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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 March 31, 2024

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 001-41322

BLUEROCK HOMES TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland

    

87-4211187

(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

BHM

NYSE American

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 May 6, 2024

Class A Common Stock: 3,949,748 shares

Class C Common Stock: 8,489 shares

BLUEROCK HOMES TRUST, INC.

FORM 10-Q

March 31, 2024

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023 (Audited)

3

 

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2024 and 2023

4

 

 

Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2024 and 2023

5

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2024 and 2023

7

 

 

Notes to Consolidated Financial Statements

8

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

43

 

 

Item 4.

Controls and Procedures

43

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

44

 

 

 

Item 1A.

Risk Factors

44

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

 

 

 

Item 3.

Defaults Upon Senior Securities

44

 

 

 

Item 4.

Mine Safety Disclosures

44

 

 

 

Item 5.

Other Information

44

 

 

 

Item 6.

Exhibits

45

 

 

 

SIGNATURES

46

2

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLUEROCK HOMES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

March 31, 

December 31, 

    

2024

    

2023

ASSETS

 

  

 

  

Net Real Estate Investments

 

  

 

  

Land

$

78,535

$

70,637

Buildings and improvements

 

427,058

 

394,548

Furniture, fixtures and equipment

 

14,992

 

13,277

Total Gross Operating Real Estate Investments

 

520,585

 

478,462

Accumulated depreciation

 

(36,424)

 

(32,452)

Total Net Operating Real Estate Investments

 

484,161

 

446,010

Operating real estate held for sale, net

15,792

18,890

Total Net Real Estate Investments

499,953

464,900

Cash and cash equivalents

 

92,251

 

80,163

Restricted cash

 

6,878

 

6,221

Notes and accrued interest receivable, net

23,387

17,797

Accounts receivable, prepaids and other assets, net

 

24,662

 

21,383

Preferred equity investments in unconsolidated real estate joint ventures, net

 

79,295

 

81,156

In-place lease intangible assets, net

1,018

TOTAL ASSETS

$

727,444

$

671,620

LIABILITIES AND EQUITY

 

 

Mortgages payable

$

120,201

$

96,670

Revolving credit facilities

 

105,000

 

70,000

Accounts payable

 

695

 

691

Other accrued liabilities

 

8,781

 

9,438

Due to affiliates

 

3,402

 

3,509

Distributions payable

99

12,440

Total Liabilities

 

238,178

 

192,748

6.0% Series A Redeemable Preferred Stock, liquidation preference $25.00 per share, 30,000,000 shares authorized; 832,303 and 436,675 shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively

16,839

8,273

Equity

 

 

Stockholders’ Equity

 

 

Preferred stock, $0.01 par value, 220,000,000 shares authorized; no shares issued and outstanding at March 31, 2024 and December 31, 2023

 

Common stock - Class A, $0.01 par value, 562,500,000 shares authorized; 3,871,265 shares issued and outstanding at March 31, 2024 and December 31, 2023

39

 

39

Common stock - Class C, $0.01 par value, 187,500,000 shares authorized; 8,489 shares issued and outstanding at March 31, 2024 and December 31, 2023

 

Additional paid-in-capital

120,515

122,369

Retained earnings

23,923

24,943

Total Stockholders’ Equity

144,477

147,351

Noncontrolling Interests

Operating partnership units

311,981

307,945

Partially owned properties

15,969

15,303

Total Noncontrolling Interests

327,950

323,248

Total Equity

472,427

470,599

TOTAL LIABILITIES AND EQUITY

$

727,444

$

671,620

See Notes to Consolidated Financial Statements

3

BLUEROCK HOMES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)

Three Months Ended

March 31,

    

2024

    

2023

Revenues

 

  

 

  

Rental and other property revenues

$

10,758

$

10,138

Interest income from loan investments

 

418

 

Total revenues

 

11,176

 

10,138

Expenses

 

 

Property operating

 

5,005

 

4,557

Property management and asset management fees

 

1,132

 

1,091

General and administrative

 

2,868

 

1,994

Management fees to related party

 

2,071

 

1,922

Acquisition and other transaction costs

 

4

 

1,455

Depreciation and amortization

 

4,008

 

3,958

Total expenses

 

15,088

 

14,977

Other income (expense)

 

 

Other income, net

 

240

 

