % 4.8
Total Operating 405 $ 103.7
Number of Commitment Investment
Name – Mezzanine Loan Market Date of Investment Units Amount Amount
Single-Family Residential
Weatherford 185 (4) Weatherford, TX February 15, 2022 185 $ 9.6 $ 9.6
Total Mezzanine Loan 185 $ 9.6
Total 590 $ 113.3
(1) For those acquisitions where the quarter is specified, we acquired additional units on various dates throughout that specified quarter. These additional units were added to the respective existing portfolios. For Ballast, the units acquired in the second quarter 2022 were the first of our acquisitions for that portfolio.
(2) Single-Family Residential includes single-family residential homes and attached townhomes/flats.
(3) At the time of closing, we made a common equity investment in Granbury 2.0 and provided a mezzanine loan to the portfolio owner. On April 1, 2022, our full mezzanine loan investment was converted into a common equity interest. Refer to Note 7 of our consolidated financial statements for further information.
(4) On July 22, 2022, the Weatherford 185 loan that we provided was paid off in full.
Sale of Real Estate Assets and Investments
We received loan payoffs of approximately $164.5 million from the sale of four properties. Additionally, four properties underlying unconsolidated joint ventures were sold and our preferred equity investments were redeemed for net proceeds of $30.7 million.
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The following is a summary of our loan payoffs and redemptions of preferred equity investments during the six months ended June 30, 2022 ($ in millions):
Number of Sale BRG Net
Property Location Date Sold Units Price Proceeds
Mezzanine Loan
Reunion Apartments Orlando, FL February 25, 2022 280 $ 90.0 $ 12.5
The Hartley at Blue Hill Chapel Hill, NC February 28, 2022 414 114.2 39.4 (1)
Motif Fort Lauderdale, FL March 24, 2022 385 195.0 87.2
Domain at The One Forty Garland, TX May 5, 2022 299 74.2 25.4
Total Mezzanine Loan 1,378 $ 473.4 $ 164.5
Preferred Equity
Alexan CityCentre Houston, TX January 20, 2022 340 $ 92.8 $ 18.7
Georgetown Crossing Savannah, GA March 29, 2022 168 30.0 2.2
Park on the Square Pensacola, FL April 12, 2022 240 61.3 5.9
The Commons Jacksonville, FL June 16, 2022 328 58.9 3.9
Total Preferred Equity 1,076 $ 243.0 $ 30.7
Total 2,454 $ 716.4 $ 195.2
(1) On April 29, 2022, the senior loan that we provided, which was secured by a parcel of land adjacent to The Hartley at Blue Hill property, was paid off for $5.0 million. The senior loan payoff is included in the BRG Net Proceeds amount.
Redemptions of Preferred Stock
During the six months ended June 30, 2022, we, at the request of holders, redeemed 962 shares of Series B Redeemable Preferred Stock and 36,771 shares of Series T Redeemable Preferred Stock for $0.9 million and $0.9 million in cash, respectively.
Our total stockholders’ equity decreased $33.3 million from $83.9 million as of December 31, 2021 to $50.6 million as of June 30, 2022. The decrease in our total stockholders’ equity is primarily attributable to dividends declared of $46.9 million and preferred stock accretion of $10.8 million, partially offset by net income of $15.3 million and the impact of Company Warrant exercises of $5.5 million during the six months ended June 30, 2022.
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Results of Operations
The following is a summary of our stabilized consolidated operating real estate investments as of June 30, 2022:
Number of Date Ownership Average %
Name Location Units Built/Renovated (1) Interest Rent (2) Occupied (3)
Multifamily
ARIUM Glenridge Atlanta, GA 480 1990 90 % $ 1,520 93.1 %
ARIUM Westside Atlanta, GA 336 2008 90 % 1,649 89.6 %
Ashford Belmar Lakewood, CO 512 1988/1993 85 % 1,863 95.7 %
Avenue 25 Phoenix, AZ 254 2013 100 % 1,494 92.9 %
Burano Hunter’s Creek Orlando, FL 532 1999 100 % 1,608 96.4 %
Carrington at Perimeter Park Morrisville, NC 266 2007 100 % 1,425 97.7 %
Chattahoochee Ridge Atlanta, GA 358 1996 90 % 1,563 95.5 %
Chevy Chase Austin, TX 320 1971 92 % 1,171 95.6 %
Cielo on Gilbert Mesa, AZ 432 1985 90 % 1,382 95.4 %
Citrus Tower Orlando, FL 336 2006 97 % 1,588 97.0 %
Denim Scottsdale, AZ 645 1979 100 % 1,509 96.1 %
Elan Austin, TX 270 2007 100 % 1,308 96.3 %
Element Las Vegas, NV 200 1995 100 % 1,519 94.5 %
Falls at Forsyth Cumming, GA 356 2019 100 % 1,629 94.4 %
Gulfshore Apartment Homes Naples, FL 368 2016 100 % 1,530 94.8 %
Outlook at Greystone Birmingham, AL 300 2007 100 % 1,305 97.7 %
Pine Lakes Preserve Port St. Lucie, FL 320 2003 100 % 1,744 94.7 %
Providence Trail Mount Juliet, TN 334 2007 100 % 1,508 97.3 %
Roswell City Walk Roswell, GA 320 2015 98 % 1,821 92.5 %
Sands Parc Daytona Beach, FL 264 2017 100 % 1,613 94.7 %
The Brodie Austin, TX 324 2001 100 % 1,513 98.5 %
The Debra Metrowest Orlando, FL 510 2001 100 % 1,634 96.3 %
The Links at Plum Creek Castle Rock, CO 264 2000 88 % 1,603 97.0 %
The Mills Greenville, SC 304 2013 100 % 1,194 97.7 %
The Preserve at Henderson Beach Destin, FL 340 2009 100 % 1,793 97.4 %
The Sanctuary Las Vegas, NV 320 1988 100 % 1,348 94.1 %
Veranda at Centerfield Houston, TX 400 1999 93 % 1,120 95.5 %
Villages of Cypress Creek Houston, TX 384 2001 80 % 1,297 94.8 %
Wesley Village Charlotte, NC 301 2010 100 % 1,533 97.0 %
