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. Currently, one of the most significant factors, however, is the potential adverse effect of the current pandemic of the novel coronavirus ("COVID-19") on the financial condition, results of operations, cash flows and performance of the Company and its 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 the Company and its 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 the Company's securities offerings;
? the competitive environment in which we operate;
? 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 units in newly acquired or newly constructed apartment properties; 39 Table of Contents
? 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 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;
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") onFebruary 23, 2021 , and subsequent filings by us with theSEC , or ("Risk Factors"). 40 Table of Contents 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 apartment properties 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 ofJune 30, 2021 , we held sixty real estate investments, consisting of thirty-five consolidated operating properties and interests in twenty-five properties held through preferred equity, mezzanine loan or ground lease investments. Of the properties in which our interests are held through preferred equity, mezzanine loan or ground lease investments, eight are under development and seventeen are stabilized. The sixty investments contain an aggregate of 17,928 units, comprised of 11,532 consolidated multifamily operating units and 6,396 units through preferred equity, mezzanine loan or ground lease investments. Of the 6,396 units held through preferred equity, mezzanine loan or ground lease investments, 5,876 are multifamily units and 520 are single-family residential homes. As ofJune 30, 2021 , our consolidated operating properties were approximately 96.2% 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. COVID-19 We are closely monitoring 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 we did not incur any significant impact on our performance during the three months endedJune 30, 2021 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, including mutating variants 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, and/or restrictions on the types of construction projects that may continue. We cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire. 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. 41
Table of Contents
As ofJune 30, 2021 , we collected 98% of rents from our multifamily properties for the three months endedJune 30, 2021 . As ofJuly 31, 2021 , we collected 97% of July rents from our multifamily properties. In 2020, we had provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19; for the six months endedJune 30, 2021 , the Company did not provide rent deferral payment plans, compared to the onset of the COVID-19 pandemic (quarter endedJune 30, 2020 ) in which 1% of our tenant base was on payment plans. 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 96.2% and 96.5% as ofJune 30, 2021 andJuly 31, 2021 , 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 third quarter of 2021 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. For further information regarding the impact of COVID-19 on the Company, see Part II, Item 1A titled "Risk Factors." 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 ofJune 30, 2021 , 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). In response to shelter-in-place orders, our corporate offices have also transitioned to a remote work environment. 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.
Other Significant Developments
Acquisitions of and Investments in Real Estate
During the six months ended
Additionally, we entered into seven preferred equity investments, of which four were fully funded during the period. One of the preferred equity investments is in the operating partnership of Peak Housing REIT, an unaffiliated private REIT, representing a portfolio of 474 single-family residential homes inTexas . We also made an additional preferred equity investment in the Strategic Portfolio of$11.4 million , and we increased our preferred equity investment in Alexan CityCentre and TheConley by approximately$1.8 million in aggregate. We increased our mezzanine loan investments inAvondale Hills , Domain at The One Forty, Motif,Reunion Apartments and Vickers Historic Roswell by approximately$18.9 million in aggregate. We provided increased funding to the Zoey Ground Lease of approximately$8.3 million . 42 Table of Contents Bluerock Residentia Number of Ownership Purchase Property Location Date of Investment Units Interest Price Operating Yauger Park Villas Olympia, WA April 14, 2021 80 95 %$ 24.5 Wayford at Concord (1) Concord, NC June 4, 2021 150 83 % 44.4 Windsor Falls Raleigh, NC June 17, 2021 276 100 % 48.8 Total Operating 506$ 117.7 Actual/Planned Number of Commitment Investment Property Location Date of Investment Units Amount Amount Preferred Equity The Riley Richardson, TX March 1, 2021 262$ 7.0 $ 7.0 Peak Housing Various, Texas April 12, 2021 474 (2) 10.7 10.7
The Reserve at Palmer Ranch (3) Sarasota, FL June 10, 2021
320 11.4 11.4 Deerwood Apartments Houston, TX June 16, 2021 330 16.5 - Wayford at Innovation Park Charlotte, NC June 17, 2021 210 11.7 - Willow Park Willow Park, TX June 17, 2021 46 (2) 3.8 - Deercross Indianapolis, IN June 25, 2021 372 4.0 4.0 Total Preferred Equity 2,014$ 33.1 Total 2,520$ 150.8
(1) We purchased the Wayford at
venture partner, and as part of the transaction, our preferred equity
investment was redeemed.
(2) The actual/planned number of units shown represents the number of
single-family residential homes within each respective portfolio.
(3) We sold The Reserve at
partner, and as part of the sale, we simultaneously made a preferred equity
investment in the property as part of the Strategic Portfolio.