44

Preferred returns on unconsolidated real estate joint ventures

 

2,741

 

2,796

Provision for credit losses, net

 

(95)

 

(6)

Gain on sale and impairment of real estate investments, net

173

Interest expense, net

 

(3,512)

 

(3,396)

Interest income

1,195

123

Total other income (expense)

 

742

 

(439)

Net loss

 

(3,170)

 

(5,278)

Preferred stock dividends

(253)

Net loss attributable to noncontrolling interests

Operating partnership units

 

(2,169)

 

(2,985)

Partially owned properties

 

(234)

 

(753)

Net loss attributable to noncontrolling interests

 

(2,403)

 

(3,738)

Net loss attributable to common stockholders

$

(1,020)

$

(1,540)

 

 

Net loss per common share – Basic

$

(0.27)

$

(0.40)

Net loss per common share – Diluted

$

(0.27)

$

(0.40)

 

 

Weighted average basic common shares outstanding

3,848,494

3,843,502

Weighted average diluted common shares outstanding

3,848,494

3,843,502

See Notes to Consolidated Financial Statements

4

BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED MARCH 31, 2024

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Cumulative

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Distributions

    

Earnings

    

Interests

    

Total Equity

Balance, January 1, 2024

3,871,265

$

39

8,489

$

$

122,369

$

(4,009)

$

28,952

$

323,248

$

470,599

Issuance of restricted Class A common stock and long-term incentive plan (“LTIP”) Units for equity incentive plan compensation

    

    

    

47

971

1,018

Issuance of C-LTIP Units to Manager

3,333

3,333

Series A Preferred Stock distributions declared

(253)

(253)

Distributions to partially owned properties’ noncontrolling interests

 

(53)

(53)

Contributions from noncontrolling interests

 

953

953

Adjustment for noncontrolling interest ownership in the Operating Partnership

(1,901)

1,901

Net loss

(767)

(2,403)

(3,170)

Balance, March 31, 2024

3,871,265

$

39

8,489

$

$

120,515

$

(4,262)

$

28,185

$

327,950

$

472,427

See Notes to Consolidated Financial Statements

5

BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED MARCH 31, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Earnings

    

Interests

    

Total Equity

Balance, January 1, 2023

3,835,013

$

38

8,489

$

$

126,623

$

33,325

$

332,002

$

491,988

Issuance of LTIP Units for equity incentive plan compensation

 

 

 

 

 

738

 

738

Issuance of C-LTIP Units to Manager

2,151

2,151

Acquisition of noncontrolling interests

1,515

(6,564)

(5,049)

Distributions to partially owned properties’ noncontrolling interests

(99)

(99)

Contributions from noncontrolling interests

250

250

Adjustment for noncontrolling interest ownership in the Operating Partnership

(1,656)

1,656

Net loss

(1,540)

(3,738)

(5,278)

Balance, March 31, 2023

3,835,013

$

38

8,489

$

$

126,482

$

31,785

$

326,396

$

484,701

See Notes to Consolidated Financial Statements

6

BLUEROCK HOMES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Three Months Ended

March 31, 

    

2024

    

2023

Cash flows from operating activities

 

  

 

  

Net loss

$

(3,170)

$

(5,278)

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

Depreciation and amortization

 

4,338

 

4,544

Amortization of fair value adjustments

 

(80)

 

(80)

Preferred returns on unconsolidated real estate joint ventures

 

(2,741)

 

(2,796)

Gain on sale and impairment of real estate investments, net

(173)

Fair value adjustment of interest rate caps and swaps

 

715

 

1,133

Provision for credit losses, net

 

95

 

6

Distributions of income and preferred returns from preferred equity investments in unconsolidated real estate joint ventures

 

244

 

563

Share-based compensation attributable to equity incentive plan

 

1,018

 

738

Share-based compensation to Manager – C-LTIP Units

 

3,333

 

2,151

Changes in operating assets and liabilities:

 

 

Due (from) to affiliates, net

 

(106)

 

150

Accounts receivable, prepaids and other assets

 

(1,599)

 

(1,632)

Notes and accrued interest receivable

 

(23)

 

Accounts payable and other accrued liabilities

 

(744)

 

(1,695)

Net cash provided by (used in) operating activities

 

1,107

 

(2,196)

Cash flows from investing activities:

 

 

Acquisitions of real estate investments

 

