Filed Pursuant to Rule 424(b)(3)
Registration No. 333-269415

PROSPECTUS SUPPLEMENT NO. 5
(To Prospectus dated April 1, 2024)

 

 

 

BLUEROCK HOMES TRUST, INC.

 

This prospectus supplement (the “Prospectus Supplement”) updates, amends, and supplements the prospectus dated April 1, 2024, as supplemented by (i) that certain Prospectus Supplement No. 1 dated May 9, 2024, (ii) that certain Prospectus Supplement No. 2 dated May 22, 2024, (iii) that certain Prospectus Supplement No. 3 dated June 11, 2024, and (iv) that certain Prospectus Supplement No. 4 dated August 8, 2024 (collectively, the “Prospectus”), which forms a part of our Registration Statement on Form S-11 (Registration No. 333-269415). Capitalized terms used in this Prospectus Supplement No. 5 and not otherwise defined herein have the meanings specified in the Prospectus.

 

This Prospectus Supplement No. 5 is being filed to update, amend, and supplement the information in the Prospectus with the information contained in (a) our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on November 14, 2024 (the “Form 8-K Filing”), and (b) our Quarterly Report on Form 10-Q filed with the SEC on November 14, 2024 (the “Form 10-Q Filing”). Accordingly, we have attached the Form 8-K Filing and the Form 10-Q Filing to this Prospectus Supplement.

 

You should read this Prospectus Supplement in conjunction with the Prospectus, including any amendments and supplements thereto. This Prospectus Supplement is qualified by reference to the Prospectus, except to the extent that the information contained in this Prospectus Supplement supersedes the information contained in the Prospectus. This Prospectus Supplement is not complete without, and may not be utilized except in connection with, the Prospectus.

 

Investing in our securities involves significant risks. See the “Risk Factors” sections of the Prospectus and in Item 1A of our Annual Report on Form 10-K filed on March 12, 2024 for a discussion of the risks that should be considered in connection with an investment in our securities.

 

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus or this Prospectus Supplement. Any representation to the contrary is a criminal offense.

 

The date of this Prospectus Supplement is November 14, 2024

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): March 25, 2024

  

BLUEROCK HOMES TRUST, INC.

(Exact name of registrant as specified in its charter)

 

Maryland 001-41322 87-4211187
(State or other jurisdiction of incorporation
or organization)
(Commission File Number) (I.R.S. Employer
Identification No.)

 

1345 Avenue of the Americas, 32nd Floor 

New York, NY 10105

(Address of principal executive offices)

 

(212) 843-1601

(Registrant’s telephone number, including area code)

 

None

(Former name or former address, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

 

Title of each class Trading Symbol Name of each exchange on which registered
Class A Common Stock, $0.01 par value per share BHM NYSE American

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligations of the registrant under any of the following provisions:

 

¨       Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨       Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨       Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨       Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).

 

Emerging Growth Company x

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

 

 

 

 

 

  ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS

 

On March 25, 2024, Bluerock Homes Trust, Inc., a Maryland corporation (the “Company”), through a 95% owned joint venture entity of its operating partnership, Bluerock Residential Holdings, L.P., a Delaware limited partnership, acquired a 294-unit residential community located in Houston, Texas known as Villas at Huffmeister for a total purchase price of approximately $41.2 million, inclusive of a $3.1 million fair value reduction related to assumed debt. The sale was based on arm’s length negotiations with an unaffiliated seller. In evaluating Villas at Huffmeister as a potential investment, the Company considered a variety of factors, including overall valuation of net rental income, expected capital expenditures, submarket demographics, community features and amenities, location, price per unit, and occupancy.

 

Senior Loan Financing for the Acquisition of Villas at Huffmeister

 

The acquisition of Villas at Huffmeister was funded with approximately $18.1 million of cash funded by the Company, inclusive of certain adjustments typical in such real estate transactions, and a senior loan assumption in the principal amount of approximately $24.3 million (the “Villas Senior Loan”), inclusive of a fair value debt adjustment. The Villas Senior Loan is secured by Villas at Huffmeister and bears interest at a fixed rate of 3.56%, with monthly payments of principal and interest based on thirty-year amortization; previously, monthly payments were interest-only through October 2024. The Villas Senior Loan matures on October 1, 2029 and can be prepaid, in whole, subject to a prepayment premium if prepayment occurs before June 29, 2029; if prepayment of the Villas Senior Loan occurs after such date, no prepayment penalty or premium is payable.

 

  ITEM 9.01 FINANCIAL STATEMENETS AND EXHIBITS

 

(a)

Financial Statements of Real Estate Acquired

 

Villas at Huffmeister

 

Independent Auditor’s Report

Statement of Revenues and Certain Operating Expenses for the Year Ended December 31, 2023

Notes to Statement of Revenues and Certain Operating Expenses

   
(b)

Pro Forma Financial Information

 

Bluerock Homes Trust, Inc.

  

Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2023 (unaudited)

 

Notes to Pro Forma Condensed Consolidated Balance Sheet as of December 31, 2023 (unaudited)

 

Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2023 (unaudited)

 

Notes to Pro Forma Condensed Consolidated Statement of Operations for the year ended December 31, 2023 (unaudited)

 

Statements in this Current Report on Form 8-K, including intentions, beliefs, expectations or projections relating to items such as the long-term performance of the Company’s portfolio are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations and assumptions with respect to, among other things, future economic, competitive and market conditions, and future business decisions that may prove incorrect or inaccurate. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the risks described under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2024 and its other filings with the SEC. 

