Bluerock Homes Trust, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts below are in U.S. dollars; financial statement figures are in millions unless otherwise noted.
Business context and reporting period
Bluerock Homes is a REIT focused on single-family rental properties and build-to-rent communities, principally in Sunbelt and Western U.S. markets. At quarter-end it held 17 investments: 10 consolidated operating investments and seven preferred-equity investments, representing 3,996 units in total. Its consolidated operating portfolio was 94.4% occupied.
The company became independent through a spin-off on October 6, 2022. Accordingly, 2023 results reflect a standalone public company, while 2022 comparative results are carve-out results from its former parent; management cautions that the periods may not be comparable.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $10.2 | $8.7 | $30.6 | $24.4 |
| Operating loss | $(3.8) | $(2.3) | $(12.2) | $(6.4) |
| Net income (loss) | $(3.6) | $0.6 | $(10.1) | $(2.8) |
| Net income (loss) attributable to common stockholders | $(1.1) | $0.3 | $(2.9) | $0.01 |
| Net operating income (NOI) | $5.1 | $4.2 | $16.4 | $12.1 |
- Revenue growth was driven by portfolio unit growth, higher rents and improved occupancy. Average rent per occupied unit rose 6.6% to $1,581 in Q3 and 10.2% to $1,560 for the nine-month period. Average occupancy improved 260 basis points to 94.1% in Q3 and 220 basis points to 94.2% for nine months.
- Property operating expenses increased 14.7% in Q3 and 29.5% for nine months, reflecting additional units, repairs and maintenance, taxes and insurance. NOI increased 22.1% in Q3 and 34.7% for nine months.
- Q3 interest expense was $2.6 million versus $0.02 million in the prior-year quarter; nine-month interest expense was $7.1 million versus $3.0 million. Results also reflected less favorable derivative fair-value movements. Preferred returns from unconsolidated ventures rose to $8.6 million for nine months, but $7.6 million of that amount was accrued rather than current-period cash distributions.
- Management reported FFO of $1.4 million and core FFO (CFFO) of $15.3 million for the first nine months, compared with $9.7 million and $9.2 million, respectively, in 2022. These are non-GAAP measures; CFFO includes adjustments such as equity compensation, derivatives and transaction costs and is not a measure of cash available for distribution.
Balance sheet, cash flow and debt
- At September 30, 2023, cash and cash equivalents were $89.4 million, restricted cash $6.1 million, total assets $670.7 million and total equity $485.6 million.
- Mortgages payable were $97.1 million and revolving credit facilities totaled $70.0 million, for total debt of approximately $167.1 million. Debt increased from approximately $153.2 million at December 31, 2022. The company had about $10 million of availability on revolving facilities, subject to collateral and borrowing tests.
- Most mortgage debt is fixed-rate; variable-rate exposure is partly limited by caps and swaps covering $94.0 million of debt. The DB facility carried an 8.13% rate and matures April 6, 2024, with two conditional one-year extensions. The Sunflower facility was fully drawn at $20 million and carried an 8.43% rate. Management said the company was in covenant compliance.
- Nine-month operating cash flow was $6.8 million, investing cash outflow was $4.9 million and financing cash inflow was $11.2 million. Capital expenditures were $6.5 million. Cash, cash equivalents and restricted cash increased by $13.0 million to $95.6 million.
- Management believes available cash, operating cash flow and financing sources will be sufficient for existing-portfolio liquidity needs over the next 12 months. This outlook depends in part on access to capital and financing.
Material changes, outlook and risks
- The company began issuing 6.0% Series A Redeemable Preferred Stock in August 2023. It had issued 152,222 shares for net proceeds of approximately $3.4 million by quarter-end. The offering allows up to $500 million; the preferred shares have cumulative monthly dividends and rank ahead of common stock but behind debt. Investor-requested redemptions carry declining fees during the first four years.
- Related-party base management fees were $5.9 million for the first nine months, with $1.4 million of expense reimbursements. In addition, $6.8 million of noncash compensation was recorded for C-LTIP Units granted to the manager during the period.
- Development and lease-up remain important: several preferred-equity projects were in early lease-up, including Myrtle Beach, Port St. Lucie and Innovation Park. Management cited inflation, higher interest rates, rising operating and construction costs, tighter lending conditions, tenant affordability and access to capital as risks.
- The company has no earnings guidance in the provided filing text. It expects to pursue acquisitions, build-to-rent development and value-add renovations, but states that constrained or unfavorable financing could require it to curtail investment activity.
- Subsequent to quarter-end, Willow Park was sold on October 26, 2023; the company received $4.1 million from redemption of its preferred investment, including $1.2 million of accrued return, and made a $9.4 million senior mortgage loan to the new owner. The company also disclosed November 2023 forfeitures and reissuances of unvested equity awards to manager personnel.
- Management reported no material legal proceedings and concluded disclosure controls were effective. It intends to maintain REIT qualification, which requires annual distributions of at least 90% of REIT taxable income, subject to applicable rules.
Important facts for investors to verify
- Whether the 2022 carve-out comparisons provide a useful baseline for standalone 2023 performance.
- Cash collection and repayment timing for preferred returns, particularly the substantial accrued portion, and the operating and lease-up progress of underlying ventures.
- Availability, extension or refinancing of the DB revolving facility before its April 2024 maturity, and compliance with facility covenants and collateral tests.
- The terms, redemption exposure and future dilution or priority effects of additional Series A preferred issuance and equity incentive awards.
- Whether occupancy, rents and NOI growth can offset higher operating, financing and development costs, while sustaining liquidity and REIT distribution requirements.