(17,454)

 

(4,330)

Capital expenditures

 

(1,737)

 

(2,051)

Investment in notes receivable

 

(9,606)

 

Repayments on notes receivable

 

4,005

 

Proceeds from sale of real estate investments

3,706

Proceeds from redemption of unconsolidated real estate joint ventures

 

1,800

 

4,058

Investment in unconsolidated real estate joint venture interests

 

 

(3,666)

Net cash used in investing activities

 

(19,286)

 

(5,989)

Cash flows from financing activities:

 

 

Distributions to common stockholders

 

(3,879)

 

Distributions to noncontrolling interests

 

(8,509)

 

Distributions to partially owned properties’ noncontrolling interests

 

(53)

 

(99)

Distributions to preferred stockholders

(206)

Contributions from noncontrolling interests

 

953

 

250

Purchase of interests from noncontrolling interests

 

 

(5,049)

Repayments on mortgages payable

(405)

(377)

Proceeds from revolving credit facilities

 

35,000

 

Repayments on revolving credit facilities

 

 

(6,000)

Payments of deferred financing fees

(544)

Net proceeds from issuance of 6.0% Series A Redeemable Preferred Stock

8,567

Net cash provided by (used in) financing activities

 

30,924

 

(11,275)

 

 

Net increase (decrease) in cash, cash equivalents and restricted cash

$

12,745

$

(19,460)

Cash, cash equivalents and restricted cash, beginning of year

 

86,384

 

82,562

Cash, cash equivalents and restricted cash, end of period

$

99,129

$

63,102

Reconciliation of cash, cash equivalents and restricted cash

 

 

Cash and cash equivalents

$

92,251

$

58,691

Restricted cash

6,878

4,411

Total cash, cash equivalents and restricted cash, end of period

$

99,129

$

63,102

Supplemental disclosure of cash flow information

 

 

Cash paid for interest (net of interest capitalized)

$

2,337

$

1,717

Supplemental disclosure of non-cash investing and financing activities

 

 

Distributions payable – declared and unpaid

$

99

$

Mortgage assumed upon property acquisition

$

24,333

$

Capital expenditures held in accounts payable and other accrued liabilities

$

327

$

849

See Notes to Consolidated Financial Statements

7

BLUEROCK HOMES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

Bluerock Homes Trust, Inc. (the “Company”) was incorporated in Maryland on December 16, 2021. The Company owns and operates high-quality single-family properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt and Western United States. The Company’s principal objective is to generate attractive risk-adjusted returns on investments where it believes it can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units, developing build-to-rent communities, and through Value-Add renovations. The Company’s Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize the Company’s return on investment.

As of March 31, 2024, the Company held twenty real estate investments, consisting of twelve consolidated investments and eight preferred equity and loan investments. The twenty investments represent an aggregate of 4,366 residential units, comprised of 2,745 consolidated units, of which 170 units are under development, and 1,621 units through preferred equity and loan investments. As of March 31, 2024, the Company’s consolidated operating investments were approximately 94.8% 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 and it would not be permitted to qualify as a REIT for four years following the year in which it lost its qualification. The Company intends to continue to organize and operate in such a manner as to remain qualified as a REIT.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company conducts its operations through Bluerock Residential Holdings, L.P., its operating partnership (the “Operating Partnership”), of which it is the sole general partner. The consolidated financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries. As of March 31, 2024, limited partners other than the Company owned approximately 69.34% of the common units of the Operating Partnership (58.20% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 11.14% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.68% which are not vested as of March 31, 2024).

Certain amounts in prior year financial statement presentation have been reclassified to conform to the current year presentation.

Real Estate Investments and Preferred Equity Investments

The Company first analyzes an investment to determine if it is a variable interest entity (“VIE”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation and, if so, whether the Company is the primary beneficiary requiring consolidation of the entity. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses at each level of the investment whether (i) the entity is a VIE, and (ii) the Company is the primary beneficiary of the VIE. If it was determined that an entity in which the Company holds an interest qualified as a VIE and the Company was the primary beneficiary, the entity would be consolidated.

If, after consideration of the VIE accounting literature, the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority voting interest held by the Company providing control.

8

In assessing whether the Company is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company evaluates the respective rights and privileges afforded each member or partner (collectively referred to as “member”). The Company’s member would not be deemed to control the entity if any of the other members has either (i) substantive kickout rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) substantive participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be made in the ordinary course of business.