 

(c) Exhibit No. Description
     
  23.1 Consent of Plante Moran, PC

 

 

 

 

Independent Auditor’s Report

 

To the Board of Directors and Stockholders

Bluerock Homes Trust, Inc.

 

Opinion

 

We have audited the accompanying statements of revenues and certain operating expenses of Villas at Huffmeister (the "Property") for the year ended December 31, 2023 and the related notes thereto (“the Statements”).

 

In our opinion, the accompanying Statements present fairly, in all material respects, the revenue and certain operating expenses of the Property described in Note 2 of the Statements for the year ended December 31, 2023 in accordance with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Statements section of our report. We are required to be independent of the Property and to meet our ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

 

Emphasis of Matter – Purpose of the Presentation

 

We draw attention to Note 2 to the Statements, which describes that the Statements have been prepared for the purpose of complying with the rules and regulations of the Securities and Exchange Commission for inclusion in the Form 8-K of Bluerock Homes Trust, Inc. and is not intended to be a complete presentation of the Property's revenue and expenses. Our opinion is not modified with respect to this matter.

 

Responsibilities of Management for the Statements

 

Management is responsible for the preparation and fair presentation of the Statements in accordance with accounting principles generally accepted in the United States of America and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the Statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibilities for the Audit of the Statements

 

Our objectives are to obtain reasonable assurance about whether the Statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and, therefore, is not a guarantee that an audit conducted in accordance with generally accepted auditing standards (“GAAS”) will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the Statements.

 

In performing an audit in accordance with GAAS, we:

 

  · Exercise professional judgment and maintain professional skepticism throughout the audit.

 

  · Identify and assess the risks of material misstatement of the Statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the Statements.

 

  · Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Property's internal control. Accordingly, no such opinion is expressed.

 

  · Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the Statements.

 

  · Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Property's ability to continue as a going concern for a reasonable period of time.

 

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

 

/s/ Plante Moran, PC
East Lansing, Michigan
November 14, 2024

 

 

 

 

VILLAS AT HUFFMEISTER

STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

(In thousands)

 

   

Year Ended

December 31, 2023

 
Revenues        
Rental and other property revenues   $ 5,516  
Total revenues     5,516  
         
Certain Operating Expenses        
Property operating expenses     2,594  
Total certain operating expenses     2,594  
         
Revenues in Excess of Certain Operating Expenses   $ 2,922  

 

See accompanying notes to statement of revenues and certain operating expenses

 

 

 

 

VILLAS AT HUFFMEISTER

NOTES TO STATEMENT OF REVENUES AND CERTAIN OPERATING EXPENSES

 

Note 1 – Business

 

Villas at Huffmeister (the “Property”) was acquired pursuant to a purchase agreement between an affiliate of Bluerock Residential Holdings, L.P. (Bluerock Homes Trust, Inc.’s operating partnership) and SIR Huffmeister Villas LLC on March 25, 2024.

 

Note 2 – Basis of Presentation

 

The accompanying statement of revenues and certain operating expenses has been prepared for the purpose of complying with Rule 3-14 of Regulation S-X of the United States Securities and Exchange Commission promulgated under the Securities Act of 1933, as amended. Accordingly, the statement is not representative of the actual operations for the period presented as revenues, and certain operating expenses, which may not be directly attributable to the revenues and expenses expected to be incurred in the future operations of the Property, have been excluded.

 

Use of Estimates

 

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reporting and disclosure of revenues and certain expenses during the reporting period to present the statement of revenues and certain operating expenses. Actual results could differ from those estimates.

 

Note 3 – Revenues

 

The Property is located in Houston, Texas and contains 294 residential units that are rented to tenants under various lease agreements that are generally one year in length. All leases are accounted for as operating leases. The Property recognizes rental revenue on a straight-line basis over the terms of the rental agreements and in accordance with ASC Topic 842 Leases. Rental revenue is recognized on an accrual basis and when the collectability of the amounts due from tenants is deemed probable. Rental revenue is included within rental and other property revenues on the Property’s statement of revenues and certain operating expenses.

 

Tenant reimbursements for common area maintenance and other recoverable expenses, such as pet, administrative, application and other fees, are recognized when the services are provided and the performance obligations are satisfied. Tenant reimbursements are included within rental and other property revenues on the Property’s statement of revenues and certain operating expenses.

 

Note 4 – Certain Operating Expenses

 

Certain operating expenses include only those costs expected to be comparable to the proposed future operations of the Property. Property operating expenses include administrative, repairs and maintenance, marketing, payroll, utilities, taxes, and insurance. Expenses such as depreciation, amortization, and interest are excluded.

 

Note 5 – Commitments and Contingencies

 

The Property is subject to various legal actions and claims arising in the ordinary course of business. Although the outcome of any legal matter cannot be predicted with certainty, management does not believe that any of these legal proceedings or matters will have a material adverse effect on the financial position or results of operations or liquidity of the Property.

 

Note 6 – Subsequent Events

 

The Property evaluated subsequent events through November 14, 2024, the date the financial statements were available to be issued.

 

 

 

 

 

BLUEROCK HOMES TRUST, INC. 

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INFORMATION

 

The following unaudited pro forma condensed consolidated financial statements of Bluerock Homes Trust, Inc. (together with its consolidated subsidiaries, the “Company,” “we,” “our” or “us”) should be read in conjunction with our historical audited consolidated financial statements as of and for the year ended December 31, 2023, and the related notes thereto.

