Bluerock Homes Trust, Inc. annual report, FY2023

Bluerock Homes Trust, Inc. — 2023 Form 10-K

Reporting period: Fiscal year ended December 31, 2023. Bluerock Homes is an externally managed REIT focused on single-family rentals and build-to-rent communities. It became an independent public company in October 2022; 2022 results include both pre-spin-off carve-out reporting and post-spin-off operations, so comparisons are not fully like-for-like.

Financial and operating performance

Metric	2023	2022
Rental and other property revenue	$41.0 million	$32.9 million
Total revenue, including loan interest	$41.1 million	$34.1 million
Property operating expenses	$19.2 million	$15.2 million
Net operating income (NOI)	$21.8 million	$17.7 million
Net loss	$15.8 million	$5.9 million
Net loss attributable to common stockholders	$4.5 million	$1.0 million
FFO attributable to common stockholders and unit holders	$1.3 million; $0.12 per diluted share/unit	$9.9 million; $0.88 per diluted share/unit
Core FFO (CFFO)	$20.9 million; $1.82 per diluted share/unit	$13.1 million; $1.16 per diluted share/unit
Cash provided by operating activities	$13.9 million	$3.5 million

NOI margin was approximately 53.3% of rental and other property revenue, compared with approximately 53.8% in 2022. Rental revenue rose 24.8%, while average rent increased 8.4% to $1,569 and average occupancy increased to 94.4% from 92.4%. Management attributed the gains primarily to portfolio growth, rent growth, and stabilization of renovated and newly acquired homes. The 2022 comparison is affected by the spin-off and carve-out presentation.

GAAP losses widened despite higher NOI. Interest expense, net, increased to $13.1 million from $5.7 million; the filing cites derivative fair-value movements and higher debt. Related-party management fees rose to $7.9 million from $1.8 million as 2023 was a full year under the management agreement. CFFO includes substantial adjustments, including $13.0 million of non-cash equity compensation, and is not a GAAP cash-flow or earnings measure.

Balance sheet, debt, and liquidity

• At year-end, total assets were $671.6 million, total liabilities $192.7 million, and total equity $470.6 million. Cash and cash equivalents were $80.2 million, with another $6.2 million of restricted cash.
• Debt comprised $96.7 million of mortgages and $70.0 million drawn on revolving credit facilities, or approximately $166.7 million in total. About $83 million of debt was indexed to SOFR; interest-rate caps and swaps covered $94.0 million of floating-rate debt. Management estimated a 100-basis-point rate change would alter annual interest expense by about $0.2 million in either direction at year-end exposure levels.
• The company reported approximately $56 million of availability on its $150 million Deutsche Bank revolving facility at December 31, 2023, subject to collateral and financial tests. It stated available cash, operating cash flow, credit capacity, and financing sources should meet existing-portfolio liquidity needs for the next 12 months. The filing also cautions that access to equity and debt capital is not assured.
• Scheduled principal payments on mortgages and revolvers total $21.6 million in 2024, including $20.0 million of revolving credit facility borrowings; total scheduled principal and estimated interest payments are $31.8 million in under one year. The company reported compliance with credit-facility covenants at year-end.
• Investing cash outflow was $25.7 million; financing cash inflow was $15.7 million. Investing included $40.3 million for unconsolidated investments and notes, $10.8 million for consolidated acquisitions, and $9.5 million of capital expenditures, offset in part by redemptions and property-sale proceeds.

Portfolio changes, distributions, and outlook

• The portfolio comprised 18 investments representing 4,059 units: 2,475 consolidated units, including 170 under development, and 1,584 through preferred-equity and loan investments. Consolidated operating investments were 94.1% occupied at year-end.
• 2023 investment activity included $42.7 million of new consolidated, loan, and preferred-equity commitments summarized by management. The company sold 53 consolidated homes for $9.5 million and received redemptions from preferred-equity investments. It classified 118 homes as held for sale and recorded a $1.3 million impairment.
• Abode Wendell Falls is a 170-unit build-to-rent project expected to begin construction in the second quarter of 2024. Estimated total cost is $56.0 million, with $6.5 million incurred by year-end. A separate 208-unit Chandler project was held through a preferred-equity investment; its return is substantially accrued rather than currently paid.
• No common-stock distributions were paid for 2023, other than a $1.00-per-share special dividend declared in December and paid January 5, 2024. The board declared monthly Series A preferred dividends at a 6.0% annual rate, with contingent additional dividends tied to the 10-year Treasury rate. Preferred dividends are cumulative but remain subject to board authorization and available funds.
• Management expects the existing portfolio and identified financing sources to cover liquidity needs for the next 12 months, and anticipates improved results as investments and acquisitions progress. No specific earnings or operating guidance was provided. In February 2024, the board authorized a stock repurchase plan of up to $5 million; no shares had been repurchased by the filing date.

Risks, unusual items, and controls

• Key risks include concentrated exposure to single-family rentals and Sunbelt/Western markets; tenant defaults, vacancies, and rental-market competition; inflation and property-tax, insurance, HOA, maintenance, and construction-cost increases; interest-rate, refinancing, and capital-access risk; and possible legislative restrictions on institutional ownership of single-family homes.
• Preferred-equity and loan investments expose the company to development, lease-up, refinancing, collateral-value, and repayment risks. Accrued preferred returns may not be collected as scheduled. Several construction-related investments had low or incomplete lease-up at year-end, and related debt maturities or extensions require monitoring.
• The company has no employees and depends on its affiliated external manager and its personnel. Related-party fees, expense reimbursements, allocation of investment opportunities, and potential conflicts of interest are material governance considerations. Manager compensation and some reimbursements may be paid in C-LTIP units, creating dilution.
• The Series A preferred stock is unlisted, carries a 6.0% stated annual dividend, and is senior to common equity. Holder redemption rights and company redemption options, as well as the company’s ability to pay dividends or redeem shares, are subject to contractual, liquidity, and legal limitations.
• Management reported disclosure controls effective as of December 31, 2023. The 10-K does not include management’s internal-control assessment because of the transition period for newly public companies; the auditor did not provide an opinion on internal control over financial reporting. The financial-statement audit opinion was unqualified. The company reported no material pending legal proceeding and no cybersecurity incident identified as materially affecting the company.

Important facts for investors to verify

• Review the comparability limitations in 2022 results and reconcile the GAAP net loss, FFO, and CFFO, including the large non-cash equity-compensation adjustment.
• Check debt maturities, facility availability and covenants, variable-rate exposure, and the company’s ability to refinance or obtain additional capital.
• Track lease-up, occupancy, construction budgets, and repayment or redemption milestones for development, loan, and preferred-equity investments, including the 2024 maturities and extensions disclosed in the filing.
• Confirm the source and sustainability of distributions, including the special common dividend and preferred dividends, and monitor preferred-stock redemptions, dilution, and manager compensation paid in equity units.
• Assess whether portfolio concentration, related-party arrangements, and the absence of an internal-control audit create risks beyond those reflected in the reported operating metrics.