Sale of Real Estate Assets and Investments
We sold five operating properties for net proceeds of$95.1 million . Additionally, two of the properties underlying our preferred equity investments were sold for net proceeds of$26.6 million , of which$0.3 million is to be received subsequent toJune 30, 2021 . We also received a mezzanine loan payoff of approximately$12.9 million from the sale of one property. 43
Table of Contents
The following is a summary of our real estate sales, mezzanine loan payoffs and redemption of preferred equity investments during the six months endedJune 30, 2021 (dollars in millions): Number of Ownership Sale BRG Net Property Location Date Sold Units Interest Price Proceeds Operating ARIUM Grandewood Orlando, FL January 28, 2021 306 100 %$ 65.3 $ 25.1 James at South First Austin, TX February 24, 2021 250 90 % 50.0 18.1 Marquis at The Cascades Tyler, TX March 1, 2021 582 90 % 90.9 32.6 Plantation Park Lake Jackson, TX April 26, 2021 238 80 % 32.0 2.7
The Reserve at Palmer Ranch (1) Sarasota, FL June 10, 2021
320 100 % 57.6 16.6 Total Operating 1,696 295.8 95.1 Mezzanine Loan
Vickers Historic Roswell Roswell, GA June 29, 2021
79 - 40.3 12.9 Total Mezzanine Loan 79 40.3 12.9 Preferred Equity The Conley Leander, TX March 18, 2021 259 - 52.1 16.5
Alexan Southside Place Houston, TX March 25, 2021 270 - 45.1 10.1 Wayford at Concord (2) Concord, NC June 4, 2021 150 - 44.4 7.0 Total Preferred Equity
679 141.6 33.6 Total 2,454$ 477.7 $ 141.6
(1) We sold The Reserve at
partner, and as part of the sale, we simultaneously made a preferred equity
investment in the property as part of the Strategic Portfolio.
(2) We purchased the Wayford at
venture partner, and as part of the transaction, our preferred equity investment was redeemed. Held for Sale We entered into two separate purchase and sale agreements for the sales of the following properties: Park & Kingston, located inCharlotte, North Carolina , and The District atScottsdale , located inScottsdale, Arizona . We have classified both properties as held for sale as ofJune 30, 2021 . OnJuly 7, 2021 , we closed on the sale of Park & Kingston located inCharlotte, North Carolina . The property was sold for$44.9 million , subject to certain prorations and adjustments typical in such real estate transactions. After deduction for the payoff of the existing mortgage indebtedness encumbering the property in the amount of$19.6 million , the payment of early extinguishment of debt costs of$2.4 million and payment of closing costs and fees of$0.5 million , the sale of the property generated net proceeds of approximately$24.7 million . OnJuly 7, 2021 , we closed on the sale of The District atScottsdale located inScottsdale, Arizona . The property was sold for$150.5 million , subject to certain prorations and adjustments typical in such real estate transactions. After deduction for the payoff of the existing mortgage indebtedness encumbering the property in the amount of$73.8 million , the payment of early extinguishment of debt costs of$0.4 million and payment of closing costs and fees of$0.4 million , the sale of the property generated net proceeds of approximately$74.8 million , of which our pro rata share of the proceeds was approximately$69.5 million .
Series T Preferred Stock Continuous Offering
During the six months endedJune 30, 2021 , we issued 8,657,663 shares of Series T Preferred Stock under a continuous registered offering with net proceeds of approximately$194.8 million after commissions, dealer manager fees and discounts of approximately$21.6 million . 44
Table of Contents
Redemption of 8.250% Series A Cumulative Redeemable Preferred Stock
OnFebruary 26, 2021 , we redeemed all 2,201,547 outstanding shares of our Series A Preferred Stock at a redemption price of$25.00 per share, plus accrued and unpaid dividends up to, and including, the date of redemption in an amount equal to$0.320833 per share, for a total payment of$25.320833 per share, in cash.
Redemptions of Series B Redeemable Preferred Stock
During the six months endedJune 30, 2021 , we redeemed 152,851 shares of Series B Preferred Stock through the issuance of 14,780,952 shares of Class A common stock. Our total stockholders' equity increased$67.3 million from$58.4 million as ofDecember 31, 2020 to$125.7 million as ofJune 30, 2021 . The increase in our total stockholders' equity is primarily attributable to the issuance of shares of Class A common stock for the redemptions of shares of Series B Preferred Stock of$152.8 million (of which,$150.7 million relates to Company-initiated redemptions) and net income of$61.4 million , offset by dividends declared of$37.7 million , the repurchase of shares of Class A common stock of$85.8 million and preferred stock accretion of$14.3 million during the six months ended
June 30, 2021 . Results of Operations
The following is a summary of our stabilized consolidated operating real estate
investments as of