 

The unaudited pro forma condensed consolidated balance sheet as of December 31, 2023, and unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2023, have been prepared to provide pro forma financial information with regard to the Villas at Huffmeister acquisition on March 25, 2024, which the Company expects to consolidate.

 

The pro forma condensed consolidated balance sheet at December 31, 2023 assumes that the Villas at Huffmeister acquisition referred to above occurred on January 1, 2023.

 

The pro forma condensed consolidated statement of operations assume the transaction referred to above occurred on January 1, 2023.

 

Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations.

 

All completed acquisitions are accounted for as asset acquisitions. The purchase prices were allocated to the acquired assets and assumed liabilities based on their estimated fair values at the dates of acquisition.

 

These unaudited pro forma condensed consolidated financial statements are prepared for informational purposes only. In management’s opinion, all material adjustments necessary to reflect the effects of the transactions referred to above have been made. Our unaudited pro forma condensed consolidated financial statements are based on assumptions and estimates considered appropriate by the Company’s management. However, they are not necessarily indicative of what our consolidated financial condition or results of operations would have been assuming the transactions referred to above had occurred as of the dates indicated, nor do they purport to represent our consolidated financial position or results of operations for future periods.

 

 

 

 

BLUEROCK HOMES TRUST, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2023

(In thousands, except share and per share amounts)

 

          Pro Forma Adjustments        
   

Bluerock Homes
Trust, Inc.
Historical

(a)

   

Villas at
Huffmeister

(b)

    Pro Forma
Total
 
ASSETS                        
Net Real Estate Investments                        
Land   $ 70,637     $ 7,950     $ 78,587  
Buildings and improvements     394,548       32,198       426,746  
Furniture, fixtures and equipment     13,277       620       13,897  
Total Gross Operating Real Estate Investments     478,462       40,768       519,230  
Accumulated depreciation     (32,452 )           (32,452 )
Total Net Operating Real Estate Investments     446,010       40,768       486,778  
Operating real estate held for sale, net     18,890             18,890  
Total Net Real Estate Investments     464,900       40,768       505,668  
Cash and cash equivalents     80,163       (16,959 )     63,204  
Restricted cash     6,221             6,221  
Notes and accrued interest receivable, net     17,797             17,797  
Accounts receivable, prepaids and other assets, net     21,383             21,383  
Preferred equity investments, net     81,156             81,156  
In-place lease intangible assets, net           1,018       1,018  
TOTAL ASSETS   $ 671,620     $ 24,827     $ 696,447  
                         
LIABILITIES AND EQUITY                        
Mortgages payable   $ 96,670     $ 23,935     $ 120,605  
Revolving credit facilities     70,000             70,000  
Accounts payable     691             691  
Other accrued liabilities     9,438             9,438  
Due to affiliates     3,509             3,509  
Distributions payable     12,440             12,440  
Total Liabilities     192,748       23,935       216,683  
6.0% Series A Redeemable Preferred Stock, liquidation preference $25.00 per share, 30,000,000 shares authorized; 436,675 shares issued and outstanding at December 31, 2023     8,273             8,273  
Equity                        
Stockholders’ Equity                        
Preferred stock, $0.01 par value, 220,000,000 shares authorized; no shares issued and outstanding at December 31, 2023                  
Common stock - Class A, $0.01 par value, 562,500,000 shares authorized; 3,871,265 shares issued and outstanding at December 31, 2023, historical and pro forma     39             39  
Common stock - Class C, $0.01 par value, 187,500,000 shares authorized; 8,489 shares issued and outstanding at December 31, 2023, historical and pro forma                  
Additional paid-in-capital     122,369             122,369  
Retained earnings     24,943             24,943  
Total Stockholders’ Equity     147,351             147,351  
Noncontrolling Interests                        
Operating partnership units     307,945             307,945  
Partially owned properties     15,303       892       16,195  
Total Noncontrolling Interests     323,248       892       324,140  
Total Equity     470,599       892       471,491  
TOTAL LIABILITIES AND EQUITY   $ 671,620     $ 24,827     $ 696,447  

 

See Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet

 

 

 

 

BLUEROCK HOMES TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

AS OF DECEMBER 31, 2023

 

 

(a) Historical consolidated financial information derived from the Company’s Annual Report on Form 10-K as of December 31, 2023.
   
(b) The purchase of a 95% direct interest in Villas at Huffmeister for a purchase price of $41.2 million, inclusive of a $3.1 million fair value reduction related to assumed debt, which the Company consolidated on its balance sheet. The Company also assumed a $27.4 million mortgage loan associated with this acquisition. The carrying value of the loan includes ($3.1) million of a fair value debt adjustment and ($0.4) million of deferred financing costs related to this acquisition.

  

 

 

 

BLUEROCK HOMES TRUST, INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2023

(In thousands, except share and per share amounts)

 

         

Pro Forma

Adjustments

       
   

Bluerock Homes
Trust, Inc.

