DEFM14A 1 tm225954-2_defm14a.htm DEFM14A tm225954-2_defm14a - block - 42.9064767s
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934 (Amendment No.  )
Filed by the Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:

Preliminary Proxy Statement

Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

Definitive Proxy Statement

Definitive Additional Materials

Soliciting Material Pursuant to Section 240.14a-12
Bluerock Residential Growth REIT, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check all boxes that apply):

No fee required.

Fee paid previously with preliminary materials.

Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

 
[MISSING IMAGE: lg_bluerockresgrowthtm-4c.jpg]
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
March 10, 2022
Dear Stockholder,
You are cordially invited to attend a special meeting of stockholders of Bluerock Residential Growth REIT, Inc., a Maryland corporation (the “Company” or “Bluerock Residential”), to be held online as a virtual meeting on April 12, 2022, at 11:00 a.m., New York time. At the special meeting, you will be asked to consider and vote on the merger (the “merger”) of the Company with and into Badger Merger Sub LLC (“Merger Sub”), a wholly owned subsidiary of Badger Parent LLC (“Parent”), an affiliate of Blackstone Inc. (“Blackstone”), pursuant to the Agreement and Plan of Merger, dated as of December 20, 2021, and as it may be amended from time to time, among the Company, Parent and Merger Sub (the “merger agreement”). Due to the public health impact of the coronavirus pandemic and to support the health and well-being of our stockholders and our community, the special meeting will be held in a virtual meeting format only, via live webcast.
If the merger is completed, each share of Common Stock (as defined below) that is issued and outstanding immediately prior to the effective time of the merger will automatically be converted into the right to receive $24.25 in cash, without interest and less any applicable withholding taxes, as more fully described in the enclosed proxy statement (the “merger consideration”).
In connection with the merger, Bluerock Residential has agreed that, subject to the terms and conditions of the merger agreement, Bluerock Residential will use commercially reasonable efforts to, prior to the effective time of the merger, effect a contribution of certain single-family properties and other assets of Bluerock Residential (the “separation”) to Bluerock Homes Trust, Inc., a Maryland corporation (“Bluerock Homes”), a newly formed subsidiary of the Company. Following the separation, the Company will distribute, on a pro rata basis to holders of Common Stock (as defined below), the outstanding shares of Bluerock Homes common stock (the “distribution”). After the distribution is completed, Bluerock Homes will be a separate externally managed, publicly traded real estate investment trust (“REIT”). The completion of the separation and the distribution is a condition to the closing of the merger under the merger agreement, and the shares of Bluerock Homes common stock to be received in the distribution are in addition to the merger consideration.
Only holders of record of our Class A Common Stock, $0.01 par value per share (the “Class A Common Stock”), and our Class C Common Stock, $0.01 par value per share (the “Class C Common Stock” and, together with the Class A Common Stock, the “Common Stock”), at the close of business on March 7, 2022, are entitled to notice of, and to vote at, the special meeting, or any adjournment or postponement thereof.
Our board of directors has unanimously determined and declared that the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Our board of directors unanimously recommends that you vote “FOR” the approval of the merger and the other proposals to be considered at the special meeting.
The merger must be approved by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the merger by the holders of the issued and outstanding Common Stock. The notice of special meeting and proxy statement accompanying this letter provide you with more specific information concerning the special meeting, the merger, the merger agreement and the other
 

 
transactions contemplated thereby. We encourage you to read carefully the enclosed proxy statement, including the exhibits. You may also obtain more information about the Company from us or from documents we have filed with the U.S. Securities and Exchange Commission.
Our stockholders are not required to approve the distribution, and are not required to take any action to receive shares of Bluerock Homes common stock. The number of shares of Common Stock that you own prior to the distribution will not change as a result of the distribution.
Your vote is very important regardless of the number of shares of Common Stock that you own. Whether or not you plan to attend the special meeting, we request that you authorize a proxy to vote your shares of Common Stock by either completing and returning the enclosed proxy card as promptly as possible or authorizing your proxy or voting instructions by telephone or through the Internet. The enclosed proxy card contains instructions regarding voting. If you attend the special meeting, you may continue to have your shares of Common Stock voted as instructed in your proxy, or you may withdraw your proxy at the special meeting and vote your shares of Common Stock via the special meeting website. If you fail to vote by proxy or via the special meeting website, or fail to instruct your broker, bank or other nominee on how to vote, it will have the same effect as a vote “AGAINST” approval of the merger.
On behalf of the board of directors, thank you for your continued support.
Sincerely,
[MISSING IMAGE: sg_rraminkamfar-bwlr.jpg]
R. Ramin Kamfar
Chief Executive Officer and Chairman
This proxy statement is dated March 10, 2022, and is first being mailed to our stockholders on or about March 11, 2022.
 

 
BLUEROCK RESIDENTIAL GROWTH REIT, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON April 12, 2022
To the Stockholders of Bluerock Residential Growth REIT, Inc.:
You are cordially invited to attend a special meeting of stockholders (the “special meeting”) of Bluerock Residential Growth REIT, Inc., a Maryland corporation (the “Company”), to be held online as a virtual meeting on April 12, 2022, at 11:00 a.m., New York time. The special meeting is being held for the purpose of acting on the following matters:
1.
To consider and vote on a proposal to approve the merger of the Company with and into Badger Merger Sub LLC (“Merger Sub”), a wholly owned subsidiary of Badger Parent LLC (“Parent”), contemplated by the Agreement and Plan of Merger, dated as of December 20, 2021, and as it may be amended from time to time, among the Company, Parent and Merger Sub (the “proposal to approve the merger”);
2.
To consider and vote on a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger (the “proposal to approve the merger-related compensation”); and
3.
To consider and vote on a proposal to approve any adjournment of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger (the “proposal to approve adjournment of the meeting”).
The foregoing items of business are more fully described in the attached proxy statement, which forms a part of this notice and is incorporated herein by reference. Pursuant to the Maryland General Corporation Law, as amended (the “Maryland General Corporation Law”), and our bylaws, only the matters set forth in this Notice of Special Meeting may be brought before the special meeting. Our board of directors has fixed the close of business on March 7, 2022, as the record date for the determination of stockholders entitled to notice of and to vote at the special meeting or any postponement or adjournment thereof. All holders of record of our Common Stock (as defined below) as of the record date are entitled to receive notice of and attend the special meeting or any postponement or adjournment of the special meeting. The vote of the holders of our preferred stock is not required to approve any of the proposals at the special meeting and is not being solicited.
Our board of directors has unanimously determined and declared that the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Our board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the meeting.
The merger must be approved by the affirmative vote of the holders of our Class A Common Stock, $0.01 par value per share (the “Class A Common Stock”), and Class C Common Stock, $0.01 par value per share (the “Class C Common Stock” and, together with the Class A Common Stock, the “Common Stock”) entitled to cast a majority of all the votes entitled to be cast on the merger. Accordingly, your vote is very important regardless of the number of shares of Common Stock that you own. Whether or not you plan to attend the special meeting, we request that you authorize a proxy to vote your shares of Common Stock by either marking, signing, dating and promptly returning the enclosed proxy card in the postage-paid envelope or authorizing your proxy or voting instructions by telephone or through the Internet. If you attend the special meeting, you may continue to have your shares of Common Stock voted as instructed in your proxy, or you may withdraw your proxy at the special meeting and vote your shares of Common Stock via the special meeting website. If you fail to vote by proxy or via the special meeting website, or fail to instruct your broker, bank or other nominee on how to vote, the effect will be that the shares of Common Stock that you own will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to approve the merger.
 

 
Each of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the meeting requires the affirmative vote of a majority of the votes cast on such proposal. If you fail to vote by proxy or via the special meeting website, or fail to instruct your broker, bank or other nominee on how to vote, it will have no effect on the outcome of such proposals, assuming a quorum is present. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals.
Any proxy may be revoked at any time prior to its exercise by delivery of a properly executed, later-dated proxy card, by authorizing your proxy or voting instructions by telephone or through the Internet at a later date than your previously authorized proxy, by submitting a written revocation of your proxy to our Secretary, or by voting at the special meeting via the special meeting website. Attendance at the special meeting alone will not be sufficient to revoke a previously authorized proxy.
Holders of shares of Common Stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares of Common Stock in connection with the merger because, as permitted by the Maryland General Corporation Law, our charter provides that stockholders are not entitled to exercise such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination.
We encourage you to read the accompanying proxy statement in its entirety and to submit a proxy or voting instructions so that your shares of Common Stock will be represented and voted even if you do not attend the special meeting. If you have any questions or need assistance in submitting a proxy or your voting instructions, please call our proxy solicitor, Morrow Sodali LLC, toll-free at (800) 662-5200.
BY ORDER OF THE BOARD OF DIRECTORS
[MISSING IMAGE: sg_michaellkonig-bwlr.jpg]
Michael L. Konig
Secretary
New York, New York
March 10, 2022
 

 
TABLE OF CONTENTS
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EXHIBITS
A-1
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SUMMARY
This summary highlights only selected information from this proxy statement relating to (1) the merger (the “merger”) of Bluerock Residential Growth REIT, Inc., a Maryland corporation (the “Company” or “Bluerock Residential”), with and into Badger Merger Sub LLC (“Merger Sub”), a wholly owned subsidiary of Badger Parent LLC (“Parent”), an affiliate of Blackstone Inc. (“Blackstone”), and (2) other matters contemplated by the Agreement and Plan of Merger, dated as of December 20, 2021, and as it may be amended from time to time, among the Company, Parent, and Merger Sub (the “merger agreement”). This summary does not contain all the information about the merger and related transactions contemplated by the merger agreement that may be important to you. As a result, to understand the merger and the related transactions fully and for a more complete description of the terms of the merger and related transactions, you should read carefully this proxy statement in its entirety, including the exhibits and the other documents to which we have referred you, including the merger agreement attached as Exhibit A. Each item in this summary includes a page reference directing you to a more complete description of that item. This proxy statement is first being mailed to our stockholders on or about March 11, 2022.
The Parties to the Merger (page 28)
Bluerock Residential Growth REIT, Inc.
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
(212) 843-1601
Bluerock Residential Growth REIT, Inc., which we refer to as “we,” “our,” “us,” “Bluerock Residential” or the “Company,” was formed as a Maryland corporation in July 2008 and elected to be taxed as a real estate investment trust (“REIT”) under the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended December 31, 2010. Our principal business objective is to generate attractive risk-adjusted investment returns by assembling a high-quality portfolio of apartment communities and single-family residential homes in demographically attractive growth markets and by implementing our investment strategies and our “Live/Work/Play Initiatives” to achieve sustainable long-term growth in both our core funds from operations and net asset value. The Company’s website is www.bluerockresidential.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the U.S. Securities and Exchange Commission (the “SEC”). Shares of Class A Common Stock are listed on the NYSE American under the symbol “BRG.” For additional information about us and our business, please refer to “Where You Can Find More Information.”
Badger Parent LLC
c/o Blackstone Inc.
345 Park Avenue
New York, New York 10154
(212) 583-5000
Parent is a Delaware limited liability company and an affiliate of the Guarantor. Parent was formed solely for the purpose of acquiring us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. The Guarantor is an affiliate of Blackstone.
Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $279 billion of investor capital under management. Blackstone is the largest owner of commercial real estate globally, owning and operating assets across every major geography and sector, including logistics, multifamily and single-family housing, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ strategy comprises open-ended funds that invest in substantially stabilized real estate assets globally and Blackstone Real Estate Income Trust, Inc., a non-listed REIT that invests in U.S. income-generating assets. Blackstone Real Estate also operates one of the leading global real estate debt businesses, providing comprehensive financing solutions across the capital structure and risk spectrum, including management of Blackstone Mortgage Trust (NYSE: BXMT).
 
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Badger Merger Sub LLC
c/o Blackstone Inc.
345 Park Avenue
New York, New York 10154
(212) 583-5000
Merger Sub is a Delaware limited liability company. Parent is the sole member of Merger Sub. Merger Sub was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, we will merge with and into Merger Sub, and Merger Sub will continue as the surviving company.
About Bluerock Homes
Bluerock Homes Trust, Inc.
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
(212) 843-1601
Bluerock Homes Trust, Inc. (“Bluerock Homes”) was formed as a Maryland corporation and wholly owned subsidiary of Bluerock Residential on December 16, 2021 for the purpose of effecting, prior to the merger, the separation of certain single-family properties and other assets of Bluerock Residential (the “separation,” and such properties, the “single-family properties”) from the remainder of our business, followed by a pro rata distribution to holders of Common Stock of the outstanding shares of Bluerock Homes common stock (the “distribution”). Bluerock Homes will be an externally managed, publicly traded REIT following the distribution. The headquarters of Bluerock Homes will be located in New York, New York, at 1345 Avenue of the Americas, 32nd Floor, and its telephone number is (212) 843-1601.
The Special Meeting (page 30)
The Proposals
The special meeting of our stockholders (the “special meeting”) will be held online as a virtual meeting on April 12, 2022, at 11:00 a.m., New York time. At the special meeting, holders of our Class A Common Stock, $0.01 par value per share (the “Class A Common Stock”), and our Class C Common Stock, $0.01 par value per share (the “Class C Common Stock” and, together with the Class A Common Stock, the “Common Stock”), as of the record date, which was the close of business on March 7, 2022, will be asked to consider and vote on (1) a proposal to approve the merger (the “proposal to approve the merger”), (2) a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger (the “proposal to approve the merger-related compensation”) and (3) a proposal to approve any adjournment of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger (the “proposal to approve adjournment of the meeting”).
Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.
Record Date, Notice and Quorum
All stockholders of record of shares of our Common Stock as of the record date, which was the close of business on March 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that such holder owned as of the record date, and will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that such holder owned as of the record date. On the record date, there were 29,260,629 shares of Class A Common Stock and 76,603 shares of Class C Common Stock outstanding and entitled to vote at the special meeting.
 
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The presence virtually via the special meeting website or by proxy of our common stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the special meeting. A quorum is necessary to transact business at the special meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If a quorum is not present at the special meeting, we expect that the special meeting will be adjourned to a later date. Pursuant to our bylaws, the board of directors may adjourn the meeting, whether or not a quorum is present, and reconvene as the board may determine (subject to certain restrictions in the merger agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).
Required Vote
Completion of the merger requires approval of the merger by the affirmative vote of the holders of the issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the merger. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that such holder owned as of the record date, and will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that such holder owned as of the record date. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, if you fail to vote by proxy or at the special meeting via the special meeting website (including by abstaining), or fail to instruct your broker, bank or other nominee on how to vote, such failure will have the same effect as voting against the proposal to approve the merger.
Each of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the meeting requires the affirmative vote of a majority of the votes cast on such proposal. Approval of these proposals is not a condition to completion of the merger. For the purpose of each of these proposals, if you fail to vote by proxy or at the special meeting via the special meeting website, or fail to instruct your broker, bank or other nominee on how to vote, it will not have any effect on the outcome of such proposals. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals, assuming a quorum is present.
The vote of the holders of our Series B Redeemable Preferred Stock, par value $0.01 per share (“Series B Preferred Stock”), 7.625% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share (“Series C Preferred Stock”), 7.125% Series D Cumulative Preferred Stock, par value $0.01 per share (“Series D Preferred Stock”), and Series T Redeemable Preferred Stock, par value $0.01 per share (“Series T Preferred Stock”), which we refer to collectively as “Preferred Stock,” is not required to approve any of the proposals at the special meeting and is not being solicited.
As of the record date, our directors and executive officers owned and are entitled to vote an aggregate of approximately 818,724 shares of our Class A Common Stock and approximately 72,964 shares of our Class C Common Stock, entitling them to exercise approximately 13.50% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares (as defined below). Our directors and executive officers have informed us that they intend to vote the shares of Common Stock that they own in favor of the proposal to approve the merger, in favor of the proposal to approve the merger-related compensation and in favor of the proposal to approve adjournment of the meeting. Under the Stockholders Agreement, dated October 31, 2017 among the Company and the stockholders party thereto (the “stockholders agreement”), if at any meeting of stockholders the holders of Class C Common Stock own shares of Class C Common Stock representing more than 9.9% of the voting rights of the then-outstanding Common Stock (such shares, the “excess shares”), then such holders shall vote such excess shares as directed by the board of directors. Under the merger agreement, unless the board of directors effects a company adverse recommendation change, any excess shares must be voted in favor of the approval of the merger. In addition, R. Ramin Kamfar, James G. Babb III, Ryan S. MacDonald, Jordan B. Ruddy, Michael L. Konig (who are members of our management) and certain of their affiliated entities, solely in their capacity as stockholders of the Company and limited partners of Bluerock Residential Holdings, L.P., a Delaware limited partnership and the Company’s operating partnership (the “operating partnership” or “Bluerock Residential Holdings”), have entered into support agreements requiring, among other things, such persons to vote their shares of Common Stock, other than any excess shares, in favor of the proposal to
 
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approve the merger. As of the record date, the parties to the support agreements beneficially owned approximately 773,431 shares of our Class A Common Stock and approximately 72,964 shares of our Class C Common Stock, entitling them to exercise approximately 13.36% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares. As of the record date, the parties to the support agreements, together (without duplication) with our directors and executive officers, beneficially owned approximately 818,724 shares of our Class A Common Stock and approximately 72,964 shares of our Class C Common Stock, entitling them to exercise approximately 13.50% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares.
Proxies; Revocation
Any of our common stockholders of record entitled to vote may authorize a proxy to vote his, her or its shares of Common Stock by returning the enclosed proxy card, authorizing a proxy or voting instructions by telephone or through the Internet, or by voting at the special meeting via the special meeting website. If the shares of Common Stock that you own are held in “street name” by your broker, bank or other nominee, you should instruct your broker, bank or other nominee on how to vote your shares of Common Stock using the instructions provided by your broker, bank or other nominee.
Any proxy may be revoked at any time prior to its exercise by your delivery of a properly executed, later-dated proxy card, by authorizing your proxy by telephone or through the Internet at a later date than your previously authorized proxy, by your filing a written revocation of your proxy with our Secretary or by your voting at the special meeting via the special meeting website. Attendance at the special meeting alone will not be sufficient to revoke a previously authorized proxy.
The Merger (page 34)
Pursuant to the merger agreement, on the closing date, the Company will merge with and into Merger Sub and the separate existence of the Company will cease, and Merger Sub will continue as the surviving entity in the merger. We use the term “surviving company” in this proxy statement to refer to Merger Sub following the effective time of the merger. We use the term “closing date” in this proxy statement to refer to the date on which closing of the merger occurs.
Our merger with Merger Sub will become effective upon the later of the acceptance for record of the articles of merger with respect to the merger by the State Department of Assessments and Taxation of Maryland, the filing of the certificate of merger with respect to the merger with the Secretary of State of the State of Delaware or such other time as may be agreed by the parties to the merger agreement and specified in the articles of merger and certificate of merger. We use the term “merger effective time” in this proxy statement to refer to the time the merger becomes effective. In no event will the merger effective time occur at or prior to the effective time of the distribution.
Recommendation of Our Board of Directors (page 44)
Our board of directors has unanimously

determined and declared the transactions contemplated by the merger agreement, including the merger, to be advisable and in the best interests of the Company and its stockholders;

approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger; and

recommended that you vote “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the meeting.
Opinions of Our Financial Advisors (page 48)
Opinion of Morgan Stanley & Co. LLC
At the December 19, 2021 meeting of our board of directors, Morgan Stanley & Co. LLC (“Morgan Stanley”) rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion to
 
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our board of directors, dated December 19, 2021, that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the $24.25 per share cash consideration, without interest, to be received by the holders of shares of our Common Stock pursuant to the merger agreement (the “merger consideration”), together with the shares of Bluerock Homes common stock to be received by holders of shares of our Common Stock in the distribution (collectively with the merger consideration, the “Consideration”), is fair from a financial point of view to such holders of shares of our Common Stock.
The full text of the written opinion of Morgan Stanley, dated as of December 19, 2021, is attached to this proxy statement as Exhibit B and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion and the summary of Morgan Stanley’s opinion below carefully and in their entirety. This summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Morgan Stanley’s opinion is directed to our board of directors, in its capacity as such, addresses only the fairness of the Consideration to be received by the holders of shares of our Common Stock pursuant to the merger agreement from a financial point of view to such holders as of the date of the opinion and does not address any other aspects or implications of the merger, the separation or the distribution (the merger, the separation and the distribution, collectively, the “Transactions”). Morgan Stanley’s opinion was not intended to, and does not, constitute a recommendation to any holder of shares of our Common Stock as to how to vote at the special meeting to be held in connection with the merger or whether to take any other action with respect to the Transactions. Morgan Stanley was not requested to opine as to, and its opinion did not in any manner address, the relative merits of the Transactions as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available, nor did it address the underlying business decision of the Company to enter into the merger agreement or proceed with any other transaction contemplated by the merger agreement.
Opinion of Duff & Phelps, a Kroll Business Operating as Kroll, LLC
On December 19, 2021, Duff & Phelps, a Kroll Business operating as Kroll, LLC (“Duff & Phelps”) delivered its opinion, dated December 19, 2021 (the “Duff & Phelps Opinion”), to the board of directors that, as of the date of the opinion and subject to and based on the assumptions made therein, the redemption (the “Exchange”) of all of the Company’s preferred units in our operating partnership and 25,210,092 of the Company’s common units (the “common units”) in our operating partnership (the “Redeemed Units” or the “exchange consideration”) as consideration for our operating partnership’s interests in New LP (as defined below in “The Merger Agreement — The Separation and the Distribution”) holding our business other than the Bluerock Homes Business, is fair, from a financial point of view, to the Company.
The full text of the written opinion of Duff & Phelps, dated as of December 19, 2021, is attached to this proxy statement as Exhibit C and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by Duff & Phelps in rendering its opinion. We encourage you to read the entire opinion and the summary of Duff & Phelps’s opinion below carefully and in their entirety. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Duff & Phelps’s opinion was provided for the information of, and directed to, our board of directors, in its capacity as such, for its information and assistance in connection with its consideration of the financial terms of the Exchange. Neither Duff & Phelps’s opinion nor the summary of its opinion and the related analyses set forth in this proxy statement is intended to be or constitutes a recommendation to any stockholder of the Company as to how such stockholder should act with respect to the Transactions.
Opinion of Robert A. Stanger & Company, Inc.
Prior to the December 19, 2021 meeting of our board of directors, Robert A. Stanger & Company, Inc. (“Stanger”) delivered its written opinion (the “Stanger Opinion”) to our board of directors, dated December 19, 2021, that, as of that date, Stanger concluded, based upon its analysis and the assumptions,
 
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qualifications and limitations cited in its written fairness opinion, and in reliance thereon, that as of the date of the fairness opinion the terms of the management contract that Bluerock Homes and Bluerock Residential Holdings (which will be controlled by Bluerock Homes following the separation) intend to enter into with an external manager (the “Management Agreement”) are fair to Bluerock Homes, from a financial point of view.
The full text of the written opinion of Stanger, dated as of December 19, 2021, is attached to this proxy statement as Exhibit D and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Stanger in rendering its opinion. The summary of the opinion of Stanger set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Stanger’s opinion is directed to our board of directors, in its capacity as such, in connection with its consideration of the proposed terms of the Management Agreement.
Treatment of Common Stock, Preferred Stock, Company Warrants and Equity Awards (page 79)
Common Stock
At the merger effective time, each share of our Common Stock (other than shares of our Common Stock that are owned by Parent or any wholly owned subsidiary of Parent or us, which will automatically be cancelled with no consideration being delivered in exchange thereof (the “cancelled shares”)) issued and outstanding immediately prior to the merger effective time will be automatically converted into the right to receive the merger consideration. If we declare a dividend reasonably determined by us to be required to maintain our status as a REIT under the Code or to avoid or reduce the payment of income or excise tax or any other entity-level tax as permitted under the merger agreement, the merger consideration will be decreased by an amount equal to the per share amount of such dividend.
Preferred Stock
After the date this proxy statement is mailed to our stockholders, we will deliver to the stockholders of record of our Preferred Stock a notice of redemption for each applicable series of Preferred Stock that complies in all material respects with the specifications and timing requirements of our organizational documents. The notice of redemption will state that the redemption of our Preferred Stock will be effective as of, and conditioned upon the occurrence of, the merger effective time. The redemption notices will be prepared by us and be reasonably acceptable to Parent.
At or prior to the merger effective time, Parent, on behalf of the surviving company, will irrevocably set aside and deposit in trust for the benefit of the holders of our Preferred Stock cash equal to (i) $25.00, plus an amount equal to all accrued and unpaid dividends to and including the redemption date, without interest, per share of Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock, and (ii) $1,000.00, plus an amount equal to all accrued and unpaid dividends to and including the redemption date, without interest, per share of Series B Preferred Stock (such amount, collectively, the “Preferred Stock redemption amount”). We and Parent will give irrevocable instructions, effective as of the merger effective time, for the payment of the Preferred Stock redemption amount.
Company Warrants
At least ten (10) business days prior to the merger effective time, we will notify the warrant agent in accordance with the warrant agreements (the “warrant agreements”) that govern warrants to purchase our Class A Common Stock (the “Company Warrants”) that, as of the merger effective time, each share of our Class A Common Stock issued and outstanding immediately prior to the merger effective time (other than the cancelled shares) will be automatically converted into the right to receive the merger consideration and that the terms of the warrant agreements will be adjusted so that the holder of any Company Warrant exercised after the merger effective time will be entitled to receive in cash the merger consideration that the holder would have received if the Company Warrant had been exercised immediately prior to the closing date.
 
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Restricted Stock Awards
At the merger effective time, each restricted stock award that is outstanding immediately prior to the merger effective time will be cancelled in consideration for the right to receive an amount in cash equal to (1) the number of shares of our Common Stock subject to the restricted stock award immediately prior to the merger effective time, multiplied by (2) the merger consideration, without interest and less any such amount required to be withheld or deducted under applicable tax law with respect to the vesting of such restricted stock award and/or the making of such payment.
Financing (page 65)
In connection with the closing of the merger, Parent will cause an aggregate of approximately $800 million to be paid to the holders of our Common Stock (assuming the cash exercise of all outstanding Company Warrants), including holders of Company equity awards. As described under “The Merger Agreement — Treatment of Common Stock, Preferred Stock, Company Warrants and Equity Awards,” Parent will also cause approximately $1.19 billion to be paid to the holders of our Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock, in each case, plus accrued and unpaid dividends to and including the closing date. In addition, Parent has informed us that in connection with the closing of the merger, Parent expects to cause the outstanding indebtedness under our revolving credit facilities to be prepaid in full and our mortgage loans will be repaid or remain outstanding. As of December 31, 2021, nothing was outstanding under our revolving credit facilities and we had approximately $1.37 billion in mortgage loans outstanding.
Parent has informed us that it is currently in the process of obtaining debt financing to be provided in connection with the merger. In addition, it is expected that Blackstone will contribute equity to Parent for the purpose of funding the acquisition costs (including the merger consideration) that are not covered by such debt financing.
Parent has informed us that in addition to the payment of the merger consideration, the funds to be obtained from the debt and equity financing may be used for purposes such as reserves, the refinancing of certain of our existing debt, paying carrying costs with respect to the properties, funding working capital requirements, and for other costs and expenses related to the financing and the merger. Parent has informed us that it currently believes that the funds to be borrowed under the debt financing would be secured by, among other things, a mortgage lien on certain properties which are wholly owned and/or ground leased by us, the direct and/or indirect equity interests in certain entities which own certain properties, certain escrows and reserves and such other pledges and security required by the lenders to secure and perfect their interests in the applicable collateral, and that such debt financing would be conditioned on the merger being completed and other customary conditions for similar financings.
Pursuant to the merger agreement, we have agreed to deliver, or we have agreed to use commercially reasonable efforts to cause any joint venture to deliver, promptly following Parent’s request, a notice prepared by Parent, in form and substance reasonably approved by us, to each of the lenders under our existing mortgage indebtedness requesting that such lender consent to, among other things, the consummation of the merger and the other transactions contemplated by the merger agreement and to certain modifications of the existing loan documents reasonably requested by Parent. Pursuant to the merger agreement, we have also agreed to deliver customary prepayment and/or defeasance notices to the extent requested by Parent.
The merger agreement does not contain a financing condition or a “market MAC” condition to the closing of the merger. For more information, see “The Merger Agreement — Financing Cooperation” and “The Merger Agreement — Conditions to the Merger.”
Interests of Our Directors and Executive Officers in the Merger (page 66)
Our directors and executive officers have certain interests in the merger that are different from, or in addition to those of our stockholders. See “The Merger — Interests of Our Directors and Executive Officers in the Merger” for additional information about interests that our directors and executive officers have in the merger that are different than yours.
 