Number of Date Built Ownership Average % Multifamily Community Name Location units /Renovated (1) Interest Rent (2) Occupied (3) ARIUM Glenridge Atlanta, GA 480 1990 90 %$ 1,346 95.8 % ARIUM Westside Atlanta, GA 336 2008 90 % 1,509 93.8 % Ashford Belmar Lakewood, CO 512 1988/1993 85 % 1,691 96.9 % Avenue 25 Phoenix, AZ 254 2013 100 % 1,286 94.1 %
Burano Hunter's Creek, formerly ARIUM Hunter's Creek Orlando, FL 532 1999 100 % 1,427 96.8 % Carrington at Perimeter Park Morrisville, NC
266 2007 100 % 1,291 96.6 % Chattahoochee Ridge Atlanta, GA 358 1996 90 % 1,413 96.6 % Chevy Chase Austin, TX 320 1971 92 % 983 97.8 % Cielo on Gilbert Mesa, AZ 432 1985 90 % 1,123 97.2 % Citrus Tower Orlando, FL 336 2006 97 % 1,381 96.1 % Denim Scottsdale, AZ 645 1979 100 % 1,288 95.7 % Elan Austin, TX 270 2007 100 % 1,158 93.0 % Element Las Vegas, NV 200 1995 100 % 1,306 97.0 % Falls at Forsyth Cumming, GA 356 2019 100 % 1,439 97.8 %
Gulfshore Apartment Homes Naples, FL
368 2016 100 % 1,298 97.6 % Navigator Villas Pasco, WA 176 2013 90 % 1,173 99.4 % Outlook at Greystone Birmingham, AL 300 2007 100 % 1,118 95.3 % Park & Kingston Charlotte, NC 168 2015 100 % 1,321 94.6 % Pine Lakes Preserve Port St. Lucie, FL 320 2003 100 % 1,419 97.8 %Providence Trail Mount Juliet, TN 334 2007 100 % 1,304 94.6 % Roswell City Walk Roswell, GA 320 2015 98 % 1,625 97.8 % Sands Parc Daytona Beach, FL 264 2017 100 % 1,370 96.6 % The Brodie Austin, TX 324 2001 100 % 1,353 95.7 %
The Debra Metrowest, formerly ARIUM Metrowest Orlando, FL 510 2001 100 % 1,423 95.7 % The District at Scottsdale Scottsdale, AZ
332 2018 99 % (4) 1,826 94.0 % The Links at Plum Creek Castle Rock, CO 264 2000 88 % 1,489 97.3 % The Mills Greenville, SC 304 2013 100 % 1,061 97.0 %
The Preserve at Henderson BeachDestin, FL
340 2009 100 % 1,548 95.9 % The Sanctuary Las Vegas, NV 320 1988 100 % 1,169 96.3 % Veranda at Centerfield Houston, TX 400 1999 93 % 1,034 96.5 % Villages of Cypress Creek Houston, TX 384 2001 80 % 1,203 94.5 % Wayford at Concord Concord, NC 150 2019 83 % 1,830 95.3 % Wesley Village Charlotte, NC 301 2010 100 % 1,400 96.0 % Windsor Falls Raleigh, NC 276 1994 100 % 1,102 97.5 % Yauger Park Villas Olympia, WA 80 2010 95 % 1,982 96.3 % Total/Average 11,532$ 1,350 (5) 96.2 %
(1)Represents date of last significant renovation or year built if there were no renovations.
45 Table of Contents (2)Represents the average effective monthly rent per occupied unit for the three months endedJune 30, 2021 . Total concessions for the three months endedJune 30, 2021 amounted to approximately$0.2 million . (3)Percent occupied is calculated as (i) the number of units occupied as ofJune 30, 2021 divided by (ii) total number of units, expressed as a percentage. (4)OnApril 1, 2021 , an unaffiliated third party acquired a 1% ownership interest in The District atScottsdale . (5)The average effective monthly rent including sold properties was$1,351 for the three months endedJune 30, 2021 .
The following is a summary of our preferred equity, mezzanine loan and ground
lease investments as of
Total Actual/ Actual/ Estimated Actual/ Actual/ Actual/ Planned Construction Estimated Estimated Estimated Pro Forma Number Cost Cost to Date Construction Initial Construction Average Investment/Community Name Location of Units (in millions) (in millions) Cost Per Unit Occupancy Completion Rent (1) Development Investments (2) Zoey Austin, TX 307 $ 59.5 $ 42.3$ 193,811 1Q 2022 2Q 2022$ 1,762 Reunion Apartments Orlando, FL 280 47.6 38.8 170,000 1Q 2022 3Q 2022 1,366 Willow Park Willow Park, TX 46 (3) 13.5 3.7 293,478 2Q 2022 4Q 2022 2,362 Avondale Hills Decatur, GA 240 50.7 20.4 211,250 1Q 2023 1Q 2023 1,538 TheHartley at Blue Hill, formerly The Park at Chapel Hill Chapel Hill, NC 414 99.2 50.9 239,614 4Q 2021 1Q 2023 1,599 Deerwood Apartments Houston, TX 330 65.8 11.0 199,394 4Q 2022 2Q 2023 1,590 Encore Chandler Chandler, AZ 208 47.7 7.5 229,327 2Q 2023 3Q 2023 1,457 Wayford at Innovation Park Charlotte, NC 210 58.7 4.8 279,524 1Q 2023 2Q 2024 1,994 Total development units 2,035 Number Average Multifamily Community Name Location of Units Rent (1) Operating Investments (2) Alexan CityCentre Houston, TX 340 1,583 Belmont Crossing Smyrna, GA 192 888 Deercross Indianapolis, IN 372 761 Domain at The One Forty Garland, TX 299 1,363 Georgetown Crossing Savannah, GA 168 1,036 Hunter's Pointe Pensacola, FL 204 992 Mira Vista Austin, TX 200 1,115 Motif Fort Lauderdale, FL 385 2,352 Park on the Square Pensacola, FL 240 1,159 Peak Housing Various, Texas 474 (3) 876 Sierra Terrace Atlanta, GA 135 1,274 Sierra Village Atlanta, GA 154 1,224 The Commons Jacksonville, FL 328 914 The Reserve at Palmer Ranch Sarasota, FL 320 1,417 The Riley Richardson, TX 262 1,455 Thornton Flats Austin, TX 104 1,576 Water's Edge Pensacola, FL 184 1,168 Total operating units 4,361 Total 6,396$ 1,368
(1) For development investments, represents the average pro forma effective
monthly rent per occupied unit for all expected occupied units upon
stabilization. For operating investments, represents the average effective
monthly rent per occupied unit.
