BLUEROCK RESIDENTIAL GROWTH REIT, INC. The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofBluerock Residential Growth REIT, Inc. , and the notes thereto. As used herein, the terms "we," "our" and "us" refer toBluerock Residential Growth REIT, Inc. , aMaryland corporation, and, as required by context,Bluerock Residential Holdings, L.P. , aDelaware limited partnership, which we refer to as our "Operating Partnership," and to their subsidiaries. We refer toBluerock Real Estate, L.L.C. , aDelaware limited liability company, as "Bluerock", and we refer to our former external manager, BRG Manager, LLC, aDelaware 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. OnDecember 20, 2021 , we entered into an Agreement and Plan of Merger (the "Merger Agreement") withBadger Parent LLC ("Parent") andBadger 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 ofBlackstone 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
? 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 theSecurities and Exchange Commission ("SEC") onMarch 11, 2022 , and subsequent filings by us with theSEC , or ("Risk Factors").
Overview
We were incorporated as aMaryland corporation onJuly 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 acrossthe 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 throughBluerock 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 theOperating Partnership and its subsidiaries. As ofMarch 31, 2022 , we held an aggregate of 19,007 units, comprised of 15,250 multifamily units and 3,757 single-family residential units. The aggregate number of units are held through seventy-six real estate investments, consisting of fifty-one consolidated operating investments and twenty-five investments held through preferred equity, loan or ground lease investments. As ofMarch 31, 2022 , our consolidated operating investments were approximately 95.9% 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 endedDecember 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, theOperating 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 theOperating Partnership and a portion of our common units in theOperating Partnership (the "Redemption"). As a result, following the Redemption, theOperating 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 theOperating 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 theOperating 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 theOperating 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 theSecurities and Exchange Commission (the "SEC") onDecember 21, 2021 . 40 Table of Contents COVID-19 We continue to monitor the impact of the COVID-19 pandemic 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 endedMarch 31, 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, includingthe 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, includingthe 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 endedJune 30, 2020 to none in the quarter endedMarch 31, 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 95.9% and 95.8% as ofMarch 31, 2022 andApril 30, 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 on our rental revenue for the second 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 ofMarch 31, 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. 41
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Other Significant Developments
Acquisition of and Investments in Real Estate
During the three months endedMarch 31, 2022 , we acquired an additional 146 single-family residential units through three existing joint ventures for total purchase prices of$31.0 million . Additionally, we increased our preferred equity investments inChandler ,Deerwood Apartments ,Lower Broadway ,Orange City Apartments , The Cottages atMyrtle Beach , The Cottages atWarner Robins and The Cottages ofPort St. Lucie by an aggregate of approximately$26.4 million . We entered into a mezzanine loan agreement withWeatherford 185 and provided loan funding of approximately$9.6 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 three
months ended
Number of Ownership Purchase
Name - Operating Market Date of Investment Units / Homes Interest Price
Single-Family Residential (1)
Granbury 2.0 (2) Granbury, TX March 11, 2022 34 80 % $ 7.7
Savannah 319 Savannah, GA March 17, 2022 19 80 % 4.5
Golden Pacific KS / MO 1Q 2022 (3) 62 97 % 11.8
ILE TX / SE US 1Q 2022 (3) 31 95 % 7.0
Total Operating 146 $ 31.0
Number of Commitment Investment
Name - Mezzanine Loan Market Date of Investment Units Amount Amount
Single-Family Residential
Weatherford 185 Weatherford, TX February 15, 2022 185 $ 9.6 $ 9.6
Total Mezzanine Loan 185 $ 9.6
Total 331 $ 40.6 (1) Single-Family Residential includes single-family residential homes and
attached townhomes/flats.
At the time of closing, we made a common equity investment in
in our consolidated financial statements. In
loan investment was converted into a common equity investment.
(3) The Golden Pacific and ILE acquisitions were made on various dates throughout
the first quarter 2022.