Windsor Falls Raleigh, NC 276 1994 100 % 1,238 96.4 %
Total Multifamily Units 10,626
Average Year Average
Single-Family Residential (4) Market Built Rent (5)
Ballast AZ / CO / WA 65 1999 95 % 2,389 60.9 % (6)
Golden Pacific IN / KS / MO 135 1975 97 % 1,331 45.3 % (6)
ILE TX / SE US 418 1990 95 % 1,689 93.6 % (6)
Navigator Villas Pasco, WA 176 2013 90 % 1,383 (2) 95.5 %
Peak
Axelrod Garland, TX 22 1959 80 % 1,297 95.5 %
DFW 189 Dallas-Fort Worth, TX 189 1962 56 % 990 97.9 %
Granbury Granbury, TX 36 2020-2021 80 % 1,567 94.4 %
Granbury 2.0 Granbury, TX 34 2021-2022 80 % 1,708 100.0 %
Indy Indianapolis, IN 44 1958 60 % 840 86.4 %
Lubbock Lubbock, TX 60 1955 80 % 983 91.7 %
Lubbock 2.0 Lubbock, TX 75 1972 80 % 1,223 86.7 %
Lubbock 3.0 Lubbock, TX 45 1945 80 % 944 84.4 %
Lynnwood Lubbock, TX 20 2005 80 % 1,006 90.0 %
Lynnwood 2.0 Lubbock, TX 20 2003 80 % 997 85.0 %
Savannah 319 Savannah, GA 39 2022 80 % 1,569 79.5 %
Springfield Springfield, MO 290 2004 60 % 1,147 95.5 %
Springtown Springtown, TX 70 1991 80 % 1,236 91.4 %
Springtown 2.0 Springtown, TX 14 2018 80 % 1,414 85.7 %
Texarkana Texarkana, TX 29 1967 80 % 1,012 93.1 %
Texas Portfolio 183 Various / TX 183 1975 80 % 1,309 86.3 %
Wayford at Concord Concord, NC 150 2019 83 % 2,025 (2) 98.0 %
Yauger Park Villas Olympia, WA 80 2010 95 % 2,230 (2) 98.8 %
Total Single-family Units 2,194
Total Units/Average 12,820 $ 1,495 94.6 %
(1)Represents date of last significant renovation or year built if there were no renovations.
(2)Represents the average effective monthly rent per occupied unit for the three months ended June 30, 2022. Total concessions for the three months ended June 30, 2022 amounted to approximately $0.05 million.
(3)Percent occupied is calculated as (i) the number of units occupied as of June 30, 2022 divided by (ii) total number of units, expressed as a percentage.
(4)Single-Family Residential includes single-family residential homes and attached townhomes/flats.
(5)Represents the average of the ending average effective rent per occupied unit as of the last day of each month in the second quarter 2022.
(6)Percent occupied for Ballast, Golden Pacific and ILE excludes 1, 40 and 75 down units under renovation, respectively.
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The following is a summary of our preferred equity, loan and ground lease investments as of June 30, 2022:
Total Actual/
Actual/ Estimated Actual/ Actual/ Actual/ Pro
Planned Construction Estimated Estimated Estimated Forma
Number Cost Cost to Date Construction Initial Construction Average
Lease-up Investment Name (1) Location / Market of Units (in millions) (in millions) Cost Per Unit Occupancy Completion Rent (2)
Multifamily
Zoey Austin, TX 307 $ 59.5 $ 58.9 $ 193,811 4Q 2021 1Q 2022 $ 1,762
Total Multifamily Units 307
Single-Family Residential
Willow Park Willow Park, TX 46 14.5 10.9 315,217 2Q 2022 1Q 2023 2,362
Total Single-family Units 46
Total Lease-up Units 353
Development Investment Name (1)
Multifamily
Avondale Hills Decatur, GA 240 52.4 46.7 218,333 1Q 2023 1Q 2023 1,538
Deerwood Apartments Houston, TX 330 65.8 45.5 199,394 4Q 2022 2Q 2023 1,590
Chandler Chandler, AZ 208 48.2 17.0 231,731 3Q 2023 4Q 2023 1,457
Orange City Apartments Orange City, FL 298 60.5 19.2 203,020 1Q 2023 4Q 2023 1,457
Lower Broadway San Antonio, TX 386 91.5 37.6 237,047 4Q 2023 2Q 2024 1,769
Total Multifamily Units 1,462
Single-Family Residential
The Woods at Forest Hill Forest Hill, TX 76 14.8 6.8 194,737 1Q 2023 3Q 2023 1,625
The Cottages at Myrtle Beach Myrtle Beach, SC 294 63.2 29.2 214,966 2Q 2023 4Q 2023 1,743
The Cottages at Warner Robins Warner Robins, GA 251 53.1 17.5 211,554 3Q 2023 4Q 2023 1,346
The Cottages of Port St. Lucie Port St. Lucie, FL 286 69.6 24.2 243,357 1Q 2023 4Q 2023 2,133
Wayford at Innovation Park Charlotte, NC 210 62.0 12.8 295,238 3Q 2023 3Q 2024 1,994
Weatherford 185 (3) Weatherford, TX 185 — — — — — 1,874
Total Single-family Units 1,302
Total Development Units 2,764
Number Average
Operating Investment Name (1) Location / Market of Units Rent (2)
Multifamily
Deercross Indianapolis, IN 372 $ 825
Hunter's Pointe Pensacola, FL 204 1,223
Renew 3030 Mesa, AZ 126 1,222
Spring Parc Dallas, TX 304 1,132
The Crossings of Dawsonville Dawsonville, GA 216 1,577
The Reserve at Palmer Ranch Sarasota, FL 320 1,680
The Riley Richardson, TX 262 1,564
Water's Edge Pensacola, FL 184 1,429
Total Multifamily Units 1,988
Single-Family Residential
Peak Housing (4) IN / MO / TX 474 936
Total Single-family Units 474
Total Operating Units 2,462
Total Units/Average 5,579 $ 1,501 (5)
(1) Investments in which we have a preferred equity, loan or ground lease investment. Operating investments represent stabilized operating investments. Refer to Note 6 and Note 7 in our consolidated financial statements for further information.
(2) 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.
(3) The development is in the planning phase; final project specifications are in process.
(4) Peak Housing consists of our preferred equity investments in a private single-family home REIT (refer to Note 7 of our consolidated financial statements for further information). Unit count excludes units presented in the consolidated operating investments table above.