(2) Properties in which the Company has a mezzanine loan, preferred equity or
ground lease investment. Operating investments represent stabilized operating
properties. Refer to Note 6 and Note 7 in our consolidated financial
statements for further information.
(3)
portfolios of single-family residential homes. The actual/planned number of
units shown represents the number of single-family residential homes within
each respective portfolio.
Three Months Ended
Revenue
Rental and other property revenues increased$2.0 million , or 4%, to$49.7 million for the three months endedJune 30, 2021 as compared to$47.7 million for the same prior year period. This was due to a$5.5 million increase from the acquisition of three properties in 2021 and the full period impact of four properties acquired in 2020, a$2.3 million increase from same store properties, and a$0.8 million increase from other non-same store properties, partially offset by a$6.6 million decrease driven by the sales of five properties in 2021 and the full period impact of four properties sold in 2020. 46
Table of Contents
Interest income from mezzanine loan and ground lease investments decreased$1.2 million , or 23%, to$4.1 million for the three months endedJune 30, 2021 as compared to$5.3 million for the same prior year period primarily due to the sales of two underlying properties in 2020 and the impact of the deferred interest income at Motif, partially offset by increases in the average balance of mezzanine loans outstanding.
Expenses
Property operating expenses increased$0.3 million , or 2%, to$18.9 million for the three months endedJune 30, 2021 as compared to$18.6 million for the same prior year period. This was primarily due to a$2.2 million increase from the acquisition of properties in 2021 and 2020, a$0.9 million increase from same store properties, and a$0.1 million increase from other non-same store properties, partially offset by a$2.9 million decrease from sold properties. Property NOI margins increased to 62.0% of total revenues for the three months endedJune 30, 2021 from 61.1% in the prior year period. Property NOI margins are computed as total rental and other property revenues less property operating expenses, divided by total rental and other property revenues.
Property management fees expense increased
General and administrative expenses amounted to
Acquisition and pursuit costs amounted to
Abandoned pursuit costs can vary greatly, and the costs incurred in any given period may be significantly different in future periods. Acquisition and pursuit costs for the same current year period were insignificant.
Depreciation and amortization expenses were$19.9 million for the three months endedJune 30, 2021 as compared to$20.1 million for the same prior year period. This was due to a$1.9 million decrease from sold properties, a$1.1 million decrease from other non-same store properties, and a$0.6 million decrease from same store properties, partially offset by a$3.4 million increase from the acquisition of properties in 2021 and 2020.
Other Income and Expense
Other income and expense amounted to income of$7.7 million for the three months endedJune 30, 2021 compared to income of$32.9 million for the same prior year period. This was primarily due to a decrease in gains on sale of real estate investments of$38.4 million , partially offset by a decrease in loss on early extinguishment of debt of$13.3 million .
Six Months Ended
Revenue
Rental and other property revenues increased$2.8 million , or 3%, to$100.8 million for the six months endedJune 30, 2021 as compared to$98.0 million for the same prior year period. This was due to a$11.9 million increase from the acquisition of three properties in 2021 and the full period impact of six properties acquired in 2020, a$3.0 million increase from same store properties, and a$1.0 million increase from other non-same store properties, partially offset by a$13.1 million decrease driven by the sales of five properties in 2021 and the full period impact of four properties sold in 2020. Interest income from related parties and ground leases decreased$2.4 million , or 21%, to$8.8 million for the six months endedJune 30, 2021 as compared to$11.2 million for the same prior year period primarily due to the sales of two underlying properties in 2020 and the impact of the deferred interest income at Motif, partially offset by increases in the average balance of mezzanine loans outstanding. 47 Table of Contents Expenses
Property operating expenses increased$0.9 million , or 3%, to$38.8 million for the six months endedJune 30, 2021 as compared to$37.9 million for the same prior year period. This was primarily due to a$4.8 million increase from the acquisition of properties in 2021 and 2020, a$1.5 million increase from same store properties, and a$0.1 million increase from other non-same store properties, partially offset by a$5.5 million decrease from sold properties. Property NOI margins increased to 61.5% of total revenues for the six months endedJune 30, 2021 from 61.4% in the prior year period. Property NOI margins are computed as total rental and other property revenues less property operating expenses, divided by total rental and other property revenues.