The Company analyzes each investment that involves real estate acquisition, development, and construction to consider whether the investment qualifies as an investment in a real estate acquisition, development, and construction arrangement. The Company has evaluated its real estate investments as required by ASC 310-10 Receivables and concluded that no investments are considered an investment in a real estate acquisition, development, or construction arrangement. As such, the Company next evaluates if these investments are considered a security under ASC 320 Investments – Debt Securities.

For investments that meet the criteria of a security under ASC 320 Investments – Debt Securities, except as noted regarding Note B of the Wayford at Pringle Loan Financing (refer to Note 6), the Company classifies each preferred equity investment as a held-to-maturity debt security as the Company has the intention and ability to hold the investment 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. The Company evaluates the collectability of each preferred equity investment and estimates a provision for credit loss, as applicable. Refer to the Current Expected Credit Losses (“CECL”) section of this Note for further information regarding CECL and the Company’s provision for credit losses. The Company accounts for these investments as preferred equity investments in unconsolidated real estate joint ventures in its consolidated balance sheets.

For investments that do not meet the criteria of a security under ASC 320 Investments – Debt Securities, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate. The Company recognizes interest income on its notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected. Costs incurred to originate its notes receivable are deferred and amortized using the effective interest method over the term of the related notes receivable. The Company evaluates the collectability of each loan investment and estimates a provision for credit loss, as applicable. Refer to the CECL section of this Note for further information regarding CECL and the Company’s provision for credit losses.

Significant Risks and Uncertainties

Uncertainty Due to Economic Volatility

The Company’s results of operations in the future may be directly or indirectly affected by uncertainties such as the effects of inflation and related volatility in the market. As inflation accelerated rapidly in the first half of 2023, the Federal Reserve increased interest rates a total of four times during 2023 to curb the effects of rising inflation. While the Federal Reserve has held rates steady since July 2023, there can be no assurances that interest rates will not rise again, and the Company’s operating costs, including utilities and payroll, may increase as a result of increases in inflation. Rising interest rates cause uncertainty in credit and capital markets which could have material and adverse effects on the Company’s financial condition, results of operations and cash flows. The long-term impact of these economic developments will largely depend on any future action by the Federal Reserve, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The Company continues to closely monitor the impact of economic volatility on all aspects of its business.

Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2024 for discussion of the Company’s significant accounting policies. During the three months ended March 31, 2024, there were no material changes to these policies.

9

Interim Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“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, 2023 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 the Company’s audited consolidated financial statements for the year ended December 31, 2023 contained in the Annual Report on Form 10-K as filed with the SEC on March 12, 2024.

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 January 2021, the FASB issued Accounting Standards Update (“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 the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. The amendments in ASU 2021-01 are effective immediately, though as the sunset date of Topic 848 was deferred through the issuance of ASU No. 2022-06, such amendments may be elected over time as reference rate reform activities occur through December 31, 2024. 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.

In November 2023, the FASB issued Accounting Standards Update No. 2023-07 “Improvements to Reportable Segment Disclosures (Topic 280)” (“ASU 2023-07”). The amendments in ASU 2023-07 require additional disclosures regarding reportable segments, including a segment’s significant expenses on both an annual and interim basis. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07 on its financial disclosures.

In December 2023, the FASB issued Accounting Standards Update No. 2023-09 “Improvements to Income Tax Disclosures (Topic 740)” (“ASU 2023-09”). The amendments in ASU 2023-09 require additional disclosure with respect to the effective tax rate reconciliation and information on income taxes paid. The amendments in ASU 2023-09 are effective for the Company for annual reporting periods beginning after December 15, 2024. The Company is currently evaluating the impact of adopting ASU 2023-09 on its financial disclosures.

10

Current Expected Credit Losses

The Company estimates provision for credit losses on its loans (notes receivable) and preferred equity investments under CECL. This method is based on expected credit losses for the life of the investment as of each balance sheet date. The method for calculating the estimate of expected credit loss considers historical experience and current conditions for similar loans and reasonable and supportable forecasts about the future.