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No Solicitation (page 91)
Prior to the approval of the merger by holders of our Common Stock, we and our subsidiaries are subject to restrictions on our ability to solicit any company takeover proposals (as defined in “The Merger Agreement — Company Stockholders’ Meeting”), including, among others, restrictions on our ability to furnish to any other person any information in connection with any company takeover proposal or engage in any discussions or negotiations regarding any company takeover proposal. Subject to the terms of the merger agreement, we or our subsidiaries may furnish information with respect to us or our subsidiaries to, and engage in discussions or negotiations with, a person if we receive a written bona fide company takeover proposal from such person after the date of the merger agreement that did not result from our breach of our obligations described in “The Merger Agreement — No Solicitation” and as described under “The Merger Agreement — Obligation of the Board of Directors with Respect to Its Recommendation,” and our board of directors determines in good faith, after consultation with its independent financial advisors and outside legal counsel, that such company takeover proposal constitutes or could reasonably be expected to lead to a company superior proposal (as defined in “The Merger Agreement — No Solicitation”). Under certain circumstances and after following certain procedures and adhering to certain restrictions, we are permitted to terminate the merger agreement if our board of directors approves, and substantially concurrently with the termination of the merger agreement, we enter into, a definitive agreement providing for the implementation of a company superior proposal (subject to payment of the company termination fee (as described below)).
The Separation and the Distribution (page 98)
We will use commercially reasonable efforts to, as promptly as reasonably practicable (but not prior to the satisfaction of the other conditions to closing of the merger), consummate the separation and the distribution as contemplated by and subject to the terms of the separation documentation contemplated by the merger agreement (the “separation documentation”) and pursuant to the separation principles that are an exhibit to the merger agreement (the “separation principles”). We and Parent will cooperate reasonably with each other to cause the distribution to be effected on the closing date, prior to the merger effective time. The separation principles provide that the consummation of the distribution will be subject to conditions customary for public company spin-off transactions, including (i) all necessary permits and authorizations under the Securities Act of 1933, as amended (the “Securities Act”), and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), relating to the issuance and trading of shares of common stock of Bluerock Homes having been obtained and being in effect and such shares of common stock of Bluerock Homes having been approved for listing on the applicable stock exchange, (ii) our having received opinion(s) (which continue to be valid) in customary form from one or more nationally recognized valuation or accounting firms or investment banks reasonably acceptable to Parent, as to the solvency of Bluerock Homes after giving effect to the distribution and (iii) certain internal restructuring steps contemplated by the separation principles, including the Exchange, having been completed in all material respects.
Conditions to the Merger (page 101)
Completion of the merger depends upon the satisfaction or waiver of a number of conditions, including, among others, that:

the merger has been approved by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the merger by holders of issued and outstanding Common Stock;

the Bluerock Homes registration statement has become effective under the applicable securities laws and is not the subject of any proceedings seeking a stop order, and no proceedings for that purpose have been initiated or threatened by the SEC and not withdrawn;

the separation and the distribution have been consummated;

no governmental entity of competent jurisdiction has adopted, enacted or entered any law or order that is then in effect and has the effect of making the consummation of the merger, the separation or the distribution illegal;
 
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our, Parent’s and Merger Sub’s respective representations and warranties in the merger agreement must be true and correct in the manner described under “The Merger Agreement — Conditions to the Merger”;

we, Parent, and Merger Sub must have performed and complied, in all material respects, with our and their respective covenants required by the merger agreement to be performed or complied with on or prior to the merger effective time;

we have delivered to Parent, and Parent and Merger Sub have delivered to us, a certificate dated as of the closing date signed by a duly authorized officer, certifying the conditions contained in the two bullet points immediately above have been satisfied; and

we have delivered to Parent a written opinion of our tax counsel, Vinson & Elkins LLP, or other counsel selected by us and reasonably acceptable to Parent, dated as of the closing date, concluding (subject to customary assumptions, qualifications and representations, including the representations made by us in a representation letter), that commencing with our taxable year ended December 31, 2010, we have been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Code, and our actual method of operation has enabled us to continue to qualify for taxation as a REIT through and including the merger effective time.
Termination of the Merger Agreement (page 102)
We and Parent may mutually agree to terminate and abandon the merger agreement at any time prior to the closing date, even after we have obtained the requisite vote of holders of our Common Stock to approve the merger.
Termination by Either the Company or Parent
In addition, we, on the one hand, or Parent, on the other hand, may terminate and abandon the merger agreement by mutual written notice at any time prior to the closing date, in certain cases even after we have obtained the requisite vote of holders of our Common Stock to approve the merger, if:

the merger has not been consummated by September 20, 2022 (as it may be extended, the “outside date”), provided that, if the closing has not occurred by the outside date because the closing conditions relating to the Bluerock Homes registration statement and the consummation of the separation and the distribution were neither satisfied nor waived but all other conditions have been satisfied or waived (other than those that by their nature are to be satisfied at the closing, but which conditions are capable of being satisfied if the closing were to occur on such date), then either we or Parent may, by written notice on or before the second business date prior to the then-current outside date, extend the outside date by one month; provided that the outside date may, subject to certain restrictions, only be extended by us until the one-month anniversary of September 20, 2022, and Parent may not extend the outside date beyond the three-month anniversary of September 20, 2022; provided, further, that the right to terminate the merger agreement pursuant to this bullet point will not be available to a party if the failure to consummate the merger by the outside date is due to a breach by such party of any representation, warranty, covenant or other agreement set forth in the merger agreement;

any governmental entity of competent jurisdiction has issued an order permanently restraining, enjoining or otherwise prohibiting the consummation of the separation, distribution or merger and such order has become final and nonappealable; provided that the right to terminate the merger agreement pursuant to this bullet point will not be available to a party if such order is due to the breach by such party of any representation, warranty, covenant or other agreement set forth in the merger agreement; or

the requisite vote of holders of our Common Stock to approve the merger has not been obtained at the special meeting (as it may be adjourned or postponed) at which the approval of the merger is voted upon and such vote has concluded.
Termination by the Company
We may also terminate and abandon the merger agreement by written notice to Parent at any time prior to the closing date, in certain cases even after we have obtained the requisite vote of holders of our Common Stock to approve the merger, if:
 
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Parent or Merger Sub has breached or there has been any inaccuracy in any of their representations or warranties, or have breached or failed to perform any of their covenants or other agreements contained in the merger agreement, which breach, inaccuracy or failure to perform (i) would result in a failure of a closing condition to our obligation to effect the merger and (ii) is either not curable or is not cured by the earlier of the outside date and the date that is 30 days following written notice from us to Parent of such breach, inaccuracy or failure; provided that the right to terminate the merger agreement pursuant to this bullet point will not be available to us if we are in breach of any of our representations, warranties, covenants or other agreements such that Parent has a right to terminate the merger agreement;

at any time prior to the receipt of the requisite vote of holders of our Common Stock to approve the merger, our board of directors has determined in accordance with the requirements described under “The Merger Agreement — Obligation of the Board of Directors with Respect to Its Recommendation” to cause us to terminate the merger agreement in order to substantially concurrently enter into a definitive agreement providing for the implementation of a company superior proposal, provided that we have previously or concurrently paid the company termination fee (as described below); and

(1) all of Parent’s and Merger Sub’s conditions to consummate the merger have been satisfied or waived by Parent (other than those that by their nature are to be satisfied at the closing, and the consummation of the separation and the distribution, which conditions are capable of being satisfied as of the date the closing should have occurred by the terms of the merger agreement); (2) on the date the closing should have occurred by the terms of the merger agreement, we have delivered written notice to Parent to the effect that (A) all of the aforementioned conditions have been satisfied or waived by Parent, (B) the Company is prepared to consummate the closing, and (C) the Company will be prepared to consummate the closing on the delayed closing date; (3) Parent fails to consummate the closing on the delayed closing date; and (4) we were prepared to consummate the closing on the delayed closing date. For this purpose “delayed closing date” means the earliest date following the date on which the closing should have occurred that the separation and the distribution may be completed in accordance with applicable law and stock exchange rules, but in any event not less than three business days following the date on which the closing should have occurred pursuant to the terms of the merger agreement.
Termination by Parent
Parent may also terminate and abandon the merger agreement by written notice to us at any time prior to the closing date, in certain cases even after we have obtained the requisite vote of holders of our Common Stock to approve the merger, if:

we have breached or there has been any inaccuracy in any of our representations or warranties, or have breached or failed to perform any of our covenants or other agreements contained in the merger agreement, which breach, inaccuracy or failure to perform (i) would result in a failure of a closing condition to Parent’s and Merger Sub’s obligations to effect the merger and (ii) is either not curable or is not cured by the earlier of the outside date and the date that is 30 days following written notice from Parent to us of such breach, inaccuracy or failure; provided that the right to terminate the merger agreement pursuant to this bullet point will not be available to Parent if Parent or Merger Sub is in breach of any of its representations, warranties, covenants or other agreements such that we have the right to terminate the merger agreement; and

(1) prior to the receipt of the requisite vote of holders of our Common Stock to approve the merger, a company adverse recommendation change (as defined in “The Merger Agreement — Obligations of the Board of Directors with Respects to Its Recommendation”) occurs; (2) we have failed to publicly recommend against any tender offer or exchange offer for our Common Stock pursuant to Regulation 14D under the Exchange Act that constitutes a company takeover proposal, including by taking no position with respect to the acceptance of such tender offer or exchange offer by our stockholders, within ten business days after the commencement (within the meaning of Rule 14d-2 under the Exchange Act) of such tender offer or exchange offer; (3) prior to the receipt of the requisite vote of holders of our Common Stock to approve the merger, our board of directors has failed to
 
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publicly reaffirm the recommendation of our board of directors with respect to the merger contained in this proxy statement (the “company recommendation”) within ten (10) business days after Parent’s written request following the date of a company takeover proposal has been first publicly announced (or if our special meeting is scheduled to be held within ten (10) business days after the date a company takeover proposal has been publicly announced, as far in advance of the date on which the special meeting is scheduled to be held as is reasonably practicable); or (4) we have entered into a letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger agreement, joint venture agreement or other agreement with a person that has informed us or our representatives that it is considering making, or has made, a company takeover proposal (or any representative of such person) relating to, or any agreement providing for, a company takeover proposal other than an acceptable confidentiality agreement.
Termination Fees (page 104)
Termination Fee Payable by the Company
We have agreed to pay to Parent a termination fee of $60 million (the “company termination fee”), if:

Parent terminates the merger agreement pursuant to the provision described in the second bullet point under “The Merger Agreement — Termination of the Merger Agreement — Termination by Parent”;

we terminate the merger agreement pursuant to the provision described in the second bullet point under “The Merger Agreement — Termination of the Merger Agreement — Termination by the Company”; or

all of the following requirements are satisfied:

after the date of the merger agreement, a company takeover proposal (substituting 50% for the 15% threshold set forth in the definition of a company takeover proposal) (a “qualifying transaction”), has been received by us or our representatives or any person has publicly proposed or made a company takeover proposal (and in the case of a termination pursuant to the third bullet point under “The Merger Agreement — Termination of the Merger Agreement —Termination by Either the Company or Parent,” such company takeover proposal or publicly announced intention will have been made prior to the special meeting);

thereafter the merger agreement is terminated by us or Parent pursuant to either the first or third bullet point under “The Merger Agreement — Termination of the Merger Agreement —Termination by Either the Company or Parent,” or by Parent pursuant to the first bullet point of “The Merger Agreement — Termination of the Merger Agreement — Termination by Parent”; and

within twelve (12) months after the date of such termination referenced in the immediately preceding sub-bullet point we or any of our subsidiaries completes or enters into a definitive agreement providing for the implementation of any qualifying transaction.
Termination Fee Payable by Parent
Parent has agreed to pay to us a termination fee of $200 million (the “parent termination fee”), if we terminate the merger agreement pursuant to the provisions described in the first bullet point or third bullet point under “The Merger Agreement — Termination of the Merger Agreement — Termination by the Company,” or Parent terminates the merger agreement pursuant to the first bullet point of “The Merger Agreement — Termination of the Merger Agreement — Termination by Either the Company or Parent” at a time when we were then entitled to terminate the merger agreement pursuant to the provisions described in the first bullet point or third bullet point under “The Merger Agreement — Termination of the Merger Agreement — Termination by the Company.”
Guaranty and Remedies (page 104)
In connection with the merger agreement, Blackstone Real Estate Partners IX L.P., a Delaware limited partnership (the “Guarantor”), entered into a guaranty (the “guaranty”) in our favor to guarantee Parent’s
 
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payment obligations with respect to the parent termination fee and certain expense reimbursement and indemnification obligations of Parent under the merger agreement, subject to the terms and limitations set forth in the guaranty.
The maximum aggregate liability of the Guarantor under the guaranty will not exceed the sum of (1) $200 million, (2) interest on any overdue portion of the parent termination fee as described in the merger agreement and (3) all reasonable and documented third-party costs and out-of-pocket expenses (including reasonable fees of counsel) actually incurred by us relating to any litigation or other proceeding brought by us to enforce our rights under the guaranty, if we prevail in such litigation or proceeding.
We cannot seek specific performance to require Parent or Merger Sub to complete the merger and, subject to limited exceptions, including with respect to enforcing confidentiality provisions and certain expense reimbursement and indemnification obligations of Parent, our sole and exclusive remedy against Parent relating to any breach of the merger agreement or otherwise will be the right to receive the parent termination fee under the conditions described under “The Merger Agreement — Termination Fees — Termination Fee Payable by Parent.” Parent and Merger Sub may, however, seek specific performance to require us to complete the merger.
Support Agreements (page 105)
In connection with the merger, R. Ramin Kamfar, James G. Babb III, Ryan S. MacDonald, Jordan B. Ruddy, Michael L. Konig (who are members of our management) and certain of their affiliated entities (collectively, the “holders”), solely in their capacity as our stockholders and limited partners of our operating partnership, have entered into support agreements with Parent pursuant to which the holders agreed, among other things, (i) to vote their respective shares of our Common Stock and limited partnership interests in our operating partnership (the “covered shares”) other than any excess shares, in favor of the approval of the merger, (ii) to vote their respective covered shares, other than any excess shares, against any company takeover proposal (as defined in “The Merger Agreement — Company Stockholders’ Meeting”) and any other action that could reasonably be expected to impede, interfere with, delay, materially delay, materially postpone or adversely affect the merger or the other transactions contemplated by the merger agreement or result in a breach in any material respect of any of the covenants, representations or warranties or other obligations or agreements of us under the merger agreement, of us or Bluerock Homes under the separation documentation or of such holder under the applicable support agreement, and (iii) not to transfer their respective covered shares, in each case, subject to certain exceptions. For further discussion, see “The Merger Agreement — Support Agreements.”
Regulatory Matters (page 71)
We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of the merger, other than the acceptance for record of the articles of merger with respect to the merger by the State Department of Assessments and Taxation of Maryland, and the filing of the certificate of merger with the Secretary of State of the State of Delaware.
No Dissenters’ Rights of Appraisal (page 109)
We are organized as a corporation under Maryland law. Holders of shares of Common Stock may not exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares of Common Stock in connection with the merger because, as permitted by the Maryland General Corporation Law, as amended (the “Maryland General Corporation Law”), our charter provides that stockholders are not entitled to exercise such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination.
Material U.S. Federal Income Tax Consequences (page 71)
The receipt of cash in exchange for shares of Common Stock pursuant to the merger, taken together with the distribution, is expected to be treated as a distribution in complete liquidation of the Company and
 
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will be a fully taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder (as defined below) of shares of Common Stock will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the sum of (A) the amount of cash received with respect to such U.S. holder’s shares of Common Stock in the merger plus (B) the fair market value, determined when the distribution occurs, of the shares of Bluerock Homes common stock received in the distribution, and (2) the U.S. holder’s adjusted tax basis in its shares of Common Stock. The U.S. federal income tax consequences to a non-U.S. holder (as defined below) of the distribution and the merger will depend on various factors, including whether the receipt of such distributions and payments are treated as distributions from the Company that are attributable to gain from the sale of “United States real property interests” ​(“USRPIs”) pursuant to the provisions of the Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). See “The Merger — Material U.S. Federal Income Tax Consequences — Consequences of the Merger to Non-U.S. Holders of Shares of Common Stock” for further discussion of the material U.S. federal income tax consequences of the distribution and the merger to non-U.S. holders. You should consult your own tax advisors regarding the particular tax consequences to you of the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws). For further discussion, see “The Merger — Material U.S. Federal Income Tax Consequences.”
Delisting and Deregistration of Common Stock, Preferred Stock and Company Warrants (page 77)
Following the completion of the merger, our Common Stock and Preferred Stock will no longer be traded on the NYSE American and will be deregistered under the Exchange Act. In addition, the Company Warrants will also be deregistered under the Exchange Act.
Litigation Relating to the Merger (page 77)
On February 14, 2022, a complaint, captioned Marchese v. Bluerock Residential Growth REIT, Inc., et al., No. 1:22-cv-01234, was filed by a purported stockholder of the Company in the U.S. District Court for the Southern District of New York. The complaint names the Company and the board of directors as defendants. The complaint alleges, among other things, that the defendants violated certain sections of the Exchange Act by disseminating a materially misleading or incomplete proxy statement in connection with the merger. The complaint seeks, among other things, an order directing defendants to correct alleged material misstatements or omissions in the proxy statement, and to enjoin the Company from taking steps to consummate the merger or, in the event the merger is consummated, to rescind the merger or grant rescissory damages. The Company believes the claims asserted in the lawsuit are without merit.
On February 21, 2022, the Company received a demand letter and draft complaint, captioned Stone v. Bluerock Residential Growth REIT, Inc., et al., from a purported stockholder of the Company. The demand letter requests that the Company and the board of directors issue disclosures correcting purported deficiencies in the proxy statement alleged in the draft complaint. The draft complaint alleges, among other things, that the Company and the board of directors violated certain sections of the Exchange Act by disseminating a misleading or incomplete proxy statement in connection with the merger. The complaint seeks, among other things, to enjoin the Company from consummating the merger until the alleged deficiencies in the proxy statement are corrected or, in the event the merger is consummated, to rescind the merger or grant rescissory damages. The Company believes the claims asserted are without merit.
On February 25, 2022, a putative class action complaint, captioned Whitfield v. Kamfar, et al., No. 24C22001079, was filed by a purported stockholder of the Company in the Circuit Court for Baltimore City, Maryland. The complaint names the Company and the board of directors as defendants. The complaint alleges that the directors breached their fiduciary duties in connection with their consideration and approval of the merger as well as by filing an allegedly materially incomplete and misleading proxy statement. The complaint seeks, among other things, to enjoin the stockholder vote on the merger and the consummation of the merger, or, in the event the merger is consummated, to rescind the merger or an award of rescissory and/or compensatory damages. The Company believes the claims asserted in the lawsuit are without merit.
On March 1, 2022, a complaint, captioned Garfield v. Kamfar, et al., No. 602620/2022, was filed by a purported shareholder of the Company in the Supreme Court of the State of New York, County of Nassau. The complaint names the Company, Parent, and the board of directors as defendants. The complaint alleges that the directors breached their fiduciary duties in connection with their consideration and approval
 
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of the merger as well as by filing an allegedly materially incomplete and misleading proxy statement. The complaint further alleges that Parent aided and abetted the directors’ breach of fiduciary duties. The complaint seeks, among other things, to enjoin the stockholder vote on the merger until the alleged deficiencies in the proxy statement are corrected. The Company believes the claims asserted in the lawsuit are without merit.
 
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING AND THE MERGER
The following questions and answers address briefly some questions you may have regarding the special meeting and the proposed merger. These questions and answers may not address all questions that may be important to you as a stockholder. Please refer to the more detailed information contained elsewhere in this proxy statement, as well as the additional documents to which it refers or which it incorporates by reference, including the merger agreement, a copy of which is attached to this proxy statement as Exhibit A.
Q:
What is the proposed transaction?
A:
The proposed transaction is the acquisition of the Company by affiliates of Blackstone pursuant to the merger agreement. After the merger has been approved by our common stockholders and the other closing conditions under the merger agreement have been satisfied or waived, the Company will merge with and into Merger Sub, with Merger Sub continuing as the surviving company. The merger will occur at the time provided in the merger agreement.
The Company has agreed that, subject to the terms and conditions of the merger agreement, the Company will use commercially reasonable efforts to complete the separation of certain of the Company’s single-family properties and other assets (collectively, the “Bluerock Homes Business”) from the remainder of our business and the distribution of Bluerock Homes common stock to our common stockholders. After the distribution is completed, Bluerock Homes will be a separate, externally managed, publicly traded REIT that will own and operate Bluerock Residential’s single-family properties. The separation and the distribution will be carried out in accordance with the terms of the separation principles. The completion of the separation and the distribution is a condition to the merger under the merger agreement.
For additional information about the merger, please review the merger agreement, including the separation principles, attached to this proxy statement as Exhibit A and incorporated by reference into this proxy statement. We encourage you to read the merger agreement carefully and in its entirety, as it is the principal document governing the merger.
Q:
As a common stockholder, what will I receive in the merger?
A:
For each outstanding share of Common Stock that you own immediately prior to the merger effective time, you will receive the merger consideration, which is $24.25 in cash, without interest and less any applicable withholding taxes. The merger consideration is in addition to the shares of Bluerock Homes common stock that our stockholders of record as of the record date for the distribution will be entitled to receive in the distribution.
Q:
Will the shares of Bluerock Homes be publicly traded on an exchange?
A:
Immediately following the distribution, Bluerock Homes will be a publicly traded REIT. It will be a condition to the distribution that the Bluerock Homes common stock that will be distributed in the distribution has been approved for listing on the NYSE American, subject to official notice of distribution, prior to the consummation of the distribution. Bluerock Homes expects that its common stock will be traded on the NYSE American under the ticker symbol “BHM.”
Q:
Will I receive any regular quarterly dividends with respect to the shares of Common Stock that I own?
A:
On December 10, 2021, our board of directors authorized and we declared a quarterly cash dividend of $0.1625 per share of Common Stock for the quarter ended December 31, 2021, which was paid in cash on January 5, 2022, to holders of record of our Common Stock at the close of business on December 23, 2021. Under the terms of the merger agreement, we may make, declare and pay regular quarterly cash dividends on Common Stock for the fiscal quarters ending March 30, 2022, and June 30, 2022, in amounts up to $0.1625 per share per quarter (with record and payment dates consistent with historical record and payments dates for fiscal year 2021). Under the terms of the merger agreement, we may not authorize, declare or pay any other dividends to the holders of shares of Common Stock for fiscal quarters ending after June 30, 2022, without the prior written consent of Parent, other than dividends reasonably determined to be required to maintain our status as a REIT under the Code or to avoid the
 
15

 
payment of income or excise tax or any other entity-level tax (with any such additional required dividend resulting in a corresponding decrease to the merger consideration).
Q:
What will happen to my outstanding warrants in the merger?
A:
The outstanding Company Warrants to purchase Common Stock will remain outstanding following the merger effective time in accordance with their terms, but the terms of the warrant agreements with respect to the Company Warrants will be adjusted so that the holder of any Company Warrant exercised after the merger effective time will be entitled to receive in cash the amount of the merger consideration that, if the Company Warrant had been exercised immediately prior to the merger effective time, such holder would have been entitled to receive upon the consummation of the merger.
Q:
What will happen to the Company’s Dividend Reinvestment Plans (“DRIPs”) in the merger?
A:
On December 19, 2021, the board of directors approved the suspension of the DRIPs with respect to our Class A Common Stock and Series T Preferred Stock until further notice, as required pursuant to the merger agreement. Prior to the merger effective time, pursuant to the merger agreement, the board of directors will adopt resolutions or take other actions required to terminate the DRIPs effective prior to, but subject to the occurrence of, the merger effective time.
Q:
When do you expect the merger to be completed?
A:
If our common stockholders vote to approve the merger, and assuming that the other conditions to the merger are satisfied or waived, it is currently anticipated that the merger will be completed in the second quarter of 2022. Pursuant to the merger agreement, the closing of the merger will take place on the third business day after satisfaction or waiver of the conditions to the merger described under “The Merger Agreement — Conditions to the Merger” ​(other than (1) those conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or waiver of such conditions, and (2) the consummation of the separation and the distribution, but subject to the consummation of the separation and the distribution prior to the merger effective time) or on such other date as may be mutually agreed in writing by us and Parent. For further information regarding the timing of the closing of the merger, see “The Merger Agreement — Effective Time; Closing Date.”
Q:
What happens if the merger is not completed?
A:
If the merger is not approved by our common stockholders, or if the merger is not completed for any other reason, our common stockholders will not receive any payment for their shares of Common Stock pursuant to the merger agreement. Instead, Bluerock Residential will remain a public company and shares of Common Stock will continue to be registered under the Exchange Act and listed on the NYSE American. Upon a termination of the merger agreement, under certain circumstances, we will be required to pay Parent the company termination fee. In certain other circumstances, Parent will be required to pay us the parent termination fee upon termination of the merger agreement.
Q:
If the merger is completed, how do I obtain the merger consideration for my shares of Common Stock?
A:
Following the completion of the merger, your shares of Common Stock will automatically be converted into the right to receive your portion of the merger consideration. Shortly after the merger is completed, you will receive instructions describing how you may surrender your shares of Common Stock for the merger consideration. If your shares of Common Stock are held in “street name” by your broker, bank or other nominee, you may receive instructions from your broker, bank or other nominee as to what action, if any, you need to take to effect the surrender of your “street name” shares in exchange for the merger consideration.
Q:
When and where is the special meeting?
A:
The special meeting will be held on April 12, 2022, at 11:00 a.m., New York time. The special meeting will be held solely via live webcast, and there will not be a physical meeting location, given the current public health impacts of the Covid-19 pandemic and our desire to promote the health and safety of our stockholders, as well as our directors, officers, employees and other constituents.
 
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Q:
Who can vote and attend the special meeting?
A:
All holders of record of shares of Common Stock as of the record date, which was the close of business on March 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that such holder owned as of the record date, and will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that such holder owned as of the record date. The vote of the holders of shares of Preferred Stock is not required to approve any of the proposals at the special meeting and is not being solicited.
Q:
What vote of common stockholders is required to approve the merger?
A:
Approval of the merger requires the affirmative vote of the holders of issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the merger. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have the same effect as voting “AGAINST” the proposal to approve the merger.
Q:
What vote of common stockholders is required to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger?
A:
Approval, on a non-binding, advisory basis, of the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger requires the affirmative vote of a majority of the votes cast on the proposal. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.
Q:
What vote of common stockholders is required to approve adjournments of the special meeting?
A:
Approval of any adjournment of the special meeting to solicit additional proxies if there are not sufficient votes at the special meeting to approve the merger requires the affirmative vote of a majority of the votes cast on the proposal. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.
Q:
Why is my vote important?
A:
If you do not authorize your proxy or voting instructions or vote at the special meeting via the special meeting website, it will be more difficult for us to obtain the necessary quorum to hold the special meeting. In addition, because the proposal to approve the merger must be approved by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the merger by the holders of issued and outstanding Common Stock, your failure to authorize your proxy or voting instructions or to vote at the special meeting via the special meeting website will have the same effect as a vote “AGAINST” the approval of the merger.
Q:
Will I also vote on any proposals to approve the separation and the distribution?
A:
No. No vote of Company stockholders is required to approve the separation and the distribution.
Q:
How does the merger consideration compare to the market price of the Company’s shares of Common Stock?
A:
The merger consideration of $24.25 per share in cash (without taking into account the value of the shares of Bluerock Homes to be received by holders of Common Stock in the distribution) represents a premium of approximately 124% to the unaffected closing price of $10.85 on September 15, 2021, the last trading day prior to Bloomberg’s report, on September 16, 2021, that the Company was evaluating strategic alternatives.
 