Property management fees expense increased
General and administrative expenses amounted to
Acquisition and pursuit costs amounted to$0.01 million for the six months endedJune 30, 2021 as compared to$1.69 million for the same prior year period. The 2020 expense primarily related to the write-off of pre-acquisition costs from abandoned deals due to the uncertainty from COVID-19, of which$1.1 million of the total costs related to one abandoned deal. 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 six months endedJune 30, 2021 . The 2021 expense related to freeze damages at eight properties inTexas . No weather-related losses were recorded in 2020. Depreciation and amortization expenses were$40.3 million for the six months endedJune 30, 2021 as compared to$41.0 million for the same prior year period. This was due to a$4.3 million decrease from sold properties, a$1.2 million decrease from other non-same store properties, and a$0.8 million decrease from same store properties, partially offset by a$5.6 million increase from the acquisition of properties in 2021 and 2020.
Other Income and Expense
Other income and expense amounted to income of$61.6 million for the six months endedJune 30, 2021 compared to income of$20.6 million for the same prior year period. This was primarily due to an increase in gains on sale of real estate investments of$30.2 million and a decrease in loss on early extinguishment
of debt of$10.3 million . 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 endedJune 30, 2021 and 2020, the same store properties included properties owned atApril 1, 2020 . Our same store properties for the three months endedJune 30, 2021 and 2020 consisted of 25 properties, representing 8,882 units.
For comparison of our six months ended
48
Table of Contents
The following table presents the same store and non-same store results from operations for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months Ended June 30, Change 2021 2020 $ % Property Revenues Same Store$ 38,631 $ 36,306 $ 2,325 6.4 % Non-Same Store 11,090 11,389 (299) (2.6) % Total property revenues 49,721 47,695 2,026 4.2 % Property Expenses Same Store 14,559 13,700 859 6.3 % Non-Same Store 4,350 4,871 (521) (10.7) % Total property expenses 18,909 18,571 338 1.8 % Same Store NOI 24,072 22,606 1,466 6.5 % Non-Same Store NOI 6,740 6,518 222 3.4 % Total NOI (1)$ 30,812 $ 29,124 $ 1,688 5.8 % Six Months Ended June 30, Change 2021 2020 $ % Property Revenues Same Store$ 74,309 $ 71,345 $ 2,964 4.2 % Non-Same Store 26,494 26,702 (208) (0.8) % Total property revenues 100,803 98,047 2,756 2.8 % Property Expenses Same Store 28,267 26,814 1,453 5.4 % Non-Same Store 10,574 11,056 (482) (4.4) % Total property expenses 38,841 37,870 971 2.6 % Same Store NOI 46,042 44,531 1,511 3.4 % Non-Same Store NOI 15,920 15,646 274 1.8 % Total NOI (1)$ 61,962 $ 60,177 $ 1,785 3.0 %
(1) See "Net Operating Income" below for a reconciliation of Same Store NOI,
Non-Same Store NOI and Total NOI to net income (loss) and a discussion of how
management uses this non-GAAP financial measure.
Three Months Ended
Same store NOI for the three months endedJune 30, 2021 increased 6.5%, or$1.5 million , compared to the 2020 period. Same store property revenues increased 6.4%, or$2.3 million , as compared to the 2020 period, primarily attributable to a 3.0% increase in average rental rates and an 80-basis point increase in occupancy; of our twenty-five same store properties, twenty-one recognized rental rate increases and eighteen recognized increases in occupancy during the period. In addition, bad debt decreased$0.7 million and ancillary income, such as termination fees, late fees, and pet fees, increased$0.4 million . Same store expenses for the three months endedJune 30, 2021 increased 6.3%, or$0.9 million , compared to the 2020 period. The increase was partially due to non-controllable expenses; real estate taxes increased$0.2 million due to municipality tax increases and insurance increased$0.2 million due to industrywide multifamily price increases. The remaining increase was due to (i) a$0.3 million increase in discretionary seasonal maintenance as discretionary spending was limited in prior year due to COVID-19 and (ii) an increase of$0.2 million in administrative expenses. 49
Table of Contents
Non-same store property revenues and property expenses for the three months endedJune 30, 2021 decreased$0.3 million and$0.5 million , respectively, compared to the 2020 period due to the timing and volume of operating property transactions. We acquired seven operating properties and sold nine properties sinceApril 1, 2020 .