The Company estimates its provision for credit losses using a collective (pool) approach for investments with similar risk characteristics, such as collateral and duration of investment. In measuring the CECL provision for investments that share similar characteristics, the Company applies a default rate to the investments for the remaining loan or preferred equity investment hold period. As the Company does not have a significant historical population of loss data on its loan and preferred equity investments, the Company’s default rate utilized for CECL is based on an external historical loss rate for commercial real estate loans.

In addition to analyzing investments as a pool, the Company performs an individual investment assessment of expected credit losses. If it is determined that the borrower is experiencing financial difficulty, or a foreclosure is probable, or the Company expects repayment through the sale of the collateral, the Company calculates expected credit losses based on the value of the underlying collateral as of the reporting date. During this review process, if the Company determines that it is probable that it will not be able to collect all amounts due for both principal and interest according to the contractual terms of an investment, that loan or preferred equity investment is not considered fully recoverable and a provision for credit loss is recorded.

In estimating the value of the underlying collateral when determining if a loan or preferred equity investment is fully recoverable, the Company evaluates estimated future cash flows to be generated from the collateral underlying the investment. The inputs and assumptions utilized to estimate the future cash flows of the underlying collateral are based upon the Company’s evaluation of the operating results, economy, market trends, and other factors, including judgments regarding costs to complete any construction activities, lease-up and occupancy rates, rental rates, and capitalization rates utilized to estimate the projected cash flows at the disposition. The Company may also obtain a third-party valuation which may value the collateral through an “as-is” or “stabilized value” methodology. If upon completion of the valuation the fair value of the underlying collateral securing the investment is less than the net carrying value, the Company records a provision for credit loss on that loan or preferred equity investment. As the investment no longer displays the characteristics that are similar to those of the pool of loans or preferred equity investments, the investment is removed from the CECL collective (pool) analysis described above.

11

Note 3 – Acquisition of Real Estate and Additional Interests

Acquisition of Villas at Huffmeister

On March 25, 2024, the Company, through a 95% owned joint venture entity, acquired a 294-unit single-family residential community located in Houston, Texas known as Villas at Huffmeister. The purchase price of $41.2 million was funded, in part, with a $24.3 million senior loan assumption secured by Villas at Huffmeister, along with cash of $17.4 million funded by the Company.

Purchase Price Allocation

The real estate acquisition above has been accounted for as an asset acquisition. The purchase price was allocated to the acquired assets and mortgage assumed based on their estimated fair values at the date of acquisition.

The following table summarizes the assets acquired and mortgage assumed at the acquisition date for Villas at Huffmeister (amounts in thousands):

    

Purchase Price

Allocation

Land

$

7,950

Building

24,356

Building improvements

 

1,052

Land improvements

 

6,789

Furniture and fixtures

 

620

In-place leases

 

1,018

Total assets acquired (1)

$

41,785

 

Mortgage assumed

$

27,440

Fair value adjustment

 

(3,107)

Total liabilities assumed

$

24,333

(1)The $41.8 million of total assets acquired includes $0.6 million of acquisition expenses that have been capitalized as the acquisition of Villas at Huffmeister has been accounted for as an asset acquisition.

Note 4 – Sale of Real Estate Assets

Sale of Consolidated Operating Units

During the first quarter 2024, the Company closed on the following sales: one unit in the Indy-Springfield portfolio, four units in the Peak JV 2 portfolio, and nineteen units in the Peak JV 3 portfolio, pursuant to the terms and conditions of multiple separate purchase and sales agreements. The twenty-four units were sold for an aggregate of approximately $3.9 million, subject to certain prorations and adjustments typical in such real estate transactions, and generated net proceeds of approximately $3.7 million and a gain on sales of approximately $0.3 million.

Held for Sale

At March 31, 2024, the Company classified an aggregate of 96 units as held for sale in its consolidated balance sheets, and for the three months ended March 31, 2024, the Company recorded an impairment of $0.1 million related to held for sale units which is included in gain on sale and impairment of real estate investments, net in the consolidated statements of operations. The units are included in the following portfolios: 34 units of Indy-Springfield, 11 units of Peak JV 2, and 51 units of Peak JV 3. These units were identified based on submarket analysis and individual unit-level operational review.

12

Note 5 - Investments in Real Estate

As of March 31, 2024, the Company held twenty real estate investments, consisting of twelve consolidated operating investments and eight held through preferred equity and loan investments. The following tables provide summary information regarding the Company’s consolidated operating investments and preferred equity and loan investments.