Historical

(a)

   

Villas at

Huffmeister

(b)

   

Pro Forma

Total

 
Revenues                        
Rental and other property revenues   $ 40,999     $ 5,516     $ 46,515  
Interest income from loan investments     94             94  
Total revenues     41,093       5,516       46,609  
                         
Expenses                        
Property operating     19,164       2,594       21,758  
Property management and asset management fees     4,416       143 (c)     4,559  
General and administrative     8,004             8,004  
Management fees to related party     7,922             7,922  
Acquisition and other transaction costs     1,820             1,820  
Weather-related losses, net     (17 )           (17 )
Depreciation and amortization     16,178       2,238 (d)     18,416  
Total expenses     57,487       4,975       62,462  
                         
Other income (expense)                        
Other income, net     679             679  
Income from preferred equity investments     11,632             11,632  
Provision for credit losses, net     (174 )           (174 )
Impairment of real estate investments, net     (1,017 )           (1,017 )
Interest expense, net     (13,102 )     (1,618 )(e)     (14,720 )
Interest income     2,609             2,609  
Total other income (expense)     627       (1,618     (991 )
Net loss     (15,767 )     (1,077     (16,844 )
Preferred stock dividends     (130 )           (130 )
Net loss attributable to noncontrolling interests                        
Operating partnership units     (8,996 )     (682     (9,678 )
Partially owned properties     (2,398 )     (54     (2,452 )
Net loss attributable to noncontrolling interests     (11,394 )     (736     (12,130 )
Net loss attributable to common stockholders   $ (4,503 )   $ (341   $ (4,844 )
                         
Loss per common share (f)                        
Net loss per common share – Basic   $ (1.30 )           $ (1.11 )
Net loss per common share – Diluted   $ (1.30 )           $ (1.11 )
                         
Weighted average basic common shares outstanding     3,845,349               3,845,349  
Weighted average diluted common shares outstanding     3,845,349               3,845,349  

 

See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations

 

 

 

 

BLUEROCK HOMES TRUST, INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2023

 

(a) Historical consolidated financial information derived from the Company’s Annual Report on Form 10-K as of December 31, 2023.
   
(b) Represents adjustments to historical operations of the Company to give effect to the purchase of Villas at Huffmeister on March 25, 2024 as if these assets had been acquired on January 1, 2023. Adjustments were derived directly from the property’s actual results of operations, including pro forma adjustments for the year ended December 31, 2023. Pro forma adjustments to historical results included: increasing property management and asset management fees $0.14 million, increasing depreciation and amortization $2.24 million, increasing interest expense $1.62 million, and adjusting the operating partnership units’ interest in the consolidated property’s net loss.
   
(c) Represents property management and asset management fees estimated to have been incurred for Villas at Huffmeister. Property management and asset management fees are calculated as 2.75% of property revenues less certain adjustments, as applicable, per the property management agreement.
   
(d) Represents depreciation and amortization expense adjustment to historical results for the year ended December 31, 2023 based on the allocation of the purchase price. Depreciation expense is calculated using the straight-line method over the asset’s estimated useful life as follows: 30-40 years for the building, 5-15 years for building and land improvements, and 3-8 years for furniture, fixtures and equipment. Amortization expense relates to the Company’s identifiable intangible assets and consists of the value of in-place leases. In-place leases are amortized using the straight-line method over the remaining non-cancelable term of the respective leases, which is on average six months.
   
(e) Represents interest expense for the Villas at Huffmeister acquisition estimated to have been incurred on the $27.4 million mortgage loan, which bears a fixed interest rate of 3.56% and matures on October 1, 2029, calculated as if the loan was entered into on January 1, 2023, and a fair value adjustment and deferred financing costs which are recognized at acquisition and amortized using the straight-line method over the remaining life of the loan. The mortgage balance assumed in the pro forma balance sheet is presented at fair value less unamortized deferred financing costs.
   
(f) Earnings per share is calculated in accordance with Accounting Standards Codification 260 – “Earnings per Share.” The historical earnings per share amounts are the amounts reported in the Registrant’s Form 10-K for the year ended December 31, 2023.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    BLUEROCK HOMES TRUST, INC.
       
DATE:  November 14, 2024 By: /s/ Christopher J. Vohs
      Christopher J. Vohs
      Chief Financial Officer and Treasurer

 

 

 

  

Exhibit Index

 

 

Exhibit No.   Exhibit
     
23.1   Consent of Plante Moran, PC

  

 

 

 

 

 

Exhibit 23.1

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

We consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-267764) and Form S-11 (File No. 333-269415) of Bluerock Homes Trust, Inc. (each, a “Registration Statement”), and the accompanying prospectuses to each Registration Statement, of our report dated November 14, 2024, relating to the statement of revenues and certain operating expenses of Villas at Huffmeister for the year ended December 31, 2023, which appears in this Form 8-K.

 

/s/ PLANTE MORAN, PC

 

East Lansing, Michigan

November 14, 2024

 

 

 

 

 

 

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

(Mark One)

          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

OR

          TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ______

Commission File Number 001-41322

BLUEROCK HOMES TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland

    

87-4211187

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

1345 Avenue of the Americas, 32nd Floor, New York, NY

 

10105

(Address of principal executive offices)

 

(Zip Code)

(212) 843-1601

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

    

Trading Symbol

    

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

BHM

NYSE American

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes    No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

Accelerated Filer

Non-Accelerated Filer

Smaller reporting company

Emerging growth company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Number of shares outstanding of the registrant’s

classes of common stock, as of November 11, 2024

Class A Common Stock: 3,953,919 shares

Class C Common Stock: 8,489 shares


BLUEROCK HOMES TRUST, INC.

FORM 10-Q

September 30, 2024

PART I – FINANCIAL INFORMATION

 

 

 

Item 1.

Financial Statements

 

 

Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 (Audited)

3

 

 

Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023

4

 

 

Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2024 and 2023

5

 

 

Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2024 and 2023

9

 

 

Notes to Consolidated Financial Statements

10

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

35

 

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

52

 

 

Item 4.