Six Months Ended
Same store NOI for the six months endedJune 30, 2021 increased 3.4%, or$1.5 million , compared to the 2020 period. Same store property revenues increased 4.2%, or$3.0 million , as compared to the 2020 period, primarily attributable to a 2.0% increase in average rental rates and a 110-basis point increase in occupancy; of our twenty-four same store properties, nineteen recognized rental rate increases and twenty-one recognized increases in occupancy during the period. In addition, ancillary income, such as termination fees, late fees, and pet fees, increased$0.6 million and bad debt decreased$0.36 million . Same store expenses for the six months endedJune 30, 2021 increased 5.4%, or$1.5 million , compared to the 2020 period. The increase was primarily due to non-controllable expenses; real estate taxes increased$0.42 million due to municipality tax increases and insurance increased$0.35 million due to industrywide multifamily price increases. The remaining increase was due to (i) a$0.37 million increase in discretionary seasonal maintenance as discretionary spending was limited in prior year due to COVID-19 and (ii) an increase of$0.25 million in administrative expenses. Non-same store property revenues and property expenses for the six months endedJune 30, 2021 decreased$0.2 million and$0.5 million , respectively, compared to the 2020 period due to the timing and volume of operating property transactions. We acquired nine operating properties and sold nine properties sinceJanuary 1, 2020 . Net Operating Income We believe that net operating income ("NOI"), is a useful measure of our operating performance. We define NOI as total property revenues less total property operating expenses, excluding depreciation and amortization and interest. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. NOI also is a computation made by analysts and investors to measure a real estate company's operating performance. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our performance on a same store and non-same store basis; NOI allows us to evaluate the operating performance of our properties because it measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental housing and property operating expenses. 50
Table of Contents
However, NOI should only be used as a supplemental measure of our financial performance. The following table reflects net (loss) income attributable to common stockholders together with a reconciliation to NOI and to same store and non-same store contributions to consolidated NOI, as computed in accordance with GAAP for the periods presented (amounts in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Net (loss) income attributable to common stockholders$ (5,429) $ 15,090 $ 18,152 $ (1,403) Add back: Net (loss) income attributable to Operating Partnership Units (1,978) 5,413 8,182 (409) Net (loss) income attributable to common stockholders and unit holders (7,407) 20,503 26,334 (1,812) Add common stockholders and Operating Partnership Units pro-rata share of: Real estate depreciation and amortization 19,036 19,144 38,440 39,045 Non-real estate depreciation and amortization 122 122 244 242 Non-cash interest expense 549 747 1,154 1,592 Unrealized loss (gain) on derivatives 20 (5) (11) (30) Loss on extinguishment of debt and debt modification costs 609 13,590 3,173 13,590 Provision for credit losses 26 - 567 - Property management fees 1,194 1,135 2,417 2,367
Acquisition and pursuit costs 3 423 15 1,691 Corporate operating expenses 6,520 5,166 13,090 11,462 Weather-related losses, net - -
360 - Preferred dividends 14,367 14,237 28,984 27,784 Preferred stock accretion 7,290 3,602 14,312 7,527 Less common stockholders and Operating Partnership Units pro-rata share of: Other income (expense), net 57 (43) 108 (3) Preferred returns on unconsolidated real estate joint ventures 2,329 2,834 4,616 5,408 Interest income from mezzanine loan and ground lease investments 4,114 5,338 8,835 11,227 Gain on sale of real estate investments 18,630 55,250 81,058 55,360 Pro-rata share of properties' income 17,199 15,285 34,462 31,466 Add: Noncontrolling interest pro-rata share of partially owned property income 738 750 1,378 1,553 Total property income 17,937 16,035 35,840 33,019 Add: Interest expense 12,875 13,089 26,122 27,158 Net operating income 30,812 29,124 61,962 60,177 Less: Non-same store net operating income 6,740 6,518 15,920 15,646 Same store net operating income$ 24,072 $ 22,606 $ 46,042 $ 44,531 51 Table of Contents
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, (d) ongoing commitments to repay borrowings, including our credit facilities and our maturing short-term debt, and (e) Class A common stock, Series C Preferred Stock and Series D Preferred Stock repurchases under our stock repurchase program. 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 . We believe we currently have a stable financial condition; as ofJune 30, 2021 , we collected 98% of rents from our multifamily properties for the three months endedJune 30, 2021 . As ofJuly 31, 2021 , we collected 97% of July rents from our multifamily properties. In 2020, we had provided rent deferral payment plans as a result of hardships certain tenants experienced due to the impact of COVID-19; for the six months endedJune 30, 2021 , we did not provide rent deferral payment plans, compared to the onset of the COVID-19 pandemic (quarter endedJune 30, 2020 ) in which 1% of our tenant base was on payment plans. 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 96.2% and 96.5% as ofJune 30, 2021 andJuly 31, 2021 , 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 2020 and to date in 2021, 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 proceeds from our continuous Series T Preferred Offering, the Amended Senior and Second Amended Junior Credit Facilities, the Fannie Facility, 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 with the proceeds from our continuous Series T Preferred Offering and from the credit facilities 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
our continuous Series T Preferred Offering, 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
Only 5.5%, or
52
Table of Contents
InOctober 2020 , our Board authorized new stock repurchase plans for the repurchase, from time to time, of up to an aggregate of$75 million in outstanding shares of our Class A common stock, Series A Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock. OnFebruary 9, 2021 , our Board authorized the modification of the stock repurchase plans to increase the maximum repurchase amount from an aggregate of$75 million in shares to$150 million in shares. The repurchase plans will terminate upon the earliest to occur of certain specified events as set forth therein. During the six months endedJune 30, 2021 , we purchased 8,163,160 shares of Class A common stock for a total purchase price of approximately$85.8 million . Under the current repurchase plans, the total purchase price of shares repurchased by the Company is approximately$104.8 million , and as ofJune 30, 2021 , the value of shares that may yet be repurchased under the repurchase plans is$45.2 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. 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 units of limited partnership interest in ourOperating Partnership , or 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 apartment community investments, (b) repayment of long-term debt and our credit facilities, (c) capital expenditures, (d) cash redemption requirements related to our Series B Preferred Stock, Series C Preferred Stock and Series T Preferred Stock, and (e) Class A common stock repurchases under our stock repurchase plans. We intend to finance our long-term liquidity requirements with net proceeds of additional issuances of common and preferred stock, including our continuous Series T Preferred Offering, 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 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 Second 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 Second 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. AtJune 30, 2021 , 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 53
Table of Contents
on the series. While our policy is generally to pay distributions from cash flow from operations, our distributions throughJune 30, 2021 have been paid from cash flow from operations, proceeds from our continuous preferred stock offerings, including our Series T Preferred Stock, 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 in the future, we may also provide mortgage financing 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. 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 ofJune 30, 2021 , 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 ofJune 30, 2021 , we own interests in thirteen joint ventures that are accounted for as held to maturity debt securities or loans.