(5) The average effective monthly rent including sold properties was $1,480 for the three months ended June 30, 2022.
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Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Revenue
Rental and other property revenues increased $8.8 million, or 18%, to $58.5 million for the three months ended June 30, 2022 as compared to $49.7 million for the same prior year period. This was due to a $7.1 million increase from the acquisition of three investments in 2022 and the full period impact of nineteen investments acquired in 2021, and a $5.6 million increase from same store properties, partially offset by a $3.9 million decrease driven by the full period impact of four investments sold in 2021.
Interest income from loan and ground lease investments decreased $3.0 million, or 74%, to $1.1 million for the three months ended June 30, 2022 as compared to $4.1 million for the same prior year period primarily due to the sales of five underlying investments in 2022 and 2021, decreases in interest rates, and the impact of deferred income at Motif, partially offset by increases in the average balance of mezzanine loans outstanding and the acquisition of one investment in 2022.
Expenses
Property operating expenses increased $2.9 million, or 15%, to $21.8 million for the three months ended June 30, 2022 as compared to $18.9 million for the same prior year period. This was primarily due to a $3.6 million increase from the acquisition of properties in 2022 and 2021 and a $0.7 million increase from same store properties, partially offset by a $1.4 million decrease from sold properties. Property NOI margins increased to 62.7% of total revenues for the three months ended June 30, 2022 from 62.0% in the prior year period. Property NOI margins are computed as total rental and other property revenues less property operating expenses, divided by total rental and other property revenues.
Property management fees expense increased $0.9 million, or 69%, to $2.1 million for the three months ended June 30, 2022 as compared to $1.2 million in the same prior year period. Property management fees incurred are based on property level revenues.
General and administrative expenses amounted to $7.3 million for the three months ended June 30, 2022 as compared to $6.6 million for the same prior year period.
Acquisition and pursuit costs amounted to $0.1 million for the three months ended June 30, 2022. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Acquisition and pursuit costs for the same prior year period were insignificant.
Depreciation and amortization expenses were $21.4 million for the three months ended June 30, 2022 as compared to $19.9 million for the same prior year period. This was due to a $3.3 million increase from the acquisition of investments in 2022 and 2021 partially offset by a $1.3 million decrease driven by the sales of investments in 2022 and 2021 and a $0.5 million decrease from same store properties.
Other Income and Expense
Other income and expense amounted to expense of $7.9 million for the three months ended June 30, 2022 compared to income of $7.7 million for the same prior year period. This was primarily due to a decrease in gain on sale of real estate investments of $19.4 million and an increase in transaction costs of $2.2 million, partially offset by an increase in gain on sale of unconsolidated joint venture of $2.8 million, an increase in preferred returns on unconsolidated real estate joint ventures of $2.2 million, and a decrease in loss on extinguishment of debt of $0.6 million.
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Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Revenue
Rental and other property revenues increased $14.2 million, or 14%, to $115.0 million for the six months ended June 30, 2022 as compared to $100.8 million for the same prior year period. This was due to a $14.2 million increase from the acquisition of three investments in 2022 and the full period impact of nineteen investments acquired in 2021, and a $11.2 million increase from same store properties, partially offset by a $11.2 million decrease driven by the full period impact of seven investments sold in 2021.
Interest income from related parties and ground leases decreased $1.0 million, or 11%, to $7.8 million for the six months ended June 30, 2022 as compared to $8.8 million for the same prior year period due to the sales of five underlying investments in 2022 and 2021 and decreases in interest rates, partially offset by the recognition of deferred income at Motif, increases in the average balance of mezzanine loans outstanding, and the acquisition of one investment in 2022.
Expenses
Property operating expenses increased $2.9 million, or 7%, to $41.7 million for the six months ended June 30, 2022 as compared to $38.8 million for the same prior year period. This was primarily due to a $6.6 million increase from the acquisition of properties in 2022 and 2021 and a $0.8 million increase from same store properties, partially offset by a $4.5 million decrease from sold properties. Property NOI margins increased to 63.8% of total revenues for the six months ended June 30, 2022 from 61.5% in the prior year period. Property NOI margins are computed as total rental and other property revenues less property operating expenses, divided by total rental and other property revenues.
Property management fees expense increased $1.5 million, or 57%, to $4.0 million for the six months ended June 30, 2022 as compared to $2.5 million in the same prior year period. Property management fees incurred are based on property level revenues.
General and administrative expenses amounted to $15.2 million for the six months ended June 30, 2022 as compared to $13.2 million for the same prior year period.
Acquisition and pursuit costs amounted to $0.1 million for the six months ended June 30, 2022. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Acquisition and pursuit costs for the same prior year period were insignificant.
Weather-related losses, net amounted to $0.4 million for the six months ended June 30, 2021. The 2021 expense related to freeze damages at eight properties in Texas. No weather-related losses were recorded in 2022.
Depreciation and amortization expenses were $43.5 million for the six months ended June 30, 2022 as compared to $40.3 million for the same prior year period. This was due to a $7.5 million increase from the acquisition of investments in 2022 and 2021 partially offset by a $3.4 million decrease driven by the sales of investments in 2022 and 2021 and a $0.9 million decrease from same store properties.
Other Income and Expense
Other income and expense amounted to expense of $17.4 million for the six months ended June 30, 2022 compared to income of $61.6 million for the same prior year period. This was primarily due to a decrease in gain on sale of real estate investments of $88.3 million and an increase in transaction costs of $9.7 million. This was partially offset by an increase in gain on sale of unconsolidated joint venture of $6.7 million, an increase in preferred returns on unconsolidated real estate joint ventures of $3.7 million, a decrease in loss on extinguishment of debt of $3.7 million, and a net decrease in interest expense of $2.4 million.
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Property Operations
We define “same store” properties as those that we owned and operated for the entirety of both periods being compared, except for properties that are in the construction or lease-up phases, properties that are undergoing development or significant redevelopment, or properties held for sale. We move properties previously excluded from our same store portfolio for these reasons into the same store designation once they have stabilized or the development or redevelopment is complete and such status has been reflected fully in all quarters during the applicable periods of comparison. For newly constructed or lease-up properties or properties undergoing significant redevelopment, we consider a property stabilized upon attainment of 90.0% physical occupancy.