Controls and Procedures

53

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

54

 

 

 

Item 1A.

Risk Factors

54

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

54

 

 

 

Item 3.

Defaults Upon Senior Securities

54

 

 

 

Item 4.

Mine Safety Disclosures

54

 

 

 

Item 5.

Other Information

55

 

 

 

Item 6.

Exhibits

56

 

 

 

SIGNATURES

57

2


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

BLUEROCK HOMES TRUST, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

September 30, 

December 31, 

    

2024

    

2023

ASSETS

 

  

 

  

Net Real Estate Investments

 

  

 

  

Land

$

78,342

$

70,637

Buildings and improvements

 

414,880

 

394,548

Furniture, fixtures and equipment

 

15,806

 

13,277

Total Gross Operating Real Estate Investments

 

509,028

 

478,462

Accumulated depreciation

 

(38,410)

 

(32,452)

Total Net Operating Real Estate Investments

 

470,618

 

446,010

Operating real estate held for sale, net

26,507

18,890

Total Net Real Estate Investments

497,125

464,900

Cash and cash equivalents

 

155,131

 

80,163

Restricted cash

 

9,673

 

6,221

Notes and accrued interest receivable, net

34,711

17,797

Accounts receivable, prepaids and other assets, net

 

30,642

 

19,688

Preferred equity investments, net

 

72,971

 

82,851

In-place lease intangible assets, net

491

Non-real estate assets associated with operating real estate held for sale

85

TOTAL ASSETS

$

800,829

$

671,620

LIABILITIES AND EQUITY

 

 

Mortgages payable

$

122,529

$

96,670

Revolving credit facilities

 

105,000

 

70,000

Accounts payable

 

1,017

 

691

Other accrued liabilities

 

12,130

 

9,438

Due to affiliates

 

3,615

 

3,509

Distributions payable

548

12,440

Liabilities associated with operating real estate held for sale

519

Total Liabilities

 

245,358

 

192,748

6.0% Series A Redeemable Preferred Stock, liquidation preference $25.00 per share, 30,000,000 shares authorized; 3,889,446 and 436,675 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

85,992

8,273

Equity

 

 

Stockholders’ Equity

 

 

Preferred stock, $0.01 par value, 220,000,000 shares authorized; no shares issued and outstanding at September 30, 2024 and December 31, 2023

 

Common stock - Class A, $0.01 par value, 562,500,000 shares authorized; 3,953,919 and 3,871,265 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

40

 

39

Common stock - Class C, $0.01 par value, 187,500,000 shares authorized; 8,489 shares issued and outstanding at September 30, 2024 and December 31, 2023

 

Additional paid-in-capital

119,683

122,369

Retained earnings

23,212

24,943

Total Stockholders’ Equity

142,935

147,351

Noncontrolling Interests

Operating partnership units

312,780

307,945

Partially owned properties

13,764

15,303

Total Noncontrolling Interests

326,544

323,248

Total Equity

469,479

470,599

TOTAL LIABILITIES AND EQUITY

$

800,829

$

671,620

See Notes to Consolidated Financial Statements

3


BLUEROCK HOMES TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(In thousands, except share and per share amounts)

Three Months Ended

Nine Months Ended

September 30,

September 30,

    

2024

    

2023

    

2024

    

2023

Revenues

 

  

 

  

 

  

 

  

Rental and other property revenues

$

11,976

$

10,183

$

34,670

$

30,591

Interest income from loan investments

 

730

 

 

1,735

 

Total revenues

 

12,706

 

10,183

 

36,405

 

30,591

Expenses

 

 

 

 

Property operating

 

6,434

 

5,094

 

17,391

 

14,233

Property management and asset management fees

 

1,181

 

1,113

 

3,472

 

3,308

General and administrative

 

2,451

 

1,675

 

7,756

 

5,464

Management fees to related party

 

2,377

 

1,993

 

6,621

 

5,875

Acquisition and other transaction costs

 

17

 

7

 

21

 

1,787

Weather-related losses, net

178

178

(17)

Depreciation and amortization

 

4,883

 

4,100

 

13,712

 

12,092

Total expenses

 

17,521

 

13,982

 

49,151

 

42,742

Other income (expense)

 

 

 

 

Other income (expense), net

 

166

 

(165)

 

106

 

(121)

Income from preferred equity investments

2,721

2,959

8,308

8,649

Provision for credit losses, net

 

(48)

 

(37)

 

(214)

 

(63)

Gain on sale and impairment of real estate investments, net

 

9,304

 

 

8,770

 

661

Loss on extinguishment of debt costs

(118)

(118)

Interest expense, net

 

(5,248)

 

(3,499)

 

(12,818)

 

(8,715)

Interest income

1,585

923

3,918

1,665

Total other income

 

8,362

 

181

 

7,952

 

2,076

Net income (loss)

 

3,547

 

(3,618)

 

(4,794)

 

(10,075)

Preferred stock dividends

(1,412)

(12)

(2,227)

(12)

Preferred stock accretion

(181)

Net income (loss) attributable to noncontrolling interests

Operating partnership units

 

2,010

 

(2,142)

 

(3,695)

 

(5,780)

Partially owned properties

 

(796)

 

(420)

 

(1,776)

 

(1,364)

Net income (loss) attributable to noncontrolling interests

 

1,214

 

(2,562)

 

(5,471)

 

(7,144)

Net income (loss) attributable to common stockholders

$

921

$

(1,068)

$

(1,731)