Cash Flows from Operating Activities
As ofJune 30, 2021 , we held sixty real estate investments, consisting of thirty-five consolidated operating properties and interests in twenty-five properties held through preferred equity, mezzanine loan or ground lease investments. During the six months endedJune 30, 2021 , net cash provided by operating activities was$40.0 million after net income of$76.0 million was adjusted for the following:
? non-cash items of
? an increase in accounts receivable, prepaids and other assets of
? an increase in amortization of deferred interest income on mezzanine loan of
? an increase in notes and accrued interest receivable of
by:
? distributions and preferred returns from unconsolidated joint ventures of
million;
? an increase in loss on extinguishment of debt and debt modification costs of
? an increase in accounts payable and other accrued liabilities of
and
? an increase in due to affiliates of
Cash Flows from Investing Activities
During the six months ended
?
?
estate joint ventures; and
54 Table of Contents
?
?
?
receivable and a ground lease; and
?
Cash Flows from Financing Activities
During the six months ended
?
?
?
?
?
?
?
?
?
?
? partially offset by net proceeds of
Series T Preferred Stock;
? net proceeds of
? net borrowings of
? contributions from noncontrolling interests of
? net proceeds of
Capital Expenditures
The following table summarizes our total capital expenditures for the six months
ended
Six Months Ended June 30, 2021 2020 Redevelopment/renovations$ 7,258 $ 5,481 Routine capital expenditures 1,901 1,506
Normally recurring capital expenditures 1,566 1,428 Total capital expenditures
$ 10,725 $ 8,415 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 theNational 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 55
Table of Contents
the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the NAREIT definition, as net income (loss), computed in accordance with GAAP, excluding gains or losses on sales of depreciable real estate property, plus depreciation and amortization of real estate assets, plus impairment write-downs of certain real estate assets and investments in entities where the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity, 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 expense, unrealized gains or losses on derivatives, losses on extinguishment of debt and debt modification costs (includes prepayment penalties incurred and the write-off of unamortized deferred financing costs and fair market value adjustments of assumed debt), one-time weather-related costs, stock compensation expense and preferred stock accretion. Commencing in 2020, we do not deduct the accrued portion of the preferred income on our preferred equity investments from FFO to determine CFFO as the income is deemed fully collectible. The accrued portion of the preferred income totaled$1.5 million and$0.4 million , and$2.7 million and$0.8 million for the three and six months endedJune 30, 2021 and 2020, 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. 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 (loss), 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 seven operating properties, made eight property investments through preferred equity or mezzanine loan investments, sold six operating properties and received payoffs of our mezzanine loan or preferred equity in seven investments subsequent toJune 30, 2020 . We paid a quarterly common stock dividend of$0.1625 per share and unit, or a 102% payout on a CFFO basis, during the three months endedJune 30, 2021 . The results presented in the table below are not directly comparable and should not be considered an indication of our future operating performance. 56 Table of Contents The table below presents our calculation of FFO and CFFO for the three and six months endedJune 30, 2021 and 2020 (in thousands, except per share amounts): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020
Net (loss) income attributable to common stockholders
(1,978) 5,413 8,182 (409) Net (loss) income attributable to common stockholders and unit holders (7,407) 20,503 26,334 (1,812) Common stockholders and Operating Partnership Units pro-rata share of: Real estate depreciation and amortization 19,036 19,144 38,440 39,045 Provision for credit losses 26 - 567 - Gain on sale of real estate investments (18,630) (55,250) (81,058) (55,360) FFO Attributable to Common Stockholders and Unit Holders (6,975) (15,603) (15,717) (18,127) Common stockholders and Operating Partnership Units pro-rata share of: Acquisition and pursuit costs 3 423 15 1,691 Non-cash interest expense 549 747 1,154 1,592 Unrealized loss (gain) on derivatives 20 (5) (11) (30) Loss on extinguishment of debt and debt modification costs 609 13,590 3,173 13,590 Amortization of deferred interest income on mezzanine loan 997 - 997 - Weather-related losses, net - - 360 - Non-real estate depreciation and amortization 122 122 244 242 Other (income) expense, net (49) 43 48 3 Non-cash equity compensation 3,479 2,191 6,789 5,738 Preferred stock accretion 7,290 3,602 14,312 7,527