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Q:
How does our board of directors recommend that I vote?
A:
Our board of directors recommends that you vote “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation, and “FOR” the proposal to approve adjournment of the meeting.
Q:
Why am I being asked to consider and cast a vote on the non-binding proposal to approve the merger-related compensation payable to our named executive officers?
A:
The SEC has adopted rules that require companies to seek a non-binding, advisory vote to approve certain compensation that may be paid or become payable to their named executive officers that is based on or otherwise relates to corporate transactions such as the merger.
Q:
What will happen if stockholders do not approve the non-binding proposal to approve the merger-related compensation?
A:
The proposal to approve the merger-related compensation is a proposal separate and apart from the proposal to approve the merger. Approval of this proposal is not a condition to completion of the merger. The vote on this proposal is an advisory vote only, and it is not binding on us or our board of directors. Further, the underlying arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is completed, our named executive officers will be eligible to receive the compensation that may be paid or become payable to them that is based on or otherwise relates to the merger, in accordance with the terms and conditions applicable to such compensation.
Q:
Do any of the Company’s directors and executive officers have any interests in the merger that are different than mine?
A:
Our directors and executive officers have certain interests in the merger that are different from, or in addition to, the interests of our stockholders generally. See “The Merger — Interests of Our Directors and Executive Officers in the Merger” for additional information about interests that our directors and executive officers have in the merger that are different than yours.
Q:
What do I need to do now?
A:
After carefully reading and considering the information contained in this proxy statement and the exhibits attached to this proxy statement, please vote your shares of Common Stock or authorize a proxy to vote your shares of Common Stock in one of the ways described below as soon as possible. You will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that you owned as of the record date, and you will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that you owned as of the record date.
Q:
How do I cast my vote?
A:
If you are a holder of record of Common Stock on the record date, you may vote at the special meeting via the special meeting website or authorize a proxy to vote your shares of Common Stock at the special meeting. You can authorize your proxy by marking, signing, dating and returning the enclosed proxy card by mail, or, if you prefer, by telephone or through the Internet by following the instructions included with your proxy card. Specific instructions to be followed by stockholders of record interested in authorizing a proxy via the Internet or by telephone are shown on the accompanying proxy card. Internet and telephone procedures are designed to authenticate the stockholder’s identity and to allow stockholders to authorize a proxyholder to vote the stockholder’s shares and confirm that their instructions have been properly recorded. A stockholder that authorizes a vote through the Internet should understand that there may be costs associated with electronic access, such as usage charges from Internet access providers and telephone companies, which will be borne by the stockholder.
 
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Q:
How do I cast my vote if my shares of Common Stock are held of record in a “street name”?
A:
If your shares are held in a “street name” through a broker, bank or other nominee, you must direct your intermediary regarding how you would like your shares voted by following the voting instructions you receive from your broker, bank or other nominee; or, if you want to participate in the special meeting, you must follow the instructions you receive from your broker, bank or other nominee.
Q:
What will happen if I abstain from voting or fail to vote?
A:
With respect to the proposal to approve the merger, if you abstain from voting and fail to cast your vote at the special meeting via the special meeting website or by proxy, or if you hold your shares of Common Stock in “street name” and fail to give voting instructions to your broker, bank or other nominee, it will have the same effect as a vote “AGAINST” the merger. With respect to the proposal to approve the merger-related compensation and the proposal to approve adjournment of the meeting, if you abstain from voting and you fail to cast your vote at the special meeting via the special meeting website or by proxy, or if you hold your shares of Common Stock in “street name” and fail to give voting instructions to your broker, bank or other nominee, it will not have any effect on the outcome of such proposals.
Q:
How will proxy holders vote my shares of Common Stock?
A:
If you properly authorize a proxy prior to the special meeting, your shares of Common Stock will be voted as you direct. If you authorize a proxy but no direction is otherwise made, your shares of Common Stock will be voted “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the meeting. Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.
Q:
What happens if I sell shares of Common Stock before the special meeting?
A:
If you held shares of Common Stock on the record date but transfer them prior to the merger effective time, you will retain your right to vote at the special meeting, but not the right to receive the merger consideration for those shares. The right to receive such consideration when the merger becomes effective will pass to the person who at that time owns the shares of Common Stock you previously owned.
Q:
Can I change my vote after I have mailed my proxy card?
A:
Yes. If you own shares of Common Stock as a record holder on the record date, you may revoke a previously authorized proxy at any time before it is exercised by filing with our Secretary a notice of revocation or a duly authorized proxy bearing a later date or by attending the meeting and voting via the special meeting website. Attendance at the meeting will not, in itself, constitute revocation of a previously authorized proxy. If you have instructed a broker, bank or other nominee to vote your shares of Common Stock, the foregoing options for changing your vote do not apply, and instead you must follow the instructions received from your broker, bank or other nominee to change your vote.
Q:
Is the merger expected to be taxable to me?
A:
Yes. The receipt of cash in exchange for shares of Common Stock pursuant to the merger, taken together with the distribution, is expected to be treated as a distribution in complete liquidation of the Company and will be a fully taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder of shares of Common Stock will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the sum of (A) the amount of cash received with respect to such U.S. holder’s shares of Common Stock in the merger plus (B) the fair market value, determined when the distribution occurs, of the shares of Bluerock Homes common stock received in the distribution, and (2) the U.S. holder’s adjusted tax basis in its shares of Common Stock. The U.S. federal income tax consequences to a non-U.S. holder of the distribution and the merger will depend on various factors, including whether the receipt of such distributions and payments are treated as distributions from the Company that are attributable to gain from the sale of USRPIs pursuant to the provisions of FIRPTA. See “The Merger — Material U.S. Federal Income Tax Consequences —
 
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Consequences of the Merger to Non-U.S. Holders of Shares of Common Stock” for further discussion of the material U.S. federal income tax consequences of the distribution and the merger to non-U.S. holders. You should consult your own tax advisors regarding the particular tax consequences to you of the merger in light of your particular circumstances (including the application and effect of any state, local or foreign income and other tax laws). For further discussion, see “The Merger — Material U.S. Federal Income Tax Consequences.”
Q:
What rights do I have if I oppose the merger?
A:
If you are a common stockholder of record on the record date, you can vote against the proposal to approve the merger. You are not, however, entitled to exercise any appraisal rights, dissenters’ rights or the rights of an objecting stockholder to receive the fair value of the stockholder’s shares in connection with the merger because, as permitted by the Maryland General Corporation Law, our charter provides that stockholders are not entitled to exercise any such rights unless our board of directors, upon the affirmative vote of a majority of the board of directors, determines that such rights apply. Our board of directors has made no such determination. See “No Dissenters’ Rights of Appraisal.”
Q:
Where can I find the voting results of the special meeting?
A:
We intend to announce preliminary voting results at the special meeting and publish final results in a Current Report on Form 8-K that will be filed with the SEC following the special meeting. All reports that we file with the SEC are publicly available on the SEC’s website at www.sec.gov when filed.
Q:
Have any stockholders entered into a support agreement in connection with the merger?
A:
Yes. Certain holders of Common Stock (R. Ramin Kamfar, James G. Babb III, Ryan S. MacDonald, Jordan B. Ruddy, Michael L. Konig (who are members of our management) and certain of their affiliated entities), solely in their capacity as our stockholders and limited partners of our operating partnership, have entered into support agreements with Parent pursuant to which the holders agreed, among other things, (i) to vote their respective covered shares other than any excess shares, in favor of the approval of the merger, (ii) to vote their respective covered shares, other than any excess shares, against any company takeover proposal and any other action that could reasonably be expected to impede, interfere with, delay, materially delay, materially postpone or adversely affect the merger or the other transactions contemplated by the merger agreement or result in a breach in any material respect of any of the covenants, representations or warranties or other obligations or agreements of us under the merger agreement, of us or Bluerock Homes under the separation documentation or of such holder under the applicable support agreement, and (iii) not to transfer their respective covered shares, in each case, subject to certain exceptions.
As of the record date, the covered shares represented approximately 11.69% of the outstanding voting power of our Common Stock after giving effect to the voting provisions relating to “Excess Shares” ​(as defined in the stockholders agreement). Under the stockholders agreement, if at any meeting of stockholders the holders of Class C Common Stock own shares of Class C Common Stock representing more than 9.9% of the voting rights of the then-outstanding Common Stock (such shares, the “excess shares”), then such holders shall vote such excess shares as directed by the board of directors. Under the merger agreement, unless the board of directors effects a company adverse recommendation change, any excess shares (which represented approximately 1.67% of the outstanding voting power of our Common Stock as of the record date) must be voted in favor of the approval of the merger. The support agreements automatically terminate upon the earlier of (i) the merger effective time and (ii) the termination of the merger agreement in accordance with its terms. See “The Merger Agreement — Support Agreements.”
Q:
Can I participate if I am unable to attend the special meeting?
A:
If you are unable to attend the meeting via the special meeting website, we encourage you to complete, sign, date and return your proxy card, or authorize your proxy or voting instructions by telephone or through the Internet.
 
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Q:
Where can I find more information about the Company?
A:
We file certain information with the SEC, which is available on the SEC’s website at www.sec.gov and on our website at www.bluerockresidential.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. You can also request copies of these documents from us. See “Where You Can Find More Information.”
Q:
Where can I find more information about Bluerock Homes?
A:
In connection with the distribution, Bluerock Homes has filed a registration statement on Form 10 with the SEC relating to the shares of Bluerock Homes common stock to be received by our common stockholders in the distribution. The effectiveness of the Form 10 is a condition to the consummation of the separation and distribution which, in turn, is a condition to the consummation of the merger. The Form 10 filed by Bluerock Homes in connection with the distribution is not incorporated by reference into this proxy statement, and you should not consider information contained in the Form 10 to be part of this proxy statement.
Q:
Who will solicit and pay the cost of soliciting proxies?
A:
We will bear the cost of solicitation of proxies for the special meeting. Our board of directors is soliciting your proxy on our behalf. In addition to the use of mail, proxies may be solicited by personal interview, telephone, fax, e-mail or otherwise, by our directors, officers and other employees. We have engaged Morrow Sodali LLC to assist in the solicitation of proxies for a fee of $20,000, plus reimbursement of out-of-pocket expenses. We also will request persons, firms and corporations holding shares of Common Stock in their names, or in the names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in so doing.
Q:
Who can help answer my other questions?
A:
If after reading this proxy statement you have more questions about the special meeting or the merger, you should contact us at:
Bluerock Residential Growth REIT, Inc.
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
Attention: Michael L. Konig, Secretary
(212) 843-1601
You may also contact Morrow Sodali LLC, our proxy solicitor, as follows:
Morrow Sodali LLC
333 Ludlow Street
Fifth Floor, South Tower
Stamford, Connecticut 06902
Toll-Free: 1-800-662-5200
If your broker holds your shares of Common Stock, you should also contact your broker for additional information.
 
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the documents that we incorporate by reference herein contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act and Section 21E of the Exchange Act). Also, documents we subsequently file with the SEC and incorporate by reference may contain forward-looking statements. These forward-looking statements include, among others, statements about the expected benefits of the merger, the separation and the distribution, the expected timing and completion of the merger, the separation and the distribution and the future business, performance and opportunities of the Company. Forward-looking statements may be identified by words such as “will,” “expect,” “believe,” “plan,” “anticipate,” “intend,” “goal,” “future,” “outlook,” “guidance,” “target,” “estimate” and similar words or expressions, including the negative version of such words and expressions. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise, and we may not be able to realize them. These forward-looking statements are based upon the Company’s present expectations, estimates and projections about the industry and markets in which the Company operates and beliefs of and assumptions made by Company management, involve numerous risks and uncertainties that could cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, and are not guaranteed to occur. Furthermore, the Company disclaims any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes. You should not place undue reliance upon these forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, the Company’s actual results and performance could differ materially from those set forth in these forward-looking statements due to numerous factors. Factors that could have a material adverse effect on our operations, future prospects, the merger, the separation or the distribution include, but are not limited to:

the potential adverse effect of the current Covid-19 pandemic on the financial condition, results of operations, cash flows and performance of the Company and 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 competitive environment in which we operate;

the use of proceeds of the Company’s securities offerings;

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;

potential defaults on or non-renewal of leases by tenants;

creditworthiness of tenants;

our ability to obtain financing for and complete acquisitions under contract under the contemplated terms, or at all;

development and acquisition risks, including rising and unanticipated costs 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 and single-family residential owners/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;
 
22

 

determinations by our board of directors 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 through the merger effective time;

litigation, including costs associated with prosecuting or defending claims and any adverse outcomes;

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;

unanticipated difficulties or expenditures relating to the merger, the separation or the distribution;

the occurrence of any event, change or other circumstance that could give rise to the termination of the merger agreement;

the failure to obtain the approval of the Company’s stockholders of the merger or the failure to satisfy any of the other conditions to the completion of the merger, the separation or the distribution;

the risk that the market does not value Bluerock Homes common stock at net asset value (“NAV”);

the failure to recognize the potential benefits of the distribution due to, among other reasons, Bluerock Homes’ lack of liquidity, small market size or inability to grow and expand revenues and earnings following the distribution;

stockholder litigation in connection with the merger, the separation or the distribution, which may affect the timing or occurrence of the merger, the separation or the distribution or result in significant costs of defense, indemnification and liability;

the effect of the announcement of the merger, the separation and the distribution on the ability of the Company to retain and hire key personnel and maintain relationships with its tenants, vendors and others with whom it does business, or on its operating results and businesses generally;

risks associated with the disruption of management’s attention from ongoing business operations due to the merger, the separation and the distribution;

the ability to meet expectations regarding the timing and completion of the merger, the separation and the distribution;

the possibility that any opinions, consents or approvals required in connection with the separation or the distribution will not be received or obtained in the expected time frame, on the expected terms or at all; and

significant transaction costs, fees, expenses and charges.
There can be no assurance that the merger, the separation, the distribution or any other transaction described above will in fact be consummated in the expected time frame, on the expected terms or at all. There can be no assurance as to the impact of Covid-19 and other potential future outbreaks of infectious diseases on the Company’s financial condition, results of operations, cash flows and performance and those of the Company’s tenants as well as on the economy and real estate and financial markets, which may impact the timing or occurrence of the merger, the separation or the distribution. While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. For a further discussion of these and other factors that could impact our future results, performance or transactions, see
 
23

 
the section entitled “Risk Factors” set forth in Item 1A of the Company’s Annual Report on Form 10-K filed by the Company with the SEC on February 23, 2021, and subsequent filings by the Company with the SEC. Any forward-looking statement speaks only as of the date on which it is made, and the Company assumes no obligation to update or revise such statement, whether as a result of new information, future events or otherwise, except as required by applicable law.
 
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PROPOSAL 1
PROPOSAL TO APPROVE THE MERGER
We are asking our common stockholders to vote on a proposal to approve the merger of Bluerock Residential Growth REIT, Inc. with and into Merger Sub.
For detailed information regarding this proposal, see the information about the merger and the merger agreement throughout this proxy statement, including the information set forth in the sections entitled “The Merger” and “The Merger Agreement.” A copy of the merger agreement is attached as Exhibit A to this proxy statement.
Approval of the proposal to approve the merger requires the affirmative vote of the holders of issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the merger. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 1, your shares of Common Stock, will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 1. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have the same effect as voting “AGAINST” the proposal to approve the merger.
Approval of this proposal is a condition to the completion of the merger. In the event that this proposal is not approved, the merger cannot be completed.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that our common stockholders vote “FOR” the proposal to approve the merger.
 
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PROPOSAL 2
PROPOSAL TO APPROVE THE MERGER-RELATED COMPENSATION
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and Rule 14a-21(c) under the Exchange Act, we are asking our common stockholders to vote at the special meeting on an advisory basis regarding the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger. Information intended to comply with Item 402(t) of Regulation S-K concerning this compensation, subject to certain assumptions described therein, is presented in “The Merger — Interests of Our Directors and Executive Officers in the Merger — Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Merger.”
The stockholder vote on executive compensation is an advisory vote only, and it is not binding on us or our board of directors. Further, the underlying arrangements are contractual in nature and not, by their terms, subject to stockholder approval. Accordingly, regardless of the outcome of the advisory vote, if the merger is completed, our named executive officers will be eligible to receive the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger, in accordance with the terms and conditions applicable to such compensation. Approval of this proposal is not a condition to the completion of the merger.
We are asking our common stockholders to vote “FOR” the following resolution:
RESOLVED, that Bluerock Residential Growth REIT, Inc.’s common stockholders approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to the named executive officers of Bluerock Residential Growth REIT, Inc. that is based on or otherwise relates to the merger, as disclosed pursuant to Item 402(t) of Regulation S-K under the heading “The Merger — Interests of Our Directors and Executive Officers in the Merger — Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Merger” beginning on page 66 (which disclosure includes the Golden Parachute Compensation Table required pursuant to Item 402(t) of Regulation S-K).
Approval of the above resolution, on a non-binding, advisory basis, requires the affirmative vote of a majority of the votes cast on the proposal. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 2, your shares of Common Stock will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 2. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.
Recommendation of the Board of Directors
Our board of directors unanimously recommends that our common stockholders vote “FOR” the proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger.
 
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PROPOSAL 3
PROPOSAL TO APPROVE ADJOURNMENT OF THE MEETING
We are asking our common stockholders to vote on a proposal to approve any adjournments of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger.
Approval of the proposal to approve any such adjournment of the special meeting requires the affirmative vote of a majority of the votes cast on the proposal. Approval of this proposal is not a condition to the completion of the merger. If you properly authorize your proxy by mail, by telephone or through the Internet, but do not indicate instructions to vote your shares of Common Stock “FOR,” “AGAINST” or “ABSTAIN” on this Proposal 3, your shares of Common Stock will be voted in accordance with the recommendation of our board of directors, which is “FOR” this Proposal 3. For the purpose of this proposal, failure to vote your shares of Common Stock (including failure to give voting instructions to your broker, bank or other nominee) and abstentions will have no effect on the proposal, assuming a quorum is present.
In addition, even if a quorum is not present at the special meeting, the chairman of the meeting may adjourn the meeting and reconvene as the chairman of the meeting or the board may determine (subject to certain restrictions in the merger agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).
Recommendation of the Board of Directors
Our board of directors unanimously recommends that our common stockholders vote “FOR” the proposal to approve any adjournment of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger.
 
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THE PARTIES TO THE MERGER
Bluerock Residential Growth REIT, Inc.
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
(212) 843-1601
We were formed as a Maryland corporation in July 2008 and elected to be taxed as a REIT under the Code, beginning with our taxable year ended December 31, 2010. We are a leading investor and asset manager of commercial real estate. Our principal business objective is to generate attractive, risk-adjusted investment returns by assembling a high-quality portfolio of apartment communities and single-family residential homes in demographically attractive growth markets and by implementing our investment strategies and our “Live/Work/Play Initiatives” to achieve sustainable long-term growth in both our core funds from operations and net asset value. The Company’s website is www.bluerockresidential.com. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this proxy statement or any other report or document we file with or furnish to the SEC. Shares of Class A Common Stock are listed on the NYSE American under the symbol “BRG.” For additional information about us and our business, please refer to “Where You Can Find More Information.”
Badger Parent LLC
c/o Blackstone Inc.
345 Park Avenue
New York, New York 10154
(212) 583-5000
Parent is a Delaware limited liability company and an affiliate of the Guarantor. Parent was formed solely for the purpose of acquiring us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. The Guarantor is an affiliate of Blackstone.
Blackstone is a global leader in real estate investing. Blackstone’s real estate business was founded in 1991 and has $279 billion of investor capital under management. Blackstone is the largest owner of commercial real estate globally, owning and operating assets across every major geography and sector, including logistics, multifamily and single-family housing, office, hospitality and retail. Blackstone’s opportunistic funds seek to acquire undermanaged, well-located assets across the world. Blackstone’s Core+ strategy comprises open-ended funds that invest in substantially stabilized real estate assets globally and Blackstone Real Estate Income Trust, Inc., a non-listed REIT that invests in U.S. income-generating assets. Blackstone Real Estate also operates one of the leading global real estate debt businesses, providing comprehensive financing solutions across the capital structure and risk spectrum, including management of Blackstone Mortgage Trust (NYSE: BXMT).
Badger Merger Sub LLC
c/o Blackstone Inc.
345 Park Avenue
New York, New York 10154
(212) 583-5000
Merger Sub is a Delaware limited liability company. Parent is the sole member of Merger Sub. Merger Sub was formed solely for purposes of facilitating Parent’s acquisition of us and has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the transactions contemplated by the merger agreement. Pursuant to the merger agreement, on the closing date, we will merge with and into Merger Sub, and Merger Sub will continue as the surviving company.
 
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About Bluerock Homes
Bluerock Homes Trust, Inc.
1345 Avenue of the Americas, 32nd Floor
New York, New York 10105
(212) 843-1601
Bluerock Homes was formed as a Maryland corporation and wholly owned subsidiary of Bluerock Residential on December 16, 2021, for the purpose of effecting, prior to the merger, the separation of certain single-family properties and other assets of Bluerock Residential from the remainder of our business, followed by a pro rata distribution to holders of Common Stock of the outstanding shares of Bluerock Homes common stock. Bluerock Homes will be an externally managed, publicly traded REIT following the distribution. The headquarters of Bluerock Homes will be located in New York, New York, at 1345 Avenue of the Americas, 32nd Floor, and its telephone number is (212) 843-1601.
 
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THE SPECIAL MEETING
Date, Time and Purpose of the Special Meeting
This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our board of directors to be exercised at a special meeting to be held on April 12, 2022, at 11:00 a.m., New York time. The special meeting will be held solely via live webcast, and there will not be a physical meeting location, given the current public health impacts of the Covid-19 pandemic and our desire to promote the health and safety of our stockholders, as well as our directors, officers, employees and other constituents.
Only holders of our Common Stock as of the close of business on the record date are entitled to receive notice of, and vote at, the special meeting via the Company special meeting website or any adjournment or postponement thereof.
If you are a holder of record, you will be able to attend the special meeting online, ask a question and vote by visiting the special meeting website at www.virtualshareholdermeeting.com/BRG2022SM. You will need to provide your 16-digit control number that is on your Notice Regarding the Availability of Proxy Materials, or on your proxy card if you received proxy materials by mail. If you hold your shares of Common Stock in “street name” and want to attend the special meeting online by webcast (with the ability to ask a question and/or vote, if you choose to do so), you must follow the instructions you receive from your broker, bank or other nominee.
The purpose of the special meeting is for you to consider and vote on the following matters:
1.
a proposal to approve the merger of the Company with and into Merger Sub, a wholly owned subsidiary of Parent, as contemplated by the Agreement and Plan of Merger, dated as of December 20, 2021, and as it may be amended from time to time, among the Company, Parent and Merger Sub;
2.
a proposal to approve, on a non-binding, advisory basis, the compensation that may be paid or become payable to our named executive officers that is based on or otherwise relates to the merger; and
3.
a proposal to approve any adjournment of the special meeting for the purpose of soliciting additional proxies if there are not sufficient votes at the special meeting to approve the merger.
Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting. The affirmative vote of the holders of issued and outstanding Common Stock entitled to cast a majority of all the votes entitled to be cast on the merger is required to approve the merger and for the merger to occur. A copy of the merger agreement is attached as Exhibit A to this proxy statement, which we encourage you to read carefully in its entirety.
Record Date, Notice and Quorum
All holders of record of our Common Stock as of the record date, which was the close of business on March 7, 2022, are entitled to receive notice of and attend and vote at the special meeting or any postponement or adjournment of the special meeting. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that such holder owned as of the record date, and will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that such holder owned as of the record date. On the record date, there were 29,260,629 shares of Class A Common Stock and 76,603 shares of Class C Common Stock outstanding and entitled to vote at the special meeting.
The presence virtually via the special meeting website or by proxy of our stockholders entitled to cast a majority of all the votes entitled to be cast at the special meeting will constitute a quorum for purposes of the special meeting. A quorum is necessary to transact business at the special meeting. Abstentions will be counted as shares present for the purposes of determining the presence of a quorum. If you fail to submit a proxy prior to the special meeting or to vote at the special meeting via the special meeting website, your
 
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shares of Common Stock will not be counted toward a quorum. If a quorum is not present at the special meeting, we expect that the special meeting will be adjourned to a later date. Under the Maryland General Corporation Law and our bylaws, the chairman of the meeting may adjourn the special meeting whether or not a quorum is present (subject to certain restrictions in the merger agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).
Required Vote
Completion of the merger requires approval of the merger by the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the merger by the holders of issued and outstanding Common Stock. Each stockholder will be entitled to cast one vote on each matter presented at the special meeting for each share of Class A Common Stock that such holder owned as of the record date, and will be entitled to cast 50 votes on each matter presented at the special meeting for each share of Class C Common Stock that such holder owned as of the record date. Because the required vote for this proposal is based on the number of votes our common stockholders are entitled to cast rather than on the number of votes cast, if you fail to vote by proxy or at the special meeting via the special meeting website (including by abstaining), or fail to instruct your broker, bank or other nominee on how to vote, such failure will have the same effect as voting against the proposal to approve the merger.
In addition, each of the proposal to approve the merger-related compensation and the proposal to approve adjournment of the meeting requires the affirmative vote of a majority of the votes cast on the proposal. Approval of these proposals is not a condition to completion of the merger. For the purpose of each of these proposals, if you fail to vote by proxy or at the special meeting via the special meeting website, or fail to instruct your broker, bank or other nominee on how to vote, it will not have any effect on the outcome of such proposals. Abstentions are not considered votes cast and therefore will have no effect on the outcome of these proposals, assuming a quorum is present.
Accordingly, in order for your Common Stock to be voted, if you are a stockholder of record, you must either return the enclosed proxy card, authorize your proxy or voting instructions by telephone or through the Internet, or vote at the special meeting via the special meeting website. The vote of the holders of shares of Preferred Stock is not required to approve any of the proposals at the special meeting and is not being solicited.
As of the record date, our directors and executive officers owned and are entitled to vote an aggregate of approximately 818,724 shares of our Class A Common Stock and approximately 72,964 shares of our Class C Common Stock, entitling them to exercise approximately 13.50% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares. Our directors and executive officers have informed us that they intend to vote the Common Stock that they own in favor of the proposal to approve the merger, in favor of the proposal to approve the merger-related compensation and in favor of the proposal to approve adjournment of the meeting. Under the stockholders agreement, if at any meeting of stockholders the holders of Class C Common Stock own shares of Class C Common Stock representing more than 9.9% of the voting rights of the then-outstanding Common Stock (such shares, the “excess shares”), then such holders shall vote such excess shares as directed by the board of directors. Under the merger agreement, unless the board of directors effects a company adverse recommendation change, any excess shares must be voted in favor of the approval of the merger. In addition, R. Ramin Kamfar, James G. Babb III, Ryan S. MacDonald, Jordan B. Ruddy, Michael L. Konig (who are members of our management) and certain of their affiliated entities, solely in their capacity as our stockholders and limited partners of our operating partnership, have entered into support agreements requiring, among other things, such persons (i) to vote their respective covered shares, other than any excess shares, in favor of the proposal to approve the merger, (ii) to vote their respective covered shares, other than any excess shares, against any company takeover proposal (as defined in “The Merger Agreement — Company Stockholders’ Meeting”) and any other action that could reasonably be expected to impede, interfere with, delay, materially delay, materially postpone or adversely affect the merger or the other transactions contemplated by the merger agreement or result in a breach in any material respect of any of the covenants, representations or warranties or other obligations or agreements of us under the merger agreement, of us or Bluerock Homes under the separation documentation or of such holder under the applicable support agreement, and (iii) not
 
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to transfer their respective covered shares, in each case, subject to certain exceptions. As of the record date, the parties to the support agreements beneficially owned approximately 773,431 shares of our Class A Common Stock and approximately 72,964 shares of our Class C Common Stock, entitling them to exercise approximately 13.36% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares. As of the record date, the parties to the support agreements, together (without duplication) with our directors and executive officers, beneficially owned approximately 72,964 shares of our Class A Common Stock and approximately 818,724 shares of our Class C Common Stock, entitling them to exercise approximately 13.50% of the voting power of our Common Stock entitled to vote at the special meeting, in each case including excess shares.
Votes cast by proxy or at the special meeting via the special meeting website will be counted by the person appointed by us to act as inspector of election for the special meeting. The inspector of election will also determine the number of shares of Common Stock represented at the special meeting, by attendance virtually via the special meeting website or by proxy.
How to Authorize a Proxy
Holders of record of our Common Stock may vote or cause their shares to be voted by proxy using one of the following methods:
1.
mark, sign, date and return the enclosed proxy card by mail;
2.
authorize your proxy or voting instructions by telephone or through the Internet by following the instructions included with your proxy card; or
3.
appear and vote at the special meeting via the special meeting website.
Regardless of whether you plan to attend the special meeting, we request that you authorize a proxy for your Common Stock as described above as promptly as possible.
Under NYSE American rules, all the proposals in this proxy statement are non-routine matters, so there can be no broker non-votes at the special meeting. A broker non-vote occurs when shares held by a bank, broker, trust or other nominee are represented at a meeting, but the bank, broker, trust or other nominee has not received voting instructions from the beneficial owner and does not have the discretion to direct the voting of the shares on a particular proposal but has discretionary voting power on other proposals at such meeting. Accordingly, if your shares are held in “street name” through a broker, bank or other nominee, you must direct your intermediary regarding how you would like your shares voted by following the voting instructions you receive from your broker, bank or other nominee; or, if you want to participate in the special meeting, you must follow the instructions you receive from your broker, bank or other nominee. Brokers, banks and other nominees do not have discretionary voting authority with respect to any of the three proposals described in this proxy statement. Because the proposal to approve the merger requires the affirmative vote of the stockholders entitled to cast a majority of all the votes entitled to be cast on the merger by the holders of issued and outstanding Common Stock, the failure to provide your bank, broker, trust or other nominee with voting instructions will have the same effect as a vote “AGAINST” the proposal to approve the merger. Because the approval of each of (1) the proposal to approve the merger-related compensation and (2) the proposal to adjourn the meeting requires the affirmative vote of a majority of the votes cast on such proposal, and because your bank, broker, trust or other nominee does not have discretionary authority to vote on either proposal, the failure to provide your bank, broker, trust or other nominee with voting instructions will have no effect on approval of either proposal, assuming a quorum is present.
Proxies and Revocation
If you authorize a proxy, your Common Stock will be voted at the special meeting as you indicate on your proxy. If no instructions are indicated when you authorize your proxy, your Common Stock will be voted in accordance with the recommendations of our board of directors. Our board of directors recommends that you vote “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the meeting.
 
