Bluerock Homes Trust, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Unless noted, amounts are in millions. The statements are carve-out financials for a business that was part of Bluerock Residential Growth REIT before the October 6, 2022 separation and spin-off; they include allocated parent-company expenses and are not necessarily indicative of standalone results.
Business context and reporting period
Bluerock Homes owns and operates single-family rental homes, pursues build-to-rent development and value-add renovations, and also invests through preferred equity interests. At September 30, the portfolio comprised 3,963 units across 29 investments: 2,326 consolidated operating units and 1,637 units in preferred-equity investments. Consolidated operating properties were 90.9% occupied at period-end; 86 units were down for renovation. Class A shares trade as BHM on NYSE American following the spin-off.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | First nine months 2022 | First nine months 2021 |
|---|---|---|---|---|
| Total revenue | $8.7 | $3.8 | $24.4 | $8.9 |
| Property-level NOI | $4.2 | $1.8 | $12.1 | $3.2 |
| Operating income (loss) | $(2.3) | $0.2 | $(6.4) | $0.9 |
| Net income (loss) from continuing operations | $0.3 | $0.3 | $(3.1) | $1.2 |
| Net income attributable to Bluerock Homes | $0.8 | $40.8 | $0.03 | $99.7 |
| Cash provided by operating activities | — | — | $12.4 | $4.7 |
Revenue increased mainly as the portfolio expanded. Q3 same-store rent per occupied unit rose 0.8% to $1,483, while average occupancy fell 550 basis points to 91.5%; for the nine-month period, average rent declined 0.8% to $1,415 and occupancy fell 540 basis points to 92.0%. Management attributed lower occupancy largely to newly acquired scattered homes that require lease-up and value-add work. NOI increased with portfolio growth; it is a non-GAAP measure and excludes corporate costs, depreciation and interest.
The large year-over-year decline in reported net income primarily reflects prior-year gains on sales of six multifamily properties classified as discontinued operations: those gains were $48.9 million in Q3 2021 and $116.6 million in the first nine months of 2021. 2022 discontinued-operations income of $0.3 million mainly reflected reversals of accruals on sold properties. Nine-month continuing operations reported a $3.1 million loss.
At September 30, cash and cash equivalents were $186.3 million and restricted cash was $4.6 million. The company reported $98.6 million of mortgages payable and $55.0 million drawn on revolving facilities. Nine-month investing cash outflow was $167.9 million, principally acquisitions, investments and capital expenditures; financing inflow was $209.5 million, including $121.6 million of parent contributions and $55.0 million of revolver proceeds. After separation-related adjustments, management reported $95.8 million of cash and restricted cash available on October 6.
Management cited $115.0 million of capacity on revolving facilities, of which $12.2 million was available as of September 30, subject to collateral and applicable ratios. It reported compliance with facility covenants. Contractual principal payments on mortgages and revolvers totaled $153.6 million; the revolver balance was due in 2024 and mortgage principal maturities are concentrated in 2026 and thereafter. Interest-rate caps and swaps covered $79.2 million of floating-rate debt.
Material changes, outlook, risks and unusual items
- Portfolio growth: The company acquired 537 single-family units during the first nine months for reported purchase prices totaling $137.9 million, increased preferred-equity investments by approximately $43.4 million, and recorded $16.3 million of capital expenditures, including $12.3 million for redevelopment and renovations.
- Spin-off and standalone transition: On October 6, Bluerock Residential contributed the single-family business and approximately $74 million of cash to the company, which also held approximately $22 million at its properties. The company became independent and listed as BHM. Former Bluerock Residential common stockholders indirectly own approximately 34% of the business; holders of Operating Partnership units own approximately 66%.
- Management and related-party arrangements: A new affiliate Manager provides day-to-day management under a contract with a 1.50% annual base fee on new stockholders’ equity, an incentive fee and expense reimbursements. The prior administrative-services and leasehold cost-sharing agreements terminated at the spin-off. The filing notes that historical allocated parent expenses are not representative of standalone costs.
- Outlook: No quantified earnings or operating guidance is provided. Management expects results to improve as it adds single-family and build-to-rent investments, and believes available cash, operations, debt financing and other potential capital sources can meet existing-portfolio needs for the next 12 months. These expectations depend on financing availability, investment execution and market conditions.
- Key risks: The filing highlights inflation (including an 8.2% CPI rate cited in the report), higher interest rates, rising operating and construction costs, tenant payment and retention, occupancy and lease-up, competition, regulation, and access to capital. Management cautions that rent increases may not offset inflation and that development costs or delays could reduce expected returns. COVID-19 effects remain uncertain.
- REIT and other contingencies: The company intends to qualify as a REIT beginning with tax year 2022, which generally requires distributing at least 90% of REIT taxable income; failure to qualify could result in corporate-level tax. Its obligations under the Tax Matters Agreement are uncapped. Future funding commitments for preferred-equity and joint-venture investments were $6.7 million at September 30. Management did not expect legal matters to have a material adverse effect; no legal proceedings were reported.
- Unusual accounting and market items: Q3 2022 net interest expense was a credit of $0.02 million, with derivative fair-value gains contributing to results; derivatives are not designated as accounting hedges. No impairment charges were recorded in 2022 or 2021. Management said disclosure controls were effective as of September 30.
Most important facts for investors to verify
- How standalone operating costs and the affiliate Manager’s base, incentive and reimbursable fees compare with the parent-allocated costs in these carve-out statements.
- Actual revolver availability, collateral requirements, covenant headroom, floating-rate exposure and refinancing needs, particularly around the 2024 revolver maturity and 2026 mortgage maturities.
- Whether occupancy improves in acquired homes and whether the reported 90.9% period-end occupancy, excluding 86 renovation units, translates into stronger same-store NOI.
- Construction progress, completion timing, lease-up and remaining capital requirements for the 1,117 development units in preferred-equity investments.
- The economics and potential dilution associated with the Manager’s and directors’ LTIP grants disclosed after quarter-end, and the uncapped obligations under the Tax Matters Agreement.
- Whether the company qualifies as a REIT for 2022 and how its distribution policy, capital needs and access to financing evolve as an independent public company.