For comparison of our three months ended June 30, 2022 and 2021, the same store properties included properties owned at April 1, 2021. For comparison of our six months ended June 30, 2022 and 2021, the same store properties included properties owned at January 1, 2021. Our same store properties for both the three and six months ended June 30, 2022 and 2021 consisted of 30 properties, representing 10,526 units.
The following table presents the same store and non-same store results from operations for the three and six months ended June 30, 2022 and 2021 ($ in thousands):
Three Months Ended
June 30, Change
2022 2021 $ %
Property Revenues
Same Store $ 50,612 $ 44,981 $ 5,631 12.5 %
Non-Same Store 7,903 4,740 3,163 66.7 %
Total property revenues 58,515 49,721 8,794 17.7 %
Property Expenses
Same Store 17,822 17,136 686 4.0 %
Non-Same Store 3,984 1,773 2,211 124.7 %
Total property expenses 21,806 18,909 2,897 15.3 %
Same Store NOI 32,790 27,845 4,945 17.8 %
Non-Same Store NOI 3,919 2,967 952 32.1 %
Total NOI (1) $ 36,709 $ 30,812 $ 5,897 19.1 %
Six Months Ended
June 30, Change
2022 2021 $ %
Property Revenues
Same Store $ 100,010 $ 88,801 $ 11,209 12.6 %
Non-Same Store 15,004 12,002 3,002 25.0 %
Total property revenues 115,014 100,803 14,211 14.1 %
Property Expenses
Same Store 34,757 33,987 770 2.3 %
Non-Same Store 6,933 4,854 2,079 42.8 %
Total property expenses 41,690 38,841 2,849 7.3 %
Same Store NOI 65,253 54,814 10,439 19.0 %
Non-Same Store NOI 8,071 7,148 923 12.9 %
Total NOI (1) $ 73,324 $ 61,962 $ 11,362 18.3 %
(1) See “Net Operating Income” below for a reconciliation of Same Store NOI, Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how management uses this non-GAAP financial measure.
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Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021
Same store net operating income (“NOI”) for the three months ended June 30, 2022 increased 17.8%, or $4.9 million, compared to the 2021 period. Same store property revenues increased 12.5%, or $5.6 million, as compared to the 2021 period, primarily attributable to a 14.0% increase in average rental rates; of our thirty same store properties, all thirty recognized rental rate increases during the period. In addition, a $0.5 million increase in ancillary income, such as administrative fees, utility income, trash fees, termination fees and late fees, contributed to the revenue increase. This increase was partially offset by a 50-basis point decrease in occupancy and a $0.2 million decrease in collections.
Same store expenses for the three months ended June 30, 2022 increased 4.0%, or $0.7 million, compared to the 2021 period, and was attributable to a $0.2 million increase in each of the following areas: insurance, payroll, and utilities, along with a $0.1 million increase in both seasonal maintenance and turnover. These increases were partially offset by a $0.2 million decrease in in real estate taxes.
Non-same store property revenues and property expenses for the three months ended June 20, 2022 increased $3.2 million and $2.2 million, respectively, compared to the 2021 period due to the timing and volume of operating property transactions. We acquired twenty-two operating investments representing 2,294 units and sold four operating investments representing 1,058 units since April 1, 2021.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Same store NOI for the six months ended June 30, 2022 increased 19.0%, or $10.4 million, compared to the 2021 period. Same store property revenues increased 12.6%, or $11.2 million, as compared to the 2021 period, attributable to a 13.4% increase in average rental rates; of our thirty same store properties, all thirty recognized rental rate increases during the period. In addition, a $0.9 million increase in ancillary income, such as administrative fees, utility income, trash fees, termination fees and late fees, contributed to the revenue increase. This increase was partially offset by a $0.2 million decrease in collections. Average occupancy was flat at 95.6% for both the 2022 and 2021 period.
Same store expenses for the six months ended June 30, 2022 increased 2.3%, or $0.8 million, compared to the 2021 period, and was attributable to the following increases: $0.4 million in insurance, $0.3 million in seasonal maintenance, $0.2 million in utilities and $0.1 million increase in payroll. These increases were partially offset by a $0.3 million decrease in in real estate taxes.
Non-same store property revenues and property expenses for the six months ended June 30, 2022 increased $3.0 million and $2.1 million, respectively, compared to the 2021 period due to the timing and volume of operating property transactions. We acquired twenty-two operating investments representing 2,294 units and sold seven operating investments representing 2,196 units since January 1, 2021.
Net Operating Income
We believe that 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 GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non-same store basis; 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) income attributable to common stockholders together with a reconciliation to NOI and to same store and non-same store contributions to consolidated NOI, as computed in accordance with GAAP for the periods presented (amounts in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net (loss) income attributable to common stockholders $ (17,274) $ (5,429) $ (32,670) $ 18,152
Add back: Net (loss) income attributable to Operating Partnership Units (6,108) (1,978) (11,924) 8,182
Net (loss) income attributable to common stockholders and unit holders (23,382) (7,407) (44,594) 26,334
Add common stockholders and Operating Partnership Units pro-rata share of:
Real estate depreciation and amortization 19,945 19,036 40,368 38,440
Non-real estate depreciation and amortization 122 122 244 244
Non-cash interest expense 744 549 1,148 1,154
Unrealized (gain) loss on derivatives (833) 20 (1,959) (11)
Loss on extinguishment of debt and debt modification costs — 609 — 3,173
Provision for credit losses (134) 26 (930) 567
Property management fees 1,931 1,194 3,641 2,417
Acquisition and pursuit costs 71 3 116 15
Corporate operating expenses 7,209 6,520 15,054 13,090
Transaction costs 2,158 — 9,703 —
Weather-related losses, net — — — 360
Preferred dividends 18,557 14,367 37,129 28,984
Preferred stock accretion 5,639 7,290 10,845 14,312
Less common stockholders and Operating Partnership Units pro-rata share of:
Other income, net 1,523 57 2,509 108
Preferred returns on unconsolidated real estate joint ventures 4,547 2,329 8,364 4,616
Interest income from loan and ground lease investments 1,348 4,114 8,725 8,835
Gain on sale of real estate investments — 18,630 — 81,058
Gain on sale of unconsolidated joint ventures 2,802 — 6,694 —
Pro-rata share of properties’ income 21,807 17,199 44,473 34,462
Add:
Noncontrolling interest pro-rata share of partially owned property income 1,410 738 3,029 1,378
Total property income 23,217 17,937 47,502 35,840
Add:
Interest expense 13,492 12,875 25,822 26,122
Net operating income 36,709 30,812 73,324 61,962
Less:
Non-same store net operating income 3,919 2,967 8,071 7,148
Same store net operating income $ 32,790 $ 27,845 $ 65,253 $ 54,814
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 (a) our operating expenses and other general business needs, (b) distributions to our stockholders, (c) committed investments and capital requirements to fund development and renovations at existing properties, and (d) ongoing commitments to repay borrowings, including our credit facilities and our maturing short-term debt.