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You may revoke your proxy at any time, but only before the proxy is voted at the special meeting, in any of three ways:
1.
by delivering, prior to the date of the special meeting, a written revocation of your proxy dated after the date of the proxy that is being revoked to our Secretary at 1345 Avenue of the Americas, 32nd Floor, New York, New York 10105;
2.
by delivering to our Secretary a later-dated, duly executed proxy or by authorizing your proxy by telephone or by Internet at a date after the date of the previously authorized proxy relating to the same shares of Common Stock; or
3.
by voting at the special meeting via the special meeting website.
Attendance at the special meeting will not, in itself, constitute revocation of a previously granted proxy. If you own Common Stock in “street name,” you may revoke or change previously granted voting instructions by following the instructions provided by the broker, bank or other nominee that is the registered owner of the shares.
Pursuant to the Maryland General Corporation Law and our bylaws, only the matters set forth in the Notice of Special Meeting may be brought before the special meeting.
Solicitation of Proxies
We will bear the cost of solicitation of proxies for the special meeting. In addition to the use of mail, proxies may be solicited by personal interview, telephone, fax, e-mail or otherwise, by our officers, directors and other employees, for which they will not receive additional compensation. We have engaged Morrow Sodali LLC to assist in the solicitation of proxies for a fee of $20,000, plus reimbursement of out-of-pocket expenses, and we have agreed to indemnify Morrow Sodali LLC against certain losses, costs and expenses. We also will request persons, firms and corporations holding Common Stock in their names, or in the names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials to, and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in so doing.
Adjournments
Although it is not currently expected, the special meeting may be adjourned for the purpose of soliciting additional proxies if the holders of a sufficient number of Common Stock are not present at the special meeting, via the special meeting website or by proxy, to constitute a quorum or if we believe it is reasonably likely that the merger will not be approved at the special meeting when convened on April 12, 2022, or when reconvened following any adjournment. Any adjournments may be made to a date not more than 120 days after the original record date without notice (other than by an announcement at the special meeting), by the chairman of the meeting, whether or not a quorum is present (subject to certain restrictions in the merger agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).
Postponements
At any time prior to convening the special meeting, we may postpone the special meeting for any reason without the approval of our common stockholders to a date not more than 120 days after the original record date (subject to certain restrictions in the merger agreement, including that in certain circumstances the special meeting may not be held, without Parent’s consent, on a date that is more than 30 days after the date on which the special meeting was originally scheduled).
 
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THE MERGER
General Description of the Merger
Under the terms of the merger agreement, affiliates of Blackstone will acquire the Company and its subsidiaries through the merger of the Company with and into Merger Sub. Pursuant to the terms of the merger agreement, the Company will merge with and into Merger Sub, with Merger Sub continuing as the surviving company.
Background of the Merger
Our management and board of directors regularly review our performance and prospects in light of the current business, economic, capital markets and real estate environments, as well as developments in the multi-family and single-family residential real estate businesses and the opportunities and challenges facing participants in those businesses. These reviews have included consideration, from time to time, of potential strategic alternatives that could, taking into account market cycles and the level of investor demand for asset classes represented in our portfolio, enhance and realize the value of our portfolio for our stockholders, including potential acquisitions, dispositions, joint ventures and business combination transactions, as well as remaining an independent standalone company. In connection with these reviews, our management from time to time evaluates the properties in our portfolio, individually and collectively, and opportunities to enhance and realize the value of such properties for our stockholders. Our board of directors and management have also considered the potential benefits that might result from enabling greater strategic and management focus within our single-family residential real estate business by separating it from our multi-family residential real estate business and spinning it off to our stockholders as a standalone public company, which would also provide an opportunity for stockholders to invest only in our single-family residential business.
On July 27, 2021, the board of directors held a meeting which was attended by management and representatives of Wachtell, Lipton, Rosen & Katz, outside legal counsel to the Company (“Wachtell Lipton”), and KVCF, PLC, outside legal counsel to the Company (“KVCF”). During this meeting, the board of directors, with the assistance of management, reviewed our business performance and outlook in light of general market conditions and considered opportunities and risks in our multi-family and single-family residential real estate businesses. The directors discussed, among other matters, management’s assessment that the accumulation of available equity capital for stabilized multi-family residential real estate assets resulting in low capitalization rates for those assets, strong revenue fundamentals in the multi-family residential real estate market in the sunbelt region, increasing supply of multi-family residential real estate assets, as well as the possibility of interest rate increases in the future, coupled with improvements in the outlook for the single-family residential real estate market and opportunities for margin improvement and value creation in the Company’s portfolio of single-family residential real estate assets, presented an opportune environment for the Company to explore a potential strategic transaction involving the sale of our portfolio of multi-family residential real estate. The directors discussed with management and our advisors the advantages and disadvantages of potential transaction structures, including with respect to tax efficiency and the allocation of risk, and that a transaction involving a sale of our portfolio of multi-family residential real estate assets and a spin-off to our stockholders of our portfolio of single-family residential real estate assets offered several advantages relative to alternative transaction structures. R. Ramin Kamfar, our chief executive officer and chairman of our board of directors, conveyed management’s belief, which the board of directors agreed with, that it would be in the best interest of the Company and our stockholders for the board of directors to receive the assistance of one or more financial advisors to assess and pursue potential strategic opportunities, including a sale of our portfolio of multi-family residential real estate assets and a spin-off to our stockholders of our portfolio of single-family residential real estate assets, and the board of directors discussed potential financial advisors. The Company later selected Morgan Stanley, Eastdil Secured Advisors LLC (“Eastdil”) and BofA Securities, Inc. (“Bank of America”), based on their qualifications, expertise and reputation in our sector, and their knowledge of the business and affairs of the Company and of potential counterparties, to serve as our financial advisors in connection with a potential strategic transaction.
Following the July 27, 2021 meeting of the board of directors, the Company, at the direction of the board of directors and with the assistance of its advisors, confirmed the optimal transaction structure and
 
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designed a process for the sale of our portfolio of multi-family residential real estate assets and a spin-off to our stockholders of our portfolio of single-family residential real estate assets. Throughout August and continuing through the first week of September 2021, the Company began to prepare for outreach to potential transaction counterparties after Labor Day 2021 and to assemble due diligence information that could be made available to potential transaction counterparties. Also during this period, the Company began to consider retaining additional advisors to assess and opine on aspects of the potential separation transaction, including the external management of Bluerock Homes. The Company, at the direction of the board of directors, later in the process selected Duff & Phelps to provide advice with respect to the separation and the distribution, including the Exchange, and Stanger to provide advice with respect to terms of a Management Agreement to be entered into by Bluerock Homes and an external manager that would be owned by certain members of the Company’s management (the “Manager”). The Company selected Duff & Phelps and Stanger based on their qualifications, expertise and reputation, and their knowledge of the business and affairs of the Company.
Over the course of the period between September 8, 2021, and September 16, 2021, representatives of Morgan Stanley and Eastdil, at the Company’s direction, contacted 16 parties identified by the Company, Morgan Stanley and Eastdil as potentially having an interest in a potential transaction with the Company, including Blackstone on September 9, 2021.
On September 14, 2021, the Company received a written indication of interest from a third party (“Party A”) setting forth the terms of an unsolicited, non-binding offer to acquire 100% of the outstanding equity of the Company in an all-cash transaction at a price of $13.89 per share.
On September 16, 2021, Bloomberg reported that the Company was evaluating strategic alternatives (the “September 16 Bloomberg article”). Thereafter, 38 additional parties contacted the Company, Morgan Stanley or Eastdil regarding a potential transaction. The Company and our financial advisors invited all such parties to enter into non-disclosure agreements. Of the 55 total parties (including Party A), 28 executed non-disclosure agreements with the Company.
On September 20, 2021, the board of directors held a meeting, with representatives of Wachtell Lipton and KVCF in attendance. The directors discussed the latest developments in our assessment of a potential strategic transaction. The board of directors also discussed the written indication of interest received from Party A. The board of directors determined to instruct Morgan Stanley to invite Party A to participate in the strategic transaction process, which would involve Party A entering into a non-disclosure agreement and conducting due diligence, in order to allow Party A to submit a more attractive proposal.
During the last week of September and continuing through the first half of November 2021, the potential transaction counterparties that had executed non-disclosure agreements received access to a virtual data room containing information regarding our multi-family residential real estate portfolio and were able to conduct due diligence, including through telephone calls and videoconferences with our management and our advisors.
On October 18, 2021, at the Company’s direction, representatives of Morgan Stanley and Eastdil provided a process letter (the “October 18 process letter”) to the 28 potential transaction counterparties that had executed non-disclosure agreements, which letter invited such parties to submit, no later than November 9, 2021, non-binding indications of interest regarding a transaction to acquire the Company. The October 18 process letter indicated that the Company, at the time of sale, would consist of only our interest in our 30 multi-family residential real estate operating assets and mezzanine and preferred investments in 25 multi-family residential real estate assets.
On November 2, 2021, the board of directors held a meeting to discuss various matters and received an update from representatives of management regarding the potential strategic transaction process, including with respect to the potential transaction counterparties that had executed non-disclosure agreements and their due diligence activity to date.
Over the course of November 9, 2021, and November 10, 2021, 10 potential transaction counterparties submitted non-binding indications of interest for our multi-family residential real estate portfolio. The initial indications of interest contemplated gross asset values between $2.6 billion and $3.5 billion for the assets that the Company would own at the time of the potential transaction. Of the 10 proposals received from
 
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potential transaction counterparties, the four highest contemplated gross asset valuations of at least $3.2 billion: one potential transaction counterparty (“Party B”) proposed a $3.5 billion gross asset valuation of the assets proposed to be sold in the potential transaction, while Blackstone and another potential transaction counterparty (“Party C”) each proposed a $3.4 billion gross asset valuation, and another potential transaction counterparty (“Party D”) proposed a $3.2 billion gross asset valuation. Party A submitted a proposal that contemplated a $2.9 billion gross asset value. No potential transaction counterparty expressed interest in any of our assets other than the multi-family residential real estate portfolio.
Following the submission of the initial non-binding indications of interest, the Company and representatives of Morgan Stanley and Eastdil considered how to continue the process. The Company, in consultation with Morgan Stanley and Eastdil, believed that, subject to approval by the board of directors, the optimal path forward was to invite the four highest bidders into the second round of the process, and inform the remaining parties that submitted indications of interest that they would have to increase the value of their proposals in order to participate in the next round of bidding. On November 16, 2021, the Company directed representatives of Morgan Stanley and Eastdil to invite, subject to the approval of the board of directors, each of Blackstone and Parties B, C and D to participate in a second phase of due diligence and thereafter to submit a best and final proposal, including the price per share of Common Stock, at which such party would be willing to acquire the Company at a time when it would consist only of our multi-family residential real estate portfolio. Each such party was requested to submit, no later than December 6, 2021, a mark-up of a draft merger agreement to be provided to each such party, and to submit its best and final proposal no later than December 15, 2021. All potential transaction counterparties that submitted initial indications of interest other than Blackstone and Parties B, C and D were advised by representatives of Morgan Stanley and Eastdil, on behalf of the Company, that they would have to increase the value of their proposals in order to participate in the next round of bidding. None of these other parties increased the value of their proposals.
On November 18, 2021, the board of directors met to discuss the status of the strategic transaction process, with representatives of management and representatives of Morgan Stanley, Eastdil, Wachtell Lipton and KVCF in attendance. During the meeting, representatives of Morgan Stanley and Eastdil presented an overview of the initial indications of interest and the plan proposed by the Company in consultation with its advisors to advance the four highest bidders to the second round of the process and invite others to improve their proposals in order to remain in the process. Representatives of Wachtell Lipton reviewed with the directors their duties in connection with their consideration of potential strategic alternatives for the Company. Following the presentations from our advisors and discussion among the directors, the board of directors directed our management and financial advisors to continue to engage with each of Blackstone and Parties B, C and D in order to be in a position, following the receipt of best and final proposals on December 15, 2021, to expeditiously enter into definitive transaction documentation with one of such parties if the Company were to receive an acceptable proposal.
During the course of November 18, 2021, and November 19, 2021, management and representatives of Morgan Stanley, Eastdil and Wachtell Lipton held separate videoconferences with Blackstone, Party C and Party D in order to discuss the transaction structure and the process by which the Bluerock Homes Business would be separated from the remainder of our business. Party B scheduled a videoconference with management and its advisors, to be held on November 22, 2021, in order to receive an overview of the proposed transaction structure and the process by which the Bluerock Homes Business would be separated from the remainder of our business, but subsequently cancelled the meeting and did not reschedule.
Also on November 19, 2021, a draft merger agreement was provided to Blackstone and Parties B, C and D in the virtual data room. The proposed draft of the merger agreement provided for, among other things: (1) the separation of the Bluerock Homes Business from our multi-family residential real estate business and the distribution of shares of Bluerock Homes common stock to our stockholders as contemplated by separation principles that would be attached to the merger agreement, (2) an outside date of nine months from the date of the agreement, after which date the merger agreement would be terminable by either party if the potential transaction had not yet been completed, (3) a termination fee equal to 3.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by the Company upon a termination of the merger agreement under certain circumstances, (4) a reverse termination fee equal to 10.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by
 
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the purchaser upon a termination of the merger agreement under certain circumstances and (5) the right of the Company to continue to pay, during the pendency of the merger, a quarterly cash dividend to holders of Common Stock not in excess of $0.17 per share per quarter.
On November 23, 2021, and November 24, 2021, respectively, Party B and Party D separately indicated to representatives of Morgan Stanley and Eastdil that they would not be prepared to provide an actionable proposal on December 15, 2021, and that they each were uncertain about their ability to make such a proposal even with a greater amount of time. Party B and Party D were each advised by representatives of Morgan Stanley and Eastdil that, although the Company did not presently intend to extend the deadline for the submission of proposals, each such party should continue to perform due diligence. However, both Party B and Party D ceased their due diligence activity in the virtual data room and did not thereafter contact the Company or our advisors with respect to a potential transaction.
Throughout the second half of November and the first half of December 2021, Blackstone and Party C, with the assistance of their advisors, conducted additional due diligence with respect to the Company and its multi-family residential real estate portfolio and discussed the structure of the potential transaction, including through telephone calls and videoconferences with our management and our advisors, including Morgan Stanley, Eastdil, Wachtell Lipton, KVCF and Vinson & Elkins LLP, tax counsel to the Company, as well as due diligence site visits at certain properties within our multi-family residential real estate portfolio. In these discussions, representatives of Morgan Stanley, Eastdil and Wachtell Lipton communicated to each of Blackstone and Party C that they were not the only potential transaction counterparty that had submitted a compelling initial indication of interest, and that any final proposals submitted by such parties should take into account this competitive dynamic, including with respect to purchase price and contract terms.
On November 27, 2021, representatives of Morgan Stanley and Eastdil, at the Company’s direction, provided a draft of the separation principles to each of Blackstone and Party C. The draft of the separation principles provided for, among other things, a target cash level for the Company (after giving effect to separation of the Bluerock Homes Business) at the closing of the merger, with all cash above that amount to be contributed to the Bluerock Homes Business.
On December 1, 2021, representatives of Party C delivered a revised draft of the merger agreement to representatives of Wachtell Lipton, ahead of the December 6 deadline for comments to the merger agreement. Among other terms, the revised draft of the merger agreement submitted by Party C provided for, among other things: (1) an outside date of six months from the date of the agreement, after which date the merger agreement would be terminable by either party if the potential transaction had not yet been completed, (2) a termination fee equal to 4.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by the Company upon a termination of the merger agreement under certain circumstances, (3) reimbursement by the Company of Party C’s out-of-pocket expenses incurred in connection with the transaction in the event of a termination of the merger agreement under certain circumstances, (4) a reverse termination fee equal to 10.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by Party C upon a termination of the merger agreement under certain circumstances and (5) the right of the Company to pay, during the pendency of the merger, up to two quarterly cash dividends to holders of Common Stock, not in excess of $0.1625 per share per quarter. The revised draft of the merger agreement did not include a financing contingency.
Thereafter, between December 1, 2021, and December 6, 2021, representatives of Wachtell Lipton exchanged drafts of the transaction documentation and discussed various terms thereof with representatives of Party C with a view towards improving the terms of Party C’s final proposal. Among other things, Party C was informed numerous times that the outside date, and its impact on the certainty of closing given the potential timeline to consummate the separation and the distribution, was a critical factor on which best and final proposals would be evaluated.
On December 6, 2021, representatives of Morgan Stanley, on behalf of the Company, informed Blackstone that the Company had already been negotiating transaction documentation with at least one other potential transaction party and that Blackstone should assume that, by the December 6, 2021 deadline, the Company would have received at least one merger agreement that were substantially acceptable to the Company from a potential transaction counterparty whose initial indications of interest was at or above the valuation of the multi-family residential real estate portfolio proposed by Blackstone in its initial indication of interest.
 
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On December 6, 2021, representatives of Wachtell Lipton delivered a revised draft of the merger agreement to representatives of Party C that provided for, among other things: (1) an outside date of six months from the date of the agreement, which would be extended to nine months from the date of the agreement in certain circumstances that would render the distribution unable to be completed within six months, (2) a termination fee equal to 4.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by the Company upon a termination of the merger agreement under certain circumstances, (3) reimbursement by the Company of Party C’s out-of-pocket expenses incurred in connection with the transaction in the event of a termination of the merger agreement under certain circumstances, subject to a maximum reimbursement of 0.5% of the Company’s equity value implied by the transaction, including Preferred Stock, which reimbursement would be credited against any termination fee that became payable, (4) a reverse termination fee equal to 10.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by Party C upon a termination of the merger agreement under certain circumstances and (5) the right of the Company to pay, during the pendency of the merger, up to three quarterly cash dividends to holders of Common Stock, not in excess of $0.1625 per share per quarter.
Representatives of Party C characterized the revised draft of the merger agreement as substantially acceptable to Party C, subject to any revisions from lenders providing financing to Party C in connection with a potential transaction.
Also on December 6, 2021, representatives of Simpson Thacher & Bartlett LLP, counsel to Blackstone (“Simpson Thacher”), delivered a revised draft of the merger agreement to representatives of Wachtell Lipton. The revised draft of the merger agreement provided for, among other things: (1) an outside date of nine months from the date of the agreement that could be extended by Blackstone for an additional three months in the event that all conditions to closing had been satisfied other than the completion of the separation and the distribution, (2) a termination fee equal to 3.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by the Company upon a termination of the merger agreement under certain circumstances, (3) a reverse termination fee equal to 10.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by Blackstone upon a termination of the merger agreement under certain circumstances and (4) the right of the Company to pay, during the pendency of the merger, a quarterly cash dividend to holders of Common Stock in December 2021 and for the first two fiscal quarters of 2022, not in excess of $0.1625 per share per quarter. The revised draft of the merger agreement did not include a financing contingency, but provided that the Company would not have a right to specific performance to require Blackstone to complete the merger. The revised draft of the merger agreement also indicated that Blackstone would expect to receive support agreements from holders of our Class C common stock, including from Mr. Kamfar, our chairman and chief executive officer. Under the stockholders agreement, dated October 31, 2017 among us and the stockholders party thereto (the “stockholders agreement”), if at any meeting of stockholders such holders own shares of Class C Common Stock representing more than 9.9% of the voting rights of our then-outstanding common stock, then such holders must vote such excess shares as directed by the board of directors. The revised draft of the merger agreement also provided that unless the board of directors effected a company adverse recommendation change, any such excess shares would be required to be voted in favor of the approval of the merger.
Representatives of Simpson Thacher also delivered on December 6, 2021, a revised draft of the separation principles to representatives of Wachtell Lipton. The revised draft of the separation principles provided for, among other things, a target cash level for the Bluerock Homes Business at the closing of the merger, with cash in excess of such amount to be retained by the Company.
Thereafter, representatives of Wachtell Lipton discussed various terms of the draft merger agreement and other transaction documents with representatives of Simpson Thacher.
On December 10, 2021, representatives of Simpson Thacher provided to representatives of Wachtell Lipton a draft form of support agreement to be executed by holders of our Class C common stock.
On December 14, 2021, Party C submitted a revised draft of the merger agreement reflecting comments from the lenders providing financing to Party C in connection with a potential transaction, along with revised drafts of the separation principles, equity commitment letter and limited guarantee. Among other revisions,
 
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the revised draft of the merger agreement submitted by Party C provided for: (1) an outside date of six months from the date of the agreement, without the possibility of an extension to nine months from the date of the agreement and (2) the right of the Company to pay, during the pendency of the merger, up to two, but not three, quarterly cash dividends to holders of Common Stock, not in excess of $0.1625 per share per quarter.
On December 15, 2021, Party C submitted a proposal to acquire the Company (after the separation and distribution of the Bluerock Homes Business) for $22.22 in cash per share of Common Stock, reflecting a gross asset value of $3.5 billion. Party C did not alter its position that the merger agreement should provide for a six month outside date.
On December 15, 2021, Blackstone submitted a written proposal to acquire the Company for $23.25 in cash per share of Common Stock. In its letter, Blackstone noted that it had sufficient fully discretionary equity capital to complete the acquisition of the Company without any partners, and also indicated that it had completed all of its due diligence and was prepared to sign binding definitive documentation as soon as possible. Blackstone included with its written proposal revised drafts of the merger agreement and the separation principles. The revised draft of the merger agreement provided for, among other things: (1) an outside date of nine months from the date of the agreement, which could be extended in certain circumstances by the Company to up to 10 months, and by Blackstone to up to 12 months from the date of the merger agreement, (2) a termination fee equal to 3.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by the Company upon a termination of the merger agreement under certain circumstances, (3) a reverse termination fee equal to 10.0% of the Company’s equity value implied by the transaction, including Preferred Stock, payable by Blackstone upon a termination of the merger agreement under certain circumstances and (4) the right of the Company to pay, during the pendency of the merger, a quarterly cash dividend to holders of Common Stock in December 2021 and for the first two fiscal quarters of 2022, not in excess of $0.1625 per share per quarter.
Following submission of Blackstone’s proposal, representatives of Morgan Stanley, on behalf of the Company, contacted representatives of Blackstone to encourage Blackstone to increase its bid. Blackstone thereafter engaged in multiple discussions with representatives of Morgan Stanley which culminated in Blackstone’s oral submission on December 15, 2021, which was confirmed in writing on the morning of December 16, 2021, of a proposal to acquire the Company (after the separation and distribution of the Bluerock Homes Business) for $24.25 in cash per share of Common Stock.
On December 16, 2021, the board of directors held a special meeting to review and consider the proposals submitted by Blackstone and Party C, which meeting was attended by representatives of Morgan Stanley, Wachtell Lipton, KVCF, Duff & Phelps and Stanger. Representatives of Morgan Stanley presented their preliminary valuation analyses of the Company, and representatives of Morgan Stanley and Wachtell Lipton reviewed the terms of the proposals and draft merger agreements and other transaction documents submitted by Blackstone and Party C, each of which provided for an acquisition of the Company, after the distribution of shares of Bluerock Homes common stock to our common stockholders, at a significant premium to the unaffected closing price of $10.85 on September 15, 2021, the last day prior to the September 16 Bloomberg article reporting that the Company was considering strategic alternatives. The directors, management and our advisors discussed Blackstone’s experience in acquiring real estate assets and its substantial available capital, as well as Blackstone’s willingness to provide for an outside date that could be extended by the Company to up to 10 months after execution of the merger agreement in order to accommodate the potential timeline to consummate the separation and distribution. The directors, management and our advisors also considered that the draft merger agreement submitted by Blackstone did not entitle the Company to specifically enforce the merger agreement or the equity commitment letter, and that the Company’s exclusive remedy would be limited to a $200 million reverse termination fee payable by Parent in certain circumstances (the payment of which would be guaranteed by Blackstone Real Estate Partners IX L.P.), as well as Blackstone’s track record of completing REIT acquisitions. The directors, management and the advisors compared Blackstone’s proposal to Party C’s lower per-share offer, and also considered the uncertainties in the financing plan proposed by Party C, as well as its proposal for an outside date of six months from the date of the merger agreement, which the board of directors believed increased the risk of not closing. The board of directors also considered the number of potential transaction counterparties that expressed an interest in a transaction involving our multi-family residential real estate
 
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portfolio and participated in the transaction process, but that only Blackstone indicated it would be able to acquire the Company on terms that would be acceptable to the Company. Representatives of Wachtell Lipton reviewed the structure of the proposed transaction and the steps to be taken to consummate the separation and the distribution, including the operating partnership’s distribution of its interests in the New LP holding our multi-family residential real estate business to the Company as consideration for a redemption of the Redeemed Units in the Exchange, followed by a contribution of the Company’s remaining interest in the operating partnership to Bluerock Homes prior to the distribution. The directors, management and our advisors also discussed the treatment of management and their interests in the proposed transaction, including the Exchange, which will result in an increase in the ownership of the Bluerock Homes Business by holders of operating partnership interests (other than Bluerock Homes), and management’s commitment to our single-family residential real estate business through their commitments not to redeem their operating partnership interests, as well as management’s ownership of the Manager proposed to enter into the Management Agreement with Bluerock Homes. The board of directors then received a presentation from Duff & Phelps regarding the proposed terms of the Exchange and a presentation from Stanger regarding the proposed terms of the Management Agreement between Bluerock Homes and its Manager. After deliberation, the board of directors determined that Blackstone was the potential acquirer that was likely to offer the greatest value and the greatest certainty of closing and that the Company should pursue the potential transaction with Blackstone but continue to improve the terms of the merger agreement and other transaction documents.
Over the course of the following days, representatives of Wachtell Lipton and Simpson Thacher negotiated the remaining unresolved terms in the merger agreement and other transaction documents.
On December 18, 2021, Party C submitted a revised proposal, increasing its proposed purchase price to $23.00 in cash per share of Common Stock. Party C did not offer any extension to the six-month outside date contemplated by its revised draft of the merger agreement submitted on December 14, 2021. Party C also explained that it would require until the end of December 2021 in order to be in a position to enter into a merger agreement and announce a transaction.
On the afternoon of December 19, 2021, the board of directors held a special meeting during which management and representatives of Morgan Stanley and Wachtell Lipton reviewed the history of the transaction process, negotiations with Blackstone and Party C and the terms of Blackstone’s proposal. Representatives of Eastdil, Bank of America, KVCF and Duff & Phelps were also in attendance. Representatives of Morgan Stanley provided an updated financial presentation regarding the final proposal from Blackstone and a valuation analysis of the Company and then delivered to the board of directors Morgan Stanley’s oral opinion, subsequently confirmed in writing, that, as of the date of such opinion and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the Consideration to be received by the holders of shares of Common Stock pursuant to the merger agreement is fair from a financial point of view to such holders of shares of Common Stock. Prior to the meeting, the directors were provided with a relationship disclosure letter from Morgan Stanley, Eastdil, Bank of America, Duff & Phelps and Stanger, and, at the meeting, representatives of Wachtell Lipton reviewed with the directors the relationship disclosure letters. The directors also received, prior to the meeting, the Duff & Phelps Opinion and the Stanger Opinion. At the meeting, representatives of Wachtell Lipton reviewed with the directors their duties in connection with their consideration and potential approval of the transaction with Blackstone. Following discussion, the board of directors unanimously determined and declared the transactions contemplated by the merger agreement, including the merger, to be advisable and in the best interests of the Company and our stockholders and approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, and resolved to recommend that the holders of Common Stock approve the merger. In addition, the board of directors and management discussed our communications plan with respect to the proposed transaction with Blackstone and reviewed a draft press release to be issued in connection with the transaction.
The parties finalized and executed the merger agreement and the other transaction documents early in the morning of December 20, 2021. Thereafter, later in the morning of December 20, 2021, the parties issued a press release announcing the transaction.
 