Sale of Real Estate Assets and Investments
We received mezzanine loan payoffs of approximately$134.1 million from the sale of three properties. Additionally, two properties underlying unconsolidated joint ventures were sold and our preferred equity investments were redeemed for net proceeds of$20.9 million . 42
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The following is a summary of our mezzanine loan payoffs and redemptions of preferred equity investments during the three months endedMarch 31, 2022 ($ 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 (1) Chapel Hill, NC February 28, 2022 414 114.2 34.4 Motif Fort Lauderdale, FL March 24, 2022 385 195.0 87.2 Total Mezzanine Loan 1,079 399.2 134.1 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 Total Preferred Equity
508 122.8 20.9
Total 1,587 $ 522.0 $ 155.0 The mezzanine loan that we provided was paid off in full. The
to The
2022.
Redemptions of Preferred Stock
During the three months endedMarch 31, 2022 , we, at the request of holders, redeemed 547 shares of Series B Redeemable Preferred Stock and 24,671 shares of Series T Redeemable Preferred Stock for$0.5 million and$0.6 million in cash, respectively. Our total stockholders' equity decreased$15.1 million from$83.9 million as ofDecember 31, 2021 to$68.8 million as ofMarch 31, 2022 . The decrease in our total stockholders' equity is primarily attributable to dividends declared of$23.4 million and preferred stock accretion of$5.2 million , partially offset by net income of$8.4 million and the impact of Company Warrant exercises of$4.3 million during the three months endedMarch 31, 2022 . 43 Table of Contents Results of Operations
The following is a summary of our stabilized consolidated operating real estate
investments as of
Number of Date Ownership Average %
Name Location Units Built/Renovated (1) Interest Rent (2) Occupied (3)
Multifamily
ARIUM Glenridge Atlanta, GA 480 1990 90 % $ 1,486 93.1 %
ARIUM Westside Atlanta, GA 336 2008 90 % 1,631 94.6 %
Ashford Belmar Lakewood, CO 512 1988/1993 85 % 1,816 95.3 %
Avenue 25 Phoenix, AZ 254 2013 100 % 1,452 94.9 %
Burano Hunter's Creek Orlando, FL 532 1999 100 % 1,549 98.5 %
Carrington at Perimeter Park Morrisville, NC 266 2007 100 % 1,402 96.2 %
Chattahoochee Ridge Atlanta, GA 358 1996 90 % 1,527 96.9 %
Chevy Chase Austin, TX 320 1971 92 % 1,113 98.1 %
Cielo on Gilbert Mesa, AZ 432 1985 90 % 1,323 96.5 %
Citrus Tower Orlando, FL 336 2006 97 % 1,530 95.5 %
Denim Scottsdale, AZ 645 1979 100 % 1,461 97.1 %
Elan Austin, TX 270 2007 100 % 1,267 96.3 %
Element Las Vegas, NV 200 1995 100 % 1,463 95.5 %
Falls at Forsyth Cumming, GA 356 2019 100 % 1,573 97.2 %
Gulfshore Apartment Homes Naples, FL 368 2016 100 % 1,481 98.4 %