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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 effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors” and in the other reports we have filed with the SEC.
Previously, we have provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19, decreasing from 1% in the quarter ended June 30, 2020 to none in the quarter ended June 30, 2022. Although we may receive tenant requests for rent deferrals in the coming months, we do not expect to waive our contractual rights under our lease agreements. Further, while occupancy remains strong at 94.6% and 94.5% as of June 30, 2022 and July 31, 2022, respectively, in future periods we may experience reduced levels of tenant retention, and reduced foot traffic and lease applications from prospective tenants, as a result of COVID-19 impact.
As we did in 2021 and to date in 2022, we expect to maintain a proactive capital allocation process and selectively sell assets at appropriate cap rates, which would be expected to generate cash sources for both our short-term and long-term liquidity needs.
In general, we believe our available cash balances, the Amended Senior and Amended Junior Credit Facilities, the Deutsche Bank Credit Facility (the “DB Credit Facility”) and the Fannie Facility (each as defined below), other financing arrangements and cash flows from operations will be sufficient to fund our liquidity requirements with respect to our existing portfolio for the next 12 months. We expect that properties added to our portfolio will have a positive impact on our future results of operations. In general, we expect that our results related to our portfolio will improve in future periods as a result of anticipated future investments in and acquisitions of real estate. However, there can be no assurance that the worldwide economic disruptions arising from the COVID-19 pandemic will not cause conditions in the lending, capital and other financial markets to deteriorate, nor that our future revenues or access to capital and other sources of funding will not become constrained, which could reduce the amount of liquidity and credit available for use in acquiring and further diversifying our portfolio of multifamily assets. We cannot provide any assurances that we will be able to add properties to our portfolio at the anticipated pace, or at all.
We believe we will be able to meet our primary liquidity requirements going forward through:
● $244.9 million in cash available at June 30, 2022;
● $124.7 million of availability on our credit facilities as of June 30, 2022;
● cash generated from operating activities; and
● proceeds from future borrowings and potential offerings, including potential offerings of common and preferred stock through underwritten offerings, as well as issuances of units of limited partnership interest in our Operating Partnership, or OP Units.
The following table summarizes our contractual obligations as of June 30, 2022 related to our mortgage notes secured by our properties and revolving credit facilities. At June 30, 2022, our estimated future required payments on these obligations were as follows (amounts in thousands):
Remainder of
Total 2022 2023-2024 2025-2026 Thereafter
Mortgages Payable (Principal) $ 1,396,841 $ 11,760 $ 330,021 $ 493,062 $ 561,998
Revolving Credit Facilities 49,407 — 49,407 — —
Estimated Interest Payments on Mortgages Payable and Revolving Credit Facilities 229,778 27,321 100,109 60,283 42,065
Total $ 1,676,026 $ 39,081 $ 479,537 $ 553,345 $ 604,063
Estimated interest payments are based on the stated rates for mortgage notes payable assuming the interest rate in effect for the most recent quarter remains in effect through the respective maturity dates.
As of June 30, 2022, the aggregate amount of our contractual commitments to fund future cash obligations in certain of our preferred equity, loan and joint venture investments was $60.0 million; as of August 2, 2022, this amount was $25.7 million.
At the current time, we do not anticipate the need to establish any material contingency reserves related to the COVID-19 pandemic, but we continue to assess along with our network of business partners the possible need for such contingencies, whether at the corporate or property level.
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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 common and preferred stock through underwritten offerings, as well as issuance of OP Units. Given the significant volatility in the trading price of our Class A common stock and REIT equities generally associated with the COVID-19 pandemic and our otherwise stable financial condition and liquidity position, we cannot provide assurances that these offerings are a likely source of capital to meet short-term liquidity needs.
Our primary long-term liquidity requirements relate to (a) costs for additional multifamily apartment community and single-family residential home investments, (b) repayment of long-term debt and our credit facilities, (c) capital expenditures, and (d) cash redemption requirements related to our Series B Preferred Stock, Series C Preferred Stock and Series T Preferred Stock.
We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, our credit facilities, as well as future 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, all of which may continue to be adversely impacted by the COVID-19 pandemic.
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 the Amended Senior and Amended Junior Credit Facilities, the DB Credit Facility, as well as the Fannie Facility, will continue to enable us to deploy our capital more efficiently and provide capital structure flexibility as we grow our asset base. We expect the combination of these facilities to provide us flexibility by allowing us, among other things, to use borrowings under our Amended Senior and Amended Junior Credit Facilities and the DB Credit Facility to acquire properties pending placement of permanent mortgage indebtedness, including under the Fannie Facility. In addition to restrictive covenants, these credit facilities contain material financial covenants. At June 30, 2022, 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.
We intend to continue to use prudent amounts of leverage in making our investments, which we define as having total indebtedness of approximately 65% of the fair market value of the properties in which we have invested. For purposes of calculating our leverage, we assume full consolidation of all of our real estate investments, whether or not they would be consolidated under GAAP, include assets we have classified as held for sale, and include any joint venture level indebtedness in our total indebtedness. However, we are not subject to any limitations on the amount of leverage we may use, and accordingly, the amount of leverage we use may be significantly less or greater than we currently anticipate. We expect our leverage to decline commensurately as we execute our business plan to grow our net asset value.
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 our REIT qualification and Investment Company Act exemption.
We expect to maintain distributions paid to our Series B Preferred Stock, our Series C Preferred Stock, our Series D Preferred Stock and our Series T Preferred Stock in accordance with the terms of those securities which require monthly or quarterly dividends depending on the series. While our policy is generally to pay distributions from cash flow from operations, our distributions through June 30, 2022 have been paid from cash flow from operations, proceeds from our continuous preferred stock offerings, sales of assets, proceeds from underwritten securities offerings, and may in the future be paid from additional sources, such as from borrowings. Pursuant to the terms of the Merger Agreement, we are not permitted to make, declare or pay regular quarterly cash dividends on Company Common Stock for fiscal quarters after the fiscal quarter ended June 30, 2022.