$

(2,943)

 

 

 

 

Net income (loss) per common share – Basic

$

0.24

$

(0.28)

$

(0.45)

$

(0.77)

Net income (loss) per common share – Diluted

$

0.24

$

(0.28)

$

(0.45)

$

(0.77)

 

 

 

 

Weighted average basic common shares outstanding

3,859,226

3,845,926

3,853,321

3,844,488

Weighted average diluted common shares outstanding

3,871,201

3,845,926

3,853,321

3,844,488

See Notes to Consolidated Financial Statements

4


BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Earnings

    

Interests

    

Total Equity

Balance, July 1, 2024

3,946,348

$

39

8,489

$

$

120,198

$

22,291

$

325,551

$

468,079

Issuance of restricted Class A common stock and long-term incentive plan (“LTIP”) Units for equity incentive plan compensation, net of shares withheld for employee taxes

(186)

153

727

880

Issuance of C-LTIP Units to Manager

1,086

1,086

Series A Preferred Stock distributions declared

(1,412)

(1,412)

Distributions to partially owned properties’ noncontrolling interests

(18)

(18)

Acquisition of noncontrolling interests

(2,211)

(650)

(2,861)

Holder redemption of Series A Preferred Stock and conversion into Class A common stock

7,757

1

139

140

Contributions from noncontrolling interests

38

38

Adjustment for noncontrolling interest ownership in the Operating Partnership

1,404

(1,404)

Net income

2,333

1,214

3,547

Balance, September 30, 2024

3,953,919

$

40

8,489

$

$

119,683

$

23,212

$

326,544

$

469,479

See Notes to Consolidated Financial Statements

5


BLUEROCK HOMES TRUST, INC.

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Earnings

    

Interests

    

Total Equity

Balance, July 1, 2023

3,868,697

$

39

8,489

$

$

125,666

$

31,450

$

329,081

$

486,236

Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation

 

 

 

47

 

 

667

 

714

Issuance of C-LTIP Units to Manager

2,347

2,347

Series A Preferred Stock distributions declared

(12)

(12)

Distributions to partially owned properties’ noncontrolling interests

(34)

(34)

Adjustment for noncontrolling interest ownership in the Operating Partnership

(1,056)

1,056

Net loss

(1,056)

(2,562)

(3,618)

Balance, September 30, 2023

3,868,697

$

39

8,489

$

$

124,657

$

30,382

$

330,555

$

485,633

See Notes to Consolidated Financial Statements

6


BLUEROCK HOMES TRUST, INC.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2024

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Earnings

    

Interests

    

Total Equity

Balance, January 1, 2024

3,871,265

$

39

8,489

$

$

122,369

$

24,943

$

323,248

$

470,599

Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation, net of shares withheld for employee taxes

73,551

    

297

2,139

2,436

Issuance of C-LTIP Units to Manager

5,455

5,455

Series A Preferred Stock distributions declared

(2,227)

(2,227)

Series A Preferred Stock accretion

(181)

(181)

Distributions to partially owned properties’ noncontrolling interests

(104)

(104)

Acquisition of noncontrolling interests

(2,211)

(650)

(2,861)

Holder redemption of Series A Preferred Stock and conversion into Class A common stock

9,103

1

164

165

Contributions from noncontrolling interests

991

991

Adjustment for noncontrolling interest ownership in the Operating Partnership

(936)

936

Net income (loss)

677

(5,471)

(4,794)

Balance, September 30, 2024

3,953,919

$

40

8,489

$

$

119,683

$

23,212

$

326,544

$

469,479

See Notes to Consolidated Financial Statements

7


BLUEROCK HOMES TRUST, INC.

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Unaudited)

(In thousands, except share amounts)

Class A Common Stock

Class C Common Stock

Additional

Number

Number

Paid-in

Retained

Noncontrolling

    

of Shares

    

Par Value

    

of Shares

    

Par Value

    

Capital

    

Earnings

    

Interests

    

Total Equity

Balance, January 1, 2023

3,835,013

$

38

8,489

$

$

126,623

$

33,325

$

332,002

$

491,988

Issuance of restricted Class A common stock and LTIP Units for equity incentive plan compensation

31,260

 

1

 

 

62

 

 

1,935

 

1,998

Issuance of C-LTIP Units to Manager

6,763

6,763

Series A Preferred Stock distributions declared

(12)

(12)

Distributions to partially owned properties’ noncontrolling interests

(230)

(230)

Acquisition of noncontrolling interests

1,515

(6,564)

(5,049)

Conversion of Operating Partnership Units to Class A common stock

2,424

100

(100)

Contributions from noncontrolling interests

 

 

 

 

 

250

 

250

Adjustment for noncontrolling interest ownership in the Operating Partnership

 

 

 

(3,643)

 

 

3,643

 

Net loss

(2,931)

(7,144)

(10,075)

Balance, September 30, 2023

3,868,697

$

39

8,489

$

$

124,657

$

30,382

$

330,555

$

485,633

See Notes to Consolidated Financial Statements

8


BLUEROCK HOMES TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(In thousands)

Nine Months Ended

September 30, 

    

2024

    

2023

Cash flows from operating activities

 

  

 

  

Net loss

$

(4,794)

$

(10,075)

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

Depreciation and amortization

 

14,780

 

14,277

Amortization of fair value adjustments

 

46

 

(240)

Income from preferred equity investments

 

(8,308)

 

(8,649)

Gain on sale and impairment of real estate investments, net

(8,770)