Outlook at Greystone Birmingham, AL 300 2007 100 % 1,265 95.3 %
Pine Lakes Preserve Port St. Lucie, FL 320 2003 100 % 1,656 96.3 %
Providence Trail Mount Juliet, TN 334 2007 100 % 1,450 97.9 %
Roswell City Walk Roswell, GA 320 2015 98 % 1,772 96.3 %
Sands Parc Daytona Beach, FL 264 2017 100 % 1,563 95.8 %
The Brodie Austin, TX 324 2001 100 % 1,455 96.6 %
The Debra Metrowest Orlando, FL 510 2001 100 % 1,577 96.3 %
The Links at Plum Creek Castle Rock, CO 264 2000 88 % 1,589 96.6 %
The Mills Greenville, SC 304 2013 100 % 1,147 98.0 %The Preserve at Henderson BeachDestin, FL
340 2009 100 % 1,735 96.2 %
The Sanctuary Las Vegas, NV 320 1988 100 % 1,302 95.0 %
Veranda at Centerfield Houston, TX 400 1999 93 % 1,107 97.5 %
Villages of Cypress Creek Houston, TX 384 2001 80 % 1,272 94.8 %
Wesley Village Charlotte, NC 301 2010 100 % 1,495 98.3 %
Windsor Falls Raleigh, NC 276 1994 100 % 1,212 95.3 %
Total Multifamily Units 10,626
Average Year Average
Single-Family Residential (4) Market Built Rent (5)
Golden Pacific KS / MO 69 1975 97 % 1,243 100.0 % (6)
ILE TX / SE US 310 1990 95 % 1,630 89.9 % (7)
Navigator Villas Pasco, WA 176 2013 90 % 1,325 (2) 96.6 %
Peak
Axelrod Garland, TX 22 1959 80 % 1,303 100.0 %
DFW 189 Dallas-Fort Worth, TX 189 1962 56 % 951 95.2 %
Granbury Granbury, TX 36 2020-2021 80 % 1,560 91.7 %
Granbury 2.0 Granbury, TX 34 2021-2022 80 % 1,683 88.2 %
Indy Indianapolis, IN 44 1958 60 % 835 79.5 %
Lubbock Lubbock, TX 60 1955 80 % 979 90.0 %
Lubbock 2.0 Lubbock, TX 75 1972 80 % 1,225 88.0 %
Lubbock 3.0 Lubbock, TX 45 1945 80 % 937 88.9 %
Lynnwood Lubbock, TX 20 2005 80 % 999 100.0 %
Lynnwood 2.0 Lubbock, TX 20 2003 80 % 993 95.0 %
Savannah 319 Savannah, GA 19 2022 80 % 1,515 89.5 %
Springfield Springfield, MO 290 2004 60 % 1,143 99.0 %
Springtown Springtown, TX 70 1991 80 % 1,218 87.1 %
Springtown 2.0 Springtown, TX 14 2018 80 % 1,409 100.0 %
Texarkana Texarkana, TX 29 1967 80 % 974 93.1 %
Texas Portfolio 183 Various / TX 183 1975 80 % 1,305 88.5 %
Wayford at Concord Concord, NC 150 2019 83 % 1,981 (2) 93.3 %
Yauger Park Villas Olympia, WA 80 2010 95 % 2,148 (2) 96.3 %Total Single-family Units
1,935
Total Units/Average 12,561 $ 1,447 95.9 %
(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 endedMarch 31, 2022 . Total concessions for the three months endedMarch 31, 2022 amounted to approximately$0.03 million .
(3)Percent occupied is calculated as (i) the number of units occupied as of
(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 first quarter 2022.
(6)Percent occupied for Golden Pacific excludes 44 down units under renovation.
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(7)Percent occupied for ILE excludes 23 down units under renovation.