We have notes receivable in conjunction with properties that are in various stages of development, in lease-up and operating. To date, these investments have generally been structured as mezzanine loans and mortgage loans to these types of projects. The notes receivable provide a current stated return, and in certain cases, an accrued return, and required repayment based on a fixed maturity date, generally in relation to the property’s construction loan or mortgage loan maturity. 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.
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We also have preferred equity interests in properties that are in various stages of development, in lease-up and operating, and our preferred equity investments are structured to provide a current and/or accrued preferred return during all phases. Each joint venture in which we own a preferred equity interest is required to redeem our preferred equity interests, plus any accrued preferred return, based on a fixed maturity date, generally in relation to the property’s construction loan or mortgage loan maturity. Upon redemption of our 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 equity interest when required, our income, FFO, CFFO and cash flows could be reduced if the property does not produce sufficient cash flow to pay 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 the loan and preferred equity investment activities at the subsidiary level.
Off-Balance Sheet Arrangements
As of June 30, 2022, we have off-balance sheet arrangements that may have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures. As of June 30, 2022, we own interests in seventeen joint ventures that are accounted for as held to maturity debt securities or loans.
Cash Flows from Operating Activities
As of June 30, 2022, we owned indirect equity interests in seventy-four real estate investments, consisting of fifty-two consolidated operating investments and twenty-two investments held through preferred equity, loan or ground lease investments. During the six months ended June 30, 2022, net cash provided by operating activities was $44.2 million after net income of $1.0 million was adjusted for the following:
● non-cash items of $29.4 million;
● a decrease in notes and accrued interest receivable of $4.5 million;
● an increase in accounts payable and other accrued liabilities of $4.3 million;
● distributions and preferred returns from unconsolidated joint ventures of $4.2 million;
● a decrease in due from affiliates of $0.7 million; and
● a decrease in accounts receivable, prepaids and other assets of $0.1 million.
Cash Flows from Investing Activities
During the six months ended June 30, 2022, net cash used in investing activities was $1.0 million, primarily due to the following:
● $108.2 million used in acquiring consolidated real estate investments;
● $69.6 million used in funding investments in unconsolidated joint ventures and notes receivable; and
● $14.4 million used on capital expenditures, offset by:
● $161.2 million of repayments on notes receivable and related promote interest; and
● $30.0 million of proceeds from the sale and redemption of unconsolidated real estate joint ventures.
Cash Flows from Financing Activities
During the six months ended June 30, 2022, net cash provided by financing activities was $36.0 million, primarily due to the following:
● net proceeds of $49.4 million from borrowings on revolving credit facilities;
● net borrowings of $37.3 million on mortgages payable;
● net proceeds of $8.7 million from the exercise of Company Warrants; and
● contributions from noncontrolling interests of $4.5 million;
● partially offset by $37.2 million paid in cash distributions to preferred stockholders;
● $9.2 million paid in cash distributions to common stockholders;
● $6.5 million of repayments of our mortgages payable;
● $5.4 million in distributions paid to our noncontrolling interests;
● $3.5 million increase in deferred financing costs;
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● $0.9 million paid for redemptions of Series B Redeemable Preferred Stock; and
● $0.9 million paid for redemptions of Series T Redeemable Preferred Stock.
Capital Expenditures
The following table summarizes our total capital expenditures for the six months ended June 30, 2022 and 2021 (amounts in thousands):
Six Months Ended
June 30,
2022 2021
Redevelopment/renovations $ 6,808 $ 7,258
Routine capital expenditures 3,728 1,901
Normally recurring capital expenditures 1,840 1,566
Total capital expenditures $ 12,376 $ 10,725
Redevelopment and renovation costs are non-recurring capital expenditures for significant projects that are revenue enhancing through unit or common area upgrades, such as clubhouse renovations and kitchen remodels. 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 asphalt resurfacing. Normally recurring capital expenditures are necessary non-revenue generating improvements that occur on a regular ongoing basis, such as carpet 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 investments, 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, and after adjustments for unconsolidated partnerships and joint ventures. 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 expenses, non-cash interest, unrealized gains or losses on derivatives, provision for 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), deferred interest income from investments, one-time weather-related costs, transaction costs, stock compensation expense and preferred stock accretion. Additionally, CFFO removes noncash, nonrecurring other income of $1.3 million from both the three and six months ended June 30, 2022 which represents our minimum interest credit upon the conversion of our loans to Peak Housing into common equity. This amount is reflected in net (loss) income attributable to noncontrolling interests partially owned properties in our consolidated statements of operations and does not reflect ongoing property operations. Commencing in 2020, we do not deduct the accrued portion of income on our loan and preferred equity investments from FFO to determine CFFO as the income is deemed fully collectible. The accrued portion of the income totaled $3.7 million and $1.6 million, and $6.2 million and $2.8 million for the three and six months ended June 30, 2022 and 2021, respectively. 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 pursuit costs that are required by GAAP to be expensed but may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO and CFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and CFFO may provide us and our stockholders with an additional useful measure to compare our financial performance to certain other REITs.
Neither FFO nor CFFO is equivalent to net income (loss), including net income (loss) attributable to common stockholders, or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and CFFO do not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor CFFO should be considered as an alternative to net income, including net income (loss) attributable to common stockholders, as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
We have acquired nineteen operating investments, made sixteen investments through preferred equity or loans, sold two operating investments and received payoffs of our loan or preferred equity in fifteen investments subsequent to June 30, 2021. We paid a quarterly common stock dividend of $0.1625 per share and unit, or a 203% payout on a CFFO basis, during the three months ended June 30, 2022. The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.