Consolidated Investments

Number of

Average Year

Ownership

 

Operating Investment Name

    

Market / Location

    

Units (1)

    

Built

    

Interest

Ballast

AZ / CO / WA

84

1998

95

%

Golden Pacific

IN / KS / MO

169

1977

97

%

ILE

TX / SE US

482

1991

95

%

Indy-Springfield

IN / MO

333

1999

100

%

Navigator Villas

Pasco, WA

176

2013

90

%

Peak JV 2

Various / TX

592

1980

80

%

Peak JV 3

Dallas-Fort Worth, TX

131

1961

56

%

Savannah-84

Savannah, GA

84

2022

100

%

Villas at Huffmeister

Houston, TX

294

2007

95

%

Wayford at Concord

Concord, NC

150

2019

83

%

Yauger Park Villas

Olympia, WA

80

2010

95

%

Total Operating Units

 

 

2,575

 

  

 

  

Development Investment Name

Abode Wendell Falls (2)

Wendell, NC

170

100

%

Total Development Units

170

Total Units

2,745

(1)Total operating units includes an aggregate of 96 units classified as held for sale and includes the following portfolios: 34 units in Indy-Springfield, 11 units in Peak JV 2, and 51 units in Peak JV 3.
(2)Abode Wendell Falls is a build to rent development project expected to commence construction in the second quarter 2024. The total estimated project cost is $56.0 million, of which $6.6 million had been incurred as of March 31, 2024.

Depreciation expense was $4.0 million and $4.0 million for the three months ended March 31, 2024 and 2023, respectively.

Intangibles related to the Company’s consolidated investments in real estate consist of the value of in-place leases. There was no amortization expense related to in-place leases for the three months ended March 31, 2024 and 2023.

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Preferred Equity and Loan Investments

Actual /

Actual /

Actual /

Planned

Estimated

Estimated

Number of

Initial

Construction

Lease-up Investment Name

    

Location / Market

    

Units

    

Occupancy

    

Completion

The Woods at Forest Hill (1)

Forest Hill, TX

56

4Q 2022

3Q 2023

Willow Park

 

Willow Park, TX

 

58

 

2Q 2022

 

3Q 2023

The Cottages at Myrtle Beach

Myrtle Beach, SC

294

2Q 2023

4Q 2023

The Cottages of Port St. Lucie

Port St. Lucie, FL

286

2Q 2023

2Q 2024

Wayford at Innovation Park

 

Charlotte, NC

 

210

 

3Q 2023

 

3Q 2024

Wayford at Pringle (2)

Charlotte, NC

102

1Q 2024

4Q 2024

Total Lease-up Units

 

 

1,006

 

  

 

  

Development Investment Name

Chandler

Chandler, AZ

208

2Q 2024

3Q 2024

Total Development Units

208

Operating Investment Name

Number of Units

Peak Housing (3)

IN / MO / TX

407

Total Operating Units

407

Total Units

1,621

(1)The Woods at Forest Hill unit count decreased from 76 units at December 31, 2023 to 56 units at March 31, 2024 resulting from the sales of 20 units during the first quarter 2024. Proceeds from the sales of these units were used to paydown the Company’s loan investment in The Woods at Forest Hill. Refer to Note 6 for further information.
(2)Wayford at Pringle is a loan investment for which the Company disburses loan proceeds to the borrower for unit acquisitions upon construction completion. Of the total 102-build for rent units that are to be acquired, construction of 37 units was completed during the first quarter 2024 for which the Company provided the borrower with loan proceeds for their acquisition. The Company estimates that all units will be completed and acquired, and its loan commitment fully funded, by the end of 2024. Refer to Note 6 for further information.
(3)Peak Housing is a stabilized operating portfolio and the number of units shown represents those collateralizing the Company’s preferred equity investment in the Peak REIT OP as of March 31, 2024 (refer to Note 7 for further information). Unit count excludes units presented in the consolidated investments table above.

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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 at March 31, 2024, and December 31, 2023 (amounts in thousands):

Investment Name

    

March 31, 2024

    

December 31, 2023

Notes Receivable

The Woods at Forest Hill

$

4,279

$

8,284

Wayford at Pringle

 

9,606

 

Willow Park

 

9,400

 

9,400

Total notes receivable

$

23,285

$

17,684