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Reasons for the Merger
In reaching its decision to determine and declare the transactions contemplated by the merger agreement, including the merger, to be advisable and in the best interests of the Company and our stockholders and to approve the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, and to resolve to recommend that the holders of Common Stock approve the merger, the board of directors consulted with our senior management team, as well as our financial and legal advisors, and considered a number of factors, including the following material factors which the board of directors viewed as supporting its decision:

the current and historical trading prices of shares of Common Stock, and the fact that the merger consideration of $24.25 per share in cash (without taking into account the value of the shares of Bluerock Homes to be received by holders of Common Stock in the distribution) represents a premium of approximately 124% to the unaffected closing price of $10.85 on September 15, 2021, the last day prior to the September 16 Bloomberg article reporting that the Company was considering strategic alternatives;

the course and history of competitive negotiations between the Company and the potential transaction counterparties, including Party C and Blackstone, and the belief of the board of directors that it had obtained Blackstone’s best and final offer and that it was unlikely that any other party would be willing to transact at a higher valuation;

the fact that Party C’s highest bid was $23.00 per share and that Party C’s proposal provided for a six month outside date;

the process conducted by the Company, including the fact that the Company or our advisors contacted or were contacted by 55 potential transaction counterparties, including following the September 16 Bloomberg article reporting that the Company was evaluating strategic alternatives, and that a total of 28 parties executed non-disclosure agreements with the Company in order to conduct due diligence;

the fact that no potential transaction counterparty that submitted an initial indication of interest (other than Party A in its initial unsolicited proposal prior to Party A’s participation in the process), expressed any interest in any of our assets other than the multi-family residential real estate portfolio;

the fact that all potential transaction counterparties that submitted initial indications of interests, other than the four highest bidders, whose proposals exceeded $3.2 billion in gross asset value and who advanced to the final round of diligence and proposals, were advised by representatives of Morgan Stanley and Eastdil, on behalf of the Company, that they would have to increase the value of their proposals in order to participate in the next round of bidding, and that no such parties increased the value of their proposals;

the fact that, in late November 2021, each of Party B and Party D indicated that it was uncertain about its ability to make a best and final proposal prior to the December 15, 2021 deadline for the submission of proposals, or even with a greater amount of time, and the fact that, while Party B and D were advised by representatives of Morgan Stanley and Eastdil, on behalf of the Company, that, although the Company did not intend to delay the deadline, each such party should continue to perform due diligence, both Party B and Party D subsequently ceased their due diligence activity in the virtual data room and did not thereafter contact the Company or our advisors with respect to a potential transaction;

the belief of the board of directors that further extending the deadline for best and final proposals or otherwise soliciting other potential buyers could jeopardize the availability of Blackstone’s proposal and would not yield proposals of greater value or with increased certainty to closing;

our right under the merger agreement, in response to unsolicited acquisition proposals, to furnish information to and conduct negotiations with third parties in certain circumstances;

the right of the board of directors, under the merger agreement, to change, withhold, qualify or withdraw its recommendation that the holders of Common Stock approve the merger under certain
 
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circumstances, subject to payment of a termination fee if Parent elects to terminate the merger agreement in such circumstances;

our right to terminate the merger agreement, under certain circumstances, in order to enter into a definitive agreement providing for the implementation of a superior proposal if the board of directors determines in good faith, after consultation with our independent financial advisors and outside legal counsel and after consideration of any revisions to the terms of the merger agreement proposed in writing by Parent, that the superior proposal continues to constitute a superior proposal, upon payment of a termination fee;

the fact that the $60 million termination fee payable by us in certain circumstances (representing approximately 3.0% of the Company’s equity value and 1.7% of its enterprise value, in each case, based on the merger consideration) was viewed by our board of directors, after consultation with our legal and financial advisors, as reasonable and not likely to preclude any other party from making a competing acquisition proposal;

the fact that the merger consideration is a fixed cash amount, providing our stockholders with certainty of value and liquidity immediately upon the closing of the merger, in comparison to the risks, uncertainties and longer potential timeline for realizing equivalent value from our business plan for our multi-family residential real estate assets or other possible strategic alternatives;

the fact that holders of Common Stock will also receive shares of Bluerock Homes common stock in the distribution, enabling holders of Common Stock to continue to participate in value creation in our portfolio of single-family residential real estate assets, and the belief of the board of directors, following review and consideration of our business plan and the prospects of Bluerock Homes on a standalone basis, that the combined value of the merger consideration and the shares of Bluerock Homes common stock that stockholders will receive in the distribution represents the best available opportunity for the Company;

the opportunity for investors, including holders of Common Stock, to evaluate the Bluerock Homes Business independently of our multi-family residential real estate business and better assess the distinctive merits, performance and future prospects of the Bluerock Homes Business, and to better control their asset allocation decisions;

the fact that Bluerock Homes will have a distinct business strategy focused on our single-family residential real estate properties and the opportunity for its experienced management team to focus on the Bluerock Homes Business and its growth strategy;

management’s commitment to our single-family residential real estate business through the interests of members of management in the operating partnership and their commitments not to redeem their operating partnership interests, making more of the cash consideration available to our stockholders;

the fact that Bluerock Homes would be externally managed, including that the Manager will bear certain expenses that would otherwise be borne by Bluerock Homes;

the knowledge of the board of directors of the business, operations, financial condition, earnings and prospects of the Company, including its multi-family and single-family residential businesses, as well as its knowledge of the current and prospective environment in which the Company and each of its businesses operates, including economic and market conditions;

the accumulation of available equity capital for stabilized multi-family residential real estate assets resulting in low capitalization rates for those assets, strong revenue fundamentals in the multi-family residential real estate market in the sunbelt region, increasing supply of multi-family residential real estate assets, as well as the possibility of interest rate increases in the future, which the board of directors and management believed made for opportune conditions for a sale of our multifamily assets;

the risks and uncertainties of remaining a public company owner of our multi-family residential real estate portfolio, including the relatively high discount to NAV in the trading price of shares of Common Stock as compared to that of other public companies in the multi-family residential real estate business;
 
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the belief that the transactions contemplated by the merger agreement are more favorable to our stockholders than other strategic alternatives available to the Company, including after considering the feasibility of such alternatives and the significant risks and uncertainties associated with pursuing such alternatives;

the expected probability that the merger would be completed based on, among other things, Blackstone’s substantial available capital, proven ability to complete large acquisition transactions, extensive experience in the real estate industry, the absence of a financing condition and the $200 million reverse termination fee payable to the Company if the merger agreement is terminated in certain circumstances (representing approximately 10.0% of the Company’s equity value and 5.6% of its enterprise value, in each case, based on the merger consideration), which payment is guaranteed by Blackstone Real Estate Partners IX L.P.;

the financial analysis of Morgan Stanley reviewed and discussed with the board of directors, and its oral opinion, subsequently confirmed in writing, that, as of the date of such opinion and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the Consideration to be received by the holders of shares of Common Stock pursuant to the merger agreement is fair from a financial point of view to such holders of shares of Common Stock (see “— Opinions of Our Financial Advisors — Opinion of Morgan Stanley & Co. LLC”);

the financial analysis of Duff & Phelps with respect to the terms of the Exchange and the opinion of Duff & Phelps that, as of the date of such opinion and subject to and based on the assumptions made therein, the exchange consideration to be paid by the Company in the Exchange is fair, from a financial point of view, to the Company (see “— Opinions of Our Financial Advisors — Opinion of Duff & Phelps, A Kroll Business Operating as Kroll, LLC”);

the financial analysis of Stanger with respect to the terms of the Management Agreement and the opinion of Stanger that, as of the date of such opinion, based upon its analysis and the assumptions, qualifications and limitations cited therein, and in reliance thereon, that as of the date of such opinion the terms of the Management Agreement are fair to Bluerock Homes, from a financial point of view (see “— Opinions of Our Financial Advisors — Opinion of Robert A. Stanger & Company, Inc.”);

the terms and conditions of the merger agreement, which were reviewed by the board of directors with our financial and legal advisors, and the fact that such terms were the product of arm’s-length negotiations between the parties; and

the fact that the merger would be subject to the approval of our stockholders, and our stockholders would be free to reject the merger by voting against the merger for any reason, including if a higher offer were to be made prior to the stockholders’ meeting (in certain cases subject to payment by the Company of a $60 million termination fee if the Company subsequently were to enter into a definitive agreement relating to, or to consummate, an acquisition proposal).
The board of directors also considered the following potentially negative factors in its consideration of the merger agreement and the merger:

our inability to solicit competing acquisition proposals and the possibility that the $60 million termination fee payable by us upon the termination of the merger agreement under certain circumstances could discourage other potential bidders from making a competing bid to acquire us;

the fact that the merger might not be consummated in a timely manner or at all, due to a failure of certain conditions to the closing of the merger, including the risk that our stockholders do not approve the merger proposal;

the fact that if either of Parent or Merger Sub fails, or threatens to fail, to satisfy its obligations under the merger agreement, we are not entitled to specifically enforce the merger agreement or the equity commitment letter, and that our exclusive remedy, available if the merger agreement is terminated in certain circumstances, would be limited to a reverse termination fee payable by Parent in the amount of $200 million (the payment of which is guaranteed by Blackstone Real Estate Partners IX L.P.);
 
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the restrictions on the conduct of our business prior to the completion of the merger, which could delay or prevent us from undertaking business opportunities that may arise pending completion of the merger;

the fact that, under the terms of the merger agreement, the Company is not permitted to make, declare or pay regular quarterly cash dividends on Common Stock for fiscal quarters after the fiscal quarter ending June 30, 2022;

the fact that the receipt of the cash merger consideration in the merger and the receipt of common stock of Bluerock Homes in the distribution would be taxable to our stockholders for U.S. federal income tax purposes;

the fact that it may not be possible to accurately estimate the value of Bluerock Homes common stock in advance of an active trading market for it, and the risk that equity markets do not value Bluerock Homes common stock at or near its net asset value;

the fact that, under Maryland law and our charter, our stockholders are not entitled to appraisal rights, dissenters’ rights or similar rights of an objecting stockholder in connection with the merger;

the significant costs involved in connection with entering into the merger agreement and completing the transactions contemplated by the merger agreement and the substantial time and effort of management required to consummate the transactions contemplated by the merger agreement and related disruptions to the operation of our business;

the fact that the announcement and pendency of the transactions contemplated by the merger agreement, the failure to complete the merger, and/or actions that the Company may be required, or Parent may be permitted, to take under the merger agreement could have an adverse impact on our existing and prospective business relationships with tenants and other third parties and on our employees; and

the fact that some of our directors and executive officers have interests in the merger that are different from, or in addition to, our stockholders generally (see “— Interests of Our Directors and Executive Officers in the Merger”).
The foregoing discussion of the factors considered by the board of directors is not intended to be exhaustive, but rather includes the material factors considered by the board of directors. In reaching its decision to determine and declare the transactions contemplated by the merger agreement, including the merger, to be advisable and in the best interests of the Company and our stockholders and to approve the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, and to resolve to recommend that the holders of Common Stock approve the merger, the board of directors did not quantify or assign any relative weights to, and did not make specific assessments of, the factors considered, and individual directors may have given different weights to different factors. The board of directors did not reach any specific conclusion with respect to any of the factors or reasons considered.
The above factors are not presented in any order of priority. The explanation of the factors and reasoning set forth above contain forward-looking statements and should be read in conjunction with the section of this proxy statement entitled “Cautionary Statement Regarding Forward-Looking Statements.”
Recommendation of Our Board of Directors
Our board of directors unanimously determined and declared that the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of the Company and its stockholders and approved the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, including the merger. Our board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger, “FOR” the proposal to approve the merger-related compensation and “FOR” the proposal to approve adjournment of the meeting.
Forward-Looking Financial Information
As a matter of general practice, due to the unpredictability of the underlying assumptions and estimates inherent in preparing financial projections, we do not publicly disclose detailed projections as to
 
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our anticipated financial position or results of operations, other than providing, from time to time, estimated ranges for the then-current fiscal year of certain expected financial results and operational metrics in our regular earnings press releases and other investor materials.
However, in connection with the evaluation of a possible transaction, our management prepared and provided certain unaudited prospective financial information for the Company (the “Company financial projections”) and for Bluerock Homes (the “Bluerock Homes projections” and, together with the Company financial projections, the “financial projections”) to our board of directors and to Morgan Stanley and Stanger for use in connection with their financial analyses and fairness opinions. Certain of the financial projections were also provided to potential bidders, including Blackstone, in connection with their due diligence review. A summary of the financial projections is set forth below and is included in this proxy statement solely for the purpose of providing holders of Company common stock access to certain non-public information made available to the Company’s board of directors, Morgan Stanley, Stanger and potential bidders, including Blackstone, as described in this proxy statement. The inclusion of the financial projections in this proxy statement does not constitute an admission or representation by us that the information is material.
These financial projections were not prepared with the purpose of, or with a view toward, public disclosure, and, accordingly, do not necessarily comply with published guidelines of the SEC, the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of financial forecasts, or generally accepted accounting principles (“GAAP”). Neither our independent registered public accounting firm nor any other independent accountants have audited, compiled or performed any procedures with respect to the financial projections nor expressed an opinion or any form of assurance on the financial projections or their achievability, and they assume no responsibility for, and disclaim any association with, such financial projections.
The financial projections have been included only to reflect information made available to our board of directors, Morgan Stanley, Stanger and potential bidders, including Blackstone, at the time of certain events and decisions, are not facts and should not be relied upon as indicative of actual future results, and you are cautioned not to rely on the financial projections. Some or all of the assumptions that have been made in connection with the preparation of the financial projections may have changed since the date the financial projections were prepared. None of the Company, Parent nor any of our or their respective affiliates, advisors or other representatives assumes any responsibility for the validity, reasonableness, accuracy or completeness of the financial projections. None of the Company, Parent nor any of their respective affiliates has or intends to, and each of them disclaims any obligation to, update, revise or correct the financial projections if any or all of them have become or may become inaccurate (even in the short term) since the time of their preparation. These considerations should be taken into account in reviewing the financial projections, which were prepared as of an earlier date.
The financial projections do not reflect changes in general business or economic conditions since the time they were prepared, changes in our businesses or prospects since the time they were prepared, or any other transaction or event that has occurred or that may occur and that was not anticipated at the time the financial projections were prepared, and the financial projections are not necessarily indicative of current values or future performance, which may be significantly more favorable or less favorable than as set forth below and should not be regarded as a representation that the financial forecasts will be achieved. The financial projections also reflect assumptions as to certain business decisions that are subject to change. In addition, our future financial performance may be affected by our ability to successfully implement a number of initiatives to improve our operations and financial performance and our ability to achieve strategic goals, objectives and targets over the applicable periods.
Because the financial projections reflect subjective judgment in many respects, they are susceptible to multiple interpretations and frequent revisions based on actual experience and business developments. The financial projections also cover multiple years, and such information by its nature becomes less predictive with each succeeding year. The estimates and assumptions underlying the financial projections involve judgments with respect to, among other things, economic, competitive and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant business, economic and competitive uncertainties and contingencies, including, among other things, the inherent uncertainty of the business and economic conditions affecting the industries in which we operate. The financial projections
 
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constitute forward-looking information and are subject to a wide variety of significant risks and uncertainties that could cause the actual results to differ materially from the projected results. For additional information on factors that may cause future financial results to materially vary from the projected results summarized below, see the section entitled “Cautionary Statement Regarding Forward-Looking Statements,” beginning on page 22. Accordingly, there can be no assurance that the projected results summarized below will be realized or that actual results will not differ materially from the projected results summarized below, and the financial projections cannot be considered a guarantee of future operating results and should not be relied upon as such. Neither we nor our affiliates or advisors or any other person has made any representation to any of our stockholders or any other person regarding our actual performance compared to the results included in the financial projections. We have not made any representation to Parent or its affiliates, in the merger agreement or otherwise, concerning the projections.
The financial projections should be evaluated, if at all, in conjunction with the historical financial statements and other information contained in our public filings with the SEC. The financial projections do not take into account any circumstances or events occurring after the date they were prepared, including the merger, the separation or the distribution. Further, the financial projections do not take into account the effect of any failure of the merger, the separation or the distribution to be consummated and should not be viewed as accurate or continuing in that context.
Financial Projections
The following table summarizes the Company financial projections that were provided to our board of directors and to Morgan Stanley for use in connection with their financial analyses and fairness opinion. These Company financial projections did not give effect to the separation or the distribution and included information related to the Company’s existing portfolio of multi-family residential assets that were expected to be held by the Company at the time of the merger as well as information related to the Company’s existing portfolio of in-place single-family assets.
Summary of Company Financial Projections(1)
Years Ending
9/30/2022
9/30/2023
9/30/2024
9/30/2025
9/30/2026
NOI (Current Portfolio)(2)
131 136 140 145 149
NOI from Reinvestment of Mezzanine / Preferred Redemptions(3)
0 1 8 13 15
Plus: Mezzanine / Preferred Cash Flows (Current Income)(4)
17 17 15 11 9
Less: G&A(5)
(28) (29) (30) (31) (32)
EBITDA 121 126 134 137 142
Less: Capex
(25) (26) (28) (29) (31)
Less: Funding Commitments for Mezzanine / Preferred Portfolio
(83)
(1)
Dollar amounts in millions.
(2)
Represents the NOI from the Company’s operating portfolio as of September 30, 2021 and includes interest income from the Company’s mezzanine / preferred portfolio that is accrued but not paid in cash (such amounts paid in cash being provided in the row opposite the heading “Mezzanine / Preferred Cash Flows (Current Income)”). Does not assume any acquisitions (or cash flows therefrom) contemplated by the “full deployment” assumptions underlying the Bluerock Homes projections, as discussed below.
(3)
Assumes proceeds of redemption of mezzanine and preferred investments (principal and accrued interest income) are reinvested in acquisitions at 3.5% in year 1 trending to 4.0% in year 5.
 
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(4)
Represents the portion of interest income from mezzanine and preferred investments that is paid in cash.
(5)
Includes estimated property-level and corporate G&A.
In addition, in connection with its financial analyses and fairness opinion, Morgan Stanley calculated and disclosed to the board of directors forecasted net operating income (“NOI”) of the Company of $169 million for the 12 months ending September 30, 2027 by applying, at the direction of our management, a 3% annual growth rate to the NOI of the Company of $164 million for the 12 months ending September 30, 2026 included in the Company financial projections.
The Bluerock Homes projections were provided to our board of directors and Morgan Stanley for use in connection with their financial analyses and fairness opinion. The Bluerock Homes projections included NOI of $55 million, a NAV of $494 million, EBITDA of $45 million, FFO of $28 million, a Net Debt / EBITDA ratio of 15.6x and a Total Debt / Gross Asset Value (“GAV”) ratio of 60%, in each case assuming full deployment over a full year (12-month) period. “Full deployment” assumes the acquisition by Bluerock Homes of $908 million of incremental assets using 60% leverage and proceeds from mezzanine and preferred investments, a line of credit draw, property debt on existing assets and existing cash.
The Company provided to Morgan Stanley and to potential bidders, including Blackstone, in connection with their due diligence a subset of the Company financial projections with respect to the Company’s existing multi-family residential real estate assets that were expected to be held by the Company at the time of the merger. These financial projections included NOI for the Company’s operating portfolio of multi-family residential real estate assets of $135 million and estimated property-level G&A of $3.4 million, in each case for the 12-month period ending December 1, 2022. The Company also provided projections of interest income paid in cash of $13 million, $13 million, $12 million, $9 million and $8 million for the 12-month periods ending September 30, 2022, 2023, 2024, 2025 and 2026 respectively for the portion of the Company’s mezzanine / preferred portfolio that were expected to be held by the Company at the time of the merger. The Company did not provide bidders with financial information contemplated by the “full deployment” assumptions underlying the Bluerock Homes projections, as discussed above, or with respect to the reinvestment of proceeds received from maturing mezzanine and preferred investments in the multi-family residential real estate portfolio nor with respect to certain mezzanine or preferred investments that were not expected to be held by the Company at the time of the merger.
The Company also provided financial projections to the board of directors and to Stanger in connection with its fairness opinion that included $0 in incentive fees payable to the Manager under the Management Agreement under three scenarios assuming capital raises of $1 billion, $1.25 billion and $1.5 billion.
Certain of the above financial projections above were not prepared in accordance with GAAP, including NOI, Mezzanine / Preferred Cash Flows, EBITDA, G&A, Capex, Funding Commitments, NAV, FFO, Net Debt, Total Debt, GAV, interest income and incentive fees. We use these non-GAAP financial measures in analyzing our financial results and believe that they enhance investors’ understanding of our financial performance and the comparability of our results to prior periods, as well as against the performance of REITs. Non-GAAP financial measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. The Company’s calculation of non-GAAP financial measures may differ from others in the industry and are not necessarily comparable with similarly titled amounts used by other companies. The non-GAAP financial measures used in the financial projections were relied upon by Morgan Stanley for purposes of its fairness opinion and by the board of directors in connection with its consideration of the merger. Financial measures provided to a financial advisor are excluded from the definition of non-GAAP financial measures and therefore are not subject to SEC rules regarding disclosures of non-GAAP financial measures, which would otherwise require a reconciliation of a non-GAAP financial measure to a GAAP financial measure. Reconciliations of non-GAAP financial measures were not relied upon by Morgan Stanley for purposes of its fairness opinion or by the board of directors in connection with its consideration of the merger. Accordingly, we have not provided a reconciliation of the financial measures included in the financial projections above.
We do not intend to update or otherwise revise the above financial projections to reflect circumstances existing after the date when they were prepared or to reflect the occurrence of future events, even in the event that any or all of the assumptions underlying such unaudited prospective financial information are no longer appropriate.
 
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Opinions of Our Financial Advisors
Opinion of Morgan Stanley & Co. LLC
We retained Morgan Stanley to provide us with financial advisory services in connection with a possible strategic transaction. We selected Morgan Stanley to act as our financial advisor based on Morgan Stanley’s qualifications, expertise and reputation in our sector, and its knowledge of the business and affairs of the Company and of potential counterparties. As part of this engagement, our board of directors requested that Morgan Stanley evaluate the fairness from a financial point of view of the Consideration to be received by the holders of shares of our Common Stock pursuant to the merger agreement. On December 19, 2021, at a meeting of our board of directors, Morgan Stanley rendered its oral opinion, subsequently confirmed in writing by delivery of a written opinion to our board of directors dated December 19, 2021, that, as of that date and based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of review undertaken by Morgan Stanley as set forth in the written opinion, the Consideration to be received by the holders of shares of our Common Stock pursuant to the merger agreement is fair from a financial point of view to such holders of shares of our Common Stock.
The full text of the written opinion of Morgan Stanley, dated as of December 19, 2021, is attached to this proxy statement as Exhibit B and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the scope of the review undertaken by Morgan Stanley in rendering its opinion. We encourage you to read the entire opinion and the summary of Morgan Stanley’s opinion below carefully and in their entirety. This summary of the opinion of Morgan Stanley set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Morgan Stanley’s opinion is directed to our board of directors, in its capacity as such, addresses only the fairness of the Consideration to be received by the holders of shares of our Common Stock pursuant to the merger agreement from a financial point of view to such holders as of the date of the opinion and does not address any other aspects or implications of the Transactions. Morgan Stanley’s opinion was not intended to, and does not, constitute a recommendation to any holder of shares of our Common Stock as to how to vote at the special meeting to be held in connection with the merger or whether to take any other action with respect to the Transactions. Morgan Stanley was not requested to opine as to, and its opinion did not in any manner address the relative merits of the Transactions as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available, nor did it address the underlying business decision of the Company to enter into the merger agreement or proceed with any other transaction contemplated by the merger agreement. For purposes of this section entitled “Opinion of Morgan Stanley & Co. LLC,” “the Company” refers to the Company on a consolidated basis, including the assets and liabilities to be held by Bluerock Homes.
In connection with rendering its opinion, Morgan Stanley, among other things:

reviewed certain publicly available financial statements and other business and financial information of the Company;

reviewed certain internal financial statements and other financial and operating data concerning the Company;

reviewed certain financial projections prepared by the management of the Company;

discussed the past and current operations and financial condition and the prospects of the Company with senior executives of the Company;

reviewed the reported prices and trading activity for our Common Stock;

compared the financial performance of the Company and the prices and trading activity of our Common Stock with that of certain other publicly traded companies comparable with the Company, and their respective securities;

reviewed the financial terms, to the extent publicly available, of certain comparable acquisition transactions;
 
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participated in certain discussions and negotiations among representatives of the Company and Parent and certain other parties and their financial and legal advisors;

reviewed the merger agreement, including the separation principles, the term sheet for the management agreement to be entered into among Bluerock Homes, Bluerock Residential Holdings and an external manager to be newly formed in connection with the separation and the distribution, the equity commitment letter, limited guaranty and support agreements, each substantially in the form of the drafts dated December 19, 2021, and certain related documents; and

performed such other analyses, reviewed such other information and considered such other factors as Morgan Stanley deemed appropriate.
In arriving at its opinion, Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made available to Morgan Stanley by the Company, and formed a substantial basis for its opinion. With respect to the financial projections of the Company, Morgan Stanley assumed that they had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of the Company of the future financial performance of the Company, and Morgan Stanley expressed no opinion on such projections. In addition, Morgan Stanley assumed that the Transactions and the other transactions contemplated by the merger agreement would be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions that would be material to its analysis. Morgan Stanley expressed no opinion as to the terms of financing by Parent or the terms or conditions upon which it is obtained. Morgan Stanley did not express any view on, and its opinion did not address, any other term or aspect of the merger agreement or the transactions contemplated thereby or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection therewith. Morgan Stanley also assumed that the definitive merger agreement would not differ in any material respect from the December 19, 2021 draft thereof furnished to Morgan Stanley. Morgan Stanley assumed that in connection with the receipt of all the necessary governmental, regulatory or other approvals and consents required in connection with the proposed Transactions, no delays, limitations, conditions or restrictions will be imposed that would have a material adverse effect on the contemplated benefits expected to be derived in the proposed Transactions. Morgan Stanley is not a legal, tax or regulatory advisor. Morgan Stanley is a financial advisor only and relied upon, without independent verification, the assessment of the Company and its legal, tax or regulatory advisors with respect to legal, tax or regulatory matters. Morgan Stanley expressed no opinion with respect to the fairness of the amount or nature of the compensation to any of the Company’s officers, directors or employees, or any class of such persons, relative to the Consideration to be received by the holders of shares of our Common Stock in the transaction. Morgan Stanley also expressed no opinion as to the relative fairness of any consideration to be received pursuant to the merger agreement to holders of any other equity securities of the Company. Morgan Stanley’s opinion did not address the relative merits of the Transactions as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley did not make any independent valuation or appraisal of the assets or liabilities of the Company or Bluerock Homes, nor was Morgan Stanley furnished with any such valuations or appraisals. Morgan Stanley’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to them as of, December 19, 2021. Events occurring after December 19, 2021, may affect Morgan Stanley’s opinion and the assumptions used in preparing it, and Morgan Stanley did not assume any obligation to update, revise or reaffirm its opinion.
Summary of Financial Analyses of Morgan Stanley
The following is a summary of the material financial analyses performed by Morgan Stanley in connection with its oral opinion and the preparation of its written opinion letter to our board of directors dated December 19, 2021. The following summary is not a complete description of the financial analyses performed and factors considered by Morgan Stanley in connection with its opinion, nor does the order of analyses described represent the relative importance or weight given to those analyses. Some of these summaries of financial analyses include information presented in tabular format. In order to fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each
 