(661)

Fair value adjustment of interest rate caps and swaps

3,444

1,336

Provision for credit losses, net

 

214

 

63

Loss on extinguishment of debt

 

118

 

Distributions of income and income from preferred equity investments

 

2,092

 

1,290

Share-based compensation attributable to equity incentive plan

 

2,436

 

1,997

Share-based compensation to Manager – C-LTIP Units

 

5,455

 

6,763

Changes in operating assets and liabilities:

 

 

Due to affiliates, net

 

107

 

363

Accounts receivable, prepaids and other assets

 

(5,198)

 

(837)

Notes and accrued interest receivable

 

(742)

 

Accounts payable and other accrued liabilities

 

3,174

 

1,162

Net cash provided by operating activities

 

4,054

 

6,789

Cash flows from investing activities:

 

 

Acquisitions of real estate investments

 

(51,454)

 

(4,330)

Capital expenditures

 

(5,939)

 

(7,201)

Purchase of interest rate cap

(2,688)

Investments in notes receivable

 

(24,554)

 

Repayments on notes receivable

 

8,284

 

Proceeds from sale of real estate investments

43,996

5,625

Proceeds from redemption of preferred equity investments

 

12,768

 

8,494

Insurance proceeds related to real estate investments

 

149

 

Investments in preferred equity investments

 

(3,005)

 

(7,528)

Net cash used in investing activities

 

(22,443)

 

(4,940)

Cash flows from financing activities:

 

 

Distributions to common stockholders

 

(3,879)

 

Distributions to noncontrolling interests

 

(8,509)

 

Distributions to partially owned properties’ noncontrolling interests

 

(104)

 

(230)

Distributions to preferred stockholders

(1,731)

Contributions from noncontrolling interests

 

991

 

250

Purchase of interests from noncontrolling interests

 

(2,573)

 

(5,049)

Borrowings on mortgages payable

23,660

Repayments on mortgages payable including prepayment penalties

 

(21,272)

 

(1,124)

Proceeds from revolving credit facilities

 

35,000

 

21,000

Repayments on revolving credit facilities

(6,000)

Payments of deferred financing fees

(1,504)

(1,092)

Net proceeds from issuance of 6.0% Series A Redeemable Preferred Stock

76,730

3,417

Net cash provided by financing activities

 

96,809

 

11,172

 

 

Net increase in cash, cash equivalents and restricted cash

$

78,420

$

13,021

Cash, cash equivalents and restricted cash, beginning of year

 

86,384

 

82,562

Cash, cash equivalents and restricted cash, end of period

$

164,804

$

95,583

Reconciliation of cash, cash equivalents and restricted cash

 

 

Cash and cash equivalents

$

155,131

$

89,435

Restricted cash

9,673

6,148

Total cash, cash equivalents and restricted cash, end of period

$

164,804

$

95,583

Supplemental disclosure of cash flow information

 

 

Cash paid for interest (net of interest capitalized)

$

7,984

$

5,272

Supplemental disclosure of non-cash investing and financing activities

 

 

Distributions payable – declared and unpaid

$

548

$

12

Mortgage assumed upon property acquisition

$

24,333

$

Capital expenditures held in accounts payable and other accrued liabilities

$

276

$

883

See Notes to Consolidated Financial Statements

9


BLUEROCK HOMES TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Organization and Nature of Business

Bluerock Homes Trust, Inc. (the “Company”) was incorporated in Maryland on December 16, 2021. The Company owns and operates high-quality single-family properties located in attractive markets with a focus on the knowledge-economy and high-quality of life growth markets of the Sunbelt and Western United States. The Company’s principal objective is to generate attractive risk-adjusted returns on investments where it believes it can drive growth in funds from operations and net asset value by acquiring pre-existing single-family residential units, developing build-to-rent communities, and through Value-Add renovations. The Company’s Value-Add strategy focuses on repositioning lower-quality, less current assets to drive rent growth and expand margins to increase net operating income and maximize the Company’s return on investment.

As of September 30, 2024, the Company held twenty real estate investments, consisting of twelve consolidated investments and eight preferred equity and loan investments. The twenty investments represent an aggregate of 4,000 residential units, comprised of 2,742 consolidated units, of which 170 units are under development, and 1,258 units through preferred equity and loan investments, which includes planned units and those under development. As of September 30, 2024, the Company’s consolidated operating investments were approximately 90.5% occupied; excluding units classified as held for sale and down/renovation units, the Company’s consolidated operating investments were approximately 94.3% occupied.

The Company has elected to be treated, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, the Company generally is not subject to corporate-level income taxes. To maintain its REIT status, the Company is required, among other requirements, to distribute annually at least 90% of its “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to the Company’s stockholders. If the Company fails to qualify as a REIT in any taxable year, it would be subject to federal income tax on its taxable income at regular corporate tax rates and it would not be permitted to qualify as a REIT for four years following the year in which it lost its qualification. The Company intends to continue to organize and operate in such a manner as to remain qualified as a REIT.

Note 2 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The Company conducts its operations through Bluerock Residential Holdings, L.P., its operating partnership (the “Operating Partnership”), of which it is the sole general partner. The consolidated financial statements include the Company’s accounts and those of the Operating Partnership and its subsidiaries. As of September 30, 2024, limited partners other than the Company owned approximately 69.29% of the common units of the Operating Partnership, of which 57.09% is held by holders of limited partnership interest in the Operating Partnership (“OP Units”) and 12.20% is held by holders of the Operating Partnership’s long-term incentive plan units (“LTIP Units”), including 3.74% which are not vested as of September 30, 2024.