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The table below presents our calculation of FFO and CFFO for the three and six months ended June 30, 2022 and 2021 ($ in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net (loss) income attributable to common stockholders $ (17,274) $ (5,429) $ (32,670) $ 18,152
Add back: Net (loss) income attributable to Operating Partnership Units (6,108) (1,978) (11,924) 8,182
Net (loss) income attributable to common stockholders and unit holders (23,382) (7,407) (44,594) 26,334
Common stockholders and Operating Partnership Units pro-rata share of:
Real estate depreciation and amortization 19,945 19,036 40,368 38,440
Gain on sale of real estate investments — (18,630) — (81,058)
Gain on sale of unconsolidated joint venture (2,802) — (6,694) —
FFO Attributable to Common Stockholders and Unit Holders (6,239) (7,001) (10,920) (16,284)
Common stockholders and Operating Partnership Units pro-rata share of:
Acquisition and pursuit costs 71 3 116 15
Non-cash interest expense 744 549 1,148 1,154
Unrealized (gain) loss on derivatives (833) 20 (1,959) (11)
Provision for credit losses (134) 26 (930) 567
Loss on extinguishment of debt and debt modification costs — 609 — 3,173
Deferred interest income from mezzanine loan investment — 997 (2,996) 997
Weather-related losses, net — — — 360
Non-real estate depreciation and amortization 122 122 244 244
Transaction costs 2,158 — 9,703 —
Other (income) expense, net (1,523) (49) (2,509) 48
Non-cash equity compensation 3,312 3,479 7,196 6,789
Preferred stock accretion 5,639 7,290 10,845 14,312
CFFO Attributable to Common Stockholders and Unit Holders $ 3,317 $ 6,045 $ 9,938 $ 11,364
Per Share and Unit Information:
FFO Attributable to Common Stockholders and Unit Holders - diluted $ (0.15) $ (0.18) $ (0.27) $ (0.45)
CFFO Attributable to Common Stockholders and Unit Holders - diluted $ 0.08 $ 0.16 $ 0.24 $ 0.32
Weighted average common shares and units outstanding - diluted 41,459,819 38,443,171 40,870,457 35,833,631
Operating cash flow, FFO and CFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and CFFO.
Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or CFFO the same way, so comparisons with other REITs may not be meaningful. FFO or CFFO should not be considered as an alternative to net income (loss) attributable to common stockholders or as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions. Both FFO and CFFO should be reviewed in connection with other GAAP measurements.
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Distributions
Payable to stockholders Date
Declaration Date of record as of Amount Paid or Payable
Class A Common Stock
December 10, 2021 December 23, 2021 $ 0.162500 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.162500 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.162500 July 5, 2022
Class C Common Stock
December 10, 2021 December 23, 2021 $ 0.162500 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.162500 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.162500 July 5, 2022
Series B Preferred Stock
October 11, 2021 December 23, 2021 $ 5.00 January 5, 2022
January 14, 2022 January 25, 2022 $ 5.00 February 4, 2022
January 14, 2022 February 25, 2022 $ 5.00 March 4, 2022
January 14, 2022 March 25, 2022 $ 5.00 April 5, 2022
April 11, 2022 April 25, 2022 $ 5.00 May 5, 2022
May 13, 2022 May 25, 2022 $ 5.00 June 3, 2022
June 10, 2022 June 24, 2022 $ 5.00 July 5, 2022
Series C Preferred Stock
December 10, 2021 December 23, 2021 $ 0.4765625 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.4765625 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.4765625 July 5, 2022
Series D Preferred Stock
December 10, 2021 December 23, 2021 $ 0.4453125 January 5, 2022
March 14, 2022 March 25, 2022 $ 0.4453125 April 5, 2022
June 10, 2022 June 24, 2022 $ 0.4453125 July 5, 2022
Series T Preferred Stock
October 11, 2021 December 23, 2021 $ 0.128125 January 5, 2022
January 14, 2022 January 25, 2022 $ 0.128125 February 4, 2022
January 14, 2022 February 25, 2022 $ 0.128125 March 4, 2022
January 14, 2022 March 25, 2022 $ 0.128125 April 5, 2022
April 11, 2022 April 25, 2022 $ 0.128125 May 5, 2022
May 13, 2022 May 25, 2022 $ 0.128125 June 3, 2022
June 10, 2022 June 24, 2022 $ 0.128125 July 5, 2022
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 and LTIP Units are entitled to receive “distribution equivalents” at the same time as dividends are paid to holders of our Class A common stock.
We had a dividend reinvestment plan that allowed for participating stockholders to have their Class A common stock dividend distributions automatically reinvested in additional Class A common shares based on the average price of the Class A common shares on the investment date. We also had a dividend reinvestment plan that allowed for participating stockholders to have their Series T Preferred Stock dividend distributions automatically reinvested in additional shares of Series T Preferred Stock at a price of $25.00 per share. In December 2021, our Board approved the suspension of the dividend reinvestment plans until further notice.
Our Board will determine the amount of dividends to be paid to our stockholders, subject to operating restrictions included in the Merger Agreement. 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 under the Internal Revenue Code. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” 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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Distributions paid were funded from cash provided by operating activities except with respect to $7.7 million and $2.1 million for the six months ended June 30, 2022 and 2021, respectively, which were funded from sales of real estate or unconsolidated joint ventures, borrowings and/or proceeds from our equity offerings.
Six Months Ended
June 30,
2022 2021
(in thousands)
Cash provided by operating activities $ 44,175 $ 40,019
Cash distributions to preferred stockholders $ (37,248) $ (29,838)
Cash distributions to common stockholders (9,190) (7,599)
Cash distributions to noncontrolling interests, excluding $9.8 million from the sale of real estate investments in 2021 (5,396) (4,719)
Total distributions (51,834) (42,156)
Shortfall $ (7,659) $ (2,137)
Proceeds from sale of real estate investments, net of noncontrolling distributions of $9.8 million in 2021 $ — $ 95,128
Proceeds from sale and redemption of our preferred equity investment in unconsolidated real estate joint ventures $ 30,123 $ 31,412
Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 11, 2022, and Note 2, “Basis of Presentation and Summary of Significant Accounting Policies,” of our interim 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 June 30, 2022, 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.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate risk primarily through borrowing activities. There is inherent roll-over risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and our future financing requirements. We are not subject to foreign exchange rates or commodity price risk, and all our financial instruments were entered into for other than trading purposes.