The following is a summary of our preferred equity, mezzanine loan and ground
lease investments as of
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 $ 55.5 $ 193,811 4Q 2021 1Q 2022 $ 1,762
Total Lease-up Units 307
Development Investment Name (1)
Multifamily
Avondale Hills Decatur, GA 240 51.0 43.4 212,500 1Q 2023 1Q 2023 1,538
Deerwood Apartments Houston, TX 330 65.8 34.1 199,394 4Q 2022 2Q 2023 1,590
Chandler Chandler, AZ 208 48.2 13.6 231,731 3Q 2023 4Q 2023 1,457Orange City Apartments Orange City, FL 298
60.5 15.3 203,020 1Q 2023 4Q 2023 1,457
Lower Broadway San Antonio, TX 386 91.5 31.1 237,047 4Q 2023 2Q 2024 1,769
Total Multifamily Units 1,462
Single-Family Residential
Willow Park Willow Park, TX 46 14.5 9.4 315,217 2Q 2022 4Q 2022 2,362
The Woods at Forest Hill Forest Hill, TX 76 14.8 4.4 194,737 1Q 2023 3Q 2023
1,625
The Cottages at Myrtle Beach Myrtle Beach, SC 294 63.6 20.1 216,327 1Q 2023 4Q 2023
1,743
The Cottages at
53.1 9.5 211,554 3Q 2023 4Q 2023 1,346
The Cottages of
69.6 18.0 243,357 1Q 2023 4Q 2023 2,133
Wayford at Innovation Park Charlotte, NC 210 62.0 9.6 295,238 3Q 2023 3Q 2024 1,994
Weatherford 185 (3) Weatherford, TX 185 - - - - - 1,874
Total Single-family Units 1,348
Total Development Units 2,810
Number AverageOperating Investment Name (1) Location / Market of Units
Rent (2)
Multifamily
Deercross Indianapolis, IN 372 $ 805
Domain at The One Forty Garland, TX 299 1,487
Hunter's Pointe Pensacola, FL 204 1,131
Park on the Square Pensacola, FL 240 1,281
Renew 3030 Mesa, AZ 126 1,170
Spring Parc Dallas, TX 304 1,058
The Commons Jacksonville, FL 328 1,013The Crossings of Dawsonville Dawsonville, GA 216
1,506
The Reserve at Palmer Ranch Sarasota, FL 320
1,591
The Riley Richardson, TX 262 1,493
Water's Edge Pensacola, FL 184 1,357
Total Multifamily Units 2,855
Single-Family Residential
Peak Housing (4) IN / MO / TX 474 922
Total Single-family Units 474
Total Operating Units 3,329
Total Units /Average 6,446 $ 1,447 (5)
Investments in which we have a loan, preferred equity or ground lease (1) investment. Operating investments represent stabilized operating investments.
Refer to Note 6 and Note 7 in our consolidated financial statements for
further information.
For lease-up and development investments, represents the average pro forma (2) 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.
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
the three months ended March 31, 2022 .
45
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Three Months Ended
Revenue
Rental and other property revenues increased$5.4 million , or 11%, to$56.5 million for the three months endedMarch 31, 2022 as compared to$51.1 million for the same prior year period. This was due to a$7.1 million increase from the acquisition of two 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$7.3 million decrease driven by the full period impact of seven investments sold in 2021. Interest income from mezzanine loan and ground lease investments increased$2.1 million , or 43%, to$6.8 million for the three months endedMarch 31, 2022 as compared to$4.7 million for the same prior year period due to the recognition of deferred income at Motif, increases in the average balance of mezzanine loans outstanding in 2022, and the acquisition of one investment in 2022, partially offset by the sales of four underlying investments in 2022 and 2021 and decreases in interest rates in 2022.
Expenses
Property operating expenses remained relatively flat at$19.9 million for the three months endedMarch 31, 2022 as compared to the same prior year period. This was primarily due to a$2.9 million increase from the acquisition of investments in 2022 and 2021 and a$0.1 million increase from same store properties, partially offset by a$3.0 million decrease from sold investments. Property net operating income ("NOI") margins increased to 64.8% of total revenues for the three months endedMarch 31, 2022 from 61.0% in the prior year period. Property NOI margins are computed as total property revenues less property operating expenses, divided by total property revenues. Property management fees expense increased$0.6 million , or 46%, to$1.9 million for the three months endedMarch 31, 2022 as compared$1.3 million in the same prior year period. Property management fees incurred are based on property level revenues.