Certain amounts in prior year financial statement presentation have been reclassified to conform to the current year presentation.

Real Estate Investments and Preferred Equity Investments

The Company first analyzes an investment to determine if it is a variable interest entity (“VIE”) in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 810: Consolidation and, if so, whether the Company is the primary beneficiary requiring consolidation of the entity. A VIE is an entity that has (i) insufficient equity to permit it to finance its activities without additional subordinated financial support or (ii) equity holders that lack the characteristics of a controlling financial interest. VIEs are consolidated by the primary beneficiary, which is the entity that has both the power to direct the activities that most significantly impact the entity’s economic performance and the obligation to absorb losses or the right to receive benefits from the entity that potentially could be significant to the entity. Variable interests in a VIE are contractual, ownership, or other financial interests in a VIE that change in value with changes in the fair value of the VIE’s net assets. The Company continuously re-assesses at each level of the investment whether (i) the entity is a VIE, and (ii) the Company is the primary beneficiary of the VIE. If it was determined that an entity in which the Company holds an interest qualified as a VIE and the Company was the primary beneficiary, the entity would be consolidated.

10


If, after consideration of the VIE accounting literature, the Company has determined that an entity is not a VIE, the Company assesses the need for consolidation under all other provisions of ASC 810. These provisions provide for consolidation of majority-owned entities through a majority voting interest held by the Company providing control.

In assessing whether the Company is in control of and requiring consolidation of the limited liability company and partnership venture structures, the Company evaluates the respective rights and privileges afforded each member or partner (collectively referred to as “member”). The Company’s member would not be deemed to control the entity if any of the other members has either (i) substantive kickout rights providing the ability to dissolve (liquidate) the entity or otherwise remove the managing member or general partner without cause or (ii) substantive participating rights in the entity. Substantive participating rights (whether granted by contract or law) provide for the ability to effectively participate in significant decisions of the entity that would be expected to be made in the ordinary course of business.

The Company analyzes each investment that involves real estate acquisition, development, and construction to consider whether the investment qualifies as an investment in a real estate acquisition, development, and construction arrangement. The Company has evaluated its real estate investments as required by ASC 310-10 Receivables and concluded that no investments are considered an investment in a real estate acquisition, development, or construction arrangement. As such, the Company next evaluates if these investments are considered a security under ASC 320 Investments – Debt Securities.

For investments that meet the criteria of a security under ASC 320 Investments – Debt Securities, except as noted regarding Note B of the Wayford at Pringle Loan Financing (refer to Note 6), the Company classifies each preferred equity investment as a held-to-maturity debt security as the Company has the intention and ability to hold the investment to maturity. The Company earns a fixed return on these investments which is included within income from preferred equity investments in its consolidated statements of operations. The Company evaluates the collectability of each preferred equity investment and estimates a provision for credit loss, as applicable. Refer to the Current Expected Credit Losses (“CECL”) section of this Note for further information regarding CECL and the Company’s provision for credit losses. The Company accounts for these investments as preferred equity investments in its consolidated balance sheets.

For investments that do not meet the criteria of a security under ASC 320 Investments – Debt Securities, the Company has concluded that the characteristics and the facts and circumstances indicate that loan accounting treatment is appropriate. The Company recognizes interest income on its notes receivable on the accrual method unless a significant uncertainty of collection exists. If a significant uncertainty exists, interest income is recognized as collected. Costs incurred to originate its notes receivable are deferred and amortized using the effective interest method over the term of the related note receivable. The Company evaluates the collectability of each loan investment and estimates a provision for credit loss, as applicable. Refer to the CECL section of this Note for further information regarding CECL and the Company’s provision for credit losses.

Significant Risks and Uncertainties

Uncertainty Due to Economic Volatility

The Company’s results of operations in the future may be directly or indirectly affected by uncertainties such as the effects of inflation and related volatility in the market. As inflation accelerated rapidly in the first half of 2023, the Federal Reserve increased interest rates a total of four times during 2023 to curb the effects of rising inflation. While the Federal Reserve held rates steady between July 2023 and September 2024 and reduced interest rates by 50-basis points in September 2024, there can be no assurances that interest rates will not rise again, and the Company’s operating costs, including utilities and payroll, may increase as a result of increases in inflation. Rising interest rates cause uncertainty in credit and capital markets which could have material and adverse effects on the Company’s financial condition, results of operations and cash flows. The long-term impact of these economic developments will largely depend on any future action by the Federal Reserve, future laws that may be enacted, the impact on job growth and the broader economy, and reactions by consumers, companies, governmental entities and capital markets. The Company continues to closely monitor the impact of economic volatility on all aspects of its business.

Summary of Significant Accounting Policies

Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 as filed with the Securities and Exchange Commission (“SEC”) on March 12, 2024 for discussion of the Company’s significant accounting policies. During the nine months ended September 30, 2024, there were no material changes to these policies.

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Interim Financial Information

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the Unites States of America (“GAAP”) for interim financial reporting, and the instructions to Form 10-Q and Article 10-1 of Regulation S-X. Accordingly, the financial statements for interim reporting do not include all the information and notes or disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for interim periods should not be considered indicative of the operating results for a full year.

The balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all the information and disclosures required by GAAP for complete financial statements. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended December 31, 2023 contained in the Annual Report on Form 10-K as filed with the SEC on March 12, 2024.

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

New Accounting Pronouncements