Our interest rate risk is monitored using a variety of techniques. The table below ($ in thousands) presents the principal payments and the weighted average interest rates on outstanding debt, by year of expected maturity, to evaluate the expected cash flows and sensitivity to interest rate changes. Fair value adjustments and unamortized deferred financing costs, net, of approximately $(3.8) million are excluded:
2022 2023 2024 2025 2026 Thereafter Total
Mortgage Notes Payable $ 11,760 $ 127,300 $ 202,721 $ 332,877 $ 160,185 $ 561,998 $ 1,396,841
Weighted Average Interest Rate 4.22 % 3.43 % 3.77 % 4.02 % 3.72 % 3.61 % 3.73 %
Revolving Credit Facilities $ — $ — $ 49,407 $ — $ — $ — $ 49,407
Weighted Average Interest Rate — — 3.91 % — — — 3.91 %
The fair value of mortgages payable is estimated at $1,345.3 million as of June 30, 2022.
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The table above incorporates those exposures that exist as of June 30, 2022; it does not consider those exposures or positions which could arise after that date. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period and interest rates.
As of June 30, 2022, we had eleven interest rate caps, which are not accounted for as hedges, that we primarily use as part of our interest rate risk management strategy. Our interest rate caps effectively limit our exposure to interest rate risk by providing a ceiling on the underlying floating interest rates of our floating rate debt.
As of June 30, 2022, a 100-basis point increase or decrease in interest rates on the portion of our debt bearing interest at floating rates would result in an increase in interest expense of approximately $929,000 or decrease in interest expense of approximately $863,000, respectively, for the quarter ended June 30, 2022.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of June 30, 2022, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2022 to provide reasonable assurance that information required to be disclosed by us in this report filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There has been no change in internal control over financial reporting that occurred during the three months ended June 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Other than the following, there have been no material changes to our potential risks and uncertainties presented in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the twelve months ended December 31, 2021 filed with the SEC on March 11, 2022.
Your interests could be diluted by the incurrence of additional debt, the issuance of additional shares of preferred stock, including additional shares of Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock (together the “Preferred Stock”) and by other transactions.
As of June 30, 2022, our total indebtedness was approximately $1.4 billion, and we may incur significant additional debt in the future. The Preferred Stock is subordinate to all our existing and future debt and liabilities and those of our subsidiaries. Our future debt may include restrictions on our ability to pay dividends to preferred stockholders in the event of a default under the debt facilities or under other circumstances. Our charter currently authorizes the issuance of up to 250,000,000 shares of preferred stock in one or more classes or series, and as of June 30, 2022, the number of preferred shares outstanding was as follows: 358,235 shares of Series B Preferred Stock, 2,295,845 shares of Series C Preferred Stock, 2,774,338 shares of Series D Preferred Stock and 28,235,362 shares of Series T Preferred Stock. The issuance of additional preferred stock on parity with or senior to the Preferred Stock would dilute the interests of the holders of shares of Preferred Stock, and any issuance of preferred stock senior to the Preferred Stock or of additional indebtedness could affect our ability to pay dividends on, redeem or pay the liquidation preference on the Preferred Stock. We may issue preferred stock on parity with the Preferred Stock without the consent of the holders of the Preferred Stock. Other than the Asset Coverage Ratio, our letter agreement with Cetera Financial Group, Inc. pertaining to our Series B Preferred Stock that requires us to maintain a preferred dividend coverage ratio, the articles supplementary establishing our Series T Preferred Stock that requires us to maintain a preferred dividend coverage ratio, and the right of holders to cause us to redeem the Series C Preferred Stock upon a Change of Control/Delisting, none of the provisions relating to the Preferred Stock relate to or limit our indebtedness or afford the holders of shares of Preferred Stock protection in the event of a highly leveraged or other transaction, including a merger or the sale, lease or conveyance of all or substantially all our assets or business, that might adversely affect the holders of shares of Preferred Stock.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
As previously disclosed in the Company’s Form 8-K filed with the SEC on November 6, 2017, on October 31, 2017, the Company entered into the Administrative Services Agreement with BRE, pursuant to which BRE provides the Company with certain human resources, investor relations, marketing, legal and other administrative services. The Company has the right to renew the Administrative Services Agreement for successive one-year terms upon sixty (60) days written notice prior to expiration. The Company renewed the Administrative Services Agreement for one-year terms in each of 2018, 2019, 2020 and 2021, and on August 5, 2022, the Company delivered written notice to BRE of the Company’s intention to renew the Administrative Services Agreement for an additional one-year term, to expire on October 31, 2023.
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Because this Quarterly Report on Form 10-Q is being filed within four business days from the date of the reportable event, we have elected to make the foregoing disclosure in this Quarterly Report on Form 10-Q instead of in a Current Report on Form 8-K under Item 1.01.
Item 6. Exhibits
10.1 Loan Agreement, dated April 6, 2022, by and among persons that are party thereto listed as Borrowers, persons party thereto that are listed as Equity Owners, Bluerock Residential Holdings, LP, persons that are party thereto listed as Lenders, Deutsche Bank Securities Inc., Deutsche Bank AG, New York Branch and Computershare Trust Company, N.A., incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 12, 2022
10.2 Sponsor Guaranty, dated April 6, 2022, by and between Bluerock Residential Growth REIT, Inc. and Deutsche Bank AG, New York Branch, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 12, 2022
10.3 Sponsor Guaranty, dated April 6, 2022, by and between Bluerock Homes Trust, Inc. and Deutsche Bank AG, New York Branch, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on April 12, 2022
10.4 Notice of Renewal, dated August 5, 2022, of Administrative Services Agreement dated October 31, 2017, by and among Bluerock Real Estate, L.L.C., Bluerock Real Estate Holdings, LLC, Bluerock Residential Growth REIT, Inc., Bluerock Residential Holdings, L.P., Bluerock TRS Holdings, LLC and Bluerock REIT Operator, LLC
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
101.1 The following information from the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2022, formatted in iXBRL (inline eXtensible Business Reporting Language): (i) Balance Sheets; (ii) Statements of Operations; (iii) Statement of Stockholders’ Equity; (iv) Statements of Cash Flows; (v) notes to consolidated financial statements.
104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
DATE: August 8, 2022 /s/ R. Ramin Kamfar
R. Ramin Kamfar
Chief Executive Officer
(Principal Executive Officer)
DATE: August 8, 2022 /s/ Christopher J. Vohs
Christopher J. Vohs
Chief Financial Officer and Treasurer
(Principal Financial Officer, Principal Accounting Officer)
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