General and administrative expenses amounted to
Acquisition and pursuit costs amounted to$0.05 million for the three months endedMarch 31, 2022 as compared to$0.01 million for the same prior year period. Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Weather-related losses, net amounted to$0.4 million for the three months endedMarch 31, 2021 . The 2021 expense related to freeze damages at eight properties inTexas . No weather-related losses were recorded in 2022. Depreciation and amortization expenses were$22.0 million for the three months endedMarch 31, 2022 as compared to$20.3 million for the same prior year period. This was due to a$4.2 million increase from the acquisition of investments in 2022 and 2021 partially offset by a$2.1 million decrease driven by the sales of investments in 2022 and 2021 and a$0.4 million decrease from same store properties. Other Income and Expense
Other income and expense amounted to expense of$9.6 million for the three months endedMarch 31, 2022 compared to income of$53.9 million for the same prior year period. This was primarily due to a decrease in gain on sale of real estate investments of$68.9 million and an increase in transaction costs of$7.5 million . This was partially offset by an increase in gain on sale of unconsolidated joint venture of$3.9 million , a decrease in loss on early extinguishment of debt of$3.0 million , and a net decrease in interest expense of$2.3 million . 46 Table of Contents Property Operations We define "same store" properties as those that we owned and operated for the entirety of both periods being compared, except for properties that are in the construction or lease-up phases, properties that are undergoing development or significant redevelopment, or properties held for sale. We move properties previously excluded from our same store portfolio for these reasons into the same store designation once they have stabilized or the development or redevelopment is complete and such status has been reflected fully in all quarters during the applicable periods of comparison. For newly constructed or lease-up properties or properties undergoing significant redevelopment, we consider a property stabilized upon attainment of 90.0% physical occupancy. For comparison of our three months endedMarch 31, 2022 and 2021, the same store properties included properties owned atJanuary 1, 2021 . Our same store properties for the three months endedMarch 31, 2022 and 2021 consisted of 30 properties, representing 10,526 units. The following table presents the same store and non-same store results from operations for the three months endedMarch 31, 2022 and 2021 ($ in thousands): Three Months Ended March 31, Change 2022 2021 $ % Property Revenues Same Store$ 49,398 $ 43,821 $ 5,577 12.7 % Non-Same Store 7,100 7,260 (160) (2.2) % Total property revenues 56,498 51,081 5,417 10.6 % Property Expenses Same Store 16,935 16,847 88 0.5 % Non-Same Store 2,949 3,085 (136) (4.4) % Total property expenses 19,884 19,932 (48) (0.2) % Same Store NOI 32,463 26,974 5,489 20.3 % Non-Same Store NOI 4,151 4,175 (24) (0.6) % Total NOI (1)$ 36,614 $ 31,149 $ 5,465 17.5 %
See "Net Operating Income" below for a reconciliation of Same Store NOI, (1) Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
Three Months Ended
Same store NOI for the three months endedMarch 31, 2022 increased 20.3%, or$5.5 million , compared to the 2021 period. Same store property revenues increased 12.7%, or$5.6 million , as compared to the 2021 period, primarily attributable to a 12.7% increase in average rental rates and a 50-basis point increase in occupancy. Of our thirty same store properties, all thirty recognized rental rate increases during the period. In addition, ancillary income, such as trash fees, parking fees and late fees, increased$0.2 million .