CFFO Attributable to Common Stockholders and Unit Holders
Per Share and Unit Information: FFO Attributable to Common Stockholders and Unit Holders - diluted
$ (0.18)
$ 0.16 $ 0.15 $ 0.32 $ 0.37 Weighted average common shares and units outstanding - diluted 38,443,171 33,075,598 35,883,631 32,936,762
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. 57 Table of Contents Contractual Obligations The following table summarizes our contractual obligations as ofJune 30, 2021 which consisted of mortgage notes secured by our properties. AtJune 30, 2021 , our estimated future required payments on these obligations were as follows
(amounts in thousands): Remainder of Total 2021 2022-2023 2024-2025 Thereafter
Mortgages Payable (Principal)$ 1,437,881 $ 79,082 $ 139,500 $ 532,827 $ 686,472 Estimated Interest Payments on Mortgages Payable 270,340 24,670 95,822 75,042 74,806 Total$ 1,708,221 $ 103,752 $ 235,322 $ 607,869 $ 761,278 58 Table of Contents 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 11, 2020 December 24, 2020$ 0.162500 January 5, 2021 March 12, 2021 March 25, 2021$ 0.162500 April 5, 2021 June 11, 2021 June 25, 2021$ 0.162500 July 2, 2021 ClassC Common Stock December 11, 2020 December 24, 2020$ 0.162500 January 5, 2021 March 12, 2021 March 25, 2021$ 0.162500 April 5, 2021 June 11, 2021 June 25, 2021$ 0.162500 July 2, 2021 Series A Preferred Stock December 11, 2020 December 24, 2020$ 0.515625 January 5, 2021 January 27, 2021 (1) February 26, 2021$ 0.320833 February 26, 2021 Series B Preferred Stock October 9, 2020 December 24, 2020$ 5.00 January 5, 2021 January 13, 2021 January 25, 2021$ 5.00 February 5, 2021 January 13, 2021 February 25, 2021$ 5.00 March 5, 2021 January 13, 2021 March 25, 2021$ 5.00 April 5, 2021 April 12, 2021 April 23, 2021$ 5.00 May 5, 2021 April 12, 2021 May 25, 2021$ 5.00 June 4, 2021 April 12, 2021 June 25, 2021$ 5.00 July 2, 2021 Series C Preferred Stock December 11, 2020 December 24, 2020$ 0.4765625 January 5, 2021 March 12, 2021 March 25, 2021$ 0.4765625 April 5, 2021 June 11, 2021 June 25, 2021$ 0.4765625 July 2, 2021 Series D Preferred Stock December 11, 2020 December 24, 2020$ 0.4453125 January 5, 2021 March 12, 2021 March 25, 2021$ 0.4453125 April 5, 2021 June 11, 2021 June 25, 2021$ 0.4453125 July 2, 2021 Series T Preferred Stock (2) October 9, 2020 December 24, 2020$ 0.128125 January 5, 2021 January 13, 2021 January 25, 2021$ 0.128125 February 5, 2021 January 13, 2021 February 25, 2021$ 0.128125 March 5, 2021 January 13, 2021 March 25, 2021$ 0.128125 April 5, 2021 April 12, 2021 April 23, 2021$ 0.128125 May 5, 2021 April 12, 2021 May 25, 2021$ 0.128125 June 4, 2021 April 12, 2021 June 25, 2021$ 0.128125 July 2, 2021
(1) The dividend was paid on the date indicated to stockholders in conjunction
with the redemption of shares of Series A Preferred Stock.
(2) Shares of newly issued Series T Preferred Stock that are held only a portion
of the applicable monthly dividend period will receive a prorated dividend
based on the actual number of days in the applicable dividend period during
which each such share of Series T Preferred Stock was outstanding. 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 have a dividend reinvestment plan that allows for participating stockholders to have their Class A common stock dividend distributions automatically reinvested in additional shares of Class A common stock based on the average price of the Class A common stock on the investment date. We plan to issue shares of Class A common stock to cover shares required for investment. We also have a dividend reinvestment plan that allows 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. We plan to issue shares of Series T Preferred Stock to cover shares required for investment. 59
Table of Contents
Our Board will determine the amount of dividends to be paid to our stockholders. The Board's determination 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$2.1 million for the six months endedJune 30, 2021 which was funded from sales of real estate, borrowings, and/or proceeds from our equity offerings. Six Months EndedJune 30, 2021 2020 (in thousands)
Cash provided by operating activities$ 40,019
Cash distributions to preferred stockholders$ (29,838) $ (27,428) Cash distributions to common stockholders (7,599)
(7,742)
Cash distributions to noncontrolling interests, excluding
(4,719) (3,976) Total distributions (42,156) (39,146) (Shortfall) excess$ (2,137)
$ 95,128
Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting policies and critical accounting estimates are
disclosed in our Annual Report on Form 10-K for the year ended
Subsequent Events
Other than the items disclosed in Note 15 "Subsequent Events" to our interim Consolidated Financial Statements for the period endedJune 30, 2021 , no material events have occurred that required recognition or disclosure in these financial statements. Refer to Note 15 of our interim Consolidated Financial Statements for discussion.
© Edgar Online, source