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summary. The tables alone do not constitute a complete description of the financial analyses. The analyses listed in the tables and described below must be considered as a whole. Assessing any portion of such analyses and of the factors reviewed, without considering all analyses and factors, could create a misleading or incomplete view of the process underlying Morgan Stanley’s opinion. Furthermore, mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using the data referred to below.
For purposes of Morgan Stanley’s opinion and the analyses described below, the consideration to be received by holders of shares of our Common Stock in connection with the Transactions was assumed to be $24.25 per share in cash, together with shares of Bluerock Homes common stock to be received by holders of shares of our Common Stock in the distribution pursuant to the terms of the merger agreement.
Comparable Public Companies Analysis
Morgan Stanley reviewed and compared certain publicly available financial information, publicly available ratios and publicly available market multiples relating to the Company with equivalent publicly available data for companies that share similar business characteristics with the Company to derive an implied equity value reference range for the Company. Morgan Stanley reviewed the following publicly traded companies (which are referred to as “selected companies” in this section): Preferred Apartment Communities Inc., BRT Apartments Corp., Centerspace, Independence Realty Trust Inc. and NexPoint Residential Trust Inc.
For purposes of this analysis, Morgan Stanley analyzed certain statistics for each of these companies for comparison purposes, including the ratios of share price to consensus Wall Street research analyst (“Street consensus”) estimated funds from operations (“FFO”) for calendar years 2022 and 2023 and share price to Street consensus estimated adjusted funds from operations (“AFFO”) for calendar years 2022 and 2023. Morgan Stanley also analyzed for each of these companies the premium or discount represented by the ratio of share price to Street consensus estimated NAV per share, the premium or discount represented by the ratio of share price to Street consensus estimated GAV per share and the capitalization rate implied by each of these companies’ share prices. The multiples, ratio and implied capitalization rate for each of the selected companies were calculated using their respective closing prices on December 17, 2021, and were based on the most recent publicly available information, Capital IQ consensus estimates and SNL Financial consensus estimates as of December 17, 2021, which represents the last closing price for our Common Stock and the selected companies’ stock prior to the announcement of the Transactions. Morgan Stanley derived a range for each metric using the mean value for each statistic for the applicable comparable companies as a midpoint and setting a range using (a) 2.0x above and below that midpoint for share price to 2022 and 2023 estimated FFO and share price to 2022 and 2023 estimated AFFO, (b) 2.5% above and below the midpoint for the premium or discount of share price to Street consensus estimated NAV per share and GAV per share and (c) 0.25% above and below the midpoint for the implied capitalization rate. Morgan Stanley selected these ranges based on its professional judgment after reviewing the selected companies’ ranges for each metric and the historical ranges of the Company for each metric.
Morgan Stanley then used these multiple and percentage ranges to derive separate implied per share equity value reference ranges for the Company using each of the metrics reviewed by applying the range derived from the comparable companies for each metric to the corresponding Street consensus metrics for the Company. The following table reflects the results of this analysis:
Range
Implied Per Share
Equity Value Range
Low
High
Low
High
Price / 2022E FFO
19.0x 23.0x $ 15.17 $ 18.37
Price / 2023E FFO
16.5x 20.5x $ 15.42 $ 19.16
Price / 2022E AFFO
20.8x 24.8x $ 15.13 $ 18.03
Price / 2023E AFFO
17.7x 21.7x $ 14.64 $ 17.94
Premium / Discount to the mean Street consensus estimated NAV
(5)% 1% $ 15.58 $ 16.39
Premium / Discount to the mean Street estimated GAV
(5)% 1% $ 12.61 $ 16.18
Implied Capitalization Rate
5.3% 4.8% $ 11.21 $ 17.03
 
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Based on this analysis, Morgan Stanley derived the following implied per share equity value reference range for the Company based on the average of the low and high end of the selected range determined by taking the average of the respective low and high FFO, AFFO and NAV metrics above, in each case, using levered value, and the respective GAV and Implied Capitalization Rate metrics above, in each case, using unlevered value. This analysis indicated the following implied per share equity value reference range for a share of our Common Stock, as compared to the Consideration:
Implied Per Share Equity Value Reference Range
Per Share Consideration
$13.55 to $17.29
$24.25 and shares of Bluerock Homes common stock to be
received in the distribution
No company utilized in the comparable company analysis is identical to the Company. In evaluating comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, which are beyond the Company’s control, such as the impact of competition on the Company and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company or the industry, or in the financial markets in general. Mathematical analysis (such as determining the average or median) is not in itself a meaningful method of using comparable company data.
Discounted Cash Flow Analysis
Morgan Stanley calculated a range of implied equity value per share of our Common Stock, based on a discounted cash flow analysis utilizing the financial projections provided by our management, which financial projections are described in the section entitled “— Forward-Looking Financial Information.”
Morgan Stanley performed a discounted cash flow analysis, which is designed to imply a value of a company by calculating the present value of estimated future unlevered free cash flows, terminal value and in the Company’s mezzanine and preferred investments. The “unlevered free cash flows” or “free cash flows” refer to a calculation of the future cash flows of an asset without including, in such calculation, any debt-servicing costs. The present value of a terminal value, representing the value of unlevered free cash flows beyond the end of the forecast period (excluding unlevered free cash flows from mezzanine and preferred investments), and the present value of the Company’s mezzanine and preferred investments, are added to arrive at a total aggregate value. Outstanding debt, the liquidation value of preferred equity and noncontrolling interests are subtracted and the Company’s cash on hand as of September 30, 2021 is added to arrive at an equity value. The calculated equity value is then divided by the number of fully diluted shares of our Common Stock, in order to arrive at an implied equity value per share.
The projected unlevered free cash flows from September 30, 2022 through the end of 2026 were discounted to present value using a range of discount rates from 5.4% to 5.8% representing the Company’s weighted average cost of capital, which weighted average cost of capital was calculated by Morgan Stanley based on information provided to it by the Company. The weighted average cost of capital was determined utilizing the capital asset pricing model to calculate the Company’s cost of equity and utilizing the Company’s current weighted average interest rate on its current indebtedness to calculate the Company’s cost of debt.
Morgan Stanley then calculated a range of implied terminal enterprise values of the Company as of September 30, 2026, by applying a range of implied exit capitalization rates of 5.0% to 5.5% to the forecasted NOI of the Company for the 12 months ending September 30, 2027. The range of capitalization rates was selected using the Company’s implied capitalization rate as of December 17, 2021 and the Company’s five-year historical average implied capitalization rate as of December 17, 2021 as the low end and the high end, respectively. The implied terminal enterprise value of the Company was then discounted to present value using the range of the Company’s weighted average cost of capital as the discount rates. This present value of the implied terminal enterprise value of the Company was then added to the implied present value of the unlevered free cash flows as described above and the implied present value of the Company’s mezzanine and preferred investments, subtracting outstanding debt, the liquidation value of preferred equity and noncontrolling interests and adding the Company’s cash on hand as of September 30, 2021, and dividing by the number of fully diluted shares of Common Stock as of September 30, 2021 (accounting for dilution by Company Warrants outstanding as of December 14, 2021), all as provided by the Company’s management.
 
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This analysis implied the following range for our Common Stock, as compared to the Consideration:
Implied Per Share Equity Value Reference Range
Per Share Consideration
$13.48 to $19.96
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
Net Asset Value Analysis
Morgan Stanley analyzed the value of the Company as a function of the net value of its assets. Morgan Stanley based its net asset value analysis on our management’s estimates of asset value as of September 30, 2021. Morgan Stanley calculated the estimated net asset value per share of our Common Stock by applying to management’s estimated forward NOI of $131 million a range of capitalization rates of 3.6% to 5.8%, which range was selected based on, among other factors, market-specific capitalization rates per Green Street. Morgan Stanley added the estimated value of the Company’s preferred and mezzanine portfolio, cash, restricted cash, amounts due from affiliates and accounts receivable, prepaids and other, and deducted property-level debt, accounts payable, other accrued liabilities, amounts due to affiliates, distributions payable, joint venture partner interests and promotes payable and the liquidation value of preferred equity from the aggregate value of the Company’s assets. Additionally, Morgan Stanley deducted the estimated costs required to consummate the Transactions and prepay property-level debt of the Company as provided by management. An implied per share equity value reference range for the Company was then calculated based on the range of our net asset values derived from such analysis divided by the number of fully diluted shares of Common Stock outstanding as of September 30, 2021 (accounting for dilution by Company Warrants outstanding as of December 14, 2021). This analysis indicated the following implied per share equity value reference range for each share of our Common Stock, net of estimated transaction costs, as compared to the Consideration:
Implied Per Share Equity Value Reference Range
Per Share Consideration
$17.57 to $26.18
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
Premiums Paid Analysis
Using publicly available information, Morgan Stanley reviewed the terms of selected public company precedent transactions announced since 2000, in which the targets were publicly traded U.S. multi-family REITs and the transaction value was at least $100 million (excluding student housing and merger-of-equals transactions). All transactions that Morgan Stanley found that satisfied the foregoing criteria were included in the premiums paid analysis.
Selected Precedent Transactions
Transaction Announcement Date
Target
Acquiror
July 2019 Pure Multi-Family REIT Cortland Partners
July 2017 Monogram Residential Trust Greystar-led consortium
January 2017 Milestone Apartments Starwood Capital Group
August 2016 Post Properties Mid-America Apartment Communities
June 2015 Home Properties
Lone Star Americas Acquisitions
May 2015 Trade Street Residential Independence Realty Trust
April 2015 Associated Estates Realty Corp. Brookfield Property Group
December 2013 BRE Properties Essex Property Trust
June 2013 Colonial Properties Trust Mid-America Apartment Communities
June 2007 America First Apartment Investors Sentinel Omaha LLC
 
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Transaction Announcement Date
Target
Acquiror
May 2007 Archstone Smith Trust Tishman Speyer & Lehman Brothers
December 2005 Town & Country Trust Morgan Stanley / Onex Real Estate JV
October 2005 Amli Residential Properties Prime Property Fund
June 2005 Gables Residential Trust ING Clarion
October 2004
Cornerstone Realty Income Trust
Colonial Properties Trust
October 2004 Summit Properties Camden Property Trust
May 2001 Charles E. Smith Residential Realty Archstone Communities
July 2000 Grove Property Trust Stock Equity Residential Properties Trust
Morgan Stanley calculated the premiums paid in these transactions over the applicable unaffected stock price of the acquired company (i.e., the amount by which the price that the purchaser paid for the shares of the target exceeded the unaffected market price of such shares), which represents the volume-weighted average stock price for the ten trading days ending five trading days prior to the announcement of such precedent transactions, or ending five trading days prior to the last unaffected trading date for the target for precedent transactions in which market rumors or other relevant news impacted the target’s share price prior to transaction announcement. Morgan Stanley noted that the mean of the premiums paid in these precedent transactions was 13.8%.
Based on the results of this analysis and the premiums paid in precedent transactions as outlined above, Morgan Stanley applied a premium range of 9.0% to 17.2% based on the observed bottom quartile and top quartile, respectively, to the last unaffected price for our Common Stock of $10.85 on September 15, 2021, which resulted in the following implied Common Stock equity value range of the Company, as compared to the Consideration:
Implied Per Share Equity Value Reference Range
Per Share Consideration
$11.82 to $12.72
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
No company or transaction utilized in the premiums paid analysis is identical to the Company or the Transactions. The fact that points in the range of implied value per share of the Company derived from the valuation of premiums paid in precedent transactions were less than or greater than the Consideration is not necessarily dispositive in connection with Morgan Stanley’s analysis of the Consideration, but is one of many factors Morgan Stanley considered.
Historical Stock Price
Morgan Stanley reviewed our stock price performance during the 52 weeks ending December 17, 2021, and the volume-weighted average stock price during the 30-trading-day and 90-trading-day periods ending September 15, 2021, the last unaffected trading date for our Common Stock. Based on this review, Morgan Stanley noted our Common Stock had traded in the following ranges over the applicable 52-week period ending December 17, 2021, and the 30-day and 90-day periods ending September 15, 2021, as compared to the Consideration:
52 Weeks Ending
December 17, 2021
30-day Period Ending
September 15, 2021
90-day Period Ending
September 15, 2021
Per Share
Consideration
$8.80 to $16.62
$ 11.60 $ 10.47
$24.25 and share(s) of
Bluerock Homes
common stock to
be received in the
distribution
 
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Private Buyer Analysis
Morgan Stanley performed a hypothetical take-private analysis to determine the prices at which a financial sponsor might effect a leveraged buyout of the Company under current market conditions. In preparing this analysis, Morgan Stanley utilized the financial projections provided by our management, including estimated NOI for the years ending September 30, 2022 through September 30, 2026. Morgan Stanley based its analysis on the financial projections provided by our management and assumed a September 30, 2026 exit at a range of market capitalization rates of 3.9% to 4.4%. In addition, Morgan Stanley assumed that (i) the acquisition occurred on September 30, 2021, based on our September 30, 2021 financial statements, (ii) a five-year hold period, (iii) the potential impact of any property tax resets was disregarded, (iv) the buyer incurs new CMBS debt in connection with the transaction in an aggregate principal amount resulting in a loan-to-value ratio of 60%, and (v) the buyer is targeting a levered internal rate of return of 10% to 12%. Based upon these assumptions, Morgan Stanley calculated the following implied per share equity value reference range for our Common Stock, as compared to the Consideration:
Implied Per Share Equity Value Reference Range
Per Share Consideration
$15.01 to $28.25
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
Research Analyst Price Targets and NAV Targets
Morgan Stanley reviewed available public market trading price targets for our Common Stock by all four equity research analysts that provided a price target for the Company prior to November 16, 2021, the date of the most recent report available at the time of such analysis. Morgan Stanley reviewed the most recent price target published by each of the analysts prior to such date. These targets reflect each analyst’s estimate of the future public market trading price of our Common Stock at the time the price target was published. Based on this review, Morgan Stanley noted that the equity research analysts had the following range of price targets per share of our Common Stock, as compared to the Consideration:
Research Analyst Price Targets
Per Share Consideration
$11.50 to $14.50
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
Morgan Stanley also reviewed available equity research analyst estimates of NAV per share of our Common Stock prior to November 16, 2021. Morgan Stanley reviewed the most recent estimates of NAV per share published by five equity research analysts, including four of the same analysts who published price targets prior to such date. Based on this review, Morgan Stanley noted that the equity research analysts had the following range of estimates of NAV per share of our Common Stock of the Company, as compared to the Consideration:
Research Analyst NAV Per Share Estimates
Per Share Consideration
$12.07 to $20.50
$24.25 and share(s) of Bluerock Homes common stock to be
received in the distribution
The public market trading price targets and estimates of NAV per share published by equity research analysts do not necessarily reflect current market trading prices for our Common Stock, and these targets and estimates are subject to uncertainties, including the future financial performance of the Company and future financial market conditions. Moreover, the NAV per share estimates published by equity research analysts typically do not account for the costs required to execute a merger. Such costs include transfer taxes, debt breakage costs, compensation costs trigged by a change of control, professional and advisory fees, and other miscellaneous costs.
Bluerock Homes Common Stock
Morgan Stanley reviewed and compared certain publicly available financial information, publicly available ratios and publicly available market multiples regarding publicly traded U.S. single-family REITs and publicly traded externally managed REITs, which companies shared certain business characteristics with
 
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Bluerock Homes, including Bluerock Homes’ expected leverage, structure and geographical profile. Morgan Stanley then applied the 2022 consensus EBITDA multiple, 2022 consensus FFO multiple and Premium/Discount to the mean consensus estimated NAV, in each case, of certain of these comparable companies to our management’s financial projections and estimates with respect to Bluerock Homes’s NAV, EBITDA and FFO, each as described in the section entitled “Forward-Looking Financial Information,” in order to derive a reference range of implied trading value of Bluerock Homes per share of Bluerock Residential Common Stock of $3.45 to $5.98 per share of Bluerock Residential Common Stock, as compared to the $5.60 NAV of Bluerock Homes per share of Bluerock Residential Common Stock, based on management’s estimate of Bluerock Homes’ NAV of $494 million.
General
Morgan Stanley performed a variety of financial and comparative analyses for purposes of rendering its opinion. The preparation of a financial opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor it considered. Morgan Stanley believes that selecting any portion of these analyses, without considering all analyses as a whole, would create an incomplete view of the process underlying its analyses and opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions. As a result, the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley’s view of the actual value of the Company.
In performing its analyses, Morgan Stanley made numerous assumptions with respect to industry performance, general business, regulatory, economic, market and financial conditions and other matters. These include, among other things, the impact of competition on the businesses of the Company and the industry generally, industry growth, and the absence of any adverse material change in the financial condition and prospects of the Company, or the industry, or in the financial markets in general. Many of these assumptions are beyond the control of the Company. Any estimates contained in Morgan Stanley’s analyses are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by such estimates.
Morgan Stanley conducted the analyses described above solely as part of its analysis of the fairness from a financial point of view of the Consideration to be received by the holders of shares of our Common Stock pursuant to the merger agreement, and in connection with the delivery of its opinion as of December 19, 2021, to our board of directors. These analyses do not purport to be appraisals or to reflect the prices at which shares of our Common Stock might actually trade.
The Consideration was determined through arm’s-length negotiations between the Company and Parent and was unanimously approved by our board of directors. Morgan Stanley provided advice to the Company during these negotiations. Morgan Stanley did not, however, recommend any specific form or amount of consideration to us or our board of directors, or that any specific consideration constituted the only appropriate consideration for the Transactions. Morgan Stanley was not requested to opine as to, and its opinion does not in any manner address, the underlying business decision of the Company to proceed with or effect the Transactions or the likelihood of consummation of the Transactions, nor does it address the relative merits of the Transactions as compared to any other alternative business transaction, or other alternatives, or whether or not such alternatives could be achieved or are available. Morgan Stanley’s opinion was not intended to, and does not, express an opinion or a recommendation as to how any holder of shares of our Common Stock should vote at the special meeting to be held in connection with the merger, or as to any other action that a holder of shares of our Common Stock should take relating to the Transactions.
Morgan Stanley’s opinion and presentation to our board of directors was one of many factors taken into consideration by our board of directors in deciding to determine and declare that the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of the Company and its stockholders (see “— Reasons for the Merger” and “— Recommendation of Our Board of Directors”). Consequently, the analyses as described above should not be viewed as determinative of the
 
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opinion of our board of directors with respect to the Consideration or of whether our board of directors would have been willing to agree to a different consideration.
Morgan Stanley’s opinion was approved by a committee of Morgan Stanley investment banking and other professionals in accordance with its customary practice. Morgan Stanley is a global financial services firm engaged in the securities, investment management and individual wealth management businesses. Its securities business is engaged in securities underwriting, trading and brokerage activities, foreign exchange, commodities and derivatives trading, prime brokerage, as well as providing investment banking, financing and financial advisory services. Morgan Stanley, its affiliates, directors and officers may at any time invest on a principal basis or manage funds that invest, hold long or short positions, finance positions, and may trade or otherwise structure and effect transactions, for its own account or the accounts of its customers, in debt or equity securities or loans of Parent or any of its affiliates, the Company or any other company, or any currency or commodity, that may be involved in the Transactions, or any related derivative instrument. In addition, Morgan Stanley, its affiliates, directors and officers may have committed and may commit in the future to invest in private equity funds managed by affiliates of Parent.
Under the terms of its engagement letter, Morgan Stanley provided our board of directors with financial advisory services and a financial opinion, and we have agreed to pay Morgan Stanley an aggregate fee equal to approximately $29 million, a portion of which is payable quarterly during the term of Morgan Stanley’s engagement, a portion of which was contingent upon rendering of Morgan Stanley’s financial opinion and a portion of which is contingent upon the closing of the merger. We have also agreed to reimburse Morgan Stanley for its reasonable out-of-pocket expenses, including fees of outside counsel and other professional advisors, incurred in performing its services. In addition, we have agreed to indemnify and hold harmless Morgan Stanley and its affiliates, their respective officers, directors, employees and agents and each other person, if any, controlling Morgan Stanley or any of its affiliates from and against any losses, claims, damages or liabilities relating to, arising out of or in connection with Morgan Stanley’s engagement.
Other than the financial advisory services related to the Transactions described in the prior paragraph, Morgan Stanley has not provided financial advisory or other financing services to the Company and its affiliates in the two years prior to December 17, 2021, and thus has not received any fees related to such services. Morgan Stanley has provided financial advisory and financing services to Parent and its affiliates (including certain majority-controlled affiliates and portfolio companies of Parent identified by Morgan Stanley and disclosed to us) and, in the two years prior to December 17, 2021, received fees of approximately $250 million to $300 million in connection with such services. Morgan Stanley has advised us that it may also seek in the future to provide financial advisory and financing services to the Company, Parent or their respective affiliates and would expect to receive fees for the rendering of those services. The information disclosed in this paragraph is based upon information provided to us by Morgan Stanley.
Opinion of Duff & Phelps, a Kroll Business Operating as Kroll, LLC
The Company retained Duff & Phelps to serve as an independent financial advisor to the board of directors of the Company to evaluate the fairness to the Company, from a financial point of view, of the exchange consideration to be paid in the Exchange. We selected Duff & Phelps to act in this capacity based on Duff & Phelps’s qualifications, expertise and reputation, and its knowledge of the business and affairs of the Company. On December 19, 2021, Duff & Phelps delivered its opinion, dated December 19, 2021, to the board of directors that, as of the date of the opinion and subject to and based on the assumptions made therein, the exchange consideration to be paid by the Company in the Exchange is fair, from a financial point of view, to the Company.
The full text of the written opinion of Duff & Phelps, dated as of December 19, 2021, is attached to this proxy statement as Exhibit C and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken by Duff & Phelps in rendering its opinion. We encourage you to read the entire opinion and the summary of Duff & Phelps’s opinion below carefully and in their entirety. The summary of the opinion of Duff & Phelps set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Duff & Phelps’s opinion was provided for the information of, and directed to, our board of directors, in its capacity as such, for its information and assistance in connection with its consideration of the financial terms of the Exchange. Neither Duff & Phelps’s opinion
 
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nor the summary of its opinion and the related analyses set forth in this proxy statement is intended to be or constitutes a recommendation to any stockholder of the Company as to how such stockholder should act with respect to the Transactions.
Duff & Phelps’s opinion was approved by its fairness opinion committee.
Scope of Duff & Phelps’s Analysis
In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in real estate and business valuations, in general, and with respect to similar transactions, in particular. Duff & Phelps’s procedures, investigations, and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:

Review of the following documents provided by the Company’s management:

Portfolio summary schedule of the Bluerock Homes Business;

Financial models for certain properties in the Bluerock Homes Business;

Development cost schedules for in-process development properties;

Recent appraisals and Broker Price Opinions for certain properties in the Bluerock Homes Business;

Investment Memorandums for certain properties in the Bluerock Homes Business; and

Other internal documents relating to certain properties in the Bluerock Homes Business provided to Duff & Phelps by management of the Company;

Review of certain information prepared and provided to Duff & Phelps by the Company’s management regarding Bluerock Homes including, but not limited to, the following documents:

The Company’s annual reports and audited financial statements included in the Company’s Reports on Form 10-K filed with the SEC for the years ended December 31, 2019, and December 31, 2020, and the Company’s unaudited interim financial statements for the nine months ended September 30, 2021, included in the Company’s Report on Form 10-Q filed with the SEC;

As described below, unaudited segment and pro forma financial information for the Company for the nine months ended September 30, 2021 and for the estimated year ended December 31, 2021, which the Company’s management identified as being the most current financial statements available;

Other internal documents relating to the Bluerock Homes Business provided to Duff & Phelps by management of the Company; and

Documents related to the Transactions, including the Exchange (the “transaction documents”), including the final merger agreement;

Discussed the information referred to above and the background and other elements of the Transactions, including the Exchange, with the management of the Company;

Reviewed the historical trading price and trading volume of the Company’s common stock, and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques, including discounted cash flow analyses, a direct capitalization analysis, an analysis of implied overall capitalization ratios based on market data, an analysis of publicly traded REITs that Duff & Phelps deemed relevant, a liquidation valuation and letter of intent and broker price opinion valuation analyses; and

Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.
 
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The unaudited segment and pro forma financial information for the Company that Duff & Phelps received and utilized in its analysis consisted of the identification of the assets (including cash and cash equivalents) and/or liabilities contemplated to be transferred to the Bluerock Homes Business in the separation.
Summary of Financial Analyses by Duff & Phelps
The following is a summary of the material financial analyses performed by Duff & Phelps in connection with rendering its opinion to the board of directors. Duff & Phelps noted that the analyses have been designed specifically for the opinion and may not translate to any other purposes. The preparation of a fairness opinion is a complex analytical process, and therefore is not readily susceptible to partial analysis or summary description. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentations to the board of directors and its opinion, it does not purport to be a comprehensive description of all analyses and factors considered by Duff & Phelps. The opinion is based on the comprehensive consideration of the various analyses performed. This summary is qualified in its entirety by reference to the full text of the opinion attached as Exhibit C to this proxy statement.
In arriving at its opinion, Duff & Phelps did not attribute any particular weight to any particular analysis or factor considered by it and did not draw, in isolation, conclusions from or with regard to any one analysis or factor for purposes of its opinion, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Several analytical methodologies were employed by Duff & Phelps in its analyses, and no one single method of analysis should be regarded as critical to the overall conclusion reached by Duff & Phelps. Each analytical technique has inherent strengths and weaknesses, and the nature of the available information may further affect the value of particular techniques. Accordingly, Duff & Phelps believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by Duff & Phelps, without considering all analyses and factors in their entirety, could create a misleading or incomplete view of the evaluation process underlying the opinion. The conclusion reached by Duff & Phelps, therefore, is based on the application of Duff & Phelps’s own experience and judgment to all analyses and factors considered by Duff & Phelps, taken as a whole.
Duff & Phelps used various financial analyses (described in detail below) to estimate the value of the Bluerock Homes Business’s interests in properties within its portfolio. Duff & Phelps applied different financial analyses to valuing different properties based on a number of factors unique to each property, including, among other factors, the type of interest that the Bluerock Homes Business had in such property and the recency of the investment in such property.
Duff & Phelps combined the valuation results from these financial analyses to determine a range of value for the Bluerock Homes Business’s interests in the properties within its portfolio. Duff & Phelps then added the Bluerock Homes Business’s estimated cash and cash equivalents of $168.0 million (which is also the target cash amount for Bluerock Homes set forth in the separation principles, and was provided to Duff & Phelps by Company management) to the aggregate value of those interests. The result was a net asset value range for the Bluerock Homes Business of $483.3 million to $504.1 million. Duff & Phelps noted that the value of the Bluerock Homes Business of $498.7 million implied by the exchange consideration fell within the range of the resulting valuations.
Direct Capitalization Analysis for Stabilized Properties
Duff & Phelps employed the direct capitalization approach to estimate the value of certain stabilized properties in the Bluerock Homes Business portfolio in which the Bluerock Homes Business’s interest is common equity ownership. These properties were not included in the analysis described in the sections below entitled “Liquidation Valuation” or “Letter of Intent and Broker Price Opinion Valuation Analyses for Miscellaneous Properties.” For this purpose, a stabilized property refers to a property that was identified as a stabilized property by Company management, generally where construction or renovation of the property had been completed and the property had achieved or nearly achieved a high occupancy rate. Under the direct capitalization approach, the stabilized NOI for each such property is determined, and then a direct capitalization analysis is used to determine the gross asset value of the Bluerock Homes Business’s interest in these portfolio properties by applying a capitalization rate to the stabilized NOI.
 