Same store expenses for the three months ended
Non-same store property revenues and property expenses for the three months endedMarch 31, 2022 decreased$0.2 million and$0.1 million , respectively, compared to the 2021 period due to the timing and volume of operating property transactions. We acquired twenty-one operating investments representing 2,035 units and sold seven operating investments representing 2,196 units sinceJanuary 1, 2021 . 47 Table of Contents 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. 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 EndedMarch 31, 2022 2021
Net (loss) income attributable to common stockholders
(5,816) 10,160
Net (loss) income attributable to common stockholders and unit holders (21,212)
33,741
Add common stockholders andOperating Partnership Units pro-rata share of: Real estate depreciation and amortization 20,423
19,405
Non-real estate depreciation and amortization 122
122
Non-cash interest expense 403
604
Unrealized gain on derivatives (1,126)
(30)
Loss on extinguishment of debt and debt modification costs - 2,564 Provision for credit losses (795) 542 Property management fees 1,710 1,223
Acquisition and pursuit costs 45
11
Corporate operating expenses 7,845
6,570
Transaction costs 7,545
-
Weather-related losses, net -
360 Preferred dividends 18,572 14,617 Preferred stock accretion 5,206 7,022
Less common stockholders and Operating Partnership Units pro-rata share of: Other income, net
986 51
Preferred returns on unconsolidated real estate joint ventures 3,816
2,287
Interest income from loan and ground lease investments 7,377
4,721
Gain on sale of real estate investments -
62,427
Gain on sale of unconsolidated joint venture 3,892
-
Pro-rata share of properties' income 22,667
17,265
Add:
Noncontrolling interest pro-rata share of partially owned property income 1,617 637 Total property income 24,284 17,902 Add: Interest expense 12,330 13,247 Net operating income 36,614 31,149 Less:
Non-same store net operating income 4,151
4,175
Same store net operating income$ 32,463 $
26,974
48
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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. 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 theSEC . 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 endedJune 30, 2020 to none in the quarter endedMarch 31, 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 95.9% and 95.8% as ofMarch 31, 2022 andApril 30, 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. Due to the uncertainty surrounding the COVID-19 impact, we had suspended interior renovations at several properties as part of assuming a more conservative posture; however, we have selectively restarted the program at various properties as we gained more visibility on the economic recovery nationally and within our specific markets. In general, we believe our available cash balances, the Amended Senior and Amended Junior Credit Facilities, 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:
?
?
? 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.
Only 1.1%, or$15.0 million , of our mortgage debt is maturing through the remainder of 2022. As ofMarch 31, 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$132.6 million and$158.5 million as ofMarch 31, 2022 andDecember 31, 2021 , respectively; as ofMay 3, 2022 , this amount was$113.1 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. 49
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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, 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 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. AtMarch 31, 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 throughMarch 31, 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. 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. In addition, we have, in certain cases, an option to purchase up to 100% of the common interest which holds an interest in the entity that owns the property. If we were to convert into common ownership, our income, FFO, CFFO and cash flows would be reflective of our pro rata share of the property's results, which could be a reduction from what our notes receivable currently generate. 50 Table of Contents We also have preferred equity interests in properties that are in various stages of development, in lease-up and operating. Our preferred equity investments are structured to provide a current preferred return, and in some cases, an accrued 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 ofMarch 31, 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 ofMarch 31, 2022 , we own interests in eighteen joint ventures that are accounted for as held to maturity debt securities or loans.
Cash Flows from Operating Activities
As ofMarch 31, 2022 , we owned indirect equity interests in seventy-six real estate investments, consisting of fifty-one consolidated operating investments and twenty-five investments held through preferred equity, loan or ground lease investments. During the three months endedMarch 31, 2022 , net cash provided by operating activities was$21.6 million after net income of$1.9 million was adjusted for the following:
? non-cash items of
? a decrease in notes and accrued interest receivable of
? distributions and preferred returns from unconsolidated joint ventures of
million, offset by:
? a decrease in due from affiliates of
? a decrease in accounts payable and other accrued liabilities of
and
? an increase in accounts receivable, prepaids and other assets of
Cash Flows from Investing Activities
During the three months ended
?
?
estate joint ventures, offset by:
?
notes receivable;
?
?
Cash Flows from Financing Activities
During the three months ended
?
?
?
?
?
?
and
?
? partially offset by net borrowings of
51
Table of Contents
? net proceeds of
? contributions from noncontrolling interests of
Capital Expenditures
The following table summarizes our total capital expenditures for the three
months ended
Three Months Ended
March 31,
2022 2021
Redevelopment/renovations $ 3,088 $ 2,879
Routine capital expenditures 1,859 594
Normally recurring capital expenditures 889 725
Total capital expenditures $ 5,836 $ 4,198
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. 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 $2.6 million and $1.3
million for the three months ended March 31, 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.