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For purposes of the analysis performed by Duff & Phelps, the stabilized NOI for each such property was selected by Duff & Phelps in its professional judgment based upon recent third-party appraisals and third-party broker price opinions, as applicable, for each property. A range of appropriate capitalization rates was determined using Duff & Phelps’s professional judgment based upon qualitative property characteristics, competitive position and market conditions, industry surveys, other comparable single-family residential transactions, single-family portfolio transactions and an analysis of publicly traded REITs that Duff & Phelps deemed relevant. The high and low capitalization rates for each property were then applied to the property’s stabilized NOI, and the resulting range of capitalized NOI was used to calculate a high and low gross asset value of each such property. All debt and preferred equity interests were valued at face value. The face value of any debt and preferred interests in a property were deducted from these gross asset values. The resulting figure was multiplied by the Bluerock Homes Business’s percentage of common equity interest in each property to derive a valuation range of the Bluerock Homes Business’s common equity interest in each such property.
Liquidation Valuation
Duff & Phelps employed a liquidation valuation to estimate the value of investments in the properties in the Bluerock Homes Business portfolio in which the Bluerock Homes Business’s investments consist of only debt or preferred equity. Duff & Phelps also used the liquidation valuation for the properties in the Bluerock Homes Business in which the Bluerock Homes Business’s investments consists of debt or preferred equity and common equity ownership and the properties were recently acquired or no NOI was provided by or ascertainable from information provided by Company management. For these properties, the Bluerock Homes Business’s investments in the properties were valued at the face value of the investments made by the Bluerock Homes Business to the date of the valuation. As these valuations were equal to the cost of the investment by the Bluerock Homes Business, this analysis yielded a single net asset value, with no range. DCF analyses were utilized to confirm that the values of investments in certain properties were not impaired, in order to support using liquidation values for these properties.
Letter of Intent and Broker Price Opinion Valuation Analyses for Miscellaneous Properties
For one property for which a letter of intent for a disposition of that property by the Bluerock Homes Business had been entered into prior to the valuation date, and which was provided by Company management to Duff & Phelps, the estimated year-end closing sale price of $141 million set forth in the letter of intent was used to calculate the value of the Bluerock Homes Business’s preferred interest in that property. From the $141 million purchase price, all debt and preferred interests not held by the Bluerock Homes Business were deducted. As the resulting value was greater than the face value of preferred interests held by the Bluerock Homes Business, and thus that preferred interest would not be impaired in the sale, the value of the Bluerock Homes Business’s preferred interest in the property was valued at the face value of the preferred investment made by the Bluerock Homes Business.
A third-party broker price opinion was used to value the Bluerock Homes Business’s common equity interest in one other property. The value of the common equity interest based on the broker price opinion was then added to the Bluerock Homes Business’s debt and preferred interests in that property to derive a valuation for the Bluerock Homes Business’s investments in that property.
Summary of Material Financial Analyses by Duff & Phelps
Based on the valuation indications derived from its valuation analyses, Duff & Phelps determined a value range for the net asset value of the Bluerock Homes Business of $483.3 million to $504.1 million. Duff & Phelps noted that the value of the Bluerock Homes Business of $498.7 million implied by the exchange consideration fell within the range of the resulting net asset values. As a result, subject to the assumptions, qualifications, and limitations set forth in the Duff & Phelps Opinion, Duff & Phelps determined that the exchange consideration to be paid by the Company in the Exchange is fair, from a financial point of view, to the Company.
 
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Assumptions, Qualifications and Limiting Conditions
In performing its analyses, rendering its opinion with respect to the exchange consideration, Duff & Phelps, with the Company’s consent:

Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including Company management, and did not independently verify such information;

Relied upon the fact that the board of directors and the Company are advised by counsel as to all legal matters with respect to the Exchange and the other aspects of the Exchange and the Transactions;

Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps were reasonably prepared and based upon the best currently available information and good-faith judgment of the person furnishing the same, and Duff & Phelps expressed no opinion with respect to such projections or the underlying assumptions;

Assumed that information supplied and representations made by Company management were substantially accurate regarding the Bluerock Homes Business and the Exchange;

Assumed that the merger will be consummated at the price set forth in the merger agreement and that such price represents a fair value for the Company after giving effect to the Company’s contribution of its remaining interest in the operating partnership (including the general partnership interest) after giving effect to the Exchange to Bluerock Homes and distribution of its ownership interest in Bluerock Homes to the holders of Common Stock (the “contribution and distribution”);

Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conformed in all material respects to the drafts reviewed;

Assumed that there was no material change in the assets, liabilities, financial condition, results of operations, business, or prospects of the Company since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there was no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

Assumed that the Exchange would be completed in accordance with the transaction documents without any amendments thereto or any waivers of any terms or conditions thereof; and

Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Exchange would be obtained without any adverse effect on the Company or the Bluerock Homes Business.
The foregoing assumptions or any of the material facts on which the opinion was based may prove to be untrue. Furthermore, in Duff & Phelps’s analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Exchange.
Duff & Phelps prepared its opinion effective as of December 19, 2021. The opinion is necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of the date of the opinion, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date thereof. Duff & Phelps expressed no view as to the potential effects of any unusual volatility in the credit, financial and stock markets on the Company or the Exchange.
Duff & Phelps did not evaluate the Company’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps was not requested, and did not advise the board of directors or any other party with respect to alternatives, to the Exchange.
Duff & Phelps did not express any opinion as to the market price or value of the Company’s common stock (or anything else) after the announcement or the consummation of the Transactions. The opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the Company’s
 
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creditworthiness, as tax advice, or as accounting advice. Duff & Phelps did not make, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.
In rendering its opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of the Company’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the Transactions, or with respect to the fairness of any such compensation.
Fees and Expenses, Prior Relationships
Under the terms of the Company’s engagement letter with Duff & Phelps, we have agreed to pay Duff & Phelps an aggregate fee of $600,000, $250,000 of which was paid upon its engagement, $250,000 of which was paid upon Duff & Phelps informing the Company that it was prepared to deliver the opinion (regardless of the conclusion reached in the opinion), and $100,000 of which was paid upon the public announcement of the Transactions. In addition, the Company has agreed to reimburse Duff & Phelps for its out-of-pocket expenses and to indemnify Duff & Phelps and certain related persons against liabilities arising out of Duff & Phelps’s service as a financial advisor to the board of directors. The terms of the fee arrangement with Duff & Phelps, which the Company and Duff & Phelps believe are customary in transactions of this nature, were negotiated at arm’s length between the Company and Duff & Phelps, and the board of directors is aware of the Transactions. No portion of Duff & Phelps’s fee was contingent on either the conclusions reached in its opinion or the consummation of the Exchange and the Transactions or any other transaction.
During the two years preceding the date of the opinion, Duff & Phelps has provided certain valuation services to the Company for which it received fees that are immaterial to Duff & Phelps, and it is the intent of the Company to engage Duff & Phelps for certain opinion services related to the contribution and distribution (the fees of which are expected to be immaterial to Duff & Phelps). Additionally, Duff & Phelps has in the past provided, and continues to provide, affiliates of Parent with periodic portfolio valuation services. Furthermore, Duff & Phelps has previously been and is currently engaged to provide financial advisory services to affiliates of Parent in connection with related party transactions and valuation advisory services for certain of the portfolio companies of affiliates of Parent. For these prior and future engagements, Duff & Phelps received, and will receive, customary fees (which have been and are expected to be immaterial to Duff & Phelps), expense reimbursement, and indemnification. For the avoidance of any doubt, Duff & Phelps is not engaged to provide any services to Parent in connection with the Exchange and the Transactions. Duff & Phelps may provide valuation and financial advisory services to the Company or the Company’s board of directors (or any committee thereof) in the future. The information disclosed in this paragraph is based upon information provided to us by Duff & Phelps.
Opinion of Robert A. Stanger & Company, Inc.
We retained Stanger to provide us with financial advisory services in connection with our board of directors’ consideration of the proposed terms of the Management Agreement. We selected Stanger to act in this capacity based on Stanger’s qualifications, expertise and reputation in our sector, and its knowledge of the business and affairs of the Company. As part of this engagement, our board of directors requested that Stanger evaluate the fairness from a financial point of view of the proposed terms of the Management Agreement. Prior to the December 19, 2021 meeting of our board of directors, Stanger delivered its written opinion to our board of directors, dated December 19, 2021, that, as of that date, Stanger concluded based upon its analysis and the assumptions, qualifications and limitations cited in its written fairness opinion, and in reliance thereon, that as of the date of the fairness opinion the terms of the Management Agreement are fair to Bluerock Homes, from a financial point of view.
The full text of the written opinion of Stanger, dated as of December 19, 2021, is attached to this proxy statement as Exhibit D and is hereby incorporated into this proxy statement by reference in its entirety. You should read the opinion in its entirety for a discussion of the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken by Stanger in rendering its opinion. The summary of the opinion of Stanger set forth in this proxy statement is qualified in its entirety by reference to the full text of the opinion. Stanger’s opinion is directed to our board of directors, in its capacity as such, in connection with its consideration of the proposed terms of the Management Agreement.
 
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Summary of Materials Considered
In the course of Stanger’s analysis to render its opinion regarding the fairness, from a financial point of view, to Bluerock Homes of the terms of the Management Agreement, Stanger: (i) reviewed a copy of a Management Agreement Term Sheet setting forth the key terms of the Management Agreement (the “Term Sheet”); (ii) reviewed a five-year projection model for the Bluerock Homes Business as prepared by management of the Company; (iii) reviewed the financial terms of management agreements for 12 publicly traded REITs (the “Publicly Traded Externally Advised REITs”); (iv) reviewed the financial terms of management agreements for 15 non-traded REITs (the “Non-Traded Externally Advised REITs”); and (v) conducted such other analyses as Stanger deemed appropriate.
Summary of Analyses
In preparing its opinion for the board of directors, Stanger performed a variety of analyses, including those described below. In rendering the opinion, Stanger applied judgment to a variety of complex analyses and assumptions. Stanger advised the board of directors that the preparation of a fairness opinion is a complex process that involves various quantitative and qualitative judgments and determinations with respect to financial, comparative and other analytical methods and information and the application of these methods and information to the unique facts and circumstances presented. Stanger arrived at its opinion based on the results of all analyses undertaken and assessed as a whole and did not draw, in isolation, conclusions from or with regard to any individual analysis, analytic method or factor. The fact that any specific analysis is referred to is not meant to indicate that such analysis was given greater weight than any other analysis. Stanger made its determination as to fairness on the basis of its experience and professional judgment after considering the results of its reviews and analyses. The assumptions made and the judgments applied in rendering the opinion are not readily susceptible to partial analysis or summary description. Accordingly, Stanger advised the board of directors that its entire analysis must be considered as a whole, and that selecting portions of its analyses, analytical methods and the factors considered without considering all factors and analyses and assumptions, qualifications and limitations of each analysis would create an incomplete view of the evaluation process underlying the opinion.
Stanger’s opinion was provided to the board of directors in connection with the board of directors’s consideration of the financial terms in the Term Sheet and was one of several factors considered by the board of directors in evaluating the Management Agreement. Neither Stanger’s opinion nor its analyses were determinative of the terms of the Management Agreement or of the views of the board of directors. Below is a summary of the material valuation analyses prepared in connection with Stanger’s opinion.
Overview of Reviews and Analyses
In conducting its reviews and analysis of the financial terms of the Term Sheet, Stanger considered, among other things a comparable transactions analysis.
Stanger reviewed and analyzed the financial terms of management agreements for the following Publicly Traded Externally Advised REITs and Non-Traded Externally Advised REITs.
 
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#
Publicly Traded Externally Advised REITs
#
Non-Traded Externally Advised REITs
1. American Finance Trust 1. Ares Real Estate Income Trust Inc.
2. Ashford Hospitality Trust 2. Black Creek Industrial REIT IV, Inc.
3. Braemar Hotels and Resorts 3. Blackstone Real Estate Income Trust
4. Brookfield Property 4. Brookfield Real Estate Income Trust, Inc.
5. Diversified Healthcare Trust 5. Cantor Fitzgerald Income Trust, Inc.
6. Front Yard Residential 6. CIM Income NAV, Inc.
7. Gladstone Commercial 7. Clarion Partners Real Estate Income Fund Inc.
8. Gladstone Land 8. Cottonwood Communities, Inc.
9. Global Medical REIT 9. Hines Global Income Trust, Inc.
10. Global Net Lease 10. Invesco Real Estate Income Trust
11. Jernigan Capital 11. Jones Lang LaSalle Income Property Trust, Inc.
12. Nexpoint Residential Trust 12. KKR Real Estate Select Trust, Inc.
13. Nuveen Global Cities REIT, Inc.
14. RREEF Property Trust, Inc.
15. Starwood Real Estate Income Trust, Inc.
Stanger observed that the management agreements for seven of the Publicly Traded Externally Advised REITs provide for a performance fee based on FFO, AFFO or core earnings (the “Group A REITs”). Stanger additionally observed that three of the management agreements for the Publicly Traded Externally Advised REITs provide for a performance fee based on the total return of the REIT over a specified period in excess of a defined peer average (the “Group B REITs”). Stanger also observed that two of the management agreements for the Publicly Traded Externally Advised REITs do not provide for a performance fee (the “Group C REITs”). The Non-Traded Externally Advised REITs are referred to herein as the “Group D REITs.” A summary of the fee structures for the Publicly Traded Externally Advised REITs and Non-Traded Externally Advised REITs (collectively, the “Management Agreement Comparables”) is set forth in the table below.
Publicly Traded Externally Advised REITs
Non-Traded
Externally
Advised REITs
Group
Bluerock Homes
A
B
C
D
Low
High
Low
High
Low
High
Low
High
Sample Size
7
3
2
15
Base Management
Fee
1.50%
0.85%
1.50%
0.70%
1.40%
2.00%
2.50%
1.00%
1.50%
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
Incentive Fee
Incentive Fee
20.0%
15.0%
25.0%
5.0%
12.0%
None
None
None
12.5%
(AFFO)
(FFO)
(Core Earnings)
(Excess Return)
(Excess Return)
(Total Return)
Incentive Fee
Hurdle
8.00%
5.0%
19.7%
Peer Average
Peer Average
None
None
5.0%
7.0%
(Equity)
(Equity)
(Equity)
(Equity)
(Equity)
Advisor Catch Up
None
None
None
None
None
None
None
25.0%
100.0%
Disposition Fee
None
None
15% of Gain
None
None
None
None
None
2.0%
Termination Fee
3.0x
1.5x
3.0x
12.0x
22.0x
None
None
None
   (a)
(Base/Incentive)
(Base/Incentive)
(Base/Incentive)
(EBITDA)
(EBITDA)
Internalization Fee
2.75x
5.0x
6.0x
None
None
None
None
None
None
Formula
(Base/Incentive)
(EBITDA)
(EBITDA)
(a)
Recoupment of contingent deferred fees
The annual base management fee per the Term Sheet is 1.50% of new stockholders’ equity, per annum, as compared to: (i) 0.85% to 1.50% for the Group A REITs; (ii) 0.70% to 1.40% for the Group B REITs; (iii) 2.00% to 2.50% for the Group C REITs; and (iv) 1.00% to 1.50% for the Group D REITs. Stanger
 
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observed that the annual base management fee per the Term Sheet is within the range of the annual base management fees for the Management Agreement Comparables.
The annual incentive fee per the Term Sheet is 20% of AFFO after stockholders receive an 8.0% annual return on equity with no manager incentive fee catch up as compared to: (i) 15.0% of FFO to 25.0% of Core Earnings after a 5.0% to 19.7% stockholder return with no manager fee catch up for the Group A REITs; (ii) 5.0% to 12.0% of the excess return over a peer average with no manager fee catch up for the Group B REITs; (iii) no incentive fee for the Group C REITs; and (iv) none to 12.50% of total return after a 5.0% to 7.0% stockholder return with a 25.0% to 100.0% manager catch up for the Group D REITs. Stanger observed that the annual incentive fee per the Term Sheet is within the range of the annual incentive fees for the Management Agreement Comparables.
The Term Sheet does not include a disposition fee. The disposition fee for the Group A REITs range from none to 15.0% of the cumulative net gain from the sale of investments. The management agreements for the Group B REITs and the Group C REITs do not provide for a disposition fee and the Group D REITs provide for a disposition fee ranging from none to 2.0%. Stanger observed that the absence of a disposition fee in the Term Sheet is in line with the Management Agreement Comparables.
The Term Sheet provides for a termination fee of 3.0x the Base and Incentive Fees earned during the 12-month period immediately preceding such termination as compared to: (i) 1.5x to 3.0x the Base and Incentive Fees for the Group A REITs; (ii) 12.0x to 22.0x of the Manager’s earnings before interest, taxes and depreciation (“EBITDA”) earned during the 12-month period immediately preceding such termination for the Group B REITs; (iii) no termination fees are provided for in the management agreements of the Group C REITs; and (iv) no termination fee to the recoupment of contingent deferred fees for the Group D REITs. Stanger observed that the termination fee per the Term Sheet is within the range of the termination fees for the Management Agreement Comparables.
The Term Sheet provides for an internalization fee formula of 2.75x the Base and Incentive Fees earned during the 12-month period immediately preceding such internalization. Stanger estimated the proposed internalization fee formula per the Term Sheet was the equivalent to an implied 4.6x to 5.5x EBITDA multiple assuming a 40% to 50% expense ratio. The management agreements for the Group A REITs provided for an internalization fee formula of 5.0x to 6.0x trailing 12-month EBITDA and the management agreements for the Group B REITs, the Group C REITs and the Group D REITs do not provide an internalization fee formula. Stanger additionally reviewed 65 precedent internalization transactions totaling over $7.6 billion (the “Precedent Transactions”) and observed that the EBITDA multiple on the Precedent Transactions ranged from 2.0x to 13.6x, had a median of 6.4x and an average of 7.0x. Stanger observed that the internalization fee formula in the Term Sheet is within the range of the internalization fee formulas for the Management Agreement Comparables and the Precedent Transactions.
The Term Sheet also provides for expense reimbursements to the Manager so that Bluerock Homes will pay all of the costs and expenses of Bluerock Homes and will reimburse the Manager or its affiliates for documented expenses of the Manager and its affiliates incurred on behalf of Bluerock Homes that are reasonably necessary for the performance by the Manager of its duties and functions under the Management Agreement, which may include Bluerock Homes’ pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Manager and its affiliates required for Bluerock Homes’ operations. The Term Sheet states that the Manager will be responsible for the expenses related to any and all personnel of the Manager. The expense reimbursement provisions of the Term Sheet are in line with the expense reimbursement provisions for the Management Agreement Comparables.
Conclusions
Stanger concluded based upon its analysis and the assumptions, qualifications and limitations cited in its written fairness opinion, and in reliance thereon, that as of the date of the fairness opinion the terms of the Management Agreement are fair to Bluerock Homes, from a financial point of view. The issuance of the fairness opinion was approved by Stanger’s fairness opinion committee.
 
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Assumptions
In conducting its review and rendering its opinion, Stanger assumed with the consent of the board of directors that the terms of the Management Agreement will not, when executed, differ in any material respect from the Term Sheet, including that the Management Agreement, when executed, will not require Bluerock Homes to internalize Bluerock Homes at any time. In rendering its opinion, Stanger has been advised that it may rely upon, and therefore relied upon and assumed, without independent verification, the accuracy and completeness in all material respects of all financial and other information furnished or otherwise communicated to Stanger by the Company.
Limitations and Qualifications
Stanger was not requested to, and therefore did not: (i) appraise the assets or liabilities of Bluerock Homes; (ii) estimate or opine to the impact of the Management Agreement on the anticipated trading price of the Bluerock Homes shares; (iii) make any recommendation to the Company with respect to whether or not to adopt the Management Agreement or the impact, tax or otherwise, of adopting the Management Agreement; (iv) express any opinion as to (a) the business decision to pursue the implementation of the Management Agreement or alternatives to the Management Agreement; (b) the amount of expenses relating to the Management Agreement; (c) any legal, tax, regulatory or accounting matters; or (d) any other aspect of the Management Agreement other than the fairness, from a financial point of view, to Bluerock Homes of the terms of the Management Agreement as set forth in the Term Sheet; or (v) opine as to the fairness of the amount or the nature of any compensation or consideration to any officers, directors, or employees of any of the Parties, or any class of such persons, relative to the compensation or consideration to be paid to the stockholders of Company common stock pursuant to the separation and distribution.
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Stanger advised the board of directors that Stanger’s entire analysis must be considered as a whole and that selecting portions of Stanger’s analysis and the factors considered by Stanger, without considering all analyses and factors, could create an incomplete view of the evaluation process underlying the opinion.
Compensation and Material Relationships
Stanger has been paid a fee of $250,000 in connection with this fairness opinion engagement. Stanger served as financial advisor to the board of directors in connection with the board of directors’s review of the financial terms of the Term Sheet. Stanger will also be reimbursed for certain out-of-pocket expenses, including legal fees, and will be indemnified against liabilities arising under any applicable federal or state law or otherwise related to or arising out of Stanger’s engagement or performance of its services to the Company. Payment of the fairness opinion fee to Stanger was not dependent upon completion of any transaction or upon the findings of Stanger with respect to fairness. Other than this fairness opinion engagement, during the past two years preceding the date of its opinion, Stanger has not been engaged by the Company.
Financing
In connection with the closing of the merger, Parent will cause an aggregate of approximately $800 million to be paid to the holders of our Common Stock (assuming the cash exercise of all outstanding Company Warrants), including holders of Company equity awards. As described under “The Merger Agreement — Treatment of Common Stock, Preferred Stock, Company Warrants and Equity Awards,” Parent will also cause approximately $1.19 billion to be paid to the holders of our Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series T Preferred Stock, in each case, plus accrued and unpaid dividends to and including the closing date. In addition, Parent has informed us that in connection with the closing of the merger, Parent expects to cause the outstanding indebtedness under our revolving credit facilities to be prepaid in full and our mortgage loans will be repaid or remain outstanding. As of December 31, 2021, nothing was outstanding under our revolving credit facilities and we had approximately $1.37 billion in mortgage loans outstanding.
 
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Parent has informed us that it is currently in the process of obtaining debt financing to be provided in connection with the merger. In addition, it is expected that Blackstone will contribute equity to Parent for the purpose of funding the acquisition costs (including the merger consideration) that are not covered by such debt financing.
Parent has informed us that in addition to the payment of the merger consideration, the funds to be obtained from the debt and equity financing may be used for purposes such as reserves, the refinancing of certain of our existing debt, paying carrying costs with respect to the properties, funding working capital requirements, and for other costs and expenses related to the financing and the merger. Parent has informed us that it currently believes that the funds to be borrowed under the debt financing would be secured by, among other things, a mortgage lien on certain properties which are wholly owned and/or ground leased by us, the direct and/or indirect equity interests in certain entities which own certain properties, certain escrows and reserves and such other pledges and security required by the lenders to secure and perfect their interests in the applicable collateral, and that such debt financing would be conditioned on the merger being completed and other customary conditions for similar financings.
Pursuant to the merger agreement, we have agreed to deliver, or we have agreed to use commercially reasonable efforts to cause any joint venture to deliver, promptly following Parent’s request, a notice prepared by Parent, in form and substance reasonably approved by us, to each of the lenders under our existing mortgage indebtedness requesting that such lender consent to, among other things, the consummation of the merger and the other transactions contemplated by the merger agreement and to certain modifications of the existing loan documents reasonably requested by Parent. Pursuant to the merger agreement, we have also agreed to deliver customary prepayment and/or defeasance notices to the extent requested by Parent.
The merger agreement does not contain a financing condition or a “market MAC” condition to the closing of the merger. For more information, see “The Merger Agreement — Financing Cooperation” and “The Merger Agreement — Conditions to the Merger.”
Interests of Our Directors and Executive Officers in the Merger
In considering the recommendation of our board of directors to vote in favor of the proposal to approve the merger, holders of our Common Stock should be aware that our directors and executive officers have interests in the merger that may be different from, or in addition to, the interests of holders of our Common Stock generally. Our board of directors was aware of these interests and considered them, among other matters, in evaluating and negotiating the merger agreement, in reaching its decision to determine and declare the transactions contemplated by the merger agreement, including the merger, to be advisable and in the best interests of the Company and our stockholders and to approve the execution, delivery and performance of the merger agreement and the consummation of the transactions contemplated thereby, and to resolve to recommend that the holders of Common Stock approve the merger.
These interests include:

continued employment with an affiliate of the Manager for Bluerock Homes for all our executive officers other than Michael L. Konig;

accelerated vesting of certain Company long-term incentive plan units;

eligibility to receive certain employment payments; and

for a holder of limited partnership interests in our operating partnership, an increased ownership percentage in the Bluerock Homes Business following the separation and the distribution relative to holders of our Common Stock who do not hold limited partnership interests in our operating partnership.
The foregoing interests are described in further detail below.
Our executive officers who are named executive officers (the “named executive officers”) for purposes of the discussion below are R. Ramin Kamfar (Chairman of the Board and Chief Executive Officer), Jordan B. Ruddy (Chief Operating Officer and President), James G. Babb, III (Chief Strategy Officer),
 
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Ryan S. MacDonald (Chief Investment Officer), Christopher J. Vohs (Chief Financial Officer and Treasurer) and Michael L. Konig (Chief Legal Officer and Secretary).
Treatment of Outstanding Equity Awards
Our executive officers hold vested and unvested long-term incentive plan units (“LTIP Units”) in our operating partnership. Unvested LTIP Units are subject to time and/or performance-based vesting requirements and may convert into units of limited partnership interest in the operating partnership (“OP Units”) upon reaching capital account equivalency with the OP Units held by the Company, and may then be redeemed for cash or, at the option of the Company, settled in shares of Common Stock on a one-for-one basis.
Immediately prior to the effective time of the distribution:

outstanding and unvested time-based LTIP Units will vest in full; and

outstanding and unvested performance-based LTIP Units will vest based on the level of achievement of the applicable performance goals calculated through the latest practicable date prior to the effective time of the distribution, pro-rated to reflect the truncated performance period, and any portion of such unvested performance-based LTIP Units that do not so vest will be forfeited.
No LTIP Units held by our executive officers (other than those held by Mr. Konig) will be cashed out in connection with the merger and our operating partnership will be controlled by Bluerock Homes following the separation and the distribution. Following the merger effective time, the vested LTIP Units held by our executive officers (other than those held by Mr. Konig) will continue to be eligible to convert to common units of the operating partnership upon reaching capital account equivalency with common units in the operating partnership, and may then be redeemed for cash or, at the option of Bluerock Homes, settled in shares of Class A common stock of Bluerock Homes.
In the case of Mr. Konig, who is not expected to continue his employment with Bluerock Homes after the merger effective time, his vested LTIP Units will convert into shares of Common Stock on a one-for-one basis prior to the record date for the distribution and each share of Common Stock so converted that is outstanding as of the merger effective time will become entitled to receive (x) the per share dividend of Bluerock Homes common stock and (y) the merger consideration. See the section entitled “— Quantification of Potential Payments and Benefits to our Named Executive Officers in Connection with the Merger” for an estimate of the value and benefits described above that would become payable to each of our named executive officers in respect of their LTIP Units. The estimated aggregate amounts that would become payable at the merger effective time to the executive officer who is not a named executive officer is as follows: unvested LTIP Units — $943,824 (based on estimated performance and proration assuming the merger effective time occurs on March 7, 2022, and using a per unit price of $26.60, the average closing price of Common Stock on the first five trading days following public announcement of the merger).
All of the LTIP Units held by our non-employee directors are fully vested at the time of grant pursuant to their terms.
None of our executive officers or directors owns any awards of restricted Common Stock.
Employment Payments
The Company has entered into employment agreements with each of its executive officers (collectively, the “Employment Agreements”). The Employment Agreements provide certain cash severance benefits upon a termination of employment by the Company without “cause,” or a resignation by the executive officer for “good reason,” subject to such executive officer’s execution of a general release.
The severance benefits under each Employment Agreement, if such termination or resignation occurs on or within 18 months following a change in control of the Company (or, in the case of Mr. Kamfar, with or without a change in control), are:

cash severance equal to three times (or in the case of the executive officer who is not a named executive officer, one times) the sum of the executive officer’s (x) annual base salary in effect at the
 
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time of termination and (y) the average of the annual bonuses paid to him with respect to the two completed calendar years prior to the year in which the employment termination occurs;

a prorated target annual bonus for the year of termination; and

the executive officer’s COBRA premium under our group health plans during the executive officer’s COBRA continuation period (together with the cash severance and pro-rated annual bonus described above, the “Employment Payments”).
Under the merger agreement, each executive officer is entitled to the Employment Payment at the merger effective time (upon which time each executive officer’s employment with the Company will terminate), subject to (i) the executive officer’s continuous employment with the Company (or a subsidiary) through the merger effective time, (ii) the executive officer’s execution of a customary release of claims in favor of the Company and Bluerock Homes and (iii) an aggregate cap for all Employment Payments (and to the extent the Employment Payments would otherwise exceed such cap, the Employment Payments for each applicable individual will be reduced pro rata).
Except as described below, the Employment Payments will be an obligation of the Company. Under the merger agreement, if any executive officer waives the Company’s obligation with respect to his Employment Payment, (i) Bluerock Homes will instead assume such obligation, and (ii) the cash that the Company will contribute to Bluerock Homes immediately prior to the effective time of the distribution will be increased by the amount of such Employment Payment, as described in the section entitled “The Merger Agreement — The Separation and the Distribution”. As of the date of this proxy statement, no executive officer has waived, or is expected to waive, the Company’s obligation to pay any Employment Payment.
Each Employment Agreement provides that for the one-year period following the termination of the executive officer’s employment or its service relationship with the Company for any reason (which will occur upon the consummation of the merger), he will not solicit our employees or exclusive consultants or independent contractors, and for the eighteen-month period following the termination of his employment with us for any reason, each executive officer will not solicit our investors or customers or compete with us.
See the section entitled “— Quantification of Potential Payments and Benefits to our Named Executive Officers in Connection with the Merger” of this proxy statement for the estimated amounts of the Employment Payments that each of our named executive officers would be entitled to receive upon the consummation the merger, assuming the merger effective time occurs on March 7, 2022. The estimated aggregate amount of the Employment Payment paid in cash to the executive officer who is not a named executive officer is $703,088.
Cash Retention Program
Under the terms of the merger agreement, the Company may grant cash retention awards with an aggregate value of up to $1.5 million, with any awards to be paid in full immediately prior to the merger effective time. Amounts under this cash retention program will be allocated among our employees who are identified, and in the amounts and on the terms determined, by our Chief Executive Officer. As of the date of this proxy statement, no cash retention awards have been, or are expected to be, granted to any of our executive officers.
Continued Relationship with Bluerock Homes
Following the consummation of the merger, our executive officers will cease to serve as executive officers or employees of the Company, and, with the exception of Mr. Konig, will hold the same roles at Bluerock Homes and its Manager as they currently hold at the Company. Although they will not receive compensation from Bluerock Homes, as executive officers, they will be eligible to receive Bluerock Homes equity awards, the amounts and vesting terms of which will be determined by the board of directors of Bluerock Homes. In addition, certain of our executive officers will have ownership interests in the Manager of Bluerock Homes.
In connection with the separation and the distribution, the operating partnership (which will be controlled by Bluerock Homes following the separation and the distribution) will create new series of LTIPs
 
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and common units (“C-LTIPs” and “C-common units,” respectively). C-LTIPs will be issued by the operating partnership to the Manager of Bluerock Homes pursuant to the Management Agreement. One half of each quarterly installment of each of the base management fee and the incentive fee under the Management Agreement will be payable in C-LTIPs. The remainder of each of the management fee and the incentive fee will be payable in cash or in C-LTIPs, at the election of the board of directors of Bluerock Homes. Additional C-LTIPs will also be issuable to the executive officers of Bluerock Homes or other service providers of Bluerock Homes at the discretion of the board of directors of Bluerock Homes.
C-LTIPs, subject to (1) vesting in accordance with their terms and (2) achievement of capital account equivalency with common units in the operating partnership, may, at the option of the holder, be converted into C-common units. C-common units will be redeemable at the option of the holder, and the operating partnership may elect to settle any such redemption in cash or Class C common stock of Bluerock Homes. The terms of Class C common stock are further described below. However, Class C common stock of Bluerock Homes will not be issuable on redemption of other common units in the operating partnership (which will be redeemable for cash or Class A common stock of Bluerock Homes at the election of the operating partnership), including those outstanding prior to the separation and the distribution.
Following the consummation of the merger, our directors will cease to serve as the directors of the Company and will become the directors of Bluerock Homes. The non-employee directors of Bluerock Homes will be compensated for their board service as determined by the Bluerock Homes board of directors.
Ownership of Bluerock Homes Immediately Following the Distribution
As of the record date, our executive officers and directors or their respective affiliates held approximately 818,724 shares of Class A Common Stock of the Company, 72,964 shares of the Class C Common Stock of the Company, 5,646,435 OP Units and 5,262,426 LTIP Units, representing in the aggregate an approximate 29.09% direct and indirect interest in the operating partnership.
All of our executive officers, other than Mr. Konig, along with certain entities related to them, have agreed to retain their interests in the operating partnership until the earlier of the merger effective time and the termination of the merger agreement, rather than redeeming their interests for cash or shares of Common Stock. Holders of OP Units and LTIP Units, including our executive officers and their related entities, who do not redeem those interests for Common Stock prior to the record date for the distribution will not receive any of the merger consideration in respect of their interests in the operating partnership and will instead continue to hold their interests in the operating partnership following the separation and distribution.
In the distribution, holders of our Class C Common Stock will receive shares of Class C common stock of Bluerock Homes in the same ratio that shares of Class A common stock of Bluerock Homes will be distributed in respect of shares of our Class A Common Stock. Each share of Bluerock Homes Class C common stock will entitle its holder to up to 50 votes, whereas each share of Bluerock Homes Class A common stock will entitle its holder to 1 vote. However, no holder of Bluerock Homes Class C common stock will be entitled to a number of votes in respect of its shares of Bluerock Homes Class C common stock that exceeds the number of shares of Bluerock Homes Class C common stock, C-LTIPs, LTIPs, C-common units and other common units in the operating partnership beneficially owned by such holder. Consequently, no holder of Bluerock Homes Class C common stock will be entitled to a number of votes in excess of the number of its direct and indirect economic interests in the operating partnership.
As a result of the separation and the distribution, including the consummation of the Exchange in connection therewith, our executive officers and directors are expected to have an indirect ownership interest of approximately 65% in the Bluerock Homes Business through their ownership of Bluerock Homes Class A and Class C common stock and their continued ownership in the operating partnership (which will be controlled by Bluerock Homes following the separation and distribution). See the section entitled “The Merger Agreement — The Separation and the Distribution” for more information regarding the separation and the distribution, including the Exchange.
As described in the section entitled “The Merger — Material U.S. Federal Income Tax Consequences”, the receipt of cash by the holders of our Common Stock pursuant to the merger, taken together with the
 
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shares of Bluerock Homes common stock to be received by them in the distribution, is expected to be treated as a fully taxable transaction for U.S. federal income tax purposes. However, the holders of OP Units and LTIP Units, including our executive officers and their related entities (other than Mr. Konig), are generally not expected to recognize taxable gain in respect of their OP Units and LTIP Units as such OP Units and LTIP Units will be retained and not cashed out in connection with the separation and the distribution or the merger.
Indemnification and Insurance
Pursuant to the terms of the merger agreement, our non-employee directors and executive officers will be entitled to certain ongoing indemnification and coverage under directors’ and officers’ liability insurance policies following the merger.
Quantification of Potential Payments and Benefits to Our Named Executive Officers in Connection with the Merger
The information set forth in the table below is intended to comply with Item 402(t) of the SEC’s Regulation S-K, which requires disclosure of information about certain compensation for each named executive officer of the Company that is based on, or otherwise relates to, the merger. For additional details regarding the terms of the payments and benefits described below, see the discussion under the caption “— Interests of Our Directors and Executive Officers in the Merger” above.
The amounts shown in the table below are estimates based on multiple assumptions that may or may not actually occur or be accurate on the relevant date, including the assumptions described below and in the footnotes to the table, and do not reflect certain compensation actions that may occur before completion of the merger. The disclosure below assumes that the merger effective time occurs on March 7, 2022.
Named Executive Officer(1)
Cash ($)(1)
Equity ($)(2)
Total ($)
R. Ramin Kamfar
4,476,020 2,205,008 6,681,028
Jordan B. Ruddy
2,638,107 1,560,231 4,198,338
James G. Babb, III
2,318,214 2,762,277 5,080,491
Ryan S. MacDonald
3,225,573 4,643,572 7,869,145
Christopher J. Vohs
1,486,779 997,076 2,483,855
Michael L. Konig
2,294,986 3,642,904 5,937,890
(1)
Cash.   Consists of (i) a cash payment equal to three times the sum of the named executive officer’s (x) annual base salary in effect at the time of termination and (y) the average of the annual bonuses paid to him with respect to the two completed calendar years preceding the year in which the closing occurs; (ii) a prorated target annual bonus for the year in which closing occurs; and (iii) the named executive officer’s COBRA premium under our group health plans during the executive officer’s COBRA continuation period. The cash payment is “double trigger,” becomes payable upon the completion of the merger (upon which time each executive officer’s employment with the Company will terminate) and is subject to the execution of a release of claims (see “— Interests of Our Directors and Executive Officers in the Merger — Employment Payments”). The estimated amount of each such payment is shown in the following table:
Named Executive Officer
Cash Payment
Described in (i)
Prorated Bonus
COBRA Premium
Total ($)
R. Ramin Kamfar
4,296,375 135,616 44,029 4,476,020
Jordan B. Ruddy
2,531,157 72,329 34,621 2,638,107
James G. Babb, III
2,215,384 58,767 44,063 2,318,214
Ryan S. MacDonald
3,086,321 90,411 48,841 3,225,573
Christopher J. Vohs
1,416,045 26,671 44,063 1,486,779
Michael L. Konig
2,199,001 58,767 37,218 2,294,986
 
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(2)
Equity.   Includes accelerated vesting at the merger effective time (upon which time each executive officer’s employment with the Company will terminate) of the LTIP Units, which is a “double trigger” benefit. The table below reflects a per unit value of $26.60, the average closing price of Common Stock on the first five trading days following public announcement of the merger, for the LTIP Units. For further details regarding the treatment of equity awards in connection with the merger, see “— Interests of Our Directors and Executive Officers in the Merger — Treatment of Outstanding Equity Awards.” The estimated value of such awards are shown in the following table:
Named Executive Officer
LTIP Units ($)
R. Ramin Kamfar
2,205,008
Jordan B. Ruddy
1,560,231
James G. Babb, III
2,762,277
Ryan S. MacDonald
4,643,572
Christopher J. Vohs
997,076
Michael L. Konig
3,642,904
Regulatory Matters
We are unaware of any material federal, state or foreign regulatory requirements or approvals that are required for the execution of the merger agreement or the completion of the merger, other than the acceptance for record of the articles of merger with respect to the merger by the State Department of Assessments and Taxation of Maryland, the filing of the certificate of merger with the Secretary of State of the State of Delaware and the SEC declaring that the Form 10 filed by Bluerock Homes in connection with the distribution is effective. For further information regarding the timing of the closing of the merger, see “The Merger Agreement — Effective Time; Closing Date.”
Material U.S. Federal Income Tax Consequences
The following is a general discussion of the material U.S. federal income tax consequences of the merger to U.S. holders and non-U.S. holders (each, as defined below) of shares of Common Stock whose shares are exchanged for cash pursuant to the merger and of shares of Preferred Stock whose shares are redeemed for cash in connection with the merger. This discussion is based on the provisions of the Code, applicable U.S. Treasury Regulations, judicial opinions and administrative rulings and published positions of the Internal Revenue Service (the “IRS”), each, as in effect as of the date hereof. These authorities are subject to differing interpretations and may change at any time, possibly with retroactive effect. Any such change or differing interpretation could affect the accuracy of the statements and conclusions set forth in this discussion. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. We have not sought and will not seek an advance ruling from the IRS regarding any matter discussed in this section. This summary assumes that the distribution and the merger will be consummated in accordance with the merger agreement, the separation and distribution agreement contemplated by the merger agreement and as described in this proxy statement.
This discussion is not a complete description of all tax consequences of the merger and, in particular, does not address any tax consequences arising under the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, any withholding considerations pursuant to the Foreign Account Tax Compliance Act of 2010 (including the Treasury Regulations and administrative guidance thereunder and the intergovernmental agreements entered into, and laws and regulations promulgated, pursuant thereto or in connection therewith) nor does it address any tax considerations under state, local or non-U.S. laws or U.S. federal laws other than those pertaining to the U.S. federal income tax.
For purposes of this discussion, the term “U.S. holder” means a beneficial owner of shares of Common Stock or shares of Preferred Stock that is, for U.S. federal income tax purposes:

an individual who is a citizen or resident of the United States;
 
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a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States, any state thereof, or the District of Columbia;

a trust (1) the administration of which is subject to the primary supervision of a U.S. court and which has one or more “United States persons” ​(as defined under the Code) who have the authority to control all substantial decisions of the trust, or (2) that has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person; or

an estate the income of which is subject to U.S. federal income tax regardless of its source.
For purposes of this discussion, the term “non-U.S. holder” means a beneficial owner of shares of Common Stock or shares of Preferred Stock that is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.
This discussion applies only to U.S. holders and non-U.S. holders of shares of Common Stock or shares of Preferred Stock who hold such shares as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion also does not address any U.S. federal income tax consequences to holders who purchase or sell their shares of Common Stock between the record date for the distribution and the date on which the distribution is effected. Further, this discussion is for general information purposes only and does not purport to address all aspects of U.S. federal income taxation that may be relevant to specific holders in light of their particular facts and circumstances, and it does not apply to holders subject to special treatment under U.S. federal income tax laws, such as, for example:

insurance companies;

dealers, brokers or traders in securities or currencies;

traders in securities who elect to apply the mark-to-market method of accounting;

broker-dealers;

persons acting as nominees or otherwise not as beneficial owners;

holders subject to the alternative minimum tax;

persons who are required to recognize income or gain no later than such income or gain is required to be reported on an applicable financial statement;

U.S. holders that have a functional currency other than the U.S. dollar;

tax-exempt entities and organizations;

retirement plans, individual retirement accounts or other tax-deferred or advantaged accounts (or persons holding shares of Common Stock or shares of Preferred Stock through such plans or accounts);

banks and other financial institutions;

certain former citizens or former long-term residents of the United States;

controlled foreign corporations or passive foreign investment companies;

partnerships or other entities or arrangements treated as partnerships for U.S. federal income tax purposes or other flow-through entities (and investors therein);

S corporations;

REITs;

regulated investment companies;

holders who own or have owned at any time, or are deemed to own or to have owned at any time, directly, indirectly or constructively, at least 5% or more, by voting power or value, of our stock;

“qualified foreign pension funds” ​(within the meaning of Section 897(1)(2) of the Code) or entities all of the interests in which are held by a qualified pension fund;

“qualified shareholders” ​(within the meaning of Section 897(k)(3) of the Code) or investors therein;
 
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non-U.S. holders who hold, or have held at any time, directly, indirectly, or constructively, more than 10% of our outstanding shares of Common Stock or more than 10% of our outstanding shares of Preferred Stock;

holders who hold shares of Common Stock or shares of Preferred Stock as part of a hedge, straddle, constructive sale, conversion or other integrated or risk reduction transaction; or

holders who acquired shares of Common Stock or shares of Preferred Stock through the exercise of employee stock options or other equity awards, through a tax-qualified retirement plan or otherwise as compensation.
If a partnership (including any entity or arrangement treated as a partnership for U.S. federal income tax purposes) holds shares of Common Stock or shares of Preferred Stock, the tax treatment of a partner in that partnership will generally depend on the status of the partners and the activities of the partnership. Such a partner or partnership is urged to consult its tax advisor regarding the U.S. federal, state, local and non-U.S. tax consequences of the merger to it in light of its particular circumstances.
DETERMINING THE ACTUAL TAX CONSEQUENCES OF THE MERGER TO A HOLDER MAY BE COMPLEX AND WILL DEPEND ON A HOLDER’S SPECIFIC SITUATION. ALL HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO THEM IN LIGHT OF THEIR PARTICULAR FACTS AND CIRCUMSTANCES, INCLUDING WITH RESPECT TO THE APPLICABILITY AND EFFECT OF ANY U.S. FEDERAL, STATE, LOCAL, FOREIGN OR OTHER TAX LAWS AND ANY POTENTIAL CHANGES IN SUCH LAWS.
Tax Classification of the Merger in General
It is expected that the distribution and the merger will be treated as part of a prearranged, integrated plan for U.S. federal income tax purposes and that, for such purposes, the distribution and the merger will be viewed together as (i) the adoption by the Company of a plan of liquidation, (ii) a sale by the Company of a portion of its assets to Merger Sub (or, if applicable, its regarded owner for U.S. federal income tax purposes), and (iii) a distribution by the Company of the shares of Bluerock Homes common stock distributed in the distribution, and of the cash consideration payable in connection with the merger to the holders of shares of Common Stock and shares of Preferred Stock, in complete liquidation of the Company. The remainder of this discussion assumes that the distribution and the merger will be treated as described above.
There can be no assurance that the IRS will agree with the treatment of the distribution and the merger described above. If the IRS were to successfully challenge this treatment, it is possible that the distribution would instead be treated as a taxable distribution separate from the deemed liquidation of the Company pursuant to the merger. In such case, the value of the Bluerock Homes common stock distributed in the distribution would not be considered part of the merger consideration. In addition, although the Company will ascribe a value to the shares of the Bluerock Homes common stock distributed in the distribution, this valuation is not binding on the IRS or any other taxing authority. These taxing authorities could ascribe a higher valuation to the distributed Bluerock Homes common stock, particularly if, following the distribution, those shares trade at prices significantly above the value ascribed to those shares by the Company. Such a higher valuation may affect the distribution amount and thus the tax consequences of the distribution and the merger to stockholders.
Consequences of the Merger to U.S. Holders of Shares of Common Stock
The receipt of cash by U.S. holders in exchange for shares of Common Stock pursuant to the merger, taken together with the distribution, is expected to be treated as a distribution in complete liquidation of the Company and a fully taxable transaction for U.S. federal income tax purposes. In general, a U.S. holder of shares of Common Stock will recognize capital gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (1) the sum of (A) the amount of cash received with respect to such U.S. holder’s shares of Common Stock in the merger, plus (B) the fair market value, determined when the distribution occurs, of the shares of Bluerock Homes common stock received in the distribution, and (2) the U.S. holder’s adjusted tax basis in its shares of Common Stock.
 
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If a U.S. holder acquired different blocks of shares of Common Stock at different times and different prices, such U.S. holder must determine its adjusted tax basis, gain or loss and holding period separately with respect to each block of shares of Common Stock. Any such gain or loss will generally be capital gain or loss and will be long-term capital gain or loss if a U.S. holder’s holding period in the shares of Common Stock surrendered in the merger is greater than one year at the time of the distribution and the merger. Long-term capital gains of certain non-corporate holders, including individuals, are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.
A U.S. holder who has held shares of Common Stock for less than six months at the time of the merger (and the distribution), taking into account the holding period rules of Sections 246(c)(3) and (4) of the Code, and who recognizes a loss on the exchange of such shares of Common Stock in the merger (and the distribution) will be treated as recognizing a long-term capital loss to the extent of any capital gain dividends received from us, or such holder’s share of any designated retained capital gains, with respect to such shares.
Consequences of the Merger to Non-U.S. Holders of Shares of Common Stock
General
The U.S. federal income tax consequences to a non-U.S. holder of distributions and payments made with respect to such non-U.S. holder’s shares of Common Stock in connection with the merger (and the distribution) will depend on various factors, including whether the receipt of such distributions and payments are treated as distributions from the Company that are attributable to gain from the sale of USRPIs pursuant to the provisions of FIRPTA. The IRS announced in Notice 2007-55 that it intends to take the position that under current law a non-U.S. holder’s receipt of a liquidating distribution from a REIT (including distributions and payments made in connection with the distribution and the merger, which as noted, are expected to be treated as distributions in complete liquidation of the Company for U.S. federal income tax purposes) is generally subject to tax under FIRPTA as a distribution to the extent attributable to gain from the sale of USRPIs. Although legislation effectively overriding Notice 2007-55 has previously been proposed, it is not possible to say if or when any such legislation will be enacted. Accordingly, we intend to take the position that distributions and payments made with respect the Company’s shares of Common Stock pursuant to the merger (and the distribution) will be subject to tax in accordance with Notice 2007-55, subject to the 10% Exception, as described in more detail below. In general, the provisions governing the taxation of distributions by REITs can be less favorable to non-U.S. holders than the taxation of sales or exchanges of REIT stock by non-U.S. holders, and non-U.S. holders should consult their tax advisors regarding the application of these provisions.
Distribution of Gain from the Disposition of U.S. Real Property Interests
To the extent that the tax treatment set forth in Notice 2007-55 applies, and the 10% Exception described in the next paragraph below does not apply, then, to the extent that distributions and payments received by a non-U.S. holder with respect to such non-U.S. holder’s Common Stock pursuant to the merger (and the distribution) are treated as attributable to gain from the deemed or actual sale of Bluerock Residential’s USRPIs, such amounts will be treated as income effectively connected with a U.S. trade or business of the non-U.S. holder, and generally will be subject to U.S. federal income tax on a net basis. A corporate non-U.S. holder will also be subject to the 30% branch profits tax (or such lower rate as may be specified by an applicable income tax treaty). In addition, 21% (or 20% to the extent provided in the Treasury Regulations) of any such amounts paid to a non-U.S. holder will be withheld and remitted to the IRS.
Notwithstanding the foregoing, if shares of Common Stock are considered “regularly traded” ​(within the meaning of the applicable Treasury Regulations) on an established securities market located in the United States and the non-U.S. holder did not hold more than 10% of such class of stock at any time during the one-year period ending on the date of the merger (and the distribution), the tax treatment and consequences described above would not apply (the “10% Exception”), and non-U.S. holders would instead be subject to the rules described below under “— Taxable Sale of Common Stock.” We believe that shares of our Class A Common Stock are, and will be at the time of the merger (and the distribution), considered regularly traded on an established securities market located in the United States within the meaning of the applicable
 
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Treasury Regulations. Bluerock Residential Class C Common Stock are not, and will not be at the time of the merger (and the distribution), considered regularly traded on an established securities market located in the United States. Non-U.S. holders should consult their tax advisors regarding tax consequences of the merger (and the distribution) to them.
Taxable Sale of Common Stock
If both (A) the tax treatment set forth in Notice 2007-55 were not to apply to a non-U.S. holder’s receipt of distributions and payments with respect to such non-U.S. holder’s shares of Common Stock pursuant to the merger (and the distribution) and (B) either (1) the “publicly traded exception” ​(as described below) applies or (2) we are a “domestically controlled qualified investment entity” ​(as described below), such that the Company’s shares of Common Stock do not constitute USRPIs under FIRPTA with respect to such non-U.S. holder, then the non-U.S. holder should not be subject to tax on any gain recognized in connection with the receipt of cash consideration payable pursuant to the merger (which, as described above under “— Consequences of the Merger to U.S. Holders of Shares of Common Stock” and subject to the discussion of Notice 2007-55 above, is generally expected to be treated as a distribution in complete liquidation of the Company and, together with the receipt of shares of Bluerock Homes common stock pursuant to the distribution, as amounts received in full payment in exchange for such holder’s shares of Common Stock) unless: (a) the gain is effectively connected with the non-U.S. holder’s conduct of a trade or business in the United States, or, if required pursuant to an applicable income tax treaty, the gain is attributable to a permanent establishment maintained by the non-U.S. holder in the United States; or (b) the non-U.S. holder is an individual present in the United States for 183 days or more in the taxable year of the merger (and the distribution) and certain other requirements are met.
The “publicly traded exception” applies to a non-U.S. holder if our Common Stock is “regularly traded,” as defined by the applicable Treasury Regulations, and the non-U.S. holder has held 10% or less of the shares of Common Stock at all times during the shorter of the period that the non-U.S. holder owned such stock or the five-year period ending on the date of the merger (and the distribution). We believe that shares of our Class A Common Stock are, and will be at the time of the merger (and the distribution), considered regularly traded on an established securities market located in the United States within the meaning of the applicable Treasury Regulations. Bluerock Residential Class C Common Stock are not, and will not be at the time of the merger (and the distribution), considered regularly traded on an established securities market located in the United States.
We will be a “domestically controlled qualified investment entity” at the time of the merger (and the distribution) if non-U.S. holders held directly or indirectly less than 50% in value of shares of Common Stock at all times during the five-year period ending with the merger (and the distribution). While we believe that the Company has been and currently is domestically controlled as of the date hereof, no assurances can be given that the actual ownership of shares of Common Stock has been or will be sufficient for us to qualify as a “domestically controlled qualified investment entity” at the time of the merger (and the distribution).
A non-U.S. holder whose gain is effectively connected with the conduct of a trade or business in the United States (or, if an applicable income tax treaty requires, is attributable to a permanent establishment maintained by the non-U.S. holder in the United States) will generally be subject to U.S. federal income tax on such gain on a net basis in the same manner as a U.S. holder. In addition, a non-U.S. holder that is a corporation may be subject to the branch profits tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) on such effectively connected gain described above.
A non-U.S. holder who is an individual present in the United States for 183 days or more in the taxable year of the merger (and the distribution) and who meets certain other requirements will be subject to a flat 30% tax on the gain recognized in connection with the merger (and the distribution), which may be offset by certain U.S.-source capital losses of the non-U.S. holder.
If a non-U.S. holder’s shares of Common Stock constitute a USRPI under FIRPTA, any gain recognized by such holder on a sale of such stock will be treated as income effectively connected with a U.S. trade or business of the non-U.S. holder and generally will be subject to U.S. federal income tax on a net
 
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basis in the same manner as a U.S. holder (and, in the case of a non-U.S. holder that is a corporation, the branch profits tax as described above).
Income Tax Treaties
If a non-U.S. holder is eligible for treaty benefits under an income tax treaty with the United States, the non-U.S. holder may be able to reduce or eliminate certain of the U.S. federal income tax consequences discussed above, such as the branch profits tax. Non-U.S. holders should consult their tax advisor regarding possible benefits under an applicable income tax treaty.
U.S. Withholding Tax
As described above, it is not entirely clear whether the receipt of distributions and payments pursuant to the merger (and the distribution) by a non-U.S. holder will be treated as a sale or exchange of shares of Common Stock (if Notice 2007-55 does not apply) or as a distribution from the Company that is attributable to gain from the deemed sale of the Company’s USRPIs in the merger (and the distribution) (if Notice 2007-55 does apply and the holder does not qualify for the 10% Exception described above). Accordingly, we intend to withhold, pursuant to FIRPTA, U.S. federal income tax at a rate of 21% (or 20% to the extent provided in applicable Treasury Regulations) from the portion of the consideration paid to a non-U.S. holder to the extent attributable to gains that the Company recognizes from sales of USRPIs, unless such non-U.S. holder qualifies for the 10% Exception described above. A non-U.S. holder may be entitled to a refund or credit against the holder’s U.S. federal income tax liability, if any, with respect to any amount withheld pursuant to FIRPTA; provided that the required information is furnished to the IRS on a timely basis. Non-U.S. holders should consult their tax advisor regarding withholding tax considerations.
Consequences of the Merger to Holders of Shares of Preferred Stock
The redemption of shares of Preferred Stock will be treated as a taxable transaction. The U.S. federal income tax consequences of the redemption to holders of shares of Preferred Stock generally will be the same as the consequences to holders of shares of our Common Stock described above with respect to the merger, except that the capital gain or loss recognized by a holder of shares of Preferred Stock will be measured by the difference between the amount of cash the holder receives in connection with the redemption of shares of Preferred Stock and such holder’s adjusted tax basis in shares of Preferred Stock. Consistent with IRS Notice 2007-55 (described above), and without limiting any of the above discussion, 21% (or 20% to the extent provided in U.S. Treasury Regulations) of any cash received by a non-U.S. holder in the redemption, which is treated as a distribution attributable to gain from the deemed or actual sale of our USRPIs, will be withheld and remitted to the IRS unless such holder qualifies for the 10% Exception discussed above.
Information Reporting and Backup Withholding
Information reporting and backup withholding may apply to distributions and payments made in connection with the merger (and the distribution). Backup withholding will not apply, however, to a holder of shares of Common Stock or shares of Preferred Stock who (1) in the case of a U.S. holder, furnishes a correct taxpayer identification number, certifies that such holder is not subject to backup withholding on an IRS Form W-9, and otherwise complies with all applicable requirements of the backup withholding rules; (2) in the case of a non-U.S. holder, furnishes an applicable IRS Form W-8; or (3) provides proof that such holder is otherwise exempt from backup withholding and complies with other applicable rules and certification requirements. Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be refunded or credited against a holder’s U.S. federal income tax liability, if any, so long as such holder furnishes the required information to the IRS in a timely manner.
THIS DISCUSSION OF THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT TAX ADVICE. HOLDERS OF SHARES OF COMMON STOCK OR SHARES OF PREFERRED STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE EFFECT OF ANY FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX LAWS.
 
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