52
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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 twenty-one operating investments, made seventeen investments through preferred equity or loans, sold four operating investments and received payoffs of our loan or preferred equity in fourteen investments subsequent toMarch 31, 2021 . We paid a quarterly common stock dividend of$0.1625 during the three months endedMarch 31, 2022 , a 102% payout on a CFFO basis. The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance.
The table below presents our calculation of FFO and CFFO for the three months
ended
Three Months Ended
March 31,
2022 2021
Net (loss) income attributable to common stockholders $
(15,396)
(5,816) 10,160 Net (loss) income attributable to common stockholders and unit holders
(21,212) 33,741
Common stockholders and Operating Partnership Units pro-rata
share of:
Real estate depreciation and amortization 20,423 19,405
Gain on sale of real estate investments - (62,427)
Gain on sale of unconsolidated joint venture (3,892) -
FFO Attributable to Common Stockholders and Unit Holders (4,681) (9,281)
Common stockholders and Operating Partnership Units pro-rata
share of:
Acquisition and pursuit costs 45 11
Non-cash interest expense 403 604
Unrealized gain on derivatives (1,126) (30)
Provision for credit losses (795) 542
Loss on extinguishment of debt and debt modification costs - 2,564
Deferred interest income from mezzanine loan investment (2,996) -
Weather-related losses, net - 360
Non-real estate depreciation and amortization 122 122
Transaction costs 7,545 -
Other (income) expense, net (986) 98
Non-cash equity compensation 3,884 3,311
Preferred stock accretion 5,206 7,022
CFFO Attributable to Common Stockholders and Unit Holders
Per Share and Unit Information: FFO Attributable to Common Stockholders and Unit Holders - diluted
$
(0.11)
$
0.16
Weighted average common shares and units outstanding -
diluted 40,919,331 33,319,020
53
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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. Contractual Obligations
The following table summarizes our contractual obligations as ofMarch 31, 2022 which consisted of mortgage notes secured by our properties. AtMarch 31, 2022 , our estimated future required payments on these obligations were as follows
(amounts in thousands):
Remainder of
Total 2022 2023-2024 2025-2026 ThereafterMortgages Payable (Principal)$ 1,372,509 $ 14,961 $ 336,312 $ 493,270 $ 527,966 Estimated Interest Payments on Mortgages Payable 220,136 37,440 91,380 54,965 36,351 Total$ 1,592,645 $ 52,401 $ 427,692 $ 548,235 $ 564,317 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. 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 ClassC Common Stock December 10, 2021 December 23, 2021$ 0.162500 January 5, 2022 March 14, 2022 March 25, 2022$ 0.162500 April 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 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 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 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 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. InDecember 2021 , our Board approved the suspension of the dividend reinvestment plans until further notice. 54 Table of Contents 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. Distributions paid were funded from cash provided by operating activities except with respect to$3.7 million and$3.9 million for the three months endedMarch 31, 2022 and 2021, respectively, which was funded from sales of real estate, borrowings, and/or proceeds from our equity offerings. Three Months Ended March 31, 2022 2021 (in thousands)
Cash provided by operating activities$ 21,588
Cash distributions to preferred stockholders$ (18,686) $ (15,620) Cash distributions to common stockholders (4,373)
(3,642)
Cash distributions to noncontrolling interests, excluding$7.7 million from the sale of real estate investments in 2021 (2,201) (2,152) Total distributions (25,260) (21,414) Shortfall$ (3,672) $ (3,874) Proceeds from sale of real estate investments, net of noncontrolling distributions of$7.7 million in 2021 $ -$ 75,794 Proceeds from sale and redemption of our preferred equity investment in unconsolidated real estate joint ventures$ 20,436 $ 15,233
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 endedDecember 31, 2021 as filed with theSEC onMarch 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 endedMarch 31, 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.
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